Document:

Execution copy
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                                                               Exhibit 10.12
                                                               -------------

                            ASSET PURCHASE AGREEMENT

                                 by and between

                   CITIZENS COMMUNICATIONS COMPANY, as SELLER,

                                       and

                        K-1 USA VENTURES, INC., as BUYER,

                          Dated as of December 19, 2002

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<PAGE>
<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

                                                                                                               Page

<S>                                                                                                             <C>
ARTICLE I  DEFINITIONS..................................................................................          1

ARTICLE II  PURCHASE AND SALE...........................................................................         15
   2.1    Transfer of Assets............................................................................         15
   2.2    Excluded Assets...............................................................................         16
   2.3    Assumed Liabilities...........................................................................         18
   2.4    Excluded Liabilities..........................................................................         20
   2.5    Control of Litigation.........................................................................         21

ARTICLE III  THE CLOSING................................................................................         22
   3.1    Closing.......................................................................................         22
   3.2    Closing Payment...............................................................................         22
   3.3    Adjustment to Base Purchase Price.............................................................         22
   3.4    Prorations....................................................................................         25
   3.6    Deliveries by Seller..........................................................................         25
   3.5    Deliveries by Buyer...........................................................................         27
   3.7    Work in Progress..............................................................................         27

ARTICLE  IV REPRESENTATIONS, WARRANTIES AND DISCLAIMERS
OF SELLER ..............................................................................................         28
   4.1    Incorporation; Qualification..................................................................         28
   4.2    Authority.....................................................................................         28
   4.3    Consents and Approvals; No Violation..........................................................         28
   4.4    Insurance.....................................................................................         29
   4.5    Real Property Leases..........................................................................         29
   4.6    Environmental Matters.........................................................................         29
   4.7    Labor Matters.................................................................................         30
   4.8    Benefit Plans:  ERISA.........................................................................         30
   4.9    Real Property.................................................................................         32
   4.10   Condemnation..................................................................................         32
   4.11   Assigned Agreements...........................................................................         32
   4.12   Legal Proceedings.............................................................................         33
   4.13   Permits ......................................................................................         33
   4.14   Taxes.........................................................................................         33
   4.15   Intellectual Property.........................................................................         34
   4.16   Capital Expenditures..........................................................................         34
   4.17   Compliance With Laws..........................................................................         34
   4.18   Title.........................................................................................         34
   4.19   DISCLAIMERS...................................................................................         34
   4.20   Financial Statements..........................................................................         35
   4.21   SEC Filings; Financial Statements.............................................................         35
   4.22   Sufficiency of Assets.........................................................................         36
   4.23   Easements.....................................................................................         36
   4.24   Tangible Personal Property....................................................................         36
   4.25   Regulatory Matters............................................................................         36

                                       i
<PAGE>

ARTICLE V  REPRESENTATIONS AND WARRANTIES OF BUYER......................................................         36
   5.1    Organization..................................................................................         36
   5.2    Authority.....................................................................................         37
   5.3    Consents and Approvals; No Violation..........................................................         37
   5.4    Availability of Funds.........................................................................         38
   5.5    Public Company Filings; Financial Statements..................................................         38
   5.6    Legal Proceedings.............................................................................         38
   5.7    No Knowledge of Seller's Breach...............................................................         38
   5.8    Qualified Buyer...............................................................................         39
   5.9    Inspections...................................................................................         39
   5.10   WARN Act......................................................................................         39
   5.11   Public Utility Holding Company Status; Regulation as a Public Utility.........................         39
   5.12   Ownership and Control of Buyer................................................................         39

ARTICLE VI  COVENANTS OF THE PARTIES....................................................................         40
   6.1    Conduct of Business and Operation of Assets...................................................         40
   6.2    Access to Information.........................................................................         41
   6.3    Additional Inspections and Information........................................................         42
   6.4    Confidentiality...............................................................................         44
   6.5    Public Statements.............................................................................         45
   6.6    Expenses......................................................................................         45
   6.7    Further Assurances............................................................................         45
   6.8    Consents and Approvals........................................................................         46
   6.9    Fees and Commissions..........................................................................         49
   6.10   Tax Matters...................................................................................         49
   6.11   Advice of Changes.............................................................................         51
   6.12   Seller Employees..............................................................................         51
   6.13   Risk of Loss..................................................................................         56
   6.14   Tax Exempt Financing..........................................................................         57
   6.15   Seller Guarantees and Surety Instruments......................................................         61
   6.16   Citizens and Gasco Marks......................................................................         61
   6.17   Title Commitments.............................................................................         62
   6.18   Post-Execution Delivery of Schedules..........................................................         62
   6.19   Transition Plan...............................................................................         62
   6.20   Certain Transactions..........................................................................         63

ARTICLE  VII CONDITIONS.................................................................................         63
   7.1    Conditions to Obligations of Buyer............................................................         63
   7.2    Conditions to Obligations of Seller...........................................................         64

ARTICLE VIII POST-CLOSING INDEMNIFICATION...............................................................         65
   8.1    Indemnification of Seller by Buyer............................................................         65
   8.2    Indemnification of Buyer by Seller............................................................         65
   8.3    Certain Limitations on Indemnification........................................................         66
   8.4    Defense of Claims.............................................................................         69
   8.5    BHP Indemnity Arrangements....................................................................         70

                                       ii
<PAGE>

ARTICLE IX  TERMINATION.................................................................................         72
   9.1    Termination...................................................................................         72
   9.2    Procedure and Effect of Termination...........................................................         73
   9.3    Liquidated Damages............................................................................         73

ARTICLE X   MISCELLANEOUS...............................................................................         74
   10.1   Amendment and Modification....................................................................         74
   10.2   Waiver of Compliance; Consents................................................................         74
   10.3   [Intentionally Omitted].......................................................................         74
   10.4   Notices.......................................................................................         74
   10.5   Assignment....................................................................................         76
   10.6   Governing Law.................................................................................         76
   10.7   Counterparts..................................................................................         77
   10.8   Interpretation................................................................................         77
   10.9   Schedules and Exhibits........................................................................         77
   10.10  Entire Agreement..............................................................................         77
   10.11  U.S. Dollars..................................................................................         77
   10.12  Bulk Sales Laws...............................................................................         77
   10.13  Construction of Agreement.....................................................................         77
   10.14  Severability..................................................................................         78
   10.15  Third Party Beneficiary.......................................................................         78
</TABLE>

                                      iii

<PAGE>
                            ASSET PURCHASE AGREEMENT

     ASSET PURCHASE AGREEMENT, dated as of December 19, 2002 (this "Agreement"),
by and among Citizens Communications Company, a Delaware corporation ("Seller"),
and K-1 USA  Ventures,  Inc.  ("K-1  USA" and  until the  effective  time of the
assignment  of  this  Agreement  to the  k1  Designee  as  required  by  Section
6.8(f)(i), the "Buyer"), a Delaware corporation and a wholly-owned subsidiary of
k1 Ventures Limited, a Singapore corporation.  Seller and Buyer are referred to,
individually, as a "Party" and, together, as the "Parties."

                               W I T N E S S E T H
                               -------------------

     WHEREAS, Seller owns all of the Assets (as defined below); and

     WHEREAS,  Buyer desires to purchase and assume,  and Seller desires to sell
and assign, the Assets, and certain associated  liabilities,  upon the terms and
conditions hereinafter set forth in this Agreement; and

     WHEREAS, (i) on the date hereof k1 Ventures Limited and Seller have entered
into  a  letter  agreement  wherein  k1  Ventures  Limited   undertakes  certain
obligations to provide  financial  support to enable Buyer to satisfy certain of
Buyer's financial  obligations  under this Agreement (the "Support  Agreement"),
and (ii) Kephinance Investments Pte Ltd and PCG Greenstreet Venture I, L.P. have
entered into Voting  Agreements with Seller pursuant to which such  shareholders
of k1 Ventures Limited have agreed to vote, in accordance with the terms of such
Voting  Agreements,  all shares of voting securities of k1 Ventures Limited over
which they have the power to control  the voting  thereof  (which  shares in the
aggregate  exceed the number of shares  that are needed to approve  the  matters
addressed in such Voting Agreements).

     NOW, THEREFORE, in consideration of the mutual covenants,  representations,
warranties and  agreements  hereinafter  set forth,  and intending to be legally
bound hereby, the Parties agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

     1.1  Definitions.  As used in this Agreement,  the following terms have the
meanings specified in this Section 1.1.

     "Affiliate"  of any Person  means a Person  that  directly,  or  indirectly
through one or more intermediaries,  controls,  or is controlled by, or is under
common control with, the Person specified.

     "Agreement" means this Asset Purchase Agreement together with the Schedules
and Exhibits attached hereto, as the same may be from time to time amended.

     "Allocation" has the meaning set forth in Section 6.10(f).

<PAGE>

     "ALTA" has the meaning set forth in Section 6.17.

     "Ancillary   Agreements"  means  the  agreements,   contracts,   documents,
instruments and  certificates  provided for in this Agreement to be entered into
by one or more of the Parties or any of their  Affiliates in connection with the
transactions contemplated by this Agreement.

     "Assets" has the meaning set forth in Section 2.1.

     "Asset Material Adverse Effect" means any occurrence or condition,  arising
after the date  hereof,  that has or would  reasonably  be  expected  to have an
aggregate   adverse   economic   impact,   taking  into   account  all  relevant
considerations,  in excess of $10,000,000 on the condition of the Assets,  taken
as a whole, or on the business,  operations,  financial  condition or results of
operations of the Business,  taken as a whole, other than any such occurrence or
condition (a) arising from business,  economic or financial  market  conditions,
considered  generally,  (b)  arising  from  the  conditions  in the gas  utility
industry,  considered  generally and not  specifically  as to the Business,  (c)
which is remedied,  cured or  otherwise  reversed  (including  by the payment of
money or application of insurance  proceeds) before the Termination Date, or (d)
arising  from  entering  into  this  Agreement  or  the   announcement   of  the
transactions  contemplated  by this  Agreement;  it  being  understood  that the
occurrences  and/or  conditions which could,  depending on the nature and extent
thereof,  be deemed to result in an Asset Material Adverse Effect shall include,
without limitation, (x) the terms or conditions of a Final Order with respect to
any Required Regulatory Approval,  considered  individually or together with any
other  such  Final  Order(s)  with  respect  to any  other  Required  Regulatory
Approval(s),  other than Regulatory  Exceptions,  and (y) facts or circumstances
relating to the Assets and/or the Business  which come to the attention of Buyer
between the date of this Agreement and the Closing Date,  whether as a result of
Buyer's  Inspection of the Assets or its  examination  of  information  and data
relating to the Assets and/or the Business,  as  contemplated  by Section 6.2 or
6.3, or otherwise.

     "Assigned  Agreements" means any contracts,  agreements,  software licenses
and related  contracts,  Easements,  Real Property Leases and personal  property
leases entered into by Seller or any of its Affiliates (and any amendment to any
of the foregoing) with respect to the ownership, operation or maintenance of the
Assets  or the  Business,  including  without  limitation,  the  CBA  and  those
disclosed on Schedules 4.5 and 4.11(a) and excluding those disclosed on Schedule
2.2.

     "Assignment and Assumption  Agreement"  means the Assignment and Assumption
Agreement  between  Seller  and  Buyer  substantially  in the form of  Exhibit A
attached hereto.

     "Assumed Liabilities" has the meaning set forth in Section 2.3.

     "Balance Sheet" has the meaning set forth in Section 4.20.

     "Base Purchase Price" has the meaning set forth in Section 3.2.

                                       2
<PAGE>

     "Benefit Plans" means each of Seller's deferred compensation and each bonus
or other incentive compensation,  stock purchase,  stock option and other equity
compensation  plan,  program,  agreement  or  arrangement;   each  severance  or
termination pay, medical,  surgical,  hospitalization,  life insurance and other
"welfare"  plan,  fund or program (within the meaning of Section 3(1) of ERISA);
each  profit-sharing,  stock  bonus or other  "pension"  plan,  fund or  program
(within the meaning of Section 3(2) of ERISA);  each employment,  termination or
severance  agreement;  and each other  employee  benefit  plan,  fund,  program,
agreement  or  arrangement,  in each  case,  that is  sponsored,  maintained  or
contributed  to or required to be  contributed  to by such Party or by any ERISA
Affiliate,  in any case  maintained  for employees of Seller  connected with the
Business, or in which such employees participate.

     "BHP" means  collectively BHP Hawaii,  Inc. and The Broken Hill Proprietary
Company Limited, and any successors thereof.

     "BHP Stock Sale Agreement" has the meaning set forth in Section 8.5.

     "Bill of Sale" means the Bill of Sale, substantially in the form of Exhibit
B attached hereto,  to be delivered at the Closing by Seller with respect to the
Tangible Personal Property included in the Assets transferred to Buyer.

     "Bond Counsel" has the meaning set forth in Section 6.14(c)(i).

     "Business" -- means collectively:

          (a) the  regulated  utility  business  of  manufacturing,  selling and
     distributing  synthetic natural gas on the island of Oahu,  Hawaii,  and of
     propane gas within the State of Hawaii, conducted by Seller through The Gas
     Company division of Seller;

          (b) the  non-utility  business of  purchasing,  marketing  and selling
     propane gas conducted by Seller within the State of Hawaii  through The Gas
     Company division of Seller;

          (c) the  appliance  repair and service  business  and propane  vehicle
     conversion  business conducted by Seller within the State of Hawaii through
     The Gas Company division of Seller; and

          (d) the provision of related  services and products and the engagement
     in related  activities by Seller within the State of Hawaii through The Gas
     Company division of Seller.

     "Business Day" means any day other than Saturday,  Sunday and any day which
is a day on which banking  institutions in the States of Hawaii and New York are
authorized by law or other governmental action to remain closed.

     "Buyer" has the meaning set forth in the Preamble.

                                       3
<PAGE>

     "Buyer Indemnifiable Loss" has the meaning set forth in Section 8.2.

     "Buyer Indemnitee" has the meaning set forth in Section 8.2.

     "Buyer  Material  Adverse  Effect"  means a Material  Adverse  Effect  with
respect to Buyer.

     "Buyer  Required  Regulatory   Approvals"  means  the  Required  Regulatory
Approvals set forth in Schedule 5.3(b).

     "CBA" has the meaning set forth in Section 6.12(a).

     "CERCLA"   means  the   federal   Comprehensive   Environmental   Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended.

     "Capital  Expenditures"  means  capital  additions  to or  replacements  of
property,  plants and equipment  included in the Assets or otherwise relating to
the Business and other expenditures or repairs on property, plants and equipment
included  in  the  Assets  or  otherwise  relating  to  the  Business  that  are
customarily  capitalized  by  Seller  in  accordance  with  GAAP and its  normal
accounting policies.

     "Capital Expenditures Schedule" has the meaning set forth in Section 4.16.

     "Citizens Marks" has the meaning set forth in Section 2.2(c).

     "Classified Plan" means the Pension Plan for Classified Employees of Gasco,
Inc.

     "Closing" has the meaning set forth in Section 3.1.

     "Closing  Date" means one minute after 11:59 p.m. on the date which is five
(5)  Business  Days  following  the  date on which  the  last of the  conditions
precedent  to the Closing set forth in Article VII of this  Agreement  have been
either  satisfied  or waived by the Party  for  whose  benefit  such  conditions
precedent  exist,  subject to such  extensions (not to exceed six (6) months) as
may be  required  by  Seller  to repair or  replace  lost or  damaged  Assets in
accordance with Section 6.13(c),  or such other date as the Parties may mutually
agree.

     "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1984.

     "COBRA Continuation Coverage" means the requirements of Section 4980B(f) of
the Code.

     "Code" means the Internal Revenue Code of 1986, as amended.

     "Commercially  Reasonable  Efforts"  means  efforts  by a Party  which  are
reasonably within the contemplation of the Parties at the time of executing this
Agreement  and which do not  require  the  performing  Party to expend any funds
other than  expenditures  which are customary and reasonable in  transactions of
the kind and nature  contemplated  by this Agreement in order for the performing
Party to satisfy its obligations hereunder.

                                       4
<PAGE>

     "Current Retirees" has the meaning set forth in Section 6.12(d)(iii)(G).

     "Direct Claim" has the meaning set forth in Section 8.4(c).

     "Easements"  means  all  easements,   rights  of  way,  permits,  licenses,
prescriptive rights and other ways of necessity, and other similar real property
grants, whether or not of record, relating to real property.

     "Encumbrances"  means any mortgages,  pledges,  liens,  security interests,
conditional  and  installment  sale  agreements,  activity and use  limitations,
conservation easements, deed restrictions, encumbrances and charges of any kind.

     "Environmental   Claim"  means  any  and  all  pending  and/or   threatened
administrative,  regulatory or judicial actions, suits, orders, claims, demands,
liens, notices, notices of violations, investigations,  complaints, requests for
information,  proceedings,  or other written communication,  whether criminal or
civil,  pursuant to or relating to any applicable  Environmental Law or pursuant
to a common  law  theory,  by any Person  (including,  but not  limited  to, any
Governmental  Authority,   private  person  and  citizens'  group)  based  upon,
alleging,  asserting,  or claiming any actual or potential  (a) violation of, or
liability  under any  Environmental  Law,  (b)  violation  of any  Environmental
Permit, or (c) liability for investigatory  costs, cleanup costs, removal costs,
remedial costs,  response costs,  natural  resource  damages,  property  damage,
personal injury,  fines, or penalties  arising out of, based on, resulting from,
or related to any Environmental  Condition or any Release or threatened  Release
into the environment of any Regulated  Substances at any location related to the
Assets,  including, but not limited to, any Off-Site Location to which Regulated
Substances,  or materials containing Regulated Substances,  were transported for
handling, storage, treatment, or disposal.

     "Environmental  Condition"  means the  presence  or Release of a  Regulated
Substance  (other than a  naturally-occurring  substance) on or in environmental
media, or structures on Real Property, at an Off-Site Location or other property
(including  the  presence in surface  water,  groundwater,  soils or  subsurface
strata,  or air),  including  the  subsequent  migration  of any such  Regulated
Substance,   regardless  of  when  such  presence  or  Release  occurred  or  is
discovered.

     "Environmental Data" has the meaning set forth in Section 6.3(d).

     "Environmental Laws" means all federal, state, local,  provincial,  foreign
and  international  civil and criminal  laws,  regulations,  rules,  ordinances,
codes, decrees, judgments, directives, or judicial or administrative orders, and
any judicial or administrative interpretations thereof, relating to pollution or
the  regulation and protection of the  environment,  natural  resources or human
health and safety, including,  without limitation,  laws relating to Releases or
threatened  Releases of Regulated  Substances  (including,  without  limitation,
Releases  to  ambient  air,  surface  water,  groundwater,   land,  surface  and
subsurface  strata)  or  otherwise  relating  to  the  manufacture,  processing,
distribution,  use, treatment, storage, Release, transport, disposal or handling
of  Regulated  Substances.  "Environmental  Laws"  include:  (a) with respect to
federal law, CERCLA, the Hazardous Materials Transportation Act (49 U.S.C.ss.ss.
1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.ss.ss.  6901
et seq.),  the Federal  Water  Pollution  Control Act (33  U.S.C.ss.ss.  1251 et
seq.),  the Clean Air Act (42  U.S.C.ss.ss.  7401 et seq.), the Toxic Substances
Control Act (15  U.S.C.ss.ss.  2601 et seq.),  the Oil  Pollution Act (33 U.S.C.
ss.ss. 2701 et seq.), the Emergency Planning and Community Right-to-Know Act (42
U.S.C.ss.ss.  11001  et  seq.),  the  Occupational  Safety  and  Health  Act (29
U.S.C.ss.ss.  651 et seq.),  the Safe Drinking Water Act (42 U.S.C.ss.  300f et.
seq.),  the Surface  Mine  Conservation  and  Reclamation  Act (30  U.S.C.ss.ss.
1251-1279),  and regulations adopted pursuant thereto, and counterpart state and
local laws, regulations adopted pursuant thereto; and (b) with respect to Hawaii
law, laws comparable to such federal  statutes and regulations  adopted pursuant
thereto.

                                       5
<PAGE>

     "Environmental  Liabilities"  means any  liabilities,  responsibilities  or
obligations  arising  under  Environmental  Laws or  relating  to  Environmental
Conditions or Regulated  Substances  (including  Environmental Claims and common
law liabilities relating to Environmental  Conditions and Regulated  Substances)
including but not limited to:

     (i) costs of  compliance  (including  capital,  operating  and other costs)
relating  to any  violation  or alleged  violation  of  Environmental  Laws with
respect to the ownership of the Assets or operation of the Business;

     (ii) property damage or natural resource damage arising from  Environmental
Conditions or Releases of Regulated  Substances at, on, in, under,  adjacent to,
or migrating from any Assets;

     (iii) any Remediation of Environmental  Conditions or Regulated  Substances
that are present or have been Released at, on, in, adjacent to or migrating from
the Assets;

     (iv) any  Environmental  Claims with respect to the ownership of any Assets
or operation of the Business;

     (v) any bodily injury or loss of life arising from Environmental Conditions
or Releases of Regulated Substances at, on, in, under,  adjacent to or migrating
from any Asset;

     (vi) any bodily injury,  loss of life, property damage, or natural resource
damage arising from the storage, transportation, treatment, disposal, discharge,
recycling or Release, at any Off-Site Location,  or arising from the arrangement
for such activities,  of Regulated  Substances  generated in connection with the
ownership of the Assets or the operation of the Business; and

     (vii)  any  Remediation  of  any  Environmental  Condition  or  Release  of
Regulated  Substances  arising  from  the  storage,  transportation,  treatment,
disposal, discharge,  recycling or Release, at any Off-Site Location, or arising
from the arrangement for such activities,  of Regulated  Substances generated in
connection with the ownership or operation of the Assets.

                                    6
<PAGE>

     "Environmental  Permits"  means any permits,  registrations,  certificates,
certifications,   licenses  and   authorizations,   consents  and  approvals  of
Governmental  Authorities  issued under  Environmental  Laws held by Seller with
respect to the Assets or the Business.

     "Environmental Reports" has the meaning set forth in Section 4.6.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended.

     "ERISA  Affiliate" means a trade or business,  whether or not incorporated,
that  together  with a Party  would be deemed a  "single  employer"  within  the
meaning of Section 4001(b) of ERISA.

     "Estimated Adjustment" has the meaning set forth in Section 3.3(b).

     "Estimated Closing Statement" has the meaning set forth in Section 3.3(b).

     "Excluded Assets" has the meaning set forth in Section 2.2.

     "Excluded Liabilities" has the meaning set forth in Section 2.4.

     "Exempt  Facilities" means those facilities listed in Exhibit A to the Loan
Agreement included in the IDRB Documents.

     "Final Order" means an action by the relevant  Governmental  Authority that
has not been reversed, stayed, enjoined, set aside, annulled or suspended and/or
with  respect  to  which  any  waiting  period  prescribed  by  law  before  the
transactions  contemplated  hereby may be  consummated  has expired and the time
period  permitted  by statute or  regulation  for filing any request for a stay,
petition for rehearing,  reconsideration or application for review of the action
or for filing a court appeal has passed.

     "Financial Statements" has the meaning set forth in Section 4.20(a).

     "FIRPTA  Affidavit"  means the Foreign  Investment in Real Property Tax Act
Certification and Affidavit to be executed by Seller.

     "GAAP" means U.S. generally accepted accounting principles.

     "Gas Franchise  Act" means The Gas Franchise Act (Act 262,  Session Laws of
Hawaii 1967), as unamended.

     "Good Utility Practices" means those practices, methods, standards, guides,
or acts, as applicable, that (a) are generally accepted in the region during the
relevant time period for use in the gas, transmission and distribution industry,
(b) are commonly used in prudent gas, transmission and distribution engineering,
construction,  project  management and operations,  and (c) would be expected if
the Business is to be conducted at a reasonable cost in a manner consistent with
laws,  rules and  regulations  applicable to the Business and the  objectives of
reliability,  safety,  environmental  protection,  economy and expediency.  Good
Utility  Practice is  intended  to be  acceptable  practices,  methods,  or acts
generally  accepted  in the  region,  and is not  intended  to be limited to the
optimum practices, methods, or acts to the exclusion of all others.

                                       7
<PAGE>

     "Governmental Authority" means any foreign,  federal, state, local or other
governmental,   regulatory  or   administrative   agency,   court,   commission,
department,  board, or other governmental subdivision,  legislature,  rulemaking
board, court, tribunal, arbitrating body or other governmental authority.

     "Grandfathered  Active  Employees"  has the  meaning  set forth in  Section
6.12(d)(iii)(G).

     "Grandfathered   Individuals"   has  the   meaning  set  forth  in  Section
6.12(d)(iii)(G).

     "HTAWU" means Hawaii Teamsters and Allied Workers Union Local 996.

     "HPUC" means the Public Utilities Commission of the State of Hawaii.

     "HSR Act" means the Hart-Scott-Rodino  Antitrust  Improvements Act of 1976,
as amended.

     "IDRB Documents" has the meaning set forth in Section 6.14(l).

     "IDRB   Indebtedness"  means  the  indebtedness  of  Seller  owing  to  the
Department  of Budget and  Finance of the State of Hawaii,  as the issuer of the
Revenue  Bonds and  arising  under the Loan  Agreement  included  among the IDRB
Documents.

     "Income Tax" means any federal, state, local or foreign Tax (a) based upon,
measured  by or  calculated  with  respect  to gross or net  income,  profits or
receipts (including,  without limitation, capital gains Taxes and minimum Taxes)
or (b) based upon,  measured by or  calculated  with  respect to multiple  bases
(including, without limitation, corporate franchise taxes) if one or more of the
bases on which such Tax may be based, measured by or calculated with respect to,
is described in clause (a), in each case together with any interest,  penalties,
or additions to such Tax.

     "Indemnifying  Party" means a Party  obligated  to provide  indemnification
under this Agreement.

                                       8
<PAGE>

     "Indemnitee" means a Person entitled to receive  indemnification under this
Agreement.

     "Independent  Accounting  Firm" means such  independent  accounting firm of
national reputation as is mutually appointed by the Buyer and Seller.

     "Inspection"   means  all  tests,   reviews,   examinations,   inspections,
investigations,  interviews,  verifications,  samplings  and similar  activities
conducted by Buyer or its  Representatives  prior to the Closing with respect to
the Assets, including "Phase I" and/or "Phase II" environmental assessments.

     "Intellectual  Property"  means patents and patent  rights,  trademarks and
trademark  rights,  service  marks and  rights  to  service  marks,  inventions,
copyrights and copyright rights, and all pending  applications for registrations
of patents, trademarks, and copyrights.

     "Inventories"  means  materials,  spare parts,  consumable  supplies,  fuel
supplies and chemical inventories relating to the Assets or the operation of the
Business.

     "Iwilei Property" means that certain parcel of real property formerly owned
by Gasco,  Inc.  located at 432  Pacific  Street  (formerly  known as 616 Iwilei
Road),  Honolulu,  Hawaii, and which is the same parcel of real property defined
as the "Iwilei Property" in the BHP Stock Sale Agreement.

     "k1 Designee" has the meaning set forth in Section 6.8(f)(i).

     "K-1 USA" means K-1 USA Ventures, Inc., a Delaware corporation.

     "Knowledge"  means the actual  knowledge,  as of the date  hereof or,  with
respect to any certificate  delivered  pursuant to this  Agreement,  the date of
delivery of such  certificate,  of the Persons  identified  on Schedule  1.1 and
successors to each such Person's employment responsibilities.

     "Loss"  means any  claim,  demand,  suit,  proceeding,  investigation  by a
Governmental  Authority,   loss,  liability,  fine,  levy,  damage,  obligation,
payment, cost or expense (including, without limitation, the cost and expense of
any action, suit,  proceeding,  assessment,  judgment,  settlement or compromise
relating thereto and reasonable attorneys' fees and reasonable  disbursements in
connection therewith).

     "Material Adverse Effect" means any occurrence or condition,  arising after
the date hereof,  that has or would  reasonably be expected to have an aggregate
adverse economic  impact,  taking into account all relevant  considerations,  in
excess  of  $10,000,000  on  the  business,  operations,  properties,  financial
condition or results of operations of any Party (including its Affiliates, taken
as a whole)  or on the  ability  of  either  Party to  perform  in all  material
respects its obligations under this Agreement and the Ancillary Agreements.

     "Material Taking" has the meaning set forth in Section 6.13(b).

     "Non-Union Employees" has the meaning set forth in Section 6.12(b).

     "Off-Site Location" means any real property or location other than the Real
Property.

     "Order" means any award,  decision,  injunction,  judgment,  order, consent
order,  writ,  decree,  consent decree,  ruling,  subpoena,  or verdict entered,
issued, made or rendered by any court, administrative agency, other Governmental
Authority, or by an arbitrator, each of which possesses competent jurisdiction.

                                       9
<PAGE>

     "Party" has the meaning set forth in the Recitals.

     "Permitted Encumbrances" means any of the following:

     (a) mechanics',  carriers', workers' and other similar liens arising in the
ordinary  course of business  for charges  that are not  delinquent  or that are
being contested in good faith and have not proceeded to judgment;

     (b) liens for current Taxes and assessments not yet due and payable;

     (c) with  respect to the Real  Property,  usual and  customary  nonmonetary
Encumbrances,   covenants,  Easements,  restrictions  and  other  title  matters
(whether or not recorded) that do not and are not reasonably likely to interfere
materially with the operation of that portion of the Business  conducted on such
Real Property or the Business as a whole;

     (d) Encumbrances  securing the payment or performance of any of the Assumed
Liabilities;

     (e) all applicable zoning ordinances and land use restrictions in effect as
of the date of this  Agreement  and all  changes to or new  adoptions  of zoning
ordinances and land use  restrictions  prior to the Closing Date that do not and
are not  reasonably  likely to interfere  materially  with the operation of that
portion of the  Business  conducted  on such Real  Property or the Business as a
whole;

     (f) with  respect  to any Asset  which  consists  of a  leasehold  or other
possessory interests in real property, all Encumbrances,  covenants,  Easements,
restrictions  and other title  matters  (whether or not  recorded)  to which the
underlying  fee estate in such real  property is subject that do not and are not
reasonably likely to interfere  materially with the operation of that portion of
the Business  currently  conducted on such  property or the Business as a whole;
and

     (g) any other Encumbrances,  obligations,  defects or irregularities of any
kind whatsoever affecting title to the Assets that will be terminated,  released
or waived on or before the Closing Date or that are not,  individually or in the
aggregate, reasonably likely to interfere materially with the present use of the
Assets or to interfere materially with the operation of the Business as a whole.

     "Permits"  means  any  permits,  licenses,   registrations,   certificates,
franchises  and other  authorizations,  consents and  approvals of  Governmental
Authorities held by Seller with respect to the Assets or the Business.

                                       10
<PAGE>

     "Person" means any  individual,  partnership,  limited  liability  company,
joint venture, corporation,  trust, unincorporated organization, or governmental
entity or any department or agency thereof.

     "Post-Closing Adjustment" has the meaning set forth in Section 3.3(d).

     "Post-Retirement  Life  Insurance  Benefits"  has the  meaning set forth in
Section 6.12(d)(iii)(G).

     "Proposed  Post-Closing  Adjustment"  has the  meaning set forth in Section
3.3(c).

     "Proprietary  Information" of a Party means all information about the Party
or  its  Affiliates,   including  their  respective  properties  or  operations,
furnished  to the  other  Party  or its  Representatives  by  the  Party  or its
Representatives,  before or after the date hereof,  regardless  of the manner or
medium  in which  it is  furnished  and all  analyses,  reports,  tests or other
information  created  or  prepared  by,  or on  behalf  of, a Party  during  the
performance  of  "Phase  I"  or  "Phase  II"  environmental   site  assessments.
Proprietary  Information  does not include  information  that: (a) is or becomes
generally available to the public, other than as a result of a disclosure by the
other Party or its  Representatives;  (b) was  available to the other Party on a
nonconfidential   basis   prior  to  its   disclosure   by  the   Party  or  its
Representatives;  (c) becomes  available to the other Party on a nonconfidential
basis  from a person,  other than the Party or its  Representatives,  who is not
otherwise  bound  by  a   confidentiality   agreement  with  the  Party  or  its
Representatives, or is not otherwise under any obligation to the Party or any of
its  Representatives  not to transmit the  information to the other Party or its
Representatives; or (d) is independently developed by the other Party.

     "PUHCA" has the meaning set forth in Section 4.25.

     "PUHCA Staff Concurrence" has the meaning set forth in Section 6.8(f)(ii).

     "Purchase Price" has the meaning set forth in Section 3.2.

     "Qualifying Offer" means an offer to a Transferred  Employee of the same or
similar  job  that is at  least  100%  of such  employee's  current  total  cash
compensation  at the time the  offer was made  (consisting  of base  salary  and
participation  in 2003  incentive  bonus  as  contemplated  in  Section  6.12(i)
hereof),  and does not require,  as a condition of  acceptance,  a relocation of
residence as described in Section 6.12(f).

     "Real Property" has the meaning set forth in Section 2.1(a).  Any reference
to the Real Property includes, by definition, Seller's right, title and interest
in  and to  the  surface  and  subsurface  elements,  including  the  soils  and
groundwater  present at the Real  Property,  and any  reference to items "at the
Real Property"  includes all items "at, on, in, upon,  over,  across,  under and
within" the Real Property.

     "Real Property Leases" has the meaning set forth in Section 4.5.

     "Recovery Costs" has the meaning set forth in Section 8.4(d).

                                       11
<PAGE>

     "Regulated  Substances" means (a) any petrochemical or petroleum  products,
oil or coal ash, radioactive materials,  radon gas, asbestos in any form that is
or could become friable,  urea formaldehyde foam insulation and dielectric fluid
containing polychlorinated biphenyls; (b) any chemicals, materials or substances
defined as or included in the definition of "hazardous  substances,"  "hazardous
wastes," "hazardous materials," "hazardous constituents,"  "restricted hazardous
materials,"    "extremely    hazardous    substances,"    "toxic    substances,"
"contaminants," "pollutants," "toxic pollutants" or words of similar meaning and
regulatory  effect  under any  applicable  Environmental  Law; and (c) any other
chemical, material or substance, exposure to which or whose discharge, emission,
disposal  or  Release is  prohibited,  limited or  regulated  by any  applicable
Environmental Law.

     "Regulations" has the meaning set forth in Section 6.14(a)(iii).

     "Regulatory Exceptions" means any of the following:

     (a) an  imposition  by the HPUC of a  reasonable  rate  moratorium  for the
Business  or a  requirement  by the HPUC of the  filing  of a rate  case for the
Business;

     (b) an imposition by the HPUC  requiring  Buyer to provide  service,  or to
improve  service,  to Persons  located  in any  authorized  service  area of the
Business,   provided  such   requirement  has  a  corresponding   rate  recovery
opportunity; and

     (c) terms and  conditions  imposed by any  Governmental  Authority  that is
required to issue a Required  Regulatory  Approval that are either (i) usual and
customary;  (ii)  applicable  to the Business as of the date of this  Agreement,
including the terms and conditions of the tariffs applicable to the Business; or
(iii)  contemplated  by this  Agreement,  including  the  understandings  of the
Parties referenced in Section 6.8(c)(i).

     "Regulatory  Material  Adverse Effect" means,  with respect to any Party, a
Material Adverse Effect resulting from the effect on such Party of the terms and
conditions  of a Final Order with  respect to any Required  Regulatory  Approval
other than  Regulatory  Exceptions,  and  additionally  with respect to Buyer, a
Regulatory  Material  Adverse Effect also shall result from a denial by the HPUC
of the Parties'  joint request for Buyer to republish and file, in Buyer's name,
Seller's  existing rates and tariffs for the Business upon Closing except to the
extent any  required  changes  would not have a material  effect on Buyer  after
taking into account all relevant considerations.

     "Release" means release,  emission,  spill,  leak,  discharge,  dispose of,
pump, pour, emit, empty, inject,  leach, dump or allow to escape into or through
the environment.

     "Remediation"  means  any  action  taken  in  the  investigation,  removal,
confinement,  mitigation,  cleanup,  treatment, or monitoring of a Release or an
Environmental  Condition  on Real  Property  or  Off-Site  Location,  including,
without limitation,  (a) obtaining any Permits or Environmental Permits required
for such remedial activities, and (b) implementation of any engineering controls
and institutional controls. The term "Remediation" includes, without limitation,
any action which constitutes "removal action" or "remedial action" as defined by
Section  101  of  CERCLA,  Section  6901(23)  and  (24);  or  any  action  which
constitutes  "remedial  action" as defined by Hawaii Revised  Statutes  Sections
128D-1.

                                       12
<PAGE>

     "Representatives" of a Party means such Party's authorized representatives,
including without limitation, its professional and financial advisors.

     "Required Regulatory  Approvals" means with respect to a Party, any consent
or approval of, filing with, or notice to, any  Governmental  Authority  that is
necessary  for the  execution  and delivery of this  Agreement and the Ancillary
Agreements  by  such  Party  or the  consummation  thereby  of the  transactions
contemplated hereby, other than such consents, approvals, filings or notices (i)
which are not  required in the  ordinary  course to be obtained or made prior to
the Closing and the transfer of the Assets, (ii) which, if not obtained or made,
will not prevent such Party from performing its material obligations  hereunder,
or (iii) that relate to a Permit or an Assigned  Agreement  that is not material
to the Business, taken as a whole.

     "Required Shareholder Actions" has the meaning set forth in Section 5.3(c).

     "Revenue Bonds" has the meaning set forth in Section 6.14(a)(i).

     "Savings Plan" has the meaning set forth in Section 6.12(d)(iii)(H).

     "SEC" means the Securities and Exchange Commission and any successor agency
thereto.

     "Seller" has the meaning set forth in the Preamble.

     "Seller Indemnifiable Loss" has the meaning set forth in Section 8.1.

     "Seller Indemnitee" has the meaning set forth in Section 8.1.

     "Seller  Material  Adverse  Effect"  means a Material  Adverse  Effect with
respect to Seller.

     "Seller  Required  Regulatory  Approvals"  means  the  Required  Regulatory
Approvals set forth in Schedule 4.3(b).

     "Seller SEC Reports" has the meaning set forth in Section 4.21.

     "Seller's   Pension   Plan"  has  the   meaning   set   forth  in   Section
6.12(d)(iii)(E).

     "Seller's   401(k)  Plan"  means  the   Citizens   401(k)   Savings   Plan.

     "Special Warranty Deed" means a special warranty deed  substantially in the
form of Exhibit C attached hereto.

     "Subsidiary" when used in reference to any Person means any entity of which
outstanding  securities  having ordinary voting power to elect a majority of the
Board of Directors or other Persons  performing similar functions of such entity
are owned directly or indirectly by such Person.

                                       13
<PAGE>

     "Sufficient Notice" has the meaning set forth in Section 6.14(c)(ii).

     "Support  Agreement"  has the  meaning set forth in clause (i) of the third
recital to this Agreement.

     "Taking" has the meaning set forth in Section 6.13(b).

     "Tangible Personal Property" has the meaning set forth in Section 2.1(c).

     "Taxes"  means  all  taxes,  charges,  fees,  levies,  penalties  or  other
assessments  imposed by any federal,  state,  local or foreign taxing authority,
including,  but not limited  to,  income,  excise,  property,  sales,  transfer,
franchise,  payroll,  withholding,  social  security,  gross receipts,  license,
stamp, occupation,  employment or other taxes, including any interest, penalties
or additions attributable thereto.

     "Tax Impact" has the meaning set forth in Section 6.14(a)(vi).

     "Tax Return" means any return,  report,  information  return,  declaration,
claim for  refund or other  document  (including  any  schedule  or  related  or
supporting  information)  required to be supplied to any taxing  authority  with
respect to Taxes including amendments thereto.

     "Termination Date" has the meaning set forth in Section 9.1(b).

     "Third Party Claim" means any claim,  action, or proceeding made or brought
by any Person who is not (a) a Party to this Agreement, or (b) an Affiliate of a
Party to this Agreement.

     "Title Commitment" has the meaning set forth in Section 6.17.

     "Title Company" has the meaning set forth in Section 6.17.

     "Title Policies" has the meaning set forth in Section 6.17.

     "Transfer Taxes" means any real property  transfer or gains tax, sales tax,
conveyance  fee, use tax,  stamp tax,  stock  transfer tax or other similar tax,
including  any related  penalties,  interest and additions to tax, but excluding
any Income Tax.

     "Transferable  Permits" means those Permits and Environmental  Permits with
respect to the Assets or the Business  which may be transferred to Buyer with or
without a filing  with,  notice to,  consent of or approval of any  Governmental
Authority, and excluding those Permits and Environmental Permits with respect to
the Assets or the Business which are  non-transferable to Buyer and with respect
to which Buyer must apply for and obtain replacements.

                                       14
<PAGE>

     "Transferred   Employees"  means   Transferred   Non-Union   Employees  and
Transferred Union Employees.

     "Transferred  Employee Records" means records related to Seller's employees
who become employees of Buyer but only to the extent such records pertain to (A)
skill and development  training and biographies,  (B) seniority  histories,  (C)
salary  and   benefit   information,   (D)   Occupational,   Safety  and  Health
Administration reports, or (E) subject to the limitation of the Health Insurance
Portability  and  Accountability  Act of 1996 and any  applicable  state privacy
legislation and regulations, active medical restriction forms.

     "Transferred  Non-Union  Employees"  has the  meaning  set forth in Section
6.12(b).

     "Transferred Union Employees" has the meaning set forth in Section 6.12(a).

     "Union Employees" has the meaning set forth in Section 6.12(a).

     "WARN Act" means the Federal Worker Adjustment  Retraining and Notification
Act of 1988, as amended.

     1.2 Certain  Interpretive  Matters.  In this Agreement,  unless the context
otherwise  requires,  the singular shall include the plural, the masculine shall
include  the  feminine  and  neuter,  and vice  versa.  The term  "includes"  or
"including"  shall mean  "including  without  limitation."  The terms  "hereof,"
"herein" and  "herewith"  and words of similar  import shall,  unless  otherwise
stated, be construed to refer to this Agreement as a whole (including all of the
Schedules  and  Exhibits  hereto) and not to any  particular  provision  of this
Agreement.  References to a Section,  Article,  Exhibit or Schedule shall mean a
Section,  Article,  Exhibit or Schedule of this  Agreement,  and  reference to a
given  agreement  or  instrument  shall  be a  reference  to that  agreement  or
instrument as modified, amended, supplemented or restated through the date as of
which such reference is made.

                                   ARTICLE II

                                PURCHASE AND SALE

     2.1 Transfer of Assets.  Upon the terms and subject to the  satisfaction of
the conditions  contained in this Agreement,  at the Closing,  Seller will sell,
assign,  convey,  transfer and deliver to the k1 Designee,  as Buyer, and the k1
Designee,  as Buyer,  will  purchase,  assume and acquire from Seller,  free and
clear of all Encumbrances (except for Permitted  Encumbrances),  all of Seller's
right, title and interest in and to all the assets (except for Excluded Assets),
real, personal or mixed, tangible, or intangible, used or held for use by Seller
in or in  connection  with,  or  otherwise  necessary  for,  the  conduct of the
Business,  each as in existence on the Closing Date (such assets,  collectively,
the "Assets"), including, without limitation, those assets described below, each
as in existence on the Closing Date:

     (a) those certain  parcels of real property  owned by Seller  together with
all fixtures,  buildings,  facilities,  storage  tanks,  and other  improvements
thereon and all  appurtenances  thereto as  described in Schedule 4.9 (the "Real
Property");

                                       15
<PAGE>

     (b) all accounts  receivable and earned but unbilled revenues  attributable
to the Business, and all Inventories;

     (c)   all   machinery   (mobile   or   otherwise),   equipment   (including
communications  equipment and  computers),  vehicles,  rolling stock,  transport
vessels,  barges,  tools,  furniture and furnishings and other personal property
related to the Business, owned by Seller and located on the Real Property on the
Closing Date, together with all the personal property of Seller used principally
in the  operation  of the  Business  that are in the  possession  of Seller  and
whether  or not  located  on the  Real  Property  (collectively,  the  "Tangible
Personal Property"), and all transmission, distribution and other pipelines used
by  Seller in the  operation  of the  Business,  and all  fixtures,  facilities,
storage tanks and other  improvements  related to the Business,  owned by Seller
and located on any real property leased by Seller on the Closing Date;

     (d) subject to the provisions of Section 6.7(c), all rights of Seller under
all Assigned Agreements;

     (e) subject to the provisions of Section 6.7(c), all rights of Seller under
all Real Property Leases;

     (f) all rights of Seller under all  Transferable  Permits and all rights of
Seller, and the franchise granted to Seller, under the Gas Franchise Act;

     (g) all books,  customer lists and customer  information  databases,  meter
reading and service data,  accounts payable and receivable  data,  operating and
maintenance records,  warranty  information,  operating,  safety and maintenance
manuals,    engineering   design   plans,   blueprints   and   as-built   plans,
specifications,  procedures and similar items of Seller relating specifically to
the Assets  and  necessary  for the  operation  of the  Assets and the  Business
(subject to the right of Seller to retain copies of same for its use) other than
such items which are  proprietary to third parties and accounting  records,  and
the books and records of Gasco, Inc. to the extent reasonably available;

     (h) all  unexpired,  transferable  warranties  and  guarantees  from  third
parties with respect to any Asset as of the Closing Date;

     (i) Seller prepaid expenses;

     (j) petty cash held locally for the benefit of the Business; and

     (k) to the  extent  transferable,  the  insurance  policies  of Seller  (or
designated  rights  of  Seller  thereunder,  as the  case may be)  described  in
Schedule 2.1(k).

     2.2 Excluded  Assets.  Nothing in this Agreement will constitute a transfer
to Buyer of, or be construed as conferring on Buyer, and Buyer is not acquiring,
any right,  title or interest in or to the following  specific  assets which are
associated  with the Assets or the Business,  but which are hereby  specifically
excluded  from the sale and the  definition  of  Assets  herein  (the  "Excluded
Assets"):

                                       16
<PAGE>

     (a) assets that Seller uses in both the Business  and Seller's  electric or
communications  businesses,  the  material  items of  which  are  identified  in
Schedule 2.2 hereto,  and any contracts or agreements  regarding the procurement
of goods or services by Seller other than primarily for use in the Business;

     (b) cash and cash equivalents  (including checks) in transit, in hand or in
bank  accounts,  other  than  petty  cash held  locally  for the  benefit of the
Business;

     (c)  the  rights  of  Seller  and its  Affiliates  to the  names  "Citizens
Communications Company", "Citizens Energy Services", "Citizens Utilities", "CZN"
or "Citizens" or any other trade names,  trademarks,  service  marks,  corporate
names, corporate symbols or logos or any part, derivative or combination thereof
(the "Citizens Marks");

     (d) the stock  record and minute books of Seller,  duplicate  copies of all
books and records  transferred to Buyer, all records prepared in connection with
the sale of the  Business  (including  bids  received  from  third  parties  and
analyses  relating to the Business and all  original  documents  relating to the
Revenue Bonds  (provided that copies of such  documents  relating to the Revenue
Bonds have been furnished to Buyer);

     (e) assets  disposed of by Seller  after the date of this  Agreement to the
extent such dispositions are not prohibited by this Agreement;

     (f) the  rights  of Seller in and to any  causes  of action  against  third
parties  (including  indemnification  and  contribution)  relating  to any  Real
Property or Tangible Personal Property,  Permits,  Environmental Permits, Taxes,
Real Property Leases or the Assigned Agreements, if any, and not relating to any
of the Assumed Liabilities  (subject to the proviso in Section 2.3(f) and to the
provisions of Section 8.5, to the extent  applicable),  including any claims for
refunds,  prepayments,  offsets,  recoupment,  insurance  proceeds  (subject  to
Section 6.13(c)),  condemnation  awards (subject to Section 6.13(b)),  judgments
and the like, whether received as payment or credit against future  liabilities,
relating  specifically  to the Real  Property  or any  improvements  thereon and
relating to any period prior to the Closing Date;

     (g) all  personnel  records of Seller and its  Affiliates  relating  to the
Transferred  Employees other than Transferred Employee Records or other records,
the  disclosure  of which is required by law or legal or  regulatory  process or
subpoena;

     (h) any and all of Seller's  rights and  interests in any contract  that is
not an Assigned Agreement or that is an intercompany  transaction between Seller
and an Affiliate of Seller and all accounts owing by and among Seller and any of
its  Affiliates,  whether or not any such  intercompany  transaction  or account
relates  to  the  provision  of  goods  and  services,   payment   arrangements,
intercompany charges or balances, or the like;

     (i) except to the extent  set forth in  Section  3.4,  rights to refunds of
Taxes  payable with respect to the  Business,  the Assets,  or any other assets,
properties or operations of Seller or any Affiliate  thereof,  including without
limitation all rights to refunds of the overpayment of public utility Taxes paid
prior to the Closing Date;

     (j) all deferred tax assets or collectibles;

                                       17
<PAGE>

     (k) any insurance  policy,  bond, letter of credit or similar item, and any
cash surrender  value in regard thereto,  other than the insurance  policies (or
the  designated  rights of Seller  thereunder,  as the case may be) described in
Section 2.1(k);

     (l)  except as  otherwise  set forth in  Section  6.12  (including  Section
6.12(d)(iii)(D)  with respect to the Classified Plan), assets attributable to or
related to a Benefit Plan; and

     (m) all other assets listed in Schedule 2.2 hereto.

     2.3 Assumed  Liabilities.  On the Closing Date, the k1 Designee,  as Buyer,
shall deliver to Seller the  Assignment  and  Assumption  Agreement  pursuant to
which the k1 Designee,  as Buyer,  shall assume and agree to discharge when due,
without  recourse by Buyer against  Seller,  in accordance  with the  respective
terms and  subject to the  respective  conditions  thereof,  all of the  Assumed
Liabilities.  The following liabilities and obligations of Seller or Buyer which
relate to, or arise by virtue of Seller's or Buyer's  ownership of the Assets or
operation  of the  Business  (other  than  Excluded  Liabilities  as provided in
Section 2.4) are referred to collectively as the "Assumed Liabilities":

     (a) except as otherwise  provided in Section  6.7(c),  all  liabilities and
obligations  of Seller or Buyer  arising on or after the Closing  Date under the
Assigned  Agreements,  the Real Property Leases, and the Transferable Permits in
accordance with the terms thereof,  including,  without limitation, the Assigned
Agreements  entered  into by Seller (i) prior to the date  hereof and (ii) after
the date hereof consistent with the terms of this Agreement, except in each case
to the extent such liabilities and  obligations,  but for a breach or default by
Seller,  would have been paid,  performed or otherwise discharged on or prior to
the  Closing  Date and are not  otherwise  included  among the items  causing an
adjustment  to the Base  Purchase  Price  contemplated  in Section 3.3 or to the
extent such  liabilities or obligations  arise out of any such breach or default
or out of any event  which after the giving of notice or passage of time or both
would constitute a default by Seller;

     (b) all liabilities and obligations of Seller for accounts  payable,  other
taxes accrued,  and other current and accrued liabilities to the extent included
among  the  items  included  in  the  adjustment  to  the  Base  Purchase  Price
contemplated in Section 3.3;

     (c) all  liabilities  and  obligations  associated  with the  Assets or the
Business in respect of Taxes for which  Buyer is liable  pursuant to Section 3.4
or 6.10(a) hereof;

     (d) all  liabilities and obligations of Seller or Buyer with respect to the
Transferred  Employees incurred prior to, on or after the Closing Date for which
Buyer is responsible pursuant to Section 6.12;

     (e) all  Environmental  Liabilities,  in each case, to the extent that such
liability,  responsibility,  obligation,  Environmental  Claim or Remediation is
attributable  to or  arises  from an act,  event,  occurrence  or  Environmental
Condition  transpiring,  occurring or arising on or after the Closing Date.  For
purposes  of  clarity  and  subject  to  Section   2.3(f),   (i)  a   liability,
responsibility,  obligation,  Environmental Claim or Remediation attributable to
or arising from an Environmental  Condition or an Environmental Claim arising or
asserted on or after the Closing Date, but relating to an act, event, Release or
occurrence that transpired or occurred prior to the Closing Date shall not be an
Assumed   Liability   under  this   Section   2.3(e),   and  (ii)  a  liability,
responsibility,  obligation,  Environmental Claim or Remediation attributable to
or arising from an Environmental Condition or Release that commenced or occurred
prior to the Closing Date and  continued  after the Closing Date shall be deemed
to be an Assumed  Liability  under this Section 2.3(e) in such  proportion as is
reasonably  allocable  to the  post-Closing  period  taking into account all the
relevant facts and circumstances relating thereto;

                                       18
<PAGE>

     (f) until  Buyer has  incurred  at least  but not more than  $1,150,000  of
otherwise indemnifiable Losses (determined after giving effect to the provisions
of Section  8.3) and thereby has become  entitled to  indemnification  by Seller
under  Section 8.2 and in  accordance  with Section  8.3(c),  all  Environmental
Liabilities  of  Seller,  in each  case,  to the  extent  that  such  liability,
responsibility,  obligation,  Environmental Claim or Remediation is attributable
to  or  arises  from  an  act,  event,  occurrence  or  Environmental  Condition
transpiring, occurring or arising prior to the Closing Date, it being understood
and agreed that a liability, responsibility,  obligation, Environmental Claim or
Remediation  attributable  to or  arising  from an  Environmental  Condition  or
Release that commenced or occurred prior to the Closing Date and continued after
the Closing Date shall be deemed to be an Assumed  Liability  under this Section
2.4(f) in such proportion as is reasonably  allocable to the pre-Closing  period
taking into account all the relevant facts and  circumstances  relating thereto;
provided,  that nothing set forth in this Section  2.3(f) shall require Buyer to
assume any  liabilities,  responsibilities  or  obligations  of Seller  that are
expressly  excluded in Section  2.4(h)  (relating  to the Iwilei  Property)  or,
subject  to  Section  8.5,  for any  Losses  which  either  Party,  as a  "Buyer
Indemnified  Party"  under the BHP Stock  Sale  Agreement,  is  entitled  to and
actually receives  indemnification  recovery from BHP as contemplated in Section
8.5;

     (g) any Tax that may be imposed by any federal,  state or local  government
on the ownership, sale (except as otherwise provided in Section 3.4 or 6.10(a)),
operation  of the  Business or use of the Assets on or after the  Closing  Date,
except for any Income Taxes attributable to the income of Seller;

     (h) all liabilities and obligations of Seller or Buyer arising on and after
the Closing  Date  pursuant to the tariff  applicable  to the  Business or under
those Orders  specifically  relating to the Assets or the Business  issued by or
entered into with any  Governmental  Authority and listed in Schedule  2.3(h) or
imposed on Buyer in any Required Regulatory Approval;

     (i) customer advances,  customer deposits, customer contributions in aid of
construction,  unperformed service obligations, Easement relocation obligations,
and engineering and construction  required to complete  scheduled  construction,
construction work in progress,  and other capital expenditure  projects, in each
case directly  related to the Business and  outstanding  on or arising after the
Closing Date; and

     (j) actions and proceedings  based on conduct,  actions,  circumstances  or
conditions  arising or  occurring  on or after the  Closing  Date,  actions  and
proceedings  described in Schedule 2.3(j),  actions and proceedings arising from
or directly related to any other Assumed Liability, and generic or industry-wide
actions and  proceedings  outstanding on or arising on or after the Closing Date
that are applicable to the Business.

                                       19
<PAGE>

     2.4 Excluded Liabilities.  Notwithstanding anything to the contrary in this
Agreement,  Buyer shall not assume or be obligated to pay,  perform or otherwise
discharge the following liabilities or obligations of Seller (collectively,  the
"Excluded Liabilities"):

     (a)  any  liabilities  or  obligations  of  Seller  that  are  not  Assumed
Liabilities,  including  in respect of any  Excluded  Assets or other  assets of
Seller that are not Assets;

     (b) any  liabilities or obligations  with respect to Taxes  attributable to
Seller's  ownership,  or use of the  Assets or  operation  of the  Business  for
taxable periods, or portions thereof, ending before the Closing Date, except for
Taxes for which Buyer is liable pursuant to Section 3.4 or 6.10(a) hereof;

     (c) any  liabilities  or  obligations  of Seller  accruing under any of the
Assigned  Agreements  prior to the Closing Date or any liability,  other than an
Assumed  Liability,  underlying  a  Permitted  Encumbrance,  in each case to the
extent not included  among the items  causing an adjustment to the Base Purchase
Price contemplated in Section 3.3;

     (d) without duplication of any of the liabilities and obligations  relating
to environmental  matters  addressed in Section 2.4(g) or Section 2.4(h),  which
shall be the  exclusive  expression  of all  Excluded  Liabilities  relating  to
environmental  matters,  any and  all  asserted  or  unasserted  liabilities  or
obligations  to third  parties  (including  employees)  for injuries or damages,
whether arising from tortious conduct or otherwise,  or similar causes of action
relating to the Assets or the Business  arising  during or  attributable  to the
period  prior to the  Closing  Date,  other than such that  relate to any of the
Assumed Liabilities;

     (e) all  obligations  and  liabilities  of Seller  relating  to any accrual
included among the other current and accrued  liabilities of Seller attributable
to the Business that Seller excludes,  or that Buyer requires Seller to exclude,
from  the  adjustment  to  the  Base  Purchase  Price  contemplated  in  Section
3.3(a)(ii);

     (f) any payment  obligations of Seller pursuant to the Assigned  Agreements
accruing  prior to the Closing  Date,  including,  but not  limited  to,  rental
payments  pursuant to the Real Property  Leases,  in each case to the extent not
included  among the items  included in the adjustment to the Base Purchase Price
contemplated in Section 3.3;

     (g) subject to Section 2.3(f), all Environmental  Liabilities of Seller, in
each  case,  to the  extent  that such  liability,  responsibility,  obligation,
Environmental  Claim or  Remediation is  attributable  to or arises from an act,
event, occurrence or Environmental  Condition transpiring,  occurring or arising
prior to the Closing  Date,  it being  understood  and agreed  that,  subject to
Section 2.3(f), a liability, responsibility,  obligation, Environmental Claim or
Remediation  attributable  to or  arising  from an  Environmental  Condition  or
Release that commenced or occurred prior to the Closing Date and continued after
the Closing Date shall be deemed to be an Retained  Liability under this Section
2.4(g) in such proportion as is reasonably  allocable to the pre-Closing  period
taking into account all the relevant facts and circumstances relating thereto;

     (h) any and all asserted or unasserted liabilities or obligations of Seller
with respect to the Iwilei Property;

                                       20
<PAGE>

     (i) subject to Section 6.12, any liabilities or obligations of Seller,  any
Seller  Subsidiary or any ERISA Affiliate of Seller relating to any Benefit Plan
including but not limited to any such liability (i) relating to benefits payable
under  any  Benefit  Plan;  (ii)  relating  to  the  Pension  Benefit   Guaranty
Corporation  under Title IV of ERISA;  (iii) relating to a multi-employer  plan;
(iv) with  respect to  non-compliance  with the notice and benefit  continuation
requirements of COBRA;  (v) with respect to any  noncompliance  with ERISA,  the
Code or any other applicable laws; or (vi) with respect to any suit,  proceeding
or claim  which is brought  against  Seller,  Buyer,  any Benefit  Plan,  or any
fiduciary or former fiduciary of any such Benefit Plan;

     (j) subject to Section 6.12, any  liabilities  or obligations  arising from
facts or  circumstances  prior to the Closing Date relating to the employment or
termination of employment, including discrimination,  wrongful discharge, unfair
labor  practices,  or  constructive  termination  by Seller  of any  individual,
attributable  to any actions or  inactions  by Seller  prior to the Closing Date
other than  actions or  inactions  taken at the written  direction  of Buyer (it
being  understood and agreed that Buyer shall have no liability for action taken
by Seller pursuant to Section 6.12 except as expressly provided therein);

     (k) subject to Section 6.12, any obligations of Seller for wages, overtime,
employment taxes,  severance pay, transition payments in respect of compensation
or similar  benefits  accruing or arising prior to the Closing under any term or
provision of any contract,  plan, instrument or agreement relating to any of the
employees of Seller;

     (l) all  obligations  of Seller with  respect to the Revenue  Bonds and any
other indebtedness for money borrowed by Seller (including items due to Seller's
Affiliates) other than payment  obligations arising on or after the Closing Date
under any  equipment  lease of the kind listed in Schedule  4.11(a) or under any
line  extension  contracts  or  similar  construction  arrangements,   it  being
understood and agreed that such leases,  contracts and similar  arrangements  do
not create indebtedness for money borrowed; and

     (m) any liability of Seller arising out of a breach by Seller of any of its
obligations under this Agreement or the Ancillary Agreements.

     2.5  Control of Litigation.

     (a) The  Parties  agree and  acknowledge  that,  from and after the Closing
Date,  Seller shall be entitled  exclusively  to control,  defend and settle any
litigation,  administrative or regulatory  proceeding,  and any investigation or
Remediation activity (including without limitation any environmental  mitigation
or  Remediation  activities),   arising  out  of  or  related  to  any  Excluded
Liabilities,  and Buyer agrees to cooperate  reasonably in connection  therewith
and in connection  therewith,  shall comply with the  provisions of Section 6.2,
provided  that,  in no event shall  Seller's  exercise of its rights  under this
Section  2.5(a)  either  (i)  unreasonably  interfere  with  Buyer's  conduct or
operation  of  the  Business,   (ii)  place  any  environmental  liens  or  deed
restrictions  on the Real  Property,  (iii)  cause Buyer to be  responsible  for
maintaining  any  institutional  or  engineering  controls that may be part of a
Remediation activity, or (iv) cause Buyer to expend any material amount of money
that is not subject to reimbursement by Seller.

                                       21
<PAGE>

          (b) The Parties agree and acknowledge that, from and after the Closing
     Date, Buyer shall be entitled exclusively to control, defend and settle any
     litigation,  administrative or regulatory proceeding, and any investigation
     or Remediation  activity  (including  without  limitation any environmental
     mitigation  or  Remediation  activities),  arising out of or related to any
     Assumed   Liabilities,   and  Seller  agrees  to  cooperate  reasonably  in
     connection  therewith  and in connection  therewith,  shall comply with the
     provisions  of  Section  6.2;  provided  that,  in no event  shall  Buyer's
     exercise of its rights under this Section 2.5(b) cause Seller to expend any
     material amount of money that is not subject to reimbursement by Buyer.

                                  ARTICLE III

                                  THE CLOSING

     3.1  Closing.  Upon  the  terms  and  subject  to the  satisfaction  of the
conditions in Article VII of this Agreement,  each of (i) the sale,  assignment,
conveyance,  transfer  and  delivery of the Assets to Buyer by Seller,  (ii) the
payment of the Purchase  Price to Seller by Buyer,  (iii) the  assumption of the
Assumed  Liabilities by Buyer, and (iv) the consummation of the other respective
obligations of the Parties  contemplated  by this Agreement to be consummated on
the Closing  Date shall take place at a closing (the  "Closing"),  to be held at
the  offices of Seller's  Hawaii  regulatory  counsel in  Honolulu,  Hawaii,  or
another  mutually  acceptable  location,  at 9:00 a.m. local time on the Closing
Date.

     3.2 Closing Payment.  Upon the terms and subject to the satisfaction of the
conditions contained in this Agreement,  in consideration of the aforesaid sale,
assignment,  assumption,  conveyance, transfer and delivery of the Assets, Buyer
will pay or cause to be paid to Seller at the  Closing  an  aggregate  amount in
U.S.  dollars of one hundred fifteen million dollars  ($115,000,000)  (the "Base
Purchase  Price") plus or minus any  adjustments  pursuant to the  provisions of
this Agreement (the "Purchase Price"), by wire transfer of immediately available
funds  denominated in U.S.  dollars or by such other means as are agreed upon by
Seller and Buyer.

     3.3 Adjustment to Base Purchase Price.

     (a) Subject to Section  3.3(b),  at the Closing,  the Base  Purchase  Price
shall be adjusted to account for the items set forth in this Section 3.3(a):

     (i) the Base Purchase  Price shall be increased by the aggregate  amount of
all accounts receivable and earned but unbilled revenues (other than any amounts
that are due from any of Seller's  Affiliates  or that  otherwise  are  Excluded
Assets) attributable to the Business as of day immediately preceding the Closing
Date net of  Seller's  reserve  for  allowance  for bad debt  (as  reflected  in
Seller's written policy for allowance for bad debt as of the date hereof);

     (ii) the Base  Purchase  Price shall be decreased by all accounts  payable,
other taxes accrued,  other current and accrued  liabilities,  and the financial
cost of the accrued vacation time of the Transferred Employees,  in each case of
Seller and attributable to the Business as of the day immediately  preceding the
Closing Date (other than any liability that is an Excluded Liability);

                                       22
<PAGE>

     (iii) the Base Purchase price shall be decreased by the aggregate amount of
customer deposits  (including interest accrued on customer deposits) relating to
the Business outstanding as of the day immediately preceding the Closing Date;

     (iv) the Base Purchase Price shall be increased by the aggregate  amount of
Inventories  (exclusive  of spare parts and net of (x) fifty (50) percent of the
aggregate amount of the consumable  supplies  included in Inventories other than
fuel  supplies and (y) $22,000 for "line pack")  recorded on Seller's  books and
records in  accordance  with  Seller's  historic  practice  as it relates to the
Business as of day immediately preceding the Closing Date;

     (v) the Base  Purchase  Price  shall be  adjusted  to  account  for the net
balance payable to or by Seller,  if any, for items prorated pursuant to Section
3.4, other than the items addressed in Section 3.4(a);

     (vi) the Base Purchase  Price shall be increased or decreased if and to the
extent required by Section 6.13; and

     (vii)  the  Base  Purchase  Price  will  be  increased  or  decreased,   as
appropriate,  to  the  extent  (A)  the  aggregate  amount  of all  (i)  Capital
Expenditures  that result from  expenditures made by Seller between December 31,
2002 and the latest  month-end  arising  prior to the  Closing  Date  (including
expenditures  made during such period and recorded in the  Construction  Work in
Progress account of the Business as of the day immediately preceding the Closing
Date and  relating to such  Capital  Expenditures),  (ii)  without  duplication,
expenditures made during such period to purchase  materials,  supplies and other
capital  items that are  dedicated  to, but as of Closing have not been used in,
the construction or improvement of the property, plant or equipment and relating
to such Capital Expenditures and (iii) without  duplication,  other expenditures
made during such period and  recorded as an asset of the  Business as of the day
immediately   preceding   the  Closing   Date  and   relating  to  such  Capital
Expenditures,  is greater than  (resulting  in an increase to the Base  Purchase
Price) or is less than  (resulting in a decrease to the Base Purchase Price) (B)
the amount of  depreciation  booked by Seller in accordance  with prior practice
and  GAAP  with  respect  to  the  Assets  during  such  period   (pro-rated  as
appropriate);  provided,  that for purposes of such  adjustment,  the  following
Capital  Expenditures and related expenditures and related depreciation shall be
disregarded:  (x)  expenditures  in excess of $500,000 in the aggregate that are
not included in the Capital Expenditure  Schedule and are not otherwise approved
in writing by Buyer; (y) expenditures  incurred to repair or replace Assets that
are affected by any casualty loss or damage;  and (z) the amount of depreciation
otherwise included in subclause (B) above that relates to any depreciable Assets
resulting  from the  expenditures  described  in  subclause  (x) above or,  with
respect  to the  Assets  described  in clause  (y)  above,  to the  extent  such
depreciation  exceeds the amount of depreciation  that otherwise would have been
incurred on the lost or damaged Assets described in subclause (y) above had they
not been lost or damaged.

     (b) At least  ten  (10),  but no more than  thirty  (30) days  prior to the
Closing  Date,  Seller  shall  prepare  in good  faith and  deliver  to Buyer an
estimated closing statement (the "Estimated  Closing  Statement") that shall set
forth  Seller's best estimate of the estimated  adjustments to the Base Purchase
Price required by Section 3.3(a) (the "Estimated  Adjustment").  Within five (5)
Business Days following the delivery of an Estimated Closing Statement to Buyer,
Buyer may object in good faith to such Estimated Closing Payment in writing.  In
the event of any such  objection,  the Parties  shall  attempt to resolve  their
differences by negotiation.  If the Parties are unable to do so before three (3)
days  prior to the  Closing  Date,  then (i) the full  amount  of the  Estimated
Adjustment shall be used to adjust the Base Purchase Price at the Closing if the
amount in dispute is less than $500,000,  or (ii) the undisputed  portion of the
Estimated  Adjustment  shall be used to adjust  the Base  Purchase  Price at the
Closing if the amount in dispute is  $500,000  or more.  The  disputed  portions
shall be paid as a  Post-Closing  Adjustment  if and to the extent  required  by
Section 3.3(d).

                                       23
<PAGE>

     (c) Within sixty (60) days following the Closing Date, Seller shall prepare
and  deliver  to  Buyer  a final  closing  statement  setting  forth  the  final
adjustments to the Base Purchase Price required by Section 3.3(a) (the "Proposed
Post-Closing  Adjustment").   All  calculations  of  the  Proposed  Post-Closing
Adjustments shall be prepared using the same accounting principles, policies and
methods as Seller has  historically  used in connection  with the calculation of
the items reflected on such Proposed Post-Closing Adjustments.

     (d)  Within  thirty  (30)  days   following  the  delivery  of  a  Proposed
Post-Closing Adjustment to Buyer, Buyer may object to such Proposed Post-Closing
Adjustment in writing.  Seller  agrees to cooperate  with Buyer to provide Buyer
and  Buyer's   Representatives   information   used  to  prepare  the   Proposed
Post-Closing Adjustments and information relating thereto. If Buyer objects to a
Proposed  Post-Closing  Adjustment,  the Parties  shall  attempt to resolve such
dispute by  negotiation.  If such  Parties  are unable to resolve  such  dispute
within  thirty  (30) days of any such  objection  by Buyer,  the  Parties  shall
appoint  an  Independent   Accounting  Firm.  The  fees  and  expenses  of  such
Independent  Accounting Firm shall be allocated between Buyer and Seller so that
Seller's  share of such fees and expenses shall be in the same  proportion  that
the aggregate amount of such remaining disputed amounts so submitted by Buyer to
such auditor that is  successfully  disputed by Buyer (as finally  determined by
such auditor)  bears to the total amount of such remaining  disputed  amounts so
submitted by Buyer to such auditor. The Independent Accounting Firm shall review
such Proposed Post-Closing  Adjustment and Buyer's written objection thereto and
determine the appropriate  adjustment to the Base Purchase Price, if any, within
thirty (30) days of such  appointment.  The Parties agree to cooperate  with the
Independent  Accounting  Firm  and  provide  it  with  such  information  as  it
reasonably requests to enable it to make such determination. The finding of such
Independent  Accounting  Firm  shall be  binding  on the  Parties  hereto.  Upon
determination  by  agreement of the Parties or by binding  determination  of the
Independent  Accounting Firm of the appropriate  adjustment to the Base Purchase
Price (in either case,  the  "Post-Closing  Adjustment"),  if such  Post-Closing
Adjustment  results  in a  change  to the Base  Purchase  Price,  as  previously
adjusted  pursuant  to Section  3.3(b),  the Party  owing the  difference  shall
deliver  such  difference  to the Party  owed such  amount no later than two (2)
Business  Days  after the  determination  of such Post  Closing  Adjustment,  in
immediately  available  funds or in any other manner as reasonably  requested by
the Party owed such amount,  plus interest at 6.0% per annum on such  determined
amount from the Closing Date to (but not including) the date of payment.

                                       24
<PAGE>

     3.4  Prorations.  Buyer and  Seller  agree  that all of the items  normally
prorated,  including  those  listed  below  (but not  including  Income  Taxes),
relating to the Business and operation of the Assets shall be prorated as of the
Closing Date,  with Seller liable for such items to the extent such items relate
to any time period prior to the Closing Date, and Buyer liable for such items to
the  extent  such items  relate to  periods  commencing  with the  Closing  Date
(measured  in the same  units used to compute  the item in  question,  otherwise
measured by calendar  days).  The Base Purchase  Price shall be increased to the
extent  Buyer will  benefit  financially  due to Seller's  payment  prior to the
Closing  Date of the  portion  of any such item  allocable  to Buyer  under this
Section , and (except with  respect to the items  addressed in clause (a) below)
shall be decreased to the extent Seller will benefit  financially due to Buyer's
payment  prior to the Closing Date of the portion of any such item  allocable to
Seller under this Section. The items subject to proration include the following:

     (a)  Subject  to  Section  6.10(b),  personal  property,  real  estate  and
occupancy  Taxes,  assessments and other charges,  if any, on or with respect to
the Business and operation of the Assets;

     (b) rent,  Taxes (other than Income  Taxes) and all other items  (including
prepaid  services or goods not included in Inventories)  payable by or to Seller
under any of the Assigned  Agreements  to the extent not included in the account
payables  and other  taxed  accrued of the  Business  outstanding  as of the day
immediately preceding the Closing Date;

     (c) any permit, license,  registration,  compliance assurance fees or other
fees with respect to any Transferable Permit or other Asset;

     (d) sewer  rents and charges for water,  telephone,  electricity  and other
utilities with respect to the Assets;

     (e) rent and Taxes payable by or to Seller under the Real  Property  Leases
assigned to Buyer to the extent not  included in the account  payables and other
taxes accrued of the Business  outstanding as of the day  immediately  preceding
the Closing Date;

     (f) deposits made by Seller to the extent transferred to Buyer;

     (g) prepaid expenses paid by Seller to the extent  transferred to Buyer and
prepaid employee benefits with respect to Transferred Employees; and

     (h) petty cash held  locally for the benefit of the  Business to the extent
transferred to Buyer.

     3.5 Deliveries by Seller. At the Closing,  Seller will deliver, or cause to
be delivered, the following to Buyer:

     (a) The Bill of Sale, duly executed by Seller;

     (b) Copies (or originals if  reasonably  feasible) of any and all consents,
waivers  or  approvals  obtained  or  required  to be  obtained  by Seller  from
Government Authorities or non-governmental  Persons with respect to the transfer
of the Assets,  or the  consummation  of the  transactions  contemplated by this
Agreement;

                                       25
<PAGE>

     (c) One or more Special Warranty Deeds conveying title to the Real Property
to Buyer, duly executed and acknowledged by Seller and in recordable form;

     (d) An opinion  from  Seller's  general  counsel,  dated the Closing  Date,
substantially  in the form of Exhibit D  attached  hereto,  and an opinion  from
Seller's Bond  Counsel,  dated the Closing  Date,  substantially  in the form of
Exhibit E attached hereto;

     (e) The Assignment and Assumption Agreement, duly executed by Seller;

     (f) A FIRPTA Affidavit and a HARPTA  Certificate (Form N-289 -- Certificate
for  Exemption  from  the  Withholding  of Tax on  Disposition  of  Hawaii  Real
Property), each duly executed by Seller;

     (g) Copies, certified by the Secretary or Assistant Secretary of Seller, of
corporate  resolutions  authorizing the execution and delivery of this Agreement
and all of the agreements and instruments to be executed and delivered by Seller
in connection  herewith,  and the consummation of the transactions  contemplated
hereby;

     (h) A  certificate  of the  Secretary  or  Assistant  Secretary  of  Seller
identifying  the name and title and bearing the  signatures  of the  officers of
Seller authorized to execute and deliver this Agreement and the other agreements
and instruments contemplated hereby;

     (i)  Certificate  of Good  Standing  with respect to Seller,  issued by the
Secretary of State of the State of Delaware;

     (j) To the extent  available,  originals of all Assigned  Agreements,  Real
Property Leases and Transferable Permits and, if not available, true and correct
copies thereof  (delivery of the foregoing  documents will be deemed made in the
case of any such  documents  then located at any of the offices  included in the
Assets,  but  only to the  extent  that  Seller  delivers  to  Buyer a  schedule
generally  identifying each such office and the general  categories of documents
located in each such office);

     (k) All such other  instruments of  assignment,  transfer or conveyance and
certificates  of title or  vessel  documentation  as  shall,  in the  reasonable
opinion of Buyer and its  counsel,  be necessary to transfer the Assets to Buyer
or to  register  Buyer as the  owner of the  Assets,  in  accordance  with  this
Agreement and where necessary or desirable in recordable form;

     (l) Such other  agreements,  documents,  instruments  and  writings  as are
required to be delivered  by Seller at or prior to the Closing Date  pursuant to
this  Agreement  (including  a Bulk Sales Tax  Clearance  Certificate  and a Tax
Clearance Certificate from the Department of Taxation of the State of Hawaii, as
contemplated  in Sections  6.8 and 10.12) or otherwise  reasonably  requested by
Buyer in connection herewith; and

                                       26
<PAGE>

     (m) A certificate  dated the Closing Date  executed by Seller's  President,
Public Services  Sector,  to the effect that, to such officer's  Knowledge,  the
conditions set forth in Sections 7.1(e) and (f) have been satisfied by Seller.

     3.6 Deliveries by Buyer. At the Closing, Buyer will deliver, or cause to be
delivered, the following:

     (a) The  Purchase  Price,  as  adjusted  pursuant  to Section  3.3, by wire
transfer  of  immediately   available  funds  denominated  in  U.S.  dollars  in
accordance with Seller's  instructions or by such other means as are agreed upon
by Seller and Buyer;

     (b) The Assignment and Assumption Agreement, duly executed by Buyer;

     (c) All such other  instruments of transfer or assumption as shall,  in the
reasonable  opinion  of  Seller  and its  counsel,  be  necessary  for the sale,
conveyance,  assignment  and transfer of the Assets to, or the assumption of the
Assumed Liabilities by, Buyer in accordance with this Agreement;

     (d) Copies,  certified by the Secretary or Assistant Secretary of Buyer, of
resolutions  authorizing the execution and delivery of this Agreement and all of
the  agreements  and  instruments  to be executed and  delivered by the Buyer in
connection  herewith,  and the  consummation  of the  transactions  contemplated
hereby;

     (e) A  certificate  of the  Secretary  or  Assistant  Secretary  of  Buyer,
identifying  the name and title and bearing the  signatures  of the  officers of
Buyer  authorized to execute and deliver this Agreement and the other agreements
and instruments contemplated hereby;

     (f) An opinion from Buyer's legal counsel reasonably  acceptable to Seller,
dated the Closing Date, substantially in the form of Exhibit F attached hereto;

     (g) Certified copies of any and all consents, waivers or approvals obtained
or  required  to  be  obtained   by  Buyer  from   Government   Authorities   or
non-governmental  Persons  with  respect  to the  transfer  of the Assets or the
consummation of the transactions contemplated by this Agreement;

     (h) Such other  agreements,  documents,  instruments  and  writings  as are
required to be delivered  by Buyer at or prior to the Closing  Date  pursuant to
this  Agreement  or  otherwise  reasonably  requested  by Seller  in  connection
herewith;

     (i)  Certificate  of Good  Standing  with  respect to Buyer,  issued by the
Secretary of State of Hawaii; and

     (j) A  certificate  dated  the  Closing  Date  executed  by  Buyer's  Chief
Financial  Officer  to  the  effect  that,  to  such  officer's  knowledge,  the
conditions  set forth in Sections  7.2(e),  (f) and (g) have been  satisfied  by
Buyer.

     3.7 Work in Progress. The Parties agree to work together before the Closing
Date to effect on the Closing Date an orderly transition with respect to work in
progress.

                                       27
<PAGE>

                                   ARTICLE IV

              REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLER

     Seller hereby represents and warrants to Buyer as follows:

     4.1   Incorporation;   Qualification.   Seller   is  a   corporation   duly
incorporated,  validly existing and in good standing under the laws of the State
of Delaware and has all requisite  corporate  power and authority to own, lease,
and operate its material  assets and  properties and to carry on its business as
is now being  conducted.  Seller is duly  qualified  to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction in which
its  business,  as now being  conducted,  shall  require it to be so  qualified,
except  where the failure to be so  qualified  would not have a Seller  Material
Adverse Effect.

     4.2 Authority. Seller has full corporate power and authority to execute and
deliver this Agreement and each of the Ancillary Agreements to which Seller is a
signatory and to consummate the transactions contemplated hereby or thereby. The
execution  and delivery by Seller of this  Agreement  and each of the  Ancillary
Agreements to which Seller is a signatory and the  consummation by Seller of the
transactions  contemplated  hereby  and  thereby  have  been  duly  and  validly
authorized by all necessary  corporate action required on the part of Seller and
this Agreement has been duly and validly executed and delivered by Seller.  Each
of this  Agreement and the  Ancillary  Agreements to which Seller is a signatory
constitutes  the legal,  valid and  binding  agreement  of  Seller,  enforceable
against  Seller  in  accordance  with its  terms,  except as may be  limited  by
applicable  bankruptcy,   insolvency,  fraudulent  conveyance,   reorganization,
moratorium  or other  similar  laws  affecting  or  relating to  enforcement  of
creditors'  rights  generally and general  principles of equity  (regardless  of
whether enforcement is considered in a proceeding at law or in equity).

     4.3 Consents and Approvals; No Violation.

     (a) Neither the execution,  delivery and  performance of this Agreement nor
the execution,  delivery and  performance of the Ancillary  Agreements by Seller
will  (i)  conflict  with  or  result  in any  breach  of any  provision  of the
Certificate of Incorporation  or Bylaws of Seller,  (ii) result in a default (or
give rise to any right of termination,  cancellation or acceleration)  under any
of the terms,  conditions or provisions of any note, bond, mortgage,  indenture,
material  agreement or other instrument or obligation to which Seller is a party
or by which it, or any of the Assets may be bound,  except for such defaults (or
rights of  termination,  cancellation  or  acceleration)  as to which  requisite
waivers or consents  have been  obtained and for such rights of  termination  or
cancellation   of  Permits  and   Assigned   Agreements   that   purport  to  be
non-transferable by their terms, in each case that would not, individually or in
the aggregate,  result in a Seller Material  Adverse Effect or an Asset Material
Adverse  Effect or (iii)  subject to obtaining  the Seller  Required  Regulatory
Approvals,  constitute  violations of any law,  regulation,  order,  judgment or
decree applicable to Seller, which violations, individually or in the aggregate,
would result in a Seller  Material  Adverse Effect or an Asset Material  Adverse
Effect.

                                       28
<PAGE>

     (b) Except as set forth in  Schedule  4.3(b)  (the  filings  and  approvals
referred  to in  Schedule  4.3(b) are  collectively  referred  to as the "Seller
Required  Regulatory  Approvals"),  no consent or approval of,  filing with,  or
notice to,  any  Governmental  Authority  is  necessary  for the  execution  and
delivery  of this  Agreement  and the  Ancillary  Agreements  by  Seller  or the
consummation  by Seller of the  transactions  contemplated  hereby and  thereby,
other  than  those the  failure  to obtain  which  would not  result in a Seller
Material  Adverse  Effect  or an Asset  Material  Adverse  Effect  and would not
otherwise result in a material violation of law by Buyer.

     4.4 Insurance.  Schedule 4.4 lists, as of the date of this  Agreement,  all
material policies of fire,  liability,  workers' compensation and other forms of
insurance (if any) owned or held by, or on behalf of, Seller with respect to the
Assets and the Business. Except as set forth in such Schedule, all such policies
are in full force and effect,  all premiums  with respect  thereto  covering all
periods  up to and  including  the  date  hereof  have  been  paid  (other  than
retroactive  premiums  which  may be  payable  with  respect  to  auto,  general
liability  and  workers'  compensation  insurance  policies),  and no  notice of
cancellation  or  termination  has been received with respect to any such policy
which was not replaced on substantially  similar terms prior to the date of such
cancellation.  Except as described in Schedule 4.4,  within the thirty-six  (36)
months  preceding  the date of this  Agreement,  Seller has not been refused any
insurance  with respect to the Assets or the Business nor has its coverage  been
limited with  respect to the Assets or the Business  other than due to insurance
limitations  generally applicable to property or businesses located in Hawaii by
any  insurance  carrier to which it has applied for any such  insurance  or with
which it has carried insurance during the last twelve (12) months.

     4.5  Real  Property  Leases.  Schedule  4.5  lists,  as of the date of this
Agreement,  all material real property  leases under which Seller is a lessee or
lessor and which relate to the Assets, including all leases of office space used
by Seller in the conduct of the Business (the "Real  Property  Leases").  Seller
has  delivered to Buyer true,  correct and  complete  copies of each of the Real
Property Leases.

     4.6  Environmental  Matters.  Seller has heretofore  delivered to Buyer all
environmental  reports and all  environmental  site assessments  relating to the
Assets that have been identified by Seller after diligent inquiry, which reports
are  identified in a schedule  delivered to Buyer on or prior to the date hereof
("Environmental  Reports").  Notwithstanding the immediately preceding sentence,
Seller  shall  not be  required  to make  available  to  Buyer  any  information
regarding  the  condition  or  remediation  of the  Iwilei  Property.  Except as
disclosed in Schedule 4.6 or in the Environmental Reports:

     (a) Seller holds, and is in substantial  compliance with, all Environmental
Permits  that are  required  for Seller to conduct the  Business and operate the
Assets, and Seller is otherwise in compliance with applicable Environmental Laws
with  respect to the  Business  and  operation  of the  Assets,  except for such
failures to hold or comply with required Environmental Permits, or such failures
to  be  in  compliance  with  applicable   Environmental  Laws,  as  would  not,
individually or in the aggregate, result in an Asset Material Adverse Effect;

     (b) Seller has not received  (i) any written  request for  information,  or
been notified that it is a potentially  responsible  party,  under CERCLA or any
similar state law with respect to any of the Real Property,  or (ii) any written
notification  from a  Governmental  Authority with respect to pending or ongoing
investigations or enforcement actions related to alleged or potential violations
of any applicable Environmental Law with respect to any of the Real Property;

                                       29
<PAGE>

     (c) Seller has not entered  into or agreed to any  consent  decree or order
relating to the Assets, and is not subject to any outstanding judgment,  decree,
or  judicial  order  relating to  compliance  with any  Environmental  Law or to
Remediation of Regulated  Substances under any Environmental Law relating to the
Assets; and

     (d) To Seller's Knowledge,  no Release of Regulated Substances has occurred
at, from, in, on, or under the Real Property,  and, except as legally permitted,
no Regulated  Substances  are present in, on,  about or migrating  from the Real
Property, in each case that would give rise to an Environmental Claim related to
the Assets for which  Remediation  would  reasonably be required,  except in any
such case to the extent that any such Release or Environmental  Claim would not,
individually or in the aggregate,  result in an Environmental Claim in excess of
$50,000.

     4.7  Labor  Matters.  Schedule  4.7 sets  forth all  collective  bargaining
agreements,  and  amendments  thereto,  to which Seller is a party in connection
with the  Business.  Seller has  previously  delivered to Buyer true and correct
copies of all such collective bargaining agreements and amendments thereto. With
respect  to the  Assets  and the  Business,  except to the  extent  set forth in
Schedule  4.7 and except for such matters as would not,  individually  or in the
aggregate,  result  in an  Asset  Material  Adverse  Effect,  (a)  Seller  is in
compliance  with  all  applicable  laws  respecting  employment  and  employment
practices,  occupational safety and health, plant closing,  mass layoffs,  terms
and  conditions of employment  and wages and hours;  (b) Seller has not received
any written notice of any unfair labor practice complaint against Seller pending
before the National Labor Relations Board; (c) no arbitration proceeding arising
out of or under any collective  bargaining  agreement is pending against Seller;
and (d) Seller  has not  experienced  any work  stoppage  within the  three-year
period  prior to the date hereof and to  Seller's  Knowledge  none is  currently
threatened.

     4.8 Benefit Plans: ERISA.

     (a) Schedule 4.8 lists all material Benefit Plans. True and complete copies
of all such Benefit Plan  documents,  amendments  and summary plan  descriptions
have been made available to Buyer.  With respect to the Classified Plan,  Seller
has provided to Buyer true and complete copies of the following  documents:  (i)
all documents  embodying or governing the Classified Plan and any funding medium
for such plan (including, without limitation, trust agreements) as they may have
been amended to the date hereof; (ii) the most recent IRS determination  letter;
(iii) the most  recently  filed Form 5500,  with all  applicable  schedules  and
accountants'  opinions attached  thereto;  and (iv) the summary plan description
for such plan (or other descriptions of such plan provided to employees) and all
modifications thereto.

     (b) No liability  under Title IV or Section 302 of ERISA has been  incurred
by Seller or any ERISA  Affiliate of Seller that has not been satisfied in full,
no  condition  exists  that  presents  a  material  risk to  Seller or any ERISA
Affiliate of Seller of incurring any such  liability,  other than  liability for
premiums due to the Pension Benefit  Guaranty  Corporation  (which premiums have
been paid when due).  Insofar as the  representation  made in this  Section  4.8
applies to  Sections  4064,  4069 or 4204 of Title IV of ERISA,  it is made with
respect to any employee benefit plan, program,  agreement or arrangement subject
to Title IV of ERISA to which Seller or any ERISA  Affiliate of Seller made,  or
was required to make,  contributions  during the five (5)-year  period ending on
the last day of the most recent plan year ended prior to the Closing Date.

                                       30
<PAGE>

     (c) The Classified Plan is not a "multiemployer plan" as defined in Section
3(37) of ERISA.  As of November 30,  2002,  the market value of assets under the
Classified Plan exceeded the present value of liabilities thereunder (determined
under FAS 35 by Deloitte and Touche using the  interest  crediting  rate for the
funding  standard  account as  described in Section  412(b)(5)(A)  of the Code).
Prior to the Closing Date all required contributions to the Classified Plan will
be made. The Classified Plan has not incurred an accumulated  funding deficiency
(whether  or not  waived)  within the meaning of Section 302 of ERISA or Section
412 of the  Code.  With  respect  to the  Classified  Plan  there  have  been no
"reportable   events,"  within  the  meaning  of  ERISA  Section  4043,  or  the
regulations thereunder,  for which the notice requirement is not waived under 29
C.F.R.  Part  4043.  The  Classified  Plan  is  not  presently  under  audit  or
examination  (nor has notice been received of a potential  audit or examination)
by the  Internal  Revenue  Service,  the  Department  of  Labor,  or  any  other
governmental agency or entity, and no matters are pending under the IRS Employee
Plans Compliance  Resolution System, the IRS closing agreement program, or other
similar program.

     (d) Except as expressly provided in this Agreement, the consummation of the
transactions  contemplated  by this  Agreement  will  not,  either  alone  or in
combination  with another event,  (i) entitle any current or former  employee or
officer  of  Seller  or  any  ERISA   Affiliate  of  Seller  to  severance  pay,
unemployment  compensation or any other payment,  or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such employee
or officer.

     (e) There has been no material  failure of any of the Benefit Plans that is
a group health plan (as defined in Section  5000(b)(1)  of the Code) to meet the
requirements  of  Section  4980B(f)  of the Code  with  respect  to a  qualified
beneficiary (as defined in Section 4980B(g) of the Code). Neither Seller nor any
ERISA Affiliate of Seller has  contributed to a nonconforming  group health plan
(as defined in Section 5000(c) of the Code) and no ERISA Affiliate of Seller has
incurred  a tax under  Section  5000(e)  of the Code  that is or could  become a
liability of Buyer.

     (f) To the Knowledge of Seller,  the Classified  Plan has been  maintained,
funded and administered  substantially in accordance with the terms of such plan
and  substantially  complies  in  form  and in  operation  with  the  applicable
requirements  of ERISA and the Code. To the Knowledge of Seller,  the Classified
Plan is qualified under Section 401(a) of the Code.

     (g) Prior to the Closing  Date,  full  payment  will be made of all amounts
that the Seller is required to have paid as premiums or  contributions,  for all
periods prior to Closing, to the Hawaii Teamsters Health and Welfare Trust.

     (h) There are no pending, or to Seller's Knowledge, threatened claims by or
on behalf of any Benefit Plans, by any employee or beneficiary covered under any
such Benefit  Plans,  or otherwise  involving any such Benefit Plans (other than
routine claims for benefits).

                                       31
<PAGE>

     (i) Seller's  Pension Plan, the Classified  Plan, and Seller's  401(k) Plan
(as such terms are defined in Section 6.12 hereof) are the only  Employee  Plans
which are intended to be qualified under Section 401(a) of the IRC.

     4.9 Real Property. Schedule 4.9 contains a description of the Real Property
included  in the  Assets.  True  and  correct  copies  of any  current  surveys,
abstracts,  title  commitments  and title  opinions  identified  by Seller after
diligent  inquiry  to be in  Seller's  possession  and  all  policies  of  title
insurance  currently in force and identified by Seller after diligent inquiry to
be in the possession of Seller with respect to the Real Property have heretofore
been made available to Buyer.

     4.10  Condemnation.  Except as set forth in Schedule  4.10,  Seller has not
received any written notices of and otherwise has no Knowledge of any pending or
threatened  proceedings or actions by any  Governmental  Authority to condemn or
take by power of eminent domain all or any part of the Assets.

     4.11 Assigned Agreements.

     (a)  Schedule  4.11(a)  lists  each  Assigned  Agreement  (other  than Real
Property   Leases,   line   extension   agreements   and  similar   construction
arrangements,  propane and synthetic natural gas supply contracts with customers
of the  Business,  and  Easements  held by  Seller)  which  is  material  to the
Business, other than those (i) that are listed or described on another Schedule,
(ii) that  provide for annual  payments by Seller  after the date hereof of less
than $100,000 or (iii) that, when aggregated with all other Assigned  Agreements
not listed on Schedule 4.5 or 4.11(a),  provide for payments by Seller after the
date hereof of less than $500,000 in the aggregate.  Schedule 4.11(a) also lists
each agreement that is material to the Assets or the Business that may expire or
that  Seller  expects  to  terminate  prior to the  Closing  Date other than any
agreement that is an Excluded Asset.

     (b) Except as disclosed in Schedule  4.11(b),  (i) each Assigned  Agreement
listed on  Schedule  4.5 or  4.11(a)  constitutes  a legal,  valid  and  binding
obligation of Seller and, to Seller's Knowledge, constitutes a valid and binding
obligation of the other parties thereto, and (ii) may be transferred to Buyer as
contemplated by this Agreement  without the consent of the other parties thereto
and will continue in full force and effect  thereafter,  unless in any such case
the impact of such lack of legality, validity or binding nature, or inability to
transfer,  would  not,  individually  or in the  aggregate,  result  in an Asset
Material Adverse Effect.

     (c)  Except  as set  forth in  Schedule  4.11(c),  there is not,  under the
Assigned  Agreements  listed on Schedule  4.5 or  4.11(a),  any default or event
which,  with notice or lapse of time or both,  would constitute a default on the
part of the Seller or to Seller's  Knowledge,  any of the other parties thereto,
except such events of default and other events which would not,  individually or
in the aggregate, result in an Asset Material Adverse Effect.

     4.12 Legal  Proceedings.  Except as set forth in Schedule 4.12, there is no
action or  proceeding  pending or, to  Seller's  Knowledge,  threatened  against
Seller before any court,  arbitrator  or  Governmental  Authority,  which would,
individually  or in the aggregate,  reasonably be expected to result in a Seller
Material Adverse Effect or an Asset Material Adverse Effect. Except as set forth
in  Schedule  4.12 Seller is not  subject to any  outstanding  Order that would,
individually or in the aggregate,  result in a Seller Material Adverse Effect or
an Asset Material Adverse Effect.

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<PAGE>

     4.13 Permits.  Seller has all Permits  (other than  Environmental  Permits,
which are  addressed  in Section  4.6 hereof)  necessary  to own and operate the
Assets except where the failure to have such Permits would not,  individually or
in the aggregate,  create a Seller Material  Adverse Effect or an Asset Material
Adverse  Effect.  Except as disclosed on Schedule 4.13,  Seller has not received
any written  notification  that it is in violation of any such  Permits,  except
notifications of violations  which would not,  individually or in the aggregate,
result in a Seller Material  Adverse Effect or an Asset Material Adverse Effect.
Seller is in compliance with all Permits except where such non-compliance  would
not,  individually  or in the  aggregate,  result in a Seller  Material  Adverse
Effect or an Asset Material Adverse Effect.

     4.14 Taxes.

     (a)  Seller  has  filed or  caused  to be filed  all Tax  Returns  that are
required to be filed by it with respect to any Tax relating to the Assets or the
Business,  and has paid or caused to be paid all Taxes  that have  become due as
indicated  thereon,  except  where such Tax is being  contested in good faith by
appropriate proceedings, or where the failure to so file or pay would not result
in a Seller Material Adverse Effect or an Asset Material Adverse Effect.  Seller
has  complied in all  material  respects  with all  applicable  laws,  rules and
regulations relating to withholding Taxes relating to Transferred Employees. All
Tax  Returns  relating  to the  Assets or the  Business  are true,  correct  and
complete in all material respects.  There are no liens for Taxes upon the Assets
except for liens for Taxes not yet due and Permitted Encumbrances.

     (b)  Except as set forth in  Schedule  4.14,  no  notice of  deficiency  or
assessment  has  been  received  from  any  taxing  authority  with  respect  to
liabilities for Taxes of Seller in respect of the Assets or the Business,  which
have not been fully paid or finally  settled,  and any such deficiency  shown in
Schedule 4.14 is being contested in good faith through appropriate proceedings.

     (c)  Except  as set  forth  in  Schedule  4.14,  there  are no  outstanding
agreements or waivers  extending the applicable  statutory periods of limitation
for Taxes  associated  with the Assets or the Business that will be binding upon
Buyer after the Closing.

     (d) Except as set forth on  Schedule  4.14,  none of the Assets is property
that is required to be treated as being  owned by any other  person  pursuant to
the so-called safe harbor lease provisions of former Section 168(f) of the Code,
and none of the  Assets is  "tax-exempt  use"  property  within  the  meaning of
Section 168(h) of the Code.

     (e) Schedule 4.14 sets forth the taxing  jurisdictions in which Seller owns
assets or conducts business that require a notification to a taxing authority of
the  transactions  contemplated by this  Agreement,  if the failure to make such
notification,  or obtain Tax clearance  certificates  in  connection  therewith,
would  either  require  Buyer to withhold  any portion of the  consideration  or
subject Buyer to any liability for any Taxes of Seller.

                                       33
<PAGE>

     4.15  Intellectual  Property.  The Citizens Marks,  the Gasco Marks and the
software licenses and related  contracts  described in Schedules 2.2 and 4.11(a)
constitute all of the material Intellectual Property necessary for the operation
and  maintenance  of the Assets or the  conduct of the  Business,  each of which
Seller either has all right,  title and interest in or valid and binding  rights
under  contract to use in  connection  with the  operation of the Assets and the
Business.  Except as disclosed in Schedule  4.15,  (a) Seller is not, nor has it
received  any  notice  that it is, in  default  (or with the giving of notice or
lapse of time or both,  would be in  default),  under any  contract  to use such
Intellectual Property, and (b) to Seller's Knowledge, such Intellectual Property
is not being  infringed  by any other  Person.  Except as  disclosed in Schedule
4.15,  Seller has not received  notice that it is  infringing  any  Intellectual
Property of any other Person in connection with the Assets or the Business,  and
Seller,  to its Knowledge,  is not infringing any  Intellectual  Property of any
other  Person  which,  individually  or in the  aggregate,  would  have an Asset
Material Adverse Effect.

     4.16  Capital  Expenditures.  Seller has  heretofore  delivered  to Buyer a
schedule of all Capital Expenditures that, as of the date of this Agreement, are
planned by Seller from the date hereof  through  December 31, 2003 (the "Capital
Expenditures Schedule").

     4.17  Compliance  With Laws.  Seller is in compliance  with all  applicable
laws,  rules and  regulations  with  respect to its  ownership of the Assets and
operation of the Business  except  where the failure to be in  compliance  would
not,  individually  or in the  aggregate,  result in a Seller  Material  Adverse
Effect or an Asset Material Adverse Effect.

     4.18 Title.  Seller has, and will have as of the Closing Date,  good, valid
and  indefeasible  title to the Real  Property  and the  other  Assets  owned or
purported  to be owned by  Seller,  free and  clear of all  Encumbrances  except
Permitted Encumbrances.

     4.19 DISCLAIMERS.  EXCEPT FOR THE  REPRESENTATIONS AND WARRANTIES SET FORTH
IN THIS  ARTICLE IV, THE ASSETS ARE  TRANSFERRED  "AS IS,  WHERE IS", AND SELLER
EXPRESSLY  DISCLAIMS  ANY  REPRESENTATIONS  OR WARRANTIES OF ANY KIND OR NATURE,
EXPRESS OR IMPLIED,  AS TO  LIABILITIES,  OPERATIONS  OF THE ASSETS,  CONDITION,
VALUE OR QUALITY OF THE ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS
AND  OTHER  INCIDENTS  OF THE  ASSETS  AND  SELLER  SPECIFICALLY  DISCLAIMS  ANY
REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE WITH RESPECT TO THE ASSETS, OR ANY PART THEREOF, OR AS TO
THE WORKMANSHIP  THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN,  WHETHER LATENT
OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL  REQUIREMENTS,  OR THE APPLICABILITY
OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING BUT NOT LIMITED TO ANY ENVIRONMENTAL
LAWS, OR WHETHER SELLER POSSESSES  SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY
TO OPERATE THE ASSETS.  EXCEPT AS OTHERWISE  EXPRESSLY  PROVIDED HEREIN,  SELLER
FURTHER  SPECIFICALLY  DISCLAIMS ANY  REPRESENTATION  OR WARRANTY  REGARDING THE
ABSENCE OF HAZARDOUS  SUBSTANCES  OR LIABILITY  OR POTENTIAL  LIABILITY  ARISING
UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE ASSETS.

                                       34
<PAGE>

     4.20 Financial Statements.

     (a) Schedule 4.20 sets forth the  unaudited  balance sheet for the Business
as of December 31, 2001 (the  "Balance  Sheet") and the  unaudited  statement of
income of the  Business  for the  twelve-month  period  ended  December 31, 2001
(collectively,  the  "Financial  Statements").  Except as set forth in  Schedule
4.20,  the  Financial  Statements  have  been  prepared  on a  pre-tax  basis in
accordance,  in all material  respects,  with GAAP applied on a basis consistent
with prior periods  except for the omission of full  footnotes to such Financial
Statements.  Except as set forth in Schedule  4.20,  the Balance Sheet  presents
fairly in all material  respects the  financial  condition of the Business as of
its date and the income statement included in the Financial  Statements presents
fairly in all material  respects the results of  operations  of the Business for
the  periods  covered  thereby.  The books and  records of Seller from which the
Financial  Statements  were derived  were  complete and accurate in all material
respects at the time of such preparation.

     (b) Schedule 4.20 also sets forth property level  financial  statements for
the Business as of and for the period  ending  September  30, 2002, as extracted
from Seller's SAP financial statement software. Such property level reports have
been prepared on a basis  consistent  with prior periods,  were derived from the
books and records of Seller,  and present  fairly in all  material  respects the
financial  information of the Business presented therein as of the dates and for
the periods covered thereby,  subject to normal course adjustments and corporate
adjustments and  consolidations  consistent  with the corporate  adjustments and
consolidations made in the Financial Statements.

     4.21 SEC Filings; Financial Statements.

     (a)  Seller  has  filed,  or caused to be filed,  all  forms,  reports  and
documents required to be filed by Seller with the SEC since January 1, 2001, and
has  heretofore  delivered or made available to Buyer in the form filed with the
SEC, together with any amendments  thereto,  its (i) Annual Reports on Form 10-K
for the fiscal year ended December 31, 2000 and 2001, (ii) Quarterly  Reports on
Form 10-Q for the fiscal quarter ended March 31 and June 30, 2002, and (iii) all
other  reports or  registration  statements  filed by Seller  with the SEC since
January 1, 2001 (collectively, the "Seller SEC Reports"). The Seller SEC Reports
were  prepared   substantially  in  accordance  with  the  requirements  of  the
Securities Act of 1933, as amended,  or the Securities  Exchange Act of 1934, as
amended,  as the case may be, and the rules and  regulations  promulgated  under
each of such  respective  acts,  and did not at the time they were filed contain
any  untrue  statement  of a  material  fact or omit to  state a  material  fact
required  to be stated  therein  or  necessary  in order to make the  statements
therein,  in the light of the  circumstances  under  which they were  made,  not
misleading.

     (b) The financial  statements,  including all related notes and  schedules,
contained  in the Seller SEC  Reports (or  incorporated  by  reference  therein)
fairly  present  the  consolidated  financial  position  of  Seller  as  at  the
respective  dates thereof and the  consolidated  results of operations  and cash
flows of Seller for the periods  indicated in accordance  with GAAP applied on a
consistent  basis  throughout  the  periods  involved  (except  for  changes  in
accounting principles disclosed in the notes thereto) and subject in the case of
interim financial statements to normal year-end adjustments.

                                       35
<PAGE>

     4.22 Sufficiency of Assets. The Assets and the Excluded Assets are the only
assets  owned,  used,  or held for use by Seller in, or in  connection  with, or
otherwise  necessary  for, the conduct of the  Business as presently  conducted,
except for such  assets the  failure to own,  use, or hold for use, as would not
have an Asset Material Adverse Effect or a Material Adverse Effect for Buyer.

     4.23 Easements. To Seller's Knowledge, except as set forth in Schedule 4.13
(Seller Permit Violations),  Seller owns or possesses all Easements necessary to
conduct the Business as now being conducted  without any known conflict with the
right of others,  in each case  except to the extent  that the failure to own or
possess such Easements would not have an Asset Material Adverse Effect.

     4.24 Tangible Personal Property.  Except for normal wear and tear, and with
such exceptions as are not, individually or in the aggregate,  reasonably likely
to have an Asset Material Adverse Effect,  the Tangible  Personal Property is in
normal operating condition and in a state of reasonable maintenance and repair.

     4.25  Regulatory  Matters.  The Gas  Franchise  Act serves as the operating
authority  for  Seller  rather  than a  Certificate  of Public  Convenience  and
Necessity otherwise required of public utilities pursuant to Chapter 269, Hawaii
Revised  Statutes.  The Gas Franchise Act does not obligate  Seller to serve the
entire  area of the State of  Hawaii.  Seller  operates  the  Business,  and the
Business is regulated as a public  utility,  only in the State of Hawaii.  As of
the date of this  Agreement,  Seller has no present  intention  to make any rate
filing or take any other action seeking to change the rates, charges,  standards
of service or accounting of Seller with respect to the regulated  portion of the
Business  from  those in effect on the date of this  Agreement,  or  seeking  to
effect with the HPUC any  agreement,  commitment,  arrangement  or consent  with
respect thereto. Seller is not a "Holding Company," a "Subsidiary Company" or an
"Affiliate"  of a "Holding  Company"  within the  meaning of the Public  Utility
Holding Company Act of 1935, as amended ("PUHCA").

                                    ARTICLE V

                     REPRESENTATIONS AND WARRANTIES OF BUYER

     Buyer represents and warrants to Seller as follows:

     5.1  Organization.  K-1  USA is a  Delaware  corporation,  duly  organized,
validly  existing and in good  standing  under the laws of the State of Delaware
and has all requisite  corporate  power and authority to own,  lease and operate
the Assets and to carry on the Business as is now being conducted.

     5.2 Authority.  Buyer has full corporate power and authority to execute and
deliver this Agreement and each of the Ancillary  Agreements to which Buyer is a
signatory and to consummate the  transactions  contemplated  hereby and thereby.
The  execution  and  delivery  by  Buyer  of this  Agreement  and the  Ancillary
Agreements  to which Buyer is a signatory and the  consummation  by Buyer of the
transactions  contemplated  hereby  and  thereby  have  been  duly  and  validly
authorized  by all  necessary  corporate  and,  except as set forth in  Schedule
5.3(a),  shareholder action required on the part of Buyer and this Agreement and
the Ancillary  Agreements  have been duly and validly  executed and delivered by
Buyer.  Each of this Agreement and the Ancillary  Agreements to which Buyer is a
signatory,   constitute  the  legal,  valid  and  binding  agreement  of  Buyer,
enforceable against Buyer in accordance with its terms, except as may be limited
by applicable  bankruptcy,  insolvency,  reorganization,  fraudulent conveyance,
moratorium  or other  similar  laws  affecting  or  relating to  enforcement  of
creditors'  rights  generally and general  principles of equity  (regardless  of
whether enforcement is considered in a proceeding at law or in equity).

                                       36
<PAGE>

     5.3 Consents and Approvals; No Violation.

     (a) Except as set forth in Schedule 5.3(a), neither the execution, delivery
and  performance  of this  Agreement  by Buyer nor the  execution,  delivery and
performance  of the Ancillary  Agreements by Buyer or any of its  Affiliates nor
the  consummation by Buyer of the transactions  contemplated  hereby and thereby
will  (i)  conflict  with  or  result  in any  breach  of any  provision  of the
organizational  and governing  documents of Buyer, or any of its Affiliates,  or
(ii) result in a default (or give rise to any right of termination, cancellation
or acceleration)  under any of the terms,  conditions or provisions of any note,
bond, mortgage,  indenture, material agreement or other instrument or obligation
to which  Buyer  or any of its  Affiliates  is a party or by which  any of their
respective  assets  may be  bound,  except  for  such  defaults  (or  rights  of
termination,  cancellation or  acceleration)  as to which  requisite  waivers or
consents  have  been  obtained  or  which  would  not,  individually  or in  the
aggregate,  have a Buyer  Material  Adverse Effect or (iii) subject to obtaining
the Buyer Required Regulatory  Approvals and the assignment of this Agreement to
the k1 Designee in accordance with Section 6.8(f),  constitute violations of any
law,  regulation,   order,   judgment  or  decree  applicable  to  Buyer,  which
violations,  individually or in the aggregate,  would result in a Buyer Material
Adverse Effect.

     (b) Except as set forth in  Schedule  5.3(b)  (the  filings  and  approvals
referred to in such Schedule are collectively referred to as the "Buyer Required
Regulatory  Approvals"),  no consent or approval of,  filing with, or notice to,
any  Governmental  Authority is necessary for Buyer's  execution and delivery of
this  Agreement  and the  Ancillary  Agreements  or the  consummation  by the k1
Designee,  as the Buyer, of the  transactions  contemplated  hereby and thereby,
other than such consents,  approvals, filings or notices, which, if not obtained
or made, will not (i) prevent Buyer from  performing its obligations  under this
Agreement  and the  Ancillary  Agreements  or (ii)  result  in a Buyer  Material
Adverse Effect.

     (c) The affirmative  votes of a simple majority of the votes entitled to be
cast by holders of  outstanding  ordinary  shares of S$0.10  each of k1 Ventures
Limited  that are  present in person or by proxy and  voting at a duly  convened
meeting of shareholders of k1 Ventures  Limited at which a quorum is present are
the only  votes of the  holders  of any class or series of  capital  stock of k1
Ventures Limited necessary to approve k1 Ventures Limited's provision of funding
to  Buyer  in  connection  with  this  Agreement,   participation  (directly  or
indirectly)  in the  transactions  contemplated  in  this  Agreement  (including
pursuant to the Support  Agreement) or taking any other corporate  action by any
direct or indirect  subsidiary of k1 Ventures  Limited in  connection  with such
transactions (the "Required  Shareholder  Actions").  To Buyer's knowledge,  the
shareholders  of k1 Ventures  Limited that have  executed the Voting  Agreements
described in clause (ii) of the third recital to this  Agreement own or are able
to direct the voting of the shares of voting  securities of k1 Ventures  Limited
described in such Voting Agreements and such shares,  when voted in favor of the
Required  Shareholder  Actions,  will be  sufficient  to  approve  the  Required
Shareholder  Actions.  The execution and delivery of, and the  performance by k1
Ventures Limited of its obligations  under the Support  Agreement have been duly
authorized by all Board action of k1 Ventures Limited, and the Support Agreement
constitutes  the legal,  valid and binding  obligation  of k1 Ventures  Limited,
enforceable  against k1 Ventures Limited in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization,  fraudulent
conveyance,   moratorium  or  other  similar  laws   affecting  or  relating  to
enforcement  of creditors'  rights  generally  and general  principles of equity
(regardless  of whether  enforcement  is considered in a proceeding at law or in
equity).

                                       37
<PAGE>

     5.4  Availability  of Funds.  Buyer  acknowledges  and  agrees  that on the
Closing Date, it will have sufficient funds to pay the Purchase Price under this
Agreement 5.5

     5.5 Public Company Filings; Financial Statements.

     (a) Buyer  heretofore  delivered  or made  available  to Seller  the Annual
Report of k1  Ventures  Limited for the fiscal year ended June 30, 2002 (the "k1
Ventures Annual  Report").  The k1 Ventures Annual Report did not as of the date
of such report contain any untrue  statement of a material fact or omit to state
a material fact required to be stated  therein or necessary in order to make the
statements  therein,  in the light of the  circumstances  under  which they were
made, not misleading.

     (b) The financial  statements,  including all related notes and  schedules,
contained  in the k1 Ventures  Annual  Report  fairly  present the  consolidated
financial  position  of k1  Ventures  Limited  as at the  date  thereof  and the
consolidated results of operations and cash flows of k1 Ventures Limited for the
periods  indicated in accordance with the Singapore  Companies Act and Singapore
Statements of Accounting  Standard  applied on a consistent basis throughout the
periods involved (except for changes in accounting  principles  disclosed in the
notes thereto).

     5.6 Legal Proceedings.  There are no actions or proceedings  pending or, to
Buyer's knowledge  threatened  against Buyer or any of its Affiliates before any
court or arbitrator or  Governmental  Authority,  which,  individually or in the
aggregate,  would result in a Buyer Material  Adverse Effect.  Neither Buyer nor
any of its  Affiliates  is  subject  to any  outstanding  Orders,  which  would,
individually or in the aggregate, result in a Buyer Material Adverse Effect.

     5.7 No Knowledge of Seller's  Breach.  Buyer has no knowledge of any breach
by Seller of any  representation or warranty of Seller or of any other condition
or  circumstance  that would  excuse  Buyer from its timely  performance  of its
obligations   hereunder.   Buyer  shall  notify  promptly  Seller  if  any  such
information comes to Buyer's attention prior to the Closing.

     5.8  Qualified  Buyer.  Buyer will be  qualified  to obtain any Permits and
Environmental  Permits  necessary  for Buyer to own and operate the Assets as of
the Closing.

                                       38
<PAGE>

     5.9 Inspections. Buyer is knowledgeable about the Business as engaged in by
Seller  and of the  usual  and  customary  practices  of  companies  engaged  in
businesses  similar  to the  Business  and has had  access  to the  Assets,  the
officers  and  employees of Seller,  and the books,  records and files of Seller
relating to the Business and the Assets.  In making its decision to execute this
Agreement,  and to purchase the Assets, and without derogation to any of Buyer's
rights to  indemnification  under  Section  8.2,  Buyer  has  relied on and will
continue to rely upon the results of its Inspections,  the Environmental Reports
and Seller's  representations  and warranties in Section 4.6. Buyer acknowledges
and agrees that the  representations  and  warranties set forth in Article IV of
this Agreement constitute the sole and exclusive  representations and warranties
of Seller to Buyer in connection with the transactions  contemplated  hereby and
by the  Ancillary  Agreements,  and  there are no  representations,  warranties,
covenants,  understandings or agreements,  oral or written,  in relation thereto
between the Parties other than those incorporated herein, including Section 6.3,
and therein.  Except for the representations and warranties  expressly set forth
in Article IV of this Agreement, Buyer disclaims reliance on any representations
or  warranties,  either  express  or  implied,  by or on behalf of Seller or its
Affiliates or Representatives. Without limiting the generality of the foregoing,
Buyer acknowledges and agrees that, except as provided in Section 4.6, there are
no  representations  or warranties  of Seller with respect to the  Environmental
Condition of the Assets,  compliance with  Environmental  Laws and Environmental
Permits of the  presence  or  Releases of  hazardous  material in the  fixtures,
soils,  groundwater,  surface water or air on, under or about or emanating  from
any of the Assets.

     5.10 WARN Act.  Buyer  does not  intend to engage in a "Plant  Closing"  or
"Mass  Layoff" as such terms are  defined in the WARN Act, or to take any action
that would require the giving of any notice under Chapter 394B,  Hawaii  Revised
Statutes, as amended, within sixty days after the Closing Date.

     5.11 Public Utility Holding Company Status; Regulation as a Public Utility.
Following the assignment of this Agreement to the k1 Designee and on the Closing
Date, neither Buyer nor any of its "affiliates" (within the meaning of such term
in PUHCA) will be a "holding company," a "subsidiary company," or an "affiliate"
of a "public utility  company" or of a "holding  company," within the meaning of
such terms in PUHCA and  regulations  and rules  issued by the SEC  pursuant  to
PUHCA.  No approval or other action by the SEC will be required  under PUHCA for
the k1 Designee or any of its  "affiliates"  (within the meaning of such term in
PUCHA) to consummate the transactions contemplated in this Agreement.

     5.12 Ownership and Control of Buyer.

     (a) K-1 USA is a wholly-owned indirect subsidiary of k1 Ventures Limited, a
Singapore corporation.  The ownership and control of k1 Ventures is as set forth
in the k1 Ventures Annual Report.

     (b) The k1 Designee will be organized,  owned and  controlled in accordance
with the provisions of the Section 6.8(f).

                                   ARTICLE VI

                            COVENANTS OF THE PARTIES

     6.1 Conduct of Business and Operation of Assets.

     (a) Except as described in Schedule  6.1(a),  as required by an  applicable
law  or by  any  Governmental  Authority,  as  expressly  contemplated  by  this
Agreement or to the extent Buyer otherwise consents in writing (such consent not
to be unreasonably withheld),  during the period from the date of this Agreement
to the Closing Date,  Seller shall (i) operate the Assets in the ordinary course
of business consistent with its past practices and Good Utility Practices,  (ii)
use all  Commercially  Reasonable  Efforts to preserve  intact the Assets in all
material respects,  and endeavor to preserve the goodwill and relationships with
customers, suppliers and others having business dealings with it, (iii) maintain
insurance  described  in Section  4.4 (or  replacements  thereto  providing  for
substantially  the same  coverage),  and (iv)  comply with all  applicable  laws
relating to the Assets,  including without  limitation,  all Environmental Laws,
except  where the  failure to so comply  would not  result in an Asset  Material
Adverse Effect.

                                       39
<PAGE>
     (b) Without  limiting  the  generality  of Section  6.1(a)  and,  except as
contemplated  in this  Agreement  or as  described  in  Schedule  6.1(a),  or as
required under  applicable law or by any  Governmental  Authority,  prior to the
Closing Date, without the prior written consent of Buyer (such consent not to be
unreasonably withheld), Seller shall not:

     (i) Make any  material  change  in the  levels of  Inventories  customarily
maintained by Seller with respect to the Business,  other than changes which are
consistent with Good Utility Practices;

     (ii) Sell,  lease (as  lessor),  encumber,  pledge,  transfer or  otherwise
dispose of, any Asset (except for Inventories used,  consumed or replaced in the
ordinary  course of business  consistent  with past  practices of Seller or with
Good Utility  Practices)  other than to encumber  any such Asset with  Permitted
Encumbrances;

     (iii)  Modify,  amend or  voluntarily  terminate,  prior to the  respective
expiration date of any of the Assigned Agreements or Real Property Leases or any
of the  Permits or  Environmental  Permits  with  respect to such  Assets in any
material  respect,  other than (A) in the ordinary  course of  business,  to the
extent  consistent with the past practices of Seller or Good Utility  Practices,
(B) with cause,  to the extent  consistent with past practices of Seller or Good
Utility  Practices,  or (C) as may be required in connection  with  transferring
Seller's rights or obligations thereunder to Buyer pursuant to this Agreement;

     (iv)  Except as  otherwise  provided  herein and except  for  propane  sale
agreements entered into in the ordinary course of business and containing market
terms,  enter into any commitment for the purchase,  sale, or  transportation of
fuel for the Business  having a term greater than six months and not  terminable
on or before the  Closing  Date  either (A)  automatically,  or (B) by option of
Seller  (or,  after  the  Closing,  by  Buyer)  in its sole  discretion,  if the
aggregate  payment  under  such  commitment  for fuel and all other  outstanding
commitments  for fuel for the  Business not  previously  approved by Buyer would
exceed $1,000,000;

     (v)  Except  as  otherwise  provided  herein,   enter  into  any  contract,
agreement,  commitment or arrangement for the Business that individually exceeds
$250,000 or in the  aggregate  exceeds  $1,000,000  unless it is  terminable  by
Seller (or, after the Closing Date, by Buyer) without penalty or premium upon no
more than sixty (60) days notice;

                                       40
<PAGE>

     (vi) Except as  otherwise  required by the terms of the CBA or as otherwise
provided in Section  6.12,  (A) hire,  or transfer  any  employees of or for the
Business  prior  to the  Closing,  other  than to  fill  vacancies  in  existing
positions  in the  reasonable  discretion  of Seller,  (B)  materially  increase
salaries or wages of employees  employed in connection  with such Asset prior to
the  Closing,  (C) take any  action  prior to the  Closing  to affect a material
change in the CBA or (D) take any action  prior to the  Closing  to enhance  the
aggregate  benefits  payable  to  the  employees  (considered  as a  group),  or
materially to enhance the aggregate benefits payable to any individual employee,
employed in connection with the Business;

     (vii) Not terminate the  employment of any member of the senior  management
of the Business except for cause; and

     (viii) Except as otherwise provided herein,  enter into any written or oral
contract,  agreement,  commitment  or  arrangement  with  respect  to any of the
proscribed transactions set forth in the foregoing paragraphs (i) through (vii).

     6.2 Access to Information.

     (a) Between the date of this  Agreement and the Closing Date,  Seller will,
at  reasonable  times  and  upon  reasonable  notice,   provide  Buyer  and  its
Representatives:

     (i) reasonable  access to their  respective  managerial  personnel,  to all
books, records,  plans,  equipment,  offices and other facilities and properties
constituting part of the Assets;

     (ii) such  historical  financial and operating  data and other  information
with  respect  to the  Assets  or the  Business  as Buyer  may from time to time
reasonably request, to the extent reasonably available;

     (iii) upon  request,  a copy of each  material  report,  schedule  or other
document,  if any,  filed by Seller with  respect to the Assets or the  Business
with the SEC, HPUC or any other Governmental Authority;

     (iv) access to all Assets for  Inspection by Buyer and its  Representatives
at  reasonable   times  during  regular   business  hours   scheduled  for  such
Inspections, and shall provide qualified management, engineering, operations and
maintenance and other  personnel to make  presentations  as required,  to escort
such  Persons  and to assist  in all  aspects  of  conducting  the  Inspections,
provided  that  each  of  Buyer  and  Seller  shall  bear  their  own  costs  of
participating in the Inspections; and

     (v) access to all such other  information  in the  possession or control of
Seller as shall be reasonably  necessary to enable Buyer or its  Representatives
to verify the accuracy of the representations and warranties of Seller contained
in this  Agreement;  provided,  however,  that  any  such  Inspections  shall be
conducted in such a manner as not to interfere  unreasonably  with the operation
of the Assets.  In the event that Seller's  provision of information  under this
Section 6.2 would (A) constitute a waiver of any legal privilege,  including the
attorney-client privilege or work product privilege, or (B) violate any legal or
contractual  obligation  of Seller to a third  party,  then  Seller  shall first
notify Buyer with respect to the existence and general  nature of the restricted
information.  If the restricted  information  relates to the Assets, the Parties
shall thereupon  mutually agree upon a reasonable  procedure in order to provide
Buyer with access to the information  while protecting the legitimate  interests
of  Seller  thereto.   The  mutually  agreed  procedure  may  include,   without
limitation,  a  limited  waiver by Seller  of the  relevant  privilege,  Buyer's
agreement to maintain the  information in strict  confidence,  limited review or
inspection of the  information by specified  individuals,  or any combination of
the foregoing.

                                       41
<PAGE>

Notwithstanding anything in this Section 6.2(a) to the contrary, with respect to
employee  records Seller will only furnish or provide such access to Transferred
Employee  Records  and will not  furnish  or  provide  access to other  employee
personnel records or medical  information unless required by law or specifically
authorized by the affected employee.

     (b) The Parties  shall  cooperate to schedule  Buyer's  Inspections  of the
Assets so that, to the extent  reasonably  feasible,  any interference  with the
operation of the Business is minimized,  and Buyer may complete its  Inspections
of the Assets within ninety (90) working days of commencement of Inspections and
within six (6) months after the execution of this Agreement.

     (c) Until the  conclusion  of Buyer's  next rate case for the  Business (or
such longer  period as may be required by  applicable  law),  each Party and its
Representatives  shall have  reasonable  access to all of the books and  records
relating  to the Assets and the  Business  (for the  Seller,  only to the extent
relating  to periods  prior to the  Closing  Date),  including  all  Transferred
Employee  Records in the  possession  of Buyer or Seller to the extent that such
access may reasonably be required in connection with the Assumed  Liabilities or
the  Excluded  Liabilities,  or other  matters  relating  to or  affected by the
operation  of the  Business or the Assets.  Such access shall be afforded by the
Party in  possession  of any such books and records upon  receipt of  reasonable
advance notice and during normal business hours. The Party exercising this right
of access shall be solely  responsible for any costs or expenses  incurred by it
or the holder of the  information  with respect to such access  pursuant to this
Section  6.2(c).  If the Party in  possession  of such books and  records  shall
desire to dispose of any books and records  upon or prior to the  expiration  of
such above-stated period (or any such longer period), such Party shall, prior to
such disposition, give the other Party a reasonable opportunity, at the latter's
expense, to segregate and remove such books and records as it may select.

     (d) Buyer  agrees  that,  prior to the  Closing  Date,  neither  it nor its
Representatives  will  contact  any  vendors,  suppliers,  employees,  or  other
contracting  parties of Seller or its  Affiliates  with respect to any aspect of
the Assets or the transactions  contemplated  hereby,  without the prior written
consent of Seller, which consent shall not be unreasonably withheld.

     6.3 Additional Inspections and Information.

     (a) Seller will deliver to Buyer by June 30, 2003, a balance  sheet for the
Business as of December 31, 2002, and a statement of income for the Business for
the  twelve-month  period ending  December 31, 2002,  together with an auditor's
report thereon by KPMG LLP,  Seller's  independent  accounting firm. Seller will
bear  the  cost of such  audit.  If  Buyer  requires  any  additional  financial
statement(s)  of the  Business  to be  prepared  and  audited,  then Seller will
deliver  to  Buyer  such  additional  audited  financial  statement(s)  within a
reasonable  period of time following  Buyer's request  therefore,  provided that
Buyer will  reimburse  Seller for the costs and  expenses  incurred by Seller in
connection therewith,  including reasonable overhead costs of Seller's employees
relating to the preparation and audit of such additional financial statement(s).
Nothing in this Section 6.3(a) shall  obligate  Seller to execute or deliver any
document  that affects,  in a manner  adverse to Seller,  Seller's  liability to
Buyer as expressed herein.

                                       42
<PAGE>

     (b) Buyer has conducted various  environmental  assessment  activities with
respect to the  Assets,  including  reviewing  existing  environmental  reports,
correspondence,  permits  and related  materials  regarding  the Assets.  Seller
acknowledges  that,  between the date of this  Agreement  and the Closing  Date,
Buyer  will  continue  to conduct  Inspections  with  respect  to  environmental
matters,  including  "Phase I"  environmental  assessments  to the extent  Buyer
reasonably  concludes that such  assessments are warranted by the  Environmental
Reports  or the  findings  of  Buyer's  assessments  prior  to the  date of this
Agreement.  Any such Inspections  shall be conducted as provided in Section 6.2.
Buyer may not conduct any "Phase II"  environmental  assessment  activities with
respect to the Assets  other  than the  taking and  analysis  of hand auger soil
samples  from  locations  on  Real  Property  that  are  identified  by  Buyer's
environmental  consultant as areas with recognized  Environmental  Conditions in
accordance with the ASTM protocol for Phase I environmental assessments.  If, as
a result  of  Buyer's  environmental  assessment  activities,  Buyer  reasonably
concludes that additional  "Phase II"  environmental  assessment  activities are
required to determine the extent of a recognized Environmental Condition on Real
Property,  then Seller and Buyer  shall  design a mutually  acceptable  Phase II
environmental   assessment  plan  and  Seller  shall  engage  an   environmental
consulting firm reasonably acceptable to Buyer to conduct such assessment. Buyer
shall reimburse Seller for the fees and expenses of such consultant,  and of any
laboratory used by such  consultant,  incurred by Seller in connection with such
assessment.  Seller will provide to Buyer,  promptly  following Seller's receipt
thereof,  copies  of all  reports,  laboratory  results  and  other  information
composed or compiled by such consultant in connection with any such assessment.

     (c) Buyer  shall  provide to Seller,  promptly  following  Buyer's  receipt
thereof,  copies  of  all  audits,  reports,  studies,   assessments  and  other
information  composed or compiled,  or to be composed or  compiled,  by Buyer or
Buyer's Representatives in connection with environmental  assessment activities.
Buyer shall treat all such information delivered to, or composed or compiled by,
Buyer or Buyer's  Representative  as  Environmental  Data in accordance with the
procedures of Section 6.3(d).

     (d)  All  audits,  reports,  studies,  assessments  and  other  information
delivered  to or  prepared  by Buyer and all  other  information  collected  and
generated as a result of Buyer's  environmental  due  diligence  ("Environmental
Data")  will be  subject  to the terms  and  conditions  of the  Confidentiality
Agreement,   dated   October   14,   2002,   between   Seller   and  Buyer  (the
"Confidentiality  Agreement"),  except as otherwise  expressly  provided in this
Section  6.3(d).  Except  to the  extent  necessary  to  fulfill  any  reporting
obligation under any  Environmental  Law, neither Buyer nor its  Representatives
shall  disclose  or release any  Environmental  Data  without the prior  written
consent of Seller and all such information shall be kept strictly  confidential.
To the extent reasonably  practicable,  the Environmental Data shall be prepared
at the  request  of  counsel to Buyer or Seller,  as  appropriate,  and,  to the
fullest  extent  permitted by law, shall be the work product of such counsel and
constitute confidential attorney/client  communications.  The Environmental Data
shall be transferred among Buyer and its  Representatives  in a manner that will
preserve, to the extent reasonably practicable, such privileges. Buyer expressly
agrees that until the Closing,  it will not distribute the Environmental Data to
any third party without  Seller's prior written  consent (such consent not to be
unreasonably  withheld).  After  the  Closing,  Buyer  agrees  that it will  not
distribute  the  Environmental  Data to any third party without  Seller's  prior
written consent,  except as required by law or by express  provisions of Buyer's
corporate  compliance  program if Seller is provided written notice at least ten
(10)  days  prior  to such  distribution;  provided,  however,  that  Buyer  may
distribute  the  Environmental  Data to any  potential  purchaser  of any of the
Assets or an ownership interest therein (either directly or through the purchase
of an  ownership  interest in an entity  holding  any of the Assets)  only after
first notifying the Seller.

                                       43
<PAGE>

     6.4 Confidentiality.

     (a) Each Party shall,  and shall use its  reasonable  best efforts to cause
its Representatives to, (i) keep all Proprietary  Information of any other Party
confidential and not to disclose or reveal any such  Proprietary  Information to
any  person  other  than  such  Party's  Representatives  and  (ii) not use such
Proprietary  Information  other than in connection with the  consummation of the
transactions  contemplated hereby. After the Closing Date and except as provided
in Section  6.3(d),  any Proprietary  Information,  to the extent related to the
Assets  acquired by Buyer,  shall no longer be subject to the  restrictions  set
forth herein.  The obligations of the Parties under this Section 6.4(a) shall be
in full  force and  effect  for three (3) years  from the date  hereof  and will
survive  the  termination  of  this  Agreement,   the  discharge  of  all  other
obligations owed by the Parties to each other and the Closing Date.

     (b)  Notwithstanding  the terms of Section 6.4(a) above,  the Parties agree
that prior to the Closing, Buyer may reveal or disclose Proprietary  Information
to any other Persons in connection with (i) the financing of Buyer's purchase of
the Assets or any equity  participation in Buyer's purchase of the Assets,  (ii)
obtaining  insurance for the Assets and (iii) performing  Inspections;  provided
that such  Persons  agree in  writing to  maintain  the  confidentiality  of the
Proprietary   Information   in   accordance   with   this   Agreement   and  the
Confidentiality Agreement.

     (c) Upon the other  Party's  prior  written  approval  (which  shall not be
unreasonably  withheld),  any of the Parties may provide Proprietary Information
of the other Parties to the SEC, HPUC or any other  Governmental  Authority with
jurisdiction or any securities exchange,  as may be necessary to obtain Required
Regulatory Approvals or to comply generally with any relevant law or regulation.
The  disclosing  Party  will seek  confidential  treatment  for the  Proprietary
Information provided to any Governmental Authority and the disclosing Party will
notify the other Party as far in advance as is  practicable  of its intention to
release to any Governmental Authority any Proprietary Information.

     6.5 Public  Statements.  Subject to the  requirements  imposed by law,  any
Governmental  Authority or  securities  exchange,  prior to the Closing Date, no
press  release or other public  announcement  or public  statement or comment in
response  to any  inquiry  relating  to the  transactions  contemplated  by this
Agreement shall be issued or made by any Party without the prior approval of the
other Party (which  approval shall not be  unreasonably  withheld).  The Parties
agree to cooperate in preparing any such announcements.

                                       44
<PAGE>

     6.6 Expenses. Except to the extent specifically provided herein, whether or
not the transactions contemplated hereby are consummated, all costs and expenses
incurred in connection  with this  Agreement and the  transactions  contemplated
hereby  shall  be  borne  by  the  Party  incurring  such  costs  and  expenses.
Notwithstanding  anything to the contrary herein,  Buyer will be responsible for
all  filing  fees  under the HSR Act  relating  to the  Assets it would  acquire
hereunder.

     6.7  Further Assurances.

     (a) Subject to the terms and conditions of this Agreement, each Party shall
use its  Commercially  Reasonable  Efforts  to take,  or cause to be taken,  all
actions,  and to do,  or cause to be  done,  all  things  necessary,  proper  or
advisable under applicable laws and regulations to consummate and make effective
the purchase,  sale,  transfer and delivery of the Assets and the  assumption of
the Assumed Liabilities pursuant to this Agreement.  Such actions shall include,
without  limitation,  each Party using its  Commercially  Reasonable  Efforts to
ensure  satisfaction of the conditions  precedent to its obligations  hereunder,
including  obtaining all necessary  consents,  approvals,  and authorizations of
third parties and Governmental  Authorities  required to be obtained in order to
consummate  the  transactions  hereunder,  and to  effectuate  a transfer of the
Transferable  Permits to Buyer. Seller shall cooperate with Buyer in its efforts
to obtain all other  Permits and  Environmental  Permits  necessary for Buyer to
operate the Assets.  None of the Parties  hereto  shall,  without  prior written
consent  of the  other  Party,  take or fail to take  any  action,  which  might
reasonably be expected to prevent or materially impede,  interfere with or delay
the transactions contemplated by this Agreement.

     (b) In the event  that any Asset  shall not have been  assigned,  conveyed,
transferred  and  delivered  hereunder  to Buyer at the Closing,  Seller  shall,
subject  to  Section  6.7(c),  use  Commercially  Reasonable  Efforts to assign,
convey,  transfer and deliver such Assets to Buyer as promptly as is practicable
after the Closing.

     (c) (i) To the extent that Seller's rights under any Assigned  Agreement or
Real Property  Lease may not be assigned  without the consent of another  Person
which consent has not been obtained by the Closing Date,  this  Agreement  shall
not constitute an agreement to assign the same, if an attempted assignment would
constitute a breach thereof or be unlawful.

     (ii) Seller  agrees that if any consent to an  assignment  of any  Assigned
Agreement  or Real  Property  Lease shall not be  obtained  or if any  attempted
assignment  would  be  ineffective  or  would  impair  the  Buyer's  rights  and
obligations under the Assigned Agreement or Real Property Lease in question,  so
that  Buyer  would not in effect  acquire  the  benefit  of all such  rights and
obligations,  Seller,  at the Buyer's option and to the maximum extent permitted
by law and such Assigned  Agreement or Real  Property  Lease,  shall,  after the
Closing Date,  appoint Buyer to be Seller's  agent with respect to such Assigned
Agreement or Real Property Lease, or, to the maximum extent permitted by law and
such  Assigned  Agreement or Real  Property  Lease,  enter into such  reasonable
arrangements  with Buyer or take such other  actions as are necessary to provide
Buyer with the same or  substantially  similar  rights and  obligations  of such
Assigned  Agreement  or Real  Property  Lease as Buyer may  reasonably  request.
Seller shall cooperate and shall use  Commercially  Reasonable  Efforts prior to
and after the Closing  Date to obtain an  assignment  to Buyer of each  Assigned
Agreement or Real Property Lease.

                                       45
<PAGE>

     (d) To the extent  that  Seller's  rights  under any  warranty  or guaranty
described in Section  2.1(h) may not be assigned  without the consent of another
Person,  which consent has not been obtained by the Closing Date, this Agreement
shall not constitute an agreement to assign the same, if an attempted assignment
would  constitute a breach  thereof,  or be unlawful.  Seller agrees that if any
consent to an assignment of any such warranty or guaranty shall not be obtained,
or if any attempted  assignment  would be  ineffective  or would impair  Buyer's
rights and obligations under the warranty or guaranty in question, so that Buyer
would not in effect  acquire  the  benefit of all such  rights and  obligations,
Seller,  at  Buyer's  option  and  expense,  shall use  Commercially  Reasonable
Efforts,  to the extent  permitted by law and by such  warranty or guaranty,  to
enforce  such  warranty  or  guaranty  for the benefit of Buyer so as to provide
Buyer to the maximum extent  possible with the benefits and  obligations of such
warranty or guaranty.

     6.8 Consents and Approvals.

     (a) As promptly as advisable after the execution of this  Agreement,  Buyer
and  Seller  shall  each  file  or  cause  to  be  filed  with  the  appropriate
Governmental  Authority any notifications required to be filed under the HSR Act
and the  rules  and  regulations  promulgated  thereunder  with  respect  to the
transactions  contemplated  hereby.  Buyer and Seller shall use their respective
reasonable  best  efforts to respond  promptly to any  requests  for  additional
information made with respect to such HSR Act filings,  and to cause the waiting
periods  under the HSR Act to terminate or expire at the earliest  possible date
after the date of filing of such  notification.  Buyer will pay all filing  fees
under the HSR Act relating to the Assets, but each of Seller and Buyer will bear
its own costs of the preparation of any such filing.

     (b) The Parties shall cooperate and use all Commercially Reasonable Efforts
to  promptly  prepare  and file  all  necessary  documentation,  to  effect  all
necessary applications,  notices, petitions, filings and other documents, and to
obtain all necessary  permits,  consents,  approvals and  authorizations  of all
Governmental  Authorities  necessary or advisable to consummate the transactions
contemplated  by this Agreement,  including,  without  limitation,  the Required
Regulatory Approvals and the PUHCA Staff Concurrence. Buyer shall have the right
to review and approve in advance all the  information  relating to Buyer, on the
one hand,  and Seller  shall have the right to review and approve in advance all
the  information  relating to Seller,  on the other hand, in either case,  which
appear in any filing made in connection  with the  transactions  contemplated by
this Agreement. Buyer and Seller agree that they will consult and cooperate with
each  other  with  respect  to the  obtaining  of all  such  necessary  permits,
consents, approvals and authorizations of Governmental Authorities and the PUHCA
Staff Concurrence.

     (c) In  connection  with  applications  and other  filings for the Required
Regulatory Approvals,  and the prosecution of any pending regulatory proceedings
material to the Business Buyer and Seller shall jointly,  and on an equal basis,
coordinate  the  overall  development  of the  positions  to be  taken  and  the
regulatory actions to be requested in such applications and filings for approval
of the sale by the  Seller and the  purchase  by the Buyer of the Assets and the
Business,  of all other matters  contemplated  by this  Agreement  which require
regulatory approval and of all other regulatory matters incidental thereto which
are to be addressed  in such  applications  and  filings.  Efforts to obtain any
necessary  approvals  (including  from the HPUC) shall be  prosecuted by counsel
mutually agreed upon by the Parties, and acting as joint counsel to the Parties,
it being understood,  however,  that (i) all positions taken in the filings with
such Governmental Authorities shall be consistent with the mutual understandings
of the Parties,  including the Parties'  agreement that their joint  application
filed with the HPUC shall seek,  among  other  things,  permission  for Buyer to
republish and file, in Buyer's name, Seller's existing rates and tariffs for the
Business to be effective  upon Closing,  and (ii) Buyer's  efforts to obtain the
PUHCA Staff  Concurrence shall be the  responsibility  of Buyer's counsel,  with
Seller's  special PUHCA counsel  providing such support and assistance as may be
appropriate taking into account all relevant facts and circumstances.

                                       46
<PAGE>

     (d) Seller and Buyer shall  cooperate with each other and promptly  prepare
and file  notifications  with, and request Tax clearances  from, state and local
taxing authorities in any jurisdictions in which a portion of the Purchase Price
may be required to be withheld or in which Buyer would  otherwise  be liable for
any Tax liabilities of Seller pursuant to such state and local Tax law.

     (e) Seller shall have the primary  responsibility for securing the transfer
and assignment of the  Transferable  Permits,  effective as of the Closing Date.
Buyer  shall  have  the  primary   responsibility  for  securing  the  transfer,
reissuance or procurement of the Permits and  Environmental  Permits (other than
Transferable  Permits)  effective as of the Closing Date. Seller shall cooperate
with Buyer's  efforts in this regard and assist in any transfer or reissuance of
a Permit or Environmental Permit held by Seller, or the procurement of any other
Permit or Environmental Permit when so requested by Buyer.

     (f) (i) As soon as reasonably practicable, but in any event by the date the
Parties'  joint  application  is filed with the HPUC,  K-1 USA will  assign this
Agreement to a newly formed limited liability company organized under the Hawaii
limited liability company statute and owned, controlled and governed in a manner
consistent with this Section 6.8 (the "k1 Designee"), pursuant to assignment and
assumption  documentation  reasonably acceptable to Seller and its counsel. Upon
the  effective  time of such  assignment,  (x) the kl Designee will be deemed to
have assumed,  ratified and agreed to be bound by and to perform all obligations
of Buyer in this  Agreement,  (y) all  references  in this  Agreement and in any
Ancillary  Agreement to "Buyer"  shall  thereafter be deemed to be references to
the k1 Designee,  in each case without the necessity for further act or evidence
by the Parties  hereto or the k1 Designee and (z) K-1 USA shall be released from
Buyer's obligation to pay the Purchase Price at Closing; provided, however, that
except as provided in the foregoing clause (z), no such assignment shall relieve
or discharge K-1 USA from any of its obligations under this Agreement arising on
or before the Closing  Date or k1 Ventures  Limited from its  obligations  under
that certain letter agreement with Seller dated as of the date of this Agreement
wherein k1 Ventures Limited agrees to provide such financial support to Buyer as
may be  required  to enable  Buyer to pay the  Purchase  Price at Closing or the
liquidated damages payment if required by Section 9.3(b).

     (ii) As soon as  reasonably  practicable,  but not later than  January  17,
2003, K-1 USA shall review with the staff of the SEC which administers PUHCA the
proposed  ownership,  control and  governance  of the k1 Designee  and any other
facts  relevant  to PUHCA  compliance  by the k1 Designee  and its  "affiliates"
(within  the meaning of such term in PUHCA) and seek the verbal  concurrence  or
non-objection of such SEC staff that, based on the information presented to such
SEC  staff,  (x) no  approval  from  the  SEC is  required  for  Buyer  and  its
"affiliates"  (within the meaning of such term under  PUHCA) to  consummate  the
transactions  contemplated  in this  Agreement  and (y) that  either  the  PUHCA
"holding company"  provisions are inapplicable,  or one or more exemptions under
PUHCA are available, to the k1 Designee and such "affiliates" of the k1 Designee
(the "PUHCA Staff Concurrence").  If the PUHCA Staff Concurrence is not obtained
at the time of such SEC review,  then K-1 USA promptly  (and in event within ten
(10)  Business  Days after the date of such SEC  review)  will  reformulate  the
proposed  arrangements  regarding  the  k1  Designee  to  satisfy  the  concerns
expressed by such SEC staff (and taking into  account any  guidance  provided by
such SEC staff or by Seller's  special  PUHCA  counsel) and review with such SEC
staff  such  reformulation  in  another  attempt  to  receive  the  PUHCA  Staff
Concurrence.  K-1 USA agrees not to participate , or to permit its Affiliates or
representatives to participate, in any substantive meeting or discussion, either
in person or by  telephone,  with  such SEC staff in  connection  with the PUHCA
Staff  Concurrence  unless it consults with Seller in advance and, to the extent
not  prohibited by such SEC staff,  gives Seller the  opportunity  to attend and
participate  with  counsel.  The k1  Designee  shall be  owned,  controlled  and
governed in a manner consistent with the information presented to such SEC staff
on which the PUHCA Staff Concurrence was based.

                                       47
<PAGE>

     (iii) As soon as reasonably  practicable  after the date on which the PUHCA
Staff Concurrence is obtained, the organizational  documents of the k1 Designee,
including its operating  agreement,  will be amended to the extent  necessary or
desirable to be consistent with the information  forming the basis for obtaining
the PUHCA Staff Concurrence and pursuant to documentation  reasonably acceptable
to Seller and its counsel.

     (iv) Buyer  agrees  that the k1  Designee  shall be owned,  controlled  and
governed such that the k1 Designee and its  "affiliates"  (within the meaning of
such term under PUHCA), either singly or collectively, either will not be deemed
a "holding  company"  under PUHCA or will be entitled to one or more  exemptions
from  the  registration  requirements  of  PUHCA.  Accordingly,   none  of  such
"affiliates" of the k1 Designee shall own five percent (5%) or more, directly or
indirectly,  of the outstanding  voting  securities of any other "public utility
company" (within the meaning of such term under PUHCA).

     (v) K-1 USA  presently  intends that the Persons  identified  in the letter
from Buyer's counsel to Mr. Jim R. Yates dated October 25, 2002, will own and/or
hold  the  voting  interests,   beneficial  ownership  interests  and  governing
interests or other positive or negative control rights described in such letter.
K-1 USA may make such changes to such  proposed k1 Designee  structure as may be
necessary  or desirable to obtain or to  facilitate  the  obtaining of the PUHCA
Staff Concurrence and the approval of the HPUC and such other changes as are not
prohibited by the next succeeding sentence. K-1 USA may not change such proposed
k1 Designee structure in any way that Seller reasonably  concludes is reasonably
likely either (w) to affect  adversely  the legal  validity,  enforceability  or
binding  nature of the  Support  Agreement  or to  result  in any  breach of the
representations  and  warranties  made by k1  Ventures  Limited  in the  Support
Agreement,  (x) to cause a delay in obtaining the PUHCA Staff Concurrence or the
HPUC  approval,  (y) to require  any  approval  by the SEC under PUHCA or (z) to
result  in  the  k1  Designee  or  any of  its  "affiliates"  either  singly  or
collectively  being deemed a "holding company" (within the meaning of such terms
under  PUHCA),   and  not  entitled  to  an  exemption  from  the   registration
requirements of PUHCA.

                                       48
<PAGE>

     6.9 Fees and Commissions. Each of Seller and Buyer represent and warrant to
the other that,  except for Morgan Stanley & Co.  Incorporated,  which is acting
for and at the expense of Seller,  and Credit  Suisse First Boston  Corporation,
which is acting  for and at the  expense of Buyer,  no  broker,  finder or other
Person is entitled  to any  brokerage  fees,  commissions  or  finder's  fees in
connection  with the  transactions  contemplated  hereby by reason of any action
taken by the Party making such representation. Each of Seller and Buyer will pay
to the others or otherwise  discharge,  and will  indemnify  and hold the others
harmless from and against,  any and all claims or liabilities  for all brokerage
fees,  commissions  and  finder's  fees  (other than the fees,  commissions  and
finder's  fees  payable to the party  listed  above)  incurred  by reason of any
action taken by the indemnifying party.

     6.10  Tax Matters.

     (a) All Transfer Taxes  incurred in connection  with this Agreement and the
transactions  contemplated  hereby,  including,  without limitation,  (A) Hawaii
sales tax;  (B) the Hawaii  transfer  tax,  conveyance  fees or  conveyances  of
interests  in real  and/or  personal  property;  and (C)  Hawaii  sales  tax and
transfer  tax on deeds shall be borne as  follows:  fifty  percent  (50%) by the
Buyer and fifty  percent  (50%) by the Seller.  Seller shall file, to the extent
required by, or permissible under, applicable law, all necessary Tax Returns and
other documentation with respect to all such Transfer Taxes, and, if required by
applicable  law,  Buyer shall join in the  execution of any such Tax Returns and
other documentation.  Prior to the Closing Date, to the extent applicable, Buyer
shall provide to Seller  appropriate  certificates  of Tax  exemption  from each
applicable taxing authority.

     (b) With respect to Taxes to be prorated in accordance  with Section 3.4 of
this  Agreement and except as provided in Section  6.10(c),  Buyer shall prepare
and timely file all Tax Returns required to be filed after the Closing Date with
respect to the Assets and the  Business,  and shall duly and timely pay all such
Taxes shown to be due on such Tax Returns.  Buyer's  preparation of any such Tax
Returns  shall be subject to  Seller's  approval,  which  approval  shall not be
unreasonably withheld.  Buyer shall make such Tax Returns available for Seller's
review and approval no later than fifteen  (15)  Business  Days prior to the due
date for filing  each such Tax  Return.  Upon  receipt by Buyer of the tax bill,
invoice or other  statement  regarding  such real and personal  property  Taxes,
Buyer  shall  calculate  the pro rata  share of such tax bill,  invoice or other
statement attributable to Buyer and Seller. Buyer shall then forward, as soon as
possible, to Seller a copy of such tax bill, invoice or statement along with the
supporting  documentation  relating to the  calculation of the pro rata share to
Seller and Seller will promptly pay to Buyer Seller's pro rata share of such tax
bill,  invoice or  statement.  In the event  Seller  first  receives a tax bill,
invoice or  statement  relating  to the Assets from a taxing  authority,  Seller
shall promptly forward such tax bill, invoice or statement to Buyer.

     (c) All Taxes  arising with respect to the Assets and the Business  that as
of the day  immediately  preceding the Closing Date are accrued for by Seller in
its SAP financial reporting system account styled "Other Taxes Accrued" shall be
included in the  calculation  of Adjusted  Working  Capital and shall be Assumed
Liabilities.  Upon receipt by Buyer of the tax bill,  invoice or other statement
regarding such Taxes,  Buyer promptly shall forward to Seller a copy of such tax
bill,  invoice or  statement.  In the event  Seller  first  receives a tax bill,
invoice or statement  relating to such Taxes,  Seller shall immediately  forward
such tax bill,  invoice or statement to Buyer. Buyer will pay the full amount of
the tax bill,  invoice or statement to the applicable  taxing authority no later
than the due date of the tax bill, invoice or statement and in time to avoid the
incurrence of penalties or interest.\

                                       49
<PAGE>

     (d) Buyer and Seller shall  provide the other with such  assistance  as may
reasonably be requested by the other Party in connection with the preparation of
any Tax Return,  any audit or other examination by any taxing authority,  or any
judicial or administrative proceedings relating to liability for Taxes, and each
shall retain and provide the  requesting  Party with any records or  information
which may be relevant to such return,  audit,  examination or  proceedings.  Any
information  obtained  pursuant to this Section 6.10(d) or pursuant to any other
Section  hereof  providing for the sharing of  information  or review of any Tax
Return or other instrument  relating to Taxes shall be kept  confidential by the
Parties hereto.

     (e) In the event  that a dispute  arises  between  Buyer and  Seller,  with
respect to Taxes in Sections  6.10(a) and 6.10(b),  or concerning any amount due
under this Section 6.10, the Parties shall attempt in good faith to resolve such
dispute and any agreed upon amount shall be paid to the  appropriate  Party.  If
such  dispute is not  resolved  within  thirty  (30) days,  the  Parties to such
dispute  shall  submit  the  dispute  to the  Independent  Accounting  Firm  for
resolution,  which  resolution  shall be final,  conclusive  and binding on such
Parties.  Notwithstanding  anything in this Agreement to the contrary,  the fees
and expenses of such Independent  Accounting Firm shall be allocated between the
Parties so that the non-disputing  Party's share of such fees and expenses shall
be in the same proportion that the aggregate  amount of such remaining  disputed
amounts so submitted by the disputing Party to such auditor that is successfully
disputed by the disputing Party (as finally determined by such auditor) bears to
the total amount of such remaining disputed amount so submitted by the disputing
Party to such  auditor.  Any  payment  required  to be made as a  result  of the
resolution  of the  dispute  by the  Independent  Accounting  Firm shall be made
within ten days after such resolution,  together with any interest determined by
the Independent Accounting Firm to be appropriate.

     (f) Buyer agrees that Seller may, at Seller's election prior to the Closing
Date,  direct  that all or a portion of the  Purchase  Price be  delivered  to a
"qualified  intermediary" (as defined in Treasury Regulation Section 1.1031(k) -
(g)(4)) as to enable Seller's relinquishment of the Assets to qualify as part of
a like-kind  exchange of property covered by Section 1031 of the Code. If Seller
so elects,  Buyer shall  cooperate  with Seller (but without  being  required to
incur any out-of-pocket costs in the course thereof) in connection with Seller's
efforts to effect such  like-kind  exchange,  which  cooperation  shall include,
without  limitation,  taking such actions as Seller  requests in order to enable
Seller to qualify  such  transfer  as part of a  like-kind  exchange of property
covered  by  Section  1031  of the  Code  (including  any  actions  required  to
facilitate the use of a "qualified intermediary"),  and Buyer agrees that Seller
may assign all or part of its rights and delegate all or part of its obligations
under this Agreement to a person or entity acting as a qualified intermediary to
qualify  the  transfer of the Assets as part of  like-kind  exchange of property
covered  by  Section  1031 of the Code.  Any such  assignment  shall not  reduce
Seller's obligations under this Agreement.  Buyer and Seller agree in good faith
to use reasonable  efforts to coordinate the  transactions  contemplated by this
Agreement  with any other  transactions  engaged  in by either  Buyer or Seller;
provided that such efforts are not required to include an unreasonable  delay in
the consummation of the transactions contemplated by this Agreement.

                                       50
<PAGE>

     (g) Prior to the Closing Date,  Buyer and Seller shall use their good faith
efforts to agree upon the allocation (the  "Allocation")  of the Purchase Price,
the Assumed  Liabilities  and other  relevant  items  (including,  for  example,
adjustments to the Base Purchase  Price) to the individual  assets or classes of
assets within the meaning of Section 1060 of the Code. If Buyer and Seller agree
to such  Allocation  prior to Closing,  Buyer and Seller covenant and agree that
(i) the values assigned to the assets by the Parties' mutual  agreement shall be
conclusive  and final for all  purposes,  and (ii) neither Buyer nor Seller will
take any position before any Governmental Authority or in any Proceeding that is
in any way inconsistent with such Allocation.  Notwithstanding the foregoing, if
Buyer and Seller cannot agree to an  Allocation,  Buyer and Seller  covenant and
agree to file, and to cause their respective Affiliates to file, all Tax Returns
and schedules  thereto  (including,  for example,  amended  returns,  claims for
refund,  and those returns and forms required under Section 1060 of the Code and
any Treasury regulations  promulgated  thereunder)  consistent with each of such
Party's good faith Allocations, unless otherwise required because of a change in
any applicable law.

     6.11 Advice of Changes. Prior to the Closing, each Party will timely advise
the other in writing with respect to any matter arising after  execution of this
Agreement  which  becomes  known to that Party and which  either  constitutes  a
breach of such Party's  covenants in this Agreement or, if existing or occurring
at the date of this Agreement,  would have been required to be set forth in this
Agreement,  including any of the Schedules or Exhibits hereto.  Any such written
notice  will  not be  deemed  to have  amended  this  Agreement,  including  the
appropriate  Schedule or Exhibit,  or to have  qualified any  representation  or
warranty contained in this Agreement,  or to have cured any misrepresentation or
breach of warranty that otherwise might have existed  hereunder by reason of the
development.

     6.12 Seller Employees.

     (a) On a date  reasonably  prior to the  Closing  Date,  Buyer  shall  give
Qualifying  Offers of  employment  to all employees of Seller who are covered by
the Hawaii  Teamsters and Allied Workers Union Local 996  collective  bargaining
agreement with Seller (the "CBA") and are employed in positions  relating to the
Business  (collectively,  "Union  Employees").  Each  such  person  who  becomes
employed  by Buyer  pursuant  to this  section  shall be referred to herein as a
"Transferred Union Employee".

     (b) On a date  reasonably  prior to the  Closing  Date,  Buyer  shall  give
Qualifying  Offers of  employment  to all  salaried  employees of Seller who are
employed  in  positions  relating  to  the  Business  (collectively,  "Non-Union
Employees").  Each such  person who becomes  employed by Buyer  pursuant to this
section shall be referred to herein as a "Transferred Non-Union Employee."

     (c) All offers of employment made by Buyer pursuant to Sections 6.12(a) and
(b) shall be made in accordance  with all applicable laws and  regulations,  and
for Union Employees,  in accordance with the CBA, shall remain open for a period
of ten (10)  working  days,  and shall  specify that  employment  by Buyer shall
commence on the Closing Date.  Any such offer which is accepted  within such ten
(10) working day period shall thereafter be irrevocable,  except for good cause,
until the  earlier of the  Closing  Date or the  termination  of this  Agreement
pursuant to its terms.  Following acceptance of such offers, Buyer shall provide
written  notice  thereof to Seller and Seller shall provide Buyer with access to
the  files and  records  of  employees  accepting  such  offers,  to the  extent
permitted by contract, the CBA and/or applicable law.

                                       51
<PAGE>

     (d)  The  following   shall  be  applicable  with  respect  to  Transferred
Employees:

     (i) From and after the Closing Date,  Transferred Employees shall accrue no
additional  benefits  under  any  employee  benefit  plan,  policy,  program  or
arrangement of Seller or its Affiliates.

     (ii) For such Transferred Union Employees,  Buyer shall recognize the HTAWU
as the exclusive collective bargaining representative and shall assume the terms
and conditions of the CBA, to the extent  applicable to such  Transferred  Union
Employees,  until the expiration of said agreement, and will further comply with
all applicable  legal  obligations  with respect to collective  bargaining under
federal labor law thereafter.

     (iii)  As of  the  Closing  Date,  Buyer  shall  include  each  Transferred
Non-Union  Employee in a benefit package  providing  benefits  (including a cash
incentive compensation plan) that are in the aggregate  substantially similar to
those provided by Seller to such  Transferred  Employees as of the Closing Date,
and shall cause  Transferred  Union  Employees to be provided with benefits that
are  consistent  with the terms of the CBA or are  otherwise  acceptable  to the
applicable  union.  The  commitments  under this  paragraph  shall  require  the
following:

          (A) Buyer shall take all action  necessary and  appropriate  to ensure
     that, as of the Closing Date,  Buyer  maintains  medical,  health,  dental,
     flexible spending account, accident, life, short-term disability, long-term
     disability  and other  employee  welfare  benefit  plans for the benefit of
     Transferred  Non-Union  Employees that are  substantially  similar to those
     benefits  provided  by Seller  under the  corresponding  non-union  welfare
     benefit plans maintained by the Seller as in effect as of the Closing Date.

          (B) With  respect to health  care plans,  Buyer  agrees to waive or to
     cause the  waiver of all  limitations  as to  pre-existing  conditions  and
     actively-at-work  exclusions and waiting periods for such employees, except
     that Buyer may  require  the  employee  or his/her  dependents  who, on the
     Closing Date, is then in the process of satisfying any similar exclusion or
     waiting  period  under the Seller  health  care plans to satisfy  fully the
     balance of the applicable  time period for such exclusion or waiting period
     under the applicable Buyer plan. With respect to the calendar year in which
     the Closing  Date  occurs,  all health care  expenses  incurred by any such
     employees  and/or  any  eligible  dependent   thereof,   including  without
     limitation  any  alternate  recipient  pursuant to qualified  medical child
     support  orders,  in the portion of the calendar year preceding the Closing
     Date  that  were  qualified  to be  taken  into  account  for  purposes  of
     satisfying  any deductible or  out-of-pocket  limit under any Seller health
     care plans shall be taken into  account  for  purposes  of  satisfying  any
     deductible or  out-of-pocket  limit under the health care plan of Buyer for
     such calendar year.

                                       52
<PAGE>

          (C) With respect to service and seniority,  Buyer shall recognize each
     such  employee's  service and  seniority  with Seller and any  affiliate of
     Seller  for  all  non-pension  purposes,  including  the  determination  of
     eligibility  and extent of service or  seniority-related  welfare  benefits
     such as vacation and sick pay  benefits.  From and after the Closing  Date,
     Buyer  shall  provide to each  Transferred  Employee  vacation in an amount
     equal to the Transferred  Employee's  vacation  entitlement for the year of
     the  Closing  reduced  by the number of  vacation  days for the year of the
     Closing that such Transferred Employee has taken before the Closing Date.

          (D) As of the Closing  Date,  Buyer shall  assume the Pension Plan for
     Classified Employees of GASCO, Inc. (the "Classified Plan") and continue to
     accrue  benefits  thereunder  pursuant  to  the  terms  of  any  applicable
     collective   bargaining  agreement.   Thereafter,   Seller  shall  have  no
     obligation  or  liability  (contingent  or  otherwise)  to provide  pension
     benefits to any participant in the Classified  Plan. Buyer and Seller shall
     cooperate  in causing  such steps to be taken as may be necessary to effect
     the  provisions  of  this  Section   6.12(d)(iii)(D),   including   without
     limitation the transfer of the Classified Plan's assets currently held in a
     master trust to a separate trust of which Buyer is the grantor.

          (E) The Citizens  Pension Plan ("Seller's  Pension Plan") shall retain
     all  liabilities  and assets for pension  benefits  accrued by  Transferred
     Non-Union Employees through the day immediately preceding the Closing Date,
     and Seller shall cause all such accrued  benefits to become fully vested as
     of the Closing  Date.  Seller shall,  within 90 days  following the Closing
     Date, notify Transferred  Non-Union  Employees who are entitled to deferred
     vested benefits under Seller's Pension Plan of the amount of such benefits.

          (F) On and after the Closing Date, Buyer shall perform all obligations
     imposed on the employer by Articles 26 and 27 of the collective  bargaining
     agreement  between  Seller and Hawaii  Teamsters and Allied  Workers Union,
     Local 996 with  respect  to the  provision  of health  care and group  life
     insurance  coverage  for  Transferred  Union  Employees  and retired  union
     employees of the Business.

          (G)   Buyer   shall   assume   all   liabilities,    obligations   and
     responsibilities  with respect to providing  post-retirement life insurance
     benefits  ("Post-Retirement  Life  Insurance  Benefits")  to (i)  non-union
     retirees of the  Business as of the Closing Date (the  "Current  Retirees")
     and (ii)  Transferred  Non-Union  Employees who as of the Closing Date have
     satisfied the age and service eligibility  requirements for Post-Retirement
     Life   Insurance   Benefits   under  the   applicable   Seller  plans  (the
     "Grandfathered  Active  Employees" and, together with the Current Retirees,
     the "Grandfathered Individuals").  The Grandfathered Individuals are listed
     in Schedule 6.12(d)(iii)(G). Buyer shall continue to provide to the Current
     Retirees  Post-Retirement  Life  Insurance  Benefits that are comparable to
     those  Post-Retirement  Life  Insurance  Benefits  provided to such Current
     Retirees   immediately  prior  to  the  Closing  Date,  under  cost-sharing
     structures that are at least as favorable as the cost-sharing structures in
     effect for and available to the Current Retirees  immediately  prior to the
     Closing Date.  Buyer shall provide to the  Grandfathered  Active  Employees
     Post-Retirement  Life  Insurance  Benefits  that  are  comparable  to those
     Post-Retirement  Life  Insurance  Benefits  provided to such  Grandfathered
     Active Employees  immediately prior to the Closing Date,  commencing at the
     time such Grandfathered Active Employees retire.

                                       53
<PAGE>

          (H) With respect to the  Seller's  401(k)  Savings Plan (the  "Savings
     Plan"),  Seller  shall vest  Transferred  Employees  in their  Savings Plan
     account balances as of the Closing Date.  Seller hereby represents to Buyer
     that the Savings  Plan is intended  to be  qualified  within the meaning of
     Section 401 of the Code.  Buyer shall take all actions  necessary to ensure
     that, as of the Closing Date,  it includes all  Transferred  Employees in a
     qualified  401(k) plan  ("Buyer's  401(k)  Plan")  providing  for  matching
     contributions  (if any) at least  equivalent in value to those  provided to
     the Transferred  Employee under the Savings Plan  immediately  prior to the
     Closing  Date.  Buyer shall take all  actions  necessary  to cause  Buyer's
     401(k) Plan (x) to recognize the service that the Transferred Employees had
     in the Savings Plan for purposes of determining such Transferred Employees'
     eligibility  to  participate,  vesting,  attainment  of  retirement  dates,
     contribution levels, and, if applicable,  eligibility for optional forms of
     benefit  payments,   and  (y)  to  accept   direct-rollover   transfers  of
     Transferred  Employees'  account  balances in the Savings  Plan,  including
     transfers of loan balances and related promissory notes, provided that such
     loans  would not be treated as taxable  distributions  at any time prior to
     such transfer.

          (I) Within  sixty  (60) days  after the  Closing  Date,  Seller  shall
     transfer to Buyer's  flexible  benefits  plan any balances  standing to the
     credit of Transferred Employees under Seller's flexible benefits plan as of
     the day  immediately  preceding the Closing  Date.  As soon as  practicable
     after the  Closing  Date,  Seller  shall  provide  to Buyer a list of those
     Transferred  Employees  that have  participated  in the health or dependent
     care reimbursement  accounts of Seller,  together with their elections made
     prior to the  Closing  Date with  respect  to such  account,  and  balances
     standing to their credit as of the day  immediately  preceding  the Closing
     Date.

     (e)  With  respect  to  severance  benefits,  Buyer  shall  provide  to any
Transferred Non-Union Employee who is terminated by Buyer (other than for cause)
prior  to the date  which is one year  following  the  Closing  Date,  severance
benefits  at the level set forth in a schedule  provided  to Buyer  prior to the
date hereof.  Any employee provided severance benefits under this section may be
required to execute a release of claims against  Seller and Buyer,  in such form
as Buyer shall prescribe, as a condition for the receipt of such benefits.

                                       54
<PAGE>

     (f) Each  Transferred  Non-Union  Employee  who is initially  assigned,  or
assigned  within twelve (12) months of the Closing Date, by Buyer to a principal
place of work that  requires  such  employee to relocate his  residence  will be
reimbursed  by  Buyer  for  all  relocation  expenses  in  accordance  with  the
relocation benefits plans set forth in a schedule provided to Buyer prior to the
date hereof.  For purposes of the  foregoing a required  relocation of residence
shall include a change in the principal place of work that is more than 30 miles
farther from such employee's  principal place of work  immediately  prior to the
Closing  Date and requires an average  commute from his current  residence of at
least one hour in each direction.

     (g)  Seller  shall  be  responsible,  with  respect  to the  Business,  for
performing  and  discharging  all  requirements  under  the WARN  Act and  under
applicable  state and local laws and  regulations  for the  notification  of its
employees  of any  "employment  loss"  within the  meaning of the WARN Act which
occurs on or prior to the Closing Date.  Seller shall give all notices  required
to be given by Seller under Chapter 394B, Hawaii Revised Statutes, as amended.

     (h) Buyer shall not be  responsible  for, but Seller  shall be  responsible
for, extending COBRA Continuation Coverage to any employees and former employees
of  Seller,  or to any  qualified  beneficiaries  of such  employees  and former
employees,  who become or became entitled to COBRA  Continuation  Coverage on or
before the Closing Date, including those for whom the Closing Date occurs during
their COBRA election period.

     (i)  Seller  or  its  Affiliates  shall  pay or  cause  to be  paid  to all
Transferred  Employees,  all  compensation  (excluding  vacation pay),  workers'
compensation or other  employment  benefits to which they are entitled under the
terms of the applicable  compensation  or Seller benefit plans or programs as of
the Closing Date. Buyer shall pay to each Transferred Employee all unpaid salary
or  other  compensation  or  employment  benefits  which  have  accrued  to such
employees  following the Closing Date, at such times as provided under the terms
of  the  applicable  compensation  or  benefit  programs.   Notwithstanding  the
foregoing,  Seller and Buyer shall  pro-rate the  obligation  to pay any bonuses
declared  by Seller on or after the  Closing  Date (but  prior to March 1 of the
calendar  year  following  the year in which the Closing Date occurs) that would
have been payable to the  Transferred  Employees had the  Transferred  Employees
remained  employed by Seller or its  Affiliates  throughout the calendar year in
which the Closing Date occurs,  in  accordance  with the  provisions of the cash
incentive  compensation  plan of Seller  under  which such bonus would have been
paid. Buyer shall be obligated to pay that portion of each such bonus determined
by multiplying the amount of such bonus by a fraction, the numerator of which is
the  number  of days  from and after the  Closing  Date  through  the end of the
calendar year in which the Closing Date occurs,  and the denominator of which is
365.

     (j) Seller  shall be  responsible  for  maintaining  workers'  compensation
coverage for all Union Employees and Non-Union  Employees for claims relating to
occurrences prior to the Closing Date.

     (k) Individuals  who are otherwise  Union Employees or Non-Union  Employees
but who on any date are not  actively at work due to a leave of absence  covered
by the Family and Medical Leave Act (FMLA), or due to any other authorized leave
of absence, including, without limitation,  short-term disability, or who are on
long-term  disability,  shall nevertheless be treated as "Union Employees" or as
"Non-Union Employees",  as the case may be, on such date if they are able (i) to
return to work within the  protected  period  under the FMLA or such other leave
(which in any event  shall not extend  more than  twelve  (12)  weeks  after the
Closing  Date),  whichever  is  applicable,  and (ii) to perform  the  essential
functions of their job, with or without a reasonable accommodation.

                                       55
<PAGE>

     (l)  Buyer  shall  be  responsible,  with  respect  to  the  Business,  for
performing  and  discharging  all  requirements  under  the WARN  Act and  under
applicable state and local laws and regulations  (including Chapter 394B, Hawaii
Revised  Statutes,  as amended)  for the  notification  of its  employees of any
"employment  loss"  within the  meaning of the WARN Act or as required by Hawaii
law which occurs following the Closing Date.

     (m) Buyer is  responsible  for  extending  and  continuing  to extend COBRA
Continuation Coverage to all Transferred Employees,  and qualified beneficiaries
of such  employees  who  become  entitled  to such COBRA  Continuation  Coverage
following the Closing Date.

     (n) The provisions of this Section 6.12 shall not be construed as being for
the  benefit  for any person  other than the  Parties  hereto,  and shall not be
enforceable by persons other than such Parties (including,  without limitations,
the Transferred Employees).

     6.13 Risk of Loss.

     (a) From the date  hereof  through the  Closing  Date,  all risk of loss or
damage to the assets included in the Assets shall be borne by Seller, other than
loss  or  damage  caused  by the  acts  or  negligence  of  Buyer  or any  Buyer
Representative, which loss or damage shall be the responsibility of Buyer.

     (b) If, before the Closing Date, all or any portion of the Assets are taken
by eminent  domain,  municipalization  or  condemnation  or are the subject of a
pending  taking which has not been  consummated,  (such event being  called,  in
either case, a "Taking"),  then Seller shall notify Buyer promptly in writing of
such Taking.

     (i) If such Taking relates to Assets of Seller having an aggregate net book
value in excess of $10,000,000,  then such Taking shall be a "Material  Taking."
Upon a Material Taking,  Seller and Buyer shall negotiate to settle the loss, if
any,  resulting from such Material Taking (and such  negotiation  shall include,
without  limitation,  the  negotiation of a fair and equitable  reduction in the
Base Purchase Price to offset such loss, if any, based on  consideration  of all
relevant  circumstances).  If Seller and Buyer shall fail to agree to settle the
loss, if any, resulting from said Material Taking, said Material Taking shall be
conclusively deemed to be an Asset Material Adverse Effect.

     (ii) If such Taking is not a Material Taking,  then (A) Buyer may elect to,
in the name of Seller,  negotiate for, claim, contest and receive the portion of
the award properly allocable to those Assets that are the subject of the Taking,
(B) to the extent the Taking shall have been  consummated  prior to the Closing,
Seller shall be relieved of its  obligation to convey to Buyer those Assets that
were the subject of the Taking, (C) at the Closing,  Seller will assign to Buyer
all of its rights to damages payable as a result of the Taking,  and will pay to
Buyer all damages  previously paid to it in connection with the Taking,  in each
case to the extent  properly  allocable  to those Assets that are the subject of
the Taking, and (D) following the Closing, Seller will give to Buyer any further
assurances  of such rights and  assignment  with  respect to the Taking as Buyer
reasonably may request from time to time.

                                       56
<PAGE>

     (c) (i) If any casualty loss or damage to the Assets shall occur before the
Closing Date, then the Base Purchase Price shall be reduced,  to the extent such
loss or damage is not remedied prior to the Closing Date, by an amount  mutually
acceptable  to the  Parties,  which  amount  shall  be  equal  to the  estimated
out-of-pocket costs and expenses which Buyer reasonably can be expected to incur
to repair or replace,  in accordance with Good Utility  Practices,  such lost or
damaged Assets after  Closing.  If the actual  out-of-pocket  costs and expenses
which Buyer  reasonably  incurred to repair or replace,  in accordance with Good
Utility  Practices,  such lost or damaged Assets exceeds such estimated  amount,
Seller shall  reimburse Buyer for such excess costs. If the Parties do not agree
to an  adjustment to the Base  Purchase  Price in respect of the casualty  loss,
then the Closing  shall be postponed  for such period of time (not to exceed six
(6) months),  and Seller  shall repair or replace the lost or damaged  Assets in
accordance  with Good Utility  Practices and Buyer or its  Representatives  will
have the right to inspect and observe and approve,  all repairs or  replacements
made by Seller to remedy such casualty loss.

     (ii) Notwithstanding  anything to the contrary in Section 6.13(c)(i) above,
if Seller shall have failed to remedy,  cure or otherwise reverse by the Closing
Date  any  casualty  loss or  damage  to the  Assets  such  that  the  estimated
out-of-pocket  costs and expenses that Buyer reasonably can be expected to incur
to repair or replace such lost or damaged Assets exceeds $10,000,000,  such loss
or damage shall be conclusively deemed to be an Asset Material Adverse Effect.

     6.14 Tax Exempt Financing

     (a) Seller represents that:

     (i) The Exempt Facilities have been financed, in whole or in part, with the
proceeds of the issuance and sale by the Department of Budget and Finance of the
State of Hawaii of private  activity  bonds the interest on which,  with certain
exceptions,  is  excluded  from gross  income  for  purposes  of Federal  income
taxation (such bonds, as currently outstanding, the "Revenue Bonds"); and Seller
is the economic obligor in respect of such Revenue Bonds;

     (ii) The Revenue Bonds are described in Schedule 6.14(a);

     (iii) The basis for the  exclusion  of interest  on the Revenue  Bonds from
gross income for Federal income tax purposes is the use of the Exempt Facilities
for "the local  furnishing of electric  energy or gas" under Sections  142(a)(8)
and  142(f)  of  the  Code  and  the  applicable   Treasury   Regulations   (the
"Regulations") thereunder;

     (iv) The use of the Exempt Facilities for a purpose other than a qualifying
purpose indicated in subsection (iii) above could impair (A) such exclusion from
gross income of the interest on the Revenue  Bonds,  possibly  with  retroactive
effect,  unless  appropriate  remedial  action were taken (which  could  include
prompt   defeasance  or  redemption  of  the  Revenue   Bonds)  and/or  (B)  the
deductibility  of  payments  by  Seller  or  Buyer  of  interest  based  on  the
restrictions in Section 150(b) of the Code;

                                       57
<PAGE>

     (v) After August 20,  1996,  at least the  following  bonds exempt from tax
under  Section  103 of the Code and in whole  or in part  described  in  Section
142(a)(8) of the Code have been issued with respect to  facilities of Seller for
the "local  furnishing  of electric  energy or gas":  $19,600,000  Department of
Budget and Finance of the State of Hawaii Special Purpose Revenue Bonds (The Gas
Company Project) Series 2000; and

     (vi) Any breach by Buyer of its  obligations  under this Section 6.14 could
result in the incurrence by Seller of additional costs and expenses with respect
to the Revenue Bonds, including,  without limitation,  increased interest costs,
loss of the interest  deduction for tax purposes and transaction  costs relating
to any refinancing,  redemption  and/or defeasance of all or part of the Revenue
Bonds (cumulatively, the "Tax Impact").

     (b) Buyer  agrees that Buyer will  indemnify  Seller for costs  incurred by
Seller in respect of any Tax Impact  that would not have  arisen but for Buyer's
breach of its obligations  under Section 6.14(c) (except as excused elsewhere in
this Section 6.14).

     (c) Buyer  represents that it has not made an election  pursuant to Section
142(f)(4)(B)  of the Code to  terminate  tax exempt bond  financing  by Buyer of
facilities  described by Section  142(a)(8) of the Code.  So long as any Revenue
Bonds remain outstanding with respect to Exempt Facilities in any county,  Buyer
agrees that it shall not (I) use, or take any  deliberate  act to permit the use
of, or fail to take any act within its  control  that would  prevent the use of,
the Exempt  Facilities within that county for any purpose or in any manner other
than as shall be consistent with the Exempt Facility Operating Protocol (as such
Exempt Facility Operating  Protocol may have been updated,  amended or corrected
by Seller  for the  purpose  of its  accuracy  on or before  the  Closing  Date;
provided that such changes do not  materially  impact  Buyer's  operation of the
Assets) delivered by Seller to Buyer on or before the date of this Agreement, or
(II) make an election pursuant to Section  142(f)(4)(B) of the Code to terminate
tax exempt bond financing by Buyer of facilities  described by Section 142(a)(8)
of the Code, unless in either case Buyer:

     (i) has  obtained  at its own  expense  an opinion  addressed  to Seller of
nationally  recognized  bond  counsel  reasonably  acceptable  to Seller  ("Bond
Counsel")  that such use will not impair (x) the exclusion  from gross income of
the interest on any issue of Revenue  Bonds for Federal  income tax purposes and
(y) the deductibility of Seller's payments of interest based on the restrictions
in Section 150(b) of the Code; or

     (ii) has provided written notice to Seller of any election,  act or failure
to act  not  later  than 45  days  after  the  effective  date  of  such  action
("Sufficient  Notice").  (Reference is made to Schedule 6.14(a) for the optional
redemption provisions applicable to the Revenue Bonds.)

     (d) Notwithstanding any other provision of this Agreement,  it is expressly
understood and agreed that the provisions of Section  6.14(c) shall not prohibit
Buyer from (and Buyer shall incur no  liability  to Seller for or in  connection
with Buyer)  suspending  the operation of the Exempt  Facilities (in whole or in
part) on a temporary  basis,  or from  terminating  the  operation of the Exempt
Facilities  (in  whole or in part)  on a  permanent  basis  and  shutting  down,
retiring,  abandoning and/or  decommissioning the Exempt Facilities (in whole or
in part); provided, however, that if the Exempt Facilities, in whole or in part,
are  dismantled  and sold,  including  any sale for scrap,  at any time when any
Revenue  Bonds  remain  outstanding,  then the  proceeds  of such sale of Exempt
Facilities  shall within six months from the date of sale be expended to acquire
replacement  property to be used as described in the Exempt  Facility  Operating
Protocol,  unless (I) Buyer has obtained at its own expense an opinion addressed
to Seller of Bond  Counsel  that the failure to take this action will not impair
(x) the  exclusion  from gross  income of the  interest  on any issue of Revenue
Bonds for Federal  income tax  purposes  and (y) the  deductibility  of Seller's
payments of interest  based on the  restrictions  in Section 150(b) of the Code;
(II) the  proceeds of such sales are less than  $50,000 in a calendar  year;  or
(III) Buyer has provided Sufficient Notice of such action to Seller.

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<PAGE>

     (e) Buyer agrees that it shall not issue, or have issued on its behalf, any
tax-exempt  bonds  to  finance  or  refinance  its  acquisition  of  the  Exempt
Facilities, provided that it is expressly understood and agreed that this clause
(e) shall not prohibit  Buyer's use of tax-exempt  bonds to finance or refinance
any  improvement to the Exempt  Facilities made after the date of acquisition or
to any assets other than the Exempt Facilities.

     (f)  Buyer  agrees  to  provide  prompt  written  notice  to  Seller of any
condemnation  of, or casualty  loss with respect to, the Exempt  Facilities,  in
whole or in substantial part, to cooperate in good faith with Seller in Seller's
efforts to ascertain the  consequences of any such eminent domain  proceeding or
casualty  loss for the (A) exclusion of interest on the Revenue Bonds from gross
income for Federal  income tax  purposes and (B) the  deductibility  of Seller's
payments of interest based on the restrictions in Section 150(b) of the Code.

     (g)  Seller  hereby  represents  that  it  has  performed  all  duties  and
obligations of "Company" under the documents relating to the Revenue Bonds, that
the  representations  and warranties under the documents relating to the Revenue
Bonds remain true and correct, and that there has been no breach of any covenant
or agreement by Seller under the documents relating to the Revenue Bonds. Seller
hereby  covenants  that,  until all of the Revenue Bonds have been paid upon the
stated maturity  thereof or have been redeemed in advance of the stated maturity
date,  Seller will perform all duties and  obligations  of  "Company"  under the
documents  relating to the Revenue  Bonds,  that  Seller's  representations  and
warranties  under such  documents  will  remain true and correct and that Seller
will not  breach any  covenant  or  agreement  of Seller  under such  documents;
provided  that Seller's  covenant in this sentence  shall not extend to any such
duties, obligations,  representations,  warrantees,  covenants or agreements the
necessary  predicate  for which is  Seller's  actual  ownership,  possession  or
control  of the  Exempt  Facilities  from and after  the  Closing  Date.  Seller
acknowledges  and agrees that  although  Seller from and after the Closing  Date
will not own,  possess or control the Exempt  Facilities,  Seller  shall  remain
primarily  obligated  under the documents  relating to the Revenue Bonds and, as
between  itself and each issuer of the Revenue  Bonds,  shall remain  subject to
each  of  Seller's   representations,   warranties,   covenants  and  agreements
thereunder.  Buyer  shall have no  liability  under  this  Section  6.14  unless
interest on the Revenue  Bonds would be excluded  from gross  income for Federal
income tax purposes absent an act or failure to act by Buyer in contravention of
the terms of Section 6.14(c).

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<PAGE>

     (h) In any case  where  Buyer has  provided  notice to  Seller  under  this
Section  6.14,  Buyer  agrees that it will join and  cooperate  with Seller with
respect to any  request by Seller to the  Internal  Revenue  Service to obtain a
private letter ruling  regarding any Tax Impacts of the act or failure to act by
Buyer that prompted such notice.  Seller will join and cooperate with Buyer with
respect to any  request  by Buyer to the  Internal  Revenue  Service to obtain a
private letter ruling  regarding any Tax Impacts.  The Party seeking the private
letter   ruling  shall  bear  all  costs  of  the  filing,   legal  and  related
out-of-pocket expenses incurred in the course of such request.

     (i) Seller  agrees  that it has sole  responsibility  to make any  required
payments of principal  and  interest on the Revenue  Bonds and that Buyer has no
responsibility  to make such  payments.  Seller  agrees that it will  indemnify,
protect,  defend and hold  harmless  Buyer from and against any claim that Buyer
owes any payment of principal or interest on the Revenue  Bonds.  Seller  agrees
that Buyer shall retain any payments  with respect to any casualty  event or any
condemnation  of the Exempt  Facilities and that,  except as Buyer has otherwise
agreed under  Section  6.14(c),  Buyer shall not be restricted in its use of any
such proceeds.

     (j) If Buyer shall sell,  exchange,  transfer or  otherwise  dispose of the
Exempt  Facilities in whole or substantial  part (aggregate price of $500,000 or
more in a calendar year) to one or more third  parties,  Buyer shall cause to be
included  in the  documentation  relating  to  such  transaction  covenants  and
agreements on the part of such third party  substantially  identical to those on
the part of  Buyer  contained  in this  Section  6.14,  and  effective  upon the
consummation of such disposition  Buyer shall have no further  obligations under
this  Section  6.14 with  respect  to the Exempt  Facilities  which have been so
disposed.

     (k) The covenants and agreements on the part of Buyer and Seller  contained
in this  Section  6.14 shall  continue  in effect so long as any of the  Revenue
Bonds shall remain  outstanding.  Seller shall notify Buyer  promptly when there
shall be no Revenue Bonds outstanding.

     (l) Buyer  acknowledges  and agrees that  Seller's bond counsel may rely on
Buyer's  representations,  warranties and covenants as hereinabove  provided for
the  purpose of  rendering  a legal  opinion or  opinions,  as  required  by the
Indenture of Trust, the Loan Agreement and the Tax Regulatory Agreement relating
to the Revenue Bonds ("IDRB  Documents") as a precondition to the sale by Seller
of such Exempt Facilities, to the effect that the sale of such Exempt Facilities
will not result in (I) the inclusion of the interest on the Revenue Bonds in the
gross income of the recipient for purposes of Federal income taxation,  and (II)
disallowance  of interest  expense to Seller under  Section  150(b) of the Code.
Seller  acknowledges  and  agrees  that  Buyer  shall  be an  addressee  of  the
above-described  opinion  letters of Seller's  bond  counsel or shall  receive a
reliance  letter from  Seller's bond counsel  authorizing  Buyer to rely on such
opinion letters.

     (m) Nothing in this Agreement is intended to nor shall it be interpreted as
(i) an assignment to, and assumption by, Buyer of any of the IDRB Documents,  or
(ii) as an undertaking or agreement by Buyer to assume,  guarantee or pay any of
Seller's loan or other payment obligations pursuant to the IDRB Documents. Other
than as stated in this Section 6.14, Buyer shall have no liability in respect of
the Revenue Bonds.

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<PAGE>

     (n) Each of Buyer and Seller shall use its Commercially Reasonable Efforts,
and shall cooperate with the other Party in the other Party's efforts, to obtain
all consents, bond counsel opinions and IRS rulings as may be required under the
IDRB Documents and the Code to enable Seller, at its option, to defease, prepay,
redeem or retain until the stated  maturity  date the IDRB  Indebtedness  and to
sell the Assets to Buyer  without  the result  that the  interest on the Revenue
Bonds will be  included in the gross  income of the  recipient  for  purposes of
Federal income taxation;  provided, however, that Buyer shall have no obligation
in respect of its ownership or operation of the Exempt Facilities (including but
not limited to rates imposed by Buyer in respect of utility service  provided by
the Exempt  Facilities  or by any other  facilities  of Buyer or  affiliates  of
Buyer) other than to comply with the Exempt Facility Operating Protocol.

     6.15 Seller Guarantees and Surety Instruments. Buyer shall use Commercially
Reasonable  Efforts to assist Seller in obtaining full and complete  releases of
the guarantees,  letters of credit, bonds and other surety instruments listed in
Schedule 6.15. In this connection, Buyer agrees to provide a guaranty, letter of
credit,  bond or other surety  instrument  at Closing to replace those listed in
Schedule 6.15.

     6.16  Citizens and Gasco Marks.

     (a) Buyer  acknowledges and agrees with Seller that Seller has the absolute
and exclusive  proprietary  right to the Citizens Marks, all rights to which and
the goodwill  represented  thereby and pertaining  thereto are being retained by
Seller.  Within ninety (90) days after the Closing Date, Buyer shall cease using
any Citizens  Mark and shall remove from the Assets any and all Citizens  Marks.
Thereafter, Buyer shall not use any Citizens Mark in connection with the sale of
any products or services or otherwise in the conduct of the  businesses.  In the
event that Buyer  breaches  this  Section  6.16(a),  Seller shall be entitled to
specific  performance and to injunctive  relief against further  violations,  as
well as any other remedies at law or in equity available to Seller.

     (b) The parties  acknowledge and agree that the Assets include the absolute
and exclusive proprietary right to all names, marks, trade names, trademarks and
corporate symbols and logos incorporating "The Gas Company," "TGC," or "Honolulu
Gas Equipment  Company"  (collectively,  the "Gasco  Marks").  All rights to the
Gasco Marks and the goodwill represented thereby and pertaining thereto shall be
assigned and  transferred to Buyer at Closing.  After the Closing Date,  neither
Seller  nor any of its  Affiliates  shall  use  any of the  Gasco  Marks  in any
corporate  name or in  connection  with the sale of any  products or services or
otherwise in the  operation of any business.  This Section  6.16(b) shall not be
construed to prohibit Seller from using the name "Gasco" or "The Gas Company" in
connection  with the filing of any Tax Returns for periods  prior to the Closing
Date or the filing of any other documents required by any Governmental Body.

     6.17 Title Commitments. Prior to Closing, Seller shall cooperate with Buyer
and use  Commercially  Reasonable  Efforts to assist  Buyer if Buyer  desires to
obtain  American Land Title  Association  ("ALTA") title  insurance  commitments
(collectively, the "Title Commitments," and each a "Title Commitment"), in final
form,  from one or more  title  insurance  companies  (collectively,  the "Title
Company"), committing the Title Company (subject only to the satisfaction of any
industry standard requirements  contained in the Title Commitment) to issue ALTA
(or its  local  equivalent)  form  of  title  insurance  policies  in an  amount
acceptable to the Buyer and the Title Company insuring good, valid, indefeasible
fee simple title to the Real  Property in Buyer,  in all cases,  at Buyer's sole
expense and in the  respective  amounts  that Buyer  requests  prior to Closing,
subject to no  Encumbrances  or other  exceptions to title other than  Permitted
Encumbrances  (collectively  the "Title  Policies").  On or prior to the Closing
Date,  Seller shall execute and deliver,  or cause to be executed and delivered,
to the Title Company, at no cost to Seller, any customary  affidavits,  standard
gap  indemnities,  evidence of corporate  existence and  authority,  and similar
documents  reasonably  requested  by the Title  Company in  connection  with the
issuance of the Title  Commitments  or the Title  Policies;  provided  that such
efforts and Buyer's request for Title Policies or Title Commitments shall, in no
event, result in any delay in the consummation of the transactions  contemplated
by this  Agreement,  except to the extent  caused by or resulting  from Seller's
breach of this  Agreement;  and provided  further,  that nothing in this Section
6.17 shall obligate Seller to execute or deliver any document that affects, in a
manner adverse to Seller, Seller's liability to Buyer as expressed herein and in
the Special Warranty Deed.

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<PAGE>

     6.18 Post-Execution  Delivery of Schedules. By March 31, 2003, Seller shall
deliver to Buyer a schedule, to be identified as Schedule 6.18, which sets forth
all of the following identified by Seller after reasonable investigation (i) all
Permits,  (ii) all  material  items of Tangible  Personal  Property  (other than
Inventories),  (iii)  quantities of  Inventories  recorded in Seller's books and
records for the Business as of the last day of the month  preceding  the date of
this Agreement, together with the net book values of such Inventories as of such
date, (iv) all Easements held by Seller in connection with the Business, and (v)
all line extension  agreements and similar construction  arrangements.  Schedule
6.18 will also (x)  designate  those  Permits  that  require  the consent of the
respective  Governmental  Authority  to  transfer  and those that  purport to be
non-transferable and (y) describe the current status of each such Permit.

     6.19  Transition  Plan.  Within 30 days  after the  execution  date of this
Agreement,  Buyer shall deliver to Seller a list of its proposed representatives
to a joint transition team, which shall include  individuals with expertise from
various  functional  specialties  associated  or involved in providing  billing,
payroll and other support services  provided to the Business by any automated or
manual  process using  facilities or employees  that are not included  among the
Assets or Transferred  Employees.  Seller will add its  representatives  to such
team within 15 days after receipt of Buyer's list. Such team will be responsible
for preparing as soon as reasonably practicable after the execution date of this
Agreement  and  at  least  60  days  prior  to  the  Closing  Date,  and  timely
implementing,  a transition plan which will identify and describe  substantially
all of the various  transition  activities  that the parties will cause to occur
before and after the Closing and any other transfer of control  matters that any
party  reasonably  believes  should be addressed  in such  transition  plan.  If
requested by either party,  the terms and conditions  governing such  transition
activities  will be more fully set forth in a  Transition  Agreement  reasonably
satisfactory  to the  parties.  Buyer and  Seller  shall use their  Commercially
Reasonable  Efforts to cause their  Representatives  on such  transition team to
cooperate  in good faith and take all  reasonable  steps  necessary to develop a
mutually acceptable  transition plan by no later than 120 days after the date of
this Agreement.

     6.20 Certain Transactions. Buyer shall not, and shall not permit any of its
Affiliates to, acquire or agree to acquire by merging or consolidating  with, or
by  purchasing  a  substantial  portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or other
business  organization  or division  thereof,  or otherwise  acquire or agree to
acquire any assets if the entering into of a definitive  agreement  relating to,
or  the  consummation  of  such  acquisition,   merger  or  consolidation  would
reasonably be expected to (i) impose any material  delay in the obtaining of, or
significantly increase the risk of not obtaining, any authorizations,  consents,
orders,  declarations or approvals of any  Governmental  Authority  necessary to
consummate the transactions  contemplated by this Agreement or the expiration or
termination of any applicable waiting period,  (ii)  significantly  increase the
risk  of  any  Governmental   Authority   entering  an  order   prohibiting  the
consummation  of  the  transactions   contemplated  by  this  Agreement,   (iii)
significantly  increase  the risk of not being  able to remove any such order on
appeal or otherwise or (iv) materially  delay or prevent the consummation of the
transactions contemplated by this Agreement.

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<PAGE>

                                  ARTICLE VII

                                   CONDITIONS

     7.1 Conditions to  Obligations of Buyer.  The obligation of Buyer to effect
purchase of the Assets and the other transactions contemplated by this Agreement
shall be subject  to the  fulfillment  of the  following  conditions,  or waiver
thereof, by Buyer at or prior to the Closing Date:

     (a) The waiting period under the HSR Act applicable to the  consummation of
the  sale  of  the  Assets  contemplated  hereby  shall  have  expired  or  been
terminated;

     (b) No preliminary or permanent  injunction or other order or decree by any
Governmental Authority which prevents the consummation of the sale of the Assets
contemplated  herein  shall have been  issued and remain in effect  (each  Party
agreeing to use its reasonable best efforts to have any such  injunction,  order
or decree lifted) and no statute,  rule or regulation shall have been enacted by
any state or  federal  government  or  Governmental  Authority  prohibiting  the
consummation of the sale of the Assets;

     (c) Buyer shall have received all of Buyer's Required Regulatory  Approvals
by Final Order, and such Required  Regulatory  Approvals shall not contain terms
and  conditions  that would result in a Regulatory  Material  Adverse Effect for
Buyer or an Asset Material Adverse Effect;

     (d)  Seller  shall  have  received  all  of  Seller's  Required  Regulatory
Approvals by Final  Order,  and such  Required  Regulatory  Approvals  shall not
contain terms and conditions that would result in a Regulatory  Material Adverse
Effect for Buyer or an Asset Material Adverse Effect;

     (e) Seller shall have performed and complied with each of its covenants and
agreements  contained in this  Agreement  which are required to be performed and
complied with by Seller on or prior to the Closing Date except where the failure
to so  perform or comply,  when taken in the  aggregate,  would not have a Buyer
Material Adverse Effect or an Asset Material Adverse Effect;

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<PAGE>

     (f)  The  representations  and  warranties  of  Seller  set  forth  in this
Agreement shall be true and correct as of the Closing Date as though made at and
as of the Closing Date, except (i) subject to Section 6.11, to the extent due to
changes expressly  permitted by this Agreement or otherwise in writing by Buyer,
(ii) that  representations  and warranties  made as of, or in respect of, only a
specified date or period shall be true and correct as of, or in respect of, such
date or period and (iii) to the extent that any failure of such  representations
and  warranties to be true and correct as aforesaid  when taken in the aggregate
would not have a Buyer  Material  Adverse  Effect or an Asset  Material  Adverse
Effect;

     (g) No Asset Material Adverse Effect shall have occurred and be continuing;

     (h) Seller shall have  delivered,  caused to be  delivered,  or be standing
ready to deliver, to Buyer at the Closing, Seller's closing deliveries described
in Section 3.5; and

     (i) Buyer shall have received  consents of third  parties  required for the
assignment to Buyer of the Assigned Agreements described in a schedule delivered
by Buyer to Seller prior to the execution of this Agreement and entitled, "Third
Party Consent  Required for  Closing,"  and such  consents  shall be in form and
substance reasonably acceptable to Buyer, it being understood and agreed that no
such third party  consent  shall be  unacceptable  to Buyer  because it requires
commercially reasonably security arrangements for Buyer's payment obligations.

     7.2  Conditions to  Obligations  of Seller.  The  obligations  of Seller to
effect the sale of the Assets and the other  transactions  contemplated  by this
Agreement  shall be subject to the fulfillment of the following  conditions,  or
the waiver thereof, by Seller at or prior to the Closing Date:

     (a) The waiting period under the HSR Act applicable to the  consummation of
the  sale  of  the  Assets  contemplated  hereby  shall  have  expired  or  been
terminated;

     (b) No preliminary or permanent  injunction or other order or decree by any
Governmental Authority which prevents the consummation of the sale of the Assets
contemplated  herein shall have been issued and remain in effect (each of Seller
and  Buyer  agreeing  to use  its  reasonable  best  efforts  to have  any  such
injunction,  order or decree  lifted) and no statute,  rule or regulation  shall
have been enacted by any state or federal  government or Governmental  Authority
in the United States prohibiting the consummation of the sale of the Assets;

     (c)  Seller  shall  have  received  all  of  Seller's  Required  Regulatory
Approvals by Final  Order,  and such  Required  Regulatory  Approvals  shall not
contain terms and conditions that would have an Asset Material Adverse Effect or
a Seller Material Adverse Effect;

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<PAGE>

     (d) Seller shall have received any consents of third  parties  required for
the  assignment to Buyer of any of the Assigned  Agreements  other than consents
that, if not obtained, would not have a Seller Material Adverse Effect;

     (e) Buyer shall have  performed and complied with each of its covenants and
agreements  contained in this  Agreement  which are required to be performed and
complied  with by Buyer on or prior to the Closing Date except where the failure
to so perform or comply,  when taken in the  aggregate,  would not have a Seller
Material Adverse Effect;

     (f) The representations and warranties of Buyer set forth in this Agreement
shall be true and correct as of the Closing Date as though made at and as of the
Closing  Date,  except (i) subject to Section 6.11, to the extent due to changes
expressly  permitted by this  Agreement or otherwise in writing by Seller,  (ii)
that  representations  and  warranties  made as of,  or in  respect  of,  only a
specified date or period shall be true and correct as of, or in respect of, such
date or period and (iii) to the extent that any failure of such  representations
and  warranties to be true and correct as aforesaid  when taken in the aggregate
would not have a Seller Material Adverse Effect;

     (g) Buyer shall have assumed,  as set forth in and subject to Section 6.12,
all of the applicable obligations under the CBA;

     (h) Buyer shall have delivered, caused to be delivered or standing ready to
deliver,  to Seller at the  Closing,  Buyer's  closing  deliveries  described in
Section 3.6; and

     (i) Seller  shall  have  received  an opinion  letter  from  Seller's  Bond
Counsel,  dated the Closing Date,  substantially  in the form attached hereto as
Exhibit E.

                                 ARTICLE VIII

                          POST-CLOSING INDEMNIFICATION

     8.1  Indemnification  of Seller by Buyer.  After  Closing,  and  subject to
Section  8.3,  Buyer  shall  indemnify,  defend and hold  harmless  Seller,  its
officers,  directors,  employees,  shareholders,  Affiliates and agents (each, a
"Seller  Indemnitee")  from and against any and all Losses  asserted  against or
paid or incurred by any Seller Indemnitee (each, a "Seller  Indemnifiable Loss")
in any way relating to,  resulting from or arising out of or in connection  with
(i) any breach by Buyer of any covenant or agreement of Buyer  contained in this
Agreement  or any failure or  inaccuracy  of any  representation  or warranty of
Buyer contained in this Agreement, (ii) the Assumed Liabilities,  (iii) any loss
or damages resulting from or arising solely out of any Inspection of the Assets,
and (iv) any Third  Party  Claims  against  a Seller  Indemnitee  to the  extent
arising out of or in  connection  with  Buyer's  ownership  or  operation of the
Assets on or after the Closing Date.

     8.2  Indemnification  of Buyer by Seller.  After  Closing,  and  subject to
Section  8.3,  Seller  shall  indemnify,  defend and hold  harmless  Buyer,  its
officers,  directors,  employees,  shareholders,  Affiliates and agents (each, a
"Buyer Indemnitee") from and against any and all Losses asserted against or paid
or incurred by any Buyer Indemnitee (each, a "Buyer  Indemnifiable Loss") in any
way relating to,  resulting from or arising out of or in connection with (i) any
breach  by Seller of any  covenant  or  agreement  of Seller  contained  in this
Agreement or failure or inaccuracy of any  representation  or warranty of Seller
contained in this Agreement, (ii) the Excluded Liabilities,  (iii) noncompliance
by Seller with any bulk sales or transfer laws as provided in Section 10.12, and
(iv) any Third  Party  Claims  against a Buyer  Indemnitee  arising out of or in
connection  with  Seller's  ownership or operation of the Excluded  Assets on or
after the Closing Date.

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<PAGE>

     8.3  Certain Limitations on Indemnification.

     (a) Notwithstanding anything to the contrary contained herein:

     (i) any Indemnitee  shall use Commercially  Reasonable  Efforts to mitigate
all Losses relating to a claim under these indemnification provisions, including
availing itself of any defenses,  limitations,  rights of  contribution,  claims
against  third  persons  and other  rights at law or  equity.  The  Indemnitee's
Commercially  Reasonable  Efforts shall include the  reasonable  expenditure  of
money  to  mitigate  or  otherwise  reduce  or  eliminate  any  Loss  for  which
indemnification  would  otherwise  be due,  and  the  Indemnifying  Party  shall
reimburse  the  Indemnitee  for  the  Indemnitee's  reasonable  expenditures  in
undertaking the mitigation; and

     (ii) any  indemnifiable  Loss  shall  be net of the  dollar  amount  of any
insurance or other  proceeds  actually  received by the Indemnitee or any of its
Affiliates with respect to the  indemnifiable  Loss. Any Party seeking indemnity
hereunder shall use Commercially  Reasonable Efforts to seek coverage (including
both costs of defense and indemnity)  under applicable  insurance  policies with
respect to any such indemnifiable Loss.

     (b)  Except  as   otherwise   provided   in  this   Section   8.3(b),   the
representations,  warranties,  covenants and agreements of the Parties set forth
in this  Agreement  shall survive the Closing Date for a period of eighteen (18)
months,  and all  representations,  warranties,  covenants and agreements of the
Parties under this Agreement and the related indemnities granted in this Article
VIII shall terminate at 5:00 p.m., local time in New York City, New York, on the
day that is eighteen (18) months after the Closing Date; provided, however, that

     (i)  Seller's  representations  and  warranties  set forth in  Section  4.8
(Benefit  Plans;  ERISA) and Section 4.14 (Taxes) shall survive the Closing Date
until the  expiration  of the statute of  limitations  applicable  to such ERISA
matters or applicable for each Tax and taxable year, as the case may be;

     (ii) Seller's  indemnification  obligation  arising  under Section  8.2(ii)
relating to Excluded  Liabilities (other than the Excluded  Liabilities referred
to in Sections 2.4(g) and 2.4(m),  which are the subject of Section 8.3(b)(iii),
and the  Excluded  Liabilities  referred  to in Sections  2.4(h),  which are the
subject of Section  8.3(b)(iv))  shall  terminate and be extinguished on the day
that is thirty-six (36) months after the Closing Date;

     (iii) Seller's  indemnification  obligations  arising under Section 8.2(ii)
and relating to the  Excluded  Liabilities  referred to in Section  2.4(g) or in
Section 2.4(m) shall  terminate and be  extinguished on the day that is eighteen
(18) months after the Closing Date;

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     (iv) Seller's indemnification  obligations arising under Section 8.2(iv) or
under Section  8.2(ii) and relating to the Excluded  Liabilities  referred to in
Section  2.4(h)  relating  to the  Iwilei  Property  shall not  terminate  or be
extinguished at any time and will survive Closing in perpetuity; and

     (v) Buyer's  indemnification  obligations  arising under Section 8.1(ii) or
Section  8.1(iv)  shall not  terminate or be  extinguished  at any time and will
survive Closing in perpetuity.

Notwithstanding the foregoing clauses (ii) and (iii), if after the relevant date
of termination  and  extinguishment,  a Buyer  Indemnitee  successfully  defends
against a Third Party Claim  relating to the Excluded  Liabilities  that are the
subject of such  clauses on the basis that the matter  giving rise to such Third
Party Claim was not an Assumed Liability,  then Seller,  regardless of when such
Third Party Clause was asserted or resolved, promptly shall reimburse such Buyer
Indemnitee for the reasonable attorneys' fees and reasonable  disbursements paid
by such Buyer  Indemnitee in connection  with such defense,  but no other Losses
with  respect to such Third Party Claim or the matter  giving rise to such Third
Party Claim shall be  indemnifiable  by Seller.  The expiration,  termination or
extinguishment of any representation,  warranty, covenant or agreement shall not
affect  the  Parties'  obligations  under  Section  8.1  or  8.2  hereof  if the
Indemnitee  provided the  Indemnifying  Party with proper notice of the claim or
event for which indemnification is sought prior to such expiration,  termination
or  extinguishment.  Notwithstanding  the  foregoing  provisions of this Section
8.3(b), the representations,  warranties,  covenants and agreements contained in
Sections 3.3(e),  6.2(c),  6.3(d), 6.4(a), 6.10, 6.12, 6.14, 6.16, 8.3, 8.4, 8.5
and in Article X, will survive the Closing in accordance with their terms.

     (c)  Notwithstanding  anything to contrary in this  Agreement,  in no event
shall Buyer indemnify Seller  Indemnitees or Seller indemnify Buyer Indemnitees,
or otherwise be liable in any way whatsoever to said Indemnitees, for any Losses
otherwise subject to indemnification by the Indemnifying Party (determined after
giving  effect to the other  provisions  of this  Section  8.3)  until the Buyer
Indemnitees  or the  Seller  Indemnitees,  as the  case  may be,  have  incurred
otherwise  indemnifiable Losses that in the aggregate exceed a deductible amount
equal to $1,150,000 (the "Deductible"), after which Buyer or Seller, as the case
may be, shall then be liable for all Losses in excess of the Deductible incurred
by  the  Seller  Indemnitees  or  the  Buyer  Indemnitees,  as  applicable.  The
limitations on indemnification  set forth in this Section 8.3(c) shall not apply
to any Losses asserted  against or suffered by an Indemnitee in any way relating
to,  resulting  from or arising out of or in connection  with the failure of (i)
the  appropriate  Party  to  make  the  payment  required  to be  made  by it in
accordance with Section  3.3(d),  (ii) Buyer to discharge  Assumed  Liabilities,
(iii) Seller to discharge  Excluded  Liabilities  other than those  specified in
Sections 2.4(g) and 2.4(m),  and (iv) Seller to make any payment to Buyer if and
to the extent required by Section  6.10(b) or 6.13(c),  and any such Losses also
shall be disregarded when determining  whether the Deductible has been exceeded.
Losses  incurred  by Buyer in the  performance  or  satisfaction  of the Assumed
Liabilities  described  in Section  2.3(f)  shall be included  when  determining
whether the Deductible has been exceeded.

     (d)  Losses  of a Buyer  Indemnitee  relating  to a  particular  breach  of
Seller's  representations  and warranties or any  performance,  satisfaction  or
discharge of a particular  Excluded Liability  described in Section 2.4(g) shall
not constitute  indemnifiable Losses, and therefore shall not be applied towards
the Deductible or be  indemnifiable  by Seller hereunder (and, as a consequence,
shall  constitute an Assumed  Liability  under Section 2.3(f) to the extent such
Losses relate to a breach of Section 4.6 (Environmental  Matters) or an Excluded
Liability  described  in Section  2.4(g)),  unless such Losses  relating to such
particular  breach or Excluded  Liability  described  in Section  2.4(g)  exceed
$50,000.

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     (e) Notwithstanding anything to the contrary in this Agreement, in no event
shall  Seller  indemnify  the  Buyer   Indemnitees  or  Buyer  indemnify  Seller
Indemnitees,  or be otherwise liable in any way whatsoever to said  Indemnitees,
for any Losses otherwise subject to  indemnification  by the Indemnifying  Party
(determined  after giving  effect to the other  provisions  of this Section 8.3)
that in the aggregate exceed an amount equal to sixty-five  percent (65%) of the
Purchase Price; provided, however, that the limitation set forth in this Section
8.3(e) shall not apply to Losses of a Buyer  Indemnitee  relating to a breach by
Seller of Section 6.14 (Revenue Bonds), and therefore such Losses shall be fully
indemnifiable by Seller hereunder.

     (f) For purposes of this  Article  VIII only and except as provided  below,
the  existence  of a breach  of a Party's  representation  or  warranty  in this
Agreement and the  calculation  of Losses  arising out of a Party's  breach of a
representation or warranty in this Agreement shall be determined  without giving
effect to any exception or qualification of such  representation  or warranty as
to the Asset  Material  Adverse  Effect of such breach or the  Material  Adverse
Effect on any Person of such breach; provided that this Section 8.3(f) shall not
apply to a breach  of  Seller's  representations  and  warranties  set  forth in
Section  4.22 or  Section  4.24.  Notwithstanding  the  foregoing,  the  Parties
acknowledge   and  agree  that  effect  shall  be  given  to  any  exception  or
qualification  of any  representation  or warranty in this  Agreement  of either
Party  that is based  on use of the term  "materiality"  or the  phrase  "in all
material respects" and similar undefined terms and phrases.

     (g) Except to the extent  otherwise  provided in Section 3.3  (relating  to
adjustments  to  the  Base  Purchase  Price),   Section  6.10(b)   (relating  to
post-Closing   reimbursements   for  Taxes),   Section   6.13(c)   (relating  to
post-Closing  reimbursement  of excess costs and  expenses of repairing  lost or
damaged  Assets),  and  Section  6.16  (relating  to  specific  performance  and
injunctive relief with respect to Citizens Marks and Gasco Marks), after Closing
the  rights  and  remedies  of Seller  and Buyer  under  this  Article  VIII are
exclusive  and in lieu of any and all other  rights and  remedies  which each of
Seller and Buyer may have under this Agreement or otherwise for monetary relief,
with respect to (i) all  post-Closing  claims  relating to this  Agreement,  the
events giving rise to this Agreement and the transactions provided for herein or
contemplated  hereby or thereby, or (ii) the Assumed Liabilities or the Excluded
Liabilities,  as the case may be.  Notwithstanding any language contained in any
Ancillary  Agreement  (including the Special Warranty Deed), the representations
and warranties of Seller set forth in this Agreement will not be merged into any
such Ancillary Agreement and the indemnification  obligations of Seller, and the
limitations on such obligations,  set forth in this Agreement shall control.  No
provision set forth in any such Ancillary  Agreement shall be deemed to enlarge,
alter or amend the terms or provisions of this Agreement.

     (h)  Notwithstanding  anything to the contrary  contained  herein, no Party
(including  an  Indemnitee)  shall be entitled  to recover  from any other Party
(including an Indemnifying  Party) for any  liabilities,  damages,  obligations,
payments,  losses,  costs, or expenses under this Agreement any amount in excess
of the actual compensatory  damages,  court costs and reasonable  attorney's and
other  advisor fees  suffered by such Party.  Each of Buyer and Seller waive any
right to recover  punitive,  incidental,  special,  exemplary and  consequential
damages  arising  in  connection  with or with  respect to this  Agreement.  The
provisions of this Section 8.3(h) shall not apply to indemnification for a Third
Party Claim.

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     (i) The  limitations set forth in this Section 8.3 do not apply to fraud or
willful misconduct of a Party.

     (j) No amount shall be recovered  from a Party for the breach or untruth of
any of such Party's representations, warranties, covenants or agreements, or for
any other  matter,  to the extent  that the other  Party had  knowledge  of such
breach,  untruth or other matter at or prior to the Closing, nor shall the other
Party be entitled to rescission with respect to any such matter.

     8.4 Defense of Claims.

     (a) If any Indemnitee  receives  notice of the assertion or commencement of
any Third  Party  Claim made or brought by any Person who is not a Party to this
Agreement or any  Affiliate of a Party to this  Agreement  with respect to which
indemnification is to be sought from an Indemnifying Party, the Indemnitee shall
give such Indemnifying  Party reasonably  prompt written notice thereof,  but in
any event such notice shall not be given later than ten (10) calendar days after
the Indemnitee's  receipt of notice of such Third Party Claim. Such notice shall
describe the nature of the Third Party Claim in reasonable detail (as it is then
known  to  the  Indemnitee)  and  shall  indicate  the  estimated   amount,   if
practicable,  of the Indemnifiable Loss that has been or may be sustained by the
Indemnitee.  The Indemnifying Party will have the right to participate in or, by
giving written notice to the  Indemnitee,  to elect to assume the defense of any
Third Party Claim at such Indemnifying  Party's expense and by such Indemnifying
Party's own counsel,  provided that the counsel for the  Indemnifying  Party who
shall  conduct  the  defense  of such  Third  Party  Claim  shall be  reasonably
satisfactory to the Indemnitee.  The Indemnitee shall cooperate in good faith in
such defense at such Indemnitee's own expense.  If an Indemnifying  Party elects
not to assume or to  participate  in the defense of any Third Party  Claim,  the
Indemnitee may compromise or settle such Third Party Claim over the objection of
the  Indemnifying  Party,  which  settlement  or compromise  shall  conclusively
establish  the  Indemnifiable  Loss for  which  the  Indemnified  Party may seek
indemnification from the Indemnifying Party pursuant to this Agreement.

     (b) (i) If,  within ten (10)  calendar  days after an  Indemnitee  provides
written  notice  to the  Indemnifying  Party  of any  Third  Party  Claims,  the
Indemnitee  receives  written  notice  from the  Indemnifying  Party  that  such
Indemnifying  Party has  elected to assume the defense of such Third Party Claim
as provided in Section 8.4(a), the Indemnifying Party will not be liable for any
legal expenses  subsequently  incurred by the Indemnitee in connection  with the
defense thereof; provided, however, that if the Indemnifying Party shall fail to
take  reasonable  steps  necessary to defend  diligently  such Third Party Claim
within twenty (20) calendar days after receiving notice from the Indemnitee that
the Indemnitee  believes the  Indemnifying  Party has failed to take such steps,
the  Indemnitee may assume its own defense and the  Indemnifying  Party shall be
liable for all reasonable expenses thereof.

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<PAGE>

     (ii) Without the prior written consent of the Indemnitee,  the Indemnifying
Party shall not enter into any  settlement  of any Third Party Claim which would
lead to  liability,  constitute  an  admission  of a criminal  act or create any
financial  or other  obligation  on the part of the  Indemnitee  for  which  the
Indemnitee is not entitled to indemnification hereunder. If a firm offer is made
to settle a Third Party Claim  without  leading to  liability,  the admission of
criminal  fault or liability or the creation of a financial or other  obligation
on the part of the  Indemnitee  for  which the  Indemnitee  is not  entitled  to
indemnification hereunder and the Indemnifying Party desires to accept and agree
to  such  offer,  the  Indemnifying  Party  shall  give  written  notice  to the
Indemnitee to that effect. If the Indemnitee fails to consent to such firm offer
within ten (10) calendar days after its receipt of such notice, the Indemnifying
Party shall be relieved of its  obligations to defend such Third Party Claim and
the  Indemnitee may contest or defend such Third Party Claim at its own expense.
In such event, the maximum liability of the Indemnifying  Party as to such Third
Party Claim will be the amount of such settlement  offer plus  reasonable  costs
and expenses paid or incurred by Indemnitee up to the date of said notice.

     (c) Any claim by an  Indemnitee on account of an  Indemnifiable  Loss which
does not result from a Third Party Claim (a "Direct Claim") shall be asserted by
giving the Indemnifying Party reasonably prompt written notice thereof,  stating
the  nature of such claim in  reasonable  detail and  indicating  the  estimated
amount,  if  practicable,  but in any event such notice shall not be given later
than ten (10)  calendar days after the  Indemnitee  becomes aware of such Direct
Claim,  and the  Indemnifying  Party shall have a period of thirty (30) calendar
days within which to respond to such Direct  Claim.  If the  Indemnifying  Party
does not respond within such thirty (30) calendar day period,  the  Indemnifying
Party shall be deemed to have accepted  such claim.  If the  Indemnifying  Party
rejects such claim, the Indemnitee will be free to seek enforcement of its right
to indemnification under this Agreement.

     (d) If the amount of any indemnifiable  Loss, at any time subsequent to the
making of an  indemnity  payment in  respect  thereof,  is reduced by  recovery,
settlement or otherwise under or pursuant to any insurance  coverage or pursuant
to any claim,  recovery,  settlement  or payment  by,  from or against any other
entity,  the amount of such reduction (less any out-of-pocket  costs incurred in
connection  therewith and the cost of any adjusted premium charges to the extent
directly relating to the claim for such indemnifiable  Loss ("Recovery  Costs"),
together with interest  thereon from the date of payment thereof at the publicly
announced prime rate then in effect of Citibank, shall promptly be repaid by the
Indemnitee to the Indemnifying Party.

     (e) A failure to give timely  notice as provided in this  Section 8.4 shall
not affect the rights or obligations of any Party hereunder  except if, and only
to the extent that, as a result of such failure, the Party which was entitled to
receive such notice was actually prejudiced as a result of such failure.

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     8.5  BHP  Indemnity   Arrangements.   Seller  acquired  Gasco,   Inc.,  the
predecessor owner and operator of the Business,  from BHP Hawaii,  Inc. pursuant
to a Stock Sale  Agreement  between  Seller and BHP  Hawaii,  Inc.,  dated as of
January 9, 1997, as amended on October 30, 1997 (as amended, the "BHP Stock Sale
Agreement").  In  Section  9.2 of the BHP Stock  Sale  Agreement,  BHP agreed to
indemnify the "Buyer Indemnified  Parties" for a "Buyer Loss" (as such terms are
defined  in  Section  9.2 of the BHP Stock  Sale  Agreement)  arising  out of or
resulting from the environment  matters  described in Sections 9.2(c),  (d), (e)
and (g) of the bhp Stock Sale  Agreement.  Upon  Closing,  Buyer will become the
successor  and assign of Seller with  respect to the Business and the Assets and
one of the "Buyer  Indemnified  Parties"  (as  defined in Section 9.2 of the BHP
Stock Sale Agreement). Buyer has agreed to assume the environmental liabilities,
responsibilities  and obligations  described in Sections 2.3(e) and (f), some of
which may be covered by BHP's indemnity. The parties' intent with respect to the
foregoing  is that to the extent any Losses  incurred by Buyer may be reduced by
recovery,  settlement  or  otherwise  under or pursuant to any claim,  recovery,
settlement  or payment by or against BHP under Section 9.2 of the BHP Stock Sale
Agreement,  then appropriate action under and consistent with the BHP Stock Sale
Agreement  should be taken to seek to obtain  the  benefits  of BHP's  indemnity
under the BHP Stock Sale Agreement.  Buyer shall use its Commercially Reasonable
Efforts to give timely and effective  written notice to Seller of any occurrence
or circumstances that have given or could give rise to a claim against BHP under
Section 9.2 of the BHP Stock Sale Agreement.  Buyer and Seller,  acting jointly,
or Buyer and/or Seller acting separately, as the Parties may determine from time
to time, then shall use their respective Commercially Reasonable Efforts to give
BHP timely and  effective  notice in accordance  with Section  9.4(b) of the BHP
Stock Sale Agreement.  To the extent a Buyer  Indemnitee also is an "Indemnitee"
as defined in Section 9.4(b) of the BHP Stock Sale Agreement,  then Buyer shall,
and shall cause each other  Buyer  Indemnitee  that may be such an  "Indemnitee"
under the BHP Stock Sale Agreement,  to comply with the pertinent  provisions of
the BHP Stock Sale Agreement relating to any claim notice submitted to BHP by or
on behalf of such Buyer Indemnitee,  including the provisions of Sections 9.4(b)
and 9.5(c) of the BHP Stock Sale  Agreement,  and to  cooperate  with  Seller in
connection with Seller's  compliance with such provisions and the submission and
prosecution  of any such claim notice  submitted to BHP. In the  submission  and
prosecution of any claim made by or on behalf of a Buyer Indemnitee  against BHP
under Sections 9.2,  9.4(b) and/or 9.5(c) of the BHP Stock Sale  Agreement,  the
Parties in good faith will endeavor  mutually to select counsel,  to control the
prosecution  of such claim and to make  decisions  concerning  the settlement of
such  claim,  provided  that if the Parties  fail to mutually  agree on any such
matter,  Buyer will have the exclusive right to select counsel,  to control such
prosecution and to make such settlement decisions after consultation with Seller
and with the understanding that Buyer will keep Seller timely and fully informed
of any plans or developments  regarding such matters.  Subject to Section 9.5(c)
of the BHP Stock Sale Agreement, Losses relating to the underlying occurrence or
circumstances  giving  rise  to  any  such  claim  and to  the  prosecution  and
settlement of any such claim shall be borne by Buyer  (directly or, if necessary
or desirable to preserve better the Parties'  ability to recover against BHP, by
loan advances to Seller on terms  mutually  acceptable to the Parties,  it being
understood  that  a  Party  shall  not be  required  to  enter  into  such  loan
arrangements if such Party would incur adverse  financial or tax consequences as
a result) until such time, if ever,  that such Losses  become  indemnifiable  by
Seller in accordance  with this  Agreement.  Each Party agrees to cooperate with
the other Party in providing  assistance  and access to personnel and records to
facilitate either Party's  prosecution of claims against BHP under the BHP Stock
Sale  Agreement,  and  neither  Party  will take any  action to hinder the other
Party's  efforts to submit and to prosecute  claims for  indemnification  by BHP
under the BHP Stock Sale Agreement.

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                                   ARTICLE IX

                                   TERMINATION

     9.1  Termination.

     (a) This  Agreement may be terminated at any time prior to the Closing Date
by mutual written consent of Seller and Buyer.

     (b) This  Agreement may be terminated by Seller or Buyer if (i) any federal
or state court of competent jurisdiction shall have issued an order, judgment or
decree permanently restraining,  enjoining or otherwise prohibiting the Closing,
and such order,  judgment or decree shall have become final and  nonappeallable;
(ii) any  statute,  rule,  nonappeallable  order or  regulation  shall have been
enacted or issued by any Governmental Authority which prohibits the consummation
of the  Closing;  or (iii) the Closing  shall have not occurred on or before the
day which is fifteen  (15)  months from the date of this  Agreement,  subject to
such  extensions  (not to exceed  six  months) as may be  required  by Seller to
repair or replace lost or damaged Assets in accordance with Section 6.13(c) (the
"Termination  Date");  provided that the right to terminate this Agreement under
this Section 9.1(b)(iii),  and any other Section,  shall not be available to any
Party whose failure to fulfill any obligation  under this Agreement has been the
cause of, or resulted in the event  giving  rise to the  applicable  termination
right.

     (c) Except as otherwise  provided in this Agreement,  this Agreement may be
terminated  by Buyer if any of the  Buyer  Required  Regulatory  Approvals,  the
receipt of which is a condition to the  obligation  of Buyer to  consummate  the
Closing as set forth in Section  7.1(c),  shall have been denied (and a petition
for rehearing or refiling of an application  initially denied without  prejudice
shall  also have  been  denied)  or, if such  Required  Regulatory  Approval  is
obtained,  contains  terms or conditions  that would have a Regulatory  Material
Adverse  Effect for Buyer or an Asset  Material  Adverse  Effect (after  Buyer's
petition for rehearing  objecting to such terms and conditions has been denied),
in either case that is not cured or otherwise  addressed in a manner  reasonably
acceptable to Buyer by the Closing Date.

     (d) Except as otherwise  provided in this Agreement,  this Agreement may be
terminated by Seller if any of the Seller  Required  Regulatory  Approvals,  the
receipt of which is a condition to the  obligation of Seller to  consummate  the
Closing as set forth in Section  7.2(c),  shall have been denied (and a petition
for rehearing or refiling of an application  initially denied without  prejudice
shall  also have  been  denied)  or, if such  Required  Regulatory  Approval  is
obtained,  contains  terms or conditions  that would have a Regulatory  Material
Adverse Effect for Seller (after  Seller's  petition for rehearing  objecting to
such terms and conditions has been denied),  in either case that is not cured or
otherwise  addressed in a manner reasonably  acceptable to Seller by the Closing
Date.

     (e) This Agreement may be terminated by Buyer if there has been a violation
or breach by Seller of any  covenant,  representation  or warranty  contained in
this  Agreement  provided  that such  violation  or breach  would  have an Asset
Material  Adverse Effect or a Buyer Material Adverse Effect that is not cured or
otherwise addressed by Seller in a manner reasonably  acceptable to Buyer by the
Closing Date and such violation or breach has not been waived by Buyer.

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<PAGE>

     (f) This  Agreement  may be  terminated  by  Seller,  if  there  has been a
violation  or  breach  by  Buyer of any  covenant,  representation  or  warranty
contained in this Agreement  provided that such violation or breach would have a
Seller Material Adverse Effect (it being agreed by Buyer that Buyer's failure to
pay the  Purchase  Price on the  Closing  Date  shall be deemed to have a Seller
Material  Adverse Effect) and such violation or breach is not cured or otherwise
addressed by Buyer in a manner  reasonably  acceptable  to Seller by the Closing
Date, and such violation or breach has not been waived by Seller.

     (g) This  Agreement  may be  terminated  by either  Party if  either  (i) a
special meeting of the  shareholders of k1 Ventures Limited is duly convened and
the  requisite  vote of such  shareholders  required  to  approve  the  Required
Shareholder  Actions is not obtained at such special  meeting or any adjournment
thereof or (ii) a special  meeting of the  shareholders  of k1 Ventures  Limited
called for the purpose of voting upon the  Required  Shareholder  Actions is not
duly convened by April 30, 2003.

     9.2 Procedure and Effect of  Termination.  In the event of  termination  of
this  Agreement by either or both Seller and Buyer  pursuant to this Article IX,
written notice thereof shall forthwith be given by the terminating  Party to the
other Party,  whereupon the liabilities of the Parties hereunder will terminate,
except as otherwise  expressly  provided in this  Agreement  (including  Section
9.3),  and  thereafter  none of the Parties shall have any recourse  against any
other  Party by reason  of this  Agreement.  If prior to  Closing  either  Party
resorts to legal proceedings to enforce this Agreement,  the prevailing Party in
such proceedings  shall be entitled to recover all costs incurred by such Party,
including  reasonable  attorney's fees, in addition to any other relief to which
such Party may be entitled;  provided,  however, and notwithstanding anything to
the  contrary in this  Agreement,  in no event shall either Party be entitled to
receive any punitive, indirect or consequential damages

     9.3  Liquidated Damages.

     (a) Seller shall pay to Buyer $5,750,000 if Buyer terminates this Agreement
pursuant to Section 9.1(e).

     (b) Buyer  shall pay to Seller  $5,750,000  if (i) Seller  terminates  this
Agreement  pursuant to Section  9.1(f),  (ii) Seller  terminates  this Agreement
pursuant to Section 9.1(d) because the requisite  Required  Regulatory  Approval
from the HPUC has not been obtained due in whole or in  substantial  part to the
HPUC's findings about Buyer's financial,  legal or operational qualifications or
capabilities,  (iii) Buyer terminates this Agreement pursuant to Section 9.1(c),
because the requisite  Required  Regulatory  Approval from the HPUC has not been
obtained,  due in whole or in  substantial  part to the  HPUC's  findings  about
Buyer's financial, legal or operational qualifications or capabilities,  or (iv)
either Party terminates this Agreement pursuant to Section 9.1(g).

                                       73
<PAGE>

     (c) In view of the  difficulty of  determining  the amount of damages which
may result from a termination  pursuant to Sections 9.3(a) or 9.3(b) or pursuant
to any of the Sections of this Agreement referenced in Section 9.3(a) or 9.3(b),
and the failure to consummate the  transactions  contemplated by this Agreement,
Buyer and Seller have  mutually  agreed that each of the  payments  set forth in
Sections 9.3(a) and 9.3(b) shall be made to the appropriate  Party as liquidated
damages,  and not as a penalty,  and this Agreement shall thereafter become null
and void except for those provisions which by their terms survive termination of
this Agreement.  In the event of any such  termination,  the Parties have agreed
that each of the payments  set forth in Sections  9.3(a) and 9.3(b) shall be the
sole and  exclusive  remedy of the Party  entitled to receive any such  payment.
ACCORDINGLY,  THE PARTIES HEREBY ACKNOWLEDGE THAT (1) THE EXTENT OF DAMAGES TO A
PARTY  CAUSED BY THE  FAILURE OF THIS  TRANSACTION  TO BE  CONSUMMATED  WOULD BE
IMPOSSIBLE OR EXTREMELY DIFFICULT TO ASCERTAIN, (2) THE AMOUNT OF THE LIQUIDATED
DAMAGES  PROVIDED  FOR IN EACH OF  SECTIONS  9.3(a)  AND  9.3(b)  ARE  FAIR  AND
REASONABLE  ESTIMATES OF SUCH DAMAGES UNDER THE CIRCUMSTANCES AND (3) RECEIPT OF
SUCH LIQUIDATED  DAMAGES BY THE APPROPRIATE PARTY DOES NOT CONSTITUTE A PENALTY.
THE PARTIES HEREBY FOREVER WAIVE AND AGREE TO FOREGO TO THE FULLEST EXTENT UNDER
APPLICABLE  LAW ANY AND ALL RIGHTS  THEY HAVE OR IN THE FUTURE MAY HAVE TO BRING
ANY ACTION OR ARBITRAL PROCEEDING DISPUTING OR OTHERWISE OBJECTING TO ANY OR ALL
OF THE FOREGOING PROVISIONS OF THIS SECTION 9.3.

     (d) All  payments  under this  Section  9.3 shall be from payor to payee by
wire  transfer of  immediately  available  funds to a bank account in the United
States of  America  designated  in  writing  by payee not later  than  three (3)
business days following payor's receipt of such account designation from payee.

                                    ARTICLE X

                                  MISCELLANEOUS

     10.1 Amendment and Modification. This Agreement may be amended, modified or
supplemented only by written agreement of the Parties.

     10.2 Waiver of Compliance;  Consents.  Except as otherwise provided in this
Agreement,  any  failure of any of the  Parties to comply  with any  obligation,
covenant,  agreement or condition  herein may be waived by the Party entitled to
the benefits thereof only by a written  instrument  signed by the Party granting
such  waiver,  but any such waiver of such  obligation,  covenant,  agreement or
condition  shall not  operate as a waiver of, or estoppel  with  respect to, any
subsequent failure to comply therewith.

     10.3 [Intentionally Omitted]

     10.4 Notices.  All notices and other  communications  hereunder shall be in
writing  and shall be  deemed  given if  delivered  personally  or by  facsimile
transmission with completed transmission acknowledgment,  or mailed by overnight
delivery via a nationally  recognized  courier or registered or certified  first
class mail (return receipt  requested),  postage prepaid, to the recipient Party
at its  address  (or at such other  address or  facsimile  number for a Party as
shall be specified by like notice;  provided;  however, that notices of a change
of address shall be effective only upon receipt thereof):

                                       74
<PAGE>

                  (a)      If to Seller, to:

                           Citizens Communications Company
                           High Ridge Park
                           Stamford, CT 06905
                           Attention:  Jerry Elliott
                           Telephone:  (203) 614-6722
                           Telecopier:  (203) 614-4661

                           with a copy to:

                           Citizens Communications Company
                           High Ridge Park
                           Stamford, CT 06905
                           Attention:  L. Russell Mitten
                           Telephone:  (203) 614-5047
                           Telecopier:  (203) 614-4651

                           and:

                           Fleischman and Walsh, L.L.P.
                           1400 Sixteenth Street, N.W.
                           Washington, D.C. 20036
                           Attention:  Jeffry L. Hardin
                           Telephone:  (202) 939-7914
                           Telecopier:  (202) 387-3467

                  (b)      if to Buyer, to:

                           c/o K-1 USA Ventures, Inc.
                           2601 Bayshore Drive
                           Suite 1775
                           Coconut Grove, FL  33133
                           Attention:  Jeff Safchik
                           Telephone: (305) 858-4225
                           Telecopier: (305) 858-2334

                                       75
<PAGE>

                           with a copy to:

                           K-1 USA Ventures, Inc.
                           1880 Century Park East
                           Suite 213
                           Los Angeles, CA 90067
                           Attention:  Cary Meadow
                           Telephone:  (310) 201-6861
                           Telecopier:  (310) 201-6858

                           and:

                           Jones Walker Waechter Poitevent Carrere & Denegre
                           201 St. Charles Avenue
                           New Orleans, LA 70170
                           Attention:  Curtis R. Hearn
                           Telephone:  (504) 582-8308
                           Telecopier:  (504) 589-8308

     10.5 Assignment.  This Agreement and all of the provisions  hereof shall be
binding upon and inure to the benefit of the Parties hereto and their respective
successors and permitted  assigns,  but, except to the extent  permitted by this
Section  10.5,  neither  this  Agreement  nor any of the  rights,  interests  or
obligations  hereunder  shall be  assigned  by any Party  hereto,  including  by
operation of law,  without the prior written consent of each other Party, nor is
this  Agreement  intended  to confer  upon any other  Person  except the Parties
hereto any  rights,  interests,  obligations  or remedies  hereunder;  provided,
however,  in the event of any such  assignment  by a Party by  operation  of law
without the consent of the other Party,  this  Agreement and all the  provisions
hereof shall be binding upon the Person  receiving such  assignment by operation
of law.  Notwithstanding the foregoing,  (i) K-1 USA shall assign this Agreement
to the k1 Designee in accordance with Section 6.8(f),  and such assignment shall
have the legal  effect  provided  in Section  6.8(f),  and (ii) Buyer may make a
security  assignment  to any lender  providing  financing  in respect of Buyer's
acquisition of the Assets.

     10.6 Governing  Law. This  Agreement  shall be governed by and construed in
accordance  with the law of the  State  of  Hawaii  (without  giving  effect  to
conflict of law  principles)  as to all  matters,  including  but not limited to
matters of validity,  construction,  effect, performance and remedies (except to
such matters of real estate law that must be governed by the law of the State of
Hawaii).  THE  PARTIES  HERETO  AGREE  THAT  VENUE  IN ANY AND ALL  ACTIONS  AND
PROCEEDINGS  RELATED TO THE  SUBJECT  MATTER OF THIS  AGREEMENT  SHALL BE IN THE
STATE AND FEDERAL  COURTS IN AND FOR HONOLULU,  HAWAII,  WHICH COURTS SHALL HAVE
EXCLUSIVE  JURISDICTION  FOR SUCH PURPOSE,  AND THE PARTIES  HERETO  IRREVOCABLY
SUBMIT TO THE EXCLUSIVE  JURISDICTION OF SUCH COURTS AND  IRREVOCABLY  WAIVE THE
DEFENSE  OF AN  INCONVENIENT  FORUM TO THE  MAINTENANCE  OF ANY SUCH  ACTION  OR
PROCEEDING.  SERVICE OF PROCESS  MAY BE MADE IN ANY  MANNER  RECOGNIZED  BY SUCH
COURTS.  EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL
WITH  RESPECT TO ANY ACTION OR CLAIM  ARISING OUT OF ANY  DISPUTE IN  CONNECTION
WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

                                       76
<PAGE>

     10.7  Counterparts.   This  Agreement  may  be  executed  in  two  or  more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

     10.8 Interpretation.  The articles, section and schedule headings contained
in this  Agreement are solely for the purpose of reference,  are not part of the
agreement  of the  Parties  and  shall  not in any way  affect  the  meaning  or
interpretation of this Agreement.

     10.9  Schedules  and  Exhibits.   Except  as  otherwise  provided  in  this
Agreement,  all Exhibits and Schedules referred to herein are intended to be and
hereby  are  specifically  made a part of this  Agreement.  Any  matter  or item
disclosed  on any  Schedule  shall not be  deemed to give rise to  circumstances
which result in an Asset Material  Adverse  Effect or a Material  Adverse Effect
solely by reason of it being so disclosed. Any matter or item disclosed pursuant
to any  Schedule  shall be deemed to be disclosed  for all  purposes  under this
Agreement  reasonably  related thereto and any matter  disclosed in one Schedule
will be deemed  disclosed with respect to another Schedule if such disclosure is
made in such a way as to make its relevance  with respect to such other Schedule
readily apparent.

     10.10 Entire Agreement.  This Agreement,  the Ancillary  Agreements and the
Exhibits, Schedules, documents,  certificates and instruments referred to herein
or therein,  embody the entire agreement and understanding of the Parties hereto
in respect of the  transactions  contemplated  by this  Agreement.  There are no
restrictions, promises, representations,  warranties, covenants or undertakings,
other than those  expressly  set forth or referred  to herein or  therein.  This
Agreement  and the  Ancillary  Agreements  supersede  all prior  agreements  and
understandings between the Parties other than the Confidentiality Agreement with
respect to such transactions.

     10.11 U.S. Dollars.  Unless otherwise stated,  all dollar amounts set forth
herein are United States (U.S.) dollars.

     10.12 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything in
this  Agreement  to  the  contrary  and  except  for  Seller's  delivery  of the
certificates  specified  in Section  3.5(l),  Seller  will not  comply  with the
provision  of the bulk sales laws of any  jurisdiction  in  connection  with the
transactions  contemplated by this Agreement.  Buyer hereby waives compliance by
Seller  with  the   provisions  of  the  bulk  sales  laws  of  all   applicable
jurisdictions to the extent permitted by law.

     10.13 Construction of Agreement. The terms and provisions of this Agreement
represent the results of  negotiations  between Buyer and Seller,  each of which
has been  represented  by counsel of its own choosing,  and neither of which has
acted  under  duress  or  compulsion,  whether  legal,  economic  or  otherwise.
Accordingly, the terms and provisions of this Agreement shall be interpreted and
construed in accordance with their usual and customary  meanings,  and Buyer and
Seller hereby waive the  application in connection with the  interpretation  and
construction  of this  Agreement of any rule of law to the effect that ambiguous
or  conflicting  terms  or  provisions  contained  in this  Agreement  shall  be
interpreted or construed  against the Party whose attorney prepared the executed
draft or any earlier draft of this  Agreement.  It is understood and agreed that
neither  the  specification  of any  dollar  amount in the  representations  and
warranties contained in this Agreement nor the inclusion of any specific item in
the  Schedules  or Exhibits is intended to imply that such  amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the Parties shall use the fact of the setting of such amounts or the
fact of any  inclusion  of any such item in the  Schedules  or  Exhibits  in any
dispute or controversy between the Parties as to whether any obligation, item or
matter is or is not material for purposes hereof.

                                       77
<PAGE>

     10.14  Severability.  If any term or other  provision of this  Agreement is
invalid,  illegal or  incapable  of being  enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the  economic or legal  substance  of
the transactions  contemplated  hereby is not affected in any manner  materially
adverse to any Party. Upon such  determination  that any term or other provision
is invalid,  illegal or incapable of being enforced, the Parties shall negotiate
in good faith to modify this  Agreement so as to effect the  original  intent of
the  Parties as  closely as  possible  in an  acceptable  manner to the end that
transactions contemplated hereby are fulfilled to the greatest extent possible.

     10.15 Third Party Beneficiary.  No provision of this Agreement shall create
any third party beneficiary  rights in any employee or former employee of Seller
(including  any  beneficiary  or  dependant  thereof)  in respect  of  continued
employment  or resumed  employment,  and no  provision of this  Agreement  shall
create any rights in any such  Persons  in respect of any  benefits  that may be
provided,   directly  or  indirectly,   under  any  employee   benefit  plan  or
arrangement.

                                       78
<PAGE>

     IN WITNESS  WHEREOF,  Buyer and Seller  have caused  this  Agreement  to be
signed by their  respective duly authorized  officers as of the date first above
written.

K-1 USA VENTURES, INC.                         CITIZENS COMMUNICATIONS COMPANY

By: /s/ Jeffrey A. Satchik                     By: /s/ Michael A. Zarrella
   -----------------------                        --------------------------
Name: Jeffrey A. Satchik                       Name: Michael A. Zarrella
      --------------------                           -----------------------
Title: Chief Executive Officer                 Title: Vice President Corporate
       -----------------------                        Development
                                                      ------------------------

                                       79

<PAGE>

                         LIST OF EXHIBITS AND SCHEDULES
                         ------------------------------

EXHIBITS
Exhibit A       Form of Assignment and Assumption Agreement
Exhibit B       Form of Bill of Sale
Exhibit C       Special Warranty Deed
Exhibit D       Form of Seller General Counsel Opinion
Exhibit E       Form of Seller Bond Counsel Opinion
Exhibit F       Form of Buyer General Counsel Opinion

SCHEDULES
1.1             Seller Employees on Whose Knowledge Buyer May Rely
2.1(k)          Certain Seller Insurance Policies
2.2             Excluded Assets
2.3(h)          Governmental Orders
2.3(j)          Assumed Actions and Proceedings
4.3(b)          Seller Required Regulatory Approvals
4.4             Seller Insurance
4.5             Seller Real Property Leases
4.6             Seller Environmental Matters
4.7             Seller Labor Matters
4.8             Seller Benefit Plans
4.9             Seller Real Property
4.10            Seller Condemnation Matters
4.11(a)         Certain Seller Material Agreements
4.11(b)         Certain Seller Material Agreements Requiring Consent to Transfer
4.11(c)         Defaults Under Certain Material Agreements
4.12            Legal Proceedings Involving Seller
4.13            Seller Permit Violations
4.14            Seller Tax Matters
4.15            Seller Intellectual Property Exceptions
4.20            Seller Financial Statements
5.3(a)          Buyer's Conflicts, Defaults and Violations
5.3(b)          Buyer Required Regulatory Approvals
6.1(a)          Exceptions to Conduct of Business and Operation of the Assets
6.12(d)(iii)(D) Retirees
6.14(a)         Seller Revenue Bonds
6.15            Seller Surety InstrumentsARIZONA GAS
                                                          EXECUTION VERSION

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

                                                          Exhibit 10.13
                                                          -------------

                            ASSET PURCHASE AGREEMENT

                                 by and between

                   CITIZENS COMMUNICATIONS COMPANY, as SELLER,

                                       and

                     UNISOURCE ENERGY CORPORATION, as BUYER,

                             Dated October 29, 2002

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

                    Relating to Purchase by Buyer of Seller's
                  Gas Utility Business in the State of Arizona

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

<PAGE>
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

                                                                                                               Page

<S>                                                                                                              <C>
ARTICLE I DEFINITIONS.............................................................................................1

         1.1        Definitions...................................................................................1

         1.2        Certain Interpretive Matters.................................................................14

ARTICLE II PURCHASE AND SALE.....................................................................................14

         2.1        Transfer of Assets...........................................................................14

         2.2        Excluded Assets..............................................................................15

         2.3        Assumed Liabilities..........................................................................17

         2.4        Excluded Liabilities.........................................................................18

         2.5        Control of Litigation........................................................................20

ARTICLE III THE CLOSING..........................................................................................21

         3.1        Closing......................................................................................21

         3.2        Closing Payment..............................................................................21

         3.3        Adjustment to Base Purchase Price............................................................21

         3.4        Prorations...................................................................................24

         3.5        Deliveries by Seller.........................................................................24

         3.6        Deliveries by Buyer..........................................................................26

         3.7        Work in Progress.............................................................................26

ARTICLE IV REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLER.................................................27

         4.1        Incorporation; Qualification.................................................................27

         4.2        Authority....................................................................................27

         4.3        Consents and Approvals; No Violation.........................................................27

         4.4        Insurance....................................................................................28

         4.5        Real Property Leases.........................................................................28

         4.6        Environmental Matters........................................................................28

         4.7        Labor Matters................................................................................29

         4.8        Benefit Plans:  ERISA........................................................................29

                                       i
<PAGE>

         4.9        Real Property................................................................................30

         4.10       Condemnation.................................................................................30

         4.11       Assigned Agreements..........................................................................30

         4.12       Legal Proceedings............................................................................31

         4.13       Permits......................................................................................31

         4.14       Taxes........................................................................................31

         4.15       Intellectual Property........................................................................32

         4.16       Capital Expenditures.........................................................................32

         4.17       Compliance With Laws.........................................................................32

         4.18       Title........................................................................................32

         4.19       DISCLAIMERS..................................................................................32

         4.20       Financial Statements.........................................................................33

         4.21       SEC Filings; Financial Statements............................................................33

         4.22       Sufficiency of Assets........................................................................33

ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER................................................................34

         5.1        Organization.................................................................................34

         5.2        Authority....................................................................................34

         5.3        Consents and Approvals; No Violation.........................................................34

         5.4        Availability of Funds........................................................................35

         5.5        SEC Filings; Financial Statements............................................................35

         5.6        Legal Proceedings............................................................................35

         5.7        No Knowledge of Seller's Breach..............................................................36

         5.8        Qualified Buyer..............................................................................36

         5.9        Inspections..................................................................................36

         5.10       WARN Act.....................................................................................36

ARTICLE VI COVENANTS OF THE PARTIES..............................................................................37

         6.1        Conduct of Business and Operation of Assets..................................................37

         6.2        Access to Information........................................................................38

                                       ii
<PAGE>

         6.3        Environmental Inspections and Information....................................................40

         6.4        Confidentiality..............................................................................41

         6.5        Public Statements............................................................................42

         6.6        Expenses.....................................................................................42

         6.7        Further Assurances...........................................................................42

         6.8        Consents and Approvals.......................................................................43

         6.9        Fees and Commissions.........................................................................44

         6.10       Tax Matters..................................................................................45

         6.11       Advice of Changes............................................................................47

         6.12       Seller Employees.............................................................................47

         6.13       Risk of Loss.................................................................................52

         6.14       Tax Exempt Financing.........................................................................53

         6.15       Seller Guarantees and Surety Instruments.....................................................58

         6.16       Citizens Marks...............................................................................58

         6.17       Title Commitments............................................................................58

         6.18       Joint Use Agreement re: Easements............................................................58

         6.19       [Intentionally Omitted]......................................................................58

         6.20       Post-Execution Delivery of Schedules.........................................................59

ARTICLE VII CONDITIONS...........................................................................................59

         7.1        Conditions to Obligations of Buyer...........................................................59

         7.2        Conditions to Obligations of Seller..........................................................60

ARTICLE VIII INDEMNIFICATION.....................................................................................61

         8.1        Indemnification of Seller by Buyer...........................................................61

         8.2        Indemnification of Buyer by Seller...........................................................61

         8.3        Certain Limitations on Indemnification.......................................................62

         8.4        Defense of Claims............................................................................64

ARTICLE IX TERMINATION...........................................................................................66

         9.1        Termination..................................................................................66

                                      iii
<PAGE>

         9.2        Procedure and Effect of Termination..........................................................67

         9.3        Liquidated Damages; Termination Fees.........................................................68

ARTICLE X MISCELLANEOUS PROVISIONS...............................................................................69

         10.1       Amendment and Modification...................................................................69

         10.2       Waiver of Compliance; Consents...............................................................69

         10.3       [Intentionally Omitted]......................................................................69

         10.4       Notices......................................................................................69

         10.5       Assignment...................................................................................71

         10.6       Governing Law................................................................................71

         10.7       Counterparts.................................................................................71

         10.8       Interpretation...............................................................................71

         10.9       Schedules and Exhibits.......................................................................71

         10.10      Entire Agreement.............................................................................72

         10.11      U.S. Dollars.................................................................................72

         10.12      Bulk Sales Laws..............................................................................72

         10.13      Construction of Agreement....................................................................72

         10.14      Severability.................................................................................72

         10.15      Third Party Beneficiary......................................................................73

</TABLE>

                                       iv
<PAGE>

                            ASSET PURCHASE AGREEMENT

     ASSET PURCHASE AGREEMENT, dated October 29, 2002 (this "Agreement"), by and
among Citizens  Communications  Company, a Delaware  corporation  ("Seller") and
UniSource Energy Corporation, an Arizona corporation ("Buyer"). Seller and Buyer
are referred to, individually, as a "Party" and, together, as the "Parties."

                               W I T N E S S E T H
                               -------------------

     WHEREAS, Seller owns all of the Assets (as defined below); and

     WHEREAS,  Buyer desires to purchase and assume,  and Seller desires to sell
and assign, the Assets, and certain associated  liabilities,  upon the terms and
conditions hereinafter set forth in this Agreement.

     NOW, THEREFORE, in consideration of the mutual covenants,  representations,
warranties and  agreements  hereinafter  set forth,  and intending to be legally
bound hereby, the Parties agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

     1.1  Definitions.  As used in this Agreement,  the following terms have the
meanings specified in this Section 1.1.

          "ACC"  means the  Arizona  Corporation  Commission  and any  successor
     agency thereto.

          "ADEQ" means the Arizona  Department of Environmental  Quality and any
     successor agency thereto.

          "Advances" has the meaning set forth in Section 3.3(e).

          "Adverse Environmental Condition" has the meaning set forth in Section
     6.3(c).

          "Affiliate" of any Person means a Person that directly,  or indirectly
     through one or more  intermediaries,  controls,  or is controlled by, or is
     under common control with, the Person specified.

          "Agreement"  means this Asset  Purchase  Agreement  together  with the
     Schedules  and Exhibits  attached  hereto,  as the same may be from time to
     time amended.

          "Allocation" has the meaning set forth in Section 6.10(f).

          "ALTA" has the meaning set forth in Section 6.17.

<PAGE>

          "Ancillary  Agreements"  means the agreements,  contracts,  documents,
     instruments and  certificates  provided for in this Agreement to be entered
     into by one or more of the Parties or any of their Affiliates in connection
     with the transactions contemplated by this Agreement.

          "APBO" has the meaning set forth in Section 6.12(d)(iii)(D).

          "Approved Capital  Expenditures"  means the Capital  Expenditures that
     have been expressly approved by Buyer in writing and that are identified in
     said  writing  as  Approved  Capital  Expenditures  for  purposes  of  this
     Agreement.

          "Arizona  Electric  Purchase  Agreement"  has the meaning set forth in
     Section 7.1(j).

          "Assets" has the meaning set forth in Section 2.1.

          "Asset  Material  Adverse  Effect" means any  occurrence or condition,
     arising after the date hereof,  that has or would reasonably be expected to
     have a material adverse effect with an aggregate  economic  impact,  taking
     into account all relevant considerations,  in excess of $10,000,000 (except
     as provided otherwise in Sections 6.3(c), 6.13(b)(i) or 6.13(c)(ii)) on the
     condition of the Assets, taken as a whole, or on the business,  operations,
     financial  condition or results of operations  of the Business,  taken as a
     whole,  other  than any such  occurrence  or  condition  (a)  arising  from
     business,  economic or financial market conditions,  considered  generally,
     (b) arising from the  conditions  in the gas utility  industry,  considered
     generally and not  specifically as to the Business,  (c) which is remedied,
     cured  or  otherwise  reversed  (including  by  the  payment  of  money  or
     application  of insurance  proceeds)  before the  Termination  Date, or (d)
     arising  from  entering  into this  Agreement  or the  announcement  of the
     transactions  contemplated by this Agreement;  it being understood that the
     occurrences  and/or  conditions  which  could,  depending on the nature and
     extent  thereof,  be deemed to result in an Asset  Material  Adverse Effect
     shall include,  without limitation,  (x) the terms or conditions of a Final
     Order  with  respect  to  any  Required  Regulatory  Approval,   considered
     individually or together with any other such Final Order(s) with respect to
     any  other  Required   Regulatory   Approval(s),   other  than   Regulatory
     Exceptions,  and (y) facts or  circumstances  relating to the Assets and/or
     the Business  which come to the attention of Buyer between the date of this
     Agreement and the Closing Date,  whether as a result of Buyer's  Inspection
     of the Assets or its  examination of  information  and data relating to the
     Assets  and/or the  Business,  as  contemplated  by Section  6.2 or 6.3, or
     otherwise.

          "Assigned  Agreements"  means  any  contracts,   agreements,  software
     licenses  and  related  contracts,  Easements,  Real  Property  Leases  and
     personal  property  leases  entered into by Seller or any of its Affiliates
     with respect to the  ownership,  operation or  maintenance of the Assets or
     the Business,  including  those  disclosed on Schedules 4.5 and 4.11(a) and
     excluding those disclosed on Schedule 2.2,  including  without  limitation,
     the IBEW CBA.

                                       2
<PAGE>

          "Assignment  and  Assumption   Agreement"  means  the  Assignment  and
     Assumption  Agreement between Seller and Buyer substantially in the form of
     Exhibit A attached hereto.

          "Assumed Liabilities" has the meaning set forth in Section 2.3.

          "Arizona  Electric  Purchase  Agreement"  has the meaning set forth in
     Section 7.1(j).

          "Balance Sheet" has the meaning set forth in Section 4.20.

          "Base Purchase Price" has the meaning set forth in Section 3.2.

          "Benefit Plans" means each of Seller's deferred  compensation and each
     bonus or other incentive  compensation,  stock  purchase,  stock option and
     other equity  compensation plan,  program,  agreement or arrangement;  each
     severance or termination  pay,  medical,  surgical,  hospitalization,  life
     insurance and other  "welfare" plan, fund or program (within the meaning of
     Section 3(1) of ERISA); each profit-sharing, stock bonus or other "pension"
     plan, fund or program  (within the meaning of Section 3(2) of ERISA);  each
     employment,  termination  or severance  agreement;  and each other employee
     benefit plan, fund, program,  agreement or arrangement,  in each case, that
     is sponsored, maintained or contributed to or required to be contributed to
     by such  Party  or by any  ERISA  Affiliate,  in any  case  maintained  for
     employees of Seller connected with the Business, or in which such employees
     participate.

          "Bill of Sale"  means the Bill of Sale,  substantially  in the form of
     Exhibit B attached  hereto,  to be  delivered at the Closing by Seller with
     respect  to  the  Tangible   Personal   Property  included  in  the  Assets
     transferred to Buyer.

          "Bond Counsel" has the meaning set forth in Section 6.14(c)(i).

          "Business"  means,   collectively,   (a)  the  regulated  natural  gas
     distribution  business  conducted  by Seller  within  the State of  Arizona
     through  its  Arizona Gas  divisions,  (b) the  natural gas  transportation
     business  conducted  by Seller  within  the State of  Arizona  through  its
     Arizona  Gas  divisions  and (c) the  provision  of  related  services  and
     products and the engagement in related  activities,  including financing of
     conversions to gas and  agreements as to  appliances,  by Seller within the
     State of Arizona through its Arizona Gas divisions.

          "Business Day" means any day other than  Saturday,  Sunday and any day
     which is a day on which banking  institutions  in the States of Arizona and
     New York are  authorized  by law or other  governmental  action  to  remain
     closed.

          "Buyer" has the meaning set forth in the Preamble.

          "Buyer Indemnifiable Loss" has the meaning set forth in Section 8.2.

                                       3
<PAGE>

          "Buyer Indemnitee" has the meaning set forth in Section 8.2.

          "Buyer Material  Adverse Effect" means a Material  Adverse Effect with
     respect to Buyer.

          "Buyer Required  Regulatory  Approvals" means the Required  Regulatory
     Approvals set forth in Schedule 5.3(b).

          "CERCLA"  means  the  federal  Comprehensive  Environmental  Response,
     Compensation,  and  Liability  Act,  42  U.S.C.  Section  9601 et seq.,  as
     amended.

          "Capital  Expenditures"  means capital additions to or replacements of
     property, plants and equipment included in the Assets or otherwise relating
     to the Business and other  expenditures or repairs on property,  plants and
     equipment included in the Assets or otherwise relating to the Business that
     would be  capitalized  by Seller in accordance  with its normal  accounting
     policies.

          "Capital  Expenditures  Schedule" has the meaning set forth in Section
     4.16.

          "Citizens Marks" has the meaning set forth in Section 2.2(c).

          "Closing" has the meaning set forth in Section 3.1.

          "Closing  Date" means one minute after 11:59 p.m. on the date which is
     five  (5)  Business  Days  following  the  date on  which  the  last of the
     conditions  precedent  to the  Closing  set  forth in  Article  VII of this
     Agreement  have  been  either  satisfied  or  waived by the Party for whose
     benefit such conditions precedent exist, subject to such extensions (not to
     exceed six (6)  months) as may be  required  by Seller to repair or replace
     lost or damaged Assets in accordance  with Section  6.13(c),  or such other
     date as the Parties may mutually agree.

          "COBRA" means the Consolidated  Omnibus Budget  Reconciliation  Act of
     1984.

          "COBRA  Continuation  Coverage"  means  the  requirements  of  Section
     4980B(f) of the Code.

          "Code" means the Internal Revenue Code of 1986, as amended.

          "Commercially  Reasonable  Efforts" means efforts by a Party which are
     reasonably within the contemplation of the Parties at the time of executing
     this Agreement and which do not require the performing  Party to expend any
     funds  other  than  expenditures  which are  customary  and  reasonable  in
     transactions of the kind and nature contemplated by this Agreement in order
     for the performing Party to satisfy its obligations hereunder.

          "Current   Retirees"   has  the   meaning   set   forth   in   Section
     6.12(d)(iii)(D).

          "Direct Claim" has the meaning set forth in Section 8.4(c).

                                       4
<PAGE>

          "Easements"  means all easements,  rights of way,  permits,  licenses,
     prescriptive  rights and other ways of  necessity,  and other  similar real
     property grants, whether or not of record, relating to real property.

          "Encumbrances"   means  any  mortgages,   pledges,   liens,   security
     interests,  conditional and installment sale  agreements,  activity and use
     limitations,  conservation easements,  deed restrictions,  encumbrances and
     charges of any kind.

          "Environmental  Claim"  means any and all  pending  and/or  threatened
     administrative or judicial actions,  suits, orders, claims, liens, notices,
     notices   of   violations,   investigations,   complaints,   requests   for
     information,  proceedings, or other written communication, whether criminal
     or civil,  pursuant to or relating to any applicable  Environmental  Law or
     pursuant to a common law theory, by any Person (including,  but not limited
     to, any Governmental  Authority,  private person and citizens' group) based
     upon,  alleging,  asserting,  or  claiming  any  actual  or  potential  (a)
     violation of, or liability  under any  Environmental  Law, (b) violation of
     any Environmental Permit, or (c) liability for investigatory costs, cleanup
     costs,  removal costs,  remedial costs,  response costs,  natural  resource
     damages,  property damage, personal injury, fines, or penalties arising out
     of, based on, resulting from, or related to any Environmental  Condition or
     any Release or  threatened  Release into the  environment  of any Regulated
     Substances  at any  location  related  to the  Assets,  including,  but not
     limited  to,  any  Off-Site  Location  to which  Regulated  Substances,  or
     materials containing Regulated Substances, were sent for handling, storage,
     treatment, or disposal.

          "Environmental Condition" means the presence or Release of a Regulated
     Substance   (other  than  a   naturally-occurring   substance)   on  or  in
     environmental  media,  or  structures  on  Real  Property,  at an  Off-Site
     Location  or other  property  (including  the  presence  in surface  water,
     groundwater,  soils or subsurface strata, or air), including the subsequent
     migration of any such Regulated Substance, regardless of when such presence
     or Release occurred or is discovered.

          "Environmental Data" has the meaning set forth in Section 6.3(e).

          "Environmental  Laws" means all  federal,  state,  local,  provincial,
     foreign and  international  civil and criminal  laws,  regulations,  rules,
     ordinances,   codes,  decrees,   judgments,   directives,  or  judicial  or
     administrative   orders   relating  to  pollution  or   protection  of  the
     environment,  natural  resources  or human  health and  safety,  including,
     without  limitation,  laws relating to Releases or  threatened  Releases of
     Regulated Substances  (including,  without limitation,  Releases to ambient
     air, surface water,  groundwater,  land,  surface and subsurface strata) or
     otherwise  relating  to the  manufacture,  processing,  distribution,  use,
     treatment,  storage, Release, transport,  disposal or handling of Regulated
     Substances.  "Environmental Laws" include: (a) with respect to federal law,
     CERCLA, the Hazardous Materials Transportation Act (49 U.S.C.ss.ss. 1801 et
     seq.), the Resource Conservation and Recovery Act (42 U.S.C.ss.ss.  6901 et
     seq.),  the Federal Water Pollution  Control Act (33  U.S.C.ss.ss.  1251 et
     seq.),  the  Clean  Air  Act (42  U.S.C.ss.ss.  7401 et  seq.),  the  Toxic
     Substances  Control Act (15 U.S.C.  ss.ss. 2601 et seq.), the Oil Pollution
     Act (33 U.S.C.ss.ss.  2701 et seq.),  the Emergency  Planning and Community
     Right-to-Know Act (42 U.S.C.ss.ss.  11001 et seq.), the Occupational Safety
     and Health Act (29  U.S.C.ss.ss.  651 et seq.), the Safe Drinking Water Act
     (42 U.S.C.ss. 300f et. seq.), the Surface Mine Conservation and Reclamation
     Act (30 U.S.C.ss.ss.  1251-1279), and regulations adopted pursuant thereto,
     and counterpart state and local laws, regulations adopted pursuant thereto;
     and (b) with  respect to  Arizona  law,  laws  comparable  to such  federal
     statutes and regulations adopted pursuant thereto.

                                       5
<PAGE>

          "Environmental    Permits"    means   any   permits,    registrations,
     certificates,  certifications,  licenses and  authorizations,  consents and
     approvals of Governmental  Authorities issued under Environmental Laws held
     by Seller with respect to the Assets.

          "Environmental  Price Adjustment" has the meaning set forth in Section
     6.3(c).

          "Environmental Reports" has the meaning set forth in Section 4.6.

          "Environmental Threshold" has the meaning set forth in Section 6.3(c).

          "ERISA" means the Employee  Retirement Income Security Act of 1974, as
     amended.

          "ERISA   Affiliate"  means  a  trade  or  business,   whether  or  not
     incorporated,  that  together  with a  Party  would  be  deemed  a  "single
     employer" within the meaning of Section 4001(b) of ERISA.

          "Estimated Adjustment" has the meaning set forth in Section 3.3(b).

          "Estimated  Closing  Statement"  has the  meaning set forth in Section
     3.3(b).

          "Excluded Assets" has the meaning set forth in Section 2.2.

          "Excluded Liabilities" has the meaning set forth in Section 2.4.

          "Exempt Facilities" means those facilities listed in Exhibit A to each
     Loan Agreement included in the IDRB Documents.

          "FERC" means the Federal Energy Regulatory Commission or any successor
     agency thereto.

          "Final Order" means an action by the relevant  Governmental  Authority
     that has not been  reversed,  stayed,  enjoined,  set  aside,  annulled  or
     suspended and/or with respect to which any waiting period prescribed by law
     before the transactions  contemplated hereby may be consummated has expired
     and the time  period  permitted  by  statute or  regulation  for filing any
     request for a stay, petition for rehearing,  reconsideration or application
     for review of the action or for filing a court appeal has passed.

          "Financial Statements" has the meaning set forth in Section 4.20.

                                       6
<PAGE>

          "FIRPTA  Affidavit" means the Foreign  Investment in Real Property Tax
     Act Certification and Affidavit to be executed by Seller.

          "GAAP" means U.S. generally accepted accounting principles.

          "Good Utility  Practices"  means any  practices,  methods,  standards,
     guides,  or acts, as  applicable,  that (a) are  generally  accepted in the
     region during the relevant time period for use in the gas, transmission and
     distribution  industry,  (b) are commonly used in prudent gas, transmission
     and  distribution   engineering,   construction,   project  management  and
     operations, and (c) would be expected if the Business is to be conducted at
     a reasonable cost in a manner  consistent with laws,  rules and regulations
     applicable  to the  Business and the  objectives  of  reliability,  safety,
     environmental protection,  economy and expediency. Good Utility Practice is
     intended to be acceptable practices, methods, or acts generally accepted in
     the region,  and is not  intended  to be limited to the optimum  practices,
     methods, or acts to the exclusion of all others.

          "Governmental  Authority" means any foreign,  federal, state, local or
     other governmental, regulatory or administrative agency, court, commission,
     department,   board,  or  other  governmental   subdivision,   legislature,
     rulemaking board, court,  tribunal,  arbitrating body or other governmental
     authority.

          "Grandfathered  Active Employees" has the meaning set forth in Section
     6.12(d)(iii)(D).

          "Grandfathered  Individuals"  has the  meaning  set  forth in  Section
     6.12(d)(iii)(D).

          "HSR Act" means the  Hart-Scott-Rodino  Antitrust  Improvements Act of
     1976, as amended.

          "IBEW" means International Brotherhood of Electrical Workers.

          "IBEW CBA" has the meaning set forth in Section 6.12(a).

          "IDRB Documents" has the meaning set forth in Section 6.14(m).

          "IDRB  Indebtedness"  means the  indebtedness  of Seller  owing to the
     issuers of the Revenue Bonds and arising under the Loan Agreements included
     among the IDRB Documents.

          "Income Tax" means any federal,  state, local or foreign Tax (a) based
     upon,  measured  by or  calculated  with  respect  to gross or net  income,
     profits or receipts (including, without limitation, capital gains Taxes and
     minimum Taxes) or (b) based upon, measured by or calculated with respect to
     multiple bases (including,  without limitation,  corporate franchise taxes)
     if one or more of the bases on which such Tax may be based,  measured by or
     calculated  with  respect  to, is  described  in clause  (a),  in each case
     together with any interest, penalties, or additions to such Tax.

                                       7
<PAGE>

          "Indemnifiable Loss" means any claim,  demand, suit, loss,  liability,
     damage,   obligation,   payment,   cost  or  expense  (including,   without
     limitation,   the  cost  and  expense  of  any  action,  suit,  proceeding,
     assessment,   judgment,  settlement  or  compromise  relating  thereto  and
     reasonable  attorneys'  fees and  reasonable  disbursements  in  connection
     therewith).

          "Indemnifying    Party"   means   a   Party   obligated   to   provide
     indemnification under this Agreement.

          "Indemnitee" means a Person entitled to receive  indemnification under
     this Agreement.

          "Independent  Accounting Firm" means such independent  accounting firm
     of national reputation as is mutually appointed by the Buyer and Seller.

          "Inspection"  means all  tests,  reviews,  examinations,  inspections,
     investigations, interviews, verifications, samplings and similar activities
     conducted by Buyer or its Representatives prior to the Closing with respect
     to  the  Assets,  including  "Phase  I"  and/or  "Phase  II"  environmental
     assessments.

          "Intellectual  Property"  means patents and patent rights,  trademarks
     and trademark rights, inventions,  copyrights and copyright rights, and all
     pending  applications  for  registrations  of  patents,   trademarks,   and
     copyrights.

          "Inventories" means materials,  spare parts, consumable supplies, fuel
     supplies and chemical  inventories  relating to the Assets or the operation
     of the Business.

          "Knowledge" means the actual knowledge, as of the date hereof or, with
     respect to any certificate  delivered pursuant to this Agreement,  the date
     of delivery of such certificate,  of the Persons identified on Schedule 1.1
     and successors to each such Person's employment responsibilities.

          "Material  Adverse Effect" means any occurrence or condition,  arising
     after the date hereof,  that has or would  reasonably be expected to have a
     material  adverse  effect with an  aggregate  an adverse  economic  impact,
     taking into account all relevant  considerations,  in excess of $10,000,000
     on the business, operations,  properties, financial condition or results of
     operations of any Party (including its Affiliates,  taken as a whole) or on
     the  ability  of either  Party to  perform  in all  material  respects  its
     obligations under this Agreement and the Ancillary Agreements.

          "Material Taking" has the meaning set forth in Section 6.13(b).

          "Non-Union Employees" has the meaning set forth in Section 6.12(b).

          "Off-Site  Location"  means  any  real  property  other  than the Real
     Property.

          "Order"  means  any  award,  decision,  injunction,  judgment,  order,
     consent order, writ, decree, consent decree,  ruling,  subpoena, or verdict
     entered,  issued,  made or  rendered by any court,  administrative  agency,
     other Governmental Authority, or by an arbitrator,  each of which possesses
     competent jurisdiction.

                                       8
<PAGE>

          "Party" has the meaning set forth in the Recitals.

          "Permitted Encumbrances" means any of the following:

          (a) mechanics', carriers', workers' and other similar liens arising in
     the ordinary course of business for charges that are not delinquent or that
     are being contested in good faith and have not proceeded to judgment;

          (b) liens for current Taxes and assessments not yet due and payable;

          (c) with respect to the Real Property, usual and customary nonmonetary
     Encumbrances,  covenants,  Easements,  restrictions and other title matters
     (whether or not  recorded)  that do not and are not expected to  materially
     interfere  with the operation of that portion of the Business  conducted on
     such Real Property or the Business as a whole;

          (d)  Encumbrances  securing the payment or  performance  of any of the
     Assumed Liabilities;

          (e) all  applicable  zoning  ordinances and land use  restrictions  in
     effect as of the date of this Agreement and all changes to or new adoptions
     of zoning  ordinances and land use  restrictions  prior to the Closing Date
     that do not and are not expected to materially interfere with the operation
     of that  portion of the  Business  conducted  on such Real  Property or the
     Business as a whole;

          (f) with  respect to any Asset which  consists of a leasehold or other
     possessory  interests  in  real  property,  all  Encumbrances,   covenants,
     Easements,  restrictions  and other title matters (whether or not recorded)
     to which the underlying fee estate in such real property is subject that do
     not or will not interfere  materially with the operation of that portion of
     the  Business  currently  conducted  on such  property or the Business as a
     whole; and

          (g) any other Encumbrances,  obligations, defects or irregularities of
     any kind whatsoever  affecting title to the Assets that will be terminated,
     released  or  waived  on or  before  the  Closing  Date  or that  are  not,
     individually or in the aggregate, reasonably likely to materially interfere
     with the present use of the Assets or to  materially  increase  the cost of
     conducting the Business.

          "Permits" means any permits, licenses,  registrations,  franchises and
     other  authorizations,  consents and approvals of Governmental  Authorities
     held by Seller with respect to the Assets or the Business.

          "Person" means any individual, partnership, limited liability company,
     joint  venture,   corporation,   trust,  unincorporated  organization,   or
     governmental entity or any department or agency thereof.

                                       9
<PAGE>

          "Post-Closing Adjustment" has the meaning set forth in Section 3.3(d).

          "Post-Retirement  Welfare  Benefits"  has the  meaning  set  forth  in
     Section 6.12(d)(iii)(D).

          "Proposed  Post-Closing  Adjustment"  has the  meaning  set  forth  in
     Section 3.3(c).

          "Proprietary  Information" of a Party means all information  about the
     Party  or  its  Affiliates,   including  their  respective   properties  or
     operations,  furnished  to the other  Party or its  Representatives  by the
     Party or its Representatives,  before or after the date hereof,  regardless
     of the manner or medium in which it is furnished and all analyses, reports,
     tests or other information created or prepared by, or on behalf of, a Party
     during  the  performance  of  "Phase I" or "Phase  II"  environmental  site
     assessments. Proprietary Information does not include information that: (a)
     is or becomes generally available to the public,  other than as a result of
     a disclosure by the other Party or its  Representatives;  (b) was available
     to the other Party on a  nonconfidential  basis prior to its  disclosure by
     the Party or its Representatives;  (c) becomes available to the other Party
     on a  nonconfidential  basis  from a  person,  other  than the Party or its
     Representatives,  who is not otherwise bound by a confidentiality agreement
     with the  Party  or its  Representatives,  or is not  otherwise  under  any
     obligation to the Party or any of its  Representatives  not to transmit the
     information  to  the  other  Party  or  its  Representatives;   or  (d)  is
     independently developed by the other Party.

          "Purchase Price" has the meaning set forth in Section 3.2.

          "Qualifying Offer" means an offer to a Transferred  Non-Union Employee
     of the same or similar job that is at least 100% of such employee's current
     total cash  compensation at the time the offer was made (consisting of base
     salary and target incentive bonus), and does not require, as a condition of
     acceptance, a relocation of residence as described in Section 6.12(f).

          "Real  Property"  has the  meaning  set forth in Section  2.1(a).  Any
     reference to the Real Property  includes,  by definition,  Seller's  right,
     title and interest in and to the surface and subsurface elements, including
     the soils and groundwater  present at the Real Property,  and any reference
     to items "at the Real Property" includes all items "at, on, in, upon, over,
     across, under and within" the Real Property.

          "Real Property Leases" has the meaning set forth in Section 4.5.

          "Recovery Costs" has the meaning set forth in Section 8.4(d).

          "Regulated  Substances"  means  (a)  any  petrochemical  or  petroleum
     products,  oil or coal ash, radioactive  materials,  radon gas, asbestos in
     any form that is or could become friable, urea formaldehyde foam insulation
     and  dielectric  fluid  containing   polychlorinated   biphenyls;  (b)  any
     chemicals, materials or substances defined as or included in the definition
     of  "hazardous  substances,"  "hazardous  wastes,"  "hazardous  materials,"
     "hazardous  constituents,"  "restricted  hazardous  materials,"  "extremely
     hazardous  substances," "toxic substances,"  "contaminants,"  "pollutants,"
     "toxic  pollutants" or words of similar meaning and regulatory effect under
     any applicable  Environmental Law; and (c) any other chemical,  material or
     substance,  exposure  to which or whose  discharge,  emission,  disposal or
     Release is prohibited, limited or regulated by any applicable Environmental
     Law.

                                       10
<PAGE>

          "Regulations" has the meaning set forth in Section 6.14(a)(iii).

          "Regulatory Exceptions" means any of the following:

          (a) a refusal by the ACC or the FERC to  authorize an increase in base
     rates  for the  Business,  an  imposition  by the ACC or the FERC of a rate
     moratorium for the Business, or a requirement by the ACC or the FERC of the
     filing of a rate case for the Business;

          (b) an imposition by the ACC requiring Buyer to provide service, or to
     improve service,  to Persons located in any authorized  service area of the
     Business,  provided  such  requirement  has a  corresponding  rate recovery
     opportunity;

          (c) an imposition  by the ACC of  performance,  safety or  reliability
     standards  for Buyer's  operation  of the Business  that are  substantially
     equivalent to those standards being met by Buyer or its Affiliates in their
     other  utility  operations  in  Arizona,  provided  (i)  Buyer  is  given a
     reasonable  period of time after Closing to meet such imposed standards and
     (ii) such imposed standards have a corresponding rate recovery opportunity;
     and

          (d) terms and conditions imposed by any Governmental Authority that is
     required to issue a Required  Regulatory Approval that are either (i) usual
     and customary; (ii) applicable to the Business or to Buyer or any Affiliate
     of Buyer as of the date of this  Agreement;  or (iii)  contemplated by this
     Agreement,  including  the  understandings  of the  Parties  referenced  in
     Section 6.8(c)(i).

          "Regulatory Material Adverse Effect" means, with respect to any Party,
     a Material  Adverse  Effect  resulting from the effect on such Party of the
     terms  and  conditions  of a  Final  Order  with  respect  to any  Required
     Regulatory Approval other than Regulatory Exceptions.

          "Release" means release,  spill,  leak,  discharge,  dispose of, pump,
     pour, emit, empty,  inject,  leach, dump or allow to escape into or through
     the environment.

          "Remediation"  means any action taken in the  investigation,  removal,
     confinement,   cleanup,  treatment,  or  monitoring  of  a  Release  or  an
     Environmental  Condition on Real Property or Off-Site Location,  including,
     without  limitation,  (a)  obtaining any Permits or  Environmental  Permits
     required  for  such  remedial  activities,  and (b)  implementation  of any
     engineering  controls and institutional  controls.  The term  "Remediation"
     includes, without limitation, any action which constitutes "removal action"
     or "remedial action" as defined by Section 101 of CERCLA,  Section 6901(23)
     and (24);  or any  action  which  constitutes  "remediation"  or  "remedial
     action"  as  defined  by  Arizona  Revised  Statutes  Sections   49-151(4),
     49-171(8) and 49-282.02(C)(2).

                                       11
<PAGE>

          "Representatives"   of  a  Party   means   such   Party's   authorized
     representatives,   including  without  limitation,   its  professional  and
     financial advisors.

          "Required  Regulatory  Approvals"  means with respect to a Party,  any
     consent or  approval  of,  filing  with,  or notice  to,  any  Governmental
     Authority  that  is  necessary  for  the  execution  and  delivery  of this
     Agreement  and the Ancillary  Agreements by such Party or the  consummation
     thereby of the transactions  contemplated hereby, other than such consents,
     approvals,  filings or notices (i) which are not  required in the  ordinary
     course to be obtained or made prior to the Closing and the  transfer of the
     Assets,  (ii) which,  if not obtained or made,  will not prevent such Party
     from performing its material obligations hereunder, or (iii) that relate to
     a Permit that is not material to the Business, taken as a whole.

          "Revenue Bonds" has the meaning set forth in Section 6.14(a)(i).

          "Savings Plan" has the meaning set forth in Section 6.12(d)(iii)(E).

          "SEC" means the Securities  and Exchange  Commission and any successor
     agency thereto.

          "Seller" has the meaning set forth in the Preamble.

          "Seller Indemnifiable Loss" has the meaning set forth in Section 8.1.

          "Seller Indemnitee" has the meaning set forth in Section 8.1.

          "Seller  Material Adverse Effect" means a Material Adverse Effect with
     respect to Seller.

          "Seller Required  Regulatory  Approvals" means the Required Regulatory
     Approvals set forth in Schedule 4.3(b).

          "Seller SEC Reports" has the meaning set forth in Section 4.21.

          "Seller's   Pension  Plan"  has  the  meaning  set  forth  in  Section
     6.12(d)(iii)(C).

          "Severance Cost" has the meaning set forth in Section 6.12(b).

          "Special Warranty Deed" means a special warranty deed substantially in
     the form of Exhibit C attached hereto.

          "Subsidiary"  when used in reference to any Person means any entity of
     which  outstanding  securities  having  ordinary  voting  power  to elect a
     majority of the Board of  Directors  or other  Persons  performing  similar
     functions of such entity are owned directly or indirectly by such Person.

          "Sufficient Notice" has the meaning set forth in Section 6.14(c)(ii).

                                       12
<PAGE>

          "Taking" has the meaning set forth in Section 6.13(b).

          "Tangible  Personal  Property"  has the  meaning  set forth in Section
     2.1(c).

          "Taxes" means all taxes,  charges,  fees,  levies,  penalties or other
     assessments  imposed  by  any  federal,  state,  local  or  foreign  taxing
     authority,  including, but not limited to, income, excise, property, sales,
     transfer, franchise, payroll, withholding, social security, gross receipts,
     license,  stamp,  occupation,  employment  or other  taxes,  including  any
     interest, penalties or additions attributable thereto.

          "Tax Impact" has the meaning set forth in Section 6.14(a)(vi).

          "Tax   Return"   means  any  return,   report,   information   return,
     declaration,  claim for refund or other document (including any schedule or
     related or  supporting  information)  required to be supplied to any taxing
     authority with respect to Taxes including amendments thereto.

          "Termination Date" has the meaning set forth in Section 9.1(b).

          "Third Party Claim" means any claim,  action,  or  proceeding  made or
     brought by any Person who is not (a) a Party to this  Agreement,  or (b) an
     Affiliate of a Party to this Agreement.

          "Title Commitment" has the meaning set forth in Section 6.17.

          "Title Company" has the meaning set forth in Section 6.17.

          "Title Policies" has the meaning set forth in Section 6.17.

          "Transfer Taxes" means any real property  transfer or gains tax, sales
     tax,  conveyance  fee,  use tax,  stamp tax,  stock  transfer  tax or other
     similar tax,  including  any related  penalties,  interest and additions to
     tax.

          "Transferable  Permits" means those Permits and Environmental  Permits
     with  respect to the Assets or the  Business  which may be  transferred  to
     Buyer with or without a filing with,  notice to,  consent of or approval of
     any Governmental  Authority,  and excluding those Permits and Environmental
     Permits   with   respect   to  the  Assets  or  the   Business   which  are
     non-transferable  to Buyer and with  respect to which  Buyer must apply for
     and obtain replacements.

          "Transferred  Employees"  means  Transferred  Non-Union  Employees and
     Transferred Union Employees.

          "Transferred  Employee  Records"  means  records  related to  Seller's
     employees who become employees of Buyer but only to the extent such records
     pertain  to  (A)  skill  and  development  training  and  biographies,  (B)
     seniority histories, (C) salary and benefit information,  (D) Occupational,
     Safety and Health Administration  reports, or (E) subject to the limitation
     of the Health Insurance  Portability and Accountability Act of 1996 and any
     applicable  state  privacy  legislation  and  regulations,  active  medical
     restriction forms.

                                       13
<PAGE>

          "Transferred Non-Union Employees" has the meaning set forth in Section
     6.12(b).

          "Transferred  Union  Employees"  has the  meaning set forth in Section
     6.12(a).

          "Union Employees" has the meaning set forth in Section 6.12(a).

          "UniSource" means UniSource Energy Corporation, an Arizona corporation
     and a direct or indirect parent corporation of Buyer.

          "UniSource  Designee"  means  a  wholly-owned  subsidiary,  direct  or
     indirect,  of either UniSource or Tucson Electric Power Company, an Arizona
     corporation  named in the  approvals  by the ACC and the FERC as an  entity
     that may acquire the Assets.

          "UniSource SEC Reports" has the meaning set forth in Section 5.5.

          "WARN  Act"  means  the  Federal  Worker  Adjustment   Retraining  and
     Notification Act of 1988, as amended.

          "1954 Code" has the meaning set forth in Section 6.14(a)(iii).

     1.2 Certain  Interpretive  Matters.  In this Agreement,  unless the context
otherwise  requires,  the singular shall include the plural, the masculine shall
include  the  feminine  and  neuter,  and vice  versa.  The term  "includes"  or
"including"  shall mean  "including  without  limitation."  The terms  "hereof,"
"herein" and  "herewith"  and words of similar  import shall,  unless  otherwise
stated, be construed to refer to this Agreement as a whole (including all of the
Schedules  and  Exhibits  hereto) and not to any  particular  provision  of this
Agreement.  References to a Section,  Article,  Exhibit or Schedule shall mean a
Section,  Article,  Exhibit or Schedule of this  Agreement,  and  reference to a
given  agreement  or  instrument  shall  be a  reference  to that  agreement  or
instrument as modified, amended, supplemented or restated through the date as of
which such reference is made.

                                   ARTICLE II

                                PURCHASE AND SALE

     2.1 Transfer of Assets.  Upon the terms and subject to the  satisfaction of
the conditions  contained in this Agreement,  at the Closing,  Seller will sell,
assign,  convey,  transfer and deliver to Buyer or the UniSource  Designee,  and
Buyer or such UniSource Designee will purchase,  assume and acquire from Seller,
free and clear of all Encumbrances (except for Permitted  Encumbrances),  all of
Seller's right, title and interest in and to all the assets (except for Excluded
Assets), real, personal or mixed, tangible, or intangible,  used or held for use
by Seller in or in connection  with, or otherwise  necessary for, the conduct of
the Business,  including, without limitation, those assets described below, each
as in existence on the Closing Date (such assets, collectively, the "Assets"):

                                       14
<PAGE>

     (a) those certain  parcels of real property  owned by Seller  together with
all buildings,  facilities, and other improvements thereon and all appurtenances
thereto as described in Schedule 4.9 (the "Real Property");

     (b) all accounts  receivable and earned but unbilled revenues  attributable
to the Business, and all Inventories;

     (c)   all   machinery   (mobile   or   otherwise),   equipment   (including
communications  equipment  and  computers),   vehicles,   tools,  furniture  and
furnishings and other personal property related to the Business, owned by Seller
and  located on the Real  Property on the Closing  Date,  together  with all the
personal  property of Seller used  principally  in the operation of the Business
that are in the  possession  of Seller and  whether  or not  located on the Real
Property (collectively, the "Tangible Personal Property");

     (d) subject to the provisions of Section 6.7(c), all Assigned Agreements;

     (e) subject to the provisions of Section 6.7(c), all Real Property Leases;

     (f) all Transferable Permits;

     (g) all books,  customer lists and customer  information  databases,  meter
reading and service data,  accounts payable and receivable  data,  operating and
maintenance records,  warranty  information,  operating,  safety and maintenance
manuals,    engineering   design   plans,   blueprints   and   as-built   plans,
specifications,  procedures and similar items of Seller relating specifically to
the Assets  and  necessary  for the  operation  of the  Assets and the  Business
(subject to the right of Seller to retain copies of same for its use) other than
such items which are proprietary to third parties and accounting records;

     (h) all  unexpired,  transferable  warranties  and  guarantees  from  third
parties with respect to any Asset as of the Closing Date;

     (i) Seller prepaid expenses; and

     (j) petty cash held locally for the benefit of the Business.

     2.2  Excluded  Assets.  Notwithstanding  anything  to the  contrary in this
Agreement,  nothing in this Agreement  will  constitute a transfer to Buyer or a
UniSource  Designee of, or be construed  as  conferring  on Buyer or a UniSource
Designee, and neither Buyer nor said UniSource Designee is acquiring, any right,
title or interest in or to the following  specific  assets which are  associated
with the Assets or the Business, but which are hereby specifically excluded from
the sale and the definition of Assets herein (the "Excluded Assets"):

     (a) assets that Seller uses in both the Business  and Seller's  electric or
communications  businesses,  the  material  items of  which  are  identified  in
Schedule 2.2 hereto and any contracts or agreements regarding the procurement of
goods  or  services  by  Seller  for  use  in  its  electric  or  communications
businesses;

                                       15
<PAGE>

     (b) cash and cash equivalents  (including checks) in transit, in hand or in
bank  accounts,  other  than  petty  cash held  locally  for the  benefit of the
Business;

     (c)  the  rights  of  Seller  and its  Affiliates  to the  names  "Citizens
Communications Company",  "Citizens Utilities", "CZN" or "Citizens" or any other
trade names,  trademarks,  service marks,  corporate names, corporate symbols or
logos or any part, derivative or combination thereof (the "Citizens Marks");

     (d) the stock  record and minute books of Seller,  duplicate  copies of all
books and records  transferred to Buyer, all records prepared in connection with
the sale of the  Business  (including  bids  received  from  third  parties  and
analyses  relating to the Business and all  original  documents  relating to the
Revenue Bonds  (provided that copies of such  documents  relating to the Revenue
Bonds have been furnished to Buyer);

     (e) assets  disposed of by Seller  after the date of this  Agreement to the
extent such dispositions are not prohibited by this Agreement;

     (f) except in the case of causes of action against third parties (including
indemnification  and  contribution)  relating to an  Environmental  Condition or
Regulated  Substance or arising under  Environmental  Laws and not relating to a
Retained Liability,  the rights of Seller in and to any causes of action against
third parties (including  indemnification and contribution) relating to any Real
Property or Tangible Personal Property,  Permits,  Environmental Permits, Taxes,
Real Property Leases or the Assigned Agreements, if any, and not relating to the
Assumed  Liabilities,  including any claims for refunds,  prepayments,  offsets,
recoupment, insurance proceeds (subject to Section 6.13(c)), condemnation awards
(subject  to Section  6.13(b)),  judgments  and the like,  whether  received  as
payment or credit against future liabilities,  relating specifically to the Real
Property or any  improvements  thereon and  relating to any period  prior to the
Closing Date;

     (g) all  personnel  records of Seller and its  Affiliates  relating  to the
Transferred  Employees other than Transferred Employee Records or other records,
the  disclosure  of which is required by law or legal or  regulatory  process or
subpoena;

     (h) any and all of Seller's  rights and  interests in any contract  that is
not an Assigned Agreement or that is an intercompany  transaction between Seller
and an Affiliate of Seller and all accounts owing by and among Seller and any of
its  Affiliates,  whether or not any such  intercompany  transaction  or account
relates  to  the  provision  of  goods  and  services,   payment   arrangements,
intercompany charges or balances, or the like;

     (i) except to the extent  set forth in  Section  3.4,  rights to refunds of
Taxes  payable with respect to the  Business,  the Assets,  or any other assets,
properties or operations of Seller or any Affiliate thereof;

     (j) all deferred tax assets or collectibles;

     (k) any insurance  policy,  bond, letter of credit or similar item, and any
cash surrender value in regard thereto;

                                       16
<PAGE>

     (l) except as otherwise set forth in Section 6.12,  assets  attributable to
or related to a Benefit Plan; and

     (m) all other assets listed in Schedule 2.2 hereto.

     2.3  Assumed  Liabilities.  On the  Closing  Date,  Buyer or the  UniSource
Designee  acquiring  the  Assets  shall  deliver to Seller  the  Assignment  and
Assumption  Agreement  pursuant to which Buyer or such UniSource  Designee shall
assume  and  agree to  discharge  when  due,  without  recourse  to  Seller,  in
accordance  with the respective  terms and subject to the respective  conditions
thereof,  all of the Assumed Liabilities.  All of the following  liabilities and
obligations  of Seller or Buyer which  relate to, or arise by virtue of Seller's
or Buyer's  ownership of the Assets or  operation  of the  Business  (other than
Excluded Liabilities) are referred to collectively as the "Assumed Liabilities":

     (a) all  liabilities and obligations of Seller or Buyer arising on or after
the Closing Date under the Assigned  Agreements,  the Real Property Leases,  and
the  Transferable  Permits  in  accordance  with the terms  thereof,  including,
without limitation,  the Assigned Agreements entered into by Seller (i) prior to
the date hereof and (ii) after the date hereof consistent with the terms of this
Agreement,  except in each case to the extent such  liabilities and obligations,
but for a breach or  default  by Seller,  would  have been  paid,  performed  or
otherwise  discharged  on or prior  to the  Closing  Date and are not  otherwise
included  among the items  causing  an  adjustment  to the Base  Purchase  Price
contemplated  in  Section  3.3 or to the  extent  the same arise out of any such
breach or  default  or out of any  event  which  after  the  giving of notice or
passage of time or both would constitute a default by Seller;

     (b) all liabilities  and obligations of Seller for accounts  payable to the
extent included among the items causing an adjustment to the Base Purchase Price
contemplated in Section 3.3;

     (c) all  liabilities  and  obligations  associated  with the  Assets or the
Business in respect of Taxes for which  Buyer is liable  pursuant to Section 3.4
or 6.10(a) hereof;

     (d) all  liabilities and obligations of Seller or Buyer with respect to the
Transferred  Employees  incurred on or after the Closing Date for which Buyer is
responsible pursuant to Section 6.12;

     (e) all  liabilities,  responsibilities  and obligations of Seller or Buyer
arising  under  Environmental  Laws or relating to  Environmental  Conditions or
Regulated Substances (including common law liabilities relating to Environmental
Conditions and Regulated Substances), whether such liability,  responsibility or
obligation  is known or unknown,  contingent  or accrued as of the Closing Date,
including  but not  limited  to:  (i) costs of  compliance  (including  capital,
operating  and other costs)  relating to any  violation or alleged  violation of
Environmental  Laws  occurring  prior  to, on or after the  Closing  Date,  with
respect  to the  ownership  of the Assets or  operation  of the  Business;  (ii)
property damage or natural resource damage (whether such damages were manifested
before or after the Closing  Date)  arising  from  Environmental  Conditions  or
Releases of Regulated  Substances  at, on, in, under,  adjacent to, or migrating
from any Assets prior to, on or after the Closing  Date;  (iii) any  Remediation
(whether or not such Remediation  commenced before the Closing Date or commences
after the Closing Date) of Environmental Conditions or Regulated Substances that
are present or have been Released  prior to, on or after the Closing  Date,  at,
on, in, adjacent to or migrating from the Assets; (iv) any violations or alleged
violations  of  Environmental  Laws  occurring on or after the Closing Date with
respect to the  ownership of any Assets or operation  of the  Business;  (v) any
bodily injury or loss of life arising from Environmental  Conditions or Releases
of Regulated  Substances  at, on, in, under,  adjacent to or migrating  from any
Asset on or after  the  Closing  Date;  (vi) any  bodily  injury,  loss of life,
property   damage,   or  natural  resource  damage  arising  from  the  storage,
transportation,  treatment,  disposal,  discharge,  recycling or Release, at any
Off-Site  Location,  or arising from the arrangement for such activities,  on or
after the Closing Date, of Regulated Substances generated in connection with the
ownership  of the  Assets  or the  operation  of the  Business;  and  (vii)  any
Remediation of any  Environmental  Condition or Release of Regulated  Substances
arising  from  the  storage,  transportation,  treatment,  disposal,  discharge,
recycling or Release, at any Off-Site Location,  or arising from the arrangement
for such  activities,  on or after the Closing  Date,  of  Regulated  Substances
generated in connection with the ownership or operation of the Assets; provided,
that  nothing set forth in this  Section 2.3 shall  require  Buyer to assume any
liabilities,  responsibilities  or  obligations  that are expressly  excluded in
Section 2.4;

                                       17
<PAGE>

     (f) any Tax that may be imposed by any federal,  state or local  government
on the ownership, sale (except as otherwise provided in Section 3.4 or 6.10(a)),
operation  of the  Business or use of the Assets on or after the  Closing  Date,
except for any Income Taxes attributable to the income of Seller;

     (g) all liabilities and obligations of Seller or Buyer arising on and after
the Closing Date under those Orders  specifically  relating to the Assets or the
Business issued by or entered into with any Governmental Authority and listed in
Schedule 2.3(g) or imposed on Buyer in any Required Regulatory Approval;

     (h)  customer  advances,   customer  deposits  and  construction  advances,
unperformed   service   obligations,   Easement  relocation   obligations,   and
engineering  and  construction  required  to  complete  scheduled  construction,
construction work in progress,  and other capital expenditure  projects, in each
case directly  related to the Business and  outstanding  on or arising after the
Closing Date; and

     (i) actions and proceedings  based on conduct,  actions,  circumstances  or
conditions  arising or  occurring  on or after the  Closing  Date,  actions  and
proceedings  described in Schedule 2.3(i),  actions and proceedings arising from
or directly related to any other Assumed Liability, and generic or industry-wide
actions and  proceedings  outstanding on or arising on or after the Closing Date
that are applicable to the Business.

     2.4 Excluded Liabilities. Notwithstanding anything to the contrary in this
Agreement, Buyer shall not assume or be obligated to pay, perform or otherwise
discharge the following liabilities or obligations of Seller (collectively, the
"Excluded Liabilities"):

     (a) any  liabilities  or  obligations  of Seller in respect of any Excluded
Assets or other assets of Seller that are not Assets;

                                       18
<PAGE>

     (b) any  liabilities or obligations  with respect to Taxes  attributable to
Seller's  ownership,  or use of the  Assets or  operation  of the  Business  for
taxable periods, or portions thereof, ending before the Closing Date, except for
Taxes for which Buyer is liable pursuant to Section 3.4 or 6.10(a) hereof;

     (c) any  liabilities  or  obligations  of Seller  accruing under any of the
Assigned  Agreements  prior to the Closing Date or any liability,  other than an
Assumed  Liability,  underlying  a  Permitted  Encumbrance,  in each case to the
extent not included  among the items  causing an adjustment to the Base Purchase
Price contemplated in Section 3.3;

     (d) any and all asserted or unasserted  liabilities or obligations to third
parties  (including  employees)  for injuries or damages,  whether  arising from
tortious  conduct or  otherwise,  or similar  causes of action  relating  to the
Assets or the Business arising during or attributable to the period prior to the
Closing Date, other than such that relate to liabilities or obligations  assumed
by Buyer;

     (e) any  fines,  penalties  and  associated  costs  for  defending  related
enforcement  actions,  resulting  from any  violation  or alleged  violation  of
Environmental  Laws with respect to the ownership of the Assets or the operation
of the Business occurring prior to the Closing Date;

     (f) any payment  obligations of Seller pursuant to the Assigned  Agreements
for goods delivered or services  rendered prior to the Closing Date,  including,
but not limited to, rental  payments  pursuant to the Real Property  Leases,  in
each case to the extent not included  among the items  causing an  adjustment to
the Base Purchase Price contemplated in Section 3.3;

     (g) any  liabilities,  responsibilities  and  obligations of Seller arising
under  Environmental  Laws or relating to Environmental  Conditions or Regulated
Substances   (including   common  law  liabilities   relating  to  Environmental
Conditions and Regulated Substances), whether such liability,  responsibility or
obligation was known or unknown, contingent or accrued, which relates to (i) any
bodily injury,  loss of life, property damage or natural resource damage arising
from the storage,  transportation,  treatment, disposal, discharge, recycling or
Release of Regulated  Substances  generated in connection  with the ownership of
the Assets or the operation of the Business at any Off-Site Location, or arising
from the arrangement for such activities, prior to the Closing Date; or (ii) any
Remediation  of  any  Environmental  Condition  or  Regulated  Substance  at any
Off-Site  Location,  arising  from  the  storage,   transportation,   treatment,
disposal,  discharge,  recycling or Release of Regulated Substances generated in
connection  with the ownership of the Assets or the operation of the Business at
such Off-Site  Location,  or arising from the arrangement  for such  activities,
prior to the  Closing  Date;  provided,  that for  purposes  of this  paragraph,
"Off-Site Location" does not include any location to which Regulated  Substances
disposed of or Released at the site of any Asset may have migrated;

     (h) any  liability  to third  parties  (including  employees)  for personal
injury  or  loss  of  life,  to the  extent  caused  (or  allegedly  caused)  by
Environmental  Conditions  or the Release of  Regulated  Substances  at, on, in,
under, or adjacent to, or migrating from, the Assets prior to the Closing;

                                       19
<PAGE>

     (i) subject to Section 6.12, any liabilities or obligations of Seller,  any
Seller  Subsidiary or any ERISA Affiliate of Seller relating to any Benefit Plan
including but not limited to any such liability (i) relating to benefits payable
under  any  Benefit  Plan;  (ii)  relating  to  the  Pension  Benefit   Guaranty
Corporation  under Title IV of ERISA;  (iii) relating to a multi-employer  plan;
(iv) with  respect to  non-compliance  with the notice and benefit  continuation
requirements of COBRA; (v) with respect to any  noncompliance  with ERISA or any
other  applicable  laws;  or (vi) with respect to any suit,  proceeding or claim
which is brought  against Seller,  Buyer,  any Benefit Plan, or any fiduciary or
former fiduciary of any such Benefit Plan;

     (j) subject to Section 6.12, any  liabilities  or obligations  arising from
facts or  circumstances  prior to the Closing Date relating to the employment or
termination of employment, including discrimination,  wrongful discharge, unfair
labor  practices,  or  constructive  termination  by Seller  of any  individual,
attributable  to any actions or  inactions  by Seller  prior to the Closing Date
other than  actions or  inactions  taken at the written  direction  of Buyer (it
being  understood and agreed that Buyer shall have no liability for action taken
by Seller pursuant to Section 6.12 except as expressly provided therein);

     (k) subject to Section 6.12, any obligations of Seller for wages, overtime,
employment taxes,  severance pay, transition payments in respect of compensation
or similar  benefits  accruing or arising prior to the Closing under any term or
provision of any contract,  plan, instrument or agreement relating to any of the
employees of Seller;

     (l) all  obligations  of Seller with  respect to the Revenue  Bonds and any
other indebtedness for money borrowed by Seller (including items due to Seller's
Affiliates) other than payment  obligations arising on or after the Closing Date
under any  equipment  lease of the kind listed in Schedule  4.11(a) or under any
line  extension  contracts  or  similar  construction  arrangements,   it  being
understood and agreed that such leases,  contracts and similar  arrangements  do
not create indebtedness for money borrowed; and

     (m) all obligations and liabilities included in Seller's "other current and
accrued liabilities" account; and

     (n) any liability of Seller arising out of a breach by Seller or any of its
Affiliates of any of their  respective  obligations  under this Agreement or the
Ancillary Agreements.

     2.5 Control of Litigation.

     (a) The  Parties  agree and  acknowledge  that,  from and after the Closing
Date,  Seller shall be entitled  exclusively  to control,  defend and settle any
litigation,  administrative or regulatory  proceeding,  and any investigation or
Remediation activity (including without limitation any environmental  mitigation
or  Remediation  activities),   arising  out  of  or  related  to  any  Excluded
Liabilities,  and Buyer agrees to cooperate fully in connection therewith and in
connection therewith,  shall comply with the provisions of Section 6.2, provided
that, in no event shall  Seller's  exercise of its rights under this Section 2.5
(i)  unreasonably  interfere with Buyer's  conduct or operation of the Business,
(ii) place any environmental liens or deed restrictions on the Real Property, or
(iii)  cause  Buyer to be  responsible  for  maintaining  any  institutional  or
engineering controls that may be part of a Remediation activity.

                                       20
<PAGE>

     (b) The  Parties  agree and  acknowledge  that,  from and after the Closing
Date,  Buyer shall be  entitled  exclusively  to control,  defend and settle any
litigation,  administrative or regulatory  proceeding,  and any investigation or
Remediation activity (including without limitation any environmental  mitigation
or  Remediation   activities),   arising  out  of  or  related  to  any  Assumed
Liabilities, and Seller agrees to cooperate fully in connection therewith and in
connection therewith, shall comply with the provisions of Section 6.2.

                                   ARTICLE III

                                   THE CLOSING

     3.1  Closing.  Upon  the  terms  and  subject  to the  satisfaction  of the
conditions in Article VII of this Agreement,  each of (i) the sale,  assignment,
conveyance,  transfer  and  delivery of the Assets to Buyer by Seller,  (ii) the
payment of the Purchase  Price to Seller by Buyer,  (iii) the  assumption of the
Assumed  Liabilities by Buyer, and (iv) the consummation of the other respective
obligations of the Parties  contemplated  by this Agreement to be consummated on
the Closing  Date shall take place at a closing (the  "Closing"),  to be held at
the  offices  of Seller in  Phoenix,  Arizona,  or another  mutually  acceptable
location, at 9:00 a.m. local time on the Closing Date.

     3.2 Closing Payment.  Upon the terms and subject to the satisfaction of the
conditions contained in this Agreement,  in consideration of the aforesaid sale,
assignment,  assumption,  conveyance, transfer and delivery of the Assets, Buyer
will pay or cause to be paid to Seller at the  Closing  an  aggregate  amount in
U.S. dollars of one hundred  thirty-eight  million dollars  ($138,000,000)  (the
"Base Purchase Price") plus or minus any adjustments  pursuant to the provisions
of this  Agreement  (the  "Purchase  Price"),  by wire  transfer of  immediately
available funds denominated in U.S. dollars or by such other means as are agreed
upon by Seller and Buyer.

     3.3 Adjustment to Base Purchase Price.

          (a) Subject to Section 3.3(b), at the Closing, the Base Purchase Price
     shall be  adjusted  to  account  for the items  set  forth in this  Section
     3.3(a):

               (i) the Base  Purchase  Price shall be  decreased  by six million
          dollars ($6,000,000) if the Closing occurs on or before July 28, 2003;

               (ii) [intentionally omitted]

               (iii) the Base Purchase Price shall be increased by three million
          dollars  ($3,000,000)  in the event the Closing occurs after the first
          anniversary of the date hereof;

               (iv) the Base Purchase  Price shall be increased by the aggregate
          amount of all accounts  receivable  and earned but  unbilled  revenues
          (other than any amounts  that are due from any of Seller's  Affiliates
          or that otherwise are Excluded Assets) attributable to the Business as
          of day immediately  preceding the Closing Date net of Seller's reserve
          for allowance for bad debt (as  reflected in Seller's  written  policy
          for allowance for bad debt as of the date hereof);

                                       21
<PAGE>

               (v) the Base  Purchase  Price shall be  decreased by all accounts
          payable  attributable  to  the  Business  as of  the  day  immediately
          preceding  the  Closing  Date (other  than any  liability  included in
          Seller's "other current and accrued liabilities" account,  which shall
          be an Excluded Liability or that otherwise is an Excluded Liability);

               (vi) the  Base  Purchase  price  shall  be  decreased  by (A) the
          aggregate amount of customer  advances for construction  times 25% and
          (B) the  aggregate  amount of customer  deposits,  in each case to the
          extent relating to the Business  outstanding as of the day immediately
          preceding  the  Closing  Date  (other  than any  amounts due to any of
          Seller's Affiliates or that otherwise is an Excluded Liability);

               (vii) the Base  Purchase  Price shall  increased by the aggregate
          amount of Inventories recorded on Seller's books and records as of day
          immediately preceding the Closing Date;

               (viii) the Base  Purchase  Price shall be adjusted to account for
          the net balance  payable to or by Seller,  if any, for items  prorated
          pursuant to Section  3.4,  other than the items  addressed  in Section
          3.4(a);

               (ix) the Base  Purchase  Price shall be increased or decreased if
          and   to  the   extent   required   by   Sections   6.3(c),   6.12(b),
          6.12(d)(iii)(D) and 6.13;

               (x) the Base  Purchase  Price will be increased by the  aggregate
          amount of all (i) Approved  Capital  Expenditures  that are accrued by
          Seller  between  the  date of this  Agreement  and  the  Closing  Date
          (including  expenditures recorded in the Construction Work in Progress
          account  of the  Business  as of the  day  immediately  preceding  the
          Closing Date and relating to the Approved Capital Expenditures),  (ii)
          without duplication,  expenditures to purchase materials, supplies and
          other  capital items that are dedicated to, but as of Closing have not
          been used in, the  construction or improvement of the property,  plant
          or equipment and relating to the Approved  Capital  Expenditures)  and
          (iii) without duplication,  other expenditures recorded as an asset of
          the Business as of the day immediately  preceding the Closing Date and
          relating to such Approved Capital Expenditures; and

               (xi) The Base  Purchase  Price shall be increased or decreased by
          the amount of the Seller's  Purchased Gas Adjustment  account  balance
          outstanding on the day immediately preceding the Closing Date.

          (b) At least ten (10),  but no more than thirty (30) days prior to the
     Closing  Date,  Seller  shall  prepare  and  deliver to Buyer an  estimated
     closing statement (the "Estimated Closing  Statement") that shall set forth
     Seller's best estimate of the  estimated  adjustments  to the Base Purchase
     Price required by Section 3.3(a) (regardless of whether notice of such Base
     Purchase Price  adjustments  have been previously  delivered to Buyer) (the
     "Estimated Adjustment").  Within five (5) days following the delivery of an
     Estimated  Closing  Statement  to Buyer,  Buyer may object in good faith to
     such  Estimated  Closing  Payment  in  writing.  In the  event  of any such
     objection,  the  Parties  shall  attempt to resolve  their  differences  by
     negotiation. If the Parties are unable to do so before three (3) days prior
     to the Closing Date,  then (i) the full amount of the Estimated  Adjustment
     shall  be made  at the  Closing  if the  amount  in  dispute  is less  than
     $1,000,000,  or (ii) the  undisputed  portion of the  Estimated  Adjustment
     shall be made at the  Closing if the amount in  dispute  is  $1,000,000  or
     more. The disputed  portions shall be paid as a Post-Closing  Adjustment if
     and to the extent required by Section 3.3(d).

                                       22
<PAGE>

          (c) Within sixty (60) days  following the Closing  Date,  Seller shall
     prepare and deliver to Buyer a final  closing  statement  setting forth the
     final  adjustments  to the Base Purchase  Price  required by Section 3.3(a)
     (the "Proposed Post-Closing Adjustment").  All calculations of the Proposed
     Post-Closing  Adjustments  shall be  prepared  using  the  same  accounting
     principles,  policies  and  methods  as  Seller  has  historically  used in
     connection  with the  calculation  of the items  reflected on such Proposed
     Post-Closing Adjustments.

          (d) Within  thirty  (30) days  following  the  delivery  of a Proposed
     Post-Closing  Adjustment  to  Buyer,  Buyer  may  object  to such  Proposed
     Post-Closing  Adjustment in writing.  Seller agrees to cooperate with Buyer
     to provide Buyer and Buyer's  Representatives  information  used to prepare
     the Proposed Post-Closing  Adjustments and information relating thereto. If
     Buyer  objects to a Proposed  Post-Closing  Adjustment,  the Parties  shall
     attempt to resolve such dispute by negotiation.  If such Parties are unable
     to resolve such dispute  within  thirty (30) days of any such  objection by
     Buyer,  the Parties shall appoint an Independent  Accounting Firm. The fees
     and expenses of such Independent Accounting Firm shall be allocated between
     Buyer and Seller so that Seller's  share of such fees and expenses shall be
     in the same proportion that the aggregate amount of such remaining disputed
     amounts so submitted by Buyer to such auditor that is successfully disputed
     by Buyer (as finally  determined by such auditor) bears to the total amount
     of such remaining  disputed  amounts so submitted by Buyer to such auditor.
     The  Independent  Accounting  Firm shall review such Proposed  Post-Closing
     Adjustment  and determine the  appropriate  adjustment to the Base Purchase
     Price,  if any,  within thirty (30) days of such  appointment.  The Parties
     agree to cooperate with the Independent Accounting Firm and provide it with
     such  information  as it  reasonably  requests  to  enable  it to make such
     determination.  The finding of such  Independent  Accounting  Firm shall be
     binding on the Parties  hereto.  Upon  determination  by  agreement  of the
     Parties or by binding  determination of the Independent  Accounting Firm of
     the appropriate  adjustment to the Base Purchase Price (in either case, the
     "Post-Closing  Adjustment"),  if such Post-Closing  Adjustment results in a
     change to the Base Purchase  Price,  the Party owing the  difference  shall
     deliver such difference to the Party owed such amount no later than two (2)
     Business Days after the determination of such Post Closing  Adjustment,  in
     immediately  available funds or in any other manner as reasonably requested
     by the Party  owed such  amount,  plus  interest  at 6.0% per annum on such
     determined  amount from the Closing Date to (but not including) the date of
     payment.

          (e) If at any time following the Closing Date Buyer  actually  returns
     to  customers  greater  than  thirty-five  percent  (35%) of the  aggregate
     customer  advances for construction  directly  relating to the Business and
     outstanding  as of the Closing Date  ("Advances"),  Seller shall  reimburse
     Buyer for all amounts  returned  to  customers  to the extent said  returns
     exceed twenty-five percent (25%) of Advances. Buyer may, at any time within
     seven  (7)  years  from the  Closing  Date,  provide  notice to Seller of a
     reimbursement  claim under this Section 3.3(e),  which notice shall include
     reasonable documentary  substantiation of returns to customers of Advances.
     In the event Seller agrees with said  determination,  it shall promptly pay
     such   reimbursement   to  Buyer.   In  the  event  Seller   disputes  said
     determination,  it shall initiate the dispute  resolution  procedures  with
     regard to the Post-Closing Adjustment, as provided in Section 3.3(d), which
     shall be binding on the Parties.

                                       23
<PAGE>

     3.4  Prorations.  Buyer and  Seller  agree  that all of the items  normally
prorated,  including  those  listed  below  (but not  including  Income  Taxes),
relating to the Business and operation of the Assets shall be prorated as of the
Closing Date,  with Seller liable for such items to the extent such items relate
to any time period prior to the Closing Date, and Buyer liable for such items to
the  extent  such items  relate to  periods  commencing  with the  Closing  Date
(measured  in the same  units used to compute  the item in  question,  otherwise
measured by calendar  days).  The Base Purchase  Price shall be increased to the
extent  Buyer will  benefit  financially  due to Seller's  payment  prior to the
Closing  Date of the portion of any such item  allocable  to Buyer,  and (except
with  respect to the items  addressed in clause (a) below) shall be decreased to
the extent Seller will benefit  financially  due to Buyer's  payment on or after
the Closing Date of the portion of any such item allocable to Seller.  The items
subject to proration include the following:

     (a)  Subject  to  Section  6.10(b),  personal  property,  real  estate  and
occupancy  Taxes,  assessments and other charges,  if any, on or with respect to
the Business and operation of the Assets;

     (b) rent,  Taxes (other than Income  Taxes) and all other items  (including
prepaid  services or goods not included in Inventories)  payable by or to Seller
under any of the Assigned  Agreements  to the extent not included in the account
payables of the Business  outstanding  as of the day  immediately  preceding the
Closing Date;

     (c) any permit, license,  registration,  compliance assurance fees or other
fees with respect to any Transferable Permit or other Asset;

     (d) sewer  rents and charges for water,  telephone,  electricity  and other
utilities with respect to the Assets;

     (e) rent and Taxes payable by or to Seller under the Real  Property  Leases
assigned  to Buyer to the extent not  included  in the  account  payables of the
Business outstanding as of the day immediately preceding the Closing Date;

     (f) deposits made by Seller to the extent transferred to Buyer;

     (g) prepaid expenses paid by Seller to the extent transferred to Buyer; and

     (h) petty cash held  locally for the benefit of the  Business to the extent
transferred to Buyer.

     3.5 Deliveries by Seller. At the Closing,  Seller will deliver, or cause to
be delivered, the following to Buyer:

                                       24
<PAGE>

     (a) The Bill of Sale, duly executed by Seller;

     (b)  Copies of any and all  consents,  waivers  or  approvals  obtained  or
required   to  be   obtained   by  Seller   from   Government   Authorities   or
non-governmental  Persons  with  respect to the  transfer of the Assets,  or the
consummation of the transactions contemplated by this Agreement;

     (c) One or more Special Warranty Deeds conveying title to the Real Property
to Buyer, duly executed and acknowledged by Seller and in recordable form;

     (d) An opinion  from  Seller's  general  counsel,  dated the Closing  Date,
substantially  in the form of  Exhibit D  attached  hereto,  and  opinions  from
Seller's Bond  Counsel,  dated the Closing  Date,  substantially  in the form of
Exhibit E attached hereto;

     (e) The Assignment and Assumption Agreement, duly executed by Seller;

     (f) A FIRPTA Affidavit, duly executed by Seller;

     (g) Copies, certified by the Secretary or Assistant Secretary of Seller, of
corporate  resolutions  authorizing the execution and delivery of this Agreement
and all of the agreements and instruments to be executed and delivered by Seller
in connection  herewith,  and the consummation of the transactions  contemplated
hereby;

     (h) A  certificate  of the  Secretary  or  Assistant  Secretary  of  Seller
identifying  the name and title and bearing the  signatures  of the  officers of
Seller authorized to execute and deliver this Agreement and the other agreements
and instruments contemplated hereby;

     (i)  Certificate  of Good  Standing  with respect to Seller,  issued by the
Secretary of State of the State of Delaware;

     (j) To the extent  available,  originals of all Assigned  Agreements,  Real
Property Leases and Transferable Permits and, if not available, true and correct
copies thereof  (delivery of the foregoing  documents will be deemed made in the
case of any such  documents  then located at any of the offices  included in the
Assets,  but  only to the  extent  that  Seller  delivers  to  Buyer a  schedule
generally  identifying each such office and the general  categories of documents
located in each such office);

     (k) All such other  instruments  of  assignment,  transfer or conveyance as
shall,  in the  reasonable  opinion of Buyer and its  counsel,  be  necessary to
transfer  the  Assets to Buyer,  in  accordance  with this  Agreement  and where
necessary or desirable in recordable form;

     (l) Such other  agreements,  documents,  instruments  and  writings  as are
required to be delivered  by Seller at or prior to the Closing Date  pursuant to
this  Agreement  or  otherwise  reasonably  requested  by  Buyer  in  connection
herewith; and

     (m) A certificate  dated the Closing Date  executed by Seller's  President,
Public Services  Sector,  to the effect that, to such officer's  Knowledge,  the
conditions set forth in Sections 7.1(e) and (f) have been satisfied by Seller.

                                       25
<PAGE>

     3.6 Deliveries by Buyer. At the Closing, Buyer will deliver, or cause to be
delivered, the following:

     (a) The  Purchase  Price,  as  adjusted  pursuant  to Section  3.3, by wire
transfer  of  immediately   available  funds  denominated  in  U.S.  dollars  in
accordance with Seller's  instructions or by such other means as are agreed upon
by Seller and Buyer;

     (b) The Assignment and Assumption Agreement, duly executed by Buyer;

     (c) All such other  instruments of transfer or assumption as shall,  in the
reasonable  opinion  of  Seller  and its  counsel,  be  necessary  for the sale,
conveyance,  assignment  and transfer of the Assets to, or the assumption of the
Assumed Liabilities by, Buyer in accordance with this Agreement;

     (d) Copies,  certified by the Secretary or Assistant Secretary of Buyer, of
resolutions  authorizing the execution and delivery of this Agreement and all of
the  agreements  and  instruments  to be executed and  delivered by the Buyer in
connection  herewith,  and the  consummation  of the  transactions  contemplated
hereby;

     (e) A  certificate  of the  Secretary  or  Assistant  Secretary  of  Buyer,
identifying  the name and title and bearing the  signatures  of the  officers of
Buyer  authorized to execute and deliver this Agreement and the other agreements
and instruments contemplated hereby;

     (f) An opinion  from  Buyer's  general  counsel,  dated the  Closing  Date,
substantially in the form of Exhibit F attached hereto;

     (g) Certified copies of any and all consents, waivers or approvals obtained
or  required  to  be  obtained   by  Buyer  from   Government   Authorities   or
non-governmental  Persons  with  respect  to the  transfer  of the Assets or the
consummation of the transactions contemplated by this Agreement;

     (h) Such other  agreements,  documents,  instruments  and  writings  as are
required to be delivered  by Buyer at or prior to the Closing  Date  pursuant to
this  Agreement  or  otherwise  reasonably  requested  by Seller  in  connection
herewith;

     (i)  Certificate  of Good  Standing  with  respect to Buyer,  issued by the
Secretary of State of Arizona; and

     (j) A  certificate  dated  the  Closing  Date  executed  by  Buyer's  Chief
Financial  Officer  to  the  effect  that,  to  such  officer's  knowledge,  the
conditions  set forth in Sections  7.2(e),  (f) and (g) have been  satisfied  by
Buyer.

     3.7 Work in Progress. The Parties agree to work together before the Closing
Date to effect on the Closing Date an orderly transition with respect to work in
progress.

                                       26
<PAGE>

                                   ARTICLE IV

              REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLER

     Seller hereby represents and warrants to Buyer as follows:

     4.1   Incorporation;   Qualification.   Seller   is  a   corporation   duly
incorporated,  validly existing and in good standing under the laws of the State
of Delaware and has all requisite  corporate  power and authority to own, lease,
and operate its material  assets and  properties and to carry on its business as
is now being  conducted.  Seller is duly  qualified  to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction in which
its  business,  as now being  conducted,  shall  require it to be so  qualified,
except  where the failure to be so  qualified  would not have a Seller  Material
Adverse Effect.

     4.2 Authority. Seller has full corporate power and authority to execute and
deliver this Agreement and each of the Ancillary Agreements to which Seller is a
signatory and to consummate the transactions contemplated hereby or thereby. The
execution  and delivery by Seller of this  Agreement  and each of the  Ancillary
Agreements to which Seller is a signatory and the  consummation by Seller of the
transactions  contemplated  hereby  and  thereby  have  been  duly  and  validly
authorized by all necessary  corporate action required on the part of Seller and
this Agreement has been duly and validly executed and delivered by Seller.  Each
of this  Agreement and the  Ancillary  Agreements to which Seller is a signatory
constitutes  the legal,  valid and  binding  agreement  of  Seller,  enforceable
against  Seller  in  accordance  with its  terms,  except as may be  limited  by
applicable  bankruptcy,   insolvency,  fraudulent  conveyance,   reorganization,
moratorium  or other  similar  laws  affecting  or  relating to  enforcement  of
creditors'  rights  generally and general  principles of equity  (regardless  of
whether enforcement is considered in a proceeding at law or in equity).

     4.3 Consents and Approvals; No Violation.

     (a) Except as set forth in Schedule 4.3(a), neither the execution, delivery
and performance of this Agreement nor the execution, delivery and performance of
the  Ancillary  Agreements  by Seller  will (i)  conflict  with or result in any
breach of any provision of the Certificate of Incorporation or Bylaws of Seller,
(ii) result in a default (or give rise to any right of termination, cancellation
or acceleration)  under any of the terms,  conditions or provisions of any note,
bond, mortgage,  indenture, material agreement or other instrument or obligation
to which  Seller is a party or by which it, or any of the  Assets  may be bound,
except  for  such   defaults  (or  rights  of   termination,   cancellation   or
acceleration)  as to which  requisite  waivers or consents have been obtained or
that would not,  individually  or in the aggregate,  result in a Seller Material
Adverse  Effect  or an  Asset  Material  Adverse  Effect;  or (iii)  subject  to
obtaining the Seller Required Regulatory Approvals, constitute violations of any
law,  regulation,   order,  judgment  or  decree  applicable  to  Seller,  which
violations,  individually or in the aggregate, would result in a Seller Material
Adverse Effect or an Asset Material Adverse Effect.

     (b) Except as set forth in  Schedule  4.3(b)  (the  filings  and  approvals
referred  to in  Schedule  4.3(b) are  collectively  referred  to as the "Seller
Required  Regulatory  Approvals"),  no consent or approval of,  filing with,  or
notice to,  any  Governmental  Authority  is  necessary  for the  execution  and
delivery  of this  Agreement  and the  Ancillary  Agreements  by  Seller  or the
consummation  by Seller of the  transactions  contemplated  hereby and  thereby,
other  than  those the  failure  to obtain  which  would not  result in a Seller
Material  Adverse  Effect  or an Asset  Material  Adverse  Effect  and would not
otherwise result in a material violation of law by Buyer.

                                       27
<PAGE>

     4.4 Insurance.  Schedule 4.4 lists, as of the date of this  Agreement,  all
material policies of fire,  liability,  workers' compensation and other forms of
insurance (if any) owned or held by, or on behalf of, Seller with respect to the
Assets and the Business. Except as set forth in such Schedule, all such policies
are in full force and effect,  all premiums  with respect  thereto  covering all
periods  up to and  including  the  date  hereof  have  been  paid  (other  than
retroactive  premiums  which  may be  payable  with  respect  to  auto,  general
liability  and  workers'  compensation  insurance  policies),  and no  notice of
cancellation  or  termination  has been received with respect to any such policy
which was not replaced on substantially  similar terms prior to the date of such
cancellation.  Except as described in Schedule 4.4,  within the thirty-six  (36)
months  preceding  the date of this  Agreement,  Seller has not been refused any
insurance  with respect to the Assets or the Business nor has its coverage  been
limited by any insurance  carrier to which it has applied for any such insurance
or with which it has carried insurance during the last twelve (12) months.

     4.5  Real  Property  Leases.  Schedule  4.5  lists,  as of the date of this
Agreement,  all material real property  leases under which Seller is a lessee or
lessor and which  relate to the  Assets,  including  a  separate  listing of all
leases of office space used by Seller in the conduct of the Business  (the "Real
Property  Leases").  Seller  will  deliver to Buyer true,  correct and  complete
copies of each of the Real Property Leases in accordance with Section 6.20.

     4.6  Environmental  Matters.  Seller has heretofore  delivered to Buyer all
environmental  reports and all  environmental  site assessments  relating to the
Assets that have been identified by Seller after diligent inquiry, which reports
have been  identified  in  schedules  delivered to Buyer on or prior to the date
hereof ("Environmental Reports").  Except as disclosed in Schedule 4.6 or in the
Environmental Reports:

     (a) Seller holds, and is in substantial  compliance with, all Environmental
Permits  that are  required  for Seller to conduct the  Business and operate the
Assets, and Seller is otherwise in compliance with applicable Environmental Laws
with  respect to the  Business  and  operation  of the  Assets,  except for such
failures to hold or comply with required Environmental Permits, or such failures
to  be  in  compliance  with  applicable   Environmental  Laws,  as  would  not,
individually or in the aggregate, result in an Asset Material Adverse Effect;

     (b) Seller has not received  (i) any written  request for  information,  or
been notified that it is a potentially  responsible  party,  under CERCLA or any
similar state law with respect to any of the Real Property,  or (ii) any written
notification  from a  Governmental  Authority with respect to pending or ongoing
investigations or enforcement actions related to alleged or potential violations
of any applicable Environmental Law with respect to any of the Real Property;

     (c) Seller has not entered  into or agreed to any  consent  decree or order
relating to the Assets, and is not subject to any outstanding judgment,  decree,
or  judicial  order  relating to  compliance  with any  Environmental  Law or to
Remediation of Regulated  Substances under any Environmental Law relating to the
Assets; and

                                       28
<PAGE>

     (d) To Seller's Knowledge,  no Release of Regulated Substances has occurred
at, from, in, on, or under the Real Property,  and, except as legally permitted,
no Regulated  Substances  are present in, on,  about or migrating  from the Real
Property, in each case that would give rise to an Environmental Claim related to
the Assets for which  Remediation  would  reasonably be required,  except in any
such case to the extent that any such Release or Environmental  Claim would not,
individually or in the aggregate,  result in an Environmental Claim in excess of
$500,000.

     4.7  Labor  Matters.  Schedule  4.7 sets  forth the  collective  bargaining
agreements,  and  amendments  thereto,  to which Seller is a party in connection
with the  Business.  Seller has  previously  delivered to Buyer true and correct
copies of all such collective bargaining agreements and amendments thereto. With
respect  to the  Assets  and the  Business,  except to the  extent  set forth in
Schedule  4.7 and except for such matters as would not,  individually  or in the
aggregate,  result  in an  Asset  Material  Adverse  Effect,  (a)  Seller  is in
compliance  with  all  applicable  laws  respecting  employment  and  employment
practices,  occupational safety and health, plant closing,  mass layoffs,  terms
and  conditions of employment  and wages and hours;  (b) Seller has not received
any written notice of any unfair labor practice complaint against Seller pending
before the National Labor Relations Board; (c) no arbitration proceeding arising
out of or under any collective  bargaining  agreement is pending against Seller;
and (d) Seller  has not  experienced  any work  stoppage  within the  three-year
period  prior to the date hereof and to  Seller's  Knowledge  none is  currently
threatened.

     4.8 Benefit Plans: ERISA.

     (a) Schedule 4.8 lists all material Benefit Plans. True and complete copies
of all such Benefit Plans have been made available to the Buyer.

     (b) No liability  under Title IV or Section 302 of ERISA has been  incurred
by Seller or any ERISA  Affiliate of Seller that has not been satisfied in full,
and no  condition  exists that  presents a material  risk to Seller or any ERISA
Affiliate of Seller of incurring any such  liability,  other than  liability for
premiums due to the Pension Benefit  Guaranty  Corporation  (which premiums have
been paid when due).  Insofar as the  representation  made in this  Section  4.8
applies to  Sections  4064,  4069 or 4204 of Title IV of ERISA,  it is made with
respect to any employee benefit plan, program,  agreement or arrangement subject
to Title IV of ERISA to which Seller or any ERISA  Affiliate of Seller made,  or
was required to make,  contributions  during the five (5)-year  period ending on
the last day of the most recent plan year ended prior to the Closing Date.

     (c) Except as expressly provided in this Agreement, the consummation of the
transactions  contemplated  by this  Agreement  will  not,  either  alone  or in
combination  with another event,  (i) entitle any current or former  employee or
officer  of  Seller  or  any  ERISA   Affiliate  of  Seller  to  severance  pay,
unemployment  compensation or any other payment,  or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such employee
or officer.

                                       29
<PAGE>

     (d) There has been no material  failure of any of the Benefit Plans that is
a group health plan (as defined in Section  5000(b)(1)  of the Code) to meet the
requirements  of  Section  4980B(f)  of the Code  with  respect  to a  qualified
beneficiary (as defined in Section 4980B(g) of the Code). Neither the Seller nor
any ERISA Affiliate of Seller has  contributed to a  nonconforming  group health
plan (as  defined in  Section  5000(c)  of the Code) and no ERISA  Affiliate  of
Seller  has  incurred a tax under  Section  5000(e) of the Code that is or could
become a liability of Buyer.

     (e) There are no pending, or to Seller's Knowledge, threatened claims by or
on behalf of any Benefit Plans, by any employee or beneficiary covered under any
such Benefit  Plans,  or otherwise  involving any such Benefit Plans (other than
routine claims for benefits).

     4.9 Real Property. Schedule 4.9 contains a description of the Real Property
included  in the  Assets.  True  and  correct  copies  of any  current  surveys,
abstracts,  title  commitments  and title  opinions  identified  by Seller after
diligent  inquiry  to be in  Seller's  possession  and  all  policies  of  title
insurance  currently in force and identified by Seller after diligent inquiry to
be in the possession of Seller with respect to the Real Property have heretofore
been made available to Buyer.

     4.10  Condemnation.  Except as set forth in Schedule  4.10,  Seller has not
received any written notices of and otherwise has no Knowledge of any pending or
threatened  proceedings or actions by any  Governmental  Authority to condemn or
take by power of eminent domain all or any part of the Assets.

     4.11 Assigned Agreements.

     (a)  Schedule  4.11(a)  lists  each  Assigned  Agreement  (other  than Real
Property   Leases,   line   extension   agreements   and  similar   construction
arrangements,   railroad  crossing  agreements  and  similar  arrangements,  and
Easements  held by Seller) which is material to the  Business,  other than those
(i) that are listed or  described  on another  Schedule,  (ii) that  provide for
annual  payments by Seller after the date hereof of less than  $100,000 or (iii)
that, when aggregated with all other Assigned  Agreements not listed on Schedule
4.5 or  4.11(a),  provide for  payments by Seller  after the date hereof of less
than $500,000 in the aggregate.  Schedule 4.11(a) also lists each agreement that
is material to the Assets or the Business that may expire or that Seller expects
to  terminate  prior to the  Closing  Date other than any  agreement  that is an
Excluded Asset.

     (b) Except as disclosed in Schedule 4.11(b), each Assigned Agreement listed
on Schedule 4.5 or 4.11(a)  constitutes a legal, valid and binding obligation of
Seller and, to Seller's Knowledge, constitutes a valid and binding obligation of
the other parties  thereto,  and may be transferred to the Buyer as contemplated
by this  Agreement  without  the consent of the other  parties  thereto and will
continue in full force and effect thereafter,  unless in such case the impact of
such lack of  legality,  validity or binding  nature,  or inability to transfer,
would not, individually or in the aggregate, result in an Asset Material Adverse
Effect.

     (c)  Except  as set  forth in  Schedule  4.11(c),  there is not,  under the
Assigned  Agreements  listed on Schedule  4.5 or  4.11(a),  any default or event
which,  with notice or lapse of time or both,  would constitute a default on the
part of the Seller or to Seller's  Knowledge,  any of the other parties thereto,
except such events of default and other events which would not,  individually or
in the aggregate, result in an Asset Material Adverse Effect.

                                       30
<PAGE>

     4.12 Legal  Proceedings.  Except as set forth in Schedule 4.12, there is no
action or  proceeding  pending or, to  Seller's  Knowledge,  threatened  against
Seller before any court,  arbitrator  or  Governmental  Authority,  which would,
individually  or in the aggregate,  reasonably be expected to result in a Seller
Material Adverse Effect or an Asset Material Adverse Effect. Except as set forth
in  Schedule  4.12 Seller is not  subject to any  outstanding  Order that would,
individually or in the aggregate,  result in a Seller Material Adverse Effect or
an Asset Material Adverse Effect.

     4.13 Permits.  Seller has all Permits  (other than  Environmental  Permits,
which are  addressed  in Section  4.6 hereof)  necessary  to own and operate the
Assets except where the failure to have such Permits would not,  individually or
in the aggregate,  create a Seller Material  Adverse Effect or an Asset Material
Adverse  Effect.  Except as disclosed on Schedule 4.13,  Seller has not received
any written  notification  that it is in violation of any such  Permits,  except
notifications of violations  which would not,  individually or in the aggregate,
result in a Seller Material  Adverse Effect or an Asset Material Adverse Effect.
Seller is in compliance with all Permits except where such non-compliance  would
not,  individually  or in the  aggregate,  result in a Seller  Material  Adverse
Effect or an Asset Material Adverse Effect.

     4.14 Taxes.

     (a)  Seller  has  filed or  caused  to be filed  all Tax  Returns  that are
required to be filed by it with respect to any Tax  relating to the Assets,  and
has paid or caused  to be paid all  Taxes  that  have  become  due as  indicated
thereon,  except where such Tax is being  contested in good faith by appropriate
proceedings, or where the failure to so file or pay would not result in a Seller
Material Adverse Effect or an Asset Material Adverse Effect. Seller has complied
in all  material  respects  with all  applicable  laws,  rules  and  regulations
relating to withholding Taxes relating to Transferred Employees. All Tax Returns
relating to the Assets are true,  correct and complete in all material respects.
There are no liens for Taxes upon the Assets  except for liens for Taxes not yet
due and Permitted Encumbrances.

     (b)  Except as set forth in  Schedule  4.14,  no  notice of  deficiency  or
assessment  has  been  received  from  any  taxing  authority  with  respect  to
liabilities  for Taxes of Seller in respect of the  Assets,  which have not been
fully paid or finally settled, and any such deficiency shown in Schedule 4.14 is
being contested in good faith through appropriate proceedings.

     (c)  Except  as set  forth  in  Schedule  4.14,  there  are no  outstanding
agreements or waivers  extending the applicable  statutory periods of limitation
for Taxes  associated  with the Assets that will be binding upon Buyer after the
Closing.

     (d) Except as set forth on  Schedule  4.14,  none of the Assets is property
that is required to be treated as being  owned by any other  person  pursuant to
the so-called safe harbor lease provisions of former Section 168(f) of the Code,
and none of the  Assets is  "tax-exempt  use"  property  within  the  meaning of
Section 168(h) of the Code.

                                       31
<PAGE>

     (e) Schedule 4.14 sets forth the taxing  jurisdictions in which Seller owns
assets or conducts business that require a notification to a taxing authority of
the  transactions  contemplated by this  Agreement,  if the failure to make such
notification,  or obtain Tax clearance  certificates  in  connection  therewith,
would  either  require  Buyer to withhold  any portion of the  consideration  or
subject Buyer to any liability for any Taxes of Seller.

     4.15  Intellectual  Property.  The Citizens Marks and the software licenses
and related contracts  described in Schedules 2.2 and 4.11(a)  constitute all of
the material  Intellectual  Property necessary for the operation and maintenance
of the Assets or the conduct of the  Business,  each of which Seller  either has
all right,  title and interest in or valid and binding  rights under contract to
use in connection  with the operation of the Assets and the Business.  Except as
disclosed  in Schedule  4.15,  (a) Seller is not, nor has it received any notice
that it is, in  default  (or with the giving of notice or lapse of time or both,
would be in default),  under any contract to use such Intellectual Property, and
(b) to Seller's Knowledge,  such Intellectual Property is not being infringed by
any other Person.  Except as disclosed in Schedule 4.15, Seller has not received
notice that it is infringing  any  Intellectual  Property of any other Person in
connection with the Assets or the Business, and Seller, to its Knowledge, is not
infringing any Intellectual Property of any other Person which,  individually or
in the aggregate, would have an Asset Material Adverse Effect.

     4.16  Capital  Expenditures.  Seller has  heretofore  delivered  to Buyer a
schedule of all Capital Expenditures that, as of the date of this Agreement, are
planned by Seller from the date hereof  through  December 31, 2003 (the "Capital
Expenditures Schedule").

     4.17  Compliance  With Laws.  Seller is in compliance  with all  applicable
laws,  rules and  regulations  with  respect to its  ownership of the Assets and
operation of the Business  except  where the failure to be in  compliance  would
not,  individually  or in the  aggregate,  result in a Seller  Material  Adverse
Effect or an Asset Material Adverse Effect.

     4.18 Title.  Seller has, and will have as of the Closing Date,  good, valid
and indefeasible title to the Real Property and the other Assets purported to be
owned  by  Seller,   free  and  clear  of  all  Encumbrances   except  Permitted
Encumbrances.

     4.19 DISCLAIMERS.  EXCEPT FOR THE  REPRESENTATIONS AND WARRANTIES SET FORTH
IN THIS  ARTICLE IV, THE ASSETS ARE  TRANSFERRED  "AS IS,  WHERE IS", AND SELLER
EXPRESSLY  DISCLAIMS  ANY  REPRESENTATIONS  OR WARRANTIES OF ANY KIND OR NATURE,
EXPRESS OR IMPLIED,  AS TO  LIABILITIES,  OPERATIONS  OF THE ASSETS,  CONDITION,
VALUE OR QUALITY OF THE ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS
AND  OTHER  INCIDENTS  OF THE  ASSETS  AND  SELLER  SPECIFICALLY  DISCLAIMS  ANY
REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE WITH RESPECT TO THE ASSETS, OR ANY PART THEREOF, OR AS TO
THE WORKMANSHIP  THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN,  WHETHER LATENT
OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL  REQUIREMENTS,  OR THE APPLICABILITY
OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING BUT NOT LIMITED TO ANY ENVIRONMENTAL
LAWS, OR WHETHER SELLER POSSESSES  SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY
TO OPERATE THE ASSETS.  EXCEPT AS OTHERWISE  EXPRESSLY  PROVIDED HEREIN,  SELLER
FURTHER  SPECIFICALLY  DISCLAIMS ANY  REPRESENTATION  OR WARRANTY  REGARDING THE
ABSENCE OF HAZARDOUS  SUBSTANCES  OR LIABILITY  OR POTENTIAL  LIABILITY  ARISING
UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE ASSETS.

                                       32
<PAGE>

     4.20 Financial  Statements.  Schedule 4.20 sets forth the unaudited balance
sheet for the  Business as of December  31, 2001 (the  "Balance  Sheet") and the
unaudited  statement of income of the Business for the twelve-month period ended
December 31, 2001  (collectively,  the  "Financial  Statements").  Except as set
forth in Schedule 4.20, the Financial Statements have been prepared on a pre-tax
basis in  accordance,  in all  material  respects,  with GAAP applied on a basis
consistent  with prior periods except for the omission of full footnotes to such
Financial  Statements.  Except as set forth in Schedule  4.20, the Balance Sheet
presents fairly in all material respects the financial condition of the Business
as of its date and the income  statement  included in the  Financial  Statements
presents  fairly in all  material  respects  the  results of  operations  of the
Business for the periods covered  thereby.  The books and records of Seller from
which the  Financial  Statements  were derived were complete and accurate in all
material respects at the time of such preparation.

     4.21 SEC Filings; Financial Statements.

     (a)  Seller  has  filed,  or caused to be filed,  all  forms,  reports  and
documents required to be filed by Seller with the SEC since January 1, 2001, and
has  heretofore  delivered or made available to Buyer in the form filed with the
SEC, together with any amendments  thereto,  its (i) Annual Reports on Form 10-K
for the fiscal year ended December 31, 2000 and 2001, (ii) Quarterly  Reports on
Form 10-Q for the fiscal quarter ended March 31 and June 30, 2002, and (iii) all
other  reports or  registration  statements  filed by Seller  with the SEC since
January 1, 2001 (collectively, the "Seller SEC Reports"). The Seller SEC Reports
were  prepared   substantially  in  accordance  with  the  requirements  of  the
Securities Act of 1933, as amended,  or the Securities  Exchange Act of 1934, as
amended,  as the case may be, and the rules and  regulations  promulgated  under
each of such  respective  acts,  and did not at the time they were filed contain
any  untrue  statement  of a  material  fact or omit to  state a  material  fact
required  to be stated  therein  or  necessary  in order to make the  statements
therein,  in the light of the  circumstances  under  which they were  made,  not
misleading.

     (b) The financial  statements,  including all related notes and  schedules,
contained  in the Seller SEC  Reports (or  incorporated  by  reference  therein)
fairly  present  the  consolidated  financial  position  of  Seller  as  at  the
respective  dates thereof and the  consolidated  results of operations  and cash
flows of Seller for the periods  indicated in accordance  with GAAP applied on a
consistent  basis  throughout  the  periods  involved  (except  for  changes  in
accounting principles disclosed in the notes thereto) and subject in the case of
interim financial statements to normal year-end adjustments.

     4.22 Sufficiency of Assets. The Assets and the Excluded Assets are the only
assets  owned,  used,  or held for use by Seller in, or in  connection  with, or
otherwise  necessary  for, the conduct of the  Business as presently  conducted,
except for such  assets the  failure to own,  use, or hold for use, as would not
have an Asset Material Adverse Effect or a Material Adverse Effect for Buyer.

                                       33
<PAGE>

                                   ARTICLE V

                     REPRESENTATIONS AND WARRANTIES OF BUYER

     Buyer represents and warrants to Seller as follows:

     5.1 Organization.  Buyer is an Arizona corporation, duly organized, validly
existing and in good  standing  under the laws of the state of its  organization
and has all requisite  corporate  power and authority to own,  lease and operate
its  properties  and to carry on its  business  as is now being  conducted.

     5.2 Authority.  Buyer has full corporate power and authority to execute and
deliver this Agreement and each of the Ancillary  Agreements to which Buyer is a
signatory and to consummate the  transactions  contemplated  hereby and thereby.
The  execution  and  delivery  by  Buyer  of this  Agreement  and the  Ancillary
Agreements  to which Buyer is a signatory and the  consummation  by Buyer of the
transactions  contemplated  hereby  and  thereby  have  been  duly  and  validly
authorized by all necessary  corporate  action required on the part of Buyer and
this Agreement and the Ancillary  Agreements have been duly and validly executed
and delivered by Buyer.  Each of this Agreement and the Ancillary  Agreements to
which Buyer is a signatory, constitute the legal, valid and binding agreement of
Buyer,  enforceable against Buyer in accordance with its terms, except as may be
limited  by  applicable  bankruptcy,  insolvency,   reorganization,   fraudulent
conveyance,   moratorium  or  other  similar  laws   affecting  or  relating  to
enforcement  of creditors'  rights  generally  and general  principles of equity
(regardless  of whether  enforcement  is considered in a proceeding at law or in
equity).

     5.3 Consents and Approvals; No Violation.

     (a) Except as set forth in Schedule 5.3(a), neither the execution, delivery
and  performance  of this  Agreement  by Buyer nor the  execution,  delivery and
performance  of the Ancillary  Agreements by Buyer or any of its  Affiliates nor
the  consummation by Buyer of the transactions  contemplated  hereby and thereby
will (i) conflict  with or result in any breach of any provision of the Articles
of Incorporation or Bylaws (or other similar  governing  documents) of Buyer, or
any of its Affiliates, or (ii) result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage,  indenture,  material agreement or other
instrument or  obligation to which Buyer or any of its  Affiliates is a party or
by which any of their respective  assets may be bound,  except for such defaults
(or rights of termination,  cancellation or  acceleration) as to which requisite
waivers or consents  have been obtained or which would not,  individually  or in
the  aggregate,  have a Buyer  Material  Adverse  Effect  or  (iii)  subject  to
obtaining the Buyer Required Regulatory Approvals,  constitute violations of any
law,  regulation,   order,   judgment  or  decree  applicable  to  Buyer,  which
violations,  individually or in the aggregate,  would result in a Buyer Material
Adverse Effect.

                                       34
<PAGE>

     (b) Except as set forth in  Schedule  5.3(b)  (the  filings  and  approvals
referred to in such Schedule are collectively referred to as the "Buyer Required
Regulatory  Approvals"),  no consent or approval of,  filing with, or notice to,
any  Governmental  Authority is necessary for Buyer's  execution and delivery of
this Agreement and the Ancillary  Agreements or the consummation by Buyer of the
transactions   contemplated  hereby  and  thereby,  other  than  such  consents,
approvals,  filings or notices,  which,  if not  obtained or made,  will not (i)
prevent  Buyer from  performing  its  obligations  under this  Agreement and the
Ancillary Agreements or (ii) result in a Buyer Material Adverse Effect.

     5.4  Availability  of Funds.  Buyer  acknowledges  and  agrees  that on the
Closing Date, it will have sufficient funds to pay the Purchase Price under this
Agreement and the Arizona Electric Purchase Agreement (including sufficient cash
to  fund  the  equity  portions  thereof)  and  to  timely  perform  all  of its
obligations under this Agreement, the Ancillary Agreements, and Arizona Electric
Purchase Agreement.  Tucson Electric Power Company has the ability to contribute
cash as equity to a  wholly-owned  subsidiary  which  constitutes a "Utility" or
"Public  Utility"  subject to the receipt of required  approvals under Title 14,
Chapter 2, Article 8 (Public Utility Holding Companies and Affiliated Interests)
of the Arizona  Administrative  Code. As of September 30, 2002,  Tucson Electric
Power Company held cash in the amount of approximately $65,000,000.

     5.5 SEC Filings; Financial Statements.

     (a)  UniSource  has filed,  or caused to be filed,  all forms,  reports and
documents  required to be filed by UniSource with the SEC since January 1, 2001,
and has heretofore  delivered or made available to Seller in the form filed with
the SEC,  together with any amendments  thereto,  its (i) Annual Reports on Form
10-K for the fiscal  year  ended  December  31,  2000 and 2001,  (ii)  Quarterly
Reports on Form 10-Q for the fiscal  quarter  ended March 31 and June 30,  2002,
and (iii) all other reports or registration  statements  filed by UniSource with
the SEC since January 1, 2001 (collectively,  the "UniSource SEC Reports").  The
UniSource  SEC  Reports  were  prepared  substantially  in  accordance  with the
requirements  of the  Securities  Act of 1933,  as  amended,  or the  Securities
Exchange  Act of  1934,  as  amended,  as the  case may be,  and the  rules  and
regulations  promulgated  under each of such respective acts, and did not at the
time they were filed contain any untrue  statement of a material fact or omit to
state a material  fact  required to be stated  therein or  necessary in order to
make the statements  therein, in the light of the circumstances under which they
were made, not misleading.

     (b) The financial  statements,  including all related notes and  schedules,
contained in the UniSource SEC Reports (or  incorporated  by reference  therein)
fairly  present  the  consolidated  financial  position of  UniSource  as at the
respective  dates thereof and the  consolidated  results of operations  and cash
flows of UniSource for the periods  indicated in accordance with GAAP applied on
a  consistent  basis  throughout  the  periods  involved  (except for changes in
accounting principles disclosed in the notes thereto) and subject in the case of
interim financial statements to normal year-end adjustments.

     5.6 Legal  Proceedings.  Except as set forth in Schedule 5.6, (a) there are
no actions or proceedings  pending or, to Buyer's knowledge  threatened  against
Buyer or any of its  Affiliates  before any court or arbitrator or  Governmental
Authority,  which,  individually  or in the  aggregate,  would result in a Buyer
Material  Adverse  Effect,  and (b) neither  Buyer nor any of its  Affiliates is
subject  to  any  outstanding  Orders,  which  would,  individually  or  in  the
aggregate, result in a Buyer Material Adverse Effect.

                                       35
<PAGE>

     5.7 No Knowledge of Seller's  Breach.  Buyer has no knowledge of any breach
by Seller of any  representation or warranty of Seller or of any other condition
or  circumstance  that would  excuse  Buyer from its timely  performance  of its
obligations   hereunder.   Buyer  shall  notify  promptly  Seller  if  any  such
information comes to Buyer's attention prior to the Closing.

     5.8  Qualified  Buyer.  Buyer  is  qualified  to  obtain  any  Permits  and
Environmental  Permits  necessary  for Buyer to own and operate the Assets as of
the Closing.

     5.9 Inspections. Buyer is knowledgeable about the Business as engaged in by
Seller  and of the  usual  and  customary  practices  of  companies  engaged  in
businesses  similar  to the  Business  and has had  access  to the  Assets,  the
officers  and  employees of Seller,  and the books,  records and files of Seller
relating to the Business and the Assets.  Buyer  acknowledges and agrees that it
has, prior to its execution of this  Agreement,  (i) reviewed the  Environmental
Reports  and (ii) had an  opportunity  to  conduct  Inspections  of the  Assets,
including  the Real  Property.  Subject to Sections  6.2,  6.3 and  7.1(g),  and
without waiving  Seller's  representations  and warranties in Section 4.6, Buyer
acknowledges  that it is satisfied with such review and  Inspections to date and
(ii) Buyer  acknowledges  and agrees  that past,  present,  and future  physical
characteristics  and Environmental  Conditions may not have been revealed by its
Inspections and the  investigations of the Assets contained in the Environmental
Reports.  In making its decision to execute this Agreement,  and to purchase the
Assets,  Buyer has relied on and will  continue  to rely upon the results of its
Inspections,   the  Environmental  Reports  and  Seller's   representations  and
warranties   in  Section   4.6.   Buyer   acknowledges   and  agrees   that  the
representations  and  warranties  set  forth  in  Article  IV of this  Agreement
constitute  the sole and exclusive  representations  and warranties of Seller to
Buyer  in  connection  with  the  transactions  contemplated  hereby  and by the
Ancillary Agreements, and there are no representations,  warranties,  covenants,
understandings or agreements,  oral or written,  in relation thereto between the
Parties  other  than those  incorporated  herein,  including  Section  6.3,  and
therein.  Except for the representations  and warranties  expressly set forth in
Article IV of this Agreement, Buyer disclaims reliance on any representations or
warranties,  either  express  or  implied,  by or on  behalf  of  Seller  or its
Affiliates or Representatives. Without limiting the generality of the foregoing,
Buyer acknowledges and agrees that, except as provided in Section 4.6, there are
no  representations  or warranties  of Seller with respect to the  Environmental
Condition of the Assets,  compliance with  Environmental  Laws and Environmental
Permits of the  presence  or  Releases of  hazardous  material in the  fixtures,
soils,  groundwater,  surface water or air on, under or about or emanating  from
any of the Assets.

     5.10 WARN Act.  Buyer  does not  intend to engage in a "Plant  Closing"  or
"Mass Layoff" as such terms are defined in the WARN Act within sixty days of the
Closing Date.

                                       36
<PAGE>

ARTICLE VI

                            COVENANTS OF THE PARTIES

     6.1 Conduct of Business and Operation of Assets.

     (a) Except as described in Schedule  6.1(a),  as required by an  applicable
law  or by  any  Governmental  Authority,  as  expressly  contemplated  by  this
Agreement or to the extent Buyer otherwise consents in writing (such consent not
to be unreasonably withheld),  during the period from the date of this Agreement
to the Closing Date,  Seller shall (i) operate the Assets in the ordinary course
of business consistent with its past practices and Good Utility Practices,  (ii)
use all  Commercially  Reasonable  Efforts to preserve  intact the Assets in all
material respects,  and endeavor to preserve the goodwill and relationships with
customers, suppliers and others having business dealings with it, (iii) maintain
insurance  described  in Section  4.4 (or  replacements  thereto  providing  for
substantially  the same  coverage),  and (iv)  comply with all  applicable  laws
relating to the Assets,  including without  limitation,  all Environmental Laws,
except  where the  failure to so comply  would not  result in an Asset  Material
Adverse  Effect.  Seller  agrees to incur Capital  Expenditures  in the ordinary
course in respect of (A) growth of the customer base (see, e.g., items under the
heading  "Growth" in the Capital  Expenditures  Schedule) and (B) maintenance of
the Assets and  replacement  activities  (see,  e.g.,  items  under the  heading
"Replacement" in the Capital Expenditures Schedule).  Buyer agrees that Seller's
deferral of Capital  Expenditures in respect of network growth (see, e.g., items
under the heading  "Infrastructure" in the Capital Expenditures  Schedule) shall
not be deemed to be inconsistent with or to violate Good Utility Practices.

     (b) Without  limiting  the  generality  of Section  6.1(a)  and,  except as
contemplated  in this  Agreement  or as  described  in  Schedule  6.1(a),  or as
required under  applicable law or by any  Governmental  Authority,  prior to the
Closing Date, without the prior written consent of Buyer (such consent not to be
unreasonably withheld), Seller shall not:

          (i) Make any material change in the levels of Inventories  customarily
     maintained by Seller with respect to the Business, other than changes which
     are consistent with Good Utility Practices;

          (ii) Sell, lease (as lessor),  encumber, pledge, transfer or otherwise
     dispose of, any Asset (except for Inventories used, consumed or replaced in
     the ordinary course of business consistent with past practices of Seller or
     with Good  Utility  Practices)  other than to encumber  any such Asset with
     Permitted Encumbrances;

          (iii) Modify, amend or voluntarily terminate,  prior to the respective
     expiration  date of any of the Assigned  Agreements or Real Property Leases
     or any of the Permits or Environmental  Permits with respect to such Assets
     in any material respect, other than (A) in the ordinary course of business,
     to the extent  consistent with the past practices of Seller or Good Utility
     Practices,  (B) with cause, to the extent consistent with past practices of
     Seller or Good Utility  Practices,  or (C) as may be required in connection
     with  transferring  Seller's  rights  or  obligations  thereunder  to Buyer
     pursuant to this Agreement;

                                       37
<PAGE>

          (iv) Except as otherwise  provided  herein,  enter into any commitment
     for the purchase, sale, or transportation of fuel for the Business having a
     term  greater than six months and not  terminable  on or before the Closing
     Date either (A)  automatically,  or (B) by option of Seller (or,  after the
     Closing,  by Buyer) in its sole discretion,  if the aggregate payment under
     such commitment for fuel and all other outstanding commitments for fuel for
     the Business not previously approved by Buyer would exceed $1,000,000;

          (v) Except as  otherwise  provided  herein,  enter into any  contract,
     agreement,  commitment or  arrangement  for the Business that  individually
     exceeds  $250,000  or in the  aggregate  exceeds  $1,000,000  unless  it is
     terminable by Seller (or, after the Closing Date, by Buyer) without penalty
     or premium upon no more than sixty (60) days notice;

          (vi) Except as otherwise  required by the terms of the applicable IBEW
     CBA or as otherwise  provided in Section  6.12,  (A) hire,  or transfer any
     employees of or for the Business  prior to the Closing,  other than to fill
     vacancies in existing positions in the reasonable discretion of Seller, (B)
     materially  increase salaries or wages of employees  employed in connection
     with such Asset  prior to the  Closing,  (C) take any  action  prior to the
     Closing to affect a material  change in the IBEW CBA or (D) take any action
     prior to the Closing to materially  increase the aggregate benefits payable
     to the employees  (considered as a group)  employed in connection  with the
     Business; and

          (vii) Except as otherwise  provided herein,  enter into any written or
     oral contract, agreement,  commitment or arrangement with respect to any of
     the  proscribed  transactions  set forth in the  foregoing  paragraphs  (i)
     through (vi).

          6.2 Access to Information.

     (a) Between the date of this  Agreement and the Closing Date,  Seller will,
at  reasonable  times  and  upon  reasonable  notice,   provide  Buyer  and  its
Representatives:

          (i) reasonable access to their respective managerial personnel, to all
     books,  records,  plans,  equipment,   offices  and  other  facilities  and
     properties constituting part of the Assets;

          (ii)  such   historical   financial  and  operating   data  and  other
     information  with  respect  to the  Assets  as Buyer  may from time to time
     reasonably request, to the extent reasonably available;

          (iii) upon request, a copy of each material report,  schedule or other
     document,  if any, filed by Seller with respect to the Assets with the SEC,
     FERC, ACC, ADEQ or any other Governmental Authority;

          (iv)   access  to  all  Assets  for   Inspection   by  Buyer  and  its
     Representatives at reasonable times during regular business hours scheduled
     for such Inspections, and shall provide qualified management,  engineering,
     operations and  maintenance and other  personnel to make  presentations  as
     required, to escort such Persons and to assist in all aspects of conducting
     the  Inspections,  provided  that each of Buyer and Seller shall bear their
     own costs of participating in the Inspections; and

                                       38
<PAGE>

          (v) access to all such other  information in the possession or control
     of  Seller  as  shall  be  reasonably  necessary  to  enable  Buyer  or its
     Representatives  to  verify  the  accuracy  of  the   representations   and
     warranties of Seller contained in this Agreement;  provided,  however, that
     any  such  Inspections  shall  be  conducted  in  such a  manner  as not to
     interfere  unreasonably with the operation of the Assets. In the event that
     Seller's  provision  of  information  under  this  Section  6.2  would  (A)
     constitute a waiver of any legal privilege,  including the  attorney-client
     privilege  or  work  product  privilege,   or  (B)  violate  any  legal  or
     contractual  obligation of Seller to a third party, then Seller shall first
     notify  Buyer  with  respect to the  existence  and  general  nature of the
     restricted  information.  If  the  restricted  information  relates  to the
     Assets,  the  Parties  shall  thereupon  mutually  agree upon a  reasonable
     procedure in order to provide  Buyer with access to the  information  while
     protecting the legitimate  interests of Seller thereto. The mutually agreed
     procedure may include,  without  limitation,  a limited waiver by Seller of
     the relevant  privilege,  Buyer's  agreement to maintain the information in
     strict  confidence,  limited  review or  inspection of the  information  by
     specified individuals, or any combination of the foregoing.

Notwithstanding anything in this Section 6.2(a) to the contrary, with respect to
employee  records Seller will only furnish or provide such access to Transferred
Employee  Records  and will not  furnish  or  provide  access to other  employee
personnel records or medical  information unless required by law or specifically
authorized by the affected employee.

     (b) The Parties  shall  cooperate to schedule  Buyer's  Inspections  of the
Assets so that, to the extent  reasonably  feasible,  any interference  with the
operation of the Business is minimized,  and Buyer may complete its  Inspections
of the Assets within ninety (90) working days of commencement of Inspections and
within six (6) months after the execution of this Agreement.

     (c) Until the  conclusion  of Buyer's  next rate case for the  Business (or
such longer  period as may be required by  applicable  law),  each Party and its
Representatives  shall have  reasonable  access to all of the books and  records
relating  to the Assets and the  Business  (for the  Seller,  only to the extent
relating  to periods  prior to the  Closing  Date),  including  all  Transferred
Employee  Records in the  possession  of Buyer or Seller to the extent that such
access may reasonably be required in connection with the Assumed  Liabilities or
the  Excluded  Liabilities,  or other  matters  relating  to or  affected by the
operation  of the  Assets.  Such  access  shall  be  afforded  by the  Party  in
possession  of any such books and records  upon  receipt of  reasonable  advance
notice and during normal  business  hours.  The Party  exercising  this right of
access shall be solely  responsible for any costs or expenses  incurred by it or
the holder of the  information  with  respect to such  access  pursuant  to this
Section  6.2(c).  If the Party in  possession  of such books and  records  shall
desire to dispose of any books and records  upon or prior to the  expiration  of
such above-stated period (or any such longer period), such Party shall, prior to
such disposition, give the other Party a reasonable opportunity, at the latter's
expense, to segregate and remove such books and records as it may select.

                                       39
<PAGE>

     (d) Buyer  agrees  that,  prior to the  Closing  Date,  neither  it nor its
Representatives  will  contact  any  vendors,  suppliers,  employees,  or  other
contracting  parties of Seller or its  Affiliates  with respect to any aspect of
the Assets or the transactions  contemplated  hereby,  without the prior written
consent of Seller, which consent shall not be unreasonably withheld.

     6.3 Environmental Inspections and Information.

     (a) [Intentionally omitted.]

     (b) Buyer has conducted various  environmental  assessment  activities with
respect to the  Assets,  including  reviewing  existing  environmental  reports,
correspondence,  permits and related materials  regarding the Assets and certain
other  "Phase I" and "Phase  II"  activities  as set forth in the ASTM  protocol
regarding   "Phase  I"  and  "Phase  II"   environmental   assessments.   Seller
acknowledges  that,  between the date of this  Agreement  and the Closing  Date,
Buyer  will  continue  to conduct  Inspections  with  respect  to  environmental
matters,  including  "Phase I" and "Phase II"  environmental  assessments to the
extent Buyer  reasonably  concludes that such  assessments  are warranted by the
Environmental  Reports or the findings of Buyer's  assessments prior to the date
of this  Agreement.  Any such  Inspections  shall be  conducted  as  provided in
Section 6.2.

     (c) If any environmental  inspection conducted by Buyer or Seller before or
after the date of this  Agreement  and before the  Closing  Date  results in the
discovery of one or more Environmental  Conditions that are reasonably likely to
give rise to one or more  Environmental  Claims related to the Assets, for which
Remediation would reasonably be required (an "Adverse Environmental Condition"),
and if the Adverse  Environmental  Condition,  aggregated with all other Adverse
Environmental  Conditions  identified  by Buyer or Seller  prior to the  Closing
Date, is reasonably  likely to give rise to Remediation  expenses of Buyer after
Closing  in  excess  of  $1,500,000  in  the   aggregate   (the   "Environmental
Threshold"),  then either (i) the Base Purchase  Price shall be reduced,  to the
extent such  Adverse  Environmental  Condition  is not  Remediated  prior to the
Closing Date, by a mutually  agreed  amount,  which amount shall be equal to the
excess  of (A) the  estimated  out-of-pocket  costs  and  expenses  which  Buyer
reasonably  can be  expected  to incur to  Remediate,  in  accordance  with Good
Utility Practices,  such Adverse Environmental  Condition after the Closing over
(B) the Environmental  Threshold (the "Environmental  Price Adjustment") or (ii)
if the  Parties  are not  able  to  mutually  agree  on an  Environmental  Price
Adjustment,  Seller shall reimburse Buyer for all actual out-of-pocket costs and
expenses that Buyer  reasonably  incurs after Closing to Remediate  such Adverse
Environmental  Condition in excess of the Environmental  Threshold.  Any Adverse
Environmental Condition which has or is reasonably expected to have an aggregate
economic impact on Buyer, taking into consideration all relevant  circumstances,
in excess of $25,000,000,  shall be conclusively  deemed to be an Asset Material
Asset Effect.  Notwithstanding the foregoing,  any single Adverse  Environmental
Condition which is reasonably  expected to give rise to Remediation  expenses of
less than $25,000 shall not be counted  toward the  Environmental  Threshold and
shall not result in an Environmental Price Adjustment.

     (d)  Buyer  either  has  provided  or shall  provide  to  Seller,  promptly
following  Buyer's  receipt  thereof,  copies of all audits,  reports,  studies,
assessments  and other  information  composed or compiled,  or to be composed or
compiled,  by Buyer or Buyer's  Representatives in connection with environmental
assessment  activities.  Buyer shall treat all such information delivered to, or
composed or compiled by, Buyer or Buyer's  Representative as Environmental  Data
in accordance with the procedures of Section 6.3(e).

                                       40
<PAGE>

     (e) All audits,  reports,  studies and assessments delivered to or prepared
by Buyer  and all  other  information  collected  and  generated  as a result of
Buyer's  environmental due diligence  ("Environmental  Data") will be subject to
the terms and conditions of the Confidentiality  Agreement,  dated June 3, 2002,
between Seller and Buyer, except as otherwise expressly provided in this Section
6.3(e).  Neither  Buyer nor its  Representatives  shall  disclose or release any
Environmental  Data  without  the prior  written  consent of Seller and all such
information  shall  be kept  strictly  confidential.  To the  extent  reasonably
practicable,  the Environmental Data shall be prepared at the request of counsel
to Buyer and, to the fullest extent  permitted by law, shall be the work product
of such counsel and constitute confidential attorney/client communications.  The
Environmental Data shall be transferred among Buyer and its Representatives in a
manner  that  will  preserve,  to  the  extent  reasonably   practicable,   such
privileges.  Buyer  expressly  agrees  that  until  the  Closing,  it  will  not
distribute  the  Environmental  Data to any third party without  Seller's  prior
written  consent  (such  consent  not to be  unreasonably  withheld).  After the
Closing,  Buyer agrees that it will not distribute the Environmental Data to any
third party without Seller's prior written consent, except as required by law or
by express  provisions  of  Buyer's  corporate  compliance  program if Seller is
provided  written  notice  at least ten (10)  days  prior to such  distribution;
provided,  however,  that Buyer may  distribute  the  Environmental  Data to any
potential  purchaser  of any of the  Assets  or an  ownership  interest  therein
(either  directly or through the purchase of an ownership  interest in an entity
holding any of the Assets) only after first notifying the Seller.

     6.4 Confidentiality.

     (a) Each Party shall,  and shall use its  reasonable  best efforts to cause
its Representatives to, (i) keep all Proprietary  Information of any other Party
confidential and not to disclose or reveal any such  Proprietary  Information to
any  person  other  than  such  Party's  Representatives  and  (ii) not use such
Proprietary  Information  other than in connection with the  consummation of the
transactions  contemplated hereby. After the Closing Date and except as provided
in Section  6.3(e),  any Proprietary  Information,  to the extent related to the
Assets  acquired by Buyer,  shall no longer be subject to the  restrictions  set
forth herein.  The obligations of the Parties under this Section 6.4(a) shall be
in full  force and  effect  for three (3) years  from the date  hereof  and will
survive  the  termination  of  this  Agreement,   the  discharge  of  all  other
obligations owed by the Parties to each other and the Closing Date.

     (b)  Notwithstanding  the terms of Section 6.4(a) above,  the Parties agree
that prior to the Closing, Buyer may reveal or disclose Proprietary  Information
to any other Persons in connection with (i) the financing of Buyer's purchase of
the Assets or any equity  participation  in Buyer's  purchase  of the Assets and
(ii)  obtaining  insurance  for the Assets;  provided that such Persons agree in
writing to  maintain  the  confidentiality  of the  Proprietary  Information  in
accordance with this Agreement.

                                       41
<PAGE>

     (c) Upon the other  Party's  prior  written  approval  (which  shall not be
unreasonably  withheld),  any of the Parties may provide Proprietary Information
of the other  Parties  to the SEC,  FERC,  ACC,  ADEQ or any other  Governmental
Authority with jurisdiction or any securities  exchange,  as may be necessary to
obtain Required  Regulatory  Approvals or to comply  generally with any relevant
law or regulation. The disclosing Party will seek confidential treatment for the
Proprietary   Information  provided  to  any  Governmental   Authority  and  the
disclosing Party will notify the other Party as far in advance as is practicable
of its  intention  to  release to any  Governmental  Authority  any  Proprietary
Information.

     6.5 Public  Statements.  Subject to the  requirements  imposed by law,  any
Governmental  Authority or  securities  exchange,  prior to the Closing Date, no
press  release or other public  announcement  or public  statement or comment in
response  to any  inquiry  relating  to the  transactions  contemplated  by this
Agreement shall be issued or made by any Party without the prior approval of the
other Party (which  approval shall not be  unreasonably  withheld).  The Parties
agree to cooperate in preparing any such announcements.

     6.6 Expenses. Except to the extent specifically provided herein, whether or
not the transactions contemplated hereby are consummated, all costs and expenses
incurred in connection  with this  Agreement and the  transactions  contemplated
hereby  shall  be  borne  by  the  Party  incurring  such  costs  and  expenses.
Notwithstanding  anything to the contrary herein,  Buyer will be responsible for
all  filing  fees  under the HSR Act  relating  to the  Assets it would  acquire
hereunder.

     6.7 Further Assurances.

     (a) Subject to the terms and conditions of this Agreement, each Party shall
use its  Commercially  Reasonable  Efforts  to take,  or cause to be taken,  all
actions,  and to do,  or cause to be  done,  all  things  necessary,  proper  or
advisable under applicable laws and regulations to consummate and make effective
the purchase,  sale,  transfer and delivery of the Assets and the  assumption of
the Assumed Liabilities pursuant to this Agreement.  Such actions shall include,
without  limitation,  each Party using its  Commercially  Reasonable  Efforts to
ensure  satisfaction of the conditions  precedent to its obligations  hereunder,
including  obtaining all necessary  consents,  approvals,  and authorizations of
third parties and Governmental  Authorities  required to be obtained in order to
consummate  the  transactions  hereunder,  and to  effectuate  a transfer of the
Transferable  Permits to Buyer. Seller shall cooperate with Buyer in its efforts
to obtain all other  Permits and  Environmental  Permits  necessary for Buyer to
operate the Assets.  None of the Parties  hereto  shall,  without  prior written
consent  of the  other  Party,  take or fail to take  any  action,  which  might
reasonably be expected to prevent or materially impede,  interfere with or delay
the transactions contemplated by this Agreement.

     (b) In the event  that any Asset  shall not have been  assigned,  conveyed,
transferred  and  delivered  hereunder  to Buyer at the Closing,  Seller  shall,
subject  to  Section  6.7(c),  use  Commercially  Reasonable  Efforts to assign,
convey,  transfer and deliver such Assets to Buyer as promptly as is practicable
after the Closing.

     (c) (i) To the extent that Seller's rights under any Assigned  Agreement or
Real Property  Lease may not be assigned  without the consent of another  Person
which consent has not been obtained by the Closing Date,  this  Agreement  shall
not constitute an agreement to assign the same, if an attempted assignment would
constitute a breach thereof or be unlawful.

                                       42
<PAGE>

     (ii) Seller  agrees that if any consent to an  assignment  of any  Assigned
Agreement  or Real  Property  Lease shall not be  obtained  or if any  attempted
assignment  would  be  ineffective  or  would  impair  the  Buyer's  rights  and
obligations under the Assigned Agreement or Real Property Lease in question,  so
that  Buyer  would not in effect  acquire  the  benefit  of all such  rights and
obligations,  Seller,  at the Buyer's option and to the maximum extent permitted
by law and such Assigned  Agreement or Real  Property  Lease,  shall,  after the
Closing Date,  appoint Buyer to be Seller's  agent with respect to such Assigned
Agreement or Real Property Lease, or, to the maximum extent permitted by law and
such  Assigned  Agreement or Real  Property  Lease,  enter into such  reasonable
arrangements  with Buyer or take such other  actions as are necessary to provide
Buyer with the same or  substantially  similar  rights and  obligations  of such
Assigned  Agreement  or Real  Property  Lease as Buyer may  reasonably  request.
Seller shall cooperate and shall use  Commercially  Reasonable  Efforts prior to
and after the Closing  Date to obtain an  assignment  to Buyer of each  Assigned
Agreement or Real Property Lease.

     (iii) To the  extent  that  any  fuel  supply  contract  or power  purchase
agreement  is not  assignable  or the  contracting  party  withholds  consent to
assignment,  then  Seller  agrees to continue  to  purchase  fuel  and/or  power
pursuant to such contract(s) and to resell it to Buyer at the purchase price for
the  remainder of the term of such  contract(s),  provided that the term of such
contract(s)  shall not be  extended.  Buyer shall make payment to Seller in this
circumstance on an as-incurred basis.

     (d) To the extent  that  Seller's  rights  under any  warranty  or guaranty
described in Section  2.1(h) may not be assigned  without the consent of another
Person,  which consent has not been obtained by the Closing Date, this Agreement
shall not constitute an agreement to assign the same, if an attempted assignment
would  constitute a breach  thereof,  or be unlawful.  Seller agrees that if any
consent to an assignment of any such warranty or guaranty shall not be obtained,
or if any attempted  assignment  would be  ineffective  or would impair  Buyer's
rights and obligations under the warranty or guaranty in question, so that Buyer
would not in effect  acquire  the  benefit of all such  rights and  obligations,
Seller,  at  Buyer's  option  and  expense,  shall use  Commercially  Reasonable
Efforts,  to the extent  permitted by law and by such  warranty or guaranty,  to
enforce  such  warranty  or  guaranty  for the benefit of Buyer so as to provide
Buyer to the maximum extent  possible with the benefits and  obligations of such
warranty or guaranty.

     6.8 Consents and Approvals.

     (a) As promptly as advisable after the execution of this  Agreement,  Buyer
and  Seller  shall  each  file or  cause  to be filed  with  the  Federal  Trade
Commission  and the  United  States  Department  of  Justice  any  notifications
required to be filed under the HSR Act and the rules and regulations promulgated
thereunder  with respect to the  transactions  contemplated  hereby.  Each Party
shall file any HSR Act  notifications  with respect to this  Agreement  and with
respect to the Arizona Electric  Purchase  Agreement  simultaneously  and in the
same filing. Buyer and Seller shall use their respective reasonable best efforts
to respond promptly to any requests for additional information made by either of
such agencies,  and to cause the waiting  periods under the HSR Act to terminate
or  expire  at the  earliest  possible  date  after  the date of  filing of such
notification.  Buyer will pay all filing fees under the HSR Act  relating to the
Assets,  but each of Seller and Buyer will bear its own costs of the preparation
of any such filing.

                                       43
<PAGE>

     (b) The Parties shall cooperate and use all Commercially Reasonable Efforts
to  promptly  prepare  and file  all  necessary  documentation,  to  effect  all
necessary applications,  notices, petitions, filings and other documents, and to
obtain all necessary  permits,  consents,  approvals and  authorizations  of all
Governmental  Authorities  necessary or advisable to consummate the transactions
contemplated  by this Agreement,  including,  without  limitation,  the Required
Regulatory  Approvals.  Buyer  shall  have the right to review  and  approve  in
advance all the information relating to Buyer, on the one hand, and Seller shall
have the right to review and approve in advance all the information  relating to
Seller,  on the other hand,  in either case,  which appear in any filing made in
connection  with the  transactions  contemplated  by this  Agreement.  Buyer and
Seller agree that they will consult and  cooperate  with each other with respect
to  the  obtaining  of all  such  necessary  permits,  consents,  approvals  and
authorizations of Governmental Authorities.

     (c) In  connection  with  applications  and other  filings for the Required
Regulatory Approvals,  and the prosecution of any pending regulatory proceedings
material to the Business Buyer and Seller shall jointly,  and on an equal basis,
coordinate  the  overall  development  of the  positions  to be  taken  and  the
regulatory actions to be requested in such applications and filings for approval
of the sale by the  Seller and the  purchase  by the Buyer of the Assets and the
Business,  of all other matters  contemplated  by this  Agreement  which require
regulatory approval and of all other regulatory matters incidental thereto which
are to be addressed  in such  applications  and  filings.  Efforts to obtain any
necessary approvals (including from the ACC and the FERC) shall be prosecuted by
counsel mutually agreed upon by the Parties,  and acting as joint counsel to the
Parties,  it being  understood,  however,  that (i) all  positions  taken in the
filings with such  Governmental  Authorities shall be consistent with the mutual
understandings of the Parties and (ii) any SEC approvals required by Buyer shall
be prosecuted by Buyer's counsel.

     (d) Seller and Buyer shall  cooperate with each other and promptly  prepare
and file  notifications  with, and request Tax clearances  from, state and local
taxing authorities in any jurisdictions in which a portion of the Purchase Price
may be required to be withheld or in which Buyer would  otherwise  be liable for
any Tax liabilities of Seller pursuant to such state and local Tax law.

     (e) Seller shall have primary  responsibility  for securing the transfer of
the Transferable Permits, effective as of the Closing Date. Buyer shall have the
primary  responsibility for securing the transfer,  reissuance or procurement of
the  Permits  and  Environmental   Permits  (other  than  Transferable  Permits)
effective as of the Closing Date. Seller shall cooperate with Buyer's efforts in
this  regard  and  assist  in  any  transfer  or   reissuance  of  a  Permit  or
Environmental  Permit held by Seller,  or the procurement of any other Permit or
Environmental Permit when so requested by Buyer.

     6.9 Fees and Commissions. Each of Seller and Buyer represent and warrant to
the other that,  except for Morgan Stanley & Co.  Incorporated,  which is acting
for and at the expense of Seller,  and Credit  Suisse First Boston  Corporation,
which is acting  for and at the  expense of Buyer,  no  broker,  finder or other
Person is entitled  to any  brokerage  fees,  commissions  or  finder's  fees in
connection  with the  transactions  contemplated  hereby by reason of any action
taken by the Party making such representation. Each of Seller and Buyer will pay
to the others or otherwise  discharge,  and will  indemnify  and hold the others
harmless from and against,  any and all claims or liabilities  for all brokerage
fees,  commissions  and  finder's  fees  (other than the fees,  commissions  and
finder's  fees  payable to the party  listed  above)  incurred  by reason of any
action  taken  by the  indemnifying  party.  Buyer  has a  preexisting  business
relationship with New Harbor,  Incorporated and agrees to be responsible for any
brokerage  fees,  commissions or finder's fees of New Harbor,  Incorporated,  if
any, arising from the transactions contemplated by this Agreement.

                                       44
<PAGE>

     6.10 Tax Matters.

     (a) All Transfer Taxes  incurred in connection  with this Agreement and the
transactions  contemplated hereby,  including,  without limitation,  (A) Arizona
sales tax; (B) the Arizona  transfer  tax,  conveyance  fees or  conveyances  of
interests  in real  and/or  personal  property;  and (C)  Arizona  sales tax and
transfer  tax on deeds shall be borne as  follows:  fifty  percent  (50%) by the
Buyer and fifty  percent  (50%) by the Seller.  Seller shall file, to the extent
required by, or permissible under, applicable law, all necessary Tax Returns and
other documentation with respect to all such Transfer Taxes, and, if required by
applicable  law,  Buyer shall join in the  execution of any such Tax Returns and
other documentation.  Prior to the Closing Date, to the extent applicable, Buyer
shall provide to Seller  appropriate  certificates  of Tax  exemption  from each
applicable taxing authority.

     (b) With respect to Taxes to be prorated in accordance  with Section 3.4 of
this Agreement,  Buyer shall prepare and timely file all Tax Returns required to
be filed after the Closing  Date with  respect to the Assets,  if any, and shall
duly and timely pay all such Taxes shown to be due on such Tax Returns.  Buyer's
preparation of any such Tax Returns shall be subject to Seller's approval, which
approval shall not be unreasonably  withheld.  Buyer shall make such Tax Returns
available  for Seller's  review and approval no later than fifteen (15) Business
Days  prior to the due date for filing  each such Tax  Return.  Upon  receipt by
Buyer of the tax  bill,  invoice  or other  statement  regarding  such  real and
personal  property  Taxes,  Buyer shall calculate the pro rata share of such tax
bill, invoice or other statement  attributable to Buyer and Seller.  Buyer shall
then forward, as soon as possible, to Seller a copy of such tax bill, invoice or
statement along with the supporting documentation relating to the calculation of
the pro rata share to Seller and Seller will promptly pay to Buyer  Seller's pro
rata share of such tax bill,  invoice or  statement.  In the event  Seller first
receives a tax bill,  invoice or statement  relating to the Assets from a taxing
authority,  Seller shall promptly forward such tax bill, invoice or statement to
Buyer.

     (c) Buyer and Seller shall  provide the other with such  assistance  as may
reasonably be requested by the other Party in connection with the preparation of
any Tax Return,  any audit or other examination by any taxing authority,  or any
judicial or administrative proceedings relating to liability for Taxes, and each
shall retain and provide the  requesting  Party with any records or  information
which may be relevant to such return,  audit,  examination or  proceedings.  Any
information  obtained  pursuant to this Section 6.10(c) or pursuant to any other
Section  hereof  providing for the sharing of  information  or review of any Tax
Return or other instrument  relating to Taxes shall be kept  confidential by the
Parties hereto.

                                       45
<PAGE>

     (d) In the event  that a dispute  arises  between  Buyer and  Seller,  with
respect to Taxes in Sections  6.10(a) and 6.10(b),  or concerning any amount due
under this Section 6.10, the Parties shall attempt in good faith to resolve such
dispute and any agreed upon amount shall be paid to the  appropriate  Party.  If
such  dispute is not  resolved  within  thirty  (30) days,  the  Parties to such
dispute  shall  submit  the  dispute  to the  Independent  Accounting  Firm  for
resolution,  which  resolution  shall be final,  conclusive  and binding on such
Parties.  Notwithstanding  anything in this Agreement to the contrary,  the fees
and expenses of such Independent  Accounting Firm shall be allocated between the
Parties so that the non-disputing  Party's share of such fees and expenses shall
be in the same proportion that the aggregate  amount of such remaining  disputed
amounts so submitted by the disputing Party to such auditor that is successfully
disputed by the disputing Party (as finally determined by such auditor) bears to
the total amount of such remaining disputed amount so submitted by the disputing
Party to such  auditor.  Any  payment  required  to be made as a  result  of the
resolution  of the  dispute  by the  Independent  Accounting  Firm shall be made
within ten days after such resolution,  together with any interest determined by
the Independent Accounting Firm to be appropriate.

     (e) Buyer agrees that Seller may, at Seller's election prior to the Closing
Date,  direct  that all or a portion of the  Purchase  Price be  delivered  to a
"qualified  intermediary" (as defined in Treasury Regulation Section 1.1031(k) -
(g)(4)) as to enable Seller's relinquishment of the Assets to qualify as part of
a like-kind  exchange of property covered by Section 1031 of the Code. If Seller
so elects,  Buyer shall  cooperate  with Seller (but without  being  required to
incur any out-of-pocket costs in the course thereof) in connection with Seller's
efforts to effect such  like-kind  exchange,  which  cooperation  shall include,
without  limitation,  taking such actions as Seller  requests in order to enable
Seller to qualify  such  transfer  as part of a  like-kind  exchange of property
covered  by  Section  1031  of the  Code  (including  any  actions  required  to
facilitate the use of a "qualified intermediary"),  and Buyer agrees that Seller
may assign all or part of its rights and delegate all or part of its obligations
under this Agreement to a person or entity acting as a qualified intermediary to
qualify  the  transfer of the Assets as part of  like-kind  exchange of property
covered by Section 1031 of the Code. Buyer and Seller agree in good faith to use
reasonable efforts to coordinate the transactions contemplated by this Agreement
with any other transactions engaged in by either Buyer or Seller;  provided that
such  efforts  are  not  required  to  include  an  unreasonable  delay  in  the
consummation of the transactions contemplated by this Agreement.

     (f) Prior to the Closing Date,  Buyer and Seller shall use their good faith
efforts to agree upon the allocation (the  "Allocation")  of the Purchase Price,
the Assumed  Liabilities  and other  relevant  items  (including,  for  example,
adjustments to the Base Purchase  Price) to the individual  assets or classes of
assets within the meaning of Section 1060 of the Code. If Buyer and Seller agree
to such  Allocation  prior to Closing,  Buyer and Seller covenant and agree that
(i) the values assigned to the assets by the Parties' mutual  agreement shall be
conclusive  and final for all  purposes,  and (ii) neither Buyer nor Seller will
take any position before any Governmental Authority or in any Proceeding that is
in any way inconsistent with such Allocation.  Notwithstanding the foregoing, if
Buyer and Seller cannot agree to an  Allocation,  Buyer and Seller  covenant and
agree to file, and to cause their respective Affiliates to file, all Tax Returns
and schedules  thereto  (including,  for example,  amended  returns,  claims for
refund,  and those returns and forms required under Section 1060 of the Code and
any Treasury regulations  promulgated  thereunder)  consistent with each of such
Party's good faith Allocations, unless otherwise required because of a change in
any applicable law.

                                       46
<PAGE>

     6.11 Advice of Changes. Prior to the Closing, each Party will timely advise
the other in writing with respect to any matter arising after  execution of this
Agreement  which becomes known to that Party and which, if existing or occurring
at the date of this Agreement,  would have been required to be set forth in this
Agreement,  including any of the Schedules or Exhibits hereto.  Any such written
notice  will  not be  deemed  to have  amended  this  Agreement,  including  the
appropriate  Schedule or Exhibit,  or to have  qualified any  representation  or
warranty contained in this Agreement,  or to have cured any misrepresentation or
breach of warranty that otherwise might have existed  hereunder by reason of the
development.

     6.12 Seller Employees.

     (a) Buyer shall give  Qualifying  Offers of  employment to all employees of
Seller who are  covered by the IBEW Local  Union No. 387  collective  bargaining
agreement with Seller (the "IBEW CBA") and are employed in positions relating to
the Business  (collectively,  "Union  Employees").  Each such person who becomes
employed  by Buyer  pursuant  to this  section  shall be referred to herein as a
"Transferred Union Employee".

     (b) Buyer shall give Qualifying  Offers of employment to substantially  all
of the salaried  employees  of Seller who are employed in positions  relating to
the Business (collectively, "Non-Union Employees"). Each such person who becomes
employed  by Buyer  pursuant  to this  section  shall be referred to herein as a
"Transferred Non-Union Employee." Buyer shall reimburse Seller for 50 percent of
the aggregate  Severance  Cost (as defined  below)  relating to those  Non-Union
Employees whose employment is terminated by Seller prior to or as of the Closing
Date.  "Severance  Cost" means the sum of the following costs incurred by Seller
resulting from a Non-Union Employee's termination of employment with Seller: (i)
all cash severance benefits payable pursuant to Seller's severance policy,  (ii)
the cost of  outplacement  services  provided  pursuant  to  Seller's  severance
policy,  (iii)  Seller's  subsidized  portion  of  COBRA  Continuation  Coverage
provided by Seller's health plan in accordance with Seller's  severance  policy,
(iv) the additional severance benefits payable pursuant to arrangements with the
specific  individuals  identified in a schedule  delivered to Buyer prior to the
date hereof; and (v) any retention bonuses paid by Seller to Non-Union Employees
who do not  receive  Qualifying  Offers  of  employment  and who are  deemed  in
Seller's  discretion  to be critical to the ongoing  operation of the  Business.
With respect to the Severance  Cost  components  described in clauses (i), (ii),
(iv) and (v) of the preceding  sentence,  Buyer shall pay such  reimbursement to
Seller at the later of  Closing  or five days  after  receipt  of a list of such
terminated  Non-Union Employees and the amount of such Severance Cost components
with respect to such  employees.  With respect to the Severance  Cost  component
described  in  clause  (iii),  Seller  shall  provide  Buyer  during  the  COBRA
Continuation   Coverage  period  with  a  monthly  schedule  setting  forth  the
cumulative  amount of such cost  component  for the preceding  month,  and Buyer
shall pay such  reimbursement  to Seller  within five days after receipt of each
such schedule.

                                       47
<PAGE>

     (c) All offers of employment made by Buyer pursuant to Sections 6.12(a) and
(b) shall be made in accordance  with all applicable laws and  regulations,  and
for Union Employees, in accordance with the IBEW CBA and shall remain open for a
period of ten (10) working  days.  Any such offer which is accepted  within such
ten (10) working day period shall  thereafter  be  irrevocable,  except for good
cause,  until  the  earlier  of the  Closing  Date  or the  termination  of this
Agreement pursuant to its terms.  Additionally,  such offers shall be contingent
upon the Non-Union Employee's or Union Employee's  successful completion of drug
testing  pursuant  to  Buyer's  policies  and in  compliance  with the IBEW CBA.
Following  acceptance of such offers, Buyer shall provide written notice thereof
to Seller and Seller shall provide Buyer with access to the files and records of
employees  accepting such offers, to the extent permitted by contract,  the IBEW
CBA and/or applicable law.

     (d)  The  following   shall  be  applicable  with  respect  to  Transferred
Employees:

          (i) From and after  the  Closing  Date,  Transferred  Employees  shall
     accrue no additional  benefits  under any employee  benefit  plan,  policy,
     program or arrangement of Seller or its Affiliates.

          (ii) For such Transferred  Union Employees,  Buyer shall recognize the
     IBEW as the exclusive collective bargaining representative and shall assume
     the terms and conditions of the IBEW CBA, to the extent  applicable to such
     Transferred  Union Employees,  until the expiration of said agreement,  and
     will further comply with all applicable  legal  obligations with respect to
     collective bargaining under federal labor law thereafter.

          (iii) As of the Closing Date, Buyer shall cause Transferred  Non-Union
     Employees  to be  covered by the Buyer  benefit  plans  listed on  Schedule
     6.12(d)(iii),  and shall cause  Transferred  Union Employees to be provided
     with  benefits  that are  consistent  with the terms of the IBEW CBA or are
     otherwise  acceptable to the applicable  union. The commitments  under this
     paragraph shall require the following:

               (A) With  respect to health care plans,  Buyer agrees to waive or
          to cause the waiver of all limitations as to  pre-existing  conditions
          and   actively-at-work   exclusions  and  waiting   periods  for  such
          employees,  except  that Buyer may  require  the  employee  or his/her
          dependents  who,  on the  Closing  Date,  is  then in the  process  of
          satisfying  any similar  exclusion or waiting  period under the Seller
          health care plans to satisfy fully the balance of the applicable  time
          period for such exclusion or waiting period under the applicable Buyer
          plan.  With  respect to the  calendar  year in which the Closing  Date
          occurs, all health care expenses incurred by any such employees and/or
          any eligible  dependent  thereof,  including  without  limitation  any
          alternate  recipient  pursuant  to  qualified  medical  child  support
          orders, in the portion of the calendar year preceding the Closing Date
          that  were  qualified  to  be  taken  into  account  for  purposes  of
          satisfying  any  deductible  or  out-of-pocket  limit under any Seller
          health  care  plans  shall be  taken  into  account  for  purposes  of
          satisfying any deductible or out-of-pocket limit under the health care
          plan of Buyer for such calendar year.

                                       48
<PAGE>

               (B) With respect to service and seniority,  Buyer shall recognize
          each  such  employee's  service  and  seniority  with  Seller  and any
          affiliate  of  Seller  for all  non-pension  purposes,  including  the
          determination    of    eligibility    and   extent   of   service   or
          seniority-related  welfare  benefits  such as  vacation  and  sick pay
          benefits.  Seller  agrees to pay each such  employee  for all vacation
          benefits  banked,  accrued,  and unused,  as of the Closing  Date,  or
          otherwise  according  to Seller's  policies  and  applicable  law. For
          purposes of this Section  6.12(d)(iii)(B),  Transferred  Employees who
          have prior service with Southern Union Company, and who are identified
          on a schedule  delivered to Buyer prior to the date  hereof,  shall be
          treated as service with Seller.

               (C) The Citizens  Pension Plan  ("Seller's  Pension  Plan") shall
          retain all  liabilities  and assets for  pension  benefits  accrued by
          Transferred  Employees  through  the  day  immediately  preceding  the
          Closing  Date,  and Seller  shall cause all such  accrued  benefits to
          become fully vested as of the Closing Date.  Seller  shall,  within 90
          days following the Closing Date, notify Transferred  Employees who are
          entitled to deferred  vested  benefits under Seller's  Pension Plan of
          the amount of such benefits. Buyer shall take all actions necessary to
          cause  the  Buyer's   qualified   pension   plan  listed  on  Schedule
          6.12(d)(iii)   in  which   Transferred   Employees   are  eligible  to
          participate  pursuant to Section  6.12(d)(iii) to provide  benefits no
          less  valuable  than those  provided in Seller's  Pension  Plan and to
          recognize  the  service  that  the  Transferred  Employees  had  under
          Seller's  Pension  Plan for  purposes of such  Transferred  Employees'
          eligibility to participate,  vesting,  attainment of retirement dates,
          subsidized  benefits,  entitlement to optional  forms of payment,  and
          benefit  accrual;  provided,  however  that a  Transferred  Employee's
          benefit  under  Buyer's  Pension  Plan  shall be  offset by his or her
          accrued benefit under Seller's Pension Plan. The offset referred to in
          the preceding  sentence  shall be based on the benefit that would have
          been  available  with respect to such  Transferred  Employee under the
          terms of Seller's  Pension Plan had such Seller's Pension Plan benefit
          commenced on the Transferred  Employee's  annuity  starting date under
          Buyer's  Pension  Plan and been paid in the same  form as the  benefit
          paid  under  Buyer's  Pension  Plan.   Notwithstanding  the  preceding
          sentence,  in the event that a  Transferred  Employee is ineligible to
          commence  receipt of his or her accrued benefit under Seller's Pension
          Plan on his or her annuity starting date under Buyer's Pension Plan or
          in the form elected under the Buyer's  Pension Plan,  the offset shall
          be based on the hypothetical  benefit that is the actuarial equivalent
          (as  determined  using  the  then  current  actuarial  assumptions  of
          Seller's Pension Plan) of the Transferred  Employee's  accrued benefit
          under Seller's Pension Plan, such  hypothetical  benefit being assumed
          to be payable in the same form and with the same annuity starting date
          as the Transferred  Employee's  benefit under Buyer's Pension Plan. At
          Buyer's   request,   Seller  shall  provide  Buyer  with  the  benefit
          calculations  applicable  to a  Transferred  Employee  under  Seller's
          Pension Plan.

                                       49
<PAGE>

               (D)  Buyer  shall  assume  all   liabilities,   obligations   and
          responsibilities with respect to providing  post-retirement health and
          life insurance  benefits  ("Post-Retirement  Welfare Benefits") to (i)
          retirees  of  the  Business  as of  the  Closing  Date  (the  "Current
          Retirees") and (ii)  Transferred  Employees who have satisfied the age
          and  service  eligibility  requirements  for  Post-Retirement  Welfare
          Benefits under the applicable Seller plans (the "Grandfathered  Active
          Employees" and, together with the Current Retirees, the "Grandfathered
          Individuals").  The  Grandfathered  Individuals are listed in Schedule
          6.12(d)(iii)(D).  Buyer  shall  continue  to  provide  to the  Current
          Retirees Post-Retirement Welfare Benefits that are comparable to those
          Post-Retirement  Welfare  Benefits  provided to such Current  Retirees
          immediately prior to the Closing Date, under  cost-sharing  structures
          that are at least  as  favorable  as the  cost-sharing  structures  in
          effect for and available to the Current Retirees  immediately prior to
          the Closing  Date.  Buyer shall  provide to the  Grandfathered  Active
          Employees  Post-Retirement  Welfare  Benefits  that are  comparable to
          those Post-Retirement  Welfare Benefits provided to such Grandfathered
          Active Employees  immediately prior to the Closing Date, commencing at
          the time such Grandfathered Active Employees retire. The Base Purchase
          Price  shall  be  decreased  by the  amount  by  which  the  APBO  (as
          hereinafter  defined)  exceeds two million dollars  ($2,000,000).  The
          "APBO"  means  the  accumulated   post-retirement  benefit  obligation
          (within the meaning of the Statement on Financial Accounting Standards
          No. 106) of the  Grandfathered  Individuals  receiving or eligible for
          the Post-Retirement Welfare Benefits to the extent Buyer has committed
          to provide  such  Post-Retirement  Welfare  Benefits  pursuant to this
          Section 6.12(d)(iii)(D), determined using a discount rate of 6.75% and
          the remaining  assumptions  disclosed in the January 1, 2001 Actuarial
          Valuation  Report dated  September  17, 2002, as set forth on Schedule
          6.12(d)(iii)(D).

               (E)  With  respect  to the  Seller's  401(k)  Savings  Plan  (the
          "Savings  Plan"),  Seller  shall vest  Transferred  Employees in their
          Savings Plan account  balances as of the Closing  Date.  Seller hereby
          represents  to Buyer that the Savings Plan is intended to be qualified
          within the  meaning of Section  401 of the Code.  Buyer shall take all
          actions necessary to cause the Buyer's qualified 401(k) plan listed on
          Schedule  6.12(d)(iii) in which Transferred  Employees are eligible to
          participate  pursuant to Section  6.12(d)(iii)  (x) to  recognize  the
          service  that the  Transferred  Employees  had in the Savings Plan for
          purposes of determining  such  Transferred  Employees'  eligibility to
          participate,  vesting,  attainment of retirement  dates,  contribution
          levels, and, if applicable,  eligibility for optional forms of benefit
          payments, and (y) to accept  direct-rollover  transfers of Transferred
          Employees' account balances in the Savings Plan,  including  transfers
          of loan  balances and related  promissory  notes,  provided  that such
          loans would not be treated as taxable  distributions at any time prior
          to such transfer.

               (F) Within sixty (60) days after the Closing  Date,  Seller shall
          transfer to Buyer's  flexible  benefits plan any balances  standing to
          the credit of Transferred  Employees under Seller's  flexible benefits
          plan as of the day immediately  preceding the Closing Date. As soon as
          practicable  after the Closing  Date,  Seller shall provide to Buyer a
          list of those  Transferred  Employees  that have  participated  in the
          health or dependent care  reimbursement  accounts of Seller,  together
          with their  elections  made prior to the Closing  Date with respect to
          such  account,  and  balances  standing to their  credit as of the day
          immediately preceding the Closing Date.

                                       50
<PAGE>

     (e)  With  respect  to  severance  benefits,  Buyer  shall  provide  to any
Transferred Non-Union Employee who is terminated by Buyer (other than for cause)
prior  to the date  which is one year  following  the  Closing  Date,  severance
benefits at the level set forth in a schedule  provided  to Seller  prior to the
date hereof.  Any employee provided severance benefits under this section may be
required to execute a release of claims against  Seller and Buyer,  in such form
as Buyer shall prescribe, as a condition for the receipt of such benefits.

     (f) Each  Transferred  Non-Union  Employee  who is initially  assigned,  or
assigned  within twelve (12) months of the Closing Date, by Buyer to a principal
place of work that  requires  such  employee to relocate his  residence  will be
reimbursed  by  Buyer  for  all  relocation  expenses  in  accordance  with  the
relocation  benefits  plans set forth in a schedule  provided to Seller prior to
the date  hereof.  For  purposes  of the  foregoing  a  required  relocation  of
residence  shall  include a change in the  principal  place of work that is more
than 30 miles farther from such employee's  principal place of work  immediately
prior to the  Closing  Date and  requires  an average  commute  from his current
residence of at least one hour in each direction.

     (g)  Seller  shall  be  responsible,  with  respect  to the  Business,  for
performing  and  discharging  all  requirements  under  the WARN  Act and  under
applicable  state and local laws and  regulations  for the  notification  of its
employees  of any  "employment  loss"  within the  meaning of the WARN Act which
occurs on or prior to the Closing Date.

     (h) Buyer shall not be  responsible  for, but Seller  shall be  responsible
for, extending COBRA Continuation Coverage to any employees and former employees
of  Seller,  or to any  qualified  beneficiaries  of such  employees  and former
employees,  who become or became entitled to COBRA  Continuation  Coverage on or
before the Closing Date, including those for whom the Closing Date occurs during
their COBRA election period.

     (i)  Seller  or  its  Affiliates  shall  pay or  cause  to be  paid  to all
Transferred  Employees,  all  compensation  (including  vacation pay),  workers'
compensation or other  employment  benefits to which they are entitled under the
terms of the applicable  compensation  or Seller benefit plans or programs as of
the Closing Date. Buyer shall pay to each Transferred Employee all unpaid salary
or  other  compensation  or  employment  benefits  which  have  accrued  to such
employees  following the Closing Date, at such times as provided under the terms
of  the  applicable  compensation  or  benefit  programs.   Notwithstanding  the
foregoing,  if the  Closing  Date is on or after  July 1 of any  calendar  year,
Seller and Buyer shall  pro-rate the  obligation to pay any bonuses  declared by
Seller on or after the Closing Date (but prior to March 1 of the  calendar  year
following  the year in which the  Closing  Date  occurs)  that  would  have been
payable to the  Transferred  Employees had the  Transferred  Employees  remained
employed by Seller or its  Affiliates  throughout the calendar year in which the
Closing Date occurs,  in accordance  with the  provisions  of any policy,  plan,
practice or  arrangement  of Seller under which such bonus would have been paid.
Buyer shall be obligated to pay that  portion of each such bonus  determined  by
multiplying  the amount of such bonus by a fraction,  the  numerator of which is
the  number  of days  from and after the  Closing  Date  through  the end of the
calendar year in which the Closing Date occurs,  and the denominator of which is
365.

                                       51
<PAGE>

     (j) Seller  shall be  responsible  for  maintaining  workers'  compensation
coverage for all Union Employees and Non-Union  Employees for claims relating to
occurrences prior to the Closing Date.

     (k) Individuals  who are otherwise  Union Employees or Non-Union  Employees
but who on any date are not  actively at work due to a leave of absence  covered
by the Family and Medical Leave Act (FMLA), or due to any other authorized leave
of absence, including, without limitation,  short-term disability, or who are on
long-term  disability,  shall nevertheless be treated as "Union Employees" or as
"Non-Union Employees",  as the case may be, on such date if they are able (i) to
return to work within the  protected  period  under the FMLA or such other leave
(which in any event  shall not extend  more than  twelve  (12)  weeks  after the
Closing  Date),  whichever  is  applicable,  and (ii) to perform  the  essential
functions of their job, with or without a reasonable accommodation.

     (l)  Buyer  shall  be  responsible,  with  respect  to  the  Business,  for
performing  and  discharging  all  requirements  under  the WARN  Act and  under
applicable  state and local laws and  regulations  for the  notification  of its
employees  of any  "employment  loss"  within the  meaning of the WARN Act which
occurs following the Closing Date.

     (m) Buyer is  responsible  for  extending  and  continuing  to extend COBRA
Continuation Coverage to all Transferred Employees,  and qualified beneficiaries
of such  employees  who  become  entitled  to such COBRA  Continuation  Coverage
following the Closing Date.

     (n) The provisions of this Section 6.12 shall not be construed as being for
the  benefit  for any person  other than the  Parties  hereto,  and shall not be
enforceable by persons other than such Parties (including,  without limitations,
the Transferred Employees).

     6.13 Risk of Loss.

     (a) From the date  hereof  through the  Closing  Date,  all risk of loss or
damage to the assets included in the Assets shall be borne by Seller, other than
loss  or  damage  caused  by the  acts  or  negligence  of  Buyer  or any  Buyer
Representative, which loss or damage shall be the responsibility of Buyer.

     (b) If, before the Closing Date, all or any portion of the Assets are taken
by eminent  domain,  municipalization  or  condemnation  or are the subject of a
pending  taking which has not been  consummated,  (such event being  called,  in
either case, a "Taking"),  then Seller shall notify Buyer promptly in writing of
such Taking.

          (i) If such Taking relates to Assets of Seller having an aggregate net
     book value in excess of $50,000,000,  then such Taking shall be a "Material
     Taking." Upon a Material Taking, Seller and Buyer shall negotiate to settle
     the loss, if any, resulting from such Material Taking (and such negotiation
     shall include, without limitation,  the negotiation of a fair and equitable
     reduction in the Base Purchase  Price to offset such loss, if any, based on
     consideration  of all  relevant  circumstances).  If Seller and Buyer shall
     fail to agree to settle  the loss,  if any,  resulting  from said  Material
     Taking,  said Material Taking shall be  conclusively  deemed to be an Asset
     Material  Adverse  Effect.  Any Taking  relating  to any Assets of Seller's
     Santa Cruz division shall not be deemed to be a Material Taking.

                                       52
<PAGE>

          (ii) If such Taking is not a Material Taking, then (A) Buyer may elect
     to, in the name of Seller,  negotiate for,  claim,  contest and receive the
     portion  of the  award  properly  allocable  to those  Assets  that are the
     subject  of the  Taking,  (B) to the  extent  the  Taking  shall  have been
     consummated  prior  to  the  Closing,  Seller  shall  be  relieved  of  its
     obligation  to convey to Buyer  those  Assets  that were the subject of the
     Taking,  (C) at the Closing,  Seller will assign to Buyer all of its rights
     to  damages  payable as a result of the  Taking,  and will pay to Buyer all
     damages  previously paid to it in connection with the Taking,  in each case
     to the extent  properly  allocable  to those Assets that are the subject of
     the Taking,  and (D) following  the Closing,  Seller will give to Buyer any
     further assurances of such rights and assignment with respect to the Taking
     as Buyer reasonably may request from time to time.

          (c) (i) If any  casualty  loss or damage  to the  Assets  shall  occur
     before the Closing Date, then the Base Purchase Price shall be reduced,  to
     the extent such loss or damage is not remedied  prior to the Closing  Date,
     by an amount  mutually  acceptable  to the  Parties,  which amount shall be
     equal  to the  estimated  out-of-pocket  costs  and  expenses  which  Buyer
     reasonably  can be expected to incur to repair or  replace,  in  accordance
     with Good Utility Practices,  such lost or damaged Assets after Closing. If
     the actual out-of-pocket costs and expenses which Buyer reasonably incurred
     to repair or replace, in accordance with Good Utility Practices,  such lost
     or damaged  Assets exceeds such estimated  amount,  Seller shall  reimburse
     Buyer for such excess  costs.  If the Parties do not agree to an adjustment
     to the Base  Purchase  Price in  respect  of the  casualty  loss,  then the
     Closing  shall be postponed  for such period of time (not to exceed six (6)
     months),  and Seller shall repair or replace the lost or damaged  Assets in
     accordance  with Good Utility  Practices  and Buyer or its  Representatives
     will have the right to inspect  and  observe  and  approve,  all repairs or
     replacements made by Seller to remedy such casualty loss.

          (ii)  Notwithstanding  anything to the contrary in Section  6.13(c)(i)
     above, if Seller shall have failed to remedy,  cure or otherwise reverse by
     the Closing  Date any  casualty  loss or damage to the Assets such that the
     estimated  out-of-pocket  costs and expenses that Buyer  reasonably  can be
     expected to incur to repair or replace such lost or damaged  Assets exceeds
     $25,000,000,  such loss or  damage  shall be  conclusively  deemed to be an
     Asset Material Adverse Effect.

          6.14 Tax Exempt Financing

          (a) Seller represents that:

          (i) The Exempt Facilities have been financed, and refinanced, in whole
     or in  part,  with  the  proceeds  of the  issuance  and  sale  by  various
     governmental authorities of industrial development revenue bonds or private
     activity bonds the interest on which, with certain exceptions,  is excluded
     from gross income for purposes of Federal income  taxation (such bonds,  as
     currently  outstanding,  the "Revenue  Bonds");  and Seller is the economic
     obligor in respect of such Revenue Bonds;

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<PAGE>

          (ii) The Revenue Bonds are described in Schedule 6.14(a);

          (iii) The basis for the  exclusion  of interest  on the Revenue  Bonds
     from gross income for Federal  income tax purposes is the use of the Exempt
     Facilities  for "the  local  furnishing  of  electric  energy or gas" under
     Sections  142(a)(8)  and  142(f)  of the Code or,  if  applicable,  Section
     103(b)(4)(E)  of the Internal  Revenue Code of 1954,  as amended (the "1954
     Code"),  and in  either  case  the  applicable  Treasury  Regulations  (the
     "Regulations") thereunder;

          (iv) The use of the  Exempt  Facilities  for a  purpose  other  than a
     qualifying  purpose  indicated in  subsection  (iii) above could impair (A)
     such  exclusion  from gross  income of the  interest on the Revenue  Bonds,
     possibly with retroactive effect,  unless appropriate  remedial action were
     taken (which could include  prompt  defeasance or redemption of the Revenue
     Bonds)  and/or  (B) the  deductibility  of  payments  by Seller or Buyer of
     interest based on the restrictions in Section 150(b) of the Code;

          (v) After August 20, 1996,  at least the  following  bonds exempt from
     tax  under  Section  103 of the Code and in whole or in part  described  in
     Section  142(a)(8) of the Code have been issued with respect to  facilities
     of Seller  for the  "local  furnishing  of  electric  energy  or gas":  The
     Industrial  Development  Authority  of the  County  of  Navajo,  Industrial
     Development  Revenue Bonds (Citizens Utilities Company Project) 1997 Series
     B ($12,380,000),  and The Industrial Development Authority of the County of
     Yavapai,  Industrial  Development Revenue Bonds (Citizens Utilities Company
     Project) 1998 Series ($20,000,000); and

          (vi) Any breach by Buyer of its  obligations  under this  Section 6.14
     could result in the  incurrence by Seller of additional  costs and expenses
     with respect to the Revenue Bonds, including, without limitation, increased
     interest  costs,  loss  of the  interest  deduction  for tax  purposes  and
     transaction costs relating to any refinancing, redemption and/or defeasance
     of all or part of the Revenue Bonds (cumulatively, the "Tax Impact").

     (b) Buyer  agrees that Buyer will  indemnify  Seller for costs  incurred by
Seller in respect of any Tax Impact  that would not have  arisen but for Buyer's
breach of its obligations  under Section 6.14(c) (except as excused elsewhere in
this Section 6.14).

     (c) After August 20,  1996,  at least the  following  bonds exempt from tax
under  Section  103 of the Code  and  described  in whole or in part in  Section
142(a)(8) of the Code have been issued with respect to  facilities  of Buyer for
the "local furnishing of electric energy": The Industrial  Development Authority
of the County of Pima,  Industrial  Development  Revenue Bonds (Tucson  Electric
Power Company Project) 1997 Series A, B and C ($247,460,000), and The Industrial
Development  Authority of the County of Apache,  Pollution Control Revenue Bonds
(Tucson Electric Power Company  Project) 1998 Series A, B and C  ($200,000,000).
So long as any  Revenue  Bonds  remain  outstanding  with  respect to gas Exempt
Facilities  in any  county,  Buyer  agrees  that it shall  not use,  or take any
deliberate  act to permit the use of, or fail to take any act within its control
that would prevent the use of, the gas Exempt  Facilities within that county for
any purpose or in any manner other than as shall be  consistent  with the Exempt
Facility Operating  Protocols (as such Exempt Facility  Operating  Protocols may
have been  updated,  amended or  corrected  by Seller  for the  purpose of their
accuracy  on or before  the  Closing  Date;  provided  that such  changes do not
materially  impact Buyer's operation of the Assets) delivered by Seller to Buyer
on or before the date of this Agreement, unless Buyer:

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<PAGE>

          (i) has obtained at its own expense an opinion  addressed to Seller of
     nationally  recognized bond counsel reasonably  acceptable to Seller ("Bond
     Counsel") that such use will not impair (x) the exclusion from gross income
     of the  interest  on any issue of  Revenue  Bonds for  Federal  income  tax
     purposes and (y) the  deductibility of Seller's  payments of interest based
     on the restrictions in Section 150(b) of the Code; or

          (ii) has  provided  written  notice to Seller of any act or failure to
     act  either (x) not later  than 45 days  after the  effective  date of such
     action,  or (y) if any of such affected Revenue Bonds are not then eligible
     for optional or mandatory redemption by the terms thereof,  sufficiently in
     advance of such act or failure to act to permit  Seller to request from the
     IRS a  private  letter  ruling to the  effect  that  such  action  does not
     constitute  an event  that would  adversely  affect  the  exclusion  of the
     interest on such  Revenue  Bonds from gross  income for Federal  income tax
     purposes,  to receive a final  ruling to such effect  from the IRS,  and to
     dispose of the Revenue Bonds in a manner not inconsistent  with such ruling
     ("Sufficient Notice"). (Reference is made to Schedule 6.14(a) for a listing
     of the respective optional redemption dates of the Revenue Bonds.)

     (d) Notwithstanding any other provision of this Agreement,  it is expressly
understood and agreed that the provisions of Section  6.14(c) shall not prohibit
Buyer from (and Buyer shall incur no  liability  to Seller for or in  connection
with Buyer)  suspending  the operation of the Exempt  Facilities (in whole or in
part) on a temporary  basis,  or from  terminating  the  operation of the Exempt
Facilities  (in  whole or in part)  on a  permanent  basis  and  shutting  down,
retiring,  abandoning and/or  decommissioning the Exempt Facilities (in whole or
in part); provided, however, that if the Exempt Facilities, in whole or in part,
are  dismantled  and sold,  including  any sale for scrap,  at any time when any
Revenue  Bonds  remain  outstanding,  then the  proceeds  of such sale of Exempt
Facilities  shall within six months from the date of sale be expended to acquire
replacement  property to be used as  described  in the related  Exempt  Facility
Operating Protocol,  unless (I) Buyer has obtained at its own expense an opinion
addressed  to Seller of Bond  Counsel  that the failure to take this action will
not impair (x) the  exclusion  from gross income of the interest on any issue of
Revenue  Bonds for Federal  income tax  purposes  and (y) the  deductibility  of
Seller's payments of interest based on the restrictions in Section 150(b) of the
Code;  (II) the proceeds of such sales are less than $50,000 in a calendar year;
or (III) Buyer has provided Sufficient Notice of such action to Seller.

     (e) Buyer agrees that it shall not issue, or have issued on its behalf, any
tax-exempt  bonds  to  finance  or  refinance  its  acquisition  of  the  Exempt
Facilities, provided that it is expressly understood and agreed that this clause
(e) shall not prohibit  Buyer's use of tax-exempt  bonds to finance or refinance
any  improvement to the Exempt  Facilities made after the date of acquisition or
to any assets other than the Exempt Facilities.

                                       55
<PAGE>

     (f)  Buyer  agrees  to  provide  prompt  written  notice  to  Seller of any
condemnation  of, or casualty  loss with respect to, the Exempt  Facilities,  in
whole or in substantial part, to cooperate in good faith with Seller in Seller's
efforts to ascertain the  consequences of any such eminent domain  proceeding or
casualty  loss for the (A) exclusion of interest on the Revenue Bonds from gross
income for Federal  income tax  purposes and (B) the  deductibility  of Seller's
payments of interest based on the restrictions in Section 150(b) of the Code.

     (g) Seller  agrees that the  Revenue  Bonds shall be redeemed no later than
the  earlier  of (I) their  respective  stated  maturity  dates,  and (II) their
respective first optional  redemption dates on or after the Closing Date. Seller
also agrees that none of the Revenue Bonds shall be refunded.

     (h)  Seller  hereby  represents  that  it  has  performed  all  duties  and
obligations of "Company" under the documents relating to the Revenue Bonds, that
the  representations  and warranties under the documents relating to the Revenue
Bonds remain true and correct, and that there has been no breach of any covenant
or agreement by Seller under the documents relating to the Revenue Bonds. Seller
hereby covenants that, until all of the Revenue Bonds have been redeemed, Seller
will  perform  all duties  and  obligations  of  "Company"  under the  documents
relating to the Revenue  Bonds,  that Seller's  representations  and  warranties
under such  documents  will  remain  true and  correct  and that Seller will not
breach any covenant or agreement of Seller under such  documents;  provided that
Seller's  covenant  in this  sentence  shall  not  extend  to any  such  duties,
obligations, representations,  warrantees, covenants or agreements the necessary
predicate for which is Seller's actual  ownership,  possession or control of the
Exempt  Facilities  from and after the Closing  Date.  Seller  acknowledges  and
agrees  that  although  Seller  from and  after the  Closing  Date will not own,
possess  or  control  the  Exempt  Facilities,  Seller  shall  remain  primarily
obligated  under the  documents  relating to the  Revenue  Bonds and, as between
itself and each issuer of the Revenue  Bonds,  shall  remain  subject to each of
Seller's representations, warranties, covenants and agreements thereunder. Buyer
shall have no liability  under this Section 6.14 unless  interest on the Revenue
Bonds would be excluded from gross income for Federal income tax purposes absent
an act or  failure  to act by Buyer in  contravention  of the  terms of  Section
6.14(c).

     (i) In any case  where  Buyer has  provided  notice to  Seller  under  this
Section  6.14,  Buyer  agrees that it will join and  cooperate  with Seller with
respect to any  request by Seller to the  Internal  Revenue  Service to obtain a
private letter ruling  regarding any Tax Impacts of the act or failure to act by
Buyer that prompted such notice.  Seller will join and cooperate with Buyer with
respect to any  request  by Buyer to the  Internal  Revenue  Service to obtain a
private letter ruling  regarding any Tax Impacts.  The Party seeking the private
letter   ruling  shall  bear  all  costs  of  the  filing,   legal  and  related
out-of-pocket expenses incurred in the course of such request.

     (j) Seller  agrees  that it has sole  responsibility  to make any  required
payments of principal  and  interest on the Revenue  Bonds and that Buyer has no
responsibility  to make such  payments.  Seller  agrees that it will  indemnify,
protect,  defend and hold  harmless  Buyer from and against any claim that Buyer
owes any payment of principal or interest on the Revenue  Bonds.  Seller  agrees
that Buyer shall retain any payments  with respect to any casualty  event or any
condemnation  of the Exempt  Facilities and that,  except as Buyer has otherwise
agreed under  Section  6.14(c),  Buyer shall not be restricted in its use of any
such proceeds.

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<PAGE>

     (k) If Buyer shall sell,  exchange,  transfer or  otherwise  dispose of the
Exempt  Facilities in whole or substantial  part (aggregate price of $500,000 or
more in a calendar year) to one or more third  parties,  Buyer shall cause to be
included  in the  documentation  relating  to  such  transaction  covenants  and
agreements on the part of such third party  substantially  identical to those on
the part of Buyer contained in this Section 6.14.

     (l) The covenants and agreements on the part of Buyer and Seller  contained
in this  Section  6.14 shall  continue  in effect so long as any of the  Revenue
Bonds shall remain  outstanding.  Seller shall notify Buyer  promptly when there
shall be no Revenue Bonds outstanding.

     (m) Buyer  acknowledges  and agrees that  Seller's bond counsel may rely on
Buyer's  representations,  warranties and covenants as hereinabove  provided for
the purpose of rendering legal opinions, as required by the Indentures of Trust,
the Loan  Agreements and the Tax Regulatory  Agreements  relating to the Revenue
Bonds ("IDRB  Documents") as a precondition to the sale by Seller of such Exempt
Facilities,  to the  effect  that the sale of such  Exempt  Facilities  will not
result in (I) the  inclusion of the  interest on the Revenue  Bonds in the gross
income of the  recipient  for  purposes  of Federal  income  taxation,  and (II)
disallowance  of interest  expense to Seller under  Section  150(b) of the Code.
Seller  acknowledges  and  agrees  that  Buyer  shall  be an  addressee  of  the
above-described  opinion  letters of Seller's  bond  counsel or shall  receive a
reliance  letter from  Seller's bond counsel  authorizing  Buyer to rely on such
opinion letters.

     (n) Nothing in this Agreement is intended to nor shall it be interpreted as
(i) an assignment to, and assumption by, Buyer of any of the IDRB Documents,  or
(ii) as an undertaking or agreement by Buyer to assume,  guarantee or pay any of
Seller's loan or other payment obligations pursuant to the IDRB Documents. Other
than as stated in this Section 6.14, Buyer shall have no liability in respect of
the Revenue Bonds.

     (o) Each of Buyer and Seller shall use its Commercially Reasonable Efforts,
and shall cooperate with the other Party in the other Party's efforts, to obtain
all Consents, bond counsel opinions and IRS rulings as may be required under the
IDRB  Documents  and the Code to enable  Seller to  defease,  prepay,  redeem or
retain until the first possible  redemption  date the IDRB  Indebtedness  and to
sell the Assets to Buyer  without  the result  that the  interest on the Revenue
Bonds will be  included in the gross  income of the  recipient  for  purposes of
Federal income taxation;  provided, however, that Buyer shall have no obligation
in respect of its ownership or operation of the Exempt Facilities (including but
not limited to rates imposed by Buyer in respect of utility service  provided by
the Exempt  Facilities  or by any other  facilities  of Buyer or  affiliates  of
Buyer) other than to comply with the Exempt Facility Operating Protocols.

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<PAGE>

     6.15 Seller Guarantees and Surety Instruments. Buyer shall use Commercially
Reasonable  Efforts to assist Seller in obtaining full and complete  releases of
the guarantees,  letters of credit, bonds and other surety instruments listed in
Schedule 6.15. In this connection, Buyer agrees to provide a guaranty, letter of
credit,  bond or other surety  instrument  at Closing to replace those listed in
Schedule 6.15.

     6.16 Citizens Marks.  Buyer acknowledges and agrees with Seller that Seller
has the absolute and  exclusive  proprietary  right to the Citizens  Marks,  all
rights to which and the goodwill  represented thereby and pertaining thereto are
being retained by Seller.  Within ninety (90) days after the Closing Date, Buyer
shall cease using any Citizens Mark and shall remove from the Assets any and all
Citizens Marks. Thereafter,  Buyer shall not use any Citizens Mark in connection
with the sale of any  products or services  or  otherwise  in the conduct of the
businesses.  In the event that Buyer breaches this Section 6.16, Seller shall be
entitled  to specific  performance  and to  injunctive  relief  against  further
violations,  as well as any  other  remedies  at law or in equity  available  to
Seller.

     6.17 Title Commitments. Prior to Closing, Seller shall cooperate with Buyer
and use  Commercially  Reasonable  Efforts to assist  Buyer if Buyer  desires to
obtain  American Land Title  Association  ("ALTA") title  insurance  commitments
(collectively, the "Title Commitments," and each a "Title Commitment"), in final
form,  from one or more  title  insurance  companies  (collectively,  the "Title
Company"), committing the Title Company (subject only to the satisfaction of any
industry standard requirements  contained in the Title Commitment) to issue ALTA
(or its  local  equivalent)  form  of  title  insurance  policies  in an  amount
acceptable to the Buyer and the Title Company insuring good, valid, indefeasible
fee simple title to the Real  Property in Buyer,  in all cases,  at Buyer's sole
expense and in the  respective  amounts  that Buyer  requests  prior to Closing,
subject to no  Encumbrances  or other  exceptions to title other than  Permitted
Encumbrances  (collectively  the "Title  Policies").  On or prior to the Closing
Date,  Seller shall execute and deliver,  or cause to be executed and delivered,
to the Title Company, at no cost to Seller, any customary  affidavits,  standard
gap  indemnities,  evidence of corporate  existence and  authority,  and similar
documents  reasonably  requested  by the Title  Company in  connection  with the
issuance of the Title  Commitments  or the Title  Policies;  provided  that such
efforts and Buyer's request for Title Policies or Title Commitments shall, in no
event, result in any delay in the consummation of the transactions  contemplated
by this  Agreement,  except to the extent  caused by or resulting  from Seller's
breach of this  Agreement;  and provided  further,  that nothing in this Section
6.17 shall obligate Seller to execute or deliver any document that affects, in a
manner adverse to Seller, Seller's liability to Buyer as expressed herein and in
the Special Warranty Deed.

     6.18 Joint Use Agreement re: Easements.  To the extent reasonably requested
by either Party, at least sixty (60) days before  Closing,  Buyer and Seller (or
its appropriate  Affiliate) will commence good faith negotiations of a joint use
agreement,  to be fully  executed  and  delivered  by the  Parties  at  Closing,
regarding the shared  Easements to be partially  assigned to Buyer at Closing as
contemplated  in  Schedule  2.2.  Such  joint use  agreement  will be  partially
assignable  by Seller to any  purchaser  of  Seller's or its  Affiliate's  other
utility  plant  permitted to be located on the real property that is the subject
of any such shared Easements.

     6.19 [Intentionally Omitted]

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<PAGE>

     6.20 Post-Execution  Delivery of Schedules.  Within one hundred eighty days
(180) following the date of execution of this Agreement, Seller shall deliver to
Buyer a schedule, to be identified as Schedule 6.20, which sets forth all of the
following  identified by Seller after reasonable  investigation (i) all Permits,
(ii) all material items of Tangible Personal Property (other than  Inventories),
(iii)  quantities of Inventories  recorded in Seller's books and records for the
Business as of the last day of the month  preceding the date of this  Agreement,
together with the net book values of such  Inventories as of such date, (iv) all
Easements held by Seller in connection with the Business, (v) all line extension
agreements and similar construction  arrangements,  railroad crossing agreements
and similar arrangements,  and (vi) all Real Property Leases. Schedule 6.20 will
also  designate  those  Permits  that  require  the  consent  of the  respective
Governmental   Authority   to   transfer   and   those   that   purport   to  be
non-transferable.

                                  ARTICLE VII

                                   CONDITIONS

     7.1 Conditions to  Obligations of Buyer.  The obligation of Buyer to effect
purchase of the Assets and the other transactions contemplated by this Agreement
shall be subject  to the  fulfillment  of the  following  conditions,  or waiver
thereof, by Buyer at or prior to the Closing Date:

     (a) The waiting period under the HSR Act applicable to the  consummation of
the  sale  of  the  Assets  contemplated  hereby  shall  have  expired  or  been
terminated;

     (b) No preliminary or permanent  injunction or other order or decree by any
Governmental Authority which prevents the consummation of the sale of the Assets
contemplated  herein  shall have been  issued and remain in effect  (each  Party
agreeing to use its reasonable best efforts to have any such  injunction,  order
or decree lifted) and no statute,  rule or regulation shall have been enacted by
any state or  federal  government  or  Governmental  Authority  prohibiting  the
consummation of the sale of the Assets;

     (c) Buyer shall have received all of Buyer's Required Regulatory  Approvals
by Final Order, and such Required  Regulatory  Approvals shall not contain terms
and  conditions  that would result in a Regulatory  Material  Adverse Effect for
Buyer or an Asset Material Adverse Effect;

     (d)  Seller  shall  have  received  all  of  Seller's  Required  Regulatory
Approvals by Final  Order,  and such  Required  Regulatory  Approvals  shall not
contain terms and conditions that would result in a Regulatory  Material Adverse
Effect for Buyer or an Asset Material Adverse Effect;

     (e) Seller shall have performed and complied with each of its covenants and
agreements  contained in this  Agreement  which are required to be performed and
complied with by Seller on or prior to the Closing Date except where the failure
to so  perform or comply,  when taken in the  aggregate,  would not have a Buyer
Material Adverse Effect or an Asset Material Adverse Effect;

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<PAGE>

     (f)  The  representations  and  warranties  of  Seller  set  forth  in this
Agreement shall be true and correct as of the Closing Date as though made at and
as of the Closing Date, except (i) subject to Section 6.11, to the extent due to
changes expressly  permitted by this Agreement or otherwise in writing by Buyer,
(ii) that  representations  and warranties  made as of, or in respect of, only a
specified date or period shall be true and correct as of, or in respect of, such
date or period and (iii) to the extent that any failure of such  representations
and  warranties to be true and correct as aforesaid  when taken in the aggregate
would not have a Buyer  Material  Adverse  Effect or an Asset  Material  Adverse
Effect (it being  understood and agreed that the economic  impact of any Adverse
Environmental Condition shall not be considered in the determination of an Asset
Material Adverse Effect except as otherwise provided in Section 6.3);

     (g) No Asset Material Adverse Effect shall have occurred and be continuing;

     (h) Seller shall have  delivered,  caused to be  delivered,  or be standing
ready to deliver, to Buyer at the Closing, Seller's closing deliveries described
in Section 3.5;

     (i) Buyer shall have  received any consents of third  parties  required for
the  assignment to Buyer of any of the Assigned  Agreements  other than consents
that,  if not obtained,  would not have an Asset  Material  Adverse  Effect or a
Buyer Material Adverse Effect,  in form and substance  reasonably  acceptable to
Buyer; and

     (j) Buyer shall be reasonably  satisfied that the consummation of the asset
purchase and sale  transaction  contemplated  by the Asset  Purchase  Agreement,
dated as of the date hereof,  between  Seller and Buyer  relating to purchase by
Buyer of  Seller's  electric  utility  business  in the  State of  Arizona  (the
"Arizona  Electric  Purchase  Agreement"),  will  occur  concurrently  with  the
Closing.

     7.2  Conditions to  Obligations  of Seller.  The  obligations  of Seller to
effect the sale of the Assets and the other  transactions  contemplated  by this
Agreement  shall be subject to the fulfillment of the following  conditions,  or
the waiver thereof, by Seller at or prior to the Closing Date:

     (a) The waiting period under the HSR Act applicable to the  consummation of
the  sale  of  the  Assets  contemplated  hereby  shall  have  expired  or  been
terminated;

     (b) No preliminary or permanent  injunction or other order or decree by any
Governmental Authority which prevents the consummation of the sale of the Assets
contemplated  herein shall have been issued and remain in effect (each of Seller
and  Buyer  agreeing  to use  its  reasonable  best  efforts  to have  any  such
injunction,  order or decree  lifted) and no statute,  rule or regulation  shall
have been enacted by any state or federal  government or Governmental  Authority
in the United States prohibiting the consummation of the sale of the Assets;

     (c)  Seller  shall  have  received  all  of  Seller's  Required  Regulatory
Approvals by Final  Order,  and such  Required  Regulatory  Approvals  shall not
contain terms and conditions that would have an Asset Material Adverse Effect or
a Seller Material Adverse Effect;

                                       60
<PAGE>

     (d) Seller shall have received any consents of third  parties  required for
the  assignment to Buyer of any of the Assigned  Agreements  other than consents
that, if not obtained, would not have a Seller Material Adverse Effect;

     (e) Buyer shall have  performed and complied with each of its covenants and
agreements  contained in this  Agreement  which are required to be performed and
complied  with by Buyer on or prior to the Closing Date except where the failure
to so perform or comply,  when taken in the  aggregate,  would not have a Seller
Material Adverse Effect;

     (f) The representations and warranties of Buyer set forth in this Agreement
shall be true and correct as of the Closing Date as though made at and as of the
Closing  Date,  except (i) subject to Section 6.11, to the extent due to changes
expressly  permitted by this  Agreement or otherwise in writing by Seller,  (ii)
that  representations  and  warranties  made as of,  or in  respect  of,  only a
specified date or period shall be true and correct as of, or in respect of, such
date or period and (iii) to the extent that any failure of such  representations
and  warranties to be true and correct as aforesaid  when taken in the aggregate
would not have a Seller Material Adverse Effect;

     (g) Buyer shall have assumed,  as set forth in and subject to Section 6.12,
all of the applicable obligations under the IBEW CBA;

     (h) Buyer shall have delivered, caused to be delivered or standing ready to
deliver,  to Seller at the  Closing,  Buyer's  closing  deliveries  described in
Section 3.6;

     (i) Seller  shall be  reasonably  satisfied  that the  consummation  of the
Arizona Electric  Purchase  Agreement will occur  concurrently with the Closing;
and

     (j) Seller shall have received  opinions from Seller's Bond Counsel,  dated
the Closing Date, substantially in the form attached hereto as Exhibit E.

                                  ARTICLE VIII

                                 INDEMNIFICATION

     8.1 Indemnification of Seller by Buyer. Subject to Section 8.3, Buyer shall
indemnify, defend and hold harmless Seller, its officers, directors,  employees,
shareholders,  Affiliates  and agents  (each,  a "Seller  Indemnitee")  from and
against any and all  Indemnifiable  Losses  asserted  against or suffered by any
Seller Indemnitee (each, a "Seller  Indemnifiable Loss") in any way relating to,
resulting  from or arising out of or in connection  with (i) any breach by Buyer
of any covenant or agreement of Buyer contained in this Agreement or any failure
or  inaccuracy  of any  representation  or warranty of Buyer  contained  in this
Agreement,  (ii) the Assumed  Liabilities,  (iii) any loss or damages  resulting
from or arising solely out of any  Inspection of the Assets,  and (iv) any Third
Party  Claims  against a Seller  Indemnitee  to the extent  arising out of or in
connection  with  Buyer's  ownership  or operation of the Assets on or after the
Closing Date.

     8.2 Indemnification of Buyer by Seller.

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<PAGE>

     (a)  Subject  to  Section  8.3,  Seller  shall  indemnify,  defend and hold
harmless Buyer, its officers, directors, employees, shareholders, Affiliates and
agents (each, a "Buyer  Indemnitee")  from and against any and all Indemnifiable
Losses  asserted  against or suffered by any Buyer  Indemnitee  (each,  a "Buyer
Indemnifiable Loss") in any way relating to, resulting from or arising out of or
in  connection  with (i) any breach by Seller of any  covenant or  agreement  of
Seller   contained  in  this   Agreement  or  failure  or   inaccuracy   of  any
representation  or  warranty of Seller  contained  in this  Agreement,  (ii) the
Excluded  Liabilities,  (iii)  noncompliance  by Seller  with any bulk  sales or
transfer  laws as provided  in Section  10.12,  and (iv) any Third Party  Claims
against  a  Buyer  Indemnitee  arising  out of or in  connection  with  Seller's
ownership or operation of the Excluded Assets on or after the Closing Date.

     (b) Subject to Sections  8.3(a),  (e), (f) and (g) and the other provisions
of this Section 8.2(b) and so long as Buyer complies with the Exempt  Facilities
Operating  Protocols relating to an issue of outstanding  Revenue Bonds,  Seller
agrees to  indemnify,  defend and hold harmless the Buyer  Indemnitees  from and
against Buyer's Tax Losses (as defined below) upon a final decree or judgment of
any federal  court or a final action by the IRS (a "Final  Determination")  that
the related Exempt  Facilities are  "tax-exempt  bond financed  property"  under
Section 168(g)(5) of the Code by reason of such issue of Revenue Bonds remaining
outstanding  from and after the Closing  Date. No such decree or action shall be
considered  to be a Final  Determination  unless  Seller has been given  written
notice and, if it is so desired and is legally  allowed,  has been  afforded the
opportunity  to contest  the same either  directly or in the name of Buyer,  and
until  conclusion  of any appellate  review,  if sought.  The maximum  aggregate
amount of Buyer's Tax Losses for which  Seller  shall be  obligated to indemnify
the Buyer  Indemnitees  both (i) under  this  Section  8.2(b) and (ii) under the
corresponding Section 8.2(b) of the Arizona Electric Purchase Agreement shall be
$1,500,000.  "Buyer's  Tax  Losses"  shall mean the amount  equal to the present
value  (calculated  using  a  discount  rate of 10  percent  per  annum)  of the
difference  (multiplied by the applicable  combined federal and State of Arizona
corporate tax rate of Buyer  Indemnitee)  for each affected tax year between the
respective  dollar amounts of (x) depreciation of the related Exempt  Facilities
allowed  under  Section  168(g) of the Code,  and (y) the  depreciation  of such
Exempt  Facilities  that would be allowable under Section 168 of the Code if the
Exempt  Facilities were not "tax-exempt  bond financed  property." The indemnity
granted by Seller in this  Section  8.2(b) shall  terminate at 5:00 p.m.,  local
time in New York,  New York,  on the seventh  anniversary  of the Closing  Date,
provided that such termination shall not affect Seller's  obligations under this
Section 8.2(b) if Buyer provided Seller with proper notice of the claim or event
for which indemnification is sought prior to such termination.

     8.3 Certain Limitations on Indemnification.

     (a) Notwithstanding anything to the contrary contained herein:

          (i) any  Indemnitee  shall  use  Commercially  Reasonable  Efforts  to
     mitigate all losses,  damages and the like  relating to a claim under these
     indemnification  provisions,  including  availing  itself of any  defenses,
     limitations, rights of contribution, claims against third persons and other
     rights at law or equity. The Indemnitee's  Commercially  Reasonable Efforts
     shall include the reasonable  expenditure of money to mitigate or otherwise
     reduce or eliminate  any loss or expenses for which  indemnification  would
     otherwise be due, and the Indemnifying Party shall reimburse the Indemnitee
     for the Indemnitee's reasonable expenditures in undertaking the mitigation;
     and

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          (ii) any  Indemnifiable  Loss shall be net of the dollar amount of any
     insurance or other proceeds  actually  received by the Indemnitee or any of
     its Affiliates  with respect to the  Indemnifiable  Loss. Any Party seeking
     indemnity  hereunder  shall use  Commercially  Reasonable  Efforts  to seek
     coverage  (including both costs of defense and indemnity)  under applicable
     insurance policies with respect to any such Indemnifiable Loss.

     (b)  Except  as   otherwise   provided   in  this   Section   8.3(b),   the
representations,  warranties,  covenants and agreements of the Parties set forth
in this  Agreement  shall survive the Closing Date for a period of eighteen (18)
months,  and all  representations,  warranties,  covenants and agreements of the
Parties under this Agreement and the related indemnities granted in this Article
VIII shall terminate at 5:00 p.m., local time in New York City, New York, on the
day that is  eighteen  (18)  months  after the  Closing  Date.  The  expiration,
termination or  extinguishment of any covenant or agreement shall not affect the
Parties'  obligations under Section 8.1 or 8.2 hereof if the Indemnitee provided
the  Indemnifying  Party  with  proper  notice  of the  claim or event for which
indemnification   is   sought   prior  to  such   expiration,   termination   or
extinguishment. Notwithstanding the foregoing provisions of this Section 8.3(b),
the representations,  warranties, covenants and agreements contained in Sections
3.3(e),  6.2(c), 6.3(c), 6.3(e), 6.4(a), 6.10, 6.12, 6.14, 6.16, and in Articles
VIII and X, will survive the Closing in accordance with their terms.

     (c)  Notwithstanding  anything to contrary in this  Agreement,  in no event
shall Buyer indemnify Seller  Indemnitees or Seller indemnify Buyer Indemnitees,
or otherwise be liable in any way whatsoever to said Indemnitees, for any Losses
otherwise subject to indemnification by the Indemnifying Party (determined after
giving  effect to the other  provisions  of this  Section  8.3)  until the Buyer
Indemnitees  or the  Seller  Indemnitees,  as the  case  may be,  have  incurred
otherwise  indemnifiable  Losses that in the aggregate exceed a threshold amount
equal to one percent (1%) of the Purchase Price, after which Buyer or Seller, as
the case may be,  shall  then be liable for all  Losses  incurred  by the Seller
Indemnitees  or  the  Buyer  Indemnitees,  as  applicable.  The  limitations  on
indemnification  set forth in this Section  8.3(c) shall not apply to any losses
asserted  against or suffered by an Indemnitee in any way relating to, resulting
from or arising out of or in connection  with the failure of (i) the appropriate
Party to make the payment  required to be made by it in accordance  with Section
3.3(d),  (ii) Buyer to discharge Assumed  Liabilities other than those specified
in Sections 2.3(e) and 2.3(i),  (iii) Seller to discharge  Excluded  Liabilities
other than those  specified  in  Sections  2.4(d),  2.4(g),  2.4(h),  2.4(j) and
2.4(n),  (iv) Seller to make any payment to Buyer if and to the extent  required
by Section 3.3(e), 6.3(c), 6.10(b), 6.13(c) or 8.2(b), and (v) Buyer to make any
payment to Seller if and to the extent  required  by Section  6.12(b).  Any such
losses also shall be  disregarded  when  determining  whether the  threshold set
forth in this Section 8.3(c) has been exceeded.

     (d) Notwithstanding anything to the contrary in this Agreement, in no event
shall  Seller  indemnify  the  Buyer   Indemnitees  or  Buyer  indemnify  Seller
Indemnitees,  or be otherwise liable in any way whatsoever to said  Indemnitees,
for any Losses otherwise subject to  indemnification  by the Indemnifying  Party
(determined  after giving  effect to the other  provisions  of this Section 8.3)
that in the  aggregate  exceed an  amount  equal to fifty  percent  (50%) of the
Purchase Price.

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<PAGE>

     (e) Except to the extent  otherwise  provided in Section 3.3  (relating  to
adjustments  to  the  Base  Purchase   Price),   Section  6.3(c)   (relating  to
post-Closing  reimbursement of excess environmental  Remediation costs), Section
6.10(b)  (relating to post-Closing  reimbursements  for Taxes),  Section 6.12(b)
(relating to post-Closing  reimbursements for Severance Costs),  Section 6.13(c)
(relating  to  post-Closing  reimbursement  of  excess  costs  and  expenses  of
repairing  lost or damaged  Assets),  and  Section  6.16  (relating  to specific
performance and injunctive  relief with respect to Citizens  Marks),  the rights
and remedies of Seller and Buyer under this Article  VIII are  exclusive  and in
lieu of any and all other rights and remedies which each of Seller and Buyer may
have under this Agreement or otherwise for monetary relief,  with respect to (i)
all  post-Closing  claims relating to this Agreement,  the events giving rise to
this Agreement and the transactions  provided for herein or contemplated  hereby
or thereby, or (ii) the Assumed Liabilities or the Excluded Liabilities,  as the
case may be.  Notwithstanding  any language contained in any Ancillary Agreement
(including the Special  Warranty Deed),  the  representations  and warranties of
Seller set forth in this  Agreement  will not be merged into any such  Ancillary
Agreement and the indemnification  obligations of Seller, and the limitations on
such  obligations,  set forth in this Agreement shall control.  No provision set
forth in any such Ancillary Agreement shall be deemed to enlarge, alter or amend
the terms or provisions of this Agreement.

     (f)  Notwithstanding  anything to the contrary  contained  herein, no Party
(including  an  Indemnitee)  shall be entitled  to recover  from any other Party
(including an Indemnifying  Party) for any  liabilities,  damages,  obligations,
payments,  losses,  costs, or expenses under this Agreement any amount in excess
of the actual compensatory  damages,  court costs and reasonable  attorney's and
other  advisor fees  suffered by such Party.  Each of Buyer and Seller waive any
right to recover  punitive,  incidental,  special,  exemplary and  consequential
damages  arising  in  connection  with or with  respect to this  Agreement.  The
provisions of this Section 8.3(d) shall not apply to indemnification for a Third
Party Claim.

     (g) The  limitations set forth in this Section 8.3 do not apply to fraud or
willful misconduct of a Party.

     (h) No amount shall be recovered  from a Party for the breach or untruth of
any of such Party's representations, warranties, covenants or agreements, or for
any other matter,  to the extent that the other such Party had knowledge of such
breach,  untruth or other matter at or prior to the Closing, nor shall the other
Party be entitled to rescission with respect to any such matter.

     8.4 Defense of Claims.

     (a) If any Indemnitee  receives  notice of the assertion or commencement of
any Third  Party  Claim made or brought by any Person who is not a Party to this
Agreement or any  Affiliate of a Party to this  Agreement  with respect to which
indemnification is to be sought from an Indemnifying Party, the Indemnitee shall
give such Indemnifying  Party reasonably  prompt written notice thereof,  but in
any event such notice shall not be given later than ten (10) calendar days after
the Indemnitee's  receipt of notice of such Third Party Claim. Such notice shall
describe  the nature of the Third  Party  Claim in  reasonable  detail and shall
indicate the estimated  amount, if practicable,  of the Indemnifiable  Loss that
has been or may be sustained by the Indemnitee. The Indemnifying Party will have
the right to participate in or, by giving written notice to the  Indemnitee,  to
elect to assume  the  defense  of any  Third  Party  Claim at such  Indemnifying
Party's expense and by such Indemnifying Party's own counsel,  provided that the
counsel for the  Indemnifying  Party who shall conduct the defense of such Third
Party Claim shall be reasonably  satisfactory to the Indemnitee.  The Indemnitee
shall cooperate in good faith in such defense at such  Indemnitee's own expense.
If an  Indemnifying  Party elects not to assume or to participate in the defense
of any Third Party Claim,  the  Indemnitee  may  compromise or settle such Third
Party Claim over the objection of the  Indemnifying  Party,  which settlement or
compromise shall conclusively establish the loss for which the Indemnified Party
may seek indemnification from the Indemnifying Party pursuant to this Agreement.

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<PAGE>

     (b) (i) If,  within ten (10)  calendar  days after an  Indemnitee  provides
written  notice  to the  Indemnifying  Party  of any  Third  Party  Claims,  the
Indemnitee  receives  written  notice  from the  Indemnifying  Party  that  such
Indemnifying  Party has  elected to assume the defense of such Third Party Claim
as provided in Section 8.4(a), the Indemnifying Party will not be liable for any
legal expenses  subsequently  incurred by the Indemnitee in connection  with the
defense thereof; provided, however, that if the Indemnifying Party shall fail to
take  reasonable  steps  necessary to defend  diligently  such Third Party Claim
within twenty (20) calendar days after receiving notice from the Indemnitee that
the Indemnitee  believes the  Indemnifying  Party has failed to take such steps,
the  Indemnitee may assume its own defense and the  Indemnifying  Party shall be
liable for all reasonable expenses thereof.

     (ii) Without the prior written consent of the Indemnitee,  the Indemnifying
Party shall not enter into any  settlement  of any Third Party Claim which would
lead to liability or create any financial or other obligation on the part of the
Indemnitee  for  which  the  Indemnitee  is  not  entitled  to   indemnification
hereunder. If a firm offer is made to settle a Third Party Claim without leading
to liability or the creation of a financial or other  obligation  on the part of
the  Indemnitee  for which the  Indemnitee  is not  entitled to  indemnification
hereunder and the Indemnifying  Party desires to accept and agree to such offer,
the  Indemnifying  Party shall give  written  notice to the  Indemnitee  to that
effect.  If the  Indemnitee  fails to consent to such firm offer within ten (10)
calendar days after its receipt of such notice,  the Indemnifying Party shall be
relieved of its  obligations to defend such Third Party Claim and the Indemnitee
may contest or defend such Third Party Claim at its own expense.  In such event,
the maximum  liability  of the  Indemnifying  Party as to such Third Party Claim
will be the amount of such settlement  offer plus reasonable  costs and expenses
paid or incurred by Indemnitee up to the date of said notice.

     (c) Any claim by an  Indemnitee on account of an  Indemnifiable  Loss which
does not result from a Third Party Claim (a "Direct Claim") shall be asserted by
giving the Indemnifying Party reasonably prompt written notice thereof,  stating
the  nature of such claim in  reasonable  detail and  indicating  the  estimated
amount,  if  practicable,  but in any event such notice shall not be given later
than ten (10)  calendar days after the  Indemnitee  becomes aware of such Direct
Claim,  and the  Indemnifying  Party shall have a period of thirty (30) calendar
days within which to respond to such Direct  Claim.  If the  Indemnifying  Party
does not respond within such thirty (30) calendar day period,  the  Indemnifying
Party shall be deemed to have accepted  such claim.  If the  Indemnifying  Party
rejects such claim, the Indemnitee will be free to seek enforcement of its right
to indemnification under this Agreement.

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<PAGE>

     (d) If the amount of any Indemnifiable  Loss, at any time subsequent to the
making of an  indemnity  payment in  respect  thereof,  is reduced by  recovery,
settlement or otherwise under or pursuant to any insurance  coverage or pursuant
to any claim,  recovery,  settlement  or payment  by,  from or against any other
entity,  the amount of such reduction (less any out-of-pocket  costs incurred in
connection  therewith and the cost of any adjusted premium charges to the extent
directly relating to the claim for such Indemnifiable  Loss ("Recovery  Costs"),
together with interest  thereon from the date of payment thereof at the publicly
announced prime rate then in effect of Citibank, shall promptly be repaid by the
Indemnitee to the Indemnifying Party.

     (e) A failure to give timely  notice as provided in this  Section 8.4 shall
not affect the rights or obligations of any Party hereunder  except if, and only
to the extent that, as a result of such failure, the Party which was entitled to
receive such notice was actually prejudiced as a result of such failure.

                                   ARTICLE IX

                                   TERMINATION

     9.1 Termination.

     (a) This  Agreement may be terminated at any time prior to the Closing Date
by mutual written consent of Seller and Buyer.

     (b) This  Agreement may be terminated by Seller or Buyer if (i) any federal
or state court of competent jurisdiction shall have issued an order, judgment or
decree permanently restraining,  enjoining or otherwise prohibiting the Closing,
and such order,  judgment or decree shall have become final and  nonappeallable;
(ii) any  statute,  rule,  nonappeallable  order or  regulation  shall have been
enacted or issued by any Governmental Authority which prohibits the consummation
of the  Closing;  or (iii) the Closing  shall have not occurred on or before the
day which is fifteen  (15)  months from the date of this  Agreement,  subject to
such  extensions  (not to exceed  six  months) as may be  required  by Seller to
repair or replace lost or damaged Assets in accordance with Section 6.13(c) (the
"Termination  Date");  provided that the right to terminate this Agreement under
this Section 9.1(b)(iii),  and any other Section,  shall not be available to any
Party whose failure to fulfill any obligation  under this Agreement has been the
cause of, or resulted in the event  giving  rise to the  applicable  termination
right.

     (c) Except as otherwise  provided in this Agreement,  this Agreement may be
terminated  by Buyer if any of the  Buyer  Required  Regulatory  Approvals,  the
receipt of which is a condition to the  obligation  of Buyer to  consummate  the
Closing as set forth in Section  7.1(c),  shall have been denied (and a petition
for rehearing or refiling of an application  initially denied without  prejudice
shall  also have  been  denied)  or, if such  Required  Regulatory  Approval  is
obtained,  contains  terms or conditions  that would have a Regulatory  Material
Adverse Effect for Buyer (after Buyer's petition for rehearing objecting to such
terms and conditions has been denied) or an Asset Material  Adverse  Effect,  in
either  case that is not cured or  otherwise  addressed  in a manner  reasonably
acceptable to Buyer by the Closing Date.

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<PAGE>

     (d) Except as otherwise  provided in this Agreement,  this Agreement may be
terminated by Seller if any of the Seller  Required  Regulatory  Approvals,  the
receipt of which is a condition to the  obligation of Seller to  consummate  the
Closing as set forth in Section  7.2(c),  shall have been denied (and a petition
for rehearing or refiling of an application  initially denied without  prejudice
shall  also have  been  denied)  or, if such  Required  Regulatory  Approval  is
obtained,  contains  terms or conditions  that would have a Regulatory  Material
Adverse Effect for Seller (after  Seller's  petition for rehearing  objecting to
such terms and conditions has been denied),  in either case that is not cured or
otherwise  addressed in a manner reasonably  acceptable to Seller by the Closing
Date.

     (e) This Agreement may be terminated by Buyer if there has been a violation
or breach by Seller of any  covenant,  representation  or warranty  contained in
this  Agreement  provided  that such  violation  or breach  would  have an Asset
Material  Adverse Effect or a Buyer Material Adverse Effect that is not cured or
otherwise addressed by Seller in a manner reasonably  acceptable to Buyer by the
Closing Date and such violation or breach has not been waived by Buyer.

     (f) This  Agreement  may be  terminated  by  Seller,  if  there  has been a
violation  or  breach  by  Buyer of any  covenant,  representation  or  warranty
contained in this Agreement  provided that such violation or breach would have a
Seller Material Adverse Effect, (including,  without limitation, Buyer's failure
to pay the Purchase  Price on the Closing Date) and such  violation or breach is
not cured or otherwise  addressed by Buyer in a manner reasonably  acceptable to
Seller by the Closing Date,  and such violation or breach has not been waived by
Seller.

     9.2 Procedure and Effect of  Termination.  In the event of  termination  of
this  Agreement by either or both Seller and Buyer  pursuant to this Article IX,
written notice thereof shall forthwith be given by the terminating  Party to the
other Party,  whereupon the liabilities of the Parties hereunder will terminate,
except as otherwise  expressly  provided in this  Agreement  (including  Section
9.3),  and  thereafter  none of the Parties shall have any recourse  against any
other  Party by reason  of this  Agreement.  If prior to  Closing  either  Party
resorts to legal proceedings to enforce this Agreement,  the prevailing Party in
such proceedings  shall be entitled to recover all costs incurred by such Party,
including  reasonable  attorney's fees, in addition to any other relief to which
such Party may be entitled;  provided,  however, and notwithstanding anything to
the  contrary in this  Agreement,  in no event shall either Party be entitled to
receive any punitive,  indirect or consequential  damages. If a Party terminates
this  Agreement  pursuant  to this  Article IX, the  Arizona  Electric  Purchase
Agreement shall be automatically  terminated,  without any further  liability to
the parties thereto (including payment of liquidated damages or termination fees
pursuant to Section 9.3 of the Arizona  Electric  Purchase  Agreement,  and both
Parties  agree that if the Arizona  Electric  Purchase  Agreement is  terminated
pursuant  to  Article  IX of  the  Arizona  Electric  Purchase  Agreement,  this
Agreement shall be automatically  terminated,  without any further  liability to
the parties thereto.

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<PAGE>

     9.3 Liquidated Damages; Termination Fees.

     (a) Seller  shall pay to Buyer  $10,000,000  if (i) Buyer  terminates  this
Agreement  pursuant to Section  9.1(e) or (ii) Buyer  terminates  this Agreement
pursuant to Section 9.1(c) due to a Regulatory  Material Adverse Effect on Buyer
which is due in whole or in  substantial  part to  concern  by the ACC about the
condition  of the Assets and which is  reasonably  expected to have an aggregate
economic impact on Buyer, taking into consideration all relevant  circumstances,
in excess of $25,000,000.

     (b) Buyer shall pay to Seller  $25,000,000  if (i) Seller  terminates  this
Agreement  pursuant to Section  9.1(f),  (ii) Seller  terminates  this Agreement
pursuant to Section 9.1(d) because the requisite  Required  Regulatory  Approval
from the ACC or the FERC has not been  obtained  due in whole or in  substantial
part to concerns about Buyer's  financial  qualifications  or  capabilities,  or
(iii) Buyer  terminates this Agreement  pursuant to Section 9.1(c),  because the
requisite  Required  Regulatory  Approval  from the ACC or the FERC has not been
obtained,  due in  whole  or in  substantial  part  to  concerns  about  Buyer's
financial  qualifications  or  capabilities,  or has been  obtained and contains
financial terms and conditions that are unacceptable to Buyer.

     (c) Buyer may  terminate  this  Agreement  upon  payment  of a  $25,000,000
termination fee upon any of the following events:

          (i) There shall have occurred an Asset Material  Adverse Effect having
     or reasonably expected to have a financial or economic impact,  taking into
     account all relevant considerations, in excess of $25,000,000;

          (ii)  Regulatory  Exceptions  (after  Buyer's  petition for  rehearing
     objecting to such  Regulatory  Exceptions  has been denied) shall have been
     imposed  against  Buyer  having a financial  or  economic  impact on Buyer,
     taking into account all relevant  considerations  in excess of $25,000,000;
     or

          (iii) There shall have  occurred a casualty  loss to the Assets having
     an aggregate financial or economic impact, taking into account all relevant
     considerations, in excess of $25,000,000.

     (d) Seller may  terminate  this  agreement  upon  payment of a  $10,000,000
termination  fee if there  shall have  occurred  a  casualty  loss to the Assets
having or reasonably expected to have an aggregate financial or economic impact,
taking into account all relevant considerations, in excess of $25,000,000.

     (e) In view of the  difficulty of  determining  the amount of damages which
may result to the  non-terminating  Party from a termination  pursuant to any of
Sections  9.3(a)  through  9.3(d) or  pursuant  to any of the  Sections  of this
Agreement  referenced in Section 9.3(a) through  9.3(d),  and the failure of the
terminating Party to consummate the transactions contemplated by this Agreement,
Buyer and Seller have  mutually  agreed that each of the  payments  set forth in
Section  9.3(a)  through  9.3(d) shall be made to the  non-terminating  Party as
liquidated  damages,  and not as a penalty,  and this Agreement shall thereafter
become null and void except for those  provisions  which by their terms  survive
termination of this Agreement. In the event of any such termination, the Parties
have  agreed  that each of the  payments  set forth in  Section  9.3(a)  through
Section 9.3(d) shall be the  non-terminating  Party's sole and exclusive remedy.
ACCORDINGLY,  THE PARTIES HEREBY  ACKNOWLEDGE  THAT (1) THE EXTENT OF DAMAGES TO
THE  NON-TERMINATING  PARTY  CAUSED BY THE  FAILURE  OF THIS  TRANSACTION  TO BE
CONSUMMATED  WOULD BE  IMPOSSIBLE OR EXTREMELY  DIFFICULT TO ASCERTAIN,  (2) THE
AMOUNT OF THE LIQUIDATED DAMAGES PROVIDED FOR IN EACH OF SECTIONS 9.3(a) THROUGH
9.3(d) ARE FAIR AND REASONABLE ESTIMATES OF SUCH DAMAGES UNDER THE CIRCUMSTANCES
AND (3) RECEIPT OF SUCH LIQUIDATED DAMAGES BY THE NON-TERMINATING PARTY DOES NOT
CONSTITUTE A PENALTY.  THE PARTIES  HEREBY  FOREVER WAIVE AND AGREE TO FOREGO TO
THE FULLEST  EXTENT UNDER  APPLICABLE LAW ANY AND ALL RIGHTS THEY HAVE OR IN THE
FUTURE  MAY HAVE TO  BRING  ANY  ACTION  OR  ARBITRAL  PROCEEDING  DISPUTING  OR
OTHERWISE  OBJECTING TO ANY OR ALL OF THE  FOREGOING  PROVISIONS OF THIS SECTION
9.3.

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<PAGE>

     (f) All  payments  under this  Section  9.3 shall be from payor to payee by
wire  transfer of  immediately  available  funds to a bank account in the United
States of  America  designated  in  writing  by payee not later  than  three (3)
business days following payor's receipt of such account designation from payee.

                                   ARTICLE X

                            MISCELLANEOUS PROVISIONS

     10.1 Amendment and Modification. This Agreement may be amended, modified or
supplemented only by written agreement of the Parties.

     10.2 Waiver of Compliance;  Consents.  Except as otherwise provided in this
Agreement,  any  failure of any of the  Parties to comply  with any  obligation,
covenant,  agreement or condition  herein may be waived by the Party entitled to
the benefits thereof only by a written  instrument  signed by the Party granting
such  waiver,  but any such waiver of such  obligation,  covenant,  agreement or
condition  shall not  operate as a waiver of, or estoppel  with  respect to, any
subsequent failure to comply therewith.

     10.3 [Intentionally Omitted]

     10.4 Notices.  All notices and other  communications  hereunder shall be in
writing  and shall be  deemed  given if  delivered  personally  or by  facsimile
transmission with completed transmission acknowledgment,  or mailed by overnight
delivery via a nationally  recognized  courier or registered or certified  first
class mail (return receipt  requested),  postage prepaid, to the recipient Party
at its  address  (or at such other  address or  facsimile  number for a Party as
shall be specified by like notice;  provided;  however, that notices of a change
of address shall be effective only upon receipt thereof):

                                       69
<PAGE>

                       (a) If to Seller, to:

                           Citizens Communications Company
                           1460 Poydras Street, Suite 1800
                           New Orleans, LA 70112
                           Attention:  Kenneth L. Cohen
                           Telephone:  (504) 299-4501
                           Telecopier:  (504) 544-5822

                           with a copy to:

                           Citizens Communications Company
                           High Ridge Park
                           Stamford, CT 06905
                           Attention:  L. Russell Mitten
                           Telephone:  (203) 614-5047
                           Telecopier:  (203) 614-4651

                           and:

                           Fleischman and Walsh, L.L.P.
                           1400 Sixteenth Street, N.W.
                           Washington, D.C. 20036
                           Attention:  Jeffry L. Hardin
                           Telephone:  (202) 939-7914
                           Telecopier:  (202) 387-3467

                       (b) if to Buyer, to:

                           Tucson Electric Power Company
                           One South Church Avenue, Suite 100
                           Tucson, Arizona 85701
                           Attention:  Vincent Nitido, Jr.
                           Telephone:  (520) 884-3670
                           Telecopier:  (520) 884-3612

                           with a copy to:

                           Thelen Reid & Priest LLP
                           40 West 57th Street
                           New York, NY  10019
                           Attention:  J. Anthony Terrell
                           Telephone:  (212) 603-2108
                           Attention:  John T. Hood
                           Telephone:  (212) 603-2140
                           Telecopier:  (212) 603-2001

                                       70
<PAGE>

     10.5 Assignment.  This Agreement and all of the provisions  hereof shall be
binding upon and inure to the benefit of the Parties hereto and their respective
successors  and  permitted  assigns,  but neither this  Agreement nor any of the
rights,  interests  or  obligations  hereunder  shall be  assigned  by any Party
hereto, including by operation of law, without the prior written consent of each
other  Party,  nor is this  Agreement  intended to confer upon any other  Person
except the  Parties  hereto  any  rights,  interests,  obligations  or  remedies
hereunder;  provided, however, in the event of any such assignment by a Party by
operation of law without the consent of the other Party,  this Agreement and all
the provisions hereof shall be binding upon the Person receiving such assignment
by operation of law. Notwithstanding the foregoing,  Buyer may (i) assign any or
all of its rights and  obligations  hereunder to a UniSource  Designee,  or (ii)
make a security  assignment to any lender providing  financing in respect of the
Buyer's  acquisition of the Assets.  Upon receipt of notice by Seller from Buyer
of any such assignment to a UniSource Designee,  such assignee will be deemed to
have assumed,  ratified, agreed to be bound by and perform all such obligations,
and all references herein to "Buyer" shall thereafter be deemed to be references
to such assignee, in each case without the necessity for further act or evidence
by the  Parties  hereto  or  such  assignee;  provided,  however,  that  no such
assignment  shall  relieve or discharge  UniSource  from any of its  obligations
hereunder.

     10.6 Governing  Law. This  Agreement  shall be governed by and construed in
accordance  with the law of the  State of  Arizona  (without  giving  effect  to
conflict of law  principles)  as to all  matters,  including  but not limited to
matters of validity,  construction,  effect, performance and remedies (except to
such matters of real estate law that must be governed by the law of the State of
Arizona).  THE  PARTIES  HERETO  AGREE  THAT  VENUE IN ANY AND ALL  ACTIONS  AND
PROCEEDINGS  RELATED TO THE  SUBJECT  MATTER OF THIS  AGREEMENT  SHALL BE IN THE
STATE AND FEDERAL  COURTS IN AND FOR PHOENIX,  ARIZONA,  WHICH COURTS SHALL HAVE
EXCLUSIVE  JURISDICTION  FOR SUCH PURPOSE,  AND THE PARTIES  HERETO  IRREVOCABLY
SUBMIT TO THE EXCLUSIVE  JURISDICTION OF SUCH COURTS AND  IRREVOCABLY  WAIVE THE
DEFENSE  OF AN  INCONVENIENT  FORUM TO THE  MAINTENANCE  OF ANY SUCH  ACTION  OR
PROCEEDING.  SERVICE OF PROCESS  MAY BE MADE IN ANY  MANNER  RECOGNIZED  BY SUCH
COURTS.  EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL
WITH  RESPECT TO ANY ACTION OR CLAIM  ARISING OUT OF ANY  DISPUTE IN  CONNECTION
WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     10.7  Counterparts.   This  Agreement  may  be  executed  in  two  or  more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

     10.8 Interpretation.  The articles, section and schedule headings contained
in this  Agreement are solely for the purpose of reference,  are not part of the
agreement  of the  Parties  and  shall  not in any way  affect  the  meaning  or
interpretation of this Agreement.

     10.9  Schedules  and  Exhibits.   Except  as  otherwise  provided  in  this
Agreement,  all Exhibits and Schedules referred to herein are intended to be and
hereby  are  specifically  made a part of this  Agreement.  Any  matter  or item
disclosed  on any  Schedule  shall not be  deemed to give rise to  circumstances
which result in an Asset Material  Adverse  Effect or a Material  Adverse Effect
solely by reason of it being so disclosed. Any matter or item disclosed pursuant
to any  Schedule  shall be deemed to be disclosed  for all  purposes  under this
Agreement  reasonably  related thereto and any matter  disclosed in one Schedule
will be deemed  disclosed with respect to another Schedule if such disclosure is
made in such a way as to make its relevance  with respect to such other Schedule
readily apparent.

                                       71
<PAGE>

     10.10 Entire Agreement.  This Agreement,  the Ancillary  Agreements and the
Exhibits, Schedules, documents,  certificates and instruments referred to herein
or therein,  embody the entire agreement and understanding of the Parties hereto
in respect of the  transactions  contemplated  by this  Agreement.  There are no
restrictions, promises, representations,  warranties, covenants or undertakings,
other than those  expressly  set forth or referred  to herein or  therein.  This
Agreement  and the  Ancillary  Agreements  supersede  all prior  agreements  and
understandings between the Parties other than the Confidentiality Agreement with
respect to such transactions.

     10.11 U.S. Dollars.  Unless otherwise stated,  all dollar amounts set forth
herein are United States (U.S.) dollars.

     10.12 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything in
this Agreement to the contrary, Seller will not comply with the provision of the
bulk  sales  laws  of any  jurisdiction  in  connection  with  the  transactions
contemplated  by this Agreement.  Buyer hereby waives  compliance by Seller with
the  provisions of the bulk sales laws of all  applicable  jurisdictions  to the
extent permitted by law.

     10.13 Construction of Agreement. The terms and provisions of this Agreement
represent the results of  negotiations  between Buyer and Seller,  each of which
has been  represented  by counsel of its own choosing,  and neither of which has
acted  under  duress  or  compulsion,  whether  legal,  economic  or  otherwise.
Accordingly, the terms and provisions of this Agreement shall be interpreted and
construed in accordance with their usual and customary  meanings,  and Buyer and
Seller hereby waive the  application in connection with the  interpretation  and
construction  of this  Agreement of any rule of law to the effect that ambiguous
or  conflicting  terms  or  provisions  contained  in this  Agreement  shall  be
interpreted or construed  against the Party whose attorney prepared the executed
draft or any earlier draft of this  Agreement.  It is understood and agreed that
neither  the  specification  of any  dollar  amount in the  representations  and
warranties contained in this Agreement nor the inclusion of any specific item in
the  Schedules  or Exhibits is intended to imply that such  amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and none of the Parties shall use the fact of the setting of such amounts or the
fact of any  inclusion  of any such item in the  Schedules  or  Exhibits  in any
dispute or controversy between the Parties as to whether any obligation, item or
matter is or is not material for purposes hereof.

     10.14  Severability.  If any term or other  provision of this  Agreement is
invalid,  illegal or  incapable  of being  enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the  economic or legal  substance  of
the transactions  contemplated  hereby is not affected in any manner  materially
adverse to any Party. Upon such  determination  that any term or other provision
is invalid,  illegal or incapable of being enforced, the Parties shall negotiate
in good faith to modify this  Agreement so as to effect the  original  intent of
the  Parties as  closely as  possible  in an  acceptable  manner to the end that
transactions contemplated hereby are fulfilled to the greatest extent possible.

                                       72
<PAGE>

     10.15 Third Party Beneficiary.  No provision of this Agreement shall create
any third party beneficiary  rights in any employee or former employee of Seller
(including  any  beneficiary  or  dependant  thereof)  in respect  of  continued
employment  or resumed  employment,  and no  provision of this  Agreement  shall
create any rights in any such  Persons  in respect of any  benefits  that may be
provided,   directly  or  indirectly,   under  any  employee   benefit  plan  or
arrangement.

                                       73

<PAGE>

     IN WITNESS  WHEREOF,  Buyer and Seller  have caused  this  Agreement  to be
signed by their  respective duly authorized  officers as of the date first above
written.

UNISOURCE ENERGY CORPORATION                CITIZENS COMMUNICATIONS COMPANY

By: /s/ Michael J. DeConsini                By:  /s/ Kenneth L. Cohen
   ---------------------------                  -------------------------
Name: Michael J. DeConsini                  Name:  Kenneth L. Cohen
    --------------------------                    -----------------------
Title:  Senior Vice President               Title:  Vice President
       -----------------------                     ----------------------

<PAGE>

                         LIST OF EXHIBITS AND SCHEDULES
                         ------------------------------

EXHIBITS

Exhibit A       Form of Assignment and Assumption Agreement
Exhibit B       Form of Bill of Sale
Exhibit C       Special Warranty Deed
Exhibit D       Form of Seller General Counsel Opinion
Exhibit E       Form of Seller Bond Counsel Opinion
Exhibit F       Form of Buyer General Counsel Opinion

SCHEDULES

1.1             Seller Employees on Whose Knowledge Buyer May Rely
2.2             Excluded Assets
2.3(g)          Governmental Orders
2.3(i)          Assumed Actions and Proceedings
4.3(a)          Seller Conflicts, Defaults and Violations
4.3(b)          Seller Required Regulatory Approvals
4.4             Seller Insurance
4.5             Seller Real Property Leases
4.6             Seller Environmental Matters
4.7             Seller Labor Matters
4.8             Seller Benefit Plans
4.9             Seller Real Property
4.10            Seller Condemnation Matters
4.11(a)         Certain Seller Material Agreements
4.11(b)         Certain Seller Material Agreements Requiring Consent to Transfer
4.11(c)         Defaults Under Certain Material Agreements
4.12            Legal Proceedings Involving Seller
4.13            Seller Permit Violations
4.14            Seller Tax Matters
4.15            Seller Intellectual Property Exceptions
4.20            Seller Financial Statements
5.3(a)          Buyer Conflicts, Defaults and Regulations
5.3(b)          Buyer Required Regulatory Approvals
5.6             Legal Proceedings Involving Buyer
6.1(a)          Exceptions to Conduct of Business and Operation of the Assets
6.12(d)(iii)    Buyer Benefit Plans
6.12(d)(iii)(D) Retirees
6.14(a)         Seller Revenue Bonds
6.15            Seller Surety Instruments

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