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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000020520-01-500027.txt : 20020410
<SEC-HEADER>0000020520-01-500027.hdr.sgml : 20020410
ACCESSION NUMBER:		0000020520-01-500027
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20010930
FILED AS OF DATE:		20011114

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CITIZENS COMMUNICATIONS CO
		CENTRAL INDEX KEY:			0000020520
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTRIC & OTHER SERVICES COMBINED [4931]
		IRS NUMBER:				060619596
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-11001
		FILM NUMBER:		1785397

	BUSINESS ADDRESS:	
		STREET 1:		HIGH RIDGE PK BLDG 3
		STREET 2:		P O BOX 3801
		CITY:			STAMFORD
		STATE:			CT
		ZIP:			06905
		BUSINESS PHONE:		2033298800

	MAIL ADDRESS:	
		STREET 1:		HIGH RIDGE PARK BLDG NO 3
		CITY:			STAMFORD
		STATE:			CT
		ZIP:			06905

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	CITIZENS UTILITIES CO
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>cc3qtr10q.txt
<DESCRIPTION>CITIZENS 3QTR 10Q
<TEXT>






                         CITIZENS COMMUNICATIONS COMPANY

                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


                     OF THE SECURITIES EXCHANGE ACT OF 1934


                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001


<PAGE>



                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                For the quarterly period ended September 30, 2001
                                               ------------------

|_|  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

              For the transition period from _________to__________

                        Commission file number 001-11001
                                               ---------


                         CITIZENS COMMUNICATIONS COMPANY
                         -------------------------------
             (Exact name of registrant as specified in its charter)

          Delaware                                     06-0619596
- -------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


                                3 High Ridge Park
                                  P.O. Box 3801
                           Stamford, Connecticut 06905
                           ---------------------------
               (Address, zip code of principal executive offices)


Registrant's telephone number, including area code   (203) 614-5600
                                                    -----------------

                                   NO CHANGES
                                   ----------
     (Former name, former address and former fiscal year, if changed since
                                 last report.)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding  twelve months (or for such shorter period that the registrant was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past ninety days.

                               Yes  X       No
                                  -----       -----


The number of shares outstanding of the registrant's class of common stock as of
October 31, 2001 was 280,074,616.

<PAGE>


                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

                   Index to Consolidated Financial Statements


<TABLE>
<CAPTION>


                                                                                                       Page No.

Part I.  Financial Information (Unaudited)

<S>                                                                                                       <C>
    Consolidated Balance Sheets at September 30, 2001 and December 31, 2000                                2

    Consolidated Statements of Income for the three months ended September 30, 2001 and 2000               3

    Consolidated Statements of Income for the nine months ended September 30, 2001 and 2000                4

    Consolidated Statements Comprehensive Loss for the three and nine months ended
         September 30, 2001 and 2000                                                                       5

    Consolidated Statements of Shareholders' Equity for the year ended December 31, 2000 and the
       nine months ended September 30, 2001                                                                6

    Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000            7

    Notes to Consolidated Financial Statements                                                             8

    Management's Discussion and Analysis of Financial Condition and Results of Operations                 20

    Quantitative and Qualitative Disclosures about Market Risk                                            35

Part II.  Other Information

    Legal Proceedings                                                                                     37

    Changes in Securities and Use of Proceeds                                                             37

    Defaults upon Senior Securities                                                                       37

    Submission of Matters to a Vote of Security Holders                                                   37

    Other Information                                                                                     37

    Exhibits and Reports on Form 8-K                                                                      38

    Signature                                                                                             39

</TABLE>


<PAGE>


                          PART I. FINANCIAL INFORMATION

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    ($ in thousands except per-share amounts)
                                    Unaudited

<TABLE>
<CAPTION>


                                                                       September 30, 2001  December 31, 2000
ASSETS
- ------
Current assets:
<S>                                                                          <C>                 <C>
    Cash                                                                     $     38,922        $    31,223
    Accounts receivable, net                                                      339,382            243,304
    Short-term investments                                                        141,496             38,863
    Other current assets                                                           42,844             52,545
    Assets held for sale                                                        1,093,939          1,212,307
    Assets of discontinued operations                                             743,238            673,515
                                                                       ------------------- ------------------
      Total current assets                                                      2,399,821          2,251,757

Property, plant and equipment, net                                              4,537,291          3,520,712

Intangibles                                                                     2,864,454            633,268

Investments                                                                       117,124            214,359
Regulatory assets                                                                       -            175,949
Other assets                                                                      466,441            158,961
                                                                       ------------------- ------------------
          Total assets                                                       $ 10,385,131        $ 6,955,006
                                                                       =================== ==================

LIABILITIES AND EQUITY
- ----------------------
Current liabilities:
    Long-term debt due within one year                                       $    155,967        $   181,014
    Accounts payable and other current liabilities                                516,520            330,383
    Liabilities related to assets held for sale                                   214,090            290,575
    Liabilities of discontinued operations                                        219,568            190,496
                                                                       ------------------- ------------------
      Total current liabilities                                                 1,106,145            992,468

Deferred income taxes                                                             408,975            490,487
Customer advances for construction and contributions
  in aid of construction                                                          206,332            205,604
Other liabilities                                                                 232,702            108,321
Regulatory liabilities                                                                  -             24,573
Equity units                                                                      460,000                  -
Long-term debt                                                                  5,783,591          3,062,289
                                                                       ------------------- ------------------
      Total liabilities                                                         8,197,745          4,883,742

Equity forward contracts                                                                -            150,013
Company Obligated Mandatorily Redeemable Convertible
  Preferred Securities*                                                           201,250            201,250

Shareholders' equity:
    Common stock, $.25 par value (600,000,000 authorized shares;
      280,036,000 and 262,661,000 outstanding and 292,344,000 and
      265,768,000 issued at September 30, 2001 and December 31, 2000,
      respectively)                                                                73,086             66,442
    Additional paid-in capital                                                  1,936,607          1,471,816
    Retained earnings                                                             238,179            233,196
    Accumulated other comprehensive income (loss)                                 (59,147)               418
    Treasury stock                                                               (202,589)           (51,871)
                                                                       ------------------- ------------------
      Total shareholders' equity                                                1,986,136          1,720,001
                                                                       ------------------- ------------------
          Total liabilities and equity                                       $ 10,385,131        $ 6,955,006
                                                                       =================== ==================

</TABLE>

*  Represents  securities  of a subsidiary  trust,  the sole assets of which are
securities of a subsidiary  partnership,  substantially  all the assets of which
are convertible debentures of the Company.

The  accompanying  Notes are an integral  part of these  Consolidated  Financial
Statements.

                                       2
<PAGE>


                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                    (In thousands, except per-share amounts)
                                    Unaudited

<TABLE>
<CAPTION>

                                                                                     2001             2000
                                                                                --------------   --------------

<S>                                                                                 <C>              <C>
Revenue                                                                             $ 661,121        $ 452,710
Operating expenses:
     Cost of services                                                                 123,214          114,497
     Depreciation and amortization                                                    193,662           95,859
     Other operating expenses                                                         267,892          187,373
     Restructuring expenses                                                            13,002                -
     Acquisition assimilation expense                                                   5,119           12,539
                                                                                --------------   --------------
Total operating expenses                                                              602,889          410,268
                                                                                --------------   --------------

Operating income                                                                       58,232           42,442

Investment and other income, net                                                        3,070            5,096
Gain on sale of assets                                                                139,304                -
Interest expense                                                                      123,452           49,559
                                                                                --------------   --------------
     Income (loss) from continuing operations before income taxes, dividends
       on convertible preferred securities and extraordinary expense                   77,154           (2,021)

Income tax expense (benefit)                                                           39,610             (202)
                                                                                --------------   --------------
     Income (loss) from continuing operations before dividends
       on convertible preferred securities and extraordinary expense                   37,544           (1,819)

Dividends on convertible preferred securities, net of income tax benefit                1,553            1,553
                                                                                --------------   --------------
     Income (loss) from continuing operations before extraordinary expense             35,991           (3,372)

Income from discontinued operations, net of tax                                         7,199            4,838
                                                                                --------------   --------------
      Income before extraordinary expense                                              43,190            1,466

Extraordinary expense - discontinuation of Statement of Financial
     Accounting Standards No. 71, net of tax                                           43,631                -
                                                                                --------------   --------------

     Net income (loss)                                                              $    (441)       $   1,466
                                                                                ==============   ==============

Carrying cost of equity forward contracts                                               1,003                -
                                                                                --------------   --------------

     Available for common shareholders                                              $  (1,444)       $   1,466
                                                                                ==============   ==============

Basic income (loss) per common share:
     Earnings from continuing operations                                            $    0.12        $   (0.01)
     Earnings from discontinued operations                                               0.03             0.02
     Extraordinary expense                                                              (0.15)               -
     Available for common shareholders                                                  (0.01)            0.01

Diluted income (loss) per common share:
     Earnings from continuing operations                                            $    0.12        $   (0.01)
     Earnings from discontinued operations                                               0.02             0.02
     Extraordinary expense                                                              (0.15)               -
     Available for common shareholders                                                  (0.01)            0.01

</TABLE>


The  accompanying  Notes are an integral  part of these  Consolidated  Financial
Statements.

                                       3
<PAGE>


                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                    (In thousands, except per-share amounts)
                                    Unaudited
<TABLE>
<CAPTION>


                                                                                     2001             2000
                                                                                --------------   --------------

<S>                                                                               <C>              <C>
Revenue                                                                           $ 1,791,144      $ 1,320,019
Operating expenses:
     Cost of services                                                                 477,107          338,839
     Depreciation and amortization                                                    413,734          278,483
     Other operating expenses                                                         662,972          563,427
     Restructuring expenses                                                            13,002                -
     Acquisition assimilation expense                                                  17,665           24,130
                                                                                --------------   --------------
Total operating expenses                                                            1,584,480        1,204,879
                                                                                --------------   --------------

Operating income                                                                      206,664          115,140

Investment and other income, net                                                       16,495           14,913
Gain on sale of assets                                                                139,304                -
Minority interest                                                                           -           12,222
Interest expense                                                                      258,033          128,899
                                                                                --------------   --------------
     Income from continuing operations before income taxes, dividends
       on convertible preferred securities and extraordinary expense                  104,430           13,376

Income tax expense                                                                     49,183            5,096
                                                                                --------------   --------------
     Income from continuing operations before dividends
       on convertible preferred securities and extraordinary expense                   55,247            8,280

Dividends on convertible preferred securities, net of income tax benefit                4,658            4,658
                                                                                --------------   --------------
      Income from continuing operations before extraordinary expense                   50,589            3,622

Income from discontinued operations, net of tax                                        11,675            8,182
                                                                                --------------   --------------
     Income before extraordinary expense                                               62,264           11,804

Extraordinary expense - discontinuation of Statement of Financial
     Accounting Standards No. 71, net of tax                                           43,631                -
                                                                                --------------   --------------

     Net income                                                                   $    18,633      $    11,804
                                                                                ==============   ==============

Carrying cost of equity forward contracts                                              13,650                -
                                                                                --------------   --------------

     Available for common shareholders                                            $     4,983      $    11,804
                                                                                ==============   ==============

Basic income per common share:
     Earnings from continuing operations                                          $      0.14      $      0.01
     Earnings from discontinued operations                                               0.04             0.03
     Extraordinary expense                                                              (0.16)               -
     Available for common shareholders                                                   0.02             0.05

Diluted income per common share:
     Earnings from continuing operations                                          $      0.13      $      0.01
     Earnings from discontinued operations                                               0.04             0.03
     Extraordinary expense                                                              (0.16)               -
     Available for common shareholders                                                   0.02             0.04

</TABLE>

The  accompanying  Notes are an integral  part of these  Consolidated  Financial
Statements.

                                       4
<PAGE>


                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                                 (In thousands)
                                    Unaudited
<TABLE>
<CAPTION>

                                        For the three months ended September 30,    For the nine months ended September 30,
                                       -----------------------------------------    -----------------------------------------
                                             2001                   2000                   2001                  2000
                                       ------------------    -------------------    -------------------   -------------------

<S>                                            <C>                    <C>                    <C>                   <C>
Net income                                     $    (441)             $   1,466              $  18,633             $  11,804
Other comprehensive loss, net of tax             (34,696)               (28,704)               (59,565)              (69,097)
                                       ------------------    -------------------    -------------------   -------------------
  Total comprehensive income (loss)            $ (35,137)             $ (27,238)             $ (40,932)            $ (57,293)
                                       ==================    ===================    ===================   ===================
</TABLE>


The  accompanying  Notes are an integral  part of these  Consolidated  Financial
Statements.

                                       5
<PAGE>


                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                    FOR THE YEAR ENDED DECEMBER 31, 2000 AND
                    THE NINE MONTHS ENDED SEPTEMBER 30, 2001
                    (In thousands, except per-share amounts)
                                   Unaudited

<TABLE>
<CAPTION>
                                                                                    Accumulated
                                            Common      Additional                    Other                       Total
                                             Stock       Paid-In       Retained    Comprehensive  Treasury     Shareholders'
                                          ($0.25 par)    Capital       Earnings    Income (Loss)    Stock         Equity
                                          ------------ ------------- ------------- --------------------------  -------------

<S>                                         <C>         <C>            <C>           <C>                <C>    <C>
Balances January 1, 2000                     $ 65,519    $1,577,903     $ 261,590    $  14,923    $        -    $ 1,919,935
   Acquisitions                                    28         1,770             -            -         1,861          3,659
   Treasury stock acquisitions                      -             -             -            -       (49,209)       (49,209)
   Stock plans                                    895        42,156             -            -        (4,523)        38,528
   Equity forward contracts                         -      (150,013)            -            -             -       (150,013)
   Net loss                                         -             -       (28,394)           -             -        (28,394)
   Other comprehensive loss, net of tax             -             -             -      (14,505)            -        (14,505)
                                          ------------ ------------- ------------- ------------  ------------  -------------
Balances December 31, 2000                     66,442     1,471,816       233,196          418       (51,871)     1,720,001
   Stock plans                                    355        26,538             -            -          (705)        26,188
   Common stock offering                        6,289       283,272             -            -             -        289,561
   Equity units offering                            -         4,968             -            -             -          4,968
   Settlement of equity forward contracts           -       150,013       (13,650)           -      (150,013)       (13,650)
   Net income                                       -             -        18,633            -             -         18,633
   Other comprehensive loss, net of tax             -             -             -      (59,565)            -        (59,565)
                                          ------------ ------------- ------------- ------------  ------------  -------------
Balances September 30, 2001                  $ 73,086    $1,936,607     $ 238,179    $ (59,147)   $ (202,589)   $ 1,986,136
                                          ============ ============= ============= ============  ============  =============
</TABLE>


The  accompanying  Notes are an integral  part of these  Consolidated  Financial
Statements.

                                       6
<PAGE>


                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                         2001              2000
                                                                   ----------------  ----------------

<S>                                                                      <C>               <C>
Net cash provided by continuing operating activities                  $    403,443         $ 262,962

Cash flows from investing activities:
       Acquisitions                                                     (3,369,517)         (644,300)
       Proceeds from sale of assets                                        363,436                 -
       Capital expenditures                                               (350,480)         (409,342)
       Securities purchased                                               (104,018)          (52,589)
       Securities sold                                                       1,218           129,396
       Securities matured                                                        -            10,400
       ELI share purchases                                                       -           (38,748)
       Other                                                                   940                18
                                                                   ----------------  ----------------
Net cash used by investing activities                                   (3,458,421)       (1,005,165)

Cash flows from financing activities:
       Long-term debt borrowings                                         3,503,060           819,869
       Long-term debt principal payments                                  (956,821)          (35,183)
       Issuance of equity units                                            460,000                 -
       Debt issuance cost                                                  (67,499)                -
       Common stock offering                                               289,561                 -
       Issuance of common stock for employee plans                          23,490            22,176
       Settlement of equity forward contracts                             (163,663)                -
       Common stock buybacks                                                     -           (49,209)
       Customer advances for construction and contributions in
         aid of construction                                                 3,525            14,159
                                                                   ----------------  ----------------
Net cash provided by financing activities                                3,091,653           771,812

Cash used by discontinued operations                                       (28,976)          (20,787)
                                                                   ----------------  ----------------

Increase in cash                                                             7,699             8,822
Cash at January 1,                                                          31,223            37,141
                                                                   ----------------  ----------------

Cash at September 30,                                                 $     38,922         $  45,963
                                                                   ================  ================

Non-cash investing and financing activities:
       Increase in capital lease asset                                $     33,985         $  98,555

</TABLE>


The  accompanying  Notes are an integral  part of these  Consolidated  Financial
Statements.

                                       7
<PAGE>


                          PART I. FINANCIAL INFORMATION

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)   Summary of Significant Accounting Policies:
      ------------------------------------------
     (a)  Basis of Presentation:
          Citizens  Communications  Company and its subsidiaries are referred to
          as "we",  "us" or "our" in this  report.  The  unaudited  consolidated
          financial  statements  include our accounts and have been  prepared in
          conformity with generally accepted accounting principles and should be
          read in conjunction  with the  consolidated  financial  statements and
          notes included in our 2000 Annual Report on Form 10-K. These unaudited
          consolidated  financial  statements  include  all  adjustments,  which
          consist of normal recurring  accruals  necessary to present fairly the
          results  for  the  interim  periods  shown.  Certain  information  and
          footnote  disclosures  have been condensed  pursuant to Securities and
          Exchange Commission rules and regulations.  The results of the interim
          periods  are not  necessarily  indicative  of the results for the full
          year. Certain  reclassifications  of balances previously reported have
          been made to conform to current presentation.

     (b)  Regulatory Assets and Liabilities:
          Certain of our local exchange  telephone  operations  were, and all of
          our  public  utilities   services   operations  are,  subject  to  the
          provisions of Statement of Financial  Accounting  Standards (SFAS) No.
          71,  "Accounting for the Effects of Certain Types of Regulation".  For
          these  entities,   regulators  can  establish  regulatory  assets  and
          liabilities  that are required to be reflected on the balance sheet in
          anticipation of future recovery through the ratemaking process. In the
          third quarter of 2001,  due to the continued  process of  deregulation
          and the  introduction  of  competition  to our  rural  local  exchange
          telephone  properties  and our  expectation  that  these  trends  will
          continue,   we  concluded  it  was   appropriate  to  discontinue  the
          application of SFAS 71 (see Note 11) for our local exchange  telephone
          properties.

     (c)  Revenue Recognition:
          Incumbent  Local Exchange  Carrier (ILEC) - Revenue is recognized when
          services are provided or when  products  are  delivered to  customers.
          Revenue that is billed in advance includes:  monthly recurring network
          access services,  special access services and monthly  recurring local
          line  charges.  The  unearned  portion of this  revenue  is  initially
          deferred as a component of accrued  expenses on our balance  sheet and
          recognized  in revenue over the period that the services are provided.
          Revenue  that is billed in  arrears  includes:  non-recurring  network
          access  services,   switched  access  services,   non-recurring  local
          services and long-distance  services.  The earned but unbilled portion
          of this revenue is  recognized  in revenue on our  statement of income
          and accrued in accounts receivable in the period that the services are
          provided.  Excise  taxes are  recognized  as a liability  when billed.
          Installation  fees and their related direct and incremental  costs are
          initially  deferred  and  recognized  as revenue and expense  over the
          average  term of a  customer  relationship.  We  recognize  as current
          period  expense  the  portion  of   installation   costs  that  exceed
          installation fee revenue.

          Electric  Lightwave,  Inc.  (ELI) -  Revenue  is  recognized  when the
          services are provided. Revenue from long-term prepaid network services
          agreements are deferred and recognized on a  straight-line  basis over
          the terms of the  related  agreements.  Installation  fees and related
          costs (up to the amount of  installation  revenue)  are  deferred  and
          recognized over the average customer life.  Installation related costs
          in excess of installation fees are expensed when incurred.

          Public  Utilities  Services - Revenue is recognized  when services are
          provided for public utilities services.  Certain revenue is based upon
          consumption  while other revenue is based upon a flat fee.  Earned but
          unbilled public utilities services revenue is accrued for and included
          in accounts receivable and revenue.

     (d)  Net Income Per Common Share:
          Basic net income  per  common  share is  computed  using the  weighted
          average  number of common shares  outstanding  during the period being
          reported  on.  Diluted  net  income  per  common  share  reflects  the
          potential  dilution that could occur if securities or other  contracts
          to issue common stock were exercised or converted into common stock at
          the beginning of the period being reported on (see Note 8).


                                       8
<PAGE>

(2)  Property, Plant and Equipment, Net:
     -----------------------------------
     Property,  plant and equipment,  net at September 30, 2001 and December 31,
     2000 is as follows:
<TABLE>
<CAPTION>


($ in thousands)                            September 30, 2001      December 31, 2000
                                           --------------------   --------------------

<S>                                                <C>                    <C>
Property, plant and equipment                      $ 6,593,191            $ 5,307,427
Less accumulated depreciation                       (2,055,900)            (1,786,715)
                                           --------------------   --------------------
    Property, plant and equipment, net             $ 4,537,291            $ 3,520,712
                                           ====================   ====================
</TABLE>

     At September 30, 2001, approximately  $1,132,069,000 of net property, plant
     and equipment was related to our  acquisition of Frontier  Corp.  which was
     completed   on  June  29,  2001  (see  Note  3).  At  December   31,  2000,
     approximately $197,952,000 of net property, plant and equipment was related
     to our Louisiana gas operations which were disposed of on July 2, 2001 (see
     Note 5).

     Depreciation  expense,  calculated using the straight-line method, is based
     upon the estimated  service lives of various  classifications  of property,
     plant and equipment.  Depreciation expense was $141,709,000 and $92,004,000
     for the three  months  ended  September  2001 and 2000,  respectively,  and
     $335,452,000  and $273,198,000 for the nine months ended September 30, 2001
     and 2000, respectively. We ceased to record depreciation expense on the gas
     assets held for sale effective  October 1, 2000 and on the electric  assets
     held for sale effective January 1, 2001 (see Note 5).

(3)  Acquisitions:
     -------------
     From May 27, 1999 through July 12, 2000, we entered into several agreements
     to acquire telephone access lines. These transactions have been and will be
     accounted  for using the  purchase  method of  accounting.  The  results of
     operations of the acquired properties have been and will be included in our
     financial statements from the dates of acquisition of each property.  These
     agreements and the status of each transaction are described as follows:

          Verizon Acquisition
          -------------------
          Between May and December  1999,  we announced  agreements  to purchase
          from  Verizon  Communications  Inc.,  formerly  GTE  Corp.  (Verizon),
          approximately 381,200 telephone access lines (as of December 31, 2000)
          in Arizona, California, Illinois/Wisconsin, Minnesota and Nebraska for
          approximately  $1,171,000,000  in cash.  To date,  we have  closed  on
          approximately  317,500  telephone  access lines.  We have received all
          necessary  regulatory approvals and expect that the acquisition of the
          remaining  access  lines in Arizona and  California  will close during
          2002.   Our  expected  cash   requirement   to  complete  the  Verizon
          acquisitions is $222,800,000.

          Qwest Acquisition - termination
          -------------------------------
          In  June  1999,  we  announced   agreements  to  purchase  from  Qwest
          approximately 556,800 telephone access lines (as of December 31, 2000)
          in Arizona,  Colorado,  Idaho/Washington,  Iowa,  Minnesota,  Montana,
          Nebraska, North Dakota and Wyoming for approximately $1,650,000,000 in
          cash and the  assumption  of  certain  liabilities.  To date,  we have
          closed on the purchase of approximately  17,000 telephone access lines
          in North Dakota for  approximately  $38,000,000  in cash.  On July 20,
          2001, we notified  Qwest that we were  terminating  eight  acquisition
          agreements  with Qwest  relating to  telephone  exchanges  in Arizona,
          Colorado,  Idaho/Washington,  Iowa, Minnesota,  Montana,  Nebraska and
          Wyoming  for the  remaining  539,800  telephone  access  lines.  Qwest
          subsequently  filed a  notice  of claim  for  arbitration  in  Denver,
          Colorado under the rules of the American Arbitration  Association with
          respect to the terminated acquisition  agreements.  Qwest asserts that
          we wrongfully terminated these agreements and is seeking approximately
          $64,000,000,  which is the  aggregate  of  liquidation  damages  under
          letters  of  credit   established   in  the   terminated   acquisition
          agreements.  We have  filed a notice of claim in the same  arbitration
          proceeding,   contesting   Qwest's   asserted   claims  and  asserting
          substantial   claims   against   Qwest  for   material   breaches   of
          representations,   warranties   and   covenants   in  the   terminated
          acquisition  agreements and in the acquisition  agreement  relating to
          North Dakota assets that we purchased from Qwest.

                                       9
<PAGE>

          Frontier Acquisition
          --------------------
          On June 29, 2001, we purchased from Global Crossing Ltd. (Global) 100%
          of the stock of Frontier Corp.'s local exchange carrier  subsidiaries,
          which owned  approximately  1,096,700  telephone  access  lines (as of
          December 31, 2000) in  Alabama/Florida,  Georgia,  Illinois,  Indiana,
          Iowa, Michigan,  Minnesota,  Mississippi,  New York,  Pennsylvania and
          Wisconsin,  for  approximately  $3,370,000,000  in  cash,  subject  to
          adjustment.  The  operations of Frontier are included in our financial
          statements from the date of acquisition.

          In conjunction  with the Frontier  acquisition,  we are evaluating our
          facilities to take advantage of operational  and functional  synergies
          between the two  companies  with the  objective of  concentrating  our
          resources  in the areas  where we have the most  customers,  to better
          serve those customers.  Accordingly, we intend to close our operations
          support center in Plano, Texas by April 2002 (see note 7).

     The following  pro forma  financial  information  for the nine months ended
     September 30, 2001 and 2000 present the combined  results of our operations
     and the Frontier, Verizon and Qwest acquisitions as if the acquisitions had
     occurred at the beginning of the year prior to their acquisition. Pro Forma
     financial information for the nine months ended September 30, 2001 includes
     approximatley  $29 million of revenues for long distance  services provided
     to customers of Frontier  subsequent  to the date of  acquisition.  The pro
     forma financial information does not include long distance services revenue
     prior  to  such  date.  The  pro  forma  financial   information  does  not
     necessarily  reflect the results of operations that would have occurred had
     we  constituted  a  single  entity  during  such  periods.  The sale of our
     Louisiana  Gas  operations  (see  note 5) is not  presented  on a pro forma
     basis.
<TABLE>
<CAPTION>
($ in thousands, except per share amounts)

                                     For the nine months ended September 30,
                                   ------------------------------------------
                                          2001                   2000
                                   --------------------   -------------------
<S>                                    <C>                   <C>
Revenue                                $ 2,178,940           $ 2,015,403
Net income (loss)                      $   (53,522)          $   (44,711)
Net income (loss) available to
  common shareholders per share        $     (0.25)          $     (0.16)
</TABLE>


(4)  Intangibles:
     ------------
     Intangibles at September 30, 2001 and December 31, 2000 are as follows:

<TABLE>
<CAPTION>

($ in thousands)                            September 30, 2001     December 31, 2000
                                           --------------------   --------------------

<S>                                                <C>                      <C>
Goodwill                                           $   490,012              $ 488,435
Customer base and other                                195,243                144,833
Excess of cost over net assets acquired              2,179,199                      -
                                           -------------------   --------------------
    Total intangibles                              $ 2,864,454              $ 633,268
                                           ====================   ====================
</TABLE>

     We have reflected  assets acquired at fair market values in accordance with
     purchase   accounting   standards.   Our  allocations  are  based  upon  an
     independent  appraisal of the respective  property.  We have not received a
     valuation  of  our  Frontier  purchase  and  have  allocated,  temporarily,
     approximately  $2.2 billion of the  purchase  price to "excess of cost over
     net assets acquired". Upon receipt of a final valuation, the excess of cost
     over  historical net assets acquired for the Frontier  acquisition  will be
     allocated  to  property,   plant  and  equipment,   customer  base,   other
     identifiable intangibles and goodwill.

(5)  Discontinued Operations and Net Assets Held for Sale:
     -----------------------------------------------------
     On August 24, 1999,  our Board of Directors  approved a plan of divestiture
     for our public utilities services  businesses,  which include gas, electric
     and water and wastewater businesses.  Currently, we have agreements to sell
     all our water and wastewater operations, one of our electric operations and
     one of our natural gas  operations  and we have sold another of our natural
     gas  operations.  We  have  received  proceeds  on the  sale of  assets  of
     $363,400,000,  and have  agreements  to sell  assets  for an  aggregate  of
     $1,026,000,000  plus the  assumption of certain  liabilities  and debt. The
     purchase  price  under  one  of  these  agreements  may be  reduced.  These
     agreements and the status of each transaction are described as follows:

                                       10
<PAGE>

          Water and Wastewater
          --------------------
          On October 18, 1999,  we announced the agreement to sell our water and
          wastewater  operations to American Water Works,  Inc. for $745,000,000
          in cash and $90,000,000 of assumed debt. This  transaction is expected
          to close in the fourth quarter of 2001.

          Electric
          --------
          On February  15,  2000,  we  announced  that we had agreed to sell our
          electric  utility   operations.   The  Arizona  and  Vermont  electric
          divisions were under contract to be sold to Cap Rock Energy Corp. (Cap
          Rock). The agreement with Cap Rock was terminated on March 7, 2001. We
          intend to pursue the  disposition of the Vermont and Arizona  electric
          divisions with alternative  buyers.  In August 2000, the Hawaii Public
          Utilities   Commission  denied  the  initial  application   requesting
          approval of the purchase of our Kauai  electric  division by the Kauai
          Island   Electric  Co-op  for   $270,000,000  in  cash  including  the
          assumption of certain  liabilities.  We are  discussing a reduction of
          the purchase  price and other  options.  Our agreement for the sale of
          this division may be terminated if regulatory approval is not received
          before February 2002.

          Gas
          ---
          On July 2,  2001,  we  completed  on the  sale  of our  Louisiana  Gas
          operations to Atmos Energy  Corporation for  $363,436,000 in cash. The
          pre-tax  gain  on  the  sale  recognized  in  the  third  quarter  was
          $139,304,000.

          In July  2001,  an  agreement  was  signed  to sell the  Colorado  Gas
          division to Kinder Morgan for  $11,000,000 in cash.  This  transaction
          has received all  necessary  regulatory  approvals  and is expected to
          close in the fourth quarter of 2001.

     Discontinued  operations in the  consolidated  statements of income reflect
     the results of  operations  of the  water/wastewater  properties  including
     allocated interest expense for the periods presented.  Interest expense was
     allocated to the  discontinued  operations  based on the  outstanding  debt
     specifically identified with these businesses. The long-term debt presented
     in liabilities of discontinued  operations represents the only liability to
     be assumed by the buyer  pursuant  to the water and  wastewater  asset sale
     agreements.

     We  initially  accounted  for the  planned  divestiture  of all the  public
     utilities services properties as discontinued operations.  Currently, we do
     not  have  agreements  to  sell  our  entire  gas  and  electric  segments.
     Consequently,  we  reclassified  all of our gas (on September 30, 2000) and
     electric (on December 31,  2000) assets and their  related  liabilities  to
     "assets held for sale" and  "liabilities  related to assets held for sale,"
     respectively.  We also  reclassified  the results of these  operations from
     discontinued operations to their original income statement captions as part
     of continuing  operations.  Additionally,  we ceased to record depreciation
     expense on the gas  assets  effective  October 1, 2000 and on the  electric
     assets effective January 1, 2001. Such depreciation expense would have been
     an additional  $11,400,000  and  $39,500,000  for the three and nine months
     ended  September  30, 2001,  respectively.  We continue to actively  pursue
     buyers for our remaining gas and electric businesses.

     Summarized  financial  information  for  the  water/wastewater   operations
     (discontinued operations) is set forth below:

    ($ in thousands)                     September 30, 2001   December 31, 2000
                                         ------------------  -------------------

    Current assets                               $  20,424            $  18,578
    Net property, plant and equipment              667,741              639,994
    Other assets                                    55,073               14,943
                                         ------------------   ------------------
    Total assets                                 $ 743,238            $ 673,515
                                         ==================   ==================

    Current liabilities                          $  25,547            $  21,062
    Long-term debt                                  90,448               90,546
    Other liabilities                              103,573               78,888
                                         ------------------   ------------------
    Total liabilities                            $ 219,568            $ 190,496
                                         ==================   ==================



                                       11
<PAGE>

    ($ in thousands)             For the three months ended September 30,
                                 ------------------------------------------
                                       2001                 2000
                                 ------------------   ------------------
    Revenue                            $ 34,451             $ 29,272
    Operating income                   $ 14,832             $  9,716
    Income tax expense                 $  4,571             $  2,413
    Net income                         $  7,199             $  4,838

    ($ in thousands)              For the nine months ended September 30,
                                 ------------------------------------------
                                      2001                 2000
                                 ------------------   ------------------
    Revenue                            $ 87,880             $ 79,913
    Operating income                   $ 26,777             $ 19,746
    Income tax expense                 $  6,730             $  3,924
    Net income                         $ 11,675             $  8,182



     Summarized financial  information for the gas and electric operations (held
     for sale) is set forth below:
<TABLE>
<CAPTION>

($ in thousands)                               September 30, 2001     December 31, 2000
                                               --------------------  --------------------

<S>                                                       <C>                  <C>
Current assets                                         $    76,832           $   127,495
Net property, plant and equipment                          794,456               953,328
Other assets                                               222,651               131,484
                                               --------------------  --------------------
Total assets held for sale                             $ 1,093,939           $ 1,212,307
                                               ====================  ====================

Current liabilities                                    $    69,975           $   169,066
Long-term debt                                              43,400                43,980
Other liabilities                                          100,715                77,529
                                               --------------------  --------------------
Total liabilities related to assets held
  for sale                                             $   214,090           $   290,575
                                               ====================  ====================

</TABLE>

(6)  Security Issuances:
     ------------------
     We issued the following  securities  during the nine months ended September
     30, 2001 under our  $3,800,000,000  shelf  registration  statement and in a
     private placement. The net proceeds from these issuances were used to repay
     bank borrowings,  fund the Frontier Acquisition (see note 3), to settle the
     equity forward contract (see note 12) and for general  corporate  purposes.
     We have  $825,600,000  remaining  on our  shelf  registration  after  these
     issuances.

     Long-Term Debt
     --------------
     On May 18,  2001,  we  issued  an  aggregate  of  $1.75  billion  of  notes
     consisting  of $700 million  principal  amount of 8.50% notes,  due May 15,
     2006 and $1.05  billion  principal  amount of 9.25% notes due May 15, 2011.
     The net proceeds of this issuance was  $1,726,000,000  (after  underwriting
     discounts and commissions and before offering expenses).

     Equity Units
     ------------
     On June 13, 2001, we issued 18,400,000 equity units at $25 per unit for net
     proceeds of $446,200,000 (after underwriting  discounts and commissions and
     before offering  expenses).  Each equity unit initially consists of a 6.75%
     senior  note due 2006 and a  purchase  contract  (warrant)  for our  common
     stock. The purchase  contract  obligates the holder to purchase from us, no
     later than  August  17,  2004 for a purchase  price of $25,  the  following
     number of shares of our common stock:

     o    1.7218 shares,  if the average  closing price of our common stock over
          the 20-day  trading  period  ending on the third  trading day prior to
          August 17, 2004 equals or exceeds $14.52;
     o    A number of shares having a value,  based on the average closing price
          over that period,  equal to $25, if the average  closing  price of our
          common  stock over the same  period is less than  $14.52,  but greater
          than $12.10; and
     o    2.0661 shares,  if the average  closing price of our common stock over
          the same period is less than or equal to $12.10.

     The  equity  units  trade on The New York Stock  Exchange  under the symbol
     "CZB."

                                       12

<PAGE>
     Common Stock
     ------------
     On June 13,  2001,  we  issued  25,156,250  shares of our  common  stock at
     $12.10, for net proceeds of $289,561,000 (after underwriting  discounts and
     commissions).

     Private Placement
     -----------------
     In August 2001,  through a sale by private placement to Rule 144A qualified
     investors,  we issued an aggregate of $1.75 billion of notes  consisting of
     $300  million  principal  amount of 6.375%  notes  due 2004,  $750  million
     principal amount of 7.625% notes due 2008 and $700 million principal amount
     of  9.000%  notes  due  2031.  The  net  proceeds  of  this  issuance  were
     $1,728,900,000  (after placement agent discounts and commissions and before
     offering  expenses).  We  have  filed a  registration  statement  with  the
     Securities and Exchange  Commission  (SEC) on Form S-4 in September 2001 to
     register a public  exchange of  publicly  traded  notes with  substantially
     identical  terms to the notes  sold in the  private  placement,  except for
     transfer restriction and registration rights relating to the initial notes.
     The registration  statement has not yet been declared effective by the SEC.
<TABLE>
<CAPTION>
Following is the activity in our long-term debt from December 31, 2000 to September 30, 2001:

                                                               For the nine months ended
                                                          -----------------------------------------
                                                                        Remarketing/                              Interest Rate at
                                             December 31,  Borrowings/    Change in                 September 30,  September 30,
($ in thousands)                               2000       Acquisitions  Current Portion   Payments      2001           2001*
                                            --------------------------------------------------------------------------------------
Fixed Rate
     Rural Utilities Service Loan Contracts
<S>                                         <C>           <C>                           <C>         <C>                <C>
           ILEC                             $    90,129   $     1,430               -   $  (3,355)  $    88,204        6.378%
           Frontier                                   -        43,246               -           -        43,246        5.531%
                                            -----------   -----------     ------------  ---------   -----------
           Subtotal                              90,129        44,676               -      (3,355)      131,450
                                            -----------   -----------     ------------  ---------   -----------
     Debentures                               1,000,000             -               -     (50,000)      950,000        7.464%

     2001 Notes
            8.500% Due 2006                           -       700,000               -           -       700,000        8.740%
            9.250% Due 2011                           -     1,050,000               -           -     1,050,000        9.340%
            6.375% Due 2004                           -       300,000               -           -       300,000        6.649%
            7.625% Due 2008                           -       750,000               -           -       750,000        7.835%
            9.000% Due 2031                           -       700,000               -           -       700,000        9.148%
                                            -----------   -----------      -----------  ----------   ----------
            Subtotal                                  -     3,500,000               -           -     3,500,000
                                            -----------   -----------      -----------  ----------   ----------
     Equity Units
            6.750% Due 2006                           -       460,000               -           -       460,000        7.480%
                                            -----------   -----------      -----------  ----------   ----------
            Subtotal                                  -       460,000               -           -       460,000
                                            -----------   -----------      -----------  ----------   ----------
     Senior Unsecured Notes
            ILEC                                 36,000             -               -           -        36,000        8.050%
            Frontier                                  -        74,415               -        (787)       73,628        7.610%
                                            -----------   -----------      -----------  ----------   ----------
            Subtotal                             36,000        74,415               -        (787)      109,628
                                            -----------   -----------      -----------  ----------   ----------
     ELI notes                                  325,000             -               -           -       325,000        6.232%
     ELI capital leases                         132,248        33,985               -     (28,283)      137,950       11.765%
     Industrial Development Revenue Bonds       263,595             -      $  (14,400)          -       249,195        6.435%
     Other                                          308             -               -        (251)           57       12.986%
                                            -----------   -----------      -----------  ----------   ----------
Total fixed rate                              1,847,280     4,113,076         (14,400)    (82,676)    5,863,280
                                            -----------   -----------      -----------  ----------   ----------
Variable Rate
     Commercial Paper Notes Payable             109,145             -               -    (109,145)            -
     Bank Credit Facility                       765,000             -               -    (765,000)            -
     ELI Bank Credit Facility                   400,000             -               -           -       400,000        3.822%
     Industrial Development Revenue Bonds       121,878             -          14,400           -       136,278        5.221%
                                            -----------   -----------      -----------  ---------    ----------
Total variable rate                           1,396,023             -      $   14,400    (874,145)      536,278
                                            -----------   -----------      ----------   ---------    ----------
Total                                       $ 3,243,303   $ 4,113,076               -   $(956,821)  $ 6,399,558
                                            ===========   ===========      ==========   =========    ==========
</TABLE>
* Interest rate includes  amortization of debt issuance expenses,  debt premiums
or discounts.  The interest  rate for Rural  Utilities  Service Loan  Contracts,
Debentures,  ILEC Senior  Unsecured Notes,  and Industrial  Development  Revenue
Bonds represent a weighted average of multiple issuances.  The interest rates on
the commercial  paper notes payable and the bank credit facility at December 30,
2000 were 6.81% and 7.19%, respectively.

                                       13
<PAGE>
(7)  Restructuring Charges:
     ----------------------

     2001
     ----
     In the second  quarter of 2001, we approved a plan to close our  operations
     support center in Plano, Texas by April 2002. In connection with this plan,
     we recorded a pre-tax charge of $13,002,000 in other operating  expenses in
     the third quarter of 2001. The  restructuring  resulted in the reduction of
     749 employees.  We  communicated  with all affected  employees  during July
     2001.  Certain  employees  will  be  relocated;   others  will  be  offered
     severance, job training and/or outplacement  counseling.  We intend to sell
     our Plano office building. As of September 30, 2001, approximately $453,000
     was paid and 30 employees were  terminated.  We expect to incur  additional
     costs of approximately $3,128,000 through the first quarter of 2002.

      1999
     ----
     In the  fourth  quarter of 1999,  we  approved  a plan to  restructure  our
     corporate  office  activities.  In connection with this plan, we recorded a
     pre-tax  charge of  $5,760,000  in other  operating  expenses in the fourth
     quarter  of  1999.  The  restructuring  resulted  in  the  reduction  of 49
     corporate  employees.  All affected employees were communicated with in the
     early part of November 1999.

     As of  September  30,  2001,  approximately  $4,413,000  has been paid,  42
     employees  were  terminated  and  6  employees  who  were  expected  to  be
     terminated took other positions within the company.  The remaining employee
     will be  terminated  during 2001.  At December  31,  2000,  we adjusted our
     original  accrual down by $1,008,000 and the remaining  accrual of $339,000
     is included in other current liabilities at September 30, 2001. These costs
     are expected to be paid in the fourth quarter of 2001.
<TABLE>
<CAPTION>
                                 Original Accrued        Amount                          Remaining
                                      Amount          Paid to Date     Adjustments        Accrual
                                 ----------------     ------------    ------------     ------------

<S>                              <C>                 <C>             <C>              <C>
         2001 Restructuring       $ 13,002,000        $  453,000      $     -          $ 12,549,000
         1999 Restructuring          5,760,000         4,413,000      (1,008,000)           339,000
</TABLE>

 (8) Net Income Per Common Share:
     ----------------------------
     The  reconciliation  of the net income per common share calculation for the
     three and nine months ended September 30, 2001 and 2000,  respectively,  is
     as follows:
<TABLE>
<CAPTION>
(In thousands, except per-share amounts)                           For the three months ended September 30,
                                                 --------------------------------------------------------------------------
                                                                2001                                   2000
                                                 -------------------------------------  -----------------------------------
                                                               Weighted                              Weighted
                                                               Average                                Average
                                                  Net Income    Shares     Per Share    Net Income    Shares     Per Share
                                                 ------------------------  -----------  ------------------------ ----------
Net income per common share:
<S>                                                  <C>         <C>                       <C>          <C>
  Basic                                            $   (441)     285,615                  $  1,466      260,309
  Carrying cost of equity forward contracts           1,003            -                         -            -
                                                 -----------  -----------               ----------- ------------
  Available for common shareholders                $ (1,444)     285,615      $ (0.01)    $  1,466      260,309     $ 0.01
  Effect of dilutive options                              -        3,438            -            -        7,551          -
                                                 -----------  -----------               ----------- ------------
  Diluted                                          $ (1,444)     289,053      $ (0.01)    $  1,466      267,860     $ 0.01
                                                 ===========  ===========               =========== ============


(In thousands, except per-share amounts)                           For the nine months ended September 30,
                                                 --------------------------------------------------------------------------
                                                                2001                                   2000
                                                 -------------------------------------  -----------------------------------
                                                               Weighted                              Weighted
                                                               Average                                Average
                                                  Net Income    Shares     Per Share    Net Income    Shares     Per Share
                                                 ------------------------  -----------  ------------------------ ----------
Net income per common share:
  Basic                                            $ 18,633      271,346                  $ 11,804      260,046
  Carrying cost of equity forward contracts          13,650            -                         -            -
                                                 -----------  -----------               ----------- ------------
  Available for common shareholders                $  4,983      271,346      $  0.02     $ 11,804      260,046     $ 0.05
  Effect of dilutive options                              -        6,941            -            -        7,404          -
                                                 -----------  -----------               ----------- ------------
  Diluted                                          $  4,983      278,287      $  0.02     $ 11,804      267,450     $ 0.04
                                                 ===========  ===========                =========== ============
</TABLE>
                                       14

<PAGE>
     All share amounts  represent  weighted average shares  outstanding for each
     respective  period.  The  diluted net income per common  share  calculation
     excludes  the effect of  potentially  dilutive  shares when their effect is
     antidilutive.   At  September  30,  2001,  we  have  4,025,000   shares  of
     potentially   dilutive   Mandatorily   Redeemable   Convertible   Preferred
     Securities  which are convertible into common stock at a 3.76 to 1 ratio at
     an exercise  price of $13.30 per share and 9,434,000  potentially  dilutive
     stock  options  at a range of  $12.91  to  $21.47  per  share  that are not
     included in the  calculation  as they are  antidilutive.  Restricted  stock
     awards of 1,150,000  shares and 1,672,000  shares at September 30, 2001 and
     2000,  respectively,  are excluded from our basic  weighted  average shares
     outstanding  and  included in our  dilutive  shares until the shares are no
     longer  contingent upon the satisfaction of all specified  conditions.  See
     Note 12 regarding carrying costs of equity forward contracts.

(9)  Segment Information:
     -------------------
     We operate in four segments,  Incumbent Local Exchange Carrier (ILEC),  ELI
     (a competitive local exchange carrier, or CLEC), gas and electric. The ILEC
     segment provides both regulated and competitive  communications services to
     residential,  business and wholesale customers and is the incumbent carrier
     in its service areas. Our gas and electric segments are intended to be sold
     and are  classified as "assets held for sale" and  "liabilities  related to
     assets held for sale."

     We own all of the  Class B Common  Stock and  27,571,332  shares of Class A
     Common Stock of ELI, a facilities based integrated  communications provider
     offering a broad range of  communications  services  in the western  United
     States. This ownership interest represents 85% of the economic interest and
     a 96% voting interest.  ELI's Class B Common Stock votes on a 10 to 1 basis
     with the Class A Common Stock,  which is publicly traded. We also guarantee
     all of ELI's  long-term  debt,  one of its  capital  leases  and one of its
     operating  leases.  ELI is part of our consolidated  federal tax return. In
     order to maintain  that  consolidation,  we must  maintain an ownership and
     voting  interest in excess of 80%. During 2000, as a result of the exercise
     of employee stock options,  our ownership interest dropped and we purchased
     2,288,000  shares  in the open  market  to  bring  our  economic  ownership
     interest back to 85%.

                                       15
<PAGE>

     Adjusted  EBITDA  is  operating   income  (loss)  plus   depreciation   and
     amortization. EBITDA is a measure commonly used to analyze companies on the
     basis  of  operating  performance.   It  is  not  a  measure  of  financial
     performance under generally accepted  accounting  principles and should not
     be considered as an  alternative  to net income as a measure of performance
     nor as an alternative to cash flow as a measure of liquidity and may not be
     comparable to similarly titled measures of other companies.
<TABLE>
<CAPTION>


($ in thousands)                                       For the three months ended September 30, 2001
                                 -------------------------------------------------------------------------------------------
                                                                                                                  Total
                                      ILEC            ELI            Gas          Electric    Eliminations       Segments
                                 -------------- -------------- --------------- -------------  -------------    -------------
<S>                                  <C>             <C>             <C>           <C>           <C>      <C>     <C>
Revenue                              $ 507,202       $ 53,330        $ 37,717      $ 63,953      $ (1,081)(1)   $   661,121
Depreciation and Amortization          173,014         19,919             152           335           242 (2)       193,662
Operating Income (Loss)                 64,602        (22,042)          3,717        11,648           307 (2)(3)     58,232
Adjusted EBITDA                        237,616         (2,123)          3,869        11,983           549 (3)       251,894


($ in thousands)                                       For the three months ended September 30, 2000
                                 -------------------------------------------------------------------------------------------
                                                                                                                  Total
                                      ILEC            ELI            Gas          Electric    Eliminations       Segments
                                 -------------- -------------- --------------- -------------  -------------    -------------
Revenue                              $ 246,767       $ 63,610        $ 80,332      $ 62,770      $   (769)(1)    $  452,710
Depreciation and Amortization           65,857         16,306           6,707         6,729           260 (2)        95,859
Operating Income (Loss)                 45,106        (11,530)          1,210         7,685           (29)(2)(3)     42,442
Adjusted EBITDA                        110,963          4,776           7,917        14,414           231 (3)       138,301



($ in thousands)                                       For the nine months ended September 30, 2001
                                 -------------------------------------------------------------------------------------------
                                                                                                                  Total
                                      ILEC            ELI            Gas          Electric    Eliminations       Segments
                                 -------------- -------------- --------------- -------------  -------------    -------------
Revenue                             $1,083,335      $ 176,321       $ 360,387     $ 174,114     $  (3,013)(1)   $ 1,791,144
Depreciation and Amortization          347,703         58,647             457         6,135           792 (2)       413,734
Operating Income (Loss)                187,957        (53,413)         42,213        28,607         1,300 (2)(3)    206,664
Adjusted EBITDA                        535,660          5,234          42,670        34,742         2,092 (3)       620,398


($ in thousands)                                       For the nine months ended September 30, 2000
                                 -------------------------------------------------------------------------------------------
                                                                                                                  Total
                                      ILEC            ELI            Gas          Electric    Eliminations       Segments
                                 -------------- -------------- --------------- -------------  -------------    -------------
Revenue                              $ 700,475       $181,008        $270,753      $169,879      $ (2,096)(1)   $ 1,320,019
Depreciation and Amortization          195,628         43,782          19,076        19,806           191 (2)       278,483
Operating Income (Loss)                116,462        (47,106)         24,160        21,073           551 (2)(3)    115,140
Adjusted EBITDA                        312,090         (3,324)         43,236        40,879           742 (3)       393,623

</TABLE>

1    Represents revenue received by ELI from our ILEC operations.
2    Represents amortization of the capitalized portion of intercompany interest
     related  to our  guarantees  of ELI debt and  leases  and  amortization  of
     goodwill related to our purchase of ELI stock.
3    Represents the  administrative  services fee charged to ELI pursuant to our
     management services agreement with ELI.

                                       16
<PAGE>


(10) Supplemental Segment Information:
     --------------------------------
     Supplemental segment income statement information for the nine months ended
     September 30, 2001 is as follows:
<TABLE>
<CAPTION>
( $ in thousands)                                                                            Discontinued Corporate and Consolidated
                                                   ILEC        ELI        Gas      Electric   Operations  Eliminations    Total
                                               ----------- ----------- ---------- ----------- ---------- ------------ -----------
<S>                                          <C>           <C>        <C>         <C>           <C>       <C>       <C>
Revenue                                       $ 1,083,335  $  176,321   $360,387    $174,114    $      -   $ (3,013) $1,791,144
Operating expenses:
   Cost of services                                80,994      51,014    252,065      95,804           -     (2,770)    477,107
   Depreciation and amortization                  347,703      58,647        457       6,135           -        792     413,734
   Other operating expenses                       436,014     120,073     65,652      43,568           -     (2,335)    662,972
   Restructuring expenses                          13,002           -          -           -           -          -      13,002
   Acquisition assimilation expense                17,665           -          -           -           -          -      17,665
                                              ----------- ----------- ---------- ----------- ------------- --------- -----------
      Total operating expenses                    895,378     229,734    318,174     145,507           -     (4,313)  1,584,480
                                              ----------- ----------- ---------- ----------- ------------- --------- -----------

      Operating income (loss)                     187,957     (53,413)    42,213      28,607           -      1,300     206,664

Investment and other income, net                   14,035         387      2,271        (198)          -          -      16,495
Gain on sale of assets                                  -           -          -           -           -    139,304     139,304
Interest expense                                  191,189      71,788     14,032      12,964           -    (31,940)    258,033
                                              ----------- ----------- ---------- ----------- ------------- --------- -----------
   Income (loss) from continuing operations
     before income taxes, dividends on
     convertible preferred securities and
     extraordinary expense                         10,803    (124,814)    30,452      15,445           -    172,544     104,430

Income tax expense                                  4,030         449     11,359       5,761           -     27,584      49,183
                                              ----------- ----------- ---------- ----------- ------------- --------- -----------
   Income (loss) from continuing operations
     before dividends on convertible preferred
     securities and extraordinary expense           6,773    (125,263)    19,093       9,684           -    144,960      55,247

Dividends on convertible preferred securities,
     net of income tax benefit                      4,658           -          -           -           -          -       4,658
                                              ----------- ----------- ---------- ----------- ------------- --------- -----------
   Income (loss) from continuing operations
     before extraordinary expense                   2,115    (125,263)    19,093       9,684           -    144,960      50,589

Income from discontinued operations, net
     of tax                                            -           -          -           -       11,675          -      11,675
                                              ----------- ----------- ---------- ----------- ------------- --------- -----------
    Net income (loss) before extraordinary
     item                                           2,115    (125,263)    19,093       9,684      11,675    144,960      62,264

Extraordinary expense - discontinuation of
     Statement of Financial Accounting
     Standards No. 71, net of tax                      -            -          -           -           -     43,631      43,631
                                              ----------- ----------- ---------- ----------- ---------------------- -----------
   Net income (loss)                          $     2,115  $ (125,263)  $ 19,093    $  9,684    $ 11,675   $101,329  $   18,633
                                              =========== =========== ========== =========== ====================== ===========
</TABLE>

(11) Discontinuation of SFAS 71:
     ---------------------------
     We have  historically  applied SFAS 71 in the  preparation of our financial
     statements  because  our  incumbent  local  exchange  telephone  properties
     (properties  we  owned  prior to the  2000  and  2001  acquisitions  of the
     Verizon, Qwest and Frontier properties) were predominantly regulated in the
     past following a cost of service/rate of return approach.  Beginning in the
     third  quarter of 2001,  these  properties  no longer met the  criteria for
     application of SFAS 71 due to the continuing  process of  deregulation  and
     the  introduction  of  competition  to our  existing  rural local  exchange
     telephone  properties,  and our expectation that these trends will continue
     for all our properties.

     Currently,  pricing for a majority of our  revenues is based upon price cap
     plans that limit prices to changes in general  inflation  and  estimates of
     productivity for the industry at large, or upon market pricing, rather than
     on the specific  costs of operating  our business,  a  requirement  for the
     application of SFAS 71. These trends in the deregulation of pricing and the
     introduction  of competition are expected to continue in the near future as
     additional states adopt price cap forms of regulation.


                                       17
<PAGE>


     Discontinued  application  of SFAS 71  required  us to write off all of the
     regulatory assets and liabilities of our incumbent local exchange telephone
     operations.  A non-cash  extraordinary charge is reflected in our financial
     statements in the third quarter of 2001 as follows:

     ($ in thousands)

     Assets:
       Deferred income tax assets                                $ 31,480
       Deferred cost of extraordinary plant retirements            25,348
       Deferred charges                                             6,885

     Liabilities:
       Plant related                                             (10,259)
       Deferred income tax liabilities                            (2,531)
                                                                 --------

     Pre-tax charge                                                50,923
       Income tax benefit                                           7,292
                                                                 --------
     Extraordinary expense                                       $ 43,631
                                                                 ========

     Under SFAS 71, we depreciated our telephone  plant for financial  reporting
     purposes  over asset lives  approved  by the  regulatory  agencies  setting
     regulated rates. As part of the  discontinuance  of SFAS 71, we revised the
     depreciation lives of our core technology assets to reflect their estimated
     economic useful lives.  Based upon our evaluation of the pace of technology
     change  that is  estimated  to occur in  certain  components  of our  rural
     telephone networks, we have concluded that minor modifications in our asset
     lives for the major network technology assets as follows:

                                          Average Remaining Life in Years
                                          -------------------------------
                                         Regulated               Economic
                                           Life                    Life
                                           ----                   ------
              Switching Equipment           6.4                     5.6
              Circuit Equipment             4.3                     4.9
              Copper Cable                  8.5                     7.7

     Upon discontinuation of SFAS 71, we tested the balances of property,  plant
     and  equipment  associated  with the  incumbent  local  exchange  telephone
     properties  for  impairment  under SFAS 121 (as  required by SFAS 101).  No
     impairment charge was required.

     To reflect the expectation that competitive  entry will occur over time for
     certain of our properties acquired in prior purchase business combinations,
     we have  shortened the  amortization  life for franchise  rights related to
     these  properties  to 20 years.  This  action was taken to reflect the fact
     that our dominant  position in the market  related to the  existence of the
     prior monopoly in incumbent local exchange telephone service may be reduced
     over time as competitors enter our markets.

(12) Equity Forward Contract:
     ------------------------
     During  2000,  we entered  into a forward  contract to  purchase  9,140,000
     shares of our common stock.  These purchases and others made by us for cash
     during 2000 were made in open-market transactions. The forward amount to be
     paid in the future included a carrying cost,  based on LIBOR plus a spread,
     and the dollar amount paid for the shares  purchased.  Our forward contract
     was a  temporary  financing  arrangement  that gave us the  flexibility  to
     purchase our stock and pay for those purchases in future periods.  Pursuant
     to transition  accounting rules,  commencing December 31, 2000 through June
     30,  2001 we were  required  to report our  equity  forward  contract  as a
     reduction to  shareholders'  equity and as a component of temporary  equity
     for the gross settlement amount of the contract ($150,013,000). On June 28,
     2001,  we entered  into a master  confirmation  agreement  that amended the
     equity  forward  contract  to no  longer  permit  share  settlement  of the
     contract.  On June 29, 2001,  we accrued  $42,995,000  net cash to settle a
     portion of the contract,  plus $12,647,000 in associated carrying costs. In
     September 2001, we settled the contract by paying the redemption  amount of
     $107,018,000  plus  $1,003,000  in  associated   carrying  costs  and  took
     possession of our shares.

                                       18
<PAGE>

(13) Commitments and Contingencies:
     ------------------------------

     At September 30, 2001, we have outstanding performance letters of credit as
     follows:

         ($ in thousands)

        Qwest                                             $ 64,280
        Insurance letters of credit to CNA                  12,672
        Water/wastewater projects                            2,588
        ELI projects                                            60
                                                          --------
           Total                                          $ 79,600
                                                          ========

     None of the  above  letters  of  credit  restrict  our  cash  balances.  In
     addition,  we have  issued  $281,680  of  letters  of  credit  where we are
     required to maintain  restricted  cash  balances in the same  amount.  This
     amount has been  segregated  from cash on our balance sheet and is included
     as a component of other current assets.

     During  the past two years the  decrease  in the  availability  of power in
     certain  areas of the country  has caused  power  supply  costs to increase
     substantially,  forcing  companies to pay higher operating costs to operate
     their electric businesses.  As a result, companies have attempted to offset
     these  increased  costs by either  renegotiating  prices  with their  power
     suppliers or passing these additional costs on to their customers through a
     rate  proceeding.  In Arizona,  excessive  power costs charged by our power
     supplier in the amount of approximately  $98 million through  September 30,
     2001 have been  incurred.  We are  allowed to recover  these  charges  from
     ratepayers through the Purchase Power Fuel Adjustment clause.  However,  in
     an  attempt  to limit  "rate  shock"  to our  customers,  we  requested  in
     September 2001 that this deferred amount, plus interest,  be recovered over
     a  seven-year  period.  As a result,  we have  deferred  these costs on the
     balance sheet in anticipation of recovery through the regulatory process.

     On July 16, 2001, we terminated  our existing  contract with Arizona Public
     Service and entered into a new seven-year  purchase power  agreement.  This
     agreement  allows us to purchase  all power  required for  operations  at a
     fixed rate per kilowatt hour. This agreement is retroactive to June 1, 2001
     and will mitigate further increases in the deferred power cost account.

                                       19
<PAGE>


                          PART I. FINANCIAL INFORMATION

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

Statements  contained  in this  quarterly  report  on  Form  10-Q  that  are not
historical facts are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Reform Act of 1995. In addition, words such
as "believes,"  "anticipates," "expects" and similar expressions are intended to
identify  forward-looking  statements.   These  forward-looking  statements  are
subject to:

     o    Our ability to obtain new financing on favorable terms;

     o    Our  ability  to   effectively   manage  our  growth,   including  the
          integration  of newly acquired  operations  into our  operations,  and
          otherwise  monitor our operations,  costs,  regulatory  compliance and
          service quality;

     o    Our ability to divest our public utilities services businesses;

     o    Our  ability to  successfully  introduce  new product  offerings  on a
          timely  and cost  effective  basis,  including  our  ability  to offer
          bundled service packages on terms attractive to our customers, and our
          ability  to offer  second  lines  and  enhanced  services  to  markets
          currently under-penetrated;

     o    Our ability to expand through attractively priced acquisitions;

     o    Our  ability  to  identify  future  markets  and  successfully  expand
          existing ones;

     o    The effects of greater  than  anticipated  competition  requiring  new
          pricing,  marketing  strategies or new product  offerings and the risk
          that we will not respond on a timely or profitable basis;

     o    Electric  Lightwave,  Inc.'s  (ELI's)  ability to complete a public or
          private  financing  that would provide the funds  necessary to finance
          its cash requirements;

     o    The  effects of rapid  technological  changes,  including  the lack of
          assurance that our ongoing network  improvements will be sufficient to
          meet or exceed the capabilities and quality of competing networks;

     o    The  effects  of  changes  in  regulation  in  the  telecommunications
          industry as a result of the  Telecommunications  Act of 1996 and other
          similar federal and state legislation and regulation;

     o    The effects of more  general  factors,  including  changes in economic
          conditions;  changes  in the  capital  markets;  changes  in  industry
          conditions;  changes in our credit ratings;  and changes in accounting
          policies or practices adopted  voluntarily or as required by generally
          accepted accounting principles.

You should consider these important  factors in evaluating any statement in this
Form  10-Q or  otherwise  made  by us or on our  behalf.  These  forward-looking
statements  are  made  as  of  the  date  of  this  report  based  upon  current
expectations,  and we undertake no  obligation to update this  information.  The
following  information is unaudited and should be read in  conjunction  with the
consolidated  financial statements and related notes included in this report and
as presented in our 2000 Annual Report on Form 10-K.

(a) Liquidity and Capital Resources
    -------------------------------
For the three and nine months ended  September  30, 2001, we used cash flow from
operations,  cash on hand  and  proceeds  from the  sale of  securities  to fund
capital expenditures and acquisitions of additional telephone access lines.

In May 2001,  we filed a $3.8  billion  shelf  registration  statement  with the
Securities  and Exchange  Commission  (SEC) on Form S-3 that permits us to offer
from  time to time  common  stock,  preferred  stock,  depositary  shares,  debt
securities,  warrants to purchase  these  types of  securities  and units of the
foregoing.  The net proceeds from the sale of these securities have been and are
expected to be used to refinance  our bank  borrowings  and other  extensions of
credit,  to expand our networks,  services and related  infrastructure  and fund
working  capital  and  pending  and  future   acquisitions,   and  make  further
investments  in  related  telecommunications   businesses  as  well  as  general
corporate  purposes.  After the offerings  discussed  below, we have a remaining
shelf registration of $825.6 million.

                                       20
<PAGE>


     In May 2001, we issued an aggregate of $1.75 billion of notes consisting of
     $700  million  principal  amount of 8.50%  notes due May 15, 2006 and $1.05
     billion principal amount of 9.25% notes due May 15, 2011. This offering was
     made under the $3.8 billion shelf registration  statement.  Net proceeds of
     $1,726.0 million (after  underwriting  discounts and commissions and before
     offering expenses) were used to repay bank borrowings and the remainder was
     used for general corporate purposes and to finance acquisitions.

     In  June  2001,  we  issued  equity  securities  in two  concurrent  public
     offerings.  The first offering consisted of 25,156,250 shares of our common
     stock. The net proceeds of $289.6 million (after underwriting discounts and
     commissions and before  offering  expenses) were used to partially fund the
     acquisition of Frontier Corp. The second offering consisted of $460 million
     of equity units.  The net proceeds of $446.2  million  (after  underwriting
     discounts  and  commissions  and  before  offering  expenses)  were used to
     partially fund the acquisition of Frontier Corp. Each equity unit initially
     consists of a senior note and a purchase contract for our common stock. The
     price for the common stock under the purchase  contract  will be based upon
     the  average  trading  price  of the  stock at the  time  the  contract  is
     exercised.   These  offerings  were  made  under  the  $3.8  billion  shelf
     registration statement.

In August 2001, we issued an aggregate of $1.75  billion of notes  consisting of
$300 million  principal amount of 6.375% notes due 2004, $750 million  principal
amount of  7.625%  notes due 2008 and $700  million  principal  amount of 9.000%
notes due 2031. The notes were issued in a private  offering.  The proceeds were
used  to  repay  our  forward  equity  contract  and  to  refinance  outstanding
indebtedness and for general corporate  purposes.  In September 2001, we filed a
$1.75 billion  registration  statement with the SEC on Form S-4 that consists of
an exchange  offer  entitling  the holders to exchange the initial notes for new
notes  with  substantially  identical  terms as the  initial  notes,  except for
transfer restrictions and registration rights relating to the initial notes. The
registration statement has not yet been declared effective.

On  September  30,  2001,  we had  available  lines  of  credit  with  financial
institutions  in the amounts of $2.0 billion with  associated  facility  fees of
0.125% per annum and $450 million with no associated facility fees. These credit
facilities were in addition to credit  commitments  under which we may borrow up
to $200 million,  with associated  facility fees of 0.15% per annum, that expire
on December 16, 2003. As of September 30, 2001, no borrowings  were  outstanding
under these credit  facilities.  On October 24, 2001,  we replaced  these credit
facilities with available revolving lines of credit with financial  institutions
in the amounts of $680 million and $100 million.  An additional  $25 million was
provided by a lender who was added to the credit  facilities  after  October 24,
2001, for total  available  commitments of $805 million.  The credit  facilities
have similar terms and  conditions.  Associated  facility fees vary depending on
our credit ratings and currently are 0.25% per annum.  The expiration  dates are
October 24, 2006.  During the term of the  facilities  we may borrow,  repay and
reborrow funds.

In addition, on October 24, 2001, we borrowed $200 million on an unsecured basis
from the Rural Telephone Finance Cooperative (RTFC). This note is due on October
24, 2011 and has a fixed 6.27% rate of interest, payable quarterly.

ELI has $400  million of  committed  revolving  lines of credit with  commercial
banks,  which expire November 21, 2002. It has borrowed $400 million under these
lines at September 30, 2001. The ELI credit facility has an associated  facility
fee of 0.08% per annum. We have guaranteed all of ELI's  obligations under these
revolving lines of credit.

We have committed to continue to finance ELI's cash requirements  until December
31, 2002. We extended a revolving  credit  facility to ELI for $450 million with
an interest  rate of 15% and a final  maturity of October  30,  2005.  Funds for
general  corporate  purposes  of $260  million are  available  to be drawn until
December 31,  2002.  The  remaining  balance may be drawn by ELI to pay interest
expense due under the facility.  As of September 30, 2001, we have advanced $150
million to ELI under this facility.

In January 2001, one of our subsidiaries,  Citizens Utilities Rural Company, was
advanced $1.0 million under its Rural  Utilities  Services  Loan  Contract.  The
initial interest rate on the advance was 5.4125% with an ultimate  maturity date
of November 1, 2016.

In April  2001,  we  converted  and  remarketed  $14.4  million  of 1991  series
industrial  development  revenue  bonds as money  market  bonds  with an initial
interest rate of 5.25% and a maturity date of April 1, 2026.

In May 2001, we converted and  remarketed  $23.325  million of the Illinois 1997
series of environmental  facilities  revenue bonds due May 1, 2032 at an initial
interest rate of 5.85%. We also converted and remarketed  $18.250 million of the
Northampton  (Pennsylvania) 1998 series of industrial  development revenue bonds
due September 1, 2018 at an initial interest rate of 5.75%.

                                       21
<PAGE>

On June 29, 2001, we completed the  acquisition  of Frontier  Corp.  from Global
Crossing for $3,370.0 million in cash (see Acquisitions  below). The acquisition
was financed on an interim basis by the draw down of our bank credit facility of
$1,780.0 million with the remainder  derived from the proceeds of our registered
securities offerings as discussed above.

On July 2, 2001, we completed the sale of our Louisiana Gas  operations to Atmos
Energy  Corp for  $363.4  million  in cash.  The  proceeds  were used to repay a
portion of the borrowings under our bank credit facility.

During 2000, we entered into a forward contract to purchase  9,140,000 shares of
our common  stock.  These  purchases  and others made by us for cash during 2000
were made in  open-market  transactions.  The  forward  amount to be paid in the
future  included a carrying cost,  based on LIBOR plus a spread,  and the dollar
amount  paid for the shares  purchased.  Our  forward  contract  was a temporary
financing arrangement that gave us the flexibility to purchase our stock and pay
for those purchases in future periods.  Pursuant to transition accounting rules,
commencing  December 31, 2000  through June 30, 2001 we were  required to report
our equity  forward  contract as a reduction  to  shareholders'  equity and as a
component of temporary  equity for the gross  settlement  amount of the contract
($150,013,000).  On  June  28,  2001,  we  entered  into a  master  confirmation
agreement  that amended the equity  forward  contract to no longer  permit share
settlement of the contract. On June 29, 2001, we accrued $42,995,000 net cash to
settle a portion of the contract, plus $12,647,000 in associated carrying costs.
In September  2001, we settled the contract by paying the  redemption  amount of
$107,018,000 plus $1,003,000 in associated carrying costs and took possession of
our shares.

On September 4, 2001, our $50 million  debentures matured at par and were repaid
with cash. On October 1, 2001, $99.2 million of our $100 million  debentures due
in 2034 were tendered for  redemption  at par in accordance  with the put option
granted to debenture holders at the time of issuance. These debentures were also
repaid with cash.

For the nine months ended  September 30, 2001, our actual  capital  expenditures
were $256.0 million for the ILEC segment,  $43.9 million for the ELI segment and
$71.3 million for the public  utilities  services  segments which includes $20.7
million  for the water and  wastewater  segment.  We  anticipate  that the funds
necessary for our 2001 capital expenditures will be provided from operations and
from  commercial  paper  notes  payable,  debt,  equity and other  financing  at
appropriate times and borrowings under credit facilities.

Capital  expenditures for discontinued  operations and assets held for sale will
be  funded  through   requisitions  of  Industrial   Development   Revenue  Bond
construction fund trust accounts and from parties desiring utility service. Upon
disposition,  we will  receive  reimbursement  of  certain  1999,  2000 and 2001
capital expenditures pursuant to the terms of each respective sales agreement.

Covenants
- ---------
The terms  and  conditions  contained  in our  indentures  and  credit  facility
agreements  are of a general  nature,  and do not impose  significant  financial
performance  criteria  on us.  These  general  covenants  include the timely and
punctual  payment of principal  and interest  when due, the  maintenance  of our
corporate  existence,  keeping  proper  books  and  record  in  accordance  with
Generally Accepted Accounting  Principles (GAAP),  restrictions on the allowance
of liens on our assets,  and restrictions on asset sales and transfers,  mergers
and other changes in corporate control. We currently have no restrictions on the
payment of dividends by us either by contract, rule or regulation.

The  principal  financial  performance  covenant  under our $805 million  credit
facility and our $200 million loan  facility  with the rural  telephone  finance
cooperative which were entered into on October 24, 2001 requires the maintenance
of a minimum  net worth of $1.5  billion.  Under  the  rural  telephone  finance
cooperative  loan  facility,  in the event that our credit  rating  from  either
Moody's  Investors  Service or Standard & Poor's declines below investment grade
(Baa3/BBB-,  respectively),  we would also be  required  to maintain an interest
coverage  ratio of 2.00 to 1 or  greater  and a  leverage  ratio of 6.00 to 1 or
lower.

                                       22
<PAGE>
Acquisitions
- ------------
From May 27, 1999 through July 12, 2000,  we entered into several  agreements to
acquire  telephone  access  lines.  These  transactions  have  been  and will be
accounted for using the purchase method of accounting. The results of operations
of the  acquired  properties  have been and will be  included  in our  financial
statements from the dates of acquisition of each property.  These agreements and
the status of each transaction are described as follows:

     Verizon Acquisition
     -------------------
     Between May and December  1999,  we announced  agreements  to purchase from
     Verizon  Communications Inc., formerly GTE Corp.  (Verizon),  approximately
     381,200  telephone  access  lines (as of  December  31,  2000) in  Arizona,
     California,  Illinois/Wisconsin,  Minnesota and Nebraska for  approximately
     $1,171.0 million in cash. To date, we have closed on approximately  317,500
     telephone access lines. We have received all necessary regulatory approvals
     and expect that the  acquisition  of the remaining  access lines in Arizona
     and  California  will close during 2002.  Our expected cash  requirement to
     complete the Verizon acquisitions is $222.8 million.

     Qwest Acquisition - termination
     -------------------------------
     In June 1999, we announced  agreements to purchase from Qwest approximately
     556,800  telephone  access  lines (as of  December  31,  2000) in  Arizona,
     Colorado,  Idaho/Washington,  Iowa,  Minnesota,  Montana,  Nebraska,  North
     Dakota  and  Wyoming  for  approximately  $1,650.0  million in cash and the
     assumption of certain liabilities.  To date, we have closed on the purchase
     of  approximately  17,000  telephone  access  lines  in  North  Dakota  for
     approximately  $38.0 million in cash.  On July 20, 2001, we notified  Qwest
     that we were terminating eight  acquisition  agreements with Qwest relating
     to  telephone  exchanges  in  Arizona,  Colorado,  Idaho/Washington,  Iowa,
     Minnesota,   Montana,  Nebraska  and  Wyoming  for  the  remaining  539,800
     telephone  access  lines.  Qwest  subsequently  filed a notice of claim for
     arbitration in Denver, Colorado under the rules of the American Arbitration
     Association with respect to the terminated  acquisition  agreements.  Qwest
     asserts  that we  wrongfully  terminated  these  agreements  and is seeking
     approximately $64.0 million,  which is the aggregate of liquidation damages
     under  letters  of  credit   established  in  the  terminated   acquisition
     agreements.  We have  filed a  notice  of  claim  in the  same  arbitration
     proceeding,  contesting  Qwest's asserted claims and asserting  substantial
     claims against Qwest for material breaches of  representations,  warranties
     and  covenants  in  the  terminated   acquisition  agreements  and  in  the
     acquisition  agreement  relating to North  Dakota  assets that we purchased
     from Qwest.

     Frontier Acquisition
     --------------------
     On June 29, 2001, we purchased from Global  Crossing Ltd.  (Global) 100% of
     the  stock  of  Frontier   Corp.'s   (Frontier)   local  exchange   carrier
     subsidiaries,  which owned  approximately  1,096,700 telephone access lines
     (as of December 31, 2000) in Alabama/Florida,  Georgia, Illinois,  Indiana,
     Iowa,  Michigan,   Minnesota,   Mississippi,  New  York,  Pennsylvania  and
     Wisconsin,   for  approximately   $3,370.0  million  in  cash,  subject  to
     adjustment.  The  operations  of Frontier  are  included  in our  financial
     statements from the date of acquisition.

Divestitures
- ------------
On August 24, 1999, our Board of Directors  approved a plan of  divestiture  for
our public utilities services businesses,  which include gas, electric and water
and wastewater businesses.  Currently,  we have agreements to sell all our water
and wastewater operations, one of our electric operations and one of our natural
gas operations and we have sold another of our natural gas  operations.  We have
received  proceeds on the sale of assets of $363.4 million,  and have agreements
to sell assets for an  aggregate  of $1,026.0  million  plus the  assumption  of
certain  liabilities and debt. The purchase price under one of these  agreements
may be  reduced.  These  agreements  and  the  status  of each  transaction  are
described as follows:

     Water and Wastewater
     --------------------
     On October 18,  1999,  we  announced  the  agreement  to sell our water and
     wastewater  operations to American Water Works,  Inc. for $745.0 million in
     cash and $90.0 million of assumed  debt.  This  transaction  is expected to
     close in the fourth quarter of 2001.

     Electric
     --------
     On February 15, 2000, we announced  that we had agreed to sell our electric
     utility  operations.  The Arizona and Vermont electric divisions were under
     contract to be sold to Cap Rock Energy Corp. (Cap Rock). The agreement with
     Cap Rock was  terminated  on  March  7,  2001.  We  intend  to  pursue  the
     disposition of the Vermont and Arizona electric  divisions with alternative
     buyers.  In August 2000, the Hawaii Public Utilities  Commission denied the
     initial  application  requesting  approval  of the  purchase  of our  Kauai

                                       23
<PAGE>
     electric  division by the Kauai Island Electric Co-op for $270.0 million in
     cash including the assumption of certain  liabilities.  We are discussing a
     reduction of the purchase  price and other  options.  Our agreement for the
     sale of this  division  may be  terminated  if  regulatory  approval is not
     received before February 2002.

     Gas
     ---
     On July 2, 2001, we completed  the sale of our Louisiana Gas  operations to
     Atmos Energy  Corporation  for $363.4  million in cash. The pre-tax gain on
     the sale recognized in the third quarter was approximately $139.3 million.

     In July 2001,  an agreement was signed to sell the Colorado Gas division to
     Kinder Morgan for $11.0 million in cash. This  transaction has received all
     necessary  regulatory  approvals  and is  expected  to close in the  fourth
     quarter of 2001.

Discontinued  operations in the  consolidated  statements of income  reflect the
results of operations of the  water/wastewater  properties  including  allocated
interest  expense for the periods  presented.  Interest expense was allocated to
the  discontinued   operations  based  on  the  outstanding  debt   specifically
identified with these businesses. The long-term debt presented in liabilities of
discontinued operations represents the only liability to be assumed by the buyer
pursuant to the water and wastewater asset sale agreements.

We initially  accounted for the planned  divestiture of all the public utilities
services  properties  as  discontinued  operations.  Currently,  we do not  have
agreements  to sell our  entire  gas and  electric  segments.  Consequently,  we
reclassified all of our gas and electric assets and their related liabilities to
"assets  held for sale" and  "liabilities  related  to  assets  held for  sale,"
respectively.  We  also  reclassified  the  results  of  these  operations  from
discontinued  operations to their original income statement  captions as part of
continuing operations. Additionally, we ceased to record depreciation expense on
the gas assets  effective  October 1, 2000 and on the electric assets  effective
January 1, 2001. Such  depreciation  expense would have been an additional $11.4
million  and $39.5  million for the three and nine months  ended  September  30,
2001, respectively.  We continue to actively pursue buyers for our remaining gas
and electric businesses.

Discontinuation of SFAS 71
- --------------------------

Prior to the 2000 and 2001  acquisitions  of the  Verizon,  Qwest  and  Frontier
Properties,   our  incumbent  local  exchange  telephone  properties  have  been
predominantly  regulated  following a cost of service/rate  of return  approach.
Accordingly, we have applied the provisions of Statement of Financial Accounting
Standards (SFAS) No. 71 in the preparation of our financial statements.

Currently,  pricing for a majority of our  revenues in our  previously  existing
incumbent local exchange telephone properties is based upon price cap plans that
limit prices to changes in general  inflation and estimates of productivity  for
the industry at large or upon market  pricing  rather than on the specific costs
of operating our business,  a requirement  for the application of SFAS 71. These
trends in the  deregulation  of pricing and the  introduction of competition are
expected to continue as additional  states adopt price cap forms of  regulation.
We intend to operate all of our properties as competitive  enterprises,  to meet
competitive  entry and  maximize  revenue by providing a broad range of products
and services,  such as data services.  Many of these future services will not be
regulated,  further  increasing  the  percentage of our revenue  provided by our
networks that is not based upon historical cost/rate of return regulation.

In the third quarter of 2001, we concluded based on the factors mentioned above,
that the provisions of SFAS 71 were no longer  applicable to our incumbent local
exchange  telephone  properties  (properties we owned prior to the 2000 and 2001
acquisitions  of the  Verizon,  Qwest and Frontier  properties).  As part of the
discontinuation  of SFAS  71,  we  will no  longer  recognize  in our  financial
statements certain activities of regulators.

As  discussed  further in Note 11 of the  financial  statements,  we  recorded a
non-cash  extraordinary  charge  of  $43.6  million  net of  tax  in our  income
statement,  to  write-off  regulatory  assets and  liabilities  recorded  on our
balance sheet in the past.  Based upon our  evaluation of the pace of technology
change that is estimated to occur in certain  components of our rural  telephone
networks,  we have  concluded  that minor  modifications  in our asset lives are
required for the major network  technology  assets and expect that  depreciation
and  amortization  expense  will not differ  significantly  from that  currently
recorded.

In accordance  with the provisions of SFAS 101 and SFAS 121, we performed a test
of the  impairment  of the  property,  plant  and  equipment  accounts  for  our
properties  discontinuing  SFAS 71 and found that based upon our expectations of
future changes in sales volumes and prices and the anticipated  rate of entry of
additional  competition into our markets,  we concluded that an asset impairment
is not warranted under SFAS 121 at this time.

                                       24
<PAGE>

New Accounting Pronouncements
- -----------------------------
In July 2001, the Financial  Accounting  Standards Board (FASB) issued SFAS 141,
"Business  Combinations." This statement requires that all business combinations
be accounted for under the purchase method of accounting. SFAS 141 requires that
the purchase  method of accounting be used for business  combinations  initiated
after June 30, 2001 and prohibits the use of the pooling-of-interests  method of
accounting.  The  Frontier  acquisition,  which  closed  on June  29,  2001,  is
accounted for using the purchase method.

In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible  Assets."
This  statement  requires that goodwill no longer be amortized to earnings,  but
instead  be  reviewed  for  impairment.  Impairment  tests  are  required  to be
performed at least annually.  The  amortization of goodwill ceases upon adoption
of the statement.  The statement is effective for fiscal years  beginning  after
December 15, 2001 for companies whose annual  reporting  period ends on December
31, 2001 and applies to all goodwill and other intangible  assets  recognized in
the statement of financial position at that date,  regardless of when the assets
were  initially  recognized.  We will  cease to  recognize  amortization  of the
goodwill  portion of  intangibles  starting  January 1,  2002.  Amortization  of
intangibles  for the three and nine months  ended  September  30, 2001 was $52.0
million  and  $78.3  million,  respectively.  We will be  required  to test  for
impairment  of goodwill  annually  starting  January 1, 2002.  The amount of any
future impairment, if any, cannot be estimated at this time.

In August  2001,  the FASB issued  SFAS 143,  "Accounting  for Asset  Retirement
Obligations."  This statement  addresses the financial  accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement  costs. SFAS 143 requires that the fair value of
a liability  for an asset  retirement  obligation be recognized in the period in
which it is incurred  if a  reasonable  estimate of fair value can be made.  The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset and reported as a liability. This statement is effective
for fiscal years beginning after June 15, 2002. We are currently  evaluating the
impact of the adoption of SFAS 143.

In October 2001,  the FASB issued SFAS 144,  "Accounting  for the  Impairment or
Disposal of Long-lived  Assets." This statement  establishes a single accounting
model, based on the framework  established in SFAS 121, for long-lived assets to
be disposed of by sale, whether previously held and used or newly acquired,  and
broadens the  presentation of  discontinued  operations to include more disposal
transactions.  This  statement is effective  for fiscal  years  beginning  after
December 15, 2001.  We are  currently  evaluating  the impact of the adoption of
SFAS 144.


                                       25
<PAGE>

(b) Results of Operations
    ---------------------
                                     REVENUE

Consolidated  revenue for the three and nine  months  ended  September  30, 2001
increased $208.4 million, or 46%, and $471.1 million, or 36%,  respectively,  as
compared  with the prior year  periods.  The  increases are primarily due to the
$260.4 million and $382.9 million increases in telecommunications revenue in the
respective  periods.  The increase in the three months ended  September 30, 2001
was partially offset by a decrease of $42.6 million in gas revenue primarily due
to the sale of our Louisiana gas operations on July 2, 2001.
<TABLE>
<CAPTION>
                                  ILEC REVENUE

($ in thousands)                         For the three months ended September 30,  For the nine months ended September 30,
                                         ----------------------------------------  ----------------------------------------
                                               2001           2000      % Change        2001          2000        % Change
                                         -------------- ------------- -----------  ------------- -------------- -----------
<S>                                          <C>           <C>               <C>      <C>            <C>               <C>
Network access services                      $ 189,034     $ 114,725         65%    $   461,549      $ 330,018         40%
Local network  services                        194,398        83,633        132%        390,802        231,557         69%
Long distance and data services                 71,860        26,422        172%        135,144         75,404         79%
Directory services                              25,253         9,376        169%         46,942         27,299         72%
Other                                           26,657        12,611        111%         48,898         36,197         35%
                                         -------------- -------------              ------------- --------------
                                             $ 507,202     $ 246,767        106%    $ 1,083,335      $ 700,475         55%
                                         ============== =============              ============= ==============
</TABLE>

We acquired the Verizon  Nebraska  access  lines on June 30,  2000,  the Verizon
Minnesota  access lines on August 31, 2000,  the Qwest North Dakota access lines
on October 31, 2000 and the Verizon  Illinois/Wisconsin access lines on November
30,  2000  and  Frontier  on June  29,  2001  (collectively  referred  to as the
Acquisitions). The Acquisitions contributed $245.5 million and $350.3 million to
the increase in revenue for the three and nine months ended  September 30, 2001,
respectively, as compared with the prior year periods. The following revenue and
expense  discussion  identifies as  acquisition  activity only that activity for
which there was no  corresponding  amount in the prior period (for example,  the
Verizon  Nebraska  results are not  presented  in  "Acquisitions"  for the three
months ended September 30, 2001).
<TABLE>
<CAPTION>
                                  ACCESS LINES

                                                      As of September 30,
                                           ---------------------------------------------
                                               2001            2000          % Change
                                           --------------   ------------   -------------
<S>                                              <C>           <C>              <C>
              Excluding acquisitions             1,261,406     1,223,876         3%
              Acquisitions                       1,229,058             -
                                           ---------------   ------------
                  Total                          2,490,464     1,223,876
                                           ===============   ============
</TABLE>
 <TABLE>
<CAPTION>
                                 MINUTES OF USE*

(In millions)                     For the three months ended September 30,       For the nine months ended September 30,
                                 -------------------------------------------   -------------------------------------------
                                     2001          2000         % Change          2001            2000         % Change
                                 ------------- -------------  --------------   ------------   -------------  -------------
<S>                                  <C>           <C>            <C>              <C>             <C>            <C>
Excluding acquisitions               1,676         1,454          15%              5,037           4,157          21%
Acquisitions                         1,426             -                           1,817               -
                                 ------------- -------------                   ------------   -------------
    Total                            3,102         1,454                           6,854           4,157
                                 ============= =============                   ============   =============
</TABLE>

*Acquisitions  represent  minutes of use  from entities acquired after September
30, 2000.

Network access  services  revenue for the three months ended  September 30, 2001
increased  $74.3  million,  or 65%,  as  compared  with the  prior  year  period
primarily due to the impact of the Acquisitions  which contributed $62.9 million
to the increase. Growth in special access and subsidies contributed $8.1 million
and $4.9 million,  respectively.  These increases were partially  offset by $3.3
million in rate  decreases  in effect as of July 1, 2001.  Network  access  also
includes a reclassification of $4.0 million in revenue reported as local network
services revenue in the prior year.


                                       26
<PAGE>

Network  access  services  revenue for the nine months ended  September 30, 2001
increased  $131.5  million,  or 40%,  as  compared  with the prior  year  period
primarily due to the impact of the Acquisitions which contributed $107.4 million
to the increase. Growth in minutes of use contributed $3.7 million and growth in
special  access and  subsidies  contributed  $11.5  million  and $12.3  million,
respectively.  These  increases were  partially  offset by $7.7 million from the
effect of the FCC's CALLS  mandate  which  reduced  access  charges paid by long
distance  companies  and $3.3 million in rate  decreases in effect as of July 1,
2001.  Network  access  also  includes a  reclassification  of $10.3  million in
revenue reported as local network services revenue in the prior year.

Local  network  services  revenue for the three months ended  September 30, 2001
increased  $110.8  million,  or 132%,  as  compared  with the prior year  period
primarily due to the impact of the Acquisitions which contributed $110.6 million
to the increase and growth in enhanced  services of $3.2 million.  Local network
services  revenue also  reflects a reduction  for the  reclassification  of $4.0
million in revenue reported as network access revenue in the prior year.

Local  network  services  revenue for the nine months ended  September  30, 2001
increased  $159.2  million,  or 69%,  as  compared  with the prior  year  period
primarily due to the impact of the Acquisitions which contributed $161.9 million
to the increase and growth in enhanced  services of $5.5 million.  Local network
services  revenue also  reflects a reduction for the  reclassification  of $10.3
million in revenue reported as network access revenue in the prior year.

Long distance and data services revenue for the three months ended September 30,
2001 increased  $45.4  million,  or 172%, as compared with the prior year period
primarily due to the impact of the  Acquisitions,  including  the  long-distance
revenue  associated  with  Frontier,  which  contributed  $38.5  million  to the
increase,  growth in Digital Subscriber Line (DSL) and Internet services of $2.1
million,  growth  related to data and  dedicated  circuits  of $1.8  million and
growth in long distance services of $1.4 million.

Long distance and data services  revenue for the nine months ended September 30,
2001  increased  $59.7  million,  or 79%, as compared with the prior year period
primarily due to the impact of the  Acquisitions,  principally the long-distance
and data revenue  associated with Frontier,  which  contributed $41.6 million to
the  increase,  growth in DSL and  Internet  services  of $4.9  million,  growth
related  to data and  dedicated  circuits  of $4.3  million  and  growth in long
distance services of $6.8 million.

Directory  services  revenue  for the three  months  ended  September  30,  2001
increased  $15.9  million,  or 169%,  as  compared  with the prior  year  period
primarily due to the impact of the Acquisitions  which contributed $15.2 million
to the increase and growth of $0.7 million.

Directory  services  revenue  for the  nine  months  ended  September  30,  2001
increased  $19.6  million,  or 72%,  as  compared  with the  prior  year  period
primarily due to the impact of the Acquisitions  which contributed $18.5 million
to the increase and growth of $1.2 million.

Other  revenue for the three months ended  September  30, 2001  increased  $14.0
million,  or 111%,  as compared  with the prior year  period.  The  Acquisitions
contributed  $18.3  million  to the  increase  which was  partially  offset by a
decrease of $5.4 million in miscellaneous revenue categories.

Other  revenue for the nine months  ended  September  30, 2001  increased  $12.7
million,  or 35%,  as  compared  with the prior year  period.  The  Acquisitions
contributed  $20.9  million  to the  increase  which was  partially  offset by a
decrease of $8.2 million in miscellaneous revenue categories.


                                       27
<PAGE>
<TABLE>
<CAPTION>

                                   ELI REVENUE

($ in thousands)                         For the three months ended September 30,  For the nine months ended September 30,
                                         ----------------------------------------  ----------------------------------------
                                               2001           2000      % Change        2001          2000        % Change
                                         -------------- ------------- -----------  ------------- -------------- -----------
<S>                                           <C>           <C>              <C>      <C>            <C>               <C>
Network services                              $ 26,077      $ 21,627         21%      $  77,966      $  54,804         42%
Local telephone services                        14,450        25,187        -43%         58,114         75,412        -23%
Long distance services                           3,131         3,728        -16%          9,314         12,590        -26%
Data services                                    9,672        13,068        -26%         30,927         38,202        -19%
                                         -------------- -------------              ------------- --------------
                                                53,330        63,610        -16%        176,321        181,008         -3%
Intersegment revenue  *                         (1,081)         (769)        N/A         (3,013)        (2,096)        N/A
                                         -------------- -------------              ------------- --------------
                                              $ 52,249      $ 62,841        -17%      $ 173,308      $ 178,912         -3%
                                         ============== =============              ============= ==============
</TABLE>

*Intersegment revenue reflects revenue received by ELI from our ILEC operations.

Included in revenue for the three and nine months  ended  September  30, 2001 is
approximately   $0.2  million  and  $4.0  million,   respectively,   of  revenue
representing a "net  settlement" of past billing disputes between ELI and Qwest.
Additionally,  we are currently  providing  service to customers that have filed
for  protection  under  Chapter  11 of  the  Bankruptcy  Code.  Of  our  largest
twenty-five customers, two are under Chapter 11 protection.  These two customers
contribute approximately $0.4 million of revenue monthly.

Network  services  include Private Line Interstate  (Long Haul) and Private Line
Intrastate  (MAN).  Network services revenue for the three and nine months ended
September 30, 2001  increased $4.4 million,  or 21%, and $23.2 million,  or 42%,
respectively,  as compared with the prior year  periods.  The increase is due to
continued  growth in our  network  and sales of  additional  circuits to new and
existing customers.

     Revenue for the three and nine  months  ended  September  30, 2001 from our
     Long Haul  services  decreased  $0.1 million,  or .4%, and  increased  $5.8
     million, or 21%, respectively, as compared with the prior year periods.

     Revenue for the three and nine months ended September 30, 2001 from our MAN
     services  increased  $4.5  million,  or 43%,  and  $17.4  million,  or 63%,
     respectively, as compared with the prior year periods.

Local telephone  services  revenue for the three and nine months ended September
30,  2001  decreased  $10.7  million,   or  43%,  and  $17.3  million,  or  23%,
respectively,  as compared with the prior year periods. Local telephone services
include  ISDN  PRI,  dial  tone,   Carrier   Access   Billings  and   reciprocal
compensation.
<TABLE>
<CAPTION>

($ In thousands)                    For the three months ended September 30,  For the nine months ended September 30,
                                    ----------------------------------------  ----------------------------------------
                                          2001           2000      % Change        2001          2000        % Change
                                    -------------- ------------- -----------  ------------- -------------- -----------
<S>                                    <C>             <C>              <C>       <C>            <C>             <C>
ISDN PRI                               $    6,788      $   9,296       -27%       $ 21,572       $ 25,527       -15%
Dial tone                                   3,614          5,509       -34%         12,845         14,258       -10%
Carrier access billings                     1,351          1,180        14%          5,275          6,399       -18%
Reciprocal compensation                     2,697          9,202       -71%         18,422         29,228       -37%
                                    -------------- -------------              ------------- --------------
                                       $   14,450      $  25,187       -43%       $ 58,114       $ 75,412       -23%
                                    ============== =============              ============= ==============
</TABLE>

     ISDN PRI  revenue for the three and nine months  ended  September  30, 2001
     decreased $2.5 million, or 27%, and $3.9 million, or 15%, respectively,  as
     compared  with the prior year periods  primarily  due to a decrease in ISDN
     revenue to three  customers  resulting from less demand for ISDN PRI trunks
     servicing internet routers.

     Dial tone revenue decreased $1.9 million, or 34%, and $1.4 million, or 10%,
     respectively, as compared with the prior year periods, primarily due to the
     bankruptcy of a customer,  and decreased  installation  fees resulting from
     fewer new customers.


                                       28
<PAGE>

     Reciprocal  compensation  revenue  for the  three  and  nine  months  ended
     September 30, 2001  decreased $6.5 million,  or 71%, and $10.8 million,  or
     37%, respectively, as compared with the prior year periods. The decrease is
     due to a decrease in average monthly minutes processed of 211.0 million, or
     18%, and 93.3 million, or 8%, for the three and nine months ended September
     30, 2001,  respectively,  as compared with the prior year periods and lower
     weighted average rates per minute.

     ELI has various interconnection agreements with Qwest, Verizon and PacBell,
     the  ILECs in the  states in which it  operates.  These  agreements  govern
     reciprocal  compensation  relating  to the  transport  and  termination  of
     traffic  between  the  ILEC's  networks  and  our  network.   We  recognize
     reciprocal  compensation  revenues  as  earned,  based on the  terms of the
     interconnection agreements.

Long distance services revenue for the three and nine months ended September 30,
2001 decreased $0.6 million, or 16%, and $3.3 million, or 26%, respectively,  as
compared  with the prior year  periods.  The  decrease  is due to a decrease  in
wholesale  average  monthly  minutes  processed of 3.3 million,  or 20%, and 4.5
million or 25%,  for the three and nine months  ended  September  30,  2001,  as
compared  to prior  year  periods.  The  decrease  is also  attributable  to the
discontinuation of the Voice Solutions portion of our business.

Data services  include  Internet,  RSVP,  Frame Relay and other  services.  Data
services  revenue  for the  three  and nine  months  ended  September  30,  2001
decreased  $3.4 million,  or 26%, and $7.3  million,  or 19%,  respectively,  as
compared  with the  prior  year  periods,  primarily  due to the  expiration  on
February  28,  2001  of an  18-month  take-or-pay  contract  with a  significant
customer. This take-or-pay contract was not renewed.
<TABLE>
<CAPTION>

                                   GAS REVENUE

($ in thousands)            For the three months ended September 30,  For the nine months ended September 30,
                            ----------------------------------------  ----------------------------------------
                                 2001           2000       % Change        2001          2000        % Change
                            -------------- ------------- -----------  ------------- -------------- -----------
<S>                            <C>            <C>             <C>       <C>             <C>             <C>
Gas revenue                    $ 37,717       $ 80,332       -53%       $ 360,387       270,753         33%
</TABLE>

Gas revenue for the three  months  ended  September  30,  2001  decreased  $42.6
million,  or 53%, as compared  with the prior year period  primarily  due to the
sale of our  Louisiana gas  operations.  There was no revenue from the Louisiana
gas  operations  for the three  months ended  September  30, 2001 since the sale
closed on July 2, 2001.

Gas  revenue for the nine  months  ended  September  30,  2001  increased  $89.6
million, or 33%, as compared with the prior year period, primarily due to higher
purchased  gas  costs  and  increased  consumption.   Under  tariff  provisions,
increases in our costs of gas purchased are largely passed on to customers.  The
increase  was  partially  offset  by  decreased  revenue  due to the sale of our
Louisiana  gas  operations  on  July  2,  2001.   Included  in  gas  revenue  is
approximately  $203.5  million for the nine months ended  September  30, 2001 of
revenue from our Louisiana gas operations.  This revenue will not continue since
the sale closed on July 2, 2001.
<TABLE>
<CAPTION>

                                ELECTRIC REVENUE

($ in thousands)              For the three months ended September 30,  For the nine months ended September 30,
                              ----------------------------------------  ----------------------------------------
                                  2001           2000       % Change        2001          2000        % Change
                              -------------- ------------- -----------  ------------- -------------- -----------
<S>                              <C>           <C>              <C>      <C>            <C>               <C>
 Electric revenue                $ 63,953      $ 62,770         2%       $ 174,114      $ 169,879         2%

</TABLE>

Electric  revenue  for the  three  and nine  months  ended  September  30,  2001
increased  $1.2  million,  or 2%,  and $4.2  million,  or 2%,  respectively,  as
compared  with the prior year  periods,  primarily  due to  customer  growth and
increased consumption due to warmer weather conditions.

                                       29
<PAGE>
<TABLE>
<CAPTION>

                                COST OF SERVICES

($ in thousands)                         For the three months ended September 30,  For the nine months ended September 30,
                                         ----------------------------------------  ----------------------------------------
                                             2001           2000       % Change        2001          2000        % Change
                                         -------------- ------------- -----------  ------------- -------------- -----------
<S>                                        <C>            <C>              <C>      <C>           <C>               <C>
Gas purchased                              $  24,988      $  48,182       -48%      $ 252,065     $ 148,238         70%
Electric energy and fuel oil purchased        36,149         32,540        11%         95,804        84,514         13%
Network access                                63,078         34,544        83%        132,008       108,183         22%
Eliminations  *                               (1,001)          (769)       N/A         (2,770)       (2,096)        N/A
                                         -------------- -------------              ------------- --------------
                                           $ 123,214      $ 114,497         8%      $ 477,107      $338,839         41%
                                         ============== =============              ============= ==============
</TABLE>

*Eliminations  represent  expenses  incurred by our ILEC  operations  related to
network services provided by ELI.

Gas purchased  for the three months ended  September  30, 2001  decreased  $23.2
million,  or 48%, as compared  with the prior year period,  primarily due to the
sale  of our  Louisiana  gas  operations.  There  was no gas  purchased  for the
Louisiana gas operations for the three months ended September 30, 2001 since the
sale closed on July 2, 2001.

Gas purchased  for the nine months ended  September  30, 2001  increased  $103.8
million,  or 70%, as compared  with the prior year period,  primarily  due to an
increase in the cost of gas. Under tariff provisions,  increases in our costs of
gas  purchased are largely  passed on to  customers.  The increase was partially
offset  by  decreased  gas  purchased  due to the  sale  of  our  Louisiana  gas
operations on July 2, 2001.  Included in gas purchased is  approximately  $161.3
million for the nine months  ended  September  30,  2001,  respectively,  of gas
purchased by our Louisiana gas operations. This cost will not continue since the
sale of our Louisiana gas operations closed on July 2, 2001.

Electric  energy  and fuel oil  purchased  for the three and nine  months  ended
September 30, 2001  increased $3.6 million,  or 11%, and $11.3 million,  or 13%,
respectively,  as compared with the prior year periods,  primarily due to higher
purchased power prices,  customer growth and increased consumption due to warmer
weather conditions.

During the past two years the decrease in the  availability  of power in certain
areas of the country has caused power  supply  costs to increase  substantially,
forcing  companies  to pay  higher  operating  costs to operate  their  electric
businesses.  As a result,  companies  have  attempted to offset these  increased
costs by either renegotiating prices with their power suppliers or passing these
additional costs on to their customers  through a rate  proceeding.  In Arizona,
excessive   power  costs  charged  by  our  power  supplier  in  the  amount  of
approximately $98 million through September 30, 2001 have been incurred.  We are
allowed to recover these charges from ratepayers through the Purchase Power Fuel
Adjustment  clause.  However,  in an  attempt  to  limit  "rate  shock"  to  our
customers,  we requested  in  September  2001 that this  deferred  amount,  plus
interest,  be recovered over a seven-year  period. As a result, we have deferred
these  costs on the  balance  sheet in  anticipation  of  recovery  through  the
regulatory process.

On July 16, 2001,  we  terminated  our  existing  contract  with Arizona  Public
Service  and  entered  into a new  seven-year  purchase  power  agreement.  This
agreement  allows us to purchase all power  required for  operations  at a fixed
rate per kilowatt  hour.  This agreement is retroactive to June 1, 2001 and will
mitigate further increases in the deferred power cost account.

Network access  expenses for the three months ended September 30, 2001 increased
$28.5 million, or 83%, as compared with the prior year period,  primarily due to
the impact of the  Acquisitions  and increased  circuit expense  associated with
additional data product  introductions  partially  offset by a reduction in long
distance access expense related to rate changes in the ILEC sector.

Network access  expenses for the nine months ended  September 30, 2001 increased
$23.8 million, or 22%, as compared with the prior year period,  primarily due to
the impact of the  Acquisitions  and increased  circuit expense  associated with
additional  data product  introductions  and an Internet  remote call forwarding
adjustment  partially  offset by a reduction  in long  distance  access  expense
related to rate changes in the ILEC sector and reduced variable costs at ELI.

                                       30
<PAGE>
<TABLE>
<CAPTION>

                      DEPRECIATION AND AMORTIZATION EXPENSE

($ in thousands)                For the three months ended September 30,  For the nine months ended September 30,
                                ----------------------------------------  ----------------------------------------
                                      2001           2000       % Change        2001          2000        % Change
                                -------------- ------------- -----------  ------------- -------------- -----------
<S>                                 <C>            <C>              <C>      <C>            <C>               <C>
Depreciation  expense               $ 141,709      $ 92,004         54%      $ 335,452      $ 273,198         23%
Amortization expense                   51,953         3,855       1248%         78,282          5,285       1381%
                                -------------- -------------              ------------- --------------
                                    $ 193,662      $ 95,859        102%      $ 413,734      $ 278,483         49%
                                ============== =============              ============= ==============
</TABLE>

Depreciation  expense for the three and nine  months  ended  September  30, 2001
increased $49.7 million,  or 54%, and $62.3 million,  or 23%,  respectively,  as
compared  with the  prior  year  periods,  primarily  due to the  impact  of the
Acquisitions of $47.1 million and $78.5 million,  respectively, and $8.8 million
of  accelerated  depreciation  related  to the  change  in  useful  life  of our
accounting  and human  resource  systems and our Plano,  Texas office  building,
land,  furniture and fixtures as a result of our restructuring.  The accelerated
depreciation will continue over the next nine months.  The incremental  increase
to depreciation is estimated to be $13.2 million,  $11.9 million and $.9 million
for the fourth  quarter  of 2001,  first  quarter of 2002 and second  quarter of
2002,  respectively.  Higher  property,  plant  and  equipment  balances  in the
telecommunications  and  ELI  sectors  also  contributed  to the  increase.  The
increases were partially offset by decreased depreciation expense related to our
classifying  our gas and  electric  sectors  as  "assets  held for  sale"  which
requires us to cease depreciating these assets. Such depreciation  expense would
have been an  additional  $11.4 million and $39.5 million for the three and nine
months ended September 20, 2001, respectively.  The increase for the nine months
ended  September  30,  2001 is also  offset by $17.4  million  in the prior year
period of  accelerated  depreciation  related to the change in useful life of an
operating system in the telecommunications sector.

Amortization  expense for the three and nine  months  ended  September  30, 2001
increased $48.1 million, or 1,248%, and $73.0 million, or 1,381%,  respectively,
as  compared  with the prior year  periods,  primarily  due to  amortization  of
goodwill  of $47.6  million  and $71.0  million,  respectively,  related  to the
Acquisitions.
<TABLE>
<CAPTION>

                            OTHER OPERATING EXPENSES

($ in thousands)                    For the three months ended September 30,  For the nine months ended September 30,
                                    ----------------------------------------  ----------------------------------------
                                         2001           2000       % Change        2001          2000        % Change
                                    -------------- ------------- -----------  ------------- -------------- -----------
<S>                                     <C>           <C>               <C>      <C>            <C>               <C>
Operating expenses                      $ 203,625     $ 143,888         42%      $ 506,861      $ 427,465         19%
Taxes other than income taxes              34,789        25,704         35%         85,062         80,793          5%
Sales and marketing                        29,478        17,781         66%         71,049         55,169         29%
                                    -------------- -------------              ------------- --------------
                                        $ 267,892     $ 187,373         43%      $ 662,972      $ 563,427         18%
                                    ============== =============              ============= ==============
</TABLE>

Operating  expenses  for the three and nine  months  ended  September  30,  2001
increased $59.7 million, or 42%, and $79.4 million, or 19%, as compared with the
prior year  periods,  primarily due to increased  operating  expenses due to the
impact of the  Acquisitions.  The increases were  partially  offset by decreased
operating  expenses at ELI primarily due to a reduction in personnel,  increased
operating  efficiencies in the  telecommunications  sector,  decreased operating
expenses  in the gas  sector  primarily  due to the  sale of the  Louisiana  gas
operations on July 2, 2001, and a decrease in  compensation  expense  related to
variable stock plans. A $1.00 change in our stock price can impact  compensation
expense by $1.0 million annually.

Taxes other than income taxes increased $9.1 million,  or 35%, and $4.3 million,
or 5%, respectively,  as compared with the prior year periods, primarily due the
impact of the Acquisitions. The increase for the nine months ended September 30,
2001 was partially offset by franchise tax refunds received by the gas sector.

Sales and marketing expenses increased $11.7 million, or 66%, and $15.9 million,
or 29%, respectively,  as compared with the prior year periods, primarily due to
the  impact  of the  Acquisitions  and  increased  telemarketing  costs  in the
telecommunications sector.


                                       31
<PAGE>
<TABLE>
<CAPTION>
                             RESTRUCTURING EXPENSES

($ in thousands)               For the three months ended September 30,  For the nine months ended September 30,
                               ----------------------------------------  ----------------------------------------
                                    2001           2000       % Change        2001          2000        % Change
                               -------------- ------------- -----------  ------------- -------------- -----------
<S>                               <C>             <C>           <C>        <C>             <C>             <C>
 Restructuring expenses           $ 13,002        $    -        100%       $ 13,002        $    -          100%
</TABLE>

Restructuring  expenses of $13.0  million  for the three and nine  months  ended
September 30, 2001 is related to our plan to close our operations support center
in Plano,  Texas by April 2002. The  restructuring  resulted in the reduction of
749  employees.  These  expenses  primarily  consist  of  severance,   benefits,
retention,  early lease  termination  costs and other planning and communication
costs. We expect to incur additional costs of approximately  $3,128,000  through
the first quarter of 2002.
<TABLE>
<CAPTION>
                        ACQUISITION ASSIMILATION EXPENSE

($ in thousands)                         For the three months ended September 30,  For the nine months ended September 30,
                                         ----------------------------------------  ----------------------------------------
                                             2001           2000       % Change        2001          2000        % Change
                                         -------------- ------------- -----------  ------------- -------------- -----------
<S>                                        <C>           <C>              <C>        <C>           <C>              <C>
 Acquisition assimilation expense          $ 5,119       $ 12,539        -59%        $ 17,665      $ 24,130        -27%

</TABLE>
Acquisition assimilation expense of $5.1 million and $12.5 million for the three
months ended  September 30, 2001 and 2000,  respectively,  and $17.7 million and
$24.1  million  for  the  nine  months  ended   September  30,  2001  and  2000,
respectively,  is related  to the  completed  and  pending  acquisitions.  These
expenses represent incremental costs incurred by us in advance of the respective
acquisitions  which are  solely  related to  preparation  for  businesses  to be
acquired  and have no  relationship  with  then  existing  operations,  and as a
result, have no revenue offset.  Costs incurred during 2001 were significant due
to the unprecedented level of planned and completed acquisitions.  We anticipate
a lower level of assimilation  expense associated with our pending  acquisitions
in  California  and  Arizona  which  are  expected  to close  in 2002.  Material
components of acquisition expenses include incremental pre-staffing and training
costs incurred in anticipation of  acquisitions,  incremental  costs  associated
with the  integration  of the acquired  networks into our existing  networks and
network  operating  center,  and costs  associated  with the preparation for the
conversion of billing, accounting and plant records.
<TABLE>
<CAPTION>
                                OPERATING INCOME

($ in thousands)          For the three months ended September 30,  For the nine months ended September 30,
                          ----------------------------------------  ----------------------------------------
                              2001           2000       % Change        2001          2000        % Change
                          -------------- ------------- -----------  ------------- -------------- -----------
<S>                        <C>            <C>              <C>       <C>            <C>              <C>
Operating Income           $ 58,232       $ 42,442         37%       $ 206,664      $ 115,140        79%
</TABLE>
Operating  income  for the  three  and nine  months  ended  September  30,  2001
increased $15.8 million,  or 37%, and $91.5 million,  or 79%,  respectively,  as
compared with prior year periods,  primarily due to ILEC growth and acquisitions
partially  offset  by the  restructuring  expenses  and  increased  ELI  losses.
Included in operating income is approximately  $11.8 million of operating income
for the nine months ended  September 30, 2001 from our Louisiana gas operations.
This  operating  income will not continue  since the sale of our  Louisiana  gas
operations closed on July 2, 2001.
<TABLE>
<CAPTION>
              INVESTMENT AND OTHER INCOME, NET / MINORITY INTEREST
                          INTEREST EXPENSE/INCOME TAXES

($ in thousands)                         For the three months ended September 30,  For the nine months ended September 30,
                                         ----------------------------------------  ----------------------------------------
                                             2001           2000       % Change        2001          2000        % Change
                                         -------------- ------------- -----------  ------------- -------------- -----------
<S>                                          <C>            <C>            <C>       <C>             <C>              <C>
Investment and other income, net             $   3,070      $  5,096      -40%       $  16,495       $  14,913        11%
Gain on sale of assets                       $ 139,304      $      -      100%       $ 139,304       $       -       100%
Minority interest                            $       -      $      -        -        $       -       $  12,222      -100%
Interest expense                             $ 123,452      $ 49,559      149%       $ 258,033       $ 128,899       100%
Income taxes                                 $  39,610      $   (202)       -        $  49,183       $   5,096         -
</TABLE>


                                       32
<PAGE>
Investment and other income,  net for the three months ended  September 30, 2001
decreased  $2.0  million,  or 40%,  as  compared  with the  prior  year  period,
primarily due to lower average investment balances. Investment and other income,
net for the nine months ended September 30, 2001 increased $1.6 million, or 11%,
as compared with the prior year period,  primarily due to increased  income from
higher money market balances resulting from the temporary investment of proceeds
from debt  issuances,  an increase in the equity  component of the allowance for
funds used during  construction  (AFUDC) and increases in  miscellaneous  income
items.

Gain on sale of assets for the three and nine months  ended  September  30, 2001
represents the gain  recognized from the sale of our Louisiana Gas operations to
Atmos Energy Corporation on July 2, 2001.

Minority  interest,  as  presented  on  the  income  statement,  represents  the
minority's  share of ELI's  net loss  which we were able to  recognize  in prior
periods to the extent of minority  interest on our balance sheet. As of June 30,
2000,  the  minority  interest  on the balance  sheet had been  reduced to zero.
Therefore,  from that point going forward,  we discontinued  recording  minority
interest  income on our  income  statement,  as there is no  obligation  for the
minority interests to provide additional funding for ELI.

Interest  expense for the three months ended  September 30, 2001 increased $73.9
million,  or 149%,  as compared  with the prior year  periods,  primarily due to
$39.2  million of interest  expense on our $1.75  billion of notes issued in May
2001,  $17.5 million of interest expense on our $1.75 billion of notes issued in
August,  2001,  $2.9  million of interest  expense on our lines of credit,  $8.0
million of  interest  expense on our equity  units  issued in June 2001 and $3.1
million for  amortization  of costs  associated  with our committed  bank credit
facilities and $3.2 million of increased  amortization of debt discount expense.
During the three months ended September 30, 2001, we had average  long-term debt
outstanding  of $6.3 billion  compared to $2.7  billion  during the three months
ended  September 30, 2000.  Our composite  average  borrowing  rate paid for the
three months ended September 30, 2001 as compared with the prior year period was
51 basis  points  higher,  increasing  from  6.87% to 7.38% due to the impact of
higher interest rates on our new borrowings.

Interest  expense for the nine months ended September 30, 2001 increased  $129.1
million,  or 100%,  as compared  with the prior year  periods,  primarily due to
$56.1  million of interest  expense on our $1.75  billion of notes issued in May
2001,  $17.5 million of interest expense on our $1.75 billion of notes issued in
August 2001,  $26.9 million of interest  expense on our lines of credit,  a $4.2
million increase in ELI's interest expense related to increased borrowings, $9.2
million for  amortization  of costs  associated  with our committed  bank credit
facilities,  $3.7 million of increased amortization of debt discount expense and
$8.9 million of interest expense on our equity units issued in June.  During the
nine months ended September 30, 2001, we had average  long-term debt outstanding
of $4.7 billion  compared to $2.5 billion during the nine months ended September
30, 2000.  Our composite  average  borrowing rate paid for the nine months ended
September  30, 2001 as compared  with the prior year period was 63 basis  points
higher,  increasing  from 6.77% to 7.40%,  due to the impact of higher  interest
rates on our new borrowings.

Income taxes for the three and nine months ended  September  30, 2001  increased
$39.8 million and $44.1 million,  respectively,  as compared with the prior year
periods,  primarily  due to changes  in taxable  income.  The  estimated  annual
effective  tax rate for 2001 and 2000 is 37%.  Income tax  expense for the three
and nine months  ended  September  30,  2000  includes  adjustments  made in the
current period to arrive at this rate.
<TABLE>
<CAPTION>

                             DISCONTINUED OPERATIONS

($ in thousands)          For the three months ended September 30,  For the nine months ended September 30,
                          ----------------------------------------  ----------------------------------------
                               2001           2000       % Change        2001          2000        % Change
                          -------------- ------------- -----------  ------------- -------------- -----------
<S>                            <C>           <C>              <C>       <C>            <C>              <C>
Revenue                        $ 34,451      $ 29,272         18%       $ 87,880       $ 79,913         10%
Operating income               $ 14,832      $  9,716         53%       $ 26,777       $ 19,746         36%
Net income                     $  7,199      $  4,838         49%       $ 11,675       $  8,182         43%
</TABLE>

Revenue  from  discontinued  operations  for the  three  and nine  months  ended
September 30, 2001  increased  $5.2 million,  or 18%, and $8.0 million,  or 10%,
respectively, as compared with the prior year periods, primarily due to customer
growth and new water sales related to the completion of a multi-year $50 million
water pipeline project in Illinois in March 2001.

Operating  income  from  discontinued  operations  for the three and nine months
ended  September 30, 2001 increased $5.1 million,  or 53%, and $7.0 million,  or
36%,  respectively,  as compared with the prior year  periods,  primarily due to
customer  growth  and new  water  sales  related  to the  completion  of a water
pipeline project in Illinois in March 2001.


                                       33
<PAGE>

Net income from  discontinued  operations  for the three and nine  months  ended
September 30, 2001  increased  $2.4 million,  or 49%, and $3.5 million,  or 43%,
respectively,  as  compared  with  prior  year  periods,  primarily  due  to the
respective changes in operating income net of income taxes.
<TABLE>
<CAPTION>

                              EXTRAORDINARY EXPENSE

($ in thousands)                         For the three months ended September 30,  For the nine months ended September 30,
                                         ----------------------------------------  ----------------------------------------
                                             2001           2000       % Change        2001          2000        % Change
                                         -------------- ------------- -----------  ------------- -------------- -----------
Extraordinary expense - discontinuation
of Statement of Financial Accounting
<S>                                        <C>             <C>           <C>       <C>              <C>            <C>
Standards No. 71, net of tax                $ 43,631        $  -          100%      $ 43,631         $   -          100%

</TABLE>

Extraordinary  expense -  discontinuation  of Statement of Financial  Accounting
Standards  No. 71, net of tax,  of $43.6  million  for the three and nine months
ended  September  30, 2001,  relates to the write off of  regulatory  assets and
liabilities  previously  recognized  under SFAS 71.  Deregulation of most of our
local exchange telephone  properties required us to cease application of SFAS 71
in the third  quarter,  resulting  in a non cash  extraordinary  charge of $43.6
million,  net of tax, in our income statement.  See discussion in Note 11 of the
financial statements.
<TABLE>
<CAPTION>

                  NET INCOME/AVAILABLE TO COMMON SHAREHOLDERS/
          NET INCOME AVAILABLE TO COMMON SHAREHOLDERS PER COMMON SHARE

($ in thousands)                         For the three months ended September 30,  For the nine months ended September 30,
                                         ----------------------------------------  ----------------------------------------
                                              2001           2000       % Change        2001          2000        % Change
                                         -------------- ------------- -----------  ------------- -------------- -----------
<S>                                            <C>           <C>            <C>        <C>            <C>              <C>
Net income                                     $  (441)      $ 1,466       -130%       $ 18,633       $ 11,804         58%
Carrying cost of equity forward contracts        1,003             -         n/a         13,650              -         n/a
                                         -------------- ------------- -----------  ------------- -------------- -----------
 Available to common shareholders              $(1,444)      $ 1,466       -198%       $  4,983       $ 11,804        -58%
                                         ============== ============= ===========  ============= ============== ===========

Net income available to common
  shareholders per common share                $ (0.01)      $  0.01       -100%       $   0.02       $   0.05        -60%
</TABLE>

Net income for the three months ended September 30, 2001 decreased $1.9 million,
or 130%, as compared with the prior year period,  primarily due to restructuring
expenses,  extraordinary expense and increased interest expense partially offset
by increased  operating  income and the gain from the sale of our  Louisiana gas
operations.

Net income for the nine months ended  September 30, 2001 increased $6.8 million,
or 58%, as  compared  with the prior year  period,  primarily  due to  increased
operating  income  and the gain from the sale of our  Louisiana  gas  operations
partially offset by restructuring expenses,  extraordinary expense and increased
interest expense.

During 2000, we entered into an equity forward  contract for the  acquisition of
9,140,000  shares  as  part  of  our  share  repurchase  programs.  Pursuant  to
transition accounting rules,  commencing December 31, 2000 through June 30, 2001
we were  required  to report our  equity  forward  contract  as a  reduction  to
shareholders'  equity  and  a  component  of  temporary  equity  for  the  gross
settlement amount of the contract  ($150,013,000).  On June 28, 2001, we entered
into a master confirmation agreement that amended the equity forward contract to
no longer permit share  settlement  of the contract.  We were required to report
the accrued  carrying  costs as a reduction  of net income  available  to common
shareholders.  Accordingly, on June 29, 2001, we accrued $42,995,000 to net cash
settle a portion of the contract, plus $12,647,000 in associated carrying costs.
At September 30, 2001, we settled the contract by paying the  redemption  amount
of $107,018,000 plus $1,003,000 in associated carrying costs.

                                       34
<PAGE>

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Disclosure of primary  market  risks and how they are managed
We are exposed to market risk in the normal  course of our  business  operations
due to ongoing  investing  and  funding  activities.  Market  risk refers to the
potential  change  in fair  value  of a  financial  instrument  as a  result  of
fluctuations in interest rates and equity and commodity  prices.  We do not hold
or issue  derivative  instruments,  derivative  commodity  instruments  or other
financial instruments for trading purposes. As a result, we do not undertake any
specific  actions to cover our  exposure to market risks and we are not party to
any market risk  management  agreements.  Our primary  market risk exposures are
interest rate risk and equity and commodity price risk as follows:

Interest Rate Exposure

Our exposure to market risk for changes in interest  rates relates  primarily to
the interest bearing portion of our investment  portfolio and long term debt and
capital  lease  obligations.  The long term debt and capital  lease  obligations
include  various  instruments  with  various  maturities  and  weighted  average
interest rates.

Our  objectives  in managing our  interest  rate risk are to limit the impact of
interest  rate  changes  on  earnings  and cash  flows and to lower our  overall
borrowing costs. To achieve these objectives,  a majority of our borrowings have
fixed  interest  rates and variable rate debt is refinanced  when  advantageous.
Consequently,  we have no material  future  earnings or cash flow exposures from
changes in interest rates on our long-term debt and capital lease obligations. A
hypothetical 10% adverse change in interest rates would increase the amount that
we pay on our variable  obligations and could result in fluctuations in the fair
value of our fixed  rate  obligations.  Based  upon our  overall  interest  rate
exposure at September 30, 2001, a near-term  change in interest  rates would not
materially affect our consolidated financial position,  results of operations or
cash flows.

Sensitivity analysis of interest rate exposure
At September 30, 2001,  the fair value of our  long-term  debt and capital lease
obligations was estimated to be  approximately  $6,244.6  million,  based on our
overall  weighted  average  rate of 7.8% and our  overall  weighted  maturity of
approximately  12 years.  There  has been no  material  change  in the  weighted
average maturity applicable to our obligations since December 31, 2000. However,
the overall  weighted  average  interest rate  applicable to our obligations has
increased  by   approximately  85  basis  points  since  December  31,  2000.  A
hypothetical  increase of 78 basis points (10% of our overall  weighted  average
borrowing  rate) would result in an approximate  $305.5 million  decrease in the
fair value of our fixed rate obligations.

Equity Price Exposure

Our exposure to market risk for changes in equity prices relate primarily to the
equity portion of our investment portfolio. The equity portion of our investment
portfolio includes marketable equity securities of media and  telecommunications
companies.

Sensitivity analysis of equity price exposure
At September 30, 2001,  the fair value of the equity  portion of our  investment
portfolio was estimated to be $117.1  million.  A  hypothetical  10% decrease in
quoted market prices would result in an  approximate  $11.7 million  decrease in
the fair value of the equity portion of our investment portfolio.

                                       35
<PAGE>

Commodity Price Exposure

We purchase monthly gas future contracts to manage well-defined  commodity price
fluctuations, caused by weather and other unpredictable factors, associated with
our commitments to deliver  natural gas to customers at fixed prices.  Customers
pay for gas service based upon prices that are defined by a tariff.  A tariff is
an agreement with the public utility  commission  that determines the price that
we will charge to the customer. Fluctuations in gas prices are routinely handled
through a pricing  mechanism  called the purchase gas  adjustor  (PGA).  The PGA
allows for a process  whereby any price  change from the agreed upon tariff will
be  settled  as a pass  through  to the  customer.  As a result,  if gas  prices
increase,  the PGA will increase and pass more costs on to the customer.  If gas
prices  decrease,  the PGA will  decrease  and  refunds  will be provided to the
customer.  This  commodity  activity  relates to our gas  businesses  and is not
material to our consolidated financial position or results of operations. In all
instances we take  physical  delivery of the gas supply  purchased or contracted
for.  These  gas  future  contracts  and gas  supply  contracts  are  considered
derivative  instruments  as defined by SFAS 133.  However,  such  contracts  are
excluded from the  provisions  of SFAS 133 since they are purchases  made in the
normal  course of  business  and not for  speculative  purposes.  Based upon our
overall  commodity  price  exposure at September 30, 2001, a material  near-term
change  in the  quoted  market  price of gas  would not  materially  affect  our
consolidated financial position or results of operations.

Disclosure of limitations of sensitivity analysis
Certain  shortcomings  are  inherent in the method of analysis  presented in the
computation  of fair value of financial  instruments.  Actual  values may differ
from those presented should market  conditions vary from assumptions used in the
calculation of the fair value.  This analysis  incorporates only those exposures
that exist as of September  30, 2001.  It does not consider  those  exposures or
positions which could arise after that date. As a result,  our ultimate exposure
with respect to our market risks will depend on the exposures  that arise during
the period and the fluctuation of interest rates and quoted market prices.


                                       36
<PAGE>


                           PART II. OTHER INFORMATION

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES


Item 1.  Legal Proceedings
         -----------------

On July 20, 2001, we notified Qwest  Corporation that we were terminating  eight
acquisition  agreements  with Qwest relating to telephone  exchanges in Arizona,
Colorado, Idaho/ Washington, Iowa, Minnesota,  Montana, Nebraska and Wyoming. On
July 23, 2001,  Qwest  informed us that it intends to file a notice of claim for
arbitration  in Denver,  Colorado  under the rules of the  American  Arbitration
Association with respect to the terminated acquisition agreements. Qwest asserts
that we wrongfully  terminated these agreements and is seeking approximately $64
million in damages,  which is the aggregate of liquidated  damages under letters
of credit  established in the terminated  acquisition  agreements.  We intend to
file a notice of claim in the same arbitration  proceeding,  contesting  Qwest's
asserted  claims and  asserting  substantial  claims  against Qwest for material
breaches  of  representations,   warranties  and  covenants  in  the  terminated
acquisition agreements and in the acquisition agreement relating to North Dakota
assets that we purchased from Qwest.

We are party to  proceedings  arising in the normal course of our business.  The
outcome of individual matters is not predictable.  However,  we believe that the
ultimate resolution of all such matters,  after considering  insurance coverage,
will not have a material  adverse effect on our financial  position,  results of
operations, or our cash flows.

Item 2.  Changes in Securities and Use of Proceeds
         -----------------------------------------
None.

Item 3.  Defaults upon Senior Securities
         -------------------------------
None.

Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------
None.

Item 5.  Other Information
         -----------------

On April 2, 2001, ELI received a notice from the Nasdaq Stock Market,  Inc. that
its stock would be subject to delisting  from the Nasdaq  National  Market after
July 2, 2001  because its Class A Common  Stock failed to maintain a minimum bid
price.

On June 29, 2001, ELI filed an application  for its listing to be transferred to
the Nasdaq SmallCap  Market.  As part of the application  process,  we converted
approximately  25.3  million  shares of our Class B Common  Stock  into the same
number of shares of ELI's Class A Common Stock on August 27, 2001.

On August 31,  2001,  ELI received a notice from Nasdaq  indicating  that it had
failed to comply with the shareholders'  equity, market  capitalization,  market
value/total  assets and revenue and minimum bid price requirements for continued
listing,  and that ELI's stock was,  therefore,  subject to  delisting  from the
Nasdaq  National  Market.  ELI was  granted  a hearing  before a Nasdaq  Listing
Qualifications Panel to review the delisting.

On September 27, 2001, Nasdaq  implemented a moratorium on the minimum bid price
and market  value of public  float  requirements  for  continued  listing on the
Nasdaq Stock Market until January 2, 2002.  ELI received a notice from Nasdaq on
that  date  stating  that as a  result  of that  action  the  hearing  scheduled
regarding  the delisting of ELI's stock had been canceled and ELI's hearing file
closed for now.

As of January 2, 2002,  compliance with the minimum  requirements for listing on
the Nasdaq  National and SmallCap  Markets will start anew. If ELI does not meet
these  requirements for 30 consecutive  days, and is unable to regain compliance
within 90 days,  ELI's stock could be subject to delisting  at that time.  It is
uncertain whether ELI will be able to meet the applicable listing  requirements.
If the  requirements are not met, ELI's Class A Common Stock may not be eligible
for  trading on Nasdaq and ELI  expects it would  trade in the  over-the-counter
market.  If ELI's Class A Common Stock fails to remain  included on Nasdaq,  the
delisting may have a material  adverse impact on the market value of ELI's Class
A Common Stock.

                                       37
<PAGE>


Item 6.   Exhibits and Reports on Form 8-K
          --------------------------------

     a)   Exhibits:

          10.38    Competitive Advance and  Revolving Credit Facility  Agreement
                   for $680,000,000 dated October 24, 2001.

          10.39    Loan Agreement  between  Citizens Communications Company  and
                   Rural Telephone Finance  Cooperative for  $200,000,000  dated
                   October 24, 2001.

     b)   Reports on Form 8-K:

          We filed on Form 8-K on July 2, 2001 under Item 5 "Other  Events"  and
          Item 7 "Financial  Statements,  Exhibits," a press release  announcing
          the completion of our acquisition of Global  Crossing's local exchange
          telephone business, which operates under the name Frontier Telephone.

          We filed on Form 8-K on July 2, 2001 under Item 5 "Other  Events"  and
          Item 7 "Financial  Statements,  Exhibits," a press release  announcing
          that we had  completed  the sale of our  Louisiana  gas  operations to
          Atmos Energy Corporation for approximately $365 million in cash.

          We filed on Form 8-K on July 24, 2001 under Item 5 "Other  Events" and
          Item 7 "Financial  Statements,  Exhibits," a press release  announcing
          that we delivered a notice of termination  of our pending  acquisition
          agreements with Qwest Communications International, Inc.

          We filed on Form 8-K on August 10,  2001  under Item 5 "Other  Events"
          and Item 7 "Financial Statements,  Pro Forma Financial Information and
          Exhibits,"  financial statements of the Frontier business acquired and
          pro forma  financial  information  related  to the  Frontier  business
          acquired and the  disposition  of our  Louisiana  gas  operations  for
          period ended March 31, 2001.

          We  filed on Form 8-K on  August  10,  2001  under  Item 7  "Financial
          Statements,  Exhibits," a press  release  announcing  earnings for the
          quarter and six months ended June 30, 2001 and certain  financial  and
          operating data.

          We filed on Form 8-K on August 15,  2001  under Item 5 "Other  Events"
          and  Item  7  "Financial   Statements,   Exhibits,"  a  press  release
          announcing  that we priced a private  offering $1.75 billion of senior
          notes for resale under Rule 144A of the Securities Act of 1933.

          We filed on Form 8-K on August 22,  2001  under Item 5 "Other  Events"
          and  Item  7  "Financial  Statements,  Exhibits,"  certain  agreements
          related to our private offering of $1.75 billion of senior notes.

          We filed on Form 8-K on September 17, 2001 under Item 5 "Other Events"
          and Item 7 "Financial Statements,  Pro Forma Financial Information and
          Exhibits,"  financial statements of the Frontier business acquired and
          pro forma  financial  information  related  to the  Frontier  business
          acquired,  the remaining Verizon acquisitions and the public utilities
          services dispositions for period ended June 30, 2001.

          We filed on Form 8-K on September 21, 2001 under Item 5 "Other Events"
          and  Item  7  "Financial   Statements,   Exhibits,"  a  press  release
          announcing we received  California  PUC approval to sell our water and
          wastewater operations.


                                       38
<PAGE>





                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES



                                    SIGNATURE



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.






                         CITIZENS COMMUNICATIONS COMPANY
                         -------------------------------
                                  (Registrant)


                          By:   /s/ Robert J. Larson
                                ---------------------------------------
                                  Robert J. Larson
                                  Vice President and Chief Accounting Officer






Date: November 13, 2001




                                       39

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>finalagree.txt
<DESCRIPTION>FINAL AGREEMENT
<TEXT>



                                  $680,000,000

           COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT

                          Dated as of October 24, 2001

                                      among

                         CITIZENS COMMUNICATIONS COMPANY
                                   as Borrower

                                       and

                            THE LENDERS NAMED HEREIN
                                   as Lenders

                                 CITIBANK, N.A.
                              as Syndication Agent

                                       and

                            TD SECURITIES (USA) INC.
                         BEAR STEARNS CORPORATE LENDING
                           as Co-Documentation Agents

                                       and

                            THE CHASE MANHATTAN BANK
                             as Administrative Agent

                           ___________________________


                           J.P. MORGAN SECURITIES INC.
                            SALOMON SMITH BARNEY INC.
                   Joint Lead Arrangers and Joint Bookrunners





<PAGE>

<TABLE>
<CAPTION>
                                Table of Contents

                                                                                                                Page
                                   ARTICLE I

                                  DEFINITIONS

<S>                                                                                                              <C>
SECTION 1.01.         Defined Terms...............................................................................1
SECTION 1.02.         Terms Generally............................................................................13

                                   ARTICLE II

                                   THE CREDITS

SECTION 2.01.         Commitments................................................................................13
SECTION 2.02.         Loans......................................................................................14
SECTION 2.03.         Competitive Bid Procedure..................................................................15
SECTION 2.04.         Standby Borrowing Procedure................................................................17
SECTION 2.05.         Conversions................................................................................18
SECTION 2.06.         Fees.......................................................................................18
SECTION 2.07.         Repayment of Loans.........................................................................19
SECTION 2.08.         Interest on Loans..........................................................................19
SECTION 2.09.         Default Interest...........................................................................20
SECTION 2.10.         Alternate Rate of Interest.................................................................20
SECTION 2.11.         Changes in Commitments.....................................................................21
SECTION 2.12.         Prepayment.................................................................................22
SECTION 2.13.         Reserve Requirements; Change in Circumstances..............................................23
SECTION 2.14.         Change in Legality.........................................................................25
SECTION 2.15.         Indemnity..................................................................................25
SECTION 2.16.         Pro Rata Treatment.........................................................................26
SECTION 2.17.         Sharing of Setoffs.........................................................................26
SECTION 2.18.         Payments...................................................................................27
SECTION 2.19.         Taxes......................................................................................27

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

SECTION 3.01.         Organization; Powers; Governmental Approvals...............................................30
SECTION 3.02.         Financial Statements.......................................................................30
SECTION 3.03.         No Material Adverse Change.................................................................31
SECTION 3.04.         Title to Properties; Possession Under Leases...............................................31
SECTION 3.05.         Ownership of Subsidiaries..................................................................31
<PAGE>

SECTION 3.06.         Litigation; Compliance with Laws...........................................................31
SECTION 3.07.         Agreements.................................................................................32
SECTION 3.08.         Federal Reserve Regulations................................................................32
SECTION 3.09.         Investment Company Act; Public Utility Holding Company Act.................................33
SECTION 3.10.         Use of Proceeds............................................................................33
SECTION 3.11.         Tax Returns................................................................................33
SECTION 3.12.         No Material Misstatements..................................................................33
SECTION 3.13.         Employee Benefit Plans.....................................................................33
SECTION 3.14.         Insurance..................................................................................34

                                   ARTICLE IV

                              CONDITIONS OF LENDING

SECTION 4.01.         Each Borrowing.............................................................................34
SECTION 4.02.         Effective Date.............................................................................34

                                    ARTICLE V

                              AFFIRMATIVE COVENANTS

SECTION 5.01.         Existence; Businesses and Properties.......................................................36
SECTION 5.02.         Financial Statements, Reports, etc.........................................................37
SECTION 5.03.         Litigation and Other Notices...............................................................38
SECTION 5.04.         Maintaining Records........................................................................38
SECTION 5.05.         Use of Proceeds............................................................................38

                                   ARTICLE VI

                               NEGATIVE COVENANTS

SECTION 6.01.         Liens; Restrictions on Sales of Receivables................................................39
SECTION 6.02.         Ownership of the Principal Subsidiaries....................................................39
SECTION 6.03.         Asset Sales................................................................................40
SECTION 6.04.         Mergers....................................................................................40
SECTION 6.05.         Restrictions on Dividends..................................................................40
SECTION 6.06.         Transactions with Affiliates...............................................................41
SECTION 6.07.         Minimum Consolidated Net Worth.............................................................41
SECTION 6.08.         Minimum Access Lines.......................................................................41
<PAGE>

                                   ARTICLE VII

                                EVENTS OF DEFAULT

                                  ARTICLE VIII

                            THE ADMINISTRATIVE AGENT

                                   ARTICLE IX

                                  MISCELLANEOUS

SECTION 9.01.         Notices....................................................................................46
SECTION 9.02.         Survival of Agreement......................................................................46
SECTION 9.03.         Binding Effect.............................................................................46
SECTION 9.04.         Successors and Assigns.....................................................................47
SECTION 9.05.         Expenses; Indemnity........................................................................49
SECTION 9.06.         Right of Setoff............................................................................50
SECTION 9.07.         Applicable Law.............................................................................51
SECTION 9.08.         Waivers; Amendment.........................................................................51
SECTION 9.09.         Interest Rate Limitation...................................................................51
SECTION 9.10.         Entire Agreement...........................................................................52
SECTION 9.11.         Waiver of Jury Trial.......................................................................52
SECTION 9.12.         Severability...............................................................................52
SECTION 9.13.         Counterparts...............................................................................52
SECTION 9.14.         Headings...................................................................................52
SECTION 9.15.         Jurisdiction; Consent to Service of Process................................................53

Exhibit A-1           Form of Competitive Bid Request
Exhibit A-2           Form of Notice of Competitive Bid Request
Exhibit A-3           Form of Competitive Bid
Exhibit A-4           Form of Competitive Bid Accept/Reject Letter
Exhibit A-5           Form of Standby Borrowing Request
Exhibit A-6           Form of Conversion Request
Exhibit B             Form of Assignment and Acceptance
Exhibit C             Form of Opinion of Counsel to Borrower
Exhibit D-1           Form of Standby Note
Exhibit D-2           Form of Competitive Note

Schedule 2.01         Lenders' Commitments
</TABLE>

<PAGE>


                    COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT,
                    dated as of October 24, 2001, among CITIZENS  COMMUNICATIONS
                    COMPANY,  a  Delaware  corporation  (the  "Borrower"),   the
                    Lenders listed in Schedule 2.01 (together with any assignees
                    pursuant to Section  9.04(b),  the  "Lenders") and THE CHASE
                    MANHATTAN   BANK,  a  New  York  banking   corporation,   as
                    administrative agent for the Lenders (in such capacity,  the
                    "Administrative Agent").

     The Borrower has  requested the Lenders to extend credit to the Borrower in
order to enable it to borrow on a standby  revolving  credit  basis on and after
the date hereof and at any time and from time to time prior to the Maturity Date
(as hereinafter  defined) a principal  amount not in excess of $680,000,000  (as
such  amount  may be  modified  pursuant  to  Section  2.11  hereof) at any time
outstanding.  The Borrower has also requested the Lenders to provide a procedure
pursuant to which the Borrower  may invite the Lenders to bid on an  uncommitted
basis on short-term borrowings by the Borrower.  The proceeds of such borrowings
are to be used for general  corporate  purposes,  including  working capital and
support of  commercial  paper  issuances  and  Securitization  Transactions  (as
hereinafter defined) permitted hereunder. The Lenders are willing to extend such
credit to the  Borrower  on the terms and subject to the  conditions  herein set
forth.

     Accordingly,  the Borrower,  the Lenders and the Administrative Agent agree
as follows:

                                    ARTICLE I

                                   DEFINITIONS

     SECTION 1.01. Defined Terms.

     As used in this  Agreement,  the  following  terms shall have the  meanings
specified below:

     "ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.

     "ABR  Loan"  shall  mean  any  Standby  Loan  bearing  interest  at a  rate
determined  by  reference  to the  Alternate  Base Rate in  accordance  with the
provisions of Article II.

     "Access  Lines"  shall mean,  on any date,  the total  number of  telephony
access  lines  provided  by  the  Borrower  and  its  Subsidiaries  (other  than
Non-Recourse  Joint  Ventures)  through  their owned  telecommunications  system
network  facilities  (excluding  lines provided  through  resale  agreements) to
customers of the Borrower and its Subsidiaries  (other than  Non-Recourse  Joint
Ventures)  whose  service  payments are not overdue to a point where  service is
generally disconnected.
<PAGE>

     "Administrative  Fees"  shall  have the  meaning  assigned  to such term in
Section 2.06(b).

     "Administrative  Questionnaire" shall mean an Administrative  Questionnaire
in a form supplied by the Administrative Agent.

     "Affiliate"  shall  mean,  when used with  respect to a  specified  Person,
another Person that directly,  or indirectly through one or more intermediaries,
Controls  or is  Controlled  by or is  under  common  Control  with  the  Person
specified.

     "Alternate  Base Rate" shall mean,  for any day, a rate per annum  (rounded
upwards,  if necessary,  to the next 1/16 of 1%) equal to the greater of (i) the
Prime Rate in effect on such day and (ii) the Federal  Funds  Effective  Rate in
effect  on such day plus  1/2 of 1%.  If the  Administrative  Agent  shall  have
determined (which  determination shall be conclusive absent manifest error) that
it is unable to  ascertain  the  Federal  Funds  Effective  Rate for any reason,
including  the  inability  of the  Administrative  Agent  to  obtain  sufficient
quotations, the Alternate Base Rate shall be determined without regard to clause
(ii) of the first sentence of this  definition  until the  circumstances  giving
rise to such  inability no longer exist.  Any change in the Alternate  Base Rate
due to a change in the Prime Rate or the Federal Funds  Effective  Rate shall be
effective on the effective  date of such change in the Prime Rate or the Federal
Funds Effective Rate, respectively.

     "Applicable  Rate" shall  mean,  with  respect to any ABR Loan,  Eurodollar
Standby Loan or Facility  Fee, as the case may be, at all times during which any
"Applicable  Rating Level" set forth below is in effect,  the rate per annum set
forth below under the appropriate caption next to such Applicable Rating Level:

<TABLE>
<CAPTION>

<S>                  <C>                 <C>               <C>                 <C>                   <C>
   Applicable              S&P                             Applicable Rate      Applicable Rate
     Rating          Rating/Moody's     Applicable Rate     for Eurodollar            for            Utilization
      Level              Rating          for ABR Loans      Standby Loans        Facility Fee          Margin
- --------------------------------------------------------------------------------------------------------------------
        I         A-or higher/A3             0.000%             0.425%              0.200%             0.125%
                  or higher
- --------------------------------------------------------------------------------------------------------------------
       II         BBB+/Baa1                  0.000%             0.525%              0.225%             0.125%
- --------------------------------------------------------------------------------------------------------------------
       III        BBB/Baa2                   0.000%             0.625%              0.250%             0.125%
- --------------------------------------------------------------------------------------------------------------------
       IV         BBB-/Baa3                  0.000%             0.825%              0.300%             0.125%
- --------------------------------------------------------------------------------------------------------------------
        V         BB+/Bal                    0.000%             0.975%              0.400%             0.125%
- --------------------------------------------------------------------------------------------------------------------
       VI         lower than BB+/lower       0.125%             1.125%              0.500%             0.125%
                        than Ba1
</TABLE>

provided,  that the Applicable  Rate for Eurodollar  Standby Loans and ABR Loans
shall be  increased  by the rate per  annum set forth  above  under the  caption
"Utilization  Margin" that  corresponds to the  Applicable  Rating Level used to
determine such Applicable Rates at any time during a Utilization Period.
<PAGE>

     For  purposes  of the  foregoing,  the  Applicable  Rating  Level  shall be
determined  in  accordance  with the then  applicable  S&P  Rating  and the then
applicable  Moody's  Rating.  In the event that the S&P  Rating and the  Moody's
Rating do not correspond to the same Applicable Rating Level, then the higher of
the two ratings shall determine the Applicable Rating Level; provided,  however,
that if there is a  difference  of two or more  levels  between  the  Applicable
Rating Level  corresponding  to the S&P Rating and the  Applicable  Rating Level
corresponding  to the Moody's Rating,  then the Applicable  Rating Level that is
one level above the Applicable  Rating Level  corresponding  to the lower of the
S&P Rating and the Moody's  Rating shall apply.  In the event that no S&P Rating
or no  Moody's  Rating  shall  be  in  effect  (other  than  by  reason  of  the
circumstances  referred to in the last  sentence of this  definition),  then the
Applicable  Rating Level shall be  Applicable  Rating  Level VI. The  Applicable
Rating Level shall be  redetermined  on the date of  announcement of a change in
the S&P Rating or the Moody's Rating.  A change in the Applicable Rate resulting
from a change in the  Applicable  Rating  Level shall  become  effective on such
date. If the rating  system of S&P or Moody's  shall  change,  or if either such
Person shall cease to be in the business of rating  corporate debt  obligations,
the  Borrower  and the  Lenders  shall  negotiate  in good  faith to amend  this
definition  to reflect  such  changed  rating  system or the  unavailability  of
ratings from such Person and,  pending the  effectiveness of any such amendment,
the Applicable Rate shall be determined by reference to the rating most recently
in effect prior to such change or cessation.

     "Asset   Exchange"   shall  mean  the   exchange   or  other   transfer  of
telecommunications  assets  between or among the Borrower and another  Person or
other   Persons  in   connection   with  which  the  Borrower   would   transfer
telecommunications  assets and/or other property in consideration of the receipt
of  telecommunications  assets and/or other property  having a fair market value
substantially  equivalent to those transferred by the Borrower (as determined in
good faith by the Borrower's  Board of  Directors);  provided that the principal
value of the assets being  transferred  to the Borrower  shall be represented by
telecommunications assets.

     "Assignment and Acceptance" shall mean an assignment and acceptance entered
into by a Lender and an assignee,  and accepted by the Administrative  Agent, in
substantially  the  form  of  Exhibit  B or  any  other  form  approved  by  the
Administrative Agent.

     "Board" shall mean the Board of Governors of the Federal  Reserve System of
the United States.

     "Borrowing"  shall  mean a group  of Loans  of a  single  Type  made by the
Lenders (or, in the case of a  Competitive  Borrowing,  by the Lender or Lenders
whose Competitive Bids have been accepted pursuant to Section 2.03) or Converted
on a single  date and as to which a single  Interest  Period is in  effect.  All
Loans of the same Type, having the same Interest Period and made or Converted on
the same day shall be deemed a single  Borrowing  hereunder until repaid or next
Converted.

     "Business  Day" shall mean any day (other  than a day which is a  Saturday,
Sunday or legal  holiday  in the State of New York) on which  banks are open for
business in New York City; provided, however, that, when used in connection with
a Eurodollar  Loan,  the term "Business Day" shall also exclude any day on which
banks are not open for  dealings  in dollar  deposits  in the  London  interbank
market.
<PAGE>

     "Capital  Lease  Obligations"  of any Person shall mean 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 amount of such  obligations at any
time  shall  be the  capitalized  amount  thereof  at such  time  determined  in
accordance with GAAP.

     A "Change in Control" shall be deemed to have occurred if (a) any Person or
group  (within  the  meaning  of  Rule  13d-5  of the  Securities  and  Exchange
Commission  as in effect on the date hereof)  shall own directly or  indirectly,
beneficially  or of record,  shares  representing  50% or more of the  aggregate
ordinary voting power represented by the issued and outstanding capital stock of
the  Borrower;  or (b) a majority of the seats (other than vacant  seats) on the
board of  directors  of the  Borrower  shall at any time have been  occupied  by
Persons who were neither (i) nominated by the  management  of the Borrower,  nor
(ii)  appointed  by  directors  so  nominated;  or (c) any Person or group shall
otherwise directly or indirectly Control the Borrower.

     "Code"  shall mean the Internal  Revenue  Code of 1986,  as the same may be
amended from time to time.

     "Commitment"  shall mean,  with respect to each Lender,  the  commitment of
such Lender  hereunder as set forth in Schedule  2.01 hereto,  as such  Lender's
Commitment may be modified from time to time pursuant to Section 2.11 or Section
2.13(f). Unless earlier terminated pursuant to the terms of this Agreement,  the
Commitments shall automatically and permanently terminate on the Maturity Date.

     "Competitive  Bid"  shall  mean an offer by a Lender to make a  Competitive
Loan pursuant to Section 2.03.

     "Competitive Bid  Accept/Reject  Letter" shall mean a notification  made by
the Borrower pursuant to Section 2.03(d) in the form of Exhibit A-4.

     "Competitive  Bid Rate" shall  mean,  as to any  Competitive  Bid made by a
Lender pursuant to Section  2.03(b),  (i) in the case of a Eurodollar  Loan, the
Margin,  and (ii) in the case of a Fixed Rate Loan,  the fixed rate of  interest
offered by the Lender making such Competitive Bid.

     "Competitive  Bid Request"  shall mean a request  made  pursuant to Section
2.03 in the form of Exhibit A-1.

     "Competitive  Borrowing" shall mean a Borrowing consisting of a Competitive
Loan  or  concurrent   Competitive  Loans  from  the  Lender  or  Lenders  whose
Competitive Bids for such Borrowing have been accepted by the Borrower under the
bidding procedure described in Section 2.03.
<PAGE>

     "Competitive Loan" shall mean a Loan from a Lender to the Borrower pursuant
to the bidding procedure  described in Section 2.03. Each Competitive Loan shall
be a Eurodollar Competitive Loan or a Fixed Rate Loan.

     "Consolidated Net Worth" shall mean, as at any date of  determination,  the
consolidated   stockholders'   equity  of  the  Borrower  and  its  consolidated
Subsidiaries,  including  redeemable  preferred  securities where the redemption
date  occurs  after  the  Maturity  Date,   mandatorily  redeemable  convertible
preferred  securities,  mandatorily  convertible  Indebtedness  (or Indebtedness
subject  to  mandatory   forward  purchase   contracts  for  equity  or  similar
securities) and minority equity  interests in other persons,  as determined on a
consolidated basis in conformity with GAAP consistently applied. For the purpose
of calculating  "Consolidated Net Worth", the consolidated  stockholders' equity
of any Non-Recourse  Joint Venture and its  subsidiaries  shall be excluded from
the  consolidated  stockholders'  equity of the  Borrower  and its  consolidated
Subsidiaries.

     "Consolidated  Tangible  Assets" of any Person  shall mean total  assets of
such Person and its  consolidated  Subsidiaries,  determined  on a  consolidated
basis,  less  goodwill,  patents,  trademarks  and other  assets  classified  as
intangible assets in accordance with GAAP.

     "Control" shall mean the possession,  directly or indirectly,  of the power
to direct or cause the  direction  of the  management  or  policies of a Person,
whether  through the ownership of voting  securities,  by contract or otherwise,
and "Controlling" and "Controlled" shall have meanings correlative thereto.

     "Conversion",  "Convert" or  "Converted"  shall mean the  conversion of any
Standby Loan of one Type into a Standby Loan of another  Type,  or the selection
of a new, or the renewal of the same, Interest Period for any such Standby Loan,
as the case may be, pursuant to Section 2.05.

     "Conversion  Request" shall mean a request made pursuant to Section 2.05 in
the form of Exhibit A-6.

     "Default"  shall mean any event or condition  which upon  notice,  lapse of
time, or both would constitute an Event of Default.

     "Dollars" or "$" shall mean lawful money of the United States of America.

     "Effective  Date" shall mean the date on which the conditions  specified in
Section 4.02 are satisfied (or waived in accordance with Section 9.08).

     "Environmental Laws" shall mean all national,  federal, state,  provincial,
municipal  or local laws,  statutes,  ordinances,  orders,  judgments,  decrees,
injunctions,   writs,  policies  and  guidelines  (having  the  force  of  law),
directives,  approvals, notices, rules and regulations and other applicable laws
relating to environmental or occupational  health and safety matters,  including
those relating to the Release or threatened Release of Specified  Substances and
to the generation,  use, storage or transportation of Specified Substances, each
as in effect as of the date of determination.
<PAGE>

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
the same may be amended from time to time, and the  regulations  promulgated and
the rulings issued thereunder.

     "ERISA  Affiliate"  shall  mean  each  trade or  business  (whether  or not
incorporated)  which  together with the Borrower or a Subsidiary of the Borrower
would be  deemed  to be a  "single  employer"  within  the  meaning  of  Section
4001(b)(1) of ERISA.

     "ERISA  Termination Event" shall mean (i) a "Reportable Event" described in
Section  4043 of ERISA  (other  than a  "Reportable  Event"  not  subject to the
provision  for 30-day  notice to the PBGC under such  regulations),  or (ii) the
withdrawal of the Borrower or any of its ERISA  Affiliates  from a Plan during a
plan  year in  which it was a  "substantial  employer"  as  defined  in  Section
4001(a)(2)  of ERISA,  or (iii) the filing of a notice of intent to  terminate a
Plan or the treatment of a Plan amendment as a termination under Section 4041 of
ERISA,  or (iv) the institution of proceeding to terminate a Plan by the PBGC or
(v) any other event or condition  which might  constitute  grounds under Section
4042 of ERISA  for the  termination  of,  or the  appointment  of a  trustee  to
administer, any Plan.

     "Eurodollar  Borrowing"  shall mean a  Borrowing  comprised  of  Eurodollar
Loans.

     "Eurodollar  Competitive  Borrowing"  shall mean a Borrowing  comprised  of
Eurodollar Competitive Loans.

     "Eurodollar  Competitive  Loan"  shall mean any  Competitive  Loan  bearing
interest at a rate  determined by reference to the LIBO Rate in accordance  with
the provisions of Article II.

     "Eurodollar Loan" shall mean any Eurodollar  Competitive Loan or Eurodollar
Standby Loan.

     "Eurodollar   Standby  Borrowing"  shall  mean  a  Borrowing  comprised  of
Eurodollar Standby Loans.

     "Eurodollar Standby Loan" shall mean any Standby Loan bearing interest at a
rate  determined by reference to the LIBO Rate in accordance with the provisions
of Article II.

     "Event of Default" shall have the meaning  assigned to such term in Article
VII.

     "Existing  Facilities" shall mean (i) the Competitive Advance and Revolving
Credit Facility  Agreement dated as of December 16, 1993, as amended,  among the
Borrower, the lenders party thereto, PNC Bank, National Association, as co-agent
for the lenders, and The Chase Manhattan Bank, as agent for the lenders and (ii)
the Competitive  Advance and Revolving  Credit Facility  Agreement,  dated as of
October 27, 2000, among the Borrower,  the lenders parties thereto and The Chase
Manhattan Bank, as agent for the lenders.
<PAGE>

     "Facility  Fee" shall  have the  meaning  assigned  to such term in Section
2.06(a).

     "Federal  Funds  Effective  Rate" shall  mean,  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 which is a Business  Day, the average
of  the   quotations  for  the  day  of  such   transactions   received  by  the
Administrative  Agent from three Federal  funds  brokers of recognized  standing
selected by it.

     "Fees" shall mean the Facility Fee and the Administrative Fees.

     "Financial  Officer" of any  corporation  shall mean the  President,  Chief
Financial Officer, Chief Executive Officer, Vice President - Finance,  Executive
Vice President, Chief Accounting Officer or Treasurer of such corporation.

     "First  Mortgage  Bond  Indentures"  shall mean (i) the First  Mortgage and
Collateral Trust Indenture,  dated as of March 1, 1947, from the Borrower to The
Marine Midland Trust Company of New York, as Trustee,  and (ii) the Mortgage and
Deed of  Trust  Indenture,  dated  as of June 1,  1962,  from  the  Borrower  to
Manufacturers  Hanover Trust Company,  as Trustee, as the same have been and may
from time to time be amended or supplemented and in effect.

     "Fixed  Rate  Borrowing"  shall mean a  Borrowing  comprised  of Fixed Rate
Loans.

     "Fixed Rate Loan" shall mean any  Competitive  Loan  bearing  interest at a
fixed  percentage rate per annum  (expressed in the form of a decimal to no more
than four  decimal  places)  specified  by the  Lender  making  such Loan in its
Competitive Bid.

     "GAAP" shall mean generally accepted  accounting  principles,  applied on a
consistent basis.

     "Governmental  Approval"  shall  mean any  authorization,  consent,  order,
approval,  license, franchise, lease, ruling, tariff, rate, permit, certificate,
exemption of, or filing or registration with, any Governmental Authority.

     "Governmental  Authority" shall mean any Federal,  state,  local or foreign
court or governmental agency, authority, instrumentality or regulatory body.

     "Hostile  Acquisition" shall mean any Target Acquisition (as defined below)
involving  a tender  offer or proxy  contest  that has not been  recommended  or
approved by the board of  directors  (or similar  governing  body) of the Person
that is the  subject  of such  Target  Acquisition  prior  to the  first  public
announcement or disclosure relating to such Target Acquisition.  As used in this
definition,  the term "Target  Acquisition"  shall mean any transaction,  or any
series  of  related  transactions,  by  which  the  Borrower  and/or  any of its
Subsidiaries  directly or indirectly (i) acquires any ongoing business or all or
substantially  all of the  assets of any  Person or  division  thereof,  whether
through  purchase  of  assets,  merger  or  otherwise,  (ii)  acquires  (in  one
transaction  or as the most  recent  transaction  in a series  of  transactions)
control of at least a majority in ordinary  voting power of the  securities of a
Person which have  ordinary  voting power for the election of directors or (iii)
otherwise  acquires  control of a more than 50%  ownership  interest in any such
Person.
<PAGE>

     "Indebtedness"  of any Person  shall  mean,  without  duplication,  (a) all
obligations  of such Person for  borrowed  money or with  respect to deposits or
advances of any kind (other than customer  deposits made in the ordinary  course
of business), (b) all obligations of such Person evidenced by bonds, debentures,
notes or similar  instruments,  (c) all  obligations  of such  Person upon which
interest charges are customarily  paid, (d) all obligations of such Person under
conditional  sale or other title  retention  agreements  relating to property or
assets  purchased by such Person,  (e) all  obligations of such Person issued or
assumed  as the  deferred  purchase  price  of  property  or  services,  (f) all
Indebtedness of others secured by (or for which the holder of such  Indebtedness
has an existing  right,  contingent or otherwise,  to be secured by) any Lien on
property  owned or  acquired  by such  Person,  whether  or not the  obligations
secured  thereby have been assumed,  (g) all Capital Lease  Obligations  of such
Person,  (h)  all  obligations  of such  Person  in  respect  of  interest  rate
protection agreements, foreign currency exchange agreements or other interest or
exchange rate hedging  arrangements  (except to the extent such  obligations are
used as a bona  fide  hedge  of  other  Indebtedness  of such  Person),  (i) all
obligations  of such Person as an account  party in respect of letters of credit
and bankers' acceptances (except to the extent any such obligations are incurred
in support of other  obligations  constituting  Indebtedness  of such Person and
other than, to the extent  reimbursed if drawn,  letters of credit in support of
ordinary course performance  obligations) and (j) any obligation,  contingent or
otherwise,  of such  Person  guaranteeing  or  having  the  economic  effect  of
guaranteeing any Indebtedness of any other Person (the "primary obligor") in any
manner,  whether  directly or  indirectly,  and including any obligation of such
Person,  directly  or  indirectly  (i) to  purchase or pay (or advance or supply
funds for the  purchase or payment of) such  Indebtedness  or to purchase (or to
advance or supply  funds for the  purchase  of) any  security for the payment of
such  Indebtedness,  (ii) to purchase  property,  securities or services for the
purpose  of  assuring  the owner of such  Indebtedness  of the  payment  of such
Indebtedness  or (iii) to  maintain  working  capital,  equity  capital or other
financial  statement  condition  or  liquidity  of the primary  obligor so as to
enable the primary obligor to pay such Indebtedness; provided, however, that the
term Indebtedness shall not include  endorsements for collection or deposit,  in
either case in the ordinary course of business.

     "Interest  Payment Date" shall mean, with respect to any Loan, the last day
of the Interest Period applicable  thereto and, in the case of a Eurodollar Loan
with an  Interest  Period of more than three  months'  duration  or a Fixed Rate
Loan,  each day that would have been an Interest  Payment Date for such Loan had
successive  Interest Periods of three months'  duration or 90 days duration,  as
the case may be, been applicable to such Loan and, in addition,  the date of any
Conversion of such Loan to a Loan of a different Type.
<PAGE>

     "Interest Period" shall mean (a) as to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing or, with respect to any Conversion,  on
the last day of the immediately  preceding  Interest  Period  applicable to such
Borrowing,  as the case may be, and ending on the numerically  corresponding day
(or,  if there is no  numerically  corresponding  day,  on the last  day) in the
calendar month that is 1, 2, 3 or 6 months  thereafter (or such longer period as
may be agreed to by all of the  Lenders),  as the Borrower may elect,  (b) as to
any ABR  Borrowing,  the period  commencing  on the date of such  Borrowing  and
ending on the date 90 days  thereafter  or, if earlier,  on the Maturity Date or
the date of prepayment of such Borrowing and (c) as to any Fixed Rate Borrowing,
the  period  commencing  on the date of such  Borrowing  and  ending on the date
specified  in the  Competitive  Bids in which the  offer to make the Fixed  Rate
Loans  comprising such Borrowing were extended,  which shall not be earlier than
the day after the date of such Borrowing or later than 364 days (or,  subject to
the Borrower obtaining all necessary Governmental Approvals,  such longer period
as may be agreed  to by all of the  Lenders)  after the date of such  Borrowing;
provided,  however,  that if any Interest Period would end on a day other than a
Business  Day,  such  Interest  Period shall be extended to the next  succeeding
Business Day unless,  in the case of Eurodollar Loans only, such next succeeding
Business Day would fall in the next calendar  month, in which case such Interest
Period shall end on the next preceding  Business Day. Interest shall accrue from
and including the first day of an Interest  Period to but excluding the last day
of such Interest Period.

     "Joint  Venture"  shall  mean a general  or  limited  partnership,  limited
liability  company or other  entity  formed or  organized  under the laws of the
United  States  of  America  or any state  thereof  that  would  own or  operate
telecommunications assets and which, in turn, the Borrower would manage.

     "Joint Venture Transaction" shall mean the formation of a Joint Venture, by
the formation of a new entity and the contribution of telecommunications  assets
(or cash or similar  assets)  thereto by the  Borrower,  the  investment  by the
Borrower in a previously existing entity that owns telecommunications  assets or
other similar transaction.

     "LIBO Rate" shall mean,  with respect to any  Eurodollar  Borrowing for any
Interest  Period,  an interest  rate per annum equal to the rate at which dollar
deposits approximately equal in principal amount to (i) in the case of a Standby
Borrowing,  The Chase Manhattan Bank's (if then acting as  Administrative  Agent
or, in case another Person is then acting as  Administrative  Agent,  such other
Person's)  portion  of such  Eurodollar  Borrowing  and  (ii)  in the  case of a
Competitive  Borrowing,  a  principal  amount  that  would  have  been The Chase
Manhattan  Bank's (if then acting as  Administrative  Agent or, in case  another
Person is then acting as  Administrative  Agent, such other Person's) portion of
such  Competitive  Borrowing  had  such  Competitive  Borrowing  been a  Standby
Borrowing,  and, in the case of each of clause (i) and clause (ii) above,  for a
maturity comparable to such Interest Period, are offered to the principal London
office  of The  Chase  Manhattan  Bank (or such  other  Person  then  acting  as
Administrative  Agent) in immediately  available  funds in the London  interbank
market at approximately  11:00 A.M., London time, two Business Days prior to the
commencement of such Interest Period.

     "Lien" shall mean,  with respect to any asset,  (a) any  mortgage,  deed of
trust,  lien,  pledge,  encumbrance,  charge, or security interest in or on such
asset,  (b) the  interest  of a vendor or a lessor  under any  conditional  sale
agreement,  capital lease, or title retention  agreement  relating to such asset
and (c) in the case of securities,  any purchase option,  call, or similar right
of a third party with respect to such securities.
<PAGE>

     "Loan" shall mean a Competitive  Loan or a Standby Loan,  whether made as a
Eurodollar Loan, an ABR Loan, or a Fixed Rate Loan, as permitted hereby.

     "Margin"  shall mean, as to any  Eurodollar  Competitive  Loan,  the margin
(expressed  as a  percentage  rate per annum in the form of a decimal to no more
than four  decimal  places) to be added to or  subtracted  from the LIBO Rate in
order to determine  the interest  rate  applicable to such Loan, as specified in
the Competitive Bid relating to such Loan.

     "Margin Regulations" shall mean Regulations T, U and X of the Board.

     "Material  Adverse  Effect" shall mean a materially  adverse  effect on the
business,  assets,  operations,  financial condition or results of operations of
the Borrower and the Subsidiaries taken as a whole.

     "Maturity Date" shall mean October 24, 2006.

     "Moody's"  shall mean Moody's  Investors  Service,  Inc.,  or any successor
thereto.

     "Moody's  Rating"  shall mean, on any date of  determination,  (i) the debt
rating most recently announced by Moody's with respect to the long-term, senior,
unsecured,  non-credit enhanced  Indebtedness of the Borrower or (ii) if (A) the
Indebtedness  of the Borrower under this Agreement  shall be credit  enhanced by
any  Person  other than the  Borrower  and (B) both  Moody's  and S&P shall have
assigned a debt rating to such  Indebtedness,  then such debt rating assigned by
Moody's.

     "Non-Recourse Joint Venture" shall mean a Joint Venture the Indebtedness of
which is Non-Recourse Joint Venture Indebtedness.

     "Non-Recourse  Joint Venture  Indebtedness" shall mean secured or unsecured
Indebtedness  of a Joint  Venture  that is  non-recourse  to the Borrower or any
Principal  Subsidiary  or  any  of  their  respective  assets  or  property.  In
furtherance of the foregoing, an obligation of the Borrower that is non-recourse
to the  Borrower  except  to the  extent  of a pledge  of the  equity of a Joint
Venture (the  Indebtedness  of which is otherwise  non-recourse to the Borrower)
will be deemed Non-Recourse Joint Venture Indebtedness.

     "PBGC" shall mean the Pension Benefit Guaranty  Corporation referred to and
defined in ERISA.
<PAGE>

     "Person" shall mean any natural person, corporation,  business trust, joint
venture,  association,  company,  limited  liability  company,  partnership,  or
government, or any agency or political subdivision thereof.

     "Plan" shall mean any pension plan (including a multiemployer plan) subject
to the  provisions  of Title IV of ERISA  or  Section  412 of the Code  which is
maintained for or to which  contributions are made for employees of the Borrower
or any ERISA Affiliate.

     "Prime Rate" shall mean the rate of interest per annum  publicly  announced
from time to time by the Administrative Agent as its prime rate in effect at its
principal  office in New York  City;  each  change in the  Prime  Rate  shall be
effective on the date such change is publicly announced as effective.

     "Principal  Subsidiaries" shall mean any Subsidiary of the Borrower,  other
than Electric  Lightwave,  Inc., whose Consolidated  Tangible Assets comprise in
excess  of 20% of the  Consolidated  Tangible  Assets  of the  Borrower  and its
consolidated  Subsidiaries as of the date hereof or at any time  hereafter.  The
term "Principal Subsidiaries" shall not include any Non-Recourse Joint Venture.

     "Register" shall have the meaning given such term in Section 9.04(d).

     "Regulation D" shall mean Regulation D of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.

     "Regulation T" shall mean Regulation T of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.

     "Regulation U" shall mean Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.

     "Regulation X" shall mean Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.

     "Release"  shall  mean any  spilling,  emitting,  discharging,  depositing,
escaping,  leaching,  dumping or other releasing,  including the movement of any
Specified  Substance  through  the air,  soil,  surface  water,  groundwater  or
property, and when used as a verb has a like meaning.

     "Required  Lenders"  shall mean, at any time,  Lenders  having  Commitments
representing  more  than  50%  of the  Total  Commitment  or,  for  purposes  of
acceleration  pursuant to clause (ii) of Article VII or if the Total  Commitment
has  terminated,  Lenders  holding  Loans  representing  more  than  50%  of the
aggregate principal amount of the Loans outstanding.

     "S&P"  shall mean  Standard & Poor's  Ratings  Services,  a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
<PAGE>

     "S&P Rating" shall mean, on any date of determination,  (i) the debt rating
most recently announced by S&P with respect to the long-term, senior, unsecured,
non-credit enhanced Indebtedness of the Borrower or (ii) if (A) the Indebtedness
of the  Borrower  under this  Agreement  shall be credit  enhanced by any Person
other than the Borrower and (B) both S&P and Moody's  shall have assigned a debt
rating to such Indebtedness, then such debt rating assigned by S&P.

     "Securitization  Transaction" means (a) any transfer of accounts receivable
or interests  therein (i) to a trust,  partnership,  corporation or other entity
(other than a Subsidiary),  which transfer or pledge is funded by such entity in
whole  or in part  by the  issuance  to one or  more  lenders  or  investors  of
indebtedness or other securities that are to receive  payments  principally from
the cash flow derived  from such  accounts  receivable  or interests in accounts
receivable, or (ii) directly to one or more investors or other purchasers (other
than  any  Subsidiary),  or (b) any  transaction  in  which  the  Borrower  or a
Subsidiary  incurs  Indebtedness  secured by Liens on accounts  receivable.  The
"amount" of any Securitization Transaction shall be deemed at any time to be (A)
in the case of a transaction  described in clause (a) of the preceding sentence,
the aggregate uncollected amount of the accounts receivable transferred pursuant
to such  Securitization  Transaction,  net of any such accounts  receivable that
have been  written off as  uncollectible,  and (B) in the case of a  transaction
described in clause (b) of the preceding  sentence,  the  aggregate  outstanding
principal  amount of the  Indebtedness  secured by Liens on accounts  receivable
Incurred pursuant to such Securitization Transaction.

     "Specified  Substance"  shall mean (i) any chemical,  material or substance
defined as or included in the definition of "hazardous  substances",  "hazardous
wastes",   "hazardous  materials",   "extremely  hazardous  waste",  "restricted
hazardous  waste" or "toxic  substances"  or words of similar  import  under any
applicable  Environmental  Laws;  (ii) any (A) oil,  natural  gas,  petroleum or
petroleum  derived  substance,  any drilling  fluids,  produced waters and other
wastes associated with the exploration,  development or production of crude oil,
natural gas or geothermal  fluid,  any flammable  substances or explosives,  any
radioactive materials,  any hazardous wastes or substances,  any toxic wastes or
substances or (B) other  materials or  pollutants  that, in the case of both (A)
and  (B),  (1) pose a  hazard  to the  property  of the  Borrower  or any of its
Subsidiaries  or any part thereof or to persons on or about such  property or to
any other  property  that may be affected by the  Release of such  materials  or
pollutants from such property or any part thereof or to persons on or about such
other  property  or (2) cause  such  property  or such other  property  to be in
violation of any  Environmental  Law; (iii)  asbestos,  urea  formaldehyde  foam
insulation,  toluene,  polychlorinated  biphenyls and any  electrical  equipment
which contains any oil or dielectric fluid containing levels of  polychlorinated
biphenyls in excess of fifty parts per million;  and (iv) any sound,  vibration,
heat,  radiation  or other form of energy and any other  chemical,  material  or
substance,  exposure  to  which  is  prohibited,  limited  or  regulated  by any
Governmental Authority.

     "Standby  Borrowing"  shall mean a  Borrowing  consisting  of  simultaneous
Standby Loans from each of the Lenders.

     "Standby  Borrowing  Request" shall mean a request made pursuant to Section
2.04 in the form of Exhibit A-5.
<PAGE>

     "Standby  Loans" shall mean the revolving  loans made by the Lenders to the
Borrower  pursuant to Section  2.04.  Each  Standby  Loan shall be a  Eurodollar
Standby  Loan or an ABR Loan.  All  Standby  Loans by a Lender of the same Type,
having the same  Interest  Period and made or Converted on the same day shall be
deemed  to be a  single  Standby  Loan  by  such  Lender  until  repaid  or next
Converted.

     "Subsidiary"  shall mean, with respect to any Person (herein referred to as
the "parent"),  any  corporation,  partnership,  association,  or other business
entity (a) of which securities or other ownership  interests  representing  more
than 50% of the  equity or more than 50% of the  ordinary  voting  power or more
than 50% of the general partnership interests are, at the time any determination
is being made, owned, controlled, or held by the parent, or (b) which is, at the
time any  determination  is made,  otherwise  Controlled by the parent or one or
more subsidiaries of the parent or by the parent and one or more subsidiaries of
the parent.  Unless  otherwise  indicated,  all  references in this Agreement to
"Subsidiaries" shall be construed as references to Subsidiaries of the Borrower.

     "Total  Commitment"  shall  mean at any time the  aggregate  amount  of the
Lenders' Commitments, as in effect at such time.

     "Transferee" shall mean any transferee or assignee of all or any portion of
a  Lender's  interests,   rights  and  obligations   hereunder,   including  any
participation holder.

     "Type",  when used in respect of any Loan or Borrowing,  shall refer to the
Rate by reference to which interest on such Loan or on the Loans comprising such
Borrowing is  determined.  For purposes  hereof,  "Rate" shall  include the LIBO
Rate, the Alternate  Base Rate and the rate of interest  applicable to any Fixed
Rate Loan.

     "Utilities  Assets" shall mean any assets of the Borrower or any Subsidiary
thereof (including,  without limitation,  stock in any such Subsidiary) that are
employed in the  generation or  production,  transmission  or  distribution  (as
applicable) of  electricity,  natural gas,  synthetic gas or water,  or that are
used to provide wastewater services.

     "Utilization  Period" shall mean any day or days during which the aggregate
amount of Loans outstanding  hereunder is equal to or greater than 331/3% of the
Total Commitment for such day or days.

     SECTION 1.02. Terms Generally.

     The  definitions  in Section 1.01 shall apply  equally to both the singular
and plural forms of the terms  defined.  Whenever  the context may require,  any
pronoun shall include the  corresponding  masculine,  feminine and neuter forms.
The words "include",  "includes" and "including"  shall be deemed to be followed
by the phrase "without limitation". All references herein to Articles, Sections,
Exhibits and Schedules  shall be deemed  references to Articles and Sections of,
and  Exhibits  and  Schedules  to,  this  Agreement,  unless the  context  shall
otherwise require.  Except as otherwise  expressly provided herein, all terms of
an accounting or financial nature shall be construed in accordance with GAAP, as
in  effect  from  time  to  time;  provided,  however,  that,  for  purposes  of
determining  compliance  with any  covenant  set forth in Article VI, such terms
shall be  construed  in  accordance  with  GAAP as in effect on the date of this
Agreement  applied on a basis  consistent with the application used in preparing
the Borrower's audited financial statements referred to in Section 3.02.
<PAGE>

                                   ARTICLE II

                                   THE CREDITS

     SECTION 2.01. Commitments.

     Subject to the terms and  conditions  and relying upon the  representations
and warranties herein set forth, each Lender agrees,  severally and not jointly,
to make Standby Loans to the Borrower,  at any time and from time to time on and
after the Effective Date and until the earlier to occur of the Maturity Date and
the  termination  of the  Commitment of such Lender,  in an aggregate  principal
amount at any time outstanding not to exceed such Lender's  Commitment minus the
amount by which the Competitive  Loans  outstanding at such time shall be deemed
to have used such Commitment  pursuant to Section 2.16, subject however,  to the
conditions  that  (a) at no  time  shall  (i)  the  sum of (x)  the  outstanding
aggregate principal amount of all Standby Loans made by all Lenders plus (y) the
outstanding  aggregate  principal  amount of all  Competitive  Loans made by all
Lenders exceed (ii) the Total  Commitment,  and (b) at all times the outstanding
aggregate  principal amount of all Standby Loans made by each Lender shall equal
the product of (i) the percentage  which its Commitment  represents of the Total
Commitment times (ii) the outstanding  aggregate principal amount of all Standby
Loans made  pursuant to Section  2.04.  Each  Lender's  Commitment  is set forth
opposite its respective name in Schedule 2.01. Such  Commitments may be modified
or reduced from time to time pursuant to Section 2.11 and Section 2.13(f).

     Within the foregoing  limits,  the Borrower may borrow,  pay, or prepay and
reborrow  hereunder,  on and after the Effective  Date and prior to the Maturity
Date, subject to the terms, conditions and limitations set forth herein.

     SECTION 2.02. Loans.

     (a) Each  Standby Loan shall be made as part of a Borrowing  consisting  of
Loans  made  by the  Lenders  ratably  in  accordance  with  their  Commitments;
provided, however, that the failure of any Lender to make any Standby Loan shall
not in itself  relieve any other Lender of its  obligation to lend hereunder (it
being understood,  however,  that no Lender shall be responsible for the failure
of any other Lender to make any Loan required to be made by such other  Lender).
Each  Competitive Loan shall be made in accordance with the procedures set forth
in Section 2.03. The Standby Loans or Competitive Loans comprising any Borrowing
shall be in an  aggregate  principal  amount  which is an  integral  multiple of
$1,000,000 and not less than  $10,000,000  (or, in the case of Standby Loans, an
aggregate  principal  amount  equal to the  remaining  balance of the  available
Commitments).
<PAGE>

     (b) Each  Competitive  Borrowing shall be comprised  entirely of Eurodollar
Competitive  Loans or Fixed Rate  Loans,  and each  Standby  Borrowing  shall be
comprised entirely of Eurodollar Standby Loans or ABR Loans, as the Borrower may
request pursuant to Section 2.03 or 2.04, as applicable.  Each Lender may at its
option make any  Eurodollar  Loan by causing any  domestic or foreign  branch or
Affiliate of such Lender to make such Loan;  provided  that any exercise of such
option  shall not affect the  obligation  of the  Borrower to repay such Loan in
accordance  with the terms of this  Agreement.  Borrowings of more than one Type
may be outstanding at the same time; provided,  however, that the Borrower shall
not be entitled to request any  Borrowing  which,  if made,  would  result in an
aggregate  of  more  than  ten  separate  Standby  Loans  of  any  Lender  being
outstanding  hereunder  at any one time.  For purposes of the  foregoing,  Loans
having different  Interest  Periods,  regardless of whether they commence on the
same date, shall be considered separate Loans.

     (c) Each  Lender  shall  make each Loan to be made by it  hereunder  on the
proposed date thereof by wire  transfer of  immediately  available  funds to the
Administrative  Agent in New York,  New York, not later than 1:00 P.M., New York
City time, and the Administrative  Agent shall by 3:00 P.M., New York City time,
credit the amounts so received to the general  deposit  account of the  Borrower
with the  Administrative  Agent or, if a Borrowing  shall not occur on such date
because any condition precedent herein specified shall not have been met, return
the amounts so received to the respective  Lenders.  Competitive  Loans shall be
made by the Lender or Lenders  whose  Competitive  Bids  therefor  are  accepted
pursuant to Section 2.03 in the amounts so accepted  and Standby  Loans shall be
made by the  Lenders  pro rata in  accordance  with  Section  2.16.  Unless  the
Administrative  Agent shall have received notice from a Lender prior to the date
of any Borrowing (or, in the case of an ABR Borrowing, prior to the time of such
ABR Borrowing)  that such Lender will not make  available to the  Administrative
Agent such Lender's  portion of such  Borrowing,  the  Administrative  Agent may
assume that such Lender has made such portion  available  to the  Administrative
Agent on the date of such  Borrowing in accordance  with this  paragraph (c) and
the Administrative  Agent may, in reliance upon such assumption,  make available
to the Borrower on such date a corresponding  amount.  If and to the extent that
such Lender  shall not have made such portion  available  to the  Administrative
Agent and the  Administrative  Agent has made  available  to the  Borrower  such
portion,  such  Lender  and  the  Borrower  severally  agree  to  repay  to  the
Administrative  Agent forthwith on demand such  corresponding  amount,  together
with interest  thereon for each day from the date such amount is made  available
to the Borrower until the date such amount is repaid to the Administrative Agent
at (i) in the case of the Borrower,  the interest rate applicable at the time to
the Loans  comprising  such  Borrowing and (ii) in the case of such Lender,  the
Federal Funds Effective  Rate. If such Lender shall repay to the  Administrative
Agent such corresponding amount, such amount shall constitute such Lender's Loan
as part of such Borrowing for purposes of this Agreement.

     (d)  Notwithstanding  any other provision of this  Agreement,  the Interest
Period  requested by the Borrower  with respect to any  Borrowing  shall not end
after the Maturity Date.
<PAGE>

     SECTION 2.03. Competitive Bid Procedure.

     (a) Subject to the terms and conditions set forth herein, from time to time
during the period from and  including  the  Effective  Date to but excluding the
earlier to occur of the Maturity Date and the  termination of the Commitments of
all Lenders,  the Borrower may request  Competitive  Bids and may, but shall not
have any obligation to, accept  Competitive Bids and borrow  Competitive  Loans;
provided,  that  at no time  shall  the  sum of (x)  the  outstanding  aggregate
principal  amount  of all  Standby  Loans  made  by all  Lenders  plus  (y)  the
outstanding  aggregate  principal  amount of all  Competitive  Loans made by all
Lenders exceed the Total Commitment.  In order to request  Competitive Bids, the
Borrower  shall hand  deliver or  telecopy  to the  Administrative  Agent a duly
completed  Competitive  Bid  Request in the form of Exhibit  A-1  hereto,  to be
received by the Administrative Agent (i) in the case of a Eurodollar Competitive
Borrowing,  not later than 10:00 A.M.,  New York City time,  four  Business Days
before a  proposed  Competitive  Borrowing  and (ii) in the case of a Fixed Rate
Borrowing,  not later than 10:00  A.M.,  New York City time,  one  Business  Day
before a proposed Competitive  Borrowing.  No ABR Loan shall be requested in, or
made pursuant to, a Competitive Bid Request. A Competitive Bid Request that does
not  conform  substantially  to the format of Exhibit A-1 may be rejected in the
Administrative  Agent's  sole  discretion,  and the  Administrative  Agent shall
promptly notify the Borrower of such rejection by telecopier. Such request shall
in each case refer to this  Agreement and specify (x) whether the Borrowing then
being requested is to be a Eurodollar  Borrowing or a Fixed Rate Borrowing,  (y)
the date of such  Borrowing  (which shall be a Business  Day) and the  aggregate
principal  amount  thereof  which  shall be in a  minimum  principal  amount  of
$10,000,000  and in an integral  multiple of  $1,000,000,  and (z) the  Interest
Period(s)  with respect  thereto  (which may not end after the  Maturity  Date).
Promptly after its receipt of a Competitive  Bid Request that is not rejected as
aforesaid,  the Administrative Agent shall invite by telecopier (in the form set
forth in Exhibit A-2 hereto) the Lenders to bid, on the terms and  conditions of
this  Agreement,  to make  Competitive  Loans  pursuant to the  Competitive  Bid
Request.

     (b) Each Lender may, in its sole  discretion,  make one or more Competitive
Bids to the Borrower  responsive to a Competitive Bid Request.  Each Competitive
Bid by a Lender must be received by the Administrative Agent via telecopier,  in
the form of Exhibit  A-3  hereto,  (i) in the case of a  Eurodollar  Competitive
Borrowing,  not later than 9:30 A.M.,  New York City time,  three  Business Days
before a  proposed  Competitive  Borrowing  and (ii) in the case of a Fixed Rate
Borrowing,  not  later  than 9:30  A.M.,  New York  City  time,  on the day of a
proposed  Competitive   Borrowing.   Multiple  bids  will  be  accepted  by  the
Administrative Agent.  Competitive Bids that do not conform substantially to the
format  of  Exhibit  A-3  may be  rejected  by the  Administrative  Agent  after
conferring   with,  and  upon  the  instruction   of,  the  Borrower,   and  the
Administrative  Agent shall notify the Lender making such  nonconforming  bid of
such rejection as soon as practicable.  Each Competitive Bid shall refer to this
Agreement and specify (x) the range of principal amounts (each of which shall be
in a minimum  principal  amount of  $5,000,000  and in an  integral  multiple of
$1,000,000  and,  in the case of the larger  such  amount,  may equal the entire
principal amount of the Competitive  Borrowing requested by the Borrower) of the
Competitive  Loan or Loans that the  Lender is willing to make to the  Borrower,
(y) the  Competitive  Bid Rate or Rates at which the Lender is  prepared to make
the  Competitive  Loan or Loans  and (z) the  Interest  Period  and the last day
thereof.  If any Lender shall elect not to make a  Competitive  Bid, such Lender
shall so  notify  the  Administrative  Agent via  telecopier  (A) in the case of
Eurodollar  Competitive  Loans,  not later than 9:30  A.M.,  New York City time,
three Business Days before a proposed Competitive Borrowing, and (B) in the case
of Fixed Rate Loans, not later than 9:30 A.M., New York City time, on the day of
a proposed Competitive  Borrowing;  provided,  however,  that the failure by any
Lender to give such notice  shall not cause such Lender to be  obligated to make
any Competitive  Loan as part of such Competitive  Borrowing.  A Competitive Bid
submitted by a Lender  pursuant to this paragraph (b) shall be  irrevocable.  If
the Administrative Agent shall not have received from any Lender notification of
its election to make a  Competitive  Bid on or before the times set forth in the
second sentence of this  paragraph,  such Lender shall be deemed to have elected
not to make a Competitive Bid.
<PAGE>

     (c) The  Administrative  Agent shall  promptly  notify (but in any event no
later than 10:00 A.M.,  New York City time,  on the day any  Competitive  Bid is
received by the  Administrative  Agent) the  Borrower by  telecopier  of all the
Competitive  Bids made, the  Competitive  Bid Rate and the principal  amount (or
range thereof) of each  Competitive  Loan in respect of which a Competitive  Bid
was made and the identity of the Lender that made each bid.  The  Administrative
Agent shall send a copy of all Competitive  Bids to the Borrower for its records
as soon as practicable after completion of the bidding process set forth in this
Section 2.03.

     (d) The Borrower may in its sole and absolute  discretion,  subject only to
the  provisions  of this  paragraph  (d),  accept or reject  all or any  portion
(within the range of principal amounts specified therein) of any Competitive Bid
referred to in paragraph (c) above. The Borrower shall notify the Administrative
Agent by telephone,  confirmed by  telecopier  in the form of a Competitive  Bid
Accept/Reject  Letter,  whether  and to what  extent it has decided to accept or
reject any of or all the bids  referred to in  paragraph  (c) above,  (x) in the
case of a Eurodollar Competitive Borrowing,  not later than 11:00 A.M., New York
City time, three Business Days before a proposed  Competitive  Borrowing and (y)
in the case of a Fixed Rate Borrowing,  not later than 11:00 A.M., New York City
time, on the day of a proposed Competitive  Borrowing;  provided,  however, that
(i) the  failure by the  Borrower  to give such  notice  shall be deemed to be a
rejection of all the bids referred to in paragraph (c) above,  (ii) the Borrower
shall not accept a bid made at a particular Competitive Bid Rate if the Borrower
has  decided  to reject a bid made at a lower  Competitive  Bid Rate,  (iii) the
aggregate  amount of the  Competitive  Bids  accepted by the Borrower  shall not
exceed the principal  amount  specified in the Competitive Bid Request,  (iv) if
the Borrower  shall accept a bid or bids made at the same  Competitive  Bid Rate
but the  amount of such bid or bids shall  cause the total  amount of bids to be
accepted by the Borrower to exceed the amount  specified in the  Competitive Bid
Request,  then the  Borrower  shall  accept a portion  of such bid or bids in an
amount no greater than the amount  specified in the Competitive Bid Request less
the  amount  of all  other  Competitive  Bids at a lower  Competitive  Bid  Rate
accepted with respect to such Competitive Bid Request, which acceptance,  in the
case of multiple bids at such  Competitive  Bid Rate,  shall be made pro rata in
accordance with the lowest amount of each such bid at such Competitive Bid Rate,
and (v) except  pursuant to clause (iv)  above,  no bid shall be accepted  for a
Competitive Loan unless such  Competitive Loan is in a minimum  principal amount
of $5,000,000 and an integral multiple of $1,000,000; provided further, however,
that if a Competitive Loan must be in an amount less than $5,000,000  because of
the provisions of clause (iv) above,  such Competitive Loan may be for a minimum
of $1,000,000 or any integral multiple thereof,  and in calculating the pro rata
allocation  of  acceptances  of  portions  of  multiple  bids  at  a  particular
Competitive  Bid Rate  pursuant to clause  (iv) the amounts  shall be rounded to
integral multiples of $1,000,000 in a manner which shall be in the discretion of
the  Borrower.  A notice given by the Borrower  pursuant to this  paragraph  (d)
shall be irrevocable.
<PAGE>

     (e) The  Administrative  Agent shall  promptly  notify each bidding  Lender
whether or not its  Competitive Bid has been accepted (and if so, in what amount
and at what  Competitive  Bid  Rate) by  telecopier  sent by the  Administrative
Agent, and each successful  bidder will thereupon  become bound,  subject to the
other applicable  conditions  hereof, to make the Competitive Loan in respect of
which its bid has been accepted.

     (f) If the Administrative  Agent shall elect to submit a Competitive Bid in
its capacity as a Lender,  it shall submit such bid directly to the Borrower not
later than 9:15 A.M.,  New York City time, on the day on which the other Lenders
are  required  to submit  their bids to the  Administrative  Agent  pursuant  to
paragraph (b) above.

     (g) All notices  required by this Section 2.03 shall be given in accordance
with Section 9.01.

     SECTION 2.04. Standby Borrowing Procedure.

     In order to request a Standby  Borrowing  (other  than a  Conversion),  the
Borrower shall hand deliver or telecopy to the Administrative  Agent a notice in
the form of Exhibit A-5 (a) in the case of a Eurodollar Standby  Borrowing,  not
later than 11:00 A.M., New York City time, three Business Days before a proposed
Borrowing,  and (b) in the case of an ABR Borrowing,  not later than 11:00 A.M.,
New York City time, on the day of a proposed Borrowing. No Fixed Rate Loan shall
be requested or made pursuant to a Standby Borrowing Request.  Such notice shall
be irrevocable  (unless otherwise  expressly  provided herein) and shall in each
case  specify  (i)  whether  the  Borrowing  then  being  requested  is  to be a
Eurodollar Standby Borrowing or an ABR Borrowing;  (ii) the date of such Standby
Borrowing  (which shall be a Business Day) and the amount thereof;  and (iii) if
such Borrowing is to be a Eurodollar Standby Borrowing, the Interest Period with
respect thereto. If no election as to the Type of Standby Borrowing is specified
in any  such  notice,  then  the  requested  Standby  Borrowing  shall be an ABR
Borrowing.  If no  Interest  Period  with  respect  to  any  Eurodollar  Standby
Borrowing is specified in any such notice,  then the Borrower shall be deemed to
have selected an Interest  Period of one month's  duration.  The  Administrative
Agent shall  promptly  advise (but in any event no later than 12:00 noon on such
date) the Lenders of any notice given  pursuant to this Section 2.04 and of each
Lender's portion of the requested Borrowing.
<PAGE>

     SECTION 2.05. Conversions.

     The  Borrower  may from time to time  Convert any Standby  Loan (or portion
thereof) of any Type and with any Interest Period (if applicable) to one or more
Standby  Loans of the same or any other  Type and with any  Interest  Period (if
applicable)  by delivering  (by hand delivery or  telecopier) a request for such
Conversion in the form of Exhibit A-6 to the Administrative  Agent no later than
(i) 11:00 A.M.,  New York City time, on the third Business Day prior to the date
of any proposed  Conversion into a Eurodollar  Standby Loan and (ii) 11:00 A.M.,
New York City time, on the day of any proposed  Conversion into an ABR Loan. The
Administrative  Agent shall give each Lender  prompt  notice of each  Conversion
Request.   Each  Conversion  Request  shall  be  irrevocable  (unless  otherwise
expressly  provided  herein) and binding on the Borrower  and shall  specify the
requested (A) date of such Conversion, (B) Type of, and Interest Period, if any,
applicable to, the Standby Loans (or portions thereof) proposed to be Converted,
(C) Type of Standby Loans to which such Standby Loans (or portions  thereof) are
proposed to be Converted,  (D) initial Interest Period, if any, to be applicable
to the Standby Loans resulting from such Conversion and (E) aggregate  amount of
Standby  Loans (or portions  thereof)  proposed to be  Converted.  No Eurodollar
Standby Loans may be Converted on a date other than the last day of the Interest
Period applicable  thereto,  unless the Borrower reimburses each Lender pursuant
to Section 2.15 for all losses or expenses incurred by such Lender in connection
with such  Conversion.  If the Borrower  shall fail to give a timely  Conversion
Request  pursuant  to this  subsection  in respect of any  Standby  Loans,  such
Standby  Loans  shall,  on the  last day of the then  existing  Interest  Period
therefor,  automatically  Convert  into,  or remain  as, as the case may be, ABR
Loans,  unless such Standby Loans are repaid at the end of such Interest Period.
If the  Borrower  shall fail,  in any  Conversion  Request  that has been timely
given,  to select the  duration of any Interest  Period for Standby  Loans to be
Converted into Eurodollar  Standby Loans,  such Standby Loans shall, on the last
day of the then existing  Interest Period therefor,  automatically  Convert into
Eurodollar Standby Loans with an Interest Period of one month's duration. If, on
the date of any proposed  Conversion,  the Borrower shall have failed to fulfill
any  condition set forth in Section  4.01,  all Standby  Loans then  outstanding
shall, on such date,  automatically  Convert into, or remain as, as the case may
be, ABR Loans.

     SECTION 2.06. Fees.

     (a) The Borrower agrees to pay to each Lender,  through the  Administrative
Agent,  on each March 31, June 30,  September 30 and December 31, on the date on
which the  Commitment of such Lender shall be terminated as provided  herein and
on the Maturity  Date,  a facility  fee (a  "Facility  Fee") at a rate per annum
equal to the  Applicable  Rate from time to time in effect on (i) the  amount of
the  Commitment  of such Lender,  whether used or unused,  during the  preceding
quarter  (or  shorter  period  commencing  on the date  hereof and ending on the
Maturity Date or any other date on which the  Commitment of such Lender shall be
terminated)  and (ii) in the event that the  Commitments  have  terminated,  the
aggregate amount of the Standby Loans owed by the Borrower to such Lender during
the  preceding  quarter  (or  shorter  period  ending on the date on which  such
Standby  Loans are paid in full).  All  Facility  Fees shall be  computed on the
basis of the actual  number of days elapsed in a year of 365 or 366 days, as the
case may be. The Facility Fee due to each Lender shall commence to accrue on the
date hereof and shall cease to accrue on the later of the Maturity  Date and the
date of payment in full of the Loans,  accrued  interest  thereon  and all other
amounts payable hereunder.
<PAGE>

     (b) The  Borrower  agrees  to pay  the  Administrative  Agent,  for its own
account,  the fees (the  "Administrative  Fees") at the times and in the amounts
agreed  upon  between  them.

     (c) All Fees  shall be paid on the  dates  due,  in  immediately  available
funds,  to the  Administrative  Agent for  distribution,  if and as appropriate,
among the Lenders.  Once paid,  none of the Fees shall be  refundable  under any
circumstances.

     SECTION 2.07. Repayment of Loans.

     (a) The outstanding principal balance of each Loan shall be payable, in the
case of each  Competitive  Loan,  on the earlier to occur of the last day of the
Interest Period  applicable to such Loan and the Maturity Date, and, in the case
of each Standby  Loan,  on the Maturity  Date.  Each  Competitive  Loan and each
Standby  Loan  shall bear  interest  from the date  thereof  on the  outstanding
principal  balance thereof as set forth in Section 2.08. Each Lender shall,  and
is hereby authorized by the Borrower to record in such Lender's internal records
an appropriate  notation evidencing the date and amount of each Competitive Loan
or Standby Loan, as  applicable,  of such Lender,  each payment or prepayment of
principal of any Competitive Loan or Standby Loan, as applicable, and such other
relevant information as such Lender records in its internal records with respect
to loans of a type similar to such Loans; provided, however, that the failure of
any Lender to make such a notation or any error  therein shall not in any manner
affect the obligation of the Borrower to repay the Competitive  Loans or Standby
Loans, as applicable, made by such Lender in accordance with the terms hereof.

     (b) Any Lender may request that any Loans made by it be evidenced by one or
more promissory notes. Promptly upon receipt of such request, the Borrower shall
prepare, execute and deliver to such Lender one or more promissory notes payable
to the order of such Lender (or, if requested by such Lender, to such Lender and
its assignees)  substantially in the form of Exhibit D-1 or D-2, as appropriate.
Thereafter,  the Loans evidenced by such promissory  notes and interest  thereon
shall at all times  (including  after  assignment  pursuant to Section  9.04) be
represented by one or more promissory notes in such form payable to the order of
the payee named therein.

     SECTION 2.08. Interest on Loans.

     (a) Subject to the  provisions of Section 2.09, the Loans  comprising  each
Eurodollar  Borrowing  shall bear interest  (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to (i)
in the case of each  Eurodollar  Standby  Loan,  the LIBO Rate for the  Interest
Period in effect for such Borrowing  plus the  Applicable  Rate, and (ii) in the
case of each Eurodollar  Competitive Loan, the LIBO Rate for the Interest Period
in effect for such  Borrowing  plus the Margin offered by the Lender making such
Loan and accepted by the  Borrower  pursuant to Section  2.03.  Interest on each
Eurodollar  Borrowing shall be payable on each applicable Interest Payment Date.
The LIBO Rate for each Interest Period shall be determined by the Administrative
Agent,  and such  determination  shall be conclusive  absent manifest error. The
Administrative  Agent shall promptly (but in any event no later than 10:30 A.M.,
New York City time, two Business Days prior to the commencement of such Interest
Period)  (A)  advise the  Borrower  and each  Lender,  as  appropriate,  of such
determination  and (B) upon the request of the  Borrower,  provide the  Borrower
with the calculations and relevant factors supporting such determination.
<PAGE>

     (b) Subject to the  provisions of Section 2.09, the Loans  comprising  each
ABR Borrowing shall bear interest (computed on the basis of the actual number of
days elapsed over a year of 365 or 366 days, as the case may be, when determined
with reference to the Prime Rate and over a year of 360 days in all other cases)
at a rate per annum equal to the Alternate Base Rate plus the  Applicable  Rate.
Interest  on each ABR  Borrowing  shall be payable on each  applicable  Interest
Payment Date. The Alternate Base Rate shall be determined by the  Administrative
Agent,  and such  determination  shall be conclusive  absent manifest error. The
Administrative  Agent shall promptly (but in any event no later than 11:30 A.M.,
New York City time,  on the day of each ABR  Borrowing)  (A) advise the Borrower
and each Lender of such  determination and (B) upon the request of the Borrower,
provide the Borrower with the calculations and relevant factors  supporting such
determination.

     (c) Subject to the  provisions of Section 2.09,  each Fixed Rate Loan shall
bear interest at a rate per annum (computed on the basis of the actual number of
days  elapsed  over a year of 360  days)  equal to the  fixed  rate of  interest
offered by the Lender making such Loan and accepted by the Borrower  pursuant to
Section 2.03.  Interest on each Fixed Rate Loan shall be payable on the Interest
Payment  Dates  applicable  to such Loan  except as  otherwise  provided in this
Agreement.

     SECTION 2.09. Default Interest.

     If the  Borrower  shall  default  in the  payment  of the  principal  of or
interest on any Loan or any other  amount  becoming  due  hereunder,  whether by
scheduled  maturity,  notice of  prepayment,  acceleration,  or  otherwise,  the
Borrower  shall on demand  from time to time from the  Administrative  Agent pay
interest,  to the extent  permitted by law, on such defaulted  amount up to (but
not including) the date of actual payment (after as well as before  judgment) at
a rate per annum  (computed  on the basis of the actual  number of days  elapsed
over a year of 360 days) equal to the Alternate Base Rate plus 2%.

     SECTION 2.10. Alternate Rate of Interest.

     In the event, and on each occasion, that on the day two Business Days prior
to the  commencement  of any  Interest  Period for a  Eurodollar  Borrowing  the
Administrative Agent shall have determined that dollar deposits in the principal
amounts of the  Eurodollar  Loans  comprising  such  Borrowing are not generally
available in the London interbank market, or that the rates at which such dollar
deposits are being offered will not  adequately  and fairly  reflect the cost to
any Lender of making or  maintaining  its  Eurodollar  Loan during such Interest
Period,  or that reasonable  means do not exist for  ascertaining the LIBO Rate,
the Administrative Agent shall, as soon as practicable thereafter,  give written
notice of such  determination  to the Borrower and the Lenders.  In the event of
any such  determination,  until the Administrative  Agent shall have advised the
Borrower  and the Lenders that the  circumstances  giving rise to such notice no
longer exist, (i) any such request by the Borrower for a Eurodollar  Competitive
Borrowing  pursuant to Section 2.03 shall be of no force and effect and shall be
denied by the Administrative  Agent, (ii) any such request by the Borrower for a
Eurodollar  Standby  Borrowing  pursuant to Section 2.04 shall be deemed to be a
request for an ABR  Borrowing  (unless the  Borrower  shall have  withdrawn  its
request for such  Eurodollar  Standby  Borrowing not later than 10:00 A.M.,  New
York City time, on the day of the proposed  Borrowing)  and (iii) any request by
the Borrower for a Conversion  to Eurodollar  Standby Loans  pursuant to Section
2.05 shall be deemed to be a request for a Conversion  to ABR Loans  (unless the
Borrower  shall have  withdrawn its request for such  Conversion  not later than
10:00 A.M.,  New York City time,  on the day of the proposed  Conversion).  Each
determination by the  Administrative  Agent hereunder shall be conclusive absent
manifest error.
<PAGE>

     SECTION 2.11. Changes in Commitments.

     (a) Upon at least three Business Days' prior irrevocable  written notice to
the  Administrative  Agent,  the Borrower  may at any time in whole  permanently
terminate,  or  from  time  to  time  in  part  permanently  reduce,  the  Total
Commitment;  provided,  however,  that (i) each  partial  reduction of the Total
Commitment  shall be in an  integral  multiple  of  $1,000,000  and in a minimum
principal  amount of $10,000,000 and (ii) no such termination or reduction shall
be made which would,  after giving  effect to any  concurrent  prepayment of the
Loans in accordance with Section 2.12,  reduce the Total Commitment to an amount
less  than  the sum of the  aggregate  principal  amount  of all  Standby  Loans
outstanding  plus  the  aggregate  principal  amount  of all  Competitive  Loans
outstanding.

     (b) Each reduction in the Total Commitment  hereunder shall be made ratably
among the Lenders in accordance with their respective Commitments.  The Borrower
shall pay to the  Administrative  Agent for the account of the  Lenders,  on the
date of each  termination  or reduction,  the Facility Fees on the amount of the
Commitments  so  terminated  or  reduced   accrued  through  the  date  of  such
termination or reduction. Subject to Section 2.06(a)(ii), no additional Facility
Fees on the amount of the Commitments so terminated or reduced will accrue.

     (c) Unless earlier terminated pursuant to the terms of this Agreement,  the
Commitment of each Lender shall  automatically and permanently  terminate on the
Maturity Date.
<PAGE>

     (d) Provided that no Default or Event of Default shall have occurred and be
continuing,  the  Borrower  shall have the  right,  without  the  consent of the
Lenders  but subject to the terms of an  amendment  hereto  entered  into by the
Borrower  and the  Administrative  Agent,  to  effectuate  from  time to time an
increase in the Total  Commitment by (x) the accession to this  Agreement of one
or more financial  institutions as a Lender or as Lenders or (y) allowing one or
more Lenders to increase its Commitment  hereunder (any such event  described in
clause (x) or (y) being a "Commitment Increase"; provided that (i) the aggregate
amount of Commitment Increases  effectuated pursuant to this paragraph shall not
exceed  $75,000,000,  (ii) no Lender's Commitment shall be increased without the
consent  of such  Lender,  (iii) on the  effective  date of any such  Commitment
Increase,  there  are no  outstanding  Eurodollar  Standby  Loans,  and  (iv) no
Commitment  Increase  may occur  pursuant  to this  paragraph  on any date after
January 31, 2002.  Each party hereto  hereby  consents to the  amendment of this
Agreement to reflect any such Commitment  Increase.  The Borrower shall give the
Administrative  Agent three  Business  Days' (or such shorter  period of time as
shall be  acceptable  to the  Administrative  Agent)  notice  of the  Borrower's
intention  to increase the Total  Commitment  pursuant to this  paragraph.  Such
notice shall specify each new financial  institution to accede to this Agreement
as a Lender or the name of the Lender that has agreed to increase its Commitment
hereunder,  as the  case  may be,  and the  amount  of the  proposed  additional
Commitment or the amount of the proposed increase in an existing Commitment,  as
the case may be. The  Borrower  shall also provide to the  Administrative  Agent
satisfactory  evidence that all necessary  Governmental  Approvals and corporate
authorizations  have been obtained by the Borrower in  connection  with proposed
Commitment  Increase,  together  with such other  information  as is  reasonably
requested by the Administrative  Agent. Each financial  institution  agreeing to
accede to this Agreement as a Lender,  and each Lender  agreeing to increase its
Commitment  (each  such  financial  institution  or  Lender  being an  "Acceding
Lender"), shall execute and deliver to the Administrative Agent and the Borrower
documentation in form and substance satisfactory to the Administrative Agent and
the  Borrower  pursuant  to which it  becomes a party  hereto or  increases  its
Commitment,  as the case may be, shall  deliver to the  Administrative  Agent an
Administrative  Questionnaire,  and shall purchase from the existing Lenders its
proportionate share (based on the amount of its Commitment and the amount of the
Total Commitment after giving effect to the Commitment  Increase) of any Standby
Loans outstanding on the date such Commitment  Increase becomes effective.  Upon
(x) the  execution and delivery of such  documentation  and an amendment to this
Agreement  that  reflects  any such  increase in the Total  Commitment  and such
additional or changed  Commitments  and (y) the provision to the  Administrative
Agent by the Acceding  Lender of funds in an amount  necessary to purchase  from
the  existing  Lenders  its  proportionate  share  (based  on the  amount of its
Commitment  and the amount of the Total  Commitment  after giving  effect to the
Commitment  Increase)  of  any  Standby  Loans  outstanding  on  the  date  such
Commitment Increase becomes effective,  (i) the Commitment Increase shall become
effective,  (ii) the financial  institution agreeing to accede to this Agreement
as a Lender shall  constitute a Lender under this Agreement with a Commitment as
specified  therein,  or, in the case of an existing  Lender agreeing to increase
its Commitment,  such Lender's  Commitment shall increase as specified  therein,
and (iii) the Acceding Lender shall acquire its proportionate  share (determined
as aforesaid) of any outstanding  Standby Loans and the rights relating  thereto
as provided by the Agreement.

     (e) Any changes in the  Commitments  pursuant to this Section 2.11 shall be
appropriately recorded by the Administrative Agent in the Register in accordance
with Section 9.04(d).  In addition,  all notices with respect to any such change
shall be maintained by the Administrative Agent with the Register.

     SECTION 2.12. Prepayment.

     (a) The Borrower  shall have the right at any time and from time to time to
prepay any Standby Borrowing or Eurodollar Competitive Borrowing, in whole or in
part,  upon giving written  notice (or telephone  notice  promptly  confirmed by
written  notice) to the  Administrative  Agent:  (i) before 11:00 A.M., New York
City time,  three Business Days prior to  prepayment,  in the case of Eurodollar
Loans, and (ii) before 11:00 A.M., New York City time, on the day of prepayment,
in the case of ABR Loans; provided,  however, that each partial prepayment shall
be in an amount which is an integral  multiple of  $1,000,000  and not less than
$5,000,000.  The  Borrower  shall not have the right to  prepay  any Fixed  Rate
Competitive Borrowing without the consent of the applicable Lender.
<PAGE>

     (b) Each notice of  prepayment  shall specify the  prepayment  date and the
principal amount of each Borrowing (or portion thereof) to be prepaid,  shall be
irrevocable  and shall commit the Borrower to prepay such  Borrowing (or portion
thereof)  by  the  amount  stated  therein  on  the  date  stated  therein.  All
prepayments  under this  Section  2.12  shall be  subject  to  Section  2.15 but
otherwise  without premium or penalty.  All prepayments  under this Section 2.12
shall be accompanied by accrued  interest on the principal  amount being prepaid
to the date of payment.

     SECTION 2.13. Reserve Requirements; Change in Circumstances.

     (a) It is understood  that the cost to each Lender of making or maintaining
any of the Eurodollar  Loans may fluctuate as a result of the  applicability  of
reserve  requirements  imposed  by the  Board  at  the  ratios  provided  for in
Regulation  D on the date  hereof.  The  Borrower  agrees  to pay to each of the
Lenders from time to time such amounts as shall be necessary to compensate  such
Lender for the  portion of the cost of making or  maintaining  Eurodollar  Loans
(other  than  Eurodollar  Competitive  Loans)  resulting  from any such  reserve
requirements  provided for in  Regulation D as in effect on the date hereof,  it
being understood that the rates of interest  applicable to Eurodollar Loans have
been  determined on the assumption  that no such reserve  requirements  exist or
will exist and that such rates do not  reflect  costs  imposed on the Lenders in
connection with such reserve requirements.

     (b)  Notwithstanding  any other provision herein, if after the date of this
Agreement  any  change  in  applicable  law or  regulation  (including,  without
limitation,  Regulation D) or in the interpretation or administration thereof by
any Governmental  Authority  charged with the  interpretation  or administration
thereof  (whether  or not  having  the force of law)  shall  change the basis of
taxation  of  payments  to any Lender of the  principal  of or  interest  on any
Eurodollar  Loan or Fixed  Rate  Loan  made by such  Lender or any Fees or other
amounts payable hereunder (other than changes in respect of taxes imposed on the
overall  net income of such  Lender  and  franchise  taxes  imposed on it by the
jurisdiction  in which such Lender has its principal  office or by any political
subdivision  or taxing  authority  therein),  or shall impose,  modify,  or deem
applicable any reserve,  special deposit,  or similar requirement against assets
of,  deposits with or for the account of or credit  extended by such Lender,  or
shall impose on such Lender or the London  interbank  market any other condition
affecting this Agreement or any Eurodollar  Loan or Fixed Rate Loan made by such
Lender,  and the result of any of the foregoing shall be to increase the cost to
such Lender of making or maintaining  any Eurodollar  Loan or Fixed Rate Loan or
to reduce the amount of any sum received or receivable by such Lender  hereunder
(whether of  principal,  interest,  or  otherwise)  by an amount  deemed by such
Lender to be material,  then, to the extent not otherwise being reimbursed under
Section  2.19  hereof,  the  Borrower  will pay to such  Lender upon demand such
additional  amount or amounts as will compensate such Lender for such additional
costs incurred or reduction suffered.  Notwithstanding the foregoing,  no Lender
shall be entitled to request  compensation  under this paragraph with respect to
any Competitive  Loan if it shall have had actual knowledge of the change giving
rise to such request at the time of submission of the  Competitive  Bid pursuant
to which such Competitive Loan shall have been made.
<PAGE>

     (c) If any Lender shall have  determined  that the adoption  after the date
hereof of any law, rule, regulation, or guideline regarding capital adequacy, or
any change in any existing law, rule, regulation, or guideline regarding capital
adequacy or in the  interpretation  or administration of any of the foregoing by
any governmental authority,  central bank, or comparable agency charged with the
interpretation  or administration  thereof,  or compliance by any Lender (or any
lending office of such Lender) or any Lender's  holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank, or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or on the capital
of such Lender's holding company,  if any, as a consequence of this Agreement or
the Loans made by such Lender  pursuant  hereto to a level below that which such
Lender  or such  Lender's  holding  company  could  have  achieved  but for such
adoption,  change,  or  compliance  (taking  into  consideration  such  Lender's
policies  and the  policies of such  Lender's  holding  company  with respect to
capital  adequacy) by an amount deemed by such Lender to be material,  then from
time to time the  Borrower  shall pay to such Lender such  additional  amount or
amounts as will compensate such Lender or such Lender's  holding company for any
such reduction suffered.

     (d) A certificate of a Lender setting forth such amount or amounts as shall
be necessary to  compensate  such Lender as specified in paragraph  (a), (b), or
(c)  above,  as the  case  may  be,  and  all of the  relevant  factors  and the
calculations  supporting  such  amount or  amounts,  shall be  delivered  to the
Borrower and shall be conclusive  absent manifest error.  The Borrower shall pay
each  Lender the amount  shown as due on any such  certificate  delivered  by it
within 10 days after the receipt of the same.

     (e) Notwithstanding the provisions of subsections (a), (b) or (c) above, to
the  contrary,  no  Lender  shall be  entitled  to demand  compensation  for any
increased  costs or reduction in amounts  received or receivable or reduction in
return on capital to the extent that such compensation  relates to any period of
time prior to the date upon which such Lender first notified the Borrower of the
occurrence of the event entitling such Lender to such compensation  (unless, and
to the  extent,  that any such  compensation  so  demanded  shall  relate to the
retroactive application of any event so notified to the Borrower required by any
governmental authority, central bank or comparable agency).

     (f) If any Lender shall have delivered a notice or certificate  pursuant to
paragraph (d) above, the Borrower shall have the right, at its own expense, upon
notice to such Lender and the  Administrative  Agent,  to require such Lender to
(i) terminate its  Commitment or (ii) transfer and assign  without  recourse (in
accordance with and subject to the  restrictions  contained in Section 9.04) all
or a portion of its interest,  rights and  obligations  under this  Agreement to
another financial institution which shall assume such obligations; provided that
(A) no such  termination  or assignment  shall  conflict with any law,  rule, or
regulation  or order of any  Governmental  Authority and (B) the Borrower or the
assignee,  as the case may be, shall pay to the affected  Lender in  immediately
available  funds on the date of such  termination or assignment the principal of
and  interest  accrued to the date of payment on the Loans made by it  hereunder
and all other  amounts  accrued for its account or owed to it  hereunder  (other
than any amounts owed to such Lender  pursuant to Section  2.15(c) in connection
with such principal payment).
<PAGE>

     SECTION 2.14. Change in Legality.

     (a) Notwithstanding any other provision herein, if any change in any law or
regulation  or in  the  interpretation  thereof  by any  governmental  authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar  Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrower and to the Administrative Agent, such Lender may:

          (i) declare that Eurodollar  Loans will not thereafter be made by such
     Lender hereunder,  whereupon such Lender shall not submit a Competitive Bid
     in response to a request for Eurodollar  Competitive  Loans and any request
     by the Borrower for a Eurodollar Standby Borrowing shall, as to such Lender
     only,  be deemed a  request  for an ABR Loan (or for a  Conversion  thereto
     pursuant to Section  2.05) unless such  declaration  shall be  subsequently
     withdrawn; and

          (ii)  require  that all  outstanding  Eurodollar  Loans  made by it be
     Converted to ABR Loans, in which event all such  Eurodollar  Loans shall be
     automatically  Converted  to ABR  Loans  as of the  effective  date of such
     notice as provided in paragraph (b) below.

     In the event any Lender shall  exercise its rights under (i) or (ii) above,
all  payments  and  prepayments  of principal  which would  otherwise  have been
applied to repay the  Eurodollar  Loans that would have been made by such Lender
or the  Converted  Eurodollar  Loans of such Lender shall  instead be applied to
repay  the ABR Loans  made by such  Lender  in lieu of,  or  resulting  from the
Conversion of, such Eurodollar Loans.

     (b) For  purposes of this  Section  2.14,  a notice to the  Borrower by any
Lender shall be effective as to each Eurodollar Loan, if lawful, on the last day
of the Interest  Period  currently  applicable to such  Eurodollar  Loan; in all
other  cases  such  notice  shall be  effective  on the date of  receipt  by the
Borrower.

     SECTION 2.15. Indemnity.

     The Borrower shall  indemnify each Lender against any loss or expense which
such  Lender may  sustain or incur as a  consequence  of (a) any  failure by the
Borrower  to  fulfill  on the date of any  Borrowing  hereunder  the  applicable
conditions set forth in Article IV, (b) any failure by the Borrower to borrow or
to Convert any Loan  hereunder  after  irrevocable  notice of such  Borrowing or
Conversion  has been given  pursuant  to  Section  2.03,  2.04 or 2.05,  (c) any
payment,  prepayment or  Conversion  of a Eurodollar  Loan required by any other
provision of this  Agreement  or  otherwise  made or deemed made on a date other
than the last day of the Interest Period applicable thereto,  (d) any default in
payment or prepayment of the principal amount of any Loan or any part thereof or
interest accrued thereon,  as and when due and payable (at the due date thereof,
whether by scheduled maturity, acceleration, irrevocable notice of prepayment or
otherwise),  or (e) the occurrence of any Event of Default,  including,  in each
such  case,  any loss or  reasonable  expense  sustained  or  incurred  or to be
sustained or incurred in  liquidating  or employing  deposits from third parties
acquired to effect or  maintain  such Loan or any part  thereof as a  Eurodollar
Loan.  Such loss or  reasonable  expense  shall  include an amount  equal to the
excess,  if any, as reasonably  demonstrated by such Lender,  of (i) its cost of
obtaining the funds for the Loan being paid, prepaid, Converted, or not borrowed
(assumed  to be the LIBO Rate or, in the case of a Fixed  Rate  Loan,  the fixed
rate of  interest  applicable  thereto)  for the  period  from  the date of such
payment, prepayment, or failure to borrow to the last day of the Interest Period
for such Loan (or, in the case of a failure to borrow,  the Interest  Period for
such Loan which would have  commenced on the date of such failure) over (ii) the
amount of interest  (as  reasonably  demonstrated  by such Lender) that would be
realized  by such  Lender  in  redeploying  the funds so paid,  prepaid,  or not
borrowed for such period or Interest  Period,  as the case may be. A certificate
of any Lender setting forth the factors and  calculations  supporting any amount
or amounts  which such Lender is entitled  to receive  pursuant to this  Section
shall  be  delivered  to the  Borrower  no  later  than  30 days  following  the
incurrence   of  any  loss  or  expense   for  which  such   Lender  is  seeking
indemnification  under this Section 2.15 and shall be conclusive absent manifest
error.
<PAGE>

     SECTION 2.16. Pro Rata Treatment.

     Except as required or otherwise  permitted under Sections 2.13(f) and 2.14,
each Standby  Borrowing,  each payment or prepayment of principal of any Standby
Borrowing,  each payment of interest on the Standby  Loans,  each payment of the
Facility Fees,  each  reduction of the  Commitments  and each  Conversion of any
Borrowing  with a Standby  Borrowing of any Type,  shall be  allocated  pro rata
among the Lenders in accordance with their  respective  Commitments (or, if such
Commitments  shall  have  expired or been  terminated,  in  accordance  with the
respective  principal amounts of their outstanding  Standby Loans). Each payment
of principal of any Competitive  Borrowing shall be allocated pro rata among the
Lenders  participating  in such  Borrowing  in  accordance  with the  respective
principal  amounts  of  their  outstanding  Competitive  Loans  comprising  such
Borrowing.  Each  payment of  interest  on any  Competitive  Borrowing  shall be
allocated  pro  rata  among  the  Lenders  participating  in such  Borrowing  in
accordance  with the respective  amounts of accrued and unpaid interest on their
outstanding  Competitive  Loans  comprising  such  Borrowing.  For  purposes  of
determining  the  available  Commitments  of  the  Lenders  at  any  time,  each
outstanding   Competitive  Borrowing  shall  be  deemed  to  have  utilized  the
Commitments  of the Lenders  (including  those Lenders which shall not have made
Loans as part of such  Competitive  Borrowing) pro rata in accordance  with such
respective  Commitments.  Each Lender  agrees that,  in computing  such Lender's
portion of any Borrowing to be made hereunder,  the Administrative Agent may, in
its  discretion,  round each Lender's  percentage of such  Borrowing to the next
higher or lower whole dollar amount.

     SECTION 2.17. Sharing of Setoffs.

     Each  Lender  agrees that if it shall,  through the  exercise of a right of
banker's lien,  setoff, or counterclaim  against the Borrower,  or pursuant to a
secured  claim under  Section 506 of Title 11 of the United States Code or other
security or interest  arising from, or in lieu of, such secured claim,  received
by such Lender under any applicable bankruptcy, insolvency, or other similar law
or otherwise,  or by any other means,  obtain payment (voluntary or involuntary)
in respect of any Standby Loan or Standby  Loans as a result of which the unpaid
principal  portion of the Standby Loans of such Lender shall be  proportionately
less than the unpaid principal portion of the Standby Loans of any other Lender,
it shall be deemed  simultaneously  to have  purchased from such other Lender at
face value,  and shall promptly pay to such other Lender the purchase price for,
a participation in the Standby Loans of such other Lender, so that the aggregate
unpaid principal amount of the Standby Loans and  participations  in the Standby
Loans  held by each  Lender  shall be in the same  proportion  to the  aggregate
unpaid  principal  amount of all Standby Loans then outstanding as the principal
amount of its Standby Loans prior to such exercise of banker's lien,  setoff, or
counterclaim  or other event was to the  principal  amount of all Standby  Loans
outstanding prior to such exercise of banker's lien,  setoff, or counterclaim or
other  event;  provided,  however,  that if any such  purchase or  purchases  or
adjustments  shall be made pursuant to this Section 2.17 and the payment  giving
rise  thereto  shall  thereafter  be  recovered,  such  purchase or purchases or
adjustments  shall be rescinded to the extent of such  recovery and the purchase
price or prices or adjustment restored without interest.  The Borrower expressly
consents to the foregoing  arrangements  and agrees that, to the maximum  extent
permitted by law, any Lender holding a participation in a Standby Loan deemed to
have been so purchased may exercise any and all rights of banker's lien, setoff,
or counterclaim with respect to any and all moneys owing by the Borrower to such
Lender by reason  thereof  as fully as if such  Lender  had made a Standby  Loan
directly to the Borrower in the amount of such participation.
<PAGE>

     SECTION 2.18. Payments.

     (a) The  Borrower  shall  make  each  payment  (including  principal  of or
interest on any Borrowing or any Fees or other amounts) hereunder not later than
12:00  noon,  New York  City  time,  on the  date  when  due in  Dollars  to the
Administrative  Agent at its  offices  at 270 Park  Avenue,  New York,  New York
10017,  in immediately  available  funds.  All payments by the Borrower shall be
made without deduction for any counterclaim, defense, recoupment or setoff.

     (b)  Whenever  any  payment  (including  principal  of or  interest  on any
Borrowing or any Fees or other amounts) hereunder shall become due, or otherwise
would occur,  on a day that is not a Business  Day,  such payment may be made on
the next succeeding  Business Day, and such extension of time shall in such case
be included in the computation of interest or Fees, if applicable.

     SECTION 2.19. Taxes.

     (a) Any and all  payments  by the  Borrower  hereunder  shall be  made,  in
accordance  with Section 2.18,  free and clear of and without  deduction for any
and all  present or future  taxes,  levies,  imposts,  deductions,  charges,  or
withholdings,  and all liabilities with respect thereto, excluding taxes imposed
on the  Administrative  Agent's or any Lender's (or any Transferee's) net income
and  franchise  taxes  imposed  on the  Administrative  Agent or any  Lender (or
Transferee) by the United States or any jurisdiction  under the laws of which it
is organized or any political  subdivision  thereof (all such nonexcluded taxes,
levies,  imposts,  deductions,   charges,  withholdings  and  liabilities  being
hereinafter referred to as "Taxes"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable  hereunder to the Lenders
(or any Transferee) or the  Administrative  Agent,  (i) the sum payable shall be
increased by the amount  necessary so that after making all required  deductions
(including  deductions  applicable to additional sums payable under this Section
2.19) such Lender (or Transferee) or the  Administrative  Agent (as the case may
be) shall  receive an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxing  authority or
other  Governmental  Authority in accordance  with  applicable  law. Each Lender
party hereto on the date hereof  represents  and warrants  that no Taxes will be
incurred on the date hereof in  connection  with the  execution  and delivery of
this Agreement.
<PAGE>

     (b) In addition,  the Borrower agrees to pay any present or future stamp or
documentary  taxes or any other excise or property  taxes,  charges,  or similar
levies  which  arise from any  payment  made  hereunder  or from the  execution,
delivery,  or  registration  of, or otherwise  with  respect to, this  Agreement
(hereinafter referred to as "Other Taxes"). Each Lender party hereto on the date
hereof  represents and warrants that no Other Taxes will be incurred on the date
hereof in connection with the execution and delivery of this Agreement.

     (c) The  Borrower  will  indemnify  each  Lender  (or  Transferee)  and the
Administrative Agent for the full amount of Taxes and Other Taxes (including any
Taxes or Other Taxes imposed by any  jurisdiction  on amounts payable under this
Section 2.19) paid by such Lender (or Transferee) or the  Administrative  Agent,
as the  case  may be,  and any  liability  (including  penalties,  interest  and
expenses) arising  therefrom or with respect thereto,  whether or not such Taxes
or Other  Taxes  were  correctly  or legally  asserted  by the  relevant  taxing
authority or other Governmental Authority. Payment of such indemnification shall
be made  within  30 days  after  the  date any  Lender  (or  Transferee)  or the
Administrative  Agent, as the case may be, makes written demand  therefor.  If a
Lender (or Transferee) or the Administrative Agent shall become aware that it is
entitled  to  receive  a refund in  respect  of Taxes or Other  Taxes,  it shall
promptly  notify the  Borrower  of the  availability  of such  refund and shall,
within 30 days after receipt of a request by the Borrower, apply for such refund
at the Borrower's  expense.  If any Lender (or Transferee) or the Administrative
Agent  receives a refund in  respect of any Taxes or Other  Taxes for which such
Lender (or Transferee) or the Administrative Agent has received payment from the
Borrower  hereunder,  it shall  promptly  notify the Borrower of such refund and
shall,  within 15 days after  receipt of such  refund,  repay such refund to the
Borrower,  net of all  out-of-pocket  expenses of such Lender (or Transferee) or
the  Administrative  Agent and only with  interest  received,  if any,  from the
relevant taxing authority or Governmental Authority; provided that the Borrower,
upon the request of such Lender (or  Transferee)  or the  Administrative  Agent,
agrees to return such refund (plus  penalties,  interest,  or other  charges) to
such Lender (or Transferee) or the Administrative Agent in the event such Lender
(or Transferee) or the Administrative Agent is required to repay such refund.

     (d)  Within 30 days after the date of any  payment of Taxes or Other  Taxes
withheld by the Borrower in respect of any payment to any Lender (or Transferee)
or the  Administrative  Agent,  the Borrower will furnish to the  Administrative
Agent,  at its address  referred to in Section 9.01, the original or a certified
copy of a receipt evidencing payment thereof.

     (e) Without  prejudice  to the  survival of any other  agreement  contained
herein,  the  agreements  and  obligations  contained in this Section 2.19 shall
survive the payment in full of the  principal  of and interest on all Loans made
hereunder.
<PAGE>

     (f) Each Lender  represents  and  warrants  that either (i) it is organized
under  the  laws of a  jurisdiction  within  the  United  States  or (ii) it has
delivered to the Borrower and the Administrative  Agent duly completed copies of
such form or forms  prescribed by the Internal  Revenue Service  indicating that
such Lender is entitled to receive payments without  deduction or withholding of
any  United  States  federal  income  taxes,  as  permitted  by the  Code.  Each
Transferee  agrees  that,  on or prior to the date upon which it shall  become a
party hereto or obtain a participation  herein,  and upon the reasonable request
from time to time of the Borrower or the  Administrative  Agent, it will deliver
to the Borrower and the  Administrative  Agent either (A) a statement that it is
organized under the laws of a jurisdiction  within the United States or (B) duly
completed copies of such form or forms as may from time to time be prescribed by
the United States Internal Revenue  Service,  indicating that such Transferee is
entitled to receive  payments  without  deduction or  withholding  of any United
States  federal  income  taxes,  as permitted by the Code.  Each Lender that has
delivered,  and each Transferee that hereafter delivers, to the Borrower and the
Administrative  Agent  the  form  or  forms  referred  to in the  two  preceding
sentences further  undertakes to deliver to the Borrower and the  Administrative
Agent,  so far as it may legally do so, further copies of such form or forms, or
successor applicable form or forms, as the case may be, as and when any previous
form filed by it hereunder shall expire or shall become incomplete or inaccurate
in any respect.  Each Lender and  Transferee  represents  and warrants that each
such form supplied by it to the  Administrative  Agent and the Borrower pursuant
to this subsection (f), and not superseded by another form supplied by it, is or
will be, as the case may be, complete and accurate.

     (g) The Borrower shall not be required to pay any additional amounts to any
Lender (or  Transferee) in respect of United States  withholding tax pursuant to
paragraph (a) above if the obligation to pay such  additional  amounts would not
have arisen but for a failure by such Lender (or  Transferee) to comply with the
provisions of paragraph (f) above, unless such failure results from (i) a change
in applicable law, regulation,  or official  interpretation  thereof, or (ii) an
amendment,  modification, or revocation of any applicable tax treaty or a change
in official  position  regarding the application or interpretation  thereof,  in
each case after the date hereof  (and,  in the case of a  Transferee,  after the
date of assignment or transfer);  provided,  however, that the Borrower shall be
required  to pay  those  amounts  to any  Lender  (or  Transferee)  which it was
required to pay hereunder prior to the failure of such Lender (or Transferee) to
comply with the provisions of paragraph (f).

     (h) Any Lender (or  Transferee)  claiming any  additional  amounts  payable
pursuant to this  Section 2.19 shall use  reasonable  efforts  (consistent  with
legal and regulatory restrictions) to file any certificate or document requested
by the Borrower or to change the  jurisdiction of its applicable  lending office
if the making of such a filing or change  would avoid the need for or reduce the
amount of any such additional amounts which may thereafter accrue and would not,
in the sole  determination of such Lender, be otherwise  disadvantageous to such
Lender (or Transferee).

     (i) If any Lender shall request  compensation  under this Section 2.19, the
Borrower  shall have the right,  at its own expense,  upon notice to such Lender
and the  Administrative  Agent,  to require  such  Lender to (i)  terminate  its
Commitment or (ii) transfer and assign without  recourse (in accordance with and
subject to the  restrictions  contained in Section 9.04) all or a portion of its
interest,  rights and  obligations  under this  Agreement  to another  financial
institution  which shall  assume  such  obligations;  provided  that (A) no such
termination  or assignment  shall  conflict with any law, rule, or regulation or
order of any Governmental Authority and (B) the Borrower or the assignee, as the
case may be, shall pay to the affected Lender in immediately  available funds on
the date of such termination or assignment the principal of and interest accrued
to the date of payment on the Loans made by it hereunder  and all other  amounts
accrued for its account or owed to it hereunder.
<PAGE>

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

     The Borrower represents and warrants to each of the Lenders that:

     SECTION 3.01. Organization; Powers; Governmental Approvals.

     (a) The Borrower and each Principal  Subsidiary  (i) is a corporation  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of the
jurisdiction of its organization,  (ii) has all requisite power and authority to
own its property and assets and to carry on its  business as now  conducted  and
(iii) is qualified to do business in every jurisdiction where such qualification
is required,  except  where the failure so to qualify  would not have a Material
Adverse  Effect.  The  Borrower's  execution,  delivery and  performance of this
Agreement  are within its  corporate  powers,  have been duly  authorized by all
necessary  action and do not violate or create a default  under (A) law, (B) its
constituent documents,  or (C) any contractual provision binding upon it, except
to the extent (in the case of violations or defaults described under clauses (A)
or (C)) where such  violation  or default  would not  reasonably  be expected to
result in a Material Adverse Effect. This Agreement constitutes the legal, valid
and binding obligation of the Borrower enforceable against it in accordance with
its  terms  (except  as  such   enforceability  may  be  limited  by  applicable
bankruptcy, reorganization,  insolvency, moratorium and other laws affecting the
rights of creditors  generally and general  principles  of equity,  including an
implied covenant of good faith and fair dealing).

     (b) Except for (i) any Governmental  Approvals  required in connection with
any  Borrowings  (such  approvals  being  "Borrowing  Approvals")  and  (ii) any
Governmental  Approvals  the  failure to obtain  which could not  reasonably  be
expected  to result in a  Material  Adverse  Effect or affect  the  validity  or
enforceability  of  this  Agreement,  all  Governmental  Approvals  required  in
connection with the execution and delivery by the Borrower of this Agreement and
the  performance by the Borrower of its  obligations  hereunder have been,  and,
prior  to the time of any  Borrowing,  all  Borrowing  Approvals  will be,  duly
obtained,  are (or, in the case of Borrowing  Approvals,  will be) in full force
and effect without having been amended or modified in any manner that may impair
the ability of the Borrower to perform its obligations under this Agreement, and
are not (or, in the case of Borrowing Approvals, will not be) the subject of any
pending appeal, stay or other challenge.
<PAGE>

     SECTION 3.02. Financial Statements.

     The Borrower has furnished to the Lenders, for itself and its Subsidiaries,
its most recent  filings with the  Securities  and Exchange  Commission on Forms
10-K and 10-Q. Such Forms 10-K and 10-Q do not contain any untrue statement of a
material fact or omit to state a material  fact  necessary to make any statement
therein,  in light of the circumstances under which it was made, not misleading.
Each of the financial  statements in such Forms 10-K and 10-Q has been, and each
of the financial  statements  to be furnished  pursuant to Section 5.02 will be,
prepared in accordance with GAAP applied consistently with prior periods, except
as therein  noted,  and fairly  presents or will fairly  present in all material
respects  the   consolidated   financial   position  of  the  Borrower  and  its
Subsidiaries  as of the date  thereof and the results of the  operations  of the
Borrower and its Subsidiaries for the period then ended.

     SECTION 3.03. No Material Adverse Change.

     Since the date of the Borrower's most recent financial statements contained
in its Annual  Report on Form 10-K for the fiscal year ended  December 31, 2000,
furnished to the Lenders  pursuant to Section  3.02,  there has been no material
adverse change in, and there has occurred no event or condition  which is likely
to result in a material adverse change in, the financial  condition,  results of
operations,  business, assets or operations of the Borrower and the Subsidiaries
taken as a whole (it being  understood that none of the divestiture of Utilities
Assets,  the  consummation  or dissolution of a Joint Venture  Transaction,  the
incurrence of Non-Recourse Joint Venture  Indebtedness or the consummation of an
Asset Exchange shall constitute such a material adverse change).

     SECTION 3.04. Title to Properties; Possession Under Leases.

     (a) To the best of the Borrower's  knowledge,  each of the Borrower and the
Principal  Subsidiaries  has good and  marketable  title to, or valid  leasehold
interests in, or other rights to use or occupy, all its material  properties and
assets, except for minor defects in title that do not interfere with its ability
to conduct its business as currently conducted or to utilize such properties and
assets for their intended purposes.  All such material properties and assets are
free and clear of Liens, other than Liens expressly permitted by Section 6.01.

     (b) Each of the Borrower and the Principal  Subsidiaries  has complied with
all  obligations  under all material  leases to which it is a party and all such
leases  are in full force and  effect,  except  where such  failure to comply or
maintain such leases in full force and effect would not have a Material  Adverse
Effect.   Each  of  the  Borrower  and  the  Subsidiaries  enjoys  peaceful  and
undisturbed  possession under all such material leases except where such failure
would not have a Material Adverse Effect.
<PAGE>

     SECTION 3.05. Ownership of Subsidiaries.

     The Borrower owns,  free and clear of any Lien (other than Liens  expressly
permitted by Section 6.01),  all of the issued and outstanding  shares of common
stock of each of the Principal Subsidiaries.

     SECTION 3.06. Litigation; Compliance with Laws.

     (a)  There  is  no  action,  suit,  or  proceeding,   or  any  governmental
investigation or any  arbitration,  in each case pending or, to the knowledge of
the Borrower,  threatened against the Borrower or any of the Subsidiaries or any
material  property  of  any  thereof  before  any  court  or  arbitrator  or any
governmental or  administrative  body,  agency, or official which (i) challenges
the  validity  of this  Agreement,  (ii) may  reasonably  be  expected to have a
material  adverse  effect on the  ability of the  Borrower to perform any of its
obligations  under this  Agreement or on the rights of or benefits  available to
the Lenders under this  Agreement or (iii) except as disclosed in the Borrower's
Annual  Report on Form 10-K for the fiscal year ended  December  31, 2000 or the
Borrower's  Quarterly Reports on Form 10-Q for the periods ending March 31, 2001
and June 30, 2001, may reasonably be expected to have a Material Adverse Effect.

     (b) Neither the Borrower nor any of the Subsidiaries is in violation of any
law,  rule, or  regulation,  or in default with respect to any  judgment,  writ,
injunction  or decree of any  Governmental  Authority,  where such  violation or
default could reasonably be anticipated to result in a Material Adverse Effect.

     (c) Except as set forth in or contemplated  by the financial  statements or
other reports  referred to in Section 3.02 hereof and which have been  delivered
to the Lenders on or prior to the date hereof,  (i) the Borrower and each of its
Subsidiaries  have complied with all  Environmental  Laws,  except to the extent
that failure to so comply is not  reasonably  likely to have a Material  Adverse
Effect,  (ii)  neither the Borrower  nor any of its  Subsidiaries  has failed to
obtain,  maintain or comply with any permit, license or other approval under any
Environmental  Law, except where such failure is not reasonably likely to have a
Material Adverse Effect,  (iii) neither the Borrower nor any of its Subsidiaries
has  received  notice of any  failure to comply  with any  Environmental  Law or
become subject to any liability under any  Environmental  Law, except where such
failure or liability is not reasonably likely to have a Material Adverse Effect,
(iv) no facilities of the Borrower or any of its Subsidiaries are used to manage
any Specified  Substance in violation of any law, except to the extent that such
violations,  individually or in the aggregate, are not reasonably likely to have
a  Material  Adverse  Effect,  and (v)  the  Borrower  is  aware  of no  events,
conditions or circumstances  involving any Release of a Specified Substance that
is reasonably likely to have a Material Adverse Effect.

     SECTION 3.07. Agreements.

     (a)  Neither the  Borrower  nor any of the  Subsidiaries  is a party to any
agreement  or  instrument  or  subject  to any  corporate  restriction  that has
resulted,  or could  reasonably be anticipated to result,  in a Material Adverse
Effect.
<PAGE>

     (b) Neither the Borrower nor any of the  Subsidiaries  is in default in any
manner under any  provision of any  indenture or other  agreement or  instrument
evidencing Indebtedness,  or any other material agreement or instrument to which
it is a party or by which it or any of its  properties  or assets  are or may be
bound,  where  such  default  could  reasonably  be  anticipated  to result in a
Material Adverse Effect.

     SECTION 3.08. Federal Reserve Regulations.

     No part of the  proceeds  of the Loans will be used,  whether  directly  or
indirectly,  and  whether  immediately,  incidentally,  or  ultimately,  for any
purpose  which  entails a  violation  of,  or which is  inconsistent  with,  the
provisions of the Margin Regulations.

     SECTION 3.09. Investment Company Act; Public Utility Holding Company Act.

     Neither the  Borrower  nor any of the  Subsidiaries  is (a) an  "investment
company" as defined in, or subject to regulation  under, the Investment  Company
Act of 1940 or (b) a "holding  company" as defined in, or subject to  regulation
under, the Public Utility Holding Company Act of 1935.

     SECTION 3.10. Use of Proceeds.

     The Borrower  will use the proceeds of the Loan only for general  corporate
purposes,  including  working capital and support of commercial  paper issuances
and Securitization Transactions permitted hereunder as well as one or more Joint
Venture Transactions,  acquisitions or Asset Exchanges;  provided, however, that
no such proceeds  shall be used  directly or  indirectly in connection  with any
Hostile Acquisition.

     SECTION 3.11. Tax Returns.

     Each of the Borrower and the  Subsidiaries  has filed or caused to be filed
all Federal,  state and local tax returns  required to have been filed by it and
has paid or  caused  to be paid all taxes  shown to be due and  payable  on such
returns or on any  assessments  received by it,  except (i) taxes that are being
contested in good faith by  appropriate  proceedings  and for which the Borrower
shall have set aside on its books adequate  reserves and (ii) where such failure
to file or pay would not reasonably be expected to result in a Material  Adverse
Effect.

     SECTION 3.12. No Material Misstatements.

     No statement, information, report, financial statement, exhibit or schedule
furnished  by or on behalf of the  Borrower to the  Administrative  Agent or any
Lender in connection  with the  syndication  or negotiation of this Agreement or
included  herein or  delivered  pursuant  hereto  contained,  contains,  or will
contain any material  misstatement of fact or intentionally  omitted,  omits, or
will omit to state any material fact necessary to make the  statements  therein,
in the light of the  circumstances  under which they were, are, or will be made,
not misleading.
<PAGE>

     SECTION 3.13. Employee Benefit Plans.

     (a) Each Plan is in compliance  with ERISA,  except for such  noncompliance
that has not resulted,  and could not reasonably be anticipated to result,  in a
Material Adverse Effect.

     (b) No Plan has an  accumulated  or waived  funding  deficiency  within the
meaning  of  Section  412 or  Section  418B of the  Code,  except  for any  such
deficiency  that has not resulted,  and could not  reasonably be  anticipated to
result, in a Material Adverse Effect.

     (c) No proceedings  have been instituted to terminate any Plan,  except for
such proceedings where the termination of a Plan has not resulted, and could not
reasonably be anticipated to result, in a Material Adverse Effect.

     (d) Neither the Borrower nor any Subsidiary or ERISA Affiliate has incurred
any liability to or on account of a Plan under ERISA (other than  obligations to
make  contributions in accordance with such Plan), and no condition exists which
presents a material risk to the Borrower or any  Subsidiary of incurring  such a
liability,  except for such  liabilities  that have not resulted,  and could not
reasonably be anticipated to result, in a Material Adverse Effect.

     SECTION 3.14. Insurance.

     Each of the Borrower and the  Principal  Subsidiaries  maintains  insurance
with financially sound and reputable insurers,  or self-insurance,  with respect
to its  properties and business  against loss or damage of the kind  customarily
insured  against by reputable  companies in the same or similar  business and of
such types and in such amounts  (with such  deductible  amounts) as is customary
for such companies under similar circumstances.

                                   ARTICLE IV

                              CONDITIONS OF LENDING

     SECTION 4.01. Each Borrowing.

     The  obligation  of  each  Lender  to make a Loan  on the  occasion  of any
Borrowing,  including any Conversion pursuant to Section 2.05, is subject to the
satisfaction of the following conditions:

     (a) The Administrative Agent shall have received a notice of such Borrowing
as required by Section 2.03, 2.04 or 2.05, as applicable;

     (b) The  representations  and  warranties  set forth in Article  III hereof
(except, in the case of a Conversion,  the representations set forth in Sections
3.03 and 3.06(a))  shall be true and correct in all material  respects on and as
of the date of such  Borrowing  with the same effect as though made on and as of
such date, except to the extent such  representations  and warranties  expressly
relate to an earlier date;
<PAGE>

     (c)  The  Borrower  shall  be in  compliance  with  all  of the  terms  and
provisions set forth herein on its part to be observed or performed,  and at the
time of, and immediately  after such  Borrowing,  no Event of Default or Default
shall have occurred and be continuing; and

each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.01.

     SECTION 4.02. Effective Date.

     The  obligations  of the Lenders to make Loans  hereunder  shall not become
effective until the date on which each of the following  conditions is satisfied
(or waived in accordance with Section 9.08):

     (a) The  Administrative  Agent  shall  have  received a  favorable  written
opinion of the general  counsel of the Borrower,  dated the  Effective  Date and
addressed to the Lenders,  to the effect set forth in Exhibit C hereto,  and the
Borrower  hereby   instructs  such  counsel  to  deliver  such  opinion  to  the
Administrative Agent;

     (b) All  legal  matters  incident  to  this  Agreement  and the  borrowings
hereunder shall be satisfactory to the Administrative Agent and the Lenders;

     (c)  The  Administrative  Agent  shall  have  received  (i) a  copy  of the
certificate or articles of incorporation,  including all amendments  thereto, of
the  Borrower,  certified  as of a recent date by the  Secretary of State of the
state of its  organization,  and a  certificate  as to the good  standing of the
Borrower as of a recent date,  from such Secretary of State;  (ii) a certificate
of the Secretary or Assistant Secretary of the Borrower dated the Effective Date
and  certifying  (A) that  attached  thereto is a true and complete  copy of the
by-laws  of the  Borrower  as in effect on the  Effective  Date and at all times
since a date prior to the date of the resolutions described in clause (B) below,
(B) that  attached  thereto  is a true and  complete  copy of  resolutions  duly
adopted by the Board of  Directors of the Borrower  authorizing  the  execution,
delivery and  performance of this Agreement and the  borrowings  hereunder,  and
that such resolutions have not been modified,  rescinded,  or amended and are in
full force and effect,  (C) that the certificate or articles of incorporation of
the Borrower have not been amended since the date of the last amendment  thereto
shown on the  certificate  of good  standing  furnished  pursuant  to clause (i)
above,  and (D) as to the  incumbency  and  specimen  signature  of each officer
executing this Agreement or any other document delivered in connection  herewith
on behalf of the  Borrower;  (iii) a  certificate  of another  officer as to the
incumbency  and  specimen  signature of the  Secretary  or  Assistant  Secretary
executing  the  certificate  pursuant  to clause (ii)  above;  (iv)  irrevocable
notices from the Borrower requesting termination of the "Total Commitment" under
each of the Existing  Facilities  effective  automatically on the Effective Date
and (v) such other  documents  as the  Administrative  Agent or the  Lenders may
reasonably request;
<PAGE>

     (d) The Administrative  Agent shall have received a certificate,  dated the
Effective  Date and signed by a Financial  Officer of the  Borrower,  confirming
compliance with the conditions  precedent set forth in paragraphs (b) and (c) of
Section 4.01;

     (e) The Administrative Agent shall have received all Fees and other amounts
due and payable on or prior to the Effective Date; and

     (f) All "Commitments" (as defined in each of the Existing Facilities) under
the Existing  Facilities shall have been terminated in accordance with the terms
thereof  and  all  "Loans"  (as  defined  in each  of the  Existing  Facilities)
outstanding  thereunder  shall have been repaid or prepaid together with accrued
interest  thereon and all other amounts  payable to the "Lenders" (as defined in
each of the Existing Facilities) under the Existing Facilities.

                                   ARTICLE V

                              AFFIRMATIVE COVENANTS

     The Borrower  covenants and agrees with the  Administrative  Agent and each
Lender that, so long as this  Agreement  shall remain in effect or the principal
of or interest on any Loan (or any portion  thereof),  or any other  expenses or
amounts payable hereunder, shall be unpaid, the Borrower will:

     SECTION 5.01. Existence; Businesses and Properties.

     (a) Preserve and  maintain,  cause each of the  Principal  Subsidiaries  to
preserve and maintain,  and cause each other Subsidiary to preserve and maintain
(where the  failure by any such other  Subsidiary  to so preserve  and  maintain
would likely result in a Material  Adverse  Effect),  its  corporate  existence,
rights and franchises,  except in connection with a Joint Venture Transaction or
an Asset  Exchange,  provided,  however,  that the  corporate  existence  of any
Principal   Subsidiary   may  be   terminated   if  such   termination   is  not
disadvantageous to the Administrative Agent or any Lender;

     (b) continue to own all of the  outstanding  shares of common stock of each
Principal  Subsidiary,  except in connection with a Joint Venture Transaction or
an Asset Exchange;

     (c) comply,  and cause each of the Subsidiaries to comply,  in all material
respects,  with all applicable laws, rules,  regulations and orders,  including,
without limitation, all Environmental Laws;

     (d) pay, and cause each of the Subsidiaries to pay, before any such amounts
become delinquent,  (i) all taxes,  assessments and governmental charges imposed
upon it or upon its property, and (ii) all claims (including without limitation,
claims for labor,  materials,  supplies,  or services)  which might,  if unpaid,
become a Lien upon its property,  unless,  in each case,  the validity or amount
thereof  is being  disputed  in good  faith,  and the  Borrower  has  maintained
adequate reserves with respect thereto, in each case where the failure to so pay
would be reasonably expected to cause a Material Adverse Effect;
<PAGE>

     (e) keep,  and cause  each of the  Subsidiaries  to keep,  proper  books of
record and account,  containing  complete and accurate  entries of all financial
and business  transactions  of the Borrower and such  Subsidiary in all material
respects;

     (f) continue to carry on, and cause each  Principal  Subsidiary to continue
to carry on,  substantially  the same type of business  as the  Borrower or such
Principal  Subsidiary  conducted as of the date hereof and  business  reasonably
related  thereto,  except for changes in such business that result from the sale
of Utilities Assets, a Joint Venture Transaction or an Asset Exchange; and

     (g) maintain or cause to be maintained insurance with financially sound and
reputable  insurers,  or  self-insurance,  with  respect to its  properties  and
business and the  properties  and business of the  Subsidiaries  against loss or
damage of the kinds  customarily  insured against by reputable  companies in the
same or  similar  businesses,  such  insurance  to be of such  types and in such
amounts (with such deductible  amounts) as is customary for such companies under
similar circumstances;

provided,  however, that the foregoing shall not limit the right of the Borrower
or any of its Subsidiaries to engage in any transaction not otherwise prohibited
by Section 6.02, 6.03 or 6.04.

     SECTION 5.02. Financial Statements, Reports, etc.

     In the case of the Borrower,  furnish to the Administrative  Agent and each
Lender:

     (a) as soon as available  and in any event within 110 days after the end of
each fiscal year,  consolidated  balance  sheets and the related  statements  of
income and cash flows of the Borrower and its Subsidiaries (the Borrower and its
Subsidiaries being collectively  referred to as the "Companies") as of the close
of such fiscal year (which requirement shall be deemed satisfied by the delivery
of the  Borrower's  Annual Report on Form 10-K (or any successor  form) for such
year), all audited by KPMG Peat Marwick or other independent  public accountants
of  recognized   national  standing  and  accompanied  by  an  opinion  of  such
accountants to the effect that such  consolidated  financial  statements  fairly
present  in all  material  respects  the  financial  condition  and  results  of
operations of the  Companies on a  consolidated  basis in  accordance  with GAAP
consistently applied;

     (b) within 65 days after the end of each of the first three fiscal quarters
of each fiscal  year,  consolidated  balance  sheets and related  statements  of
income and cash flows of the  Companies  as of the close of such fiscal  quarter
and the then  elapsed  portion of the fiscal  year (which  requirement  shall be
deemed satisfied by the delivery of the Borrower's Quarterly Report on Form 10-Q
(or any successor form) for such quarter), each certified by a Financial Officer
as fairly  presenting  the financial  condition and results of operations of the
Companies on a consolidated basis in accordance with GAAP consistently  applied,
subject to normal year-end audit adjustments;
<PAGE>

     (c) promptly  upon the mailing or filing  thereof,  copies of all financial
statements,  reports  and  proxy  statements  mailed  to the  Borrower's  public
shareholders,  and copies of all  registration  statements  (other than those on
Form S-8) and Form 8-K's (to the extent that such Form 8-K's disclose  actual or
potential  adverse  developments  with  respect  to the  Borrower  or any of its
Subsidiaries that constitute,  or could reasonably be anticipated to constitute,
a Material Adverse Effect) filed with the Securities and Exchange Commission (or
any successor thereto) or any national securities exchange;

     (d)  prompt  notice of any  reduction  in the  credit  rating  given to the
Borrower by S&P or Moody's;

     (e)  promptly  after  (i)  the  occurrence  thereof,  notice  of any  ERISA
Termination  Event or  "prohibited  transaction",  as such  term is  defined  in
Section  4975 of the  Code,  with  respect  to any Plan that  results,  or could
reasonably be anticipated to result, in a Material Adverse Effect,  which notice
shall specify the nature thereof and the Borrower's  proposed  response thereto,
and (ii) actual knowledge  thereof,  copies of any notice of PBGC's intention to
terminate or to have a trustee appointed to administer any Plan; and

     (f)  promptly,  from time to time,  such other  information,  regarding its
operations,  business  affairs and financial  condition,  or compliance with the
terms  of  this  Agreement,  as  the  Administrative  Agent  or any  Lender  may
reasonably request.

     SECTION 5.03. Litigation and Other Notices.

     Furnish to the  Administrative  Agent and each Lender prompt written notice
of the following:

     (a) any Event of  Default  or  Default,  specifying  the  nature and extent
thereof and the  corrective  action (if any)  proposed to be taken with  respect
thereto;

     (b) the filing or  commencement  of, or any written  notice of intention of
any Person to file or commence,  any action, suit or proceeding,  whether at law
or in equity or by or before any Governmental Authority, against the Borrower or
any of the Subsidiaries  which is reasonably  likely to be adversely  determined
and which, if adversely determined, could reasonably be anticipated to result in
a Material Adverse Effect; and

     (c) any development with respect to the Borrower or any Subsidiary that has
resulted in, or could reasonably be anticipated to result in, a Material Adverse
Effect.

     SECTION 5.04. Maintaining Records.

     Maintain all financial records in accordance with GAAP and, upon reasonable
notice,  permit any Lender to visit and  inspect  the  financial  records of the
Borrower at reasonable times and as often as requested and to make extracts from
and copies of such financial records, and permit any representatives  designated
by any Lender to discuss the  affairs,  finances  and  condition of the Borrower
with the appropriate  officers  thereof and, with the Borrower's  consent (which
shall not be  unreasonably  withheld),  the  independent  accountants  therefor;
provided,   however,   that  if  the  Borrower   shall  so  require,   a  single
representative  shall be  appointed  by  Lenders  holding  at  least  50% of the
aggregate  outstanding  principal  balance of the Loans to  exercise  the rights
granted under this Section 5.04.
<PAGE>

     SECTION 5.05. Use of Proceeds.

     Use  the  proceeds  of the  Loans  only  for  general  corporate  purposes,
including  working  capital  and  support  of  commercial  paper  issuances  and
Securitization  Transactions  permitted  hereunder  as well as one or more Joint
Venture Transactions,  acquisitions or Asset Exchanges;  provided, however, that
no such proceeds  shall be used  directly or  indirectly in connection  with any
Hostile Acquisition.

                                   ARTICLE VI

                               NEGATIVE COVENANTS

     The Borrower  covenants and agrees with each Lender and the  Administrative
Agent that, so long as this Agreement shall remain in effect or the principal of
or  interest  on any Loan (or any  portion  thereof),  or any other  expenses or
amounts payable hereunder, shall be unpaid, it will not:

     SECTION 6.01. Liens; Restrictions on Sales of Receivables.

     Create,  incur,  assume, or suffer to exist, or permit any of the Principal
Subsidiaries to create,  incur,  assume,  or suffer to exist, any Lien on any of
its property now owned or hereafter  acquired to secure any  Indebtedness of the
Borrower  or any such  Principal  Subsidiary,  or sell or  assign  any  accounts
receivable  (other  than in the  ordinary  course of business  substantially  in
accordance with the Borrower's past practice), other than: (a) Liens incurred or
deposits  made in the  ordinary  course of business to secure  surety and appeal
bonds, leases, return-of-money bonds and other similar obligations (exclusive of
obligations  of the payment of borrowed  money);  (b) Liens  created under or in
connection  with the First  Mortgage  Bond  Indentures  or any other  indentures
governing  the  issuance  of  mortgage  bonds by the  Borrower;  (c)  pledges or
deposits  to secure the  utility  obligations  of the  Borrower  incurred in the
ordinary  course  of  business;  (d)  Liens  upon or in  property  now  owned or
hereafter  acquired to secure  Indebtedness  incurred  solely for the purpose of
financing the acquisition, construction or improvement of any property, provided
that such  Indebtedness  shall not exceed the fair market  value of the property
being  acquired,  constructed  or  improved;  (e)  Liens  on the  assets  of any
Principal  Subsidiary  to secure the  repayment  of project  financing  for such
Principal  Subsidiary;  (f)  Liens  on  the  assets  of  any  Person  merged  or
consolidated  with or into (in accordance with Section 6.04) the Borrower or any
Principal  Subsidiary  that  were  in  effect  at the  time of  such  merger  or
consolidation;  (g)  Liens  securing  Indebtedness  of  the  Borrower  or of any
Principal  Subsidiary  to the Rural  Electrification  Administration,  the Rural
Utilities  Service,  the Rural  Telephone  Bank or the Rural  Telephone  Finance
Cooperative  (or any  successor  to any  such  agency);  (h)  Liens  for  taxes,
assessments  and  governmental  charges or levies,  which are not yet due or are
which  are  being  contested  in good  faith  by  appropriate  proceedings;  (i)
carriers', warehousemen's,  mechanics', materialmen's, repairmen's, suppliers or
other  like  Liens  arising  in the  ordinary  course of  business  relating  to
obligations not overdue for a period of more than 60 days or which are bonded or
being  contested  in good  faith by  appropriate  proceedings;  (j)  pledges  or
deposits in connection with workers' compensation laws or similar legislation or
to secure  public or statutory  obligations;  (k) Liens  incurred on deposits to
secure the performance of bids, trade contracts,  leases, statutory obligations,
surety and  appeal  bonds,  performance  bonds and other  obligations  of a like
nature  incurred in the ordinary  course of business;  (l) easements,  rights of
way,  restrictions and other encumbrances  incurred which, in the aggregate,  do
not materially interfere with the ordinary conduct of business; (m) restrictions
by  Governmental  Authorities  on the  operations,  business  or  assets  of the
Borrower  or its  Subsidiaries  that are  customary  in the  Borrower's  and its
Subsidiaries' businesses;  and (n) sales of accounts receivable pursuant to, and
Liens  existing  or  deemed  to exist in  connection  with,  any  Securitization
Transactions,   provided  the  aggregate  amount  of  all  such   Securitization
Transactions shall not at any time exceed $150,000,000;  provided, however, that
the Borrower or any Principal Subsidiary may create,  incur, assume or suffer to
exist other Liens (in addition to Liens  excepted by the  foregoing  clauses (a)
through  (m)) on its  assets so long as the sum of the  assets  subject  to such
Liens plus the amount of any outstanding  Securitization  Transactions permitted
by the foregoing clause (n) does not represent in the aggregate more than 20% of
the Borrower's Consolidated Tangible Assets.
<PAGE>

     SECTION 6.02. Ownership of the Principal Subsidiaries.

     Sell,  assign,  pledge,  or otherwise  transfer or dispose of any shares of
common stock,  voting stock, or stock convertible into voting or common stock of
any Principal  Subsidiary,  except (a) to another Subsidiary,  (b) to the extent
the assets of such Principal  Subsidiary consist entirely of Utilities Assets at
the time such transaction is consummated, (c) in connection with a Joint Venture
Transaction or (d) in connection with an Asset Exchange.

     SECTION 6.03. Asset Sales.

     Except in connection with a Joint Venture Transaction or an Asset Exchange,
permit  any  Principal  Subsidiary  to sell,  assign,  or  otherwise  dispose of
telecommunications   assets   (whether  in  one   transaction  or  a  series  of
transactions, if the net, after-tax proceeds thereof are used by the Borrower or
any Subsidiary to prepay (other than a mandatory  prepayment in accordance  with
the terms of the applicable governing  documents,  including pursuant to any put
provision)  Indebtedness incurred after the date hereof which Indebtedness has a
maturity  later than the  Maturity  Date (other than bridge or other  financings
incurred in connection  with an asset  purchase or sale,  including  acquisition
indebtedness or indebtedness of an acquired entity).
<PAGE>

     SECTION 6.04. Mergers.

     Merge or consolidate with, or sell, assign,  lease, or otherwise dispose of
(whether in one transaction or a series of  transactions)  all or  substantially
all of its  assets  (whether  now  owned  or  hereafter  acquired),  except  for
Utilities  Assets or in connection  with an Asset  Exchange,  to any Person,  or
permit any Principal  Subsidiary to do so, except that any  Subsidiary may merge
into or, subject to Section 6.03,  transfer  assets to the Borrower or any other
Subsidiary  and  the  Borrower  may  merge  with  any  Person;   provided  that,
immediately  thereafter and after giving effect thereto, no event shall occur or
be  continuing  which  constitutes  an Event of Default or a Default and, in the
case of any such merger to which the Borrower is a party, either the Borrower is
the surviving  corporation  or the surviving  entity (if not the Borrower) has a
consolidated  net worth (as  determined  in  accordance  with GAAP)  immediately
subsequent  to such merger at least equal to the  Consolidated  Net Worth of the
Borrower  immediately prior to such merger and expressly assumes the obligations
of  the  Borrower  hereunder;   provided,  however,  that,  notwithstanding  the
foregoing, the Borrower and any of the Principal Subsidiaries may sell assets in
the ordinary  course of its  business and may sell or otherwise  dispose of worn
out or obsolete equipment on a basis consistent with good business practices.

     SECTION 6.05. Restrictions on Dividends.

     Enter into or permit any Principal  Subsidiary to enter into,  any contract
or  agreement  (other  than  with a  governmental  regulatory  authority  having
jurisdiction  over the Borrower or such Principal  Subsidiary)  restricting  the
ability of such Principal  Subsidiary to pay dividends or make  distributions to
the Borrower in any manner that would impair the ability of the Borrower to meet
its present and future obligations  hereunder.  The Secretary of the Borrower or
another officer of the Borrower  satisfactory to the Administrative Agent shall,
prior to entry into any contract or agreement that could restrict the ability of
any Principal Subsidiary to pay dividends or make distributions to the Borrower,
deliver to the Lenders a certificate  certifying (a) to the absence of any Event
of  Default  or  Default  after  giving  effect to the  entry by such  Principal
Subsidiary  into such  contract  or  agreement,  and (b) that such  contract  or
agreement  will not impair the  ability of the  Borrower to meet its present and
future obligations hereunder.

     SECTION 6.06. Transactions with Affiliates.

     Except in connection with a Joint Venture Transaction or an Asset Exchange,
sell or transfer  any property or assets to, or purchase or acquire any property
or assets from, or otherwise engage in any other  transactions  with, any of its
Affiliates,  except  that as long as no Default  or Event of Default  shall have
occurred and be continuing,  the Borrower or any Subsidiary may engage in any of
the foregoing  transactions (i) in the ordinary course of business at prices and
on terms and conditions  not less  favorable to the Borrower or such  Subsidiary
than could be obtained on an  arm's-length  basis from unrelated  third parties,
(ii)  as  otherwise  may  be  required  by any  Federal  or  state  Governmental
Authority,   or  (iii)  so  long  as  such   transactions   are  not  materially
disadvantageous to the Borrower.

     SECTION 6.07. Minimum Consolidated Net Worth.

     Permit   its   Consolidated   Net  Worth  at  any  time  to  be  less  than
$1,500,000,000.
<PAGE>

     SECTION 6.08. Minimum Access Lines.

     Permit,  as a  direct  result  of any  sale,  exchange,  transfer  or other
disposition  of Access  Lines,  the total Access Lines owned by the Borrower and
its Subsidiaries  (other than any Joint Venture) as of the end of the applicable
fiscal quarter of the Borrower to be less than 2,500,000.

                                  ARTICLE VII

                                EVENTS OF DEFAULT

     In  case  of the  happening  of any of the  following  events  ("Events  of
Default"):

     (a) any  representation or warranty made or deemed made in or in connection
with  this  Agreement  or  the  Borrowings  hereunder,  or  any  representation,
warranty,   statement,   or  information   contained  in  any  written   report,
certificate,  financial  statement,  or other instrument furnished in connection
with or pursuant to this Agreement, shall prove to have been false or misleading
in any material respect when so made, deemed made, or furnished;

     (b) default  shall be made in the payment of any  principal of any Loan (or
any portion thereof) when and as the same shall become due and payable,  whether
at the  due  date  thereof  or at a date  fixed  for  prepayment  thereof  or by
acceleration thereof or otherwise;

     (c) default  shall be made in the  payment of any  interest on any Loan (or
any  portion  thereof)  or any Fee or any  other  amount  (other  than an amount
referred to in (b) above) due  hereunder,  when and as the same shall become due
and payable,  and such default shall  continue  unremedied  for a period of five
Business Days;

     (d)  default  shall be made in the due  observance  or  performance  of any
covenant,  condition,  or agreement contained in Section 5.01(f) or Section 5.05
or in Article VI;

     (e)  default  shall be made in the due  observance  or  performance  of any
covenant,  condition,  or agreement contained herein (other than those specified
in (b),  (c), or (d) above) and such default  shall  continue  unremedied  for a
period  of 30 days  after the  earlier  to occur of (i) the  Borrower  obtaining
knowledge  thereof and (ii) the date that written notice thereof shall have been
given to the Borrower by the Administrative Agent or any Lender;

     (f) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed  in a court of  competent  jurisdiction  seeking  (i)  relief  in
respect of the Borrower or any Principal Subsidiary, or of a substantial part of
the property or assets of the Borrower or a Principal Subsidiary, under Title 11
of the United States Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency,  receivership, or similar law, (ii) the
appointment of a receiver,  trustee,  custodian,  sequestrator,  conservator, or
similar  official  for  the  Borrower  or  any  Principal  Subsidiary  or  for a
substantial  part of the  property  or assets  of the  Borrower  or a  Principal
Subsidiary,  or (iii) the  winding-up  or  liquidation  of the  Borrower  or any
Principal Subsidiary; and such proceeding or petition shall continue undismissed
for 60 days or an order or decree  approving  or ordering  any of the  foregoing
shall be entered;
<PAGE>

     (g) the Borrower or any Principal Subsidiary shall (i) voluntarily commence
any proceeding or file any petition  seeking relief under Title 11 of the United
States Code, as now  constituted or hereafter  amended,  or any other Federal or
state bankruptcy, insolvency,  receivership, or similar law, (ii) consent to the
institution  of, or fail to  contest  in a timely and  appropriate  manner,  any
proceeding or the filing of any petition described in (f) above, (iii) apply for
or consent to the appointment of a receiver, trustee,  custodian,  sequestrator,
conservator, or similar official for the Borrower or any Principal Subsidiary or
for a  substantial  part  of the  property  or  assets  of the  Borrower  or any
Principal Subsidiary,  (iv) file an answer admitting the material allegations of
a  petition  filed  against  it in any  such  proceeding,  (v)  make  a  general
assignment for the benefit of creditors,  (vi) become  unable,  admit in writing
its  inability,  or fail generally to pay its debts as they become due, or (vii)
take any action for the purpose of effecting any of the foregoing;

     (h) the Borrower or any Principal Subsidiary,  as the case may be, fails to
pay when  due,  or within  any  grace  period  applicable  thereto  by the terms
thereof,  any other  Indebtedness  of the Borrower or any  Principal  Subsidiary
aggregating $50,000,000 or more;

     (i) the  Borrower  or any  Principal  Subsidiary  shall  fail to observe or
perform  any  covenant  or  agreement  contained  in  any  single  agreement  or
instrument  relating to any  Indebtedness  in excess of (i)  $75,000,000  in the
aggregate,  with respect to any Indebtedness  issued on a tax-exempt  basis, and
(ii) $50,000,000 in the aggregate,  with respect to all other  Indebtedness,  in
each case within any applicable grace period,  or any other event shall occur if
the effect of such  failure or other  event is to  accelerate,  or to permit the
holder of such  Indebtedness or any other Person to accelerate,  the maturity of
such  Indebtedness;  or any such  Indebtedness  shall be  required to be prepaid
(other than by a regularly  scheduled required  prepayment,  pursuant to any put
right (or  similar  right) of the  holder  thereof,  or by the  exercise  by the
Borrower  or  such  Principal  Subsidiary  of its  right  to  make  a  voluntary
prepayment) in whole or in part prior to its stated maturity;

     (j) a judgment or order for the  payment of money in excess of  $50,000,000
and having a Material  Adverse Effect shall be rendered  against the Borrower or
any of the  Subsidiaries  and such judgment or order shall continue  unsatisfied
(in the case of a money  judgment)  and in effect for a period of 30 days during
which execution shall not be effectively  stayed or deferred  (whether by action
of a court, by agreement, or otherwise);

     (k) a Plan shall fail to maintain the minimum funding standard  required by
Section  412(a) of the Code for any plan year or a waiver  of such  standard  is
sought  or  granted  under  Section  412(d),  or a Plan is or  shall  have  been
terminated  or the  subject  of  termination  proceedings  under  ERISA,  or the
Borrower or an ERISA  Affiliate  has  incurred a liability to or on account of a
Plan under  Section 4062,  4063,  4064,  4201 or 4204 of ERISA,  and there shall
result from any such event or events a Material Adverse Effect; and
<PAGE>

     (l) there shall have occurred a Change in Control;

then,  and in every such event (other than an event with respect to the Borrower
described in paragraph (f) or (g) above),  and at any time thereafter during the
continuance  of such  event,  the  Administrative  Agent,  at the request of the
Required Lenders,  shall, by notice to the Borrower,  take either or both of the
following actions,  at the same or different times: (i) terminate  forthwith the
Commitments and (ii) declare the Loans then  outstanding to be forthwith due and
payable in whole or in part, whereupon the principal of the Loans so declared to
be due and  payable,  together  with  accrued  interest  thereon  and any unpaid
accrued Fees and all other liabilities of the Borrower accrued hereunder,  shall
become forthwith due and payable,  without presentment,  demand, protest, or any
other  notice  of any  kind,  all of which are  hereby  expressly  waived by the
Borrower, anything contained herein to the contrary notwithstanding;  and in any
event with respect to the Borrower  described in paragraph (f) or (g) above, the
Commitments  shall  automatically  terminate and the principal of the Loans then
outstanding,  together with accrued interest thereon and any unpaid accrued Fees
and all other liabilities of the Borrower accrued hereunder, shall automatically
become due and  payable,  without  presentment,  demand,  protest,  or any other
notice of any kind,  all of which are hereby  expressly  waived by the Borrower,
anything contained herein to the contrary notwithstanding.

                                  ARTICLE VIII

                            THE ADMINISTRATIVE AGENT

     In order to expedite the transactions  contemplated by this Agreement,  The
Chase  Manhattan  Bank is hereby  appointed  to act as  Administrative  Agent on
behalf of the Lenders. Each of the Lenders, and each Transferee by its agreement
to be bound hereby, irrevocably authorizes the Administrative Agent to take such
actions on behalf of such Lender or  Transferee  and to exercise  such powers as
are  specifically  delegated  to  the  Administrative  Agent  by the  terms  and
provisions  hereof,  together  with such  actions  and powers as are  reasonably
incidental thereto.  The Administrative  Agent is hereby expressly authorized by
the Lenders,  without hereby limiting any implied  authority,  (a) to receive on
behalf of the Lenders all payments of principal of and interest on the Loans and
all other  amounts due to the Lenders  hereunder,  and promptly to distribute to
each Lender its proper share of each payment so received;  (b) to promptly  give
notice on behalf of each of the Lenders to the  Borrower of any Event of Default
specified  in this  Agreement  of which  the  Administrative  Agent  has  actual
knowledge  acquired  in  connection  with  its  agency  hereunder;  and  (c)  to
distribute to each Lender copies of all notices,  financial statements and other
materials  delivered by the Borrower  pursuant to this  Agreement as received by
the Administrative Agent.
<PAGE>

     Neither  the  Administrative  Agent  nor  any of its  directors,  officers,
employees,  or agents shall be liable as such for any action taken or omitted by
any of them,  except for its or his own gross negligence or willful  misconduct,
or be responsible for any statement,  warranty,  or representation herein or the
contents of any document  delivered in  connection  herewith,  or be required to
ascertain or to make any inquiry concerning the performance or observance by the
Borrower of any of the terms,  conditions,  covenants,  or agreements  contained
herein. The Administrative  Agent shall not be responsible to the Lenders or any
Transferee  for the due execution,  genuineness,  validity,  enforceability,  or
effectiveness  of this Agreement or any other  instruments  or  agreements.  The
Administrative  Agent may deem and treat each Lender  party hereto as a "Lender"
hereunder and for all purposes hereof until it shall have received notice, given
as  provided  herein,  of the  assignment  of all of such  Lender's  rights  and
obligations  hereunder.  The  Administrative  Agent  shall in all cases be fully
protected in acting,  or  refraining  from acting,  in  accordance  with written
instructions  signed by the Required Lenders (or such other number of Lenders as
is  expressly  required  hereby with  respect to such action or  inaction)  and,
except as otherwise  specifically  provided  herein,  such  instructions and any
action or inaction pursuant thereto shall be binding on all the Lenders and each
Transferee.  The Administrative  Agent shall, in the absence of knowledge to the
contrary,  be entitled to rely on any  instrument or document  believed by it in
good  faith to be genuine  and  correct  and to have been  signed or sent by the
proper  Person  or  Persons.  Neither  the  Administrative  Agent nor any of its
directors,  officers,  employees, or agents shall have any responsibility to the
Borrower on account of the failure of or delay in  performance  or breach by any
Lender of any of its  obligations  hereunder  or to any Lender on account of the
failure of or delay in performance or breach by any other Lender or the Borrower
of any of their respective  obligations hereunder or in connection herewith. The
Administrative  Agent may  execute  any and all duties  hereunder  by or through
agents or  employees  and  shall be  entitled  to rely upon the  advice of legal
counsel  selected by it with respect to all matters arising  hereunder and shall
not be liable for any action taken or suffered in good faith by it in accordance
with the advice of such counsel.

     The Lenders hereby acknowledge that the Administrative Agent shall be under
no duty to take any discretionary action permitted to be taken by it pursuant to
the provisions of this  Agreement  unless it shall be requested in writing to do
so by the Required Lenders.

     Subject to the  appointment  and  acceptance of a successor  administrative
agent as  provided  below,  the  Administrative  Agent may resign at any time by
notifying the Lenders and the Borrower. Upon any such resignation,  the Borrower
shall  have the  right to  appoint  a  successor,  provided  that any  successor
selected  by the  Borrower  must be  approved  by the  Required  Lenders.  If no
successor  shall have been so appointed by the Borrower and shall have  accepted
such appointment within 20 Business Days after the retiring Administrative Agent
gives notice of its resignation,  then the Required Lenders shall have the right
to appoint a  successor.  If no  successor  shall have been so  appointed by the
Required  Lenders and shall have  accepted such  appointment  within 30 Business
Days after the retiring  Administrative  Agent gives notice of its  resignation,
then the retiring Administrative Agent may, on behalf of the Lenders,  appoint a
successor administrative agent which shall be a bank with an office in New York,
New York and having a combined capital and surplus of at least $1,000,000,000 or
an  Affiliate  of any such  bank.  Upon the  acceptance  of any  appointment  as
Administrative Agent hereunder by a successor bank, such successor shall succeed
to and become vested with all the rights,  powers,  privileges and duties of the
retiring  Administrative  Agent and the retiring  Administrative  Agent shall be
discharged from its duties and obligations  hereunder.  After the Administrative
Agent's resignation  hereunder,  the provisions of this Article and Section 9.05
shall  continue  in effect for its  benefit in respect of any  actions  taken or
omitted to be taken by it while it was acting as Administrative Agent.
<PAGE>

     With respect to the Loans made by it hereunder, the Administrative Agent in
its  individual  capacity  and not as  Administrative  Agent shall have the same
rights and powers as any other  Lender  and may  exercise  the same as though it
were  not  the  Administrative  Agent,  and  the  Administrative  Agent  and its
Affiliates may accept deposits from,  lend money to and generally  engage in any
kind of business with the Borrower or any Subsidiary or other Affiliate  thereof
as if it were not the Administrative Agent.

     Each Lender agrees (i) to reimburse the Administrative Agent, on demand, in
the amount of its pro rata share (based on its  Commitment  hereunder or, if the
Commitments shall have terminated,  based on its outstanding Loans hereunder) of
any  expenses  incurred  for the  benefit of the  Lenders by the  Administrative
Agent,  including  reasonable  counsel  fees  and  compensation  of  agents  and
employees paid for services  rendered on behalf of the Lenders,  which shall not
have been  reimbursed by the  Borrower,  and (ii) to indemnify and hold harmless
the  Administrative  Agent and any of its  directors,  officers,  employees,  or
agents,  on demand,  in the amount of such pro rata share,  from and against any
and all liabilities,  taxes, obligations,  losses, damages, penalties,  actions,
judgments,  suits,  cost,  expenses,  or  disbursements  of any  kind or  nature
whatsoever  which may be imposed on, incurred by, or asserted  against it in its
capacity as the  Administrative  Agent or any of them in any way  relating to or
arising  out of this  Agreement  or any action  taken or omitted by it or any of
them  under  this  Agreement,  to the  extent  the  same  shall  not  have  been
indemnified  by the  Borrower;  provided  that no Lender  shall be liable to the
Administrative  Agent  or any of them  for  any  portion  of  such  liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses,  or  disbursements  resulting  from the gross  negligence  or  willful
misconduct  of the  Administrative  Agent  or any  of its  directors,  officers,
employees, or agents.

     Each Lender  acknowledges  that it has,  independently and without reliance
upon the  Administrative  Agent or any other Lender and based on such  documents
and information as it has deemed  appropriate,  made its own credit analysis and
decision to enter into this  Agreement.  Each Lender also  acknowledges  that it
will,  independently and without reliance upon the  Administrative  Agent or any
other Lender and based on such  documents and  information as it shall from time
to time deem  appropriate,  continue to make its own  decisions in taking or not
taking action under or based upon this Agreement,  any related  agreement or any
document furnished hereunder or thereunder.

     None of the Lenders  identified  on the facing page or  signature  pages of
this Agreement as a "syndication agent" or  "co-documentation  agent" shall have
any  right,  power,  obligation,  liability,  responsibility  or duty under this
Agreement other than those  applicable to all Lenders as such.  Without limiting
the  foregoing,  none of the Lenders so identified as a  "syndication  agent" or
"co-documentation  agent"  shall  have  or  be  deemed  to  have  any  fiduciary
relationship with any Lender.  Each Lender  acknowledges that it has not relied,
and will not rely, on any of the Lenders so identified in deciding to enter into
this Agreement or in taking or not taking action hereunder.
<PAGE>

                                   ARTICLE IX

                                  MISCELLANEOUS

     SECTION 9.01. Notices.

     Notices and other  communications  provided  for herein shall be in writing
and  shall  be  delivered  by the  method,  if any,  specified  in the  relevant
provisions of this Agreement and otherwise by hand or overnight courier service,
mailed or sent by telecopy, as follows:

     (a) if to the Borrower,  to it at 3 High Ridge Park, Stamford,  Connecticut
06905, Attention of Treasurer (Telecopy No. 203-614-5711);

     (b) if to the Administrative Agent, to it at One Chase Manhattan Plaza, 8th
Floor,  New York,  New York  10081,  Attention  of Janet  Belden  (Telecopy  No.
212-552-5658),  with a copy to Joan M. Fitzgibbon, The Chase Manhattan Bank, 270
Park Avenue, New York, New York 10017 (Telecopy No. 212-270-4164); and

     (c) if to a Lender,  to it at its address (or telecopy number) set forth in
its Administrative Questionnaire.

All notices and other  communications  given to any party  hereto in  accordance
with the provisions of this Agreement  shall be deemed to have been given on the
date of receipt if  delivered by hand or  overnight  courier  service or sent by
telecopy,  or on the date five  Business  Days after  dispatch by  certified  or
registered  mail, if mailed,  in each case delivered,  sent, or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance  with
the latest  unrevoked  direction  from such party given in accordance  with this
Section  9.01;  provided,  that notices from the Borrower to the  Administrative
Agent  relating to Borrowings or  Conversions  shall be effective only on actual
receipt.

     SECTION 9.02. Survival of Agreement.

     All  covenants,  agreements,  representations  and  warranties  made by the
Borrower  herein  and in the  certificates  or  other  instruments  prepared  or
delivered in connection  with or pursuant to this Agreement  shall be considered
to have been  relied  upon by the  Lenders  and shall  survive the making by the
Lenders of the Loans,  regardless of any investigation made by the Lenders or on
their  behalf,  and  shall  continue  in full  force  and  effect as long as the
principal of or any accrued  interest on any Loan or any Fee or any other amount
payable  under  this  Agreement  is  outstanding  and  unpaid  or so long as the
Commitments have not been terminated.
<PAGE>

     SECTION 9.03. Binding Effect.

     This Agreement  shall become  effective when it shall have been executed by
the  Borrower and the  Administrative  Agent and when the  Administrative  Agent
shall  have  received  copies  hereof  which,  when  taken  together,  bear  the
signatures of each Lender, and thereafter shall be binding upon and inure to the
benefit of the  Borrower,  the  Administrative  Agent and each  Lender and their
respective  successors and assigns,  except that the Borrower shall not have the
right to assign its rights  hereunder or any interest  herein  without the prior
consent of all the Lenders.

     SECTION 9.04. Successors and Assigns.

     (a) Whenever in this  Agreement  any of the parties  hereto is referred to,
such  reference  shall be deemed to include the  successors  and assigns of such
party;  and all  covenants,  promises  and  agreements  by or on  behalf  of the
Borrower,  the  Administrative  Agent or the Lenders that are  contained in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns.

     (b) Each Lender may assign to one or more assignees all or a portion of its
interests,  rights and  obligations  under this  Agreement,  including  all or a
portion  of its  Commitment  and the  Loans at the time  owing to it;  provided,
however,  that  (i)  except  in the  case of an  assignment  to a  Lender  or an
Affiliate of such Lender, or an assignment  pursuant to Section 9.04(h) (in such
circumstances  described in Section 9.04(h) where consent is not required),  the
Borrower and the  Administrative  Agent must give their prior written consent to
such  assignment,  which consent shall not be unreasonably  withheld,  provided,
further,  however, that the consent of the Borrower to any such assignment shall
not be  required  at any time an Event of  Default  shall have  occurred  and be
continuing, (ii) each such assignment shall be of a constant, and not a varying,
percentage  of all the  assigning  Lender's  rights or  obligations  under  this
Agreement,  (iii) the amount of the Commitment or Loans of the assigning  Lender
subject to any such  assignment  (determined  as of the date the  Assignment and
Acceptance  with respect to such  assignment is delivered to the  Administrative
Agent) shall not be less than  $5,000,000  and the amount of the  Commitment  or
Loans of such  Lender  remaining  after such  assignment  shall not be less than
$5,000,000  or shall be zero,  (iv) the  parties to each such  assignment  shall
execute and deliver to the  Administrative  Agent an Assignment and  Acceptance,
together with a processing and  recordation  fee of $3,500 and (v) the assignee,
if it shall  not be a  Lender,  shall  deliver  to the  Administrative  Agent an
Administrative Questionnaire.  Subject to payment in full by the assignee to the
assignor and upon  acceptance  and  recording  pursuant to paragraph (e) of this
Section 9.04, from and after the effective date specified in each Assignment and
Acceptance,  which effective date shall be at least five Business Days after the
execution thereof,  (A) the assignee  thereunder shall be a party hereto and, to
the extent of the interest assigned by such Assignment and Acceptance,  have (in
addition to any such rights and obligations  theretofore  held by it) the rights
and obligations of a Lender under this Agreement,  and (B) the assigning  Lender
thereunder  shall, to the extent of the interest assigned by such Assignment and
Acceptance,  be released from its obligations  under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of an
assigning  Lender's  rights and obligations  under this  Agreement,  such Lender
shall  cease to be a party  hereto  (but shall  continue  to be  entitled to the
benefits of Sections 2.13,  2.15,  2.19 and 9.05, as well as to any Fees accrued
for its account hereunder and not yet paid)). Notwithstanding the foregoing, any
Lender assigning its rights and obligations  under this Agreement may retain any
Competitive  Loans made by it  outstanding  at such time, and in such case shall
retain its rights hereunder in respect of any Loans so retained until such Loans
have been repaid in full in accordance with this Agreement.
<PAGE>

     (c) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the assignee  thereunder shall be deemed to confirm to and
agree  with each  other  and the  other  parties  hereto  as  follows:  (i) such
assigning  Lender  warrants  that it is the  legal and  beneficial  owner of the
interest being assigned thereby free and clear of any adverse claim and that its
Commitment,  and the  outstanding  balances of its Standby Loans and Competitive
Loans  (to  the  extent  assigned),  in  each  case  without  giving  effect  to
assignments  thereof which have not become  effective,  are as set forth in such
Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning
Lender makes no representation  or warranty and assumes no  responsibility  with
respect  to  any  statements,  warranties,  or  representations  made  in  or in
connection  with  this  Agreement,   or  the  execution,   legality,   validity,
enforceability,  genuineness,  sufficiency,  or value of this  Agreement  or any
other  instrument  or  document  furnished  pursuant  hereto  or  the  financial
condition of the Borrower or any Subsidiary or the  performance or observance by
the Borrower or any Subsidiary of any of its obligations under this Agreement or
any other instrument or document furnished pursuant hereto;  (iii) such assignee
represents  and  warrants  that it is  legally  authorized  to enter  into  such
Assignment and  Acceptance;  (iv) such assignee  confirms that it has received a
copy of this  Agreement,  together  with  copies  of the most  recent  financial
statements  delivered  pursuant  to Section  5.02 and such other  documents  and
information  as it has deemed  appropriate  to make its own credit  analysis and
decision to enter into such  Assignment and  Acceptance;  (v) such assignee will
independently and without reliance upon the Administrative Agent, such assigning
Lender,  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 decisions in
taking or not taking action under this  Agreement;  (vi) such assignee  appoints
and authorizes the  Administrative  Agent to take such action as  administrative
agent on its behalf and to exercise  such  powers  under this  Agreement  as are
delegated to the  Administrative  Agent by the terms hereof,  together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees that
it will perform in accordance with their terms all the obligations  which by the
terms of this Agreement are required to be performed by it as a Lender.

     (d) The  Administrative  Agent shall  maintain at one of its offices in The
City of New York a copy of each Assignment and Acceptance  delivered to it and a
register for the recordation of the names and addresses of the Lenders,  and the
Commitment of, and principal  amount of the Loans owing to, each Lender pursuant
to the terms hereof from time to time (the "Register"). The Administrative Agent
shall also record in the Register  the then  scheduled  Maturity  Date and shall
update the Register  from time to time upon any change in a Lender's  Commitment
and Loans pursuant to the terms of this  Agreement.  The entries in the Register
shall be conclusive  in the absence of manifest  error,  and the  Borrower,  the
Administrative  Agent  and the  Lenders  may treat  each  Person  whose  name is
recorded in the Register  pursuant to the terms hereof as a Lender hereunder for
all purposes of this  Agreement.  The Register shall be available for inspection
by the Borrower  and any Lender,  at any  reasonable  time and from time to time
upon reasonable prior notice.
<PAGE>

     (e) Upon its receipt of a duly completed Assignment and Acceptance executed
by an  assigning  Lender  and  an  assignee,  together  with  an  Administrative
Questionnaire  completed in respect of the assignee  (unless the assignee  shall
already be a Lender  hereunder),  the processing and recordation fee referred to
in paragraph (b) above and, if required, the written consent of the Borrower and
the Administrative Agent to such assignment,  the Administrative Agent shall (i)
accept such  Assignment and Acceptance,  (ii) record the  information  contained
therein in the  Register,  (iii) give prompt  notice  thereof to the Lenders and
(iv) send a copy of such Assignment and Acceptance to the Borrower.

     (f)  Each  Lender  may,   without  the  consent  of  the  Borrower  or  the
Administrative Agent, sell participations to one or more banks or other entities
in  all  or a  portion  of its  rights  and  obligations  under  this  Agreement
(including  all or a  portion  of its  Commitment  and the  Loans  owing to it);
provided, however, that (i) such Lender's obligations under this Agreement shall
remain unchanged,  (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations,  (iii) the participating
banks or other entities shall be entitled to the benefit of the cost  protection
provisions  contained in Sections  2.13,  2.15 and 2.19 to the same extent as if
they were Lenders and (iv) the Borrower,  the Administrative Agent and the other
Lenders  shall  continue  to deal  solely  and  directly  with  such  Lender  in
connection with such Lender's rights and obligations  under this Agreement,  and
such  Lender  shall  retain  the sole right to enforce  the  obligations  of the
Borrower  relating to the Loans and to approve any  amendment,  modification  or
waiver of any provision of this Agreement (other than amendments, modifications,
or waivers  decreasing any fees payable  hereunder or the amount of principal of
or the rate at which  interest is payable on the Loans,  extending any scheduled
principal payment date or date fixed for the payment of interest on the Loans or
Fees, or changing or extending the Commitments).

     (g)  Any  Lender  may,  in  connection  with  any  assignment  or  proposed
assignment  pursuant to this Section 9.04,  disclose to the assignee or proposed
assignee any information relating to the Borrower furnished to such Lender by or
on  behalf of the  Borrower;  provided  that,  prior to any such  disclosure  of
information  designated by the Borrower as  confidential,  each such assignee or
proposed  assignee shall execute an agreement  whereby such assignee shall agree
(subject to  customary  exceptions)  to  preserve  the  confidentiality  of such
confidential  information.   It  is  understood  that  confidential  information
relating to the Borrower  would not  ordinarily be provided in  connection  with
assignments  of  Competitive  Loans.  No  Lender  may,  in  connection  with any
participation or proposed  participation pursuant to this Section 9.04, disclose
to any participant or proposed participant any confidential information relating
to the Borrower without the prior written consent of the Borrower.

     (h) Any Lender may at any time pledge or assign a security  interest in all
or any portion of its rights under this Agreement and its  promissory  notes (if
any) to secure obligations of such Lender to a Federal Reserve Bank or, with the
prior written  consent of the Borrower  (which consent shall not be unreasonably
withheld,  provided,  that the  consent of the  Borrower  to any such  pledge or
assignment  shall not be  required  at any time an Event of  Default  shall have
occurred  and be  continuing),  to  secure  other  obligations  of such  Lender;
provided that no such pledge or assignment shall release such Lender from any of
its  obligations  hereunder or substitute  any such pledgee or assignee for such
Lender as a party hereto.
<PAGE>

     (i) The  Borrower  shall not assign or delegate any of its rights or duties
hereunder.

     SECTION 9.05. Expenses; Indemnity.

     (a)  The  Borrower  agrees  to  pay  (i)  all  reasonable  legal  fees  and
disbursements  incurred  by the  Administrative  Agent  in  connection  with the
preparation of this  Agreement and (ii) all  out-of-pocket  expenses  (including
reasonable fees and  disbursements  of counsel)  incurred by the  Administrative
Agent and any Lender in connection with any amendments, modifications or waivers
of the provisions hereof or thereof or incurred by the  Administrative  Agent or
any Lender in connection  with the  enforcement or protection of their rights in
connection with this Agreement.

     (b) The Borrower agrees to indemnify the Administrative  Agent, each Lender
and each of their  respective  directors,  officers,  employees,  Affiliates and
agents (each such Person being called an "Indemnitee") against, and to hold each
Indemnitee harmless from, any and all losses, claims,  damages,  liabilities and
related expenses, including reasonable counsel fees and expenses, incurred by or
asserted  against any Indemnitee  arising out of, (i) the use of the proceeds of
the Loans or (ii) any claim, litigation,  investigation,  or proceeding relating
to this  Agreement,  the use of such proceeds or the  transactions  contemplated
hereby,  whether or not any  Indemnitee is a party  thereto;  provided that such
indemnity shall not, as to any Indemnitee,  be available to the extent that such
losses, claims,  damages,  liabilities,  or related expenses are determined by a
court of  competent  jurisdiction  by final and  nonappealable  judgment to have
resulted  from the gross  negligence or willful  misconduct of such  Indemnitee.
Each Lender shall notify the Borrower  promptly after it determines that it will
make a claim for indemnification  under this Section 9.05(b). The Borrower shall
be entitled to participate in the defense of the litigation,  investigation,  or
proceeding giving rise to such claim with counsel satisfactory to the Lender, in
the  exercise  of its  reasonable  judgment;  provided,  however,  that any such
participation  in such  defense  shall be  conducted  by the Borrower and at the
Borrower's  expense and in a manner considered by such Lender to be satisfactory
and  effective  to protect  against  such claim  without  causing  damage to the
conduct of, or affecting such Lender's  control of, such Lender's  defense.  The
Borrower shall inform such Lender of its intention to participate in the defense
of such claim within 15 days after receipt of notice thereof from such Lender.

     (c) The provisions of this Section 9.05 shall remain  operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions  contemplated  hereby,  the repayment of any of
the Loans, the invalidity or  unenforceability  of any term or provision of this
Agreement, or any investigation made by or on behalf of the Administrative Agent
or any  Lender.  All  amounts  due under this  Section  9.05 shall be payable on
written demand therefor.
<PAGE>

     SECTION 9.06. Right of Setoff.

     If an Event of Default shall have occurred and be  continuing,  each Lender
is hereby  authorized at any time and from time to time,  to the fullest  extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any  time  owing by such  Lender  to or for the  credit  or the  account  of the
Borrower against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement  held by such Lender,  irrespective  of whether or
not such Lender  shall have made any demand  under this  Agreement  and although
such obligations may be unmatured.  The rights of each Lender under this Section
are in addition to other rights and remedies  (including other rights of setoff)
which such Lender may have.

     SECTION 9.07. Applicable Law.

     THIS  AGREEMENT  SHALL BE CONSTRUED IN ACCORDANCE  WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK.

     SECTION 9.08. Waivers; Amendment.

     (a) No  failure  or delay of the  Administrative  Agent  or any  Lender  in
exercising any power or right hereunder  shall operate as a waiver thereof,  nor
shall  any  single  or  partial  exercise  of any such  right or  power,  or any
abandonment  or  discontinuance  of steps  to  enforce  such a right  or  power,
preclude  any other or further  exercise  thereof or the  exercise  of any other
right or power.  The rights and  remedies  of the  Administrative  Agent and the
Lenders hereunder are cumulative and are not exclusive of any rights or remedies
which they would otherwise have. No waiver of any provision of this Agreement or
consent  to any  departure  by the  Borrower  therefrom  shall  in any  event be
effective  unless the same shall be permitted by paragraph  (b) below,  and then
such waiver or consent shall be effective only in the specific  instance and for
the purpose  for which  given.  No notice or demand on the  Borrower in any case
shall  entitle the Borrower to any other or further  notice or demand in similar
or other circumstances.

     (b) Except as provided in Section  2.11(d),  neither this Agreement nor any
provision  hereof may be waived,  amended,  or  modified  except  pursuant to an
agreement or agreements in writing entered into by the Borrower and the Required
Lenders;  provided,  however,  that no such  agreement  shall (i)  decrease  the
principal  amount  of, or extend  the  maturity  of or any  scheduled  principal
payment date or date for the payment of any  interest on, any Loan,  or waive or
excuse any such payment or any part thereof, or decrease the rate of interest on
any Loan,  without  the prior  written  consent of each  Lender,  (ii) except as
provided in Section  2.11(d),  change or extend the  Commitment of any Lender or
decrease  or extend any  scheduled  payment  date for the  Facility  Fees of any
Lender  without  the prior  written  consent of such  Lender,  or (iii) amend or
modify the  provisions  of Section 2.16,  the  provisions of this Section or the
definition  of "Required  Lenders",  without the prior  written  consent of each
Lender;  provided  further  that no  such  agreement  shall  amend,  modify,  or
otherwise  affect the  rights or duties of the  Administrative  Agent  hereunder
without the prior written consent of the Administrative Agent. Each Lender shall
be bound by any waiver, amendment, or modification authorized by this Section or
by Section 2.11(d), and any consent by any Lender pursuant to this Section or by
Section  2.11(d)  shall  bind  any  Transferee  of its  rights  and  obligations
hereunder.
<PAGE>

     SECTION 9.09. Interest Rate Limitation.

     Notwithstanding  anything  herein  to  the  contrary,  if at any  time  the
applicable  interest rate,  together with all fees and charges which are treated
as interest under applicable law (collectively,  the "Charges"), as provided for
herein or in any other document  executed in connection  herewith,  or otherwise
contracted  for,  charged,  received,  taken,  or reserved by any Lender,  shall
exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged,  taken,  received,  or  reserved  by such  Lender  in  accordance  with
applicable law, the rate of interest  payable to such Lender,  together with all
Charges payable to such Lender, shall be limited to the Maximum Rate.

     SECTION 9.10. Entire Agreement.

     This Agreement constitutes the entire contract between the parties relative
to the subject  matter  hereof.  Any previous  agreement  among the parties with
respect to the subject matter hereof is superseded by this Agreement. Nothing in
this Agreement, expressed or implied, is intended to confer upon any party other
than the  parties  hereto and  thereto any  rights,  remedies,  obligations,  or
liabilities under or by reason of this Agreement.

     SECTION 9.11. Waiver of Jury Trial.

     EACH PARTY  HERETO  HEREBY  WAIVES,  TO THE  FULLEST  EXTENT  PERMITTED  BY
APPLICABLE  LAW,  ANY  RIGHT IT MAY HAVE TO A TRIAL  BY JURY IN  RESPECT  OF ANY
LITIGATION  DIRECTLY OR INDIRECTLY  ARISING OUT OF, UNDER, OR IN CONNECTION WITH
THIS  AGREEMENT OR ANY OTHER  AGREEMENT OR INSTRUMENT  EXECUTED AND DELIVERED IN
CONNECTION  HEREWITH.  EACH PARTY HERETO (a) CERTIFIES  THAT NO  REPRESENTATIVE,
AGENT, OR ATTORNEY OF ANY OTHER PARTY HAS  REPRESENTED,  EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, AND (b) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN  INDUCED  TO ENTER  INTO  THIS  AGREEMENT  AND,  IF  APPLICABLE,  ANY OTHER
AGREEMENT OR INSTRUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.

     SECTION 9.12. Severability.

     In the event any one or more of the provisions  contained in this Agreement
should be held invalid,  illegal, or unenforceable in any respect, the validity,
legality and enforceability of the remaining  provisions  contained herein shall
not in any way be affected or impaired  thereby.  The parties shall  endeavor in
good-faith  negotiations  to replace  the  invalid,  illegal,  or  unenforceable
provisions with valid  provisions the economic effect of which comes as close as
possible to that of the invalid, illegal, or unenforceable provisions.
<PAGE>

     SECTION 9.13. Counterparts.

     This Agreement may be executed in two or more  counterparts,  each of which
shall  constitute  an  original  but all of  which  when  taken  together  shall
constitute but one contract,  and shall become  effective as provided in Section
9.03.

     SECTION 9.14. Headings.

     Article and Section  headings and the Table of Contents used herein are for
convenience  of reference  only,  are not part of this  Agreement and are not to
affect the construction  of, or to be taken into  consideration in interpreting,
this Agreement.

     SECTION 9.15. Jurisdiction; Consent to Service of Process.

     (a) The Borrower  hereby  irrevocably  and  unconditionally  submits to the
nonexclusive  jurisdiction  of any New York State court or Federal  court of the
United States of America  sitting in New York City, and any appellate court from
any  thereof,  in any action or  proceeding  arising  out of or relating to this
Agreement  or any other  agreement  or  instrument  executed  and  delivered  in
connection herewith, or for recognition or enforcement of any judgment, and each
of the parties hereto hereby  irrevocably  and  unconditionally  agrees that all
claims in respect of any such action or proceeding  may be heard and  determined
in such New York  State or, to the  extent  permitted  by law,  in such  Federal
court.  Each of the  parties  hereto  agrees  that a final  judgment in any such
action  or  proceeding  shall  be  conclusive  and  may  be  enforced  in  other
jurisdictions  by suit on the judgment or in any other  manner  provided by law.
Nothing in this  Agreement  shall affect any right that any Lender may otherwise
have to bring any action or proceeding  relating to this  Agreement  against the
Borrower or its properties in the courts of any jurisdiction.

     (b) The Borrower hereby  irrevocably  and  unconditionally  waives,  to the
fullest extent it may legally and  effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit,  action, or proceeding
arising  out of or  relating  to  this  Agreement  or  any  other  agreement  or
instrument  executed and delivered in connection  herewith in any New York State
court or Federal court of the United States of America sitting in New York City.
Each of the parties  hereto hereby  irrevocably  waives,  to the fullest  extent
permitted by law, the defense of an  inconvenient  forum to the  maintenance  of
such action or proceeding in any such court.

     (c) Each party to this Agreement irrevocably consents to service of process
in the manner  provided for notices in Section 9.01.  Nothing in this  Agreement
will  affect the right of any party to this  Agreement  to serve  process in any
other manner permitted by law.

                            [Signature pages follow]


<PAGE>

     IN WITNESS WHEREOF, the Borrower,  the Administrative Agent and the Lenders
have caused this  Agreement to be duly executed by their  respective  authorized
officers as of the day and year first above written.

                         CITIZENS COMMUNICATIONS COMPANY



                        By:  /s/ Donald B. Armour
                             -------------------------------------------
                             Name: Donald B. Armour
                             Title: Vice-President Finance and Treasurer


                        THE CHASE MANHATTAN BANK,
                        as Administrative Agent



                        By:  /s/ Joan M. Fitzgibbon
                            ---------------------------------------------
                            Name: Joan M. Fitzgibbon
                            Title: Managing Director



<PAGE>


                        Lenders:
                        -------


                        THE CHASE MANHATTAN BANK



                        By: Joan M. Fitzgibbon
                            ---------------------------------------------
                            Name: Joan M. Fitzgibbon
                            Title: Managing Director





<PAGE>

                                                           SIGNATURE PAGE TO
                                             CITIZENS COMMUNICATIONS COMPANY
                                           COMPETITIVE ADVANCE AND REVOLVING
                                                   CREDIT FACILITY AGREEMENT




                                 Name of Institution: Citibank N.A.
                                                      -------------


                                 By:   /s/ Thomas Labergere
                                       ------------------------------
                                       Name: Thomas Labergere
                                       Title: Vice-President



<PAGE>




                                                        SIGNATURE PAGE TO
                                          CITIZENS COMMUNICATIONS COMPANY
                                        COMPETITIVE ADVANCE AND REVOLVING
                                                CREDIT FACILITY AGREEMENT




                         Name of Institution: Toronto Dominion (Texas), Inc.
                                              --------------------------------


                         By:    /s/ Caroline Faeth
                                -----------------------
                                Name:  Caroline Faeth
                                Title:Vice-President




<PAGE>



                                                        SIGNATURE PAGE TO
                                          CITIZENS COMMUNICATIONS COMPANY
                                        COMPETITIVE ADVANCE AND REVOLVING
                                                CREDIT FACILITY AGREEMENT




               Name of Institution:    Bear Stearns Corporate Lending
                                       ------------------------------


                               By:    /s/ Lawrence B. Alletto
                                      --------------------------------
                                      Name:  Lawrence B. Alletto
                                      Title: Senior Managing Director
                                      Bear Stearns Corporate Lending


<PAGE>




                                                    SIGNATURE PAGE TO
                                      CITIZENS COMMUNICATIONS COMPANY
                                    COMPETITIVE ADVANCE AND REVOLVING
                                            CREDIT FACILITY AGREEMENT




                           Name of Institution:   Bank of America , N. A.
                                                  -----------------------


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




<PAGE>


                                                       SIGNATURE PAGE TO
                                         CITIZENS COMMUNICATIONS COMPANY
                                       COMPETITIVE ADVANCE AND REVOLVING
                                               CREDIT FACILITY AGREEMENT




                             Name of Institution:   Bank One, NA
                                                    ------------


                                     By: /s/ Jennifer L. Jones
                                         ------------------------
                                         Name: Jennifer L. Jones
                                         Title: Assistant Vice-President




<PAGE>


                                                       SIGNATURE PAGE TO
                                         CITIZENS COMMUNICATIONS COMPANY
                                       COMPETITIVE ADVANCE AND REVOLVING
                                               CREDIT FACILITY AGREEMENT




                                  Name of Institution:   Mellon Bank, N.A.
                                                         -----------------


                                          By: /s/ Thomas J. Tarasovich, Jr.
                                              -----------------------------
                                              Name: Thomas J. Tarasovich, Jr.
                                              Title: Lending Officer




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>rtfcagree.txt
<DESCRIPTION>RTFC AGREEMENT
<TEXT>
               --------------------------------------------------

                                  $200,000,000

                                 LOAN AGREEMENT


                          dated as of October 24, 2001


                                 by and between



                         CITIZENS COMMUNICATIONS COMPANY
                                   as Borrower

                                       and


                       RURAL TELEPHONE FINANCE COOPERATIVE
                                    as Lender

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


<PAGE>

<TABLE>
<CAPTION>


                                 EXECUTION COPY

                                TABLE OF CONTENTS
                                                                                           Page
                                    ARTICLE 1

                      CONSTRUCTION AND DEFINITION OF TERMS

<S>                                                                                        <C>
SECTION 1.01 Defined Terms...................................................................1

SECTION 1.02 Terms Generally.................................................................9

                                    ARTICLE 2

                                      LOAN

SECTION 2.01 Loan............................................................................10

SECTION 2.02 Advances........................................................................10

SECTION 2.03 Payments and Interest Rate......................................................10

SECTION 2.04 Prepayment .....................................................................11

SECTION 2.05 10% Subordinated Capital Certificates ..........................................11


                                    ARTICLE 3

                                    RESERVED

                                    ARTICLE 4

                         REPRESENTATIONS AND WARRANTIES

SECTION 4.01 Organization; Powers; Governmental Approvals ...................................11

SECTION 4.02 Financial Statements ...........................................................12

SECTION 4.03 No Material Adverse Change .....................................................12

SECTION 4.04 Title to Properties; Possession Under Lease ....................................12

SECTION 4.05 Ownership of Subsidiaries ......................................................13

SECTION 4.06 Litigation; Compliance with Laws ...............................................13

SECTION 4.07 Agreement.......................................................................13

SECTION 4.08 Federal Reserve Regulations.....................................................13

SECTION 4.09 Investment Company Act; Public Utility Holding Company Act......................14

SECTION 4.10 Use of Proceeds.................................................................14

SECTION 4.11 Tax Returns.....................................................................14

SECTION 4.12 No Material Misstatements.......................................................14

SECTION 4.13 Employee Benefit Plans..........................................................14
 ..
SECTION 4.14 Insurance.......................................................................14

<PAGE>

                                    ARTICLE 5

                              CONDITIONS OF LENDING

SECTION 5.01 Initial Advance.................................................................15

SECTION 5.02 Each Advance....................................................................16


                                    ARTICLE 6

                              AFFIRMATIVE COVENANTS

SECTION 6.01 Membership .....................................................................16

SECTION 6.02 Financial Statements and Other Information .....................................16

SECTION 6.03 Financial Ratios................................................................17

SECTION 6.04 Annual Certificate..............................................................17

SECTION 6.05 Insurance.......................................................................17

SECTION 6.06 Existence; Businesses and Properties............................................18

                                    ARTICLE 7

                               NEGATIVE COVENANTS

SECTION 7.01 Notice.........................................................................18

SECTION 7.02 Dividends and Other Cash Distributions.........................................18

SECTION 7.03 Sale of Assets.................................................................18

SECTION 7.04 Liens; Restrictions on Sales Receivables.......................................19

SECTION 7.05 Ownership of the Principal Subsidiaries........................................20

SECTION 7.06 Mergers........................................................................20

SECTION 7.07 Transactions with Affiliates...................................................20

SECTION 7.08 Net Worth......................................................................20

SECTION 7.09 Minimum Access Lines...........................................................20
<PAGE>


                                    ARTICLE 8

                                EVENTS OF DEFAULT


                                    ARTICLE 9

                               RIGHTS AND REMEDIES

SECTION 9.01 Rights and Remedies of the Lender ............................................22

SECTION 9.02 Cumulative Nature of Remedies.................................................22

SECTION 9.03 Costs and Expenses............................................................22

SECTION 9.04 Lender's Setoff...............................................................23

                                   ARTICLE 10

                                  MISCELLANEOUS

SECTION 10.01 Performance for Borrower ....................................................23

SECTION 10.02 Reserved. Expenses; Indemnity................................................23

SECTION 10.03 Waivers by Borrower .........................................................24

SECTION 10.04 Waivers by the Lender........................................................24

SECTION 10.05 Lender's Records.............................................................25

SECTION 10.06 Modifications................................................................25

SECTION 10.07 Notices......................................................................25

SECTION 10.08 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial..............25

SECTION 10.09 Holiday Payments ............................................................26

SECTION 10.10 Consent to Patronage Capital Distributions...................................26

SECTION 10.11 Right to Inspect.............................................................26

SECTION 10.12 Survival; Successors and Assigns.............................................26

SECTION 10.13 Assignment...................................................................26

SECTION 10.14 Severability.................................................................27

SECTION 10.15 Counterparts.................................................................27

SECTION 10.16 Headings/Use of Terms........................................................27

SECTION 10.17 Further Assurances...........................................................27

SECTION 10.18 Lender's Approval............................................................27

SECTION 10.19 Merger and Integration.......................................................27

SECTION 10.20 Right to Setoff..............................................................27

SECTION 10.21 Interest Rate Limitation.....................................................27
</TABLE>


<PAGE>

                                 LOAN AGREEMENT


     LOAN  AGREEMENT  ("Agreement")  made as of October 24, 2001, by and between
CITIZENS COMMUNICATIONS COMPANY, a Delaware corporation ("Borrower"),  and RURAL
TELEPHONE  FINANCE   COOPERATIVE,   a  South  Dakota   cooperative   association
("Lender").

RECITALS:

     WHEREAS,  Borrower  has  requested  Lender to make a loan to Borrower in an
amount  up to  $200,000,000.00  for a term of ten (10)  years on the  terms  and
conditions set forth herein; and

     WHEREAS,  Lender is willing to make the loan upon the terms and  conditions
set forth in this Agreement, the Note and the other loan documents;

     NOW, THEREFORE,  for and in consideration of the mutual covenants contained
herein, Borrower and Lender do hereby agree as follows:

     l. CONSTRUCTION AND DEFINITION OF TERMS

     1.01 Defined Terms.

     In addition to the terms defined  elsewhere in this  Agreement,  unless the
context otherwise requires, when used herein, the following terms shall have the
following meanings:

     "Access  Lines"  shall mean,  on any date,  the total  number of  telephony
access  lines  provided  by  the  Borrower  and  its  Subsidiaries  (other  than
Non-Recourse  Joint  Ventures)  through  their owned  telecommunications  system
network  facilities  (excluding  lines provided  through  resale  agreements) to
customers of the Borrower and its Subsidiaries  (other than  Non-Recourse  Joint
Ventures)  whose  service  payments are not overdue to a point where  service is
generally disconnected.

     "Advance"  shall  mean an  advance  of funds  under the Loan as  defined in
Section 2.02.

     "Advance Date" shall mean the date of any Advance.

     "Applicable  Rate" for each Advance  shall mean the ten (10) year  Treasury
bond rate as  published  in the U.S.  edition of The Wall Street  Journal on the
applicable Advance Date (hereinafter  "Index Rate"),  plus the current Secondary
Market  Bullet Bid Side Spread for  Utilities for a ten (10) year issue term for
Borrower's then Lehman Rating,  as published on the applicable  Advance Date (or
if not published on the Advance Date, the most recent prior publication date) in
the  Lehman  Brothers  Global  Fixed  Income  Market  Data  publication,   minus
one-quarter of one percent  (.25%)  (hereinafter  "Spread").  If The Wall Street
Journal  changes or ceases to publish the Index Rate,  or the Index Rate becomes
unavailable  for any reason,  or if Lehman  Brothers  Global Fixed Income Market
Data publication  changes or ceases publication of the necessary  information to
determine  the  Spread  or  the  Lehman  Rating,  or  the  information   becomes
unavailable for any reason, then the parties shall negotiate,  in good faith, to
select another source for a comparable Lehman Rating, Index Rate and Spread.

     "Applicable  Rating Level" at any time,  as to the Borrower  shall mean the
lower of  Borrower's  Moody's  Rating or S&P  Rating.  In the event  that no S&P
Rating or no  Moody's  Rating  shall be in effect  (other  than by reason of the
circumstances  referred to in the last  sentence of this  definition),  then the
Applicable  Rating  Level shall be the rating most  recently in effect  prior to
such change or cessation.  For purposes of this Agreement the Applicable  Rating
Level shall be  redetermined  on each date of an announcement of a change in the
S&P Rating or the Moody's  Rating  without  further  notice to Borrower.  If the
rating  system of S&P or Moody's  shall  change,  or if either such Person shall
cease to issue a rating for  Borrower,  or cease to be in the business of rating
corporate Indebtedness obligations, the Borrower and the Lender shall negotiate,
in good faith, to amend this definition to reflect such changed rating system or
the unavailability of ratings from such Person and, pending the effectiveness of
any such amendment,  the Applicable Rate and financial covenant compliance shall
be  determined  by reference  to the  Applicable  Rating Level most  recently in
effect prior to such change or cessation.
<PAGE>

     "Asset   Exchange"   shall  mean  the   exchange   or  other   transfer  of
telecommunications  assets  between or among the Borrower and another  Person or
other   Persons  in   connection   with  which  the  Borrower   would   transfer
telecommunications  assets and/or other property in consideration of the receipt
of  telecommunications  assets and/or other property  having a fair market value
substantially  equivalent to those transferred by the Borrower (as determined in
good faith by the Borrower's  Board of  Directors);  provided that the principal
value of the assets being  transferred  to the Borrower  shall be represented by
telecommunications assets.

     "Business  Day" shall mean any day (other  than a day which is a  Saturday,
Sunday  or legal  holiday  in the  State of New  York)  that  Lender is open for
business.

     "Capital Lease" shall mean any lease of (or other arrangement conveying the
right to use)  real or  personal  property,  or a  combination  thereof,  by the
Borrower or any of its Subsidiaries,  as lessee,  which obligations are required
in accordance with GAAP to be classified and accounted for as a capital lease on
a Consolidated balance sheet of the Borrower and its Subsidiaries.

     "Certified" shall mean that the information, statement, schedule, report or
other document  required to be "Certified"  shall contain a representation  of a
duly authorized officer of Borrower that such information,  statement, schedule,
report or other document is true and correct and complete as of the date thereof
(except as otherwise set forth therein).

     A "Change in Control" shall be deemed to have occurred if (a) any Person or
group  (within  the  meaning  of  Rule  13d-5  of the  Securities  and  Exchange
Commission as in effect on the date thereof)  shall own directly or  indirectly,
beneficially  or of record,  shares  representing  50% or more of the  aggregate
ordinary voting power represented by the issued and outstanding capital stock of
the  Borrower;  or (b) a majority of the seats (other than vacant  seats) on the
Board of  Directors  of the  Borrower  shall at any time have been  occupied  by
Persons who were neither (i) nominated by the  management  of the Borrower,  nor
(ii)  appointed  by  directors  so  nominated;  or (c) any Person or group shall
otherwise directly or indirectly Control the Borrower.

     "Closing"  shall mean the first  date on which  funds are  available  to be
advanced to Borrower hereunder.

     "Code"  shall mean the Internal  Revenue  Code of 1986,  as the same may be
amended from time to time.

     "Commitment Amount" shall be $200,000,000.00.
<PAGE>

     "Consolidated" shall mean, when used with reference to financial statements
or  financial  statement  items  of the  Borrower  and  its  Subsidiaries,  such
statements  or  items on a  consolidated  basis in  accordance  with  applicable
principles of consolidation under GAAP.

     "Consolidated Net Worth" shall mean, as at any date of  determination,  the
consolidated   stockholders'   equity  of  the  Borrower  and  its  consolidated
Subsidiaries,  including  redeemable  preferred  securities where the redemption
date  occurs  after  the  Maturity  Date,   mandatorily  redeemable  convertible
preferred  securities,  mandatorily  convertible  Indebtedness  (or Indebtedness
subject  to  mandatory   forward  purchase   contracts  for  equity  or  similar
securities) and minority equity  interests in other persons,  as determined on a
consolidated basis in conformity with GAAP consistently applied. For the purpose
of calculating  "Consolidated Net Worth", the consolidated  stockholder's equity
of any  Non-Recourse  Joint Venture and its  Subsidiaries  and all  Non-Recourse
Indebtedness shall be excluded from the consolidated stockholder's equity of the
Borrower and its  consolidated  Subsidiaries,  except to the extent  included in
minority equity interests.

     "Consolidated  Tangible  Assets" of any Person  shall mean total  assets of
such Person and its  consolidated  Subsidiaries,  determined  on a  consolidated
basis,  less  goodwill,  patents,  trademarks  and other  assets  classified  as
intangible assets in accordance with GAAP.

     "Control" shall mean the possession,  directly or indirectly,  of the power
to direct or cause the  direction  of the  management  or  policies of a Person,
whether  through the ownership of voting  securities,  by contract or otherwise,
and "Controlling" and "Controlled" shall have meanings correlative thereto.

     "Default"  shall mean any event or condition  which upon  notice,  lapse of
time, or both, would constitute an Event of Default.

     "EBITDA" shall mean, with respect to the Borrower and its  Subsidiaries for
any period: operating income for such period plus depreciation and amortization,
calculated on a Consolidated basis without duplication, in accordance with GAAP.
For any  acquisition or sale of assets by the Borrower or any Subsidiary  during
any period of  calculation,  the EBITDA  shall be  adjusted to reflect pro forma
income and expenses of the acquired or sold asset as determined in good faith by
a  Financial  Officer to give  effect to such  acquisition  or sale,  as if such
acquisition or sale occurred on the first day of the period.

     "Effective  Date" shall mean the date on which the conditions  specified in
Section 5.01 are satisfied, or waived in accordance with Section 10.06.

     "Environmental Laws" shall mean all national,  federal, state,  provincial,
municipal  or local laws,  statutes,  ordinances,  orders,  judgments,  decrees,
injunctions,   writs,  policies  and  guidelines  (having  the  force  of  law),
directives,  approvals, notices, rules and regulations and other applicable laws
relating to environmental or occupational  health and safety matters,  including
those relating to the Release or threatened Release of Specified  Substances and
to the generation,  use, storage or transportation of Specified Substances, each
as in effect as of the date of determination.

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
the same may be amended from time to time, and the  regulations  promulgated and
the rulings issued thereunder.
<PAGE>

     "ERISA  Affiliate"  shall  mean  each  trade or  business  (whether  or not
incorporated)  which  together with the Borrower or a Subsidiary of the Borrower
would be  deemed  to be a  "single  employer"  within  the  meaning  of  Section
4001(b)(1) of ERISA.

     "ERISA  Termination Event" shall mean (i) a "Reportable Event" described in
Section  4043 of ERISA  (other  than a  "Reportable  Event"  not  subject to the
provision  for 30-day  notice to the PBGC under such  regulations),  or (ii) the
withdrawal of the Borrower or any of its ERISA  Affiliates  from a Plan during a
plan  year in  which it was a  "substantial  employer"  as  defined  in  Section
4001(a)(2)  of ERISA,  or (iii) the filing of a notice of intent to  terminate a
Plan or the treatment of a Plan amendment as a termination under Section 4041 of
ERISA,  or (iv) the institution of proceeding to terminate a Plan by the PBGC or
(v) any other event or condition  which might  constitute  grounds under Section
4042 of ERISA  for the  termination  of,  or the  appointment  of a  trustee  to
administer, any Plan.

     "Event of  Default"  shall  mean any of the events  described  in Article 8
hereof.

     "Financial  Ratios" shall mean the Interest Coverage Ratio and the Leverage
Ratio.

     "Financial  Officer" of any  corporation  shall mean the  President,  Chief
Financial Officer, Chief Executive Officer, Vice President - Finance,  Executive
Vice President, Chief Accounting Officer or Treasurer of such corporation.

     "First  Mortgage  Bond  Indentures"  shall mean (i) the First  Mortgage and
Collateral Trust Indenture,  dated as of March 1, 1947, from the Borrower to The
Marine Midland Trust Company of New York, as Trustee,  and (ii) the Mortgage and
Deed of  Trust  Indenture,  dated  as of June 1,  1962,  from  the  Borrower  to
Manufacturers  Hanover Trust Company,  as Trustee, as the same have been and may
from time to time be amended or supplemented and in effect.

     "GAAP" shall mean generally accepted  accounting  principles,  applied on a
consistent basis.

     "Governmental  Approval"  shall  mean any  authorization,  consent,  order,
approval,  license, franchise, lease, ruling, tariff, rate, permit, certificate,
exemption of, or filing or registration with, any Governmental Authority.

     "Governmental  Authority" shall mean any federal,  state,  local or foreign
court or governmental agency, authority, instrumentality or regulatory body.

     "Hedging  Agreement"  shall mean any  interest  rate  protection  agreement
(including,  but not limited to, any interest rate swap, collar, cap, floor or a
forward rate agreement),  foreign currency exchange agreement or other agreement
executed in  connection  with hedging the  interest  rate and/or  exchange  rate
exposure of the Borrower and any  confirming  letter  executed  pursuant to such
Hedging Agreement, all as amended, restated,  supplemented or otherwise modified
from time to time.
<PAGE>

     "Indebtedness"  of any Person  shall  mean,  without  duplication,  (a) all
obligations  of such Person for  borrowed  money or with  respect to deposits or
advances of any kind (other than customer  deposits made in the ordinary  course
of business), (b) all obligations of such Person evidenced by bonds, debentures,
notes or similar  instruments,  (c) all  obligations  of such  Person upon which
interest charges are customarily  paid, (d) all obligations of such Person under
conditional  sale or other title  retention  agreements  relating to property or
assets  purchased by such Person,  (e) all  obligations of such Person issued or
assumed  as the  deferred  purchase  price  of  property  or  services,  (f) all
Indebtedness of others secured by (or for which the holder of such  Indebtedness
has an existing  right,  contingent or otherwise,  to be secured by) any Lien on
property  owned or  acquired  by such  person,  whether  or not the  obligations
secured  thereby have been assumed,  (g) all Capital Lease  obligations  of such
Person,  (h) all obligations of such Person in respect of any Hedging  Agreement
(except to the extent  such  obligations  are used as a bonafide  hedge of other
Indebtedness  of such Person),  (i) all obligations of such Person as an account
party in respect of letters of credit and  bankers'  acceptances  (except to the
extent  any such  obligations  are  incurred  in  support  of other  obligations
constituting  Indebtedness  of  such  Person  and  other  than,  to  the  extent
reimbursed if drawn, letters of credit in support of ordinary course performance
obligations),  and (j) any obligation,  contingent or otherwise,  of such Person
guaranteeing or having the economic effect of guaranteeing  any  Indebtedness of
any other  Person (the  "primary  obligor") in any manner,  whether  directly or
indirectly, and including any obligation of such Person, directly or indirectly,
(i) to purchase or pay (or advance or supply  funds for the  purchase or payment
of) such  Indebtedness  or to  purchase  (or  advance  or  supply  funds for the
purchase of) any security for the payment of such Indebtedness, (ii) to purchase
property,  securities  or services for the purpose of assuring the owner of such
Indebtedness of the payment of such  Indebtedness  or (iii) to maintain  working
capital,  equity capital or other financial  statement condition or liquidity of
the  primary   obligor  so  as  to  enable  the  primary  obligor  to  pay  such
Indebtedness;  provided,  however,  that the term Indebtedness shall not include
endorsements for collection or deposit, in either case in the ordinary course of
business.

     "Interest  Coverage  Ratio" shall mean,  as of any fiscal  quarter end, the
ratio of (a) EBITDA for the four consecutive fiscal quarter periods  immediately
prior to such  fiscal  quarter  end  (including  such  fiscal  quarter),  to (b)
Interest Expense for the same four-quarter period as of such fiscal quarter end.

     "Interest  Expense"  shall  mean,  with  respect  to the  Borrower  and its
Subsidiaries for any period,  aggregate interest expense thereof with respect to
Total  Indebtedness  (and, to the extent not included therein,  interest expense
attributable  to Capital  Leases,  and any fees and charges  with respect to any
other Indebtedness, and any fees, charges and other net obligations payable with
respect to any Hedging Agreements),  calculated on a Consolidated basis, without
duplication, in accordance with GAAP.

     "Investment  Grade" shall mean,  as to the  Borrower,  at any time,  an S&P
rating of BBB- or higher and a Moody's rating of Baa3 or higher.

     "Joint  Venture"  shall  mean a general  or  limited  partnership,  limited
liability  company or other  entity  formed or  organized  under the laws of the
United  States  of  America  or any state  thereof  that  would  own or  operate
telecommunications assets and which, in turn, the Borrower would manage.

     "Joint Venture Transaction" shall mean the formation of a Joint Venture, by
the formation of a new entity and the contribution of telecommunications  assets
(or cash or similar  assets)  thereto by the  Borrower,  the  investment  by the
Borrower in a previously existing entity that owns telecommunications  assets or
other similar transaction.

     "Leases"  shall  mean any  lease of  property  by which  Borrower  shall be
obligated for rental or other  payments  which in the aggregate are in excess of
$1,000,000.00, except, however, leases shall not mean any equipment leases which
in form and substance substantially conform with lease agreements in general use
in Borrower's industry by companies of size and character similar to Borrower.
<PAGE>

     "Lehman Rating" as determined for Borrower, shall mean the rating published
on, or if not published on then  published  most  recently  prior to, an Advance
Date in the Lehman  Brothers  Global Fixed Income  Market Data  publication  for
Secondary  Market  Bullet Bid Side  Spreads that is  equivalent  to the lower of
Borrower's  Moody's  Rating or S&P  Rating in effect on the  applicable  Advance
Date. The equivalent  Lehman  Ratings,  Moody's  Ratings and S&P Ratings are set
forth in Exhibit A, attached  hereto and shall be used in determining the Lehman
Rating.  In the event that no S&P Rating or no Moody's Rating shall be in effect
(other than by reason of the  circumstances  referred to in the last sentence of
this definition),  then the Moody's Ratings and S&P Ratings shall be the ratings
most recently in effect prior to such change or cessation.  If the rating system
of S&P or Moody's shall change,  or if either such Person shall cease to issue a
rating  for  Borrower,  or  cease  to be in the  business  of  rating  corporate
Indebtedness   obligations,   or  if  Lehman  Brothers  ceases  to  publish  the
information  necessary  to  determine  the Lehman  Rating,  the Borrower and the
Lender shall negotiate,  in good faith, to amend this definition to reflect such
changed  rating  system or the  unavailability  of ratings from such Person and,
pending the  effectiveness  of any such  amendment,  the Lehman  Rating shall be
determined  by reference to the Lehman  Rating most  recently in effect prior to
such change or cessation.

     "Leverage Ratio" shall mean, with respect to any fiscal quarter,  as of the
date ending such fiscal quarter,  the ratio of (a) Total Indebtedness as of such
fiscal quarter end to (b) EBITDA, plus cash equity contributions included in the
determination  of  Consolidated  Net  Worth,  for the  four  consecutive  fiscal
quarters  immediately  prior to such fiscal quarter end  (including  such fiscal
quarter).

     "Lien" shall mean,  with respect to any asset,  (a) any  mortgage,  deed of
trust,  lien,  pledge,  encumbrance,  charge, or security interest in or on such
asset,  (b) the  interest  of a vendor or a lessor  under any  conditional  sale
agreement,  capital lease, or title retention  agreement  relating to such asset
and (c) in the case of securities,  any purchase option,  call, or similar right
of a third party with respect to such securities.

     "Loan" shall mean the loan or loans by the Lender to Borrower,  pursuant to
this Agreement and the Note, in an aggregate  principal amount not to exceed the
Commitment Amount.

     "Make-Whole  Premium" shall mean fifty percent (50%) of the excess, if any,
of (i) the  present  value of the amount of  interest  that  would have  accrued
during the remaining term of each Advance or portion thereof to be prepaid, over
(ii) the  present  value of the  amount of  interest  Lender  would  earn if the
prepaid  principal  amount was  reinvested  for the remainder of the  applicable
remaining  term  of the  Loan  in  U.S.  Treasury  obligations  with a  maturity
comparable to the then remaining term of each prepaid  Advance.  For purposes of
calculating  the present value in (i) and (ii) above,  the discount rate will be
the rate of interest accruing on the U.S. Treasury obligations in (ii) above.

     "Material  Adverse  Effect" shall mean a materially  adverse  effect on the
business,  assets,  operations,  financial condition or results of operations of
the Borrower and the Subsidiaries taken as a whole.

     "Maturity Date" shall mean October 24, 2011.

     "Moody's"  shall mean Moody's  Investors  Service,  Inc.,  or any successor
thereto.
<PAGE>

     "Moody's  Rating"  shall mean, on any date of  determination,  (i) the debt
rating most recently announced by Moody's with respect to the long-term, senior,
unsecured,  non-credit enhanced  Indebtedness of the Borrower or (ii) if (A) the
Indebtedness  of the Borrower under this Agreement  shall be credit  enhanced by
any  Person  other than the  Borrower  and (B) both  Moody's  and S&P shall have
assigned a debt rating to such  Indebtedness,  then such debt rating assigned by
Moody's.

     "Non-Recourse  Joint  Venture"  shall  mean  a  Joint  Venture  the  funded
Indebtedness of which is Non-Recourse Joint Venture Indebtedness.

     "Non-Recourse  Joint Venture  Indebtedness" shall mean secured or unsecured
Indebtedness  of a Joint  Venture  that is  non-recourse  to the Borrower or any
Principal  Subsidiary.  In furtherance  of the  foregoing,  an obligation of the
Borrower that is  non-recourse  to the Borrower except to the extent of a pledge
of the  equity  of a Joint  Venture  (the  Indebtedness  of which  is  otherwise
non-recourse  to  the  Borrower)  will  be  deemed  Non-Recourse  Joint  Venture
Indebtedness.

     "Note" shall mean the note or notes  executed and  delivered by Borrower at
or  prior  to  Closing  pursuant  to  Section  5.01  hereof,  and all  renewals,
replacements and extensions thereof.

     "Obligations"  shall  include  the full  and  punctual  performance  of all
present and future duties,  covenants and  responsibilities due to the Lender by
Borrower under this Agreement,  the Note, the Other Agreements,  all present and
future obligations of Borrower to the Lender for the payment of money under this
Agreement,  the Note, the Other Agreements,  extending to all principal amounts,
interest,  late charges and all other charges and sums, as well as all costs and
expenses  payable  by  Borrower  under  this  Agreement,  the  Note,  the  Other
Agreements,  and any and all other present and future  monetary  liabilities  of
Borrower to the Lender, whether direct or indirect, contingent or noncontingent,
matured or  unmatured,  accrued or not  accrued,  related or  unrelated  to this
Agreement,  whether  or  not  of the  same  character  or  class  as  Borrower's
obligations under this Agreement and the Note,  whether or not secured under any
other document,  instrument or statutory or common law provision, as well as all
renewals, refinancings,  consolidations, recastings and extensions of any of the
foregoing.

     "Other  Agreements"  shall  mean  any and all  promissory  notes,  security
agreements,  assignments,  subordination  agreements,  pledge  or  hypothecation
agreements,   mortgages,   deeds  of  trust,  leases,   contracts,   guaranties,
instruments  and  documents now and  hereafter  existing  between the Lender and
Borrower that have been executed and/or delivered  pursuant to this Agreement or
guarantee,  secure or in any  other  manner  relate  to any of the  Obligations,
including, the instruments and documents referred to in Section 5.01 hereof.

     "Payment  Date" shall mean the last day of each December,  March,  June and
September when there is any amount outstanding under the Loan.

     "Payment  Notice" shall mean the notice  furnished to the Borrower at least
at least ten (10) days  before  each  Payment  Date,  indicating  the  amount of
principal and/or interest due on the next ensuing Payment Date.

     "PBGC" shall mean the Pension Benefit Guaranty  Corporation referred to and
defined in ERISA.

     "Person" shall mean any natural person, corporation,  business trust, joint
venture,  association,  company,  limited  liability  company,  partnership,  or
government, or any agency or political subdivision thereof.
<PAGE>

     "Plan" shall mean any pension plan (including a multiemployer plan) subject
to the  provisions  of Title IV of ERISA  or  Section  412 of the Code  which is
maintained for or to which  contributions are made for employees of the Borrower
or any ERISA Affiliate.

     "Principal  Subsidiary"  shall mean any  Subsidiary of the Borrower,  other
than Electric  Lightwave,  Inc., whose Consolidated  Tangible Assets comprise in
excess  of 20% of the  Consolidated  Tangible  Assets  of the  Borrower  and its
Consolidated  Subsidiaries as of the date hereof or at any time  hereafter.  The
term "Principal Subsidiary" shall not include any Non-Recourse Joint Venture.

     "Reimbursement   Obligation"  means  the  obligation  of  the  Borrower  to
reimburse the issuer for amounts drawn under letters of credit.

     "Release"  shall  mean any  spilling,  emitting,  discharging,  depositing,
escaping,  leaching,  dumping or other releasing,  including the movement of any
Specified  Substance  through  the air,  soil,  surface  water,  groundwater  or
property, and when used as a verb has a like meaning.

     "S&P"  shall mean  Standard & Poor's  Ratings  Services,  a division of The
McGraw-Hill Companies, Inc., or any successor thereto.

     "S&P Rating" shall mean, on any date of determination,  (i) the debt rating
most recently announced by S&P with respect to the long-term, senior, unsecured,
non-credit enhanced Indebtedness of the Borrower or (ii) if (A) the Indebtedness
of the  Borrower  under this  Agreement  shall be credit  enhanced by any Person
other than the Borrower and (B) both S&P and Moody's  shall have assigned a debt
rating to such Indebtedness, then such debt rating assigned by S&P.

     "Securitization  Transaction"  means (a) any transfer or pledge of accounts
receivable  or interests  therein (i) to a trust,  partnership,  corporation  or
other entity (other than a  Subsidiary),  which  transfer or pledge is funded by
such  entity  in  whole or in part by the  issuance  to one or more  lenders  or
investors  of  indebtedness  or other  securities  that are to receive  payments
principally  from the  cash  flow  derived  from  such  accounts  receivable  or
interests in accounts  receivable,  or (ii) directly to one or more investors or
other purchasers  (other than any  Subsidiary),  or (b) any transaction in which
the Borrower or a Subsidiary  incurs  Indebtedness  secured by Liens on accounts
receivable.  The "amount" of any  Securitization  Transaction shall be deemed at
any time to be (A) in the case of a  transaction  described in clause (a) of the
preceding sentence,  the aggregate uncollected amount of the accounts receivable
transferred  pursuant  to  such  Securitization  Transaction,  net of  any  such
accounts receivable that have been written off as uncollectible,  and (B) in the
case of a  transaction  described in clause (b) of the preceding  sentence,  the
aggregate  outstanding  principal amount of the Indebtedness secured by Liens on
accounts receivable incurred pursuant to such Securitization Transaction.

     "Specified  Substance"  shall mean (i) any chemical,  material or substance
defined as or included in the definition of "hazardous  substances",  "hazardous
wastes",   "hazardous  materials",   "extremely  hazardous  waste",  "restricted
hazardous  waste" or "toxic  substances"  or words of similar  import  under any
applicable  Environmental  Laws;  (ii) any (A) oil,  natural  gas,  petroleum or
petroleum  derived  substance,  any drilling  fluids,  produced waters and other
wastes associated with the exploration,  development or production of crude oil,
natural gas or geothermal  fluid,  any flammable  substances or explosives,  any
radioactive materials,  any hazardous wastes or substances,  any toxic wastes or
substances or (B) other  materials or  pollutants  that, in the case of both (A)
and  (B),  (1) pose a  hazard  to the  property  of the  Borrower  or any of its
Subsidiaries  or any part thereof or to persons on or about such  property or to
any other  property  that may be affected by the  Release of such  materials  or
pollutants from such property or any part thereof or to persons on or about such
other  property  or (2) cause  such  property  or such other  property  to be in
violation of any  Environmental  Law; (iii)  asbestos,  urea  formaldehyde  foam
insulation,  toluene,  polychlorinated  biphenyls and any  electrical  equipment
which contains any oil or dielectric fluid containing levels of  polychlorinated
biphenyls in excess of fifty parts per million;  and (iv) any sound,  vibration,
heat,  radiation  or other form of energy and any other  chemical,  material  or
substance,  exposure  to  which  is  prohibited,  limited  or  regulated  by any
Governmental Authority.
<PAGE>

     "Subordinated  Capital  Certificate"  or "SCC"  shall  mean a  non-interest
bearing,  amortizing subordinated  certificate representing an investment in the
Lender  purchased,  at par, by the Borrower in connection with the Loan equal to
ten  percent  (10%) of each  Advance,  in the form as set  forth in  Exhibit  B,
attached hereto.

     "Subsidiary"  shall mean, with respect to any Person (herein referred to as
the "parent"),  any  corporation,  partnership,  association,  or other business
entity (a) of which securities or other ownership  interests  representing  more
than 50% of the  equity or more than 50% of the  ordinary  voting  power or more
than 50% of the general partnership interests are, at the time any determination
is being made, owned, controlled, or held by the parent, or (b) which is, at the
time any  determination  is made,  otherwise  Controlled by the parent or one or
more subsidiaries of the parent or by the parent and one or more subsidiaries of
the parent.  Unless  otherwise  indicated,  all  references in this Agreement to
"Subsidiaries" shall be construed as references to Subsidiaries of the Borrower.

     "Termination Date" shall mean October 24, 2002.

     "Total  Indebtedness"  shall mean,  with  respect to the  Borrower  and its
Subsidiaries,  at  any  date  of  determination  and  without  duplication,  all
outstanding   Indebtedness   thereof  on  a   Consolidated   basis  (other  than
Non-Recourse Joint Venture Indebtedness).

     "Utilities  Assets" shall mean any assets of the Borrower or any Subsidiary
thereof (including,  without limitation,  stock in any such Subsidiary) that are
employed in the  generation or  production,  transmission  or  distribution  (as
applicable) of  electricity,  natural gas,  synthetic gas or water,  or that are
used to provide wastewater services.

     "Wholly-Owned"  shall mean,  with respect to a Subsidiary,  that all of the
shares of capital stock or other  ownership  interests of such  Subsidiary  are,
directly or indirectly,  owned or controlled by the Borrower  and/or one or more
of its Wholly-Owned  Subsidiaries  (except for directors'  qualifying  shares or
other shares  required by applicable  law to be owned by a Person other than the
Borrower).

     1.02 Terms  Generally.  The definitions in Section 1.01 shall apply equally
to both the singular and plural forms of the terms defined. Whenever the context
may require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes" and "including" shall be deemed to
be  followed  by the  phrase  "without  limitation".  All  references  herein to
Articles,  Sections,  Exhibits  and  Schedules  shall be  deemed  references  to
Articles and Sections of, and Exhibits and Schedules to, this Agreement,  unless
the context shall  otherwise  require.  Except as otherwise  expressly  provided
herein,  all terms of an  accounting  or financial  nature shall be construed in
accordance with GAAP, as in effect from time to time; provided,  however,  that,
for purposes of determining compliance with any covenant set forth in Article 7,
such terms shall be construed in  accordance  with GAAP as in effect on the date
of this Agreement  applied on a basis  consistent with the  application  used in
preparing the Borrower's  audited  financial  statements  referred to in Section
4.02.
<PAGE>

     2. LOAN

     2.01 Loan. The Lender agrees to make the Loan to Borrower subject to all of
the terms and conditions of this Agreement and the Other Agreements.

     2.02 Advances.

     (a) The  Lender  agrees  to  make,  on the  terms  and  conditions  of this
Agreement,  Advances from time to time not to exceed the Commitment  Amount. The
minimum  Advance  Borrower  may  request  and Lender  shall be  required to make
hereunder  shall be  $25,000,000.00  except for the final  Advance when a lesser
amount  may be  requested  if  necessary  to fund the  total  available  amounts
remaining  under this  Agreement.  The  obligation  of the Borrower to repay the
Advances  shall be  evidenced  by the  Note.  The  Lender's  obligation  to make
Advances shall terminate on the earlier to occur of (i) the Termination Date or,
(ii) the date on which the  total of all  Advances  made  hereunder  equals  the
Commitment  Amount,  regardless of any reductions,  repayments or prepayments of
principal.  As of the Termination  Date any remaining  unborrowed  funds may, at
Lender's  option  and  without  notice to  Borrower,  be  applied  to reduce the
outstanding Commitment Amount.

     (b) The parties  hereto  acknowledge  and agree that Borrower has requested
and, subject to the terms and conditions hereof, Lender will advance to Borrower
at Closing, an initial Advance equal to the Commitment Amount.


     2.03 Payments and Interest Rate.

     (a) The Borrower shall pay on each Payment Date,  without  deduction or set
off for any reason, by wire transfer in immediately  available funds to Lender's
account  according  to  instructions  provided  by  Lender,  quarterly  interest
installments,  in an  amount  reasonably  determined  by  Lender as shown in the
Payment Notice as the amount then due and owing hereunder. The total outstanding
balance of  principal,  interest and all other amounts due and payable under the
Note and this Agreement shall be due and payable on the Maturity Date.  Required
payments hereunder shall commence on December 31, 2001 and shall be made on each
subsequent  Payment  Date until the  Maturity  Date or such  earlier date as all
amounts due  hereunder  and on account of the Note shall have been paid in full.
At the  Lender's  option,  all payments  shall be applied  first to late payment
charges  and any other  fees,  costs or charges  then due and  payable,  then to
interest  accrued to the date of such payment,  and then to the reduction of the
principal balance outstanding.  No provision of this Agreement or the Note shall
require  the  payment,  or permit the  collection,  of interest in excess of the
highest rate permitted by applicable law.

     (b) Each Advance  shall bear interest per annum at the  Applicable  Rate in
effect on the particular  Advance Date,  from the date of the Advance until paid
in full.  Interest  shall be computed on the basis of a 30-day month and 360-day
year.
<PAGE>

     (c) If the Borrower  shall  default in the payment of the  principal of, or
interest on, any Advance, or any other amount becoming due hereunder, whether by
scheduled  maturity,  notice of  prepayment,  acceleration,  or  otherwise,  the
Borrower shall on demand from time to time pay interest, to the extent permitted
by law, on such  defaulted  amount up to (but not  including) the date of actual
payment (after as well as before  judgment) at a rate per annum (computed on the
basis of the actual  number of days elapsed  over a year of 365 or 366 days,  as
the case may be) equal to the Applicable Rate plus two percent (2%).

     2.04  Prepayment.  The  Borrower  shall have the right at any time and from
time to time to prepay the Loan, in whole or in part, upon giving written notice
(or telephone notice promptly  confirmed by written notice) to the Lender before
11:00 A.M., Washington,  D.C. time, one Business Day prior to prepayment. In the
event the Borrower  makes a  prepayment,  the Borrower  shall pay the Make Whole
Premium as computed by Lender.  All prepayments  shall be accompanied by payment
of accrued  and unpaid  interest  on the amount  prepaid  and late  charges,  if
applicable,  to the date of the  prepayment.  All  prepayments  shall be applied
first to the Make Whole Premium and any fees and charges due  hereunder,  second
to the payment of accrued and unpaid interest, and then to the unpaid balance of
the principal amount of the Loan. Lender, in Lender's sole discretion, may apply
any prepayment to any particular Advance or Advances in any order and amount.

     2.05 10% Subordinated  Capital  Certificates.  At the time of each Advance,
the  Borrower  shall  purchase  SCCs in the amount of ten percent  (10%) of each
Advance,  which in the aggregate shall not exceed  $20,000,000.00.  The purchase
price  shall be deducted by Lender  from the  proceeds of each  Advance  without
further  notice  to  the  Borrower.   The  Lender  agrees  to  deliver  the  SCC
certificates  on or about the date on which the SCCs have been paid for in full.
The SCCs shall bear no interest and shall amortize and mature in accordance with
the terms in Exhibit B, attached hereto.


     3. RESERVED

     4. REPRESENTATIONS AND WARRANTIES

     To induce the Lender to enter into this Agreement,  the Borrower represents
and warrants to the Lender as of the date of this Agreement that:

     4.01 Organization; Powers; Governmental Approvals.

     (a) The Borrower and each Principal  Subsidiary  (i) is a corporation  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of the
jurisdiction of its organization,  (ii) has all requisite power and authority to
own its property and assets and to carry on its  business as now  conducted  and
(iii) is qualified to do business in every jurisdiction where such qualification
is required,  except  where the failure so to qualify  would not have a Material
Adverse  Effect.  The  Borrower's  execution,  delivery and  performance of this
Agreement  are within its  corporate  powers,  have been duly  authorized by all
necessary  action and do not violate or create a default  under (A) law, (B) its
constituent documents,  or (C) any contractual provision binding upon it, except
to the extent (in the case of violations or defaults described under clauses (A)
or (C)) where such  violation  or default  would not  reasonably  be expected to
result in a Material Adverse Effect. This Agreement constitutes the legal, valid
and binding obligation of the Borrower enforceable against it in accordance with
its  terms  (except  as  such   enforceability  may  be  limited  by  applicable
bankruptcy, reorganization,  insolvency, moratorium and other laws affecting the
rights of creditors  generally and general  principles  of equity,  including an
implied covenant of good faith and fair dealing).
<PAGE>

     (b) Except for (i) any Governmental  Approvals  required in connection with
any  Advances  (such  approvals  being  "Borrowing   Approvals")  and  (ii)  any
Governmental  Approvals  the  failure to obtain  which could not  reasonably  be
expected  to result in a  Material  Adverse  Effect or affect  the  validity  or
enforceability  of  this  Agreement,  all  Governmental  Approvals  required  in
connection with the execution and delivery by the Borrower of this Agreement and
the  performance by the Borrower of its  obligations  hereunder have been,  and,
prior  to the  time of any  Advance,  all  Borrowing  Approvals  will  be,  duly
obtained,  are (or, in the case of Borrowing  Approvals,  will be) in full force
and effect without having been amended or modified in any manner that may impair
the ability of the Borrower to perform its obligations under this Agreement, and
are not (or, in the case of Borrowing Approvals, will not be) the subject of any
pending appeal, stay or other challenge.

     4.02  Financial Statements.  The Borrower has furnished to the Lender,  for
itself and its  Subsidiaries,  its most recent  filings with the  Securities and
Exchange  Commission  on Forms  10-K and 10-Q.  Such  Forms 10-K and 10-Q do not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make any statement  therein,  in light of the  circumstances  under
which it was made,  not  misleading.  Each of the  financial  statements in such
Forms  10-K and 10-Q  has  been,  and  each of the  financial  statements  to be
furnished  pursuant to Section 6.02 will be,  prepared in  accordance  with GAAP
applied  consistently  with prior periods,  except as therein noted,  and fairly
presents  or, will fairly  present,  in all material  respects the  Consolidated
financial  position of the Borrower and its  Subsidiaries as of the date thereof
and the results of the operations of the Borrower and its  Subsidiaries  for the
period then ended.

     4.03  No Material Adverse Change.  Since the date  of the  Borrower's  most
recent financial  statements contained in its Annual Report on Form 10-K for the
fiscal year ended December 31, 2000, furnished to the Lender pursuant to Section
4.02,  there has been no material  adverse  change in, and there has occurred no
event or condition  which is likely to result in a material  adverse  change in,
the financial condition,  results of operations,  business, assets or operations
of the Borrower and the Subsidiaries  taken as a whole (it being understood that
none of the divestiture of Utilities Assets,  the consummation or dissolution of
a Joint  Venture  Transaction,  the  incurrence  of  Non-Recourse  Joint Venture
Indebtedness or the  consummation  of an Asset Exchange shall  constitute such a
material adverse change).

     4.04 Title to Properties; Possession Under Leases.

     (a) To the best of the Borrower's  knowledge,  each of the Borrower and the
Principal  Subsidiaries  has good and  marketable  title to, or valid  leasehold
interests in, or other rights to use or occupy, all its material  properties and
assets, except for minor defects in title that do not interfere with its ability
to conduct its business as currently conducted or to utilize such properties and
assets for their intended purposes.  All such material properties and assets are
free and clear of Liens, other than Liens expressly permitted by Section 7.04.

     (b) Each of the Borrower and the Principal  Subsidiaries  has complied with
all  obligations  under all material  Leases to which it is a party and all such
Leases  are in full force and  effect,  except  where such  failure to comply or
maintain such Leases in full force and effect would not have a Material  Adverse
Effect.   Each  of  the  Borrower  and  the  Subsidiaries  enjoys  peaceful  and
undisturbed  possession under all such material Leases except where such failure
would not have a Material Adverse Effect.
<PAGE>

     4.05  Ownership of Subsidiaries.  The Borrower owns,  free and clear of any
Lien (other than Liens expressly  permitted by Section 7.04),  all of the issued
and outstanding shares of common stock of each of the Principal Subsidiaries.

     4.06  Litigation; Compliance with Laws.

     (a)  There  is  no  action,  suit,  or  proceeding,   or  any  governmental
investigation or any  arbitration,  in each case pending or, to the knowledge of
the Borrower,  threatened against the Borrower or any of the Subsidiaries or any
material  property  of  any  thereof  before  any  court  or  arbitrator  or any
governmental or  administrative  body,  agency, or official which (i) challenges
the validity of this  Agreement  or (ii) except as  disclosed in the  Borrower's
Annual  Report on Form 10-K for the fiscal year ended  December  31, 2000 or the
Borrower's  Quarterly Reports on Form 10-Q for the periods ending March 31, 2001
and June 30, 2001, may reasonably be expected to have a Material Adverse Effect.

     (b) Neither the Borrower nor any of the Subsidiaries is in violation of any
law,  rule, or  regulation,  or in default with respect to any  judgment,  writ,
injunction  or decree of any  Governmental  Authority,  where such  violation or
default could reasonably be anticipated to result in a Material Adverse Effect.

     (c) Except as set forth in or contemplated  by the financial  statements or
other reports  referred to in Section 4.02 hereof and which have been  delivered
to the Lender on or prior to the date  hereof,  (i) the Borrower and each of its
Subsidiaries  have complied with all  Environmental  Laws,  except to the extent
that failure to so comply is not  reasonably  likely to have a Material  Adverse
Effect,  (ii)  neither the Borrower  nor any of its  Subsidiaries  has failed to
obtain,  maintain or comply with any permit, license or other approval under any
Environmental  Law, except where such failure is not reasonably likely to have a
Material Adverse Effect,  (iii) neither the Borrower nor any of its Subsidiaries
has  received  notice of any  failure to comply  with any  Environmental  Law or
become subject to any liability under any  Environmental  Law, except where such
failure or liability is not reasonably likely to have a Material Adverse Effect,
(iv) no facilities of the Borrower or any of its Subsidiaries are used to manage
any Specified  Substance in violation of any law, except to the extent that such
violations,  individually or in the aggregate, are not reasonably likely to have
a  Material  Adverse  Effect,  and (v)  the  Borrower  is  aware  of no  events,
conditions or circumstances  involving any Release of a Specified Substance that
is reasonably likely to have a Material Adverse Effect.

     4.07  Agreements.

     (a)  Neither the  Borrower  nor any of the  Subsidiaries  is a party to any
agreement  or  instrument  or  subject  to any  corporate  restriction  that has
resulted,  or could  reasonably be anticipated to result,  in a Material Adverse
Effect.

     (b) Neither the Borrower nor any of the  Subsidiaries  is in default in any
manner under any  provision of any  indenture or other  agreement or  instrument
evidencing Indebtedness,  or any other material agreement or instrument to which
it is a party or by which it or any of its  properties  or assets  are or may be
bound,  where  such  default  could  reasonably  be  anticipated  to result in a
Material Adverse Effect.
<PAGE>

     4.08 Federal Reserve Regulations. No part of the proceeds of the Loans will
be used, whether directly or indirectly, and whether immediately,  incidentally,
or  ultimately,  for any  purpose  which  entails  a  violation  of, or which is
inconsistent  with,  the  provisions of the margin  regulations  of the Board of
Governors of the Federal Reserve System.

     4.09  Investment Company Act;  Public Utility Holding Company Act.  Neither
the  Borrower  nor any of the  Subsidiaries  is (a) an  "investment  company" as
defined in, or subject to regulation  under, the Investment  Company Act of 1940
or (b) a "holding  company" as defined in, or subject to regulation  under,  the
Public Utility Holding Company Act of 1935.

     4.10 Use of Proceeds.  The Borrower  will use the proceeds of the Loan only
for general  corporate  purposes,  including  working  capital,  liquidity,  the
purchase  of SCCs and other  corporate  purposes,  as well as one or more  Joint
Venture Transactions, acquisitions or Asset Exchanges.

     4.11 Tax Returns.  Each of the Borrower and the  Subsidiaries  has filed or
caused to be filed all  federal,  state and local tax  returns  required to have
been filed by it and has paid or caused to be paid all taxes shown to be due and
payable on such returns or on any  assessments  received by it, except (i) taxes
that are being contested in good faith by appropriate  proceedings and for which
the Borrower shall have set aside on its books adequate  reserves and (ii) where
such  failure to file or pay would not  reasonably  be  expected  to result in a
Material Adverse Affect.

     4.12  No  Material  Misstatements.  No  statement,   information,   report,
financial  statement,  exhibit  or  schedule  furnished  by or on  behalf of the
Borrower to the Lender in connection  with the  negotiation of this Agreement or
included  herein or  delivered  pursuant  hereto  contained,  contains,  or will
contain any material  misstatement of fact or intentionally  omitted,  omits, or
will omit to state any material fact necessary to make the  statements  therein,
in the light of the  circumstances  under which they were, are, or will be made,
not misleading.

     4.13 Employee Benefit Plans.

     (a) Each Plan is in compliance  with ERISA,  except for such  noncompliance
that has not resulted,  and could not reasonably be anticipated to result,  in a
Material Adverse Effect.

     (b) No Plan has an  accumulated  or waived  funding  deficiency  within the
meaning  of  Section  412 or  Section  418B of the  Code,  except  for any  such
deficiency  that has not resulted,  and could not  reasonably be  anticipated to
result, in a Material Adverse Effect.

     (c) No proceedings  have been instituted to terminate any Plan,  except for
such proceedings where the termination of a Plan has not resulted, and could not
reasonably be anticipated to result, in a Material Adverse Effect.

     (d) Neither the Borrower nor any Subsidiary or ERISA Affiliate has incurred
any liability to or on account of a Plan under ERISA (other than  obligations to
make  contributions in accordance with such Plan), and no condition exists which
presents a material risk to the Borrower or any  Subsidiary of incurring  such a
liability,  except for such  liabilities  that have not resulted,  and could not
reasonably be anticipated to result, in a Material Adverse Effect.

     4.14  Insurance.  Each  of the  Borrower  and  the  Principal  Subsidiaries
maintains   insurance  with  financially  sound  and  reputable   insurers,   or
self-insurance,  with respect to its  properties  and  business  against loss or
damage of the kind  customarily  insured  against by reputable  companies in the
same or  similar  business  and of such  types and in such  amounts  (with  such
deductible   amounts)  as  is  customary  for  such   companies   under  similar
circumstances.
<PAGE>

     5. CONDITIONS OF LENDING

     5.01  Initial  Advance.  The Lender  shall have no  obligation  to make the
initial Advance to the Borrower  hereunder unless, as of the date of the initial
Advance,  each  of  the  following  conditions  precedent  shall  be  met to the
reasonable satisfaction of Lender as provided below:

     (a) All legal  matters  incident to the  consummation  of the  transactions
hereby  contemplated shall be reasonably  satisfactory to counsel for the Lender
and to such local counsel as counsel for the Lender may retain.

     (b) There shall have been delivered to the Lender, fully completed and duly
executed (when  applicable),  the following,  satisfactory to the Lender and its
counsel:

     (i) This Agreement and the Note;

     (ii) (A) a copy of the certificate or articles of incorporation,  including
all amendments  thereto,  of the Borrower,  certified as of a recent date by the
Secretary of State of the state of its organization, and a certificate as to the
good standing of the Borrower as of a recent date, from such Secretary of State;
(B) a certificate of the Secretary or Assistant  Secretary of the Borrower dated
the  Effective  Date and  certifying  (i) that  attached  thereto  is a true and
complete  copy of the by-laws of the  Borrower as in effect on the date  hereof,
and at all times since a date prior to the date of the resolutions  described in
clause (ii) below,  (ii) that  attached  thereto is a true and complete  copy of
resolutions  duly adopted by the Board of Directors of the Borrower  authorizing
the  execution,  delivery and  performance  of this Agreement and the borrowings
hereunder,  and that such  resolutions  have not been  modified,  rescinded,  or
amended and are in full force and effect, (iii) that the certificate or articles
of  incorporation  of the Borrower  have not been amended  since the date of the
last  amendment  thereto shown on the  certificate  of good  standing  furnished
pursuant  to  clause  (A)  above,  and (iv) as to the  incumbency  and  specimen
signature  of each  officer  executing  this  Agreement  or any  other  document
delivered in connection herewith on behalf of the Borrower; (C) a certificate of
another officer as to the incumbency and specimen  signature of the Secretary or
Assistant  Secretary  executing the certificate  pursuant to (B) above;  and (D)
such other documents as the Lender may reasonably request;

     (iii)  a  favorable  written  opinion  from  Borrower's   general  counsel,
addressed  to  Lender,  dated as of even date  herewith,  addressing  such legal
matters as the Lender or its counsel shall reasonably require.

     (iv)  satisfactory  evidence that the Applicable Rating Level is Investment
Grade or higher.

     (v)  true  and  correct  copies  of all  certificates,  authorizations  and
consents,  evidencing  all  Government  Approvals,  necessary for the execution,
delivery or performance by the Borrower of this Agreement and the Note.

     (vi) payment in full of the Borrower's payment  obligations to Lender under
that certain  Competitive  Advance and Revolving Credit Facility Agreement dated
October 27, 2000 between Borrower and The Chase Manhattan Bank as Administrative
Agent for certain Lenders (the "Chase Credit Facility") and the complete release
of Lender from its obligations under the Chase Credit Facility.

<PAGE>

     5.02 Each Advance.

     (a) At Closing and at the date of each Advance  hereunder,  all  covenants,
representations  and warranties  set forth in this  Agreement  shall be true and
correct  on and as of each  Advance  date with the same  effect  as though  such
covenants, representations and warranties had been made on and as of such date.

     (b)  The  Borrower  shall  be in  compliance  with  all  of the  terms  and
provisions set forth herein on its part to be observed or performed,  and at the
time of,  and  immediately  after such  Advance  no Event of Default  shall have
occurred and be continuing.

     (c) There shall have occurred no Material  Adverse Effect and nothing shall
have  occurred  which in the  opinion of the  Lender  materially  and  adversely
affects the Borrower's ability to meet its obligations hereunder.

     (d) The Applicable Rating Level shall be Investment Grade or higher.

     (e)  Lender  shall  have  received a written  request  for an Advance  from
Borrower in a form agreed upon by Lender and Borrower.

     (f) Each  Advance  shall be  deemed  to  constitute  a  representation  and
warranty by the Borrower on the date of such Advance as to the matters specified
in paragraphs (a), (b), (c) and (d) of this Section 5.02.


     6. AFFIRMATIVE COVENANTS

     Borrower  covenants  and  agrees  with the  Lender  that,  until all of the
Obligations have been paid in full:

     6.01 Membership. Borrower will remain, or an affiliate thereof will remain,
a member in good standing, or otherwise an eligible borrower, of the Lender.

     6.02  Financial  Statements  and  Other  Information.  In the  case  of the
Borrower, furnish to the Lender:

     (a) as soon as available  and in any event within 110 days after the end of
each fiscal year,  Consolidated  balance  sheets and the related  statements  of
income and cash flows of the Borrower and its Subsidiaries (the Borrower and its
Subsidiaries being collectively  referred to as the "Companies") as of the close
of such fiscal year (which requirement shall be deemed satisfied by the delivery
of the  Borrower's  Annual Report on Form 10-K (or any successor  form) for such
year), all audited by KPMG Peat Marwick or other independent  public accountants
of  recognized   national  standing  and  accompanied  by  an  opinion  of  such
accountants to the effect that such  Consolidated  financial  statements  fairly
present  in all  material  respects  the  financial  condition  and  results  of
operations of the  Companies on a  Consolidated  basis in  accordance  with GAAP
consistently applied;
<PAGE>


     (b) within 65 days after the end of each of the first three fiscal quarters
of each fiscal  year,  Consolidated  balance  sheets and related  statements  of
income and cash flows of the  Companies  as of the close of such fiscal  quarter
and the then  elapsed  portion of the fiscal  year (which  requirement  shall be
deemed satisfied by the delivery of the Borrower's Quarterly Report on Form 10-Q
(or any successor form) for such quarter), each certified by a Financial Officer
as fairly  presenting  the financial  condition and results of operations of the
Companies on a Consolidated basis in accordance with GAAP consistently  applied,
subject to normal year-end audit adjustments;

     (c) promptly  upon the mailing or filing  thereof,  copies of all financial
statements,  reports  and  proxy  statements  mailed  to the  Borrower's  public
shareholders,  and copies of all  registration  statements  (other than those on
Form S-8) and Form 8-K's (to the extent that such Form 8-K's disclose  actual or
potential  adverse  developments  with  respect  to the  Borrower  or any of its
Subsidiaries that constitute,  or could reasonably be anticipated to constitute,
a Material Adverse Effect) filed with the Securities and Exchange Commission (or
any successor thereto) or any national securities exchange;

     (d)  prompt  notice of any  reduction  in the  credit  rating  given to the
Borrower by S&P or Moody's;

     (e)  promptly  after  (i)  the  occurrence  thereof,  notice  of any  ERISA
Termination  Event or  "prohibited  transaction",  as such  term is  defined  in
Section  4975 of the  Code,  with  respect  to any Plan that  results,  or could
reasonably be anticipated to result, in a Material Adverse Effect,  which notice
shall specify the nature thereof and the Borrower's  proposed  response thereto,
and (ii) actual knowledge  thereof,  copies of any notice of PBGC's intention to
terminate or to have a trustee appointed to administer any Plan; and

     (f)  promptly,  from time to time,  such other  information,  regarding its
operations,  business  affairs and financial  condition,  or compliance with the
terms of this Agreement, as the Lender may reasonably request.

     6.03 Financial Ratios.

     For  any  quarter  during  which  the  Applicable  Rating  Level  is  below
Investment  Grade the Borrower  shall maintain the following  minimum  Financial
Ratios:

     (a) an Interest Coverage Ratio of 2.00:1 or greater; and

     (b) a Leverage Ratio of 6.00:1 or lower.

     6.04 Annual  Certificate.  Within 120 days after the close of each calendar
year, commencing with the year in which the initial Advance hereunder shall have
been made, Borrower will deliver to the Lender a written statement signed by the
Financial  Officer or similar presiding officer stating that to the best of said
person's knowledge, the Borrower has fulfilled all of its Obligations under this
Agreement, and the Note, throughout such year or, if there has been a default in
the fulfillment of any such  Obligations,  specifying each such default known to
said person and the nature and status thereof.

     6.05 Insurance. The Borrower will at all times at its own expense maintain,
with a financially sound and reputable insurer,  property and casualty insurance
with  respect  to its  properties  and  business  against  such  casualties  and
contingencies  of such  types and in such  amounts  as the  Borrower  reasonably
determines  is  customary  in the case of any entity of  established  reputation
engaged in the same or a similar business and owning similar properties.
<PAGE>

     6.06 Existence; Businesses and Properties.

     (a) Preserve and  maintain,  cause each of the  Principal  Subsidiaries  to
preserve and maintain,  and cause each other Subsidiary to preserve and maintain
(where the  failure by any such other  Subsidiary  to so preserve  and  maintain
would likely result in a Material  Adverse  Effect),  its  corporate  existence,
rights and franchises,  except in connection with a Joint Venture Transaction or
an Asset  Exchange,  provided,  however,  that the  corporate  existence  of any
Principal   Subsidiary   may  be   terminated   if  such   termination   is  not
disadvantageous to the Lender;

     (b)  continue  to own all of the  outstanding  shares of  common  stock and
membership interests of each Principal  Subsidiary,  except in connection with a
Joint Venture Transaction or an Asset Exchange;

     (c) comply,  and cause each of the Subsidiaries to comply,  in all material
respects,  with all applicable laws, rules,  regulations and orders,  including,
without limitation, all Environmental Laws;

     (d) pay, and cause each of the Subsidiaries to pay, before any such amounts
become delinquent,  (i) all taxes,  assessments and governmental charges imposed
upon it or upon its property, and (ii) all claims (including without limitation,
claims for labor,  materials,  supplies,  or services)  which might,  if unpaid,
become a Lien upon its property,  unless,  in each case,  the validity or amount
thereof  is being  disputed  in good  faith,  and the  Borrower  has  maintained
adequate reserves with respect thereto, in each case where the failure to so pay
would be reasonably expected to cause a Material Adverse Effect;

     (e) keep,  and cause  each of the  Subsidiaries  to keep,  proper  books of
record and account,  containing  complete and accurate  entries of all financial
and business  transactions  of the Borrower and such  Subsidiary in all material
respects; and

     (f) continue to carry on, and cause each  Principal  Subsidiary to continue
to carry on,  substantially  the same type of business  as the  Borrower or such
Principal  Subsidiary  conducted as of the date hereof and  business  reasonably
related  thereto,  except for changes in such business that result from the sale
of Utilities Assets, a Joint Venture Transaction or an Asset Exchange;

provided,  however, that the foregoing shall not limit the right of the Borrower
or any of its Subsidiaries to engage in any transaction not otherwise prohibited
by Section 7.03, 7.05 or 7.06.

     7. NEGATIVE COVENANTS.

     7.01 Notice. Borrower will not, without giving 30 days prior written notice
to the Lender  change its state of  incorporation,  chief  place of  business or
name.

     7.02 Dividends and Other Cash Distributions. The Borrower shall not, at any
time enter into or permit any Principal  Subsidiary to enter into,  any contract
or  agreement  (other  than  with a  governmental  regulatory  authority  having
jurisdiction  over the Borrower or such Principal  Subsidiary)  restricting  the
ability of such Principal  Subsidiary to pay dividends or make  distributions to
the  Borrower  in any manner  that would  materially  impair the  ability of the
Borrower to meet its present and future obligations hereunder.
<PAGE>


     7.03 Sale of Assets.  Except in connection with a Joint Venture Transaction
or an Asset Exchange,  the Borrower shall not permit any Principal Subsidiary to
sell, assign, or otherwise dispose of telecommunications  assets (whether in one
transaction or a series of transactions), if the net, after-tax proceeds thereof
are used by the  Borrower or any  Subsidiary  to prepay  (other than a mandatory
prepayment in accordance with the terms of the applicable  governing  documents,
including  pursuant to any put provision)  Indebtedness  incurred after the date
hereof which  Indebtedness has a maturity later than the October 24, 2006 (other
than bridge or other financings incurred in connection with an asset purchase or
sale, including acquisition indebtedness or indebtedness of an acquired entity).

     7.04 Liens;  Restrictions  on Sales  Receivables.  The  Borrower  shall not
create,  incur,  assume,  or  suffer to exist,  or permit  any of the  Principal
Subsidiaries to create,  incur,  assume,  or suffer to exist, any Lien on any of
its property now owned or hereafter  acquired to secure any  Indebtedness of the
Borrower  or any such  Principal  Subsidiary,  or sell or  assign  any  accounts
receivable  (other  than in the  ordinary  course of business  substantially  in
accordance with the Borrower's past practice), other than: (a) Liens incurred or
deposits  made in the  ordinary  course of business to secure  surety and appeal
bonds, leases, return-of-money bonds and other similar obligations (exclusive of
obligations  of the payment of borrowed  money);  (b) Liens  created under or in
connection  with the First  Mortgage  Bond  Indentures  or any other  indentures
governing  the  issuance  of  mortgage  bonds by the  Borrower;  (c)  pledges or
deposits  to secure the  utility  obligations  of the  Borrower  incurred in the
ordinary  course  of  business;  (d)  Liens  upon or in  property  now  owned or
hereafter  acquired to secure  Indebtedness  incurred  solely for the purpose of
financing the acquisition, construction or improvement of any property, provided
that such  Indebtedness  shall not exceed the fair market  value of the property
being  acquired,  constructed  or  improved;  (e)  Liens  on the  assets  of any
Principal  Subsidiary  to secure the  repayment  of project  financing  for such
Principal  Subsidiary;  (f)  Liens  on  the  assets  of  any  Person  merged  or
consolidated  with or into (in accordance with Section 7.06) the Borrower or any
Principal  Subsidiary  that  were  in  effect  at the  time of  such  merger  or
consolidation;  (g)  Liens  securing  Indebtedness  of  the  Borrower  or of any
Principal  Subsidiary  to the Rural  Electrification  Administration,  the Rural
Utilities  Service,  the Rural  Telephone  Bank or the Rural  Telephone  Finance
Cooperative  (or any  successor  to any  such  agency);  (h)  Liens  for  taxes,
assessments and governmental  charges or levies,  which are not yet due or which
are being  contested in good faith by  appropriate  proceedings;  (i) carriers',
warehousemen's,  mechanics', materialmen's, repairmen's, suppliers or other like
Liens arising in the ordinary  course of business  relating to  obligations  not
overdue for a period of more than 60 days or which are bonded or being contested
in good faith by appropriate proceedings;  (j) pledges or deposits in connection
with workers'  compensation  laws or similar  legislation or to secure public or
statutory obligations;  (k) Liens incurred on deposits to secure the performance
of bids,  trade  contracts,  leases,  statutory  obligations,  surety and appeal
bonds,  performance bonds and other obligations of a like nature incurred in the
ordinary  course of business;  (l) easements,  rights of way,  restrictions  and
other encumbrances incurred which, in the aggregate, do not materially interfere
with  the  ordinary  conduct  of  business;  (m)  restrictions  by  governmental
authorities  on the  operations,  business  or  assets  of the  Borrower  or its
subsidiaries  that  are  customary  in  the  Borrower's  and  its  Subsidiaries'
businesses; and (n) sales of accounts receivable pursuant to, and Liens existing
or deemed to exist in connection with, any Securitization Transactions, provided
the aggregate amount of all such  Securitization  Transactions  shall not at any
time exceed the greater of (i) 10% of Consolidated Net Worth of the Borrower and
(ii)  $150,000,000;  provided,  however,  that  the  Borrower  or any  Principal
Subsidiary may create, incur, assume or suffer to exist other Liens (in addition
to Liens  excepted by the  foregoing  clauses (a) through  (m)) on its assets so
long as the assets  subject  to such  Liens  plus the amount of any  outstanding
Securitization  Transactions  permitted  by  the  foregoing  clause  (n)  do not
represent in the aggregate more than 20% of the Borrower's Consolidated Tangible
Assets.
<PAGE>

     7.05 Ownership of the Principal Subsidiaries.  The Borrower shall not sell,
assign,  pledge, or otherwise transfer or dispose of any shares of common stock,
voting stock, or stock  convertible into voting or common stock of any Principal
Subsidiary,  except (a) to another  Subsidiary,  (b) to the extent the assets of
such Principal  Subsidiary consist entirely of Utilities Assets at the time such
transaction is consummated,  (c) in connection with a Joint Venture Transaction,
and (d) in connection with an Asset Exchange.

     7.06 Mergers.  The Borrower shall not merge or  consolidate  with, or sell,
assign,  lease, or otherwise  dispose of (whether in one transaction or a series
of transactions)  all or  substantially  all of its assets (whether now owned or
hereafter acquired),  except for Utilities Assets or in connection with an Asset
Exchange,  to any Person,  or permit any  Principal  Subsidiary to do so, except
that any Subsidiary may merge into or, subject to Section 7.03,  transfer assets
to the  Borrower or any other  Subsidiary  and the  Borrower  may merge with any
Person;  provided that,  immediately  thereafter and giving effect  thereto,  no
event shall occur or be continuing  which  constitutes  an Event of Default or a
Default  and, in the case of any such  merger to which the  Borrower is a party,
either the Borrower is the surviving corporation or the surviving entity (if not
the Borrower) has a  consolidated  net worth (as  determined in accordance  with
GAAP)  immediately  subsequent to such merger at least equal to the Consolidated
Net Worth of the Borrower immediately prior to such merger and expressly assumes
the   obligations  of  the  Borrower   hereunder;   provided,   however,   that,
notwithstanding   the   foregoing,   the  Borrower  and  any  of  the  Principal
Subsidiaries may sell assets in the ordinary course of its business and may sell
or otherwise  dispose of worn out or obsolete  equipment  on a basis  consistent
with good business practices.

     7.07  Transactions  with  Affiliates.  Except  in  connection  with a Joint
Venture  Transaction  or an  Asset  Exchange,  the  Borrower  shall  not sell or
transfer  any  property or assets to, or  purchase  or acquire  any  property or
assets from,  or otherwise  engage in any other  transactions  with,  any of its
Affiliates,  except  that as long as no Default  or Event of Default  shall have
occurred and be continuing,  the Borrower or any Subsidiary may engage in any of
the foregoing  transactions (i) in the ordinary course of business at prices and
on terms and conditions  not less  favorable to the Borrower or such  Subsidiary
than could be obtained on an  arm's-length  basis from unrelated  third parties,
(ii) as otherwise  may be required by any  Governmental  Authority,  or (iii) so
long as such transactions are not materially disadvantageous to the Borrower.

     7.08 Net Worth.  The Borrower shall not allow its Consolidated Net Worth to
fall below $1,500,000,000.00.

     7.09  Minimum  Access  Lines.  Permit,  as a  direct  result  of any  sale,
exchange,  transfer or other disposition of Access Lines, the total Access Lines
owned by the Borrower and its Subsidiaries  (other than any Joint Venture) as of
the end of any fiscal quarter of the Borrower to be less than 2,500,000.


     8. EVENTS OF DEFAULT

     The occurrence of any one or more of the following  events shall constitute
an "Event of Default":
<PAGE>

     (a)  Any  representation  or  warranty  made  herein,  in any of the  Other
Agreements  or  in  any  statement,  report,  certificate,   opinion,  financial
statement or other document furnished or to be furnished in connection with this
Agreement or the Other  Agreements  shall prove to have been false or misleading
in any material respect when so made or furnished.

     (b)  Failure of Borrower  to make any of the  payment  Obligations,  or any
portion thereof, including, without limitation,  payment of any sum of principal
or interest due the Lender under this Agreement or any of the Other  Agreements,
when and as the same  shall  become  due and  payable,  and such  default  shall
continue unremedied for a period of five Business Days.

     (c) Failure of Borrower to observe or perform any  warranty,  covenant  or,
condition to be observed or performed by Borrower under this Agreement or any of
the Other Agreements and such default shall continue  unremedied for a period of
30 days  after the  earlier  to occur of (i) the  Borrower  obtaining  knowledge
thereof and (ii) the date that written  notice  thereof shall have been given to
the Borrower by the Lender.

     (d) The  Borrower  or any  Principal  Subsidiary  shall  default in the due
observance or performance of any covenant,  condition or agreement  contained in
Section 4.10, Section 6.06 (f) or Article 7.

     (e) An involuntary proceeding shall be commenced or an involuntary petition
shall be filed  in a court of  competent  jurisdiction  seeking  (i)  relief  in
respect of the Borrower or any Principal Subsidiary, or of a substantial part of
the property or assets of the Borrower or a Principal Subsidiary, under Title 11
of the United States Code, as now constituted or hereafter amended, or any other
federal or state bankruptcy, insolvency,  receivership, or similar law, (ii) the
appointment of a receiver,  trustee,  custodian,  sequestrator,  conservator, or
similar  official  for  the  Borrower  or  any  Principal  Subsidiary  or  for a
substantial  part of the  property  or assets  of the  Borrower  or a  Principal
Subsidiary,  or (iii) the  winding-up  or  liquidation  of the  Borrower  or any
Principal Subsidiary; and such proceeding or petition shall continue undismissed
for 60 days or an order or decree  approving  or ordering  any of the  foregoing
shall be entered;

     (g) The Borrower or any Principal Subsidiary shall (i) voluntarily commence
any proceeding or file any petition  seeking relief under Title 11 of the United
States Code, as now  constituted or hereafter  amended,  or any other federal or
state bankruptcy, insolvency,  receivership, or similar law, (ii) consent to the
institution  of, or fail to  contest  in a timely and  appropriate  manner,  any
proceeding or the filing of any petition described in (f) above, (iii) apply for
or consent to the appointment of a receiver, trustee,  custodian,  sequestrator,
conservator, or similar official for the Borrower or any Principal Subsidiary or
for a  substantial  part  of the  property  or  assets  of the  Borrower  or any
Principal Subsidiary,  (iv) file an answer admitting the material allegations of
a  petition  filed  against  it in any  such  proceeding,  (v)  make  a  general
assignment for the benefit of creditors,  (vi) become  unable,  admit in writing
its  inability,  or fail generally to pay its debts as they become due, or (vii)
take any action for the purpose of effecting any of the foregoing;

     (h) The Borrower or any Principal Subsidiary,  as the case may be, fails to
pay when  due,  or within  any  grace  period  applicable  thereto  by the terms
thereof,  any other  Indebtedness  of the Borrower or any  Principal  Subsidiary
aggregating $50,000,000 or more;

     (i) The  Borrower  or any  Principal  Subsidiary  shall  fail to observe or
perform  any  covenant  or  agreement  contained  in  any  single  agreement  or
instrument  relating to any  Indebtedness  in excess of (i)  $75,000,000  in the
aggregate,  with respect to any Indebtedness  issued on a tax-exempt  basis, and
(ii) $50,000,000 in the aggregate,  with respect to all other  Indebtedness,  in
each case within any applicable grace period,  or any other event shall occur if
the effect of such  failure or other  event is to  accelerate,  or to permit the
holder of such  Indebtedness or any other Person to accelerate,  the maturity of
such  Indebtedness;  or any such  Indebtedness  shall be  required to be prepaid
(other than by a regularly  scheduled required  prepayment,  pursuant to any put
right (or  similar  right) of the  holder  thereof,  or by the  exercise  by the
Borrower  or  such  Principal  Subsidiary  of its  right  to  make  a  voluntary
prepayment) in whole or in part prior to its stated maturity;
<PAGE>

     (j) A judgment or order for the  payment of money in excess of  $50,000,000
and having a Material  Adverse Effect shall be rendered  against the Borrower or
any of the  Subsidiaries  and such judgment or order shall continue  unsatisfied
(in the case of a money  judgment)  and in effect for a period of 30 days during
which execution shall not be effectively  stayed or deferred  (whether by action
of a court, by agreement, or otherwise);

     (k) A Plan shall fail to maintain the minimum funding standard  required by
Section  412(a) of the Code for any plan year or a waiver  of such  standard  is
sought  or  granted  under  Section  412(d),  or a Plan is or  shall  have  been
terminated  or the  subject  of  termination  proceedings  under  ERISA,  or the
Borrower or an ERISA  Affiliate  has  incurred a liability to or on account of a
Plan under  Section 4062,  4063,  4064,  4201 or 4204 of ERISA,  and there shall
result from any such event or events a Material Adverse Effect; and

     (l) There  shall  have  occurred a Change in Control  without  the  written
consent of Lender.


     9. RIGHTS AND REMEDIES

     9.01 Rights and Remedies of the Lender.  Upon the occurrence of an Event of
Default, the Lender may, subject to compliance,  if required, with the rules and
regulations of any Government  Authority  having  jurisdiction,  exercise in any
jurisdiction in which  enforcement  hereof is sought,  the following  rights and
remedies,  in addition to all rights and remedies  available to the Lender under
applicable  law, all such rights and remedies being  cumulative and  enforceable
alternatively, successively or concurrently:

     (a) Declare all unpaid  principal  outstanding on the Note, all accrued and
unpaid  interest  thereon,  and all other  Obligations to be immediately due and
payable and the same shall thereupon become  immediately due and payable without
presentment,  demand,  protest  or notice of any kind,  all of which are  hereby
expressly waived by the Borrower.

     (b) Institute any proceeding or proceedings to enforce the Obligations owed
to, or any Liens in favor of the Lender.

     (c) Pursue any other rights and remedies  available to the Lender at law or
in equity.

     9.02 Cumulative Nature of Remedies. Nothing herein shall limit the right of
the Lender to pursue all rights and remedies  available to a creditor  following
the  occurrence  of an Event of  Default.  Each  right,  power and remedy of the
Lender in this  Agreement  and/or the Other  Agreements  shall be cumulative and
concurrent,  and recourse to one or more rights or remedies shall not constitute
a waiver of any other right, power or remedy.
<PAGE>

     9.03 Costs and  Expenses.  Borrower  agrees to pay and to be liable for any
and all reasonable expenses,  including  attorney's fees,  settlements and court
costs,  incurred  by the Lender in  exercising  or  enforcing  any of its rights
hereunder or under the Other Agreements together with interest thereon.

     9.04 Lender's  Setoff.  The Lender shall have the right, in addition to all
other rights and remedies  available to it, to setoff and to recover against any
or all of the Obligations  due to Lender,  any monies now and hereafter owing to
Borrower  by the  Lender.  Borrower  waives  all  rights of  setoff,  deduction,
recoupment or counterclaim.

     10. MISCELLANEOUS

     10.01  Performance for Borrower.  Upon the occurrence and continuance of an
Event of Default,  Borrower agrees and hereby authorizes that the Lender may, in
its sole discretion,  but the Lender shall not be obligated to, advance funds on
behalf  of  Borrower  without  prior  notice  to  Borrower,  in order to  insure
Borrower's  compliance with any material covenant,  warranty,  representation or
agreement of Borrower made in or pursuant to this  Agreement or any of the Other
Agreements,  to preserve or protect any right or interest of the Lender under or
pursuant to this Agreement or any of the Other  Agreements;  provided,  however,
that the making of any such advance by the Lender shall not  constitute a waiver
by the Lender of any Event of Default with respect to which such advance is made
nor relieve  Borrower of any such Event or  Default.  Borrower  shall pay to the
Lender upon demand all such advances made by the Lender with interest thereon at
the rate and determined in the manner provided in the Note.

     10.02 Reserved. Expenses; Indemnity.

     (a) The  Borrower  agrees  to pay  all  out-of-pocket  expenses  (including
reasonable  fees  and  disbursements  of  counsel)  incurred  by the  Lender  in
connection  with any  amendments,  modifications  or waivers  of the  provisions
hereof or thereof or incurred by the Lender in connection  with the  enforcement
or protection of its rights in connection with this Agreement.

     (b) The  Borrower  agrees  to  indemnify  the  Lender  and  each  of  their
respective  directors,  officers,  employees,  Affiliates  and agents (each such
Person  being  called an  "Indemnitee")  against,  and to hold  each  Indemnitee
harmless  from, any and all losses,  claims,  damages,  liabilities  and related
expenses,  including  reasonable  counsel  fees  and  expenses,  incurred  by or
asserted  against any Indemnitee  arising out of, (i) the use of the proceeds of
the Loan or (ii) any claim, litigation, investigation, or proceeding relating to
this  Agreement,  the  use of such  proceeds  or the  transactions  contemplated
hereby,  whether or not any  Indemnitee is a party  thereto;  provided that such
indemnity shall not, as to any Indemnitee,  be available to the extent that such
losses, claims,  damages,  liabilities,  or related expenses are determined by a
court of  competent  jurisdiction  by final and  nonappealable  judgment to have
resulted from the gross negligence or willful misconduct of such Indemnitee. The
Lender shall notify the Borrower  promptly after it determines that it will make
a claim for indemnification under this Section 10.02(b). The Borrower shall have
the right to elect to control the defense of the litigation,  investigation,  or
proceeding giving rise to such claim (collectively, for purposes of this Section
10.02(b),  the  "Litigation") and shall inform the Lender of its intention to do
so within 15 days after receipt of the Lender's  claim for  indemnification.  In
the event the Borrower elects to control the defense of the Litigation,  (i) the
Lender shall be entitled to participate  in the defense of the  Litigation  with
counsel  satisfactory  to the  Borrower,  in  the  exercise  of  its  reasonable
judgment;  provided,  however, that any such participation in such defense shall
be conducted by the Lender and at the Lender's  expense  (subject to  Borrower's
indemnity  obligations  under this paragraph) and in a manner  considered by the
Borrower to be satisfactory  and effective to protect against such claim without
causing  damage to the conduct of, or affecting the  Borrower's  control of, the
defense of the Litigation;  and (ii) the Lender shall inform the Borrower of its
intention to participate  in the defense of the Litigation  within 15 days after
receipt of notice thereof from the Borrower.  In the event the Borrower does not
elect  to  control  the  defense  of the  Litigation  pursuant  to this  Section
10.02(b),  the Lender shall control the defense of the  Litigation,  and (i) the
Borrower shall be entitled to participate in the defense of the Litigation  with
counsel  satisfactory to the Lender, in the exercise of its reasonable judgment;
provided,  however,  that  any  such  participation  in such  defense  shall  be
conducted  by the  Borrower  and  at  the  Borrower's  expense  and in a  manner
considered by the Lender to be  satisfactory  and  effective to protect  against
such claim without  causing  damage to the conduct of, or affecting the Lender's
control of, the defense of the  Litigation;  and (ii) the Borrower  shall inform
the Lender of its  intention  to  participate  in the defense of the  Litigation
within  20  days  after   receipt   of  notice   thereof   from  the   Borrower.
Notwithstanding  the  foregoing,  if the  Borrower  shall  elect to  defend  the
Litigation  and,  during the course of such defense by the Borrower,  the Lender
determines  in good faith that (x) there exists a material  conflict of interest
between  the Lender and the  Borrower as a result of  Borrower's  control of the
Litigation,  or (z) the  Borrower's  control of the Litigation  would  otherwise
materially  prejudice  Lender's rights in any such  Litigation,  then the Lender
may, upon 10 days' written notice to the Borrower of such  determination,  elect
to control the defense of the  Litigation  at the Lender's  expense  (subject to
Borrower's indemnity obligations under this paragraph) with counsel satisfactory
to the Borrower,  provided that the Borrower shall be able to participate in the
defense of the  Litigation  in accordance  with sub-part (i) of the  immediately
preceding  sentence.  In the event of such election by the Lender,  the Borrower
shall reasonably cooperate in the transition of defense of the Litigation to the
Lender.
<PAGE>

     (c) The provisions of this Section 10.02 shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions  contemplated  hereby,  the repayment of any of
the Loans, the invalidity or  unenforceability  of any term or provision of this
Agreement,  or any investigation made by or on behalf of Lender. All amounts due
under this Section 10.02 shall be payable on written demand therefor.

     10.03 Waivers by Borrower.  Borrower hereby waives,  to the extent the same
may be waived under applicable law: presentment, demand for payment, protest and
notice of non-payment  and all  exemptions.  Borrower agrees that the Lender may
exercise any or all of its rights and/or remedies  hereunder and under the Other
Agreements.

     10.04 Waivers by the Lender.  Neither any failure nor any delay on the part
of the Lender in exercising any right, power or remedy hereunder or under any of
the Other  Agreements  shall operate as a waiver thereof,  nor shall a single or
partial  exercise  thereof preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.

     10.05  Lender's  Records.  Every  statement  of account  or  reconciliation
rendered by the Lender to Borrower with respect to any of the Obligations  shall
be presumed  conclusively  to be correct and shall  constitute an account stated
between the Lender and Borrower unless, within ten (10) Business Days after such
statement  or  reconciliation  shall  have  been  mailed,  postage  prepaid,  to
Borrower, the Lender shall receive written notice of specific objection thereto.

     10.06  Modifications.  No  modification  or waiver of any provision of this
Agreement,  the  Note or any of the  Other  Agreements,  and no  consent  to any
departure by Borrower  therefrom shall in any event be effective unless the same
shall be in writing,  and then such waiver or consent shall be effective only in
the  specific  instance  and for the  purpose for which  given.  No notice to or
demand upon Borrower in any case shall entitle  Borrower to any other or further
notice or demand in the same, similar or other circumstances.

     10.07 Notices. All notices,  requests and other communications provided for
herein including, without limitation, any modifications of, or waivers, requests
or consents under, this Agreement shall be given or made in writing  (including,
without limitation,  by telecopy) and delivered to the intended recipient at the
"Address  for  Notices"  specified  below;  or, as to any  party,  at such other
address as shall be  designated  by such party in a notice to each other  party.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given (a) upon receipt when delivered personally, or by
overnight  courier,  or (ii) in the case of a telecopied or mailed notice,  upon
receipt, in each case given or addressed as provided for herein. The Address for
Notices of the respective parties are as follows:


                           Lender's Address:

                           Rural Telephone Finance Cooperative
                           Woodland Park
                           2201 Cooperative Way
                           Attn: General Counsel
                           Herndon, Virginia 22071-3025
                           Telecopy:  703-709-6776


                           Borrower's Address:
                           Citizens Communications Company
                           3 High Ridge Park
                           Stamford, Connecticut 06905
                           Attn: Treasurer
                           Telecopy:  203-614-5711



     10.08 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.

     (a) THE PERFORMANCE  AND  CONSTRUCTION OF THIS AGREEMENT AND THE NOTE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE  WITH, THE LAWS OF THE  COMMONWEALTH
OF VIRGINIA.
<PAGE>

     (b) BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE  JURISDICTION OF THE UNITED
STATES COURTS LOCATED IN VIRGINIA AND OF ANY STATE COURT SO LOCATED FOR PURPOSES
OF ALL LEGAL  PROCEEDINGS  ARISING OUT OF OR RELATING TO THIS  AGREEMENT  OR THE
TRANSACTIONS  CONTEMPLATED  HEREBY.  BORROWER IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT  PERMITTED BY APPLICABLE  LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE  ESTABLISHING OF THE VENUE OF ANY SUCH PROCEEDING  BROUGHT IN SUCH A
COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.

     (c) EACH OF THE BORROWER AND THE LENDER HEREBY  IRREVOCABLY  WAIVES, TO THE
FULLEST EXTENT  PERMITTED BY APPLICABLE  LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL  PROCEEDING  ARISING OUT OF OR RELATING  TO THIS  AGREEMENT  OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

     10.09 Holiday Payments. If any payment to be made by the Borrower hereunder
shall become due on a day which is not a Business  Day,  such  payment  shall be
made on the next  succeeding  Business  Day and such  extension of time shall be
included in computing any interest in respect of such payment.

     10.10 Consent to Patronage Capital  Distributions.  Borrower will receive a
share of  Lender's  net margins in the form of  patronage  capital  refunds,  as
determined from time to time by Lender's Board of Directors.  Patronage  Capital
will be  allocated  annually  to  Borrower  based  on the  percentage  that  the
Borrower's  interest payments  hereunder  contributed to Lender's gross margins.
Borrower  hereby  agrees that the amount of any  distributions  with  respect to
Borrower's patronage which are made in written notices of allocation (as defined
in Section  1388 of the  Internal  Revenue  Code of 1986,  as  amended  ("Code")
including any other comparable  successor provision) and which are received from
Lender will be taken into account by Borrower at their stated dollar  amounts in
the manner  provided in Section 1385(a) of the Code in the taxable year in which
such written notices of allocation are received.

     10.11 Right to Inspect.  Except for information  designated by the Borrower
as  confidential,   the  Lender,  through  its  representatives,   shall  during
reasonable  business  hours have  access  to, and the right to inspect  and make
copies of books,  records,  accounts  documents  and papers  belonging  to or in
possession of the Borrower and its Subsidiaries and pertaining to the Borrower's
and its Subsidiaries' property or business.

     10.12  Survival;   Successors  and  Assigns.  All  covenants,   agreements,
representations  and warranties  made herein and in the Other  Agreements  shall
survive  Closing and the execution  and delivery to the Lender of the Note,  and
shall continue in full force and effect until all of the  Obligations  have been
paid in full.  Whenever in this  Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
party. All covenants, agreements, representations and warranties by or on behalf
of Borrower which are contained in this Agreement and the Other Agreements shall
inure to the benefit of the successors and assigns of the Lender.

     10.13  Assignment.  The Lender may assign its rights and obligations  under
this  Agreement and the Other  Agreements to the National  Cooperative  Services
Corporation without the consent of the Borrower; provided, however, that no such
assignment  shall  result in terms or  conditions  less  favorable  to Borrower.
Except as otherwise set forth in the immediately preceding sentence, each of the
parties  hereto may not assign  any of its  rights  and  obligations  under this
Agreement or the Other Agreements without the prior written consent of the other
party.
<PAGE>

     10.14  Severability.  If any  term,  provision  or  condition,  or any part
thereof,  of this Agreement or any of the Other  Agreements shall for any reason
be found or held invalid or unenforceable by any court or governmental agency of
competent jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term,  provision or condition nor any other term, provision or
condition,  and this Agreement, the Note, and the Other Agreements shall survive
and be  construed  as if  such  invalid  or  unenforceable  term,  provision  or
condition had not been contained therein.

     10.15  Counterparts.  This  Agreement  may be  executed  in any  number  of
counterparts and by different parties hereto on separate  counterparts,  each of
which,  when so  executed  and  delivered,  shall be an  original,  but all such
counter-parts shall together constitute one and the same instrument.

     10.16  Headings/Use of Terms.  The headings and  sub-headings  contained in
this  Agreement  are  intended  to be  used  for  convenience  only  and  do not
constitute  part of this  Agreement.  The use of any gender or the neuter herein
shall  also  refer to the other  gender or the  neuter and the use of the plural
shall also refer to the singular, and vice versa.

     10.17 Further  Assurances.  The Borrower  will,  upon demand of the Lender,
make,  execute,  acknowledge  and  deliver  all such  further  and  supplemental
indentures  of  mortgage,  deeds  of  trust,  mortgages,  financing  statements,
continuation  statements,  security  agreements and/or any other instruments and
conveyances  as may be  reasonably  requested  by the Lender to  effectuate  the
intention of this  Agreement  and to provide for the securing and payment of the
principal of and interest on the Note according to the terms thereof.

     10.18  Lender's  Approval.  Wherever  prior  written  approval of Lender is
required under the terms and conditions of this Agreement,  Lender hereby agrees
to not unreasonably withhold said approval.

     10.19 Merger and Integration.  This Agreement and the attached exhibits and
matters  incorporated by reference  contain the entire  agreement of the parties
hereto with  respect to the matters  covered and the  transactions  contemplated
hereby,  and no other agreement,  statement or promise made by any party hereto,
or by any employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid or binding.

     10.20 Right of Setoff.  If an Event of Default  shall have  occurred and be
continuing,  Lender is hereby  authorized  at any time and from time to time, to
the fullest  extent  permitted by law, to set off and apply any and all deposits
(general or special, time or demand,  provisional or final) at any time held and
other  Indebtedness  at any time  owing by  Lender  to or for the  credit or the
account of the Borrower  against any of and all the  obligations of the Borrower
now or hereafter  existing under this Agreement held by Lender,  irrespective of
whether or not  Lender  shall have made any  demand  under  this  Agreement  and
although  such  obligations  may be  unmatured.  The rights of Lender under this
Section are in addition to other rights and remedies  (including other rights of
setoff) which Lender may have.

     10.21  Interest Rate  Limitation.  Notwithstanding  anything  herein to the
contrary,  if at any time the applicable  interest rate,  together with all fees
and charges which are treated as interest under  applicable  law  (collectively,
the  "Charges"),  as provided  for herein or in any other  document  executed in
connection herewith, or otherwise contracted for, charged,  received,  taken, or
reserved by Lender,  shall exceed the maximum  lawful rate (the "Maximum  Rate")
which may be contracted for, charged,  taken, received, or reserved by Lender in
accordance with applicable law, the rate of interest payable to Lender, together
with all Charges payable to Lender, shall be limited to the Maximum Rate.

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the date first above written.

                                  BORROWER:
                                  CITIZENS COMMUNICATIONS COMPANY

                                  By: ________________________________________

                                  Name: ______________________________________

                                  Title: _____________________________________

                                  LENDER:
                                  RURAL TELEPHONE FINANCE COOPERATIVE


                                  By: ________________________________________

                                  Name: ______________________________________
                                  Title: Assistant Secretary-Treasurer


<PAGE>


                                    EXHIBIT A

                               EQUIVALENT RATINGS
                                  Indebtedness


            Moody's Rating      S&P Rating       Lehman Rating*
            ---------------------------------------------------


                Aaa                  AAA                 AA

                Aa1                  AA+                 AA
                Aa2                  AA                  AA
                Aa3                  AA-                 AA

                Baa1                 BBB+                BBB
                Baa2                 BBB                 BBB
                Baa3**               BBB-**              BBB

                Ba1                  BB+                 BB***
                Ba2                  BB                  BB
                Ba3                  BB-                 BB

                B1                   B+                  B
                B2                   B                   B
                B3 and lower         B- and lower        B


* This is periodically  published in Secondary Market Bullet Bid Side Spreads in
the Lehman Brothers Global  Fixed-Income  Market Data publication.  The ten (10)
year current spread for "Utilities" at the appropriate rating shall be used.

** This is the lowest "Investment Grade" rating level.

*** At and below  this  level the  "Utilities"  sector  does not have a specific
current spread. The "High Yield 10" current spread shall be used.

<PAGE>

                                   EXHIBIT B



                       RURAL TELEPHONE FINANCE COOPERATIVE

                        SUBORDINATED CAPITAL CERTIFICATE

Date of Issuance:
No.:
Amount:

Rural Telephone Finance Cooperative, a corporation organized under and by virtue
of  the  South   Dakota   Cooperative   Association   Act  (herein   called  the
"Corporation"),  for value  received,  hereby  promises  to pay  pursuant to the
Corporation's  policies of general  application  in effect from time to time to:

                        CITIZENS COMMUNICATIONS COMPANY

(the "Payee") the sum of __________________ . Repayments of the principal amount
hereof  shall be made  without  interest on the first day of March as  described
herein (a  "Payment  Date")  and shall be in an amount  equal to the  difference
between the outstanding  balance of this Subordinated  Capital  Certificate (the
"Certificate") on the 31st day of December (the "Computation  Date") preceding a
Payment Date and ten percent (10%) of the outstanding  principal  balance of the
Payee's  corresponding loan on said Computation Date. The initial computation of
the  repayment  of the  principal  amount  hereunder  shall be made on the first
Computation Date occurring one year after both of the following  conditions have
been met: (a) this  Certificate  has been paid for in full,  and (b) the Payee's
corresponding loan has been fully advanced;  provided,  however,  if the Payee's
corresponding loan has been partially advanced,  and the balance of such loan is
rescinded,  then the initial computation of the repayment amount hereunder shall
be made on the first  Computation  Date following the date on which such balance
of the Payee's loan has been rescinded.  The initial payment  hereunder shall be
made on the first  Payment Date next  following  the initial  Computation  Date.
Subsequent  computations of the repayment amount and payments hereunder shall be
made  at  one-year  intervals  on a  respective  Computation  or  Payment  Date.
Notwithstanding the above, this Certificate shall be fully repaid within 60 days
following the date on which the Payee's  corresponding  loan has matured and has
been paid in full. In the event the Payee's  corresponding loan is fully prepaid
prior to its maturity date (the  calendar year in which such  prepayment is made
being called the "Prepayment  Year"),  this Certificate shall be fully repaid on
the following March 1st.  Payment of the principal of this  Certificate  will be
made at the office of the  Corporation  maintained  for that purpose in Herndon,
Virginia or such other location as the Corporation  may designate.  All payments
made hereunder shall be paid to the Payee.

Prepayment.  By its  acceptance  hereof,  the  holder  hereof  agrees  that  the
Corporation  may at any  time or from  time to time,  on not less  than 60 days'
written notice to the holder hereof,  prepay all or any part hereof;  prepayment
may be made without penalty or premium.
<PAGE>

Subordination  to Senior  Indebtedness.  This  Certificate,  and the  payment of
principal hereof,  shall, to the extent and in the manner hereinafter set forth,
be  subordinate  and subject in right of payment to the prior payment in full of
Senior  Indebtedness as defined herein;  and, by acceptance  hereof,  the holder
hereof agrees, expressly for the benefit of present and future holders of Senior
Indebtedness,  to be bound by the provisions of this paragraph. The term "Senior
Indebtedness"  shall mean (a) all indebtedness  heretofore or hereafter incurred
by the  Corporation  for money borrowed  unless by its terms it is provided that
such  indebtedness  is not  Senior  Indebtedness,  (b)  all  other  indebtedness
hereafter  incurred by the  Corporation  which by its terms  provides  that such
indebtedness is Senior Indebtedness, (c) all guaranties,  endorsements and other
contingent  obligations  in respect of, or  obligations to purchase or otherwise
acquire  or  service,  indebtedness,  or  obligations  of  others,  and  (d) any
amendments, modifications,  deferrals, renewals or extensions of any such Senior
Indebtedness,  or debentures,  notes or evidences of indebtedness  heretofore or
hereafter  issued in evidence of or exchange  for such Senior  Indebtedness.  No
payment on account of this  Certificate  shall be made  unless  full  payment of
amounts then due for principal of or premium, if any, sinking funds and interest
on Senior  Indebtedness  has been made or fully provided for in money or money's
worth. No payment on account of this  Certificate  shall be made if, at the time
of such payment or  immediately  after giving  effect  thereto,  (i) there shall
exist a default in the  payment of  principal  or  mandatory  prepayments  of or
premium, if any, sinking funds or interest on any Senior  Indebtedness,  or (ii)
there  shall  have  occurred  an event of default  (other  than a default in the
payment of principal,  premium, if any, mandatory prepayments,  sinking funds or
interest)  with respect to any Senior  Indebtedness  as defined herein or in the
instrument  under which the same is outstanding  permitting the holders  thereof
(or of the indebtedness  secured thereby) to accelerate the maturity thereof (or
of the indebtedness  secured thereby),  and such event of default shall not have
been  cured  or  waived  or  shall  not  have  ceased  to  exist.  Upon  (i) any
acceleration of the principal amount due on this Certificate or (ii) any payment
or distribution  of assets of the Corporation of any kind or character,  whether
in cash, property or securities, to creditors upon any dissolution or winding-up
or total or partial  liquidation or reorganization  of the Corporation,  whether
voluntary or  involuntary or in bankruptcy,  insolvency,  receivership  or other
proceedings, all principal of and premium, if any, and interest due or to become
due upon all Senior Indebtedness shall first be paid in full, or payment thereof
provided for in money or money's worth, before any payment is made on account of
the principal of the indebtedness  evidenced by this  Certificate,  and upon any
such dissolution or winding-up or liquidation or  reorganization  any payment or
distribution of assets of the  Corporation of any kind or character,  whether in
cash,  property or securities  (other than  securities of the Corporation or any
other corporation provided for by a plan of reorganization or readjustment,  the
payment  of which is  subordinated,  at least  to the  extent  provided  in this
paragraph with respect to this Certificate, to the payment in full of all Senior
Indebtedness,  provided the rights of the holders of Senior Indebtedness are not
altered by such reorganization or readjustment) to which the holder hereof would
be entitled,  except for the provisions hereof, shall be paid by the Corporation
or by any receiver,  trustee in bankruptcy,  liquidating trustee, agent or other
person making such payment or distribution,  or by the holder hereof if received
by it,  directly  to the holders of Senior  Indebtedness  (pro rata to each such
holder on the basis of the  respective  amounts of Senior  Indebtedness  held by
such holder) or their representatives, to the extent necessary to pay all Senior
Indebtedness.  In the event that any  payment or  distribution  of assets of the
Corporation of any kind or character,  whether in cash,  property or securities,
not permitted by the foregoing shall be received by the holder hereof before all
Senior  Indebtedness  is paid in full, or provision  made for such  payment,  in
accordance with its terms,  such payment or  distribution  shall be held for the
benefit of, and shall be paid over or  delivered  to, the holders of such Senior
Indebtedness or their  representative  or  representatives  or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any of
such Senior  Indebtedness  may have been issued or under which such  instruments
are issued,  as their  respective  interests may appear,  for application to the
payment of all Senior  Indebtedness  remaining unpaid to the extent necessary to
pay all such Senior  Indebtedness  in full in accordance  with its terms,  after
giving effect to any concurrent payment or distribution to or for the holders of
such Senior  Indebtedness.  The  provisions of this paragraph are solely for the
<PAGE>

purpose of defining the relative rights of the holders of Senior Indebtedness on
the one hand and the holder hereof on the other hand,  and nothing  herein shall
impair, as between the Corporation and the holder hereof,  the obligation of the
Corporation,  which is unconditional  and absolute,  to pay to the holder hereof
the principal  hereof in accordance  with the terms hereof,  nor shall  anything
herein  prevent  the  holder  hereof  from  exercising  all  remedies  otherwise
permitted by applicable law or hereunder upon default hereunder,  all subject to
the rights,  if any, under this paragraph of holders of Senior  Indebtedness  to
receive cash,  property or securities  otherwise  payable or  deliverable to the
holder hereof.  Each holder hereof by his  acceptance  hereof  acknowledges  and
agrees that the foregoing subordination  provisions are, and are intended to be,
an inducement  and a  consideration  to each holder of any Senior  Indebtedness,
whether  such Senior  Indebtedness  was created or acquired  before or after the
issuance of this  Certificate,  to acquire  and/or  continue to hold such Senior
Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively
to have relied on such  subordination  provisions in acquiring and/or continuing
to hold such Senior  Indebtedness.  Subject to the payment in full of all Senior
Indebtedness, the holder hereof shall be subrogated to the rights of the holders
of Senior  Indebtedness to receive  payments or  distributions  of assets of the
Corporation  applicable to the Senior  Indebtedness until this Certificate shall
be paid in full, and no such payments or  distributions to the holders of Senior
Indebtedness  shall,  as between the  Corporation,  its creditors other than the
holders of Senior  Indebtedness and the holder hereof, be deemed to be a payment
by the  Corporation  to or on account of this  Certificate.  Upon any payment or
distribution  of assets of the Corporation  referred to in this  paragraph,  the
holder  hereof shall be entitled to rely upon a certificate  of the  liquidating
trustee or agent or other person  making any  distribution  to the holder hereof
for the purpose of  ascertaining  the persons  entitled to  participate  in such
distribution,  the holders of the Senior  Indebtedness and other indebtedness of
the Corporation,  the amount thereof or payable  thereon,  the amount or amounts
paid or  distributed  thereon and all other facts  pertinent  thereto or to this
paragraph.  The holder hereof, by its acceptance hereof,  authorizes and directs
the  Corporation  in its  behalf to take  such  action  as may be  necessary  or
appropriate  to effectuate the  subordination  as provided in this paragraph and
appoints the Corporation its attorney in fact for any and all such purposes.

Events of Default.  If any of the  following  events of default  shall occur and
shall not have been remedied:

     A.  default in the  payment of two  successive  installments  of  principal
     hereof on the dates on which said principal shall be due and payable;

     B. the  Corporation  shall (1) apply for or consent to the appointment of a
     receiver,  trustee  or  liquidator  of  the  Corporation  or  of  all  or a
     substantial part of the assets of the Corporation,  (2) be unable, or admit
     in  writing  its  inability,  to pay its debts as they  mature,  (3) make a
     general  assignment  for the benefit of creditors,  (4) be  adjudicated  as
     bankrupt or insolvent or (5) file a voluntary  petition in  bankruptcy or a
     petition  or  an  answer  seeking  reorganization  or an  arrangement  with
     creditors or to take advantage of any insolvency law or an answer admitting
     the material allegations of a petition filed against the Corporation in any
     bankruptcy,  reorganization or insolvency  proceeding,  or corporate action
     shall be taken by the  Corporation  for the purpose of effecting any of the
     foregoing; or

     C. an order, judgment or decree shall be entered,  without the application,
     approval  or  consent  of  the  Corporation,  by  any  court  of  competent
     jurisdiction,   approving  a  petition   seeking   reorganization   of  the
     Corporation  or  appointing  a  receiver,  trustee  or  liquidator  of  the
     Corporation or of all or a substantial part of its assets,  and such order,
     judgment or decree shall continue  unstayed and in effect for any period of
     60 consecutive days;
<PAGE>

the holder  hereof  may, by written  notice to the  Corporation  transmitted  by
certified  mail,   declare  the  principal  of  and  accrued  interest  on  this
Certificate to be forthwith due and payable,  whereupon the same shall,  subject
to the  provisions  of the third  paragraph  hereof,  become  forthwith  due and
payable.

Registration and Transfer of this  Certificate.  This Certificate is registered,
and the  Corporation  and any agent of the  Corporation  may treat the person in
whose name this  Certificate  is registered as the owner hereof for the purposes
of receiving  payment as herein provided and for all other purposes,  whether or
not this Certificate be overdue,  and neither the Corporation nor any such agent
shall be affected by notice to the contrary.  This  Certificate  or any interest
herein may not be  transferred,  assigned,  pledged,  hypothecated  or otherwise
disposed of except to a person theretofore approved by the Board of Directors of
the  Corporation,  such  approval to be  evidenced  by a written  notice to that
effect  executed  by the  Chief  Executive  Officer,  the  President,  any  Vice
President,  any  Assistant  Secretary-Treasurer,  or any other  duly  authorized
officer of the Corporation.  By its acceptance  hereof, the holder hereof agrees
that this  Certificate  does not  constitute a "holding" in the  Corporation  as
contemplated by the South Dakota  Cooperative  Association Act or any successor,
substitute or analogous provision of the laws of South Dakota.

No Recourse Against  Corporation or Individuals.  No recourse for the payment of
this Certificate,  or for any claim based hereon or otherwise in respect hereof,
and no recourse  under or upon any  application,  covenant or  agreement  of the
Corporation  herein  contained  shall  act  against  any  incorporator,  member,
director or officer,  as such, past, present or future, of the Corporation or of
any successor  corporation,  either  directly or through the  Corporation or any
such successor  corporation,  whether by virtue of any constitution,  statute or
rule of law or by the enforcement of any assessment or penalty or otherwise,  of
such liability being, by the acceptance  hereof and as part of the consideration
for the issue hereof,  expressly waived and released;  provided,  however,  that
nothing  herein  contained  shall  be  taken  to  prevent  recourse  to and  the
enforcement  of the  liability,  if any,  of any  member  upon or in  respect of
securities of the Corporation duly subscribed for and not fully paid.

Headings.  The headings contained herein are intended to be used for convenience
only and do not constitute part of this Certificate.

     IN WITNESS  WHEREOF,  the  Corporation  has caused this  Certificate  to be
signed by its duly  authorized  officer  and its  corporate  seal to be hereunto
affixed.

                                    RURAL TELEPHONE FINANCE COOPERATIVE



                                    By: __________________________________
                                               Chief Executive Officer




</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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