Document:

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EXHIBIT 10.4

                                                                  EXECUTION COPY

                                4,260,000 Shares

                    Commonwealth Telephone Enterprises, Inc.

                     Common Stock, par value $1.00 per share

                             UNDERWRITING AGREEMENT

March 26, 2002

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                                                              New York, New York
                                                                  March 26, 2002

Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036

As Representative of the several Underwriters
named in Schedule I hereto,

Dear Ladies and Gentlemen:

     Eldorado Equity Holdings, Inc. (the "Selling Stockholder") proposes to sell
to the several underwriters named in Schedule I hereto (the "Underwriters"), for
whom you are acting as representative (the "Representative"), an aggregate of
4,260,000 shares (the "Firm Shares") of the common stock, par value $1.00 per
share, of Commonwealth Telephone Enterprises, Inc., a Pennsylvania corporation
(the "Company").

     The Selling Stockholder also proposes to sell to the several Underwriters
not more than an additional 638,000 shares of the common stock, par value $1.00
per share of the Company (the "Additional Shares"), if and to the extent that
you, as Representative, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such Additional Shares granted to the
Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares". The shares of common
stock, par value $1.00 per share, of the Company, together with all other
classes of common stock of the Company, are hereinafter referred to as the
"Common Stock".

     The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares (Commission file no. 333-82366). The registration statement as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Securities Act of 1933, as amended (the "Securities Act"), is
hereinafter referred to as the "Registration Statement"; the prospectus in the
form first used to confirm sales of Shares is hereinafter referred to as the
"Prospectus". If the Company has filed an abbreviated registration statement to
register additional shares of Common Stock pursuant to Rule 462(b) under the
Securities Act (the "Rule 462 Registration Statement"), then any reference
herein to the term "Registration Statement" shall be deemed to include such Rule
462 Registration Statement. Any reference herein to the Registration Statement,
any preliminary prospectus or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 which were filed under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), on or before the effective date of the Registration
Statement or the issue date of such preliminary prospectus or the Prospectus, as
the case may be; and any reference herein to the terms "amend," "amendment" or
"supplement" with respect to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to refer to and include the filing
of any document under the Exchange Act after the effective date of the
Registration Statement or the issue date of any preliminary prospectus or the
Prospectus, as the case may be, deemed to be incorporated therein by reference.

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     1. Representations and Warranties of the Company. The Company represents
and warrants to and agrees with each of the Underwriters that:

          (a) The Registration Statement has become effective; no stop order
     suspending the effectiveness of the Registration Statement is in effect,
     and no proceedings for such purpose are pending before or, to the knowledge
     of the Company, threatened by the Commission.

          (b) (i) Each document, if any, filed or to be filed pursuant to the
     Exchange Act and incorporated by reference in the Prospectus complied or
     will comply when so filed in all material respects with the Exchange Act
     and the applicable rules and regulations of the Commission thereunder, (ii)
     the Registration Statement and any amendments thereto, as of their
     respective effective dates, did not contain or, as the case may be, will
     not contain any untrue statement of a material fact or omit to state a
     material fact required to be stated therein or necessary to make the
     statements therein not misleading, (iii) the Registration Statement and any
     of the amendments thereto, as of their respective effective dates, and the
     Prospectus, as of its issue date and, as amended or supplemented, if
     applicable, complied or will comply in all material respects with the
     Securities Act and the applicable rules and regulations of the Commission
     thereunder and (iv) the Prospectus, as of its issue date and, as amended or
     supplemented, if applicable, does not and will not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements therein, in the light of the circumstances under which
     they were made, not misleading, except that the representations and
     warranties set forth in this paragraph do not apply to statements or
     omissions in the Registration Statement or the Prospectus or any amendment
     or supplement thereto based upon information relating to any Underwriter
     furnished to the Company in writing by such Underwriter through you
     expressly for use therein or relating to the Selling Stockholder furnished
     to the Company in writing by the Selling Stockholder expressly for use
     therein.

          (c) The Company has been duly incorporated, is validly subsisting as a
     corporation under the laws of the Commonwealth of Pennsylvania, has the
     corporate power and authority to own its property and to conduct its
     business as described in the Prospectus and is duly qualified to transact
     business and is in good standing in each jurisdiction in which the conduct
     of its business or its ownership or leasing of property requires such
     qualification, except to the extent that the failure to be so qualified or
     be in good standing would not reasonably be expected to have a material
     adverse effect on the Company and its subsidiaries, taken as a whole.

          (d) Each subsidiary of the Company that would be a "significant
     subsidiary" of the Company within the meaning of Rule 1-02 under Regulation
     S-X promulgated by the Commission (each a "Material Subsidiary") has been
     duly incorporated or otherwise organized, is validly existing as a
     corporation, limited liability company, or partnership, as the case may be,
     in good standing under the laws of the jurisdiction of its incorporation or
     organization, has the corporate, limited liability company, or partnership,
     as the case may be, power and authority to own its property and to conduct
     its business as described

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     in the Prospectus and is duly qualified to transact business and is in good
     standing in each jurisdiction in which the conduct of its business or its
     ownership or leasing of property requires such qualification, except to the
     extent that the failure to be so qualified or be in good standing would not
     reasonably be expected to have a material adverse effect on the Company and
     its subsidiaries, taken as a whole; all of the outstanding shares of
     capital stock of each subsidiary of the Company have been duly and validly
     authorized and issued, are fully paid and non-assessable and, except as
     otherwise set forth or incorporated by reference in the Prospectus, are
     owned directly or indirectly by the Company, free and clear of all liens,
     encumbrances, equities or claims.

          (e) This Agreement has been duly authorized, executed and delivered by
     the Company, and the Company has the corporate power to enter into this
     Agreement and perform its obligations hereunder.

          (f) The authorized equity capitalization of the Company conforms in
     all material respects as to legal matters to the description thereof
     contained in the Prospectus.

          (g) All outstanding shares of Common Stock (including the Shares) have
     been duly authorized and are validly issued, fully paid and non-assessable.

          (h) The execution and delivery by the Company of, and the performance
     by the Company of its obligations under, this Agreement (i) will not
     violate any provision of the amended and restated articles of incorporation
     (as amended) or the amended and restated by-laws (as amended) of the
     Company and (ii) will not violate any provision of law applicable to the
     Company or any of its subsidiaries, any agreement or other instrument
     binding upon the Company or any of its subsidiaries or any judgment, order
     or decree of any governmental body, agency or court having jurisdiction
     over the Company or any subsidiary, except in each case set forth in this
     clause (ii) for violations that would not reasonably be expected to have a
     material adverse effect on the Company and its subsidiaries, taken as a
     whole, or the Company's ability to perform its obligations hereunder; and
     no filing, consent, approval, authorization or order of, or qualification
     with, any governmental body or agency is required for the execution,
     delivery or performance of this Agreement by the Company, except such as
     may be required by (A) the securities or Blue Sky laws of the various
     states in connection with the offer and sale of the Shares or (B) the
     Federal Communications Commission, the Pennsylvania Public Utility
     Commission or any other governmental body or agency with regulatory control
     over the Company's industry.

          (i) There has not occurred any material adverse change, or any
     development involving a prospective material adverse change, in the
     condition, financial or otherwise, or in the earnings, business or
     operations of the Company and its subsidiaries, taken as a whole, from that
     set forth in the Prospectus.

          (j) There are no legal or governmental proceedings pending or, to the
     knowledge of the Company, threatened to which the Company or its Material
     Subsidiaries is a party or to which any of the properties of the Company or
     its Material Subsidiaries is subject that are required to be described in
     the Registration Statement or the Prospectus and are not so described or
     any statutes, regulations, contracts or other documents that are required
     to be described in the Registration Statement or the Prospectus that are
     not described as required. There are no contracts or other documents
     required to be filed as exhibits to the Registration Statement that are not
     filed as required.

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                  (k) Any preliminary prospectus filed as part of the
         registration statement as originally filed or as part of any amendment
         thereto, or filed pursuant to Rule 424 under the Securities Act,
         complied when so filed in all material respects with the Securities Act
         and the applicable rules and regulations of the Commission thereunder.

               (l) The Company is not, and after giving effect to the offering
          and sale of the Shares and the application of the proceeds thereof as
          described in the Prospectus will not be, required to register as an
          "investment company" as such term is defined in the Investment Company
          Act of 1940, as amended.

               (m) The Company and its Material Subsidiaries possess all
          licenses, certificates, permits and other authorizations issued by the
          appropriate Federal, state or foreign regulatory authorities necessary
          to conduct their respective businesses material to the Company and its
          subsidiaries, taken as a whole, and neither the Company nor any such
          subsidiary has received any notice of proceedings relating to the
          revocation or modification of any such certificate, authorization or
          permit which, singly or in the aggregate, would reasonably be expected
          to have a material adverse effect on the Company and its subsidiaries,
          taken as a whole, whether or not arising from transactions in the
          ordinary course of business.

               (n) To the knowledge of the Company, the Company and its Material
          Subsidiaries (i) are in compliance with any and all applicable
          Federal, state and local laws and regulations relating to the
          protection of human health and safety, the environment or hazardous or
          toxic substances or wastes, pollutants or contaminants ("Environmental
          Laws"), (ii) have received all permits, licenses or other approvals
          required of them under applicable Environmental Laws to conduct their
          respective businesses and (iii) are in compliance with all terms and
          conditions of any such permit, license or approval, except, in the
          case of all matters set forth in clauses (i), (ii) and (iii), as set
          forth in the Prospectus and except where such noncompliance with
          Environmental Laws, failure to receive required permits, licenses or
          other approvals or failure to comply with the terms and conditions of
          such permits, licenses or approvals would not reasonably be expected
          to, singly or in the aggregate, have a material adverse effect on the
          Company and its subsidiaries, taken as a whole.

               (o) There are no costs or liabilities known to the Company
          associated with Environmental Laws (including, without limitation, any
          capital or operating expenditures required for clean-up, closure of
          properties or compliance with Environmental Laws or any permit,
          license or approval, any related constraints on operating activities
          and any potential liabilities to third parties) which would reasonably
          be expected to, singly or in the aggregate, have a material adverse
          effect on the Company and its subsidiaries, taken as a whole.

               (p) There are no contracts, agreements or understandings between
          the Company and any person granting such person the right to require
          the Company to register any securities pursuant to the Registration
          Statement, except such rights as have been both (i) set forth or
          incorporated by reference in the Prospectus and (ii) waived or
          satisfied.

               (q) Except as disclosed in the Prospectus, the Company and its
          Material Subsidiaries have good and marketable title to all real
          properties and all other properties and assets owned by them, in each
          case free from liens, encumbrances and defects, except for such liens,
          encumbrances and defects as would not (i) reasonably be expected to
          have a material adverse effect on the Company and its subsidiaries
          taken as a

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     whole or (ii) materially interfere with the use made or to be made thereof
     by them; and except as disclosed in the Prospectus, the Company and its
     subsidiaries hold any leased real or personal property under valid and
     enforceable leases with no exceptions that would (x) materially interfere
     with the use made or to be made thereof by them or (y) reasonably be
     expected to have a material adverse effect on the Company and its
     subsidiaries taken as a whole.

          (r) No material labor dispute with the employees of the Company or its
     Material Subsidiaries exists or, to the knowledge of the Company, is
     imminent that would reasonably be expected to have a material adverse
     effect on the Company and its subsidiaries, taken as a whole.

          (s) The Company and its Material Subsidiaries own, possess or can
     acquire on reasonable terms, adequate trademarks, trade names and other
     rights to inventions, know-how, patents, copyrights, confidential
     information and other intellectual property (collectively, "intellectual
     property rights") necessary to conduct the business now operated by them,
     or presently employed by them, and have not received any notice of
     infringement of or conflict with asserted rights of others with respect to
     any intellectual property rights that, if determined adversely to the
     Company or its Material Subsidiaries, would individually or in the
     aggregate reasonably be expected to have a material adverse effect on the
     Company and its subsidiaries, taken as a whole.

     2. Representations and Warranties of the Selling Stockholder. The Selling
Stockholder represents and warrants to and agrees with each of the Underwriters
that:

          (a) This Agreement has been duly authorized, executed and delivered by
     or on behalf of the Selling Stockholder.

          (b) The execution and delivery by the Selling Stockholder of, and the
     performance by the Selling Stockholder of its obligations under this
     Agreement will not violate (i) any provision of the certificate of
     incorporation or by-laws (or equivalent constituent documents) of the
     Selling Stockholder, or (ii) except in each case for violations that would
     not materially and adversely affect the consummation by the Selling
     Stockholder of the transactions contemplated by this Agreement, any
     provision of law applicable to the Selling Stockholder, any agreement or
     other instrument binding upon the Selling Stockholder or any property of
     the Selling Stockholder or to which the Selling Stockholder is a party or
     any judgment, order or decree of any governmental body, agency or court
     having jurisdiction over the Selling Stockholder; and no consent, approval,
     authorization or order of, or qualification with, any governmental body or
     agency is required for the execution, delivery or performance of this
     Agreement by the Selling Stockholder, except for (x) the registration of
     the Shares under the Securities Act, (y) the filing of any necessary
     amendment to any report on Schedule 13D or 13G relating to the Company
     filed by the Selling Stockholder and (z) such as may be required by the
     securities or Blue Sky laws of the various states in connection with the
     offer and sale of the Shares or the Federal Communications Commission, the
     Pennsylvania Public Utility Commission or any other governmental body or
     agency with

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     regulatory control over the Company's industry.

          (c) The Selling Stockholder has, and on the Closing Date will have,
     the corporate power to enter into this Agreement, to sell, transfer and
     deliver the Shares and perform its obligations under this Agreement.

          (d) The Selling Stockholder is the record owner of the Shares and is
     not aware of any "adverse claims" (within the meaning of Section 8-105 of
     the Uniform Commercial Code as adopted by the State of New York (the
     "UCC")) that may be asserted against the Selling Stockholder with respect
     to the Shares.

          (e) The Registration Statement, when it became effective, did not
     contain and, as amended or supplemented, if applicable, will not contain
     any untrue statement of a material fact or omit to state a material fact
     required to be stated therein or necessary to make the statements therein
     not misleading and the Prospectus does not contain and, as amended or
     supplemented, if applicable, will not contain any untrue statement of a
     material fact or omit to state a material fact necessary to make the
     statements therein, in the light of the circumstances under which they were
     made, not misleading, except that the representations and warranties set
     forth in this paragraph apply only to statements or omissions in the
     Registration Statement or Prospectus based upon information relating to the
     Selling Stockholder furnished to the Company in writing by the Selling
     Stockholder expressly for use therein.

          (f) The Selling Stockholder has not taken, and will not take, directly
     or indirectly, any action designed to, or which might reasonably be
     expected to, cause or result in any stabilization or manipulation of the
     price of any security of the Company to facilitate the sale of the Shares
     pursuant to the distribution contemplated by this Agreement and, other than
     as permitted by the Securities Act, the Selling Stockholder has not
     distributed and will not distribute any prospectus or other offering
     material in connection with the offering and sale of the Shares.

     3. Agreements to Sell and Purchase. Upon the basis of the representations
and warranties herein contained, but subject to the conditions hereinafter
stated, the Selling Stockholder hereby agrees to sell to the several
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Selling Stockholder at $34.02 per share (the "Purchase Price")
the number of Firm Shares (subject to such adjustments to eliminate fractional
shares as you may determine) set forth in Schedule I hereto opposite the name of
such Underwriter.

     On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Selling Stockholder
agrees to sell to the Underwriters the Additional Shares, and the Underwriters
shall have a one-time right to purchase, severally and not jointly, up to
638,000 Additional Shares at the Purchase Price. If you, on behalf of the
Underwriters, elect to exercise such one-time option, you shall so notify the
Selling Stockholder in writing at least three business days in advance of the
Option Closing Date and not later than 30 days after the date of this Agreement,
which notice shall be irrevocable and shall specify the number of Additional
Shares to be purchased by the Underwriters and the date on which such shares are
to be purchased. Such date may be the same as the Closing Date (as defined
below) but not earlier than the Closing Date or three business days after the
date such notice is given nor later than ten business days after the date such
notice is given. Additional Shares may be purchased as provided in Section 5
hereof solely for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. If any Additional Shares are to be
purchased, each Underwriter agrees, severally

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and not jointly, to purchase from the Selling Stockholder, the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) that bears the same proportion to the total number of
Additional Shares to be purchased as the number of Firm Shares set forth in
Schedule II hereto opposite the name of such Underwriter bears to the total
number of Firm Shares.

     The Company hereby agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period ending 90 days after the date of the Prospectus, (a) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase,
lend, or otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for shares of Common Stock or (b) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of Common Stock, whether any such transaction described in clause (a)
or (b) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (i)
the issuance by the Company of shares of Common Stock upon the exercise of an
option or the conversion of a security outstanding on the date hereof or with
respect to awards under its equity incentive plan outstanding on the date
hereof, (ii) the issuance by the Company of shares of Common Stock or the grant
of options or awards to purchase shares of Common Stock pursuant to employee
benefit plans of the Company in effect as of the date hereof or (iii) the
issuance by the Company of shares of Common Stock (and the filing of a
registration statement with respect thereto) in connection with the acquisition
by the Company of interests in other companies if the recipients of such shares
of Common Stock agree in writing to be bound by the restrictions contained in
this paragraph in the same manner as then applied to the Company.

     The Selling Stockholder hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it
will not, during the period ending 180 days after the date of the Prospectus,
(a) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for shares of Common Stock or (b) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of Common Stock, whether any such
transaction described in clause (a) or (b) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (i) the Shares to be sold hereunder, (ii)
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the offering of the Shares,
(iii) any transfer of shares of Common Stock to the Company, (iv) any transfer
of shares of Common Stock to any affiliate of the Selling Stockholder (other
than the Company), provided that such affiliate agrees in writing to be bound by
the restrictions contained in this paragraph in the same manner as then applied
to the Selling Stockholder or (v) the sale of shares of Common Stock by the
Selling Stockholder to one or more investors in a private placement (but not
subsequent transfers by such investors to third parties), provided that such
investors agree in writing to be bound by the restrictions contained in this
paragraph in the same manner as then applied to the Selling Stockholder.

     4. Terms of Public Offering. The Selling Stockholder is advised by you that
the Underwriters propose to make a public offering of the

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Shares as soon after the Registration Statement and this Agreement have become
effective as in your judgment is advisable. The Selling Stockholder is further
advised by you that the Shares are to be offered to the public initially at
$36.00 a share (the "Public Offering Price") and to certain dealers selected by
you at a price that represents a concession not in excess of $1.29 a share under
the Public Offering Price.

     5. Payment and Delivery. Payment for the Firm Shares shall be made to the
Selling Stockholder in Federal or other funds immediately available in New York
City against delivery of such Firm Shares for the respective accounts of the
several Underwriters at 10:00 a.m., New York City time, on April 2, 2002, or at
such other time on the same or such other date, not more than five business days
later, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "Closing Date".

     Payment for any Additional Shares shall be made to the Selling Stockholder
in Federal or other funds immediately available in New York City against
delivery of the Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 3 or at such other time on the same or on such other
date, in any event not later than May 9, 2002, as shall be designated in writing
by you. The time and date of such payment are hereinafter referred to as the
"Option Closing Date".

     The certificates evidencing the Firm Shares and Additional Shares shall be
delivered to you on the Closing Date or the Option Closing Date, as the case may
be, for the respective accounts of the several Underwriters, with any transfer
taxes payable in connection with the transfer of the Shares to the Underwriters
duly paid, against payment of the Purchase Price therefor.

     6. Conditions to the Obligations of the Underwriters and the Selling
Stockholder. The obligation of the Selling Stockholder to sell the Shares to the
Underwriters and the several obligations of the Underwriters to purchase and pay
for the Shares on the Closing Date are subject to the condition that the
Registration Statement shall have been declared effective by the Commission not
later than 5:30 p.m. (New York City Time) on the date hereof.

     The several obligations of the Underwriters are subject to the following
additional conditions:

          (a) Subsequent to the execution and delivery of this Agreement and
     prior to the Closing Date there shall not have occurred any change, or any
     development involving a prospective change, in the condition, financial or
     otherwise, or in the earnings, business or operations of the Company and
     its subsidiaries, taken as a whole, from that set forth in the Prospectus
     (exclusive of any amendments or supplements thereto subsequent to the date
     of this Agreement) that, in your judgment, is material and adverse and that
     makes it, in your judgment, impracticable to market the Shares on the terms
     and in the manner contemplated in the Prospectus.

          (b) (i) The Underwriters shall have received on the Closing Date a
     certificate, dated the Closing Date and signed by an executive officer of
     the Company to the effect that the representations and warranties of the
     Company contained in this Agreement are true and correct as if made on the
     Closing Date and that the Company has complied with all of the agreements
     and satisfied all of the conditions on its part to be performed or
     satisfied hereunder on or before the Closing Date and (ii) the Underwriters
     shall have received on the Closing Date a certificate, dated the Closing
     Date and signed by an executive officer of the Selling Stockholder to the
     effect that the representations and warranties of the

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     Selling Stockholder contained in this Agreement are true and correct as if
     made on the Closing Date and that the Selling Stockholder has complied with
     all of the agreements and satisfied all of the conditions on its part to be
     performed or satisfied hereunder on or before the Closing Date.

                  The officers signing and delivering such certificates may rely
         upon the best of his or her knowledge as to proceedings threatened.

                  (c) The Underwriters shall have received on the Closing Date
         an opinion of Davis Polk & Wardwell, outside counsel for the Company,
         dated the Closing Date, to the effect that:

                    (i) such counsel has been advised by a member of the
               Commission that the Registration Statement, as then amended, was
               declared effective on March 26, 2002;

                    (ii) the execution and delivery by the Company of, and the
               performance of its obligations under, this Agreement will not
               contravene any provision of U.S. Federal or New York State law
               that in such counsel's experience is normally applicable to
               general business corporations in relation to transactions of the
               type contemplated by this Agreement, or the amended and restated
               articles of incorporation (as amended) or the amended and
               restated by-laws (as amended) of the Company, and no filing,
               consent, approval, authorization or order of, or qualification
               with, any governmental body or agency under U.S. Federal or New
               York State law that in such counsel's experience is normally
               applicable to general business corporations in relation to
               transactions of the type contemplated by this Agreement is
               required for the performance by the Company of its obligations
               under this Agreement, except such as may be required by (A) the
               securities or Blue Sky laws of the various states in connection
               with the offer and sale of the Shares or (B) the Federal
               Communications Commission, the Pennsylvania Public Utility
               Commission or any other governmental body or agency with
               regulatory control over the Company's industry;

                    (iii) the statements (A) in the Prospectus under the
               captions "Transactions with Related Parties" and "Underwriters"
               and (B) in the Registration Statement in Item 15, in each case
               insofar as such statements constitute summaries of the legal
               matters or documents referred to therein, fairly summarize in all
               material respects the matters referred to therein;

                    (iv) after due inquiry, such counsel does not know of any
               legal or governmental proceedings pending or threatened to which
               the Company or its Material Subsidiaries is a party or to which
               any of the properties of the Company or its Material Subsidiaries
               is subject that are required to be described in the Registration
               Statement or the Prospectus and are not so described or of any
               statutes, regulations, contracts or other documents that are
               required to be described in the Registration Statement or the
               Prospectus or to be filed as exhibits to the Registration
               Statement that are not described or filed as required;

                    (v) the Company is not, and after giving effect to the
               transactions contemplated by this Agreement will not be, required
               to register as an "investment company" as such term is defined in
               the Investment Company Act of 1940, as amended; and

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                    (vi) nothing has come to such counsel's attention that
               causes it to believe that (i) the Registration Statement or the
               Prospectus (except for the financial statements and financial
               schedules and other financial and statistical data included
               therein, as to which such counsel shall express no belief) do not
               comply as to form in all material respects with the requirements
               of the Securities Act and the applicable rules and regulations of
               the Commission thereunder, (ii) the Registration Statement or the
               prospectus included therein (except for the financial statements
               and financial schedules and other financial and statistical data
               included therein, as to which such counsel shall express no
               belief) at the time the Registration Statement became effective
               contained an untrue statement of a material fact or omitted to
               state a material fact required to be stated therein or necessary
               to make the statements therein not misleading or (iii) the
               Prospectus (except as stated) as of its date or as of the Closing
               Date contained or contains an untrue statement of a material fact
               or omitted or omits to state a material fact necessary in order
               to make the statements therein, in the light of the circumstances
               under which they were made, not misleading.

     Such counsel may state that it expresses no opinion or belief with respect
to matters governed by or related to federal, state, local or foreign
communications law or the rules, regulations or policies of the Federal
Communications Commission or the Pennsylvania Public Utility Commission
thereunder.

          (d) The Underwriters shall have received on the Closing Date an
     opinion of Wolf, Block, Schorr and Solis-Cohen LLP, special Pennsylvania
     counsel for the Company, dated the Closing Date, to the effect that:

               (i) the Company has been duly incorporated, and is validly
          subsisting as a corporation under the laws of the Commonwealth of
          Pennsylvania and has the corporate power and authority to own its
          property and to conduct its business as described in the Prospectus;

               (ii) each Material Subsidiary of the Company has been duly
          incorporated, is validly existing or subsisting as a corporation in
          good standing under the laws of the jurisdiction of its incorporation
          and has the corporate power and authority to own its property and to
          conduct its business as described in the Prospectus;

               (iii) the authorized capital stock of the Company conforms in all
          material respects as to legal matters to the description thereof
          contained in the Prospectus;

               (iv) this Agreement has been duly authorized, executed and
          delivered by the Company and the Company has the corporate power to
          enter into this Agreement and perform its obligations hereunder;

               (v) the issued shares of Common Stock (including the Shares) are
          fully paid and non-assessable; and

               (vi) all of the issued shares of capital stock of each Material
          Subsidiary of the Company are fully paid and non-assessable.

          (e) The Underwriters shall have received on the Closing Date an
     opinion of Kenneth E. Lee, Vice President, Corporate Secretary and

                                       11
<PAGE>

     General Counsel of the Company, dated the Closing Date, to the effect that:

               (i) all outstanding shares of Common Stock (including the Shares)
          have been duly authorized and are validly issued, fully paid and
          non-assessable;

               (ii) the Company is duly qualified to transact business and is in
          good standing in each jurisdiction in which the conduct of its
          business or its ownership or leasing of property requires such
          qualification, except to the extent that the failure to be so
          qualified or be in good standing would not have a material adverse
          effect on the Company and its subsidiaries, taken as a whole;

               (iii) all of the issued shares of capital stock of each Material
          Subsidiary of the Company have been duly authorized and are validly
          issued, fully paid and non-assessable and are owned directly by the
          Company, free and clear of all liens, encumbrances, equities or
          claims;

               (iv) each material subsidiary of the Company is duly qualified to
          transact business and is in good standing in each jurisdiction in
          which the conduct of its business or its ownership or leasing of
          property requires such qualification, except to the extent that the
          failure to be so qualified or be in good standing would not have a
          material adverse effect on the Company and its subsidiaries, taken as
          a whole;

               (v) the execution and delivery by the Company of, and the
          performance of its obligations under, this Agreement (i) will not
          violate any provision of the amended and restated articles of
          incorporation (as amended) or the amended and restated by-laws (as
          amended) of the Company and (ii) to such counsel's knowledge, will not
          violate any provision of law applicable to the Company or any of its
          subsidiaries, any agreement or other instrument binding upon the
          Company or any of its subsidiaries, or any judgment, order or decree
          of any governmental body, agency or court having jurisdiction over the
          Company or any subsidiary, except in each case set forth in this
          clause (ii) for violations that would not reasonably be expected to
          have a material adverse effect on the Company and its subsidiaries,
          taken as a whole, or the Company's ability to perform its obligations
          hereunder; and no filing, consent, approval, authorization or order
          of, or qualification with, any governmental body or agency is required
          for the execution, delivery or performance of this Agreement by the
          Company, except such as may be required by (A) the securities or Blue
          Sky laws of the various states in connection with the offer and sale
          of the Shares or (B) the Federal Communications Commission, the
          Pennsylvania Public Utility Commission or any other governmental body
          or agency with regulatory control over the Company's industry;

                                       12
<PAGE>

               (vi) to such counsel's knowledge, (a) there are no legal or
          governmental proceedings pending or threatened to which the Company or
          its Material Subsidiaries is a party or to which any of the properties
          of the Company or its Material Subsidiaries is subject that are
          required to be described in the Registration Statement or the
          Prospectus and are not so described, (b) there are no statutes,
          regulations, contracts or other documents that are required to be
          described in the Registration Statement or the Prospectus that are not
          described as required and (c) there are no contracts or other
          documents required to be filed as exhibits to the Registration
          Statement that are not filed as required;

               (vii) to such counsel's knowledge, the Company and its Material
          Subsidiaries (A) are in compliance with any and all applicable
          Environmental Laws, (B) have received all permits, licenses or other
          approvals required of them under applicable Environmental Laws to
          conduct their respective businesses and (C) are in compliance with all
          terms and conditions of any such permit, license or approval, except
          where such noncompliance with Environmental Laws, failure to receive
          required permits, licenses or other approvals or failure to comply
          with the terms and conditions of such permits, licenses or approvals
          would not, singly or in the aggregate, reasonably be expected to have
          a material adverse effect on the Company and its subsidiaries, taken
          as a whole; and

               (viii) each document filed pursuant to the Exchange Act and
          incorporated by reference in the Registration Statement and the
          Prospectus (other than the financial statements and notes thereto, the
          financial statement schedules and the other financial and statistical
          data included or incorporated by reference therein, as to which such
          counsel expresses no opinion), as of its filing date, complied as to
          form in all material respects with the Exchange Act and the rules and
          regulations of the Commission thereunder.

          (f) The Underwriters shall have received from Swidler Berlin Sheriff
     Friedman, LLP, special Federal regulatory counsel to the Company, such
     letter with respect to Federal regulatory matters, dated the Closing Date
     and addressed to the Underwriters, to the effect that (i) all filings with,
     or authorization, approval, consent, license, order, registration,
     qualification or decree of the Federal Communications Commission necessary
     or required for the due authorization, execution or delivery by the Company
     and the Selling Stockholder of this Agreement or the performance by the
     Company and the Selling Stockholder of the transactions contemplated under
     the Prospectus and this Agreement have been made and/or obtained and (ii)
     the statements in the Prospectus under the captions "Summary", "Risk
     Factors", "Management's Discussion and Analysis of Results of Operations
     and Financial Condition" and "Business", in each case insofar as such
     statements constitute summaries of the Federal regulatory matters,
     documents or proceedings referred to therein, fairly present the
     information called for with respect to such regulatory matters, documents
     and proceedings and fairly summarize the regulatory matters referred to
     therein.

          (g) The Underwriters shall have received from Malatesta, Hawke &
     McKeon LLP, special Pennsylvania regulatory counsel to the Company, such
     letter with respect to Pennsylvania regulatory matters, dated the Closing
     Date and addressed to the Underwriters, to the effect that, based upon the
     transaction described in the Registration Statement, (i) all filings with,
     or authorization, approval, consent, license, order, registration,
     qualification or decree of the Pennsylvania Public

                                       13
<PAGE>

     Utility Commission necessary or required for the due authorization,
     execution or delivery by the Company and the Selling Stockholder of this
     Agreement or the performance by the Company and the Selling Stockholder of
     the transactions contemplated under the Prospectus and this Agreement have
     been made and/or obtained and (ii) the statements in the Prospectus under
     the captions "Summary", "Risk Factors", "Management's Discussion and
     Analysis of Results of Operations and Financial Condition" and "Business",
     in each case insofar as such statements constitute summaries of the
     Pennsylvania regulatory matters, documents or proceedings referred to
     therein, fairly present the information called for with respect to such
     regulatory matters, documents and proceedings and fairly summarize the
     regulatory matters referred to therein.

          (h) The Underwriters shall have received on the Closing Date an
     opinion of Willkie Farr & Gallagher, outside counsel for the Selling
     Stockholder, dated the Closing Date, to the effect that:

               (i) this Agreement has been duly authorized, executed and
          delivered by or on behalf of the Selling Stockholder and Level 3
          Communications, Inc.;

               (ii) the execution and delivery by the Selling Stockholder of,
          and the performance by the Selling Stockholder of its obligations
          under this Agreement will not violate (i) any provision of the
          certificate of incorporation or by-laws (or equivalent constituent
          documents) of the Selling Stockholder, or (ii) to such counsel's
          knowledge, except in each case for violations that would not
          materially and adversely affect the consummation by the Selling
          Stockholder of the transactions contemplated by this Agreement, any
          provision of New York, Delaware corporate or United States Federal law
          (other than the Communications Act of 1934, as amended, comparable
          state statutes governing telecommunications, the rules, regulations
          and decisions of the Federal Communications Commission and the rules
          and regulations of comparable state regulatory agencies, as to which
          such counsel need express no opinion) applicable to the Selling
          Stockholder, any agreement or other instrument binding upon the
          Selling Stockholder or any property of the Selling Stockholder or to
          which the Selling Stockholder is a party or any judgment, order or
          decree of any governmental body, agency or court having jurisdiction
          over the Selling Stockholder; and, to such counsel's knowledge, no
          filing, consent, approval, authorization or order of, or qualification
          with, any New York, Delaware (insofar as Delaware corporate law is
          concerned) or United States Federal governmental body or agency is
          required for the execution, delivery or performance of this Agreement
          by the Selling Stockholder, except for (A) the registration of the
          Shares under the Securities Act, (B) the filing of any necessary
          amendment to any report on Schedule 13D or 13G relating to the Company
          filed by the Selling Stockholder, (C) such as may be required by the
          securities or Blue Sky laws of the various states in connection with
          the offer and sale of the Shares and (D) such as may be required by
          the Federal Communications Commission, the Pennsylvania Public Utility
          Commission or any other governmental body or agency with regulatory
          control over the Company's industry, in each case as to which such
          counsel need express no opinion;

               (iii) based solely on a review of the applicable stock
          certificates, the Selling Stockholder is the record owner of the

                                       14
<PAGE>

          Shares and has the corporate right, power and authority to enter into
          this Agreement and to sell, transfer and deliver the Shares; and

               (iv) assuming that each of the Underwriters acquires its interest
          in the Shares sold by the Selling Stockholder without notice of any
          adverse claim (within the meaning of Section 8-105 of the UCC), each
          Underwriter, once it has purchased such Shares delivered to DTC by
          making payment therefor, as provided herein, and has had such Shares
          credited to the securities account or accounts of such Underwriter
          maintained with DTC, will have acquired a security entitlement (within
          the meaning of Section 8-102(a)(17) of the UCC) to such Shares
          purchased by such Underwriter and such Underwriter will take such
          shares free and clear of any adverse claim with respect to such
          Shares.

          (i) The Underwriters shall have received on the Closing Date an
     opinion of Cravath, Swaine & Moore, counsel for the Underwriters, dated the
     Closing Date, covering the matters referred to in Section 6(d)(iii),
     Section 6(c)(iii) (but only as to the statements in the Prospectus under
     the caption "Underwriters") and Section 6(c)(vi) above.

          The opinions of Davis Polk & Wardwell described in Section 6(c), Wolf,
     Block, Schorr and Solis-Cohen LLP described in Section 6(d), Kenneth E. Lee
     described in Section 6(e), Swidler Berlin Sheriff Friedman, LLP described
     in Section 6(f), Malatesta, Hawke & McKeon LLP described in Section 6(g)
     and Willkie Farr & Gallagher described in Section 6(h) shall be rendered to
     the Underwriters at the request of the Company or the Selling Stockholder,
     as the case may be, and shall so state therein.

          (j) The Underwriters shall have received, on each of the date hereof
     and the Closing Date, a letter dated the date hereof or the Closing Date,
     as the case may be, in form and substance reasonably satisfactory to the
     Underwriters from PricewaterhouseCoopers LLP, independent public
     accountants, with respect to the Company, containing statements and
     information of the type ordinarily included in accountants' "comfort
     letters" to underwriters with respect to the financial statements and
     certain financial information contained in or incorporated by reference
     into the Registration Statement and the Prospectus; provided that the
     letters delivered on the Closing Date shall use a "cut-off date" not
     earlier than the date hereof.

          (k) The "lock-up" agreements, each substantially in the form of
     Exhibit A hereto, between you and the executive officers and directors of
     the Company relating to sales and certain other dispositions of shares of
     Common Stock or certain other securities, delivered to you on or before the
     date hereof, shall be in full force and effect on the Closing Date.

          (l) The Company shall have furnished to the Underwriters such further
     customary information, certificates and documents as the Underwriters may
     reasonably request.

                                       15
<PAGE>

          The several obligations of the Underwriters to purchase Additional
     Shares hereunder are subject to the delivery to you on the Option Closing
     Date of such customary documents as you may reasonably request with respect
     to the good standing of the Company, the due authorization and issuance of
     the Additional Shares and other matters related to the issuance of the
     Additional Shares.

     7. Covenants of the Company. In further consideration of the agreements of
the Underwriters herein contained, the Company covenants with each Underwriter
as follows:

          (a) To furnish to each of you without charge, one signed copy of the
     Registration Statement (including exhibits thereto and documents
     incorporated by reference) and to each other Underwriter a conformed copy
     of the Registration Statement (without exhibits thereto or documents
     incorporated by reference) and, during the period mentioned in paragraph
     (c) below, as many copies of the Prospectus, any documents incorporated by
     reference, and any supplements and amendments thereto as you may reasonably
     request.

          (b) Before amending or supplementing the Registration Statement or the
     Prospectus, to furnish to you a copy of each such proposed amendment or
     supplement (other than any document required to be filed pursuant to the
     Exchange Act) and not to file any such proposed amendment or supplement
     (other than any document required to be filed pursuant to the Exchange Act)
     to which you reasonably object, and to file with the Commission within the
     applicable period specified in Rule 424(b) under the Securities Act any
     prospectus required to be filed pursuant to such Rule.

          (c) If, during such period after the first date of the public offering
     of the Shares as in the opinion of counsel for the Underwriters the
     Prospectus is required by law to be delivered in connection with sales by
     an Underwriter or dealer, any event shall occur or condition exist as a
     result of which it is necessary to amend or supplement the Prospectus in
     order to make the statements therein, in the light of the circumstances
     when the Prospectus is delivered to a purchaser, not misleading, or if, in
     the opinion of counsel for the Underwriters it is necessary to amend or
     supplement the Prospectus to comply with applicable law, forthwith to
     prepare, file with the Commission and furnish, at its own expense, to the
     Underwriters and to the dealers (whose names and addresses you will furnish
     to the Company) to which Shares may have been sold by you on behalf of the
     Underwriters and to any other dealers upon request, either amendments or
     supplements to the Prospectus so that the statements in the Prospectus as
     so amended or supplemented will not, in the light of the circumstances when
     the Prospectus is delivered to a purchaser, be misleading or so that the
     Prospectus, as amended or supplemented, will comply with law.

          (d) To make generally available to the Company's security holders and
     to you as soon as practicable an earning statement covering the
     twelve-month period ending March 31, 2003 that satisfies the provisions of
     Section 11(a) of the Securities Act and the rules and regulations of the
     Commission thereunder.

          8. Expenses. Whether or not the transactions contemplated in this
     Agreement are consummated or this Agreement is terminated, the Company
     agrees to pay or cause to be paid all expenses incident to the performance
     of their obligations under this Agreement, including: (i) the fees,
     disbursements and expenses of the Company's counsel and the Company's
     accountants in connection with the registration and delivery of the Shares
     under the Securities Act and all other fees or expenses in connection with
     the preparation and filing of the Registration

                                       16
<PAGE>

     Statement, any preliminary prospectus, the Prospectus and amendments and
     supplements to any of the foregoing, including all printing costs
     associated therewith, and the mailing and delivering of copies thereof to
     the Underwriters and dealers, in the quantities hereinabove specified, (ii)
     the cost of printing certificates representing the Shares, (iii) the costs
     and charges of any transfer agent, registrar or depositary, (iv) the costs
     and expenses of the Company relating to investor presentations on any "road
     show" undertaken in connection with the marketing of the offering of the
     Shares, including, without limitation, travel and lodging expenses of the
     representative and officers of the Company and the cost of any aircraft
     chartered by the Company in connection with the road show and (v) all other
     costs and expenses incident to the performance of the obligations of the
     Company hereunder for which provision is not otherwise made in this
     Section. Notwithstanding the foregoing, it is understood that the Selling
     Stockholder will pay or cause to be paid (in the form of the difference
     between the Purchase Price and the Public Offering Price) the underwriting
     discount with respect to the Shares, all costs and expenses related to the
     transfer and delivery of the Shares to the Underwriters, including any
     transfer or other taxes payable on the transfer of the Shares to the
     Underwriters and all fees and disbursements of their legal counsel in
     connection with the sale of the Shares pursuant to this Agreement. It is
     understood, however, that except as provided in this Section, Section 9
     entitled "Indemnity and Contribution", and the last paragraph of Section 11
     below, the Underwriters will pay all of their costs and expenses, including
     fees and disbursements of their counsel, stock transfer taxes payable on
     resale of any of the Shares by them and any advertising expenses connected
     with any offers they may make.

          The provisions of this Section shall not supersede or otherwise affect
     any agreement that the Company and the Selling Stockholder may otherwise
     have for the allocation of such expenses among themselves.

     9. Indemnity and Contribution. (a) The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to (i) any Underwriter furnished to the Company in
writing by or on behalf of any Underwriter through you expressly for use therein
or (ii) the Selling Stockholder furnished in writing by or on behalf of the
Selling Stockholder expressly for use therein; provided, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if it shall be established that a copy of the
Prospectus was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus
would have cured the defect giving rise to such losses, claims, damages or
liabilities, unless such failure is the result of

                                       17
<PAGE>

noncompliance by the Company with Section 7(a) hereof.

          (b) The Selling Stockholder agrees to indemnify and hold harmless and
     each Underwriter and each person, if any, who controls or any Underwriter
     within the meaning of either Section 15 of the Securities Act or Section 20
     of the Exchange Act, from and against any and all losses, claims, damages
     and liabilities (including, without limitation, any legal or other expenses
     reasonably incurred in connection with defending or investigating any such
     action or claim) caused by any untrue statement or alleged untrue statement
     of a material fact contained in the Registration Statement or any amendment
     thereof, any preliminary prospectus or the Prospectus (as amended or
     supplemented if the Company shall have furnished any amendments or
     supplements thereto), or caused by any omission or alleged omission to
     state therein a material fact required to be stated therein or necessary to
     make the statements therein not misleading, but only with reference to
     information relating to the Selling Stockholder furnished in writing by or
     on behalf of the Selling Stockholder expressly for use in the Registration
     Statement, any preliminary prospectus, the Prospectus or any amendments or
     supplements thereto and such indemnification being limited to the amount of
     net proceeds received from the sale of the Shares by the Underwriters; it
     being understood and agreed that the only such information furnished by the
     Selling Stockholder consists of the information pertaining to the Selling
     Stockholder included in the Prospectus under the heading "Principal and
     Selling Stockholders", the first, second, third and fourth sentences under
     the heading "Risk Factors--Risks related to Level 3 Communications, Inc.'s
     significant influence over us--Level 3 holds a significant portion of the
     voting power in our equity securities and may have interests that differ
     from yours" and the portion of the third sentence that states that Level 3
     Telecom Holdings, Inc. is the holding company through which Level 3
     Communications, Inc. owns its equity stake in the Company and the fifth
     sentence, both under the heading "Risk Factors--Risks related to Level 3
     Communications, Inc.'s significant influence over us--We have existing
     relationships with RCN Corporation, an affiliate of Level 3, that may lead
     to conflicts of interest"; provided, however, that the foregoing indemnity
     agreement with respect to any preliminary prospectus shall not inure to the
     benefit of any Underwriter from whom the person asserting any such losses,
     claims, damages or liabilities purchased Shares, or any person controlling
     such Underwriter, if it shall be established that a copy of the Prospectus
     was not sent or given by or on behalf of such Underwriter to such person,
     if required by law so to have been delivered, at or prior to the written
     confirmation of the sale of the Shares to such person, and if the
     Prospectus would have cured the defect giving rise to such losses, claims,
     damages or liabilities, unless such failure is the result of noncompliance
     by the Company with Section 7(a) hereof.

          (c) Each Underwriter agrees, severally and not jointly, to indemnify
     and hold harmless the Company, the Selling Stockholder, the directors of
     the Company, the officers of the Company who sign the Registration
     Statement and each person, if any, who controls the Company or the Selling
     Stockholder within the meaning of either Section 15 of the Securities Act
     or Section 20 of the Exchange Act from and against any and all losses,
     claims, damages and liabilities (including, without limitation, any legal
     or other expenses reasonably incurred in connection with defending or
     investigating any such action or claim) caused by any untrue statement or
     alleged untrue statement of a material fact contained in the Registration
     Statement or any amendment thereof, any preliminary prospectus or the
     Prospectus (as amended or supplemented if the Company shall have furnished
     any amendments or supplements thereto), or caused by any omission or
     alleged omission to state therein a material fact required to be stated
     therein or necessary to make the

                                       18
<PAGE>

     statements therein not misleading, but only with reference to information
     relating to such Underwriter furnished to the Company in writing by or on
     behalf of such Underwriter through you expressly for use in the
     Registration Statement, any preliminary prospectus, the Prospectus or any
     amendments or supplements thereto.

          (d) In case any proceeding (including any governmental investigation)
     shall be instituted involving any person in respect of which indemnity may
     be sought pursuant to Section 9(a), 9(b) or 9(c), such person (the
     "indemnified party") shall promptly notify the person against whom such
     indemnity may be sought (the "indemnifying party") in writing of the
     commencement thereof; but the failure so to notify the indemnifying party
     (i) will not relieve such indemnifying party from liability under paragraph
     (a), (b) or (c) above unless and to the extent it did not otherwise learn
     of such action and such failure results in the forfeiture by the
     indemnifying party of substantial rights and defenses and (ii) will not, in
     any event, relieve the indemnifying party from any obligations to any
     indemnified party other than the indemnification obligation provided in
     paragraph (a), (b) or (c) above. The indemnifying party, upon request of
     the indemnified party, shall retain counsel reasonably satisfactory to the
     indemnified party to represent the indemnified party and any others the
     indemnifying party may designate in such proceeding and shall pay the fees
     and disbursements of such counsel related to such proceeding. In any such
     proceeding, any indemnified party shall have the right to retain its own
     counsel, but the fees and expenses of such counsel shall be at the expense
     of such indemnified party unless (i) the indemnifying party and the
     indemnified party shall have mutually agreed to the retention of such
     counsel or (ii) the named parties to any such proceeding (including any
     impleaded parties) include both the indemnifying party and the indemnified
     party and representation of both parties by the same counsel would be
     inappropriate due to actual or potential differing interests between them.
     It is understood that the indemnifying party shall not, in respect of the
     legal expenses of any indemnified party in connection with any proceeding
     or related proceedings in the same jurisdiction, be liable for (i) the fees
     and expenses of more than one separate firm (in addition to any local
     counsel) for all Underwriters and all persons, if any, who control any
     Underwriter within the meaning of either Section 15 of the Securities Act
     or Section 20 of the Exchange Act, (ii) the fees and expenses of more than
     one separate firm (in addition to any local counsel) for the Company, its
     directors, its officers who sign the Registration Statement and each
     person, if any, who controls the Company within the meaning of either such
     Section and (iii) the fees and expenses of more than one separate firm (in
     addition to any local counsel) for the Selling Stockholder and all persons,
     if any, who control the Selling Stockholder within the meaning of either
     such Section, and that all such fees and expenses shall be reimbursed as
     they are incurred. In the case of any such separate firm for the
     Underwriters and such control persons of any Underwriters, such firm shall
     be designated in writing jointly by the Representative. In the case of any
     such separate firm for the Company, and such directors, officers and
     control persons of the Company, such firm shall be designated in writing by
     the Company. In the case of any such separate firm for the Selling
     Stockholder and such control persons of the Selling Stockholder, such firm
     shall be designated in writing by the Selling Stockholder. The indemnifying
     party shall not be liable for any settlement of any proceeding effected
     without its written consent, but if settled with such consent or if there
     be a final judgment for the plaintiff, the indemnifying party agrees to
     indemnify the indemnified party from and against any loss or liability by
     reason of such settlement or judgment. No indemnifying party shall, without
     the prior written consent of the indemnified party (such consent not to be
     unreasonably withheld), effect any settlement of any pending or

                                       19
<PAGE>

     threatened proceeding in respect of which any indemnified party is or could
     have been a party and indemnity could have been sought hereunder by such
     indemnified party, unless such settlement includes an unconditional release
     of such indemnified party from all liability on claims that are the subject
     matter of such proceeding.

          (e) To the extent the indemnification provided for in Section 9(a),
     9(b) or 9(c) is unavailable to an indemnified party or insufficient in
     respect of any losses, claims, damages or liabilities referred to therein,
     then each indemnifying party under such paragraph, in lieu of indemnifying
     such indemnified party thereunder, shall contribute to the amount paid or
     payable by such indemnified party as a result of such losses, claims,
     damages or liabilities (i) in such proportion as is appropriate to reflect
     the relative benefits received by the indemnifying party or parties on the
     one hand and the indemnified party or parties on the other hand from the
     offering of the Shares or (ii) if the allocation provided by clause 9(e)(i)
     above is not permitted by applicable law, in such proportion as is
     appropriate to reflect not only the relative benefits referred to in clause
     9(e)(i) above but also the relative fault of the indemnifying party or
     parties on the one hand and of the indemnified party or parties on the
     other hand in connection with the statements or omissions that resulted in
     such losses, claims, damages or liabilities, as well as any other relevant
     equitable considerations. The relative benefits received by the Company
     and/or the Selling Stockholder, on the one hand, and the Underwriters, on
     the other hand, in connection with the offering of the Shares shall be
     deemed to be in the same respective proportions as the net proceeds from
     the offering of the Shares (before deducting expenses) received by the
     Selling Stockholder and the total underwriting discounts and commissions
     received by the Underwriters, in each case as set forth in the table on the
     cover of the Prospectus, bear to the aggregate Public Offering Price of the
     Shares. The relative fault of the Company, the Selling Stockholder and the
     Underwriters shall be determined by reference to, among other things,
     whether the untrue or alleged untrue statement of a material fact or the
     omission or alleged omission to state a material fact relates to
     information supplied by the Company, the Selling Stockholder or the
     Underwriters and the parties' relative intent, knowledge, access to
     information and opportunity to correct or prevent such statement or
     omission. The Underwriters' respective obligations to contribute pursuant
     to this Section 9 are several in proportion to the respective number of
     Shares they have purchased hereunder, and not joint.

          (f) The Company, the Selling Stockholder and the Underwriters agree
     that it would not be just or equitable if contribution pursuant to this
     Section 9 were determined by pro rata allocation (even if the Underwriters
     were treated as one entity for such purpose) or by any other method of
     allocation that does not take account of the equitable considerations
     referred to in Section 9(e). The amount paid or payable by an indemnified
     party as a result of the losses, claims, damages and liabilities referred
     to in the immediately preceding paragraph shall be deemed to include,
     subject to the limitations set forth above, any legal or other expenses
     reasonably incurred by such indemnified party in connection with
     investigating or defending any such action or claim.

                                       20
<PAGE>

     Notwithstanding the provisions of this Section 9, no Underwriter shall be
     required to contribute any amount in excess of the amount by which the
     total price at which the Shares underwritten by it and distributed to the
     public were offered to the public exceeds the amount of any damages that
     such Underwriter has otherwise been required to pay by reason of such
     untrue or alleged untrue statement or omission or alleged omission, and the
     Selling Stockholder shall not be required to contribute an amount that,
     together with any other payments made pursuant to this Section 9, exceeds
     the net proceeds received by the Selling Stockholder from the sale of the
     Shares pursuant to this Agreement. No person guilty of fraudulent
     misrepresentation (within the meaning of Section 11(f) of the Securities
     Act) shall be entitled to contribution from any person who was not guilty
     of such fraudulent misrepresentation. The remedies provided for in this
     Section 9 are not exclusive and shall not limit any rights or remedies
     which may otherwise be available to any indemnified party at law or in
     equity.

          (g) The indemnity and contribution provisions contained in this
     Section 9 and the representations, warranties and other statements of the
     Company and the Selling Stockholder contained in this Agreement shall
     remain operative and in full force and effect regardless of (i) any
     termination of this Agreement, (ii) any investigation made by or on behalf
     of any Underwriter or any person controlling any Underwriter, the Selling
     Stockholder or any person controlling the Selling Stockholder, or the
     Company, its officers or directors or any person controlling the Company
     and (iii) acceptance of and payment for any of the Shares.

          (h) The indemnity and contribution provisions contained in this
     Section 9 do not modify or supersede any agreement between the Company and
     the Selling Stockholder relating to such matters.

     10. Termination. The Underwriters may terminate this Agreement by notice
given by you to the Company and the Selling Stockholder, if after the execution
and delivery of this Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on, or by, as the case
may be, either the New York Stock Exchange or the Nasdaq National Market, (ii)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a material disruption in
securities settlement, payment or clearance services in the United States shall
have occurred, (iv) any moratorium on commercial banking activities shall have
been declared by Federal or New York State authorities or (v) there shall have
occurred any outbreak or escalation of hostilities, or any change in financial
markets or any calamity or crisis that, in your judgment, is material and
adverse and which, singly or together with any other event specified in this
clause (v), makes it, in your judgment, impracticable or inadvisable to proceed
with the offer, sale or delivery of the Shares on the terms and in the manner
contemplated in the Prospectus.

     11. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.

     If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate

                                       21
<PAGE>

number of Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 11 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased, and arrangements satisfactory to you, the Company and
the Selling Stockholder for the purchase of such Firm Shares are not made within
36 hours after such default, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriter, the Company or the Selling
Stockholder. In any such case either you, the Company or the Selling Stockholder
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. If, on the Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase Additional Shares or (ii) purchase not less
than the number of Additional Shares that such non-defaulting Underwriters would
have been obligated to purchase in the absence of such default. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.

     If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.

     If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Selling Stockholder to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Selling Stockholder shall be unable to perform its
obligations under this Agreement, the Selling Stockholder will reimburse the
Company and the Underwriters or such persons as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and disbursements of their counsel) reasonably incurred by
such persons in connection with this Agreement or the offering contemplated
hereunder.

     12. Counterparts. This Agreement may be signed in two or more counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.

     13. Notices. All communications under this Agreement will be in writing and
effective only on receipt, and, if sent to the Underwriters, will be mailed,
delivered or telefaxed to Morgan Stanley & Co. Incorporated, 1585 Broadway, New
York, NY 10036 (fax no. (212) 761-

                                       22
<PAGE>

0260), attention General Counsel, or if sent to the Company, will be mailed,
delivered or telefaxed to Commonwealth Telephone Enterprises, Inc., 100 CTE
Drive, Dallas, PA 18612 (fax no. (570-631-1820), attention Michael J. Mahoney,
with a copy to Davis Polk & Wardwell, 450 Lexington Avenue, New York, NY 10017
(fax no. (212) 450-3596), attention Lucy Fato, Esq., or if sent to the Selling
Stockholder, will be mailed, delivered or telefaxed to Level 3 Communications,
Inc., 1025 Eldorado Boulevard, Broomfield, CO 80021 (fax no. 720-888-5619),
attention General Counsel, with a copy to Willkie, Farr & Gallagher, 787 Seventh
Avenue, New York, NY 10019 (fax no. (212) 728-8111), attention David Boston,
Esq.

     14. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.

     15. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.

                                       23
<PAGE>

                                        Very truly yours,

                                        Commonwealth Telephone Enterprises, Inc.

                                        By: /s/ Donald Cawley
                                            ------------------------------
                                            Name:  Donald Cawley
                                            Title: Senior V.P. and Chief
                                                   Accounting Officer

                                        Level 3 Communications, Inc.

                                        By: /s/ Neil J. Eckstein
                                            ------------------------------
                                            Name:  Neil J. Eckstein
                                            Title: Vice President

                                        Eldorado Equity Holdings, Inc.

                                        By: /s/ Neil J. Eckstein
                                            ------------------------------
                                            Name:  Neil J. Eckstein
                                            Title: Vice President

                                       24
<PAGE>

Accepted as of the date hereof

Morgan Stanley & Co. Incorporated

Acting severally on behalf
 of itself and the several
 Underwriters named in
 Schedule I hereto.

By: Morgan Stanley & Co. Incorporated

   By: /s/ Katina J. Dorton
       ------------------------------
       Name:  Katina J. Dorton
       Title: Executive Director

                                       25

<PAGE>

                                                                      SCHEDULE I

                                                                Number of
                                                               Firm Shares
Underwriter                                                  To Be Purchased

Morgan Stanley & Co. Incorporated                               1,950,043
Goldman, Sachs & Co.                                              975,020
First Union Securities, Inc.                                      324,979
Legg Mason Wood Walker, Incorporated                              324,979
SG Cowen Securities Corporation                                   324,979
A.G. Edwards & Sons, Inc.                                          60,000
ABN AMRO Rothschild LLC                                            60,000
CIBC World Markets Corp.                                           60,000
Edward D. Jones & Co., L.P.                                        60,000
Kaufman Bros., L.P.                                                60,000
Raymond James & Associates, Inc.                                   60,000
                                                                ---------
                        Total                                   4,260,000
                                                                =========

                                       26
<PAGE>

                                       27
<PAGE>

                                                                       EXHIBIT A

                            [FORM OF LOCK-UP LETTER]

                                                                , 2002

Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036

Dear Ladies and Gentlemen:

The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") acting severally on behalf of itself and the several underwriters (the
"Underwriters") propose to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Commonwealth Telephone Enterprises, Inc., a
Pennsylvania corporation (the "Company"), Level 3 Communications, Inc. and
Eldorado Equity Holdings, Inc. (the "Selling Stockholder") providing for the
public offering (the "Public Offering") by the Underwriters of shares (the
"Shares") of the common stock, par value $1.00 per share of the Company
(together with the Class B common stock, par value $1.00 per share of the
Company, the "Common Stock"), on behalf of the Selling Stockholder.

To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date of the preliminary prospectus relating to the Public Offering (the
"Preliminary Prospectus") and ending 90 days after the date of the final
prospectus relating to the Public Offering (the "Prospectus"), (a) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or (b) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clauses (a) or (b) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise.

                                       28
<PAGE>

The foregoing sentence shall not apply to (a) transactions relating to shares of
Common Stock or other securities acquired in open market transactions after the
completion of the Public Offering and (b) transfer of shares of Common Stock or
any security convertible into Common Stock as a bona fide gift or gifts;
provided that in the case of any transfer or distribution pursuant to clause
(b), (i) each donee shall execute and deliver to Morgan Stanley a duplicate form
of this Lock-Up Letter and (ii) no filing by any party (donor, donee) under
Section 16(a) of the Securities Exchange Act of 1934, as amended, shall be
required or shall be made voluntarily in connection with such transfer or
distribution (other than a filing on a Form 5 made after the expiration of the
90-day period referred to above). In addition, the undersigned agrees that,
without the prior written consent of Morgan Stanley on behalf of the
Underwriters, it will not, during the period commencing on the date of the
Preliminary Prospectus and ending 90 days after the date of the Prospectus, make
any demand for or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions.  Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.

Notwithstanding anything to the contrary contained herein, this Lock-Up
Agreement shall be null and void if (i) the Underwriting Agreement is terminated
pursuant to Section 10 of said Underwriting Agreement or (ii) the Public
Offering has not occurred by May 31, 2002.

                                        Very truly yours,

                                        By:____________________
                                           Name:
                                           Title:

                                       29<PAGE>

EXHIBIT 10.12
                                                    Private Client Group

                                                    Merrill Lynch Business
                                                    Financial Services Inc.
                                                    222 North LaSaIIe Street
                                                    17th Floor
                                                    Chicago, Illinois 60601
                                                    (312) 499-3179
Merrill Lynch                                       FAX: (312) 499-3253

                                                    May 10, 2001

Mr. Simon Raab
Faro Technologies, Inc.
125 Technology Park
Lake Mary, FL 32746

                 Re: WCMA Line of Credit Approval

Dear Mr. Raab,

As I believe you know, we have approved the request of Faro Technologies, Inc.
("Customer") for a WCMA Line of Credit upon the terms and conditions set forth
in the enclosed documents ("Loan Documents").

For your information, the following are some of the principal terms of the
approval:

          Maximum WCMA Line of Credit: $1,500,000.00.

          WCMA Interest Rate: Variable at a per annum rate equal to the sum of
          2.75% plus the 30-day Dealer Commercial Paper Rate (as published in
          The Wall Street Journal), based upon actual days elapsed over a 360-
          day year.

          Initial Expiration Date: May 31, 2002 (subject to renewal annually
          thereafter).

          Annual WCMA Line Fee: $7,500.00.

Please refer to the Loan Documents for a complete statement of the terms.

In addition to conditions set forth in the Loan Documents, our approval is
subject to:

(a) The valid subscription and continued maintenance by Customer of a Working
Capital Management Account with Merrill Lynch, Pierce, Fenner and Smith
Incorporated for use in connection with the WCMA Line of Credit, which
subscription and maintenance shall be evidenced on Merrill Lynch's computer
system.

(b) Our receipt of all of the Loan Documents together with any additional
documents contemplated thereby or otherwise reasonably required by us, all of
which shall be duly executed and, if applicable, recorded, and all of which
shall be in form and substance satisfactory to us.

(c) Acceptance by us in writing of the executed Loan Documents at our office in
Chicago after review and a final determination by us of the consistency of the
Loan Documents with our original internal credit approval. (Without limiting the
foregoing, it should be understood that prior to such acceptance we are not
bound by any clerical or other errors in or omissions from the Loan Documents.)
<PAGE>

(d) Our continuing satisfaction with the financial condition of Customer.

                                  MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.

Faro Technologies, Inc.
May 10, 2001
Page No. 2

(e) There not occurring any event which under the terms of the Loan Documents
would constitute a Default.

(f) Evidence satisfactory to us of the perfection and priority of any liens
required by us in the Loan Documents. Our approval will remain open subject to
said conditions until June 9,2001, after which time it shall be void.

Note that the Loan Documents require an initial WCMA Line Fee of $7,500.00. This
fee will be charged to Customer's WCMA Account after the Loan Documents have
been executed and returned to us. Note further that under the terms of the Loan
Documents Customer is responsible for a Florida documentary stamp tax in the
amount of $5,250.00. Consult your tax advisor about this tax, since it may not
be due if the Loan Documents are executed outside of the State of Florida, as
evidenced by a notary's acknowledgment at the end of certain of the Loan
Documents. Subject to such evidence that the tax is not payable, please also
include with the executed documents a check for the documentary stamp taxes
payable to "Lexis Document Services".

To assist you in completing the Loan Documents, we have affixed a "Sign Here"
sticker to each page requiring a signature, and have penciled an x" in front of
each signature line.

In order to minimize signature requirements, we normally seek only one copy of
each of the Loan Documents. After the WCMA Line of Credit has been activated, we
will return a fully executed duplicate copy for your records.

Although we will endeavor to make the WCMA Line of Credit available as soon as
feasible after the conditions of our approval have been met, there may be system
delays of up to several days until actual availability. Accordingly, we suggest
that you contact us prior to your initial use of the WCMA line.

If you have any questions about our approval or the structure or terms of the
facility, please call me at 312-269-4451. If you have any questions about the
Loan Documents, please call Diane Segert at (312) 499-3179.

Very truly yours,

MERRILL LYNCH BUSINESS

FINANCIAL SERVICES INC.

Signature on file for:   Thomas P. Coffey
                         Senior Relationship Manager

cc: Manny Calzon

<PAGE>

MerriII Lynch                                                WCMA LOAN AGREEMENT

WCMA LOAN AGREEMENT NO. 740-07K27 ("loan Agreement") dated as of May 10, 2001,
between FARO TECHNOLOGIES, INC., a corporation organized and existing under the
laws of the State of Florida having its principal office at 125 Technology Park,
Lake Mary, FL 32746 ("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC., a corporation organized and existing under the laws of the State of
Delaware having its principal office at 222 North LaSalle Street, Chicago, IL
60601 ("MLBFS").

In accordance with that certain WORKING CAPITAL MANAGEMENT ACCOUNT AGREEMENT NO.
740-07K27 ("WCMA Agreement") between Customer and MLBFS' affiliate, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith and as
part of the WCMA Program, Customer has requested that MLBFS provide, and subject
to the terms and conditions herein set forth MLBFS has agreed to provide, a
commercial line of credit for Customer (the WCMA Line of Credit).

Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:

                            Article I. DEFINITIONS

1.1 Specific Terms. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:

(a) "Activation Date" shall mean the date upon which MLBFS shall cause the WCMA
Line of Credit to be fully activated under MLPF&S' computer system as part of
the WCMA Program.

(b) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon any collateral for the Obligations.

(c) "Bankruptcy Event" shall mean any of the following: (i) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Customer; or (ii)
any such proceeding shall be filed against Customer and shall not be dismissed
or withdrawn within sixty (60) days after filing; or (iii) Customer shall make a
general assignment for the benefit of creditors; or (iv) Customer shall
generally fail to pay or admit in writing its inability to pay its debts as they
become due; or (v) Customer shall be adjudicated as bankrupt or insolvent.

(d) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.

(e) "Commitment Expiration Date" shall mean June 9, 2001.

(f) "Default" shall mean either an "Event of Default" as defined in Section 3.4
hereof, or an event which with the giving of notice, passage of time, or both,
would constitute such an Event of Default.

(g) "Default Interest Rate" shall mean a rate equal to the sum of the "Interest
Rate", as determined below, plus two percent (2%) per annum.

(h) "General Funding Conditions" shall mean each of the following conditions to
any WCMA Loan by MLBFS hereunder: (i) no Default shall have occurred and be
continuing or would result from the making of any WCMA Loan hereunder by MLBFS;
(ii) there shall not have occurred and be continuing any material adverse change
in the business or financial condition of Customer; (iii) all representations
and warranties of Customer herein or in any
<PAGE>

Additional Agreements shall then be true and correct in all material respects;
(iv) MLBFS shall have received this Loan Agreement and all of the Additional
Agreements, duly executed and filed or recorded where applicable, all of which
shall be in form and substance reasonably satisfactory to MLBFS; (v) MLBFS shall
have received evidence reasonably satisfactory to it as to the ownership of and
the perfection and priority of MLBFS' liens and security interests on any
collateral for the Obligations furnished pursuant to any of the Additional
Agreements; and (vii) any additional conditions specified in the "WCMA Line of
Credit Approval" letter executed by MLBFS with respect to the transactions
contemplated hereby shall have been met to the reasonable satisfaction of MLBFS.

(i) "Initial Maturity Date" shall mean the first date upon which the WCMA Line
of Credit will expire (subject to renewal in accordance with the terms hereof);
to wit: May 31, 2002.

(j) "Interest Due Date" shall mean the last Business Day of each calendar month
during the term hereof (or, if Customer makes special arrangements with MLPF&S,
the last Friday of each calendar month during the term hereof).

(k) "Interest Rate" shall mean a variable per annum rate of interest equal to
the sum of 2.75% and the 30-day Dealer Commercial Paper Rate. The "30-day Dealer
Commercial Paper Rate" shall mean, as of the date of any determination, the
interest rate from time to time published in the 'Money Rates' section of The
Wall Street Journal as the "Dealer Commercial Paper" rate for 30-day high-grade
unsecured notes sold through dealers by major corporations. The Interest Rate
will change as of the date of publication in The Wall Street Journal of a 30-day
Dealer Commercial Paper Rate that is different from that published on the
preceding Business Day. In the event that The Wall Street Journal shall, for any
reason, fail or cease to publish the 30-day Dealer Commercial Paper Rate, MLBFS
will choose a reasonably comparable index or source to use as the basis for the
Interest Rate. Upon the occurrence and during the continuance of a Default, the
Interest Rate with respect the WCMA Line of Credit may be increased to the
'Default Interest Rate', as herein provided.

(l) "Line Fee" shall mean a fee of $7,500.00 payable periodically by Customer to
MLBFS in accordance with the provisions of Section 2.2(k) hereof.

(m) "Maturity Date" shall mean the date of expiration of the WCMA Line of
Credit.

(n) "Maximum WCMA Line of Credit" shall mean $1,500,000.00.

(o) "Obligations" shall mean all liabilities, indebtedness and other obligations
of Customer to MLBFS, howsoever created, arising or evidenced, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary or joint or several, and,
without limiting the foregoing, shall include interest accruing after the filing
of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement.

(p)

(q) "Renewal Year" shall mean and refer to the 12-month period immediately
following the Initial Maturity Date and each 12-month period thereafter.

(r) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as Account No. 740-07K27 and any
successor Working Capital Management Account of Customer with MLPF&S.

(s) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this Loan
Agreement.

(t) "WCMA Loan Balance" shall mean an amount equal to the aggregate unpaid
principal amount of all WCMA Loans.

1.2 Other Terms. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meanings set
forth in the WCMA Agreement.
<PAGE>

                      ARTICLE II. THE WCMA LINE OF CREDIT

2.1 WCMA PROMISSORY NOTE. FOR VALUE RECEIVED, Customer hereby promises to pay to
the order of MLBFS, at the times and in the manner set forth in this Loan
Agreement, or in such other manner and at such place as MLBFS may hereafter
designate in writing, the following: (a) on the Maturity Date, or if earlier, on
the date of termination of the WCMA Line of Credit, the WCMA Loan Balance; (b)
interest at the Interest Rate (or, if applicable, at the Default Interest Rate)
on the outstanding WCMA Loan Balance, from and including the date on which the
initial WCMA Loan is made until the date of payment of all WCMA Loans in full;
and (c) on demand, all other sums payable pursuant to this Loan Agreement,
including, but not limited to, the periodic Line Fee. Except as otherwise
expressly set forth herein, Customer hereby waives presentment, demand for
payment, protest and notice of protest, notice of dishonor, notice of
acceleration, notice of intent to accelerate and alt other notices and
formalities in connection with this WCMA Promissory Note and this Loan
Agreement.

2.2 WCMA LOANS

(a) Activation Date. Provided that: (i) the Commitment Expiration Date shall not
then have occurred, and (ii) Customer shall have subscribed to the WCMA Program
and its subscription to the WCMA Program shall then be in effect, the Activation
Date shall occur on or promptly after the date, following the acceptance of this
Loan Agreement by MLSPS at its office in Chicago, Illinois, upon which each of
the General Funding Conditions shall have been met or satisfied to the
reasonable satisfaction of MLBFS. No activation by MLBFS of the WCMA Line of
Credit for a nominal amount shall be deemed evidence of the satisfaction of any
of the conditions herein set forth, or a waiver of any of the terms or
conditions hereof.

(b) WCMA Loans. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the first to occur of the Maturity Date or
the date of termination of the WCMA Line of Credit pursuant to the terms hereof,
and in addition to WCMA Loans automatically made to pay accrued interest, as
hereafter provided: (i) MLBFS will make WCMA Loans to Customer in such amounts
as Customer may from time to time request in accordance with the terms hereof,
up to an aggregate outstanding amount not to exceed the Maximum WCMA Line of
Credit, and (ii) Customer may repay any WCMA Loans in whole or in part at any
time, and request a re-borrowing of amounts repaid on a revolving basis.
Customer may request such WCMA Loans by use of WCMA Checks, FTS, Visa charges,
wire transfers, or such other means of access to the WCMA Line of Credit as may
be permitted by MLBFS from time to time; it being understood that so long as the
WCMA Line of Credit shall be in effect, any charge or debit to the WCMA Account
which but for the WCMA Line of Credit would under the terms of the WCMA
Agreement result in an overdraft, shall be deemed a request by Customer for a
WCMA Loan.

(c) Conditions of WCMA Loans. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of receipt by MLBFS of Customer's request:
(i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to
be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) Customer's subscription to the WCMA Program shall have been terminated;
or (iv) an event shall have occurred and be continuing which shall have caused
any of the General Funding Conditions to not then be met or satisfied to the
reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time
when any one or more of said conditions shall not have been met shall not in any
event be construed as a waiver of said condition or conditions or of any
Default, and shall not prevent MLBFS at any time thereafter while any condition
shall not have been met from refusing to honor any request by Customer for a
WCMA Loan.

(d) Limitation of Liability. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS to
honor any request of Customer for a WCMA Loan or any other act or omission of
MLBFS, MLPF&S or any of their affiliates due to or resulting from any system
failure, error or delay in posting or other clerical error, loss of power, fire,
Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S or any
of their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.

(e) Interest. (i) An amount equal to accrued interest on the WCMA Loan Balance
shall be payable by Customer monthly on each Interest Due Date, commencing with
the Interest Due Date occurring in the calendar month in which the Activation
Date shall occur. Unless otherwise hereafter directed in writing by MLBFS on or
after the first to occur of the Maturity Date or the date of termination of the
WCMA Line of Credit pursuant to the terms hereof,
<PAGE>

such interest will be automatically charged to the WCMA Account on the
applicable Interest Due Date, and, to the extent not paid with free credit
balances or the proceeds of sales of any Money Accounts then in the WCMA
Account, as hereafter provided, paid by a WCMA Loan and added to the WCMA Loan
Balance. All interest shall be computed for the actual number of days elapsed on
the basis of a year consisting of 360 days.

(ii) Upon the occurrence and during the continuance of any Default, but without
limiting the rights and remedies otherwise available to MLBFS hereunder or
waiving such Default, the interest payable by Customer hereunder shall at the
option of MLBFS accrue and be payable at the Default Interest Rate. The Default
Interest Rate, once implemented, shall continue to apply to the Obligations
under this Loan Agreement and be payable by Customer until the date such Default
is either cured or waived in writing by MLBFS,

(iii) Notwithstanding any provision to the contrary in this Agreement or any of
the Additional Agreements, no provision of this Agreement or any of the
Additional Agreements shall require the payment or permit the collection of any
amount in excess of the maximum amount of interest permitted to be charged by
law ('Excess Interest'). If any Excess Interest is provided for, or is
adjudicated as being provided for, in this Agreement or any of the Additional
Agreements, then: (A) Customer shall not be obligated to pay any Excess
Interest; and (B) any Excess Interest that MLBFS may have received hereunder or
under any of the Additional Agreements shall, at the option of MLBFS, be: (1)
applied as a credit against the then unpaid WCMA Loan Balance, (2) refunded to
the payer Thereof, or (3) any combination of the foregoing.

(f) Payments. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for a lesser
amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
WCMA Line of Credit are subject to final collection.

(g) Irrevocable Instructions to MLPF&S. In order to minimize the WCMA Loan
Balance, Customer hereby irrevocably authorizes and directs MLPF&S, effective on
the Activation Date and continuing thereafter so long as this Agreement shall be
in effect: (i) to immediately and prior to application for any other purpose pay
to MLBFS to the extent of any WCMA Loan Balance or other amounts payable by
Customer hereunder all available free credit balances from time to time in the
WCMA Account; and (ii) if such available free credit balances are insufficient
to pay the WCMA Loan Balance and such other amounts, and there are in the WCMA
Account at any time any investments in Money Accounts (other than any
investments constituting any Minimum Money Accounts Balance under the WCMA
Directed Reserve Program), to immediately liquidate such investments and pay to
MLBFS to the extent of any WCMA Loan Balance and such other amounts the
available proceeds from the liquidation on of any such Money Accounts.

(h) Statements. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.

(i) Use of WCMA Loan Proceeds. The proceeds of each WCMA Loan initiated by
Customer shall be used by Customer solely for working capital in the ordinary
course of its business, or, with the prior written consent of MLSFS, for other
lawful business purposes of Customer not prohibited hereby. Customer agrees that
under no circumstances will the proceeds of any WCMA Loan be used: (i) for
personal, family or household purposes of any person whatsoever, or (ii) to
purchase, carry or trade in securities, or repay debt incurred to purchase,
carry or trade in securities, whether in or in connection with the WCMA Account,
another account of
<PAGE>

Customer with MLPF&S or an account of Customer at any other broker or dealer in
securities, or (iii) unless otherwise consented to in writing by MLBFS, to pay
any amount to Merrill Lynch and Co., Inc. or any of its subsidiaries, other than
Merrill Lynch Bank USA, Merrill Lynch Bank & Trust Co. or any subsidiary of
either of them (including MLBFS and Merrill Lynch Credit Corporation).

(j) Renewal at Option of MLBFS; Right of Customer to Terminate. MLBFS may at any
time, in its sole discretion and at its sole option, renew the WCMA Line of
Credit for one or more Renewal Years; it being understood, however, that no such
renewal shall be effective unless set forth in a writing executed by a duly
authorized representative of MLBFS and delivered to Customer. Unless any such
renewal is accompanied by a proposed change in the terms of the WCMA Line of
Credit (other than the extension of the Maturity Date), no such renewal shall
require Customers approval. Customer shall, however, have the right to terminate
the WCMA Line of Credit at any time upon written notice to MLBFS.

(k) Line Fees. (i) In consideration of the extension of the WCMA Line of Credit
by MLBFS to Customer during the period from the Activation Date to the Initial
Maturity Date, Customer has paid or shall pay the Line Fee to MLBFS. If the Line
Fee has not heretofore been paid by Customer, Customer hereby authorizes MLBFS,
at its option, to either cause the Line Fee to be paid on the Activation Date
with a WCMA Loan, or invoice Customer for such Line Fee (in which event Customer
shall pay said fee within 5 Business Days after receipt of such invoice). No
delay in the Activation Date, howsoever caused, shall entitle Customer to any
rebate or reduction in the Line Fee or to any extension of the Initial Maturity
Date.

(ii) Customer shall pay an additional Line Fee for each Renewal Year. In
connection therewith, Customer hereby authorizes MLBFS, at its option, to either
cause each such additional Line Fee to be paid with a WCMA Loan on or at any
time after the first Business Day of such Renewal Year or invoiced to Customer
at such time (in which event Customer shall pay such Line Fee within 5 Business
Days after receipt of such invoice). Each Line Fee shall be deemed fully earned
by MLBFS on the date payable by Customer, and no termination of the WCMA Line of
Credit, howsoever caused, shall entitle Customer to any rebate or refund of any
portion of such Line Fee; provided, however, that if Customer shall terminate
the WCMA Line of Credit not later than 5 Business Days after the receipt by
Customer of notice from MLBFS of a renewal of the WCMA Line of Credit, Customer
shall be entitled to a refund of any Line Fee charged by MLBFS for the ensuing
Renewal Year.

                        Article III. GENERAL PROVISIONS

3.1 REPRESENTATIONS AND WARRANTIES

Customer represents and warrants to MLBFS that:

(a) Organization and Existence. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Florida and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary.

(b) Execution, Delivery and Performance. The execution, delivery and performance
by Customer of this Loan Agreement and such of the Additional Agreements to
which it is a party: (i) have been duly authorized by all requisite action, (ii)
do not and will not violate or conflict with any law or other governmental
requirement, or any of the agreements, instruments or documents which formed or
govern Customer, and (iii) do not and will not breach or violate any of the
provisions of, and will not result in a default by Customer under, any other
agreement, instrument or document to which it is a party or by which it or its
properties are bound.

(c) Notices and Approvals. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer of such of
this Loan Agreement and the Additional Agreements to which it is a party.

(d) Enforceability. This Loan Agreement and such of the Additional Agreements to
which Customer is a party are the legal, valid and binding obligations of
Customer, enforceable against it in accordance with their respective terms,
except as enforceability may be limited by bankruptcy and other similar laws
affecting the rights of creditors generally or by general principles of equity.

(e) Financial Statements. Except as expressly set forth in Customers financial
statements, all financial statements of Customer furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
<PAGE>

consistently applied, are true and correct in all material respects, and fairly
present the financial condition of it as at such dates and the results of its
operations for the periods then ended (subject, in the case of interim unaudited
financial statements, to normal year-end adjustments); and since the most recent
date covered by such financial statements, there has been no material adverse
change in any such financial condition or operation.

(f)   Litigation. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer, which would, if adversely determined, materially and adversely affect
the liens and security interests of MLBFS hereunder or under any of the
Additional Agreements, the financial condition of Customer or the continued
operations of Customer.

(g)   Tax Returns. All federal, state and local tax returns, reports and
statements required to be filed by Customer have been filed with the appropriate
governmental agencies and all taxes due and payable by Customer have been timely
paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer, or the continued operations of Customer).

(h)   No Outside Broker. Except for employees of MLBFS, MLPF&S or one of their
affiliates, Customer has not in connection with the transactions contemplated
hereby directly or indirectly engaged or dealt with, and was not introduced or
referred to MLBFS by, any broker or other loan arranger.

Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to provide the WCMA Line of Credit, and
(ii) is continuing and shall be deemed remade by Customer concurrently with each
request for a WCMA Loan.

3.2   FINANCIAL AND OTHER INFORMATION

(a)   Customer shall furnish or cause to be furnished to MLBFS during the term
of this Loan Agreement all of the following:

(i)   Annual Financial Statements. Within 120 days after the close of each
fiscal year of Customer, a copy of the annual audited financial statements of
Customer, including in reasonable detail, a balance sheet and statement of
retained earnings as at the close of such fiscal year and statements of profit
and loss and cash flow for such fiscal year;

(ii)  Interim Financial Statements. Within 45 days after the close of each
fiscal quarter of Customer, a copy of the interim financial statements of
Customer for such fiscal quarter (including in reasonable detail both a balance
sheet as of the close of such fiscal period, and statement of profit and loss
for the applicable fiscal period); and

(iii) Other Information. Such other information as MLBPS may from time to time
reasonably request relating to Customer.

(b)   General Agreements With Respect to Financial Information. Customer agrees
that except as otherwise specified herein or otherwise agreed to in writing by
MLBFS: (i) all annual financial statements required to be furnished by Customer
to MLRFS hereunder will be prepared by either the current independent
accountants for Customer or other independent accountants reasonably acceptable
to MLBFS, and (ii) all other financial information required to be furnished by
Customer to MLBFS hereunder will be certified as correct in all material
respects by the party who has prepared such information, and, in the case of
internally prepared information with respect to Customer, certified as correct
by its chief financial officer.

3.3   OTHER COVENANTS

Customer further covenants and agrees during the term of this Loan Agreement
that:

(a)   Financial Records; Inspection. Customer will: (i) maintain at its
principal place of business complete and accurate books and records, and
maintain all of its financial records in a manner consistent with the financial
statements heretofore furnished to MLBFS, or prepared on such other basis as may
be approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal), operations, books and records.
<PAGE>

(b) Taxes. Customer will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either any liens and security interests of MLBFS
under any Additional Agreements, the financial condition of Customer or the
continued operations of Customer.

(c) Compliance With Laws and Agreements. Customer will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either any liens and security interests of MLBFS
under any Additional Agreements, or the financial condition or the continued
operations of Customer.

(d) No Use of Merrill Lynch Name. Customer will not directly or indirectly
publish, disclose or otherwise use in any advertising or promotional material,
or press release or interview, the name, logo or any trademark of MLBFS, MLPF&S,
Merrill Lynch and Co., Incorporated or any of their affiliates.

(e) Notification By Customer. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer; (iii) any information
which indicates that any financial statements of Customer fail in any material
respect to present fairly the financial condition and results of operations
purported to be presented in such statements; and (iv) any change in Customers
outside accountants. Each notification by Customer pursuant hereto shall specify
the event or information causing such notification, and, to the extent
applicable, shall specify the steps being taken to rectify or remedy such event
or information.

(f) Notice of Change. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer.

(g) Continuity. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Customer shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer or
lease all or any substantial part of its assets, if any such action would result
in either: (A) a material change in the principal business, ownership or control
of Customer, or (B) a material adverse change in the financial condition or
operations of Customer; (ii) Customer shall preserve its existence and good
standing in the jurisdiction(s) of establishment and operation; (iii) Customer
shall not engage in any material business substantially different from its
business in effect as of the date of application by Customer for credit from
MLBFS, or cease operating any such material business; (iv) Customer shall not
cause or permit any other person or entity to assume or succeed to any material
business or operations of Customer; and (v) Customer shall not cause or permit
any material change in its controlling ownership.

3.4 EVENTS OF DEFAULT

The occurrence of any of the following events shall constitute an 'Event of
Default' under this Loan Agreement:

(a) Exceeding the Maximum WCMA Line of Credit. If the WCMA Loan Balance shall at
any time exceed the Maximum WCMA Line of Credit and Customer shall fail to
deposit sufficient funds into the WCMA Account to reduce the WCMA Loan Balance
below the Maximum WCMA Line of Credit within five (5) Business Days after
written notice thereof shall have been given by MLBFS to Customer,

(b) Other Failure to Pay. Customer shall fail to pay to MLBFS or deposit into
the WCMA Account when due any other amount owing or required to be paid or
deposited by Customer under this Loan Agreement, or shall fail to pay when due
any other Obligations, and any such failure shall continue for more than five
(5) Business Days after written notice thereof shall have been given by MLBFS to
Customer.

(c) Failure to Perform. Customer shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed under this
Loan Agreement or any of the Additional Agreements (not constituting an Event of
Default under any other clause of this Section), and such default shall continue
unremedied for ten (10) Business Days after written notice thereof shall have
been given by MLBFS to Customer.

(d) Breach of Warranty. Any representation or warranty made by Customer
contained in this Loan Agreement or
<PAGE>

any of the Additional Agreements shall at any time prove to have been incorrect
in any material respect when made.

(e) Default Under Other Agreement. A default or Event of Default by Customer or
any other party providing collateral for the Obligations shall occur under the
terms of any other agreement, instrument or document with or intended for the
benefit of MLBFS, MLPF&S or any of their affiliates, and any required notice
shall have been given and required passage of time shall have elapsed.

(f) Bankruptcy Event. Any Bankruptcy Event shall occur.

(g) Material Impairment. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by Customer of its liabilities or obligations under this Loan Agreement or any
of the Additional Agreements to which Customer is a party has been materially
impaired. The existence of such a material impairment shall be determined in a
manner consistent with the intent of Section 1-208 of the UCC.

(h) Acceleration of Debt to Other Creditors. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer to another creditor under any indenture, agreement, undertaking, or
otherwise.

3.5 REMEDIES

(a) Remedies Upon Default. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:

(i)   Termination. MLBFS may without notice terminate the WCMA Line of Credit
and all obligations to provide the WCMA Line of Credit or otherwise extend any
credit to or for the benefit of Customer (it being understood, however, that
upon the occurrence of any Bankruptcy Event the WCMA Line of Credit and all such
obligations shall automatically terminate without any action on the part of
MLBFS); and upon any such termination MLBFS shall be relieved of alt such
obligations.

(ii)  Acceleration. MLBFS may declare the principal of and interest on the WCMA
Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby expressly waived; provided,
however, that upon the occurrence of any Bankruptcy Event all such principal,
interest and other Obligations shall automatically become due and payable
without any action on the part of MLBFS.

(b) Set-Off. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
financial assets, investment property, securities and any other property of
Customer which is in transit to or in the possession, custody or control of
MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S. Customer
hereby collaterally assigns and grants to MLBFS a continuing security interest
in all such property as additional security for the Obligations. Upon the
occurrence and during the continuance of an Event of Default, MLBFS shall have
all rights in such property available to collateral assignees and secured
parties under all applicable laws, including. without limitation, the UCC.

(c) Remedies are Severable and Cumulative. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.

3.6 MISCELLANEOUS

(a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any
right. power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any waiver
of any provision of this Loan Agreement or any of the Additional Agreements, nor
any consent to any departure by Customer therefrom, shall be effective unless
the same shall be in writing and signed by MLBFS. Any waiver of any provision of
this Loan Agreement or any of the Additional Agreements and any consent to any
departure by Customer from the terms of this Loan Agreement or
<PAGE>

any of the Additional Agreements shall be effective only in the specific
instance and for the specific purpose for which given. Except as otherwise
expressly provided herein, no notice to or demand on Customer shall in any case
entitle Customer to any other or further notice or demand in similar or other
circumstances.

(b) Disclosure. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer. In connection with
said authorization, the parties recognize that in order to provide a WCMA Line
of Credit certain information about Customer is required to be made available on
a computer network accessible by certain affiliates of MLBFS, including MLPF&S.

(c) Communications. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Loan Agreement, or, in the case of facsimile transmission, to
the parties at their respective regular facsimile telephone number.

(d) Fees, Expenses and Taxes. Customer shall pay or reimburse MLBFS for: (i) all
Uniform Commercial Code filing and search fees and expenses incurred by MLBFS in
connection with the verification, perfection or preservation of MLBFS' rights
hereunder or in any collateral for the Obligations; (ii) any and all stamp,
transfer and other taxes and fees payable or determined to be payable in
connection with the execution, delivery and/or recording of this Loan Agreement
or any of the Additional Agreements; and (iii) all reasonable fees and out-of-
pocket expenses (including, but not limited to, reasonable fees and expenses of
outside counsel) incurred by MLBFS in connection with the collection of any sum
payable hereunder or under any of the Additional Agreements not paid when due,
the enforcement of this Loan Agreement or any of the Additional Agreements and
the protection of MLBFS' rights hereunder or hereunder, excluding, however,
salaries and normal overhead attributable to MLBFS employees. Customer hereby
authorizes MLBFS, at its option, to either cause any and all such fees, expenses
and taxes to be paid with a WCMA Loan, or invoice Customer therefore (in which
event Customer shall pay all such fees, expenses and taxes within 5 Business
Days after receipt of such invoice). The obligations of Customer under this
paragraph shall survive the expiration or termination of this Loan Agreement and
the discharge of the other Obligations.

(e) Right to Perform Obligations. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment, and
all such amounts shall be additional Obligations. The payment or performance by
MLBFS of any of Customers obligations hereunder shall not relieve Customer of
said obligations or of the consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Default.

(f) Further Assurances. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements. instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement or any of the Additional Agreements.

(g) Binding Effect. This Loan Agreement and the Additional Agreements shall be
binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or the Additional Agreements.

(h) Headings. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
<PAGE>

(i) Governing Law. This Loan Agreement, and, unless otherwise expressly provided
therein, each of the Additional Agreements, shall be governed in all respects by
the laws of the State of Illinois.

(j) Severability of Provisions. Whenever possible, each provision of this Loan
Agreement and the Additional Agreements shall be interpreted in such manner as
to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Loan Agreement and the Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.

(k) Term. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as the WCMA Line of Credit shall be
in effect or there shall be any Obligations outstanding.

(I) Counterparts. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.

(m) Jurisdiction; Waiver. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT (INCLUDING THE WCMA NOTE SET
FORTH HEREIN) AND THE ADDITIONAL AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR
IN ANY OTHER JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS
MAY BE LOCATED. CUSTOMER IRREVOCABLY SUBMITS ITSELF TO JURISDICTION IN THE STATE
OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR
SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS TO CONTEST SAID
JURISDICTION AND VENUE AND THE CONVENIENCE OF ANY SUCH FORUM, AND ANY AND ALL
RIGHTS TO REMOVE SUCH ACTION FROM STATE TO FEDERAL COURT. CUSTOMER FURTHER
WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION
EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY
EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER
PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE WCMA LINE OF CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL
AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS
LOAN AGREEMENT. CUSTOMER FURTHER WAIVES THE RIGHT TO BRING ANY NON-COMPULSORY
COUNTERCLAIMS.

(n) Integration. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE FOREGOING, CUSTOMER ACKNOWLEDGES
THAT EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN: (I) NO PROMISE OR COMMITMENT
HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR ANY OF THEIR RESPECTIVE EMPLOYEES,
AGENTS OR REPRESENTATIVES TO EXTEND THE AVAILABILITY OF THE WCMA LINE OF CREDIT
OR THE MATURITY DATE, OR TO INCREASE THE MAXIMUM WCMA LINE OF CREDIT, OR
OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER OR ANY OTHER PARTY; (II) NO
PURPORTED EXTENSION OF THE MATURITY DATE, INCREASE IN THE MAXIMUM WCMA LINE OF
CREDIT OR OTHER EXTENSION OR AGREEMENT TO EXTEND CREDIT SHALL BE VALID OR
BINDING UNLESS EXPRESSLY SET FORTH IN A WRITTEN INSTRUMENT SIGNED BY MLBFS; AND
(III) THIS LOAN AGREEMENT SUPERSEDES AND REPLACES ANY AND ALL PROPOSALS, LETTERS
OF INTENT AND APPROVAL AND COMMITMENT LETTERS FROM MLBFS TO CUSTOMER, NONE OF
WHICH SHALL BE CONSIDERED AN ADDITIONAL AGREEMENT. NO AMENDMENT OR MODIFICATION
OF THIS AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS TO WHICH CUSTOMER IS
<PAGE>

A PARTY SHALL BE EFFECTIVE UNLESS IN A WRIT1NG SIGNED BY BOTH MLBFS AND
CUSTOMER.

IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.

FARO TECHNOLOGIES, INC.

Signature on file for: Simon Raab, CEO
Signature on file for: Greg A. Fraser, EVP

STATE OF FLORIDA
         -------

COUNTY OF SEMINOLE
          --------

The foregoing instrument was acknowledged before me this day of 21 May AD, 2001
by Simon Raab of FARO TECHNOLOGIES, INC., a Florida corporation, on behalf of
   ----------
the corporation. Said person is personally known to me or has produced as
identification.

Sharon G. Trowbridge
--------------------
NOTARY PUBLIC

Sharon G. Trowbridge
--------------------
PRINTED NAME OF NOTARY PUBLIC
My Commission Expires: 03/25/04

Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.

By:

<PAGE>

Merrill Lynch                                            SECRETARY'S CERTIFICATE

The undersigned hereby codifies to MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC. that the undersigned is the duly appointed and acting Secretary (or
Assistant Secretary) of FARO TECHNOLOGIES, INC., a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida;
and that the following is a true, accurate and compared transcript of
resolutions duly, validly and lawfully adopted on the 21st day of May 2001 by
the Board of Directors of said Corporation acting in accordance with the laws of
the state of incorporation and the charter and by-laws of said Corporation

"RESOLVED, that this Corporation is authorized and empowered, now and from time
to time hereafter, to borrow and/or obtain credit from, and/or enter into other
financial arrangements with, MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
('MLBFS'), and in connection therewith to grant to MLBFS liens and security
interests on any or all property belonging to this Corporation; all such
transactions to be on such terms and conditions as may be mutually agreed from
time to time between this Corporation and MLBFS; and

"FURTHER RESOLVED, that the President. any Vice President, Treasurer, Secretary
or other officer of this Corporation, or any one or more of them, be and each of
them hereby is authorized and empowered to: (a) execute and deliver to MLBFS on
behalf of this Corporation any and all loan agreements, promissory notes,
security agreements, pledge agreements, financing statements, mortgages, deeds
of trust, leases and/or all other agreements, instruments and documents required
by MLBFS in connection therewith, and any present or future extensions,
amendments, supplements, modifications and restatements thereof: all in such
form as any such officer shall approve, as conclusively evidenced by his or her
signature thereon, and (b) do and perform all such acts and things deemed by any
such officer to be necessary or advisable to carry out and perform the
undertakings and agreements of this Corporation in connection therewith; and any
and all prior acts of each of said officers in these premises are hereby
ratified and confirmed in all respects; and

"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from an
authorized officer of this Corporation, which change or revocation shall not in
any event affect the obligations of this Corporation with respect to any
transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."

The undersigned further certifies that: (a) the foregoing resolutions have not
been rescinded, modified or repealed in any manner, are not in conflict with any
agreement of said Corporation and are in full force and effect as of the date of
this Certificate, and (b) the following individuals are now the duly elected and
acting officers of said Corporation and the signatures set forth below are the
true signatures of said officers:
<PAGE>

President: Simon Raab

Vice President:

Treasurer: Greg Fraser

Secretary: Greg Fraser

Executive Vice President: Greg Fraser

IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said Corporation hereto, pursuant to due authorization, all
as of this 21st day of May, 2001.

(Corporate Seal)                                     Sharon Trowbridge
                                                     -----------------
                                                     Secretary
                               Printed Name:         Sharon Trowbridge
                                                     -----------------

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