Document:

<PAGE>

                                                                   Exhibit 10.36

                                                                  EXECUTION COPY
                                                                  --------------

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

                                   $30,000,000

                                CREDIT AGREEMENT

                                      among

                          MATTRESS HOLDING CORPORATION,

                        MATTRESS DISCOUNTERS CORPORATION,
                                  as Borrower,

                               The Several Lenders
                        from Time to Time Parties Hereto,

                              FLEET NATIONAL BANK,
                                  as Co-Agent,

                                       and

                              JPMORGAN CHASE BANK,
                             as Administrative Agent

   Dated as of August 6, 1999, as Amended and Restated as of January 11, 2002

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

                          J. P. MORGAN SECURITIES INC.,
                    as Sole Lead Arranger and Sole Bookrunner

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<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
                                -----------------

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<S>                                                                       <C>
SECTION 1. DEFINITIONS .................................................    1

     1.1.   Defined Terms ..............................................    1
     1.2.   Other Definitional Provisions ..............................   30

SECTION 2. AMOUNT AND TERMS OF COMMITMENTS .............................   30

     2.1.   Commitments ................................................   30
     2.2.   Procedure for Loan Borrowing ...............................   31
     2.3.   Commitment Fees, etc .......................................   31
     2.4.   Termination or Reduction of Commitments ....................   32
     2.5.   Optional Prepayments .......................................   32
     2.6.   Mandatory Prepayments and Commitment Reductions ............   32
     2.7.   Conversion and Continuation Options ........................   34
     2.8.   Limitations on Eurodollar Tranches .........................   35
     2.9.   Interest Rates and Payment Dates ...........................   35
     2.10.  Computation of Interest and Fees ...........................   35
     2.11.  Inability to Determine Interest Rate .......................   36
     2.12.  Pro Rata Treatment and Payments ............................   36
     2.13.  Requirements of Law ........................................   37
     2.14.  Taxes ......................................................   38
     2.15.  Indemnity ..................................................   40
     2.16.  Change of Lending Office ...................................   41
     2.17.  Replacement of Lenders .....................................   41

SECTION 3. LETTERS OF CREDIT ...........................................   41

     3.1.   L/C Commitment .............................................   41
     3.2.   Procedure for Issuance of Letter of Credit .................   42
     3.3.   Fees and Other Charges .....................................   42
     3.4.   L/C Participations .........................................   42
     3.5.   Reimbursement Obligation of the Borrower ...................   43
     3.6.   Obligations Absolute .......................................   43
     3.7.   Letter of Credit Payments ..................................   44
     3.8.   Applications ...............................................   44

SECTION 4. REPRESENTATIONS AND WARRANTIES ..............................   44
    </TABLE>

                                       i

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<TABLE>
<CAPTION>
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<S>                                                                         <C>
      4.1.  Financial Condition ..........................................   44
      4.2.  No Change ....................................................   45
      4.3.  Corporate Existence; Compliance with Law .....................   45
      4.4.  Corporate Power; Authorization; Enforceable Obligations ......   45
      4.5.  No Legal Bar .................................................   45
      4.6.  Litigation ...................................................   46
      4.7.  No Default ...................................................   46
      4.8.  Ownership of Property ........................................   46
      4.9.  Intellectual Property ........................................   46
      4.10. Taxes ........................................................   46
      4.11. Federal Regulations ..........................................   46
      4.12. Labor Matters ................................................   47
      4.13. ERISA ........................................................   47
      4.14. Investment Company Act; Other Regulations ....................   47
      4.15. Subsidiaries .................................................   47
      4.16. Use of Proceeds ..............................................   47
      4.17. Environmental Matters ........................................   48
      4.18. Accuracy of Information, etc .................................   48
      4.19. Security Documents ...........................................   49
      4.20. Solvency .....................................................   49
      4.21. Senior Indebtedness ..........................................   50
      4.22. Regulation H .................................................   50

SECTION 5. CONDITIONS PRECEDENT ..........................................   50

      5.1.  Conditions to Effectiveness ..................................   50
      5.2.  Conditions to Each Extension of Credit .......................   51
      5.3.  Conditions to Permitted Acquisitions .........................   51

SECTION 6. AFFIRMATIVE COVENANTS .........................................   52

      6.1.  Financial Statements .........................................   52
      6.2.  Certificates; Other Information ..............................   53
      6.3.  Payment of Obligations .......................................   55
      6.4.  Maintenance of Existence; Compliance .........................   55
      6.5.  Maintenance of Property; Insurance ...........................   55
      6.6.  Inspection of Property; Books and Records; Discussions;
            Meetings .....................................................   55
      6.7.  Notices ......................................................   56
      6.8.  Environmental Laws ...........................................   56
      6.9.  Additional Collateral, etc ...................................   56
      6.10. Payment of Obligations Relating to Alabama Mortgage ..........   58

SECTION 7. NEGATIVE COVENANTS ............................................   58
</TABLE>

                                       ii

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<CAPTION>
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<S>                                                                         <C>
    7.1.     Minimum Consolidated EBITDA ...................................  58
    7.2.     Indebtedness ..................................................  58
    7.3.     Liens .........................................................  60
    7.4.     Fundamental Changes ...........................................  62
    7.5.     Disposition of Property .......................................  62
    7.6.     Restricted Payments ...........................................  63
    7.7.     Capital Expenditures ..........................................  64
    7.8.     Investments ...................................................  64
    7.9.     Payments and Modifications of Certain Debt Instruments ........  66
    7.10.    Transactions with Affiliates ..................................  66
    7.11.    Sales and Leasebacks ..........................................  67
    7.12.    Changes in Fiscal Periods .....................................  67
    7.13.    Negative Pledge Clauses .......................................  67
    7.14.    Clauses Restricting Subsidiary Distributions ..................  67
    7.15.    Lines of Business .............................................  68
    7.16.    Amendments to Certain Agreements ..............................  68
    7.17.    Sealy Supply Agreement ........................................  68

SECTION 8.  EVENTS OF DEFAULT ..............................................  69

SECTION 9.  THE AGENTS .....................................................  72

    9.1.     Appointment ...................................................  72
    9.2.     Delegation of Duties ..........................................  72
    9.3.     Exculpatory Provisions ........................................  73
    9.4.     Reliance by Administrative Agent ..............................  73
    9.5.     Notice of Default .............................................  73
    9.6.     Non-Reliance on Agents and Other Lenders ......................  73
    9.7.     Indemnification ...............................................  74
    9.8.     Agent in Its Individual Capacity ..............................  74
    9.9.     Successor Administrative Agent ................................  74
    9.10.    Co-Agent ......................................................  75

SECTION 10. MISCELLANEOUS ..................................................  75

    10.1.    Amendments and Waivers ........................................  75
    10.2.    Notices .......................................................  76
    10.3.    No Waiver; Cumulative Remedies ................................  77
    10.4.    Survival of Representations and Warranties ....................  77
    10.5.    Payment of Expenses and Taxes .................................  78
    10.6.    Adjustments; Set-off ..........................................  81
    10.8.    Counterparts ..................................................  81
</TABLE>

                                          iii

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<S>                                                                         <C>
10.9.  Severability .......................................................  81
10.10. Integration ........................................................  81
10.11. GOVERNING LAW ......................................................  82
10.12. Submission To Jurisdiction; Waivers ................................  82
10.13. Acknowledgements ...................................................  82
10.14. Releases of Guarantees and Liens ...................................  83
10.15. Confidentiality ....................................................  83
10.16. Waiver of Defaults .................................................  84
10.17. WAIVERS OF JURY TRIAL ..............................................  84
</TABLE>

                                       iv

<PAGE>

SCHEDULES:

1.1A           Commitments
1.1B           Mortgaged Property
4.10           Taxes
4.15           Subsidiaries
4.19(a)        UCC Filing Jurisdictions
4.19(b)        Mortgage Filing Jurisdictions
4.19(c)        Owned Properties
7.2(d)         Existing Indebtedness
7.3(f)         Existing Liens
7.10           Transactions with Affiliates

EXHIBITS:

A              Form of Guarantee and Collateral Agreement
B              Form of Compliance Certificate
C              Form of Closing Certificate
D              Form of Mortgage
E              Form of Assignment and Acceptance
F              Form of Borrowing Base Certificate
G              Form of Exemption Certificate
H              Form of Subordination Provisions of Subordinated Debt
I              Form of Borrower/Holdings Subordinated Debt
J              Form of Management Note

                                       v

<PAGE>

                  CREDIT AGREEMENT, dated as of August 6, 1999, as amended and
restated as of January 11, 2002, among Mattress Holding Corporation, a Virginia
corporation ("Holdings"), Mattress Discounters Corporation, a Delaware
              --------
corporation (the "Borrower"), the several banks and other financial institutions
                  --------
or entities from time to time parties to this Agreement (the "Lenders"), Fleet
                                                              -------
National Bank, as co-agent (in such capacity, the "Co-Agent"), and JPMorgan
                                                   --------
Chase Bank, as administrative agent.

                  WHEREAS, Holdings and the Borrower entered into a Credit
Agreement, dated as of August 6, 1999, as amended (the "Existing Credit
                                                        ---------------
Agreement"), with the Lenders and the Administrative Agent;
---------

                  WHEREAS, the parties hereto have agreed to amend and restate
the Existing Credit Agreement as provided in this Agreement, which Agreement
shall become effective upon the satisfaction of the conditions precedent set
forth in Section 5.1 hereof; and

                  WHEREAS, it is the intent of the parties hereto that this
Agreement not constitute a novation of the obligations and liabilities existing
under the Existing Credit Agreement or evidence repayment of any of such
obligations and liabilities and that this Agreement amend and restate in its
entirety the Existing Credit Agreement and re-evidence the obligations of the
Borrower outstanding thereunder;

                  NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the parties hereto hereby agree that on the
Restatement Effective Date (as defined below), the Existing Credit Agreement
shall be amended and restated in its entirety as follows:

                             SECTION 1. DEFINITIONS

                  1.1.     Defined Terms.  As used in this Agreement, the terms
                           -------------
listed in this Section 1.1 shall have the respective meanings set forth in this
Section 1.1.

                  "ABR": for any day, a rate per annum (rounded upwards, if
                   ---
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate
in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and
(c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For
purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly
                  ----------
announced from time to time by JPMorgan Chase Bank as its prime rate in effect
at its principal office in New York City (the Prime Rate not being intended to
be the lowest rate of interest charged by JPMorgan Chase Bank in connection with
extensions of credit to debtors); "Base CD Rate" shall mean the sum of (a) the
                                   ------------
product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the
numerator of which is one and the denominator of which is one minus the C/D
Reserve Percentage and (b) the C/D Assessment Rate; and "Three-Month Secondary
                                                         ---------------------
CD Rate" shall mean, for any day, the secondary market rate for three-month
-------
certificates of deposit reported as being in effect on such day (or, if such day
shall not be a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be

<PAGE>

                                                                               2

published in Federal Reserve Statistical Release H.15(519) during the week
following such day), or, if such rate shall not be so reported on such day or
such next preceding Business Day, the average of the secondary market quotations
for three-month certificates of deposit of major money center banks in New York
City received at approximately 10:00 A.M., New York City time, on such day (or,
if such day shall not be a Business Day, on the next preceding Business Day) by
JPMorgan Chase Bank from three New York City negotiable certificate of deposit
dealers of recognized standing selected by it. Any change in the ABR due to a
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective as of the opening of business on the effective
day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate, respectively.

                  "ABR Loans": Loans the rate of interest applicable to which is
                   ---------
based upon the ABR.

                  "Account":  as defined in the definition of "Eligible Accounts
                   -------
Receivable".

                  "Account Debtor":  any debtor in respect of an Account.
                   --------------

                  "Administrative Agent": JPMorgan Chase Bank, together with its
                   --------------------
affiliates, as the lead arranger of the Commitments and as the administrative
agent for the Lenders under this Agreement and the other Loan Documents,
together with any of its successors.

                  "Affiliate": as to any Person, any other Person that, directly
                   ---------
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person means
the power, directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors (or
persons performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.

                  "Agents":  the collective reference to the Co-Agent and the
                   ------
Administrative Agent.

                  "Aggregate Exposure": with respect to any Lender at any time,
                   ------------------
an amount equal to such Lender's Commitments then in effect or, if the relevant
Commitments have been terminated, the amount of such Lender's Tranche A
Extensions of Credit or Tranche B Extensions of Credit, as applicable, then
outstanding.

                  "Aggregate Exposure Percentage":  with respect to any Lender
                   -----------------------------
at any time, the ratio (expressed as a percentage) of such Lender's Aggregate
Exposure at such time to the Aggregate Exposure of all Lenders at such time.

                  "Agreement":  this Credit Agreement, as amended, supplemented
                   ---------
or otherwise modified from time to time.

<PAGE>

                                                                               3

                  "Applicable Margin":  (a) 3.50% per annum, in the case of
                   -----------------
Eurodollar Loans and (b) 2.50% per annum, in the case of ABR Loans.

                  "Application":  an application, in such form as the Issuing
                   -----------
Lender may specify from time to time, requesting the Issuing Lender to open a
Letter of Credit.

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

                  "Asset Sale": any Disposition of property or series of related
                   ----------
Dispositions of property (excluding any such Disposition permitted by clause
(a), (b), (c), (d), (e), (f) or (g) of Section 7.5) that yields Net Cash
Proceeds to Holdings, the Borrower or any of their respective Subsidiaries in
excess of $500,000.

                  "Assignee":  as defined in Section 10.6(c).
                   --------

                  "Assignment and Acceptance":  an Assignment and Acceptance,
                   -------------------------
substantially in the form of Exhibit E.

                  "Assignor":  as defined in Section 10.6(c).
                   --------

                  "Available Commitment":  the Available Tranche A Commitment or
                   --------------------
the Available Tranche B Commitment, as applicable.

                  "Available Tranche A Commitment": as to any Tranche A Lender
                   ------------------------------
at any time, an amount equal to the excess, if any, of (a) such Lender's Tranche
A Commitment then in effect over (b) such Lender's Tranche A Extensions of
                            ----
Credit then outstanding.

                  "Available Tranche B Commitment": as to any Tranche B Lender
                   ------------------------------
at any time, an amount equal to the excess, if any, of (a) such Lender's Tranche
B Commitment then in effect over (b) such Lender's Tranche B Extensions of
                            ----
Credit then outstanding.

                  "Bain Advisory Services Agreement": the Advisory Services
                   --------------------------------
Agreement between the Borrower and the Sponsor, dated on or about the Closing
Date, as the same may thereafter be amended, restated, supplemented or otherwise
modified from time to time to the extent permitted under Section 7.16.

                  "Base Amount": as defined in Section 7.7(a).
                   -----------

<PAGE>

                                                                               4

                  "Bedding Experts": The Bedding Experts, Inc., an Illinois
                   ---------------
corporation.

                  "Benefitted Lender":  as defined in Section 10.7(a).
                   -----------------

                  "Board":  the Board of Governors of the Federal Reserve System
                   -----
of the United States (or any successor).

                  "Borrower":  as defined in the preamble hereto.
                   --------

                  "Borrower/Holdings Subordinated Indebtedness": as defined in
                   -------------------------------------------
Section 7.2(i).

                  "Borrowing Base": on any date, an amount (calculated based on
                   --------------
the most recent Borrowing Base Certificate delivered pursuant to Section 6.2(e))
equal to (a) 80% of Eligible Accounts Receivable plus (b) 25% of Eligible Raw
                                                 ----
Material plus (c) 65% of Eligible Finished Goods plus (d) the PP&E Component
         ----                                    ----
plus (e) the Overadvance. Standards of eligibility and reserves and advance
----
rates of the Borrowing Base may be revised and adjusted from time to time by the
Administrative Agent in its reasonable judgment, with any changes in such
standards to be effective eight Business Days after delivery of notice thereof
to the Borrower.

                  "Borrowing Base Certificate":  as defined in Section 6.2(e).
                   --------------------------

                  "Borrowing Date":  any Business Day specified by the Borrower
                   --------------
as a date on which the Borrower requests the Lenders to make Loans hereunder.

                  "Business":  as defined in Section 4.17(b).
                   --------

                  "Business Day": a day other than a Saturday, Sunday or other
                   ------------
day on which commercial banks in New York City are authorized or required by law
to close, provided, that with respect to notices and determinations in
          --------
connection with, and payments of principal and interest on, Eurodollar Loans,
such day is also a day for trading by and between banks in Dollar deposits in
the interbank eurodollar market.

                  "Capital Expenditures": for any period, with respect to any
                   --------------------
Person, the aggregate of all expenditures by such Person and its Subsidiaries
for the acquisition or leasing (pursuant to a capital lease) of fixed or capital
assets or additions to equipment (including replacements, capitalized repairs
and improvements during such period) that should be capitalized under GAAP
within the property, plant and equipment captions on a consolidated balance
sheet of such Person and its Subsidiaries.

                  "Capital Lease Obligations": as to any Person, the obligations
                   -------------------------
of such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the

<PAGE>
                                                                               5

amount of such obligations at any time shall be the capitalized amount thereof
at such time determined in accordance with GAAP.

                  "Capital Stock": 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)
and any and all warrants, rights or options to purchase or acquire any of the
foregoing.

                  "Cash Equivalents": (a) marketable securities issued or
                   ----------------
directly and unconditionally guaranteed by the United States Government or
issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof; (b) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having the highest rating
obtainable from either Standard & Poor's Ratings Services ("S&P") or Moody's
                                                            ---
Investor Service, Inc. ("Moody's"); (c) commercial paper maturing no more than
                         -------
one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (d)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof and, at the time of acquisition, having a rating
of at least A-1 from S&P or at least P-1 from Moody's, issued by any Lender or
any commercial bank organized under the laws of the United States of America or
any state thereof or the District of Columbia, Canada, any member of the
European Economic Community or any U.S. branch of a foreign bank having combined
capital and surplus of not less than $250,000,000 (each Lender and each such
commercial bank being herein called a "Cash Equivalent Bank"); (e) Eurodollar
                                       --------------------
time deposits having a maturity of less than one year purchased directly from
any Cash Equivalent Bank (provided such deposit is with such Cash Equivalent
Bank or any other Cash Equivalent Bank); (f) repurchase obligations for
underlying securities of the types described in clauses (a) through (e); and (g)
investments in money market funds which invest their assets substantially
exclusively in the types of Cash Equivalents described in clauses (a) through
(e) above.

                  "Cash Pay Subordinated Debt": shall have the meaning set forth
                   --------------------------
in the definition of Subordinated Debt.

                  "C/D Assessment Rate": for any day as applied to any ABR Loan,
                   -------------------
the annual assessment rate in effect on such day that is payable by a member of
the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation
(the "FDIC") classified as well-capitalized and within supervisory subgroup "B"
 ---------
(or a comparable successor assessment risk classification) within the meaning of
12 C.F.R. ss. 327.4 (or any successor provision) to the FDIC (or any successor)
for the FDIC's (or such successor's) insuring time deposits at offices of such
institution in the United States.

                  "C/D Reserve Percentage": for any day as applied to any ABR
                   ----------------------
Loan, that percentage (expressed as a decimal) which is in effect on such day,
as prescribed by the Board, for determining the maximum reserve requirement for
a Depositary Institution (as defined in Regulation D of the Board as in effect
from time to time) in respect of new non-personal time deposits in Dollars
having a maturity of 30 days or more.

<PAGE>

                                                                               6

                  "Change of Control":  any of the following events:
                   -----------------

(a)      the Permitted Investors shall cease to own (on a fully diluted basis)
         at least 51% of the economic and voting interests in the Capital Stock
         of Holdings (which percentage shall be reduced to 35% from and after
         the date (the "IPO Date") of an initial registered primary public
                        --------
         offering by Holdings of its common stock);

(b)      prior to the IPO Date, the Sponsor and its Control Investment
         Affiliates shall cease to own of record and beneficially an amount of
         common stock of Holdings equal to at least 66-2/3% of the amount of
         common stock of Holdings owned by the Sponsor and its Control
         Investment Affiliates as of the Closing Date (which percentage shall be
         reduced to 33-1/3% from and after the IPO Date);

(c)      prior to the IPO Date, the Permitted Investors shall cease to "control"
         (as such term is defined in Rule 405 promulgated under the Securities
         Act of 1933, as amended) Holdings;

(d)      from and after the IPO Date, (i) any Person or "group" (within the
         meaning of Rules 13d-3 and 13d-5 under the Securities Act of 1934, as
         in effect on the Closing Date) shall own a greater percentage of the
         voting and/or economic interest in the Capital Stock of Holdings than
         that owned by the Permitted Investors or (ii) the Board of Directors of
         Holdings shall cease to consist of a majority of Continuing Directors;

(e)      Holdings shall cease to own directly 100% of the economic and voting
         interest in the Borrower's Capital Stock on a fully diluted basis, free
         and clear of all Liens (except Liens permitted by Section 7.3(h)); or

(f)      a "Change of Control" as defined in the Senior Note Indenture shall
         occur.

                  "Closing Date":  August 6, 1999.
                   ------------

                  "Co-Agent": as defined in the preamble hereto.
                   --------

                  "Code":  the Internal Revenue Code of 1986, as amended from
                   ----
time to time.

                  "Collateral":  all property of the Loan Parties, now owned or
                   ----------
hereafter acquired, upon which a Lien is purported to be created by any Security
Document.

                  "Commitment":  any Tranche A Commitment and/or Tranche B
                   ----------
Commitment, as applicable.

<PAGE>

                                                                               7

                  "Commitment Fee Rate":  0.50% per annum.
                   -------------------

                  "Commitment Period":  the period from and including the
                   -----------------
Closing Date to the Termination Date.

                  "Commonly Controlled Entity": an entity, whether or not
                   --------------------------
incorporated, that is under common control with the Borrower within the meaning
of Section 4001 of ERISA or is part of a group that includes the Borrower and
that is treated as a single employer under Section 414 of the Code.

                  "Compliance Certificate":  a certificate duly executed by a
                   ----------------------
Responsible Officer substantially in the form of Exhibit B.

                  "Consolidated Current Assets": at any date, all amounts (other
                   ---------------------------
than cash and Cash Equivalents and deferred taxes to the extent included in
current assets) that would, in conformity with GAAP, be set forth opposite the
caption "total current assets" (or any like caption) on a consolidated balance
sheet of the Borrower and its Subsidiaries at such date.

                  "Consolidated Current Liabilities": at any date, all amounts
                   --------------------------------
that would, in conformity with GAAP, be set forth opposite the caption "total
current liabilities" (or any like caption) on a consolidated balance sheet of
the Borrower and its Subsidiaries at such date, but excluding (a) any
liabilities of the Borrower and its Subsidiaries that are the current portion of
any Indebtedness classified as long term liabilities in conformity with GAAP,
(b) without duplication of clause (a) above, all Indebtedness consisting of
Loans to the extent otherwise included therein, and (c) deferred taxes to the
extent otherwise included therein.

                  "Consolidated EBITDA": for any period, Consolidated Net Income
                   -------------------
for such period plus, without duplication and to the extent reflected as a
                ----
charge in the statement of such Consolidated Net Income for such period, the sum
of (a) income tax expense, (b) interest expense, amortization or writeoff of
debt discount and debt issuance costs and commissions, discounts and other fees
and charges associated with Indebtedness (including the Loans), (c) depreciation
and amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any extraordinary, unusual or
non-recurring expenses or losses (including, (i) items classified as cumulative
effect accounting change items, (ii) whether or not otherwise includable as a
separate item in the statement of such Consolidated Net Income for such period,
losses on sales of assets outside of the ordinary course of business and (iii)
restructuring costs, severance and relocation costs and any one-time expenses
relating to (or resulting from) any merger, recapitalization or acquisition
permitted by this Agreement), (f) any other non-cash charges, (g) all management
fees paid to the Sponsor and/or its Control Investment Affiliates pursuant to
Section 7.10, (h) all transaction fees paid to the Sponsor or any of its Control
Investment Affiliates pursuant to Section 7.10, (i) one-time compensation
charges, including any arising from any recapitalization of the Borrower's bonus
program or existing stock options, performance share or restricted stock plans
resulting from any merger or recapitalization transaction expended in any period
prior to the consummation of the transactions contemplated by the
Recapitalization Documentation, (j) all cost savings directly attributable to
any Permitted Acquisition that (i) are recognized by Regulation S-X of the
Securities and Exchange Act of 1934, as amended, (ii) result from the sourcing
of mattress sales within Holdings and its Subsidiaries or under the Sealy Supply

<PAGE>

                                                                               8

Agreement, or (iii) (x) are implemented within six months of such Permitted
Acquisition, (y) are confirmed by the board of directors of the Borrower and (z)
do not, in the aggregate, exceed an amount equal to 5% of the consolidated
EBITDA (calculated in a manner comparable to the manner in which Consolidated
EBITDA is calculated hereunder) of the relevant Permitted Acquired Person, in
each case with respect to clauses (i), (ii) and (iii) as certified in reasonable
detail by the Chief Financial Officer of the Borrower to the Administrative
Agent and (k) any payments related to (i) addressing the Borrower's and any of
its Subsidiaries' Year 2000 Problems (as defined in the Existing Credit
Agreement) expressed in accordance with GAAP or (ii) reengineering efforts
relating to the installation of the Borrower's point of sale system expensed in
accordance with GAAP and pursuant to the Financial Accounting Standards Board's
(FASB) Emerging Issues Task Force Issue No. 97-13, provided that the aggregate
amount of payments pursuant to clause (k) shall not exceed $2,400,000 and shall
be made on or prior to June 30, 2002, plus the aggregate amount of Qualified
                                      ----
EBITDA Infusions made during such period, and minus, to the extent included in
                                              -----
the statement of such Consolidated Net Income for such period, the sum of (a)
interest income, (b) any extraordinary, unusual or non-recurring income or gains
(including, whether or not otherwise includable as a separate item in the
statement of such Consolidated Net Income for such period, gains on the sales of
assets outside of the ordinary course of business) and (c) any other non-cash
income (other than non-cash income resulting from the Borrower's accrual method
of accounting in accordance with past practice), all as determined on a
consolidated basis.

                  For the purposes of calculating Consolidated EBITDA for any
period of four consecutive fiscal quarters (each, a "Reference Period") pursuant
to any determination of the Consolidated Total Debt Ratio, (i) if at any time
during such Reference Period the Borrower or any Subsidiary shall have made any
Disposition, the Consolidated EBITDA for such Reference Period shall be reduced
by an amount equal to the Consolidated EBITDA (if positive) attributable to the
property that is the subject of such Disposition for such Reference Period or
increased by an amount equal to the Consolidated EBITDA (if negative)
attributable thereto for such Reference Period and (ii) if during such Reference
Period the Borrower or any Subsidiary shall have made an Acquisition,
Consolidated EBITDA for such Reference Period shall be calculated after giving
pro forma effect thereto as if such Acquisition occurred on the first day of
--- -----
such Reference Period. As used in this definition, "Acquisition" means any
acquisition of property or series of related acquisitions of property that
constitutes assets comprising all or substantially all of an operating unit of a
business or constitutes all or substantially all of the common stock of a
Person.

                  "Consolidated Fixed Charge Coverage Ratio": for any period,
                   ----------------------------------------
the ratio of (a) Consolidated EBITDA for such period less the aggregate amount
actually paid by the Borrower and its Subsidiaries during such period on account
of Capital Expenditures to (b) Consolidated Fixed Charges for such period.

                  "Consolidated Fixed Charges": for any period, the sum (without
                   --------------------------
duplication) of (a) Consolidated Interest Expense for such period, (b) cash
taxes paid by the Borrower and its Subsidiaries during such period and (c)
scheduled payments made during such period on account of principal of
Indebtedness of the Borrower or any of its Subsidiaries (including payments of
Tranche A Loans accompanying scheduled reductions of the Tranche A Commitments).

                  "Consolidated Interest Expense": for any period, total cash
                   -----------------------------
interest expense (including that attributable to Capital Lease Obligations) of
the Borrower and its Subsidiaries for such period with respect to all
outstanding Indebtedness of the Borrower and its Subsidiaries (including
commitment fees accrued under Section 2.3, all commissions, discounts and other
fees and charges owed with respect to

<PAGE>

                                                                               9

letters of credit and bankers' acceptance financing and net costs under Hedge
Agreements in respect of interest rates to the extent such net costs are
allocable to such period in accordance with GAAP).

                  "Consolidated Net Income": for any period, the consolidated
                   -----------------------
net income (or loss) of the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided that there shall be
                                            --------
excluded (a) the income (or deficit) of any Person accrued prior to the date it
becomes a Subsidiary of the Borrower or is merged into or consolidated with the
Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person
(other than a Subsidiary of the Borrower) in which the Borrower or any of its
Subsidiaries has an ownership interest, except to the extent that any such
income is actually received by the Borrower or such Subsidiary in the form of
dividends or similar distributions, (c) the undistributed earnings of any
Subsidiary of the Borrower to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary is not at the time
permitted by the terms of any Contractual Obligation (other than under any Loan
Document) or Requirement of Law applicable to such Subsidiary and (d) whether or
not distributed, the income of any Non-Recourse Subsidiary.

                  "Consolidated Total Debt":  at any date, the aggregate
                   -----------------------
principal amount of all Indebtedness of the Borrower and its Subsidiaries at
such date, determined on a consolidated basis in accordance with GAAP.

                  "Consolidated Total Debt Ratio":  as of the last day of any
                   -----------------------------
period, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated
EBITDA for such period.

                  "Consolidated Working Capital":  at any date, the excess of
                   ----------------------------
Consolidated Current Assets on such date over Consolidated Current Liabilities
                                         ----
on such date.

                  "Continuing Directors": the directors of Holdings on the
                   --------------------
Closing Date, after giving effect to the Recapitalization, and each other
director, if, in each case, such other director's nomination for election to the
board of directors of Holdings is recommended by at least a majority of the then
Continuing Directors or such other director receives the vote of the Permitted
Investors in his or her election by the shareholders of Holdings.

                  "Contractual Obligation":  as to any Person, any provision of
                   ----------------------
any security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.

                  "Control Investment Affiliate": as to any Person, any other
                   ----------------------------
Person that (a) directly or indirectly, is in control of, is controlled by, or
is under common control with, such Person and (b) is organized primarily for the
purpose of making equity or debt investments in one or more companies. For
purposes of this definition, "control" of a Person means the power, directly or
indirectly, to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.

<PAGE>

                                                                              10

                  "Default":  any of the events specified in Section 8, whether
                   -------
or not any requirement for the giving of notice, the lapse of time, or both, has
been satisfied, including, in any event, a "Default" under and as defined in the
Senior Note Indenture.

                  "Disposition":  with respect to any property, any sale, lease,
                   -----------
sale and leaseback, assignment, conveyance, transfer or other disposition
thereof.  The terms "Dispose" and "Disposed of" shall have correlative meanings.
                     -------       -----------

                  "Dollars" and "$": dollars in lawful currency of the United
                   -------       -
States.

                  "Domestic Subsidiary":  any Subsidiary of the Borrower
                   -------------------
organized under the laws of any jurisdiction within the United States.

                  "ECF Percentage": 50%; provided that the ECF Percentage shall
                   --------------        --------
be reduced to 25% if the Consolidated Total Debt Ratio as of the last day of the
relevant fiscal year is not greater than 3.50 to 1.0.

                  "Eligible Accounts Receivable": at the time of any
                   ----------------------------
determination thereof, all accounts receivable ("Accounts") that satisfy the
                                                 --------
following criteria at the time of such determination: (i) have been invoiced and
represent the bona fide sale and delivery from the Borrower or any of its
Domestic Subsidiaries to the purchaser of merchandise or services, in each case
in the ordinary course of business of the Borrower or any Domestic Subsidiary in
connection with its trade operations and (ii) are not ineligible for inclusion
in the calculation of the Borrowing Base pursuant to any of clauses (a) through
(l) below (or as otherwise provided below). Without limiting the foregoing, to
qualify as an Eligible Account Receivable, an Account shall indicate as sole
payee and as sole remittance party the Borrower or any of its Domestic
Subsidiaries. In determining the amount to be so included, the face amount of
Accounts shall be reduced by, without duplication, to the extent not reflected
in such face amount, (i) the amount of all accrued and actual returns,
discounts, claims, credits or credits pending, charges, price adjustments,
freight or finance charges or other allowances (including any amount that the
Borrower or any of its Domestic Subsidiaries, as applicable, may be obligated to
rebate to a customer pursuant to the terms of any agreement or understanding
(written or oral)), (ii) the aggregate amount of all vendor rebates, non-current
financed receivables, reserves, limits and deductions provided for in this
definition and elsewhere in this Agreement and (iii) the aggregate amount of all
cash received in respect of Accounts but not yet applied by the Borrower or the
relevant Domestic Subsidiary to reduce the amount of the Accounts. Standards of
eligibility may be fixed from time to time solely by the Administrative Agent in
the exercise of its reasonable judgment, with any changes in such standards to
be effective eight Business Days after delivery of notice thereof to the
Borrower. Unless otherwise approved from time to time in writing by the
Administrative Agent, no Account shall be an Eligible Account Receivable if,
without duplication:

                  (a) the Borrower or a Domestic Subsidiary does not have sole
lawful and absolute title to such Account; or

<PAGE>

                                                                              11

                  (b) it arises out of a sale made by the Borrower or a Domestic
         Subsidiary to an employee, officer, agent, director, stockholder, or
         Affiliate of the Borrower or a Domestic Subsidiary ; or

                  (c) the Account Debtor (i) is a creditor, (ii) has or has
         asserted a right of set-off against the Borrower or a Domestic
         Subsidiary (unless such Account debtor has entered into a written
         agreement reasonably acceptable to the Administrative Agent to waive
         such set-off rights) or (iii) has disputed its liability (whether by
         chargeback or otherwise) or made any asserted or unasserted claim with
         respect to the Account or any other Account of the Borrower or a
         Domestic Subsidiary which has not been resolved, in each case, without
         duplication, to the extent of the amount owed by such Borrower or
         Domestic Subsidiary to the Account Debtor, the amount of such actual or
         asserted right of set-off, or the amount of such dispute or claim, as
         the case may be; or

                  (d) the Account Debtor is insolvent or the subject of any
         bankruptcy case or insolvency proceeding of any kind; or

                  (e) the Account is not payable in Dollars or the Account
         Debtor is either not incorporated under the laws of the United States
         of America, any state thereof or the District of Columbia or is located
         outside or has its principal place of business or substantially all of
         its assets outside the United States, except to the extent the Account
         is supported by an irrevocable letter of credit reasonably satisfactory
         to the Administrative Agent (as to form, substance and issuer) and
         assigned to and directly drawable by the Administrative Agent; or

                  (f) the sale to the Account Debtor is on a bill-and-hold,
         guaranteed sale, sale-and-return, ship-and-return, sale on approval,
         extended terms or consignment or other similar basis or made pursuant
         to any other agreement providing for repurchase or return of any
         merchandise which has been claimed to be defective or otherwise
         unsatisfactory; or

                  (g) the Account Debtor is the United States of America or any
         department, agency or instrumentality thereof, unless the Borrower or a
         Domestic Subsidiary, as applicable, duly assigns its rights to payment
         of such Account to the Administrative Agent pursuant to the Assignment
         of Claims Act of 1940, as amended, which assignment and related
         documents and filings shall be in form and substance reasonably
         satisfactory to the Administrative Agent; or

                  (h) the goods giving rise to such Account have not been
         shipped and title has not been transferred to the Account Debtor, or
         the Account represents a progress-billing or otherwise does not
         represent a completed sale; for purposes hereof, "progress-billing"
         means any invoice for goods sold or leased or services rendered under a
         contract or agreement pursuant to which the Account Debtor's obligation
         to pay such invoice is conditioned upon completion by the Borrower or a
         Domestic Subsidiary of any further performance under the contract or
         agreement; or

                  (i) the Account does not comply in all material respects with
         the requirements of all applicable laws and regulations, whether
         Federal, state or local, including without limitation the Federal
         Consumer Credit Protection Act, the Federal Truth in Lending Act and
         Regulation Z of the Board; or

<PAGE>

                                                                              12

                  (j) the Account is subject to any adverse security deposit,
         retainage or other similar advance made by or for the benefit of the
         Account Debtor, in each case to the extent thereof, or

                  (k) (i) the Account is not subject to a valid and perfected
         first priority Lien in favor of the Administrative Agent, subject to no
         other Liens other than inchoate Liens permitted by Section 7.3 or (ii)
         the Account does not otherwise conform in all material respects to the
         representations and warranties contained in the Loan Documents relating
         to Accounts; or

                  (l) as to all or any part of such Account, a check, promissory
         note, draft, trade acceptance or other Instrument for the payment of
         money has been received, presented for payment and returned uncollected
         for any reason.

                  "Eligible  Finished Goods": on any date,  Eligible
                   ------------------------
Inventory composed of Finished Goods on such date shown on the perpetual
inventory records of the Borrower and its Domestic Subsidiaries in accordance
with GAAP.

                  "Eligible Inventory": at the time of any determination
                   ------------------
thereof, without duplication, the Inventory Value of the Borrower and its
Domestic Subsidiaries at the time of such determination that is not ineligible
for inclusion in the calculation of the Borrowing Base pursuant to any of
clauses (a) through (j) below (or as otherwise provided below). Without limiting
the foregoing, to qualify as "Eligible Inventory" no person other than the
Borrower or a Domestic Subsidiary, as applicable, shall have any direct or
indirect ownership, interest or title to such Inventory and no person other than
the Borrower or a Domestic Subsidiary, as applicable, shall be indicated on any
purchase order or invoice with respect to such Inventory as having or purporting
to have an interest therein. In determining the amount to be so included,
Inventory shall be reduced by, without duplication, the Shrink Reserve.
Standards of eligibility may be fixed from time to time solely by the
Administrative Agent in the exercise of its reasonable judgment, with any
changes in such standards to be effective eight Business Days after delivery of
notice thereof to the Borrower. Unless otherwise from time to time approved in
writing by the Administrative Agent, no Inventory shall be deemed Eligible
Inventory if, without duplication:

                  (a) the Borrower or a Domestic Subsidiary does not have sole
         and good, valid and unencumbered title thereto (except for inchoate
         Liens expressly permitted by Section 7.3); or

                  (b) it is not located in the United States; or

                  (c) in the case of raw materials it is other than padding,
         coils, foam, ticking, non-wovens or wood or

                  (d) it is packing or shipping materials, labels or
         miscellaneous spare parts; or

                  (e) it is not subject to a valid and perfected first priority
         Lien in favor of the Administrative Agent for the benefit of the
         Secured Parties (except for inchoate Liens expressly permitted by
         Section 7.3); or

<PAGE>

                                                                              13

                  (f) it is goods returned or rejected due to quality or comfort
         issues by the Borrower's customers or goods in transit to third parties
         (other than to warehouse sites described in clause (c) above); or

                  (g) it would be classified on the books and records of the
         Borrower or any Domestic Subsidiary (in accordance with their
         historical practices) as damaged, work- in-progress, discontinued for
         more than nine months, seconds or thirds or is obsolete or slow-moving
         or unmerchantable; or

                  (h) it does not conform in all material respects to the
         representations and warranties contained in the Loan Documents; or

                  (i) it is sample inventory in which event 60% of the amount
         may constitute Eligible Inventory, subject to satisfaction of the other
         clauses in this definition; or

                  (j) any portion of its value is attributable to capitalized
overhead costs but only to the extent of such portion.

                  "Eligible Raw  Materials":  on any date, Eligible Inventory
                   -----------------------
composed of Raw Materials on such date shown on the perpetual inventory records
of the Borrower and its Domestic Subsidiaries in accordance with GAAP.

                  "Environmental Laws": any and all foreign, Federal, state,
                   ------------------
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment, as now or may at
any time hereafter be in effect.

                  "ERISA":  the Employee Retirement Income Security Act of 1974,
                   -----
 as amended from time to time.

                  "Eurocurrency Reserve Requirements": for any day as applied to
                   ---------------------------------
a Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.

                  "Eurodollar Base Rate": with respect to each day during each
                   --------------------
Interest Period pertaining to a Eurodollar Loan, the rate per annum determined
on the basis of the rate for deposits in Dollars for a period equal to such
Interest Period commencing on the first day of such Interest Period appearing on
Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business
Days prior to the

<PAGE>

                                                                              14

beginning of such Interest Period. In the event that such rate does not appear
on Page 3750 of the Telerate screen (or otherwise on such screen), the
"Eurodollar Base Rate" shall be determined by reference to such other comparable
 --------------------
publicly available service for displaying eurodollar rates as may be selected by
the Administrative Agent or, in the absence of such availability, by reference
to the rate at which the Administrative Agent is offered Dollar deposits at or
about 11:00 A.M., New York City time, two Business Days prior to the beginning
of such Interest Period in the interbank eurodollar market where its eurodollar
and foreign currency and exchange operations are then being conducted for
delivery on the first day of such Interest Period for the number of days
comprised therein.

                  "Eurodollar Loans":  Loans the rate of interest applicable
                   ----------------
to which is based upon the Eurodollar Rate.

                  "Eurodollar Rate": with respect to each day during each
                   ---------------
Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the nearest
1/100th of 1%):

                              Eurodollar Base Rate
                         ------------------------------
                    1.00 - Eurocurrency Reserve Requirements

                  "Eurodollar Tranche": the collective reference to Eurodollar
                   ------------------
Loans under a particular Facility the then current Interest Periods with respect
to all of which begin on the same date and end on the same later date (whether
or not such Loans shall originally have been made on the same day).

                  "Event of Default": any of the events specified in Section 8,
                   ----------------
provided that any requirement for the giving of notice, the lapse of time, or
--------
both, has been satisfied, including, in any event, an "Event of Default" under
and as defined in the Senior Note Indenture.

                  "Excess Cash Flow": for any fiscal year of the Borrower, the
                   ----------------
excess, if any, of (a) the sum, without duplication, of (i) Consolidated Net
Income for such fiscal year, (ii) an amount equal to the amount of all non-cash
charges (including depreciation and amortization) deducted in arriving at such
Consolidated Net Income, (iii) decreases in Consolidated Working Capital for
such fiscal year, and (iv) an amount equal to the aggregate net non-cash loss on
the Disposition of property by the Borrower and its Subsidiaries during such
fiscal year (other than sales of inventory in the ordinary course of business),
to the extent deducted in arriving at such Consolidated Net Income over (b) the
                                                                   ----
sum, without duplication, of (i) an amount equal to the amount of all non-cash
credits included in arriving at such Consolidated Net Income, (ii) Capital
Expenditures made pursuant to Section 7.7(a) (net of any proceeds of any related
debt or equity financings with respect to such Capital Expenditures) plus the
                                                                     ----
amount for such fiscal year to be carried forward to the next fiscal year and
paid in cash pursuant to Section 7.7(a) less the amount (if any) for the
                                        ----
preceding fiscal year carried forward to the current fiscal year pursuant to
Section 7.7(a), (iii) the aggregate amount of all prepayments of Loans during
such fiscal year to the extent accompanying permanent optional reductions of the
Commitments or made pursuant to Section 2.6(g), (iv) the aggregate amount of all
regularly scheduled principal payments of Funded Debt of the Borrower and its
Subsidiaries made during such fiscal year (other than in respect of any
revolving credit facility to the extent there is not an equivalent permanent
reduction in commitments thereunder), (v) increases in Consolidated Working
Capital for such fiscal year, (vi) an amount equal to the aggregate net non-cash
gain on the Disposition of property by the Borrower and its Subsidiaries during
such fiscal year (other than sales of inventory in the ordinary course of
business), to the extent included in arriving at such Consolidated Net

<PAGE>

                                                                              15

Income, (vii) non-cash charges added in calculating Consolidated EBITDA in a
prior period to the extent such non-cash charges are paid in cash in the current
period, (viii) fees and expenses associated with any exchange of the Senior
Notes contemplated under the terms of the Senior Note Indenture, (ix) to the
extent not otherwise deducted in determining Excess Cash Flow, cash payments
made during such period with respect to non-current liabilities and cash
payments made during such period with respect to restructuring reserves and
Permitted Acquisitions, and (x) to the extent not otherwise deducted in
determining Consolidated Net Income, Restricted Payments and Investments made in
cash pursuant to Section 7.6 or 7.8 made during such period (net of any proceeds
of any related debt or equity financings (other than proceeds of equity
financing constituting Excess Proceeds Amounts) used to fund any such Restricted
Payments or Investments).

                  "Excess Cash Flow Application Date":  as defined in Section
                   ---------------------------------
2.6(e).

                  "Excess Proceeds Amount" means, initially, $0, which amount
                   ----------------------
shall be (a) increased (i) on the date of delivery in any fiscal year of an
             ---------
officer's certificate setting forth the calculation of Excess Cash Flow for the
preceding fiscal year pursuant to Section 2.6(e), so long as any prepayment
required pursuant to Section 2.6(e) has been made, by an amount equal to 50% or
75%, as the case may be, of such Excess Cash Flow, and (ii) on the date of the
receipt by the Borrower of any Net Cash Proceeds from the issuance of Capital
Stock of the Borrower, so long as any Commitment reduction and prepayment
required pursuant to Section 2.6(b) has been made, by an amount equal to such
Net Cash Proceeds which are not applied to reduce the Commitments, and (b)
reduced (i) on each Excess Cash Flow Application Date where Excess Cash Flow for
-------
the immediately preceding fiscal year is a negative number, by such amount, (ii)
at the time any Capital Expenditures are made pursuant to Section 7.7(c), by the
amount of such Capital Expenditure and (iii) at the time an Investment is made
pursuant to Section 7.8(l) with an amount attributable to the Excess Proceeds
Amount, by the portion of the Investment made with the Excess Proceeds Amount,
it being understood that the Excess Proceeds Amount may be reduced to an amount
below $0 after giving effect to the reductions enumerated in clause (b)(i)
above.

                  "Excluded Foreign Subsidiary": any Foreign Subsidiary in
                   ---------------------------
respect of which either (a) the pledge of all of the Capital Stock of such
Subsidiary as Collateral or (b) the guaranteeing by such Subsidiary of the
Obligations, would, in the good faith judgment of the Borrower, result in
adverse tax consequences to the Borrower.

                  "Existing Credit Agreement":  as defined in the recitals.
                   -------------------------

                  "Facility": each of (a) the Tranche A Commitments and the
                   --------
Tranche A Loans made thereunder (the "Tranche A Facility") and (b) the Tranche B
                                      ------------------
Commitments and the Tranche B Loans made thereunder (the "Tranche B Facility").
                                                          ------------------

                  "Federal Funds Effective Rate": for any day, the weighted
                   ----------------------------
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the average of
the quotations for the day of such transactions received by JPMorgan Chase Bank
from three federal funds brokers of recognized standing selected by it.

<PAGE>

                                                                              16

                  "Finished  Goods":  packaged goods to be sold by the Borrower
                   ---------------
or a Domestic  Subsidiary in the ordinary  course of business.

                  "Foreign Subsidiary":  any Subsidiary of the Borrower that is
                   ------------------
not a Domestic Subsidiary.

                  "Funded Debt": as to any Person, all Indebtedness of such
                   -----------
Person that matures more than one year from the date of its creation or matures
within one year from such date but is renewable or extendible, at the option of
such Person, to a date more than one year from such date or arises under a
revolving credit or similar agreement that obligates the lender or lenders to
extend credit during a period of more than one year from such date, including
all current maturities and current sinking fund payments in respect of such
Indebtedness whether or not required to be paid within one year from the date of
its creation and, in the case of the Borrower, Indebtedness in respect of the
Loans.

                  "Funding Office":  the office of the Administrative Agent
                   --------------
specified in Section 10.2 or such other office as may be specified from time to
time by the Administrative Agent as its funding office by written notice to the
Borrower and the Lenders.

                  "GAAP": generally accepted accounting principles in the United
                   ----
States as in effect from time to time, except that for purposes of Section 7.1,
GAAP shall be determined on the basis of such principles in effect on the
Restatement Effective Date and consistent with those used in the preparation of
the Borrower's audited financial statements for the 2000 fiscal year. In the
event that any "Accounting Change" (as defined below) shall occur and such
change results in a change in the method of calculation of financial covenants,
standards or terms in this Agreement, then the Borrower and the Administrative
Agent agree to enter into negotiations in order to amend such provisions of this
Agreement so as to equitably reflect such Accounting Changes with the desired
result that the criteria for evaluating the Borrower's financial condition shall
be the same after such Accounting Changes as if such Accounting Changes had not
been made. Until such time as such an amendment shall have been executed and
delivered by the Borrower, the Administrative Agent and the Required Lenders,
all financial covenants, standards and terms in this Agreement shall continue to
be calculated or construed as if such Accounting Changes had not occurred.
"Accounting Changes" refers to changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants or, if applicable, the SEC.

                  "Governmental Authority": any nation or government, any state
                   ----------------------
or other political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government.

                  "Guarantee and Collateral Agreement": the Guarantee and
                   ----------------------------------
Collateral Agreement to be executed and delivered by Holdings, the Borrower and
each Subsidiary Guarantor, substantially in the form of Exhibit A, as the same
may be amended, supplemented or otherwise modified from time to time.

                  "Guarantee Obligation":  as to any Person (the
                   --------------------
"guaranteeing person"), any obligation of (a) the guaranteeing person or (b)
 -------------------
another Person (including any bank under any letter of credit) to induce

<PAGE>

                                                                              17

the creation of which the guaranteeing person has issued a reimbursement,
counterindemnity or similar obligation, in either case guaranteeing or in effect
guaranteeing any Indebtedness, dividends or other obligations (the "primary
                                                                    -------
obligations") of any other third Person (the "primary obligor") in any manner,
-----------                                   ---------------
whether directly or indirectly, including any obligation of the guaranteeing
person, whether or not contingent, (i) to purchase any such primary obligation
or any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (iv) otherwise
to assure or hold harmless the owner of any such primary obligation against loss
in respect thereof; provided, however, that the term Guarantee Obligation shall
                    --------  -------
not include standard contractual indemnities, endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Guarantee Obligation of any guaranteeing person shall be deemed to be the lower
of (a) an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee Obligation is made and (b) the
maximum amount for which such guaranteeing person may be liable pursuant to the
terms of the instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person may be
liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in good
faith.

                  "Guarantors":  the collective reference to Holdings and the
                   ----------
Subsidiary Guarantors.

                  "Hedge Agreements": all interest rate swaps, caps or collar
                   ----------------
agreements or similar arrangements dealing with interest rates or currency
exchange rates or the exchange of nominal interest obligations, either generally
or under specific contingencies.

                  "Holdings":  as defined in the preamble hereto.
                   --------

                  "Indebtedness": of any Person at any date, without
                   ------------
duplication, (a) all indebtedness of such Person for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or
services (other than current trade payables, accrued expenses or deferred rent
incurred in the ordinary course of such Person's business), (c) all obligations
of such Person evidenced by notes, bonds, debentures or other similar
instruments, (d) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all Capital Lease Obligations of such Person, (f) all obligations
of such Person, contingent or otherwise, as an account party under acceptances,
letters of credit, surety bonds or similar arrangements, (g) the liquidation
value of all redeemable preferred Capital Stock of such Person, (h) all
Guarantee Obligations of such Person in respect of obligations of the kind
referred to in clauses (a) through (g) above, (i) all obligations of the kind
referred to in clauses (a) through (h) above secured by (or for which the holder
of such obligation has an existing right, contingent or otherwise, to be secured
by) any Lien on property (including accounts and contract rights) owned by such
Person, whether or not such Person has assumed or become liable for the payment
of such obligation, and (j) for the purposes of Sections 7.2 and 8(e) only, all
obligations of such Person in respect of Hedge Agreements. The Indebtedness of
any Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a

<PAGE>

                                                                              18

result of such Person's ownership interest in such entity, except to the extent
the terms of such Indebtedness expressly provide that such Person is not liable
therefor.

                  "Insolvency":  with respect to any Multiemployer Plan, the
                   ----------
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA.

                  "Insolvent":  pertaining to a condition of Insolvency.
                   ---------

                  "Intellectual Property": the collective reference to all
                   ---------------------
rights, priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including copyrights, copyright licenses, patents, patent licenses, trademarks,
trademark licenses, technology, know-how and processes, and all rights to sue at
law or in equity for any infringement or other impairment thereof, including the
right to receive all proceeds and damages therefrom.

                  "Interest Payment Date": (a) as to any ABR Loan, the last day
                   ---------------------
of each March, June, September and December to occur while such Loan is
outstanding and the final maturity date of such Loan, (b) as to any Eurodollar
Loan having an Interest Period of three months or less, the last day of such
Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer
than three months, each day that is three months, or a whole multiple thereof,
after the first day of such Interest Period and the last day of such Interest
Period and (d) as to any Loan (other than, unless otherwise provided herein, any
Loan that is an ABR Loan), the date of any repayment or prepayment made in
respect thereof.

                  "Interest Period": as to any Eurodollar Loan, (a) initially,
                   ---------------
the period commencing on the borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending one, two, three, six or, if
available to all Lenders, such other periods as the Borrower may request, as
selected by the Borrower in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and (b) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Eurodollar Loan and ending one, two, three, six or, if available to all
Lenders, such other periods as the Borrower may request, as selected by the
Borrower by irrevocable notice to the Administrative Agent not less than three
Business Days prior to the last day of the then current Interest Period with
respect thereto; provided that, all of the foregoing provisions relating to
                 --------
Interest Periods are subject to the following:

                  (i)  if any Interest Period would otherwise end on a day that
         is not a Business Day, such Interest Period shall be extended to the
         next succeeding Business Day unless the result of such extension would
         be to carry such Interest Period into another calendar month in which
         event such Interest Period shall end on the immediately preceding
         Business Day;

                  (ii) the Borrower may not select an Interest Period that would
         extend beyond the Termination Date;

<PAGE>

                                                                              19

                    (iii) 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 end on the last Business Day of a calendar month; and

                    (iv) the Borrower shall select Interest Periods so as not to
         require a payment or prepayment of any Eurodollar Loan during an
         Interest Period for such Loan.

                  "Inventory":  all Raw Materials and Finished  Goods held by
                   ---------
the Borrower or a Domestic  Subsidiary in the ordinary course of business.

                  "Inventory Value": of any Person shall mean at the time of any
                   ---------------
determination thereof the lower of cost (less any appropriate revaluation
reserves or reserve for obsolete Inventory, shrink or physical inventory account
adjustments and any profits accrued in connection with transfers of Inventory
between any Loan Party and its Subsidiaries or between Subsidiaries of any Loan
Party) or fair market value of the Inventory at such time, in Dollars,
determined in accordance with the standard cost method of accounting less, in
the event variances under the standard cost method (a) are capitalized,
favorable variances shall be deducted from Eligible Inventory, and unfavorable
variances shall not be added to Eligible Inventory, and (b) are expensed, a
reserve shall be determined as appropriate in order to adjust the standard cost
of Eligible Inventory to approximate actual cost.

                  "Investments":  as defined in Section 7.8.
                   -----------

                  "Issuing Lender":  JPMorgan Chase Bank, or any affiliate
                   --------------
thereof, in its capacity as issuer of any Letter of Credit.

                  "L/C Commitment":  $5,000,000.
                   --------------

                  "L/C Fee Payment Date":  the last day of each March, June,
                   --------------------
September and December and the last day of the Commitment Period.

                  "L/C Obligations": at any time, an amount equal to the sum of
                   ---------------
(a) the aggregate then undrawn and unexpired amount of the then outstanding
Letters of Credit and (b) the aggregate amount of drawings under Letters of
Credit that have not then been reimbursed pursuant to Section 3.5.

                  "L/C Participants":  the collective reference to all the
                   ----------------
Tranche A Lenders other than the Issuing Lender.

                  "Lenders":  as defined in the preamble hereto.
                   -------

                  "Letters of Credit":  as defined in Section 3.1(a).
                   -----------------

<PAGE>

                                                                              20

                  "Lien": any mortgage, pledge, hypothecation, assignment,
                   ----
deposit arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any
conditional sale or other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing).

                  "Loan Documents":  this Agreement, the Security Documents, the
                   --------------
Reaffirmation and the Notes.

                  "Loan Parties":  Holdings, the Borrower and each Subsidiary of
                   ------------
the Borrower that is a party to a Loan Document.

                  "Loans":  the Tranche A Loans and/or the Tranche B Loans, as
                   -----
applicable.

                  "Management Notes": as defined in Section 7.2(m).
                   ----------------

                  "Material Adverse Effect": a material adverse effect on (a)
                   -----------------------
the business, property, operations or financial condition of the Borrower and
its Subsidiaries taken as a whole or (b) the validity or enforceability of this
Agreement or any of the other Loan Documents or the rights or remedies of the
Administrative Agent or the Lenders hereunder or thereunder.

                  "Materials of Environmental Concern": any gasoline or
                   ----------------------------------
petroleum (including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including asbestos, polychlorinated
biphenyls and urea-formaldehyde insulation.

                  "Mortgaged Properties":  the real properties listed on
                   --------------------
Schedule 1.1B, as to which the Administrative Agent for the benefit of the
Lenders shall be granted a Lien pursuant to the Mortgages.

                  "Mortgages": each of the mortgages and deeds of trust made by
                   ---------
any Loan Party in favor of, or for the benefit of, the Administrative Agent for
the benefit of the Lenders, substantially in the form of Exhibit D (with such
changes thereto as shall be advisable under the law of the jurisdiction in which
such mortgage or deed of trust is to be recorded), as the same may be amended,
supplemented or otherwise modified from time to time.

                  "Multiemployer Plan":  a Plan that is a multiemployer plan as
                   ------------------
defined in Section 4001(a)(3) of ERISA.

                  "Net Cash Proceeds": (a) in connection with any Asset Sale or
                   -----------------
any Recovery Event, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of deferred payment of
principal pursuant to a note or installment receivable or purchase price
adjustment receivable or otherwise, but only as and when received) of such Asset
Sale or Recovery Event, net of

<PAGE>

                                                                              21

attorneys' fees, accountants' fees, investment banking fees, amounts required to
be applied to the repayment of Indebtedness secured by a Lien expressly
permitted hereunder on any asset that is the subject of such Asset Sale or
Recovery Event (other than any Lien pursuant to a Security Document) and other
customary fees and expenses actually incurred in connection therewith and net of
taxes paid or reasonably estimated to be payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements) and (b) in connection with any issuance or sale of Capital Stock
or any incurrence of Indebtedness, the cash proceeds received from such issuance
or incurrence, net of attorneys' fees, investment banking fees, accountants'
fees, underwriting discounts and commissions and other customary fees and
expenses actually incurred in connection therewith.

                  "Non-Excluded Taxes":  as defined in Section 2.14(a).
                   ------------------

                  "Non-Recourse Subsidiary": SCC Holdings and any Subsidiary
                   -----------------------
thereof, provided, that (i) at no time shall any creditor of any such Subsidiary
have any claim (whether pursuant to a Guarantee Obligation, by operation of law
or otherwise) against the Borrower or any of its other Subsidiaries (other than
another Non-Recourse Subsidiary) in respect of any Indebtedness or other
obligation of any such Subsidiary (other than in respect of a non-recourse
pledge of Capital Stock of such Subsidiary); (ii) neither the Borrower nor any
of its Subsidiaries (other than another Non-Recourse Subsidiary) shall become a
general partner of any such Subsidiary; (iii) no default with respect to any
Indebtedness of any such Subsidiary (including any right which the holders
thereof may have to take enforcement action against any such Subsidiary) shall
permit (upon notice, lapse of time or both) any holder of any Indebtedness of
the Borrower or its other Subsidiaries (other than another Non-Recourse
Subsidiary) to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity; (iv)
no such Subsidiary shall own any Capital Stock of, or own or hold any Lien on
any property of, the Borrower or any other Subsidiary of the Borrower (other
than another Non-Recourse Subsidiary); (v) no Investments may be made in any
such Subsidiary by the Borrower or any of its Subsidiaries (other than by
another Non-Recourse Subsidiary or pursuant to Section 7.8(n) or (o)); and (vi)
the Borrower shall not directly or indirectly own any Capital Stock of such
Subsidiary. It is understood that Non-Recourse Subsidiaries shall be disregarded
for the purposes of all representations and warranties in Section 4, all
affirmative covenants in Section 6, all negative covenants in Section 7
(including any calculation pursuant to this Agreement relating to financial
matters with respect to the Borrower), all Events of Default set forth in
Section 8 and any definitions related to the provisions of such sections.

                  "Non-U.S. Lender":  as defined in Section 2.14(d).
                   ---------------

                  "Notes":  the collective reference to any promissory note
                   -----
evidencing Loans.

                  "Obligations": the unpaid principal of and interest on
                   -----------
(including interest accruing after the maturity of the Loans and Reimbursement
Obligations and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Loans and all other
obligations and liabilities of the Borrower to the Administrative Agent or to
any Lender (or, in the case of Hedge Agreements, any affiliate of any Lender),
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, this Agreement, any other Loan Document, the Letters of

<PAGE>

                                                                              22

Credit, any Hedge Agreement entered into with any Lender or any affiliate of any
Lender or any other document made, delivered or given in connection herewith or
therewith, whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses (including all fees, charges and
disbursements of counsel to the Administrative Agent or to any Lender that are
required to be paid by the Borrower pursuant hereto) or otherwise.

                  "Other Taxes": any and all present or future stamp or
                   -----------
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement or any other
Loan Document.

                  "Overadvance":  the excess of (a) $17,500,000 over (b) the
                   -----------                                  ----
Borrowing Base determined pursuant to the Borrowing Base Certificate referred to
in Section 5.1(f), which amount is $9,145,000.

                  "Participant":  as defined in Section 10.6(b).
                   -----------

                  "Participation Agreement":  as defined in Section 10.6(b).
                   -----------------------

                  "PBGC":  the Pension Benefit Guaranty Corporation established
                   ----
pursuant to Subtitle A of Title IV of ERISA (or any successor).

                  "Percentage":  any Tranche A Percentage or Tranche B
                   ----------
Percentage, as applicable.

                  "Permitted Acquired Person": any Person acquired in connection
                   -------------------------
with a Permitted Acquisition.

                  "Permitted Acquisition": any acquisition by Holdings, the
                   ---------------------
Borrower or any Wholly Owned Subsidiary Guarantor of all of the Capital Stock
of, or all or substantially all of the assets of, or of a business, unit or
division of, any Person; provided that (a) the Borrower shall be in compliance,
                         --------
on a pro forma basis after giving effect to such acquisition, with the covenants
     --- -----
contained in Section 7.1, in each case recomputed as at the last day of the most
recently ended fiscal quarter of the Borrower for which the relevant information
is available as if such acquisition had occurred on the first day of each
relevant period for testing such compliance (as demonstrated in a certificate of
a Responsible Officer delivered to the Administrative Agent not later than three
Business Days prior to such acquisition), (b) no Default or Event of Default
shall have occurred and be continuing, or would occur after giving effect to
such acquisition, (c) the Capital Stock and the other property so acquired (but
only to the extent required by Section 6.9) shall constitute Collateral, (d) in
the case of the acquisition of any Capital Stock, neither the relevant Permitted
Acquired Person nor any of its Subsidiaries shall be an Excluded Foreign
Subsidiary other than an Excluded Foreign Subsidiary incorporated under the laws
of Canada (provided, that after giving pro forma effect to such Permitted
           --------
Acquisition as if such Permitted Acquisition had been consummated on the first
day of the most recent period of four consecutive fiscal quarters for which the
relevant financial information is available, the portion of Consolidated EBITDA
for such period contributed by all Excluded Foreign Subsidiaries acquired
pursuant to Permitted Acquisitions shall not

<PAGE>

                                                                              23

exceed 25%), (e) any such acquisition shall have been approved by the Board of
Directors or comparable governing body of the relevant Person, and (f) the
conditions set forth in Section 5.3 shall have been satisfied with respect to
such acquisition.

                  "Permitted Acquisition Date": with respect to each Permitted
                   --------------------------
Acquisition, the date on which the conditions precedent set forth in Section
5.3 shall have been satisfied.

                  "Permitted Investors":  the collective reference to the
                   -------------------
Sponsor, JPMorgan Chase Bank, Fleet National Bank, Canadian Imperial Bank of
Commerce, Harvard Private Capital Holdings, Inc., Randolph Street Partners and
their respective Control Investment Affiliates.

                  "Person":  an individual, partnership, corporation, limited
                   ------
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.

                  "Plan": at a particular time, any employee benefit plan that
                   ----
is covered by Section 3(2) of ERISA and in respect of which the Borrower or a
Commonly Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.

                  "PP&E Component":  an amount equal to $1,200,000.
                   --------------

                  "Projections":  as defined in Section 6.2(c).
                   -----------

                  "Properties":  as defined in Section 4.17(a).
                   ----------

                  "Qualified EBITDA Infusion": any Net Cash Proceeds from the
                   -------------------------
issuance of Holdings' Capital Stock or the incurrence by Holdings or the
Borrower of Indebtedness, in each case received by the Borrower (in the form of
a capital contribution from Holdings in the case of amounts initially received
by Holdings) within 45 days after the end of any fiscal quarter or 90 days after
the end of any fiscal year, provided that (a) the terms and conditions of such
                            --------
Indebtedness (other than Indebtedness constituting Tranche B Loans) shall be
reasonably satisfactory to the Required Lenders and (b) if such Net Cash
Proceeds are applied to pay payables and other obligations of the Borrower or
its Subsidiaries, such payments shall be made in a manner consistent with the
Borrower's or such Subsidiary's historical practices or with reasonable ordinary
course practices in the industry generally.

                  "Qualified Infusion Document":  any document governing the
                   ---------------------------
terms of any Indebtedness (other than Tranche B Loans) referred to in the
definition of "Qualified EBITDA Infusion".

                  "Qualified Payment Month": any month ending after the
                   -----------------------
Restatement Effective Date that is the last month of three consecutive months as
to which the Consolidated Fixed Charge Coverage Ratio (measured on a rolling
twelve-month basis) was greater than 1.20 to 1.0.

<PAGE>

                                                                              24

                  "Raw Materials":  any raw materials used or consumed in the
                   -------------
manufacture,  packing or shipping of goods to be sold by the Borrower or any
Domestic Subsidiary in the ordinary course of business.

                  "Reaffirmation":  as defined in Section 5.1(a).
                   -------------

                  "Recapitalization":  the recapitalization transaction
                   ----------------
described in the Recapitalization Documents.

                  "Recapitalization Agreement":  the Transaction Agreement among
                   --------------------------
Heilig-Meyers Company, Heilig-Meyers Associates, Inc. and MD Acquisition
Corporation dated as of May 28, 1999.

                  "Recapitalization Documentation": collectively, the
                   ------------------------------
Recapitalization Agreement and all schedules, exhibits and annexes thereto and
all side letters and agreements affecting the terms thereof or entered into in
connection therewith, in each case as amended, supplemented or otherwise
modified from time to time in accordance with Section 7.16.

                  "Recovery Event":  any settlement of or payment in respect of
                   --------------
any property or casualty insurance claim or any condemnation proceeding relating
to any asset of Holdings, the Borrower or any of their respective Subsidiaries.

                  "Register":  as defined in Section 10.6(d).
                   --------

                  "Regulation U": Regulation U of the Board as in effect from
                   ------------
time to time.

                  "Reimbursement Obligation":  the obligation of the Borrower to
                   ------------------------
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.

                  "Reinvestment Deferred Amount": with respect to any
                   ----------------------------
Reinvestment Event, the aggregate Net Cash Proceeds received by Holdings, the
Borrower or any of their respective Subsidiaries in connection therewith that
are not applied to reduce the Commitments pursuant to Section 2.6(c) or (d) as a
result of the delivery of a Reinvestment Notice.

                  "Reinvestment Event":  any Asset Sale or Recovery Event in
                   ------------------
respect of which the Borrower has delivered a Reinvestment Notice.

                  "Reinvestment Notice": a written notice executed by a
                   -------------------
Responsible Officer stating that no Event of Default has occurred and is
continuing and that the Borrower (directly or indirectly through a Subsidiary)
intends and expects to use all or a specified portion of the Net Cash Proceeds
of an Asset Sale or Recovery Event to acquire assets useful in its business.

<PAGE>

                                                                              25

                  "Reinvestment Prepayment Amount": with respect to any
                   ------------------------------
Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any
amount expended prior to the relevant Reinvestment Prepayment Date to acquire
assets useful in the Borrower's business.

                  "Reinvestment Prepayment Date": with respect to any
                   ----------------------------
Reinvestment Event, the earlier of (a) the date occurring one year after such
Reinvestment Event and (b) the date on which the Borrower shall have determined
not to, or shall have otherwise ceased to, acquire assets useful in the
Borrower's business with all or any portion of the relevant Reinvestment
Deferred Amount.

                  "Reorganization":  with respect to any Multiemployer Plan,
                   --------------
the condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.

                  "Reportable Event":  any of the events set forth in Section
                   ----------------
4043(c) of ERISA, other than those events as to which the thirty day notice
period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of
PBGC Reg.(S) 4043.

                  "Required Lenders":  at any time, the holders of more than 50%
                   ----------------
of the Total Commitments then in effect or, if the Commitments have been
terminated, the Total Extensions of Credit then outstanding.

                  "Requirement of Law": as to any Person, the Certificate of
                   ------------------
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.

                  "Responsible Officer": the chief executive officer, president,
                   -------------------
vice president, secretary, vice president of finance or chief financial officer
of the Borrower, but in any event, with respect to financial matters, the chief
financial officer or vice president of finance of the Borrower.

                  "Restricted Payments":  as defined in Section 7.6.
                   -------------------

                  "SCC Acquisitions": SCC Acquisition Inc., a Canadian
                   ----------------
Corporation.

                  "SCC Holdings": Sleep Country Holding Corporation, a Canadian
                   ------------
corporation.

                  "Sealy":  Sealy Mattress Company.
                   -----

                  "Sealy Supply Agreement":  the "Sealy Supply Agreement"
                   ----------------------
referred to in Schedule 7.10, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with this Agreement.

<PAGE>

                                                                              26

                   "SEC":  the Securities and Exchange Commission, any successor
                    ---
thereto and any analogous Governmental Authority.

                  "Security Documents": the collective reference to the
                   ------------------
Guarantee and Collateral Agreement, the Mortgages and all other security
documents hereafter delivered to the Administrative Agent granting a Lien on any
property of any Person to secure the obligations and liabilities of any Loan
Party under any Loan Document.

                  "Seller":  Heilig-Meyers Company.
                   ------

                  "Senior Note Indenture": the Indenture entered into by the
                   ---------------------
Borrower and certain of its Subsidiaries in connection with the issuance of the
Senior Notes, together with all instruments and other agreements entered into by
the Borrower or such Subsidiaries in connection therewith, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
Section 7.9.

                  "Senior Notes":  the notes of the Borrower issued on the
                   ------------
Closing Date together with any Exchange Notes (as defined in the Senior Note
Indenture) issued in exchange for such notes pursuant to the Senior Note
Indenture.

                  "Shrink Reserve": a reserve for shrink recorded on the
                   --------------
financial statements of the Borrower including discrepancies that arise between
the Borrower's perpetual accounting system for inventory quantities on hand and
physical counts of the inventory, as reasonably determined by the Administrative
Agent from time to time.

                  "Single Employer Plan":  any Plan that is covered by Title IV
                   --------------------
of ERISA, but that is not a Multiemployer Plan.

                  "Sleep Country": Sleep Country Canada Inc., a Canadian
                   -------------
corporation.

                  "Sleep Country Acquisition Agreement": the Share Purchase
                   -----------------------------------
Agreement dated November 4, 1999 by and among SCC Acquisitions, Sleep Country
and the shareholders of Sleep Country listed on the Seller's signature pages
attached thereto.

                  "Solvent": when used with respect to any Person, means that,
                   -------
  as of any date of determination, (a) the amount of the "present fair saleable
  value" on a going concern basis of the assets of such Person will, as of such
  date, exceed the amount of all "liabilities of such Person, contingent or
  otherwise", as of such date, as such quoted terms are determined in accordance
  with applicable federal and state laws governing determinations of the
  insolvency of debtors, (b) the present fair saleable value on a going concern
  basis of the assets of such Person will, as of such date, be greater than the
  amount that will be required to pay the liability of such Person on its debts
  as such debts become absolute and matured, (c) such Person will not have, as
  of such date, an unreasonably small amount of capital with which to conduct
  its business, and (d) such Person will be able to pay its debts as they
  mature. For purposes of this definition, (i) "debt" means liability on a
  "claim", and (ii) "claim" means any (x) right

<PAGE>

                                                                              27

 to payment, whether or not such a right is reduced to judgment, liquidated,
 unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
 legal, equitable, secured or unsecured or (y) right to an equitable remedy for
 breach of performance if such breach gives rise to a right to payment, whether
 or not such right to an equitable remedy is reduced to judgment, fixed,
 contingent, matured or unmatured, disputed, undisputed, secured or unsecured.

                  "Sponsor":  Bain Capital, L.L.C., a Delaware limited liability
                   -------
 company.

                  "Subordinated Debt": any unsecured Indebtedness of Holdings or
                   -----------------
the Borrower (other than the Senior Notes), provided, that (a) no part of the
principal of such Indebtedness is stated to be payable or is required to be paid
(whether by way of mandatory sinking fund, mandatory redemption, mandatory
prepayment or otherwise) prior to August 7, 2006; (b) the payment of the
principal of and interest on such Indebtedness and other obligations of Holdings
or the Borrower, as the case may be, in respect thereof are subordinated to the
prior payment in full of the principal of and interest (including post-petition
interest) on the Loans and all other obligations and liabilities of Holdings or
the Borrower, as the case may be, to the Administrative Agent and the Lenders
under the Loan Documents to which it is a party on the terms set forth in
Exhibit H; (c) such Indebtedness otherwise contains terms, covenants and
conditions (other than the applicable interest rate) which are either (i) no
less favorable to the Lenders than those contained in the Senior Note Indenture
or (ii) reasonably satisfactory in form and substance to the Required Lenders as
evidenced by their prior written approval thereof; (d) (i) if such Indebtedness
does not require payment of interest in cash prior to August 7, 2006, such
interest may not accrue at a rate in excess of 17% per annum or (ii) if such
Indebtedness does require payment of interest in cash prior to August 7, 2006
("Cash Pay Subordinated Debt"), the applicable interest rate shall not exceed
  ---------------------------
14%; (e) the Net Cash Proceeds of such Indebtedness are applied to make
Investments; and (f) no Default or Event of Default shall have occurred and be
continuing on a pro forma basis after giving effect thereto.
                --- -----
                  "Subordinated Seller Notes":  the subordinated notes of
                   -------------------------
Holdings issued on the Closing Date to the Seller.

                  "Subsidiary": as to any Person, a corporation, partnership,
                   ----------
limited liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person; provided, that Non-Recourse
Subsidiaries shall be deemed not to constitute "Subsidiaries" for the purposes
of this Agreement (other than within the definition of "Non-Recourse
Subsidiary). Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Borrower.

                  "Subsidiary Guarantor":  each Subsidiary of the Borrower other
                   --------------------
than any Excluded Foreign Subsidiary.

<PAGE>

                                                                              28

                  "Tax Sharing Agreement":  the Tax Sharing Agreement among
                   ---------------------
Mattress Discounters Holding L.L.C., Holdings, the Borrower, TJB, Bedding
Experts and Comfort Source Mattress Company, dated as of August 6, 1999.

                  "Termination Date":  February 15, 2004.
                   ----------------

                  "TJB": T.J.B., Inc., a Maryland corporation.
                   ---

                  "Total Commitments":  the Total Tranche A Commitments or the
                   -----------------
Total Tranche B Commitments, as applicable.

                  "Total Extensions of Credit":  the Total Tranche A Extensions
                   --------------------------
of Credit or the Total Tranche B Extensions of Credit, as applicable.

                  "Total Tranche A Commitments":  at any time, the aggregate
                   ---------------------------
amount of the Tranche A Commitments then in effect.

                  "Total Tranche A Extensions of Credit":  at any time, the
                   ------------------------------------
aggregate amount of the Tranche A Extensions of Credit of the Lenders
outstanding at such time.

                  "Total Tranche B Commitments":  at any time, the aggregate
                   ---------------------------
amount of the Tranche B Commitments then in effect.

                  "Total Tranche B Extensions of Credit":  at any time, the
                   ------------------------------------
aggregate amount of the Tranche B Extensions of Credit of the Lenders
outstanding at such time.

                  "Tranche A Commitment": as to any Lender, the obligation of
                   --------------------
such Lender, if any, to make Loans and participate in Letters of Credit in an
aggregate principal and/or face amount not to exceed the amount set forth under
the heading "Tranche A Commitment" opposite such Lender's name on Schedule 1.1A
or in the Assignment and Acceptance pursuant to which such Lender became a party
hereto, as the same may be changed from time to time pursuant to the terms
hereof. The original amount of the Total Tranche A Commitments is $17,500,000.

                  "Tranche A Extensions of Credit": as to any Tranche A Lender
                   ------------------------------
at any time, an amount equal to the sum of (a) the aggregate principal amount of
all Tranche A Loans held by such Lender then outstanding and (b) such Lender's
Percentage of the L/C Obligations then outstanding.

                  "Tranche A Lender":  any Lender that has a Tranche A
                   ----------------
Commitment or that holds Tranche A Loans.

<PAGE>

                                                                              29

                  "Tranche A Loans":  as defined in Section 2.1(a).
                   ---------------

                  "Tranche A Percentage": as to any Lender at any time, the
                   --------------------
percentage which such Lender's Tranche A Commitment then constitutes of the
Total Tranche A Commitments (or, at any time after the Tranche A Commitments
shall have expired or terminated, the percentage which the aggregate principal
amount of such Lender's Tranche A Loans then outstanding constitutes of the
aggregate principal amount of the Tranche A Loans then outstanding).

                  "Tranche A Termination Date": the date on which the Tranche A
                   --------------------------
Commitments have been terminated and all Tranche A Loans and accrued interest
thereon, all other amounts owing to the Tranche A Lenders under the Loan
Documents have been paid in full (other than indemnification claims that have
not been invoiced) and all Letters of Credit have been terminated or cash
collateralized on terms reasonably satisfactory to the Administrative Agent.

                  "Tranche B Commitment": as to any Lender, the obligation of
                   --------------------
such Lender, if any, to make Loans in an aggregate principal amount not to
exceed the amount set forth under the heading "Tranche B Commitment" opposite
such Lender's name on Schedule 1.1A or in the Assignment and Acceptance pursuant
to which such Lender became a party hereto, as the same may be changed from time
to time pursuant to the terms hereof. The original amount of the Total Tranche B
Commitments is $12,500,000.

                  "Tranche B Extensions of Credit": as to any Tranche B Lender
                   ------------------------------
at any time, an amount equal to the aggregate principal amount of all Tranche B
Loans held by such Lender then outstanding.

                  "Tranche B Lender":  any Lender that has a Tranche B
                   ----------------
Commitment or that holds Tranche B Loans.

                  "Tranche B Loans":  as defined in Section 2.1(a).
                   ---------------

                  "Tranche B Percentage": as to any Lender at any time, the
                   --------------------
percentage which such Lender's Tranche B Commitment then constitutes of the
Total Tranche B Commitments (or, at any time after the Tranche B Commitments
shall have expired or terminated, the percentage which the aggregate principal
amount of such Lender's Tranche B Loans then outstanding constitutes of the
aggregate principal amount of the Tranche B Loans then outstanding).

                  "Transferee":  any Assignee or Participant.
                   ----------

                  "Type":  as to any Loan, its nature as an ABR Loan or a
                   ----
Eurodollar Loan.

                  "United States":  the United States of America.
                   -------------

<PAGE>

                                                                              30

                  "Wholly Owned Subsidiary": as to any Person, any other Person
                   -----------------------
all of the Capital Stock of which (other than directors' qualifying shares
and/or other nominal amounts of shares, each as required by law) is owned by
such Person directly and/or through other Wholly Owned Subsidiaries.

                  "Wholly Owned Subsidiary Guarantor":  any Subsidiary Guarantor
                   ---------------------------------
that is a Wholly Owned Subsidiary of the Borrower.

                  1.2. Other Definitional Provisions. (a) Unless otherwise
                       -----------------------------
specifiedtherein, all terms defined in this Agreement shall have the defined
meanings when used in the other Loan Documents or any certificate or other
document made or delivered pursuant hereto or thereto.

                  (b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto, (i)
accounting terms relating to Holdings, the Borrower and their respective
Subsidiaries not defined in Section 1.1 and accounting terms partly defined in
Section 1.1, to the extent not defined, shall have the respective meanings given
to them under GAAP, (ii) the words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation", (iii) the word
"incur" shall be construed to mean incur, create, issue, assume, become liable
in respect of or suffer to exist (and the words "incurred" and "incurrence"
shall have correlative meanings), and (iv) the words "asset" and "property"
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties, including cash, Capital
Stock, securities, revenues, accounts, leasehold interests and contract rights.

                  (c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.

                  (d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.

                   SECTION 2. AMOUNT AND TERMS OF COMMITMENTS

                  2.1. Commitments. (a) Subject to the terms and conditions
                       -----------
hereof, (i) each Tranche A Lender severally agrees to make revolving credit
loans ("Tranche A Loans") to the Borrower from time to time during the
        ---------------
Commitment Period in an aggregate principal amount at any one time outstanding
which, when added to such Lender's Percentage of the L/C Obligations then
outstanding, does not exceed the lesser of (x) such Lender's Tranche A
Commitment and (y) such Lender's Tranche A Percentage of the Borrowing Base then
in effect and (ii) each Tranche B Lender severally agrees to make revolving
credit loans ("Tranche B Loans") to the Borrower from time to time during the
               ---------------
Commitment Period in an aggregate principal amount at any one time outstanding
which does not exceed such Lender's Tranche B Commitment. During the Commitment
Period the Borrower may use the Commitments by borrowing, prepaying the Loans in
whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof. It is understood that, effective on the Restatement Effective
Date, with respect to "Loans"

<PAGE>

                                                                              31

outstanding under the Existing Credit Agreement on such date, $17,500,000 of
such "Loans" shall automatically become Tranche A Loans and $2,500,000 of such
"Loans" shall be refinanced with Tranche B Loans. The Loans may from time to
time be Eurodollar Loans or ABR Loans, as determined by the Borrower and
notified to the Administrative Agent in accordance with Sections 2.2 and 2.7.
The Tranche B Commitments shall automatically be increased by the amount of any
reduction in the Tranche A Commitments pursuant to Section 2.6(f) effective on
the date of such reduction. Any such increase shall ratably increase the Tranche
B Commitments of the Tranche B Lenders. It is understood that the Borrower may
finance any required prepayment of Tranche A Loans resulting from such
commitment reduction with Tranche B Loans.

            (b)  The Borrower shall repay all outstanding Loans on the
Termination Date.

            2.2. Procedure for Loan Borrowing. The Borrower may borrow under the
                 ----------------------------
Commitments during the Commitment Period on any Business Day, provided that the
Borrower shall give the Administrative Agent irrevocable notice (which notice
must be received by the Administrative Agent prior to 12:00 Noon, New York City
time, (a) three Business Days prior to the requested Borrowing Date, in the case
of Eurodollar Loans, or (b) on the requested Borrowing Date, in the case of ABR
Loans), specifying (i) the amount and Type of Loans to be borrowed and whether
such Loans are Tranche A Loans or Tranche B Loans, (ii) the requested Borrowing
Date and (iii) in the case of Eurodollar Loans, the respective amounts of each
such Type of Loan and the respective lengths of the initial Interest Period
therefor. Each borrowing under the Commitments shall be in an amount equal to
(x) in the case of ABR Loans, $500,000 or a whole multiple thereof (or, if the
then aggregate relevant Available Commitments are less than $100,000, such
lesser amount) and (y) in the case of Eurodollar Loans, $1,000,000 or a whole
multiple of $100,000 in excess thereof. Upon receipt of any such notice from the
Borrower, the Administrative Agent shall promptly notify each Lender thereof.
Each Lender will make the amount of its pro rata share of each borrowing
available to the Administrative Agent for the account of the Borrower at the
Funding Office prior to 12:00 Noon, New York City time, on the Borrowing Date
requested by the Borrower in funds immediately available to the Administrative
Agent. Such borrowing will then be made available to the Borrower by the
Administrative Agent crediting the account of the Borrower on the books of such
office with the aggregate of the amounts made available to the Administrative
Agent by the Lenders and in like funds as received by the Administrative Agent.

            2.3. Commitment Fees, etc. (a) The Borrower agrees to pay to the
                 --------------------
Administrative Agent for the account of each Tranche A Lender a commitment fee
for the period from and including the Closing Date to the last day of the
Commitment Period, computed at the Commitment Fee Rate on the average daily
amount of the Available Tranche A Commitment of such Lender during the period
for which payment is made, payable quarterly in arrears on the last day of each
March, June, September and December and on the Termination Date.

            (b) The Borrower agrees to pay to the Administrative Agent a
monitoring fee in an amount equal to $30,000 per annum, payable annually in
advance on the Restatement Effective Date, the first anniversary thereof and the
second anniversary thereof (for the period ending on the Termination Date). If
on the Termination Date the Commitments have not been terminated, any amounts
remain owing hereunder or any Letter of Credit remains outstanding, such fee
shall continue to be payable monthly in advance (on a ratable basis).

<PAGE>

                                                                              32

             (c) In addition, the Borrower agrees to pay to the Administrative
Agent the fees in the amounts and on the dates previously agreed to in writing
by the Borrower and the Administrative Agent.

            2.4. Termination or Reduction of Commitments. The Borrower shall
                 ---------------------------------------
have the right, upon not less than three Business Days' (or such shorter time as
the Administrative Agent shall agree to) notice to the Administrative Agent, to
terminate the Commitments or, from time to time, to reduce the amount of the
Commitments; provided that no such termination or reduction of Commitments shall
be permitted if, after giving effect thereto and to any prepayments of the Loans
made on the effective date thereof, the Total Extensions of Credit would exceed
the Total Commitments. Any such reduction shall be in an amount equal to
$1,000,000, or a whole multiple thereof, and shall reduce permanently the
Commitments then in effect. No Tranche B Commitment may be reduced or terminated
until after the Tranche A Termination Date.

            2.5. Optional Prepayments. The Borrower may at any time and from
                 --------------------
time to time prepay the Loans, in whole or in part, without premium or penalty,
upon irrevocable notice delivered to the Administrative Agent at least three
Business Days prior thereto in the case of Eurodollar Loans and at least one
Business Day prior thereto in the case of ABR Loans, which notice shall specify
the date and amount of prepayment and whether the prepayment is of Eurodollar
Loans or ABR Loans; provided, that if a Eurodollar Loan is prepaid on any day
other than the last day of the Interest Period applicable thereto, the Borrower
shall also pay any amounts owing pursuant to Section 2.15. Upon receipt of any
such notice the Administrative Agent shall promptly notify each relevant Lender
thereof. If any such notice is given, the amount specified in such notice shall
be due and payable on the date specified therein, together with (except in the
case of Loans that are ABR Loans) accrued interest to such date on the amount
prepaid. Partial prepayments of Loans shall be in an aggregate principal amount
of $1,000,000 or a whole multiple thereof. No Tranche B Loan may be prepaid
until after the Tranche A Termination Date.

            2.6. Mandatory Prepayments and Commitment Reductions. (a) If any
                 -----------------------------------------------
Indebtedness shall be incurred by Holdings, the Borrower or any of their
respective Subsidiaries (excluding any Indebtedness incurred in accordance with
Section 7.2), an amount equal to 100% of the Net Cash Proceeds thereof shall be
applied on the date of such incurrence toward the reduction of the Commitments.

            (b)  If any Capital Stock shall be issued by Holdings, the Borrower
or any of their respective Subsidiaries, an amount equal to 50% of the Net Cash
Proceeds thereof (excluding such Net Cash Proceeds received (i) from
intercompany capital contributions made by Holdings, the Borrower or any of
their respective Subsidiaries, (ii) from the Permitted Investors (other than
Randolph Street Partners except to the extent its contribution is made on a pro
                                                                            ---
rata basis), (iii) by Holdings, the Borrower or any of their respective
----
Subsidiaries as payment for any shares of Capital Stock of Holdings, the
Borrower or any of their respective Subsidiaries purchased by, or the exercise
price under any option for any shares of Capital Stock of Holdings, the Borrower
or any of their respective Subsidiaries held by, any officer, director or
employee or consultant of Holdings, the Borrower or any of their respective
Subsidiaries and (iv) by Holdings or the Borrower as consideration for shares of
Capital Stock issued in connection with a Permitted Acquisition, provided that
the aggregate Net Cash Proceeds which may be excluded under this Agreement
pursuant to clause (iv) shall not exceed $20,000,000) shall be applied on the
date of such issuance toward the reduction of the Commitments; provided, that
                                                               --------
such percentage shall be reduced to 25% if the Consolidated Total Debt Ratio
immediately prior to giving effect to such application

<PAGE>

                                                                              33

(determined as at the end of the most recent period of four consecutive fiscal
quarters for which the relevant financial information is available) is not
greater than 3.50 to 1.0.

            (c) If on any date Holdings, the Borrower or any of their respective
Subsidiaries shall receive Net Cash Proceeds from any Asset Sale then, unless a
Reinvestment Notice shall be delivered in respect thereof, such Net Cash
Proceeds shall be applied on such date toward the reduction of the Commitments;
provided that, notwithstanding the foregoing, (i) the aggregate Net Cash
--------
Proceeds of Asset Sales that may be excluded from the foregoing requirement
pursuant to a Reinvestment Notice shall not exceed $750,000 in any fiscal year
of the Borrower and (ii) on each Reinvestment Prepayment Date, an amount equal
to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment
Event shall be applied toward the reduction of the Commitments.

            (d) If on any date Holdings, the Borrower or any of their respective
Subsidiaries shall receive Net Cash Proceeds from any Recovery Event then,
unless a Reinvestment Notice shall be delivered in respect thereof, such Net
Cash Proceeds shall be applied on such date toward the reduction of the
Commitments; provided that, notwithstanding the foregoing, (i) the aggregate Net
             --------
Cash Proceeds of Recovery Events that may be excluded from the foregoing
requirement pursuant to a Reinvestment Notice shall not exceed $1,500,000 in any
fiscal year of the Borrower and (ii) on each Reinvestment Prepayment Date, an
amount equal to the Reinvestment Prepayment Amount with respect to the relevant
Reinvestment Event shall be applied toward the reduction of the Commitments.

            (e) If, for any fiscal year of the Borrower there shall be Excess
Cash Flow, the Borrower shall, on the relevant Excess Cash Flow Application
Date, prepay the Loans in an amount equal to the ECF Percentage of such Excess
Cash Flow. Each such prepayment shall be made on a date (an "Excess Cash Flow
                                                             ----------------
Application Date") no later than five days after the earlier of (i) the date on
----------------
which the financial statements of the Borrower referred to in Section 6.1(a),
for the fiscal year with respect to which such prepayment is made, are required
to be delivered to the Lenders and (ii) the date such financial statements are
actually delivered.

            (f) The Tranche A Commitments shall automatically be reduced by
$250,000 on the last day of each calendar quarter, commencing on March 31, 2002.

            (g) Any Commitment reductions made pursuant to Section 2.6 shall be
applied to the Tranche A Commitments until the Tranche A Termination Date and,
except in the case of paragraph (f), shall thereafter be applied to the Tranche
B Commitments. Any such Commitment reductions shall be permanent and shall be
accompanied by prepayment of the relevant Loans to the extent, if any, that the
relevant Total Extensions of Credit exceed the amount of the relevant Total
Commitments as so reduced, provided that, in the case of the Tranche A
                           --------
Commitments, if the aggregate principal amount of Tranche A Loans then
outstanding is less than the amount of such excess (because L/C Obligations
constitute a portion thereof), the Borrower shall, to the extent of the balance
of such excess, replace outstanding Letters of Credit and/or deposit an amount
in cash in a cash collateral account established with the Administrative Agent
for the benefit of the Tranche A Lenders on terms and conditions reasonably
satisfactory to the Administrative Agent.

<PAGE>

                                                                              34

            (h) If on any date the Total Tranche A Extensions of Credit exceed
the lesser of (i) the Borrowing Base then in effect and (ii) the Total Tranche A
Commitments, the Borrower shall on such date prepay the Tranche A Loans in an
amount equal to the amount of such excess, provided that if the aggregate
                                           --------
principal amount of Tranche A Loans then outstanding is less than the amount of
such excess (because L/C Obligations constitute a portion thereof), the Borrower
shall, to the extent of the balance of such excess, replace outstanding Letters
of Credit and/or deposit an amount in cash in a cash collateral account
established with the Administrative Agent for the benefit of the Tranche A
Lenders on terms and conditions reasonably satisfactory to the Administrative
Agent.

            (i) Notwithstanding anything to the contrary in this Agreement, if
any Participation Agreement provides that amounts received in respect of the
relevant participated Loans may not be applied in respect of such Loans but
shall instead be applied as provided in this Agreement, the Administrative Agent
shall, to the extent it receives any such amounts (and each Lender agrees to
remit any such amounts received by it to the Administrative Agent), apply such
amounts, first, to prepay the Tranche A Loans and accrued interest thereon,
         -----
second, to pay any fees then due and owing under Section 2.3(a) or 3.3(a),
------
third, to the extent of any L/C Obligations then outstanding, to be deposited in
-----
a cash collateral account established with the Administrative Agent for the
benefit of the Tranche A Lenders on terms and conditions reasonably satisfactory
to the Administrative Agent, fourth, to pay any other amounts owing by the
                             ------
Borrower to the Administrative Agent and the Lenders, allocated ratably among
them, and, fifth, subject to the occurrence of the Tranche A Termination Date,
           -----
to prepay the Tranche B Loans and accrued interest thereon.

            (j) The application of any prepayment pursuant to this Section 2.6
shall be made, first, to ABR Loans and, second, to Eurodollar Loans. Each
               -----                    ------
prepayment of the Loans under this Section 2.6 shall be accompanied by accrued
interest to the date of such prepayment on the amount prepaid.

            2.7.Conversion and Continuation Options. (a) The Borrower may elect
                -----------------------------------
from time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent at least two Business Days' prior irrevocable (subject to
Sections 2.11 and 2.13) notice of such election, provided that any such
conversion of Eurodollar Loans may only be made on the last day of an Interest
Period with respect thereto. The Borrower may elect from time to time to convert
ABR Loans to Eurodollar Loans by giving the Administrative Agent at least three
Business Days' prior irrevocable (subject to Sections 2.11 and 2.13) notice of
such election (which notice shall specify the length of the initial Interest
Period therefor), provided that no ABR Loan may be converted into a Eurodollar
Loan when any Event of Default has occurred and is continuing and the
Administrative Agent or the Required Lenders have determined in its or their
sole discretion not to permit such conversions. Upon receipt of any such notice
the Administrative Agent shall promptly notify each relevant Lender thereof.

            (b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
irrevocable (subject to Sections 2.11 and 2.13) notice to the Administrative
Agent, in accordance with the applicable provisions of the term "Interest
Period" set forth in Section 1.1, of the length of the next Interest Period to
be applicable to such Loans, provided that no Eurodollar Loan may be continued
                             --------
as such when any Event of Default has occurred and is continuing and the
Administrative Agent has or the Required Lenders have determined in its or their
sole discretion not to permit such continuations, and provided, further, that if
                                                      --------  -------
the Borrower shall fail to give any required notice as described above in this
paragraph or if such continuation is not permitted pursuant to the preceding
proviso such Loans shall be automatically converted to ABR Loans

<PAGE>

                                                                              35

on the last day of such then expiring Interest Period. Upon receipt of any such
notice the Administrative Agent shall promptly notify each relevant Lender
thereof.

            2.8. Limitations on Eurodollar Tranches. Notwithstanding anything to
                 ----------------------------------
the contrary in this Agreement, all borrowings, conversions and continuations of
Eurodollar Loans hereunder and all selections of Interest Periods hereunder
shall be in such amounts and be made pursuant to such elections so that, (a)
after giving effect thereto, the aggregate principal amount of the Eurodollar
Loans comprising each Eurodollar Tranche shall be equal to $1,000,000 or a whole
multiple of $100,000 in excess thereof and (b) no more than ten Eurodollar
Tranches shall be outstanding at any one time.

            2.9. Interest Rates and Payment Dates.  (a)  Each Eurodollar
                 --------------------------------
Loan shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.

            (b)  Each ABR Loan shall bear interest at a rate per annum equal to
the ABR plus the Applicable Margin.

            (c)  (i) If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate per annum equal to (x) in the case of the Loans, the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
Section plus 2% or (y) in the case of Reimbursement Obligations, the rate
        ----
applicable to ABR Loans plus 2%, and (ii) if all or a portion of any interest
                        ----
payable on any Loan or Reimbursement Obligation or any commitment fee or other
amount payable hereunder shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate per annum equal to the rate then applicable to ABR Loans plus 2%, in
                                                                   ----
each case, with respect to clauses (i) and (ii) above, from the date of such
non-payment until such amount is paid in full (as well after as before
judgment).

            (d)  Interest shall be payable in arrears on each Interest Payment
Date (except as otherwise provided in any Participation Agreement with respect
to Loans participated thereunder ("Participation Interest Accruals")), provided
                                   -------------------------------     --------
that interest accruing pursuant to paragraph (c) of this Section shall be
payable from time to time on demand. Participation Interest Accruals shall bear
interest at the rate then applicable to the relevant Loans and shall be payable
(together with such interest) when such accrual is no longer required by the
relevant Participation Agreement.

            2.10.Computation of Interest and Fees. (a) Interest and fees
                 --------------------------------
payable pursuant hereto shall be calculated on the basis of a 360-day year for
the actual days elapsed, except that, with respect to ABR Loans the rate of
interest on which is calculated on the basis of the Prime Rate, the interest
thereon shall be calculated on the basis of a 365- (or 366-, as the case may be)
day year for the actual days elapsed. The Administrative Agent shall as soon as
practicable notify the Borrower and the Lenders of each determination of a
Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the ABR or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify the
Borrower and the Lenders of the effective date and the amount of each such
change in interest rate.

<PAGE>

                                                                              36

          (b)   Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.9(a).

          2.11. Inability to Determine Interest Rate. If prior to the first day
                -------------------------------------
of any Interest Period:

          (a)   the Administrative Agent shall have determined (which
     determination shall be conclusive and binding upon the Borrower) that, by
     reason of circumstances affecting the relevant market, adequate and
     reasonable means do not exist for ascertaining the Eurodollar Rate for such
     Interest Period, or

          (b)   the Administrative Agent shall have received notice from the
     Required Lenders that the Eurodollar Rate determined or to be determined
     for such Interest Period will not adequately and fairly reflect the cost to
     such Lenders (as conclusively certified by such Lenders) of making or
     maintaining their affected Loans during such Interest Period,

the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter, whereupon (i) no
Loans may be made or continued as, or converted to, Eurodollar Loans, until such
time as the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist (such notification not
to be unreasonably withheld or delayed) and (ii) any notice of borrowing,
conversion or continuation given by the Borrower with respect to the Loans in
respect of which such determination was made shall be deemed to be rescinded by
the Borrower.

          2.12. Pro Rata Treatment and Payments. (a) Each borrowing by the
                -------------------------------
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee and any reduction of the Commitments of the Lenders shall be
made pro rata according to the respective Percentages of the Lenders under the
relevant Facility.

          (b)   Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Loans shall be made pro rata
                                                                --- ----
according to the respective outstanding principal amounts of the Loans then held
by the Lenders under the relevant Facility.

          (c)   All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Funding Office, in Dollars and in immediately
available funds. The Administrative Agent shall distribute such payments to the
Lenders promptly upon receipt in like funds as received. If any payment
hereunder (other than payments on the Eurodollar Loans) becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day. If any payment on a Eurodollar Loan becomes due and
payable on a day other

<PAGE>

                                                                              37

than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day unless the result of such extension would be to extend
such payment into another calendar month, in which event such payment shall be
made on the immediately preceding Business Day. In the case of any extension of
any payment of principal pursuant to the preceding two sentences, interest
thereon shall be payable at the then applicable rate during such extension.

          (d)   Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this paragraph shall be conclusive in the
absence of manifest error. If such Lender's share of such borrowing is not made
available to the Administrative Agent by such Lender within three Business Days
of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
ABR Loans, on demand, from the Borrower. Notwithstanding anything contained in
this Section 2.12(d), if the Administrative Agent demands repayment pursuant to
the preceding sentence the Borrower shall not be required to pay any amount
pursuant to Section 2.15 in connection with such repayment.

          (e)   Unless the Administrative Agent shall have been notified in
writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
                                                                --- ----
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.

          2.13. Requirements of Law. (a) If the adoption of or any change in any
                -------------------
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority made subsequent to
the Closing Date:

                (i)  shall subject any Lender to any tax of any kind whatsoever
     with respect to this Agreement, any Letter of Credit, any Application or
     any Eurodollar Loan made by it, or change the basis of taxation of payments
     to such Lender in respect thereof (except for Non-Excluded Taxes covered by
     Section 2.14 and changes in the rate of tax on the overall net income of
     such Lender);

<PAGE>

                                                                              38

                (ii)  shall impose, modify or hold applicable any reserve,
     special deposit, compulsory loan or similar requirement against assets held
     by, deposits or other liabilities in or for the account of, advances, loans
     or other extensions of credit by, or any other acquisition of funds by, any
     office of such Lender that is not otherwise included in the determination
     of the Eurodollar Rate hereunder; or

                (iii) shall impose on such Lender any other condition;

and the result of any of the foregoing is to increase the cost to such Lender,
by an amount that such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
within 15 Business Days of the receipt of its demand accompanied by
documentation supporting such reimbursement request, any additional amounts
necessary to compensate such Lender for such increased cost or reduced amount
receivable. If any Lender becomes entitled to claim any additional amounts
pursuant to this paragraph, it shall promptly notify the Borrower (with a copy
to the Administrative Agent) of the event by reason of which it has become so
entitled.

          (b)   If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the Closing Date shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction;
provided that the Borrower shall not be required to compensate a Lender pursuant
--------
to this paragraph for any amounts incurred more than six months prior to the
date that such Lender notifies the Borrower of such Lender's intention to claim
compensation therefor; and provided further that, if the circumstances giving
                           ----------------
rise to such claim have a retroactive effect, then such six-month period shall
be extended to include the period of such retroactive effect.

          (c)   A certificate as to any additional amounts payable pursuant to
this Section submitted by any Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrower pursuant to this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.

          2.14. Taxes. (a) All payments made by the Borrower under this
                -----
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Administrative Agent or any Lender as a result
of a present or former connection between the Administrative Agent or

<PAGE>

                                                                              39

such Lender and the jurisdiction of the Governmental Authority imposing such tax
or any political subdivision or taxing authority thereof or therein (other than
any such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld
from any amounts payable to the Administrative Agent or any Lender hereunder,
the amounts so payable to the Administrative Agent or such Lender shall be
increased to the extent necessary to yield to the Administrative Agent or such
Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, provided, however, that the Borrower shall not be required to
increase any such amounts payable to any Lender with respect to any Non-Excluded
Taxes (i) that are attributable to such Lender's failure to comply with the
requirements of paragraph (d) or (e) of this Section or (ii) that are United
States withholding taxes imposed on amounts payable to such Lender at the time
the Lender becomes a party to this Agreement, except to the extent that such
Lender's assignor (if any) was entitled, at the time of assignment, to receive
additional amounts from the Borrower with respect to such Non-Excluded Taxes
pursuant to this paragraph.

          (b)   In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.

          (c)   Whenever any Non-Excluded Taxes or Other Taxes are payable by
the Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for its own account or for the account of the relevant
Lender, as the case may be, a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the Borrower fails to pay
any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure.

          (d)   Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
                                                    ---------------
deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form W-8BEN or
Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S.
federal withholding tax under Section 871(h) or 881(c) of the Code with respect
to payments of "portfolio interest", a statement substantially in the form of
Exhibit G and a Form W-8BEN, or any subsequent versions thereof or successors
thereto, properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Borrower under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases the related participation). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this paragraph, a Non-U.S. Lender shall not be

<PAGE>

                                                                              40

required to deliver any form pursuant to this paragraph that such Non-U.S.
Lender is not legally able to deliver.

          (e)   A Lender that is entitled to an exemption from or reduction of
non-U.S. withholding tax under the law of the jurisdiction in which the Borrower
is located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law or
reasonably requested by the Borrower, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be
made without withholding or at a reduced rate, provided that such Lender is
                                               --------
legally entitled to complete, execute and deliver such documentation and in such
Lender's judgment such completion, execution or submission would not materially
prejudice the legal position of such Lender.

          (f)   If Administrative Agent or any Lender receives a refund in
respect of any amounts paid by the Borrower pursuant to this Section 2.14, which
refund in the sole judgment of the Administrative Agent or such Lender is
allocable to such payment, it shall promptly notify the Borrower and shall,
within 15 Business Days after receipt, repay such refund to the Borrower net of
all out-of-pocket expenses of the Administrative Agent or such Lender; provided,
                                                                       --------
that the Borrower, upon the request of the Administrative Agent or any Lender,
agrees to promptly repay, within 15 Business Days of the receipt of demand
therefor accompanied by documentation supporting such request, the amount paid
over to the Administrative Agent or such Lender in the event the Administrative
Agent or such Lender is required to repay such refund to the relevant tax
authority.

          (g)   The agreements in this Section shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder.

          2.15. Indemnity. The Borrower agrees to indemnify each Lender and to
                ---------
hold each Lender harmless from any loss or expense that such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment of or conversion
from Eurodollar Loans after the Borrower has given a notice thereof in
accordance with the provisions of this Agreement or (c) the making of a
prepayment of Eurodollar Loans on a day that is not the last day of an Interest
Period with respect thereto. Such indemnification may include an amount equal to
the excess, if any, of (i) the amount of interest that would have accrued on the
amount so prepaid, or not so borrowed, converted or continued, for the period
from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of such Interest Period (or, in the case of a failure
to borrow, convert or continue, the Interest Period that would have commenced on
the date of such failure) in each case at the applicable rate of interest for
such Loans provided for herein (excluding, however, the Applicable Margin
included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) that would have accrued to such Lender on such amount
by placing such amount on deposit for a comparable period with leading banks in
the interbank eurodollar market. A certificate as to any amounts payable
pursuant to this Section submitted to the Borrower by any Lender shall be
conclusive in the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.

<PAGE>

                                                                              41

          2.16. Change of Lending Office. Each Lender agrees that, upon the
                ------------------------
occurrence of any event giving rise to the operation of Section 2.13 or 2.14(a)
with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided, that such
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section shall affect
or postpone any of the obligations of any Borrower or the rights of any Lender
pursuant to Section 2.13 or 2.14(a).

          2.17. Replacement of Lenders. The Borrower shall be permitted to
                ----------------------
replace any Lender that (a) requests reimbursement for amounts owing pursuant to
Section 2.13 or 2.14(a), (b) defaults in its obligation to make Loans hereunder,
with a replacement financial institution or (c) fails to comply with a proposed
change, waiver, discharge or termination under the Loan Documents otherwise
approved by the Required Lenders (it being understood that no such failure shall
be deemed to arise solely from the failure of such Lender to vote in favor of
such change, waiver, discharge or termination); provided that (i) such
replacement does not conflict with any Requirement of Law, (ii) no Event of
Default shall have occurred and be continuing at the time of such replacement,
(iii) prior to any such replacement, such Lender shall have taken no action
under Section 2.16 so as to eliminate the continued need for payment of amounts
owing pursuant to Section 2.13 or 2.14(a), (iv) the replacement financial
institution shall purchase, at par, all Loans and other amounts owing to such
replaced Lender on or prior to the date of replacement, (v) unless clause (b)
above is applicable, the Borrower shall be liable to such replaced Lender under
Section 2.15 if any Eurodollar Loan owing to such replaced Lender shall be
purchased other than on the last day of the Interest Period relating thereto,
(vi) the replacement financial institution, if not already a Lender, shall be
reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender
shall be obligated to make such replacement in accordance with the provisions of
Section 10.6 (provided that the Borrower shall be obligated to pay the
registration and processing fee referred to therein), (viii) until such time as
such replacement shall be consummated, the Borrower shall pay all additional
amounts (if any) required pursuant to Section 2.13 or 2.14(a), as the case may
be, and (ix) any such replacement shall not be deemed to be a waiver of any
rights that the Borrower, the Administrative Agent or any other Lender shall
have against the replaced Lender.

                          SECTION 3. LETTERS OF CREDIT

          3.1.  L/C Commitment. (a) Subject to the terms and conditions hereof,
                --------------
the Issuing Lender, in reliance on the agreements of the other Tranche A Lenders
set forth in Section 3.4(a), agrees to issue letters of credit ("Letters of
                                                                 ----------
Credit") for the account of the Borrower on any Business Day during the
------
Commitment Period in such form as may be approved from time to time by the
Issuing Lender; provided that the Issuing Lender shall have no obligation to
issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C
Obligations would exceed the L/C Commitment or (ii) the Total Tranche A
Extensions of Credit would exceed the lesser of (x) the Total Tranche A
Commitments and (y) the Borrowing Base then in effect. Each Letter of Credit
shall (i) be denominated in Dollars, (ii) have a face amount of at least
$100,000 (unless otherwise agreed by the Issuing Lender) and (iii) expire no
later than the earlier of (x) the first anniversary of its date of issuance and
(y) the date that is five Business Days prior to the Termination Date, provided
that any Letter of Credit with a one-year term may provide for the renewal
thereof for additional one-year periods (which shall in no event extend beyond
the date referred to in clause (y) above).

<PAGE>

                                                                              42

          (b)   The Issuing Lender shall not at any time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
the Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.

          3.2.  Procedure for Issuance of Letter of Credit. The Borrower may
                ------------------------------------------
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The
Issuing Lender shall promptly furnish to the Administrative Agent, which shall
in turn promptly furnish to the Tranche A Lenders, notice of the issuance of
each Letter of Credit (including the amount thereof).

          3.3.  Fees and Other Charges. (a) The Borrower will pay a fee on all
                ----------------------
outstanding Letters of Credit at a per annum rate equal to the Applicable Margin
then in effect with respect to Eurodollar Loans, shared ratably among the
Tranche A Lenders and payable quarterly in arrears on each L/C Fee Payment Date
after the issuance date. In addition, the Borrower shall pay to the Issuing
Lender for its own account a fronting fee of 0.25% per annum on the undrawn and
unexpired amount of each Letter of Credit, payable quarterly in arrears on each
L/C Fee Payment Date after the Issuance Date.

          (b)   In addition to the foregoing fees, the Borrower shall pay or
reimburse the Issuing Lender for such normal and customary costs and expenses as
are incurred or charged by the Issuing Lender in issuing, negotiating, effecting
payment under, amending or otherwise administering any Letter of Credit.

          3.4.  L/C Participations. (a) The Issuing Lender irrevocably agrees to
                ------------------
grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Percentage in the Issuing Lender's obligations and rights under
each Letter of Credit issued hereunder and the amount of each draft paid by the
Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably
agrees with the Issuing Lender that, if a draft is paid under any Letter of
Credit for which the Issuing Lender is not reimbursed in full by the Borrower in
accordance with the terms of this Agreement, such L/C Participant shall pay to
the Issuing Lender upon demand at the Issuing Lender's address for notices
specified herein an amount equal to such L/C Participant's Percentage of the
amount of such draft, or any part thereof, that is not so reimbursed.

<PAGE>

                                                                              43

          (b)   If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by the Issuing Lender under any Letter of Credit is paid to
the Issuing Lender within three Business Days after the date such payment is
due, such L/C Participant shall pay to the Issuing Lender on demand an amount
equal to the product of (a) such amount, times (b) the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to the
Issuing Lender, times (c) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, the Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to ABR Loans. A certificate of the Issuing Lender submitted to any
L/C Participant with respect to any amounts owing under this Section shall be
conclusive in the absence of manifest error.

          (c)   Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its pro
                                                                         ---
rata share of such payment in accordance with Section 3.4(a), the Issuing Lender
----
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Lender), or any payment of interest on account thereof, the Issuing
Lender will distribute to such L/C Participant its pro rata share thereof;
                                                   --- ----
provided, however, that in the event that any such payment received by the
--------  -------
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.

          3.5.  Reimbursement Obligation of the Borrower. The Borrower agrees to
                ----------------------------------------
reimburse the Issuing Lender on each date on which the Issuing Lender notifies
the Borrower of the date and amount of a draft presented under any Letter of
Credit and paid by the Issuing Lender for the amount of (a) such draft so paid
and (b) any taxes, fees, charges or other costs or expenses incurred by the
Issuing Lender in connection with such payment. Each such payment shall be made
to the Issuing Lender at its address for notices specified herein in lawful
money of the United States and in immediately available funds. Interest shall be
payable on any and all amounts remaining unpaid by the Borrower under this
Section from the date such amounts become payable (whether at stated maturity,
by acceleration or otherwise) until payment in full at the rate set forth in (i)
until the second Business Day following the date of the applicable drawing,
Section 2.9(b) and (ii) thereafter, Section 2.9(c).

          3.6.  Obligations Absolute. The Borrower's obligations under this
                --------------------
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment that the
Borrower may have or have had against the Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrower also agrees with the Issuing
Lender that the Issuing Lender shall not be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee. The Issuing Lender
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions

<PAGE>

                                                                              44

resulting from the bad faith, gross negligence or willful misconduct of the
Issuing Lender. The Borrower agrees that any action taken or omitted by the
Issuing Lender under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of bad faith, gross negligence or
willful misconduct and in accordance with the standards of care specified in the
Uniform Commercial Code of the State of New York, shall be binding on the
Borrower and shall not result in any liability of the Issuing Lender to the
Borrower.

          3.7.  Letter of Credit Payments. If any draft shall be presented for
                -------------------------
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.

          3.8.  Applications. To the extent that any provision of any
                ------------
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.

                   SECTION 4. REPRESENTATIONS AND WARRANTIES

          To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, Holdings and the Borrower hereby jointly and severally represent and
warrant to the Administrative Agent and each Lender that:

          4.1.  Financial Condition. The audited consolidated balance sheet of
                -------------------
the Borrower and its consolidated Subsidiaries as at December 30, 2000 and the
related audited consolidated statements of income and of cash flows for the
fiscal year then ended, reported on by and accompanied by an unqualified report
from PricewaterhouseCoopers LLP, present fairly in all material respects the
consolidated financial condition of the Borrower as at such date, and the
results of its operations and its cash flows for the fiscal period then ended.
The unaudited consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at September 29, 2001 and the related unaudited consolidated
statements of income and of cash flows for the period of three fiscal quarters
then ended, present fairly in all material respects the consolidated financial
condition of the Borrower as at such date, and the results of its operations and
its cash flows for such period. The unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at November 24, 2001 and the
related unaudited consolidated statements of income and of cash flows for the
period of eleven fiscal months then ended, present fairly in all material
respects the consolidated financial condition of the Borrower as at such date,
and the results of its operations and its cash flows for such period. All such
financial statements, including the related schedules and notes thereto, have
been prepared in accordance with GAAP applied consistently throughout the
periods involved (except as discussed therein, the absence of footnotes for all
unaudited periods and, in the case of audited financial statements, as approved
by the relevant firm of accountants). Holdings, the Borrower and their
respective Subsidiaries do not have any material Guarantee Obligations,
contingent liabilities and liabilities for taxes, or any long-term leases or
unusual forward or long-term commitments, including any interest rate or foreign
currency swap or exchange

<PAGE>

                                                                              45

transaction or other obligation in respect of derivatives, that are not
reflected in the most recent financial statements referred to in this paragraph.
During the period from December 30, 2000 to and including the Restatement
Effective Date there has been no Disposition by Holdings, the Borrower or any of
their respective Subsidiaries of any material part of its business or property.

          4.2.  No Change. There has been no development or event that has had
                ---------
or could reasonably be expected to have a Material Adverse Effect since November
24, 2001.

          4.3.  Corporate Existence; Compliance with Law. Each Loan Party (a) is
                -----------------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the corporate power and authority, and
the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged
except for any consents needed to transfer leases required as a result of the
Recapitalization the failure to obtain which could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect, (c) is duly qualified
as a foreign corporation and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification except as could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect and (d) is
in compliance with all Requirements of Law except to the extent that the failure
to comply therewith could not, in the aggregate, reasonably be expected to have
a Material Adverse Effect. With respect to Holdings, the representation and
warranty in clause (a) above with respect to good standing shall not be required
to be made prior to the 15th day after the Restatement Effective Date, and
shall be deemed to be made on such 15th day.

          4.4.  Corporate Power; Authorization; Enforceable Obligations. Each
                -------------------------------------------------------
Loan Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents to which it is a party and, in the case of the Borrower, to
authorize the borrowings on the terms and conditions of this Agreement. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the Recapitalization except consents, authorizations, filings
and notices (i) which have been obtained or made and are in full force and
effect or (ii) the failure to obtain which could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect. No consent or
authorization of, filing with, notice to or other act by or in respect of, any
Governmental Authority or any other Person is required in connection with the
borrowings hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement or any of the Loan Documents, except (i)
consents, authorizations, filings and notices which have been obtained or made
and are in full force and effect and (ii) the filings referred to in Section
4.19. Each Loan Document has been duly executed and delivered on behalf of each
Loan Party party thereto. This Agreement constitutes, and each other Loan
Document upon execution will constitute, a legal, valid and binding obligation
of each Loan Party party thereto, enforceable against each such Loan Party in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).

          4.5.  No Legal Bar. The execution, delivery and performance of this
                ------------
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or any Contractual Obligation of Holdings, the

<PAGE>

                                                                              46

Borrower or any other Loan Party and will not result in, or require, the
creation or imposition of any Lien on any of their respective properties or
revenues pursuant to any Requirement of Law or any such Contractual Obligation
(other than the Liens created by the Security Documents).

          4.6.  Litigation. No litigation, investigation or proceeding of or
                ----------
before any arbitrator or Governmental Authority is pending or, to the knowledge
of Holdings or the Borrower, threatened by or against Holdings, the Borrower or
any of their respective Subsidiaries or against any of their respective
properties or revenues (a) with respect to any of the Loan Documents or any of
the transactions contemplated hereby or thereby, or (b) that could reasonably be
expected to have a Material Adverse Effect.

          4.7.  No Default. Neither Holdings, the Borrower nor any of their
                ----------
respective Subsidiaries is in default under or with respect to any of its
Contractual Obligations in any respect that could reasonably be expected to have
a Material Adverse Effect.

          4.8.  Ownership of Property. Each of Holdings, the Borrower and each
                ---------------------
other Loan Party has title in fee simple to, or a valid leasehold interest in,
all its real property, and good title to, or a valid leasehold interest in, all
its other property.

          4.9.  Intellectual Property. Holdings, the Borrower and each of their
                ---------------------
respective Subsidiaries owns, or is licensed to use, all material Intellectual
Property necessary for the conduct of its business as currently conducted. No
material claim has been asserted and is pending by any Person challenging or
questioning the use of any Intellectual Property or the validity or
effectiveness of any Intellectual Property, nor does Holdings or the Borrower
know of any valid basis for any such material claim. To the best knowledge of
the Borrower, the use of Intellectual Property by Holdings, the Borrower and
their respective Subsidiaries in the conduct of their business as currently
conducted does not infringe on the rights of any Person in any material respect.

          4.10. Taxes. Except as set forth on Schedule 4.10, each of Holdings,
                -----
the Borrower and each of their respective Subsidiaries has filed or caused to be
filed all Federal, material state and other material tax returns that are
required to be filed and has paid all material taxes shown to be due and payable
on said returns or on any assessments made against it or any of its property and
all other taxes, fees or other charges imposed on it or any of its property by
any Governmental Authority (other than any the amount or validity of that are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of Holdings, the Borrower or their respective Subsidiaries, as the case
may be); no material tax Lien has been filed, and, to the knowledge of Holdings
and the Borrower, no material claim is being asserted, with respect to any such
tax, fee or other charge.

          4.11. Federal Regulations. No part of the proceeds of any Loans will
                -------------------
be used for "buying" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect or for any purpose that violates the provisions of the
Regulations of the Board. If requested by any Lender or the Administrative
Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in

<PAGE>

                                                                              47

conformity with the requirements of FR Form G-3 or FR Form U-1, as applicable,
referred to in Regulation U.

          4.12. Labor Matters. Except as, in the aggregate, could not reasonably
                --------------
be expected to have a Material Adverse Effect: (a) there are no strikes or other
labor disputes against Holdings, the Borrower or any of their respective
Subsidiaries pending or, to the knowledge of Holdings or the Borrower,
threatened; (b) hours worked by and payment made to employees of Holdings, the
Borrower and their respective Subsidiaries have not been in violation of the
Fair Labor Standards Act or any other applicable Requirement of Law dealing with
such matters; and (c) all payments due from Holdings, the Borrower or any of
their respective Subsidiaries on account of employee health and welfare
insurance have been paid or accrued as a liability on the books of Holdings, the
Borrower or the relevant Subsidiary.

          4.13. ERISA. Neither a Reportable Event nor an "accumulated funding
                -----
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single Employer Plan (based on
those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan that
has resulted or could reasonably be expected to result in a material liability
under ERISA, and neither the Borrower nor any Commonly Controlled Entity would
become subject to any material liability under ERISA if the Borrower or any such
Commonly Controlled Entity were to withdraw completely from all Multiemployer
Plans as of the valuation date most closely preceding the date on which this
representation is made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent.

          4.14. Investment Company Act; Other Regulations. No Loan Party is an
                -----------------------------------------
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board and Requirements of Law of the type referred to in the
exception contained in the last sentence of Section 4.4) that limits its ability
to incur Indebtedness.

          4.15. Subsidiaries. Except as disclosed to the Administrative Agent by
                ------------
the Borrower in writing from time to time after the Restatement Effective Date,
(a) Schedule 4.15 sets forth the name and jurisdiction of incorporation of each
Subsidiary and, as to each such Subsidiary, the percentage of each class of
Capital Stock owned by any Loan Party and (b) there are no outstanding
subscriptions, options, warrants, calls, rights or other agreements or
commitments (other than stock options granted to employees or directors and
directors' qualifying shares) of any nature relating to any Capital Stock of the
Borrower or any Subsidiary, except as created by the Loan Documents.

          4.16. Use of Proceeds. The proceeds of the Loans and the Letters of
                ---------------
Credit shall be used for general corporate purposes of the Borrower and the
Subsidiaries (including, without limitation, to provide working capital and
finance Permitted Acquisitions).

<PAGE>

                                                                              48

          4.17. Environmental Matters. Except as, in the aggregate, could not
                ---------------------
reasonably be expected to result in a Material Adverse Effect:

          (a)   the facilities and properties owned, leased or operated by
     Holdings, the Borrower or any of their respective Subsidiaries (the
     "Properties") do not contain, and have not previously contained, any
     Materials of Environmental Concern in amounts or concentrations or under
     circumstances that constitute or constituted a violation of, or could give
     rise to liability under, any Environmental Law;

          (b)   neither Holdings, the Borrower nor any of their respective
          Subsidiarie s has received any written notice of violation, alleged
     violation, non-compliance, liability or potential liability regarding
     environmental matters or compliance with Environmental Laws with regard to
     any of the Properties or the business operated by Holdings, the Borrower or
     any of their respective Subsidiaries (the "Business"), nor does Holdings or
     the Borrower have knowledge that any such notice will be received or is
     being threatened;

          (c)   Materials of Environmental Concern have not been transported or
     disposed of or from the Properties in violation of, or in a manner or to a
     location that could reasonably be expected to give rise to liability under,
     any Environmental Law, nor have any Materials of Environmental Concern been
     generated, treated, stored or disposed of at, on or under any of the
     Properties in violation of, or in a manner that could give rise to
     liability under, any applicable Environmental Law;

          (d)   no judicial proceeding or governmental or administrative action
     is pending or, to the knowledge of Holdings and the Borrower, threatened,
     under any Environmental Law to which Holdings, the Borrower or any
     Subsidiary is or will be named as a party with respect to the Properties or
     the Business, nor are there any consent decrees or other decrees, consent
     orders, administrative orders or other orders, or other administrative or
     judicial requirements outstanding under any Environmental Law with respect
     to the Properties or the Business;

          (e)   there has been no release or threat of release of Materials of
     Environmental Concern at or from the Properties, or arising from or related
     to the operations of Holdings, the Borrower or any Subsidiary in connection
     with the Properties or otherwise in connection with the Business, in
     violation of Environmental Laws;

          (f)   the Properties and all operations at the Properties are in
     compliance, and have in the last five years been in compliance, with all
     applicable Environmental Laws; and

          (g)   neither Holdings, the Borrower nor any of their respective
     Subsidiaries has retained or contractually assumed any liability of any
     other Person under Environmental Laws.

          4.18. Accuracy of Information, etc. No statement or information
                ----------------------------
contained in this Agreement, any other Loan Document or any other document,
certificate or statement furnished by or on

<PAGE>

                                                                              49

behalf of any Loan Party to the Administrative Agent or the Lenders, or any of
them, for use in connection with the transactions contemplated by this Agreement
or the other Loan Documents, contained as of the date such statement,
information, document or certificate was so furnished, any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements contained herein or therein not misleading in light of the
circumstances under which such information was furnished. The projections and
pro forma financial information contained in the materials referenced above are
based upon good faith estimates and assumptions believed by management of the
Borrower to be reasonable at the time made, it being recognized by the Lenders
that such financial information as it relates to future events is not to be
viewed as fact and that actual results during the period or periods covered by
such financial information may differ from the projected results set forth
therein by a material amount. As of the Closing Date, the representations and
warranties of Holdings and, to the knowledge of Holdings, the Seller contained
in the Recapitalization Documentation are true and correct in all material
respects. There is no fact known to any Loan Party that could reasonably be
expected to have a Material Adverse Effect that has not been expressly disclosed
herein, in the other Loan Documents or in any other documents, certificates and
statements furnished to the Administrative Agent and the Lenders for use in
connection with the transactions contemplated hereby and by the other Loan
Documents.

          4.19. Security Documents. (a) The Guarantee and Collateral Agreement
                ------------------
is effective to create in favor of the Administrative Agent, for the benefit of
the Lenders, a legal, valid and enforceable security interest in the Collateral
described therein and proceeds thereof. In the case of the Pledged Stock
described in the Guarantee and Collateral Agreement, when stock certificates
representing such Pledged Stock are delivered to the Administrative Agent, and
in the case of the other Collateral described in the Guarantee and Collateral
Agreement, when financing statements and other filings specified on Schedule
4.19(a) in appropriate form are filed in the offices specified on Schedule
4.19(a), the Guarantee and Collateral Agreement shall constitute a fully
perfected Lien on, and security interest in, all right, title and interest of
the Loan Parties in such Collateral and the proceeds thereof, as security for
the Obligations (as defined in the Guarantee and Collateral Agreement), in each
case prior and superior in right to any other Person (except, in the case of
Collateral other than Pledged Stock, Liens permitted by Section 7.3 and, with
respect to Collateral consisting of Pledged Stock, nonconsensual Liens permitted
by Section 7.3(a)).

          (b)   Each of the Mortgages is effective to create in favor of the
Administrative Agent, for the benefit of the Lenders, a legal, valid and
enforceable Lien on the Mortgaged Properties described therein and proceeds
thereof, and when the Mortgages are filed in the offices specified on Schedule
4.19(b), each such Mortgage shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the Loan Parties in the
Mortgaged Properties and the proceeds thereof, as security for the Obligations
(as defined in the relevant Mortgage), in each case prior and superior in right
to any other Person (except for Liens permitted by Section 7.3(a), (b), (e), (k)
and (m)).

          (c)   Schedule 4.19(c) lists each parcel of real property in the
United States owned in fee simple by the Borrower or any of its Subsidiaries as
of the Closing Date.

          4.20. Solvency. Each Loan Party is, and after giving effect to the
                --------
Recapitalization and the incurrence of all Indebtedness and obligations being
incurred in connection herewith and therewith will be and will continue to be,
Solvent.

<PAGE>

                                                                              50

          4.21. Senior Indebtedness. The obligations of Holdings under the
                -------------------
Guarantee and Collateral Agreement constitute "Senior Debt" of Holdings under
and as defined in the Subordinated Seller Notes.

          4.22. Regulation H. No Mortgage encumbers improved real property that
                ------------
is located in an area that has been identified by the Secretary of Housing and
Urban Development as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance Act of
1968.

                        SECTION 5. CONDITIONS PRECEDENT

          5.1.  Conditions to Effectiveness. The effectiveness of this Agreement
                ---------------------------
is subject to the satisfaction (or waiver) of the following conditions
precedent:

          (a)   Credit Agreement; Reaffirmation. The Administrative Agent shall
                -------------------------------
     have received (i) this Agreement, executed and delivered by the
     Administrative Agent, Holdings, the Borrower and each Lender and (ii) a
     Reaffirmation with respect to the Guarantee and Collateral Agreement and
     the Mortgages in form and substance reasonably satisfactory to the
     Administrative Agent (the "Reaffirmation"), executed and delivered by
                                -------------
     Holdings, the Borrower and each Subsidiary Guarantor.

          (b)   Sealy Supply Agreement. The Administrative Agent shall have
                ----------------------
     received an executed copy of appropriate documentation to establish
     compliance with Section 7.17(c).

          (c)   Fees and Expenses. The Lenders and the Administrative Agent
                -----------------
     shall have received all reasonable fees required to be paid, and all
     reasonable expenses for which invoices have been presented, on or before
     the Restatement Effective Date, including, in any event, (i) the reasonable
     costs and reasonable expenses of the Administrative Agent incurred in
     connection with the preparation, negotiation and execution of this
     Agreement, (ii) the reasonable fees and expenses of legal counsel to the
     Administrative Agent and (iii) an amendment fee for each Lender that
     consents to this Agreement in the amount of 0.75% of such Lender's Tranche
     A Commitment. All such amounts will be paid with proceeds of Loans made on
     the Restatement Effective Date and will be reflected in the funding
     instructions given by the Borrower to the Administrative Agent on or before
     the Restatement Effective Date.

          (d)   Closing Certificate. The Administrative Agent shall have
                -------------------
     received, with a counterpart for each Lender, a certificate of each Loan
     Party, dated the Restatement Effective Date, substantially in the form of
     Exhibit C, with appropriate insertions and attachments.

          (e)   Legal Opinions. The Administrative Agent shall have received the
                --------------
     executed legal opinion of each of Kirkland & Ellis, counsel to the Borrower
     and its Subsidiaries, in form and substance reasonably satisfactory to the
     Administrative Agent.

<PAGE>

                                                                              51

          (f)   Borrowing Base Certificate. The Administrative Agent shall have
                --------------------------
     received a Borrowing Base Certificate setting forth the Borrowing Base as
     of November 24, 2001.

          (g)   Excess Loans. The Borrower shall have repaid Loans under the
                ------------
     Existing Credit Agreement in an amount equal to the excess, if any, of the
     aggregate Extensions of Credit (under and as defined in the Existing Credit
     Agreement) over the aggregate Commitments (under and as defined in the
                ----
     Existing Credit Agreement), which excess amount is $49,000.

          5.2.  Conditions to Each Extension of Credit. The agreement of each
                --------------------------------------
Lender to make any extension of credit requested to be made by it on any date is
subject to the satisfaction of the following conditions precedent:

          (a)   Representations and Warranties. Each of the representations and
                ------------------------------
     warranties made by any Loan Party in or pursuant to the Loan Documents
     shall be true and correct in all material respects on and as of such date
     as if made on and as of such date.

          (b)   No Default. No Default or Event of Default shall have occurred
                ----------
     and be continuing on such date or after giving effect to the extensions of
     credit requested to be made on such date.

          (c)   Borrowing Base Certificate. In the case of any Tranche A Loan or
                --------------------------
     Letter of Credit, the Administrative Agent shall have received the most
     recent Borrowing Base Certificate due pursuant to Section 6.2(e).

          (d)   Participation Agreement. If required by any Participation
                -----------------------
     Agreement, the Administrative Agent shall have received in immediately
     available funds the purchase price for the relevant Loans pursuant to such
     Participation Agreement.

Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.

          5.3.  Conditions to Permitted Acquisitions. The Borrower may enter
                ------------------------------------
into a Permitted Acquisition pursuant to Section 7.8(f) upon the satisfaction
(or waiver) of the following conditions precedent:

          (a)   After giving effect to such Permitted Acquisition and any
     borrowings made in connection therewith, the Borrower shall have the
     ability to borrow at least $5,000,000 of Tranche A Loans pursuant to
     Section 2.1(a).

<PAGE>

                                                                              52

          (b)   All consents or authorizations of, filings with, notices to or
     other acts by or in respect of, any Governmental Authority or any other
     Person which are required in connection with such Permitted Acquisition and
     the related borrowings hereunder shall have been obtained or made and shall
     be in full force and effect, except for those consents, authorizations,
     filings, notices or acts the failure of which to obtain or undertake could
     not, in the aggregate, reasonably be expected to have a Material Adverse
     Effect.

          (c)   The Administrative Agent shall have received copies of all
     material documentation governing the Permitted Acquisition.

          (d)   The Administrative Agent shall have received documentation in
     form and substance reasonably satisfactory to it regarding compliance with
     Section 6.9.

          (e)   No Default or Event of Default shall have occurred and be
     continuing on the Permitted Acquisition Date or after giving effect to such
     Permitted Acquisition, including, on a pro forma basis, pursuant to Section
                                            --- -----
     7.1, as certified in reasonable detail to the Administrative Agent by the
     Chief Financial Officer of the Borrower.

                        SECTION 6. AFFIRMATIVE COVENANTS

          Holdings and the Borrower hereby jointly and severally agree that, so
long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, each of Holdings and the Borrower shall and
shall cause each of their respective Subsidiaries to:

          6.1.  Financial Statements. Furnish to the Administrative Agent:
                --------------------

          (a)   as soon as available, but in any event within 90 days after the
     end of each fiscal year of the Borrower, a copy of the audited consolidated
     balance sheet of the Borrower and its consolidated Subsidiaries as at the
     end of such year and the related audited consolidated statements of income
     and of cash flows for such year, setting forth in each case in comparative
     form the figures for the previous year, reported on without a "going
     concern" or like qualification or exception, or qualification arising out
     of the scope of the audit, by PricewaterhouseCoopers LLP or other
     independent certified public accountants of nationally recognized standing;

          (b)   as soon as available, but in any event not later than 45 days
     after the end of each of the first three quarterly periods of each fiscal
     year of the Borrower, the unaudited consolidated balance sheet of the
     Borrower and its consolidated Subsidiaries as at the end of such quarter
     and the related unaudited consolidated statements of income and of cash
     flows for such quarter and the portion of the fiscal year through the end
     of such quarter, setting forth in each case in comparative form the figures
     for the previous year, certified by a Responsible Officer as being

<PAGE>

                                                                              53

     fairly stated in all material respects (subject to normal year-end audit
     adjustments and the absence of footnotes); and

          (c)   as soon as available, but in any event not later than 35 days
     after the end of each month occurring during each fiscal year of the
     Borrower (other than the third, sixth, ninth and twelfth such month), the
     unaudited consolidated balance sheets of the Borrower and its Subsidiaries
     as at the end of such month and the related unaudited consolidated
     statements of income and of cash flows for such month and the portion of
     the fiscal year through the end of such month, setting forth in each case
     in comparative form the figures for the previous year, certified by a
     Responsible Officer as being fairly stated in all material respects
     (subject to normal year-end audit adjustments and the absence of
     footnotes).

All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).

          6.2.  Certificates; Other Information. Furnish to the Administrative
                -------------------------------
Agent (or, in the case of clause (j), to the relevant Lender):

          (a)   concurrently with the delivery of the financial statements
     referred to in Section 6.1(a), a certificate of the independent certified
     public accountants reporting on such financial statements stating that in
     making the examination necessary therefor no knowledge was obtained of any
     Default or Event of Default pursuant to Section 7.1, except as specified in
     such certificate;

          (b)   concurrently with the delivery of any financial statements
     pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating
     that such Responsible Officer has obtained no knowledge of any Default or
     Event of Default except as specified in such certificate and (ii) in the
     case of quarterly or annual financial statements, (x) a Compliance
     Certificate containing all information and calculations necessary for
     determining compliance by Holdings, the Borrower and their respective
     Subsidiaries with the provisions of this Agreement referred to therein as
     of the last day of the fiscal quarter or fiscal year of the Borrower, as
     the case may be, and (y) to the extent not previously disclosed to the
     Administrative Agent, a listing of any Intellectual Property acquired by
     any Loan Party since the date of the most recent list delivered pursuant to
     this clause (y);

          (c)   as soon as available, and in any event no later than 45 days
     after the end of each fiscal year of the Borrower, a detailed consolidated
     budget for the following fiscal year (including a projected consolidated
     balance sheet of the Borrower and its Subsidiaries as of the end of the
     following fiscal year, the related consolidated statements of projected
     cash flow, projected changes in financial position and projected income and
     a description of the underlying assumptions applicable thereto), and, as
     soon as available, significant revisions, if any, of such budget and
     projections with respect to such fiscal year (collectively, the
     "Projections"), which Projections shall in each case be accompanied by a
     ------------
     certificate of a Responsible Officer stating that such Projections are
     based on reasonable estimates, information and assumptions and that

<PAGE>

                                                                              54

     such Responsible Officer has no reason to believe that such Projections are
     incorrect or misleading in any material respect;

          (d)   within 45 days after the end of each fiscal quarter of the
     Borrower, a narrative discussion and analysis of the financial condition
     and results of operations of the Borrower 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, as compared to the portion
     of the Projections covering such periods (in which case no narrative
     discussion will be required as long as the historical and projected numbers
     are presented in comparative form) and to the comparable periods of the
     previous year;

          (e)   within 35 days after the end of each fiscal month (commencing
     with the December 2001 fiscal month) and within five Business Days after
     the last Friday of each two-week period (commencing with Friday, February
     8, 2002), a Borrowing Base Certificate substantially in the form of Exhibit
     F (with such changes therein as may be required by the Administrative Agent
     to reflect the components of and reserves against the Borrowing Base as
     provided for hereunder from time to time) (each, a "Borrowing Base
                                                         --------------
     Certificate") setting forth the Borrowing Base as of the last day of such
     -----------
     month or as of such Friday, as the case may be, and accompanied by any
     other documentation required by said Exhibit F or otherwise reasonably
     requested by the Administrative Agent in connection with the Borrowing
     Base, provided that (i) the Borrower may in its discretion also provide
           --------
     Borrowing Base Certificates as of any other date it may select (which shall
     be accompanied by the relevant additional documentation as described above)
     and (ii) in the case of bi-weekly or discretionary Borrowing Base
     Certificates, the most recent monthly reporting shall be used for (x)
     Borrowing Base assets other than Finished Goods (to the extent more recent
     information is not available) and (y) Finished Goods attributable to the
     Borrower's Florida market to the extent that the Administrative Agent
     concludes in its reasonable discretion that the Borrower's systems are not
     able to provide more recent information on such Finished Goods;

          (f)   no later than 5 Business Days prior to the effectiveness
     thereof, copies of substantially final drafts of any proposed amendment,
     supplement, waiver or other modification with respect to the Senior Note
     Indenture, any Subordinated Seller Note, any Subordinated Debt, the
     Recapitalization Documentation, the Bain Advisory Services Agreement, the
     Sealy Supply Agreement or the Tax Sharing Agreement;

          (g)   within five days after the same are sent, copies of all
     financial statements and reports that Holdings or the Borrower sends to the
     holders of any class of its debt securities or public equity securities (in
     their capacity as debt or equity security holders) and, within five days
     after the same are filed, copies of all financial statements and reports
     that Holdings or the Borrower may make to, or file with, the SEC;

          (h)   at least five Business Days prior to the expected consummation
     thereof, notice of any Permitted Acquisition;

<PAGE>

                                                                              55

          (i)   within 35 days after the end of each month (or, in the case of
     the last month of any fiscal quarter, 90 days (in the case of the fourth
     fiscal quarter) or 45 days (otherwise)), (i) consolidated statements of
     income and of cash flows for such month (unless, if applicable, otherwise
     provided pursuant to Section 6.1(c)), (ii) a report setting forth
     comparable sales data and gross margin data on a regional basis for such
     month, in each case in form consistent with the Borrower's historical
     internal reporting practices as of the Restatement Effective Date and (iii)
     evidence in reasonable detail of compliance with Section 7.17(d); and

          (j)   promptly, such additional financial and other information as any
     Lender may from time to time reasonably request.

          6.3.  Payment of Obligations. Except as could not, in the aggregate,
                ----------------------
reasonably be expected to have a Material Adverse Effect, pay, discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all its material obligations of whatever nature, except where the
amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of Holdings, the Borrower or their
respective Subsidiaries, as the case may be.

          6.4.  Maintenance of Existence; Compliance. (a)(i) Preserve, renew and
                ------------------------------------
keep in full force and effect its corporate existence (except as permitted by
Section 7.5) and (ii) take all reasonable action to maintain all rights,
privileges and franchises necessary in the normal conduct of its business,
except, in each case, as otherwise permitted by Section 7.4 and except, in the
case of clause (ii) above, to the extent that failure to do so could not
reasonably be expected to have a Material Adverse Effect; and (b) comply with
all Contractual Obligations and Requirements of Law except to the extent that
failure to comply therewith could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect.

          6.5.  Maintenance of Property; Insurance. (a) Keep all property useful
                ----------------------------------
and necessary in its business in good working order and condition, ordinary wear
and tear and damage by casualty or condemnation excepted and (b) maintain with
financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks (but including
in any event public liability, product liability and business interruption) as
are usually insured against in the same general area by companies engaged in the
same or a similar business.

          6.6.  Inspection of Property; Books and Records; Discussions;
                ------------------------------------------------------
Meetings. (a) Keep proper books of records and account in which full, true and
--------
correct entries in conformity with GAAP and all Requirements of Law shall be
made of all dealings and transactions in relation to its business and
activities; (b) permit representatives of the Administrative Agent or any Lender
to visit and inspect any of its properties and examine and make abstracts from
any of its books and records at any reasonable time and as often as may
reasonably be desired and to discuss the business, operations, properties and
financial and other condition of Holdings, the Borrower and their respective
Subsidiaries with officers and employees of Holdings, the Borrower and their
respective Subsidiaries and with its independent certified public accountants;
provided that, unless an Event of Default has occurred, no single Lender (other
than the Administrative Agent) shall be entitled to more than one inspection
during any twelve month period and (c) cause senior management of the Borrower
to participate in meetings with the Lenders at the request of the Administrative
Agent, provided that no more than one meeting may be so requested in any fiscal
quarter.

<PAGE>

                                                                              56

               6.7.   Notices.  Promptly give notice to the Administrative Agent
                      -------
of:

               (a)    the occurrence of any Default or Event of Default;

               (b)    any litigation, investigation or proceeding that may exist
          at any time between Holdings, the Borrower or any of their respective
          Subsidiaries and an y Governmental Authority, that in either case, if
          not cured or if adversely determined, as the case may be, could
          reasonably be expected to have a Material Adverse Effect;

               (c)    the following events, as soon as possible and in any event
          within 30days after the Borrower knows or has reason to know thereof:
          (i) the occurrence of any Reportable Event with respect to any Plan, a
          failure to make any required contribution to a Plan, the creation of
          any Lien in favor of the PBGC or a Plan or any withdrawal from, or the
          termination, Reorganization or Insolvency of, any Multiemployer Plan
          or (ii) the institution of proceedings or the taking of any other
          action by the PBGC or the Borrower or any Commonly Controlled Entity
          or any Multiemployer Plan with respect to the withdrawal from, or the
          termination, Reorganization or Insolvency of, any Plan; and

               (d)    any development or event that has had or could reasonably
          be expected to have a Material Adverse Effect.

Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action Holdings, the Borrower or the relevant
Subsidiary proposes to take with respect thereto.

               6.8.   Environmental Laws. Except as, in the aggregate, could not
                      ------------------
reasonably be expected to have a Material Adverse Effect, (a) comply with, and
make reasonable efforts to ensure compliance by all tenants and subtenants, if
any, with, all applicable Environmental Laws, and (b) obtain and comply with and
maintain, and make reasonable efforts to ensure that all tenants and subtenants
obtain and comply with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws.

               6.9.   Additional Collateral, etc. (a) With respect to any
                      ---------------------------
property acquired by Holdings, the Borrower or any of their respective
Subsidiaries (other than (w) leasehold interests in real property, (x) any
property described in paragraph (b), (c) or (d) below, (y) any property subject
to a Lien expressly permitted by Section 7.3(g) and (z) property acquired by any
Excluded Foreign Subsidiary) as to which the Administrative Agent, for the
benefit of the Lenders, does not have a perfected Lien, promptly (i) execute and
deliver to the Administrative Agent such amendments to the Guarantee and
Collateral Agreement or such other documents as the Administrative Agent may
reasonably request to grant to the Administrative Agent, for the benefit of the
Lenders, a security interest in such property and (ii) take all actions
necessary or reasonably requested by the Administrative Agent to grant to the
Administrative Agent, for the benefit of the Lenders, a perfected first priority
(subject to Liens permitted under Section 7.3) security interest in such
property, including the filing of Uniform Commercial Code

<PAGE>

                                                                              57

financing statements in such jurisdictions as may be required by the Guarantee
and Collateral Agreement or by law or as may be reasonably requested by the
Administrative Agent.

       (b)    With respect to any fee interest in any real property having a
value (together with improvements thereof) of at least $1,000,000 acquired by
Holdings, the Borrower or any of their respective Subsidiaries (other than (x)
any such real property subject to a Lien expressly permitted by Section 7.3(g)
and (y) real property acquired by any Excluded Foreign Subsidiary), promptly (i)
execute and deliver a first priority (subject to Liens permitted under Section
7.3) Mortgage, in favor of the Administrative Agent, for the benefit of the
Lenders, covering such real property, (ii) if requested by the Administrative
Agent, provide the Lenders with (x) title and extended coverage insurance
covering such real property in an amount at least equal to the purchase price of
such real property (or such other amount as shall be reasonably specified by the
Administrative Agent) as well as a current ALTA survey thereof, together with a
surveyor's certificate and (y) any consents or estoppels reasonably requested by
the Administrative Agent in connection with such mortgage or deed of trust, each
of the foregoing in form and substance reasonably satisfactory to the
Administrative Agent and (iii) if requested by the Administrative Agent, deliver
to the Administrative Agent legal opinions relating to the matters described
above, which opinions shall be in form and substance reasonably satisfactory to
the Administrative Agent.

       (c)    With respect to any new Subsidiary (other than an Excluded Foreign
Subsidiary) created or acquired by Holdings, the Borrower or any of their
respective Subsidiaries (which, for the purposes of this paragraph (c), shall
include any existing Subsidiary that ceases to be an Excluded Foreign
Subsidiary), promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
reasonably requests to grant to the Administrative Agent, for the benefit of the
Lenders, a perfected first priority (subject to Liens permitted under Section
7.3) security interest in the Capital Stock of such new Subsidiary that is owned
by Holdings, the Borrower or any of their respective Subsidiaries, (ii) deliver
to the Administrative Agent the certificates representing such Capital Stock,
together with undated stock powers, in blank, executed and delivered by a duly
authorized officer of Holdings, the Borrower or such Subsidiary, as the case may
be, (iii) cause such new Subsidiary (A) to become a party to the Guarantee and
Collateral Agreement, (B) to take such actions necessary or reasonably requested
by the Administrative Agent to grant to the Administrative Agent for the benefit
of the Lenders a perfected first priority (subject to Liens permitted under
Section 7.3) security interest in the Collateral described in the Guarantee and
Collateral Agreement with respect to such new Subsidiary, including the filing
of Uniform Commercial Code financing statements in such jurisdictions as may be
required by the Guarantee and Collateral Agreement or by law or as may be
requested by the Administrative Agent and (C) to deliver to the Administrative
Agent a certificate of such Subsidiary, substantially in the form of Exhibit C,
with appropriate insertions and attachments, and (iv) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance reasonably satisfactory to the Administrative Agent.

       (d)    With respect to any new Excluded Foreign Subsidiary created or
acquired by Holdings, the Borrower or any of their respective Subsidiaries,
promptly (i) execute and deliver to the Administrative Agent such amendments to
the Guarantee and Collateral Agreement as the Administrative Agent reasonably
requests to grant to the Administrative Agent, for the benefit of the Lenders, a
perfected first priority security interest in the Capital Stock of such new
Subsidiary that is owned by Holdings, the Borrower or any of their respective
Subsidiaries (provided that in no event shall more than 65% of the total
outstanding Capital Stock of any such new Subsidiary be required to be so
pledged), (ii) deliver to the Administrative Agent the certificates representing
such Capital Stock, together with undated stock

<PAGE>

                                                                              58

powers, in blank, executed and delivered by a duly authorized officer of
Holdings, the Borrower or such Subsidiary, as the case may be, and take such
other action as may be necessary or reasonably requested by the Administrative
Agent to perfect the Administrative Agent's security interest therein, and (iii)
if requested by the Administrative Agent, deliver to the Administrative Agent
legal opinions relating to the matters described above, which opinions shall be
in form and substance reasonably satisfactory to the Administrative Agent.

        6.10.  Payment of Obligations Relating to Alabama Mortgage. Reimburse
               ---------------------------------------------------
the Administrative Agent for all recording taxes and obligations paid by the
Administrative Agent in connection with any Mortgage executed with respect to
real property located within the State of Alabama (including the property
located at 813 North Decatur Street, Montgomery, Alabama) which are reasonably
necessary to preserve the full benefits granted pursuant to such Mortgage,
including recording taxes payable by the Administrative Agent in September of
every year based on the Total Extensions of Credit under both Facilities made
during the twelve months preceding the date of such payment.

                         SECTION 7. NEGATIVE COVENANTS

        Holdings and the Borrower hereby jointly and severally agree that, so
long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, each of Holdings and the Borrower shall not, and
shall not permit any of their respective Subsidiaries to, directly or
indirectly:

        7.1.   Minimum Consolidated EBITDA. Consolidated EBITDA. Permit
               ---------------------------  -------------------
Consolidated EBITDA for each period of four consecutive fiscal quarters of the
Borrower ending with any fiscal quarter set forth below to be less than the
amount set forth below opposite such fiscal quarter:

                                                 Minimum Consolidated
                    Fiscal Quarter                     EBITDA
             ---------------------------        ----------------------
             March 30, 2002                          $ 2,000,000
             June 29, 2002                           $ 4,700,000
             September 28, 2002                      $ 7,700,000
             December 28, 2002                       $10,700,000
             March 29, 2003                          $12,500,000
             June 28, 2003                           $15,000,000
             September 27, 2003                      $17,500,000
             January 3, 2004                         $20,500,000

        7.2.   Indebtedness.  Create, issue, incur, assume, become liable in
               ------------
respect of or suffer to exist any Indebtedness, except:

        (a)    Indebtedness of any Loan Party pursuant to any Loan Document;

<PAGE>

                                                                              59

          (b) Indebtedness of the Borrower to any Subsidiary and of any
     Wholly Owned Subsidiary Guarantor to the Borrower or any other
     Subsidiary;

          (c) Guarantee Obligations incurred in the ordinary course of
     business (i) by the Borrower or any Subsidiary Guarantor of
     obligations of the Borrower or any Wholly Owned Subsidiary
     Guarantor or (ii) by any Excluded Foreign Subsidiary of any
     obligation of any other Excluded Foreign Subsidiary;

          (d) Indebtedness outstanding on the Closing Date and listed on
     Schedule 7.2(d) and any refinancings, refundings, renewals or
     extensions thereof (without increasing, or shortening the
     maturity of, the principal amount thereof);

          (e) Indebtedness (including, without limitation, Capital Lease
     Obligations) secured by Liens permitted by Section 7.3(g) in an
     aggregate principal amount not to exceed $2,000,000 at any one time
     outstanding;

          (f) (i) Indebtedness of the Borrower in respect of the Senior
     Notes in an aggregate principal amount not to exceed $140,000,000
     and (ii) Guarantee Obligations of any Subsidiary Guarantor in
     respect of such Indebtedness;

          (g) Indebtedness of Holdings in respect of the Subordinated
     Seller Notes in an aggregate principal amount not to exceed
     $17,500,000;

          (h) Hedge Agreements in respect of Indebtedness otherwise
     permitted hereby that bears interest at a floating rate, so long
     as such agreements are not entered into for speculative purposes;

          (i) Indebtedness of the Borrower to Holdings having the terms
     set forth on Exhibit I "Borrower/Holdings Subordinated Debt");
                             -----------------------------------

          (j) Indebtedness of the Borrower and its Subsidiaries in
     respect of letters of credit securing performance of leases and
     payments under insurance policies in an aggregate undrawn and
     unexpired amount of up to $2,000,000;

          (k) Indebtedness of Foreign Subsidiaries under lines of credit
     extended to any such Foreign Subsidiary by Persons other than the
     Borrower or any or its Subsidiaries, the proceeds of which
     Indebtedness are used for such Foreign Subsidiary's working capital
     purposes; provided that the aggregate principal amount of all such
     Indebtedness outstanding at any time for all such Foreign
     Subsidiaries shall not exceed $1,000,000;

          (l) Indebtedness of Holdings or the Borrower with respect to
     Subordinated Debt, provided that the aggregate amount of all
                        --------
     Subordinated Debt outstanding under this clause (l)

<PAGE>

                                                                              60

     shall not exceed $20,000,000 at any one time outstanding, of which not more
     than $7,500,000 may be in the form of Cash Pay Subordinated Debt;

           (m)  Indebtedness of Holdings owed to former officers or employees of
     Holdings, the Borrower or any of their respective Subsidiaries incurred by
     Holdings in connection with the repurchase of Holdings' common stock or
     common stock options upon the death, disability or termination of
     employment of such officer or employee having the terms set forth on
     Exhibit J ("Management Notes");
                 ----------------

           (n)  Indebtedness of any Subsidiary of the Borrower acquired pursuant
     to a Permitted Acquisition existing at the time of consummation of the
     Permitted Acquisition; provided that (i) such Indebtedness was not incurred
                            --------
     in connection with or in anticipation of such Permitted Acquisition, (ii)
     such Indebtedness does not constitute debt for borrowed money (other than
     debt for borrowed money incurred in connection with industrial revenue or
     industrial development bond or similar financings), it being understood and
     agreed that Capital Lease Obligations shall not constitute debt for
     borrowed money for purposes of this clause (n), and (iii) the aggregate
     outstanding principal amount of Indebtedness incurred pursuant to this
     paragraph (n) shall not exceed $2,000,000; and

           (o)  additional Indebtedness of the Borrower or any of its
     Subsidiaries in an aggregate principal amount (for the Borrower and all
     Subsidiaries) not to exceed $5,000,000 at any one time outstanding.

           7.3. Liens. Create, incur, assume or suffer to exist any Lien upon
                -----
any of its property, whether now owned or hereafter acquired, except for:

           (a)  Liens for taxes not yet due or that are being contested in good
     faith by appropriate proceedings, provided that adequate reserves with
                                       --------
     respect thereto are maintained on the books of the Borrower or its
     Subsidiaries, as the case may be, in conformity with GAAP;

           (b)  carriers', warehousemen's, mechanics', materialmen's,
     repairmen's, landlords' or other like Liens arising in the ordinary course
     of business that are not overdue for a period of more than 30 days or that
     are being contested in good faith by appropriate proceedings;

           (c)  pledges or deposits in connection with workers' compensation,
     unemployment insurance and other social security legislation;

           (d)  deposits to secure the performance of bids, trade contracts
     (other than for borrowed money), leases, statutory obligations, surety and
     appeal bonds, performance bonds and other obligations of a like nature
     incurred in the ordinary course of business;

<PAGE>

                                                                              61

          (e)  easements, rights-of-way, restrictions and other similar
     encumbrances incurred in the ordinary course of business that, in the
     aggregate, are not substantial in amount and that do not in any case
     materially detract from the value of the property subject thereto or
     materially interfere with the ordinary conduct of the business of the
     Borrower or any of its Subsidiaries;

          (f)  Liens in existence on the Closing Date listed on Schedule 7.3(f),
     securing Indebtedness permitted by Section 7.2(d), provided that no such
                                                        --------
     Lien is spread to cover any additional property after the Closing Date and
     that the amount of Indebtedness secured thereby is not increased;

          (g)  Liens securing Indebtedness of the Borrower or any other
     Subsidiary incurred pursuant to Section 7.2(e) to finance the acquisition
     of fixed or capital assets, provided that (i) such Liens shall be created
                                 --------
     substantially simultaneously with the acquisition of such fixed or capital
     assets, (ii) such Liens do not at any time encumber any property other than
     the property financed by such Indebtedness and (iii) the amount of
     Indebtedness secured thereby is not increased;

          (h)  Liens created pursuant to the Security Documents;

          (i)  any interest or title of a lessor under any lease entered into by
     the Borrower or any other Subsidiary in the ordinary course of its business
     and covering only the assets so leased;

          (j)  any attachment or judgment Lien not constituting an Event of
     Default under Section 8(h);

          (k)  leases or subleases granted to others in the ordinary course of
     business consistent with past practices and not interfering in any material
     respect with the ordinary conduct of the business or operations of
     Holdings, the Borrower or any of their respective Subsidiaries;

          (l)  bankers' liens and rights of setoff with respect to customary
     depository arrangements entered into in the ordinary course of business;

          (m)  any zoning or similar law or right reserved to or vested in any
     Governmental Authority to control or regulate the use of any real property;

          (n)  licenses of patents, trademarks and other intellectual property
     rights granted by Holdings, the Borrower or any of their respective
     Subsidiaries in the ordinary course of business and not interfering in any
     material respect with the ordinary conduct of the business of Holdings, the
     Borrower or such Subsidiary;

          (o)  Liens securing any Indebtedness permitted pursuant to Section
     7.2(n); provided that such Liens only encumber the assets acquired in the
             --------
     related Permitted Acquisition and

<PAGE>

                                                                              62

     provided further that such Liens were not granted in contemplation of the
     -------- -------
     related Permitted Acquisition; and

          (p)  Liens not otherwise permitted by this Section so long as the
     aggregate outstanding principal amount of the obligations secured thereby
     does not exceed (as to the Borrower and all Subsidiaries) $2,500,000 at any
     one time.

          7.4. Fundamental Changes. Enter into any merger, consolidation or
               -------------------
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or Dispose of, all or substantially all of its
property or business, except that:

          (a)  any Subsidiary of the Borrower may be merged or consolidated with
     or into the Borrower (provided that the Borrower shall be the continuing or
                           --------
     surviving corporation) or with or into any Wholly Owned Subsidiary
     Guarantor (provided that the Wholly Owned Subsidiary Guarantor shall be the
                --------
     continuing or surviving corporation);

          (b)  any Excluded Foreign Subsidiary may be merged or consolidated
     with or into any other Excluded Foreign Subsidiary;

          (c)  any Subsidiary of the Borrower may Dispose of any or all of its
     assets (upon voluntary liquidation or otherwise) to the Borrower or any
     Wholly Owned Subsidiary Guarantor;

          (d)  any Excluded Foreign Subsidiary may Dispose of any or all of its
     assets (upon voluntary liquidation or otherwise) to any other Excluded
     Foreign Subsidiary;

          (e)  mergers with any other Person pursuant to investments permitted
     by Section 7.8(i) (provided that the Borrower or the applicable Wholly
                        --------
     Owned Subsidiary Guarantor shall be the continuing or surviving
     corporation); and

          (f)  sales of all or substantially all of the property or business of
     any Subsidiary to the extent permitted by Section 7.5.

          7.5. Disposition of Property. Dispose of any of its property, whether
               -----------------------
now owned or hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of such Subsidiary's Capital Stock to any Person, except:

          (a)  the Disposition of obsolete or worn out property in the ordinary
     course of business;

          (b)  the sale of inventory in the ordinary course of business;

<PAGE>

                                                                              63

          (c)  Dispositions permitted by Section 7.4(c) and (d);

          (d)  the sale or issuance of any Subsidiary's Capital Stock to the
     Borrower or any Wholly Owned Subsidiary Guarantor;

          (e)  the sale or discount of accounts receivable in connection with
     the collection or compromise thereof undertaken in the ordinary course of
     business;

          (f)  the exchange of equipment or other personal property, including
     intellectual property, for the functional equivalent thereof in the
     ordinary course of business;

          (g)  the leasing or licensing of real or personal property, including
     intellectual property, in the ordinary course of business; and

          (h)  the Disposition of other property having a fair market value not
     to exceed $1,000,000 in the aggregate for any fiscal year of the Borrower,
     provided that at least 75% of the proceeds received in connection with any
     --------
     such Disposition be in the form of cash.

          7.6. Restricted Payments. Declare or pay any dividend (other than
               -------------------
dividends payable solely in common stock of the Person making such dividend) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any Capital Stock of Holdings, the Borrower or any Subsidiary or
any Management Notes, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of Holdings, the Borrower or any Subsidiary
(collectively, "Restricted Payments"), except that:

          (a)  any Subsidiary may make Restricted Payments to the Borrower or
     any Wholly Owned Subsidiary Guarantor;

          (b)  so long as no Default or Event of Default shall have occurred and
     be continuing, the Borrower may pay dividends to Holdings to permit
     Holdings to (i) purchase Holdings' common stock or common stock options
     from present or former officers or employees of Holdings, the Borrower or
     any Subsidiary upon the death, disability or termination of employment of
     such officer or employee or pay principal and interest on Management Notes,
     provided, that the aggregate amount of cash payments under this clause (i)
     --------
     after the Closing Date (net of any proceeds received by Holdings and
     contributed to the Borrower after the Closing Date in connection with
     resales of any common stock or common stock options so purchased) shall not
     exceed $4,000,000 and (ii) pay management fees and expenses expressly
     permitted by the last sentence of Section 7.10;

          (c)  the Borrower may pay dividends to Holdings to permit Holdings to
     (i) pay corporate overhead expenses incurred in the ordinary course of
     business not to exceed $250,000

<PAGE>

                                                                              64

     in any fiscal year and (ii) pay any taxes that are due and payable by
     Holdings and the Borrower as part of a consolidated group; and

          (d)  the Borrower may pay a dividend to Holdings to permit Holdings to
     make any payment permitted by Section 7.8(n).

          7.7. Capital Expenditures. Make or commit to make any Capital
               --------------------
Expenditure, except:

          (a)  Capital Expenditures of the Borrower and its Subsidiaries in the
ordinary course of business not exceeding $6,500,000 (the "Base Amount") in the
                                                           -----------
aggregate for the Borrower and its Subsidiaries during any fiscal year of the
Borrower; provided, that (i) the Base Amount for each fiscal year during and
          --------
after which a Permitted Acquisition occurs shall be increased by an amount equal
to 15% of the consolidated EBITDA of the Permitted Acquired Person (calculated
in a manner comparable to the manner in which Consolidated EBITDA is calculated
hereunder) for the most recent period of four consecutive fiscal quarters for
which the relevant information is available for the Permitted Acquired Person;
(ii) up to 50% of the Base Amount, if not so expended in the fiscal year for
which it is permitted, may be carried over for expenditure in the next
succeeding fiscal year; and (iii) Capital Expenditures made pursuant to this
clause (a) during any fiscal year shall be deemed made, first, in respect of
                                                        -----
amounts carried over from the prior fiscal year pursuant to subclause (ii) above
and, second, in respect of amounts permitted for such fiscal year as provided
     ------
above;

          (b)  Capital Expenditures made with the proceeds of any Reinvestment
Deferred Amount; and

          (c)  In addition to the Capital Expenditures made pursuant to the
Section 7.7(a) or (b), the Borrower may make additional Capital Expenditures not
in excess of the Excess Proceeds Amount;

provided, that, for purposes of this Section 7.7, Capital Expenditures shall not
--------
be deemed to include any expenditures made by Holdings, the Borrower or any of
their respective Subsidiaries to acquire in a Permitted Acquisition the
business, property or assets of any Permitted Acquired Person, or the stock or
other evidence of beneficial ownership of any Permitted Acquired Person that, as
a result of such Permitted Acquisition, becomes a Subsidiary of the Borrower.

          7.8. Investments. Make any advance, loan, extension of credit (by way
               -----------
of guaranty or otherwise) or capital contribution to, or purchase any Capital
Stock, bonds, notes, debentures or other debt securities of, or any assets
constituting a business unit of, or make any other investment in, any Person
(all of the foregoing, "Investments"), except:

          (a)  extensions of trade credit in the ordinary course of business;

          (b)  investments in Cash Equivalents;

<PAGE>

                                                                              65

          (c)  Guarantee Obligations permitted by Section 7.2(c);

          (d)  loans and advances to employees of Holdings, the Borrower or any
     Subsidiary of the Borrower in the ordinary course of business (including
     for travel, entertainment and relocation expenses) in an aggregate amount
     for Holdings, the Borrower or any Subsidiary of the Borrower not to exceed
     $500,000 at any one time outstanding;

          (e)  any Permitted Acquisitions;

          (f)  Investments in assets useful in the business of the Borrower and
     its Subsidiaries made by the Borrower or any of its Subsidiaries with the
     proceeds of any Reinvestment Deferred Amount;

          (g)  intercompany Investments by Holdings, the Borrower or any of
     their respective Subsidiaries in the Borrower or any Person that, prior to
     such investment, is a Wholly Owned Subsidiary Guarantor;

          (h)  the Borrower and its Subsidiaries may make and own Investments
     consisting of notes received in connection with any Disposition permitted
     under Section 7.5(h);

          (i)  Holdings may make non-cash loans to employees, officers,
     executives or consultants of Holdings or the Borrower for the purpose of
     purchasing Capital Stock of Holdings so long as such loans are used in
     their entirety to purchase such Capital Stock;

          (j)  the Borrower and its Subsidiaries may make and own Investments
     consisting of notes received in the ordinary course of business from
     suppliers or customers in connection with the collection of accounts
     receivable;

          (k)  advances made in connection with deposits on leases in the
     ordinary course of business;

          (l)  in addition to Investments otherwise expressly permitted by this
     Section, Investments by the Borrower or any of its Subsidiaries in an
     aggregate amount (valued at cost) not to exceed $5,000,000 plus up to
                                                                ----
     $2,500,000 in Excess Proceeds Amounts during the term of this Agreement;

          (m)  the acquisition by Holdings of all of the outstanding Capital
     Stock of SCC Holdings pursuant to the Sleep Country Acquisition Agreement,
     including any loans made by Holdings to SCC Holdings (and any subsequent
     conversion thereof into Capital Stock of SCC Holdings) and any purchase by
     Holdings of preferred stock or other equity securities issued by SCC
     Holdings in connection with such acquisition;

<PAGE>

                                                                              66

                   (n) Holdings or the Borrower may make a loan to, or purchase
         preferred stock from, SCC Holdings or SCC Acquisitions in an amount not
         to exceed Cdn.$4,000,000 in fiscal year 2001 in order to enable SCC
         Holdings or SCC Acquisitions to pay any amount required by Section 5C
         of the Sleep Country Acquisition Agreement;

                   (o) Holdings or the Borrower may make loans to SCC Holdings
         in an aggregate amount not to exceed the aggregate amount of any
         substantially concurrent interest payments made by SCC Holdings to
         Holdings or the Borrower on account of loans borrowed by SCC Holdings
         pursuant to Section 7.8(m) and (n);

                   (p) Holdings may (i) purchase Capital Stock or Indebtedness
         (including Senior Notes) of or make loans to any Person so long as the
         aggregate amount expended in connection therewith does not exceed
         $2,500,000 and none of the consideration therefor is paid, directly or
         indirectly, by the Borrower or any of its Subsidiaries or by any
         Subsidiary of Holdings and (ii) repurchase Subordinated Seller Notes in
         accordance with Section 7.9; and

                   (q) in addition to Investments otherwise expressly permitted
         by this Section, Investments by the Borrower or any of its Subsidiaries
         in an aggregate amount (valued at cost) not to exceed $5,000,000 plus
                                                                          ----
         up to $2,500,000 in Excess Proceeds Amounts during the term of this
         Agreement.

For purposes of this Section 7.8, consideration paid in connection with any
Investment shall be deemed to include the principal amount of any Indebtedness
assumed in connection therewith.

                   7.9.  Payments and Modifications of Certain Debt Instruments.
                         ------------------------------------------------------
(a) Make or offer to make any payment, prepayment, repurchase or redemption in
respect of or defease or segregate funds with respect to the Senior Notes, any
Subordinated Debt, any Borrower/Holdings Subordinated Debt, or any Subordinated
Seller Note, other than scheduled interest payments in respect of the Senior
Notes and any Cash Pay Subordinated Debt and liquidated damages payable pursuant
to the Registration Rights Agreement (as defined in the Senior Note Indenture)
with respect to the Senior Notes (it being understood that no interest payments
pursuant to the Subordinated Seller Notes and the Borrower/Holdings Subordinated
Debt shall be permitted), provided that Holdings may (i) repurchase any
                          --------
Subordinated Seller Note so long as none of the consideration therefor is paid,
directly or indirectly, by the Borrower or any of its Subsidiaries or by any
Subsidiary of Holdings and (ii) repurchase Senior Notes pursuant to an
Investment made in accordance with Section 7.8(p)(i), or (b) amend, modify,
waive or otherwise change, or consent or agree to any amendment, modification,
waiver or other change to, any of the terms of the Senior Note Indenture, the
Senior Notes, any Subordinated Debt or any Subordinated Seller Note (other than
any such amendment, modification, waiver or other change that (i) (x) would
extend the maturity or reduce the amount of any payment of principal thereof or
reduce the rate or extend any date for payment of interest thereon or (y) would
not be adverse to the interests of the Lenders and (ii) does not involve the
payment of a consent fee).

                   7.10. Transactions with Affiliates. Except as set forth on
                         ----------------------------
Schedule 7.10, enter into any transaction, including any purchase, sale, lease
or exchange of property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than Holdings,
the

<PAGE>

                                                                              67

Borrower or any Subsidiary) unless such transaction is (a) otherwise permitted
under this Agreement, (b) in the ordinary course of business of Holdings, the
Borrower or such Subsidiary, as the case may be, and (c) upon fair and
reasonable terms no less favorable to Holdings, the Borrower or such Subsidiary,
as the case may be, than it would obtain in a comparable arm's length
transaction with a Person that is not an Affiliate; provided that the foregoing
restriction shall not apply to (i) reasonable and customary fees paid to members
of the boards of directors of Holdings, the Borrower and its Subsidiaries, (ii)
issuance of Capital Stock to employees and consultants of the Borrower pursuant
to employment or consulting arrangements and (iii) employment and consulting
arrangements entered into in the ordinary course of business. Notwithstanding
anything to the contrary in this Agreement, in no event shall any fees or other
amounts be paid by Holdings, the Borrower or any of their respective
Subsidiaries to the Sponsor or any of its Affiliates pursuant to the Bain
Advisory Services Agreement or any similar agreement (it being understood that
such fees and other amounts shall be permitted to accrue) other than fees that
accrue in accordance with the Bain Advisory Services Agreement (at the rate in
effect on the Restatement Effective Date) during a Qualified Payment Month.

                   7.11. Sales and Leasebacks. Enter into any arrangement with
                         --------------------
any Person providing for the leasing by Holdings, the Borrower or any Subsidiary
of real or personal property that has been or is to be sold or transferred by
Holdings, the Borrower or such Subsidiary to such Person or to any other Person
to whom funds have been or are to be advanced by such Person on the security of
such property or rental obligations of Holdings, the Borrower or such
Subsidiary.

                   7.12. Changes in Fiscal Periods. Permit the fiscal year of
                         -------------------------
the Borrower to end on a day other than the Saturday occurring closest to the
last calendar day of each calendar year or change the Borrower's method of
determining fiscal quarters.

                   7.13. Negative Pledge Clauses. Enter into or suffer
                         -----------------------
to exist or become effective any agreement that prohibits or limits the ability
of Holdings, the Borrower or any of their respective Subsidiaries to create,
incur, assume or suffer to exist any Lien upon any of its property or revenues,
whether now owned or hereafter acquired, other than (a) this Agreement and the
other Loan Documents, (b) any agreements governing any purchase money Liens or
Capital Lease Obligations otherwise permitted hereby (in which case, any
prohibition or limitation shall only be effective against the assets financed
thereby), (c) applicable law, (d) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of Holdings, the Borrower
or any of their respective Subsidiaries, (e) customary provisions restricting
assignment of any licensing agreement entered into by Holdings, the Borrower or
any of their respective Subsidiaries in the ordinary course of business, (f) any
document or instrument evidencing Foreign Subsidiary working capital
Indebtedness permitted under Section 7.2 so long as such encumbrance or
restriction only applies to the Foreign Subsidiary incurring such Indebtedness,
(g) the Senior Note Indenture and (h) customary provisions contained in joint
venture agreements entered into in the ordinary course of business so long as
such encumbrance or restriction only applies to the relevant joint venture
governed by such agreement.

                   7.14. Clauses Restricting Subsidiary Distributions. Enter
                         --------------------------------------------
into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Subsidiary of the Borrower to (a) make
Restricted Payments in respect of any Capital Stock of such Subsidiary held by,
or pay any Indebtedness owed to, the Borrower or any other Subsidiary of the
Borrower, (b) make loans or advances to, or other Investments in, the Borrower
or any other Subsidiary of the Borrower or (c) transfer any of its assets to the
Borrower or any other Subsidiary of the Borrower, except for such encumbrances

<PAGE>

                                                                              68

or restrictions existing under or by reason of (i) any restrictions existing
under the Loan Documents, (ii) any restrictions with respect to a Subsidiary
imposed pursuant to an agreement that has been entered into in connection with
the Disposition of all or substantially all of the Capital Stock or assets of
such Subsidiary, (iii) applicable law, (iv) in the case of clause (c) above,
customary provisions restricting subletting or assignment of any lease governing
a leasehold interest of Holdings, the Borrower or any of their respective
Subsidiaries, (v) in the case of clause (c) above, customary provisions
restricting assignment of any licensing agreement entered into by Holdings, the
Borrower or any of their respective Subsidiaries in the ordinary course of
business, (vi) any document or instrument evidencing Foreign Subsidiary working
capital Indebtedness permitted under Section 7.2 so long as such encumbrance or
restriction only applies to the Foreign Subsidiary incurring such Indebtedness,
(vii) the Senior Note Indenture and (viii) customary provisions contained in
joint venture agreements entered into in the ordinary course of business so long
as such encumbrance or restriction only applies to the relevant joint venture
governed by such agreement.

                   7.15. Lines of Business. Enter into any business, either
                         -----------------
directly or through any Subsidiary, except for businesses which are the same or
reasonably similar, ancillary or related to, or a reasonable extension,
development or expansion of, the businesses in which the Borrower and its
Subsidiaries are engaged on the Restatement Effective Date.

                   7.16. Amendments to Certain Agreements. (a) Amend, supplement
                         --------------------------------
or otherwise modify (pursuant to a waiver or otherwise) the terms and conditions
of the indemnities and licenses furnished to the Borrower or any of its
Subsidiaries pursuant to the Recapitalization Documentation such that after
giving effect thereto such indemnities or licenses shall be materially less
favorable to the interests of the Loan Parties or the Lenders with respect
thereto, (b) otherwise amend, supplement or otherwise modify the other terms and
conditions of the Recapitalization Documentation except for any such amendment,
supplement or modification that (i) becomes effective after the Closing Date and
(ii) could not reasonably be expected to have a Material Adverse Effect, or (c)
amend, supplement or otherwise modify (pursuant to a waiver or otherwise) the
terms and conditions of the Bain Advisory Services Agreement, the Tax Sharing
Agreement or any Qualified Infusion Document in any manner that is materially
adverse to the Lenders.

                   7.17. Sealy Supply Agreement. (a) Terminate the Sealy Supply
                         ----------------------
Agreement for any reason other than (i) by the mutual agreement of Sealy
Mattress Company and the Borrower, provided that the Borrower shall concurrently
enter into a substantially similar supply agreement on terms which are at least
as favorable overall to the Lenders as those contained in the Sealy Supply
Agreement or (ii) the breach thereof by Sealy Mattress Company, provided that
the Borrower shall thereafter use commercially reasonable efforts to promptly
enter into a substantially similar supply agreement on terms which are at least
as favorable overall to the Lenders as those contained in the Sealy Supply
Agreement.

                   (b)   Amend, supplement or otherwise modify (pursuant to a
waiver or otherwise) the terms and conditions of the Sealy Supply Agreement
except for any such amendment, supplement or modification that could not
reasonably be expected to have a Material Adverse Effect.

                   (c)   Permit the Sealy Supply Agreement (or any similar
mattress supply agreement with Sealy or any of its Affiliates) to require
payment terms earlier than 85 days.

<PAGE>

                                                                              69

                  (d) Permit, for any fiscal month, the aggregate amount paid
during such month to Sealy or any of its Affiliates under the Sealy Supply
Agreement (or any similar mattress supply agreement with Sealy or any of its
Affiliates) prior to the 70/th/ day after incurrence thereof to exceed 10% of
the aggregate amount owing to Sealy and its Affiliates under any such agreement
as of the last day of such month.

                          SECTION 8. EVENTS OF DEFAULT

                  If any of the following events shall occur and be continuing:

                  (a) the Borrower shall fail to pay any principal of any
         Loan or Reimbursement Obligation when due in accordance with the terms
         hereof; or the Borrower shall fail to pay any interest on any Loan or
         Reimbursement Obligation, or any other amount payable hereunder or
         under any other Loan Document, within five days after any such interest
         or other amount becomes due in accordance with the terms hereof; or

                  (b) any representation or warranty made or deemed made by any
         Loan Party herein or in any other Loan Document or that is contained in
         any certificate, document or financial or other statement furnished by
         it at any time under or in connection with this Agreement or any such
         other Loan Document shall prove to have been inaccurate in any material
         respect on or as of the date made or deemed made; or

                  (c) any Loan Party shall default in the observance or
         performance of any agreement contained in clause (i) or (ii) of Section
         6.4(a) (with respect to Holdings and the Borrower only), Section 6.7(a)
         or Section 7 of this Agreement or Sections 5.5 and 5.7(b) of the
         Guarantee and Collateral Agreement; or

                  (d) any Loan Party shall default in the observance or
         performance of any other agreement contained in this Agreement or any
         other Loan Document (other than as provided in paragraphs (a) through
         (c) of this Section), and such default shall continue unremedied for a
         period of 30 days after notice to the Borrower from the Administrative
         Agent or the Required Lenders; or

                  (e) Holdings, the Borrower or any of their respective
         Subsidiaries shall (i) default in making any payment of any principal
         of any Indebtedness (including any Guarantee Obligation, but excluding
         the Loans) on the scheduled or original due date with respect thereto;
         or (ii) default in making any payment of any interest on any such
         Indebtedness beyond the period of grace, if any, provided in the
         instrument or agreement under which such Indebtedness was created; or
         (iii) default in the observance or performance of any other agreement
         or condition relating to any such

<PAGE>

                                                                              70

         Indebtedness or contained in any instrument or agreement evidencing,
         securing or relating thereto, or any other event shall occur or
         condition exist, the effect of which default or other event or
         condition is to cause, or to permit the holder or beneficiary of such
         Indebtedness (or a trustee or agent on behalf of such holder or
         beneficiary) to cause, with the giving of notice if required, such
         Indebtedness to become due prior to its stated maturity or (in the case
         of any such Indebtedness constituting a Guarantee Obligation) to become
         payable; provided, that a default, event or condition described in
                  --------
         clause (i), (ii) or (iii) of this paragraph (e) shall not at any time
         constitute an Event of Default unless, at such time, one or more
         defaults, events or conditions of the type described in clauses (i),
         (ii) and (iii) of this paragraph (e) shall have occurred and be
         continuing with respect to Indebtedness the outstanding principal
         amount of which exceeds in the aggregate $2,500,000; or

                  (f)  (i) Holdings, the Borrower or any of their respective
         Subsidiaries shall commence any case, proceeding or other action (A)
         under any existing or future law of any jurisdiction, domestic or
         foreign, relating to bankruptcy, insolvency, reorganization or relief
         of debtors, seeking to have an order for relief entered with respect to
         it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
         reorganization, arrangement, adjustment, winding-up, liquidation,
         dissolution, composition or other relief with respect to it or its
         debts, or (B) seeking appointment of a receiver, trustee, custodian,
         conservator or other similar official for it or for all or any
         substantial part of its assets, or Holdings, the Borrower or any of
         their respective Subsidiaries shall make a general assignment for the
         benefit of its creditors; or (ii) there shall be commenced against
         Holdings, the Borrower or any of their respective Subsidiaries any
         case, proceeding or other action of a nature referred to in clause (i)
         above that (A) results in the entry of an order for relief or any such
         adjudication or appointment or (B) remains undismissed, undischarged or
         unbonded for a period of 60 days; or (iii) there shall be commenced
         against Holdings, the Borrower or any of their respective Subsidiaries
         any case, proceeding or other action seeking issuance of a warrant of
         attachment, execution, distraint or similar process against all or any
         substantial part of its assets that results in the entry of an order
         for any such relief that shall not have been vacated, discharged, or
         stayed or bonded pending appeal within 60 days from the entry thereof;
         or (iv) Holdings, the Borrower or any of their respective Subsidiaries
         shall take any action in furtherance of, or indicating its consent to,
         approval of, or acquiescence in, any of the acts set forth in clause
         (i), (ii), or (iii) above; or (v) Holdings, the Borrower or any of
         their respective Subsidiaries shall generally not, or shall be unable
         to, or shall admit in writing its inability to, pay its debts as they
         become due; or

                  (g)  (i) any Person shall engage in any non-exempt "prohibited
         transaction" (as defined in Section 406 of ERISA or Section 4975 of the
         Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
         defined in Section 302 of ERISA), whether or not waived, shall exist
         with respect to any Plan or any Lien in favor of the PBGC or a Plan
         shall arise on the assets of the Borrower or any Commonly Controlled
         Entity, (iii) a Reportable Event shall occur with respect to, or
         proceedings shall commence to have a trustee appointed, or a trustee
         shall be appointed, to administer or to terminate, any Single Employer
         Plan, which Reportable Event or commencement of proceedings or
         appointment of a trustee is, in the reasonable opinion of the Required
         Lenders, likely to result in the termination of such Plan for purposes
         of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for
         purposes of Title IV of ERISA, (v) the Borrower or any Commonly
         Controlled Entity shall, or in the reasonable opinion of the Required
         Lenders is likely to, incur any liability in connection with a
         withdrawal from, or the Insolvency or Reorganization of, a
         Multiemployer Plan or (vi) any other event or condition shall occur or
         exist with respect to a Plan; and in each case in clauses (i) through
         (vi) above, such event or condition,

<PAGE>

                                                                              71

         together with all other such events or conditions, if any, could, in
         the sole judgment of the Required Lenders, reasonably be expected to
         have a Material Adverse Effect; or

                  (h)   one or more judgments or decrees shall be entered
         against Holdings, the Borrower or any of their respective Subsidiaries
         involving in the aggregate a liability (not paid or fully covered by
         insurance) of $2,500,000 or more, and all such judgments or decrees
         shall not have been vacated, discharged, stayed or bonded pending
         appeal within 30 days from the entry thereof; or

                  (i)   any of the Security Documents shall cease, for any
         reason, to be in full force and effect, or any Loan Party or any
         Affiliate of any Loan Party shall so assert, or any Lien created by any
         of the Security Documents shall cease to be enforceable and of the same
         effect and priority purported to be created thereby; or

                  (j)   the guarantee contained in Section 2 of the Guarantee
         and Collateral Agreement shall cease, for any reason, to be in full
         force and effect or any Loan Party or any Affiliate of any Loan Party
         shall so assert; or

                  (k)   a Change of Control shall occur; or

                  (l)   Holdings shall (i) conduct, transact or otherwise engage
         in, or commit to conduct, transact or otherwise engage in, any business
         or operations other than those incidental to its ownership of the
         Capital Stock of the Borrower, the maintenance of its corporate
         existence, and activities relating to accounting, legal and financial
         matters concerning Holdings, the Borrower and their respective
         Subsidiaries collectively, (ii) incur, create, assume or suffer to
         exist any Indebtedness or other liabilities or financial obligations,
         except (w) Subordinated Debt, (x) nonconsensual obligations imposed by
         operation of law, (y) pursuant to the Loan Documents to which it is a
         party and (z) obligations with respect to its Capital Stock or any
         Management Notes issued by it, or (iii) own, lease, manage or otherwise
         operate any properties or assets (including cash (other than cash
         received in connection with dividends made by the Borrower in
         accordance with Section 7.6 pending application in the manner
         contemplated by said Section) and cash equivalents) other than (x) the
         ownership of shares of Capital Stock of the Borrower and (y)
         Investments expressly permitted by Section 7.8 to be made by Holdings;
         or

                  (m)   any Subordinated Seller Note, any Borrower/Holdings
         Subordinated Debt or any Subordinated Debt shall cease, for any reason,
         to be validly subordinated to the Obligations or the obligations of the
         relevant Guarantors under the Guarantee and Collateral Agreement, as
         the case may be, as provided pursuant to the terms of such
         Indebtedness, or any Loan Party, any Affiliate of any Loan Party or the
         holder of any such Indebtedness shall so assert;

then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including all amounts of L/C
Obligations, whether or not the

<PAGE>

                                                                              72

beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required thereunder) shall immediately become due and payable, and (B)
if such event is any other Event of Default, either or both of the following
actions may be taken: (i) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrower declare the Commitments to
be terminated forthwith, whereupon the Commitments shall immediately terminate;
and (ii) with the consent of the Required Lenders, the Administrative Agent may,
or upon the request of the Required Lenders, the Administrative Agent shall, by
notice to the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the other Loan
Documents (including all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required thereunder) to be due and payable forthwith, whereupon the
same shall immediately become due and payable. With respect to all Letters of
Credit with respect to which presentment for honor shall not have occurred at
the time of an acceleration pursuant to this paragraph, the Borrower shall at
such time deposit in a cash collateral account opened by the Administrative
Agent an amount equal to the aggregate then undrawn and unexpired amount of such
Letters of Credit. Amounts held in such cash collateral account shall be applied
by the Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Borrower hereunder and under the other Loan Documents. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrower hereunder and under the other Loan Documents shall have been paid
in full, the balance, if any, in such cash collateral account shall be returned
to the Borrower (or such other Person as may be lawfully entitled thereto).
Except as expressly provided above in this Section, presentment, demand, protest
and all other notices of any kind are hereby expressly waived by the Borrower.

                             SECTION 9. THE AGENTS

         9.1.  Appointment. Each Lender hereby irrevocably designates and
               -----------
appoints the Administrative Agent as the Administrative Agent of such Lender
under this Agreement and the other Loan Documents, and each such Lender
irrevocably authorizes the Administrative Agent, in such capacity, to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Administrative Agent by the terms of this Agreement and the
other Loan Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the
Administrative Agent.

         9.2.  Delegation of Duties. The Administrative Agent may execute any of
               --------------------
its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or attorneys
in-fact selected by it with reasonable care.

<PAGE>

                                                                              73

         9.3.  Exculpatory Provisions. Neither any Agent nor any of their
               ----------------------
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross negligence or willful misconduct)
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Loan Party or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agents under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of any Loan Party a party thereto to perform its obligations
hereunder or thereunder. The Agents shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.

         9.4.  Reliance by Administrative Agent. The Administrative Agent shall
               --------------------------------
be entitled to rely, and shall be fully protected in relying, upon any
instrument, writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or other document
or conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including counsel to Holdings or the Borrower),
independent accountants and other experts selected by the Administrative Agent.
The Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment, negotiation or
transfer thereof shall have been filed with the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders (or, if so specified
by this Agreement, all Lenders) as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense that may be incurred by it by reason of taking or continuing to take any
such action. The Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and the other Loan
Documents in accordance with a request of the Required Lenders (or, if so
specified by this Agreement, all Lenders), and such request and any action taken
or failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Loans.

         9.5.  Notice of Default. The Administrative Agent shall not be deemed
               -----------------
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender,
Holdings or the Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders (or, if so specified by this
Agreement, all Lenders); provided that unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.

         9.6.  Non-Reliance on Agents and Other Lenders. Each Lender expressly
               ----------------------------------------
acknowledges that neither the Agents nor any of their respective officers,
directors, employees, agents,

<PAGE>

                                                                              74

attorneys-in-fact or affiliates have made any representations or warranties to
it and that no act by any Agent hereinafter taken, including any review of the
affairs of a Loan Party or any affiliate of a Loan Party, shall be deemed to
constitute any representation or warranty by any Agent to any Lender. Each
Lender represents to the Agents that it has, independently and without reliance
upon any Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Loan Parties and their affiliates and made its own
decision to make its Loans hereunder and enter into this Agreement. Each Lender
also represents that it will, independently and without reliance upon any Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Loan Parties and their affiliates. Except
for notices, reports and other documents expressly required to be furnished to
the Lenders by the Administrative Agent hereunder, the Administrative Agent
shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of any Loan Party or any
affiliate of a Loan Party that may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.

         9.7.  Indemnification. The Lenders agree to indemnify each Agent in its
               ---------------
capacity as such (to the extent not reimbursed by Holdings or the Borrower and
without limiting the obligation of Holdings or the Borrower to do so), ratably
according to their respective Aggregate Exposure Percentages in effect on the
date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, ratably in accordance
with such Aggregate Exposure Percentages immediately prior to such date), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever that may at any time (whether before or after the payment of the
Loans) be imposed on, incurred by or asserted against such Agent in any way
relating to or arising out of, the Commitments, this Agreement, any of the other
Loan Documents or any documents contemplated by or referred to herein or therein
or the transactions contemplated hereby or thereby or any action taken or
omitted by such Agent under or in connection with any of the foregoing; provided
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements that are found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from such Agent's
gross negligence or willful misconduct. The agreements in this Section shall
survive the payment of the Loans and all other amounts payable hereunder.

         9.8.  Agent in Its Individual Capacity. Each Agent and its affiliates
               --------------------------------
may make loans to, accept deposits from and generally engage in any kind of
business with any Loan Party as though such Agent was not an Agent. With respect
to its Loans made or renewed by it and with respect to any Letter of Credit
issued or participated in by it, each Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include each Agent in its individual capacity.

         9.9.  Successor Administrative Agent. The Administrative Agent may
               ------------------------------
resign as Administrative Agent upon 10 days' notice to the Lenders and the
Borrower. If the Administrative Agent shall resign as Administrative Agent under
this Agreement and the other Loan Documents, then the

<PAGE>

                                                                              75

Required Lenders shall appoint from among the Lenders a successor agent for the
Lenders, which successor agent shall (unless an Event of Default under Section
8(a) or Section 8(f) with respect to the Borrower shall have occurred and be
continuing) be subject to approval by the Borrower (which approval shall not be
unreasonably withheld or delayed), whereupon such successor agent shall succeed
to the rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon such
appointment and approval, and the former Administrative Agent's rights, powers
and duties as Administrative Agent shall be terminated, without any other or
further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Loans. If no successor agent
has accepted appointment as Administrative Agent by the date that is 10 days
following a retiring Administrative Agent's notice of resignation, the retiring
Administrative Agent's resignation shall nevertheless thereupon become effective
and the Lenders shall assume and perform all of the duties of the Administrative
Agent hereunder until such time, if any, as the Required Lenders appoint a
successor agent as provided for above. After any retiring Administrative Agent's
resignation 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 under this Agreement and the other Loan Documents.

         9.10. Co-Agent. The Co-Agent shall not have any duties or
               --------
responsibilities hereunder in its capacity as such.

                           SECTION 10. MISCELLANEOUS

         10.1. Amendments and Waivers. Neither this Agreement, any other Loan
               ----------------------
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may,
or, with the written consent of the Required Lenders, the Administrative Agent
and each Loan Party party to the relevant Loan Document may, from time to time,
(a) enter into written amendments, supplements or modifications hereto and to
the other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such
terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
supplement or modification shall (i) forgive or reduce the principal amount or
extend the final scheduled date of maturity of any Loan, reduce the stated rate
of any interest or fee payable hereunder or extend the scheduled date of any
payment thereof, or increase the amount or extend the expiration date of any
Lender's Commitment, in each case without the written consent of each Lender
directly affected thereby; (ii) eliminate or reduce the voting rights of any
Lender under this Section 10.1 with respect to any matter covered by this
Section 10.1 without the written consent of such Lender; (iii) reduce any
percentage specified in the definition of Required Lenders, consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement and the other Loan Documents, release all or substantially
all of the Collateral or release Holdings or, except in connection with a
transaction permitted by Section 7.4 or Section 7.5, all or substantially all of
the Subsidiary Guarantors from their obligations under the Guarantee and
Collateral Agreement, in each case without the written consent of all Lenders;
(iv) amend, modify or waive any provision of Section 9 without the written
consent of the Administrative Agent and, in the case of Section 9.10, the
Co-Agent; or (v) amend, modify or waive any provision of Section 3 without the
written consent of the Issuing Lender. Any such waiver and any such amendment,

<PAGE>

                                                                              76

supplement or modification shall apply equally to each of the Lenders and shall
be binding upon the Loan Parties, the Lenders, the Administrative Agent and all
future holders of the Loans. In the case of any waiver, the Loan Parties, the
Lenders and the Administrative Agent shall be restored to their former position
and rights hereunder and under the other Loan Documents, and any Default or
Event of Default waived shall be deemed to be cured and not continuing; but no
such waiver shall extend to any subsequent or other Default or Event of Default,
or impair any right consequent thereon.

          For the avoidance of doubt, this Agreement may be amended (or
amended and restated) with the written consent of the Required Lenders, the
Administrative Agent and the Borrower (a) to add one or more additional credit
facilities to this Agreement and to permit the extensions of credit from time to
time outstanding thereunder and the accrued interest and fees in respect thereof
(collectively, the "Additional Extensions of Credit") to share ratably in the
benefits of this Agreement and the other Loan Documents with the Extensions of
Credit and the accrued interest and fees in respect thereof and (b) to include
appropriately the Lenders holding such credit facilities in any determination of
the Required Lenders.

          10.2. Notices. All notices, requests and demands to or upon the
                -------
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of Holdings, the Borrower and the
Administrative Agent, and as set forth in an administrative questionnaire
delivered to the Administrative Agent in the case of the Lenders, or to such
other address as may be hereafter notified by the respective parties hereto:

   Holdings:                              Mattress Holding Corporation
                                          c/o Bain Capital, L.L.C.
                                          111 Huntington Avenue
                                          Boston, Massachusetts  02119
                                          Attention: Jim Hirshorn
                                          Telecopy:  (617) 516-2010
                                          Telephone:  (617) 516-2000

   The Borrower:                          Mattress Discounters Corporation
                                          9822 Fallard Court
                                          Upper Marlboro, Maryland  20772
                                          Attention:  Chief Financial Officer
                                          Telecopy:  (301) 856-0380
                                          Telephone:  (301) 856-6755

       with a copy to each of:            Bain Capital, L.L.C.
                                          111 Huntington Avenue
                                          Boston, Massachusetts  02119
                                          Attention:  Jim Hirshorn
                                          Telecopy:  (617) 516-2010
                                          Telephone:  (617) 516-2000

<PAGE>

                                                                              77

                                     Kirkland & Ellis
                                     200 East Randolph Drive
                                     Chicago, Illinois  60601
                                     Attention:  Linda K. Myers
                                     Telecopy:  (312) 861-2200
                                     Telephone:  (312) 861-2000

  The Administrative Agent:          JPMorgan Chase Bank
                                     270 Park Avenue
                                     New York, New York  10017
                                     Attention: Michael Lancia
                                     Telecopy: (212) 622-4834
                                     Telephone: (212) 622-3707

      With a copy to each of         JPMorgan Chase Bank
                                     c/o The Loan and Agency Services Group
                                     One Chase Manhattan Plaza, 8/th/ Floor
                                     New York, New York  10081
                                     Attention: Anne Bowles
                                     Telecopy: (212) 552-7500
                                     Telephone: (212) 552-7260

                                     JPMorgan Chase Bank Delaware
                                     c/o The Letter of Credit Department
                                     1201 Market Street, 8/th/ Floor
                                     Wilmington, Delaware  19801
                                     Attention: Michael Handago
                                     Telecopy: (302) 428-3390 or (302) 984-4904
                                     Telephone: (302) 428-3311

provided that any notice, request or demand to or upon the Administrative Agent
--------
or the Lenders shall not be effective until received.

          10.3. No Waiver; Cumulative Remedies. No failure to exercise and no
                ------------------------------
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.

          10.4. Survival of Representations and Warranties. All representations
                ------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered

<PAGE>

                                                                              78

pursuant hereto or in connection herewith shall survive the execution and
delivery of this Agreement and the making of the Loans and other extensions of
credit hereunder.

          10.5. Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
                -----------------------------
reimburse the Administrative Agent for all its reasonable out-of-pocket costs
and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Loan Documents (requested by or on behalf of the Loan Parties) and
any other documents prepared in connection herewith or therewith, and the
consummation and administration of the transactions contemplated hereby and
thereby, including (i) reasonable expenses incurred in connection with
inspections pursuant to Section 6.6, (ii) the reasonable fees and disbursements
of counsel to the Administrative Agent, (iii) filing and recording fees and
expenses, (iv) reasonable costs and reasonable expenses with respect to periodic
collateral reviews and evaluations that have been undertaken on behalf of the
Lenders and monitoring of collateral by the Administrative Agent's collateral
monitoring group, provided that, commencing on the Restatement Effective Date,
such reviews, evaluations and the like shall not be conducted more than once in
any twelve-month period (and shall not be conducted prior to September 30, 2002)
unless an Event of Default has occurred and is continuing, and (v) the
reasonable fees and disbursements of any financial advisor engaged by or on
behalf of the Administrative Agent (in consultation with the Borrower) at any
time after the occurrence of an Event of Default under Section 8(a), (c) (except
to the extent resulting from a violation of Section 6.7(a) of which a
Responsible Officer does not have knowledge), (d), (e), (f), (h), (k) or (l)
(provided that for the purposes of this clause (v), compliance with Section 7.1
shall be determined without giving effect to any Qualified EBITDA Infusions);
(b) to pay or reimburse each Lender and the Administrative Agent for all its
reasonable costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Loan Documents and
any such other documents, including the fees and disbursements of (i) counsel to
the Administrative Agent and (ii) not more than one additional firm of counsel
to the Lenders; (c) to pay, indemnify, and hold each Lender and the
Administrative Agent harmless from, any and all recording and filing fees and
any and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other taxes, if any, that may be payable or determined to be
payable in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Loan Documents and any such other documents; and (d)
to pay, indemnify, and hold each Lender and the Administrative Agent and their
respective officers, directors, employees, affiliates, agents and controlling
persons (each, an "Indemnitee") harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents and any such other documents, including any
of the foregoing relating to the use of proceeds of the Loans or the violation
of, noncompliance with or liability under, any Environmental Law applicable to
the operations of Holdings, the Borrower any of their respective Subsidiaries or
any of the Properties and the reasonable fees and expenses of legal counsel in
connection with claims, actions or proceedings by any Indemnitee against any
Loan Party under any Loan Document (all the foregoing in this clause (d),
collectively, the "Indemnified Liabilities"), provided, that the Borrower shall
have no obligation hereunder to any Indemnitee with respect to Indemnified
Liabilities to the extent such Indemnified Liabilities result from the bad
faith, gross negligence or willful misconduct of such Indemnitee. Without
limiting the foregoing, and to the extent permitted by applicable law, the
Borrower agrees not to assert and to cause its Subsidiaries not to assert, and
hereby waives and agrees to cause its Subsidiaries to so waive, all rights for
contribution or any other rights of recovery with respect to all claims,
demands, penalties, fines, liabilities, settlements, damages, costs and expenses
of whatever kind or nature, under or related to Environmental Laws, that any of
them might have by statute or otherwise against any Indemnitee. All amounts due
under this Section 10.5 shall be payable promptly after written demand

<PAGE>

                                                                              79

therefor. Statements payable by the Borrower pursuant to this Section 10.5 shall
be submitted to the Chief Financial Officer (Telephone No. 301-856-0380)
(Telecopy No. 301-856-6755), at the address of the Borrower set forth in Section
10.2, or to such other Person or address as may be hereafter designated by the
Borrower in a written notice to the Administrative Agent. The agreements in this
Section 10.5 shall survive repayment of the Loans and all other amounts payable
hereunder.

          10.6. Successors and Assigns; Participations and Assignments. (a) This
                ------------------------------------------------------
Agreement shall be binding upon and inure to the benefit of Holdings, the
Borrower, the Lenders, the Administrative Agent, all future holders of the Loans
and their respective successors and assigns, except that the Borrower may not
assign or transfer any of its rights or obligations under this Agreement without
the prior written consent of each Lender.

          (b)   Any Lender may, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
                                         -----------
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents (the
documentation governing any such participation, a "Participation Agreement"). In
                                                   -----------------------
the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Loan for all purposes under this Agreement and the other Loan
Documents, and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. In no event shall
any Participant under any such participation have any right to approve any
amendment or waiver of any provision of any Loan Document, or any consent to any
departure by any Loan Party therefrom, except to the extent that such amendment,
waiver or consent would (i) reduce the principal of, or interest on, the Loans
or any fees payable hereunder in which the Participant shares, (ii) postpone any
date fixed for any payment of principal or interest with respect to the Loans in
which the Participant shares, or (iii) release all or substantially all of the
Collateral except (x) as contemplated by the terms of any Loan Document or (y)
in exchange for substitute collateral of equal or greater value. The Borrower
agrees that if amounts outstanding under this Agreement and the Loans are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant (except as otherwise
provided in any Participation Agreement) shall, to the maximum extent permitted
by applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, provided that, in purchasing such participating
                             --------
interest, such Participant shall be deemed to have agreed to share with the
Lenders the proceeds thereof as provided in Section 10.7(a) as fully as if it
were a Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of Sections 2.13, 2.14 and 2.15 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it was a Lender; provided that, in the case of Section 2.14, such Participant
                    --------
shall have complied with the requirements of said Section and provided, further,
                                                              --------  -------
that no Participant shall be entitled to receive any greater amount pursuant to
any such Section than the transferor Lender would have been entitled to receive
in respect of the amount of the participation transferred by such transferor
Lender to such Participant had no such transfer occurred.

          (c)   Any Lender (an "Assignor") may, in accordance with applicable
                                --------
law, at any time and from time to time assign to any Lender, any affiliate of
any Lender or any Approved Fund or, with the consent of the Borrower and the
Administrative Agent (which, in each case, shall not be unreasonably

<PAGE>

                                                                              80

withheld or delayed), to an additional bank, financial institution or other
entity (an "Assignee") all or any part of its rights and obligations under this
            --------
Agreement pursuant to an Assignment and Acceptance, executed by such Assignee,
such Assignor and any other Person whose consent is required pursuant to this
paragraph, and delivered to the Administrative Agent for its acceptance and
recording in the Register; provided that, except in the case of an assignment of
                           --------
all of a Lender's interests under this Agreement, unless otherwise agreed by the
Borrower and the Administrative Agent, no such assignment to an Assignee (other
than any Lender, any affiliate of any Lender or any Approved Fund) shall (i) be
in an aggregate principal amount of less than $2,500,000 or (ii) cause the
Assignor to have Aggregate Exposure of less than $2,500,000. For purposes of the
proviso contained in the preceding sentence, the amounts described therein shall
be aggregated in respect of each Lender and its related Approved Funds, if any.
Any such assignment need not be ratable as among the Facilities. Upon such
execution, delivery, acceptance and recording, from and after the effective date
determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
with a Commitment and/or Loans as set forth therein, and (y) the Assignor
thereunder shall, to the extent provided in such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of an Assignor's rights and obligations
under this Agreement, such Assignor shall cease to be a party hereto).
Notwithstanding any provision of this Section 10.6, the consent of the Borrower
shall not be required for any assignment that occurs when an Event of Default
pursuant to Section 8(f) shall have occurred and be continuing with respect to
the Borrower.

          (d)   The Administrative Agent shall, on behalf of the Borrower,
maintain at its address referred to in Section 10.2 a copy of each Assignment
and Acceptance delivered to it and a register (the "Register") for the
                                                    --------
recordation of the names and addresses of the Lenders and the Commitment of, and
the principal amount of the Loans owing to, each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, each other Loan Party, the Administrative Agent and the
Lenders shall treat each Person whose name is recorded in the Register as the
owner of the Loans and any Notes evidencing the Loans recorded therein for all
purposes of this Agreement. Any assignment of any Loan, whether or not evidenced
by a Note, shall be effective only upon appropriate entries with respect thereto
being made in the Register (and each Note shall expressly so provide). Any
assignment or transfer of all or part of a Loan evidenced by a Note shall be
registered on the Register only upon surrender for registration of assignment or
transfer of the Note evidencing such Loan, accompanied by a duly executed
Assignment and Acceptance, and thereupon one or more new Notes shall be issued
to the designated Assignee.

          (e)   Upon its receipt of an Assignment and Acceptance executed by an
Assignor, an Assignee and any other Person whose consent is required by Section
10.6(c), together with payment to the Administrative Agent of a registration and
processing fee of $3,500, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) record the information contained therein
in the Register on the effective date determined pursuant thereto.

          (f)   For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this Section 10.6 concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including any pledge or
assignment by a Lender of any Loan or Note to any Federal Reserve Bank in
accordance with applicable law.

<PAGE>

                                                                              81

            (g)   The Borrower, upon receipt of written notice from the relevant
Lender, agrees to issue Notes to any Lender requiring Notes to facilitate
transactions of the type described in paragraph (f) above.

            10.7. Adjustments; Set-off. (a) Except to the extent that this
                  --------------------
Agreement expressly provides for payments to be allocated to a particular
Lender, if any Lender (a "Benefitted Lender") shall receive any payment of all
or part of the Obligations owing to it, or receive any collateral in respect
thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in Section 8(f), or otherwise), in a
greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of the Obligations owing to such other Lender, such
Benefitted Lender shall purchase for cash from the other Lenders a participating
interest in such portion of the Obligations owing to each such other Lender, or
shall provide such other Lenders with the benefits of any such collateral, as
shall be necessary to cause such Benefitted Lender to share the excess payment
or benefits of such collateral ratably with each of the Lenders; provided,
however, that if all or any portion of such excess payment or benefits is
thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.

            (b)   In addition to any rights and remedies of the Lenders provided
by law, each Lender shall have the right, without prior notice to Holdings or
the Borrower, any such notice being expressly waived by Holdings and the
Borrower to the extent permitted by applicable law, upon any amount becoming due
and payable by Holdings or the Borrower hereunder (whether at the stated
maturity, by acceleration or otherwise), to set off and appropriate and apply
against such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender or
any branch or agency thereof to or for the credit or the account of Holdings or
the Borrower, as the case may be. Each Lender agrees promptly to notify the
Borrower and the Administrative Agent after any such setoff and application made
by such Lender, provided that the failure to give such notice shall not affect
                --------
the validity of such setoff and application.

            10.8. Counterparts. This Agreement may be executed by one or more of
                  ------------
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.

            10.9. Severability. Any provision of this Agreement that is
                  ------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

            10.10.Integration.  This Agreement and the other Loan Documents
                  -----------
represent the agreement of Holdings, the Borrower, the Administrative Agent and
the Lenders with respect to the

<PAGE>

                                                                              82

subject matter hereof, and there are no promises, undertakings, representations
or warranties by the Administrative Agent or any Lender relative to subject
matter hereof not expressly set forth or referred to herein or in the other Loan
Documents.

            10.11. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
                   -------------
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

            10.12. Submission To Jurisdiction; Waivers.  Each of Holdings and
                   -----------------------------------
the Borrower hereby irrevocably and unconditionally:

            (a)    submits for itself and its property in any legal action or
     proceeding relating to this Agreement and the other Loan Documents to which
     it is a party, or for recognition and enforcement of any judgment in
     respect thereof, to the non-exclusive general jurisdiction of the courts of
     the State of New York, the courts of the United States for the Southern
     District of New York, and appellate courts from any thereof;

            (b)    consents that any such action or proceeding may be brought in
     such courts and waives any objection that it may now or hereafter have to
     the venue of any such action or proceeding in any such court or that such
     action or proceeding was brought in an inconvenient court and agrees not to
     plead or claim the same;

            (c)    agrees that service of process in any such action or
     proceeding may be effected by mailing a copy thereof by registered or
     certified mail (or any substantially similar form of mail), postage
     prepaid, to Holdings or the Borrower, as the case may be at its address set
     forth in Section 10.2 or at such other address of which the Administrative
     Agent shall have been notified pursuant thereto;

            (d)    agrees that nothing herein shall affect the right to effect
     service of process in any other manner permitted by law or shall limit the
     right to sue in any other jurisdiction; and

            (e)    waives, to the maximum extent not prohibited by law, any
     right it may have to claim or recover in any legal action or proceeding
     referred to in this Section any special, exemplary, punitive or
     consequential damages.

            10.13. Acknowledgements.  Each of Holdings and the Borrower hereby
                   ----------------
acknowledges that:

            (a)    it has been advised by counsel in the negotiation, execution
     and delivery of this Agreement and the other Loan Documents;

<PAGE>

                                                                              83

            (b)    neither the Administrative Agent nor any Lender has any
     fiduciary relationship with or duty to Holdings or the Borrower arising out
     of or in connection with this Agreement or any of the other Loan Documents,
     and the relationship between Administrative Agent and Lenders, on one hand,
     and Holdings and the Borrower, on the other hand, in connection herewith or
     therewith is solely that of debtor and creditor; and

            (c)    no joint venture is created hereby or by the other Loan
     Documents or otherwise exists by virtue of the transactions contemplated
     hereby among the Lenders or among Holdings, the Borrower and the Lenders.

            10.14. Releases of Guarantees and Liens. (a) Notwithstanding
                   --------------------------------
anything to the contrary contained herein or in any other Loan Document, the A
dministrative Agent is hereby irrevocably authorized by each Lender (without
requirement of notice to or consent of any Lender except as expressly required
by Section 10.1) to take any action requested by the Borrower having the effect
of releasing any Collateral or guarantee obligations (i) to the extent necessary
to permit consummation of any transaction not prohibited by any Loan Document or
that has been consented to in accordance with Section 10.1 or (ii) under the
circumstances described in paragraph (b) below.

            (b)    At such time as the Loans, the Reimbursement Obligations and
the other obligations under the Loan Documents (other than obligations under or
in respect of Hedge Agreements or contingent indemnification obligations for
which requests for payment have not been submitted) shall have been paid in
full, the Commitments have been terminated and no Letters of Credit shall be
outstanding, the Collateral shall be released from the Liens created by the
Security Documents, and the Security Documents and all obligations (other than
those expressly stated to survive such termination) of the Administrative Agent
and each Loan Party under the Security Documents shall terminate, all without
delivery of any instrument or performance of any act by any Person.

            10.15. Confidentiality. Each of the Administrative Agent and Lender
                   ---------------
agrees to keep confidential all non-public information provided to it by any
Loan Party pursuant to this Agreement that is designated by such Loan Party as
confidential; provided that nothing herein shall prevent the Administrative
Agent or any Lender from disclosing any such information (a) to the
Administrative Agent, any other Lender, any affiliate of any Lender or any
Approved Fund, (b) to any Transferee or prospective Transferee that agrees to
comply with the provisions of this Section, (c) to its employees, directors,
agents, attorneys, accountants and other professional advisors or those of any
of its affiliates involved in this financing, (d) or to any direct or indirect
contractual counterparty in swap agreements or such contractual counterparty's
professional advisor (so long as such contractual counterparty or professional
advisor to such contractual counterparty agrees to be bound by the provisions of
this Section 10.15), (e) upon the request or demand of any Governmental
Authority, (f) in response to any order of any court or other Governmental
Authority or as may otherwise be required pursuant to any Requirement of Law,
(g) if requested or required to do so in connection with any litigation or
similar proceeding, (h) that has been publicly disclosed, (i) to the National
Association of Insurance Commissioners or any similar organization or any
nationally recognized rating agency that requires access to information about a
Lender's investment portfolio in connection with ratings issued with respect to
such Lender, or (j) in connection with the exercise of any remedy hereunder or
under any other Loan Document.

<PAGE>

                                                                              84

            10.16. Waiver of Defaults(a) . The Lenders hereby permanently waive
                   -------------------
any Events of Default under the Existing Credit Agreement resulting from any
failure to comply with Section 4.3(a) (with respect to the good standing status
of Holdings only), 6.1, 6.2 or 7.1 thereof or resulting from the existence of
the excess amount described in Section 5.1(g).

10.17. WAIVERS OF JURY TRIAL. HOLDINGS
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

<PAGE>

                                                                              85

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

                                    MATTRESS HOLDING CORPORATION

                                    By:   /s/ Stephen R. Gunn
                                       -----------------------------------
                                       Name:  Stephen R. Gunn
                                       Title: Chief Executive Officer

                                    MATTRESS DISCOUNTERS CORPORATION

                                    By:   /s/ Rick Frier
                                       -----------------------------------
                                       Name:  Rick Frier
                                       Title: Chief Financial Officer

                                    JPMORGAN CHASE BANK, as Administrative Agent
                                    and as a Lender

                                    By:   /s/ Michael Lancia
                                       -----------------------------------
                                       Name:  Michael Lancia
                                       Title: Vice President

                                    FLEET NATIONAL BANK, as Co-Agent and as a
                                    Lender

                                    By:   /s/ George E. Durst
                                       -----------------------------------
                                       Name:  George E. Durst
                                       Title: Vice President

<PAGE>

                                                                              86

                       ARK II CLO 2001-1, LIMITED, as a Lender

                       By:  Patriarch Partners II, LLC, its Collateral Manager

                       By:   /s/ Lynn Triton
                          -----------------------------------

                          Name:  Lynn Triton
                          Title: Authorized Signatory

<PAGE>

                                                                   SCHEDULE 1.1A
                                                                   -------------

                                   COMMITMENTS

   Lender                        Tranche A Commitment     Tranche B Commitment
   ------                        --------------------     --------------------

   JPMorgan Chase Bank                $ 7,000,000              $ 6,250,000

   Fleet National Bank                $ 5,250,000              $ 6,250,000

   ARK II CLO 2001-1, Limited         $ 5,250,000                       $0
                                       ----------                       --

        TOTAL                         $17,500,000              $12,500,000<PAGE>

                                                                    Exhibit 10.1

                                                                  EXECUTION COPY

     AGREEMENT, dated as of December 14, 2001 (this "Agreement"), by and among
TeleCorp PCS, Inc., a Delaware corporation (the "Company"), TeleCorp Wireless,
Inc. (formerly known as TeleCorp PCS, Inc.), a Delaware corporation ("TeleCorp
Wireless"; and together with the Company, collectively referred to herein as the
"TeleCorp Parties") and AT&T Wireless Services, Inc., a Delaware corporation
("AT&T Wireless").

                                   WITNESSETH:

     WHEREAS, the Company has authorized and proposes to issue and sell up to an
additional $210,000,000 in gross proceeds of its Senior Subordinated Discount
Notes due 2011 (the "Company Notes") pursuant to an Indenture dated as of April
6, 2001 (the "Company Notes Indenture") between the Company and Firstar Bank,
N.A., as trustee (in such capacity, the "Company Notes Trustee");

     WHEREAS, (i) on January 10, 2002, the Company will issue and sell to AT&T
Wireless pursuant to the terms of the Company Notes Indenture and, subject to
the terms of this Agreement, AT&T Wireless will purchase from the Company,
Company Notes yielding to the Company not less than $100,000,000 of gross
proceeds, and (ii) on April 15, 2002, the Company will issue and sell to AT&T
Wireless pursuant to the terms of the Company Notes Indenture and, subject to
the terms of this Agreement, AT&T Wireless will purchase from the Company,
Company Notes yielding to the Company not less than $110,000,000 of gross
proceeds;

     WHEREAS, TeleCorp Wireless has authorized and proposes to issue and sell up
to $250,000,000 in principal amount of its 9.0% Senior Subordinated Notes due
2008 (the "TeleCorp Wireless Notes"; and together with the Company Notes,
collectively referred to herein as the "Notes") pursuant to an indenture on
terms and conditions substantially similar to the Indenture, dated as of July
14, 2000, relating to TeleCorp Wireless' 10 5/8 Senior Subordinated Notes due
2010, except that with regard to those matters set forth on Exhibit A hereto the
terms and conditions of such indenture shall be on terms substantially similar
to those set forth on Exhibit A hereto (the "TeleCorp Wireless Notes Terms");

     WHEREAS, on or prior to March 30, 2002, TeleCorp Wireless will have the
right to issue and sell to AT&T Wireless pursuant to the terms hereof TeleCorp
Wireless Notes and, subject to the terms of this Agreement, to cause AT&T
Wireless to purchase from TeleCorp Wireless, $250,000,000 in principal amount of
TeleCorp Wireless Notes;

     WHEREAS, pursuant to that certain Amended and Restated Credit Agreement
dated as of October 2, 2000 (the "Credit Agreement" and together with this
Agreement, the Company Notes and the Company Notes Indenture, the TeleCorp
Wireless Notes Indenture, and the Exchange and Registration Rights Agreements
relating to the Notes, collectively referred to herein as the "Transaction
Documents"), among TeleCorp Wireless, the financial institutions named therein
as lenders, The Chase Manhattan Bank, as Administrative Agent and Issuing Bank,
TD Securities (USA) Inc., as Syndication Agent, and Bankers Trust Company, as
Documentation Agent, TeleCorp Wireless may borrow up to an additional
$40,000,000 of

<PAGE>

"Expansion Term Loans" (as such term is defined in the Credit Agreement) (such
$40,000,000 of Expansion Term Loans to be effected in the form of a new tranche
of Term Loans (as such term is defined in the Credit Agreement) which new
tranche will be known as the "Tranche D Term Loans"; the "Tranche D Term Loans"
together with the Notes are collectively referred to herein as the
"Securities");

     WHEREAS, on or prior to March 30, 2002, TeleCorp Wireless will have the
right to borrow $40,000,000 of Tranche D Term Loans under the Credit Agreement,
and, subject to the terms of this Agreement, to cause AT&T Wireless to loan
$40,000,000 of Tranche D Term Loans to TeleCorp Wireless; and

     WHEREAS, certain capitalized terms used in this Agreement are defined in
Section 6; all references to an "Exhibit" are, unless otherwise specified, to an
Exhibit attached to this Agreement.

     NOW THEREFORE, the parties hereto agree as follows:

     1. Company Notes.
        -------------

     1.1 Closings. (a) The following sales of Company Notes to be purchased by
         --------
AT&T Wireless shall take place on the Closing Dates applicable thereto as
follows: (i) on the first Closing Date, which shall occur on January 10, 2002,
AT&T Wireless shall purchase $151,591,000 aggregate principal amount at maturity
of the Company's senior subordinated discount notes with a yield of 10.0%,
yielding to the Company gross proceeds of $100,000,000, and (ii) on the second
Closing Date, which shall occur on April 15, 2002, AT&T Wireless shall purchase
$162,520,000 aggregate principal amount at maturity of the Company's senior
subordinated discount notes with a yield of 10.0%, yielding to the Company gross
proceeds of $110,000,000. The Company Notes shall be governed by the Company
Notes Indenture and shall have the further terms set forth on Exhibit B. The
obligation of AT&T Wireless to purchase Company Notes shall be unconditional.

     (b) At each Closing, the Company will deliver to AT&T Wireless the Company
Notes to be purchased by AT&T Wireless in the form of a single Company Note (or
such greater number of Company Notes in denominations of at least $1,000 as AT&T
Wireless may reasonably request in a notice to the Company not less than two (2)
Business Days prior to the applicable Closing Date) dated the applicable Closing
Date and registered in AT&T Wireless's name (or in the name of AT&T Wireless's
nominee).

     (c) Each issuance of Company Notes shall be pursuant to the Company Notes
Indenture.

     (d) If AT&T Wireless delivers written notice to the Company that AT&T
Wireless will be entering into a concurrent sale of Company Notes with one or
more secondary purchasers (such notice to be delivered not less that ten (10)
business days prior to the applicable Closing Date) the Company shall use its
good faith efforts to enter into a purchase agreement with such secondary
purchasers which the Company reasonably believes has customary terms

                                      -2-

<PAGE>

and conditions and, in respect of any such sale, shall enter into a supplemental
agreement with AT&T Wireless which the Company reasonably believes corresponds
to the purchase agreement with such secondary purchasers (it being understood
that, (x) the Company's failure to enter into an agreement, either with such
secondary purchasers or AT&T Wireless, shall not relieve AT&T Wireless of its
obligation to purchase Company Notes hereunder and (y) if such agreements are
entered into and the secondary sales contemplated by such agreements are not
consummated, such agreements shall be terminated and such Closing shall be
unconditional).

     1.2 Payment. Payment for each of the Company Notes shall be by wire
         -------
transfer of immediately available funds.

     1.3 Registration Rights. The Company will grant AT&T Wireless registration
         -------------------
rights with regard to the Company Notes substantially similar to the Exchange
and Registration Rights Agreement attached hereto as Exhibit D. Additionally,
the Company will use reasonable efforts to assist AT&T Wireless in remarketing
the Company Notes; provided that AT&T Wireless will reimburse the Company for
any reasonable out-of-pocket expenses, including legal fees.

     1.4 Merger Agreement. AT&T Wireless agrees that any indebtedness evidenced
         ----------------
by the Company Notes shall constitute indebtedness permitted under clause (i) of
section 4.2(c) of the Merger Agreement and shall not constitute a portion of the
Additional Debt permitted to be incurred by the Company and its subsidiaries
under clause (ii) or (iii) of Section 4.2(c) of the Merger Agreement or reduce
the amount set forth in such sections dollar-for-dollar for each dollar actually
issued.

     1.5 Assignment. The Company hereby consents to the assignment by Lucent
         ----------
Technologies, Inc. of its rights and obligations under the Lucent Securities
Purchase Agreement, dated April 3, 2001, as amended (the "Lucent Agreement") and
under the related registration rights agreements to AT&T Wireless; provided,
that (i) so long as AT&T Wireless is not in default of its obligations hereunder
all obligations of AT&T Wireless under the Lucent Agreement shall be suspended
and (ii) upon AT&T Wireless purchasing all of the Company Notes in accordance
with Section 1.1 all obligations of AT&T Wireless under the Lucent Agreement
shall terminate.

     2. TeleCorp Wireless Notes.
        -----------------------

     2.1 Closing. (a) The sale of TeleCorp Wireless Notes to be purchased by
         -------
AT&T Wireless shall take place at any time or from time to time on or prior to
March 30, 2002, upon five business days notice (which notice shall specify the
amount of TeleCorp Wireless Notes in multiples of $10 million principal amount
to be sold at such closing and aggregating no more than $250 million (the
"Committed Amount")) from TeleCorp Wireless to AT&T Wireless. At each Closing of
the purchase of TeleCorp Wireless Notes AT&T Wireless shall purchase TeleCorp
Wireless Notes with a coupon of 9.0% and otherwise substantially on the TeleCorp
Wireless Note Terms. The obligation of AT&T Wireless to purchase TeleCorp
Wireless Notes at each Closing shall be unconditional.

                                      -3-

<PAGE>

     (b) At each Closing, TeleCorp Wireless will deliver to AT&T Wireless the
TeleCorp Wireless Notes to be purchased by AT&T Wireless in the form of a single
TeleCorp Wireless Note (or such greater number of TeleCorp Wireless Notes in
denominations of at least $1,000 as AT&T Wireless may reasonably request in a
notice to TeleCorp Wireless not less than two (2) Business Days prior to the
applicable Closing Date) dated the applicable Closing Date and registered in
AT&T Wireless's name (or in the name of AT&T Wireless's nominee).

     (c) The TeleCorp Wireless Notes shall be issued pursuant to an indenture
(the "TeleCorp Wireless Notes Indenture") between TeleCorp and the Company Notes
Trustee on customary terms and conditions including terms substantially similar
to the TeleCorp Wireless Notes Terms.

     2.2 Payment. Payment for each of the TeleCorp Wireless Notes shall be by
         -------
wire transfer of immediately available funds.

     2.3 Commitment Fee. From the date hereof until March 30, 2002, the Company
         --------------
shall pay a commitment fee (the "Fee") equal to 6.0% per annum on the unfunded
portion of the Committed Amount. The Fee shall accrue until and be payable on
April 1, 2002.

     2.4 Registration Rights. TeleCorp Wireless will grant AT&T Wireless
         -------------------
registration rights with regard to the TeleCorp Wireless Notes substantially
similar to the Exchange and Registration Rights Agreement attached hereto as
Exhibit E. Additionally, TeleCorp Wireless will use reasonable efforts to assist
AT&T Wireless in remarketing the TeleCorp Wireless Notes; provided that AT&T
Wireless will reimburse TeleCorp Wireless for any reasonable out-of-pocket
expenses, including legal fees.

     2.5 Merger Agreement. The Company agrees that any indebtedness evidenced by
         ----------------
the TeleCorp Wireless Notes shall constitute a portion of the Additional Debt
permitted to be incurred by the Company and its subsidiaries under clause (ii)
of Section 4.2(c) of the Merger Agreement and shall reduce the amount set forth
in such section dollar-for-dollar for each dollar actually issued. TeleCorp
Wireless further agrees that the obligation of AWS to purchase TeleCorp Wireless
Notes shall, so long as AWS is not in default under this Section 2, be reduced
dollar-for-dollar by the amount of any Additional Debt incurred by the Company
or its subsidiaries under clause (ii) of Section 4.2(c) of the Merger Agreement
other than pursuant to this Agreement.

     3. Tranche D Term Loans.
        --------------------

     3.1 Closing. (a) As promptly as practicable after the Lenders under the
         -------
Credit Agreement have given their approval to AT&T Wireless, AT&T Wireless shall
enter into an Expansion Facility Amendment to the Credit Agreement substantially
in the form previously provided by TeleCorp Wireless to AT&T Wireless pursuant
to which it will make the Tranche D Term Loans on the terms set forth on Exhibit
C.

     (b) Tranche D Term Loans in the aggregate principal amount of $40,000,000
shall be made by AT&T Wireless to TeleCorp Wireless on the Closing Date
applicable thereto, which shall occur on the fifth business day following notice
from TeleCorp Wireless to AT&T Wireless.

                                      -4-

<PAGE>

     (c) The Tranche D Term Loans shall be made pursuant to the terms and
conditions set forth herein. Each of the conditions precedent set forth in the
Credit Agreement to the obligation of AT&T Wireless to make the Tranche D Term
Loans to TeleCorp Wireless shall be deemed to have been satisfied in its
entirety and AT&T Wireless shall fund the Tranche D Term Loans without reference
to the conditions precedent set forth in the Credit Agreement.

     3.2 Merger Agreement. TeleCorp Wireless agrees that any indebtedness
         ----------------
evidenced by the Tranche D Term Loan shall constitute a portion of the
Additional Debt permitted to be incurred by TeleCorp Wireless and its
subsidiaries under clause (iii) of Section 4.2(c) of the Merger Agreement and
shall reduce the amount set forth in such section dollar-for-dollar for each
dollar actually issued. TeleCorp Wireless further agrees that the obligation of
AWS to purchase Tranche D Term Loans shall, so long as AWS is not in default
under this Section 3, be reduced dollar-for-dollar by the amount of any
Additional Debt incurred by the Company or its subsidiaries under clause (iii)
of Section 4.2(c) of the Merger Agreement other than pursuant to this Agreement.

     3.3 Remarketing. Additionally, the TeleCorp Wireless will use reasonable
         -----------
efforts to assist AT&T Wireless in remarketing the Tranche D Term Loan; provided
that AT&T Wireless will reimburse TeleCorp Wireless for any reasonable
out-of-pocket expenses, including legal fees.

     4. Representations and Warranties of the TeleCorp Parties. Each of the
        ------------------------------------------------------
TeleCorp Parties represents and warrants to AT&T Wireless as follows:

     4.1 Private Placement. Assuming the accuracy of AT&T Wireless's
         -----------------
representations and warranties contained in Section 5 and AT&T Wireless's
compliance with the agreements set forth therein, it is not necessary, in
connection with the issuance and sale of any of the Notes to AT&T Wireless and
the offer, resale and delivery of any of the Notes by AT&T Wireless in the
manner contemplated by this Agreement to register any of the Securities under
the Securities Act or to qualify any of the Indentures under the Trust Indenture
Act of 1939 (the "Trust Indenture Act").

     4.2 Organization. Each of the TeleCorp Parties have been duly incorporated
         ------------
or formed and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation or formation, are duly
qualified to do business and are in good standing as foreign corporations,
limited liability companies or limited partnerships in each jurisdiction in
which their respective ownership or lease of property or the conduct of their
respective businesses requires such qualification, and have all power and
authority necessary to own or hold their respective properties and to conduct
the businesses in which they are engaged, except where the failure to so qualify
or have such power or authority could not, singularly or in the aggregate, be
reasonably expected to have a material adverse effect on (i) the condition
(financial or otherwise), results of operations, business or business prospects
of TeleCorp Wireless, the Company and its subsidiaries taken as a whole, (ii)
the ability of TeleCorp Wireless, the Company or any of its subsidiaries to
perform its obligations under the Transaction Documents to which it is a party
or (iii) the validity or enforceability of any Transaction Document or the
rights and remedies of AT&T Wireless under any of the Transaction Documents (a
"Material Adverse Effect").

                                      -5-

<PAGE>

     4.3 Authority. Each of the TeleCorp Parties has full right, power and
         ---------
authority to execute and deliver each of the Transaction Documents to which it
is a party and to perform its obligations hereunder and thereunder; and all
corporate action required to be taken for the due and proper authorization,
execution and delivery of each of the Transaction Documents and the consummation
of the transactions contemplated thereby have been duly and validly taken.

     4.4 Legality of Transaction Documents. Each of the Transaction Documents
         ---------------------------------
has been duly authorized by each of the applicable TeleCorp Parties; each of
this Agreement and the Company Notes Indenture has been duly executed and
delivered by the applicable TeleCorp Parties; and each of this Agreement and the
Company Notes Indenture, when duly executed and delivered in accordance with its
terms by each of the other parties thereto, and the Notes, when executed and
delivered by the Company in accordance herewith will constitute a valid and
legally binding agreement thereof enforceable against such party in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws affecting creditors rights generally and by
general equitable principles (whether considered in a proceeding in equity or at
law).

     5. Representations of AT&T Wireless. AT&T Wireless represents and warrants
        --------------------------------
as follows:

     5.1 Authority. AT&T Wireless has the full right, power and authority to
         ---------
execute and deliver this Agreement and to perform AT&T Wireless's obligations
hereunder; and all corporate action required to be taken for the due and proper
authorization, execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly taken.

     5.2 Legality of Securities Purchase Agreement. This Agreement has been duly
         -----------------------------------------
authorized, executed and delivered by AT&T Wireless and constitutes AT&T
Wireless's valid and legally binding agreement.

     5.3 Securities Act. (a) AT&T Wireless is purchasing the Notes pursuant to a
         --------------
private sale exempt from registration under the Securities Act and (b) AT&T
Wireless has not solicited offers for, or offered or sold, and will not solicit
offers for, or offer or sell, the Securities by means of any form of general
solicitation or general advertising within the meaning of Rule 502(c) of
Regulation D under the Securities Act ("Regulation D") or in any manner
involving a public offering within the meaning of Section 4(2) of the Securities
Act.

     6. Definitions. As used herein the following terms have the following
        -----------
respective meanings:

     Affiliate: any Person directly or indirectly controlling or controlled by
     ---------
or under common control with another Person or any subsidiary of such other
Person; provided that, for purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management

                                      -6-

<PAGE>

and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.

     Closing: a closing under Sections 1, 2 or 3 hereunder.
     -------

     Closing Date: a date on which a Closing occurs.
     ------------

     Merger Agreement: the Agreement and Plan of Merger, dated as of October 7,
     ----------------
2001, by and among TeleCorp PCS, Inc., AT&T Wireless Services, Inc., and TL
Acquisition Corp.

     Person: an individual, a partnership, an association, a joint venture, a
     ------
corporation, a limited liability company, a business, a trust, an unincorporated
organization or a government or any department, agency or subdivision thereof.

     7. Amendments and Waivers. Any term of this Agreement may be amended and
        ----------------------
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively) only with
the written consent of the TeleCorp Parties and AT&T Wireless.

     8. Notices, etc. Except as otherwise provided in this Agreement, notices
        ------------
and other communications under this Agreement shall be in writing and shall be
delivered by hand or courier service, or mailed by registered or certified mail,
return receipt requested, addressed, (a) if to AT&T Wireless, at 7277 164th
Avenue, N.E., Redmond, WA 98052, Attn: General Counsel, with a copy to Friedman
Kaplan Seiler & Adelman LLP, 875 Third Avenue, New York, N.Y. 10022, Attn:
Matthew S. Haiken, or at such other address as AT&T Wireless shall have
furnished to the Company in writing, with respect to payments on Notes held by
AT&T Wireless or AT&T Wireless's nominee, or (b) if to the TeleCorp Parties at
TeleCorp PCS, Inc., 1010 North Glebe Road, Suite 800, Arlington, VA 22201, Attn:
Thomas H. Sullivan, with copies to Cadwalader, Wickersham & Taft, 100 Maiden
Lane, New York, N.Y. 10038, Attn: Brian Hoffmann, and McDermott, Will & Emery,
28 State Street, Boston, MA 02109, Attn: John B. French, or at such other
address, or to the attention of such other officer, as the TeleCorp Parties
shall have furnished to AT&T Wireless in writing. Any notice so addressed and
delivered by hand or courier shall be deemed to be given when received, and any
notice so addressed and mailed by registered or certified mail shall be deemed
to be given three Business Days after being so mailed.

     9. Indemnification. The TeleCorp Parties will indemnify and hold harmless
        ---------------
AT&T Wireless and any other holder of Securities and each person who controls
such a holder within the meaning of the Securities Act or the Exchange Act and
each of the subsidiaries and respective directors, officers, employees, agents
and advisors of any of the foregoing (any and all of whom are referred to as the
"Indemnified Party") from and against any and all losses, claims, damages and
liabilities, whether joint or several (including all legal fees or other
expenses reasonably incurred by counsel for any Indemnified Party in connection
with the preparation for or defense of any pending or threatened third party
claim, action or proceeding, whether or not resulting in any liability), to
which such Indemnified Party may become subject (whether or not such Indemnified
Party is a party thereto) under any applicable federal or state law or
otherwise,

                                      -7-

<PAGE>

caused by or arising out of, this Agreement or the other Transaction Documents
or any transaction contemplated hereby or thereby (including, without
limitation, any of the foregoing relating to the violation of, non-compliance
with or liability under any environmental law applicable to the operations of
the TeleCorp Parties or their subsidiaries), other than, with respect to any
Indemnified Party, losses, claims, damages or liabilities that are the result of
the gross negligence or willful misconduct of such Indemnified Party.

     Promptly after receipt by an Indemnified Party of notice of any claim,
action or proceeding with respect to which an Indemnified Party is entitled to
indemnity hereunder, such Indemnified Party will notify the TeleCorp Parties of
such claim or the commencement of such action or proceeding; provided that the
failure of an Indemnified Party to give notice as provided herein shall not
relieve the TeleCorp Parties of its obligations under this Section 9 with
respect to such Indemnified Party, except to the extent that either of the
TeleCorp Parties is actually prejudiced by such failure. The TeleCorp Parties
will assume the defense of such claim, action or proceeding and will employ
counsel reasonably satisfactory to the Indemnified Party and will pay the fees
and expenses of such counsel. Notwithstanding the preceding sentence, the
Indemnified Party will be entitled, at the expense of the TeleCorp Parties, to
employ counsel separate from counsel for the TeleCorp Parties and for any other
party in such action if the Indemnified Party reasonably determines that a
conflict of interest or other reasonable basis exists which makes representation
by counsel chosen by the TeleCorp Parties not advisable, but the TeleCorp
Parties will not be obligated to pay the fees and expenses of more than one
counsel for all Indemnified Parties.

     The agreements in this Section 9 shall survive repayment of the Notes and
all other amounts payable hereunder.

                                      -8-

<PAGE>

     10. Successors and Assigns. This Agreement shall be binding upon and inure
         ----------------------
to the benefit of the parties hereto and their respective successors and
assigns, except that the TeleCorp Parties may not assign or transfer any of
their respective rights or obligations under this Agreement, the Indentures or
the Notes without the prior written consent of each holder of the applicable
Securities.

     11. Miscellaneous. This Agreement shall be binding upon and inure to the
         -------------
benefit of and be enforceable by the respective successors and assigns of the
parties hereto, whether so expressed or not, and, in particular, shall inure to
the benefit of and be enforceable by any holder or holders at the time of the
Securities or any part thereof. This Agreement embodies the entire agreement and
understanding between AT&T Wireless and the TeleCorp Parties and supersedes all
prior agreements and understandings relating to the subject matter hereof. This
Agreement shall be construed and enforced in accordance with and governed by the
laws of the State of New York, without regard to the principles of conflict of
laws thereof, other than section 5-1401 of the general obligations law of the
state of new york. The headings in this Agreement are for purposes of reference
only and shall not limit or otherwise affect the meaning hereof. This Agreement
may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.

     12. Submission To Jurisdiction; Waivers. Each of the TeleCorp Parties
         -----------------------------------
hereby irrevocably and unconditionally:

     (a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT
IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;

     (b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;

     (c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the Company at its
address set forth in Section 8 or at such other address of which AT&T Wireless
shall have been notified pursuant thereto;

                                      -9-

<PAGE>

     (d) agrees that nothing contained herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and

     (e) waives, to the maximum extent not prohibited by law, any right it may
have to claim or recover in any legal action or proceeding referred to in this
Section 12 any special, exemplary, punitive or consequential damages.

     13. Waivers of Jury Trial. EACH OF THE TELECORP PARTIES AND AT&T WIRELESS
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.

     IN WITNESS WHEREOF, each of the parties hereto have caused its duly
authorized officers to execute and deliver this Agreement as of the date first
above written.

                                TELECORP PCS, INC.

                                By: /s/ Thomas H. Sullivan
                                Title: Chief Financial Officer

                                TELECORP WIRELESS, INC.

                                By: /s/ Thomas H. Sullivan
                                Title: President, Treasurer and Secretary

                                AT&T WIRELESS SERVICES, INC.

                                By: /s/ Authorized Signatory
                                Title: VP and Treasurer

                                      -10-

<PAGE>

                                    EXHIBIT A
                                    ---------

                          Telecorp Wireless Notes TERMS

                                      A-1

<PAGE>

                                                                       EXHIBIT A

                           DESCRIPTION OF THE NOTES

General

   As used in this section entitled "Description of the Notes," the term
"Company" means TeleCorp Wireless, Inc., a Delaware corporation, but does not
include any of the Company's subsidiaries. Capitalized terms used in this
section entitled "Description of the Notes" and not otherwise defined have the
meanings set forth under "--Certain Definitions".

   The Notes have been, and the Exchange Notes will be, issued under an
Indenture, to be dated as of the date Notes are first issued (the "Indenture"),
among the Company, TeleCorp Communications, Inc., as Subsidiary Guarantor, and
U.S. Bank N.A., as Trustee (the "Trustee"), a copy of the form of which is
available upon request to the Company.

   The following summary of certain provisions of the Indenture and the Notes
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
TIA.

   Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially
shall be the corporate trust office of the Trustee, in the Borough of
Manhattan, The City of New York), except that, at the option of the Company,
payment of interest may be made by check mailed to the registered holders of
the Notes at their registered addresses.

   The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.

Terms of the Notes

   The Notes will be unsecured senior subordinated obligations of the Company,
limited to $250.0 million aggregate principal amount, and will mature on
December 15, 2008.

   Each Note we issue will bear interest at a rate of 9% per annum from the
date such Note is issued, or from the most recent date to which interest has
been paid or provided for, payable semiannually to holders of record at the
close of business on the June 1 or December 1 immediately preceding the
interest payment date on June 15 and December 15 of each year, commencing June
15, 2002. The Company will pay interest on overdue principal at 1% per annum in
excess of such rate, and it will pay interest on overdue installments of
interest at such higher rate to the extent lawful.

Optional Redemption

   Except as set forth in the following two paragraphs, the Notes will not be
redeemable at the option of the Company prior to December 15, 2005. Thereafter,
the Notes will be redeemable at the option of the Company, in whole or in part,
on not less than 30 nor more than 60 days' prior notice, at the following
redemption prices (expressed as percentages of principal amount), plus accrued
and unpaid interest, if any, to the redemption date (subject to the right of
holders of record on the relevant

                                      1

<PAGE>

    record date to receive interest, if any, due on the relevant interest
payment date), if redeemed during the 12-month period commencing on December 15
of the years set forth below:

<TABLE>
<CAPTION>
                                                      Redemption
                                   Year                 Price
                                   ----               ----------
                      <S>                              <C>
                        2005.........................   104.500%
                        2006.........................   102.250%
                        2007 and thereafter..........   100.000%
</TABLE>

   In addition, at any time and from time to time prior to December 15, 2005,
the Company may redeem up to a maximum of 35% of the original aggregate
principal amount of the Notes with the proceeds of one or more Equity Offerings
(1) by the Company or (2) by Parent to the extent that the proceeds thereof are
contributed to the Company, at a redemption price equal to 109.000% of the
principal amount on the redemption date; provided, however, that, after giving
effect to any such redemption at least 65% of the original aggregate principal
amount of the Notes remains outstanding. In addition, any such redemption shall
be made within 180 days of such Equity Offering upon not less than 30 nor more
than 60 days' notice mailed to each holder of Notes being redeemed and otherwise
in accordance with the procedures set forth in the Indenture.

   At any time on or prior to December 15, 2005, the Notes may be redeemed as a
whole but not in part at the option of the Company, upon not less than 30 or
more than 60 days' prior notice mailed by first-class mail to each Holder's
registered address, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium as of, and accrued but unpaid interest, if
any, to, the redemption date, subject to the right of Holders on the relevant
record date to receive interest due on the relevant interest payment date.

   "Applicable Premium" means with respect to a Note at any redemption date,
the greater of (i) 1.0% of the principal amount of such Note or (ii) the excess
of (A) the present value of (1) the redemption price of such Note at December
15, 2005 (such redemption price being set forth in the table above) plus (2) all
required interest payments due on such Note through December 15, 2005, computed
using a discount rate equal to the Treasury Rate plus 50 basis points, over (B)
the then-outstanding principal amount of such Note.

   "Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H. 15(519)
which has become publicly available at least two Business Days prior to the
redemption date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data) most nearly equal to the
period from the redemption date to December 15, 2005; provided, however, that if
the period from the redemption date to December 15, 2005 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the redemption date to December 15, 2005
is less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.

Selection

   In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although Notes in denominations of $1,000 or less will not be redeemed in part.
If any Note is to be redeemed in part only, the notice of redemption relating to

                                      2

<PAGE>

such Note shall state the portion thereof to be redeemed. A new Note equal to
the unredeemed portion thereof will be issued in the name of the holder thereof
upon cancelation of the original Note.

Ranking

   The Indebtedness evidenced by the Notes:

     .  will be unsecured Senior Subordinated Indebtedness of the Company;

     .  will be subordinated in right of payment, as set forth in the
        Indenture, to all existing and future Senior Indebtedness of the
        Company;

     .  will rank pari passu in right of payment with all existing and future
        Senior Subordinated Indebtedness of the Company, including the 10 5/8%
        Notes and the Discount Notes;

     .  will be senior in right of payment to all existing and future
        Subordinated Indebtedness of the Company; and

     .  will be effectively subordinated to any Secured Indebtedness of the
        Company and its Subsidiaries to the extent of the value of the assets
        securing such Indebtedness.

   The Notes will be guaranteed by TeleCorp Communications, Inc., one of the
Subsidiaries of the Company, and, in the future, by certain other Subsidiaries
of the Company that Incur Indebtedness. The Indebtedness evidenced by the
Subsidiary Guarantees:

     .  will be unsecured Senior Subordinated Indebtedness of each Subsidiary
        Guarantor;

     .  will be subordinated in right of payment, as set forth in the
        Indenture, to all existing and future Senior Indebtedness of each
        Subsidiary Guarantor;

     .  will rank pari passu in right of payment with all existing and future
        Senior Subordinated Indebtedness of each Subsidiary Guarantor,
        including the guarantees of the 10 5/8% Notes and the Discount Notes;

     .  will be senior in right of payment to all existing and future
        Subordinated Indebtedness of each Subsidiary Guarantor; and

     .  will be effectively subordinated to any Secured Indebtedness of each
        Subsidiary Guarantor and its Subsidiaries to the extent of the value of
        the assets securing such Indebtedness.

   Payment from the money or the proceeds of U.S. Government Obligations held
in any defeasance trust described under "--Defeasance", however, is not
subordinated to any Senior Indebtedness or subject to the restrictions
described herein.

   Substantially all of the operations of the Company are conducted through its
Subsidiaries. Claims of creditors of such Subsidiaries, including trade
creditors, and claims of preferred stockholders, if any, of such Subsidiaries
generally will have priority with respect to the assets and earnings of such
Subsidiaries over the claims of creditors of the Company, including holders of
the Notes. The Notes, therefore, will be effectively subordinated to creditors,
including trade creditors, and preferred stockholders, if any, of Subsidiaries
of the Company. Although the Indenture will contain limitations on the
Incurrence of Indebtedness by, and the issuance of preferred stock of, certain
of the Company's Subsidiaries, such limitations are subject to a number of
significant qualifications.

                                      3

<PAGE>

   "Senior Indebtedness" of the Company means the principal of, premium (if
any) and accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization of the Company,
regardless of whether or not a claim for post-filing interest is allowed in
such proceedings) on, and fees and other amounts owing in respect of Bank
Indebtedness and all other Indebtedness of the Company, including FCC Debt,
whether outstanding on the date of the Indenture or thereafter Incurred, unless
in the instrument creating or evidencing the same or pursuant to which the same
is outstanding it is provided that such obligations are not superior in right
of payment to the Notes; provided, however, that Senior Indebtedness shall not
include:

      (1) any obligation of the Company to any Subsidiary of the Company;

      (2) any liability for federal, state, local or other taxes owed or owing
   by the Company;

      (3) any accounts payable or other liability to trade creditors arising in
   the ordinary course of business (including guarantees thereof or instruments
   evidencing such liabilities);

      (4) any Indebtedness or obligation of the Company, and any accrued and
   unpaid interest in respect thereof, that by its terms is subordinate or
   junior in any respect to any other Indebtedness or obligation of the
   Company, including any Senior Subordinated Indebtedness of the Company and
   any Subordinated Indebtedness of the Company;

      (5) any obligations with respect to any Capital Stock; or

      (6) any Indebtedness Incurred in violation of the Indenture.

   "Senior Indebtedness" of any Subsidiary Guarantor has a correlative meaning.

   Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company, including the 10 5/8% Notes and the Discount
Notes. The Company will agree in the Indenture that it will not Incur, directly
or indirectly, any Indebtedness which is subordinate or junior in ranking in
any respect to Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be
subordinate or junior to Secured Indebtedness merely because it is unsecured.

   The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"--Defeasance" and may not otherwise repurchase, redeem or otherwise retire any
Notes (collectively, "pay the Notes"), other than payments made with money or
U.S. Government Obligations previously deposited in the defeasance trust
described under "--Defeasance", if:

      (1) any Designated Senior Indebtedness is not paid when due; or

      (2) any other default on such Designated Senior Indebtedness occurs and
   the maturity of such Designated Senior Indebtedness is accelerated in
   accordance with its terms

unless, in either case:

      (x) the default has been cured or waived and any such acceleration has
   been rescinded; or

      (y) such Designated Senior Indebtedness has been paid in full.

   The Company may pay the Notes without regard to the foregoing, however, if
the Company and the Trustee receive written notice approving such payment from
the Representative of the Designated Senior Indebtedness with respect to
whichever of the events set forth in clause (1) or (2) of the immediately
preceding sentence has occurred and is continuing. During the continuance of any

                                      4

<PAGE>

    default (other than a default described in clause (1) or (2) of the second
preceding sentence) with respect to any Designated Senior Indebtedness pursuant
to which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
upon the expiration of any applicable grace periods, the Company may not pay
the Notes for a period (a "Payment Blockage Period") commencing upon the
receipt by the Trustee (with a copy to the Company) of written notice (a
"Blockage Notice") of such default from the Representative of such Designated
Senior Indebtedness specifying an election to effect a Payment Blockage Period
and ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated:

      (1) by written notice to the Trustee and the Company from the Person or
   Persons who gave such Blockage Notice;

      (2) by repayment in full of such Designated Senior Indebtedness; or

      (3) because the default giving rise to such Blockage Notice is no longer
   continuing).

Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first two sentences of this
paragraph), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, the Company may resume payments on the Notes after the end
of such Payment Blockage Period.

   Not more than one Blockage Notice may be given in any period of 360
consecutive days, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period. However, if any Blockage
Notice within such 360-day period is given by or on behalf of any holders of
Designated Senior Indebtedness other than the Bank Indebtedness, the
Representative of the Bank Indebtedness may give another Blockage Notice within
such period. In no event, however, may the total number of days during which
any Payment Blockage Period or Payment Blockage Periods is or are in effect
exceed 179 days in the aggregate during any period of 360 consecutive days. For
purposes of this paragraph, no default or event of default that existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period shall be, or be made, the basis of the commencement of a subsequent
Payment Blockage Period by the Representative of such Designated Senior
Indebtedness, whether or not within a period of 360 consecutive days, unless
such default or event of default shall have been cured or waived for a period
of not less than 90 consecutive days.

   Upon any payment or distribution of the assets of the Company to creditors
upon a total or partial liquidation or a total or partial dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property:

      (1) the holders of Senior Indebtedness of the Company will be entitled to
   receive payment in full in cash of such Senior Indebtedness before
   Noteholders are entitled to receive any payment of principal of, or interest
   on, the Notes; and

      (2) until such Senior Indebtedness is paid in full, any payment or
   distribution to which Noteholders would be entitled but for the
   subordination provisions of the Indenture will be made to holders of such
   Senior Indebtedness as their interests may appear, except that Noteholders
   may receive shares of stock and any debt securities that are subordinated to
   such Senior Indebtedness and any securities exchanged for such Senior
   Indebtedness to at least the same extent as the Notes.

If a distribution is made to Noteholders that, due to the subordination
provisions of the Indenture, should not have been made to them, such
Noteholders will be required to hold such distribution in

                                      5

<PAGE>

trust for the holders of Senior Indebtedness of the Company and pay it over to
them as their interests may appear.

   If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representative) of the acceleration. If any
Designated Senior Indebtedness is outstanding, the Company may not pay the
Notes until five Business Days after such holders or the Representative of the
Designated Senior Indebtedness receive notice of such acceleration and,
thereafter, may pay the Notes only if the subordination provisions of the
Indenture otherwise permit payment at that time.

   By reason of the subordination provisions that will be contained in the
Indenture, in the event of insolvency, creditors of the Company who are holders
of Senior Indebtedness of the Company may recover more, ratably, than the
Noteholders, and creditors of the Company who are not holders of Senior
Indebtedness of the Company or of Senior Subordinated Indebtedness of the
Company (including the Notes) may recover less, ratably, than holders of Senior
Indebtedness of the Company and may recover more, ratably, than the holders of
Subordinated Indebtedness of the Company.

   The subordination provisions that will be contained in the Indenture will
not apply to payments made with money or U.S. Government Obligations previously
deposited in the defeasance trust described under "--Defeasance".

Subsidiary Guarantees

   Subject to the release provisions in the Indenture and as set forth herein,
the Subsidiary Guarantor, and certain future subsidiaries of the Company (as
described below), as primary obligors and not merely as sureties, will jointly
and severally irrevocably and unconditionally guarantee on an unsecured senior
subordinated basis the performance and full and punctual payment when due,
whether at Stated Maturity, by acceleration or otherwise, of all obligations of
the Company under the Indenture and the Notes, whether for payment of principal
of, or interest on, or liquidated damages in respect of, the Notes, expenses,
indemnification or otherwise (all such obligations guaranteed by the Subsidiary
Guarantors being herein called the "Guaranteed Obligations") by executing a
Subsidiary Guarantee. The Subsidiary Guarantors will agree to pay, in addition
to the amount stated above, any and all costs and expenses (including
reasonable counsel fees and expenses) incurred by the Trustee or the holders of
Notes in enforcing any rights under the Subsidiary Guarantees. Each Subsidiary
Guarantee will be limited in amount to an amount not to exceed the maximum
amount that can be guaranteed by the applicable Subsidiary Guarantor without
rendering the Subsidiary Guarantee, as it relates to such Subsidiary Guarantor,
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally. Following
the date of the Indenture, the Company will cause (1) each Domestic Restricted
Subsidiary that Incurs Indebtedness and (2) each Foreign Restricted Subsidiary
that Incurs Material Indebtedness to become a Subsidiary Guarantor; provided
that the Company shall not cause any Special Purpose Subsidiary to become a
Subsidiary Guarantor unless such Special Purpose Subsidiary Incurs Indebtedness
other than Indebtedness under the Credit Agreement (or any Refinancing
Indebtedness Incurred to Refinance any such Indebtedness) or FCC Debt; provided
further that in the event that a Subsidiary Guarantor no longer has
outstanding, other than the Subsidiary Guarantee, any Indebtedness (in the case
of a Domestic Restricted Subsidiary) or Material Indebtedness (in the case of a
Foreign Restricted Subsidiary), the Subsidiary Guarantee of that Subsidiary
Guarantor shall terminate. See "--Certain Covenants--Future Subsidiary
Guarantors".

   The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee
will be senior subordinated obligations. As such, the rights of Noteholders to
receive payment from a Subsidiary Guarantor pursuant to its Subsidiary
Guarantee will be subordinated in right of payment to the rights

                                      6

<PAGE>

    of holders of Senior Indebtedness of such Subsidiary Guarantor. The terms
of the subordination provisions described under "--Ranking" with respect to the
Company's obligations under the Notes apply equally to each Subsidiary
Guarantor and the obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee.

   Each Subsidiary Guarantee will be a continuing guarantee and shall:

      (1) remain in full force and effect until payment in full of all the
   Guaranteed Obligations unless prior terminated;

      (2) be binding upon each Subsidiary Guarantor and its successors; and

      (3) inure to the benefit of and be enforceable by the Trustee, the
   holders of the Notes and their successors, transferees and assigns.

   The Indenture will provide that upon the merger or consolidation of a
Subsidiary Guarantor with or into any Person, other than the Company, a
Subsidiary of the Company or an Affiliate of the Company, in a transaction in
which such Subsidiary Guarantor is not the surviving entity of such merger or
consolidation, such Subsidiary Guarantor shall be released and discharged from
its obligations under its Subsidiary Guarantee. The Indenture will also provide
that if a majority of the Capital Stock of a Subsidiary Guarantor is sold
(including by issuance or otherwise) by the Company or any Subsidiary of the
Company, other than to the Company, or a Subsidiary of the Company or an
Affiliate of the Company, in a transaction constituting an Asset Disposition
(or which, but for the provisions of clause (c) of such term, would constitute
an Asset Disposition) and:

      (1) the Net Available Proceeds from such Asset Disposition are used in
   accordance with the covenant described under "--Certain
   Covenants--Limitation on Certain Asset Dispositions"; or

      (2) the Company delivers to the Trustee an Officers' Certificate to the
   effect that the Net Available Proceeds from such Asset Disposition will be
   used in accordance with the covenant described under "--Certain
   Covenants--Limitation on Certain Asset Dispositions" within the time limits
   specified by such covenant,

then such Subsidiary Guarantor shall be released and discharged from its
obligations under its Subsidiary Guarantee upon such use, in the case of clause
(1), or upon such delivery, in the case of clause (2). In addition, any
Subsidiary Guarantor that becomes a Subsidiary Guarantor as a consequence of
its guarantee of certain Indebtedness permitted under the Indenture and that is
released and discharged from such guarantee will be released and discharged
from its Subsidiary Guarantee upon delivery of an Officers' Certificate
certifying such release and discharge from such guarantee to the Trustee.

Change of Control

   Upon the occurrence of any of the following events (each a "Change of
Control"), each holder of Notes will have the right to require the Company to
repurchase all or any part of such holder's Notes at a purchase price in cash
equal to 101% of the principal amount on the Purchase Date, plus accrued and
unpaid interest, if any, to the Purchase Date (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date):

      (1) any "person" or "group" (as such terms are used in Sections 13(d) and
   14(d) of the Exchange Act), other than a Permitted Holder or Permitted
   Holders or a person or group controlled by a Permitted Holder or Permitted
   Holders, becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
   under the Exchange Act, except that a person shall be deemed to have
   "beneficial ownership" of all such securities that such person has the right
   to acquire within one year, upon the happening of an event or otherwise)
   directly or indirectly

                                      7

<PAGE>

        (including through ownership of Parent), of securities of the Company
    representing 50% or more of the combined voting power of the Company's then
    outstanding Voting Stock;

      (2) the following individuals cease for any reason to constitute more
   than a majority of the number of directors then serving on the board of
   directors of the Company: individuals who, on the date of the Indenture,
   constitute the board of directors of the Company and any new director (other
   than a director whose initial assumption of office is in connection with an
   actual or threatened election contest, including, but not limited to, a
   consent solicitation relating to the election of directors of the Company)
   whose appointment or election by the board of directors of the Company or
   nomination for election by the Company's stockholders was approved by the
   vote of at least two-thirds of the directors then still in office or whose
   appointment, election or nomination was previously so approved or
   recommended or made in accordance with the terms of the Stockholders'
   Agreement; or

      (3) the stockholders of the Company shall approve any Plan of Liquidation
   (whether or not otherwise in compliance with the provisions of the
   Indenture);

provided, however, that the consummation of the pending acquisition of TeleCorp
PCS by AT&T Wireless Services shall not constitute a Change of Control.

   Within 30 days following any Change of Control, the Company will be required
to mail a notice to each holder of Notes, with a copy to the Trustee (the
"Change of Control Offer"), stating that the Company is commencing an Offer to
Purchase all outstanding Notes at a purchase price in cash equal to 101% of the
principal amount on the Purchase Date, plus accrued and unpaid interest, if
any, to the Purchase Date (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).

   The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company. The Company's obligation to make a Change of Control Offer will be
reinstated unless such third party purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer in accordance with its terms.

   The Company will be required to comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will be
required to comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under this covenant by virtue
thereof.

   In the event that, at the time of a Change of Control, the terms of the Bank
Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then, prior to the mailing of the notice to holders of Notes as
provided in the immediately following paragraph, but in any event within 30
days following any Change of Control, the Company will be required to:

      (1) repay in full all Bank Indebtedness; or

      (2) obtain the requisite consent under the agreements governing such Bank
   Indebtedness to permit the repurchase of the Notes as required by this
   covenant.

   The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management of the Company has no
present intention to engage in a transaction involving a Change of Control,
although it is possible that management of the Company may decide to do so in
the future. Subject to the limitations described under "--Certain Covenants",

                                      8

<PAGE>

the Company could, in the future, enter into certain transactions, including
acquisitions, refinancings or other recapitalizations, that would not constitute
a Change of Control under the Indenture, but that could increase the amount of
Indebtedness outstanding at such time or otherwise affect the Company's capital
structure or credit ratings. Restrictions on the ability of the Company to Incur
additional Indebtedness are contained in the covenant described under "Certain
Covenants--Limitation on Incurrence of Indebtedness." Such restrictions may only
be waived with the consent of the holders of a majority in aggregate principal
amount of the Notes then outstanding. Except for the limitations contained in
such covenants, however, the Indenture will not contain any covenants or
provisions that may afford holders of the Notes protection in the event of a
highly leveraged transaction.

   The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company may also contain prohibitions of certain events
which would constitute a Change of Control or require such Senior Indebtedness
to be repurchased upon a Change of Control. Moreover, the exercise by holders
of Notes of their right to require the Company to repurchase the Notes could
cause a default under such Senior Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to holders of Notes upon a
repurchase may be limited by the Company's then existing financial resources.
There can be no assurance that sufficient funds will be available when
necessary to make any required repurchases. The provisions of the Indenture
related to the Company's obligation to make a Change of Control Offer as a
result of a Change of Control may be waived or modified with the written
consent of the holders of a majority in aggregate principal amount of the Notes.

Certain Covenants

   The Indenture will contain certain covenants including, among others, the
following:

   Limitation on Incurrence of Indebtedness.  The Indenture will provide that
the Company will not, and will not cause or permit any Restricted Subsidiary
to, directly or indirectly, Incur any Indebtedness (including Acquired
Indebtedness), except:

      (1) Indebtedness of the Company or any Subsidiary Guarantor if,
   immediately after giving effect to the Incurrence of such Indebtedness and
   the receipt and application of the net proceeds therefrom (including,
   without limitation, the application or use of the net proceeds therefrom to
   repay Indebtedness, consummate an Asset Acquisition or make any Restricted
   Payment):

          (a) the ratio of (x) Total Consolidated Indebtedness to (y)
       Annualized Pro Forma Consolidated Operating Cash Flow would be less than
       7.0 to 1.0; or

          (b) in the case of any Incurrence of Indebtedness prior to April 1,
       2005 only, Total Consolidated Indebtedness would be equal to or less
       than 75% of Total Invested Capital;

      (2) Bank Indebtedness of the Company and its Restricted Subsidiaries in
   an aggregate principal amount not to exceed $1.0 billion at any time
   outstanding;

      (3) Purchase Money Indebtedness;

      (4) Indebtedness owed by the Company to any Restricted Subsidiary or
   Indebtedness owed by a Restricted Subsidiary to the Company or another
   Restricted Subsidiary; provided, however, that, upon either (a) the transfer
   or other disposition by such Restricted Subsidiary or the Company of any
   Indebtedness so permitted under this clause (4) to a Person other than the
   Company or another Restricted Subsidiary or (b) the issuance (other than of
   directors' qualifying shares), sale, transfer or other disposition of shares
   of Capital Stock or other ownership interests (including by consolidation or
   merger) of such Restricted Subsidiary to a Person other

                                      9

<PAGE>

    than the Company or another such Restricted Subsidiary, the exception
    provided by this clause (4) shall no longer be applicable to such
    Indebtedness and such Indebtedness shall be deemed to have been Incurred at
    the time of any such issuance, sale, transfer or other disposition, as the
    case may be;

      (5) Indebtedness of the Company or any Restricted Subsidiary under any
   Hedging Agreement to the extent entered into to protect the Company or such
   Restricted Subsidiary from fluctuations in interest rates on any other
   Indebtedness permitted under the Indenture (including the Notes), currency
   exchange rates or commodity prices and not for speculative purposes;

      (6) Refinancing Indebtedness Incurred to Refinance any Indebtedness
   Incurred under the prior clause (1) or (3) above or (13) below, the Discount
   Notes, guarantees of the Discount Notes, the 10 5/8% Notes, Guarantees of
   the 10 5/8% Notes, the Notes, the Subsidiary Guarantees, Indebtedness
   existing on the date of the Indenture, or any Refinancing Indebtedness in
   respect of Refinancing Indebtedness Incurred pursuant to this clause (6);

      (7) Indebtedness of the Company under the Notes and Indebtedness of the
   Subsidiary Guarantors under the Subsidiary Guarantees, in each case Incurred
   in accordance with the Indenture;

      (8) Capital Lease Obligations of the Company or any Restricted Subsidiary
   in an aggregate principal amount not in excess of the greater of $50.0
   million or 5.0% of Total Assets at any time outstanding;

      (9) FCC Debt assumed in connection with any acquisition after the date of
   the Indenture;

      (10) Indebtedness incurred in connection with the acquisition relating to
   Airadigm not in excess of $110.0 million at any time outstanding;

      (11) Indebtedness of the Company or any Restricted Subsidiary consisting
   of a guarantee of Indebtedness of the Company or a Restricted Subsidiary
   that was permitted to be Incurred by another provision of this covenant;

      (12) Indebtedness of the Company or any Restricted Subsidiary in respect
   of statutory obligations, performance, surety or appeal bonds or other
   obligations of a like nature Incurred in the ordinary course of business;

      (13) Indebtedness of a Restricted Subsidiary existing at the time such
   Restricted Subsidiary was acquired by the Company (other than Indebtedness
   Incurred in connection with, or in contemplation of, the transaction or
   series of related transactions pursuant to which such Restricted Subsidiary
   was acquired by the Company); provided, however, that on the date such
   Restricted Subsidiary is acquired by the Company, the Company would have
   been able to Incur $1.00 of additional Indebtedness pursuant to clause (1)
   above after giving effect to the Incurrence of such Indebtedness pursuant to
   this clause (13) and the acquisition of such Restricted Subsidiary; and

      (14) Indebtedness of the Company not otherwise permitted to be Incurred
   pursuant to clauses (1) through (13) above which, together with any other
   outstanding Indebtedness Incurred pursuant to this clause (14), has an
   aggregate principal amount not in excess of $75.0 million at any time
   outstanding.

   Indebtedness of a Person existing at the time such Person becomes a
Restricted Subsidiary or which is secured by a Lien on an asset acquired by the
Company or a Restricted Subsidiary (whether or not such Indebtedness is assumed
by the acquiring person) shall be deemed Incurred at the time the Person
becomes a Restricted Subsidiary or at the time of the asset acquisition, as the
case may be.

                                      10

<PAGE>

   For purposes of determining compliance with this covenant:

      (1) in the event that an item of Indebtedness meets the criteria of more
   than one of the categories of Indebtedness permitted pursuant to clauses (1)
   through (14) above, the Company shall, in its sole discretion, be permitted
   to classify such item of Indebtedness in any manner that complies with this
   covenant and may from time to time reclassify such items of Indebtedness in
   any manner that would comply with this covenant at the time of such
   reclassification;

      (2) Indebtedness permitted by this covenant need not be permitted solely
   by reference to one provision permitting such Indebtedness but may be
   permitted in part by one such provision and in part by one or more other
   provisions of this covenant permitting such Indebtedness;

      (3) in the event that Indebtedness meets the criteria of more than one of
   the types of Indebtedness described in this covenant, the Company, in its
   sole discretion, shall classify such Indebtedness and only be required to
   include the amount of such Indebtedness in one of such clauses; and

      (4) accrual of interest (including interest paid-in-kind) and the
   accretion of accreted value will not be deemed to be an Incurrence of
   Indebtedness for purposes of this covenant.

   Notwithstanding any other provision of this covenant:

      (1) the maximum amount of Indebtedness that the Company or any Restricted
   Subsidiary may Incur pursuant to this covenant shall not be deemed to be
   exceeded solely as a result of fluctuations in the exchange rates of
   currencies; and

      (2) Indebtedness Incurred pursuant to the Credit Agreement prior to or on
   the date of the Indenture shall be treated as Incurred pursuant to clause
   (2) of the first paragraph of this covenant.

   Limitation on Layered Indebtedness.  The Indenture will provide that the
Company will not:

      (1) directly or indirectly Incur any Indebtedness that by its terms would
   expressly rank senior in right of payment to the Notes and rank subordinate
   in right of payment to any other Indebtedness of the Company; or

      (2) cause or permit any Subsidiary Guarantor to, and no Subsidiary
   Guarantor will, directly or indirectly, Incur any Indebtedness that by its
   terms would expressly rank senior in right of payment to the Subsidiary
   Guarantee of such Subsidiary Guarantor and rank subordinate in right of
   payment to any other Indebtedness of such Subsidiary Guarantor;

provided that no Indebtedness shall be deemed to be subordinated solely by
virtue of being unsecured.

   Limitation on Restricted Payments.  The Indenture will provide that the
Company will not, and will not cause or permit any Restricted Subsidiary to,
directly or indirectly, on or prior to June 30, 2003:

      (1) declare or pay any dividend, or make any distribution of any kind or
   character (whether in cash, property or securities), in respect of any class
   of Capital Stock of the Company, excluding any dividends or distributions
   payable solely in shares of Qualified Stock of the Company or in options,
   warrants or other rights to acquire Qualified Stock of the Company;

      (2) purchase, redeem or otherwise acquire or retire for value any shares
   of Capital Stock of the Company, any options, warrants or rights to purchase
   or acquire such shares or any securities convertible or exchangeable into
   such shares (other than any such shares of Capital Stock, options, warrants,
   rights or securities that are owned by the Company or a Restricted
   Subsidiary);

                                      11

<PAGE>

      (3) make any Investment (other than a Permitted Investment) in any Person
   other than the Company or a Restricted Subsidiary; or

      (4) redeem, defease, repurchase, retire or otherwise acquire or retire
   for value, prior to its scheduled maturity, repayment or any sinking fund
   payment, Subordinated Indebtedness or make any payment of interest or
   premium on, or distribution of any kind or character (whether in cash,
   property or securities) in respect of, the Series A Notes, excluding
   payments of interest or distributions payable solely in additional Series A
   Notes,

each of the transactions described in clauses (1) through (4) (other than any
exception to any such clause) being a "Restricted Payment"; and at any time
after June 30, 2003, the Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, make a Restricted Payment if,
at the time thereof:

      (A) a Default or an Event of Default shall have occurred and be
   continuing at the time of or after giving effect to such Restricted Payment;

      (B) immediately after giving effect to such Restricted Payment, the
   Company could not Incur at least $1.00 of additional Indebtedness pursuant
   to clause (1) of the covenant described under "--Limitation on Incurrence of
   Indebtedness"; and

      (C) immediately upon giving effect to such Restricted Payment, the
   aggregate amount of all Restricted Payments declared or made on or after the
   date of the Indenture (including any Designation Amount) exceeds the sum
   (without duplication) of:

          (1) the amount of (x) the Consolidated Cash Flow of the Company after
       June 30, 2003, through the end of the latest full fiscal quarter for
       which consolidated financial statements of the Company are available
       preceding the date of such Restricted Payment (treated as a single
       accounting period), less (y) 150% of the cumulative Consolidated
       Interest Expense of the Company after June 30, 2003, through the end of
       the latest full fiscal quarter for which consolidated financial
       statements of the Company are available preceding the date of such
       Restricted Payment (treated as a single accounting period); plus

          (2) the aggregate net cash proceeds received by the Company as a
       capital contribution in respect of Qualified Stock or from the proceeds
       of a sale of Qualified Stock made after the date of the Indenture
       (excluding in each case (x) the proceeds from a sale of Qualified Stock
       to a Restricted Subsidiary and (y) the proceeds from a sale of Qualified
       Stock to an employee stock ownership plan or other trust established by
       the Company or any of its Subsidiaries); plus

          (3) the aggregate net cash proceeds received by the Company or any
       Restricted Subsidiary from the sale, disposition or repayment (other
       than to the Company or a Restricted Subsidiary) of any Investment made
       after the date of the Indenture and constituting a Restricted Payment in
       an amount equal to the lesser of (x) the return of capital with respect
       to such Investment and (y) the initial amount of such Investment, in
       either case, less the cost of disposition of such Investment; plus

          (4) an amount equal to the consolidated Net Investment on the date of
       Revocation made by the Company and/or any Restricted Subsidiary in any
       Subsidiary of the Company that has been designated as an Unrestricted
       Subsidiary after the date of the Indenture upon its redesignation as a
       Restricted Subsidiary in accordance with the covenant described under
       "--Limitation on Designations of Unrestricted Subsidiaries".

   For purposes of:

      (1) the preceding clause (C)(2), the value of the aggregate net cash
   proceeds received by the Company from, or as a capital contribution in
   connection with, the issuance of Qualified

                                      12

<PAGE>

    Stock either upon the conversion of convertible Indebtedness of the
    Company or any of its Restricted Subsidiaries or in exchange for
    outstanding Indebtedness of the Company or any of its Restricted
    Subsidiaries or upon the exercise of options, warrants or rights will be
    the net cash proceeds received by the Company or any Restricted Subsidiary
    upon the issuance of such Indebtedness, options, warrants or rights plus
    the incremental amount received by the Company or any Restricted Subsidiary
    upon the conversion, exchange or exercise thereof;

      (2) the preceding clause (C)(4), the value of the consolidated Net
   Investment on the date of Revocation shall be equal to the Fair Market Value
   of the aggregate amount of the Company's and/or any Restricted Subsidiary's
   Investments in such Subsidiary of the Company on the applicable date of
   Designation; and

      (3) determining the amount expended for Restricted Payments, cash
   distributed shall be valued at the face amount thereof and property other
   than cash shall be valued at its Fair Market Value on the date such
   Restricted Payment is made by the Company or a Restricted Subsidiary, as the
   case may be.

   The provisions of this covenant shall not prohibit:

      (1) the payment of any dividend or distribution within 60 days after the
   date of declaration thereof, if at such date of declaration such payment
   would comply with the provisions of the Indenture;

      (2) so long as no Default or Event of Default shall have occurred and be
   continuing, the purchase, redemption, retirement or other acquisition of any
   Capital Stock of the Company out of the net cash proceeds of the
   substantially concurrent capital contribution to the Company in connection
   with Qualified Stock or out of the net cash proceeds received by the Company
   from the substantially concurrent issue or sale (other than to a Restricted
   Subsidiary or to an employee stock ownership plan or other trust established
   by the Company or any of its Subsidiaries) of Qualified Stock; provided that
   (a) any such net cash proceeds shall be excluded from clause (C)(2) of the
   second preceding paragraph;

      (3) so long as no Default or Event of Default shall have occurred and be
   continuing, the purchase, redemption, retirement, defeasance or other
   acquisition of Subordinated Indebtedness of the Company made by exchange for
   or conversion into, or out of the net cash proceeds received by the Company,
   or out of a capital contribution to the Company in connection with a
   substantially concurrent issue and sale (other than to a Restricted
   Subsidiary) of, (a) Qualified Stock (provided that (x) any such net cash
   proceeds are excluded from clause (C)(2) of the second preceding paragraph
   and (y) such proceeds, if from a sale other than a Public Sale, are not
   applied to optionally redeem Notes on or prior to June 30, 2003) or (b)
   other Subordinated Indebtedness of the Company that has an Average Life
   equal to or greater than the Average Life of the Subordinated Indebtedness
   being purchased, redeemed, retired, defeased or otherwise acquired and that
   is subordinated in right of payment to the Notes at least to the same extent
   as the Subordinated Indebtedness being purchased, redeemed, retired,
   defeased or otherwise acquired;

      (4) so long as no Default or Event of Default shall have occurred and be
   continuing, the making of a direct or indirect Investment constituting a
   Restricted Payment in an amount not to exceed the amount of the net cash
   proceeds of capital contributions in respect of Qualified Stock or from the
   issue or sale (other than to a Restricted Subsidiary) of Qualified Stock of
   the Company, in each case made no more than one year prior to the date of
   such investment; provided that (a) any such net cash proceeds are excluded
   from clause (C)(2) of the second preceding paragraph and (b) such proceeds,
   if from a sale other than a Public Sale, are not applied to optionally
   redeem Notes on or prior to June 30, 2003;

                                      13

<PAGE>

        (5) so long as no Default or Event of Default has occurred and is
    continuing, the repurchase, redemption, acquisition or retirement for value
    of any Capital Stock of the Company held by any member of management of the
    Company or any of its Subsidiaries pursuant to any management equity
    subscription agreement, stock option agreement, restricted stock agreement
    or other similar agreement; provided that (a) the aggregate amount of such
    repurchase, redemption, acquisition or retirement shall not exceed $10.0
    million in any twelve-month period, (b) any unused amount in any
    twelve-month period may be carried forward to one or more future
    twelve-month periods and (c) the aggregate of all unused amounts that may
    be carried forward to any future twelve-month period shall not exceed $20.0
    million;

      (6) payments to Parent to reimburse Parent for its out-of-pocket
   operating and administrative expenses attributable to the Company, provided
   this reimbursement shall not exceed $10.0 million in any fiscal year;

      (7) payments to Parent pursuant to a tax sharing agreement so long as
   such payments in the aggregate do not exceed the lesser of (A) the aggregate
   amount of taxes that would be payable by the Company and its Subsidiaries if
   they were filing on a separate return basis as a consolidated entity and (B)
   the aggregate amount of taxes paid by Parent and its consolidated
   subsidiaries;

      (8) payments or distributions to dissenting stockholders pursuant to
   applicable law in connection with a consolidation, merger or transfer of
   assets that complies with the provisions of the Indenture applicable to
   mergers, consolidations and transfers of all or substantially all of the
   property and assets of the Company;

      (9) the repurchase, redemption or other acquisition or retirement for
   value of the Company's Capital Stock to the extent necessary in the good
   faith judgment of the board of directors of the Company evidenced by a board
   resolution delivered to the Trustee to prevent the loss or secure the
   renewal or reinstatement of any material license or franchise held by the
   Company or any Restricted Subsidiary from any government agency; provided
   that no Capital Stock shall be repurchased, redeemed or otherwise acquired
   from any Permitted Holder pursuant to this clause (9);

      (10) the repurchase of Indebtedness subordinated to the Notes at a
   purchase price not greater than 101% of the principal amount thereof (plus
   accrued and unpaid interest) pursuant to a mandatory offer to repurchase
   made upon the occurrence of a Change of Control; provided that the Company
   first make an Offer to Purchase the Notes (and repurchase all tendered
   Notes) under the Indenture pursuant to the provisions of the Indenture
   described under "--Change of Control;" or

      (11) loans to the Management Stockholders to fund the purchase of up to
   10,490 shares of Parent's class E common stock.

   Restricted Payments made pursuant to clauses (1), (4), (5), (6), (8) and
(10) of the immediately preceding paragraph shall be included in making the
determination of available amounts under clause (C) of the third preceding
paragraph, and Restricted Payments made pursuant to clauses (2), (3), (4), (7),
(9) and (11) of the immediately preceding paragraph shall not be included in
making the determination of available amounts under clause (C) of the third
preceding paragraph.

   Limitation on Restrictions Affecting Restricted Subsidiaries.  The Indenture
will provide that the Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist any consensual encumbrances or restrictions of any kind on the
ability of any Restricted Subsidiary to:

      (1) pay, directly or indirectly, dividends, in cash or otherwise, or make
   any other distributions in respect of its Capital Stock or pay any
   Indebtedness or other obligation owed to the Company or any other Restricted
   Subsidiary;

                                      14

<PAGE>

      (2) make any Investment in the Company or any other Restricted
   Subsidiary; or

      (3) transfer any of its property or assets to the Company or any other
   Restricted Subsidiary,

except for such encumbrances or restrictions existing under or by reason of:

      (A) any agreement in effect on the date of the Indenture as any such
   agreement is in effect on such date;

      (B) any agreement relating to any Indebtedness Incurred by such
   Restricted Subsidiary prior to the date on which such Restricted Subsidiary
   was acquired by the Company and outstanding on such date and not Incurred in
   anticipation or contemplation of becoming a Restricted Subsidiary; provided,
   however, that such encumbrance or restriction shall not apply to any
   property or assets of the Company or any Restricted Subsidiary other than
   such Restricted Subsidiary;

      (C) customary provisions contained in an agreement which has been entered
   into for the sale or disposition of all or substantially all of the Capital
   Stock or assets of a Restricted Subsidiary; provided, however, that such
   encumbrance or restriction is applicable only to such Restricted Subsidiary
   or its property and assets;

      (D) any agreement effecting a Refinancing or amendment of Indebtedness
   Incurred pursuant to any agreement referred to in clause (A) or (B) above;
   provided, however, that the provisions contained in such Refinancing or
   amendment agreement relating to such encumbrance or restriction are no more
   restrictive in any material respect than the provisions contained in the
   agreement that is the subject thereof in the reasonable judgment of the
   board of directors of the Company;

      (E) the Indenture;

      (F) applicable law or any applicable rule, regulation or order;

      (G) customary provisions restricting subletting or assignment of any
   lease governing any leasehold interest of any Restricted Subsidiary;

      (H) purchase money obligations for property acquired in the ordinary
   course of business that impose restrictions of the type referred to in
   clause (3) of this covenant; and

      (I) restrictions of the type referred to in clause (3) of this covenant
   contained in security agreements securing Indebtedness of a Restricted
   Subsidiary to the extent that such Liens restrict the transfer of property
   subject to such agreements.

   Limitation on Certain Asset Dispositions.  The Indenture will provide that
the Company will not, and will not cause or permit any Restricted Subsidiary
to, directly or indirectly, make any Asset Disposition unless:

      (1) the Company or such Restricted Subsidiary, as the case may be,
   receives consideration for such Asset Disposition at least equal to the Fair
   Market Value of the assets sold or disposed of as determined by the board of
   directors of the Company in good faith and evidenced by a resolution of such
   board of directors filed with the Trustee;

      (2) other than in the case of a Permitted Asset Swap, not less than 75%
   of the consideration received by the Company or such Restricted Subsidiary
   from the disposition consists of:

          (A) cash or Cash Equivalents;

          (B) the assumption of Indebtedness (other than non-recourse
       Indebtedness or any Subordinated Indebtedness) of the Company or such
       Restricted Subsidiary or other

                                      15

<PAGE>

        obligations relating to such assets (accompanied by an irrevocable
        and unconditional release of the Company or such Restricted Subsidiary
        from all liability on the Indebtedness or other obligations assumed); or

          (C) notes, other obligations or common stock received by the Company
       or such Restricted Subsidiary from such transferee that are converted by
       the Company or such Restricted Subsidiary into cash or Cash Equivalents
       concurrently with the receipt of such notes or other obligations (to the
       extent of the cash actually received by the Company); and

      (3) all Net Available Proceeds, less any amounts invested within 365 days
   of such Asset Disposition to acquire all or substantially all of the assets
   of, or a majority of the Voting Stock of, an entity primarily engaged in a
   Permitted Business, to make a capital expenditure or to acquire other
   long-term assets that are used or useful in a Permitted Business, are
   applied, on or prior to the 365th day after such Asset Disposition, unless
   and to the extent that the Company shall determine to make an Offer to
   Purchase, to the permanent reduction and prepayment of any Senior
   Indebtedness of the Company then outstanding (including a permanent
   reduction of the commitments in respect thereof).

   Any Net Available Proceeds from any Asset Disposition which is subject to
the immediately preceding sentence that are not applied as provided in the
immediately preceding sentence shall be used promptly after the expiration of
the 365th day after such Asset Disposition (or earlier if the Company so
elects) to make an Offer to Purchase outstanding Notes at a purchase price in
cash equal to 100% of the principal amount on the Purchase Date, plus accrued
and unpaid interest to the Purchase Date; provided, however, that if the
Company elects (or is required by the terms of any other Senior Subordinated
Indebtedness) an offer may be made ratably to purchase the Notes and such other
Senior Subordinated Indebtedness. Notwithstanding the foregoing, the Company
may defer making any Offer to Purchase outstanding Notes (and any offer to
purchase other Senior Subordinated Indebtedness ratably) until there are
aggregate unutilized Net Available Proceeds from Asset Dispositions otherwise
subject to the two immediately preceding sentences equal to or in excess of
$15.0 million (at which time the entire unutilized Net Available Proceeds from
Asset Dispositions otherwise subject to the two immediately preceding
sentences, and not just the amount in excess of $15.0 million, shall be applied
as required pursuant to this paragraph). Any remaining Net Available Proceeds
following the completion of the required Offer to Purchase (and any offer to
purchase other Senior Subordinated Indebtedness ratably) may be used by the
Company for any other purpose (subject to the other provisions of the
Indenture), and the amount of Net Available Proceeds then required to be
otherwise applied in accordance with this covenant shall be reset to zero.
These provisions will not apply to a transaction consummated in compliance with
the provisions of the Indenture described under "--Merger, Consolidation and
Certain Sales of Assets".

   Pending application as set forth above, the Net Available Proceeds of any
Asset Disposition may be invested in cash or Cash Equivalents or used to reduce
temporarily Indebtedness outstanding under any revolving credit agreement to
which the Company is a party and pursuant to which it has Incurred Indebtedness.

   The Company will be required to comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will be
required to comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under this covenant by virtue
thereof.

   Limitation on Transactions with Affiliates.  The Indenture will provide that
the Company will not, and will not cause or permit any Restricted Subsidiary
to, directly or indirectly, conduct any business

                                      16

<PAGE>

or enter into, renew or extend any transaction with any of their respective
Affiliates, including, without limitation, the purchase, sale, lease or
exchange of property, the rendering of any service or the making of any
guarantee, loan, advance or Investment, either directly or indirectly, unless
the terms of such transaction are at least as favorable as the terms that could
be obtained at such time by the Company or such Restricted Subsidiary, as the
case may be, in a comparable transaction made on an arm's-length basis with a
Person that is not such an Affiliate; provided, however, that:

      (1) in any transaction involving aggregate consideration in excess of
   $10.0 million, the Company shall deliver an Officers' Certificate to the
   Trustee stating that a majority of the disinterested directors of the board
   of directors of the Company or such Restricted Subsidiary, as the case may
   be, have determined, in their good faith judgment, that the terms of such
   transaction are at least as favorable as the terms that could be obtained by
   the Company or such Restricted Subsidiary, as the case may be, in a
   comparable transaction made on an arm's-length basis between unaffiliated
   parties; and

      (2) if the aggregate consideration is in excess of $25.0 million, the
   Company shall also deliver to the Trustee, prior to the consummation of the
   transaction, the favorable written opinion of a nationally recognized
   accounting, appraisal or investment banking firm as to the fairness of the
   transaction to the holders of the Notes, from a financial point of view;
   provided, however, that the requirements set forth in this clause (2) shall
   not apply in the case of exchanges of licenses and related assets between
   the Company or any of its Subsidiaries and AT&T Wireless and any of its
   Subsidiaries so long as the Fair Market Value of licenses and related assets
   exchanged by the Company or any of its Subsidiaries shall not exceed $50.0
   million.

   Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to:

      (1) transactions between or among the Company and/or any Restricted
   Subsidiaries;

      (2) any Restricted Payment or Permitted Investment permitted by the
   covenant described under "--Limitation on Restricted Payments";

      (3) directors' fees, indemnification and similar arrangements, officers'
   indemnification, employment agreements, employee stock option or employee
   benefit plans and employee salaries and bonuses paid or created in the
   ordinary course of business;

      (4) any transactions pursuant to agreements existing on the date of the
   Indenture and described in this offering memorandum on terms substantially
   consistent with those set forth in the offering memorandum;

      (5) transactions with AT&T Corp. or AT&T Wireless or any of their
   Affiliates relating to the marketing or provision of telecommunication
   services or related hardware, software or equipment on terms that are no
   less favorable (when taken as a whole) to the Company or such Restricted
   Subsidiary, as applicable, than those available from unaffiliated third
   parties;

      (6) transactions involving the leasing or sharing or other use by the
   Company or any Restricted Subsidiary of communications network facilities
   (including, without limitation, cable or fiber lines, equipment or
   transmission capacity) of any Affiliate of the Company (such Affiliate being
   a "Related Party") on terms that are no less favorable (when taken as a
   whole) to the Company or such Restricted Subsidiary, as applicable, than
   those available from such Related Party to unaffiliated third parties;

      (7) transactions involving the provision of telecommunication services by
   a Related Party in the ordinary course of its business to the Company or any
   Restricted Subsidiary, or by the Company or any Restricted Subsidiary to a
   Related Party, on terms that are no less favorable (when taken as a whole)
   to the Company or such Restricted Subsidiary, as applicable, than those
   available from such Related Party to unaffiliated third parties;

                                      17

<PAGE>

      (8) any sales agency agreements pursuant to which an Affiliate has the
   right to market any or all of the products or services of the Company or any
   of the Restricted Subsidiaries;

      (9) transactions involving the sale, transfer or other disposition of any
   shares of Capital Stock of any Marketing Affiliate; provided that such
   Marketing Affiliate is not engaged in any activity other than the
   registration, holding, maintenance or protection of trademarks and the
   licensing thereof; and

      (10)  customary commercial banking, investment banking, underwriting,
   placement agent or financial advisory fees paid in connection with services
   rendered to the Company and its subsidiaries in the ordinary course.

   Limitation on Activities of the Company and the Restricted
Subsidiaries.  The Indenture will provide that the Company will not, and will
not permit any Restricted Subsidiary to, engage in any business other than a
Permitted Business, except to such extent as is not material to the Company and
its Restricted Subsidiaries, taken as a whole.

   Provision of Financial Information.  The Indenture will provide that,
whether or not required by the rules and regulations of the Commission, so long
as any Notes are outstanding, the Company will furnish to the holders of Notes:

      (1) all quarterly and annual financial information that would be required
   to be contained in a filing with the Commission on Forms 10-Q and 10-K if
   the Company were required to file such forms, including a section entitled
   "Management's Discussion and Analysis of Financial Condition and Results of
   Operations" that describes the financial condition and results of operations
   of the Company and its consolidated Subsidiaries and, with respect to annual
   information only, a report thereon by the Company's certified independent
   accountants; and

      (2) all current reports that would be required to be filed with the
   Commission on Form 8-K if the Company were required to file such reports, in
   each case within the time period specified in the Commission's rules and
   regulations.

   In addition, following the consummation of the Exchange Offer contemplated
by the Exchange and Registration Rights Agreement, whether or not required by
the rules and regulations of the Commission, the Company will file a copy of
all such information and reports specified in clauses (1) and (2) above with
the Commission for public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not accept such
a filing) and make such information available to prospective investors upon
request. In addition, the Company will, for so long as any Notes remain
outstanding, furnish to the holders of Notes, upon request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
The Company will also comply with Section 314(a) of the TIA.

   Limitation on Designations of Unrestricted Subsidiaries.  The Indenture will
provide that the Company may designate any Subsidiary of the Company (other
than an Ineligible Subsidiary) as an "Unrestricted Subsidiary" under the
Indenture (a "Designation") only if:

      (1) no Default or Event of Default shall have occurred and be continuing
   at the time of or after giving effect to such Designation;

      (2) the Company would be permitted under the Indenture to make an
   Investment at the time of Designation (assuming the effectiveness of such
   Designation) in an amount (the "Designation Amount") equal to the Fair
   Market Value of the aggregate amount of its Investments in such Subsidiary
   on such date; and

      (3) except in the case of a Subsidiary of the Company in which an
   Investment is being made pursuant to, and as permitted by, the penultimate
   paragraph of the covenant described

                                      18

<PAGE>

    under "--Limitation on Restricted Payments", the Company would be
    permitted to Incur $1.00 of additional Indebtedness pursuant to clause (1)
    of the covenant described under "--Limitation on Incurrence of
    Indebtedness" at the time of Designation (assuming the effectiveness of
    such Designation).

   In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount.

   The Indenture will further provide that the Company may revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"),
whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if no
Default shall have occurred and be continuing at the time of and after giving
effect to such Revocation. In the event of any such Revocation, the Company
shall be deemed to continue to have a permanent Investment in an Unrestricted
Subsidiary constituting a Restricted Payment pursuant to the covenant described
under "--Limitation on Restricted Payments" for all purposes under the
Indenture in an amount (if positive) equal to:

      (1) the Fair Market Value of the aggregate amount of the Company's
   Investments in such Subsidiary at the time of such Revocation; less

      (2) the portion (proportionate to the Company's equity interest in such
   Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at
   the time of such Revocation.

   All Designations and Revocations must be evidenced by a resolution of the
board of directors of the Company delivered to the Trustee certifying
compliance with the foregoing provisions.

   Future Subsidiary Guarantors.  The Company will cause (1) each Domestic
Restricted Subsidiary that Incurs Indebtedness and (2) each Foreign Restricted
Subsidiary that Incurs Material Indebtedness to become a Subsidiary Guarantor,
and, if applicable, execute and deliver to the Trustee a supplemental indenture
in the form set forth in the Indenture pursuant to which such Restricted
Subsidiary will guarantee payment of the Notes; provided that the Company shall
not cause any Special Purpose Subsidiary to become a Subsidiary Guarantor
unless such Special Purpose Subsidiary Incurs Indebtedness other than
Indebtedness in respect of the Credit Agreement (or any Refinancing
Indebtedness Incurred to Refinance such Indebtedness) or FCC Debt; provided
further that in the event that a Subsidiary Guarantor no longer has
outstanding, other than the Subsidiary Guarantee, any Indebtedness (in the case
of a Domestic Restricted Subsidiary) or Material Indebtedness (in the case of a
Foreign Restricted Subsidiary), the Subsidiary Guarantee of that Subsidiary
Guarantor shall terminate. Each Subsidiary Guarantee will be limited to an
amount not to exceed the maximum amount that can be guaranteed by that
Restricted Subsidiary without rendering the Subsidiary Guarantee, as it relates
to such Restricted Subsidiary, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.

Merger, Consolidation and Certain Sales of Assets

   The Company will not consolidate or merge with or into any Person, or sell,
assign, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to consolidate or merge with or into any Person, or to
sell, assign, lease, convey or otherwise dispose of) all or substantially all
of the Company's assets (determined on a consolidated basis for the Company and
the Restricted Subsidiaries), whether as an entirety or substantially an
entirety in one transaction or a series of related transactions, including by
way of liquidation or dissolution, to any Person unless, in each such case:

      (1) the entity formed by or surviving any such consolidation or merger
   (if other than the Company or such Restricted Subsidiary, as the case may
   be), or to which such sale,

                                      19

<PAGE>

    assignment, lease, conveyance or other disposition shall have been made
    (the "Surviving Entity"), is a corporation organized and existing under the
    laws of the United States, any state thereof or the District of Columbia;

      (2) the Surviving Entity assumes by supplemental indenture all of the
   obligations of the Company on the Notes and under the Indenture;

      (3) immediately after giving effect to such transaction and the use of
   any net proceeds therefrom on a pro forma basis, the Company or the
   Surviving Entity, as the case may be, could Incur at least $1.00 of
   Indebtedness pursuant to clause (1) of the covenant described under
   "--Certain Covenants--Limitation on Incurrence of Indebtedness"; provided,
   however that this clause (3) shall not apply in the case of a merger between
   Tritel PCS, Inc. (or any successor entity) and the Company;

      (4) immediately after giving effect to such transaction and treating any
   Indebtedness which becomes an obligation of the Company or any of its
   Restricted Subsidiaries as a result of such transactions as having been
   Incurred by the Company or such Restricted Subsidiary, as the case may be,
   at the time of the transaction, no Default or Event of Default shall have
   occurred and be continuing; and

      (5) the Company delivers to the Trustee an Officers' Certificate and an
   Opinion of Counsel, each stating that such merger, consolidation or sale of
   assets and such supplemental indenture, if any, comply with the Indenture.

   The Indenture will provide that the Company will not permit any Subsidiary
Guarantor to consolidate or merge with or into any Person, or sell, assign,
lease, convey or otherwise dispose of all or substantially all of such
Subsidiary Guarantor's assets, whether as an entirety or substantially an
entirety in one transaction or a series of related transactions, including by
way of liquidation or dissolution, to any Person unless, in each such case:

      (1) the entity formed by or surviving any such consolidation or merger
   (if other than such Subsidiary Guarantor), or to which such sale,
   assignment, lease, conveyance or other disposition shall have been made, is
   a corporation organized and existing under the laws of the United States,
   any state thereof or the District of Columbia;

      (2) such corporation assumes by supplemental indenture all of the
   obligations of the Subsidiary Guarantor, if any, under its Subsidiary
   Guarantee;

      (3) immediately after giving effect to such transaction and treating any
   Indebtedness which becomes an obligation of such Subsidiary Guarantor as a
   result of such transactions as having been Incurred by such Subsidiary
   Guarantor at the time of the transaction, no Default or Event of Default
   shall have occurred and be continuing; and

      (4) the Company delivers to the Trustee an Officers' Certificate and an
   Opinion of Counsel, each stating that such merger, consolidation or sale of
   assets and such supplemental indenture, if any, comply with the Indenture.

The provisions of the foregoing two paragraphs shall not apply to any merger of
a Restricted Subsidiary with or into the Company or a Wholly Owned Subsidiary,
the release of any Subsidiary Guarantor in accordance with the terms of its
Subsidiary Guarantee and the Indenture in connection with any transaction
complying with the provisions of covenant described under "--Certain
Covenants--Limitation on Certain Asset Dispositions".

Defaults

   Each of the following events will be an Event of Default under the Indenture:

      (1) a default in any payment of interest on any Note when due and
   payable, whether or not prohibited by the provisions described under
   "--Ranking", continued for 30 days;

                                      20

<PAGE>

      (2) a default in the payment of the principal of any Note when due and
   payable at its Stated Maturity, upon required redemption or repurchase, upon
   declaration or otherwise, whether or not such payment is prohibited by the
   provisions described under "--Ranking";

      (3) the failure by the Company to comply with its obligations under the
   covenant described under "--Merger, Consolidation and Certain Sales of
   Assets";

      (4) the failure by the Company to comply for 30 days after notice with
   any of its obligations under the covenants described under "--Change of
   Control" or "--Certain Covenants" (in each case, other than a failure to
   purchase Notes);

      (5) the failure by the Company to comply for 60 days after notice with
   its other agreements contained in the Indenture or the Notes;

      (6) the failure by the Company or any Significant Subsidiary to pay any
   Indebtedness within any applicable grace period after final maturity or the
   acceleration of any such Indebtedness by the holders thereof because of a
   default if the total amount of such Indebtedness unpaid or accelerated
   exceeds $15.0 million or its foreign currency equivalent (the "cross
   acceleration provision") and such failure continues for 10 days after
   receipt of the notice specified in the Indenture;

      (7) certain events of bankruptcy, insolvency or reorganization of the
   Company or a Significant Subsidiary (the "bankruptcy provisions");

      (8) the rendering of any final judgment or decree (not subject to appeal)
   for the payment of money in excess of $15.0 million or its foreign currency
   equivalent at the time it is entered against the Company or a Significant
   Subsidiary and is not discharged, waived or stayed if:

          (A) an enforcement proceeding thereon is commenced by any creditor; or

          (B) such judgment or decree remains outstanding for a period of 60
       days following such judgment and is not discharged, waived or stayed
       (the "judgment default provision"); or

      (9) any Subsidiary Guarantee ceases to be in full force and effect
   (except as contemplated by the terms thereof) or any Subsidiary Guarantor or
   Person acting by or on behalf of such Subsidiary Guarantor denies or
   disaffirms such Subsidiary Guarantor's obligations under the Identure or any
   Subsidiary Guarantee and such Default continues for 10 days after receipt of
   the notice specified in the Indenture.

   The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court
or any order, rule or regulation of any administrative or governmental body.

   However, a default under clauses (4), (5) or (6) will not constitute an
Event of Default until the Trustee or the holders of at least 25% in aggregate
principal amount of the outstanding Notes notify the Company of the default and
the Company does not cure such default within the time specified in clauses
(4), (5) or (6) after receipt of such notice.

   If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company) occurs and
is continuing, the Trustee or the holders of at least 25% in aggregate
principal amount of the outstanding Notes by notice to the Company may
accelerate the maturity of all the Notes. Upon such an acceleration, the
outstanding Notes will become immediately due and payable. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of the Company occurs, the principal of and interest on all the Notes will
become immediately due and payable without any declaration or other act on the
part of the Trustee

                                      21

<PAGE>

or the holders of the Notes. Under certain circumstances, the holders of a
majority in aggregate principal amount of the outstanding Notes may rescind any
such acceleration with respect to the Notes and its consequences.

   Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of Notes
may pursue any remedy with respect to the Indenture or the Notes unless:

      (1) such holder has previously given the Trustee notice that an Event of
   Default is continuing;

      (2) holders of at least 25% in aggregate principal amount of the
   outstanding Notes have requested the Trustee in writing to pursue the remedy;

      (3) such holders have offered the Trustee reasonable security or
   indemnity against any loss, liability or expense;

      (4) the Trustee has not complied with such request within 60 days after
   the receipt of the request and the offer of security or indemnity; and

      (5) the holders of a majority in aggregate principal amount of the
   outstanding Notes have not given the Trustee a direction inconsistent with
   such request within such 60-day period.

   Subject to certain restrictions, the holders of a majority in aggregate
principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the
rights of any other holder of Notes or that would involve the Trustee in
personal liability. Prior to taking any action under the Indenture, the Trustee
will be entitled to indemnification satisfactory to it in its sole discretion
against all losses and expenses caused by taking or not taking such action.

   The Indenture will provide that, if a Default occurs and is continuing and
is known to the Trustee, the Trustee must mail to each holder of Notes notice
of the Default within the earlier of 90 days after it occurs or 30 days after
it is known to a Trust Officer or written notice of it is received by the
Trustee. Except in the case of a Default in the payment of principal of,
premium (if any) or interest on any Note (including payments pursuant to the
redemption provisions of such Note), the Trustee may withhold notice if and so
long as a committee of its Trust Officers in good faith determines that
withholding notice is in the interests of the Noteholders. In addition, the
Company will be required to deliver to the Trustee, within 120 days after the
end of each fiscal year, a certificate indicating whether the signers thereof
know of any Default that occurred during the previous year. The Company will
also be required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Events of
Default, the status of any such event and the action the Company is taking or
proposes to take in respect thereof.

Amendments and Waivers

   Subject to certain exceptions, the Indenture or the Notes may be amended
with the written consent of the holders of a majority in aggregate principal
amount of the Notes then outstanding, and any past default or compliance with
any provisions may be waived with the consent of the holders of

                                      22

<PAGE>

a majority in aggregate principal amount of the Notes then outstanding. However,
(a) without the consent of each holder of an outstanding Note affected, no
amendment may, among other things:

      (1) reduce the amount of Notes whose holders must consent to an amendment;

      (2) reduce the rate of, or extend the time for payment of, interest or
   any liquidated damages on any Note;

      (3) reduce the principal of, or extend the Stated Maturity of, any Note;

      (4) reduce the premium payable upon the redemption of any Note or change
   the time at which any Note may be redeemed as described under "--Optional
   Redemption";

      (5) make any Note payable in money other than that stated in the Note;

      (6) impair the right of any holder of Notes to receive payment of
   principal of and interest or any liquidated damages on such holder's Notes
   on or after the due dates therefor or to institute suit for the enforcement
   of any payment on or with respect to such holder's Notes; or

      (7) make any change in the amendment provisions which require the consent
   of each holder of Notes or in the waiver provisions; and

(b) without the consent of the holders of 66 2/3% in aggregate principal amount
of the Notes then outstanding, no amendment may:

      (1) make any change to the subordination provisions of the Indenture that
   adversely affects the rights of any holder of Notes; or

      (2) modify the Subsidiary Guarantee in any manner adverse to the holders
   of Notes.

   Without the consent of any holder of Notes, the Company and the Trustee may
amend the Indenture to:

      (1) cure any ambiguity, omission, defect or inconsistency;

      (2) provide for the assumption by a successor corporation of the
   obligations of the Company under the Indenture;

      (3) provide for uncertificated Notes in addition to, or in place of,
   certificated Notes (provided that the uncertificated Notes are issued in
   registered form for purposes of Section 163(f) of the Code, or in a manner
   such that the uncertificated Notes are described in Section 163(f)(2)(B) of
   the Code);

      (4) make any change in the subordination provisions of the Indenture that
   would limit or terminate the benefits available to any holder of Senior
   Indebtedness of the Company (or any Representative thereof) under such
   subordination provisions;

      (5) add additional guarantees with respect to the Notes;

      (6) secure the Notes;

      (7) add to the covenants of the Company for the benefit of the
   Noteholders;

      (8) surrender any right or power conferred upon the Company;

      (9) make any change that does not adversely affect the rights of any
   holder of Notes;

      (10) provide for the issuance of the Exchange Notes or Private Exchange
   Notes subject to the provisions of the Indenture; or

      (11) comply with any requirement of the Commission in connection with the
   qualification of the Indenture under the TIA.

                                      23

<PAGE>

No amendment may be made to the subordination provisions of the Indenture,
however, that adversely affects the rights of any holder of Senior Indebtedness
of the Company then outstanding unless the holders of such Senior Indebtedness
(or any group or representative thereof authorized to give a consent) consent
to such change.

   The consent of the Noteholders will not be necessary under the Indenture to
approve the particular form of any proposed amendment. It will be sufficient if
such consent approves the substance of the proposed amendment.

   After an amendment under the Indenture becomes effective, the Company will
be required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.

Transfer and Exchange

   A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents, and the Company may require a Noteholder to pay any
taxes required by law or permitted by the Indenture. The Company will not be
required to transfer or exchange any Note selected for redemption or to
transfer or exchange any Note for a period of 15 days prior to a selection of
Notes to be redeemed. The Notes will be issued in registered form, and the
registered holder of a Note will be treated as the owner of such Note for all
purposes.

Defeasance

   The Company at any time may terminate all its obligations under the
Indenture and the Notes ("legal defeasance"), except for certain obligations,
including obligations:

     .  relating to the defeasance trust;

     .  to register the transfer or exchange of the Notes;

     .  to replace mutilated, destroyed, lost or stolen Notes; and

     .  to maintain a registrar and paying agent in respect of the Notes.

   The Company at any time may terminate its obligations under:

     .  the covenants described under "--Certain Covenants";

     .  the operation of the cross acceleration provision, the bankruptcy
        provisions with respect to Significant Subsidiaries and the judgment
        default provision;

     .  clauses (3), (4) and (5) set forth in the first paragraph under
        "--Merger, Consolidation and Certain Sales of Assets" ("covenant
        defeasance").

   In the event that the Company exercises its legal defeasance option or its
covenant defeasance option, each Subsidiary Guarantor will be released from all
of its obligations with respect to its Subsidiary Guarantee.

   The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (4), (6), (7) (with respect only to
Significant Subsidiaries), (8) (with respect only to Significant Subsidiaries)
and (9) under "--Defaults" or because of the failure of

                                      24

<PAGE>

the Company to comply with clause (3), (4) and (5) set forth in the first
paragraph under "--Merger, Consolidation and Certain Sales of Assets".

   In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit and defeasance and will be subject to federal income tax on the same
amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable federal income tax law).

Satisfaction and Discharge

   The Indenture will be discharged and will cease to be of further effect,
except as to surviving rights of registration of transfer or exchange of the
Notes as expressly provided for in the Indenture, as to all outstanding Notes
under the Indenture when

     (a)either

         .  all Notes authenticated and delivered, except lost, stolen or
            destroyed Notes which have been replaced or paid, have been
            delivered to the Trustee for cancellation, or

         .  all Notes not delivered to the Trustee for cancellation (x) have
            become due and payable, (y) will become due and payable at their
            Stated Maturity within one year, or (z) are to be called for
            redemption within one year under arrangements reasonably
            satisfactory to the Trustee for the giving of notice of redemption
            by the Trustee in the name, and at the expense, of the Company; and
            the Company or any Subsidiary Guarantor has irrevocably deposited
            or caused to be deposited with the Trustee as trust funds in trust
            an amount in United States dollars or direct obligations of, or
            obligations the principal of and interest on which are
            unconditionally guaranteed by, the United States of America (or by
            any agency thereof to the extent such obligations are backed by the
            full faith and credit of the United States of America), in each
            case maturing prior to the date the Notes have become due and
            payable, the Stated Maturity of the Notes or the relevant
            redemption date for the Notes, as the case may be, sufficient to
            pay and discharge the entire Indebtedness on the Notes not
            theretofore delivered to the Trustee for cancellation, including
            principal of, any premium and accrued interest at maturity, Stated
            Maturity or redemption date,

    (b) the Company or any Subsidiary Guarantor has paid or caused to be paid
        all other sums payable under the Indenture by the Company and any
        Subsidiary Guarantor, and

    (c) the Company has delivered to the Trustee an Officers' Certificate and
        an Opinion of Counsel, each stating that

         .  all conditions precedent under the Indenture relating to the
            satisfaction and discharge of such Indenture have been complied
            with; and

         .  such satisfaction and discharge will not result in a breach or
            violation of, or constitute a default under, the Indenture or any
            other material agreement or instrument to which the Company, any
            Subsidiary Guarantor or any Subsidiary is a party or by which the
            Company, any Subsidiary Guarantor or any Subsidiary is bound.

                                      25

<PAGE>

Concerning the Trustee

   U.S. Bank N.A. will be the Trustee under the Indenture, and U.S. Bank N.A.
has been appointed by the Company as Registrar and Paying Agent with regard to
the Notes.

Governing Law

   The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.

Certain Definitions

   Set forth below is a summary of certain of the defined terms used in the
Indenture, a copy of the form of which is available upon request to the Company.

   "Acquired Indebtedness" means, with respect to any Person, Indebtedness of
such Person:

      (1) existing at the time such Person becomes a Restricted Subsidiary; or

      (2) assumed in connection with the acquisition of assets from another
   Person, including Indebtedness Incurred in connection with, or in
   contemplation of, such Person becoming a Restricted Subsidiary or such
   acquisition, as the case may be.

   "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, any specified Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.

   "Airadigm" means Airadigm Communications, Inc.

   "Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Cash Flow for the latest two full fiscal quarters for which consolidated
financial statements of the Company are available multiplied by two. For
purposes of calculating "Consolidated Cash Flow" for any period for purposes of
this definition only:

      (1) any Subsidiary of the Company that is a Restricted Subsidiary on the
   date of the transaction giving rise to the need to calculate "Annualized Pro
   Forma Consolidated Operating Cash Flow" (the "Transaction Date") shall be
   deemed to have been a Restricted Subsidiary at all times during such period;
   and

      (2) any Subsidiary of the Company that is not a Restricted Subsidiary on
   the Transaction Date shall be deemed not to have been a Restricted
   Subsidiary at any time during such period.

   In addition to and without limitation of the foregoing, for purposes of this
definition only, "Consolidated Cash Flow" shall be calculated after giving
effect on a pro forma basis for the applicable period to, without duplication,
any Asset Dispositions or Asset Acquisitions (including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation as a
result of the Company or one of the Restricted Subsidiaries (including any
Person who becomes a Restricted Subsidiary as a result of the Asset
Acquisition) Incurring, assuming or otherwise being liable for Acquired
Indebtedness) occurring during the period commencing on the first day of such
two-fiscal-quarter period to and including the Transaction Date (the "Reference
Period"), as if such Asset Sale or Asset Acquisition occurred on the first day
of the Reference Period.

                                      26

<PAGE>

   "Asset Acquisition" means:

      (1) any purchase or other acquisition (by means of transfer of cash,
   Indebtedness or other property to others or payment for property or services
   for the account or use of others or otherwise) of Capital Stock of any
   Person by the Company or any Restricted Subsidiary, in either case, pursuant
   to which such Person shall become a Restricted Subsidiary or shall be merged
   with or into the Company or any Restricted Subsidiary; or

      (2) any acquisition by the Company or any Restricted Subsidiary of the
   property or assets of any Person which constitute all or substantially all
   of an operating unit or line of business of such Person.

   "Asset Disposition" means any sale, transfer or other disposition
(including, without limitation, by merger, consolidation or Sale/Leaseback
Transaction) of:

      (1) shares of Capital Stock of a Subsidiary of the Company (other than
   directors' qualifying shares);

      (2) any License for the provision of wireless telecommunications services
   held by the Company or any Restricted Subsidiary (whether by sale of Capital
   Stock or otherwise); or

      (3) any other property or assets of the Company or any Subsidiary of the
   Company other than in the ordinary course of business;

provided, however, that an Asset Disposition shall not include:

      (A) any sale, transfer or other disposition of shares of Capital Stock,
   property or assets by a Restricted Subsidiary to the Company or to any other
   Restricted Subsidiary or by the Company to any Restricted Subsidiary;

      (B) any sale, transfer or other disposition of defaulted receivables for
   collection;

      (C) the sale, lease, conveyance or disposition or other transfer of all
   or substantially all of the assets of the Company as permitted under
   "--Covenants--Merger, Consolidation and Certain Sales of Assets";

      (D) any disposition that constitutes a Change of Control; or

      (E) any sale, transfer or other disposition of shares of Capital Stock of
   any Marketing Affiliate; provided that such Marketing Affiliate is not
   engaged in any activity other than the registration, holding, maintenance or
   protection of trademarks and the licensing thereof; or

      (F) any sale, transfer or other disposition that does not (together with
   all related sales, transfers or dispositions) involve aggregate
   consideration in excess of $15.0 million.

   "AT&T Wireless" means AT&T Wireless Services, Inc., a Delaware corporation.

   "Average Life" means, as of the date of determination, with respect to any
Indebtedness for borrowed money or Preferred Stock, the quotient obtained by
dividing:

      (1) the sum of the products of the number of years from the date of
   determination to the dates of each successive scheduled principal or
   liquidation value payments of such Indebtedness or Preferred Stock,
   respectively, and the amount of such principal or liquidation value payments
   by

      (2) the sum of all such principal or liquidation value payments.

   "Bank Indebtedness" means any and all amounts payable under or in respect of
the Credit Agreement and any Refinancing Indebtedness with respect thereto, as
amended from time to time,

                                      27

<PAGE>

including principal, premium (if any), interest (including interest accruing on
or after the filing of any petition in bankruptcy or for reorganization relating
to the Company whether or not a claim for post-filing interest is allowed in
such proceedings), fees, charges, expenses, reimbursement obligations,
guarantees and all other amounts payable thereunder or in respect thereof.

   "board of directors" of any Person means the board of directors, management
committee or other governing body of such Person.

   "BTA" means a Basic Trading Area, as defined in 47 C.F.R. (S)24.202.

   "Business Day" means any date which is not a Legal Holiday.

   "C-Block License" means any License in the C-Block as set forth in parts 1
and 24 of Title 47 of the Code of Federal Regulations.

   "Capital Lease Obligations" of any Person means the obligations to pay rent
or other amounts under a lease of (or other Indebtedness arrangements conveying
the right to use) real or personal property of such Person which are required
to be classified and accounted for as a capital lease or liability on the face
of a balance sheet of such Person in accordance with GAAP. The amount of such
obligations shall be the capitalized amount thereof in accordance with GAAP,
and the Stated Maturity thereof shall be the date of the last payment of rent
or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty.

   "Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants options, participations or other equivalents of or interests
in (however designated) of corporate stock or other equity participations,
including partnership interests, whether general or limited, of such Person.

   "Cash Equity Investors" means: CB Capital Investors, L.P.; Equity-Linked
Investors-II; Private Equity Investors III, L.P.; Hoak Communications Partners,
L.P.; HCP Capital Fund, L.P.; Whitney Equity Partners, L.P.; J.H. Whitney III,
L.P.; Whitney Strategic Partners III, L.P.; Media/Communications Partners III
Limited Partnership; Media/Communications Investors Limited Partnership; One
Liberty Fund III, L.P.; One Liberty Fund IV, L.P.; One Liberty Advisors Fund,
IV, L.P.; Gilde International B.V.; Toronto Dominion Investments, Inc.;
Northwood Ventures LLC; Northwood Capital Partners LLC; TeleCorp Investment
Corp., L.L.C.; TeleCorp Investment Corp. II, L.L.C.; Gerald T. Vento; Thomas H.
Sullivan; Wireless 2000, Inc.; CIHC, Incorporated; Trillium PCS, LLC; Dredner
Kleinwort Benson Private Equity Partners LP; Triune PCS, LLC; JG Funding, LLC;
Saunders Capital Group, LLC; Mon-Cre Wireless, Inc.; Ragland Wireless, Inc.;
Cablevision Services, Inc.; Hayneville Wireless, Inc.; Moundville
Communications, Inc.; James E. Campbell; William M. Mounger, II; and E.B.
Martin, Jr.

   "Cash Equivalents" means:

      (1) direct obligations of, or obligations the principal of and interest
   on which are unconditionally guaranteed by, the United States of America (or
   by any agency thereof to the extent such obligations are backed by the full
   faith and credit of the United States of America), in each case maturing
   within one year from the date of acquisition thereof;

      (2) investments in commercial paper maturing within 365 days from the
   date of acquisition thereof and having, at such date of acquisition, the
   highest credit rating obtainable from Standard & Poor's Corporation or from
   Moody's Investors Service;

      (3) investments in certificates of deposit, banker's acceptance and time
   deposits maturing within 365 days from the date of acquisition thereof
   issued or guaranteed by or placed with, and

                                      28

<PAGE>

   money market deposit accounts issued or offered by, any domestic office
   of any commercial bank organized under the laws of the United States of
   America or any State thereof which has a combined capital and surplus and
   undivided profits of not less than $500 million;

      (4) fully collateralized repurchase agreements with a term of not more
   than 30 days for securities described in clause (1) above and entered into
   with a financial institution satisfying the criteria described in clause (3)
   above; and

      (5) money market funds substantially all of whose assets comprise
   securities of the type described in clauses (1) through (3) above.

   "Code" means the Internal Revenue Code of 1986, as amended.

   "Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.

   "Commission" means the Securities and Exchange Commission.

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

   "Consolidated Cash Flow" of any Person means, for any period, the
Consolidated Net Income of such Person for such period:

      (1) increased (to the extent Consolidated Net Income for such period has
   been reduced thereby) by the sum of (without duplication):

          (A) Consolidated Interest Expense of such Person for such period; plus

          (B) Consolidated Income Tax Expense of such Person for such period;
       plus

          (C) the consolidated depreciation and amortization expense of such
       Person and its Restricted Subsidiaries for such period; plus

          (D) any other non-cash charges of such Person and its Restricted
       Subsidiaries for such period except for any non-cash charges that
       represent accruals of, or reserves for, cash disbursements to be made in
       any future accounting period; and

      (2) decreased (to the extent Consolidated Net Income for such period has
   been increased thereby) by any non-cash gains from Asset Dispositions.

   "Consolidated Income Tax Expense" of any Person means, for any period, the
consolidated provision for income taxes of such Person and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.

   "Consolidated Interest Expense" for any Person means, for any period,
without duplication:

      (1) the consolidated interest expense included in a consolidated income
   statement (without deduction of interest or finance charge income) of such
   Person and its Restricted Subsidiaries for such period calculated on a
   consolidated basis in accordance with GAAP (including, without limitation,
   (a) any amortization of debt discount, (b) the net costs under Hedging
   Agreements, (c) all capitalized interest, (d) the interest portion of any
   deferred payment obligation and (e) all amortization of any premiums, fees
   and expenses payable in connection with the Incurrence of any Indebtedness);
   plus

                                      29

<PAGE>

      (2) the interest component of Capital Lease Obligations paid, accrued
   and/or scheduled to be paid or accrued, by such Person and its Restricted
   Subsidiaries during such period as determined on a consolidated basis in
   accordance with GAAP.

   "Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person and its Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP; provided, however, that there shall be excluded therefrom:

      (1) the net income (or loss) of any Person acquired by such Person or a
   Restricted Subsidiary of such Person in a pooling-of-interests transaction
   for any period prior to the date of such transaction;

      (2) the net income (but not loss) of any Restricted Subsidiary of such
   Person which is subject to restrictions which prevent or limit the payment
   of dividends or the making of distributions to such Person to the extent of
   such restrictions (regardless of any waiver thereof);

      (3) the net income of any Person that is not a Restricted Subsidiary of
   such Person, except to the extent of the amount of dividends or other
   distributions representing such Person's proportionate share of such other
   Person's net income for such period actually paid in cash to such Person by
   such other Person during such period;

      (4) gains or losses (other than for purposes of calculating Consolidated
   Net Income under clause (C) of the first paragraph under "--Certain
   Covenants--Limitation on Restricted Payments") on Asset Dispositions by such
   Person or its Restricted Subsidiaries;

      (5) all extraordinary gains (but not, other than for purposes of
   calculating Consolidated Net Income under clause (C) of the first paragraph
   under "--Certain Covenants--Limitation on Restricted Payments", losses)
   determined in accordance with GAAP; and

      (6) in the case of a successor to such Person by consolidation or merger
   or as a transferee of such Person's assets, any earnings (or losses) of the
   successor corporation prior to such consolidation, merger or transfer of
   assets.

   "Credit Agreement" means the Credit Agreement dated as of July 17, 1998, as
amended and restated as of October 2, 2000, as amended waived or otherwise
modified from time to time, among the Company, the financial institutions named
therein as lenders, The Chase Manhattan Bank, as Administrative Agent and
Issuing Bank, TD Securities (USA) Inc., as Syndication Agent, and Bankers Trust
Company, as Documentation Agent (except to the extent that any such amendment,
waiver or other modification thereto would be prohibited by the terms of the
Indenture, unless otherwise agreed to by the holders of at least a majority in
aggregate principal amount of the Notes at the time outstanding).

   "Default" means any event that is, or after notice or lapse of time or both
would become, an Event of Default.

   "Designated Senior Indebtedness" of the Company means:

      (1) so long as outstanding, Bank Indebtedness; and

      (2) so long as outstanding, any other Senior Indebtedness which has at
   the time of initial issuance an aggregate outstanding principal amount in
   excess of $25.0 million and which has been so designated as Designated
   Senior Indebtedness by the board of directors of the Company at the time of
   its initial issuance in a resolution delivered to the Trustee. "Designated
   Senior Indebtedness" of a Subsidiary Guarantor has a correlative meaning.

   "Designation" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."

                                      30

<PAGE>

   "Designation Amount" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."

   "Discount Notes" means the 11 5/8% Senior Subordinated Discount Notes due
2009 of the Company.

   "Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the first anniversary of the Stated
Maturity of the Notes; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Capital Stock
upon the occurrence of an "asset sale" or "change of control" occurring prior
to the first anniversary of the Stated Maturity of the Notes shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the
holders of such Capital Stock than the provisions of the covenant described
under "Change of Control."

   "Domestic Restricted Subsidiary" means any Restricted Subsidiary of the
Company other than a Foreign Restricted Subsidiary.

   "Equipment Subsidiary" means TeleCorp Equipment Leasing L.P. and/or any
other Wholly Owned Subsidiary of the Company designated as an Equipment
Subsidiary under the Credit Agreement.

   "Equity Offering" means any public or private sale of Qualified Stock made
on a primary basis by the Company after the date of the Indenture, including
through the issuance or sale of Qualified Stock to one or more Strategic Equity
Investors; provided, however, that a sale to Parent will constitute an Equity
Offering only if funded by a substantially concurrent Equity Offering by Parent.

   "Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.

   "Exchange and Registration Rights Agreement" means the Exchange and
Registration Rights Agreement, to be dated the date of the Indenture, among the
Company, the Subsidiary Guarantor and the Initial Purchasers.

   "Exchange Notes" means, collectively, debt securities of the Company that
are identical in all material respects to the Notes, except for transfer
restrictions relating to the Notes, issued in a like aggregate principal amount
of the Notes originally issued pursuant to the Exchange and Registration Rights
Agreement.

   "Exchange Offer" means a registered exchange offer for the Notes undertaken
by the Company pursuant to the Exchange and Registration Rights Agreement.

   "F-Block License" means any License in the F-Block as set forth in parts 1
and 24 of Title 47 of the Code of Federal Regulations.

   "Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in the Indenture, Fair Market Value shall be determined by the board of
directors of the Company acting in good faith.

                                      31

<PAGE>

   "FCC" means the Federal Communications Commission, or any other similar or
successor agency of the Federal government administering the Communications Act.

   "FCC Debt" means Indebtedness owed to the United States Treasury Department
or the FCC that is incurred in connection with the acquisition of a License.

   "Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
Company that is not organized under the laws of the United States of America or
any State thereof or the District of Columbia.

   "GAAP" means generally accepted accounting principles, consistently applied,
as in effect from time to time in the United States of America, as set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as is approved by a significant segment of the
accounting profession in the United States.

   "Hedging Agreement" means any interest rate, currency or commodity swap
agreement, interest rate, currency or commodity future agreement, interest rate
cap or collar agreement, interest rate, currency or commodity hedge agreement
and any put, call or other agreement designed to protect against fluctuations
in interest rates, currency exchange rates or commodity prices.

   "Holder" or "Noteholder" means the Person in whose name a Note is registered
on the registrar's books.

   "Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have
meanings correlative to the foregoing). Indebtedness of any Person or any of
its Restricted Subsidiaries existing at the time such Person becomes a
Restricted Subsidiary (or is merged into, or consolidates with, the Company or
any Restricted Subsidiary), whether or not such Indebtedness was Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary (or being merged into, or consolidated with, the Company or any
Restricted Subsidiary), shall be deemed Incurred at the time any such Person
becomes a Restricted Subsidiary or merges into, or consolidates with, the
Company or any Restricted Subsidiary.

   "Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and
whether or not contingent:

      (1) every obligation of such Person for money borrowed;

      (2) every obligation of such Person evidenced by bonds, debentures, notes
   or other similar instruments, including obligations Incurred in connection
   with the acquisition of property, assets or businesses;

      (3) every reimbursement obligation of such Person with respect to letters
   of credit, bankers' acceptances or similar facilities issued for the account
   of such Person;

      (4) every obligation of such Person issued or assumed as the deferred
   purchase price of property or services (but excluding trade accounts payable
   or accrued liabilities arising in the ordinary course of business which are
   not overdue or which are being contested in good faith);

      (5) every Capital Lease Obligation of such Person;

                                      32

<PAGE>

      (6) every net obligation under Hedging Agreements or similar agreements
   of such Person; and

      (7) every obligation of the type referred to in clauses (1) through (6)
   of another Person and all dividends of another Person the payment of which,
   in either case, such Person has guaranteed or is responsible or liable for,
   directly or indirectly, as obligor, guarantor or otherwise.

   Indebtedness shall:

      (1) include the liquidation preference and any mandatory redemption
   payment obligations in respect of any Disqualified Stock of the Company and
   any Restricted Subsidiary and any Preferred Stock of a Subsidiary of the
   Company;

      (2) never be calculated taking into account any cash and Cash Equivalents
   held by such Persons;

      (3) not include obligations arising from agreements of the Company or a
   Restricted Subsidiary to provide for indemnification, adjustment of purchase
   price, earn-out or other similar obligations, in each case, Incurred or
   assumed in connection with the disposition of any business or assets of a
   Restricted Subsidiary.

   The amount of any Indebtedness outstanding as of any date shall be:

      (1) the accreted value thereof, in the case of any Indebtedness issued
   with original issue discount;

      (2) the principal amount thereof, in the case of any Indebtedness other
   than Indebtedness issued with original issue discount; and

      (3) the greater of the maximum repurchase or redemption price or
   liquidation preference thereof, in the case of any Disqualified Stock or
   Preferred Stock.

   "Ineligible Subsidiary" means:

      (1) any Special Purpose Subsidiary;

      (2) any Subsidiary Guarantor;

      (3) any Subsidiary of the Company that, directly or indirectly, owns any
   Capital Stock or Indebtedness of, or owns or holds any Lien on any property
   of, the Company or any other Subsidiary of the Company that is not a
   Subsidiary of the Subsidiary to be so designated; and

      (4) any Subsidiary of the Company that, directly or indirectly, owns any
   Capital Stock or Indebtedness of, or owns or holds any Lien on any property
   of, any other Subsidiary of the Company that is not eligible to be
   designated as an Unrestricted Subsidiary.

   "Initial Purchasers" means AT&T Wireless.

   "Investment" in any Person means any direct or indirect loan, advance,
guarantee or other extension of credit or capital contribution to (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others or otherwise), or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Indebtedness issued by, any other Person.

   "Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions in the State of New York are authorized or required by law to
close.

                                      33

<PAGE>

   "License" means any broadband Personal Communications Services license
issued by the FCC in connection with the operation of a System.

   "License Subsidiary" means TeleCorp PCS, L.L.C. and THC and/or any other
Wholly Owned Restricted Subsidiary of the Company designated as a License
Subsidiary under the Credit Agreement.

   "Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, security interest, lien, charge,
easement (other than any easement not materially impairing usefulness or
marketability), encumbrance, preference, priority or other security agreement
with respect to such property or assets (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).

   "Lucent" means Lucent Technologies Inc., a Delaware corporation.

   "Lucent Note Purchase Agreement" means the Note Purchase Agreement dated as
of May 11, 1998, between the Company and Lucent, as amended as of the date of
the Indenture.

   "Management Stockholders" means Gerald Vento and Thomas Sullivan.

   "Marketing Affiliate" means any Person which engages in no activity other
than the registration, holding, maintenance or protection of trademarks and the
licensing thereof.

   "Material Indebtedness" means Indebtedness having an aggregate principal
amount (or accreted value) of $50 million or more at the time outstanding.

   "MTA" means a Major Trading Area, as defined in 47 C.F.R. (S)24.202.

   "Net Available Proceeds" from any Asset Disposition by any Person means cash
or readily marketable Cash Equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Indebtedness or other obligations relating to such properties or
assets or received in any other non-cash form) therefrom by such Person,
including any cash received by way of deferred payment or upon the monetization
or other disposition of any non-cash consideration (including notes or other
securities) received in connection with such Asset Disposition, net of

      (1) all legal, title and recording tax expenses, commissions and other
   fees and expenses incurred and all federal, state, foreign and local taxes
   accrued as a liability as a consequence of such Asset Disposition;

      (2) all payments made by such Person or any of its Restricted
   Subsidiaries on any Indebtedness which is secured by such assets in
   accordance with the terms of any Lien upon or with respect to such assets or
   which must by the terms of such Lien, or in order to obtain a necessary
   consent to such Asset Disposition or by applicable law, be repaid out of the
   proceeds from such Asset Disposition;

      (3) all payments made with respect to liabilities associated with the
   assets which are the subject of the Asset Disposition, including, without
   limitation, trade payables and other accrued liabilities;

      (4) appropriate amounts to be provided by such Person or any Restricted
   Subsidiary thereof, as the case may be, as a reserve in accordance with GAAP
   against any liabilities associated with such assets and retained by such
   Person or any Restricted Subsidiary thereof, as the case may be, after such
   Asset Disposition, including, without limitation, liabilities under

                                      34

<PAGE>

        any indemnification obligations and severance and other employee
    termination costs associated with such Asset Disposition, until such time
    as such amounts are no longer reserved or such reserve is no longer
    necessary (at which time any remaining amounts will become Net Available
    Proceeds to be allocated in accordance with the provisions of clause (3) of
    the covenant described under "--Certain Covenants--Limitation on Certain
    Asset Dispositions"); and

      (5) all distributions and other payments made to minority interest
   holders in Restricted Subsidiaries of such Person or joint ventures as a
   result of such Asset Disposition.

   "Net Investment" means the excess of:

      (1) the aggregate amount of all Investments made in any Unrestricted
   Subsidiary or joint venture by the Company or any Restricted Subsidiary on
   or after the date of the Indenture (in the case of an Investment made other
   than in cash, the amount shall be the Fair Market Value of such Investment
   as determined in good faith by the Board of the Company or such Restricted
   Subsidiary); over

       (2) the aggregate amount returned in cash on or with respect to such
    Investments whether through interest payments, principal payments,
    dividends or other distributions or payments; provided, however, that such
    payments or distributions shall not be (and have not been) included in
    clause (C) of the first paragraph described under "--Certain
    Covenants--Limitation on Restricted Payments"; provided further that, with
    respect to all Investments made in any Unrestricted Subsidiary or joint
    venture, the amounts referred to in clause (1) above with respect to such
    Investments shall not exceed the aggregate amount of all such Investments
    made in such Unrestricted Subsidiary or joint venture.

   "Note" or "Notes" means any Note or Note issued under the Indenture,
including any Exchange Note or Exchange Notes, or any Private Exchange Note or
Private Exchange Notes, issued in exchange therefor in connection with an
Exchange Offer undertaken pursuant to the Exchange and Registration Rights
Agreement.

   "Noteholder" or "Holder" means the Person in whose name a Note is registered
on the registrar's books.

   "Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first class mail, postage prepaid, to each holder of Notes at such holder's
address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of the Notes specified in such
Offer at the purchase price specified in such Offer (as determined pursuant to
the Indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase
which shall be not less than 30 days nor more than 60 days after the date of
such Offer and a settlement date (the "Purchase Date") for purchase of Notes
within five Business Days after the Expiration Date. The Company shall notify
the Trustee at least 15 Business Days (or such shorter period as is acceptable
to the Trustee) prior to the mailing of the Offer of the Company's obligation
to make an Offer to Purchase, and the Offer shall be mailed by the Company or,
at the Company's request, by the Trustee in the name and at the expense of the
Company. The Offer shall contain all the information required by applicable law
to be included therein. The Offer shall contain all instructions and materials
necessary to enable holders of Notes to tender their Notes pursuant to the
Offer to Purchase. The Offer shall also state:

      (1) the provision of the Indenture pursuant to which the Offer to
   Purchase is being made;

      (2) the Expiration Date and the Purchase Date;

      (3) the aggregate principal amount of the outstanding Notes offered to be
   purchased by the Company pursuant to the Offer to Purchase (including, if
   less than 100%, the manner by

                                      35

<PAGE>

   which such amount has been determined pursuant to a specified provision of
   the Indenture requiring the Offer to Purchase) (the "Purchase Amount");

      (4) the purchase price to be paid by the Company for each $1,000
   aggregate principal amount of Notes accepted for payment (as specified
   pursuant to the Indenture) (the "Purchase Price");

      (5) that such holder may tender all or any portion of the Notes
   registered in the name of such holder and that any portion of a Note
   tendered must be tendered in an integral multiple of $1,000 principal amount;

      (6) the place or places where Notes are to be surrendered for tender
   pursuant to the Offer to Purchase;

      (7) that interest on any Note not tendered or tendered but not purchased
   by the Company pursuant to the Offer to Purchase will continue to accrue;

      (8) that on the Purchase Date the Purchase Price will become due and
   payable upon each Note being accepted for payment pursuant to the Offer to
   Purchase and that interest thereon shall cease to accrue on and after the
   Purchase Date;

      (9) that each holder electing to tender all or any portion of a Note
   pursuant to the Offer to Purchase will be required to surrender such Note at
   the place or places specified in the Offer prior to the close of business on
   the Expiration Date (such Note being, if the Company or the Trustee so
   requires, duly endorsed by, or accompanied by a written instrument of
   transfer in form satisfactory to the Company and the Trustee duly executed
   by, the holder thereof or such holder's attorney duly authorized in writing);

      (10) that holders will be entitled to withdraw all or any portion of
   Notes tendered if the Company (or its paying agent) receives, not later than
   the close of business on the fifth Business Day next preceding the
   Expiration Date, a telegram, telex, facsimile transmission or letter setting
   forth the name of the holder, the principal amount of the Note the holder
   tendered, the certificate number of the Note the holder tendered and a
   statement that such holder is withdrawing all or a portion of such holder's
   tender;

      (11) that (a) if Notes in an aggregate principal amount less than or
   equal to the Purchase Amount are duly tendered and not withdrawn pursuant to
   the Offer to Purchase, the Company shall purchase all such Notes and (b) if
   Notes in an aggregate principal amount in excess of the Purchase Amount are
   tendered and not withdrawn pursuant to the Offer to Purchase, the Company
   shall purchase Notes having an aggregate principal amount equal to the
   Purchase Amount on a pro rata basis (with such adjustments as may be deemed
   appropriate so that only Notes in denominations of $1,000 or integral
   multiples thereof shall be purchased); and

      (12) that in the case of any holder whose Note is purchased only in part,
   the Company shall execute and the Trustee shall authenticate and deliver to
   the holder of such Note without service charge, a new Note or Notes, of any
   authorized denomination as requested by such holder, in an aggregate
   principal amount equal to and in exchange for the unpurchased portion of the
   Note so tendered.

An Offer to Purchase shall be governed by and effected in accordance with the
provisions above pertaining to any Offer.

   "Officer" means the Chief Executive Officer, the Executive Vice President,
the Chief Financial Officer, the Chief Operating Officer, the President, any
Vice President, the Treasurer or any Secretary of the Company or a Subsidiary
of the Company, as the case may be.

   "Officers' Certificate" means a certificate signed by two Officers.

                                      36

<PAGE>

   "Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.

   "Parent" means TeleCorp PCS, Inc., a Delaware corporation, and parent of the
Company, until a successor replaces it and thereafter, means the successor.

   "Permitted Asset Swap" means any exchange of assets by the Company or a
Restricted Subsidiary where the Company and/or its Restricted Subsidiaries
receive consideration at least 75% of which consists of (1) cash, (2) assets
that are used or useful in a Permitted Business or (3) any combination thereof.

   "Permitted Business" means:

      (1) the delivery or distribution of telecommunications, voice, data or
   video services;

      (2) any business or activity reasonably related or ancillary thereto,
   including, without limitation, any business conducted by the Company or any
   Restricted Subsidiary on the date of the Indenture and the acquisition,
   holding or exploitation of any license relating to the delivery of the
   services described in clause (1) above; or

      (3) any other business or activity in which the Company (and the
   Restricted Subsidiaries) are expressly contemplated to be engaged pursuant
   to the provisions of the certificate of incorporation and by-laws of the
   Company as in effect on the date of the Indenture.

   "Permitted Holder" means:

      (1) each of AT&T Wireless, the Cash Equity Investors, the Management
   Stockholders, Digital PCS, L.L.C., Wireless 2000, Inc. and any of their
   respective Affiliates and the respective successors (by merger,
   consolidation, transfer or otherwise) to all or substantially all of the
   respective businesses and assets of any of the foregoing; provided that
   Triton PCS, Inc. shall be deemed an Affiliate of AT&T Wireless so long as
   AT&T Wireless owns, directly or indirectly, at least 10% of the equity
   interests of Triton PCS, Inc.; and

      (2) any "person" or "group" (as such terms are used in Sections 13(d) and
   14(d) of the Exchange Act) controlled by one or more persons identified in
   clause (1) above.

   "Permitted Investments" means:

      (1) Investments in Cash Equivalents;

      (2) Investments representing Capital Stock or obligations issued to the
   Company or any Restricted Subsidiary in the course of the good faith
   settlement of claims against any other Person or by reason of a composition
   or readjustment of debt or a reorganization of any debtor of the Company or
   any Restricted Subsidiary;

      (3) deposits including interest-bearing deposits, maintained in the
   ordinary course of business in banks;

      (4) any Investment in any Person; provided, however, that, after giving
   effect to such Investment, such Person is or becomes a Restricted Subsidiary
   or such Person is merged, consolidated or amalgamated with or into, or
   transfers or conveys substantially all of its assets to, or is liquidated
   into, the Company or a Restricted Subsidiary;

      (5) trade receivables and prepaid expenses, in each case arising in the
   ordinary course of business; provided, however, that such receivables and
   prepaid expenses would be recorded as assets of such Person in accordance
   with GAAP;

                                      37

<PAGE>

      (6) endorsements for collection or deposit in the ordinary course of
   business by such Person of bank drafts and similar negotiable instruments of
   such other Person received as payment for ordinary course of business trade
   receivables;

      (7) any interest rate agreements with an unaffiliated Person otherwise
   permitted by clause (5) or (6) under "--Certain Covenants--Limitation on
   Incurrence of Indebtedness";

      (8) Investments received as consideration for an Asset Disposition in
   compliance with the provisions of the Indenture described under "--Certain
   Covenants--Limitation on Certain Asset Dispositions";

      (9) loans or advances to employees of the Company or any Restricted
   Subsidiary in the ordinary course of business in an aggregate amount not to
   exceed $5.0 million in the aggregate at any one time outstanding;

      (10) any Investment acquired by the Company or any of its Restricted
   Subsidiaries as a result of a foreclosure by the Company or any of its
   Restricted Subsidiaries or in connection with the settlement of any
   outstanding Indebtedness or trade payable;

      (11) loans and advances to officers, directors and employees for
   business-related travel expense, moving expense and other similar expenses,
   each incurred in the ordinary course of business; and

      (12) advances for working capital to, and for the purchase of assets
   from, Airadigm in accordance with the agreement described herein under the
   heading "Business-Acquisition and Disposition History" or an agreement
   substantially similar thereto in an aggregate amount not to exceed $110.0
   million.

      (13) any Investment for which the sole consideration is Qualified Stock;
   and

      (14) other Investments (with each such Investment being valued as of the
   date made and without giving effect to subsequent changes in value) in an
   aggregate amount not to exceed $15.0 million at any one time outstanding.

   "Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.

   "Plan of Liquidation" means, with respect to any Person, a plan (including
by operation of law) that provides for, contemplates, or the effectuation of
which is preceded or accompanied by (whether or not substantially
contemporaneously):

      (1) the sale, lease, conveyance or other disposition of all or
   substantially all of the assets of such Person; and

      (2) the distribution of all or substantially all of the proceeds of such
   sale, lease, conveyance or other disposition and all or substantially all of
   the remaining assets of such Person to holders of Capital Stock of such
   Person.

   "Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of
such Person, to shares of Capital Stock of any other class of such Person.

   "principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.

                                      38

<PAGE>

   "Private Exchange Notes" means, collectively, debt securities of the Company
that are identical in all material respects to the Exchange Notes, except for
transfer restrictions relating to such Private Exchange Notes, issued by the
Company (under the same indenture as the Exchange Notes) simultaneously with
the delivery of the Exchange Notes in the Exchange Offer to any Noteholder that
holds any Notes acquired by it that have, or that are reasonably likely to be
determined to have, the status of an unsold allotment in an initial
distribution, or to any Noteholder that is not entitled to participate in the
Exchange Offer, upon the request of any such holder, in exchange for a like
aggregate principal amount of Notes held by such holder.

   "Public Sale" means any underwritten public offering, made on a primary
basis pursuant to a registration statement filed with, and declared effective
by, the Commission in accordance with the Securities Act.

   "Purchase Money Indebtedness" means any Indebtedness (including, without
limitation, Capital Lease Obligations); provided that the net proceeds of such
Indebtedness are utilized solely for the purpose of financing the cost
(including, without limitation, the cost of design, development, site
acquisition, construction, integration, handset manufacture or acquisition or
microwave relocation) of assets used or usable in a Permitted Business
(including, without limitation, through the acquisition of Capital Stock of an
entity engaged in a Permitted Business).

   "Qualified License" means, as of the date of determination, any License
covering or adjacent to any geographical area in respect of which the Company
or any Restricted Subsidiary owns, as of the Business Day immediately prior to
such date of determination, at least one other License covering a substantial
portion of such area.

   "Qualified Stock" means any Capital Stock of the Company other than
Disqualified Stock.

   "Real Property Subsidiary" means TeleCorp Realty L.L.C., Puerto Rico
Acquisition Corp. and/or any other Wholly Owned Subsidiary of the Company
designated by the Company as a Real Property Subsidiary under the Credit
Agreement.

   "Refinance" means refinance, renew, extend, replace or refund; and
"Refinancing" and "Refinanced" have correlative meanings.

   "Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) any Indebtedness of the Company or any
Restricted Subsidiary existing on the date of the Indenture or Incurred in
compliance with the Indenture (including Indebtedness of the Company that
Refinances Refinancing Indebtedness); provided, however, that:

      (1) the Refinancing Indebtedness has a Stated Maturity no earlier than
   the Stated Maturity of the Indebtedness being Refinanced;

      (2) the Refinancing Indebtedness has an Average Life at the time such
   Refinancing Indebtedness is Incurred that is equal to or greater than the
   Average Life of the Indebtedness being refinanced;

      (3) such Refinancing Indebtedness is Incurred in an aggregate principal
   amount (or if issued with original issue discount, an aggregate issue price)
   that is equal to or less than the aggregate principal amount (or if issued
   with original issue discount, the aggregate accreted value) then outstanding
   of the Indebtedness being Refinanced plus the amount of any premium required
   to be paid in connection with such Refinancing pursuant to the terms of the
   Indebtedness being Refinanced or the amount of any premium reasonably
   determined by the issuer of such Indebtedness as necessary to accomplish
   such Refinancing by means of a

                                      39

<PAGE>

   tender offer, exchange offer or privately negotiated repurchase, plus the
   expenses of such issuer reasonably incurred in connection therewith; and

      (4) if the Indebtedness being Refinanced is pari passu with the Notes,
   such Refinancing Indebtedness is made pari passu with, or subordinate in
   right of payment to, the Notes, and, if the Indebtedness being Refinanced is
   subordinate in right of payment to the Notes, such Refinancing Indebtedness
   is subordinate in right of payment to the Notes on terms no less favorable
   to the holders of Notes than those contained in the Indebtedness being
   Refinanced;

provided further, however, that Refinancing Indebtedness shall not include

      (A) Indebtedness of a Restricted Subsidiary that Refinances Indebtedness
   of the Company; or

      (B) Indebtedness of the Company or a Restricted Subsidiary that
   Refinances Indebtedness of an Unrestricted Subsidiary.

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

   "Revocation" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries".

   "Sale/Leaseback Transaction" means an arrangement relating to property owned
on the date of the Indenture or thereafter acquired by the Company or a
Restricted Subsidiary whereby the Company or a Restricted Subsidiary transfers
such property to a Person and the Company or such Restricted Subsidiary leases
it from such Person, other than leases between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries.

   "Securities Act" means the Securities Act of 1933, as amended.

   "Senior Subordinated Indebtedness" of the Company means the Notes, the
Discount Notes and any other Indebtedness of the Company that specifically
provides that such Indebtedness is to rank pari passu with the Notes in right
of payment and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of the Company which is not Senior
Indebtedness. "Senior Subordinated Indebtedness" of a Subsidiary Guarantor has
a correlative meaning.

   "Series A Notes" means the Series A Notes of the Company purchased by Lucent
pursuant to the Lucent Note Purchase Agreement.

   "Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.

   "Special Purpose Subsidiary" means any Equipment Subsidiary, License
Subsidiary or Real Property Subsidiary.

   "Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).

   "Stockholders' Agreement" means the Stockholders' Agreement dated as of
November 13, 2000, among AT&T Wireless PCS, LLC, the Cash Equity Investors, the
Management Stockholders,

                                      40

<PAGE>

E.B. Martin, Jr., William M. Mounger, II and TeleCorp PCS, Inc., as such
agreement may be amended from time to time in accordance with the provisions of
such agreement, so long as the terms of any such amendment are no less
favorable to the Noteholders than the terms of the Stockholders' Agreement in
effect on the date of the Indenture.

   "Strategic Equity Investor" means any of the Cash Equity Investors, any
Affiliate thereof, any other Person engaged in a Permitted Business whose Total
Equity Market Capitalization exceeds $500 million or any other Person who has
at least $100 million total funds under management and who has issued an
irrevocable, unconditional commitment to purchase Qualified Stock of the
Company for an aggregate purchase price that does not exceed 20% of the value
of the funds under management by such Person.

   "Subordinated Indebtedness" means any Indebtedness of the Company or any
Subsidiary Guarantor (whether outstanding on the date of the Indenture or
thereafter Incurred) which is by its terms expressly subordinate or junior in
right of payment to the Notes or the Subsidiary Guarantee of such Subsidiary
Guarantor, as the case may be.

   "Subsidiary" of any Person means:

      (1) a corporation more than 50% of the outstanding Voting Stock of which
   is owned, directly or indirectly, by such Person or by one or more other
   Subsidiaries of such Person or by such Person and one or more other
   Subsidiaries thereof; or

      (2) any other Person (other than a corporation) in which such Person, or
   one or more other Subsidiaries of such Person or such Person and one or more
   other Subsidiaries thereof, directly or indirectly, has at least a majority
   ownership and voting power relating to the policies, management and affairs
   thereof.

   "Subsidiary Guarantee" means each guarantee of the obligations with respect
to the Notes issued by a Subsidiary of the Company pursuant to the terms of the
Indenture, each such Subsidiary Guarantee having subordination provisions
equivalent to those contained in the Indenture with respect to the Notes and
being substantially in the form prescribed in the Indenture.

   "Subsidiary Guarantor" means any Subsidiary of the Company that has issued a
Subsidiary Guarantee.

   "System" means, as to any Person, assets constituting a radio communications
system authorized under the rules for wireless communications services
(including any license and the network, marketing, distribution, sales,
customer interface and operations and functions relating thereof) owned and
operated by such Person.

   "10 5/8% Notes" means the 10 5/8% Senior Subordinated Notes due 2010 of the
Company.

   "THC" means TeleCorp Holding Corp., Inc., a Delaware corporation and a
Wholly Owned Subsidiary.

   "Total Assets" means the total assets of the Company, as shown on the most
recent quarterly balance sheet of the Company.

   "Total Consolidated Indebtedness" means, at any date of determination, an
amount equal to:

      (1) the accreted value of all Indebtedness, in the case of any
   Indebtedness issued with original issue discount; plus

      (2) the principal amount of all Indebtedness, in the case of any other
   Indebtedness,

                                      41

<PAGE>

of the Company and its Restricted Subsidiaries outstanding as of the date of
determination; provided, however, that no amount owing by the Company or any of
its Restricted Subsidiaries in respect of any Series A Notes outstanding as of
the date of determination shall be included in the determination of Total
Consolidated Indebtedness.

   "Total Equity Market Capitalization" of any Person means, as of any day of
determination, the sum of (a) the product of (1) the aggregate number of
outstanding primary shares of common stock of such Person on such day (which
shall not include any options or warrants on, or securities convertible or
exchangeable into, shares of common stock of such Person) multiplied by (2) the
average closing price of such common stock listed on a national securities
exchange or the Nasdaq National Market System over the 20 consecutive Business
Days immediately preceding such day plus (b) the liquidation value of any
outstanding shares of preferred stock of such Person on such day.

   "Total Invested Capital" means, as of any date of determination, the sum of,
without duplication:

      (1) the total amount of equity contributed to the Company as of June 30,
   2001, as set forth on the June 30, 2001 consolidated balance sheet of the
   Company; plus

      (2) irrevocable, unconditional commitments from any Strategic Equity
   Investor to purchase Capital Stock of the Company (other than Disqualified
   Stock) within 36 months of the date of issuance of such commitment, but in
   any event not later than the Stated Maturity of the Notes; provided,
   however, that such commitments shall exclude commitments related to any
   Investment in any Person incorporated, formed or created for the purpose of
   acquiring one or more Qualified Licenses unless such Person shall become a
   Restricted Subsidiary; plus

      (3) the aggregate net cash proceeds received by the Company from capital
   contributions or the issuance or sale of Capital Stock of the Company (other
   than Disqualified Stock, but including Qualified Stock issued upon the
   conversion of convertible Indebtedness or upon the exercise of options,
   warrants or rights to purchase Qualified Stock) subsequent to the date of
   the Indenture, other than issuances or sales of Capital Stock to a
   Restricted Subsidiary and other than capital contributions from, or
   issuances or sales of Capital Stock to, any Strategic Equity Investor in
   connection with (a) any Investment in any Person incorporated, formed or
   created for the purpose of acquiring one or more Qualified Licenses and (b)
   any Investment in any Person engaged in a Permitted Business, unless, in
   either case, such Person shall become a Restricted Subsidiary; provided,
   however, such aggregate net cash proceeds shall exclude any amounts included
   as commitments to purchase Capital Stock in the preceding clause (2); plus

      (4) the Fair Market Value of assets that are used or useful in a
   Permitted Business or of the Capital Stock of a Person engaged in a
   Permitted Business received by the Company as a capital contribution or in
   exchange for Capital Stock of the Company (other than Disqualified Stock)
   subsequent to June 30, 2001, other than (x) capital contributions from a
   Restricted Subsidiary or issuance or sales of Capital Stock of the Company
   to a Restricted Subsidiary or (y) the proceeds from the sale of Qualified
   Stock to an employee stock ownership plan or other trust established by the
   Company or any of its subsidiaries; plus

      (5) the aggregate net cash proceeds received by the Company or any
   Restricted Subsidiary from the sale, disposition or repayment of any
   Investment made after the date of the Indenture and constituting a
   Restricted Payment in an amount equal to the lesser of (a) the return of
   capital with respect to such Investment and (b) the initial amount of such
   Investment, in either case, less the cost of the disposition of such
   Investment; plus

      (6) an amount equal to the consolidated Net Investment of the Company
   and/or any of its Restricted Subsidiaries in any Subsidiary that has been
   designated as an Unrestricted

                                      42

<PAGE>

    Subsidiary after the date of the Indenture upon its redesignation as a
    Restricted Subsidiary in accordance with the covenant described under
    "--Certain Covenants--Limitation on Designations of Unrestricted
    Subsidiaries"; plus

      (7) cash proceeds from the sale to Lucent of the Series A Notes (less
   payments made by the Company or any of its Subsidiaries with respect to
   Series A Notes (other than payments of additional Series A Notes)); plus

      (8) Total Consolidated Indebtedness; minus

      (9) the aggregate amount of all Restricted Payments (including any
   Designation Amount, but other than a Restricted Payment of the type referred
   to in clause (3)(b) of the third paragraph of the covenant described under
   "--Certain Covenants--Limitations on Restricted Payments") declared or made
   on or after the date of the Indenture.

   "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)77aaa-77bbbb)
as in effect on the date of the Indenture.

   "Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.

   "Trust Officer" means the Chairman of the Board of Directors, the President
or any other officer or assistant officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.

   "Unrestricted Subsidiary" means (1) any Subsidiary of the Company (other
than an Ineligible Subsidiary) designated after the date of the Indenture as
such pursuant to, and in compliance with, the covenant described under
"--Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries"
and (2) any Marketing Affiliate. Any such designation of any Subsidiary of the
Company may be revoked by a resolution of the board of directors of the Company
delivered to the Trustee certifying compliance with the such covenant, subject
to the provisions of such covenant.

   "U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.

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

   "Wholly Owned Subsidiary" means a Restricted Subsidiary, all of the
outstanding Capital Stock or other ownership interests of which (other than
directors' qualifying shares) shall at the time be owned by the Company and/or
by one or more Wholly Owned Subsidiaries.

                                      43

<PAGE>

                                    EXHIBIT B
                                    ---------

                               COMPANY NOTES TERMS

Cash Interest Rate - - Cash interest will not accrue or be payable on the Notes
prior to April 15, 2006. Cash interest will accrue at a rate per annum of 10%
from April 15, 2006, or from the most recent date to which interest has been
paid or provided for, payable semiannually to holders of record at the close of
business on April 1 or October 1 preceding the interest payment date on April or
October of each year, commencing 2006.

Optional Redemption/Redemption Price - -

    April 15, 2006 - April 14, 2007 ............   105.000% of principal amount
    April 15, 2007 - April 14, 2008 ............   103.333% of principal amount
    April 15, 2008 - April 14, 2009 ............   101.667% of principal amount
    Thereafter .................................   100.000% of principal amount

Optional Redemption in connection with
   Equity Offerings ............................   110.00% of accreted value

                                      B-1

<PAGE>

                                    EXHIBIT C
                                    ---------

                                 TRANCHE D LOANS
                        COMMITMENTS, TERMS AND CONDITIONS

Commitment Amount:  $40,000,000
-----------------

Terms and Conditions
--------------------

1.   The Tranche D Term Loans:

     (a) will rank pari passu in right of payment and of security with the Loans
under the Credit Agreement;

     (b) will mature and fully amortize on July 17, 2008 (6 months after the
maturity date of the Tranche B Term Loans) and will have a longer average
weighted life than the Tranche B Term Loans;

     (c) will be funded in full upon the closing of the Tranche D Term Loan
facility;

     (d) will bear interest at the LIBO Rate for the applicable Interest Period
plus 3.50%;

     (e) will otherwise be treated under the Credit Agreement no more favorably
than the Tranche B Term Loans;

     (f) will otherwise be issued on the same terms and conditions as the
Tranche B Term Loans.

                                      C-1

<PAGE>

EXHIBIT D                                                         EXECUTION COPY

                               TELECORP PCS, INC.

                   Senior Subordinated Discount Notes due 2011

                   EXCHANGE AND REGISTRATION RIGHTS AGREEMENT

                               December ___, 2001

AT&T Wireless Services, Inc.
Building 1
7277 164th Avenue, N.E.
Redmond, WA 98052

Ladies and Gentlemen:

     TeleCorp PCS, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to you as the purchaser (the "Purchaser"), upon the terms and
subject to the conditions set forth in that certain Securities Purchase
Agreement dated as of December ___, 2001 (the "Purchase Agreement"), between the
Company and the Purchaser, aggregate principal amount of $314,111,000 of its
Senior Subordinated Discount Notes due 2011 (the "Securities"). Notwithstanding
anything to the contrary contained herein, if the Purchaser acquires an
additional $358,248,000 principal amount of Senior Subordinated Discount Notes
due 2011 from Lucent Technologies Inc. ("Lucent"), it receives an assignment of
Lucent's rights under the Exchange and Registration Rights Agreement for Tranche
A 11% Senior Subordinated Discount Notes due 2011 between TeleCorp PCS, Inc.,
and Lucent Technologies Inc., dated April 6, 2001, as amended and the Exchange
and Registration Rights Agreement for Tranche B 11% Senior Subordinated Discount
Notes due 2011 between TeleCorp PCS, Inc., and Lucent Technologies Inc., dated
October 1, 2001 (the "Lucent Registration Rights Agreements") and such Lucent
Registration Rights Agreements are terminated without any liability or further
obligation to the Company, then the term Securities shall mean $672,359,000
aggregate principal amount of the Company's Senior Subordinated Discount Notes
due 2011. Capitalized terms used but not defined herein shall have the meanings
given to such terms in the Purchase Agreement.

     In satisfaction of a condition to the obligations of the Purchaser under
the Purchase Agreement, the Company agrees with the Purchaser, for the benefit
of the holders

<PAGE>

(including the Purchaser) of the Securities, the Exchange Securities (as defined
herein) and the Private Exchange Securities (as defined herein) (collectively,
the "Holders"), as follows:

     1. Registered Exchange Offer. The Company shall (i)(A) prepare and (B) not
later than 60 days (or, if the Issue Date (as defined herein) shall fall in
January of any year, such number of days, not less than 60, as shall equal the
number of days between the Issue Date and the third business day following the
day on which the Company files with the Commission its Annual Report on Form
10-K with respect to its preceding fiscal year) following the date on which the
Purchaser gives written notice to the Company to commence a registration
pursuant to the Securities Act as contemplated by this Agreement (the date on
which such notice is given, the "Issue Date"), file with the Commission a
registration statement (the "Exchange Offer Registration Statement") on an
appropriate form under the Securities Act with respect to a proposed offer to
the Holders of the Securities (the "Registered Exchange Offer") who are not
prohibited by applicable law or interpretations thereof by the Commission's
staff from participating in the Registered Exchange Offer to issue and deliver
to such Holders, in exchange for the Securities, a like aggregate principal
amount of debt securities of the Company (the "Exchange Securities") that are
identical in all material respects to the Securities, except for the transfer
restrictions and registration rights relating to the Securities, (ii) use its
commercially reasonable efforts to cause the Exchange Offer Registration
Statement to become effective under the Securities Act no later than 180 days
after the Issue Date and the Registered Exchange Offer to be consummated no
later than 210 days after the Issue Date and (iii) keep the Exchange Offer
Registration Statement effective for not less than 30 days (or longer, if
required by applicable law) after the date on which notice of the Registered
Exchange Offer is mailed to the Holders (such period being called the "Exchange
Offer Registration Period"); provided that the Company may elect to close the
Registered Exchange Offer 30 days after the commencement thereof (unless
otherwise required by applicable law), so long as the Company has accepted all
Securities validly tendered in accordance with the terms of the Registered
Exchange Offer. Notwithstanding the preceding sentence, the Issue Date must
occur during the period commencing on the date of the termination of the Merger
Agreement, in accordance with its terms, and ending one year thereafter. The
Exchange Securities will be issued under the indenture pursuant to which the
Securities were issued ("the Indenture") or an indenture (the "Exchange
Securities Indenture") between the Company and the trustee under the Indenture
or such other bank or trust company that is reasonably satisfactory to the
Purchaser, as trustee (the "Exchange Securities Trustee"), such indenture to be
identical in all material respects to the Indenture, except for the transfer
restrictions and registration rights relating to the Securities (as described
above).

     Upon the effectiveness of the Exchange Offer Registration Statement, the
Company shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Company or an Exchanging Dealer (as defined herein) not
complying with the requirements of the next sentence, (b) is not the Purchaser
holding Securities that have, or that are reasonably likely to have, the status
of an unsold allotment in an initial distribution, (c) acquires the Exchange
Securities in the ordinary course of such Holder's business, (d) has no
arrangements or understandings with any person to participate in the
distribution of the Exchange Securities and (e) is not otherwise prohibited by
applicable law or interpretations thereof by the Commission's staff from

                                       -2-

<PAGE>

participating in the Registered Exchange Offer) and to trade such Exchange
Securities from and after their receipt without any limitations or restrictions
under the Securities Act and without material restrictions under the securities
laws of the several states of the United States. The Company, the Purchaser and
each Exchanging Dealer acknowledge that, pursuant to current interpretations by
the Commission's staff of Section 5 of the Securities Act, (i) each Holder that
is a broker-dealer electing to exchange Securities, acquired for its own account
as a result of market-making activities or other trading activities, for
Exchange Securities (an "Exchanging Dealer"), is required to deliver a
prospectus containing substantially the information set forth in Annex A hereto
on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and
the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan
of Distribution" section of such prospectus in connection with a sale of any
such Exchange Securities received by such Exchanging Dealer pursuant to the
Registered Exchange Offer and (ii) if the Purchaser elects to sell Exchange
Securities acquired in exchange for Securities constituting any portion of an
unsold allotment, the Purchaser is required to deliver a prospectus containing
the information required by Item 507 and Item 508 of Regulation S-K under the
Securities Act, as applicable, in connection with such sale.

     If, prior to the consummation of the Registered Exchange Offer, any Holder
holds any Securities acquired by it that have, or that are reasonably likely to
be determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Registered
Exchange Offer, the Company, upon the request of any such Holder, simultaneously
with the delivery of the Exchange Securities in the Registered Exchange Offer,
shall issue and deliver to any such Holder, in exchange for the Securities held
by such Holder (the "Private Exchange"), a like aggregate principal amount of
debt securities of the Company (the "Private Exchange Securities") that are
identical in all material respects to the Exchange Securities, except for the
transfer restrictions relating to such Private Exchange Securities. The Private
Exchange Securities will be issued under the same indenture as the Exchange
Securities, and the Company shall use commercially reasonable efforts to cause
the Private Exchange Securities to bear the same CUSIP number as the Exchange
Securities.

     In connection with the Registered Exchange Offer, the Company shall:

     (a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter of
transmittal and related documents;

     (b) keep the Registered Exchange Offer open for not less than 30 days (or
longer, if required by applicable law) after the date on which notice of the
Registered Exchange Offer is mailed to the Holders;

     (c) utilize the services of a depositary (which may be the Trustee or an
affiliate of the Trustee) for the Registered Exchange Offer with an address in
the Borough of Manhattan, The City of New York;

     (d) permit Holders to withdraw tendered Securities at any time prior to the
close of business, New York City time, on the last business day on which the
Registered Exchange Offer shall remain open; and

                                       -3-

<PAGE>

     (e) otherwise comply in all respects with all laws that are applicable to
the Registered Exchange Offer.

     As soon as practicable after the close of the Registered Exchange Offer and
any Private Exchange, as the case may be, the Company shall:

     (a) accept for exchange all Securities validly tendered and not withdrawn
pursuant to the Registered Exchange Offer and the Private Exchange;

     (b) deliver to the Trustee for cancellation all Securities so accepted for
exchange; and

     (c) cause the Trustee or the Exchange Securities Trustee, as the case may
be, promptly to authenticate and deliver to each Holder, Exchange Securities or
Private Exchange Securities, as the case may be, equal in principal amount to
the Securities of such Holder so accepted for exchange.

     The Company shall use its commercially reasonable efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be used by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; provided that (i) in the case where
such prospectus and any amendment or supplement thereto must be delivered by an
Exchanging Dealer, such period shall be the lesser of 180 days and the date on
which all Exchanging Dealers have sold all Exchange Securities held by them and
(ii) the Company shall make such prospectus and any amendment or supplement
thereto available to any broker-dealer for use in connection with any resale of
any Exchange Securities for a period of not less than 180 days after the
consummation of the Registered Exchange Offer.

     The Indenture or the Exchange Securities Indenture, as the case may be,
shall provide that the Securities, the Exchange Securities and the Private
Exchange Securities shall vote and consent together on all matters as one class
and that none of the Securities, the Exchange Securities or the Private Exchange
Securities will have the right to vote or consent as a separate class on any
matter.

     Interest on each Exchange Security and Private Exchange Security issued
pursuant to the Registered Exchange Offer and in the Private Exchange will
accrue from the last interest payment date on which interest was paid on such
Security surrendered in exchange therefor or, if no interest has been paid on
the Security, from April 15, 2006.

     Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understanding with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act, (iii) such Holder is not an affiliate of the Company or, if
it is such an affiliate, such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable,
(iv) if such Holder is not a broker-dealer, that it is not

                                       -4-

<PAGE>

engaged in, and does not intend to engage in, the distribution of the Exchange
Securities and (v) if such Holder is a broker-dealer, that it will receive
Exchange Securities for its own account in exchange for Securities that were
acquired as a result of market-making activities or other trading activities and
that it will deliver a prospectus in connection with any resale of such Exchange
Securities.

     Notwithstanding any other provisions hereof, the Company will ensure that
(i) any Exchange Offer Registration Statement and any amendment thereto and any
prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Exchange Offer Registration Statement,
and any supplement to such prospectus, does not, as of the consummation of the
Registered Exchange Offer, include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.

     2. Shelf Registration. If (i) because of any change in applicable law or
interpretations thereof by the Commission's staff, the Company is not permitted
to effect the Registered Exchange Offer as contemplated by Section 1 hereof or
(ii) any Securities validly tendered pursuant to the Registered Exchange Offer
are not exchanged for Exchange Securities within 210 days after the Issue Date
or (iii) the Purchaser so requests with respect to Securities or Private
Exchange Securities not eligible to be exchanged for Exchange Securities in the
Registered Exchange Offer and held by it following the consummation of the
Registered Exchange Offer or (iv) any applicable law or interpretation thereof
by the Commission's staff do not permit any Holder to participate in the
Registered Exchange Offer or (v) any Holder that participates in the Registered
Exchange Offer does not receive freely transferable Exchange Securities in
exchange for tendered Securities or (vi) the Company so elects, then the
following provisions shall apply:

     (a) the Company shall use its commercially reasonable efforts to file as
promptly as practicable (but in no event more than 60 days after so required or
requested pursuant to this Section 2, subject to the parenthetical in the first
sentence of Section 1 hereof) with the Commission, and thereafter shall use its
commercially reasonable efforts to cause to be declared effective, a shelf
registration statement on an appropriate form under the Securities Act relating
to the offer and sale of the Transfer Restricted Securities (as defined below)
by the Holders thereof from time to time in accordance with the methods of
distribution set forth in such registration statement (hereafter, a "Shelf
Registration Statement" and, together with any Exchange Offer Registration
Statement, a "Registration Statement"); provided that no Holder (other than the
Purchaser) shall be entitled to have the Securities held by it covered by such
Shelf Registration Statement unless such Holder agrees in writing to be bound by
all the provisions of this Agreement applicable to such Holder.

     (b) the Company shall use commercially reasonable efforts to keep the Shelf
Registration Statement continuously effective in order to permit the prospectus
forming part

                                       -5-

<PAGE>

thereof to be used by Holders of Transfer Restricted Securities for a period
ending on the earlier of (i) the first anniversary of the date of the
termination of the Merger Agreement or such earlier date when all the Transfer
Restricted Securities covered by the Shelf Registration Statement have been sold
pursuant thereto and (ii) the date on which the Securities become eligible for
resale without volume restrictions pursuant to Rule 144 under the Securities Act
(in any such case, such period being called the "Shelf Registration Period").
The Company shall be deemed not to have used its commercially reasonable efforts
to keep the Shelf Registration Statement effective during the requisite period
if it voluntarily takes any action that would result in Holders of Transfer
Restricted Securities covered thereby not being able to offer and sell such
Transfer Restricted Securities during that period, unless (i) such action is
required by applicable law or (ii) such action is taken by the Company in good
faith and for valid business reasons (not including avoidance of its obligations
hereunder), provided that the Company within 90 days thereafter complies with
the requirements of Section 4(k) hereof. Any such period during which the
Company fails to keep the Shelf Registration Statement effective and usable for
offers and sales of Securities, Private Exchange Securities and Exchange
Securities is referred to as a "Suspension Period". A Suspension Period shall
commence on and include the date the Company gives notice that the Shelf
Registration Statement is no longer effective or the prospectus included therein
is no longer usable for offers and sales of Securities, Private Exchange
Securities and Exchange Securities and shall end on the date when each Holder of
Securities, Private Exchange Securities and Exchange Securities covered by such
Shelf Registration Statement either receives the copies of the supplemented or
amended prospectus contemplated by Section 4(k) hereof or is advised in writing
by the Company that use of the prospectus may be resumed. Not more than one
Suspension Period shall be permitted in any period of 360 consecutive days. If
one or more Suspension Periods occur, the two-year time period referenced above
shall be extended by the number of days included in each such Suspension Period.

     (c) Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Shelf Registration Statement and any amendment thereto and any
prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Shelf Registration Statement and any amendment
thereto (in either case, other than with respect to information included therein
in reliance upon or in conformity with written information furnished to the
Company by or on behalf of any Holder specifically for use therein (the
"Holders' Information")) does not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (iii) any prospectus forming part
of any Shelf Registration Statement, and any supplement to such prospectus (in
either case, other than with respect to Holders' Information), does not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

     3. Liquidated Damages.

     (a) The parties hereto agree that the Holders of Transfer Restricted
Securities will suffer damages if the Company fails to fulfill its obligations
under Section 1 or Section 2, as applicable, and that it would not be feasible
to ascertain the extent of such damages.

                                       -6-

<PAGE>

Accordingly, if (i) the applicable Registration Statement is not filed with the
Commission on or prior to 60 days after the Issue Date (subject to the
parenthetical in the first sentence of Section 1 hereof), (ii) the Exchange
Offer Registration Statement or the Shelf Registration Statement, as the case
may be, is not declared effective within 180 days after the Issue Date (or in
the case of a Shelf Registration Statement required to be filed in response to a
change in applicable law or interpretations thereof by the Commission's staff,
if later, within 60 days after publication of the change in law or
interpretation, subject to the parenthetical in the first sentence of Section 1
hereof), (iii) the Registered Exchange Offer is not consummated on or prior to
210 days after the Issue Date, or (iv) the Shelf Registration Statement is filed
and declared effective within 180 days after the Issue Date (or in the case of a
Shelf Registration Statement required to be filed in response to a change in
applicable law or interpretations thereof by the Commission's staff, if later,
within 60 days after publication of the change in law or interpretation, subject
to the parenthetical in the first sentence of Section 1 hereof) but shall
thereafter cease to be effective (at any time that the Company is obligated to
maintain the effectiveness thereof) without being succeeded within 60 days by an
additional Registration Statement filed and declared effective (each such event
referred to in clauses (i) through (iv), a "Registration Default"), the Company
will be obligated to pay liquidated damages to each Holder of Transfer
Restricted Securities, during the period of one or more such Registration
Defaults, in an amount equal to $0.192 per week per $1,000 of Accreted Value of
Transfer Restricted Securities held by such Holder until (i) the applicable
Registration Statement is filed, (ii) the Exchange Offer Registration Statement
is declared effective and the Registered Exchange Offer is consummated, (iii)
the Shelf Registration Statement is declared effective or (iv) the Shelf
Registration Statement again becomes effective, as the case may be. Following
the cure of all Registration Defaults, the accrual of liquidated damages will
cease. As used herein, the term "Transfer Restricted Securities" means (i) each
Security until the date on which such Security has been exchanged for a freely
transferable Exchange Security in the Registered Exchange Offer, (ii) each
Security or Private Exchange Security until the date on which it has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iii) each Security or Private Exchange
Security until the date on which it is distributed to the public pursuant to
Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under
the Securities Act. Notwithstanding anything to the contrary in this Section
3(a), the Company shall not be required to pay liquidated damages to a Holder of
Transfer Restricted Securities if such Holder failed to comply with its
obligations to make the representations set forth in the second to last
paragraph of Section 1 or failed to provide the information required to be
provided by it, if any, pursuant to Section 4(o).

     (b) The Company shall notify the Trustee and the Paying Agent under the
Indenture within three business days of the happening of each and every
Registration Default. The Company shall pay the liquidated damages due on the
Transfer Restricted Securities by depositing with the Paying Agent (which may
not be the Company for these purposes), in trust, for the benefit of the Holders
thereof, prior to 10:00 a.m., New York City time, on the next interest payment
date specified by the Indenture and the Securities, sums sufficient to pay the
liquidated damages then due. The liquidated damages due shall be payable on each
interest payment date specified by the Indenture and the Securities to the
record holder entitled to receive the interest payment to be made on such date.
Each obligation to pay liquidated damages shall be deemed to accrue from and
including the date of the applicable Registration Default.

                                       -7-

<PAGE>

     (c) The parties hereto agree that the liquidated damages provided for in
this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement to be filed, (ii) the
Shelf Registration Statement to remain effective or (iii) the Exchange Offer
Registration Statement to be declared effective and the Registered Exchange
Offer to be consummated, in each case to the extent required by this Agreement.

     4. Registration Procedures. In connection with any Registration Statement,
the following provisions shall apply:

     (a) The Company shall (i) furnish to the Purchaser, prior to the filing
thereof with the Commission, a copy of the Registration Statement and each
amendment thereof and each supplement, if any, to the prospectus included
therein and shall, in its reasonable judgment, reflect in each such document,
when so filed with the Commission, such comments as the Purchaser may reasonably
propose; (ii) include information substantially to the effect set forth in Annex
A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures"
section and the "Purpose of the Exchange Offer" section and in Annex C hereto in
the "Plan of Distribution" section of the prospectus forming a part of the
Exchange Offer Registration Statement, and include information substantially to
the effect set forth in Annex D hereto in the Letter of Transmittal delivered
pursuant to the Registered Exchange Offer; and (iii) if requested by the
Purchaser, include the information required by Item 507 or Item 508 of
Regulation S-K, as applicable, in the prospectus forming a part of the Exchange
Offer Registration Statement.

     (b) The Company shall advise the Purchaser, each Exchanging Dealer and the
Holders (if applicable) and, if requested by any such person, confirm such
advice in writing (which advice pursuant to clause (ii) through (v) hereof shall
be accompanied by an instruction to suspend the use of the prospectus until the
requisite changes have been made):

          (i) when any Registration Statement and any amendment thereto has been
     filed with the Commission and when such Registration Statement or any
     post-effective amendment thereto has become effective;

          (ii) of any request by the Commission for amendments or supplements to
     any Registration Statement or the prospectus included therein or for
     additional information;

          (iii) of the issuance by the Commission of any stop order suspending
     the effectiveness of any Registration Statement or the initiation of any
     proceedings for that purpose;

          (iv) of the receipt by the Company of any notification with respect to
     the suspension of the qualification of the Securities, the Exchange
     Securities or the Private Exchange Securities for sale in any jurisdiction
     or the initiation or threatening of any proceeding for such purpose; and

          (v) of the happening of any event that requires the making of any
     changes so that the Registration Statement and any amendment thereto does
     not, when it becomes effective, contain an untrue statement of a material
     fact or omit to state a material fact

                                       -8-

<PAGE>

     required to be stated therein or necessary to make the statements therein
     not misleading or any prospectus forming part of any Registration
     Statement, and any supplement to such prospectus, does not include an
     untrue statement of a material fact or omit to state a material fact
     necessary in order to make the statements therein, in the light of the
     circumstances under which they were made, not misleading.

     (c) If any event contemplated by clauses (ii) through (v) of Section 4
occurs during the period for which the Company is required to maintain an
effective Registration Statement, the Company will as promptly as is practicable
prepare and file with the Commission a post-effective amendment to the
Registration Statement or a supplement to the related prospectus or file any
other required document so that, as thereafter delivered to purchasers of the
Securities, Exchange Securities or Private Exchange Securities from a Holder,
the prospectus will not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.

     (d) The Company will use all commercially reasonable efforts to obtain the
withdrawal at the earliest possible time of any order suspending the
effectiveness of any Registration Statement.

     (e) The Company will furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration Statement,
without charge, one conformed copy of such Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
and, if any such Holder so requests in writing, all exhibits thereto (including
those, if any, incorporated by reference) and as many conformed copies of such
Registration Statement as such Holder reasonably requests.

     (f) The Company will, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities included within the
coverage of any Shelf Registration Statement, without charge, as many copies of
the prospectus (including each preliminary prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request; and the Company consents to the use of such prospectus
or any amendment or supplement thereto by each of the selling Holders of
Transfer Restricted Securities in connection with the lawful offer and sale of
the Transfer Restricted Securities covered by such prospectus or any amendment
or supplement thereto.

     (g) The Company will furnish to the Purchaser and each Exchanging Dealer,
and to any other Holder who so requests, without charge, one conformed copy of
the Exchange Offer Registration Statement and any post-effective amendment
thereto, including financial statements and schedules and, if the Purchaser or
Exchanging Dealer or any such Holder so requests in writing, all exhibits
thereto (including those, if any, incorporated by reference) and as many
conformed copies of such Exchange Offer Registration Statement as such Holder
reasonably requests.

     (h) The Company will, during the Exchange Offer Registration Period or the
Shelf Registration Period, as applicable, promptly deliver to the Purchaser,
each Exchanging Dealer and such other persons that are required to deliver a
prospectus following the Registered

                                       -9-

<PAGE>

Exchange Offer, without charge, as many copies of the final prospectus included
in the Exchange Offer Registration Statement or the Shelf Registration Statement
and any amendment or supplement thereto as the Purchaser, Exchanging Dealer or
other persons may reasonably request; and the Company consents to the use of
such prospectus or any amendment or supplement thereto by the Purchaser,
Exchanging Dealer or other persons, as applicable, in connection with any lawful
offer or sale covered by such prospectus or any amendment or supplement thereto,
as aforesaid.

     (i) Prior to the effective date of any Registration Statement, the Company
will use commercially reasonable efforts to register or qualify, or cooperate
with the Holders of Securities, Exchange Securities or Private Exchange
Securities included therein and their respective counsel in connection with the
registration or qualification of, such Securities, Exchange Securities or
Private Exchange Securities for offer and sale under the securities or blue sky
laws of such jurisdictions as any such Holder reasonably requests in writing and
do any and all other acts or things necessary or advisable to enable the offer
and sale in such jurisdictions of the Securities, Exchange Securities or Private
Exchange Securities covered by such Registration Statement; provided that the
Company will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which would
subject it to general service of process or to taxation in any such jurisdiction
where it is not then so subject.

     (j) The Company will reasonably cooperate with the Holders of Securities,
Exchange Securities or Private Exchange Securities to facilitate the timely
preparation and delivery of certificates representing Securities, Exchange
Securities or Private Exchange Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such denominations
and registered in such names as the Holders thereof may request in writing prior
to sales of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Registration Statement.

     (k) If any event contemplated by Section 4(b)(ii) through (v) occurs during
the period for which the Company is required to maintain an effective
Registration Statement, the Company will as promptly as is practicable prepare
and file with the Commission a post-effective amendment to the Registration
Statement or a supplement to the related prospectus or file any other required
document so that, as thereafter delivered to purchasers of the Securities,
Exchange Securities or Private Exchange Securities from a Holder, the prospectus
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.

     (l) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for each of the Securities,
the Exchange Securities and the Private Exchange Securities, as the case may be,
and provide the applicable trustee with printed certificates for the Securities,
the Exchange Securities or the Private Exchange Securities, as the case may be,
in a form eligible for deposit with The Depository Trust Company.

     (m) The Company will comply with all applicable rules and regulations of
the Commission and the Company will make generally available to its security
holders as soon as practicable after the effective date of the applicable
Registration Statement an earning statement

                                       -10-

<PAGE>

satisfying the provisions of Section 11(a) of the Securities Act; provided that
in no event shall such earning statement be delivered later than 45 days after
the end of a 12-month period (or 90 days, if such period is a fiscal year)
beginning with the first month of the Company's first fiscal quarter commencing
after the effective date of the applicable Registration Statement, which
statement shall cover such 12-month period.

     (n) The Company will cause the Indenture or the Exchange Securities
Indenture, as the case may be, to be qualified under the Trust Indenture Act as
required by applicable law in a timely manner.

     (o) The Company may require each Holder of Transfer Restricted Securities
to be registered pursuant to any Shelf Registration Statement to furnish to the
Company such information concerning the Holder and the distribution of such
Transfer Restricted Securities as the Company may from time to time reasonably
require for inclusion in such Shelf Registration Statement, and the Company may
exclude from such registration the Transfer Restricted Securities of any Holder
that fails to furnish such information within a reasonable time after receiving
such request.

     (p) In the case of a Shelf Registration Statement, each Holder of Transfer
Restricted Securities to be registered pursuant thereto agrees by acquisition of
such Transfer Restricted Securities that, upon receipt of any notice from the
Company pursuant to Section 4(b)(ii) through (v), such Holder will discontinue
disposition of such Transfer Restricted Securities until such Holder's receipt
of copies of the supplemental or amended prospectus contemplated by Section 4(j)
or until advised in writing (the "Advice") by the Company that the use of the
applicable prospectus may be resumed. If the Company shall give any notice under
Section 4(b)(ii) through (v) during the period that the Company is required to
maintain an effective Registration Statement (the "Effectiveness Period"), such
Effectiveness Period shall be extended by the number of days during such period
from and including the date of the giving of such notice to and including the
date when each seller of Transfer Restricted Securities covered by such
Registration Statement shall have received (x) the copies of the supplemental or
amended prospectus contemplated by Section 4(j) (if an amended or supplemental
prospectus is required) or (y) the Advice (if no amended or supplemental
prospectus is required).

     (q) In the case of a Shelf Registration Statement, the Company shall enter
into such customary agreements (including, if requested, an underwriting
agreement in customary form and reasonably acceptable to the Company) and take
all such other action, if any, as Holders of a majority in aggregate principal
amount at maturity of the Securities, Exchange Securities and Private Exchange
Securities being sold or the managing underwriters (if any) shall reasonably
request in order to facilitate any disposition of Securities, Exchange
Securities or Private Exchange Securities pursuant to such Shelf Registration
Statement.

     (r) In the case of a Shelf Registration Statement, the Company shall (i)
make reasonably available for inspection by a representative of, and Special
Counsel (as defined below) acting for, Holders of a majority in aggregate
principal amount at maturity of the Securities, Exchange Securities and Private
Exchange Securities being sold and any underwriter participating in any
disposition of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Shelf Registration Statement, all relevant financial and other
records, pertinent

                                       -11-

<PAGE>

corporate documents and properties of the Company and its subsidiaries and (ii)
use its commercially reasonable efforts to have its officers, directors,
employees, accountants and counsel supply all relevant information reasonably
requested by such representative, Special Counsel or any such underwriter (an
"Inspector") in connection with such Shelf Registration Statement.

     (s) In the case of a Shelf Registration Statement, the Company shall, if
requested by Holders of a majority in aggregate principal amount at maturity of
the Securities, Exchange Securities and Private Exchange Securities being sold,
their Special Counsel or the managing underwriters (if any) in connection with
such Shelf Registration Statement, use its commercially reasonable efforts to
cause (i) its counsel to deliver an opinion relating to the Shelf Registration
Statement and the Securities, Exchange Securities or Private Exchange
Securities, as applicable, substantially in the form delivered by counsel for
the Company in connection with the issuance and sale of the Securities, (ii) its
officers to execute and deliver all customary documents and certificates
requested by Holders of a majority in aggregate principal amount at maturity of
the Securities, Exchange Securities and Private Exchange Securities being sold,
their Special Counsel or the managing underwriters (if any) and (iii) its
independent public accountants to provide a comfort letter or letters in
customary form, subject to receipt of appropriate documentation as contemplated,
and only if permitted, by Statement of Auditing Standards No. 72.

     5. Registration Expenses. The Company will bear all expenses incurred in
connection with the performance of its obligations under Sections 1, 2, 3 and 4
and the Company will reimburse the Purchaser and the Holders for the reasonable
fees and disbursements of one counsel (in addition to any local counsel) chosen
by the Holders of a majority in aggregate principal amount at maturity of the
Securities, the Exchange Securities and the Private Exchange Securities to be
sold pursuant to each Registration Statement (the "Special Counsel") acting for
the Purchaser or Holders in connection therewith, which counsel shall be
reasonably acceptable to the Company.

     6. Indemnification.

     (a) In the event of a Shelf Registration Statement or in connection with
any prospectus delivery pursuant to an Exchange Offer Registration Statement by
the Purchaser or Exchanging Dealer, as applicable, the Company shall indemnify
and hold harmless each Holder (including, without limitation, the Purchaser or
any such Exchanging Dealer), its affiliates, their respective officers,
directors, employees, representatives and agents, and each person, if any, who
controls such Holder within the meaning of the Securities Act or the Exchange
Act (collectively referred to for purposes of this Section 6 and Section 7 as a
Holder) from and against any loss, claim, damage or liability, joint or several,
or any action in respect thereof (including, without limitation, any loss,
claim, damage, liability or action relating to purchases and sales of
Securities, Exchange Securities or Private Exchange Securities), to which that
Holder may become subject, whether commenced or threatened, under the Securities
Act, the Exchange Act, any other federal or state statutory law or regulation,
at common law or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any such Registration Statement
or any prospectus forming part thereof or in any amendment or

                                       -12-

<PAGE>

supplement thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and shall reimburse each Holder promptly upon demand for
any legal or other expenses reasonably incurred by that Holder in connection
with investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, an untrue statement or
alleged untrue statement in, or omission or alleged omission from, any of such
documents in reliance upon and in conformity with any Holders' Information; and
provided, further that with respect to any such untrue statement in or omission
from any related preliminary prospectus, the indemnity agreement contained in
this Section 6(a) shall not inure to the benefit of any Holder from whom the
person asserting any such loss, claim, damage, liability or action received
Securities, Exchange Securities or Private Exchange Securities to the extent
that such loss, claim, damage, liability or action of or with respect to such
Holder results from the fact that both (i) a copy of the final prospectus was
not sent or given to such person at or prior to the written confirmation of the
sale of such Securities, Exchange Securities or Private Exchange Securities to
such person and (ii) the untrue statement in or omission from the related
preliminary prospectus was corrected in the final prospectus unless, in either
case, such failure to deliver the final prospectus was a result of
non-compliance by the Company with Section 4(e), 4(f), 4(g) or 4(h), as
applicable.

     (b) In the event of a Shelf Registration Statement, each Holder shall
indemnify and hold harmless the Company, its affiliates, their respective
officers, directors, employees, representatives and agents, and each person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act (collectively referred to for purposes of this Section 6(b) and
Section 7 as the Company), from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to which the
Company may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any such Registration
Statement or any prospectus forming part thereof or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with any Holders' Information furnished to
the Company by such Holder, and shall reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that no such Holder
shall be liable for any indemnity claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Securities, Exchange
Securities or Private Exchange Securities pursuant to such Shelf Registration
Statement or prospectus.

                                       -13-

<PAGE>

     (c) Promptly after receipt by an indemnified party under this Section 6 of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing
of the claim or the commencement of that action; provided, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have under this Section 6 except to the extent that it has been prejudiced
(through the forfeiture of substantive rights or defenses) by such failure; and
provided, further, that the failure to notify the indemnifying party shall not
relieve it from any liability which it may have to an indemnified party
otherwise than under this Section 6. If any such claim or action shall be
brought against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying party
to the indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under this Section 6 for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof other than the
reasonable costs of investigation; provided, that an indemnified party shall
have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel for the indemnified party will be at
the expense of such indemnified party unless (i) the employment of counsel by
the indemnified party has been authorized in writing by the indemnifying party,
(ii) the indemnified party has reasonably concluded (based upon advice of
counsel to the indemnified party) that there may be legal defenses available to
it or other indemnified parties that are different from or in addition to those
available to the indemnifying party, (iii) a conflict or potential conflict
exists (based upon advice of counsel to the indemnified party) between the
indemnified party and the indemnifying party (in which case the indemnifying
party will not have the right to direct the defense of such action on behalf of
the indemnified party) or (iv) the indemnifying party has not in fact employed
counsel reasonably satisfactory to the indemnified party to assume the defense
of such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified party or parties. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 6(a) and 6(b), shall use all commercially reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement

                                       -14-

<PAGE>

includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.

     7. Contribution. If the indemnification provided for in Section 6 is
unavailable or insufficient to hold harmless an indemnified party under Section
6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company from the initial offering and sale of the
Securities, on the one hand, and by a Holder from receiving Securities, Exchange
Securities or Private Exchange Securities, as applicable, registered under the
Securities Act, on the other, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company, on the one hand, and such Holder, on the
other, with respect to the statements or omissions that resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to the Company or information supplied by the Company, on the one hand,
or to any Holders' Information supplied by such Holder, on the other, the intent
of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The parties
hereto agree that it would not be just and equitable if contributions pursuant
to this Section 7 were to be determined by pro rata allocation or by any other
method of allocation that does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 7 shall be deemed to include, for
purposes of this Section 7, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending or
preparing to defend any such action or claim. Notwithstanding the provisions of
this Section 7, an indemnifying party that is a Holder of Securities, Exchange
Securities or Private Exchange Securities shall not be required to contribute
any amount in excess of the amount by which the total price at which the
Securities, Exchange Securities or Private Exchange Securities sold by such
indemnifying party to any purchaser exceeds the amount of any damages which such
indemnifying party has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.

     8. Rules 144 and 144A. The Company shall use its commercially reasonable
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act in a timely manner and, if at any time the Company is not
required to file such reports, it will, upon the written request of any Holder
of Transfer Restricted Securities, make publicly available other information so
long as necessary to permit sales of such Holder's securities pursuant to Rules
144 and 144A. The Company covenants that it will take such further action as any
Holder of Transfer Restricted Securities may reasonably request, all to the
extent required from time to time to enable such Holder to sell Transfer
Restricted Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rules 144 and 144A

                                       -15-

<PAGE>

(including, without limitation, the requirements of Rule 144A(d)(4)). Upon the
written request of any Holder of Transfer Restricted Securities, the Company
shall deliver to such Holder a written statement as to whether it has complied
with such requirements. Notwithstanding the foregoing, nothing in this Section 8
shall be deemed to require the Company to register any of its securities
pursuant to the Exchange Act.

     9. Underwritten Registrations. If any of the Transfer Restricted Securities
covered by any Shelf Registration Statement are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering will be selected by the Holders of a majority
in aggregate principal amount of such Transfer Restricted Securities included in
such offering, subject to the consent of the Company (which shall not be
unreasonably withheld or delayed), and such Holders shall be responsible for all
underwriting commissions and discounts in connection therewith.

     No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such person's Transfer Restricted Securities on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.

     10. Miscellaneous.

     (a) Amendments and Waivers. No failure or delay by the Company or any
Holder in exercising any right under this Agreement shall operate as a waiver
thereof nor shall any single or partial exercise of any such right or amendment
or discontinuance of steps to enforce any such right preclude any other of
further exercise thereof or the exercise of any other right. The provisions of
this Agreement may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of Holders of a majority in aggregate
principal amount at maturity of the Securities, the Exchange Securities and the
Private Exchange Securities, taken as a single class. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders whose Securities,
Exchange Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities being sold by such Holders pursuant to such Registration
Statement.

     (b) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier or air courier guaranteeing next-day delivery:

          (i) if to a Holder, at the most current address given by such Holder
     to the Company in accordance with the provisions of this Section 10(b),
     which address initially is, with respect to each Holder, the address of
     such Holder maintained by the Registrar under the Indenture, with a copy in
     like manner to the Purchaser;

                                       -16-

<PAGE>

          (ii) if to the Purchaser, initially at its address set forth in the
     Purchase Agreement; and

          (iii) if to the Company, initially at the address of the Company set
     forth in the Purchase Agreement.

     All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.

     (c) Successors And Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.

     (d) Counterparts. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopier) and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.

     (e) Definition of Terms. For purposes of this Agreement, (a) the term
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405
under the Securities Act and (c) except where otherwise expressly provided, the
term "affiliate" has the meaning set forth in Rule 405 under the Securities Act.

     (f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

     (g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

     (h) Remedies. In the event of a breach by the Company or by any Holder of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law, including recovery of damages (other than the recovery of damages for a
breach by the Company of its obligations under Sections 1 or 2 hereof for which
liquidated damages have been paid pursuant to Section 3 hereof), will be
entitled to specific performance of its rights under this Agreement. The Company
and each Holder agree that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by each such person of any of the
provisions of this Agreement and hereby further agree that, in the event of any
action for specific performance in respect of such breach, each such person
shall waive the defense that a remedy at law would be adequate.

     (i) No Inconsistent Agreements. The Company represents, warrants and agrees
that (i) it has not entered into, shall not, on or after the date of this
Agreement, enter into any agreement that is inconsistent with the rights granted
to the Holders in this Agreement or otherwise conflicts with the provisions
hereof, (ii) it has not previously entered into any

                                       -17-

<PAGE>

agreement which remains in effect granting any registration rights with respect
to any of its debt securities to any person other than those registration rights
agreements related to the Securities, Exchange Securities or Private Exchange
Securities issued under the Indenture and (iii) without limiting the generality
of the foregoing, and other than the rights granted pursuant to those
registration rights agreements related to the Securities, Exchange Securities or
Private Exchange Securities issued under the Indenture, without the written
consent of the Holders of a majority in aggregate principal amount at maturity
of the then outstanding Transfer Restricted Securities, it shall not grant to
any person the right to request the Company to register any debt securities of
the Company under the Securities Act unless the rights so granted are not in
conflict or inconsistent with the provisions of this Agreement.

     (j) No Piggyback on Registrations. Neither the Company nor any of its
security holders (other than the Holders of Transfer Restricted Securities in
such capacity) shall have the right to include any securities of the Company in
any Shelf Registration or Registered Exchange Offer other than Transfer
Restricted Securities.

     (k) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

                                       -18-

<PAGE>

     Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Purchaser.

                                Very truly yours,

                                TELECORP WIRELESS, INC.

                                By:
                                   ----------------------------------------
                                   Name: Thomas H. Sullivan
                                   Title: Executive Vice President
                                          and Chief Financial Officer

Accepted:
AT&T WIRELESS SERVICES, INC.

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

                                       -19-

<PAGE>

                                                                         ANNEX A

     Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Securities. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Securities where such Securities were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the expiration of the Exchange Offer, it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution".

                                   Annex A-1

<PAGE>

                                                                         ANNEX B

     Each broker-dealer that receives Exchange Securities for its own account in
exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution".

                                   Annex B-1

<PAGE>

                                                                         ANNEX C

                              PLAN OF DISTRIBUTION

     Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the expiration of the Exchange Offer, it
will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until [
], all dealers effecting transactions in the Exchange Securities may be required
to deliver a prospectus.

     The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Registered Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Registered Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Securities and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.

     For a period of 180 days after the expiration of the Exchange Offer the
Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Registered Exchange Offer (including the expenses of
one counsel for the Holders of the Securities) other than commissions or
concessions of any broker-dealers and will indemnify the Holders of the
Securities (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.

                                    Annex C-1

<PAGE>

                                                                         ANNEX D

     []   CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
          ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
          SUPPLEMENTS THERETO.

          Name:
          Address:

If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.

                                    Annex D-1

<PAGE>

EXHIBIT E                                                         EXECUTION COPY

                             TELECORP WIRELESS, INC.

                                  $250,000,000

        TeleCorp Wireless 9% Senior Subordinated Discount Notes due 2009

                   EXCHANGE AND REGISTRATION RIGHTS AGREEMENT

                               December ___, 2001

AT&T Wireless Services, Inc.
Building 1
7277 164th Avenue, N.E.
Redmond, WA 98052

Ladies and Gentlemen:

     TeleCorp Wireless, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to you as the purchaser (the "Purchaser"), upon the terms and
subject to the conditions set forth that certain Securities Purchase Agreement
dated as of December ___, 2001 (the "Purchase Agreement"), between the Company
and the Purchaser, up to $250,000,000 in aggregate principal amount of its 9%
Senior Subordinated Discount Notes due 2009 (the "Securities"). Capitalized
terms used but not defined herein shall have the meanings given to such terms in
the Purchase Agreement.

     In satisfaction of a condition to the obligations of the Purchaser under
the Purchase Agreement, the Company agrees with the Purchaser, for the benefit
of the holders (including the Purchaser) of the Securities, the Exchange
Securities (as defined herein) and the -Private Exchange Securities (as defined
herein) (collectively, the "Holders"), as follows:

     1. Registered Exchange Offer. The Company shall (i)(A) prepare and (B) not
later than 60 days (or, if the Issue Date (as defined herein) shall fall in
January of any year, such number of days, not less than 60, as shall equal the
number of days between the Issue Date

<PAGE>

and the third business day following the day on which the Company files with the
Commission its Annual Report on Form 10-K with respect to its preceding fiscal
year) following the date on which the Purchaser gives written notice to the
Company to commence a registration pursuant to the Securities Act as
contemplated by this Agreement (the date on which such notice is given, the
"Issue Date"), file with the Commission a registration statement (the "Exchange
Offer Registration Statement") on an appropriate form under the Securities Act
with respect to a proposed offer to the Holders of the Securities (the
"Registered Exchange Offer") who are not prohibited by applicable law or
interpretations thereof by the Commission's staff from participating in the
Registered Exchange Offer to issue and deliver to such Holders, in exchange for
the Securities, a like aggregate principal amount of debt securities of the
Company (the "Exchange Securities") that are identical in all material respects
to the Securities, except for the transfer restrictions and registration rights
relating to the Securities, (ii) use its commercially reasonable efforts to
cause the Exchange Offer Registration Statement to become effective under the
Securities Act no later than 180 days after the Issue Date and the Registered
Exchange Offer to be consummated no later than 210 days after the Issue Date and
(iii) keep the Exchange Offer Registration Statement effective for not less than
30 days (or longer, if required by applicable law) after the date on which
notice of the Registered Exchange Offer is mailed to the Holders (such period
being called the "Exchange Offer Registration Period"); provided that the
Company may elect to close the Registered Exchange Offer 30 days after the
commencement thereof (unless otherwise required by applicable law), so long as
the Company has accepted all Securities validly tendered in accordance with the
terms of the Registered Exchange Offer. Notwithstanding the preceding sentence,
the Issue Date must occur during the period commencing on the date of the
termination of the Merger Agreement, in accordance with its terms, and ending
one year thereafter. The Exchange Securities will be issued under the indenture
pursuant to which the Securities were issued ("the Indenture") or an indenture
(the "Exchange Securities Indenture") between the Company and the trustee under
the Indenture or such other bank or trust company that is reasonably
satisfactory to the Purchaser, as trustee (the "Exchange Securities Trustee"),
such indenture to be identical in all material respects to the Indenture, except
for the transfer restrictions and registration rights relating to the Securities
(as described above).

     Upon the effectiveness of the Exchange Offer Registration Statement, the
Company shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Company or an Exchanging Dealer (as defined herein) not
complying with the requirements of the next sentence, (b) is not the Purchaser
holding Securities that have, or that are reasonably likely to have, the status
of an unsold allotment in an initial distribution, (c) acquires the Exchange
Securities in the ordinary course of such Holder's business, (d) has no
arrangements or understandings with any person to participate in the
distribution of the Exchange Securities and (e) is not otherwise prohibited by
applicable law or interpretations thereof by the Commission's staff from
participating in the Registered Exchange Offer) and to trade such Exchange
Securities from and after their receipt without any limitations or restrictions
under the Securities Act and without material restrictions under the securities
laws of the several states of the United States. The Company, the Purchaser and
each Exchanging Dealer acknowledge that, pursuant to current interpretations by
the Commission's staff of Section 5 of the Securities Act, (i) each Holder that
is a broker-dealer electing to exchange Securities, acquired for its own account
as a result of

                                       -2-

<PAGE>

market-making activities or other trading activities, for Exchange Securities
(an "Exchanging Dealer"), is required to deliver a prospectus containing
substantially the information set forth in Annex A hereto on the cover, in Annex
B hereto in the "Exchange Offer Procedures" section and the "Purpose of the
Exchange Offer" section and in Annex C hereto in the "Plan of Distribution"
section of such prospectus in connection with a sale of any such Exchange
Securities received by such Exchanging Dealer pursuant to the Registered
Exchange Offer and (ii) if the Purchaser elects to sell Exchange Securities
acquired in exchange for Securities constituting any portion of an unsold
allotment, the Purchaser is required to deliver a prospectus containing the
information required by Item 507 and Item 508 of Regulation S-K under the
Securities Act, as applicable, in connection with such sale.

     If, prior to the consummation of the Registered Exchange Offer, any Holder
holds any Securities acquired by it that have, or that are reasonably likely to
be determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Registered
Exchange Offer, the Company, upon the request of any such Holder, simultaneously
with the delivery of the Exchange Securities in the Registered Exchange Offer,
shall issue and deliver to any such Holder, in exchange for the Securities held
by such Holder (the "Private Exchange"), a like aggregate principal amount of
debt securities of the Company (the "Private Exchange Securities") that are
identical in all material respects to the Exchange Securities, except for the
transfer restrictions relating to such Private Exchange Securities. The Private
Exchange Securities will be issued under the same indenture as the Exchange
Securities, and the Company shall use commercially reasonable efforts to cause
the Private Exchange Securities to bear the same CUSIP number as the Exchange
Securities.

     In connection with the Registered Exchange Offer, the Company shall:

     (a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter of
transmittal and related documents;

     (b) keep the Registered Exchange Offer open for not less than 30 days (or
longer, if required by applicable law) after the date on which notice of the
Registered Exchange Offer is mailed to the Holders;

     (c) utilize the services of a depositary (which may be the Trustee or an
affiliate of the Trustee) for the Registered Exchange Offer with an address in
the Borough of Manhattan, The City of New York;

     (d) permit Holders to withdraw tendered Securities at any time prior to the
close of business, New York City time, on the last business day on which the
Registered Exchange Offer shall remain open; and

     (e) otherwise comply in all respects with all laws that are applicable to
the Registered Exchange Offer.

                                       -3-

<PAGE>

     As soon as practicable after the close of the Registered Exchange Offer and
any Private Exchange, as the case may be, the Company shall:

     (a) accept for exchange all Securities validly tendered and not withdrawn
pursuant to the Registered Exchange Offer and the Private Exchange;

     (b) deliver to the Trustee for cancellation all Securities so accepted for
exchange; and

     (c) cause the Trustee or the Exchange Securities Trustee, as the case may
be, promptly to authenticate and deliver to each Holder, Exchange Securities or
Private Exchange Securities, as the case may be, equal in principal amount to
the Securities of such Holder so accepted for exchange.

     The Company shall use its commercially reasonable efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be used by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; provided that (i) in the case where
such prospectus and any amendment or supplement thereto must be delivered by an
Exchanging Dealer, such period shall be the lesser of 180 days and the date on
which all Exchanging Dealers have sold all Exchange Securities held by them and
(ii) the Company shall make such prospectus and any amendment or supplement
thereto available to any broker-dealer for use in connection with any resale of
any Exchange Securities for a period of not less than 180 days after the
consummation of the Registered Exchange Offer.

     The Indenture or the Exchange Securities Indenture, as the case may be,
shall provide that the Securities, the Exchange Securities and the Private
Exchange Securities shall vote and consent together on all matters as one class
and that none of the Securities, the Exchange Securities or the Private Exchange
Securities will have the right to vote or consent as a separate class on any
matter.

     Interest on each Exchange Security and Private Exchange Security issued
pursuant to the Registered Exchange Offer and in the Private Exchange will
accrue from the last interest payment date on which interest was paid on such
Security surrendered in exchange therefor or, if no interest has been paid on
such Security, from the date on which such Security was issued.

     Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understanding with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act, (iii) such Holder is not an affiliate of the Company or, if
it is such an affiliate, such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable,
(iv) if such Holder is not a broker-dealer, that it is not engaged in, and does
not intend to engage in, the distribution of the Exchange Securities and

                                       -4-

<PAGE>

(v) if such Holder is a broker-dealer, that it will receive Exchange Securities
for its own account in exchange for Securities that were acquired as a result of
market-making activities or other trading activities and that it will deliver a
prospectus in connection with any resale of such Exchange Securities.

     Notwithstanding any other provisions hereof, the Company will ensure that
(i) any Exchange Offer Registration Statement and any amendment thereto and any
prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Exchange Offer Registration Statement,
and any supplement to such prospectus, does not, as of the consummation of the
Registered Exchange Offer, include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.

     2. Shelf Registration. If (i) because of any change in applicable law or
interpretations thereof by the Commission's staff, the Company is not permitted
to effect the Registered Exchange Offer as contemplated by Section 1 hereof or
(ii) any Securities validly tendered pursuant to the Registered Exchange Offer
are not exchanged for Exchange Securities within 210 days after the Issue Date
or (iii) the Purchaser so requests with respect to Securities or Private
Exchange Securities not eligible to be exchanged for Exchange Securities in the
Registered Exchange Offer and held by it following the consummation of the
Registered Exchange Offer or (iv) any applicable law or interpretation thereof
by the Commission's staff do not permit any Holder to participate in the
Registered Exchange Offer or (v) any Holder that participates in the Registered
Exchange Offer does not receive freely transferable Exchange Securities in
exchange for tendered Securities or (vi) the Company so elects, then the
following provisions shall apply:

     (a) the Company shall use its commercially reasonable efforts to file as
promptly as practicable (but in no event more than 60 days after so required or
requested pursuant to this Section 2, subject to the parenthetical in the first
sentence of Section 1 hereof) with the Commission, and thereafter shall use its
commercially reasonable efforts to cause to be declared effective, a shelf
registration statement on an appropriate form under the Securities Act relating
to the offer and sale of the Transfer Restricted Securities (as defined below)
by the Holders thereof from time to time in accordance with the methods of
distribution set forth in such registration statement (hereafter, a "Shelf
Registration Statement" and, together with any Exchange Offer Registration
Statement, a "Registration Statement"); provided that no Holder (other than the
Purchaser) shall be entitled to have the Securities held by it covered by such
Shelf Registration Statement unless such Holder agrees in writing to be bound by
all the provisions of this Agreement applicable to such Holder.

     (b) the Company shall use commercially reasonable efforts to keep the Shelf
Registration Statement continuously effective in order to permit the prospectus
forming part thereof to be used by Holders of Transfer Restricted Securities for
a period ending on the earlier

                                       -5-

<PAGE>

of (i) the first anniversary of the date of the termination of the Merger
Agreement or such earlier date when all the Transfer Restricted Securities
covered by the Shelf Registration Statement have been sold pursuant thereto and
(ii) the date on which the Securities become eligible for resale without volume
restrictions pursuant to Rule 144 under the Securities Act (in any such case,
such period being called the "Shelf Registration Period"). The Company shall be
deemed not to have used its commercially reasonable efforts to keep the Shelf
Registration Statement effective during the requisite period if it voluntarily
takes any action that would result in Holders of Transfer Restricted Securities
covered thereby not being able to offer and sell such Transfer Restricted
Securities during that period, unless (i) such action is required by applicable
law or (ii) such action is taken by the Company in good faith and for valid
business reasons (not including avoidance of its obligations hereunder),
provided that the Company within 90 days thereafter complies with the
requirements of Section 4(k) hereof. Any such period during which the Company
fails to keep the Shelf Registration Statement effective and usable for offers
and sales of Securities, Private Exchange Securities and Exchange Securities is
referred to as a "Suspension Period". A Suspension Period shall commence on and
include the date the Company gives notice that the Shelf Registration Statement
is no longer effective or the prospectus included therein is no longer usable
for offers and sales of Securities, Private Exchange Securities and Exchange
Securities and shall end on the date when each Holder of Securities, Private
Exchange Securities and Exchange Securities covered by such Shelf Registration
Statement either receives the copies of the supplemented or amended prospectus
contemplated by Section 4(k) hereof or is advised in writing by the Company that
use of the prospectus may be resumed. Not more than one Suspension Period shall
be permitted in any period of 360 consecutive days. If one or more Suspension
Periods occur, the two-year time period referenced above shall be extended by
the number of days included in each such Suspension Period.

     (c) Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Shelf Registration Statement and any amendment thereto and any
prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Shelf Registration Statement and any amendment
thereto (in either case, other than with respect to information included therein
in reliance upon or in conformity with written information furnished to the
Company by or on behalf of any Holder specifically for use therein (the
"Holders' Information")) does not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (iii) any prospectus forming part
of any Shelf Registration Statement, and any supplement to such prospectus (in
either case, other than with respect to Holders' Information), does not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

     3. Liquidated Damages.

     (a) The parties hereto agree that the Holders of Transfer Restricted
Securities will suffer damages if the Company fails to fulfill its obligations
under Section 1 or Section 2, as applicable, and that it would not be feasible
to ascertain the extent of such damages. Accordingly, if (i) the applicable
Registration Statement is not filed with the Commission on or

                                       -6-

<PAGE>

prior to 60 days after the Issue Date (subject to the parenthetical in the first
sentence of Section 1 hereof), (ii) the Exchange Offer Registration Statement or
the Shelf Registration Statement, as the case may be, is not declared effective
within 180 days after the Issue Date (or in the case of a Shelf Registration
Statement required to be filed in response to a change in applicable law or
interpretations thereof by the Commission's staff, if later, within 60 days
after publication of the change in law or interpretation, subject to the
parenthetical in the first sentence of Section 1 hereof), (iii) the Registered
Exchange Offer is not consummated on or prior to 210 days after the Issue Date,
or (iv) the Shelf Registration Statement is filed and declared effective within
180 days after the Issue Date (or in the case of a Shelf Registration Statement
required to be filed in response to a change in applicable law or
interpretations thereof by the Commission's staff, if later, within 60 days
after publication of the change in law or interpretation, subject to the
parenthetical in the first sentence of Section 1 hereof) but shall thereafter
cease to be effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 60 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Company will be
obligated to pay liquidated damages to each Holder of Transfer Restricted
Securities, during the period of one or more such Registration Defaults, in an
amount equal to $0.192 per week per $1,000 of principal amount of Transfer
Restricted Securities held by such Holder until (i) the applicable Registration
Statement is filed, (ii) the Exchange Offer Registration Statement is declared
effective and the Registered Exchange Offer is consummated, (iii) the Shelf
Registration Statement is declared effective or (iv) the Shelf Registration
Statement again becomes effective, as the case may be. Following the cure of all
Registration Defaults, the accrual of liquidated damages will cease. As used
herein, the term "Transfer Restricted Securities" means (i) each Security until
the date on which such Security has been exchanged for a freely transferable
Exchange Security in the Registered Exchange Offer, (ii) each Security or
Private Exchange Security until the date on which it has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iii) each Security or Private Exchange Security until
the date on which it is distributed to the public pursuant to Rule 144 under the
Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act.
Notwithstanding anything to the contrary in this Section 3(a), the Company shall
not be required to pay liquidated damages to a Holder of Transfer Restricted
Securities if such Holder failed to comply with its obligations to make the
representations set forth in the second to last paragraph of Section 1 or failed
to provide the information required to be provided by it, if any, pursuant to
Section 4(o).

     (b) The Company shall notify the Trustee and the Paying Agent under the
Indenture within three business days of the happening of each and every
Registration Default. The Company shall pay the liquidated damages due on the
Transfer Restricted Securities by depositing with the Paying Agent (which may
not be the Company for these purposes), in trust, for the benefit of the Holders
thereof, prior to 10:00 a.m., New York City time, on the next interest payment
date specified by the Indenture and the Securities, sums sufficient to pay the
liquidated damages then due. The liquidated damages due shall be payable on each
interest payment date specified by the Indenture and the Securities to the
record holder entitled to receive the interest payment to be made on such date.
Each obligation to pay liquidated damages shall be deemed to accrue from and
including the date of the applicable Registration Default.

                                       -7-

<PAGE>

     (c) The parties hereto agree that the liquidated damages provided for in
this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement to be filed, (ii) the
Shelf Registration Statement to remain effective or (iii) the Exchange Offer
Registration Statement to be declared effective and the Registered Exchange
Offer to be consummated, in each case to the extent required by this Agreement.

     4. Registration Procedures. In connection with any Registration Statement,
the following provisions shall apply:

     (a) The Company shall (i) furnish to the Purchaser, prior to the filing
thereof with the Commission, a copy of the Registration Statement and each
amendment thereof and each supplement, if any, to the prospectus included
therein and shall, in its reasonable judgment, reflect in each such document,
when so filed with the Commission, such comments as the Purchaser may reasonably
propose; (ii) include information substantially to the effect set forth in Annex
A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures"
section and the "Purpose of the Exchange Offer" section and in Annex C hereto in
the "Plan of Distribution" section of the prospectus forming a part of the
Exchange Offer Registration Statement, and include information substantially to
the effect set forth in Annex D hereto in the Letter of Transmittal delivered
pursuant to the Registered Exchange Offer; and (iii) if requested by the
Purchaser, include the information required by Item 507 or Item 508 of
Regulation S-K, as applicable, in the prospectus forming a part of the Exchange
Offer Registration Statement.

     (b) The Company shall advise the Purchaser, each Exchanging Dealer and the
Holders (if applicable) and, if requested by any such person, confirm such
advice in writing (which advice pursuant to clause (ii) through (v) hereof shall
be accompanied by an instruction to suspend the use of the prospectus until the
requisite changes have been made):

          (i) when any Registration Statement and any amendment thereto has been
     filed with the Commission and when such Registration Statement or any
     post-effective amendment thereto has become effective;

          (ii) of any request by the Commission for amendments or supplements to
     any Registration Statement or the prospectus included therein or for
     additional information;

          (iii) of the issuance by the Commission of any stop order suspending
     the effectiveness of any Registration Statement or the initiation of any
     proceedings for that purpose;

          (iv) of the receipt by the Company of any notification with respect to
     the suspension of the qualification of the Securities, the Exchange
     Securities or the Private Exchange Securities for sale in any jurisdiction
     or the initiation or threatening of any proceeding for such purpose; and

          (v) of the happening of any event that requires the making of any
     changes so that the Registration Statement and any amendment thereto does
     not, when it becomes effective, contain an untrue statement of a material
     fact or omit to state a material fact

                                       -8-

<PAGE>

     required to be stated therein or necessary to make the statements therein
     not misleading or any prospectus forming part of any Registration
     Statement, and any supplement to such prospectus, does not include an
     untrue statement of a material fact or omit to state a material fact
     necessary in order to make the statements therein, in the light of the
     circumstances under which they were made, not misleading.

     (c) If any event contemplated by clauses (ii) through (v) of Section 4
occurs during the period for which the Company is required to maintain an
effective Registration Statement, the Company will as promptly as is practicable
prepare and file with the Commission a post-effective amendment to the
Registration Statement or a supplement to the related prospectus or file any
other required document so that, as thereafter delivered to purchasers of the
Securities, Exchange Securities or Private Exchange Securities from a Holder,
the prospectus will not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.

     (d) The Company will use all commercially reasonable efforts to obtain the
withdrawal at the earliest possible time of any order suspending the
effectiveness of any Registration Statement.

     (e) The Company will furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration Statement,
without charge, one conformed copy of such Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
and, if any such Holder so requests in writing, all exhibits thereto (including
those, if any, incorporated by reference) and as many conformed copies of such
Registration Statement as such Holder reasonably requests.

     (f) The Company will, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities included within the
coverage of any Shelf Registration Statement, without charge, as many copies of
the prospectus (including each preliminary prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request; and the Company consents to the use of such prospectus
or any amendment or supplement thereto by each of the selling Holders of
Transfer Restricted Securities in connection with the lawful offer and sale of
the Transfer Restricted Securities covered by such prospectus or any amendment
or supplement thereto.

     (g) The Company will furnish to the Purchaser and each Exchanging Dealer,
and to any other Holder who so requests, without charge, one conformed copy of
the Exchange Offer Registration Statement and any post-effective amendment
thereto, including financial statements and schedules and, if the Purchaser or
Exchanging Dealer or any such Holder so requests in writing, all exhibits
thereto (including those, if any, incorporated by reference) and as many
conformed copies of such Exchange Offer Registration Statement as such Holder
reasonably requests.

     (h) The Company will, during the Exchange Offer Registration Period or the
Shelf Registration Period, as applicable, promptly deliver to the Purchaser,
each Exchanging Dealer and such other persons that are required to deliver a
prospectus following the Registered

                                       -9-

<PAGE>

Exchange Offer, without charge, as many copies of the final prospectus included
in the Exchange Offer Registration Statement or the Shelf Registration Statement
and any amendment or supplement thereto as the Purchaser, Exchanging Dealer or
other persons may reasonably request; and the Company consents to the use of
such prospectus or any amendment or supplement thereto by the Purchaser,
Exchanging Dealer or other persons, as applicable, in connection with any lawful
offer or sale covered by such prospectus or any amendment or supplement thereto,
as aforesaid.

     (i) Prior to the effective date of any Registration Statement, the Company
will use commercially reasonable efforts to register or qualify, or cooperate
with the Holders of Securities, Exchange Securities or Private Exchange
Securities included therein and their respective counsel in connection with the
registration or qualification of, such Securities, Exchange Securities or
Private Exchange Securities for offer and sale under the securities or blue sky
laws of such jurisdictions as any such Holder reasonably requests in writing and
do any and all other acts or things necessary or advisable to enable the offer
and sale in such jurisdictions of the Securities, Exchange Securities or Private
Exchange Securities covered by such Registration Statement; provided that the
Company will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which would
subject it to general service of process or to taxation in any such jurisdiction
where it is not then so subject.

     (j) The Company will reasonably cooperate with the Holders of Securities,
Exchange Securities or Private Exchange Securities to facilitate the timely
preparation and delivery of certificates representing Securities, Exchange
Securities or Private Exchange Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such denominations
and registered in such names as the Holders thereof may request in writing prior
to sales of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Registration Statement.

     (k) If any event contemplated by Section 4(b)(ii) through (v) occurs during
the period for which the Company is required to maintain an effective
Registration Statement, the Company will as promptly as is practicable prepare
and file with the Commission a post-effective amendment to the Registration
Statement or a supplement to the related prospectus or file any other required
document so that, as thereafter delivered to purchasers of the Securities,
Exchange Securities or Private Exchange Securities from a Holder, the prospectus
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.

     (l) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for each of the Securities,
the Exchange Securities and the Private Exchange Securities, as the case may be,
and provide the applicable trustee with printed certificates for the Securities,
the Exchange Securities or the Private Exchange Securities, as the case may be,
in a form eligible for deposit with The Depository Trust Company.

     (m) The Company will comply with all applicable rules and regulations of
the Commission and the Company will make generally available to its security
holders as soon as practicable after the effective date of the applicable
Registration Statement an earning statement

                                       -10-

<PAGE>

satisfying the provisions of Section 11(a) of the Securities Act; provided that
in no event shall such earning statement be delivered later than 45 days after
the end of a 12-month period (or 90 days, if such period is a fiscal year)
beginning with the first month of the Company's first fiscal quarter commencing
after the effective date of the applicable Registration Statement, which
statement shall cover such 12-month period.

     (n) The Company will cause the Indenture or the Exchange Securities
Indenture, as the case may be, to be qualified under the Trust Indenture Act as
required by applicable law in a timely manner.

     (o) The Company may require each Holder of Transfer Restricted Securities
to be registered pursuant to any Shelf Registration Statement to furnish to the
Company such information concerning the Holder and the distribution of such
Transfer Restricted Securities as the Company may from time to time reasonably
require for inclusion in such Shelf Registration Statement, and the Company may
exclude from such registration the Transfer Restricted Securities of any Holder
that fails to furnish such information within a reasonable time after receiving
such request.

     (p) In the case of a Shelf Registration Statement, each Holder of Transfer
Restricted Securities to be registered pursuant thereto agrees by acquisition of
such Transfer Restricted Securities that, upon receipt of any notice from the
Company pursuant to Section 4(b)(ii) through (v), such Holder will discontinue
disposition of such Transfer Restricted Securities until such Holder's receipt
of copies of the supplemental or amended prospectus contemplated by Section 4(j)
or until advised in writing (the "Advice") by the Company that the use of the
applicable prospectus may be resumed. If the Company shall give any notice under
Section 4(b)(ii) through (v) during the period that the Company is required to
maintain an effective Registration Statement (the "Effectiveness Period"), such
Effectiveness Period shall be extended by the number of days during such period
from and including the date of the giving of such notice to and including the
date when each seller of Transfer Restricted Securities covered by such
Registration Statement shall have received (x) the copies of the supplemental or
amended prospectus contemplated by Section 4(j) (if an amended or supplemental
prospectus is required) or (y) the Advice (if no amended or supplemental
prospectus is required).

     (q) In the case of a Shelf Registration Statement, the Company shall enter
into such customary agreements (including, if requested, an underwriting
agreement in customary form and reasonably acceptable to the Company) and take
all such other action, if any, as Holders of a majority in aggregate principal
amount at maturity of the Securities, Exchange Securities and Private Exchange
Securities being sold or the managing underwriters (if any) shall reasonably
request in order to facilitate any disposition of Securities, Exchange
Securities or Private Exchange Securities pursuant to such Shelf Registration
Statement.

     (r) In the case of a Shelf Registration Statement, the Company shall (i)
make reasonably available for inspection by a representative of, and Special
Counsel (as defined below) acting for, Holders of a majority in aggregate
principal amount at maturity of the Securities, Exchange Securities and Private
Exchange Securities being sold and any underwriter participating in any
disposition of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Shelf Registration Statement, all relevant financial and other
records, pertinent

                                       -11-

<PAGE>

corporate documents and properties of the Company and its subsidiaries and (ii)
use its commercially reasonable efforts to have its officers, directors,
employees, accountants and counsel supply all relevant information reasonably
requested by such representative, Special Counsel or any such underwriter (an
"Inspector") in connection with such Shelf Registration Statement.

     (s) In the case of a Shelf Registration Statement, the Company shall, if
requested by Holders of a majority in aggregate principal amount at maturity of
the Securities, Exchange Securities and Private Exchange Securities being sold,
their Special Counsel or the managing underwriters (if any) in connection with
such Shelf Registration Statement, use its commercially reasonable efforts to
cause (i) its counsel to deliver an opinion relating to the Shelf Registration
Statement and the Securities, Exchange Securities or Private Exchange
Securities, as applicable, substantially in the form delivered by counsel for
the Company in connection with the issuance and sale of the Securities, (ii) its
officers to execute and deliver all customary documents and certificates
requested by Holders of a majority in aggregate principal amount at maturity of
the Securities, Exchange Securities and Private Exchange Securities being sold,
their Special Counsel or the managing underwriters (if any) and (iii) its
independent public accountants to provide a comfort letter or letters in
customary form, subject to receipt of appropriate documentation as contemplated,
and only if permitted, by Statement of Auditing Standards No. 72.

     5. Registration Expenses. The Company will bear all expenses incurred in
connection with the performance of its obligations under Sections 1, 2, 3 and 4
and the Company will reimburse the Purchaser and the Holders for the reasonable
fees and disbursements of one counsel (in addition to any local counsel) chosen
by the Holders of a majority in aggregate principal amount at maturity of the
Securities, the Exchange Securities and the Private Exchange Securities to be
sold pursuant to each Registration Statement (the "Special Counsel") acting for
the Purchaser or Holders in connection therewith, which counsel shall be
reasonably acceptable to the Company.

     6. Indemnification.

     (a) In the event of a Shelf Registration Statement or in connection with
any prospectus delivery pursuant to an Exchange Offer Registration Statement by
the Purchaser or Exchanging Dealer, as applicable, the Company shall indemnify
and hold harmless each Holder (including, without limitation, the Purchaser or
any such Exchanging Dealer), its affiliates, their respective officers,
directors, employees, representatives and agents, and each person, if any, who
controls such Holder within the meaning of the Securities Act or the Exchange
Act (collectively referred to for purposes of this Section 6 and Section 7 as a
Holder) from and against any loss, claim, damage or liability, joint or several,
or any action in respect thereof (including, without limitation, any loss,
claim, damage, liability or action relating to purchases and sales of
Securities, Exchange Securities or Private Exchange Securities), to which that
Holder may become subject, whether commenced or threatened, under the Securities
Act, the Exchange Act, any other federal or state statutory law or regulation,
at common law or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any such Registration Statement
or any prospectus forming part thereof or in any amendment or

                                       -12-

<PAGE>

supplement thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and shall reimburse each Holder promptly upon demand for
any legal or other expenses reasonably incurred by that Holder in connection
with investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, an untrue statement or
alleged untrue statement in, or omission or alleged omission from, any of such
documents in reliance upon and in conformity with any Holders' Information; and
provided, further that with respect to any such untrue statement in or omission
from any related preliminary prospectus, the indemnity agreement contained in
this Section 6(a) shall not inure to the benefit of any Holder from whom the
person asserting any such loss, claim, damage, liability or action received
Securities, Exchange Securities or Private Exchange Securities to the extent
that such loss, claim, damage, liability or action of or with respect to such
Holder results from the fact that both (i) a copy of the final prospectus was
not sent or given to such person at or prior to the written confirmation of the
sale of such Securities, Exchange Securities or Private Exchange Securities to
such person and (ii) the untrue statement in or omission from the related
preliminary prospectus was corrected in the final prospectus unless, in either
case, such failure to deliver the final prospectus was a result of
non-compliance by the Company with Section 4(e), 4(f), 4(g) or 4(h), as
applicable.

     (b) In the event of a Shelf Registration Statement, each Holder shall
indemnify and hold harmless the Company, its affiliates, their respective
officers, directors, employees, representatives and agents, and each person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act (collectively referred to for purposes of this Section 6(b) and
Section 7 as the Company), from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to which the
Company may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any such Registration
Statement or any prospectus forming part thereof or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with any Holders' Information furnished to
the Company by such Holder, and shall reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that no such Holder
shall be liable for any indemnity claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Securities, Exchange
Securities or Private Exchange Securities pursuant to such Shelf Registration
Statement or prospectus.

                                       -13-

<PAGE>

     (c) Promptly after receipt by an indemnified party under this Section 6 of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing
of the claim or the commencement of that action; provided, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have under this Section 6 except to the extent that it has been prejudiced
(through the forfeiture of substantive rights or defenses) by such failure; and
provided, further, that the failure to notify the indemnifying party shall not
relieve it from any liability which it may have to an indemnified party
otherwise than under this Section 6. If any such claim or action shall be
brought against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying party
to the indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under this Section 6 for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof other than the
reasonable costs of investigation; provided, that an indemnified party shall
have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel for the indemnified party will be at
the expense of such indemnified party unless (i) the employment of counsel by
the indemnified party has been authorized in writing by the indemnifying party,
(ii) the indemnified party has reasonably concluded (based upon advice of
counsel to the indemnified party) that there may be legal defenses available to
it or other indemnified parties that are different from or in addition to those
available to the indemnifying party, (iii) a conflict or potential conflict
exists (based upon advice of counsel to the indemnified party) between the
indemnified party and the indemnifying party (in which case the indemnifying
party will not have the right to direct the defense of such action on behalf of
the indemnified party) or (iv) the indemnifying party has not in fact employed
counsel reasonably satisfactory to the indemnified party to assume the defense
of such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified party or parties. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 6(a) and 6(b), shall use all commercially reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement

                                       -14-

<PAGE>

includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.

     7. Contribution. If the indemnification provided for in Section 6 is
unavailable or insufficient to hold harmless an indemnified party under Section
6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company from the initial offering and sale of the
Securities, on the one hand, and by a Holder from receiving Securities, Exchange
Securities or Private Exchange Securities, as applicable, registered under the
Securities Act, on the other, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company, on the one hand, and such Holder, on the
other, with respect to the statements or omissions that resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to the Company or information supplied by the Company, on the one hand,
or to any Holders' Information supplied by such Holder, on the other, the intent
of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The parties
hereto agree that it would not be just and equitable if contributions pursuant
to this Section 7 were to be determined by pro rata allocation or by any other
method of allocation that does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 7 shall be deemed to include, for
purposes of this Section 7, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending or
preparing to defend any such action or claim. Notwithstanding the provisions of
this Section 7, an indemnifying party that is a Holder of Securities, Exchange
Securities or Private Exchange Securities shall not be required to contribute
any amount in excess of the amount by which the total price at which the
Securities, Exchange Securities or Private Exchange Securities sold by such
indemnifying party to any purchaser exceeds the amount of any damages which such
indemnifying party has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.

     8. Rules 144 and 144A. The Company shall use its commercially reasonable
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act in a timely manner and, if at any time the Company is not
required to file such reports, it will, upon the written request of any Holder
of Transfer Restricted Securities, make publicly available other information so
long as necessary to permit sales of such Holder's securities pursuant to Rules
144 and 144A. The Company covenants that it will take such further action as any
Holder of Transfer Restricted Securities may reasonably request, all to the
extent required from time to time to enable such Holder to sell Transfer
Restricted Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rules 144 and 144A

                                       -15-

<PAGE>

(including, without limitation, the requirements of Rule 144A(d)(4)). Upon the
written request of any Holder of Transfer Restricted Securities, the Company
shall deliver to such Holder a written statement as to whether it has complied
with such requirements. Notwithstanding the foregoing, nothing in this Section 8
shall be deemed to require the Company to register any of its securities
pursuant to the Exchange Act.

     9. Underwritten Registrations. If any of the Transfer Restricted Securities
covered by any Shelf Registration Statement are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering will be selected by the Holders of a majority
in aggregate principal amount of such Transfer Restricted Securities included in
such offering, subject to the consent of the Company (which shall not be
unreasonably withheld or delayed), and such Holders shall be responsible for all
underwriting commissions and discounts in connection therewith.

     No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such person's Transfer Restricted Securities on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements. 10. Miscellaneous.

     (a) Amendments and Waivers. No failure or delay by the Company or any
Holder in exercising any right under this Agreement shall operate as a waiver
thereof nor shall any single or partial exercise of any such right or amendment
or discontinuance of steps to enforce any such right preclude any other of
further exercise thereof or the exercise of any other right. The provisions of
this Agreement may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of Holders of a majority in aggregate
principal amount at maturity of the Securities, the Exchange Securities and the
Private Exchange Securities, taken as a single class. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders whose Securities,
Exchange Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities being sold by such Holders pursuant to such Registration
Statement.

     (b) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier or air courier guaranteeing next-day delivery:

          (i) if to a Holder, at the most current address given by such Holder
     to the Company in accordance with the provisions of this Section 10(b),
     which address initially is, with respect to each Holder, the address of
     such Holder maintained by the Registrar under the Indenture, with a copy in
     like manner to the Purchaser;

                                       -16-

<PAGE>

          (ii) if to the Purchaser, initially at its address set forth in the
     Purchase Agreement; and

          (iii) if to the Company, initially at the address of the Company set
     forth in the Purchase Agreement.

     All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.

     (c) Successors And Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.

     (d) Counterparts. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopier) and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.

     (e) Definition of Terms. For purposes of this Agreement, (a) the term
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405
under the Securities Act and (c) except where otherwise expressly provided, the
term "affiliate" has the meaning set forth in Rule 405 under the Securities Act.

     (f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

     (g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

     (h) Remedies. In the event of a breach by the Company or by any Holder of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law, including recovery of damages (other than the recovery of damages for a
breach by the Company of its obligations under Sections 1 or 2 hereof for which
liquidated damages have been paid pursuant to Section 3 hereof), will be
entitled to specific performance of its rights under this Agreement. The Company
and each Holder agree that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by each such person of any of the
provisions of this Agreement and hereby further agree that, in the event of any
action for specific performance in respect of such breach, each such person
shall waive the defense that a remedy at law would be adequate.

     (i) No Inconsistent Agreements. The Company represents, warrants and agrees
that (i) it has not entered into, shall not, on or after the date of this
Agreement, enter into any agreement that is inconsistent with the rights granted
to the Holders in this Agreement or otherwise conflicts with the provisions
hereof, (ii) it has not previously entered into any

                                       -17-

<PAGE>

agreement which remains in effect granting any registration rights with respect
to any of its debt securities to any person other than those registration rights
agreements related to the Securities, Exchange Securities or Private Exchange
Securities issued under the Indenture and (iii) without limiting the generality
of the foregoing, and other than the rights granted pursuant to those
registration rights agreements related to the Securities, Exchange Securities or
Private Exchange Securities issued under the Indenture, without the written
consent of the Holders of a majority in aggregate principal amount at maturity
of the then outstanding Transfer Restricted Securities, it shall not grant to
any person the right to request the Company to register any debt securities of
the Company under the Securities Act unless the rights so granted are not in
conflict or inconsistent with the provisions of this Agreement.

     (j) No Piggyback on Registrations. Neither the Company nor any of its
security holders (other than the Holders of Transfer Restricted Securities in
such capacity) shall have the right to include any securities of the Company in
any Shelf Registration or Registered Exchange Offer other than Transfer
Restricted Securities.

     (k) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

                                       -18-

<PAGE>

     Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Purchaser.

                                        Very truly yours,

                                        TELECORP WIRELESS, INC.

                                        By:
                                           ------------------------------------
                                           Name: Thomas H. Sullivan
                                           Title: Executive Vice President
                                                  and Chief Financial Officer

Accepted:
AT&T WIRELESS SERVICES, INC.

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

                                       -19-

<PAGE>

                                                                         ANNEX A

     Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Securities. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Securities where such Securities were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the expiration of the Exchange Offer, it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution".

                                   Annex A-1

<PAGE>

                                                                         ANNEX B

     Each broker-dealer that receives Exchange Securities for its own account in
exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution".

                                   Annex B-1

<PAGE>

                                                                         ANNEX C

                              PLAN OF DISTRIBUTION

     Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the expiration of the Exchange Offer, it
will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until [
], all dealers effecting transactions in the Exchange Securities may be required
to deliver a prospectus.

     The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Registered Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Registered Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Securities and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.

     For a period of 180 days after the expiration of the Exchange Offer the
Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Registered Exchange Offer (including the expenses of
one counsel for the Holders of the Securities) other than commissions or
concessions of any broker-dealers and will indemnify the Holders of the
Securities (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.

                                    Annex C-1

<PAGE>

                                                                         ANNEX D

     []   CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
          ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
          SUPPLEMENTS THERETO.

          Name:
          Address:

If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.

                                    Annex D-1

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