Document:

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                            RUS Project Designation:

                              PENNSYLVANIA 1101-A31

                           LOAN AND SECURITY AGREEMENT

                            dated as of June 1, 2005

                                     between

                          PEGASUS RURAL BROADBAND, LLC

                                       and

                          THE UNITED STATES OF AMERICA

                     UNITED STATES DEPARTMENT OF AGRICULTURE
                             RURAL UTILITIES SERVICE

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                           LOAN AND SECURITY AGREEMENT

              THIS LOAN AND SECURITY AGREEMENT (this "Agreement,") dated as of
June 1, 2005, is between PEGASUS RURAL BROADBAND, LLC ("Borrower,") a limited
liability company existing under the laws of Delaware, and the UNITED STATES OF
AMERICA, acting through the Administrator of the Rural Utilities Service
("RUS.")

              The Borrower has applied for financial assistance ("Application")
to RUS, requesting financial assistance from RUS to finance broadband services
in rural areas.

              RUS is willing to extend financial assistance, in the form of a
loan to the Borrower, pursuant to Title VI of the Rural Electrification Act of
1936 (7 U.S.C. 901 et seq.,) and all applicable federal regulations, on the
terms and conditions stated herein.

              The Borrower is willing to secure the loan and its other
obligations to RUS on the terms stated herein.

              THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties agree and bind themselves as follows:

                             ARTICLE I - DEFINITIONS

              The terms defined herein include both the plural and the singular.
Unless otherwise specifically provided, all accounting terms not otherwise
defined herein shall have the meanings assigned to them, and all determinations
and computations herein provided for shall be made in accordance with Accounting
Requirements.

              "Accounting Requirements" shall mean the system of accounting
prescribed by RUS in RUS Regulations.

              "Advance" or "Advances" shall mean an advance or advances made by
RUS under the Note(s).

              "Affiliate" or "Affiliated Company" of any specified person or
entity means any other person or entity directly or indirectly controlling of,
controlled by, under direct or indirect common control with, or related to, such
specified person or entity. For the purpose of this definition, "control" of any
specified person or entity means the power to direct the management and policies
of such specified person or entity, directly or indirectly, whether through the
ownership of stock, by contract, or otherwise.

              "Application" shall have the meaning as defined in the second
paragraph hereof.

              "Business Day" shall mean any day that RUS and the Department of
Treasury are both open for business.

              "Collateral" shall mean any and all property pledged as security
for the Loan and other amounts owing to RUS under the Loan Documents, including,
without limitation, the property described in Article IV and on Schedule 2.

              "Distribution" shall have the meaning as defined in Section 7.10.

              "Event of Default" shall have the meaning as defined in Article
IX.

              "Expiration Date" shall have the meaning as defined in Paragraph
(c) of Section 3.1.

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              "Interest Expense" shall have the meaning as defined in
Attachment 3.

              "Laws" shall have the meaning as defined in paragraph (e) of
Article II.

              "Loans" shall mean the loans described in Section 3.1.

              "Loan Documents" shall mean, collectively, this Agreement,
Security Documents and the Note(s).

              "Material Adverse Effect" shall mean a material adverse effect on,
or change in, the condition, financial or otherwise, operations, properties,
business or prospects of the Borrower or on the ability of the Borrower to
perform its obligations under the Loan Documents as determined by RUS.

              "Net Income" or "Net Margins" shall have the meaning as defined in
Attachment 3.

              "Net Worth" shall have the meaning as defined in Attachment 3.

              "Note(s)" shall have the meaning as defined in Paragraph (a) of
Section 3.2.

              "Obligations" shall mean any and all indebtedness, obligations and
liabilities of the Borrower to RUS, of every kind and description, direct or
indirect, secured or unsecured, joint or several, absolute or contingent, due or
to become due, whether for payment or performance, now existing or hereafter
arising, howsoever evidenced or created, including, without limitation, all
loans (including any loan by renewal or extension); all indebtedness, all Notes,
all undertakings to take or refrain from taking any action; and all interest,
taxes, fees, charges, expenses, and attorney's fees chargeable to Borrower or
incurred by RUS under this Agreement or in any other document or instrument
delivered hereunder or as a supplement hereto.

              "Permitted Encumbrances" shall mean:

              (1)     liens for taxes, assessments and other governmental
                      charges which are not delinquent;

              (2)     liens for taxes, assessments and other governmental
                      charges already delinquent which are currently being
                      contested in good faith by appropriate proceedings;
                      PROVIDED the Borrower shall have set aside on its books
                      adequate reserves with respect thereto;

              (3)     mechanics', workmen's, repairmen's, materialmen's,
                      warehousemen's and carriers' liens and other similar liens
                      arising in the ordinary course of business and which are
                      not delinquent, or which are being contested in good faith
                      and have not proceeded to judgment; PROVIDED the Borrower
                      shall have set aside on its books adequate reserves with
                      respect thereto;

              (4)     liens in respect of judgments or awards with respect to
                      which the Borrower shall in good faith currently be
                      prosecuting an appeal or proceedings for review and with
                      respect to which the Borrower shall have secured a stay of
                      execution pending such appeal or proceedings for review;
                      PROVIDED the Borrower shall have set aside on its books
                      adequate reserves with respect thereto;

              (5)     liens or privileges of any employees of the Borrower for
                      salary or wages earned but not yet payable;

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              (6)     any obligations or duties, affecting the property of the
                      Borrower, to any municipality or governmental or other
                      public authority with respect to any franchise, grant,
                      license or permit;

              (7)     any right which any municipal or governmental authority
                      may have by virtue of any franchise, license, contract or
                      statute to purchase, or designate a purchaser of or order
                      the sale of, any property of the Borrower upon payment of
                      cash or reasonable compensation therefor or to terminate
                      any franchise, license or other rights or to regulate the
                      property and business of the Borrower; PROVIDED, HOWEVER,
                      that nothing in this clause 7 is intended to waive any
                      claim or rights that RUS may otherwise have under Federal
                      laws;

              (8)     any lien required by law or governmental regulations as a
                      condition to the transaction of any business or the
                      exercise of any privilege or license, or to enable the
                      Borrower to maintain self-insurance or to participate in
                      any fund established to cover any insurance risks or in
                      connection with workmen's compensation, unemployment
                      insurance, old age pensions or other social security, or
                      to share in the privileges or benefits required for
                      companies participating in such arrangements; PROVIDED,
                      HOWEVER, that nothing in this clause 8 is intended to
                      waive any claim or rights that RUS may otherwise have
                      under Federal laws; and

              (9)     liens arising out of any defeased mortgage or indenture of
                      the Borrower.

              "Pledged Deposit Account" shall have the meaning as defined in
Section 6.4.

              "Project" shall have the meaning as defined in Paragraph (a) of
Section 3.4.

              "RUS Regulations" shall mean the rules, regulations and bulletins
of general applicability published by RUS from time to time, as such rules,
regulations and bulletins exist at the date of applicability thereof, and shall
also include any rule and regulations of other Federal entities which RUS is
required by law to implement. Any reference to specific RUS Regulations shall
mean the version of and cite to such regulation effective at the date of
applicability thereof.

              "Security Documents" shall mean, collectively, any mortgage,
security agreement, financing statement, deposit account control agreement or
other document providing collateral for the Loan.

              "Service Rates" shall mean the rates charged for data, video,
voice or any other service proposed in the Application.

              "Subsidiaries" shall mean the subsidiaries listed in Schedule 1.

              "TIER" shall mean the Borrower's total Net Income or Net Margins
plus Interest Expense payable for any year divided by Interest Expense payable
for such year, as determined in Schedule 1 hereto.

              "TIER Commencement Date" shall have the meaning as defined in
Section 6.11.

              "Total Assets" shall have the meaning as defined in Attachment 3.

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                   ARTICLE II - REPRESENTATIONS AND WARRANTIES

              Recognizing that RUS is relying hereon, the Borrower represents
and warrants, as of the date of this Agreement, as follows:

              (a)     Organization; Power, Etc The Borrower: (i) is the type of
                      organization specified in the first paragraph hereof, duly
                      organized, validly existing, and in good standing under
                      the laws of the State identified in the first paragraph
                      hereof; (ii) is duly qualified to do business and is in
                      good standing in each jurisdiction in which the
                      transaction of its business make such qualification
                      necessary; (iii) has legal power to own and operate its
                      assets and to carry on its business and to enter into and
                      perform its obligations under the Loan Documents; (iv) has
                      duly and lawfully obtained and maintained all material
                      licenses, certificates, permits, authorizations and
                      approvals necessary to conduct its business or required by
                      applicable Laws; and (v) is eligible to obtain the
                      financial assistance from RUS contemplated by the
                      Agreement.

              (b)     Authority. The execution, delivery and performance by the
                      Borrower of this Agreement and the other Loan Documents
                      and the performance of the transactions contemplated
                      hereby and thereby have been duly authorized by all
                      necessary actions and do not violate any provision of law
                      or any charter, articles of incorporation, organization
                      documents or bylaws of the Borrower or result in a breach
                      of, or constitute a default under, any agreement, security
                      agreement, note or other instrument to which the Borrower
                      is a party or by which it may be bound. The Borrower has
                      not received any notice from any other party to any of the
                      foregoing that a default has occurred or that any event or
                      condition exists that with the giving of notice or lapse
                      of time or both would constitute such a default.

              (c)     Consents. No consent, approval, authorization, order,
                      filing, qualification, license, or permit of any
                      governmental authority is necessary in connection with the
                      execution, delivery, performance or enforcement of the
                      Loan Documents, except such as have been obtained and are
                      in full force and effect.

              (d)     Binding Agreement. Each of the Loan Documents is, or when
                      executed and delivered will be, the legal, valid, and
                      binding obligation of the Borrower, enforceable in
                      accordance with its terms, subject only to limitations on
                      enforceability imposed in equity or by applicable
                      bankruptcy, insolvency, reorganization, moratorium or
                      similar laws affecting creditors' rights generally.

              (e)     Compliance with Laws. The Borrower is in compliance in all
                      material respects with all federal, state and local laws,
                      rules, regulations, ordinances, codes and orders
                      (collectively, "Laws.")

              (f)     Litigation. There are no pending or threatened legal,
                      arbitration or governmental actions or proceedings to
                      which the Borrower is a party or to which any of its
                      property is subject which, if adversely determined, could
                      have a Material Adverse Effect.

              (g)     Information Submitted with Application. All information,
                      reports, and other documents and data submitted to RUS in
                      connection with the Application were, at the time the same
                      were furnished, complete, and correct in all material
                      respects. Any financial statements or data submitted to
                      RUS in connection with the Application present fairly, in
                      all material respects, the financial position of the
                      Borrower and the results of its operations in conformity
                      with Accounting Requirements. Since the date thereof,
                      there has been no material adverse change in the financial
                      condition or operations of the Borrower. .

              (h)     Principal Place of Business. The principal place of
                      business and chief executive office of the Borrower is at
                      the address of the Borrower specified in Schedule 1
                      hereto.

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              (i)     Organization Number. The Borrower's organization number is
                      correctly identified in Schedule 1 hereto.

              (j)     Subsidiaries and Parent. Any subsidiaries or parent of the
                      Borrower are disclosed on the attached Schedule 1.

              (k)     Defaults Under Other Agreements. No default by the
                      Borrower has occurred under any agreement or instrument to
                      which the Borrower is a party or to which any of its
                      property is subject that could have a Material Adverse
                      Effect.

              (l)     Title to Property. Except as disclosed in writing in the
                      opinion of counsel, the Borrower holds good and marketable
                      title to all of the Collateral, free and clear of any
                      liens, security interests or other encumbrances except for
                      Permitted Encumbrances.

                             ARTICLE III - THE LOANS

SECTION 3.1 LOAN AMOUNT, INTEREST RATE, AND EXPIRATION DATE.

              (a)     RUS agrees to make and the Borrower agrees to accept, on
                      the terms and conditions stated in this Agreement, a loan,
                      in the amount specified in Schedule 1 hereto ("Loan.")

              (b)     The portion of the Loan specified in Schedule 1 hereto
                      will bear interest at the comparable Treasury rate for
                      comparable maturities, as determined by RUS, and the
                      portion of the Loan specified in Schedule 1 hereto will
                      bear interest at the rate of four percent (4%) per annum.

              (c)     The obligation of RUS to advance the Loan or any portion
                      of the Loan shall expire on a date ("Expiration Date")
                      five years from the date of the Note(s). No portion of the
                      Loan will be advanced by RUS to the Borrower after the
                      Expiration Date. RUS, in its sole discretion, may approve
                      an extension of the Expiration Date, provided that the
                      Borrower notify RUS, in writing at least ten days prior to
                      the Expiration Date, of the reasons and need for an
                      extension, together with a suggested revised Expiration
                      Date.

SECTION 3.2   LOAN DOCUMENTS

              (a)     The debt created by the Loan will be evidenced by a
                      note(s) ("Note(s)") executed by the Borrower and payable
                      to the United States of America. The Borrower shall repay
                      the Loan in accordance with the Note(s) which shall be
                      payable and bear interest in accordance with its (their)
                      terms.

              (b)     The Borrower shall execute the Security Documents covering
                      all of the Borrower's property, in form and substance
                      satisfactory to RUS, and such other security instruments
                      as required by RUS.

SECTION 3.3   PAYMENT

              Except as otherwise prescribed by RUS, the Borrower shall make all
payments on the Note(s) utilizing electronic fund transfer procedures as
specified by RUS.

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SECTION 3.4   PROJECT

              (a)     Loan Purpose. The Loan has been made solely to finance the
                      project specifically described in the Application
                      ("Project.")

              (b)     Changes to Project. The Borrower shall obtain the prior
                      written approval of RUS for any material change to the
                      scope, loan design, construction, delivery of services, or
                      objectives of the Project.

                     ARTICLE IV - GRANT OF SECURITY INTEREST

              To secure the payment and performance of the Obligations, the
Borrower hereby pledges, assigns, and transfers to RUS, and grants to RUS a
continuing security interest in and to all fixtures and personal property,
tangible and intangible, of every kind, nature or description, now owned,
leased, or hereafter acquired by the Borrower, wherever located, including but
not limited to, accounts, chattel paper, documents, instruments, general
intangibles, licenses, permits, equipment, goods, proceeds, products, and
accessions, as well as its right, title and interests in real property, now
owned, leased or hereafter acquired and wherever located, and the property
described in Schedule 2 hereto.

                        ARTICLE V - CONDITIONS OF LENDING

SECTION 5.1   CONDITIONS PRECEDENT TO LOAN CLOSING

              In connection with the execution and delivery of this Agreement,
each of the following conditions shall be satisfied (all documents, certificates
and other evidence of such conditions are to be satisfactory to RUS in its
discretion):

              (a)     Legal Matters. All legal matters incident to the
                      consummation of the transactions hereby contemplated shall
                      be satisfactory to counsel for RUS;

              (b)     Loan Documents. RUS shall receive duly executed originals
                      of the Loan Documents;

              (c)     Filed and Recorded Security Documents. RUS shall have
                      received executed, filed and indexed financing statements
                      covering all of the personal property and fixtures of the
                      Borrower;

              (d)     Articles of Incorporation, Charter, Bylaws and
                      Organizational Documents. With respect to corporate and
                      cooperative Borrowers, RUS shall have received certified
                      copies of the Borrower's most recent articles of
                      incorporation or charter and bylaws. With respect to
                      limited liability companies or similar organizations, RUS
                      shall have received certified copies of the Borrower's
                      most recent organization documents containing provisions
                      reflecting the obligations of the Borrower in paragraphs
                      (c) and (d) of Section 7.3;

              (e)     Authorizations. RUS shall have received satisfactory
                      evidence that all Loan Documents and proceedings of the
                      Borrower necessary for duly authorizing the execution,
                      delivery and performance of the Loan Documents have been
                      obtained and are in full force and effect;

              (f)     Approvals. RUS shall have received satisfactory evidence
                      that the Borrower has duly registered when and where
                      required by law with all state, Federal and other public
                      authorities and regulatory bodies and obtained all
                      authorizations, certificates, permits, licenses,
                      franchises and approvals necessary for, or required as a
                      condition of, the validity and enforceability of each of
                      the Loan Documents and for the construction and operation
                      of the Project;

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              (g)     Title Evidence. RUS shall have received satisfactory
                      evidence that the Borrower has good and marketable title
                      to its property, including the Project, and holds such
                      franchises, permits, leases, easements, rights,
                      privileges, licenses, or right-of-way instruments,
                      reasonably adequate in form and substance, as may be
                      required by law for the continued maintenance and
                      operation of the existing facilities and Project; and

              (h)     Opinion of Counsel. RUS shall receive an opinion of
                      counsel for the Borrower (who shall be acceptable to RUS)
                      in form and content acceptable to RUS.

SECTION 5.2   GENERAL CONDITIONS PRECEDENT TO RUS' OBLIGATIONS TO RELEASE FUNDS
FOR ADVANCE

              The obligations of RUS hereunder are subject to the satisfaction
of each of the following conditions precedent (all documents, certificate and
other evidence of such conditions are to be satisfactory to RUS in its
discretion):

              (a)     Service Rate Evidence. RUS shall have received
                      satisfactory evidence that the Borrower has duly adopted
                      Service Rates for all proposed services which are designed
                      with a view to (i) paying and discharging all taxes,
                      maintenance expenses, and operating expenses of the
                      Borrower, (ii) making all payments in respect of principal
                      and interest on the Note(s) when and as the same shall
                      become due, (iii) providing and maintaining reasonable
                      working capital of the Borrower, and (iv) producing and
                      maintaining the TIER specified in Schedule 1 hereto;

              (b)     Fidelity Bond or Theft Insurance Coverage. RUS has
                      received from the Borrower, except Borrowers which are
                      units of government, evidence, satisfactory to RUS, that
                      the Borrower has obtained fidelity bond or theft insurance
                      coverage, as required by RUS Regulations at 7 C.F.R. 1788,
                      identifying RUS as a loss payee, from a surety doing
                      business with the United States listed in 31 CFR Part 223,
                      in the amount specified in Schedule 1, covering all
                      officers, employees, or agents of the Borrower authorized
                      to receive, disburse, or receive and disburse the Loan;

              (c)     Compliance with Deposit Requirements. RUS has received
                      from the Borrower evidence, satisfactory to RUS, that the
                      Borrower (i) has on deposit in an account, equity funds,
                      in the amount specified in Schedule 1, to cover one year's
                      anticipated operating expenses, in accordance with 7
                      C.F.R. Section 1738.20(b) and (ii) has, or upon release of
                      the initial advance of funds hereunder, will have on
                      deposit in an account, equity funds in the amount
                      specified in Schedule 1, to be applied against operating
                      expenses for subsequent periods. The Borrower shall
                      provide RUS with a schedule of the anticipated application
                      of funds deposited in accordance with clause (i) of this
                      paragraph.

              (d)     Current Financial Information and Certificate of
                      Authority. RUS has received from the Borrower (i) its
                      current updated balance sheet, statement of cash flow, and
                      income statement and (ii) a duly authorized and executed
                      certification, Form 675, "Certification of Authority,"
                      designating an officer, employee, or agent of the Borrower
                      as the person or persons authorized to execute and submit,
                      on behalf of the Borrower, REA Form 481, "Financial
                      Requirement Statement."

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SECTION 5.3   CONDITIONS TO INDIVIDUAL ADVANCES

              The obligations of RUS to approve any Advance of the Loan is
subject to the satisfaction of each of the following conditions precedent on or
before the date of such Advance (all documents, certificates and other evidence
of such conditions precedent are to be satisfactory to RUS in its discretion):

              (a)     Continuing Representations and Warranties. That the
                      representations and warranties of the Borrower contained
                      in this Agreement be true and correct on and as of the
                      date of such Advance as though made on and as of such
                      date;

              (b)     Material Adverse Effect. That no event has occurred which
                      has had or could have a Material Adverse Effect;

              (c)     Event of Default. That no Event of Default and no event
                      which with the passage of time or giving of notice, or
                      both, would constitute an Event of Default shall have
                      occurred and be continuing, or shall have occurred after
                      giving effect to any Advances on the books of the
                      Borrower;

              (d)     Requisitions and Supporting Documentation. That RUS shall
                      have received a requisition, not more frequently than once
                      a month, and supporting documentation from the Borrower in
                      accordance with Rural Utilities Service RUS Bulletin
                      1738-2, Rural Broadband Access Loan and Loan Guarantee
                      Advance and Construction Procedures Guide, as amended and
                      supplemented from time to time (hereinafter "RUS Bulletin
                      1738-2,") attached hereto as Attachment 1 or available at
                      http://www.usda.gov/rus/telecom/broadband/rus-bulletin-
                      1738-2;

              (e)     Certification of Reimbursement. That RUS shall have
                      received a certification in the form of Exhibit A,
                      confirming that the requested advance is for the
                      reimbursement of funds spent on approved loan purposes;

              (f)     Flood Insurance. That for any Advance used in whole or in
                      part to finance the construction or acquisition of any
                      building in any area identified by the Secretary of
                      Housing and Urban Development pursuant to the Flood
                      Disaster Protection Act of 1973 (the "Flood Insurance
                      Act") or any rules, regulations or orders issued to
                      implement the Flood Insurance Act as any area having
                      special flood hazards, or to finance any facilities or
                      materials to be located in any such building, or in any
                      building owned or occupied by the Borrower and located in
                      such a flood hazard area, the Borrower shall have
                      submitted evidence, in form and substance satisfactory to
                      RUS or RUS has otherwise determined, that (i) the
                      community in which such area is located is then
                      participating in the national flood insurance program, as
                      required by the Flood Insurance Act and any related
                      regulations, and (ii) the Borrower has obtained flood
                      insurance coverage with respect to such building and
                      contents as may then be required pursuant to the Flood
                      Insurance Act and any related regulations.;

              (g)     Current Financial Information. That RUS has received from
                      the Borrower its current, updated balance sheet, statement
                      of cash flow, and income statement;

              (h)     Compliance with Deposit Requirements. RUS has received
                      from the Borrower, evidence, satisfactory to RUS, that the
                      funds required to be on deposit in accordance with Section
                      5.2(c) have been applied solely for the purposes for which
                      they were deposited, or if otherwise, with the approval of
                      RUS.

              (i)     Compliance with Loan Documents. That the Borrower is in
                      material compliance with the Loan Documents;

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              (j)     Additional Documents. The Borrower agrees to provide RUS
                      with such additional documents as RUS may request; and

              (k)     Additional Conditions. The Borrower has met all additional
                      conditions specified in Schedule 1 hereto.

SECTION 5.4   FIRST ADVANCE TO PAY OFF INTERIM FINANCING; RESTRICTIONS ON
SUBSEQUENT ADVANCES

              Loan funds to pay off RUS-approved interim financing, if any, will
be included in the first loan advance. Thereafter no further advances will be
made unless and until the Borrower has furnished evidence, in form and content
satisfactory to RUS, that such interim financing has been paid in full and any
associated liens have been duly discharged of record.

                       ARTICLE VI - AFFIRMATIVE COVENANTS

SECTION 6.1   GENERALLY

              Unless otherwise agreed to in writing by RUS, while this Agreement
is in effect, the Borrower shall duly observe each of the affirmative covenants
contained in this Article VI.

SECTION 6.2   USE OF ADVANCES

              The Borrower shall apply the proceeds of Advances in accordance
with its Application with such modifications as may be mutually agreed to in
writing by RUS and the Borrower.

SECTION 6.3   UNUSED AND DISALLOWED ADVANCES

              (a)     The Borrower shall return to RUS forthwith all or any
                      advanced portion of the Loan not disbursed by the Borrower
                      for the Project or not needed to complete the Project with
                      any interest earned thereon when deposited in the Pledged
                      Deposit Account or other account approved by RUS.

              (b)     The Borrower shall reimburse RUS for any advanced funds
                      whose original expenditure has been disallowed by a RUS
                      loan audit. Disallowances shall be satisfied, as directed
                      by RUS, by either administrative offset against requests
                      for Advances or repaying the disallowed amount directly to
                      the United States Treasury. Such disallowed amounts shall
                      accrue interest payable to RUS from the date RUS delivers
                      to the Borrower a written demand for payment. Interest
                      shall accrue at the lesser of the following: the interest
                      rate of the disallowed Advance or the then current United
                      States Treasury rate as prescribed by the Secretary of the
                      Treasury in the Federal Register and the Treasury Fiscal
                      Requirements Manual Bulletin. Closeout of the Loan will
                      not affect the right of RUS to disallow expenditures and
                      recover, in full, any amount on the basis of a subsequent
                      audit or other review or the Borrower's obligation to
                      return any disallowed expenditures.

SECTION 6.4   DEPOSIT OF ADVANCES INTO PLEDGED DEPOSIT ACCOUNT

              (a)     The Borrower, when directed in writing by RUS, shall open
                      and maintain a deposit account pledged to RUS ("Pledged
                      Deposit Account,") in a bank or depository whose deposits
                      are insured by the Federal Deposit Insurance Corporation
                      or other federal agency acceptable to RUS and shall be
                      designated by the RUS name of the Borrower followed by the
                      words "Pledge Deposit Account." The Borrower shall, when
                      directed in writing by RUS, promptly deposit (i) proceeds
                      from such Advances, as may be directed by RUS, (ii)
                      previously advanced funds whose original expenditure has
                      been disallowed by a RUS loan audit, and (iii) the funds
                      described on Schedule 1 hereto as "Additional Funds" into
                      the Pledged Deposit Account. Moneys in the Pledged Deposit
                      Account shall be used solely for the purposes for which
                      the Advance was made, for the purposes as set forth in
                      Schedule 1 hereto (hereinafter "Additional Purposes,") or
                      for such other purposes as may be approved by RUS.
                      Deposits and disbursements from the Pledged Deposit
                      Account shall be made and recorded in accordance with
                      Attachment 1 hereto, RUS Bulletin 1738-2, as amended and
                      supplemented from time to time.

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              (b)     First Lien on Pledged Deposit Account. The Borrower shall
                      establish and maintain the Pledged Deposit Account as a
                      deposit account and perfect a first and prior lien in such
                      account for RUS, (pursuant to a deposit account agreement
                      or similar agreement or mechanism for perfecting as
                      provided by applicable law) in form acceptable to RUS.

              (c)     Construction Fund Account. The Borrower shall promptly
                      deposit Loan Advances not required to be deposited in a
                      Pledged Deposit Account, including previously advanced
                      Loan funds whose original expenditures has been disallowed
                      by a RUS loan fund audit, in a bank or depository whose
                      deposits are insured by the Federal Deposit Insurance
                      Corporation or other federal agency acceptable to RUS.
                      Such account (hereinafter the "Construction Fund Account")
                      shall be designated by the corporate name of the Borrower
                      followed by the words "Construction Fund Account." Moneys
                      in the Construction Fund Account shall be used solely for
                      the approved purposes for which they were advanced.
                      Deposits and disbursements from the Construction Fund
                      Account shall be made and recorded in accordance with
                      Attachment 1 hereto, RUS Bulletin 1738-2, as amended and
                      supplemented from time to time.

SECTION 6.5   USE OF OPERATING FUNDS

              The Borrower shall expend the funds on deposit in accordance with
Section 5.2(c) solely for the purposes approved by RUS, and shall provide RUS
with a schedule for the expenditure of funds deposited to comply with 7 C.F.R.
Section 1738.20(b).

SECTION 6.6   FINANCIAL BOOKS

              The Borrower shall maintain, at its premises, such books,
documents, papers, or other records and supporting documents, including, but not
limited to, invoices, receipts, and bills of sale, adequate to identify the
purposes for which, and the manner in which Loan and other funds were expended
on the Project. The Borrower shall at all times keep, and safely preserve,
proper books, records and accounts in which full and true entries shall be made
of all dealings, business, and affairs of the Borrower and its Subsidiaries, in
accordance with any applicable Accounting Requirements. The Borrower shall
maintain copies of all documents submitted to RUS in connection with the Loan
until the Loan has been paid in full and all audits have been completed.

SECTION 6.7   RIGHTS OF INSPECTION

              The Borrower shall afford RUS, the Office of the Inspector General
of USDA, and the General Accounting Office, through their representatives,
reasonable opportunity, at all times during business hours and upon prior
notice, to have access to and right to inspect the Project, any other property
encumbered by the Security Documents, and any and all books, records, accounts,
including electronic books, records, accounts and electronic mail messages,
regardless of the physical form or characteristics, invoices, contracts, leases,
payrolls, canceled checks, statements, and other documents, and papers of every
kind belonging to or in any way pertaining to its property or business,
including its Subsidiaries, if any, and to make copies or extracts therefrom.

                                                                         Page 11
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SECTION 6.8   ANNUAL AND SPECIAL FINANCIAL REPORTS

              (a)     One hundred twenty (120) days from the end of the
                      Borrower's fiscal year in which the first Advance is made
                      and, thereafter, one hundred twenty (120) days from the
                      close of each fiscal year of the Borrower, the Borrower
                      shall cause to be prepared and furnished to RUS a full and
                      complete annual report of its financial condition and of
                      its operations in form and substance satisfactory to RUS,
                      and as provided in 7 C.F.R. 1773, which is audited and
                      certified by an independent certified public accountant
                      satisfactory to RUS and accompanied by a report of such
                      audit in form and substance satisfactory to RUS.

              (b)     The Borrower shall also furnish to RUS fifteen (15)
                      Business Days after the end of each calendar year quarter,
                      and on such additional dates as specified in Schedule 1
                      (hereinafter "Additional Reporting Dates,") or as
                      otherwise requested in writing by RUS, balance sheets,
                      income statements, statements of cash flow, or such other
                      reports concerning the financial condition or operations
                      of the Borrower, including its Subsidiaries, as RUS may
                      request or RUS Regulations require.

SECTION 6.9   ANNUAL COMPLIANCE CERTIFICATE

              Commencing forty-five (45) days from the date hereof, and
thereafter, within forty-five (45) days after the close of each calendar year,
or more often if required in writing by RUS, the Borrower shall deliver to RUS a
written statement signed by its general manager, managing member, or equivalent
corporate official satisfactory to RUS, stating that, during such year the
Borrower has fulfilled its obligations under the Loan Documents throughout such
year in all material respects or, if there has been a material default in the
fulfillment of such obligations, specifying each such default known to such
official and the nature and status thereof.

SECTION 6.10 MISCELLANEOUS REPORTS AND NOTICES

              The Borrower shall furnish to RUS:

              (a)     Notice of Default. Promptly after becoming aware thereof,
                      notice of: the occurrence of any default under the Loan
                      Documents or the receipt of any notice given pursuant to
                      the Loan Documents with respect to the occurrence of any
                      event which with the giving of notice or the passage of
                      time, or both, could become an Event of Default hereunder
                      or under the other Loan Documents.

              (b)     Notice of Litigation. Promptly after the commencement
                      thereof, notice of the commencement of all actions, suits
                      or proceedings before any court, arbitrator, or
                      governmental department, commission, board, bureau,
                      agency, or instrumentality affecting the Borrower or any
                      Affiliate which, if adversely determined, could have a
                      Material Adverse Effect on the Borrower.

              (c)     Regulatory and Other Notices. Promptly after receipt
                      thereof, copies of any notices or other communications
                      received from any governmental authority with respect to
                      any matter or proceeding which could have a Material
                      Adverse Effect on the Borrower.

              (d)     Material Adverse Effect. Promptly after becoming aware
                      thereof, notice of any matter which has resulted or may
                      result in a Material Adverse Effect on the Borrower.

                                                                         Page 12
<PAGE>

              (e)     Corporate Document Changes. Thirty (30) days prior to
                      their effectiveness, any amendments, supplements or
                      modifications to the Borrower's Articles of Incorporation,
                      Charter, Bylaws, Operating Agreement, Members Agreements
                      or other Organizational Documents.

              (f)     Other Information. Such other information regarding the
                      condition, financial or otherwise, or operations of the
                      Borrower as RUS may, from time to time, reasonably
                      request.

SECTION 6.11 RATES AND FINANCIAL PERFORMANCE CRITERIA

              The Borrower shall design, charge and maintain rates in effect
which (i) pay and discharge all taxes, maintenance expenses and operating
expenses of its system (ii) make all payments in respect of principal of and
interest on the Note(s) when and as the same shall become due, (iii) provide and
maintain reasonable working capital for the Borrower, and (iv) maintain the TIER
specified on Schedule 1 hereto commencing on the date specified on Schedule 1
hereto (the "TIER Commencement Date") and ending when the Loan is repaid in
full.

SECTION 6.12 TIER

              The Borrower will maintain the TIER specified in Schedule 1
beginning on the TIER Commencement Date until the Loan is paid in full.

SECTION 6.13 CORRECTIVE ACTION

              Within thirty (30) days of (i) sending the financial reports
required by Section 6.8 hereof that shows the TIER specified by Section 6.12 was
not achieved for the reported fiscal period or (ii) being notified by RUS that
the TIER specified in Section 6.12 was not achieved for the reported fiscal
period, whichever is earlier, the Borrower, in consultation with RUS, shall
provide a written plan satisfactory to RUS setting forth the actions that shall
be taken to achieve the specified TIER on a timely basis and shall promptly
implement said plan.

SECTION 6.14 OBLIGATIONS WITH RESPECT TO THE CONSTRUCTION, OPERATION AND
MAINTENANCE OF THE PROJECT

              (a)     Project Management and Operation. The Borrower shall be
                      responsible for managing the day to day operations of the
                      Project and will operate the Project in an efficient and
                      economic manner as well as maintaining the Project in good
                      repair.

              (b)     Design Standards, Construction Standards and List of
                      Material. The Borrower shall use design standards,
                      construction standards and list of acceptable materials in
                      accordance with Attachment 1 hereto, RUS Bulletin 1738-2,
                      as amended and supplemented from time to time.

              (c)     Plans and Specifications. The Borrower shall submit plans
                      and specifications for construction to RUS for review and
                      approval in accordance with Attachment 1 hereto, RUS
                      Bulletin 1738-2, as amended and supplemented from time to
                      time.

              (d)     Standard Forms of Purchase Contracts, Installation
                      Contracts, Construction Contracts, and Engineering and
                      Architectural Service Contracts. The Borrower shall use
                      the standard forms of contracts promulgated by RUS for
                      construction, procurement, engineering services and
                      architectural services in accordance with Attachment 1
                      hereto, RUS Bulletin 1738-2, as amended and supplemented
                      from time to time, and shall submit to RUS such contracts
                      for review and approval in accordance with such
                      Attachment 1.

                                                                         Page 13
<PAGE>

              (e)     Contract Bidding Requirements. The Borrower shall follow
                      RUS bidding procedures when contracting for construction
                      or procurement in accordance with Attachment 1 hereto, RUS
                      Bulletin 1738-2, as amended and supplemented from time to
                      time.

              (f)     Construction in Accordance with Loan Design. The Borrower
                      shall cause the Project to be constructed and completed in
                      accordance with the loan design submitted with the
                      Application.

              (g)     General Insurance Requirements. The Borrower shall take
                      out and maintain insurance on the Project and any other
                      property acquired with the Loan in accordance with 7 CFR
                      Section 1788 as well as maintaining the fidelity bond or
                      theft insurance coverage required in Section 5.2(b)
                      hereof.

SECTION 6.15 PRESERVATION OF EXISTENCE AND RIGHTS

              The Borrower shall, until the Loan is repaid in full, take or
cause to be taken all such actions as from time to time may be necessary to
preserve its existence and to preserve and renew all franchises, contracts,
rights of way, easements, permits, and licenses now or hereafter to be granted
or conferred upon it, with respect to the Project, the loss of which would have
a Material Adverse Effect on the Borrower.

SECTION 6.16 COMPLIANCE WITH LAWS

              The Borrower shall operate and maintain the Project and its
properties in compliance in all material respects with all applicable Laws.

SECTION 6.17 NONDISCRIMINATION

              (a)     Equal Opportunity Provisions in Construction Contracts.
                      The Borrower shall incorporate or cause to be incorporated
                      into any construction contract, as defined in Executive
                      Order 11246 of September 24, 1965 and implementing
                      regulations, which is paid for in whole or in part with
                      funds obtained from RUS or borrowed on the credit of the
                      United States pursuant to a grant, contract, loan,
                      insurance or guarantee, or undertaken pursuant to any RUS
                      program involving such grant, contract, loan, insurance or
                      guarantee, the equal opportunity provisions set forth in
                      Attachment 2 hereto, entitled Equal Opportunity Contract
                      Provisions.

              (b)     Equal Opportunity Contract Provisions Also Bind the
                      Borrower. The Borrower further agrees that it shall be
                      bound by such equal opportunity clause in any federally
                      assisted construction work which it performs itself other
                      than through the permanent work force directly employed by
                      an agency of government.

              (c)     Sanctions and Penalties. The Borrower agrees that it shall
                      cooperate actively with RUS and the Secretary of Labor in
                      obtaining the compliance of contractors and subcontractors
                      with the equal opportunity clause and the rules,
                      regulations and relevant orders of the Secretary of Labor,
                      that it shall furnish RUS and the Secretary of Labor such
                      information as they may require for the supervision of
                      such compliance, and that it shall otherwise assist the
                      administering agency in the discharge of RUS' primary
                      responsibility for securing compliance. The Borrower
                      further agrees that it shall refrain from entering into
                      any contract or contract modification subject to Executive
                      Order 11246 with a contractor debarred from, or who has
                      not demonstrated eligibility for, Government contracts and
                      federally assisted construction contracts pursuant to Part
                      II, Subpart D of Executive Order 11246 and shall carry out
                      such sanctions and penalties for violation of the equal
                      opportunity clause as may be imposed upon contractors and
                      subcontractors by RUS or the Secretary of Labor pursuant
                      to Part II, Subpart D of Executive Order 11246. In
                      addition, the Borrower agrees that if it fails or refuses
                      to comply with these undertakings RUS may cancel,
                      terminate or suspend in whole or in part this Agreement,
                      may refrain from extending any further assistance under
                      any of its programs subject to Executive Order 11246 until
                      satisfactory assurance of future compliance has been
                      received from the Borrower, or may refer the case to the
                      Department of Justice for appropriate legal proceedings.

                                                                         Page 14
<PAGE>

SECTION 6.18 BUY AMERICAN

              The Borrower shall use or caused to be used in connection with the
expenditures of funds if such funds were obtained in whole or in part by a loan
being made or guaranteed by RUS only such unmanufactured articles, materials,
and supplies as have been mined or produced in the United States or any eligible
country, and only such manufactured articles, material, and supplies as have
been manufactured in the United States or any eligible country substantially all
from articles, material, and supplies mined, produced or manufactured, as the
case may be, in the United States or any eligible country, except to the extent
RUS shall determine that such use shall be impracticable or that the cost
thereof shall be unreasonable. For purposes of this section, an "eligible
country" is any country that has with respect to the United States an agreement
ensuring reciprocal access for United States products and services and United
States suppliers to the markets of that Country, as determined by the United
States Trade Representative.

SECTION 6.19   COLLATERAL TO BE PURCHASED FREE OF ENCUMBRANCES.

              Except as specifically authorized in writing in advance by RUS,
the Borrower will purchase all Collateral and all materials, equipment, supplies
and replacements to be incorporated in, or used in connection with the
Collateral outright, and not subject to any conditional sales agreement, chattel
mortgage, bailment lease or other agreement reserving to the seller any right,
title or lien.

SECTION 6.20    BORROWER TO DEFEND TITLE AND REMOVE LIENS

              Except as to Permitted Encumbrances, the Borrower will, so long as
any of the Notes are outstanding, maintain and preserve the lien of this
Agreement superior to all other liens affecting the Collateral, and will forever
warrant and defend the title to the Collateral against any and all claims and
demands whatsoever. The Borrower shall make, execute, acknowledge, deliver, file
and record all such mortgages, financing statements, continuation statements,
security agreements, instruments and conveyances as is necessary to preserve the
lien of this Agreement against the Collateral superior to all other liens.
Except as to Permitted Encumbrances, the Borrower will promptly pay or discharge
any and all obligations for or on account of which any such lien or charge might
exist or could be created and any and all lawful taxes, rates, levies,
assessments, liens, claims or other charges imposed upon or accruing upon any of
the Collateral, as and when the same shall become due and payable; and whenever
called upon so to do by RUS will furnish to RUS adequate proof of such payment
or discharge; provided, however that this provision shall not be deemed to
require the payment or discharge of any tax, rate, levy, assessment or other
governmental charge while the Borrower is contesting the validity thereof by
appropriate proceedings in good faith and so long as it shall have set aside on
its books adequate reserves with respect thereto.

SECTION 6.21  FURTHER ASSURANCES

              (a)     The Borrower shall from time to time upon written demand
                      of RUS make, execute, acknowledge and deliver or cause to
                      be made, executed, acknowledged and delivered all such
                      further and supplemental mortgages, financing statements,
                      continuation statements, security agreements, instruments
                      and conveyances as may be requested by RUS and take or
                      cause to be taken all such further action as may
                      reasonably be requested by RUS to provide for the securing
                      and payment of the principal of, interest on, and any and
                      all other amounts payable hereunder and under the Note(s)
                      according to the terms thereof and for the purpose of
                      fully conveying, transferring and confirming the property
                      hereby conveyed, mortgaged and pledged or intended so to
                      be, whether now owned by the Borrower or hereafter
                      acquired by it.

                                                                         Page 15
<PAGE>

              (b)     The Borrower shall cause this Agreement, financing
                      statement, continuation statement and every additional
                      instrument which shall be executed pursuant to subsection
                      (a) immediately above, to forthwith upon execution to be
                      filed and recorded and refiled and rerecorded as
                      conveyances and security interests in real and personal
                      property in such manner and in such places as may be
                      required by law or requested by RUS in order fully to
                      preserve the security for the Loan and to perfect and
                      maintain the superior lien of this Agreement and all
                      supplemental security instruments.

SECTION 6.22 ADDITIONAL AFFIRMATIVE COVENANTS

              The Borrower shall comply with the additional affirmative
covenants set forth in Schedule 1 hereto.

                        ARTICLE VII - NEGATIVE COVENANTS

SECTION 7.1   GENERAL

              Unless otherwise agreed to in writing by RUS, while this Agreement
is in effect, the Borrower shall duly observe each of the negative covenants set
forth in this Article VII.

SECTION 7.2   MERGER, CONSOLIDATION AND TRANSFER OF PROPERTY

              The Borrower shall not, without the prior written consent of RUS,
take or suffer to be taken any steps to reorganize, consolidate with or merge
into any other corporation, or to sell, lease or transfer (or make any agreement
therefor) all or any part of its property, including, without limitation, the
Project.

SECTION 7.3   COVENANTS FOR LIMITED LIABILITY COMPANIES AND SIMILAR BORROWERS

              Borrowers which are limited liability or similar organizations
agree that:

              (a)     The death, retirement, resignation, expulsion,
                      termination, bankruptcy or dissolution of any member or
                      the occurrence of any other event that terminates the
                      continued membership of any member shall not cause the
                      Borrower to be dissolved or its affairs to be wound up;

              (b)     Prior to the date on which any and all obligations owed to
                      RUS, including the Note evidencing the Loan, are
                      discharged in full, the Borrower shall not be dissolved or
                      terminated;

              (c)     The organizational documents of the Borrower shall contain
                      provisions reflecting the obligations of the Borrower in
                      paragraphs (a) and (b) immediately above and such
                      provisions shall not be amended without the prior written
                      consent of RUS;

              (d)     No direct or indirect addition, issuance, or transfer of
                      any membership units (or any other ownership interest) in
                      the Borrower may be made by the Borrower or its members
                      without the prior written consent of RUS.

                                                                         Page 16
<PAGE>

SECTION 7.4   ADDITIONAL INDEBTEDNESS

              The Borrower shall not, without the prior written consent of RUS,
incur additional secured or unsecured indebtedness other than (i) purchase money
security interests, (ii) unsecured trade indebtedness and (iii) other debt
arising in the ordinary course of business. Indebtedness under items (i), (ii),
and (iii) in the aggregate shall not exceed five percent (5%) of the Borrower's
consolidated total assets.

SECTION 7.5   NEGATIVE PLEDGE

              The Borrower shall not create, incur or suffer any lien, mortgage,
pledge, assignment, or other encumbrance on, or security interest on its
property, other than Permitted Encumbrances.

SECTION 7.6   DISPOSAL OF OBSOLETE OR DAMAGED COLLATERAL

              So long as the Borrower is not in default hereunder, the Borrower
may, without obtaining the consent of RUS, sell or otherwise dispose of, free
from the lien hereof, any of its property which is neither necessary to, nor
useful for, the operation of the Borrower's business, or which has become
obsolete, worn out, damaged, or otherwise unsuitable for the purposes of the
Borrower; provided, however, that the Borrower shall to the extent necessary:
(1) replace the same with other property of the same kind and nature, or
substitute thereof, which shall be subject to the lien hereof, free and clear of
all prior liens, and apply the proceeds, if any, derived from the sale or
disposition of such property, which are not needed for the replacement thereof,
to the prepayment of the indebtedness on the outstanding Notes; (2) immediately
upon the receipt of the proceeds of any sale or disposition of said property,
apply the entire amount of such proceeds to the prepayment of the indebtedness
evidenced by the Notes; or (3) deposit all or such part of the proceeds derived
from the sale or disposition of said property into such bank accounts as RUS
shall specify, and shall use the same only for such additions to, or
improvements in, the Collateral, on such terms and conditions as RUS shall
specify.

SECTION 7.7   CONTRACTS

              The Borrower shall not, without the prior written consent of RUS,
enter into any contract or contracts for the operation or maintenance of all or
any part of its property, including, without limitation, the Project and shall
not enter into any contract for the use by others of all or any part of its
property, including, without limitation, the Project.

SECTION 7.8   SALARIES

              Salaries, wages, and other compensation paid by the Borrower for
services, and directors', members', managers' or trustees' fees, shall be
reasonable and in conformity with the usual practice of entities of the size and
nature of the Borrower.

SECTION 7.9   EXTENSION OF CREDIT

              Except as specifically authorized in writing in advance by RUS,
the Borrower will make no advance payments or loans, or in any manner extend its
credit, either directly or indirectly, with or without interest, to any of its
directors, trustees, officers, employees, stockholders, members, managers,
Affiliates or Affiliated companies: provided, however, that the Borrower may
make an investment for any purpose described in section 607(c)(2) of the Rural
Development Act of 1972 (including any investment in, or extension of credit,
guarantee, or advance made to an Affiliated Company that is used by such
Affiliate for such purpose) to the extent that, immediately after such
investment: (1) the aggregate of such investments does not exceed one-third of
the Net Worth and (2) the Borrower's Net Worth is at least twenty (20) percent
of its Total Assets.

                                                                         Page 17
<PAGE>

SECTION 7.10  DISTRIBUTIONS OR WITHDRAWALS

              (a)     Corporations and Cooperatives. Corporate and cooperative
                      Borrowers shall not, without the prior written approval of
                      RUS, make any dividend, stock, capital, capital credit or
                      other distribution in the nature of an investment,
                      guarantee, extension of credit, loan or advance payment on
                      obligations, (all such distributions being hereinafter
                      collectively called "Distributions"); provided, however,
                      the Borrower may make a Distribution if after such
                      Distribution, the Borrower's Net Worth is equal to at
                      least twenty percent (20%) of its Total Assets and the
                      amount of all such Distributions during the calendar year
                      does not --- exceed twenty-five percent (25%) of the
                      Borrower's Net Income or Net Margins for the prior
                      calendar year.

              (b)     Limited Liability Companies. Borrowers which are limited
                      liability companies shall not, without the prior written
                      approval of RUS, make any membership withdrawals, unit
                      redemptions, or other type of profit allocation to its
                      members and shall not, without the prior written approval
                      of RUS, make capital distributions in the nature of an
                      investment, guarantee, extension of credit, loan, or
                      advance payment of obligations.

SECTION 7.11 CHANGING PRINCIPAL PLACE OF BUSINESS, PLACE OF CONDUCTING BUSINESS,
OR TYPE OF ORGANIZATION

              The Borrower shall not change its principal place of business,
place of conducting business, or type of organization without the prior consent
of RUS.

SECTION 7.12 CHANGING NAME OR PLACE OF INCORPORATION OR ORGANIZATION

              The Borrower shall not change its legal name or place of
incorporation or organization without giving RUS sixty (60) days prior written
notice.

SECTION 7.13 CHANGING SERVICE RATES

              The Borrower shall not change any of its Service Rates without
prior written approval by RUS.

SECTION 7.14 HISTORIC PRESERVATION

              The Borrower shall not, without the prior written consent of RUS,
use any Advance to construct any facility which shall involve any district,
site, building, structure or object which is included in, or eligible for
inclusion in, the National Register of Historic Places maintained by the
Secretary of the Interior pursuant to the Historic Sites Act of 1935 and the
National Historic Preservation Act of 1966.

SECTION 7.15 LIMITATIONS ON USING NON-FDIC INSURED DEPOSITORIES.

              Without the prior written approval of RUS, the Borrower shall not
place the proceeds of the Loans or any loan which has been made or guaranteed by
RUS in the custody of any bank or other depository that is not insured by the
Federal Deposit Insurance Corporation or other federal agency acceptable to RUS.

SECTION 7.16 AFFILIATED TRANSACTIONS

              The Borrower shall not enter into any transaction, contract, or
dealing with an Affiliate of the Borrower or with the Borrower's or Affiliate's
directors, trustees, officers, managers, members (if the Borrower is a limited
liability company), or other corporate officials, without the prior written
consent of RUS.

                                                                         Page 18
<PAGE>

SECTION 7.17 PREFERRED STOCK

              The Borrower shall not issue any new or additional preferred stock
without the prior written approval of RUS, which approval shall not be
unreasonably withheld if such stock issuance, in RUS' sole opinion, would not be
considered a debt instrument under generally accepted accounting principles.

SECTION 7.18 ADDITIONAL NEGATIVE COVENANTS

              The Borrower shall comply with the additional negative covenants
set forth in Schedule 1 hereto.

                         ARTICLE VIII - LENDER'S RIGHTS

SECTION 8.1   TERMINATION OF LOAN OFFER

              RUS, in its sole discretion, may terminate the offer to make the
Loan(s) if it does not receive the Loan Documents, duly executed on behalf of
the Borrower and all other conditions in Section 5.1 hereof are not satisfied
within one hundred twenty (120) days from the date hereof.

SECTION 8.2   AUDITS AND COMPLIANCE REVIEWS

              After giving prior notification to the Borrower, RUS has the right
to conduct compliance reviews and audits of the Borrower to assure compliance
with the Loan Documents and RUS Regulations.

SECTION 8.3   DISALLOWED EXPENDITURES

              Upon a determination by RUS that the Borrower did not utilize the
Loan in the manner and exclusively for the Project as approved by RUS, RUS may,
in its sole discretion,

              (a)     Disallow all or a part of the expenditures and
                      disbursements of the Loan and require the Borrower to
                      deposit such funds in the Pledged Deposit Account to be
                      applied toward other approved Project purposes or to
                      reimburse the Government, as provided in Section 6.3
                      hereof;

              (b)     Suspend making Advances;

              (c)     Take any other action RUS determines to be necessary
                      including, without limitation, exercising any right or
                      remedy available under the Loan Documents or law.

SECTION 8.4   SUSPENSION OF ADVANCES

              RUS may, in its absolute discretion, suspend making Advances
hereunder, if RUS determines that an event has occurred that is likely to have a
Material Adverse Effect on the Borrower.

SECTION 8.5   PAYMENT EXTENSIONS

              RUS may, at any time or times in succession without notice to or
the consent of the Borrower and upon such terms as RUS may prescribe, grant to
any person, firm or entity who shall have become obligated to pay all or any
part of the principal of or interest on any note held by or indebtedness owed to
RUS or who may be affected by the lien created by the Loan Documents, an
extension of the time for the payment of such principal or interest, and after
any such extension the Borrower will remain liable for the payment of such note
or indebtedness to the same extent as though it had at the time of such
extension consented thereto in writing.

                                                                         Page 19
<PAGE>

SECTION 8.6  RIGHT TO EXPEND MONEY

                RUS shall have the right (without prejudice to any of its rights
with respect to any Event of Default) to advance or expend moneys for the
purpose of procuring insurance, or for the payment of insurance premiums as
required hereunder, or to advance or expend moneys for the payment of taxes,
assessments or other charges, or to save the Collateral from sale or forfeiture
for any unpaid tax or assessment, or otherwise, or to redeem the same from any
tax or other sale, or to purchase any tax title thereon, or to remove or
purchase any mechanics' liens or other encumbrance thereon, or to make repairs
thereon or to comply with any covenant herein contained or to prosecute and
defend any suit in relation to the Collateral or in any manner to protect the
Collateral and the title thereto, and all sums so advanced for any of the
aforesaid purposes with interest thereon at the highest legal rate, but not in
excess of twelve per centum (12%) per annum shall be deemed a charge upon the
Collateral and shall be forthwith paid to RUS upon demand. It shall not be
obligatory for RUS in making any such advances or expenditures to inquire into
the validity of any such tax title, or of any such taxes or assessments or sales
therefor, or of any such mechanics' liens or other encumbrance.

SECTION 8.7 RIGHT TO FILE FINANCING STATEMENTS

              RUS shall have the right to file such financing statements and
continuation statements on its behalf, as secured party, and on behalf of the
Borrower, as debtor, as RUS deems necessary to perfect a first lien on the
Collateral and to maintain and preserve such perfected first lien as long as the
Loan remains outstanding. The Borrower shall reimburse RUS for any expenses
incurred in the exercise of this right.

                         ARTICLE IX - EVENTS OF DEFAULT

SECTION 9.1 EVENTS OF DEFAULT

              The following shall be events of default (each an "Event of
Default") under this Agreement:

              (a)     Representations and Warranties. Any representation or
                      warranty made by the Borrower in Loan Documents or any
                      certificate furnished to RUS under the Loan Documents, or
                      in the Application shall prove to have been incorrect in
                      any material respect at the time made;

              (b)     Non-Payment. The nonpayment of any required and due
                      installment of interest on, or principal of, any Note,
                      whether by acceleration or otherwise, which continues for
                      five (5) Business Days, as such term is herein defined;

              (c)     Corrective Actions. Default by the Borrower in the
                      observance or performance of Section 6.13;

              (d)     Limited Liability Companies. Default by the Borrower or
                      its members in the observance or performance of Section
                      7.3;

              (e)     Other Covenants. Default by the Borrower in the observance
                      or performance of any other covenant or agreement
                      contained in any of the Loan Documents, which shall remain
                      unremedied for thirty (30) calendar days after written
                      notice thereof shall have been given to the Borrower by
                      RUS;

              (f)     Adverse Effects. The Borrower shall forfeit or otherwise
                      be deprived of its charter, articles of organization,
                      franchises, permits, easements, consents or licenses
                      required to carry on any material portion of its business
                      or the Borrower files for or an event occurs which can
                      reasonably be expected to result in its dissolution or
                      termination;

                                                                         Page 20
<PAGE>

              (g)     Other Obligations. Default by the Borrower in the payment
                      of any obligation, whether direct or contingent, for
                      borrowed money in excess of ten thousand dollars
                      ($10,000.00) or in the performance or observance of the
                      terms of any instrument pursuant to which such obligation
                      was created or securing such obligation which default
                      shall have resulted in such obligation becoming or being
                      declared due and payable prior to the date on which it
                      would otherwise be due and payable;

              (h)     Bankruptcy. A court having jurisdiction in the premises
                      shall enter a decree or order for relief with respect to
                      the Borrower in an involuntary case under any applicable
                      bankruptcy, insolvency, or other similar law now or
                      hereafter in effect: (1) appointing a receiver,
                      liquidator, assignee, custodian, trustee, sequestrator, or
                      similar official, or (2) ordering the winding up or
                      liquidation of its affairs; or the Borrower shall commence
                      a voluntary case under any applicable bankruptcy,
                      insolvency or other similar law now or hereafter in
                      effect, or under any such law, or consent to the
                      appointment or taking possession by a receiver,
                      liquidator, assignee, custodian or trustee, of a
                      substantial part of its property, or make any general
                      assignment for the benefit of creditors;

              (i)     Dissolution or Liquidation. Other than as provided in the
                      immediately preceding subsection, the dissolution or
                      liquidation of the Borrower, or the filing of such by the
                      Borrower;

              (j)     Impaired Business. The failure by the Borrower to promptly
                      forestall or remove any execution, garnishment or
                      attachment of such consequence as shall impair its ability
                      to continue its business or fulfill its obligations and
                      such execution, garnishment or attachment shall not be
                      vacated within thirty (30) days; and/or

              (k)     Payment of Final Judgment. A final judgment in an amount
                      of ten thousand dollars ($10,000.00) or more shall be
                      entered against the Borrower and shall remain unsatisfied
                      or without a stay in respect thereof for a period of
                      thirty (30) days.

                              ARTICLE X - REMEDIES

SECTION 10.1 GENERALLY

              Upon the occurrence of an Event of Default, RUS may pursue all
rights and remedies available to RUS that are contemplated by the Loan Documents
in the manner, upon the conditions, and with the effect provided in the Loan
Documents, including, but not limited to, a suit for specific performance,
injunctive relief or damages. Nothing herein shall limit the right of RUS to
pursue all rights and remedies available to a creditor following the occurrence
of an Event of Default listed in Article IX hereof. Each right, power and remedy
of RUS shall be cumulative and concurrent, and recourse to one or more rights or
remedies shall not constitute a waiver of any other right, power or remedy.

SECTION 10.2  REMEDIES

              In addition to the remedies referred to in Section 10.1 hereof,
upon the occurrence of an Event of Default, RUS may:

              (a)     Refuse to make any advance or further advance on account
                      of the Loan, but any advance thereafter made by RUS shall
                      not constitute a waiver of such default;

              (b)     Declare all unpaid principal of and all interest accrued
                      on the Note(s) to be immediately due and payable and upon
                      such declaration all such principal and interest shall
                      become due and payable immediately;

                                                                         Page 21
<PAGE>
              (c)     Take immediate possession of the Collateral, collect and
                      receive all credits, outstanding accounts and bills
                      receivable of the Borrower and all rents, income, revenues
                      and profits pertaining to or arising from the Collateral,
                      or any part thereof, and issue binding receipts therefor;
                      manage and control and operate the Collateral as fully as
                      the Borrower might do if in possession thereof; RUS, any
                      employee or agent of RUS is hereby constituted and
                      appointed as true and lawful attorney-in-fact of the
                      Borrower with full power to (i) notify or require the
                      Borrower to notify any and all Customers that the
                      Collateral has been assigned to RUS and/or that RUS has a
                      security interest in the Collateral; (ii) endorse the name
                      of the Borrower upon any notes, checks, acceptances,
                      drafts, money orders, or other instruments or payment
                      (including payments made under any policy of insurance)
                      that may come into possession of RUS in full or part
                      payment of any amount owing to RUS; (iii) sign and endorse
                      the name of the Borrower upon any invoice, freight, or
                      express bill, bill of lading, storage or warehouse
                      receipt, assignment verification or notice in connection
                      with receivables; (iv) send requests for verifications of
                      Collateral to customers or account debtors; (v) sell,
                      assign, sue for, collect, or compromise payment of all any
                      part of the Collateral in the name of the Borrower or in
                      its own name, or make any other disposition of Collateral,
                      or any part thereof, which disposition may be for cash,
                      credit, or any combination thereof, and RUS may purchase
                      all or any part of the Collateral at public or, if
                      permitted by law, private sale, and in lieu of actual
                      payment of such purchase price may set off the amount of
                      such price against the Obligations; granting to RUS, as
                      the attorney-in-fact of the Borrower, full power of
                      substitution and full power to do any and all things
                      necessary to be done in and about the premises fully and
                      effectually as the Borrower might or could do but for this
                      appointment, hereby ratifying all that said
                      attorney-in-fact shall lawfully do or cause to be done by
                      virtue hereof. Neither RUS, its employees, nor agents
                      shall be liable for any act or omissions or for any error
                      of judgment or mistake of fact or law in its capacity as
                      such attorney-in-fact. This power of attorney is coupled
                      with an interest and shall be irrevocable during the term
                      of this Agreement and so long as any Obligations shall
                      remain outstanding;

              (d)     RUS shall have the right to enter and/or remain upon the
                      premises of the Borrower without any obligation to pay
                      rent to the Borrower or others, or any other place or
                      places where any of the Collateral is located and kept
                      and: (i) remove the Collateral therefrom in order to
                      maintain, collect, sell, and/or liquidate the Collateral
                      or, (ii) use such premises, together with materials,
                      supplies, books, and records of the Borrower, to maintain
                      possession and/or the condition of the Collateral, and to
                      prepare the Collateral for sale, liquidation, or
                      collection. RUS may require the Borrower to assemble the
                      Collateral and make it available to RUS at a place to be
                      designated by RUS;

              (e)     RUS shall have the right, without prior notice to the
                      Borrower, to exercise rights of setoff or recoupment and
                      apply any and all amounts held or hereafter held, by RUS
                      or owed to the Borrower or for the credit of the Borrower
                      against any and all of the Obligations. RUS agrees to
                      notify the Borrower promptly after any such setoff or
                      recoupment and the application thereof, provided that the
                      failure to give such notice shall not affect the validity
                      of such setoff, recoupment or application. Borrower waives
                      all rights of setoff, deduction, recoupment or
                      counterclaim; and/or

              (f)     RUS shall have, in addition to any other rights and
                      remedies contained in this Agreement, and in any other
                      agreements, guarantees, notes, mortgages, instruments, and
                      documents heretofore, now, or at any time or times
                      hereafter executed by the Borrower and delivered to RUS,
                      all of the rights and remedies of a secured party under
                      the Uniform Commercial Code in force in the state
                      identified in the first paragraph hereof, as well as the
                      state where the Collateral is located, as of the date
                      hereof, all of which rights and remedies shall be
                      cumulative, and nonexclusive.

                                                                         Page 22
<PAGE>

SECTION 10.3   NOTICES OF ACTIONS AGAINST COLLATERAL

               Any notice required to be given by RUS of a sale or other
disposition or other intended action by RUS with respect to any of the
Collateral, or otherwise, made in accordance with this Agreement at least five
(5) days prior to such proposed action, shall constitute fair and reasonable
notice to the Borrower of any such action.

SECTION 10.4  APPLICATION OF PROCEEDS

              Any proceeds or funds arising from the exercise of any rights or
the enforcement of any remedies herein provided after the payment or provision
for the payment of any and all costs and expenses in connection with the
exercise of such rights or the enforcement of such remedies shall be applied
first, to the payment of indebtedness hereby secured other than the principal of
or interest on the Notes; second, to the ratable payment of interest which shall
have accrued on the Notes and which shall be unpaid; third, to the ratable
payment of or on account of the unpaid principal of the Notes, and the balance,
if any, shall be paid to whosoever shall be entitled thereto.

                           ARTICLE XI - MISCELLANEOUS

SECTION 11.1 NOTICES

              All notices, requests and other communications provided for herein
including, without limitation, any modifications of, or waivers, requests or
consents under, this Agreement shall be given or made in writing (including,
without limitation, by telecopy) and delivered to the intended recipient at the
"Address for Notices" specified below; or, as to any party, at such other
address as shall be designated by such party in a notice to each other party.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telecopier or personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as provided for herein. The Addresses for Notices of the respective
parties are as follows:
<TABLE>
<CAPTION>

                                    RUS                                                          Borrower
                                    ---                                                          --------
                      <S>                                                                              <C>
                      Rural Utilities Service                                                    See Schedule 1
                      United States Department of Agriculture
                      1400 Independence Avenue, S.W.
                      Washington, D.C.20250-1500
                      Attention: Administrator

                      Fax: (202) 720-1725

                      With a copy to:                                                            With a copy to:
                      ---------------                                                            ---------------
                      Rural Utilities Service                                                    See Schedule 1
                      United States Department of Agriculture1
                      1400 Independence Avenue, S.W.
                      Stop 1599, Room No.  2844
                      Washington, D.C. 20250-1599
                      Attention: Kenneth Kuchno
                      Fax: (202) 690-4389
</TABLE>

SECTION 11.2 EXPENSES

              To the extent allowed by law, the Borrower shall pay all costs and
expenses of RUS, including reasonable fees of counsel, incurred in connection
with the enforcement of the Loan Documents or with the preparation for such
enforcement if RUS has reasonable grounds to believe that such enforcement may
be necessary.

                                                                         Page 23
<PAGE>

SECTION 11.3 LATE PAYMENTS

              If payment of any amount due hereunder is not received at the
United States Treasury in Washington, DC, or such other location as RUS may
designate to the Borrower within five (5) Business Days after the due date
thereof or such other time period as RUS may prescribe from time to time in its
policies of general application in connection with any late payment charge (such
unpaid amount being herein called the "delinquent amount", and the period
beginning after such due date until payment of the delinquent amount being
herein called the "late-payment period"), the Borrower shall pay to RUS, in
addition to all other amounts due under the terms of the Notes, the Mortgage and
this Agreement, any late payment charge as may be fixed by RUS Regulations from
time to time on the delinquent amount for the late-payment period.

SECTION 11.4 FILING FEES

              To the extent permitted by law, the Borrower agrees to pay all
expenses of RUS (including the fees and expenses of its counsel) in connection
with the filing or recordation of all financing statements and instruments as
may be required by RUS in connection with this Agreement, including, without
limitation, all documentary stamps, recordation and transfer taxes and other
costs and taxes incident to recordation of any document or instrument in
connection herewith. Borrower agrees to save harmless and indemnify RUS from and
against any liability resulting from the failure to pay any required documentary
stamps, recordation and transfer taxes, recording costs, or any other expenses
incurred by RUS in connection with this Agreement. The provisions of this
section shall survive the execution and delivery of this Agreement and the
payment of all other amounts due hereunder or due on the Notes.

SECTION 11.5 NO WAIVER

              No failure on the part of RUS to exercise, and no delay in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise by RUS of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right.

SECTION 11.6 GOVERNING LAW

              This Agreement shall be governed by and construed in accordance
with applicable federal law and, in the absence of controlling federal law, by
the laws of the District of Columbia, except those that would render such choice
of law ineffective.

SECTION 11.7 HOLIDAY PAYMENTS

              If any payment to be made by the Borrower hereunder shall become
due on a day

<PAGE>

Page 27

that is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in computing any
interest in respect of such payment.

SECTION 11.8 RESCISSION

              The Borrower may elect not to borrow the Loan, in which event RUS
shall release the Borrower from its obligations hereunder, provided the Borrower
complies with such terms and conditions as RUS may impose for such release.

SECTION 11.9  SUCCESSORS AND ASSIGNS

              (a)     This Agreement shall be binding upon and inure to the
                      benefit of the Borrower and RUS and their respective
                      successors and assigns, except that the Borrower may not
                      assign or transfer its rights or obligations hereunder
                      without the prior written consent of RUS.

                                                                         Page 24
<PAGE>

              (b)     Pursuant to federal claims collection laws, RUS' claims
                      hereunder may be transferred to other agencies of the
                      United States of America; in the event of such a transfer,
                      all rights and remedies hereby granted or conferred on RUS
                      shall pass to and inure to the benefit of any such
                      successor agency.

SECTION 11.10 COMPLETE AGREEMENT; WAIVERS AND AMENDMENTS

              Subject to RUS Regulations, this Agreement and the other Loan
Documents are intended by the parties to be a complete and final expression of
their agreement. However, RUS reserves the right to waive its rights to
compliance with any provision of this Agreement and the other Loan Documents. No
amendment, modification, or waiver of any provision hereof or thereof, and no
consent to any departure of the Borrower herefrom or therefrom, shall be
effective unless approved in writing by RUS in the form of either a RUS
Regulation or other writing signed by or on behalf of RUS, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.

SECTION 11.11 HEADINGS

              The headings and sub-headings contained in the titling of this
Agreement are intended to be used for convenience only and do not constitute
part of this Agreement.

SECTION 11.12 SEVERABILITY

              If any term, provision, condition, or any part thereof, of this
Agreement, Note(s) or the Security Documents shall for any reason be found or
held invalid or unenforceable by any governmental agency or court of competent
jurisdiction, such invalidity or unenforceability shall not affect the remainder
of such term, provision, or condition nor any other term, provision, or
condition, and this Agreement, the Note(s), and the Security Documents shall
survive and be construed as if such invalid or unenforceable term, provision or
condition had not been contained therein.

SECTION 11.13 RIGHT OF SETOFF

              Upon the occurrence and during the continuance of any Event of
Default, RUS is hereby authorized at any time and from time to time, without
prior notice to the Borrower, to exercise rights of setoff or recoupment and
apply any and all amounts held or hereafter held, by RUS or owed to the Borrower
or for the credit or account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing hereunder or under the
Note(s). RUS agrees to notify the Borrower promptly after any such setoff or
recoupment and the application thereof, provided that the failure to give such
notice shall not affect the validity of such setoff, recoupment or application.
The rights of RUS under this section are in addition to any other rights and
remedies (including other rights of setoff or recoupment) which RUS may have.
Borrower waives all rights of setoff, deduction, recoupment or counterclaim.

SECTION 11.14 SCHEDULES AND ATTACHMENTS

              Each Schedule and Attachment attached hereto and referred to
herein is each an integral part of this Agreement.

SECTION 11.15 AUTHORITY OF REPRESENTATIVES OF RUS

               In the case of any consent, approval or waiver from RUS that is
required under this Agreement or any other Loan Document, such consent, approval
or waiver must be in writing and signed by an authorized RUS representative to
be effective. As used in this section, "authorized RUS representative" means the
Administrator of RUS, and also means a person to whom the Administrator has
officially delegated specific or general authority to take the action in
question.

                                                                         Page 25
<PAGE>

SECTION 11.16 AMENDMENT OF LAWS AND RUS REGULATIONS

              Nothing contained herein shall restrict in any way RUS' right to
amend, rescind or supplement any of the RUS Regulations or to seek such changes
to existing laws.

SECTION 11.17 TERM

              This Agreement shall remain in effect until one of the following
two events has occurred:

              (a) The Borrower and RUS replace this Agreement with another
written agreement; or

              (b) All of the Borrower's obligations under this Agreement have
been discharged and paid.

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

                            PEGASUS RURAL BROADBAND, LLC

                            by  /s/ Howard E. Verlin
                                Executive Vice President
                                Pegasus Satellite Communications Holdings, Inc.
                                as sole member of
                                Pegasus Rural Broadband, LLC

(Seal)

Attested to by:  /s/ Scott A. Blank
                      Secretary

                            UNITED STATES OF AMERICA

                            by       /s/ Curtis M. Anderson
                                     Acting Administrator
                                     of the Rural Utilities Service

                                                                         Page 26
<PAGE>

                                   SCHEDULE 1

Article II    Representations and Warranties

1. Paragraph (h) Borrower's address:

                                    PEGASUS RURAL BROADBAND, LLC
                                    C/O PEGASUS COMMUNICATIONS CORPORATION
                                    225 CITY LINE AVENUE, SUITE 200
                                    BALA CYNWYD, PENNSYLVANIA  19004

2. Paragraph (i) Borrower's Organization Number: 3572968

3. Paragraph (j) Borrower's Subsidiaries: NONE

4. Paragraph (j) Borrower's Parent: PEGASUS SATELLITE COMMUNICATIONS HOLDINGS,
INC.

Article III   The Loans

<PAGE>

1.       Section 3.1(a) Loan amount: $13,044,431

2.       Section 3.1(b) Loan portion at the cost-of-money interest rate:
         $13,044,431

3.       Section 3.1(b) Loan portion at the four percent (4%) rate of interest:
         $0

Article V     Conditions of Lending

1.       Section 5.2(b) amount of fidelity bond coverage: $1,957,000

2.       Section 5.2(c)(i) level of funds required on deposit in accordance with
         7 C.F.R. 1738.20(b): $2,100,000.

3.       Section 5.2(c)(ii) level of funds required on deposit for operating
         expenses: $4,000,000.

4.       The additional conditions to advance referred to in Section 5.3(j) are
         as follow:

         (A) THE BORROWER SHALL SUBMIT AN ORDER, SATISFACTORY TO RUS, OF
             THE UNITED STATES BANKRUPTCY COURT, DISTRICT OF MAINE
             CONFIRMING THE DEBTOR'S FIRST AMENDED JOINT CHAPTER 11 PLAN,
             AS IT MAY BE AMENDED, IN CASE NUMBER 04-20878 (IN RE PEGASUS
             SATELLITE TELEVISION, INC., ET AL);

         (B) THAT THE BORROWER HAS ENTERED INTO, SATISFACTORY TO RUS:

                 (1)  SERVICE AGREEMENTS WITH OKS-AMERIDIAL, INC.

                 (2)  INTERCONNECTION AGREEMENTS WITH SERVICE PROVIDERS IN
                      ABILENE, CORPUS CHRISTI AND LUBBOCK, TEXAS, TO
                      PROVIDE SUFFICIENT BANDWIDTH TO THE INTERNET TO OFFER
                      THE PROPOSED BROADBAND SERVICES;

         (C) ADVANCES WILL NOT BE MADE FOR ANY TOWER LOCATION UNTIL THE
             BORROWER HAS SUBMITTED LEASE AGREEMENTS, SATISFACTORY TO RUS,
             FOR THOSE SITES; AND

         (D) BORROWER MUST SUBMIT QUARTERLY CONSTRUCTION SCHEDULES
             DEMONSTRATING THAT IT HAS MET THE PROJECTED GOALS FOR
             COMMUNITY BUILD OUT AND SUBSCRIBER CONNECTIONS AS OUTLINED IN
             THE APPLICATION.

                                                                         Page 27
<PAGE>

Article VI    Affirmative Covenants

1.       Section 6.4 Additional Funds: $0

2.       Section 6.4 Additional Purposes: NONE

3.       Section 6.8(b) Additional Reporting Dates: NONE

<PAGE>

4.       Section 6.11 TIER: 2.00

5.       Section 6.11 TIER Commencement Date: DECEMBER 31, 2007

6.       The additional affirmative covenants referred to in Section 6.22 are as
         follows:

              BORROWER AGREES THAT UPON ACQUIRING REAL PROPERTY, IT WILL EXECUTE
A STANDARD MORTGAGE WITH RUS.

Article VII   Negative Covenants

1.       The additional negative covenants referred to in Section 7.18 are as
         follows: NONE

Article XI    Miscellaneous

1.       Section 11.1 Borrower's address for purposes of notification:

         PEGASUS RURAL BROADBAND, LLC
         C/O PEGASUS COMMUNICATIONS MANAGEMENT COMPANY
         225 CITY LINE AVENUE, SUITE 200
         BALA CYNWYD, PENNSYLVANIA  19004
         ATTENTION: HOWARD E. VERLIN, EXECUTIVE VICE PRESIDENT
         FAX:  610-934-7072

2.       Section 11.1 Address for Borrower's notification copy:

         PEGASUS RURAL BROADBAND LLC
         C/O PEGASUS COMMUNICATIONS MANAGEMENT COMPANY
         225 CITY LINE AVENUE
         SUITE 200
         BALA CYNWOOD, PA 19004
         ATTENTION:  SCOTT A. BLANK, SENIOR VICE PRESIDENT & GENERAL COUNSEL
         FAX: (610) 934-7072

                                                                         Page 28
<PAGE>

                                   SCHEDULE 2

1. Collateral shall include the following:

                  All property, assets, rights, privileges, licenses and
franchises of the Borrower of every kind and description, real, personal or
mixed, tangible and intangible, of the kind or nature specifically mentioned
herein, or any other kind or nature now owned or hereafter acquired or arising
by the Borrower (by purchase, consolidation, merger, donation, construction,
erection or in any other way) wherever located, including without limitation all
or in part the following (hereinafter the "Collateral:")

                                        I

                  All right, title, and interest of the Borrower in and to the
Existing Facilities, buildings, plants, works, improvements, structures,
estates, grants, franchises, easements, rights, privileges and properties,
whether real, personal, or mixed, tangible or intangible, of every kind or
description, now or hereafter owned, leased, constructed, or acquired by the
Borrower, wherever located, and in and to all extensions, improvements, and
additions thereto, including but not limited to all buildings, plants, works,
structures, towers, antennas, fixtures, apparatus, materials, supplies,
machinery, tools, implements, poles, posts, crossarms, conduits, ducts, lines,
wires, cables, whether underground, overhead, or otherwise, exchanges, switches,
including, without limitation, host and remote switches, desks, testboards,
frames, racks, motors, generators, batteries, and other items of central office
equipment, pay stations, protectors, instruments, connections and appliances,
office furniture, equipment, and any and all other property of every kind,
nature, and description, used, useful, or acquired for use by the Borrower in
connection therewith;

                                       II

                  All right, title, and interest of the Borrower in, to, and
under any and all grants, privileges, rights of way and easements now owned,
held, leased, enjoyed or exercised, or which may hereafter be owned, held,
leased, acquired, enjoyed or exercised, by the Borrower for the purposes of, or
in connection with, the construction or operation by, or on behalf of, the
Borrower of its properties, facilities, systems, or businesses, whether
underground, overhead, or otherwise, wherever located;

                                       III

                  All right, title, and interest of the Borrower in, to, and
under any and all licenses and permits (including without limitation those
granted by the FCC), franchises, ordinances, and privileges, whether heretofore
or hereafter granted, issued, or executed, to it or to its assignors by the
Government, or by any state, county, township, municipality, village, or other
political subdivision thereof, or by any agency, board, commission, or
department of any of the foregoing, authorizing the construction, acquisition,
or operation of the Borrower's properties, facilities, systems, or businesses,
insofar as the same may by law be assigned, granted, bargained, sold, conveyed,
transferred, mortgaged, or pledged;

                                       IV

                  All right, title, and interest of the Borrower in, to, and
under all personal property and fixtures of every kind and nature, including
without limitation all goods (such as inventory, equipment and any accessions
thereto), instruments (such as promissory notes or chattel paper, electronic or
otherwise), documents, accounts (such as deposit accounts or trust accounts
pursuant hereto or to a loan agreement), letter-of-credit rights, investment
property (such as certificated and uncertificated securities or security
entitlements and accounts,) software, general intangibles (such as payment
intangibles), supporting obligations, contract rights or rights to the payment
of money, insurance claims, and proceeds (as such terms are presently and
hereafter defined in the UCC; provided, however, that the term "instrument"
shall be such term as defined in Article 9 of the UCC rather than Article 3);

                                                                         Page 29
<PAGE>

                                        V

                  All right, title, and interest of the Borrower in, to, and
under any and all agreements, leases or contracts heretofore or hereafter
executed by and between the Borrower and any person, firm, corporation, or other
corporate entity relating to the Collateral (including contracts for the lease,
occupancy, or sale of the Pledged Property, or any portion thereof);

                                       VI

                  All right, title, and interest of the Borrower in, to, and
under any and all books, records and correspondence relating to the Pledged
Property, including, but not limited to, all records, ledgers, leases, computer
and automatic machinery, software, programs, databases, disc or tape files,
print-outs, batches, runs, and other electronically-prepared information
indicating, summarizing, evidencing, or otherwise necessary or helpful in the
collection or realization on the Collateral;

                                       VII

                  Also, all right, title, and interest of the Borrower in, to,
and under all other property, real or personal, tangible or intangible, of every
kind, nature, and description, and wherever situated, now or hereafter owned or
leased by the Borrower, it being the intention hereof that all such property now
owned or leased but not specifically described herein, or acquired or held by
the Borrower after the date hereof, shall be as fully embraced within and
subjected to the lien hereof as if the same were now owned by the Borrower and
were specifically described herein to the extent only, however, that the
subjection of such property to the lien hereof shall not be contrary to law;

                  Together with all rents, income, revenues, proceeds, products,
profits and benefits at any time derived, received, or had from any and all of
the above-described property of the Borrower;

                  Provided, however, that except as provided in the Loan and
Security Agreement, no automobiles, trucks, trailers, tractors or other vehicles
(including without limitation aircraft or ships, if any) owned or used by the
Borrower shall be included in the Collateral.

2.       Additionally, property pledged as Collateral shall also include the
         following specifically described property, if any: NONE

                                                                         Page 30
<PAGE>

                                    EXHIBIT A

                         CERTIFICATION OF REIMBURSEMENT

         The attached requisition for Loan Advances in the amount of
$____________________, is to reimburse Pegasus Rural Broadband, LLC for funds
spend on RUS approved loan purposes, as described in the attached requisition.

                                                     --------------------------
                                                     Title:

                                                                         Page 31<PAGE>

                                 PROMISSORY NOTE

                                                       Pennsylvania 1101-A31
                                                       Bala Cynwyd, Pennsylvania

                  THIS PROMISSORY NOTE (hereinafter the "Note,") dated as of
June 1, 2005, is made by PEGASUS RURAL BROADBAND, LLC. (hereinafter the
"Borrower,") a limited liability company duly organized and existing under the
laws of the State of Delaware, to the UNITED STATES OF AMERICA, (hereinafter the
"Government,") acting through the Administrator of the Rural Utilities Service
("RUS.") For value received, the Borrower promises to pay to the order of the
Government, at the United States Treasury, Washington, D.C., Thirteen Million
Forty-four Thousand Four Hundred Thirty-one dollars ($13,044,431), with interest
payable, from the date of each advance, on the amount advanced by the Government
(hereinafter the "Advance,") pursuant to a certain Loan and Security Agreement,
dated the same date as this Note (hereinafter the "Loan and Security
Agreement,") made by and between the Borrower and the Government , and remaining
unpaid from time to time, in the time and manner herein provided:

1.       Interest Rate. Interest on each Advance shall be at rate(s) per annum,
         published by the Secretary of the Treasury, which shall be equal to the
         cost of borrowing of the Department of Treasury for obligations, as
         determined by the Government, of comparable maturity (hereinafter the
         "Direct Cost of Money Interest Rate.")

2.       Maturity Date. On a date ten (10) years after the date hereof, the
         principal hereof advanced pursuant to the Loan and Security Agreement
         and remaining unpaid, if any, and interest thereon, shall be due and
         payable (hereinafter the "Maturity Date.")

3.       Fund Advance Period. Funds will be advanced pursuant to the Loan and
         Security Agreement. The fund advance period for this Note begins on the
         date hereof and terminates five (5) years from the date of this Note
         (hereinafter the "Termination Date.") No funds will be advanced
         subsequent to the Termination Date unless the Administrator extends the
         fund advance period in accordance with the Loan and Security Agreement.

4.       Payments on Advances.

         (a)      Made Within One (1) Year. Interest on Advances made during the
                  first year from the date of the first Advance hereunder, and
                  remaining unpaid, shall be payable on the last day of each
                  month (hereinafter the "Monthly Payment Date,") beginning on
                  the last day of the month following the month of each Advance
                  for the period ending one (1) year from the date of the first
                  Advance hereunder. Thereafter, to and including the Maturity
                  Date, the Borrower shall make a payment every Monthly Payment
                  Date on each Advance made during such period which shall be:
                  (i) substantially equal to all subsequent monthly payments and
                  (ii) in an amount that will pay all principal and interest due
                  on each Advance no later than the Maturity Date.

                                                                          Page 1
<PAGE>

         (b)      Made After One (1) Year. Interest and principal payments on
                  Advances made more than one (1) year after the date of the
                  first Advance hereunder shall be repaid in installments
                  beginning with the Monthly Payment Date of the month following
                  each Advance and ending on the Maturity Date. The first such
                  payment on an Advance shall be increased by the amount of
                  interest accruing between the date of the Advance and the
                  first day of the next month. Thereafter, to and including the
                  Maturity Date, the Borrower shall make a payment every Monthly
                  Payment Date on each Advance (i) substantially equal to every
                  other monthly payment on such Advance, and (ii) in an amount
                  that will pay all principal and interest of such Advance no
                  later than the Maturity Date. This payment shall be in
                  addition to the payment on the Advances made within one (1)
                  year from the date of the first Advance hereunder and
                  remaining unpaid.

5.       Application of Payments. Each payment made on this Note shall be
         applied as follows: First, to expenses, costs and penalties; Second, to
         late charges; Third, to the payment of interest on principal; and
         Fourth, to principal.

6.       Prepayment. All, or a portion of the outstanding balance, of any
         Advance may be prepaid on any payment date, as herein provided.
         However, so long as any of the principal advanced pursuant to the Loan
         and Security Agreement shall remain unpaid, the Borrower shall be
         obligated to make the monthly payment on account of principal and
         interest, in the amount provided herein, unless the Borrower and the
         Government shall otherwise agree, in writing.

7.       Late Payments. A late charge shall be charged on any payment not made
         within five (5) days of the date the payment becomes due. The late
         charge rate shall be computed on the payment from the due date at a
         rate equal to the rate of the cost of funds to the United States
         Treasury as prescribed and published by the Secretary of the Treasury.
         In addition, the Borrower shall pay administrative costs and penalty
         charges assessed in accordance with applicable Government regulations.
         Acceptance by the Government of a late payment shall not be deemed to
         be a waiver of any right or remedy of the Government.

8.       Security. This Note is secured by a security interest in collateral
         described in the Loan and Security Agreement. Rights and obligations
         with respect to the collateral are stated therein.

9.       Noteholder. This Note evidences indebtedness created by a loan made
         under the Rural Electrification Act (7 U.S.C. ss. 901 et seq.). The
         Government shall be and shall have all rights as holder of this Note.

10.      Default. In an event of default, as provided in the Loan and Security
         Agreement, all principal advanced pursuant to the Loan and Security
         Agreement and remaining unpaid on this Note, and all interest thereon
         may be declared or may become due and payable in the manner and with
         the effect provided in the Loan and Security Agreement.

                                                                          Page 2
<PAGE>

11.      Costs. The Borrower shall pay any and all costs and expenses incurred
         in connection with the exercise of rights or the enforcement of
         remedies, as set forth in the Loan and Security Agreement.

12.      Waivers. The Borrower waives demand, presentment for payment, notice of
         non-payment, notice of dishonor, protest, and notice of non-payment of
         this Note.

13.      Obligations. The obligations of the Borrower hereunder are absolute and
         unconditional, irrespective of any defense or any right to set off,
         recoupment, or counterclaim it might otherwise have against the
         Government.

         IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in
its corporate or legal name and its corporate seal, if any, to be hereunto
affixed and attested by its officers thereunto duly authorized, all as of the
day and year first above written.

                                BORROWER:
                                PEGASUS RURAL BROADBAND, LLC

                                By: /s/ Howard E. Verlin
                                Executive Vice President
                                Pegasus Satellite Communications Holdings, Inc.
                                as sole member of
                                Pegasus Rural Broadband, LLC

(SEAL)

Attested to by: /s/ Scott A. Blank
                  Secretary

                                                                          Page 3

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