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

                                  $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