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                                                                    Exhibit 10.4




                           RECEIVABLES SALE AGREEMENT

                                   Dated as of

                                  July 27, 2000

                                 by and between

                           Z-TEL COMMUNICATIONS, INC.,

                           as Seller and Subservicer,

                          TOUCH 1 COMMUNICATIONS, INC.,

                           as Seller and Subservicer,

                                       and

                            RFC CAPITAL CORPORATION,

                                  as Purchaser










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         RECEIVABLES SALE AGREEMENT (the "Agreement"), dated as of July 27,
2000, by and between Z-TEL COMMUNICATIONS, INC., a Delaware corporation
("Z-TEL"), TOUCH 1 COMMUNICATIONS, INC., an Alabama corporation ("TOUCH 1")
(Z-TEL and TOUCH 1, individually and collectively as Seller and Subservicer
hereunder), and RFC CAPITAL CORPORATION, a Delaware corporation, as Purchaser.

                                   WITNESSETH:

         WHEREAS, the Seller desires to sell certain of its telecommunication
receivables and the Purchaser is a corporation formed for the purpose of
purchasing certain telecommunication receivables from time to time;

         WHEREAS, the Purchaser shall retain the complete right and ultimate
authority to perform certain servicing, administrative and collection functions
in respect of the receivables purchased by the Purchaser under this Agreement;

         WHEREAS, the Purchaser desires that the Subservicer be appointed to
perform certain servicing, administrative and collection functions in respect of
the Purchased Receivables; and

         WHEREAS, the Seller has been requested and is willing to act as the
Subservicer.

         NOW, THEREFORE, the parties agree as follows:

                             ARTICLE I - DEFINITIONS

         Section 1.1. Certain Defined Terms. The capitalized terms used in this
Agreement shall have the respective meanings set forth on Exhibit A to this
Agreement.

         Section 1.2. Other Terms. All accounting terms not specifically defined
in this Agreement shall be construed in accordance with generally accepted
accounting principles. All terms defined in Article 9 of the UCC, and not
specifically defined in this Agreement, are used in this Agreement as defined in
such Article 9 of the UCC.

            ARTICLE II - PURCHASE AND SALE; ESTABLISHMENT OF ACCOUNTS

         Section 2.1. Offer to Sell. Seller shall offer to sell, transfer,
assign and set over to Purchaser those Eligible Receivables set forth on a list
of such Eligible Receivables which list shall be delivered by the Seller to the
Purchaser no later than three (3) Business Days prior to each Purchase Date.

         Section 2.2. Purchase of Receivables. (a) Until the occurrence of a
Termination Date, upon receipt of the list of Eligible Receivables and offer to
sell pursuant to Section 2.1, the Purchaser, in its sole discretion, will
confirm which of the Eligible Receivables offered by Seller that the Purchaser
will Purchase. The Purchase of such Receivables shall occur upon payment of the
applicable Purchase Price, as provided at Section 2.3 of this Agreement. Upon
Purchase of the Receivables, Seller will have sold, transferred, assigned, set
over and conveyed to Purchaser, without recourse except as expressly provided
herein, all of Seller's right, title and interest in and to the Purchased
Receivables, and title to such Purchased Receivables shall have passed to
Purchaser at such time. If, in the event the Purchaser determines, in its sole
discretion, not to Purchase Eligible Receivables of like character and quality
as those previously purchased under this Section 2.2, and provided there has not
occurred any Event of Seller Default or material adverse change in the business
or financial condition of the Seller, the Purchaser shall provide the Seller
with notice of the same within three (3) Business Days of Purchaser's receipt of
the Seller's list of Eligible Receivables pursuant to Section 2.1 and if, as a
result thereof, Seller




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elects to provide written notice to the Purchaser of its intention to terminate
this Agreement resulting in the occurrence of a Termination Date, then the
Seller shall not be obligated to pay to the Purchaser a Termination Fee.
Furthermore, solely in connection with the initial Purchase Date, if the Seller
offers to sell Eligible Receivables to Purchaser pursuant to section 2.1 of this
Agreement and Purchaser determines, in its sole discretion, not to purchase any
such Eligible Receivables offered for sale pursuant to this Agreement
notwithstanding that the tendered Receivables were Eligible Receivables and all
conditions precedent to purchase set forth in Section 3.1 hereof were satisfied,
then Seller shall be entitled to terminate this Agreement upon three (3) days
written notice to Purchaser and, provided further, that in such event, Seller
shall not be obligated to pay to the Purchaser a Termination Fee and Purchaser
shall return to Seller any Purchase Commitment Fee paid pursuant to this
Agreement and shall be relieved of any obligation to pay the same.

         (b) The Seller shall not take any action inconsistent with such
ownership and, from and after the date of such transfer, shall not claim any
ownership in any Purchased Receivable. The Seller shall indicate in its Records
that ownership interest in any Purchased Receivable is held by the Purchaser. In
addition, the Seller shall respond to any inquiries with respect to ownership of
a Purchased Receivable by stating that it is no longer the owner of such
Purchased Receivable and that ownership of such Purchased Receivable is held by
the Purchaser. Documents relating to the Purchased Receivables shall be held in
trust by the Seller and the Subservicer, for the benefit of the Purchaser as the
owner of the Purchased Receivables, and possession of any Required Information
relating to the Purchased Receivables so retained is for the sole purpose of
facilitating the servicing of the Purchased Receivables and carrying out the
terms of this Agreement. Such retention and possession is at the will of the
Purchaser and in a custodial capacity for the benefit of the Purchaser only.

         Section 2.3. Purchase Price and Payment. The Purchase Price for
Receivables purchased on any Purchase Date and paid by the Purchaser to the
Seller shall be an amount equal to the aggregate Net Values of such Purchased
Receivables and shall be paid by the Purchaser to the Seller by wire transfer on
such respective Purchase Date. The Purchase Price to be paid on such Purchase
Date shall be reduced by (a) the Program Fees due and owing as of such Purchase
Date, (b) the amount, if any, by which the Seller Credit Reserve Account (net of
withdrawals required hereunder) is less than the Specified Credit Reserve
Balance as of such Purchase Date, (c) any Rejected Receivable Amount, and (d)
other amounts due the Purchaser in accordance with this Agreement. At any time
the aggregate Net Value of all Purchased Receivables shall not exceed the
Purchase Commitment.

         Section 2.4. Establishment of Accounts; Conveyance of Interests
Therein; Investments. (a) A Lockbox Account will be established or assigned, as
the case may be, for the benefit of the Purchaser into which all Collections
from Payors with respect to Receivables shall be deposited. The Lockbox Account
will be maintained at the expense of the Seller. The Seller agrees to deposit
all Collections it receives with respect to Receivables in said Lockbox Account
and will instruct all Payors to make all payments on Receivables to said Lockbox
Account. All funds in said Lockbox Account will be remitted to the Collection
Account as instructed by the Purchaser.

         (b) The Purchaser has established and shall maintain the "Collection
Account" (the "Collection Account"), the "Purchase Account" (the "Purchase
Account") and the "Seller Credit Reserve Account" (the "Seller Credit Reserve
Account").

         (c) The Seller does hereby sell, transfer, assign, set over and convey
to the Purchaser all right, title and interest of the Seller in and to all
amounts deposited, from time to time, in the Lockbox Account, the Collection
Account and the Seller Credit Reserve Account. Any Collections relating to
Receivables held by the Seller or the Subservicer pending deposit to the Lockbox
Account as provided in this Agreement, shall be held in trust for the benefit of
the Purchaser until such amounts are deposited into the Lockbox Account. All
Collections in respect of Purchased Receivables received by the Seller and not
deposited directly by the Payor in the Lockbox Account shall be remitted to the
Lockbox Account within two Business Days of the day of receipt, and if such
Collections are not remitted by Seller on a




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timely basis, in addition to its other remedies hereunder, the Purchaser shall
be entitled to receive a late charge (which shall be in addition to the Program
Fee) equal to 12% per annum of such Collections or the maximum rate legally
permitted if less than such rate, calculated as of the first Business Day of
such delinquency.

         Section 2.5. Grant of Security Interest. It is the intention of the
parties to this Agreement that each payment of the Purchase Price by the
Purchaser to the Seller for Purchased Receivables to be made under this
Agreement shall constitute payment of consideration for a purchase of such
Purchased Receivables and not a loan. In the event, however, that a court of
competent jurisdiction were to hold that the transaction evidenced by this
Agreement constitutes a loan and not a purchase and sale, it is the intention of
the parties that this Agreement shall constitute a security agreement under the
UCC and any other applicable law, and that the Seller shall be deemed to have
granted to the Purchaser a first priority perfected security interest in all of
the Seller's right, title and interest in, to and under the Purchased
Receivables; all payments of principal of or interest on such Purchased
Receivables; all amounts on deposit from time to time in the Lockbox Account,
the Collection Account and the Seller Credit Reserve Account; all other rights
relating to and payments made under this Agreement, and all proceeds of any of
the foregoing.

         Section 2.6. Further Action Evidencing Purchases. The Seller agrees
that, from time to time, at its expense, it will promptly execute and deliver
all further instruments and documents, and take all further action, that may be
necessary or appropriate, or that the Purchaser may reasonably request, in order
to perfect, protect or more fully evidence the transfer of ownership of the
Purchased Receivables or to enable the Purchaser to exercise or enforce any of
its rights hereunder.

                      ARTICLE III - CONDITIONS OF PURCHASES

         Section 3.1. Conditions Precedent to All Purchases. Each Purchase from
the Seller by the Purchaser shall be subject to the conditions precedent that as
of each Purchase Date:

         (a) No Event of Seller Default has occurred and the Seller is in
compliance with each of its covenants and representations set forth in Sections
4.1 and 4.2 of this Agreement;

         (b) The Seller shall have delivered to the Purchaser a complete copy of
each of the then current Carrier Agreements, Clearinghouse Agreements and
Billing and Collection Agreements and any amendment or modification of such
agreements;

         (c) The Seller shall have delivered to the Purchaser a copy of each
written notice delivered by or received by either the Carrier, Billing and
Collection Agent, Clearinghouse Agent or the Seller with respect to any Carrier
Agreements, Clearinghouse Agreements and/or the Billing and Collection
Agreements;

         (d) The Termination Date shall not have occurred;

         (e) The Seller shall have taken such other action, including but not
limited to any necessary audit or audit update of the Seller and the delivery of
(i) an opinion of counsel prior to the initial Purchase Date in the form of
Exhibit D hereto and (ii) such other approvals, opinions or documents to the
Purchaser, as the Purchaser may reasonably request; and

         (f) The Seller shall have (i) timely filed all tax returns which Seller
is required by law to file or has obtained valid extensions therefor and all
taxes and other sums owing by Seller to any governmental authority have been
fully paid or are being contested in good faith and adequately reserved for
(with written notice thereof having been provided to the Purchaser), (ii)
maintained adequate reserves to pay such tax liabilities as they accrue, and
(iii) delivered to Purchaser satisfactory evidence that Seller




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is in good standing and material compliance with any and all relevant taxing,
administrative, regulatory and/or Governmental Authorities.

      ARTICLE IV - REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER

         Section 4.1. Representations, Warranties and Covenants as to the
Seller. The Seller represents and warrants to the Purchaser, as of the date of
this Agreement and as of each subsequent Purchase Date with respect to
Receivables being sold on such date, as follows:

         (a) The Seller is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation and is duly qualified
to do business and is in good standing in each jurisdiction in which it is doing
business, except where the failure to be so qualified does not result in the
creation of any Adverse Claim against the Seller or the Purchased Receivables,
and has the power and authority to own and convey all of its properties and
assets and to execute and deliver this Agreement and the Related Documents and
to perform the transactions contemplated thereby; and each is the legal, valid
and binding obligation of the Seller enforceable against the Seller in
accordance with its terms except as such enforceability may be subject to laws
pertaining to bankruptcy, insolvency and creditors' rights generally;

         (b) The execution, delivery and performance by the Seller of this
Agreement and the Related Documents and the transactions contemplated thereby
(i) have been duly authorized by all necessary corporate or other action on the
part of the Seller, (ii) do not contravene or cause the Seller to be in default,
after the expiration of any applicable cure period, under (A) any contractual
restriction contained in any respective loan or other agreement or instrument
representing an obligation binding on or affecting the Seller or its property in
excess of $100,000; or (B) any law, rule, regulation, order, writ, judgment,
award, injunction, or decree applicable to, binding on or affecting the Seller
or its property and (iii) does not result in or require the creation of any
Adverse Claim upon or with respect to any of the property of the Seller (other
than in favor of the Purchaser as contemplated hereunder);

         (c) Except as disclosed on Schedule 4.1(c), there is no court order,
judgment, writ, pending or threatened action, suit or proceeding, of a material
nature against or affecting the Seller, its officers or directors, or the
property of the Seller, in any court or tribunal, or before any arbitrator of
any kind or before or by any Governmental Authority (i) asserting the invalidity
of this Agreement or any of the Related Documents, (ii) seeking to prevent the
sale and assignment of any Receivable or the consummation of any of the
transactions contemplated thereby, (iii) seeking any determination or ruling
that might materially and adversely affect the Seller, this Agreement, the
Related Documents, the Receivables, the Contracts or any LOA, or (iv) asserting
a claim for payment of money in excess of $100,000;

         (d) The primary business of the Seller is the provision of
telecommunication services and/or equipment. All license numbers issued to the
Seller by any Governmental Authority are set forth on Schedule 1 and the Seller
has complied in all material respects with all applicable laws, rules,
regulations, orders and related Contracts and all restrictions contained in any
agreement or instrument binding on or affecting the Seller, and has and
maintains all permits, licenses, certifications, authorizations, registrations,
approvals and consents of Governmental Authorities or any other party necessary
for the business of the Seller and each of its Subsidiaries;

         (e) The Seller (i) has filed on a timely basis all tax returns
(federal, state, and local) required to be filed and has paid or has adequately
reserved for the payment of all taxes, assessments, and other governmental
charges due from the Seller; (ii) the financial statements of the Seller through
March 31, 2000, copies of which have been furnished to the Purchaser, fairly
present the financial condition of the Seller, all in accordance with generally
accepted accounting principles consistently applied; (iii) since March 31, 2000,
there has been no material adverse change in any such condition, business or
operations;




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and (iv) the Seller has delivered to the Purchaser (a) within 45 days after the
end of each fiscal quarter of Seller the financial statements, including balance
sheet and income statement prepared in accordance with generally accepted
accounting principles, of the Seller as of the end of such three-month period,
certified by an officer of the Seller and accompanied by a management narrative
summarizing circumstances and issues underlying such financial statements and
facing the Seller going forward and (b) within 90 days after the end of the
fiscal year of the Seller the financial statements, including balance sheet and
income statement prepared by an accounting firm acceptable to Purchaser;

         (f) All information furnished by or on behalf of the Seller to the
Purchaser in connection with this Agreement is true and complete in all material
respects and does not omit to state a material fact and the sales of Purchased
Receivables under this Agreement are made by the Seller in good faith and
without intent to hinder, delay or defraud present or future creditors of the
Seller;

         (g) The Lockbox Account is the only lockbox account to which Payors
have been or will be instructed to direct Receivable proceeds and each Payor of
an Eligible Receivable has been directed upon its receipt of the notice attached
hereto as Exhibit B, which such notice was mailed or provided to such Payors
prior to the initial Purchase Date, to remit all payments with respect to such
Receivable for deposit in the Lockbox Account;

         (h) The principal place of business and chief executive office of each
Seller is located at the respective address of such Seller set forth under its
signature below and there are not now, and during the past four months there
have not been, any other locations where the Seller is located (as that term is
used in the UCC) or keeps Records except as set forth in the designated space
beneath its signature line in this Agreement;

         (i) The legal name of the Seller is as set forth at the beginning of
this Agreement and, other than the change of legal name from (i) Olympus
Telecommunications Group, Inc. in January, 1998, and Z-Tel Technologies, Inc. in
February, 1998 with respect to the Seller Z-Tel Communications, Inc. and (ii)
Touch 1 Long Distance, Inc. in March, 1989, and Touch 1, Inc. in July, 1992 with
respect to the Seller Touch 1 Communications, Inc., the Seller has not changed
its legal name in the last six years, and during such period, the Seller did not
use, nor does the Seller now use any tradenames, fictitious names, assumed names
or "doing business as" names other than those appearing on the signature page of
this Agreement;

         (j) The Seller has not done anything to impede or interfere with the
collection by the Purchaser of the Purchased Receivables and has not amended,
waived or otherwise permitted or agreed to any deviation from the terms or
conditions of any Purchased Receivable or any related Carrier Agreement,
Clearinghouse Agreement, Billing and Collection Agreement, Contract or LOA so as
to (i) create an Adverse Claim with respect to any Receivable or (ii) materially
affect the ability of Subservicer or the Purchaser to act in its capacity as
such; and has not allowed any invoice due and owing by the Seller relating to
any Carrier Agreement, Clearinghouse Agreement or Billing and Collection
Agreement to become any more than thirty days past due which is not otherwise
being contested by the Seller in good faith with written notice thereof having
been provided to the Purchaser; and

         (k) For federal income tax reporting and accounting purposes, the
Seller will treat the sale of each Purchased Receivable pursuant to this
Agreement as a sale of, or absolute assignment of its full right, title and
ownership interest in such Purchased Receivable to the Purchaser.

         Section 4.2. Representations and Warranties of the Seller as to
Purchased Receivables. With respect to each Purchased Receivable sold pursuant
to this Agreement the Seller represents and warrants, as of the date hereof and
as of each subsequent Purchase Date with respect to Receivables being sold on
such date, as follows:

         (a) Such Purchased Receivable (i) includes all the Required
Information; (ii) is the legal, valid and binding obligation of an Eligible
Payor; (iii) was created by the provision or sale of




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telecommunication services or equipment by the Seller in the ordinary course of
its business; (iv) has a Purchase Date no later than 90 days from its Billing
Date; (v) is not a Purchased Receivable which with respect to which, as of any
Determination Date, payment by the Payor of such Receivable has been received
and is not duplicative of any other Receivable; (vi) is owned by the Seller free
and clear of any Adverse Claim, and the Seller has the right to sell, assign and
transfer the same and interests therein as contemplated under this Agreement and
no consent other than those secured and delivered to the Purchaser on or prior
to the Closing Date from any Governmental Authority, the Payor, a Carrier, the
Billing and Collection Agent, the Clearinghouse Agent or any other Person shall
be required to effect the sale of any such Purchased Receivable; (viii) is able
to be legally and validly sold by the Seller as the Seller has the right to
sell, assign and transfer the same and interests therein as contemplated under
this Agreement and (ix) is not subject to any consent other than those secured
and delivered to the Purchaser on or prior to the Closing Date from any
Governmental Authority, the Payor, a Carrier, the Billing and Collection Agent,
the Clearinghouse Agent or any other Person shall be required to effect the sale
of any such Purchased Receivable.

         (b) The Billed Amount of such Purchased Receivable is payable in United
States Dollars and the Eligible Receivable Amount with respect thereto, unless
the Purchaser and Seller agree otherwise in writing, is not in excess of $300
per line and is net of any adjustments or other modifications contemplated by
any Carrier Agreement, Clearinghouse Agreement, Billing and Collection Agreement
or otherwise, and neither the Receivable nor the related Carrier Agreement,
Clearinghouse Agreement, Billing and Collection Agreement or Contract has been
compromised, adjusted, extended, satisfied, subordinated, rescinded, set-off or
modified by the Seller, the Payor, the Carrier, the Clearinghouse Agent or the
Billing and Collection Agent, and is not subject to compromise, adjustment,
termination or modification, whether arising out of transactions concerning the
Contract, any Carrier Agreement, Clearinghouse Agreement, Billing and Collection
Agreement or otherwise; and

         (c) There are no procedures or investigations pending or threatened
before any Governmental Authority (i) asserting the invalidity of such
Receivable, Carrier Agreement, Clearinghouse Agreement, Billing and Collection
Agreement, LOA or such Contract, (ii) seeking the payment of such Receivable or
payment and performance of the related Carrier Agreement, Clearinghouse
Agreement, Billing and Collection Agreement, or such other Contract or LOA, or
(iii) seeking any determination or ruling that might materially and adversely
affect the validity or enforceability of such Receivable or the related Carrier
Agreement, Clearinghouse Agreement, Billing and Collection Agreement, or such
other Contract or LOA.

         Section 4.3. Negative Covenants of the Seller. The Seller shall not,
without the written consent of the Purchaser, which such consent will not be
unreasonably withheld:

         (a) Sell, assign or otherwise dispose of, or create or suffer to exist
any Adverse Claim or lien upon any Receivable and related Contracts, its
Customer Base, the Lockbox Account, the Collection Account, or any other account
in which any Collections of any Receivable are deposited, or assign any right to
receive income in respect of any Receivable;

         (b) Submit or permit to be submitted to Payors any invoice for
telecommunication services or equipment rendered by or on behalf of Seller which
contains a "pay to" address other than the Lockbox Account;

         (c) Make any change to (i) the location of its chief executive office
or the location of the office where Records are kept or (ii) its corporate name
or use any tradenames, fictitious names, assumed names or "doing business as"
names; or

         (d) Enter into or execute any Clearinghouse Agreement or Billing and
Collection Agreement (other than those listed on Schedule 3 hereof) or any
amendment or modification thereof.




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         Section 4.4. Repurchase Obligations. Upon discovery by any party to
this Agreement of a breach of any representation or warranty in Sections 4.1 or
4.2 of this Article IV which materially and adversely affects the value of a
Purchased Receivable or the interests of the Purchaser therein (herein a
"Rejected Receivable"), the party discovering such breach shall give prompt
written notice to the other parties to this Agreement. Thereafter, on the next
Purchase Date, the Net Value of the Rejected Receivables shall be deducted from
the amount otherwise payable to the Seller pursuant to Section 2.3 and deposited
in the Collection Account in satisfaction of the Rejected Receivable Amount and,
provided the full Net Value of such Rejected Receivables is deposited in the
Collection Account, such Rejected Receivables shall then be considered to have
been repurchased by the Seller. In the event that the full Net Value of such
Rejected Receivables is not deposited in the Collection Account pursuant to the
foregoing sentence, the Purchaser shall deduct any such deficiency from the
Excess Collection Amount or make demand upon the Seller to pay any such
deficiency to the Purchaser for deposit to the Collection Account. Upon full
payment of the amounts set forth above to the Collection Account, the Seller
will be deemed to have repurchased such Rejected Receivable.

                       ARTICLE V - ACCOUNTS ADMINISTRATION

         Section 5.1. Collection Account. The Purchaser acknowledges that
certain amounts deposited in the Collection Account may relate to Receivables
other than Purchased Receivables and that such amounts continue to be owned by
the Seller. All such amounts shall be administered in accordance with Section
5.3.

         Section 5.2. Determinations of the Purchaser. On each Determination
Date, the Purchaser will determine, in good faith, the following:

         (a) the Net Value of all Purchased Receivables which have become
Rejected Receivables since the prior Purchase Date and which have not been
repurchased or offset in the manner set forth in Section 4.4 (the "Rejected
Receivable Amount");

         (b) the amount of Collections up to the Purchase Price of all Purchased
Receivables received since the prior Determination Date (the "Paid Receivables
Amount");

         (c) the Net Value of all Purchased Receivables which have become
Defaulted Receivables since the prior Purchase Date (the "Defaulted Receivable
Amount" or "Credit Deficiency");

         (d) the aggregate amount deposited in the Collection Account in excess
of the Purchase Price of each Purchased Receivable, including Collections
pertaining to Receivables not purchased under this Agreement, since the prior
Determination Date (the "Excess Collection Amount");

         (e) the Net Value of all Purchased Receivables less the Rejected
Receivable Amount and the Defaulted Receivable Amount as of the current
Determination Date; and

         (f) the amount of any accrued and unpaid Program Fee.

         The Purchaser's determinations of the foregoing amounts shall be
conclusive in the absence of material error. The Purchaser shall use reasonable
efforts to notify the Seller of such determinations in a timely manner.

         Section 5.3. Distributions from Accounts. (a) On each Determination
Date, following the determinations set forth in Section 5.2, the Purchaser will
make the following withdrawals and deposits:

                      (i)   withdraw the Paid Receivables Amount and the
Rejected Receivable Amount plus any outstanding Rejected Receivable Amount
applicable to any prior period, to the extent such




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Rejected Receivable Amount is not paid to the Purchaser as a reduction in
Purchase Price to be paid to the Seller, from the Collection Account and deposit
such amount in the Purchase Account;

                      (ii)  withdraw the Defaulted Receivable Amount from the
Seller Credit Reserve Account and deposit such amount in the Purchase Account;

                      (iii) withdraw the Excess Collection Amount from the
Collection Account and deposit such amount in the Seller Credit Reserve Account
to the extent that the Seller Credit Reserve Account is less than the Specified
Credit Reserve Balance; and

                      (iv)  withdraw the balance of the Excess Collection
Amount from the Collection Account and, subject to any offset required under
Section 5.3(b) of this Agreement, remit such amount by wire transfer to an
account designated by the Seller; provided, however, with respect to Receivables
processed or cleared pursuant to any Carrier Agreement, Clearinghouse Agreement
or Billing and Collection Agreement, if applicable, any Excess Collection Amount
shall be retained by the Purchaser in the Collection Account until such time
that the Seller's billing cycle (or batch) to which such Excess Collection
Amount applies is deemed closed by the Purchaser which, absent the occurrence of
an Event of Seller Default and provided that the Purchaser has received
information in sufficient form and format to allow the Purchaser to properly
apply and/or post Collections against Purchased Receivables, will occur no later
than the next immediate Purchase Date following such determination.

         (b) The full amount of the Purchase Price before any offsets, or in the
case where there is no Purchase Price paid in a given week, such amounts as set
forth at (i) through (iv) of this Section, shall be withdrawn from the Purchase
Account and paid and administered as follows: (i) the Program Fee due and owing
as of each respective Purchase Date shall be paid to the Purchaser, (ii) the
amount, if any, by which the Seller Credit Reserve Account is less than the
Specified Credit Reserve Balance as of such respective Purchase Date shall be
deposited in the Seller Credit Reserve Account, (iii) the amount, if any, due
and owing the Purchaser pursuant to Section 9.4 of this Agreement shall be paid
to the Purchaser, and (iv) any remaining amount shall be paid to the Seller in
accordance with Section 2.3 of this Agreement.

         (c) Until the Termination Date, with commercially reasonable best
efforts on each Purchase Date or in any event within two Business Days of each
Purchase Date, the Purchaser shall withdraw all amounts deposited hereunder (net
of withdrawals required hereunder) from the Seller Credit Reserve Account which
are in excess of the Specified Credit Reserve Balance and shall pay to the
Purchaser all amounts due and owing the Purchaser in accordance with Sections
2.3, 4.4, 5.3, 8.1, 9.4 and any applicable Termination Fee, and pay the balance,
if any, by wire transfer to an account designated by the Seller.

         Section 5.4. Allocation of Moneys following Termination Date. (a) Upon
the occurrence of a Termination Date hereunder, the Purchaser shall administer
and monitor the Lockbox Account and any and all Collections and apply the amount
of such Collections to the outstanding Net Value of Purchased Receivables.
Following the Termination Date and the Purchaser's receipt of the Termination
Fee, if applicable, from the Seller, the Purchaser shall, to the extent funds
deposited hereunder (net of withdrawals required hereunder) are sufficient,
withdraw an amount equal to the Program Fee from the Seller Credit Reserve
Account on each Purchase Date and deposit it in the Purchase Account. To the
extent that such funds do not equal the Program Fee, the Seller shall deposit in
the Purchase Account the balance of the Program Fee within five Business Days
following demand therefor. To the extent any Purchased Receivable becomes a
Defaulted Receivable, the Purchaser may withdraw an amount equal to such
Defaulted Receivable Amount from the Seller Credit Reserve Account and deposit
such amount in the Collection Account, provided, however, that such recourse is
expressly limited to the monies which comprise the Seller Credit Reserve Account
at the time of the Termination Date which shall not at any time exceed the
Specified Credit Reserve Balance. Thereafter, any Excess Collection Amount may
not be used for deposit to the Seller Credit Reserve Account and shall be
otherwise administered in accordance with this Agreement.




                                       8
<PAGE>   10

         (b) In any event, following the Termination Date and the Purchaser's
receipt of the Termination Fee, if any, the Seller may, at its option,
repurchase all previously Purchased Receivables which have not been fully paid
by the respective Payors thereof by depositing with the Purchaser the then
aggregate Net Value of such Purchased Receivables. Following such payment and
any other amount due and owing the Purchaser under this Agreement, this
Agreement shall be deemed terminated.

         (c) On the first date on which the aggregate Net Value of all Purchased
Receivables (other than Defaulted Receivables) is less than the aggregate amount
remaining in the Seller Credit Reserve Account, the Purchaser shall withdraw an
amount equal to such aggregate Net Value from such accounts and deposit it in
the Purchase Account. Thereupon the Purchaser shall disburse all remaining
amounts held in the Seller Credit Reserve Account to the Seller and all
interests of the Purchaser in all Purchased Receivables owned by the Purchaser
shall be reconveyed by the Purchaser to the Seller. Following such disbursement
and reconveyance, this Agreement shall be deemed terminated.

                   ARTICLE VI - APPOINTMENT OF THE SUBSERVICER

         Section 6.1. Appointment of the Subservicer. Subject to Section 6.5, as
consideration for the Seller's receipt of that portion of the Excess Collection
Amount relating to Purchased Receivables, the Purchaser hereby appoints the
Seller and the Seller hereby accepts such appointment to act as Subservicer
under this Agreement. The Subservicer may, with the prior consent of the
Purchaser, which consent shall not be unreasonably withheld, subcontract with a
subservicer for billing, collection, servicing or administration of the
Receivables. Any termination or resignation of the Subservicer under this
Agreement shall not affect any claims that the Purchaser may have against the
Subservicer for events or actions taken or not taken by the Subservicer arising
prior to any such termination or resignation.

         Section 6.2. Duties and Obligations of the Subservicer. (a) The
Subservicer shall service the Purchased Receivables and enforce the Purchaser's
respective rights and interests in and under each Purchased Receivable and each
related Contract and shall take, or cause to be taken, all such actions as may
be necessary or advisable to service, administer and collect each Purchased
Receivable all in accordance with (i) customary and prudent servicing procedures
for telecommunication receivables of a similar type, and (ii) all applicable
laws, rules and regulations; and shall serve in such capacity until the
termination of its responsibilities pursuant to Section 6.4 or 7. 1. The
Subservicer shall at any time permit the Purchaser or any of its representatives
to visit the offices of the Subservicer and examine and make copies of all
Servicing Records;

         (b) The Subservicer shall notify the Purchaser of any material action,
suit, proceeding, dispute, offset, deduction, defense or counterclaim that is or
may be asserted by any Person with respect to any Purchased Receivable.

         (c) The Purchaser shall not have any obligation or liability with
respect to any Purchased Receivables which may arise out of a related Contract,
nor shall it be obligated to perform any of the obligations of the Subservicer
hereunder.

         Section 6.3. Subservicing Expenses. The Subservicer shall be required
to pay for all expenses incurred by the Subservicer in connection with its
activities hereunder (including any payments to accountants, counsel or any
other Person) and shall not be entitled to any payment or reimbursement
therefor.

         Section 6.4. Subservicer Not to Resign. The Subservicer shall not
resign from the duties and responsibilities hereunder except upon determination
that (a) the performance of its duties hereunder has become impermissible under
applicable law and (b) there is no reasonable action which the Subservicer




                                       9
<PAGE>   11

could take to make the performance of its duties hereunder permissible under
applicable law evidenced as to clause (a) above by an opinion of counsel to such
effect delivered to the Purchaser.

         Section 6.5. Authorization of the Purchaser. The Seller hereby
acknowledges that the Purchaser (including any of its successors or assigns),
shall retain the authority to take any and all reasonable steps in its name and
on its behalf necessary or desirable in the determination of the Purchaser to
collect all amounts due under any and all Purchased Receivables, process all
Collections, commence proceedings with respect to enforcing payment of such
Purchased Receivables and the related Contracts, and adjusting, settling or
compromising the account or payment thereof. The Seller shall furnish the
Purchaser (and any successors thereto) with any powers of attorney and other
documents necessary or appropriate to enable the Purchaser to carry out its
servicing and administrative duties under this Agreement, and shall cooperate
with the Purchaser to the fullest extent in order to facilitate the
collectibility of the Purchased Receivables.

                     ARTICLE VII - EVENTS OF SELLER DEFAULT

         Section 7.1. Events of Seller Default. If any of the following events
(each, an "Event of Seller Default") shall occur and be continuing:

         (a) The Seller (either as Seller or Subservicer) shall materially fail
to perform or observe any term, covenant or agreement contained in this
Agreement;

         (b) The Seller or any Affiliate defaults: (i) whether as primary or
secondary obligor, in the payment of any principal or interest on any obligation
for borrowed money in excess of $100,000 beyond any applicable grace period or,
if such obligation is payable on demand, fails to pay such obligation upon
demand; or (ii) in the observance of any covenant, term or condition contained
in any material agreement, if the effect of such default is to cause, or to
permit any other party to such obligation to cause, all or part of such
obligation to become due before its stated maturity;

         (c) An Insolvency Event shall have occurred and, other than with
respect to any voluntary Insolvency Event initiated or instituted by the Seller
or an Affiliate, which has not been cured within thirty (30) days of such
Insolvency Event;

         (d) There is a material breach of any of the representations and
warranties of the Seller as stated in Sections 4.1 or 4.2 that has remained
uncured for a period of 30 days, or, as such breach may pertain to a Purchased
Receivable, has not been cured pursuant to Section 4.4;

         (e) Any Governmental Authority shall file notice of a lien with regard
to any of the assets of the Seller or with regard to the Seller which remains
undischarged for a period of 30 days;

         (f) As of the first day of any respective month, the average Net Value
of Purchased Receivables which became Defaulted Receivables or Rejected
Receivables during the prior three month period shall exceed 5.0% of the Net
Value of all Purchased Receivables then owned by the Purchaser at the end of
each of such three months;

         (g) This Agreement shall for any reason cease to evidence the transfer
to the Purchaser (or its assignees or transferees) of the legal and equitable
title to, and ownership of, the Purchased Receivables;

         (h) The termination of any Clearinghouse Agreement, if applicable,
and/or any Carrier Agreement or Billing and Collection Agreement for any reason
whatsoever absent the consummation of a substitute Clearinghouse Agreement,
Carrier Agreement and/or Billing and Collections Agreement, as the case may be,
within ten Business Days of the termination thereof, and/or, any invoice due and
owing by the Seller relating to any Carrier Agreement, Clearinghouse Agreement
or Billing and Collection




                                       10
<PAGE>   12

Agreement has become more than thirty days past due which is not otherwise being
contested by the Seller in good faith with written notice thereof having been
provided to the Purchaser; or

         (i) The amount deposited hereunder (net of withdrawals required
hereunder) in the Seller Credit Reserve Account has remained at less than the
Specified Credit Reserve Balance for fourteen consecutive days;

then and in any such event, the Purchaser may, by notice to the Seller declare
that an Event of Seller Default shall have occurred and, the Termination Date
shall forthwith occur, without demand, protest or further notice of any kind,
and the Purchaser shall make no further Purchases from the Seller. The
Purchaser, in addition to all other rights and remedies under this Agreement,
shall retain all other rights and remedies provided under the UCC and other
applicable law, which rights shall be cumulative.

              ARTICLE VIII - INDEMNIFICATION AND SECURITY INTEREST

         Section 8.1. Indemnities by the Seller. (a) Without limiting any other
rights that the Purchaser or any director, officer, employee or agent of the
Purchaser (each an "Indemnified Party") may have under this Agreement or under
applicable law, the Seller hereby agrees to indemnify each Indemnified Party
from and against any and all claims, losses, liabilities, obligations, damages,
penalties, actions, judgments, suits, and related costs and expenses of any
nature whatsoever, including reasonable attorneys' fees and disbursements (all
of the foregoing being collectively referred to as "Indemnified Amounts") which
may be imposed on, incurred by or asserted against an Indemnified Party in any
way arising out of or relating to this Agreement or the ownership of the
Purchased Receivables or in respect of any Receivable or any Contract,
excluding, however, Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of any Indemnified Party; provided,
however, in the event there has not occurred a breach of a representation,
covenant or warranty contained in Sections 4.1 or 4.2, nothing in this Section
 8.1 shall require the Seller to indemnify the Indemnified Party for Receivables
which are not collected, not paid or otherwise uncollectible on account of the
insolvency, bankruptcy, creditworthiness or financial ability to pay of the
applicable respective Payor.

         (b) Any Indemnified Amounts subject to the indemnification provisions
of this Section shall be paid to the Indemnified Party within five Business Days
following demand therefor, together with interest at the lesser of 12% per annum
or the highest rate permitted by law from the date of demand for such
Indemnified Amount.

         Section 8.2 Security Interest. The Seller hereby grants to the
Purchaser a first priority perfected security interest in the Seller's Customer
Base, including but not limited to, all past, present and future customer
contracts, lists, agreements, or arrangements relating thereto; all of the
Seller's right, title and interest in, to and under all of the Seller's
Receivables not sold to the Purchaser hereunder, including all rights to
payments under any related Contracts, contract rights, instruments, documents,
chattel paper, general intangibles or other agreements with all Payors and all
the Collections, Records and proceeds thereof; any other obligations or rights
of Seller to receive any payments in money or kind; all cash or non-cash
proceeds of the foregoing; all of the right, title and interest of the Seller in
and with respect to the goods, services or other property which gave rise to or
which secure any of the foregoing as security for the timely payment and
performance of any and all obligations the Seller or the Subservicer may owe the
Purchaser under Sections 2.3, 4.4, 5.3, 8.1, 9.4 and any applicable Purchase
Commitment Fees and/or Termination Fee, but excluding recourse for unpaid
Purchased Receivables. This Section 8.2 shall constitute a security agreement
under the UCC and any other applicable law and the Purchaser shall have the
rights and remedies of a secured party thereunder. Such security interest shall
be further evidenced by Seller's execution of appropriate UCC-1 financing
statements prepared by and acceptable to the Purchaser, and such other further
assurances that may be reasonably requested by the Purchaser from time to time.




                                       11
<PAGE>   13

                           ARTICLE IX - MISCELLANEOUS

         Section 9.1. Notices, Etc. All written notices required hereunder shall
be mailed or telecommunicated, or delivered as to each party hereto, at its
address set forth under its name on the signature pages hereof or at such other
address as shall be designated by such party in a written notice to the other
parties hereto. All such notices and communications shall not be effective until
received by the party to whom such notice or communication is addressed.

         Section 9.2. Remedies. No failure or delay on the part of the Purchaser
to exercise any right hereunder shall operate as a waiver or partial waiver
thereof. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.

         Section 9.3. Binding Effect; Assignability. This Agreement shall be
binding upon and inure to the benefit of the Seller, the Subservicer, the
Purchaser and their respective successors and permitted assigns. Neither the
Seller nor the Subservicer may assign any of their rights and obligations
hereunder or any interest herein without the prior written consent of the
Purchaser. The Purchaser may, at any time, without the consent of the Seller or
the Subservicer, assign any of its rights and obligations hereunder or interest
herein to any Person; provided, however, the Purchaser agrees that it shall at
all times be the party responsible for the administration of this Agreement and
to whom notices regarding the same shall be directed by the Seller. Without
limiting the generality of the foregoing, the Seller acknowledges that the
Purchaser has assigned its rights hereunder for the benefit of third parties.
The Seller does hereby further agree to execute and deliver to the Purchaser all
documents and amendments presented to the Seller by the Purchaser in order to
effectuate the assignment by the Purchaser in furtherance of this Section 9.3
consistent with the terms and provisions of this Agreement. This Agreement shall
create and constitute the continuing obligations of the parties hereto in
accordance with its terms, and shall remain in full force and effect until its
termination; provided, that the rights and remedies with respect to any breach
of any representation and warranty made by the Seller pursuant to Article IV and
the indemnification and payment provisions of Article VIII shall be continuing
and shall survive any termination of this Agreement.

         Section 9.4. Costs, Expenses and Taxes. (a) In addition to the rights
of indemnification under Article VIII, the Seller agrees to pay upon demand, all
reasonable costs and expenses in connection with this Agreement and the other
documents to be delivered hereunder, including, without limitation: (i) the
periodic auditing of the Seller and the modification or amendment of this
Agreement; (ii) the reasonable fees and out-of-pocket expenses of counsel for
the Purchaser actually incurred with respect to (A) advising the Purchaser as to
its rights and remedies under this Agreement or (B) the enforcement (whether
through negotiations, legal proceedings or otherwise) of this Agreement or the
other documents to be delivered hereunder; (iii) any and all accrued Program Fee
and amounts related thereto not yet paid to the Purchaser; (iv) any and all
Purchase Commitment Fees and amounts related thereto not yet paid to the
Purchaser; and (v) any and all stamp, sales, excise and other taxes and fees
payable or determined to be payable in connection with the execution, delivery,
filing or recording of this Agreement or the other agreements and documents to
be delivered hereunder, and agrees to indemnify and save each Indemnified Party
from and against any and all liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes and fees.

         (b) If the Seller or the Subservicer fails to pay any Lockbox Account
fees or other charges or debits related to such accounts, or to pay or perform
any agreement or obligation contained under this Agreement, the Purchaser may
pay or perform, or cause payment or performance of, such agreement or
obligation, and the expenses of the Purchaser incurred in connection therewith
shall be payable by the party which has failed to so perform.

         Section 9.5. Amendments; Waivers; Consents. No modification, amendment
or waiver of, or with respect to, any provision of this Agreement or the Related
Documents, shall be effective unless it




                                       12
<PAGE>   14

shall be in writing and signed by each of the parties hereto. This Agreement,
the Related Documents and the documents referred to therein embody the entire
agreement among the Seller, the Subservicer and the Purchaser, and supersede all
prior agreements and understandings relating to the subject hereof, whether
written or oral.

         Section 9.6. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF
OHIO, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS OF
THE PURCHASER IN THE PURCHASED RECEIVABLES OR REMEDIES HEREUNDER OR THEREUNDER,
IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF OHIO.

         (b) THE SELLER AND THE SUBSERVICER HEREBY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF OHIO AND THE UNITED STATES DISTRICT
COURT LOCATED IN THE SOUTHERN DISTRICT OF OHIO, AND EACH WAIVES PERSONAL SERVICE
OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET FORTH ON THE SIGNATURE PAGE
HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER THE
SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. THE SELLER
AND THE SUBSERVICER EACH HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON
CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE
PURCHASER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
THE RIGHT OF THE PURCHASER TO BRING ANY ACTION OR PROCEEDING AGAINST THE SELLER
OR ITS PROPERTY, OR THE SUBSERVICER OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION. THE SELLER AND THE SUBSERVICER EACH HEREBY AGREE THAT THE
EXCLUSIVE AND APPROPRIATE FORUMS FOR ANY DISPUTE HEREUNDER ARE THE COURTS OF THE
STATE OF OHIO AND THE UNITED STATES DISTRICT COURT LOCATED IN THE SOUTHERN
DISTRICT OF OHIO AND AGREE NOT TO INSTITUTE ANY ACTION IN ANY OTHER FORUM.

         (c) THE SELLER, AND THE SUBSERVICER EACH HEREBY WAIVES ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION
WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN
A BENCH TRIAL WITHOUT A JURY.

         Section 9.7. Execution in Counterparts; Severability. This Agreement
may be executed in any number of counterparts, each of which when so executed
shall be deemed to be an original and all of which when taken together shall
constitute one and the same agreement. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.

         Section 9.8. Confidentiality. The Seller understands and agrees to keep
confidential, and shall cause its respective directors, officers, shareholders,
employees, agents, and attorneys to keep confidential the terms and conditions
of this Agreement, all documents referenced herein and the respective terms
thereof, and any communication between the parties regarding this Agreement or
the services to be provided hereunder hereby, except to the extent that (a) any
party makes any disclosure to his or its auditors, attorneys or other
professional advisors, (b) any disclosure is otherwise required by law or
pursuant to any rule or regulation of any federal, state or other governmental
authority or regulatory




                                       13
<PAGE>   15

agency, provided that Seller provides prior written notice thereof or (c) the
Seller is in receipt of the prior written consent of Purchaser with respect to
any compromise by Seller of the confidentiality contemplated hereunder. Seller
further understands and agrees that the violation by the Seller or its agents of
the foregoing shall entitle the Purchaser, at its option, to obtain injunctive
relief without a showing of irreparable harm or injury and without bond.
























                                       14
<PAGE>   16

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


                       Z-TEL COMMUNICATIONS, INC., as Seller and Subservicer

                       By:               /s/ Mark H. Johnson
                          ------------------------------------------------------
                       Name:             Mark H. Johnson
                       Title:            Secretary and Treasurer

                       Address at which the chief executive office is located:

                       Address:          601 S. Harbour Island Blvd., Suite 220
                                         Tampa, Florida 33602
                       Attention:                 Jeffrey H. Kupor
                       Phone number:              813-233-4609
                       Telecopier number:         813-233-4623

                       Additional locations at which the Seller does business
                       and maintains Records:

                       3340 Peachtree Road NE, Suite 2900
                       Atlanta, Georgia  30326

                       1101 Stewart Avenue, Suite 2E
                       Greensburg, Pennsylvania  15601

                       Additional names under which Seller does business:

                       None.

                       TOUCH 1 COMMUNICATIONS, INC., as Seller and Subservicer

                       By:               /s/ Mark H. Johnson
                          ------------------------------------------------------
                       Name:             Mark H. Johnson
                       Title:            Treasurer

                       Address at which the chief executive office is located:

                       Address:          100 Brookwood Road
                                         Atmore, Alabama 36504
                       Attention:                 Jeffrey H. Kupor
                       Phone number:              334-368-8600
                       Telecopier number:         334-368-1314

                       Additional locations at which the Seller does business
                       and maintains Records:

                       None.




                                       15
<PAGE>   17

                       Additional names under which Seller does business:

                       Z-Tel Consumer Services

                       RFC CAPITAL CORPORATION

                       By:               /s/ Mark D. Quinlan
                          ------------------------------------------------------
                       Name:             Mark D. Quinlan
                       Title:            Vice President

                       Address:          130 East Chestnut Street
                                         Suite 400
                                         Columbus, OH 43215
                       Attention:        Mark D. Quinlan
                       Phone number:              (614) 229-7979
                       Telecopier number:         (614) 229-7980



















                                       16