Document:

* Portions denoted with an asterisk have been omitted and filed separately with
the Securities and Exchange Commission pursuant to a request for confidential
treatment.

                                                                   EXHIBIT 10.33

                   MANUFACTURING TECHNOLOGY JOINT DEVELOPMENT

                                       AND

                            FOUNDRY SUPPLY AGREEMENT

      This Manufacturing Technology Joint Development and Foundry Supply
Agreement (hereinafter the "Agreement") effective as of March 30, 2001
("Effective Date"), is made by and between Taiwan Semiconductor Manufacturing
Co., Ltd., a company duly incorporated under the laws of the Republic of China
("ROC"), having its principal place of business at No. 121, Park Avenue 3
Science Based Industrial Park, Hsin-Chu, Taiwan, ROC ("TSMC") and LSI Logic
Corporation, a company duly incorporated under the laws of the State of
Delaware, having its principal place of business at 1551 McCarthy Blvd.,
Milpitas, California 95035, United States of America (hereinafter "LSI"). (TSMC
and LSI are collectively referred to as the "Parties" or individually as a
"Party").

                                    RECITALS

A.    TSMC manufactures and supplies semiconductor wafers pursuant to its
      leading-edge foundry operations and performs research and development for
      advanced wafer fabrication technologies and associated factory operations.

B.    LSI designs, develops, manufactures and markets leading-edge integrated
      circuits and performs research and development for its products and
      operations, including for advanced wafer fabrication technologies and
      associated factory operations.

C.    The Parties wish to collaborate involving semiconductor wafer process and
      manufacturing technology and to establish a wafer supply arrangement by
      which TSMC will supply a portion of LSI's requirements for semiconductor
      wafers.

      Now, therefore, in consideration of the foregoing premises and the mutual
promises and obligations set forth herein, the Parties hereby agree as follows:

1     Definitions:

1.1   "Affiliate" of a Party means, any corporation, limited liability company,
      partnership or other business enterprise of which more than fifty percent
      (50%) of the voting rights with respect to the election of directors or
      managers is owned or controlled, directly or indirectly, by, or which is
      under the practical control directly or indirectly of, any Party to this
      Agreement. Any corporation, limited liability company, partnership or
      other business enterprise which would at any time be an Affiliate of LSI
      or TSMC by reason of the foregoing, shall be considered an Affiliate for
      purposes of this Agreement only for so long as the foregoing conditions
      are met. For purposes of this Agreement, TSMC's Affiliates shall include
      Singapore Semiconductor Manufacturing Corporation ("SSMC") and Vanguard
      International Semiconductor Corporation ("Vanguard").

1.2   "Confidential Information" shall have the meaning as set forth in Section
      8.1.

1.3   "Deliverables" mean items, whether tangible or intangible, that are
      identified by the Statement of Work, or other means of the Development
      Program to be provided by one Party to the other for the purposes of
      successful completion of the Development Program.

1.4   "Development Program" means the cooperative development and the
      installation and qualification of the JDP Process in a single instance at
      each of the respective factories of the Parties.

1.5   "Intellectual Property Rights" means (a) all Patent Rights; (b) all
      copyrights and all other literary property and author rights, and all
      rights, title and interest in and to all copyrights, copyright
      registrations, certificates of copyrights and copyrighted interests; (c)
      all mask work rights, mask work applications, and mask work registrations,
      and (d) all rights, title and interest in and to all inventions (whether
      patentable or not in any country), invention disclosure, and trade secrets
      (i) solely owned by a Party or its Affiliates that would necessarily be
      infringed by the practice or exploitation of the JDP Process and (ii) that
      a Party or it's Affiliates have the right to grant licenses of the scope
      herein without the payment of royalties to any third party, to the extent
      the practice or exploitation of the JDP Process by a Party hereto would
      infringe the intellectual property rights of such third party.

1.6   "Invention" means an invention or discovery relating to the JDP Process
      first conceived or reduced to practice as a result of activities
      undertaken pursuant to the Development Program.

1.7   "JDP Process" shall have the meaning set forth in Article 2.0 and as to be
      more fully delineated in the Statement of Work.

1.8   "LSI Front End Process" means the portion of the LSI Gflx process that is
      described at Schedule B to this Agreement.

1.9   "Patent Rights" means any patent rights, letters patent and applications
      for letters patent, or other government issued or granted indicia of
      invention ownership, including any reissue, division, term extension,
      continuation or continuation-in-

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      part, which have a first effective filing date in any country prior to one
      hundred and eighty (180) days after termination or expiration of this
      Agreement.

1.10  "Statement of Work" means the description of the activities,
      responsibilities and contributions of the Parties, both separately and in
      cooperation with each other, and the mutually desired results therefrom
      that are to be developed pursuant to this Agreement for successful
      completion of the Development Program.

1.11  "Technology" means any technical information relevant to or useful to the
      Development Program that is to be provided as a Deliverable under this
      Agreement or which is reasonably required for the practice or exploitation
      of the JDP Process, which a Party or its Affiliates (a) owned or
      controlled prior to the Effective Date of this Agreement, (b) solely
      develops during the time this Agreement is in effect or thereafter or (c)
      otherwise obtains rights to independently of the other Party hereto.
      Technical information includes, but is not limited to, any and all
      methods, processes, recipes, formulae, measurements, computer programs,
      algorithms, procedures, designs, schematics, know-how, show-how, mask
      works for demonstration or qualification vehicles, including all
      information, data, and materials describing any of the foregoing.
      Technology expressly excludes other types of technical information,
      including by way of example, related to packaging, circuitry, cell
      libraries and electronic product design, except where such information has
      been expressly provided for as a Deliverable pursuant to this Agreement.

1.12  "Term" shall mean the term of this Agreement, including any extended
      period(s), as provided by Section 11.1 of this Agreement.

1.13  "TSMC Foundry Process" means the TSMC CL013 1.2V/3.3V foundry process,
      including copper interconnect and Black Diamond Low K dielectric, as such
      exists or is specified for development at the Effective Date.

1.14  "Wafer Foundry Agreement" means the agreement for the purchase and sale of
      wafers provided for at Article 6.

2     Scope

      This Agreement covers the Parties' rights and obligations with respect to:
      a) their respective contributions to and collaboration for joint
      development of a semiconductor wafer fabrication CMOS process for 0.13um
      technology, referred to herein as the JDP Process; b) the successful
      installation and qualification of the JDP Process in each Party's factory
      and c) the supply of semiconductor wafers by TSMC to LSI using the JDP
      Process. In addition, the Parties anticipate that their success in the
      development and use of the JDP Process will precede their further
      collaboration for advanced joint process technology development, mutually
      recognized to be a 100nm or 90nm node.

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3     Joint Development

3.1   Promptly upon the Effective Date the Parties will commence and complete
      preparation of a mutually acceptable Statement of Work that will set forth
      the material elements for the cooperative development of the JDP Process
      under the Development Program. The Statement of Work, when completed and
      mutually agreed to, will be deemed to be incorporated into and become a
      part of this Agreement as Schedule A. If there is any conflict or
      discrepancy between the terms of this Agreement and those of the Statement
      of Work, the terms and conditions of this Agreement shall prevail.

3.2   The Statement of Work will reflect that the development of the JDP Process
      will combine certain Technology of the TSMC Foundry Process and the
      Technology of the LSI Front End Process and the other Technology elements
      to be contributed by LSI that are further described at Schedule B to this
      Agreement.

3.3   The Statement of Work will specify in adequate detail the elements of
      Technology, personnel expertise and particular resources to be contributed
      by each Party for purposes of development and/or factory use of the JDP
      Process. In addition the Statement of Work will specify a timetable, with
      appropriate milestones, pursuant to which Deliverables are to be provided
      by one Party to the other Party, the desired results of the Development
      Program that are to be realized, including the initial installation and
      qualification of the JDP Process in each Party's factory and the means by
      which successful completion of the Development Program will be ascertained
      and such other elements as the Parties may deem appropriate to include.

3.4   The Parties shall exercise their reasonable best efforts in the
      performance of their duties and obligations in the preparation of the
      Statement of Work and with respect to the work and other activities to be
      performed thereunder for successful completion of the Development Program;
      provided, however, neither party shall be responsible for whether or to
      what extent the other party is able to successfully operate the JDP
      Process in the other Party's facilities.

3.5   All expenses incurred by a Party with respect to the performance of its
      obligations under the Development Program shall be the responsibility of
      that Party and no reimbursement therefor shall be required of the other
      Party. In preparing the Statement of Work, the Parties shall endeavor to
      allocate costs and expenses to be incurred by each Party pursuant to the
      Development Program in an approximately equal manner, with appropriate
      regard for efficient accomplishment of the Development Program. In the
      event that a Party provides additional services necessary to the
      development of the JDP Process but outside the scope of the Development
      Program, the Parties shall mutually agree, in advance, upon any equitable
      reimbursement.

3.6   Subject to Article 8 (Confidentiality), each Party shall provide the other
      Party with adequate access to its facilities for the purposes of the
      Parties' performance

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      of their obligations under this Agreement. The Party gaining access to the
      other Party's facilities shall cause its employees and representatives who
      are allowed such access to fully comply with the other Party's rules and
      regulations governing conduct in the work place. Each Party shall hold the
      other Party harmless from damage or injury to the other Party and/or its
      employees that is proximately caused by such Party's employees or
      representatives while at the other Party's facilities.

3.7   Within six (6) months following the Effective Date the Parties will meet
      and confer regarding their mutual interests in entering into a joint
      development program for their respective manufacturing process
      requirements beyond that covered by this Agreement, which are currently
      anticipated to be for a 100nm or 90nm technology. The provisions of such a
      joint development program would be the subject of a separate agreement.

3.8   During the term of this Agreement and for a period of twelve (12) months
      following its termination for any reason, each Party (i) shall not hire or
      solicit for hire any employee of the other Party who is involved in the
      performance of the obligations of the other Party under this Agreement or
      who becomes known to the other Party by virtue of the Parties' activities
      under this Agreement and (ii) shall not through any other means, directly
      or indirectly, encourage any such employee to terminate his/her employment
      with the other Party. This restriction shall no longer apply with respect
      to any person whose employment was involuntarily terminated or who has not
      been employed for more than twelve (12) months by the other Party.

3.9   Technology and Intellectual Property Rights that are created through the
      work of the Parties pursuant to the Development Program will be jointly
      owned by the Parties (subject to Section 7.3), without any obligation of
      accountability of one Party to the other Party with respect thereto unless
      otherwise expressly provided in this Agreement. One Party's rights to use
      Technology and Intellectual Property Rights of the other Party are set
      forth in Article 4.

3.10  The Parties' obligations and activities hereunder are non-exclusive.
      Unless otherwise expressly stipulated under this Agreement, nothing in
      this Agreement is intended to preclude or otherwise limit either Party
      from engaging in any kind of activity covered by this Agreement, either
      separately or in combination with any other party.

4     Licenses

4.1   LSI, for itself and on behalf of its Affiliates, hereby grants and agrees
      to grant to TSMC a [*] license under LSI's Technology and Intellectual
      Property Rights:

      (a) to use in TSMC's factories and to modify, in whole or in part, the JDP
      Process and to make derivatives of the JDP Process;

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      (b) to use in TSMC's factories to manufacture, to offer to sell, to sell,
      to import, to export, and otherwise distribute products made, in whole or
      in part, with the JDP Process and any modifications thereto and/or
      derivatives thereof;

      (c) to grant [*]; and

      (d) to grant sublicense rights of the same or lesser scope as those
      granted by LSI herein, to [*], subject to LSI's prior written consent,
      which will not be unreasonably withheld or delayed, and further subject to
      the following: (i) LSI will be given reasonable prior written notice of
      the [*]granted; (ii) [*]; (iii) the granting of such sublicense rights
      shall not occur prior to [*]; and (iv) [*] will agree in writing to be
      bound to the terms and conditions (excluding Article 6) that are
      substantially similar to which the rights and licenses granted to TSMC are
      subject.

4.2   TSMC, for itself and on behalf of its Affiliates, hereby grants and agrees
      to grant to LSI a [*]license under TSMC's Technology and Intellectual
      Property Rights:

      (a) to use in LSI's factories and to modify, in whole or in part, the JDP
      Process and to make derivatives of the JDP Process;

      (b) to use in LSI's factories to manufacture, to offer to sell, to sell,
      to import, to export, and otherwise distribute products made, in whole or
      in part, with the JDP Process and any modifications thereto and/or
      derivatives thereof;

      (c) to grant [*].

      (d) to grant sublicense rights of the same or lesser scope as those
      granted by TSMC herein, to the non-Affiliate third party identified on
      Schedule C, subject to the following: (i) TSMC will be given written
      notice at the time of the granting of any such sublicense rights; (ii)
      [*]; (iii) the granting and/or practice of such sublicense rights shall
      not occur prior to [*]; and (iv) [*] will agree in writing to be bound to
      the terms and conditions (excluding Article 6) that are substantially
      similar to which the rights and licenses granted to LSI are subject.

4.3   The rights and licenses granted by one Party to the other Party are
      subject to the terms and conditions of this Agreement and are limited to
      the rights and licenses expressly set forth herein and, with respect to
      the rights to grant sublicenses, the full compliance by sublicensees with
      confidentiality obligations substantially equivalent to those contained in
      this Agreement.

4.4   The conditions precedent, regarding installation and qualification of the
      JDP Process in the factories of the Parties, to the rights granted to each
      Party under subsections 4.1 (d) and 4.2 (d) respectively shall not apply
      to a Party as a Non-Defaulting Party in the case of an Event of Default by
      the other Party.

4.5   In the event either Party exercises its rights under Section 4.1(d) or
      4.2(d) above, the Parties shall discuss and attempt, in good faith,
      [*]received by the other Party

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      by virtue of such provisions of this Agreement will have the right to
      receive reports and [*]with respect thereto.

5     JDP Process Installation and Qualification

5.1   The Statement of Work will specify that the initial installation and
      qualification of the JDP Process will be in a TSMC factory. TSMC, with
      LSI's assistance as provided in the Statement of Work, will perform all
      activities necessary or appropriate for the installation and qualification
      in accordance with customary TSMC procedures therefor and as otherwise
      required pursuant to the Statement of Work.

5.2   At such time as LSI shall request, TSMC will transfer the JDP Process to
      an LSI factory for installation and qualification in order to perform that
      portion of the Development Program. LSI anticipates that such transfer for
      the initial installation and qualification of the JDP Process will be to
      equipment for fabrication of 200mm (8") wafers, but reserves the right to
      require initial transfer of the JDP Process for installation and
      qualification for the fabrication of 300mm (12") wafers. LSI will not
      request transfer to an LSI factory prior to the completion of initial
      installation and qualification of the JDP Process at a TSMC factory unless
      such installation and qualification of the JDP Process at a TSMC factory
      does not occur within 90 days of the time provided therefor under the
      Statement of Work. If any such delay is due in substantial part to any act
      or omission of LSI, the 90 day period shall be extended on a day for day
      basis until LSI's act or omission is no longer a material contributing
      factor to such delay.

5.3   In the event of any delay in completing the initial installation and
      qualification of the JDP Process in a TSMC factory or an LSI factory, the
      Parties shall promptly confer and discuss, in good faith, a commercially
      reasonable solution for such delay, which may include appropriate
      revisions to the Statement of Work to provide for transfer of the JDP
      Process to the factory of the Party that suffered the delay in
      installation and qualification of the JDP Process under the Statement of
      Work as originally intended, and adjustments to the Parties' respective
      obligations under Article 6 hereinbelow, in order to realize the Parties'
      original intent to the fullest extent practicable.

5.4   The Parties will establish a protocol for periodic technical and
      operations reviews, which are anticipated to be held on a quarterly basis,
      at which they will exchange information regarding their respective
      experiences with the JDP Process. The Parties will not disclose customer
      specific information without having first obtained the written consent of
      the relevant customer.

5.5   Unless LSI has elected to have the initial transfer of the JDP Process to
      an LSI factory for fabrication of 300mm (12") wafers, upon request by LSI,
      TSMC also will transfer the JDP Process to an LSI factory for fabrication
      of 300mm (12")

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      wafers after the JDP Process has been successfully installed and qualified
      by TSMC for such type of equipment in its own factory. In the event of
      such second transfer to LSI, upon request by TSMC, LSI will reimburse TSMC
      for its reasonable out-of-pocket costs and expenses incurred with respect
      to such second transfer, installation and qualification of the JDP Process
      in an LSI factory.

6     Manufacturing Alliance

6.1   The Parties will enter into a manufacturing alliance through which TSMC
      will supply semiconductor wafers to LSI using the JDP Process and/or
      TSMC's standard 0.13um processes. The terms and conditions of the alliance
      will be set forth in a separate foundry supply agreement that is
      consistent with the provisions hereof and that is substantially in the
      form attached hereto as Schedule D.

6.2   Subject to the successful installation and qualification of the JDP
      Process in a TSMC factory in accordance with the Statement of Work, TSMC
      will be obligated to sell to LSI and LSI will be obligated to purchase
      from TSMC the percentages of LSI's requirements for semiconductor wafers
      based upon the JDP Process as follows:

      a)    [*];

      b)    [*] and

      c)    [*].

      The wafer volumes under subsections 6.2 a) and b) are for 200mm (8")
      wafers or equivalents. In the event LSI seeks to purchase wafers from
      TSMC, the quantities of which were included in LSI's forecast for the JDP
      Process at the time this Agreement was signed, which are to be
      manufactured using another 0.13um TSMC process, such volumes shall be
      counted towards fulfillment of the Parties' quantity obligations
      hereunder. [*] For purposes hereof the wafer requirements of LSI include
      those of LSI's Affiliates. The Parties may conduct individual wafer sale
      and purchase transactions through their respective Affiliates as they deem
      appropriate.

6.3   Subject to the qualification factors set forth below in this Section 6.3,
      TSMC will sell 0.13um JDP Process wafers and TSMC 0.13um standard process
      wafers to LSI [*].

6.4   The minimum quantities of wafer purchases and sales obligations of the
      Parties under subsection 6.2 c) will be measured on [*].

6.5   TSMC will manufacture and supply masks for wafers fabricated for LSI by
      TSMC using the JDP Process and, upon request by LSI, for wafers to be
      fabricated in LSI factories using the JDP Process. [*].

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6.6   The Parties anticipate further discussions of their mutual interest in
      potential mask making activities at LSI's Gresham, Oregon location. In the
      event the Parties reach agreement on such matter, it would be the subject
      of a separate agreement.

6.7   As soon as practicable following the Effective Date, [*], which will be
      set forth in the Wafer Foundry Agreement, pursuant to which [*].

7     Inventions

7.1   Each Party represents and warrants to the other Party that it has full
      ownership of and/or rights to all Technology contributed by such Party for
      purposes of the Development Program and has sufficient right and authority
      to convey the rights and licenses granted to the other Party under this
      Agreement.

7.2   TSMC shall remain the exclusive owner of all TSMC Technology and
      Intellectual Property Rights developed or secured before this Agreement.
      LSI shall remain the exclusive owner of all of LSI Technology and
      Intellectual Property Rights developed and secured before this Agreement.
      Except as provided by this Agreement or by a separate written agreement of
      the Parties, neither Party shall have the right or license to use the
      other Party's exclusively owned pre-existing Technology and Intellectual
      Property Rights.

7.3   Rights to all Inventions solely developed by a Party during the term of
      this Agreement without using any of the other Party's Technology and/or
      Intellectual Property Rights shall be solely owned by the Party who
      develops any such Invention. Rights to all Inventions solely developed by
      a Party during the term of this Agreement that are substantially based
      upon the other Party's Technology and/or Intellectual Property Rights
      contributed hereunder shall be owned by the Party who develops any such
      Invention and the other Party shall have and enjoy the free and
      non-exclusive right to use any such Invention; provided, however, any
      Invention made solely by one Party that is based upon the subject matter
      disclosed by any patent of the other Party shall be solely owned by the
      inventing Party without any rights of the other Party accruing to such
      Invention. For purposes of the foregoing, the term "patent" includes
      letters patent or other government granted or issued indicia of invention
      ownership by any country and any patent application that has been made
      available for public inspection. Rights to all Inventions developed
      jointly by the Parties as a result of their activities pursuant to the
      Development Program shall be jointly owned. Each Party shall promptly
      provide written notices to the other Party describing any Inventions made
      by the first Party that are based on the Technology and/or Intellectual
      Property Rights of the other Party contributed hereunder and advising the
      other Party of the first Party's intentions for filing any patent
      application therefor.

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7.4   In the instance of any Invention that is jointly developed, the Parties
      will cooperate with respect to the determination to seek any Patent Rights
      that may be obtained and, if they so agree, with respect to the
      country(ies) of filing, the expenses to be incurred and how to be shared,
      the prosecution of such Patent Rights and the maintenance of any Patent
      Rights so obtained.

7.5   If only one Party determines to file a patent application in any country
      on a jointly developed Invention, then that Party will be responsible for
      and shall pay the entire costs associated with the preparation, filing,
      prosecution, and maintenance of any such patents of jointly developed
      Inventions filed in such country. In such instance only and
      notwithstanding Section 7.3, Patent Rights to any patent resulting from
      such solely filed applications in such country shall be solely owned by
      the Party responsible for the procurement and maintenance thereof and the
      other Party shall have a non-exclusive, royalty-free, worldwide (only in
      countries where the Patent Rights are granted), non-sublicensable,
      non-transferable and non-assignable license to such Patent Rights for
      their life to practice such patent for any purpose.

8     CONFIDENTIALITY

8.1   Confidential Information shall mean any information that is controlled by
      a Party and is identified as proprietary and confidential and that is
      disclosed by a Party to the other under this Agreement. Written
      Confidential Information shall be clearly marked or labeled "CONFIDENTIAL"
      or comparable legend. All oral and visual disclosures of Confidential
      Information shall be identified as such upon disclosure and confirmed, in
      writing, by the disclosing party within thirty (30) days of the
      disclosure. In case of disagreement to confidentiality or the contents,
      the receiving party must make an objection thereto, in writing, within ten
      (10) days of receipt of written disclosure or confirmation.

8.2   Unless designated as Confidential Information in accordance with the above
      Section 8.1, all other information disclosed between the Parties will be
      presumed to be non-confidential.

8.3   Except as provided for elsewhere in this Article 8, for five (5) years
      after the disclosure of Confidential Information, the receiving Party
      shall use the same care and discretion to avoid disclosure, publication or
      dissemination of disclosed and accepted Confidential Information as the
      receiving Party employs with similar information of its own which it does
      not desire to have disclosed, and in no event less than reasonable care,
      and shall not use such Confidential Information for its own benefit,
      except for the purposes of this Agreement, without the prior written
      consent of the disclosing Party.

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8.4   The obligations set forth in Section 8.3 shall not in any way restrict or
      impair the right of the receiving Party to disclose to any third party, or
      use, any Confidential Information which:

      a) is or becomes publicly available without breach of this Agreement;

      b) was already known by the receiving Party before disclosure by the
      disclosing Party;

      c) is rightfully received by the receiving Party from a third party
      without breach of this Agreement;

      d) is independently developed by the receiving Party; or

      e) is released for disclosure by the disclosing Party with its prior
      written consent.

8.5   Except as otherwise provided in this Agreement, one Party shall
      immediately notify the other Party of any private or governmental request
      it receives for information (including, without limitation, Confidential
      Information) provided by the other Party under or related to this
      Agreement. Each Party shall have the right to participate in any other
      Party's response to any such request. In the event that a Party receives
      any subpoena or other legal process requiring the production of
      information, documents, data, work papers, reports, computer files or
      other materials relating to any secret or confidential information
      (including, without limitation, Confidential Information) or to this
      Agreement, that the Party shall:

      a) give the other Party the opportunity to participate in quashing,
      modifying, or otherwise responding to any compulsory process in an
      appropriate and timely manner; and

      b) cooperate fully with the other Party's efforts to narrow the scope of
      any such compulsory process, to obtain a protective order limiting the use
      or disclosure of the information sought, or in any other lawful way to
      obtain continued protection of the secret or Confidential Information.

8.6   If one Party becomes aware of the loss, theft, or misappropriation of the
      other Party's Confidential Information which is in the one Party's
      possession or control, that Party shall notify the other Party in writing
      within five (5) Business Days of its discovery of such loss, theft, or
      misappropriation.

8.7   Except as provided herein, neither Party shall disclose the terms and
      conditions of this Agreement to any third party without the other Party's
      prior written consent, which shall not be unreasonably withheld, except to
      the extent required by applicable governmental authorities.
      Notwithstanding the forgoing, each Party shall have the right to disclose
      this Agreement to its attorneys, accountants, and like personnel, and to
      potential investors or acquires, under reasonable conditions of
      confidentiality. In addition, the Parties may disclose such portions of
      Confidential Information to such third parties (e.g. customers and
      suppliers) as

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      is necessary or appropriate to the normal conduct of a Party's business,
      subject to such disclosures being subject to written obligations of
      confidentiality, comparable to those herein, being undertaken by such
      third parties.

8.8   The Parties agree to issue a joint press announcement after the Effective
      Date. Each Party must approve the content of such announcement before it
      is released.

9     THIRD PARTY CLAIMS AND IPR INDEMNIFICATION

9.1   LSI shall, at its own expense, indemnify and hold TSMC harmless from and
      against any expenses and losses resulting from any [*], provided that (i)
      TSMC gives LSI reasonably prompt notice in writing of any such claim or
      suit, and permits LSI, through counsel of its choice, to answer the charge
      of infringement and control the defense of such claim or suit; (ii) TSMC
      provides LSI information, assistance and authority, at LSI's expense, to
      enable LSI to defend such claim or suit; and (iii) LSI shall not be
      responsible for any settlement made by TSMC without LSI's prior written
      permission. For purpose of this Section 9.1, "TSMC" shall include TSMC,
      its Affiliate(s) and/or third party sub-licensee(s) who have legitimate
      right or license to use or have access to LSI Technology under Article 4
      of this Agreement.

9.2   TSMC shall, at its own expense, indemnify and hold LSI harmless from and
      against any expenses and losses resulting from any [*], provided that: (i)
      LSI gives TSMC reasonably prompt notice in writing of any such claim or
      suit, and permits TSMC, through counsel of its choice, to answer the
      charge of infringement and control the defense of such claim or suit; (ii)
      LSI provides TSMC information, assistance and authority, at TSMC's
      expense, to enable TSMC to defend such claim or suit; and (iii) TSMC shall
      not be responsible for any settlement made by LSI without TSMC's prior
      written permission. For purpose of this Section 9.2, "LSI" shall include
      LSI, its Affiliate(s) and/or third party sub-licensee(s) who have
      legitimate right or license to use or have access to TSMC Technology under
      Article 4 of this Agreement.

9.3   In the event that a Party becomes aware that any Patent Rights of a third
      party may be infringed by the practice of JDP Process, that Party shall
      provide prompt written notice thereof to the other Party. Thereafter, the
      Parties, with the assistance of their respective legal representatives as
      appropriate, shall confer and cooperate as they mutually see fit, at their
      own respective costs. Any information provided by one Party to the other
      in such regard shall be understood to be done in support of the Parties'
      common interests in defending against any allegations of infringement then
      existing or as may be anticipated to arise and are intended to be subject
      to all legal privileges, including confidentiality, to which a Party is
      entitled. [*] EACH PARTY EXPRESSLY DISCLAIMS ALL LIABILITY TO THE OTHER
      PARTY BASED UPON ANY CLAIM OF CONTRIBUTORY INFRINGEMENT.

                                       12
<PAGE>

9.4   The foregoing states the entire liability and exclusive remedies of TSMC
      and LSI for infringement by the Wafers, the Process and the production of
      the Wafers furnished hereunder.

10    EVENTS OF DEFAULT AND REMEDIES

10.1  An event of default ("Event of Default") under this Agreement shall be
      deemed to exist upon the occurrence of any one or more of the following
      events:

      a) If a Party (the "Defaulting Party") is in material breach (other than a
      breach referred to in subsections 10.1 (b) and 10.1 (c) below) and such
      material breach is not cured by the Defaulting Party within thirty (30)
      days after written notice of such material breach from the other Party
      (the "Non-Defaulting Party"); or

      b) If by order of a court of competent jurisdiction, a receiver or
      liquidator or trustee of a Party or of all of the property of a Party
      shall be appointed, and such receiver or liquidator or trustee shall not
      have been discharged within a period of sixty (60) days; or if by decree
      of such a court, a Party shall be adjudicated bankrupt or insolvent or all
      of the property of such Party shall have been sequestered, and such decree
      shall have continued undischarged and unstayed for a period of sixty (60)
      days after entry thereof; or if a petition to declare bankruptcy, to
      wind-up or to reorganize a Party pursuant to any of the provisions of the
      United States Federal Bankruptcy Code, or pursuant to the bankruptcy laws
      of the Republic of China, or pursuant to any other similar statute, rule
      or law applicable to such Party, shall be filed against such Party and
      shall not be dismissed within sixty (60) days of such filing; or

      c) If a Party shall file a voluntary petition in bankruptcy under any
      provision of any federal or state bankruptcy law or a petition for
      voluntary winding-up under the United States Federal Bankruptcy Code or
      the bankruptcy laws of the Republic of China or shall consent to the
      filing of any bankruptcy or reorganization petition against it under such
      applicable or similar law; or, without limitation of the generality of the
      foregoing, if a Party shall file a petition or answer or consent to
      seeking relief in a proceeding under any of the provisions of the United
      States Federal Bankruptcy Code, or under the bankruptcy laws of the
      Republic of China, or pursuant to any other similar statute, rule of law
      applicable to such Party, or an answer admitting the material allegations
      of a petition filed against it in such a proceeding; or if a Party shall
      make an assignment for the benefit of creditors; or if a Party shall admit
      in writing its inability to pay its debts generally as they become due; or
      if a Party shall consent to the appointment of a receiver or receivers, or
      trustee or trustees, or liquidator or liquidators of it or of all or any
      part of its property.

                                       13
<PAGE>

10.2  Upon the occurrence and during the continuation of any Event of Default
      under this Agreement, the Non-Defaulting Party shall have the right to:

      a) terminate this Agreement pursuant to Section 11.2 and/or

      b) subject to the limitations imposed by Article 11, pursue any other
      remedy given under this Agreement or at law or in equity or otherwise.

11    TERM AND TERMINATION

11.1  The term of this Agreement shall commence on the Effective Date and shall
      continue in effect until March 31, 2008, or until such later date(s) as to
      which the Parties may agree in writing, unless terminated prior to any
      such date in accordance with Article 10.

11.2  This Agreement may be terminated prior to the expiration of the Term upon
      written notice given by the Non-Defaulting Party upon the occurrence of an
      Event of Default.

11.3  The rights and obligations of the Parties with respect to termination of
      the Wafer Foundry Agreement, in whole or in part, are to be governed by
      the terms and conditions of that agreement.

11.4  Each Party acknowledges that a breach by it of its covenants regarding
      non-disclosure and confidentiality contained in Article 8 will result in
      irreparable injury to the other Party, and consequently the other Party
      shall be entitled to temporary, preliminary and permanent injunctive
      relief or to a protective order for any threatened or actual violation of
      the provisions of Article 8. Each Party agrees and consents to the entry
      of an injunction or protective order by any court of competent
      jurisdiction upon a showing by the other Party of a reasonable belief that
      the Confidential Information is being used or disclosed contrary to the
      terms of Article 8. The foregoing provisions are in addition to, and not
      in limitation of, the remedies of specific performance, termination of
      this Agreement, damages, and any other remedies at law or equity or
      otherwise, that the other Party many have upon breach of Article 8. The
      Parties stipulate that the arbitration provision of Section 12.2 shall not
      apply to any temporary restraining order, injunctive relief, protective
      order or other provisional remedy sought to prohibit or prevent threatened
      breaches of the provisions of Article 8.

11.5  Upon the expiration of the Term in accordance with Section 11.1, the
      Parties shall have no further duties, obligations or liabilities towards
      each other hereunder except any then remaining duties, obligations or
      liabilities that have then accrued and remain unperformed prior to the
      effective date of such expiration and pursuant to those surviving sections
      set forth in Section 11.8 below.

                                       14
<PAGE>

11.6  Upon the early termination of this Agreement for default pursuant to
      Section 11.2, including termination due to breach of the confidentiality
      obligations of Article 8:

      a) the Non-Defaulting Party shall have no further duties, obligations or
      liabilities towards the Defaulting Party under this Agreement, except for
      the confidentiality obligations set forth in Article 8; and

      b) the Defaulting Party shall not be excused from any then remaining
      duties, obligations or liabilities under the Agreement, including those
      obligations under Section 6.2 and liabilities for damages or harm suffered
      by the Non-Defaulting Party prior to or after such termination or
      expiration, subject to the liability limitations of this Agreement. Also,
      in such event, the Defaulting Party shall promptly return to the
      Non-Defaulting Party all tangible Confidential Information and certify as
      deleted all electronic forms of Confidential Information received from the
      other Party.

11.7  The rights and licenses granted by one Party to the other Party under this
      Agreement shall perpetually and irrevocably continue without interruption
      following the expiration or termination of this Agreement, except in the
      case of a termination of this Agreement by a Non-Defaulting Party for
      material breach by the other Party; provided, however, if the
      Non-Defaulting Party exercises its right to terminate this Agreement for
      the material breach by the other Party and intends to also terminate the
      rights and licenses granted to the Defaulting Party, any termination of
      the rights and licenses granted hereunder to the Defaulting Party may only
      occur after (i) the Non-Defaulting Party shall first give the Defaulting
      Party notice of such intention to terminate the rights and licenses
      granted to the Defaulting Party and a detailed written description of the
      material breach that is asserted to cause substantial harm to the
      Non-Defaulting Party; (ii) the Defaulting Party is given the reasonable
      opportunity to cure any such material breach for a period of ninety (90)
      days following the giving of such notice (iii) and if the Defaulting Party
      does not cure such material breach within said ninety (90) day period. In
      addition, the termination of the rights and licenses granted to a Party
      may only apply to a Defaulting Party's prospective activities. The rights
      and licenses of the Non-Defaulting Party shall remain in full force and
      effect notwithstanding any termination of this Agreement and/or the
      termination of the rights and licenses of the Defaulting Party for
      material breach.

11.8  Subject to the rights of a Non-Defaulting Party under Section 11.6 and
      11.7, the following provisions of this Agreement shall survive the
      expiration or termination of this Agreement for any reason: Article 1
      (Definitions), Section 3.8 (employment prohibition), Article 4 (Licenses),
      Article 7 (Inventions), Article 8 (Confidentiality), Article 9 (Third
      Party Claims and IPR Indemnification), Article 12 (Dispute Resolution),
      Article 13 (Limitation of Liability) and Article 15 (General Provisions).

                                       15
<PAGE>

12    DISPUTE RESOLUTION

12.1  The Parties shall use all reasonable efforts to settle any disputes
      arising hereunder by mutual agreement. In the event any dispute is not so
      settled, a Party which believes a dispute exists shall provide a written
      notice of the dispute (the "Dispute Notice") to the senior management
      representatives of the other Party seeking resolution of the dispute by
      mutually agreed upon meeting(s) or teleconference(s) of such
      representatives. The initial senior management representatives designated
      by the Parties (and who may be replaced by the respective appointing
      Party) to resolve disputes pursuant to this Section 12.1 are:

      LSI Representative:       [*]

      TSMC Representative:      [*]

      If the dispute is not resolved within thirty (30) Business Days following
      receipt by the receiving Party of the Dispute Notice (the "Internal
      Dispute Resolution Period"), either Party may initiate binding arbitration
      proceedings in accordance with Section 12.2 below.

12.2  Any dispute between the Parties that is not resolved pursuant to Section
      12.1, the Parties shall submit such dispute to binding arbitration
      conducted pursuant to the following procedure:

      a) The Party seeking arbitration shall give written notice to the other
      Party with reasonable promptness following the expiration of the Internal
      Dispute Resolution Period. The notice shall include a clear statement of
      the matter(s) in dispute, shall name one arbitrator appointed by such
      Party, and shall be delivered to the other Party. Within twenty (20)
      Business Days after receipt of such request, the other Party shall appoint
      one arbitrator, or in default thereof, such arbitrator shall be named as
      soon as practicable in accordance with the United Nations Commission on
      International Trade Law (UNCITRAL) Arbitration Rules (the "Arbitration
      Rules"). The two arbitrators appointed by the Parties shall appoint a
      third arbitrator within ten (10) Business Days after the appointment of
      the second arbitrator, or failing such agreement on a third arbitrator by
      the two arbitrators so appointed, a third arbitrator shall be appointed in
      accordance with the Arbitration Rules.

      b) The arbitration hearing shall be held in San Francisco, California,
      United States, if it is initiated by TSMC, or alternatively in Taipei,
      Taiwan ROC if it is initiated by LSI, on at least twenty (20) Business
      Days' prior written notice to the Parties, and shall be conducted in the
      English language. Except as otherwise provided herein, the proceedings
      shall be conducted in accordance with the Arbitration Rules; provided (i)
      the Parties shall be entitled to and hereby agree to be subject to
      discovery in scope and under procedures substantially equivalent to that
      provided by the US Federal Rules of Civil Procedure and (ii) the governing

                                       16
<PAGE>

      law shall be as specified in Section 15.2. Any decision of the
      arbitrators, including a decision regarding an allocation of costs
      consistent with Section 12.2, shall be joined in by at least two of the
      arbitrators and shall set forth in a written award which shall state the
      basis of the award and shall include both findings of facts and
      conclusions of law. The arbitrators shall not have the power to award
      punitive damages or costs or damages for attorneys' or consultants' fees.
      An award rendered pursuant to the foregoing, shall be final and binding on
      the Parties, and judgment thereon may be entered or enforcement thereof
      sought by any Party in any court of competent jurisdiction.

      c) Unless otherwise set forth in the award of the arbitrators, each Party
      shall bear the costs of its appointed arbitrator and its own attorneys'
      and consultants' fees, and the costs of the third arbitrator shall be
      shared equally by the Parties. Additional incidental costs of arbitration
      shall be paid for by the non-prevailing Party in the arbitration; provided
      that where the final decision of the arbitrators is not clearly in favor
      of either Party, such incidental costs shall be shared equally by the
      Parties.

      d) The existence of any dispute or controversy under this Agreement or the
      pendency of the dispute settlement or resolution procedures set forth
      above shall not in and of themselves relieve or excuse any Party from its
      ongoing duties and obligations under this Agreement or under any other
      agreement between the Parties.

13    LIMITATION OF LIABILITY

      INDEPENDENTLY OF ANY OTHER LIMITATION HEREOF AND REGARDLESS OF WHETHER THE
      PURPOSE OF ANY REMEDY SET FORTH HEREIN IS SERVED, NEITHER PARTY WILL BE
      LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY
      FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING
      FROM, RELATING TO OR ARISING OUT OF THIS AGREEMENT, EVEN IF SUCH PARTY HAS
      BEEN MADE AWARE OF SUCH DAMAGES.

14    FORCE MAJEURE

      In the event that either Party is prevented from performing or unable to
      perform any of its obligations under this Agreement, due to any act of
      God, fire, casualty, flood, earthquake, hurricane, typhoon, tornado, war,
      strike, lockout, epidemic, riot insurrection, or any other similar cause
      beyond the reasonable control of the Party invoking this section (a "Force
      Majeure") and if such Party shall have used its best reasonable efforts to
      mitigate the effects of such Force Majeure, such Party shall give prompt
      written notice to the other Party, its nonperformance shall

                                       17
<PAGE>

      be excused, and the time for the performance shall be extended for a
      period of ninety (90) days or such longer period to which the Parties may
      agree. In the event one Party provides notice of the occurrence of a Force
      Majeure, as promptly as practicable the Parties shall meet and confer
      regarding whether, and if so, how their respective obligations under
      Articles 3, 5 and 6 may be modified, if necessary, in order to reasonably
      preserve their original expectations regarding completion of the
      installation and qualification of the JDP Process in each other's
      factories and the provisions for wafer supply. After such ninety (90)
      days, or longer period as may be agreed to by the Parties, the Party to
      which notice of a Force Majeure has been given may terminate this
      Agreement by written notice to the other Party whose performance was
      excused due to the Force Majeure and, in such event, the Parties'
      obligations thereafter shall be as provided by Section 11.8.

15    GENERAL PROVISIONS

15.1  Neither Party may assign or transfer this Agreement or any rights or
      obligations hereunder voluntarily, involuntarily, by operation of law, in
      connection with a change of control or otherwise, without the prior
      written consent of the other Party, which shall not be unreasonably
      withheld or delayed. "Change of control" shall mean a change in ownership
      or control of fifty percent (50%) or more of the common stock or other
      equity instrument of a Party by one or more parties acting in concert in
      one or more transactions. Any assignment or transfer of this Agreement
      made in contravention of the terms of this section shall be null and void.

15.2  This Agreement shall be construed and interpreted in accordance with the
      law of the State of California (except its choice of law rules).

15.3  Each party will comply with all applicable laws, rules and regulations of
      the U.S. and Republic of China Governments relating to the export of
      commodities technical data and software insofar as they relate to the
      activities under this Agreement. In particular, the Parties agree not to
      export or re-export, directly or indirectly, any product, process,
      technical data or software to any country to which such export or
      re-export is restricted or prohibited by U.S. or Republic of China
      Governments or other relevant laws, without obtaining prior authorization
      from the competent government authorities as required by those laws. TSMC
      shall provide a letter of assurance to LSI in the form set forth at
      Schedule E hereto upon the signing of this Agreement. The export
      provisions of this Section 15.3 shall survive any termination or
      expiration of this Agreement.

15.4  No failure or delay on the part of either Party in the exercise of any
      right or privilege hereunder shall operate as a waiver thereof or of the
      exercise of any right or privilege hereunder, nor shall any single or
      partial exercise of any such

                                       18
<PAGE>

      right or privilege preclude other or further exercise thereof or of any
      other right or privilege.

15.5  Any written notice or communication to a Party required or permitted under
      this Agreement and the delivery of any other material pursuant to this
      Agreement shall be deemed to have been duly given and received (i) on the
      date of service or delivery, if served or delivered personally or sent by
      facsimile transmission (and as confirmed as transmitted by a transmission
      slip and confirmation copy sent via first class mail, postage prepaid, and
      addressed to the Party to whom notice is to be given) to the Party to whom
      notice or the delivery is to be given, or (ii) on the tenth (10th) day
      after mailing, if mailed by first class registered or certified mail if
      mailed nationally or by registered airmail if mailed internationally,
      postage prepaid, and addressed to the Party to whom notice is to be given
      at the address set forth below or at the most recent address specified by
      written notice given in accordance herewith, or (iii) on the next day if
      sent by a nationally recognized courier for next day service and so
      addressed and if there is evidence of acceptance by receipt, or (iv) on
      the third (3rd) day after mailing, if sent by an internationally
      recognized courier for expedited service and so addressed and if there is
      evidence of acceptance by receipt. All notices and correspondence required
      under this Agreement shall be sent to the following addresses, which may
      be changed by notice so given:

      If to TSMC:                         If to LSI:
                                          ---------
      121, Park Ave., III, Science-Based  1551 McCarthy Blvd.
      Industrial Park, Hsin-Chu 310       Milpitas, California 95035
      Taiwan, R.O.C.                      USA
                                          Attention: General Counsel - M/S D-106
      Attention: General Counsel          Telephone:  [*]
      Telephone: [*]                      Fax:             [*]
      Fax: [*]                            cc: Vice President Strategic Alliances
      cc:

15.6  If any provision of this Agreement is held by a court or tribunal of
      competent authority to be ineffective, unenforceable or illegal for any
      reason, such holding shall not effect the validity or enforcement of any
      or all of the remaining portions thereof, which shall be construed in
      order to respect the Parties' intent as fully as possible in spite of any
      such holding.

15.7  Nothing contained in this Agreement shall be construed as conferring by
      implication, estoppel or otherwise upon either Party or any third party a
      license or other right except, solely as to the Parties hereto, the rights
      expressly granted hereunder.

                                       19
<PAGE>

15.8  Neither Party shall use the name of the other Party in any form of
      advertising or promotional material without the prior written approval of
      the other Party. Either Party may, without notice to the other Party,
      disclose the transactions contemplated by this Agreement in any form of
      advertising or promotional material so long as the name of the other Party
      is not mentioned in the advertising or promotional material.

15.9  The Agreement, with the Schedules hereto, which are incorporated herein by
      reference, embodies the final, complete and exclusive statement of the
      terms of the Parties' agreement with respect to the subject matter hereof
      and supercedes any prior or contemporaneous representations, descriptions,
      courses of dealings or agreements as to such subject matter, including
      confidentiality and other agreements entered into in anticipation of this
      Agreement. No amendment or modification of this Agreement or any Schedule
      hereto shall be valid or binding upon the Parties unless in writing and
      signed by an officer of each Party, and NO LSI OR TSMC EMPLOYEE OR
      REPRESENTATIVE HAS ANY AUTHORITY OTHERWISE TO BIND LSI OR TSMC TO ANY
      OBLIGATION OR LIABILITY NOT EXPRESSLY STATED HEREIN.

15.10 The relationship of the Parties hereto is that of independent contractors.
      Neither Party, nor its agents or employees shall be deemed to the agents,
      employee, joint venturer, partner or fiduciary of the other Party. Neither
      Party shall have the right to bind the other Party, transact any business
      in the other Party's name or on the other Party's behalf or incur any
      liability for or on behalf of the other Party.

15.11 This Agreement shall not be modified, amended or terminated except by
      written agreement of the Parties, signed by the Parties authorized
      representatives.

15.12 For the purposes of this Agreement, headings used in this Agreement are
      for convenience of reference only and shall not be used in construing or
      interpreting this Agreement. The word "including" when used is not
      intended to be exclusive and means "including, without limitation."

15.13 This Agreement may be signed on behalf of the Parties in one or more
      counterparts, each in the English language and each of which shall be
      deemed to be an original instrument, and all such counterparts shall
      together constitute the same agreement.

                                       20
<PAGE>

      IN WITNESS HEREOF the Parties have caused this Agreement to be signed by
their duly authorized representatives.

LSI Logic Corporation                    Taiwan Semiconductor Manufacturing Co.,
                                         Ltd.

By:_____________________________         By:___________________________________

Name: Joseph Zelayeta                    Name: F. C. Tseng

Title: Executive Vice President          Title: President,
         Worldwide Operations

Date:___________________________         Date:_________________________________

                                       21
<PAGE>

                                   Schedule A

                        Statement of Work for Development
                                     of the
                                   JDP Process

                                       [*]

* Portions denoted with an asterisk have been omitted and filed separately with
the Securities and Exchange Commission pursuant to a request for confidential
treatment.

                                       22
<PAGE>

                                   Schedule B

               Description of LSI Process Technology Contribution

LSI Front End Process:
[*]

LSI Other Technology:

LSI Logic will also contribute to the Development Program for the JDP Process
information in the following areas:

1.      [*]

2.      [*]

                               [End of Schedule B]

* Portions denoted with an asterisk have been omitted and filed separately with
the Securities and Exchange Commission pursuant to a request for confidential
treatment.

                                       23
<PAGE>

                                   Schedule C

                 Identity of Party Referenced in Section 4.2(d)

                                       [*]

* Portions denoted with an asterisk have been omitted and filed separately with
the Securities and Exchange Commission pursuant to a request for confidential
treatment.

                                       24
<PAGE>

                                   Schedule D

                             Wafer Foundry Agreement
                                      Form

                                       25
<PAGE>

                                   Schedule E

                          Letter of Written Assurances

LSI Logic Corporation
1551 McCarthy Blvd.
Milpitas, California 95035

      Re:   Manufacturing Technology Joint Development and Foundry Supply
            Agreement ("Agreement")

Gentlemen:

This letter is provided by Taiwan Semiconductor Manufacturing Co., Ltd., a
company duly incorporated under the laws of the Republic of China ("ROC"),
having its principal place of business at No. 121, Park Avenue 3 Science Based
Industrial Park, Hsin-Chu, Taiwan, ROC ("TSMC") to convey appropriate written
assurance that TSMC acknowledges that the technology provided by LSI Logic
Corporation ("LSI") to TSMC under the above referenced Agreement ("Technology")
may be subject to regulation and control by the Export Administration
Regulations ("EAR") of the United States and that without having first obtained
any necessary BXA license or license exception to the EAR, TSMC will not:

      1.    reexport or release the Technology to a national of a country in
            Country groups D:1 or E:2 of the EAR or

      2.    export to Country Groups D:1 or E:2 of the EAR the direct product of
            the Technology, if such product produced outside the United States
            is subject to national security controls a s identified on the EAR
            Commerce Control List "(CCL)", General Prohibition Three, Sec.
            736.2(b)(3) of the EAR. For purposes hereof it is understood that
            the term "direct product" has the meaning as set out in Part
            734.3(a)(4) and that the jointly developed process under the
            Agreement would be the "direct product" of the Technology to which
            this letter applies.

                                    Sincerely,
                                    Taiwan Semiconductor Manufacturing Co. Ltd.

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

                                       26Exhibit 10.11
                                                                -------------

                              AMENDED AND RESTATED

                           PURCHASE AND SALE AGREEMENT
                                (KAUAI ELECTRIC)

                                     between

                         CITIZENS COMMUNICATIONS COMPANY

                                       and

                           KAUAI ISLAND UTILITY CO-OP

                            Dated as of March 5, 2002

<PAGE>
<TABLE>
<CAPTION>

                                                  TABLE OF CONTENTS

                                                                                                               Page

<S>                                                                                                              <C>
ARTICLE I         DEFINITIONS.....................................................................................1
         Section 1.1      Certain Defined Terms...................................................................1
         Section 1.2      Other Defined Terms.....................................................................9

ARTICLE II        PURCHASE AND SALE...............................................................................9
         Section 2.1      Purchase and Sale of Assets.............................................................9
         Section 2.2      Assumed Liabilities.....................................................................9
         Section 2.3      Retained Liabilities...................................................................11
         Section 2.4      Condition on Assignment or Assumption of Contracts and Rights..........................12

ARTICLE III       PURCHASE PRICE.................................................................................12
         Section 3.1      Purchase Price.........................................................................12
         Section 3.2      Calculation of Purchase Price..........................................................12

ARTICLE IV        REPRESENTATIONS AND WARRANTIES OF BUYER........................................................13
         Section 4.1      Organization, Existence and Qualification..............................................13
         Section 4.2      Authority Relative to this Agreement and Binding Effect................................14
         Section 4.3      Governmental Approvals.................................................................14
         Section 4.4      Availability of Funds..................................................................14
         Section 4.5      Filings................................................................................14
         Section 4.6      Brokers................................................................................14
         Section 4.7      Independent Investigation..............................................................15
         Section 4.8      Public Utility Holding Company Status; Regulation as a Public Utility..................15
         Section 4.9      Buyer's Financial Statements. .........................................................15
         Section 4.10     Buyer's Insurance......................................................................15

ARTICLE V         REPRESENTATIONS AND WARRANTIES OF SELLER.......................................................15
         Section 5.1      Organization, Existence and Qualification..............................................15
         Section 5.2      Authority Relative to this Agreement and Binding Effect................................15
         Section 5.3      Governmental and Other Required Consents...............................................16
         Section 5.4      Public Utility Holding Company Status; Regulation as a Public Utility..................16
         Section 5.5      Title to Assets; Liens.................................................................16
         Section 5.6      Financial Statements...................................................................16
         Section 5.7      Compliance with Legal Requirements; Governmental Permits...............................17
         Section 5.8      Legal Proceedings; Outstanding Orders. ................................................17
         Section 5.9      Taxes..................................................................................17
         Section 5.10     Intellectual Property..................................................................17
         Section 5.11     Personal Property......................................................................18
         Section 5.12     Material Contracts; Existing Loan Documents............................................18
         Section 5.13     Employee Benefit Matters...............................................................18
         Section 5.14     Environmental Matters..................................................................18
         Section 5.15     No Material Adverse Change.............................................................19
         Section 5.16     State Regulatory Matters...............................................................19
         Section 5.17     Brokers................................................................................19
         Section 5.18     Disclaimer.............................................................................20

                                                          i

<PAGE>

ARTICLE VI        COVENANTS......................................................................................20
         Section 6.1      Covenants of Seller....................................................................20
         Section 6.2      Covenants of Buyer.....................................................................22
         Section 6.3      Governmental Filings...................................................................23
         Section 6.4      Citizens Marks.........................................................................24
         Section 6.5      Acknowledgment by Buyer................................................................24
         Section 6.6      Transition Plan.  .....................................................................25
         Section 6.7      IDRB Obligations.......................................................................25

ARTICLE VII       CONDITIONS PRECEDENT...........................................................................26
         Section 7.1      Seller's Conditions Precedent to Closing...............................................26
         Section 7.2      Buyer's Conditions Precedent to Closing................................................27

ARTICLE VIII        CLOSING......................................................................................29
         Section 8.1      Closing................................................................................29

ARTICLE IX          TERMINATION..................................................................................30
         Section 9.1      Termination Rights.....................................................................30
         Section 9.2      Limitation on Right to Terminate; Effect of Termination................................31

ARTICLE X           EMPLOYEE MATTERS.............................................................................31
         Section 10.1     Employment of Transferred Employees....................................................31
         Section 10.2     Assumption of Collective Bargaining Agreement Obligations..............................32
         Section 10.3     Cessation of Participation in Seller's Plans; Proration of Bonuses.....................32
         Section 10.4     Similarity of Benefit Packages.........................................................32
         Section 10.5     Defined Benefit Pension Plan. .........................................................32
         Section 10.6     401(k) Plan............................................................................33
         Section 10.7     Welfare Benefits.......................................................................33
         Section 10.8     Flexible Spending Accounts.............................................................34
         Section 10.9     Employment Agreements..................................................................34
         Section 10.10    Vacation...............................................................................34
         Section 10.11    Severance..............................................................................35
         Section 10.12    Plant Closing Notice...................................................................35

ARTICLE XI          TAX MATTERS..................................................................................35
         Section 11.1     Purchase Price Allocation..............................................................35
         Section 11.2     Cooperation with Respect to Like-Kind Exchange.........................................35
         Section 11.3     Transaction Taxes......................................................................36
         Section 11.4     Taxes Based on Revenues................................................................36

ARTICLE XII         ENVIRONMENTAL MATTERS........................................................................37
         Section 12.1     Environmental Due Diligence............................................................37

ARTICLE XIII        INDEMNIFICATION..............................................................................39
         Section 13.1     Indemnification by Seller..............................................................39
         Section 13.2     Indemnification by Buyer...............................................................39
         Section 13.3     Limitations on Seller's Liability......................................................40

                                                         ii

<PAGE>

         Section 13.4     Claims Procedure.......................................................................41
         Section 13.5     Exclusive Remedy.......................................................................42
         Section 13.6     Indemnification for Negligence.........................................................42
         Section 13.7     Waiver and Release.....................................................................43

ARTICLE XIV         GENERAL PROVISIONS...........................................................................43
         Section 14.1     Expenses...............................................................................43
         Section 14.2     Notices................................................................................43
         Section 14.3     Assignment.............................................................................44
         Section 14.4     Successor Bound........................................................................44
         Section 14.5     Governing Law..........................................................................45
         Section 14.6     Dispute Resolution.....................................................................45
         Section 14.7     Cooperation............................................................................46
         Section 14.8     Construction of Agreement..............................................................46
         Section 14.9     Publicity.  ...........................................................................46
         Section 14.10    Waiver.................................................................................46
         Section 14.11    Parties in Interest....................................................................47
         Section 14.12    Section and Paragraph Headings.........................................................47
         Section 14.13    Amendment..............................................................................47
         Section 14.14    Entire Agreement.......................................................................47
         Section 14.15    Counterparts...........................................................................47
         Section 14.16    Severability...........................................................................47

                                                         iii
</TABLE>
<PAGE>

                        LIST OF EXHIBITS

Exhibit 6.7          Form of IDRB Obligations Agreement
Exhibit 7.1(g)       Form of Buyer's Opinion of Counsel
Exhibit 7.2(g)       Form of Seller's Opinion of Counsel
Exhibit 8.1(a)       Form of Bill of Sale

                        LIST OF SCHEDULES

Schedule 1.1(b)      Excluded Assets
Schedule 2.2(d)      Certain Assumed Proceedings
Schedule 5.2         Seller's Authority
Schedule 5.3         Seller's Governmental and Other Required Consents
Schedule 5.5         Encumbrances; Owned Real Property
Schedule 5.6(a)      Financial Statements
Schedule 5.6(b)      Certain Liabilities
Schedule 5.7         Compliance with Legal Requirements; Governmental Permits
Schedule 5.8         Legal Proceedings; Outstanding Orders
Schedule 5.9         Taxes
Schedule 5.10        Intellectual Property
Schedule 5.12        Material Contracts
Schedule 5.13        Employee Matters
Schedule 5.14        Environmental Matters
Schedule 5.15        Material Adverse Changes
Schedule 5.16        State Regulatory Matters
Schedule 6.1         Conduct of Business
Schedule 6.2(c)      Citizens' Guarantees and Surety Instruments
Schedule 10.1        Active Employees
Schedule 10.7        Retirees and "Grandfathered Employees"

<PAGE>

                             AMENDED AND RESTATED
                           PURCHASE AND SALE AGREEMENT
                                (KAUAI ELECTRIC)

     This AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT (this "Agreement") is
made as of March  5,  2002  (the  "Effective  Date"),  by and  between  CITIZENS
COMMUNICATIONS   COMPANY  (f/k/a  Citizens   Utilities   Company),   a  Delaware
corporation   ("Seller"),   and  Kauai  Island   Utility  Co-Op,  a  cooperative
association  formed  pursuant  to the  provision  of Chapter  421C of the Hawaii
Revised  Statutes  ("Buyer").  Capitalized  terms  used  herein  shall  have the
meanings ascribed to them in Article I, unless otherwise provided.

                              W I T N E S S E T H :

     WHEREAS, Seller owns all of the Assets;

     WHEREAS,  Seller and Buyer  entered  into that  certain  Purchase  and Sale
Agreement (Kauai Electric),  dated as of February 11, 2000, for the purchase and
sale of the Assets (the "Original Agreement");

     WHEREAS,  Seller  and  Buyer  desire  to amend  and  restate  the  Original
Agreement  to give  effect to certain  agreements  reached  between  the parties
regarding the purchase and sale of the Assets; and

     WHEREAS, Buyer desires to purchase, and Seller desires to sell, the Assets,
subject in all respects to the provisions of this Agreement.

     NOW,  THEREFORE,  in  consideration  of the  premises  and  other  good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged, the parties hereby agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

     Section 1.1 Certain  Defined  Terms.  For purposes of this  Agreement,  the
following  terms have the  meanings  specified  or referred to in this Article I
(such definitions to be equally applicable to both the singular and plural forms
of the terms defined):

     "Affiliates"   or  "Affiliated   Entities"  --  entities  shall  be  deemed
"Affiliated" as to each other to the extent (i) one of the entities  directly or
indirectly  controls the other, or the direct or indirect  control of one of the
entities is exercised by the officers,  directors,  stockholders, or partners of
the other  entity  (whether or not such persons  exercise  such control in their
capacities as officers, directors,  stockholders, or partners) or (ii) is deemed
to be an Affiliate under existing statutes or regulations of the SEC.

     "Assets" -- all of the assets,  property  and  interests  of every type and
description,  real, personal or mixed, tangible and intangible,  owned by Seller
and relating primarily to the Business, other than the Excluded Assets.

<PAGE>

     "Assumed Environmental Liabilities" -- means any of the following:

     (a) All Environmental Liabilities of Seller relating to the Business or the
Assets and arising  from or relating to the  environmental  matters or incidents
either  disclosed  by  Seller  on  Schedule  5.14  as of the  Effective  Date or
otherwise known to Buyer on or before the Effective Date that remain outstanding
as of the Closing Date, it being  understood by the parties that the  unadjusted
Purchase Price reflects  Buyer's  estimate of any Losses that could arise on and
after the Closing Date with respect to such Environmental Liabilities;

     (b) All Environmental Liabilities of Seller relating to the Business or the
Assets and arising  from or relating to the  environmental  matters or incidents
either  disclosed to Buyer by Seller after the  Effective  Date  (including  any
additional  disclosures  appearing  on  Schedule  5.14 as  revised by Seller and
delivered to Buyer prior to the Closing Date) or otherwise  known to Buyer as of
the Closing Date that remain  outstanding as of the Closing Date, other than any
such  Environmental  Liabilities  that are properly  designated  by Buyer as New
Material  Environmental  Liabilities in accordance with Section 12.1(g) and that
by the Closing Date have not been remedied or responded to by Seller in a manner
reasonably satisfactory to Buyer;

     (c) All Environmental Liabilities of Seller relating to the Business or the
Assets that were  outstanding  or had arisen  prior to the Closing Date but with
respect to which Seller had no Knowledge as of the Closing Date; and

     (d)  Except  for  the  Retained   Environmental   Liabilities,   any  other
Environmental  Liability of Seller relating to the Business or the Assets, Buyer
or any Affiliate,  successor or assign of Buyer,  whether arising or relating to
the period before or after the Closing, including with respect to the removal of
asbestos or  asbestos-containing  materials in connection with any renovation or
structural change to any Asset conducted after Closing.

     "Bonds" -- means any of the bonds  issued  pursuant  to the  Indentures  of
Trust,  the proceeds from the issuance of which were advanced to Seller and used
in connection with the Business or the Assets of the Business pursuant to any of
the IDRB Documents.

     "Business" -- means collectively:

     (a) the regulated  electricity  generation,  transmission  and distribution
business  conducted by Seller on the island of Kauai,  Hawaii  through its Kauai
Electric division; and

     (b) the  provision of related  services and products and the  engagement in
related  activities by Seller on the island of Kauai,  Hawaii  through its Kauai
Electric division.

     "Buyer's IDRB  Obligations"  - means the  obligations of Buyer set forth in
Section  6.7(a)  and  in the  IDRB  Obligations  Agreement  to be  executed  and
delivered by Buyer on or prior to the Closing Date in  accordance  with Sections
6.7(a) and 8.1(d).

                                       2
<PAGE>

     "Capital  Budget" -- means the capital  budget for the  Business for fiscal
year 2001 or 2002, as applicable, as adopted by the Board of Directors of Seller
and  provided to Buyer prior to the  Effective  Date or promptly  upon  adoption
thereof, if later.

     "Claim  Notice"  --  means a  written  notice  of a claim  given by a party
seeking  indemnification  pursuant to the terms of this Agreement that specifies
in reasonable  detail the nature of the Losses and the estimated  amount of such
Losses.

     "Confidentiality Agreement" -- means that certain confidentiality agreement
dated October 15, 1999, between Buyer and Seller.

     "Consent"  --  any  approval,  consent,  ratification,   waiver,  or  other
authorization from any Person.

     "Contract" -- any agreement,  contract, document,  instrument,  obligation,
promise or  undertaking  (whether  written  or oral)  that is  legally  binding,
including Easements.

     "Easements"-- means all easements,  rights of way, permits,  licenses,  and
other ways of necessity, whether or not of record.

     "Encumbrance"  -- any charge,  adverse  claim,  lien,  mortgage,  pledge or
security interest.

     "Environmental Law"-- any Order or Legal Requirement,  and any judicial and
administrative  interpretation  thereof and  related  policies,  guidelines  and
standards,  relating to pollution or protection of the  environment  and natural
resources,  including those relating to (a) emissions,  discharges,  Releases or
threatened  Releases  of  Hazardous  Material  into the  environment  (including
ambient air,  surface  water,  groundwater  or land),  and (b) the  manufacture,
processing,  distribution,  use,  treatment,  storage,  disposal,  transport  or
handling  of  Hazardous  Material,   each  as  in  effect  as  of  the  date  of
determination.

     "Environmental  Liability"  --  means  any  liability,   responsibility  or
obligation arising out of or relating to:

     (a) the presence of any  Hazardous  Material in the  fixtures,  structures,
soils,  groundwater,  surface water or air on, under or about or emanating  from
the assets and properties currently or formerly used,  operated,  owned, leased,
controlled,  possessed,  occupied  or  maintained  by a  Person,  and  any  such
Hazardous Material emanating to adjoining or other properties;

     (b) the  use,  generation,  production,  manufacture,  treatment,  storage,
disposal,  Release,  threatened Release,  discharge,  spillage, loss, seepage or
filtration  of  Hazardous  Materials  by a Person  or its  employees,  agents or
contractors  from,  on,  under or about the assets or  properties  currently  or
formerly used,  operated,  owned,  leased,  controlled,  possessed,  occupied or
maintained  by  such  Person  or  the  presence  therein  or  thereunder  of any
underground or above-ground  tanks for the storage of fuel oil,  gasoline and/or
other petroleum products or by-products or other Hazardous Material;

     (c) the violation or noncompliance or alleged violation or noncompliance by
a Person  or its  employees,  agents or  contractors  of any  Environmental  Law
arising from or related to its or their  conduct,  actions or  operations or the
former  or  current  use,  operation,  ownership,  lease,  possession,  control,
occupancy,  maintenance  or condition of any of such Person's  former or current
assets or properties;

                                       3

<PAGE>

     (d) the failure by a Person or its  employees,  agents,  or  contractors to
have obtained or maintained in effect any  certificate,  permit or authorization
required by any Environmental  Law as a result of its or their conduct,  actions
or operations or the use,  operation,  ownership,  lease,  control,  possession,
occupancy, maintenance or condition of such Person's assets or properties;

     (e) any  and  all  Proceedings  arising  out of any of the  above-described
matters, including Proceedings by Governmental Bodies for enforcement,  cleanup,
removal,  treatment,   response,  remedial  or  other  actions  or  damages  and
Proceedings by any third Person seeking damages, contribution,  indemnification,
cost recovery, compensation or injunctive relief; and

     (f) any and all  remedial  work  and  other  corrective  action  (including
investigation  or monitoring of site conditions,  or any clean-up,  containment,
restoration  or  removal)  taken by, or the costs of which are imposed  upon,  a
Person arising from any of the above-described matters.

     "ERISA" - the Employee  Retirement Income Security Act of 1974, as amended,
or any successor law, and  regulations  and rules issued pursuant to that act or
any successor law.

     "Excluded  Assets" -- means the following  assets of Seller,  each of which
shall be excluded from the Assets, and not acquired by the Buyer, at Closing:

     (a) assets that Seller uses in both the Business and in Seller's other gas,
electric or communications businesses, the material items of which are described
on Schedule 1.1(b), and Contracts regarding the procurement of services or goods
by Seller for use in such in other businesses;

     (b) cash and cash equivalents in transit, in hand or in bank accounts;

     (c) except as otherwise set forth in Article X, assets  attributable  to or
related to a Benefit Plan of Seller;

     (d) the stock  record and minute books of Seller,  duplicate  copies of all
books and records  transferred to Buyer, all records prepared in connection with
the sale of the  Business  (including  bids  received  from  third  parties  and
analysis relating to the Business) and all IDRB Documents;

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

     (f) except to the extent  set forth in  Section  3.4,  rights to refunds of
Taxes payable with respect to the Business,  assets, properties or operations of
Seller  or any  member  of any  affiliated  group of which  either  of them is a
member;

     (g) accounts owing, by and among Seller and its Affiliates;

     (h) all deferred tax assets or collectibles;

     (i) any insurance policy, bond, letter of credit or other similar item, and
any cash surrender value in regard thereto;

                                       4
<PAGE>

     (j) the Citizens Marks; and

     (k) the other assets listed on Schedule 1.1(b).

     "Existing   Loan   Documents"--   means  all  Contracts   relating  to  the
indebtedness  for money  borrowed  by  Seller  and used in  connection  with the
Business  or the  Assets  as of the  date  hereof  to which  Seller  is a party,
including all IDRB Documents, but excluding line extension agreements or similar
arrangements  involving customer advances for construction,  it being understood
and agreed that customer advances,  customer deposits and construction  advances
do not create indebtedness for money borrowed.

     "Final  Order"  -- an  action by a  Governmental  Body as to which:  (a) no
request for stay of the action is pending,  no such stay is in effect and if any
time period is  permitted  by statute or  regulation  for filing any request for
such  stay,  such  time  period  has  passed;  (b) no  petition  for  rehearing,
reconsideration  or application for review of the action is pending and the time
for filing any such petition or application  has passed;  (c) such  Governmental
Body does not have the action  under  reconsideration  on its own motion and the
time in which such reconsideration is permitted has passed; and (d) no appeal to
a court, or a request for stay by a court of the  Governmental  Body's action is
pending or in effect and the  deadline for filing any such appeal or request has
passed.

     "Future Regulatory Obligations" -- means all liabilities,  responsibilities
and  obligations  relating  to the  Assets or the  Business,  including  capital
expenditure  obligations  and  liabilities  of the types that appear as "Accrued
Liabilities" and "Non-Current  Liabilities" on the Balance Sheet, arising out of
any Legal Requirement or other action of any Governmental  Body,  including with
respect to all Proceedings of any state  regulatory  commission  relating to the
Assets or the Business commenced before or after the Closing Date, regardless of
whether  the Legal  Requirement  or other  action is or  purports to be based on
conduct,  actions,  facts,  circumstances  or  conditions  arising,  existing or
occurring at any time prior to the Closing Date,  but other than relating to any
Retained Environmental Liability.

     "GAAP" -- generally accepted United States accounting  principles,  applied
on a consistent basis.

     "Governmental  Body"  -- any  of the  following  that  possesses  competent
jurisdiction:

     (a) federal, state, county, local, municipal or other governmental body;

     (b) governmental or  quasi-governmental  authority of any nature (including
any governmental agency, branch, department, official or entity and any court or
other tribunal); or

     (c)  any  governmental  body  entitled  to  exercise  any   administrative,
executive,  judicial,  legislative,  police,  regulatory or taxing  authority or
power of any nature.

                                       5
<PAGE>

     "Hazardous Materials" -- any waste or other chemical, material or substance
that is listed, defined,  designated,  or classified as, or otherwise determined
to be, hazardous,  radioactive, toxic, or a pollutant or a contaminant, or words
of similar import,  under or pursuant to any  Environmental  Law,  including any
admixture or solution  thereof,  and  specifically  including oil,  natural gas,
petroleum  and  all  derivatives  thereof  or  synthetic  substitutes  therefor,
asbestos  or   asbestos-containing   materials,   any  flammable  substances  or
explosives,  any  radioactive  materials,  any toxic wastes of substances,  urea
formaldehyde foam insulation, toluene or polychlorinated biphenyls.

     "HSR Act" -- the Hart-Scott-Rodino  Antitrust  Improvements Act of 1976, as
amended,  or any  successor  law, and  regulations  and rules issued by the U.S.
Department  of Justice or the Federal Trade  Commission  pursuant to that act or
any successor law.

     "IDRB  Documents"  --  means  the  Loan  Agreements,   the  Tax  Regulatory
Agreements and Tax Representations  and Project  Certificates listed in Schedule
5.12.

     "IDRB  Indebtedness"  -- means  the  indebtedness  of  Seller  owing to the
issuers of the Bonds and arising under the Loan  Agreements  included  among the
IDRB Documents.  The IDRB Indebtedness is described further in Schedule 5.12 and
in Exhibit 6.7.

     "IRC" -- the Internal Revenue Code of 1986, as amended.

     "IRS" -- the Internal Revenue Service or any successor agency.

     "Knowledge"  -- means,  with  respect to Seller,  the actual  knowledge  of
Seller's Chief Financial  Officer;  Vice President and Chief Operating  Officer,
Citizens Public Services;  Vice President and General  Manager,  Kauai Electric;
Manager  of Power  Supply,  Kauai  Electric;  and  Manager of  Transmission  and
Distribution,  Kauai  Electric;  or their  respective  successors  holding  such
offices or having comparable duties and responsibilities.

     "Legal  Requirement"  -- any  federal,  state,  county,  local,  municipal,
foreign,   international,   multinational,   or  other   administrative   Order,
constitution, law, ordinance, adopted code, principle of common law, regulation,
rule,  directive,  approval,  notice,  tariff,  franchise agreement,  statute or
treaty.

     "Losses" -- shall mean all claims, losses,  liabilities,  causes of action,
costs  and  expenses  (including,  without  limitation,  involving  theories  of
negligence  or  strict  liability  and  including  court  costs  and  reasonable
attorneys' fees and disbursements in connection therewith).

     "Mandated  Capital  Expenditures"  -- shall have the  meaning  set forth in
Section 6.1(a)(6) of this Agreement.

     "Material Adverse Effect" -- an occurrence or condition that has a material
adverse effect on the operation, financial condition or results of operations of
the Business, taken as a whole. For purposes of this Agreement, an occurrence or
condition  shall not constitute a Material  Adverse Effect (a) if it arises from
general  business,  economic or financial  market  conditions,  from  conditions
generally  affecting the industries in which the Business competes,  or from the
transactions  contemplated by this Agreement,  (b) if it is of the type normally
recoverable by the Business  through rates,  (c) to the extent that the Business
may realize the benefit of insurance  maintained by Seller or to the extent that
Seller or Buyer may receive or recover  payments  in respect of such  occurrence
from any other source  (whether in a lump sum or stream of payments),  or (d) if
it relates to or results from a threatened or pending condemnation Proceeding by
the County of Kauai.

                                       6
<PAGE>

     "Material  Contract" -- a Contract  relating  primarily to the Business and
involving a total  commitment by or to any party thereto of at least $250,000 on
an annual basis and which cannot be  terminated  by Seller with notice of ninety
(90) days or less without penalty to Seller.

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

     "Organizational  Documents" -- the articles or certificate of incorporation
and the bylaws of a corporation or the comparable  organizational  and governing
documents of other Persons.

     "Permitted Encumbrances" -- means any of the following:

     (a) mechanics',  carriers', workers' and other similar liens arising in the
ordinary  course of business and which in the aggregate are not  substantial  in
amount and do not  interfere  with the  present  use of the Assets to which they
apply;

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

     (c) usual and customary nonmonetary real property Encumbrances,  covenants,
imperfections in title, Easements, restrictions and other title matters (whether
or not the same are recorded) that do not and will not materially interfere with
the operation of that portion of the Business  currently  conducted on such real
property;

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

     (e) all applicable zoning ordinances and land use restrictions;

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

     (g)  any   other   Encumbrances,   Contracts,   obligations,   defects   or
irregularities of any kind whatsoever,  affecting the Assets that,  individually
or in the aggregate,  are not such as are  reasonably  likely to have a Material
Adverse Effect or that will be  terminated,  released or waived on or before the
Closing Date.

     "Person"  --  any   individual,   corporation   (including   any  nonprofit
corporation),  general or limited partnership,  limited liability company, joint
venture, estate, trust, association, organization or Governmental Body.

     "Proceeding" -- any claim, action, arbitration, hearing, litigation or suit
commenced,  brought,  conducted,  or heard by or before, or otherwise involving,
any Governmental Body or arbitrator.

                                       7
<PAGE>

     "PUHCA" - the Public Utility  Holding  Company Act of 1935, as amended,  or
any successor law, and  regulations and rules issued by the SEC pursuant to that
act or any successor law.

     "Real  Property"  -- all real  property  owned or  leased  by Seller in the
operation  of the  Business,  together  with  all  interests  in  real  property
(including  Easements)  used or held for use by Seller in the  operation  of the
Business.

     "Related  Documents" -- any Contract  provided for in this  Agreement to be
entered  into  by one or more of the  parties  hereto  in  connection  with  the
transactions contemplated by this Agreement.

     "Release"  --  any  presence,  emission,  dispersal,   disposal,  spilling,
leaking,  emitting,   discharging,   depositing,   pumping,  pouring,  escaping,
leaching, dumping, releasing or migration into the indoor or outdoor environment
(including  the  abandonment  or disposal of any  barrels,  containers  or other
closed receptacles containing any Hazardous Materials),  or in, into or from any
facility,  including  the movement of any Hazardous  Materials  through the air,
soil, surface water, groundwater or property.

     "Representative"  -- with respect to a  particular  Person,  any  director,
officer,  employee, agent, consultant,  advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.

     "Retained  Environmental  Liabilities"  -- means (a) any fines or penalties
imposed under applicable  Environmental  Laws by a Governmental Body as a result
of Seller's failure to report any incident or condition  required to be reported
under   applicable   Environmental   Laws,   which   shall  be  subject  to  the
indemnification by Seller under Section 13.1 without regard to the deductible or
limit on liability otherwise applicable to such  indemnification  under Sections
13.3(c)  and (d);  and (b)  Environmental  Liability  of Seller  that  Buyer has
properly designated to be a New Material  Environmental  Liability in accordance
with  Section  12.1(h) and that has not been  remedied or responded to by Seller
prior to Closing in a manner reasonably satisfactory to Buyer.

     "SEC" -- the  United  States  Securities  and  Exchange  Commission  or any
successor agency.

     "Tax" -- any tax (including any income tax, capital gains tax,  value-added
tax, sales and use tax, franchise tax, payroll tax,  withholding tax or property
tax), levy, assessment,  tariff, duty (including any customs duty),  deficiency,
franchise fee or payment,  payroll tax, utility tax, gross receipts tax or other
fee or payment,  and any related charge or amount (including any fine,  penalty,
interest or addition to tax),  imposed,  assessed or  collected  by or under the
authority of any Governmental Body.

     "Tax Return" -- any return  (including  any  information  return),  report,
statement,  schedule,  notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any  Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.

                                       8
<PAGE>

     "Threatened"  -- a claim,  dispute,  or other matter will be deemed to have
been  "Threatened"  if any demand or  statement  has been made in writing or any
notice has been given in writing, and Seller has Knowledge of the same.

     Section 1.2   Other Defined  Terms.  In  addition  to the terms  defined in
Section 1.1,  certain  other terms are defined  elsewhere  in this  Agreement as
indicated below and, whenever such terms are used in this Agreement,  they shall
have their respective defined meanings.

Term                                                            Section
----                                                            -------

Active Employees                                                10.1
Antitrust Authorities                                           6.3
Assumed Liabilities                                             2.2
Balance Sheet                                                   5.6(a)
Bill of Sale                                                    8.1
Buyer Indemnitees                                               13.1
Buyer's Pension Plan                                            10.5
Buyer Welfare Plans                                             10.7(a)
CERCLA                                                          5.14(e)
Citizens Marks                                                  6.4
Closing                                                         8.1
Closing Date                                                    8.1
Employee Plans                                                  5.13
Environmental Data                                              12.1(c)
Estimated Purchase Price                                        3.3(a)
Financial Statements                                            5.6
Purchase Price                                                  3.1
Retained Liabilities                                            2.3
Seller Indemnitees                                              13.2
Seller's Pension Plan                                           10.5
Seller's 401(k) Plan                                            10.6
Seller Welfare Plan                                             10.7
Transaction Taxes                                               11.3
Transferred Employee                                            10.1

                                       9
<PAGE>

                                   ARTICLE II
                                PURCHASE AND SALE

     Section 2.1  Purchase and Sale of Assets. Upon the terms and subject to the
conditions  contained  herein,  at the  Closing,  Seller  shall sell,  transfer,
assign,  convey  and  deliver  to Buyer,  and Buyer  shall  purchase  and accept
delivery from Seller, all of the Assets.

     Section 2.2  Assumed Liabilities. In further  consideration for the sale of
the Assets at the  Closing,  Buyer will  assume  and agree to pay,  perform  and
discharge when due, all  liabilities and  obligations,  of every kind or nature,
arising out of or relating to:

     (a) Seller's  ownership of the Assets and Seller's  conduct or operation of
the Business, prior to the Closing Date, other than the Retained Liabilities;

     (b) all  non-delinquent  trade  payables and other accrued  expenses of the
Business outstanding on the Closing Date, including the following:

     (i) electric, gas, telephone and other utility charges;

     (ii)  payroll  expenses,  payroll  taxes,  reimbursable  employee  business
expenses and accrued vacation time of the Transferred Employees;

     (iii)  accrued  non-delinquent  payment  obligations  under  the  Contracts
assigned to and assumed by Buyer at Closing; and

     (iv)  subject  to  Section  11.4,  Taxes  such as sales,  franchise,  gross
receipts and similar Taxes based upon revenues of the Business.

     (c) Buyer's  ownership or use of the Assets and the conduct or operation of
the Business by Buyer, in each case on and after the Closing Date, including all
liabilities,  responsibilities  and obligations  relating to or arising from the
following:

     (i)  Transferred  Employees  (except to the extent  otherwise  provided  in
Article X and except for any continuing obligations for any workers compensation
claims  where  the  basis of the  claim  occurred  prior to the  Closing  Date),
including any termination of any Transferred  Employee for any reason (including
constructive dismissal) and Buyer's hiring practices or decisions;

     (ii)  performance  of the Contracts  included among the Assets (except that
Buyer shall not assume any  liabilities or obligations for any breach or default
by, or  delinquent  payment  obligations  of,  Seller  under  any such  Contract
occurring or arising or accruing prior to the Closing Date);

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

                                       10
<PAGE>

     (iv) Future Regulatory Obligations;

     (v) Assumed Environmental Liabilities;

     (vi)  Transaction  Taxes  arising  out of the sale of the  Assets  to Buyer
hereunder;

     (vii)  Proceedings  based on  conduct,  actions,  facts,  circumstances  or
conditions  arising or occurring on or after the Closing  Date,  Proceedings  in
respect  of  Future  Regulatory   Obligations  regardless  of  when  filed,  and
Proceedings arising from or related to any other Assumed Liability; and

     (viii) the Buyer's IDRB Obligations.

     (4) the Proceedings  described in Schedule  2.2(d) as Assumed  Liabilities;
and

     (e) all Proceedings  involving Seller,  the Assets or the Business based on
conduct, actions, facts,  circumstances or conditions arising or occurring prior
to the Closing  Date that are pending or  Threatened  as of the Closing Date and
that are disclosed to Buyer by Seller after the Effective  Date but prior to the
Closing Date (except any such Proceedings  described as Retained  Liabilities on
Schedule 2.2(d) and any such  Proceedings  relating to the Retained  Liabilities
described in Sections 2.3(a),  (b), (c), (d), and (f)), provided that any Losses
incurred by Buyer in connection with any such individual Proceeding in excess of
$200,000  shall  be  Retained  Liabilities  and  Seller  shall be  obligated  to
indemnify  Buyer  pursuant to Section 13.1 (but subject to  limitations  on such
obligations  provided in Section 13.3) for such Losses  incurred by Buyer in the
amount of such excess;

The  liabilities,  responsibilities  and  obligations  to be  assumed  by  Buyer
pursuant to this  Section 2.2 are  hereinafter  collectively  referred to as the
"Assumed  Liabilities." Buyer hereby irrevocably and unconditionally  waives and
releases Seller from all Assumed  Liabilities and all liabilities or obligations
relating  to the  Business  or the Assets to the extent  arising  from events or
occurrences on or after the Closing Date or to the extent otherwise  relating to
the period commencing on the Closing Date,  including any liabilities created or
which arise by statute or common law, including CERCLA (it being understood that
this shall not  constitute a waiver and release of any claims arising out of the
contractual  relationships and  indemnification  arrangements  between Buyer and
Seller).  Notwithstanding anything in this Section 2.2 to the contrary, "Assumed
Liabilities" shall not include any liabilities,  responsibilities or obligations
expressly stated to be Retained Liabilities pursuant to Section 2.3.

     Section 2.3 Retained Liabilities. Buyer shall not assume and at the Closing
Seller  shall  retain  and pay,  perform  and  discharge  when  due,  all of the
liabilities  and   obligations   relating  to  or  arising  from  the  following
(collectively referred to herein as the "Retained Liabilities"):

     (a) all obligations of Seller under the IDRB Documents except to the extent
also included in Buyer's IDRB Obligations,  and any other indebtedness for money
borrowed  by Seller  (including  items due to  Seller's  Affiliates)  other than
payment  obligations  arising on or after the Closing  Date under any  equipment
lease listed in Part VII of Schedule 5.12 or under any line extension  Contracts
or similar construction  arrangements,  it being understood and agreed that such
leases,  Contracts and similar arrangements do not create indebtedness for money
borrowed;

     (b) Taxes of  Seller  based on income  and any motor  vehicle  registration
Taxes for periods prior to the year in which Closing occurs;

     (c) Excluded Assets;

     (d)  Non-Transferred  Employees,  the Seller's  Employee  Benefit Plans and
Employee  Plans  (except  to  the  extent  provided  in  Article  X  or  Section
2.2(b)(ii)) and any breach or default by, or payment obligations of, Seller with
respect to any  Transferred  Employee  occurring or arising or accruing prior to
the Closing Date (except to the extent any such payment  obligation  becomes the
responsibility  and obligation of Buyer in accordance  with Article X or Section
2.2(b)(ii));

                                       11

<PAGE>

     (e)  Proceedings  involving  Seller,  the Assets or the  Business  based on
conduct  (including  Seller's  performance under any Contract included among the
Assets),  action, facts,  circumstances or conditions arising or occurring prior
to the Closing Date including  Proceedings  described as Retained Liabilities in
Schedule  2.2(d),  but expressly  excluding any such  liabilities or obligations
relating to any Proceeding  described as Assumed  Liabilities in Schedule 2.2(d)
and any Proceeding relating to (x) Assumed  Liabilities  (subject to the proviso
set forth in Section 2.2(e) with respect to the Proceedings described in Section
2.2(e)),  (y) Future  Regulatory  Obligations and (z) Proceedings  affecting the
industries in which the Business competes; and

     (f) Retained Environmental Liabilities.

Seller hereby irrevocably and unconditionally waives and releases Buyer from all
Retained Liabilities including any liabilities created or which arise by statute
or common  law,  including  CERCLA  (it  being  understood  that this  shall not
constitute  a waiver and release of any claims  arising  out of the  contractual
relationships and indemnification arrangements between Buyer and Seller).

     Section 2.4  Condition on Assignment or Assumption of Contracts and Rights.
Anything in this Agreement to the contrary notwithstanding, this Agreement shall
not  constitute  an  agreement  to assign or assume any Contract or any claim or
right or any benefit arising  thereunder or resulting  therefrom if an attempted
assignment or assumption thereof,  without the Consent of a third party thereto,
would constitute a breach thereof. Any transfer or assignment to Buyer by Seller
of any property or property rights or any Contract which requires the Consent of
any third party shall be made subject to such Consent  being  obtained.  If such
Consent  is  not  obtained,  or if an  attempted  assignment  thereof  would  be
ineffective or would affect the rights of Seller  thereunder so that Buyer would
not in fact receive all such  rights,  Seller will  cooperate  with Buyer in any
arrangement  reasonably  designed to provide  for Buyer,  at Buyer's  cost,  the
benefits under any such Contract including, without limitation,  enforcement for
the  benefit  of Buyer of any and all  rights  of Seller  against a third  party
thereto  arising  out of the  breach  or  cancellation  by such  third  party or
otherwise  To the extent  that  Buyer  does  receive  the  benefits  of any such
Contract pursuant to the preceding  sentence,  such Contract shall be a Contract
deemed to have  been  assigned  or  transferred  to Buyer  pursuant  to  Section
2.2(c)(ii).

                                       12
<PAGE>

                                   ARTICLE III
                                 PURCHASE PRICE

     Section 3.1  Purchase Price.  Subject to the terms and  conditions  of this
Agreement,  the aggregate  purchase price for the Assets (the "Purchase  Price")
shall be an amount  equal to  $215,000,000  in cash,  subject  to  increase  for
certain  Mandated  Capital  Expenditures  (as such term is  defined  in  Section
6.1(a)(6))  in  accordance  with  Section 3.2,  and the  assumption  by Buyer at
Closing of the Assumed Liabilities.

     Section 3.2  Calculation  of Purchase  Price.  The Purchase  Price shall be
increased by the amount of Mandated Capital Expenditures made by Seller from and
after the Effective Date through the day immediately  preceding the Closing Date
and which are not included in the 2001 or 2002 Capital  Budget,  but only to the
extent that Seller did not have  Knowledge  of the need to incur the  particular
expenditures  comprising such Mandated Capital Expenditures at the time the 2002
Capital  Budget was adopted by the Board of Directors of Seller.  Such increase,
if applicable, shall be determined in accordance with the following:

     (a) The amount of Mandated Capital Expenditures by which the Purchase Price
is increased  shall be estimated by Seller in good faith based upon the relevant
account  balances  at the end of the month for which  Seller's  books are closed
next preceding the Closing Date, with such  adjustments as may be appropriate to
reflect changes in such account  balances  occurring  between such month-end and
the Closing Date. Any such estimated  amount shall be set forth in a certificate
of  Seller  delivered  to Buyer at least  five (5)  business  days  prior to the
Closing  Date,  which  certificate  shall set forth an estimate of the  Purchase
Price (the "Estimated  Purchase  Price"),  including the estimated amount of any
increase in the  Purchase  Price  pursuant  to this  Section  3.2,  and shall be
accompanied by reasonably detailed supporting documentation.

     (b) Within one hundred  twenty  (120) days after the Closing  Date,  Seller
shall  notify  Buyer of the actual  amount as  recorded  on  Seller's  books and
records  for  the  Business  of any  Mandated  Capital  Expenditures  that  were
estimated in arriving at the  Estimated  Purchase  Price.  Buyer may dispute any
amount so determined by Seller,  by written notice to Seller within fifteen (15)
days after  receipt of Seller's  notice.  If Buyer does not so dispute any item,
the party owing the  difference  between the  Estimated  Purchase  Price and the
Purchase Price shall pay such difference to the other party within ten (10) days
after the expiration of such fifteen (15) day period, plus interest at 8.25% per
annum on such amount from the Closing  Date to (but not  including)  the date of
payment.  If Buyer disputes the actual amount of any item, the undisputed amount
plus  interest at 8.25% per annum on such  amount from the Closing  Date to (but
not including) the date of payment shall be paid promptly by the owing party. If
such  dispute  cannot be  resolved  within  sixty  (60) days after the giving of
Buyer's notice that there exists a disputed amount,  then an independent auditor
mutually  agreeable to Buyer and Seller shall,  upon written  notice from either
Buyer or Seller,  resolve such dispute  within sixty (60) days after  receipt of
such  notice.  The  fees  and  expenses  of such  independent  auditor  shall be
allocated  between  Buyer  and  Seller so that  Seller's  share of such fees and
expenses  shall be in the same  proportion  that the  aggregate  amount  of such
remaining  disputed  amounts  so  submitted  by Buyer to such  auditor  that are
successfully  disputed by Buyer (as finally determined by such auditor) bears to
the total  amount of such  remaining  disputed  amounts so submitted by Buyer to
such auditor. Any determination by such independent auditor shall be binding and
conclusive upon the parties without  further appeal  therefrom.  Within ten (10)
days after the independent  auditor shall have resolved such dispute,  the party
owing the determined amount shall pay such determined amount to the other party,
plus interest at 8.25% per annum on such determined amount from the Closing Date
to (but not including) the date of payment.

                                       13
<PAGE>

                                   ARTICLE IV
                     REPRESENTATIONS AND WARRANTIES OF BUYER

     Section  4.1  Organization,   Existence  and  Qualification.   Buyer  is  a
cooperative  association  duly  incorporated,  validly  existing,  and  in  good
standing under the laws of the State of Hawaii,  with full  corporate  power and
authority  to conduct its business as it is now being  conducted,  to own or use
the  properties  and assets  that it  purports  to own or use,  to  perform  its
obligations  under all  Contracts  to which it is a party,  and to  execute  and
deliver this Agreement and the Related Documents to which Buyer is a party.

     Section 4.2  Authority Relative to this Agreement and Binding  Effect.  The
execution,  delivery and performance of this Agreement and the Related Documents
by Buyer  have  been  duly  authorized  by  Buyer's  Board of  Directors,  which
constitutes  all necessary  corporate  action  required on the part of Buyer for
such authorizations.  The execution,  delivery and performance of this Agreement
and the Related  Documents by Buyer will not result in (a) any conflict  with or
breach or violation of or default under the  Organizational  Documents of Buyer,
or (b) a  violation  or breach of any term or  provision  of,  or  constitute  a
default or accelerate the performance  required under, any indenture,  mortgage,
deed of trust, security agreement, loan agreement, or Contract to which Buyer is
a party or by which its assets are bound, or (c) a violation of any Order of any
Governmental  Body,  except for such exceptions to the foregoing clauses (b) and
(c) that,  individually or in the aggregate,  would not be reasonably  likely to
have a material  adverse effect on Buyer.  This Agreement  constitutes,  and the
Related  Documents  to be executed by Buyer when  executed  and  delivered  will
constitute, valid and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective  terms,  except as such  enforceability  may be
limited by (i) bankruptcy or similar laws from time to time in effect  affecting
the  enforcement  of creditors'  rights  generally or (ii) the  availability  of
equitable remedies generally.

     Section 4.3  Governmental Approvals. Except for those Consents described in
Schedule  5.3 to the extent (but only to the  extent)  applicable  to Buyer,  no
Consent  of any  Governmental  Body is  required  to be  obtained  by  Buyer  in
connection  with the  execution  and delivery by Buyer of this  Agreement or the
Related  Documents or the consummation of the transactions  contemplated by this
Agreement  or the  Related  Documents.  Buyer has no  knowledge  of any facts or
circumstances  relating  to Buyer or its  Affiliates  that  reasonably  would be
likely to preclude or prolong the receipt of such required Consents.

     Section  4.4   Availability of Funds.  Buyer has  available,  and will have
available on the Closing Date,  sufficient  funds to enable it to consummate the
transactions  contemplated  by  this  Agreement.  Buyer  has  received,  and has
provided to Seller a true and complete copy of, that certain  commitment  letter
dated  as of  January  7,  2002 for the  Purchase  Price,  including  reasonable
flexibility  to account for  increases in the Purchase  Price,  duly executed by
Buyer and the National Rural Utilities Cooperative Finance Corporation.

     Section 4.5  Filings.  No statement furnished by Buyer for inclusion in any
filing with any Governmental Body in connection with obtaining such Governmental
Body's Consent for the  consummation  of the  transactions  contemplated by this
Agreement  will contain,  as of the date such  information  is so provided,  any
untrue  statement of a material fact or will omit to state,  as of the date such
information  is so provided,  any  material  fact which is necessary to make the
statements  contained  therein,  in light of the circumstances  under which they
were made, not misleading.

                                       14
<PAGE>

     Section  4.6   Brokers.   Other  than  the   investment   banking  firm  of
Christenberry  Collet & Company,  Inc.,  no broker or finder has acted for or on
behalf of Buyer or any Affiliate of Buyer in connection  with this  Agreement or
the transactions contemplated by this Agreement. No broker or finder is entitled
to any  brokerage  or finder's  fee, or to any  commission,  based in any way on
agreements,  arrangements or understandings made by or on behalf of Buyer or any
Affiliate of Buyer for which Seller or any  Affiliate of Seller has or will have
any liability or obligations (contingent or otherwise).  Buyer acknowledges full
responsibility for the fees owed to Christenberry Collet & Company, Inc.

     Section  4.7  Independent  Investigation.  Buyer,  through  its  agents  or
otherwise,  is knowledgeable  about the businesses  engaged in by Seller through
its  Kauai  Electric  division  and of the  usual  and  customary  practices  of
companies engaged in businesses similar to such businesses and has had access to
the Assets,  the officers and  employees of Seller,  and the books,  records and
files of Seller relating to the Business and the Assets.  In making the decision
to enter into this  Agreement and to consummate  the  transactions  contemplated
hereby,  Buyer  has  relied  solely  on the  basis  of its own  independent  due
diligence  investigation  of the  Business  and  upon  the  representations  and
warranties made in Article V.  Accordingly,  Buyer  acknowledges that Seller has
not made, and Seller is expressly disclaiming and negating any representation or
warranty  (other  than those  express  representations  and  warranties  made in
Article V), express,  implied, at common law, by statute or otherwise,  relating
to the Business.

     Section 4.8  Public Utility Holding Company Status;  Regulation as a Public
Utility.  Neither  Buyer nor any of its  Affiliates  is a "holding  company",  a
"subsidiary"  of a "public  utility  company" or of a "holding  company,"  or an
"affiliate" of a "public utility company" or of a "holding  company," within the
meaning of such terms in PUHCA.

     Section 4.9  Buyer's Financial Statements.  As Buyer is not presently doing
business,  and has done no  business  prior  to the  Effective  Date,  it has no
historical  financial  statements.  Buyer  agrees to deliver to Seller pro forma
financial  statements of Buyer, based on the Financial Statements and reflecting
Buyer's financing for the acquisition contemplated by this Agreement,  within 30
days after the Effective Date.

     Section 4.10 Buyer's Insurance. At least ten (10) days prior to the Closing
Date,  Buyer will deliver to Seller a Schedule  that lists the Buyer's  policies
and  contracts  in  effect  as of the date  hereof  for  casualty  and  property
insurance  covering its assets and properties and the operation of its business,
together with the risks insured against, coverage limits, deductible amounts and
carriers.

                                       15
<PAGE>

                                    ARTICLE V
                    REPRESENTATIONS AND WARRANTIES OF SELLER

     Section  5.1  Organization,   Existence  and  Qualification.  Seller  is  a
corporation duly incorporated,  validly existing, and in good standing under the
laws of the State of  Delaware,  with full  corporate  power  and  authority  to
conduct the Business as it is now being conducted,  to own or use the Assets, to
perform  its  obligations  under all  Contracts  to which it is a party,  and to
execute and deliver this Agreement and the Related  Documents to which Seller is
a party. Seller is duly qualified to do business as a foreign corporation and is
in good  standing  under the laws of the State of Hawaii and each other state in
which the failure to be so qualified or in good  standing  would have a Material
Adverse Effect.

     Section 5.2  Authority Relative to this Agreement and Binding  Effect.  The
execution,  delivery and performance of this Agreement and the Related Documents
by Seller have been duly authorized by all requisite corporate action. Except as
set forth in Schedule  5.2,  the  execution,  delivery and  performance  of this
Agreement  and the  Related  Documents  by  Seller  will not  result  in (a) any
conflict  with or breach or  violation  of or default  under the  Organizational
Documents  of Seller,  (b) to Seller's  Knowledge,  a violation or breach of any
term or provision  of, or  constitute a default or  accelerate  the  performance
required under, any indenture, mortgage, deed of trust, security agreement, loan
agreement,  or Material  Contract to which  Seller is a party or by which any of
the Assets are bound, or (c) a violation of any Order of any Governmental  Body,
except  for  such  exceptions  to  the  foregoing  clauses  (b)  and  (c)  that,
individually  or in the  aggregate,  would  not be  reasonably  likely to have a
Material Adverse Effect or that will be cured,  waived or otherwise  remedied on
or prior  to the  Closing  Date.  This  Agreement  constitutes  and the  Related
Documents to be executed by Seller when executed and delivered  will  constitute
valid  and  binding  obligations  of  Seller,   enforceable  against  Seller  in
accordance  with their  terms,  except as  enforceability  may be limited by (i)
bankruptcy or similar laws from time to time in effect affecting the enforcement
of creditors'  rights generally or (ii) the  availability of equitable  remedies
generally.

     Section 5.3  Governmental and Other Required Consents.  Except as set forth
in Schedule 5.3, no Consent of any Governmental Body or third Person is required
to be obtained by Seller in connection with the execution and delivery by Seller
of this Agreement or the Related  Documents or the consummation by Seller of the
transactions contemplated by this Agreement or the Related Documents, other than
(i) any Consent the failure of which to obtain would not be reasonably likely to
have a Material  Adverse Effect and (ii) any Consent that is obtained or made on
or prior to the Closing Date.

     Section 5.4  Public Utility Holding Company Status;  Regulation as a Public
Utility.  Seller is a "public  utility  company"  (as such  term is  defined  in
PUHCA).  Seller is not a "holding company",  a "subsidiary" of a "public utility
company,"  or an  "affiliate"  of a "public  utility  company"  or of a "holding
company," within the meaning of such terms in PUHCA.

     Section 5.5  Title to Assets; Liens. Seller has good and indefeasible title
to the Assets  reflected in the  Financial  Statements  except those that in the
aggregate are not material to the Business and those  disposed of since the date
of the  Financial  Statements  in the  ordinary  course of business or otherwise
disposed of in accordance with this Agreement. None of the Assets are subject to
any  Encumbrance  except (i)  Encumbrances  described  in Schedule  5.5 and (ii)
Permitted Encumbrances. Schedule 5.5 lists each material parcel of Real Property
owned in fee simple that is a part of the Assets. To Seller's Knowledge,  except
as described on Schedule 5.5,  Seller owns or possesses all Easements  necessary
to conduct the Business as now being  conducted  without any known conflict with
the rights of others,  in each case except to the extent that the failure to own
or possess  such  Easements  would not have a Material  Adverse  Effect.  Seller
enjoys  peaceful and  undisturbed  possession  under all material  real property
leases included in the Assets,  and to the Knowledge of Seller,  all such leases
are valid and subsisting and in full force and effect.

                                       16
<PAGE>

     Section 5.6  Financial Statements.

     (a) Schedule 5.6(a) sets forth the unaudited proforma balance sheet for the
Business as of December 31, 2001 (the "Balance  Sheet") and  unaudited  proforma
income statement of the Business for the twelve-month  period ended December 31,
2001 (collectively, the "Financial Statements"). Except as set forth in Schedule
5.6(a),  the  Financial  Statements  have been  prepared  on a pre-tax  basis in
accordance,  in all material  respects,  with GAAP applied on a basis consistent
with prior  periods.  To the  Knowledge of Seller and except as set forth in the
notes to the  Financial  Statements,  the Balance Sheet  presents  fairly in all
material respects the financial condition of the Business as of its date and the
income  statement  included in the Financial  Statements  presents fairly in all
material  respects  the results of  operations  of the  Business for the periods
covered  thereby.  The books and  records  of Seller  from  which the  Financial
Statements were prepared were complete and accurate in all material  respects at
the time of such preparation.

     (b) To the  Knowledge of Seller,  as of the  Effective  Date,  there are no
Liabilities  except for  Liabilities  (i) reflected in the Balance  Sheet,  (ii)
arising under the Existing Loan Documents,  (iii) listed in Schedule 5.6(b),  or
(iv) which  individually or in the aggregate are not reasonably likely to result
in a  Material  Adverse  Effect.  As used  in  this  Section  5.6(b),  the  term
"Liabilities"  shall  only mean  claims of  creditors  and  Governmental  Bodies
against Seller arising out of activities,  operations or  transactions of Seller
relating to the Business  occurring  before the  Effective  Date which have been
Threatened or resulted in a Proceeding  against  Seller and that have become due
or accrued or could  reasonably be expected to become due or accrued  within the
twelve-month  period following the Effective Date, but excluding any Liabilities
under Legal Requirements,  Orders and Contracts where Seller is not currently in
material violation of or default under any provision thereof.

     Section 5.7   Compliance  with Legal  Requirements;  Governmental  Permits.
Except as set forth in Schedule 5.7, to the  Knowledge of Seller:  (a) Seller is
not in violation of any Legal  Requirement or Order that is applicable to it, to
the conduct or operation of the  Business,  or to the ownership or use of any of
the Assets, other than such violations,  if any, which are not,  individually or
in the aggregate,  reasonably likely to have a Material Adverse Effect;  and (b)
Seller possesses all permits,  licenses,  and  authorizations  from Governmental
Bodies required by any applicable Legal Requirement or Order necessary to permit
the  operation  of the  Business  in the manner in which it is  currently  being
conducted  by Seller,  except  where the  failure to  possess  any such  permit,
license  or  authorization  is not  reasonably  likely to  result in a  Material
Adverse Effect.

     Section 5.8  Legal Proceedings; Outstanding Orders.  Except as set forth in
Schedule  5.8,  there is no pending or Threatened  Proceeding  (a) that has been
commenced  against Seller that is reasonably  likely to have a Material  Adverse
Effect or (b) as of the Effective  Date, that  challenges,  or that may have the
effect of preventing,  delaying,  making illegal, or otherwise interfering with,
the transactions contemplated hereby. Except as disclosed in Schedule 5.8, there
are currently no outstanding  Orders against Seller which relate to or arise out
of the conduct of the Business or the  ownership,  condition or operation of the
Business  or the Assets  (other than any Order  relating  to rates,  tariffs and
similar matters  arising in the ordinary course of business) which  individually
or in the aggregate would have a Material Adverse Effect.

     Section 5.9  Taxes.  Seller has filed all United States federal,  state and
local  income  Tax  Returns  required  to be filed by  Seller  or  requests  for
extensions to file such Tax Returns have been timely filed,  and Seller has paid
and discharged or made adequate  provision for all Taxes except where failure to
so file, pay, discharge or make adequate provision for are not,  individually or
in the aggregate, reasonably likely to have a Material Adverse Effect. There are
no pending  audits or other  examinations  relating to any Tax matters except as
set forth in  Schedule  5.9.  There are no Tax  liens on the  Assets.  As of the
Effective Date,  Seller has not granted any waiver of any statute of limitations
with  respect to, or any  extension of a period for the  assessment  of, any Tax
except as set forth in Schedule 5.9.

     Section  5.10  Intellectual  Property.  Schedule  5.10  lists all  patents,
trademarks,  service  marks  and  copyrights  used  or held  for  use by  Seller
primarily in the operation of the  Business.  Seller has no Knowledge of (i) any
infringement or claimed infringement by Seller of any patent, trademark, service
mark or copyright of others or (ii) any  infringement of any patent,  trademark,
service mark or  copyright  owned by or under  license to Seller  except for any
such  infringements  of the type  described  in clause (i) or (ii) that are not,
individually or in the aggregate,  reasonably  likely to have a Material Adverse
Effect.

     Section 5.11  Personal Property.  Except for normal wear and tear, and with
such exceptions as are not, individually or in the aggregate,  reasonably likely
to have a Material  Adverse Effect,  the tangible Assets are in normal operating
condition and in a state of reasonable maintenance and repair.

                                       17
<PAGE>

     Section 5.12  Material Contracts;  Existing Loan  Documents.  Schedule 5.12
contains,  to Seller's  Knowledge,  a complete  and correct  list as of the date
hereof of all  Material  Contracts  (other  than line  extension  Contracts  and
similar construction  arrangements),  including all Existing Loan Documents.  To
Seller's  Knowledge,  there  are no  defaults  under  any such  Contracts  that,
individually or in the aggregate, will have a Material Adverse Effect. Except as
set forth in Schedule 5.12,  Seller is not obligated under any Contract relating
to the Business or the Assets with respect to  industrial  development  bonds or
other  obligations  with respect to which the interest  thereon is excluded from
gross income of the holder for federal or state income tax purposes.

     Section 5.13  Employee Benefit Matters.

     (a) Schedule 5.13 lists (i) each  "Employee  Benefit Plan," as such term is
defined in Section 3(3) of ERISA, which is covered by any provision of ERISA and
which is maintained by Seller for the benefit of the Active Employees; (ii) each
other material fringe benefit plan, policy or arrangement  currently  maintained
by Seller for the  benefit  of Active  Employees  which  provides  for  pension,
deferred  compensation,  bonuses,  severance,  employee  insurance  coverage  or
similar  employee  benefits  (collectively,  "Employee  Plans");  and (iii) each
collective   bargaining,   union  or  other  employee   association   agreement,
employment,    managerial   advisory,   and   consulting   agreement,   employee
confidentiality  agreement,  and all other  material  agreements,  policies,  or
arrangements  maintained  by Seller  for the Active  Employees.  Seller has made
available to Buyer  copies,  which were  accurate and complete as of the date so
made  available,  of  all  such  documents  and  (if  applicable)  summary  plan
descriptions with respect to such plans, agreements and arrangements, or summary
description(s)  of any such plans,  agreements or arrangements  not otherwise in
writing.

     (b) Seller's  Pension Plan and Seller's  401(k) Plan are the only  Employee
Benefit  Plans which are intended to be qualified  under  Section  401(a) of the
IRC.

     (c) To the  Knowledge  of  Seller,  each  Employee  Benefit  Plan  has been
established  and  administered  in all material  respects in accordance with the
material terms of ERISA and the applicable provisions of the IRC.

     Section 5.14  Environmental Matters.

     (a) Except as listed in Schedule 5.14, since December 31, 1996,  Seller has
not  received  a written  notice  from a  Governmental  Body  that  Seller is in
violation of any  Environmental  Law arising out of Seller's  ownership,  use or
operation  of the  Assets  or the  operation  of the  Business,  except  for any
violation not reasonably likely to result in a Material Adverse Effect.

     (b) Except as listed in Schedule 5.14, there are no Proceedings  pending or
Threatened  with  respect to Seller's  compliance  with  Environmental  Laws and
relating to the Business or the Assets.

     (c) Except as listed in Schedule 5.14, since December 31, 1996,  Seller has
not received any written notice from any Governmental  Body that Seller does not
have all certificates,  permits and authorizations required by any Environmental
Law for Seller's  ownership,  use or operation of the Assets or the operation of
the Business (other than any such  environmental  permit the absence of which is
not reasonably likely to result in a Material Adverse Effect).

     (d)  Except  as set forth in  Schedule  5.14,  to  Seller's  Knowledge,  no
environmental  remediation  of any  Release is  occurring  on any Real  Property
included in the Assets nor has Seller issued a request for proposal or otherwise
asked  an  environmental  remediation  contractor  to begin  plans  for any such
environmental remediation.

     (e) Except as set forth in Schedule 5.14,  none of the Real Property is (i)
situated in a federal "Superfund" site or, to Seller's Knowledge, in any federal
"Superfund" study area designated under the federal Comprehensive  Environmental
Response,  Compensation  and  Liability  Act  ("CERCLA"),  or (ii)  to  Seller's
Knowledge, situated in any site or study area designated under any state statute
comparable to CERCLA.

     Section 5.15  No Material  Adverse Change.  Except as set forth in Schedule
5.15,  between the date of the Balance Sheet and the Effective Date, no Material
Adverse  Effect has occurred.  Except for actions  taken in connection  with the
contemplated  sale of the Business and this  Agreement,  between the date of the
Balance  Sheet and the  Effective  Date,  the  Business  has been  conducted  in
substantially the same manner in which it has been previously conducted.

                                       18
<PAGE>

     Section 5.16  State Regulatory Matters.

     (a) To Seller's  Knowledge,  Schedule  5.16  reflects all of the  currently
pending rate filings  relating to the Business  heretofore made by Seller before
state regulatory commissions and each other currently pending Proceeding of such
state regulatory commission that is reasonably likely to have a Material Adverse
Effect.

     (b)  To  Seller's  Knowledge,  all  currently  effective  material  filings
relating  to the  Business  heretofore  made by  Seller  with  state  regulatory
commissions  were made in compliance  with Legal  Requirements  then  applicable
thereto  and the  information  contained  therein  was true and  correct  in all
material respects as of the respective dates of such filings.

     Section 5.17  Brokers.  Except for Morgan  Stanley & Co.  Incorporated,  no
broker or finder has acted for or on behalf of Seller or any Affiliate of Seller
in  connection  with this  Agreement or the  transactions  contemplated  by this
Agreement.  No broker or finder is entitled to any brokerage or finder's fee, or
to  any   commission,   based  in  any  way  on  agreements,   arrangements   or
understandings  made by or on behalf of Seller or any  Affiliate  of Seller  for
which  Buyer has or will have any  liabilities  or  obligations  (contingent  or
otherwise).

     Section 5.18  Disclaimer.  Except as otherwise  expressly set forth in this
Article V, Seller expressly  disclaims any  representations or warranties of any
kind or nature, express or implied, as to the condition, value or quality of the
assets or  properties  currently  or formerly  used,  operated,  owned,  leased,
controlled, possessed, occupied or maintained by Seller, and Seller SPECIFICALLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY,  USAGE, SUITABILITY
OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO SUCH ASSETS OR PROPERTIES,
OR ANY PART THEREOF,  OR AS TO THE  WORKMANSHIP  THEREOF,  OR THE ABSENCE OF ANY
DEFECTS THEREIN,  WHETHER LATENT OR PATENT, IT BEING UNDERSTOOD THAT SUCH ASSETS
AND PROPERTIES ARE BEING ACQUIRED, "AS IS, WHERE IS" ON THE CLOSING DATE, AND IN
THEIR  PRESENT  CONDITION,  WITH ALL FAULTS AND THAT BUYER SHALL RELY ON ITS OWN
EXAMINATION AND INVESTIGATION THEREOF.

                                       19
<PAGE>

                                   ARTICLE VI
                                    COVENANTS

     Section 6.1  Covenants of Seller.  Seller agrees to observe and perform the
following covenants and agreements:

     (a) Conduct of the Business Prior to the Closing Date.  With respect to the
Business,  except (i) as contemplated in this Agreement or in Schedule 6.1, (ii)
as required by any Legal  Requirement  or Order or (iii) as otherwise  expressly
consented to in writing by Buyer which consent will not be unreasonably withheld
or delayed, prior to the Closing, Seller will, with respect to the Business:

          (1) Not make or permit any  material  change in the general  nature of
     the Business;

          (2)  Maintain  the  Business  in the  ordinary  course of  business in
     accordance with prudent business judgment and consistent with past practice
     and policy, and maintain the Assets in their present condition,  reasonable
     wear and tear excepted,  subject to  retirements in the ordinary  course of
     business;

          (3) Not enter into any material transaction or Material Contract other
     than in the ordinary course of business;

          (4) Not purchase,  sell,  lease,  dispose of or otherwise  transfer or
     make any Contract for the purchase,  sale,  lease,  disposition or transfer
     of, or  subject  to  Encumbrance,  any  material  Assets  other than in the
     ordinary course of business;

          (5) Not hire any new  employee  unless  such  employee  is a bona fide
     replacement  for  either a  presently-filled  position  or a vacancy  in an
     authorized position with the Business;

          (6)  Continue to make  capital  expenditures  necessary  to  maintain,
     operate or repair the Assets or to replace  Assets  damaged or destroyed by
     casualty loss, and to make Mandated Capital  Expenditures,  in each case in
     the  ordinary  course of  business  in  accordance  with  prudent  business
     judgment and consistent  with past practice and policy,  including  capital
     expenditures   required   to  (i)  provide   service  to  ensure   adequate
     transmission or distribution  facilities under power supply contracts,  and
     (ii) fulfill  requirements  under the Certificate of Public Convenience and
     Necessity.  Notwithstanding  the foregoing,  Seller will not be required to
     make any capital  expenditures  relating to any capital project that is not
     included in the  applicable  Capital  Budget unless such  expenditures  are
     required to comply with either a tariff for the  Business or a mandate by a
     Governmental Body (in either case,  "Mandated Capital  Expenditures").  For
     purposes  of  clarification,   Mandated  Capital  Expenditures  also  shall
     include, without duplication,  expenditures to purchase materials, supplies
     and other  capital  items that are dedicated to, but as of Closing have not
     been used in, mandated capital projects and other expenditures  relating to
     mandated  capital projects that are recorded as an asset of the Business as
     of  the  Closing  Date  to  the  extent  such   expenditures  are  normally
     recoverable through rates,  including all such expenditures recorded in the
     Preliminary  Survey and  Investigation  account of the Business.  If Seller
     becomes obligated to incur any Mandated Capital  Expenditures,  then Seller
     shall  provide  to Buyer a  written  description  of the  mandated  capital
     project to which the  expenditures  relate.  Seller  also shall  deliver to
     Buyer a copy of the 2002 Capital  Budget  promptly  after it is approved by
     the Board of  Directors  of Seller.  If at  Closing  Seller's  actual  2002
     capital expenditures for the Business through the day immediately preceding
     the Closing  Date are less than the capital  expenditures  proposed in such
     approved fiscal year 2002 Capital Budget,  then Seller nonetheless shall be
     deemed to have  complied  with this  Section  6.1(a)(6) if such actual 2002
     capital expenditures  reasonably  approximate an appropriate  proportion of
     such approved 2002 budgeted capital  expenditures in light of the number of
     months in 2002 that have  passed  prior to the  Closing  Date,  the project
     timelines  used by Seller to plan for and to complete the various  approved
     capital projects,  and other facts and circumstances  relating to when such
     approved capital  expenditures  should  reasonably be expected to have been
     incurred during the 2002 fiscal year;

                                       20
<PAGE>

          (7) Comply in all material respects with all applicable material Legal
     Requirements and Orders, including without limitation those relating to the
     filing of  reports  and the  payment  of Taxes due to be paid  prior to the
     Closing, other than those contested in good faith;

          (8) Except in the ordinary  course of business or in  accordance  with
     the terms of any existing Contract,  Employee Plan or collective bargaining
     agreement,  not grant any material increase or change in total compensation
     or benefits (taken as a whole) to any of the Transferred Employees or enter
     into any employment, severance or similar Contract with any Person or amend
     any such existing  Contracts to increase any amounts payable  thereunder or
     benefits provided  thereunder,  provided that Seller agrees to consult with
     Buyer  prior to  granting  any  increase in the  aggregate  recurring  cash
     compensation of the non-union  Transferred Employees by an amount in excess
     of three percent (3%) in any year;

          (9) Not terminate any Material Contract except in the case of a breach
     of such Contract by the other party thereto; or

          (10) Not create,  incur, assume,  guarantee or otherwise become liable
     with  respect  to any  indebtedness  for money  borrowed  other than in the
     ordinary  course of business (it being  understood and agreed that customer
     advances,  customer  deposits  and  construction  advances  do  not  create
     indebtedness  for money  borrowed),  except in connection  with  additional
     borrowings  under the Existing Loan  Documents and any renewal,  extension,
     rearrangement or refunding of any  indebtedness  created under or evidenced
     by the Existing  Loan  Documents,  and except  pursuant to advances made by
     Seller to the Business.

     (b) Access to the Business, Assets and Records; Updating Information.

          (1) From and after the date hereof and until the Closing Date,  Seller
     shall permit Buyer and its  Representatives  to have, on reasonable  notice
     and at reasonable times, reasonable access to all books, papers and records
     to the extent  that they  reasonably  relate to the  ownership,  operation,
     obligations  and  liabilities  of the  Business  and the Assets;  provided,
     however,  that  such  access  shall  not  unreasonably  interfere  with the
     operation of the Business; and provided,  further, that Buyer hereby agrees
     to defend,  indemnify and hold harmless  Seller from and against all Losses
     arising  out of or  relating to Buyer's  access  provided  pursuant to this
     Section 6.1(b)(1).  Without limiting the application of the Confidentiality
     Agreement, all documents or information furnished by Seller hereunder shall
     be subject to the Confidentiality Agreement.

          (2)  Seller  will  notify  Buyer as  promptly  as  practicable  of any
     significant  change in the ordinary course of business for the Business and
     of any material Proceedings  (Threatened or pending) involving or affecting
     the Business or the transactions  contemplated by this Agreement, and shall
     use reasonable efforts to keep Buyer fully informed of such events.

     (c) Consents. Seller will use its commercially reasonable efforts to obtain
all necessary  Consents from any Person required to consummate the  transactions
contemplated  hereby,  including  the Consent of any Person  required  under any
Legal Requirement or Contract applicable to the Business.

                                       21
<PAGE>

     Section 6.2  Covenants  of Buyer.  Buyer  agrees to observe and perform the
following covenants and agreements:

          (a) Consents.  Buyer will use its commercially  reasonable  efforts to
     assist Seller in obtaining all necessary  Consents from any Person required
     to consummate the transactions  contemplated hereby,  including the Consent
     of any Person required under any Legal  Requirement or Contract  applicable
     to the Business, and will use its commercially reasonable efforts to obtain
     all Consents listed in Schedule 4.2 or Schedule 4.3.

          (b) Access to Information.  After Closing,  Buyer will, and will cause
     its  Representatives to, afford to Seller,  including its  Representatives,
     reasonable access to all books, records, files and documents related to the
     Business in order to permit  Seller to prepare and file its tax returns and
     to prepare for and participate in any  investigation  with respect thereto,
     to prepare for and  participate in any other  investigation  and defend any
     Proceedings  relating  to or  involving  Seller or the  Business  for which
     Seller  may  be  responsible,  to  discharge  its  obligations  under  this
     Agreement and the other  Related  Documents to which its is a party and for
     other reasonable  purposes and will afford Seller reasonable  assistance in
     connection  therewith.  Buyer will cause such records to be maintained  for
     not less than seven  years from the  Closing  Date and will not  dispose of
     such records  without first  offering in writing to deliver them to Seller;
     provided,  however, that in the event that Buyer transfers all or a portion
     of the Business to any third party  during such period,  Buyer may transfer
     to such  third  party all or a portion  of the  books,  records,  files and
     documents related thereof,  provided such third party transferee  expressly
     assumes in writing the obligations of Buyer under this Section  6.2(b).  In
     addition,  on and after the Closing Date, at Seller's request,  Buyer shall
     make available to Seller and its Affiliates, employees, representatives and
     agents, those employees of Buyer requested by Seller in connection with any
     Proceeding,  including  to  provide  testimony,  to be  deposed,  to act as
     witnesses and to assist counsel; provided, however, that (x) such access to
     such employees shall not unreasonably  interfere with the normal conduct of
     the  operations  of Buyer  and (y)  Seller  shall  reimburse  Buyer for the
     allocated  time  charges  of such  employees  and the  out-of-pocket  costs
     reasonably incurred by Buyer in making such employees available to Seller.

          (c) Citizens  Guarantees and Surety  Instruments.  Buyer shall use its
     reasonable efforts to assist Seller in obtaining full and complete releases
     on the guarantees,  letters of credit,  bonds and other surety  instruments
     listed in Schedule 6.2(c). For purposes of this Section 6.2(c),  reasonable
     efforts shall include: (i) Buyer's assumption of the Contracts on the terms
     set forth in this Agreement; and (ii) an obligation on the part of Buyer to
     provide a guaranty,  letter of credit,  bond or other surety  instrument at
     Closing to the extent required by any Contract  assumed by Buyer at Closing
     and, in general,  an equivalent surety instrument to be substituted for any
     surety  instrument  provided by Citizens to any  beneficiary  in connection
     with the Business.

          (d) Other Covenants of Buyer.  Buyer agrees to submit to regulation by
     the Hawaii  Public  Utilities  Commission  to the same extent as such state
     regulatory  commission  currently  regulates  Seller in connection with the
     Business,  it being agreed that this covenant  shall  terminate and have no
     further effect upon Closing. Buyer also agrees to make no filings with such
     state regulatory commission or take any other action in connection with any
     Proceeding or Legal Requirement  relating to any other businesses conducted
     by Seller  that also are  subject to  regulation  by such state  regulatory
     commission.

                                       22
<PAGE>

          Section 6.3  Governmental Filings.

     (a) HSR Act Filing.  Buyer and Seller shall comply promptly with the notice
and  reporting  requirements  of the HSR Act.  Buyer  and  Seller  shall  comply
substantially with any additional  requests for information,  including requests
for  production  of documents  and  production  of witnesses  for  interviews or
depositions,  made by the Antitrust  Division of the United States Department of
Justice,  the  United  States  Federal  Trade  Commission  or the  antitrust  or
competition   law  authorities  of  any  other   jurisdiction   (the  "Antitrust
Authorities"). Buyer shall exercise its best efforts, and Seller shall cooperate
fully with Buyer, to prevent the entry in any Proceeding brought by an Antitrust
Authority or any Governmental Body which would prohibit,  make unlawful or delay
the  consummation of the  transactions  contemplated  by this Agreement.  Seller
shall not oppose any efforts of Buyer,  including  Buyer's proffer of consent to
any Order, to complete lawfully the transactions contemplated by this Agreement,
and shall  cooperate in good faith with Buyer and the Antitrust  Authorities  to
the same effect.

     (b) Other Regulatory Filings.  Buyer and Seller will, as soon as reasonably
practicable   following  the  Effective   Date,   prepare  and  file  with  each
Governmental  Body,  including  a  joint  application  with  the  Hawaii  Public
Utilities  Commission,  requests for such  Consents as may be necessary  for the
transfer of the Assets (including the transfer of Seller's franchise relating to
the Business) in accordance with the terms of this  Agreement.  Buyer and Seller
will  diligently  pursue such  Consents  and will  cooperate  with each other in
seeking such  Consents.  To this end, the parties  agree to make  available  the
personnel  and other  resources of their  respective  organizations  in order to
accomplish actions reasonably required by them to obtain all such Consents.

     Section 6.4  Citizens Marks. Buyer acknowledges and agrees with Seller that
Seller has the absolute and  exclusive  proprietary  right to all names,  marks,
trade names, trademarks and corporate symbols and logos incorporating "Citizens"
and "CZN"  (collectively and together with all other names,  marks, trade names,
trademarks  and  corporate  symbols  and  logos  owned by  Seller  or any of its
Affiliates,  the  "Citizens  Marks"),  all  rights  to  which  and the  goodwill
represented thereby and pertaining thereto are being retained by Seller.  Within
one hundred  eighty (180) days after the Closing  Date,  Buyer shall cease using
any Citizens  Mark and shall remove from the Assets any and all Citizens  Marks.
Thereafter, Buyer shall not use any Citizens Mark in connection with the sale of
any products or services or otherwise in the conduct of its  businesses.  In the
event that Buyer breaches this Section 6.4, Seller shall be entitled to specific
performance  of  this  Section  6.4 and to  injunctive  relief  against  further
violations,  as well as any  other  remedies  at law or in equity  available  to
Seller.

     Section 6.5  Acknowledgment  by Buyer.  In order to induce  Seller to enter
into and perform this Agreement and the Related  Documents,  Buyer  acknowledges
and agrees with Seller as follows:

     (a) To the knowledge of Buyer, Seller's representations and warranties made
in Article V are true and correct as of the  Effective  Date.  To the extent any
representation  or warranty of Seller made herein is, to the  knowledge of Buyer
acquired prior to the Effective Date, untrue or incorrect,  (i) Buyer shall have
no rights  under  this  Agreement  or any  Related  Documents  by reason of such
untruth or inaccuracy,  and (ii) any such  representation  or warranty by Seller
shall be deemed to be amended to the extent  necessary  to render it  consistent
with such knowledge of Buyer.

     (b) Other than any  additional  environmental  due diligence that Buyer may
conduct pursuant to Section 12.1 of this Agreement, Buyer has concluded whatever
inspections, studies, tests and investigations Buyer desired to conduct relating
to the Business and the Assets,  including  economic reviews and analyses,  soil
tests,   engineering  analyses,   environmental   analyses  (including  Phase  I
environmental  assessments of the Assets) and analyses of any applicable records
of any Governmental Body. Buyer is relying solely on its own investigation as to
the  Business  and the Assets and is assuming  the risk that  adverse  physical,
economic or other  conditions or  circumstances  (including soil and groundwater
conditions) may not have been revealed by such investigation.

     (c) NONE OF SELLER OR ANY OF ITS  AFFILIATES OR  REPRESENTATIVES  MAKES ANY
REPRESENTATION   OR  WARRANTY  AS  TO  THE  ACCURACY  OR   COMPLETENESS  OF  ANY
INFORMATION,  WRITTEN OR ORAL,  FURNISHED TO OR PREPARED AT THE REQUEST OF BUYER
OR ANY OF ITS AFFILIATES OR REPRESENTATIVES  WITH RESPECT TO THE BUSINESS OR THE
ASSETS.

                                       23

<PAGE>

     (d) THE  REPRESENTATIONS  AND  WARRANTIES  SET  FORTH IN  ARTICLE V OF THIS
AGREEMENT  CONSTITUTE THE SOLE AND EXCLUSIVE  REPRESENTATIONS  AND WARRANTIES OF
SELLER TO BUYER IN CONNECTION WITH THE TRANSACTIONS  CONTEMPLATED  HEREBY AND BY
THE  RELATED  DOCUMENTS  THERE ARE NO  REPRESENTATIONS,  WARRANTIES,  COVENANTS,
UNDERSTANDINGS OR AGREEMENTS,  ORAL OR WRITTEN,  IN RELATION THERETO BETWEEN THE
PARTIES  OTHER  THAN  THOSE  INCORPORATED  HEREIN  AND  THEREIN.  EXCEPT FOR THE
REPRESENTATIONS  AND  WARRANTIES  EXPRESSLY  SET  FORTH  IN  ARTICLE  V OF  THIS
AGREEMENT, BUYER DISCLAIMS RELIANCE ON ANY REPRESENTATIONS OR WARRANTIES, EITHER
EXPRESS  OR  IMPLIED,   BY  OR  ON  BEHALF  OF  SELLER  OR  ITS   AFFILIATES  OR
REPRESENTATIVES.  WITHOUT  LIMITING  THE  GENERALITY  OF  THE  FOREGOING,  BUYER
ACKNOWLEDGES AND AGREES THAT, EXCEPT AS PROVIDED IN SECTIONS 5.7, 5.11 AND 5.14,
THERE ARE NO  REPRESENTATIONS  OR  WARRANTIES  OF  SELLER  WITH  RESPECT  TO THE
CONDITION OF THE ASSETS,  COMPLIANCE WITH  ENVIRONMENTAL  LAWS AND ENVIRONMENTAL
PERMITS OR THE  PRESENCE  OR  RELEASES OF  HAZARDOUS  MATERIAL IN THE  FIXTURES,
SOILS,  GROUNDWATER,  SURFACE WATER OR AIR ON, UNDER OR ABOUT OR EMANATING  FROM
ANY OF THE PROPERTIES OR ASSETS OF SELLER.

     Section 6.6  Transition Plan. If Buyer and Seller have not already done so,
then (i) within 30 days after the Effective Date,  Buyer shall deliver to Seller
a list of its proposed  representatives  to a joint transition team, which shall
include expertise from various functional  specialties associated or involved in
providing  billing,  payroll and other support services provided to the Business
by any automated or manual  process using  facilities or employees  that are not
included among the Assets or Transferred Employees, and (ii) Seller will add its
representatives  to such team within 15 days after receipt of Buyer's list. Such
team will be responsible for preparing as soon as reasonably  practicable  after
the Effective  Date and at least 60 days prior to the Closing  Date,  and timely
implementing,  a transition plan which will identify and describe  substantially
all of the various  transition  activities  that the parties will cause to occur
before and after the Closing and any other transfer of control  matters that any
party reasonably believes should be addressed in such transition plan, including
the  migration  or  conversion  of the data  relating  to the  Business  that is
included among the Assets to Buyers information systems (it being understood and
agreed  that such  activity  will be at Buyer's  sole cost and expense and to be
performed by consultants  reasonable  satisfactory  to Seller).  If requested by
either party, the terms and conditions governing such transition activities will
be more fully set forth in a Transition Agreement reasonably satisfactory to the
parties.  If the parties  have not already  done so, then Buyer and Seller shall
use their commercially reasonable efforts to cause their Representatives on such
transition  team to  cooperate  in good  faith  and  take all  reasonable  steps
necessary to develop a mutually acceptable  transition plan by no later than 120
days after the Effective Date.

                                       24
<PAGE>

     Section 6.7 IDRB Obligations.

     (a)  Buyer's   Obligations   Regarding   IDRB   Indebtedness.   Each  party
acknowledges that (x) Seller is and on and after the Closing Date shall continue
to be and shall remain the primary obligor with respect to all IDRB Indebtedness
and related Bonds  outstanding  immediately on and after the Closing Date to the
same  extent as though no sale of the Assets had been made and that Buyer  shall
have no payment  obligations with respect to such IDRB  Indebtedness and related
Bonds  and (y) the IDRB  Documents  require  Seller  not to take or permit to be
taken any action  which  would  have the  effect,  directly  or  indirectly,  of
subjecting the interest on any of the Bonds to federal or state income taxation.
Accordingly,  Buyer  covenants  and agrees at Closing to execute  and deliver to
Seller an agreement  substantially  in the form attached  hereto as Exhibit 6.7,
with  respect to the Bonds  that will be  outstanding  on and after the  Closing
Date.  Buyer  represents,  warrants,  covenants and agrees,  that so long as any
Bonds are  outstanding,  (a) as the  "successor  in interest" to Seller (as such
term is used in Section  142(f)(3)(B)  of the IRC),  Buyer will cause the Assets
that were acquired, constructed,  improved or equipped with the proceeds of such
Bonds to be used as  facilities  for the local  furnishing  of  electric  energy
within  the  meaning  of  Sections  142(a)(8)  and  142(f)  of the  IRC  or,  if
applicable,  Section  103(b)(4)(E)  of the  Internal  Revenue  Code of 1954,  as
amended (that is, the local furnishing of electric energy from such Assets shall
only include  furnishing solely within the area consisting of (i) a city and one
contiguous county, or (ii) two contiguous counties; provided that such use shall
be to  provide  service  within  the same  service  area as  served by Seller on
January 1, 1997 (or within a county or a city any potion of which is within such
area)),  (b)  Buyer  has not made and shall  not make an  election  pursuant  to
Section  142(f)(4)(B) of the IRC to terminate tax-exempt bond financing by Buyer
and (c) Buyer  shall not  otherwise  take or permit to be taken any action  with
respect to the Assets and its use and  operation  thereof  which  would have the
effect,  directly or indirectly,  of subjecting interest on any of such Bonds to
federal or state income  taxation.  Buyer  acknowledges and agrees that Seller's
bond counsel may rely on Buyer's  representations,  warranties  and covenants as
hereinabove provided for the purpose of rendering legal opinions, as required by
the IDRB  Documents as a precondition  to the sale by Seller of such Assets,  to
the effect that the sale of such Assets will not result in the  inclusion of the
interest  on the Bonds in the gross  income of the  recipient  for  purposes  of
federal income  taxation.  Nothing in this Agreement is intended to nor shall it
be  interpreted  as (i) an assignment to, and assumption by, Buyer of any of the
IDRB  Documents,  or (ii) as an  undertaking  or  agreement  by Buyer to assume,
guarantee or pay any of Seller's loan or other payment  obligations  pursuant to
the IDRB Documents.

     (b) Consents and Legal  Opinions.  The parties  shall use their  respective
commercially reasonable efforts to obtain all Consents and legal opinions as may
be required  under the IDRB  Documents to enable Seller to retain until maturity
the IDRB  Indebtedness  and to sell the Assets to Buyer  without the result that
the interest on the Bonds will be included in the gross income of the  recipient
for purposes of federal income taxation.

                                       25
<PAGE>

                                   ARTICLE VII
                              CONDITIONS PRECEDENT

     Section 7.1  Seller's Conditions  Precedent to Closing.  The  obligation of
Seller to consummate the  transactions  contemplated  by this Agreement shall be
subject to fulfillment prior to the Closing of the following conditions:

     (a)  Representations  and Warranties  True as of the Closing Date.  Buyer's
representations  and  warranties  in this  Agreement  shall  have  been true and
correct in all material  respects as of the Effective Date and shall be true and
correct  in all  material  respects  as of the  Closing  Date  as if made on the
Closing Date,  subject to changes  expressly  contemplated and permitted by this
Agreement,  except that representations and warranties made as of, or in respect
of, only a specified  date or period  shall be true and correct in all  material
respects as of, or in respect of, such date or period.

     (b) Compliance with  Agreements.  The covenants,  agreements and conditions
required by this Agreement to be performed and complied with by Buyer shall have
been  performed  and complied with in all material  respects  prior to or at the
Closing Date.

     (c) Certificate. Buyer shall execute and deliver to Seller a certificate of
an  authorized  officer  of Buyer,  dated the  Closing  Date,  stating  that the
conditions  specified in Sections  7.1(a) and 7.1(b) of this Agreement have been
satisfied.

     (d) Governmental  Approvals and Other Consents. The Hawaii Public Utilities
Commission  shall have issued an Order approving the  transactions  contemplated
hereby,  the terms and  conditions  of such  Order  shall be  acceptable  in all
material  respects  to Seller in its  reasonable  discretion  and shall  have no
significant adverse effect on Seller's acquisition and divestiture activities in
the State of Hawaii  (including the  divestiture of the Assets),  and such Order
shall have  become a Final  Order.  Seller  also shall have  obtained  all other
Consents of Governmental Bodies and other Persons which are required in order to
consummate the  transactions  contemplated  hereby and to transfer the Assets to
Buyer without incurring material liability under any Legal Requirement, Order or
Contract.

     (e) HSR Act. The  applicable  waiting period under the HSR Act with respect
to the  transactions  contemplated  hereby  shall  have  expired  or  have  been
terminated.

     (f)  Injunctions.  On the  Closing  Date,  there  shall be no Orders  which
operate  to  restrain,  enjoin or  otherwise  prevent  the  consummation  of the
transactions contemplated by this Agreement.

     (g) Opinion of Counsel.  On the Closing  Date,  Seller shall have  received
from counsel to Buyer an opinion in the form of Exhibit 7.1(g).

     (h)   Documents.   Buyer  shall  have   delivered  all  the   certificates,
instruments,  contracts  and other  documents  specified  to be  delivered by it
hereunder  prior to the Closing  Date,  including  pursuant to Section  8.1, and
shall have taken such actions as Seller may have  requested  pursuant to Section
11.2 hereof.

     (i) IDRB  Indebtedness.  Seller shall have  obtained all Consents and legal
opinions  required  under the IDRB Documents to enable Seller to retain the IDRB
Indebtedness until maturity,  and to sell the Assets to Buyer without the result
that the  interest on any of the Bonds will be  included in the gross  income of
the recipient for purposes of federal  income  taxation and without any event of
taxability   (as  such  term  is  customarily   used  in  municipal   securities
transactions)  arising from the sale of the Assets  pursuant to this  Agreement,
and  Buyer  shall  have  duly  executed  and  delivered  all of the  instruments
contemplated by Section 6.7(a).

                                       26
<PAGE>

     Section 7.2  Buyer's Conditions  Precedent to Closing.  The  obligation  of
Buyer to consummate the  transactions  contemplated  by this Agreement  shall be
subject to fulfillment prior to the Closing of the following conditions:

     (a)  Representations  and Warranties True as of the Closing Date.  Seller's
representations  and  warranties  in this  Agreement  shall  have  been true and
correct in all material  respects as of the Effective Date and shall be true and
correct  in all  material  respects  as of the  Closing  Date  as if made on the
Closing Date,  subject to changes  expressly  contemplated and permitted by this
Agreement;  except (i) that  representations  and  warranties  made as of, or in
respect  of, only a  specified  date or period  shall be true and correct in all
material respects as of, or in respect of, such date or period,  and (ii) to the
extent that any failure of such  representations  and  warranties to be true and
correct  as  aforesaid  when  taken in the  aggregate  would not have a Material
Adverse Effect.

     (b) Compliance with  Agreements.  The covenants,  agreements and conditions
required by this Agreement to be performed and complied with by
Seller shall have been performed and complied with in all material respects
prior to or at the Closing Date, except where the failure to so perform or
comply when taken in the aggregate would not have a Material Adverse Effect.

     (c) Certificate. Seller shall execute and deliver to Buyer a certificate of
an  authorized  officer of Seller,  dated the  Closing  Date,  stating  that the
conditions  specified in Sections  7.2(a) and 7.2(b) of this Agreement have been
satisfied.

     (d) Governmental  Approvals.  The Hawaii Public Utilities  Commission shall
have issued an Order approving the transactions  contemplated hereby, such Order
shall not contain any restrictions or conditions  (other than those in effect on
the Effective Date or requiring  that the  regulatory  treatment with respect to
the Business in  existence  as of the  Effective  Date  applicable  to Seller be
continued following the Closing) which would have a Material Adverse Effect, and
such Order shall have  become a Final  Order.  In  addition,  Seller  shall have
obtained all other Consents of  Governmental  Bodies and other Persons which are
required in order to consummate the transactions  contemplated hereby other than
those the failure of which to obtain would not have a Material Adverse Effect.

     (e) HSR Act. The  applicable  waiting period under the HSR Act with respect
to the  transactions  contemplated  hereby  shall  have  expired  or  have  been
terminated.

     (f)  Injunctions.  On the  Closing  Date,  there  shall be no Orders  which
operate  to  restrain,  enjoin or  otherwise  prevent  the  consummation  of the
transactions contemplated by this Agreement.

     (g) Opinion of Counsel. On the Closing Date, Buyer shall have received from
L. Russell Mitten,  Vice President and General Counsel of Seller,  an opinion in
the form of Exhibit 7.2(g) hereto.

     (h)  Documents.  Seller  shall  have  delivered  all of  the  certificates,
instruments,  contracts  and other  documents  specified  to be  delivered by it
hereunder,  including  pursuant to Section 8.1, and shall have made arrangements
reasonably  satisfactory to Buyer to deliver to Buyer as promptly as practicable
after the  Closing  such  records  (including  customer  and  employee  records)
necessary to own and operate the Business.

     (i) No Material  Adverse  Change.  Since the  Effective  Date,  no Material
Adverse Effect shall have occurred that has continuing  effect as of the Closing
Date.

                                       27
<PAGE>
                                  ARTICLE VIII
                                     CLOSING

     Section 8.1  Closing.  The closing of the  purchase  and sale of the Assets
(the "Closing") will take place at the offices of Fleischman and Walsh,  L.L.P.,
1400 Sixteenth  Street,  N.W., Suite 600,  Washington,  D.C. 20036, on the first
calendar  day  of the  month  immediately  following  the  month  in  which  the
conditions  specified in Sections 7.1(d) and 7.2(d) have been satisfied,  unless
another time, date and place is agreed to in writing by the parties. The date of
the  Closing  is  referred  to in this  Agreement  as the  "Closing  Date."  The
transactions  to be consummated on the Closing Date shall be deemed to have been
consummated  as of 12:01 a.m. on the Closing  Date. At the Closing the following
events shall occur, each event being deemed to have occurred simultaneously with
the other events.

     (a) Bill of Sale.  Seller and Buyer  shall  execute and deliver the Bill of
Sale and  Assignment  and  Assumption  Agreement  in the form of Exhibit  8.1(a)
hereto (the "Bill of Sale").

     (b) Payment of Purchase Price.  Buyer will pay to Seller an amount equal to
the Estimated  Purchase Price by wire  transferring such amount, in lawful money
of the United States of America in immediately  available funds, to such account
as Seller shall have  designed by notice to Buyer.  If the Closing Date is not a
business day on which financial institutions are open and operating,  then on or
before  the last  business  day on  which  financial  institutions  are open and
operating  before the Closing Date,  Buyer shall deliver the Estimated  Purchase
Price to Buyer's lead bank (the "Escrow  Agent") in immediately  available funds
in U.S.  dollars.  Upon  receipt,  the Escrow Agent shall  invest the  Estimated
Purchase Price in an interest-bearing account mutually agreed upon by Seller and
Buyer.  At Closing,  Buyer  shall sign and  deliver to Seller a statement  which
confirms  that the Closing has occurred and which  instructs the Escrow Agent to
transfer to Seller the funds  representing the Estimated Purchase Price, plus an
amount  representing the interest earned on and after the Closing Date until the
date the funds are  transferred,  to an account that Seller  shall  designate at
least two (2)  business  days  prior to the date the funds  are  required  to be
transferred  hereunder.  The Escrow Agent shall refund the balance to Buyer. The
fees and expenses of Escrow Agent shall be paid equally by Seller and Buyer.

     (c)  Other  Related  Documents.  To the  extent  consistent  with the other
provisions of this Agreement,  Seller (or the  appropriate  Affiliate of Seller)
and Buyer shall  execute and deliver  such other  Related  Documents  (including
special warranty deeds,  conveyances,  certificates of title,  bills of sale and
assignment and assumption  instruments) reasonably requested by a party that are
necessary in order to satisfy any applicable Legal Requirements  relating to the
transfer of the Assets to Buyer or the assumption of the Assumed  Liabilities by
Buyer or which  are  customarily  given in the  State of  Hawaii  to  accomplish
transfers of assets of the type  involved;  provided,  however,  that nothing in
this clause (c) shall  obligate  Seller or any Affiliate of Seller to execute or
deliver any  document  that  affects,  in a manner  adverse to Seller,  Seller's
liability to Buyer as expressed herein and in the Bill of Sale.

     (d) IDRB Indebtedness.  Buyer and Seller shall execute and deliver the IDRB
Obligations  Agreement   contemplated  by  Section  6.7(a)  to  the  extent  not
previously executed and delivered by Buyer and Seller.

                                       28
<PAGE>

                                   ARTICLE IX
                                   TERMINATION

     Section 9.1  Termination  Rights.  This  Agreement may be terminated in its
entirety at any time prior to the Closing:

     (a) By the mutual written agreement of Seller and Buyer;

     (b) By Buyer, on the one hand, or Seller,  on the other hand, in writing if
there shall be in effect a  nonappealable  Order  prohibiting  the  transactions
contemplated by this Agreement;

     (c) By  Buyer,  upon  the  breach  in any  material  respect  of any of the
representations  and warranties of Seller  contained herein or in the failure by
Seller to perform and comply in any material  respect with any of the agreements
and  obligations  required by this Agreement to be performed or complied with by
Seller, provided that such breach or failure is reasonably likely to result in a
Material  Adverse Effect and is not cured or otherwise  addressed by Seller in a
manner  reasonably  acceptable to Buyer within 30 days of Seller's  receipt of a
written  notice  from  Buyer  that such a breach or  failure  has  occurred  (or
significant  efforts have not been commenced to cure such  misrepresentation  or
breach if it is  susceptible  to cure but not capable of being cured within such
30 days);

     (d) By  Seller,  upon the  breach  in any  material  respect  of any of the
representations and warranties of Buyer contained herein or the failure by Buyer
to perform and comply in any  material  respect with any of the  agreements  and
obligations  required by this  Agreement  to be  performed  or complied  with by
Buyer,  provided that such breach or failure is not cured or otherwise addressed
by Buyer in a manner  reasonably  acceptable to Seller within 30 days of Buyer's
receipt  of a written  notice  from  Seller  that such a breach or  failure  has
occurred  (or  significant   efforts  have  not  been  commenced  to  cure  such
misrepresentation  or breach if it is  susceptible  to cure but not  capable  of
being cured within such 30 days);

     (e) By either  party in  writing if the  Closing  has not  occurred  within
twelve (12) months after the Effective Date; provided,  however,  that the right
to terminate this  Agreement  under this Section 9.1(e) will not be available to
any  party  that  is in  material  breach  of its  representations,  warranties,
covenants or agreements contained herein; provided, however, that if Closing has
not occurred  within such period of time,  then Seller shall have the unilateral
right to  extend  such  period  of time by a further  six (6)  months,  and upon
Seller's exercise of such right, such period of time shall be so extended;

     (f) By Seller or Buyer,  as  appropriate,  if any  Governmental  Body whose
Consent is  required to fulfill a  condition  precedent  to Closing set forth in
Section  7.1(d) (with  respect to Seller) or in Section  7.2(d) (with respect to
Buyer) has  affirmatively  indicated that such Consent will not be given or will
contain terms or  conditions  (or, if such Consent has been  obtained,  contains
terms or  conditions)  that, in the  reasonable  business  judgment of Seller or
Buyer, as appropriate, will result in a condition precedent to Closing set forth
in Section 7.1(d) (with respect to Seller) or in Section 7.2(d) (with respect to
Buyer) not being satisfied; or

                                       29
<PAGE>

     (g) By Seller if Buyer  shall  have  failed  to pay the  Purchase  Price at
Closing or if Seller reasonably  concludes that Buyer does not have available to
it committed sources of funding with which to pay the Purchase Price.

     Section 9.2  Limitation on Right to Terminate; Effect of Termination.

     (a) A party  shall not be  allowed  to  exercise  any right of  termination
pursuant to Section 9.1 if the event giving rise to the termination  right shall
be due to the willful  failure of such party seeking to terminate this Agreement
to perform or observe in any material respect any of the covenants or agreements
hereof to be performed or observed by such party.

     (b) If this  Agreement is terminated  as permitted  under Section 9.1, such
termination shall be without liability of or to any party to this Agreement,  or
any shareholder or Representative of such party; provided, however, that if such
termination  shall  result  from the  willful  failure of any party to fulfill a
condition to the performance of any other party or to perform a covenant of this
Agreement or from a material and willful  breach by any party to this  Agreement
(it being understood that the failure to cure a breach shall not, by itself,  be
a willful  breach of this  Agreement),  then such party  shall  (subject  to the
limitation  set forth in the last  sentence  of this  Section  9.2(b))  be fully
liable for any and all damages  sustained  or incurred  by the other  party.  If
prior to Closing either party to this Agreement  resorts to legal proceedings to
enforce  this  Agreement,  the  prevailing  party in such  proceedings  shall be
entitled  to  recover  all costs  incurred  by such party  including  reasonable
attorney's  fees,  in  addition  to any other  relief to which such party may be
entitled;  provided,  however,  and notwithstanding  anything to the contrary in
this  Agreement,  in no event  shall  either  party be  entitled  to receive any
punitive, indirect or consequential damages.

                                    ARTICLE X
                                EMPLOYEE MATTERS

     Section 10.1  Employment of Transferred Employees.

     (a) Schedule  10.1 lists the total number of salaried and hourly,  nonunion
and union, employees actively employed as of the Effective Date by Seller or its
Affiliates whose primary duties relate to the Business ("Active Employees").  As
of the Closing Date,  Buyer shall employ all Active Employees of Seller employed
in  the  Business  being  acquired  ("Transferred  Employees")  in the  same  or
substantially   equivalent  positions,   and  at  the  same  compensation  level
(including wages,  salary and bonuses) as were in effect with Seller immediately
prior to the Closing  Date.  For  purposes of the  preceding  sentence,  "Active
Employees"  shall include all full-time  and part-time  employees,  employees on
military leave, maternity leave, leave under the Family and Medical Leave Act of
1993, on short-term  disability,  on layoff with recall rights, and employees on
other  leaves  of  absences  where  there  is a legal  or  contractual  right to
reinstatement.

                                       30
<PAGE>

     (b) Prior to the  Effective  Date,  Seller has delivered to Buyer a list of
the  persons who would have been  Transferred  Employees  had the  Closing  Date
occurred on September 30, 2001, showing the following  information for each such
person:  (i) the name of each such  person;  (ii) the name of his or her current
employer; (iii) his or her current base pay and 2000 bonus; (iv) his or her hire
date,  any  rehire  date (if  available)  and years of  service;  (v) his or her
then-current  position and job title; (vi) whether such employee is subject to a
collective  bargaining  agreement or represented by a labor organization and, if
so, the name of the union and local,  (vii) whether such employee is on military
leave,  maternity  leave,  leave under the Family and Medical Leave Act of 1993,
short-term  disability,  on layoff  with  recall  rights,  or on other  leave of
absence with a legal or contractual right to reinstatement.  Seller shall update
such list  reflecting  such  information  as of a date not more than thirty (30)
days prior to the Closing  Date and deliver  such updated list to Buyer at least
ten (10) days prior to the Closing Date.

     Section 10.2  Assumption of Collective Bargaining Agreement Obligations. On
and after the Closing Date, Buyer, shall assume all of the Seller's  obligations
under, and be bound by the provisions of, each collective  bargaining  agreement
to the extent of provisions  covering  Transferred  Employees.  Each  collective
bargaining  agreement  shall be  identified on a Schedule 10.2 to be prepared by
Seller and submitted to Buyer prior to the Closing Date.  Seller shall cooperate
with Buyer in Buyer's  efforts to contact  the unions  representing  Transferred
Employees.

     Section 10.3  Cessation of Participation  in Seller's  Plans;  Proration of
Bonuses. From and after the Closing Date,  Transferred Employees shall accrue no
additional  benefits  under  any  employee  benefit  plan,  policy,  program  or
arrangement  of Seller or its  Affiliates.  Seller and Buyer shall  pro-rate the
obligation  to pay any bonuses  declared by Seller on or after the Closing  Date
that would have been payable to the  Transferred  Employees had the  Transferred
Employees remained employed by Seller or its Affiliates  throughout the calendar
year in which the Closing Date occurs,  in accordance with the provisions of any
policy,  plan,  practice or  arrangement  of Seller under which such bonus would
have been paid.  Buyer shall be obligated to pay that portion of each such bonus
determined by multiplying the amount of such bonus by a fraction,  the numerator
of which is the number of days from and after the Closing  Date  through the end
of the calendar year in which the Closing Date occurs,  and the  denominator  of
which is 365.

     Section 10.4  Similarity of Benefit  Packages.  As of the Closing Date, and
except as otherwise  expressly  provided in this Article X, Buyer shall  include
each Transferred  Employee in a benefit package  providing  benefits that are in
the  aggregate  substantially  similar  to  those  provided  by  Seller  to such
Transferred Employees immediately prior to the Closing Date. Notwithstanding the
foregoing, to the extent that one or more collective bargaining agreements being
assumed by Buyer  contains  provisions  pertaining to employee  benefits,  Buyer
shall provide the Transferred Employees covered by such agreements with benefits
that  are  consistent  with  the  terms  of  such  agreements  or are  otherwise
acceptable to the  applicable  Union.  For purposes of the  preceding  sentence,
Buyer's  401(k) Plan (as defined in Section 10.6) shall not be deemed to fail to
provide benefits that are consistent with the terms of the applicable collective
bargaining   agreement   merely  by  reason  of  the  fact  that  (i)   matching
contributions  under  Buyer's  401(k) Plan are made in cash rather than employer
stock, (ii) Buyer's 401(k) Plan offers comparable, but not identical, investment
options to the  investment  options  (other than employer  stock) under Seller's
401(k)  Plan,  and (iii)  Buyer's  401(k) Plan  employs a different  third-party
administrator than Seller's 401(k) Plan. Except as otherwise  expressly provided
in this  Article X, Buyer shall treat all service and  compensation  credited to
each such  Transferred  Employee as if such  service and  compensation  had been
rendered to, and paid by, Buyer for all purposes  under Buyer's  benefit  plans,
arrangements, and policies.

                                       31
<PAGE>

     Section  10.5  Defined  Benefit  Pension  Plan.  Seller  shall  retain  all
liabilities and assets for pension  benefits accrued through the day immediately
preceding the Closing Date by Transferred  Employees under the Citizens' Pension
Plan (the "Seller's Pension Plan"). Buyer shall cause all Transferred  Employees
to be  included  in Buyer's  defined  benefit  plan to be  established  prior to
Closing ("Buyer's Pension Plan") providing  benefits no less valuable than those
provided in Seller's  Pension  Plan.  Buyer shall take all actions  necessary to
cause  Buyer's  Pension  Plan to  recognize  the  service  that all  Transferred
Employees  had under  Seller's  Pension  Plan for  purposes  of such  Employees'
eligibility to participate,  vesting, attainment of retirement dates, subsidized
benefits,  entitlement  to  optional  forms of  payment,  and  benefit  accrual;
provided,  however, that a Transferred  Employee's benefit under Buyer's Pension
Plan shall be offset by his or her accrued benefit under Seller's  Pension Plan,
such  offset  amount to be based on the benefit  that would have been  available
with respect to such  Transferred  Employee under the terms of Seller's  Pension
Plan had  such  Seller's  Pension  Plan  benefit  commenced  on the  Transferred
Employee's annuity starting date under Buyer's Pension Plan and been paid in the
same form as the benefit paid under Buyer's Pension Plan.

     Section 10.6 401(k) Plan. Seller shall vest Transferred  Employees in their
account balances under Citizens 401(k) Savings Plan ("Seller's  401(k) Plan") as
of the Closing Date. Buyer shall take all action necessary to ensure that, as of
the Closing Date, it includes all  Transferred  Employees in a qualified  401(k)
plan  ("Buyer's  401(k)  Plan")  providing for matching  contributions  at least
equivalent in value to those provided to the Transferred Employee under Seller's
401(k) Plan immediately  prior to the Closing Date. Buyer shall take all actions
necessary to cause  Buyer's  401(k) Plan (i) to  recognize  the service that the
Transferred  Employees had in Seller's  401(k) Plan for purposes of  determining
such Employees'  eligibility to participate,  vesting,  attainment of retirement
dates, contribution levels and, if applicable, eligibility for optional forms of
benefit payments,  and (ii) to accept  direct-rollover  transfers of Transferred
Employees' account balances in Seller's 401(k) Plan, including transfers of loan
balances and related promissory notes.

     Section 10.7  Welfare Benefits.

     (a) Buyer shall take all action  necessary and  appropriate to ensure that,
on and after the Closing Date, Buyer maintains medical, health, dental, flexible
spending account,  accident,  life, short-term disability,  long-term disability
and  other  employee  welfare  benefit  plans  for the  benefit  of  Transferred
Employees that, in the case of nonunion Transferred  Employees are substantially
similar to those  benefits  provided by Seller under its  corresponding  welfare
benefit plans as in effect  immediately  prior to the Closing Date (the "Buyer's
Nonunion Welfare  Plans"),  and in the case of union  Transferred  Employees are
consistent with the terms of the applicable  collective  bargaining agreement or
are otherwise acceptable to the applicable Union (the "Buyer's Bargained Welfare
Plans").  The Buyer's Nonunion Welfare Plans and the Buyer's  Bargained  Welfare
Plans are hereinafter referred to collectively as the "Buyer Welfare Plans." For
purposes of determining eligibility to participate, and entitlement to benefits,
in each Buyer Welfare Plan,  each  Transferred  Employee  shall be credited with
service,   determined  under  the  terms  of  the  corresponding  welfare  plans
maintained by Seller immediately prior to the Closing Date (hereinafter referred
to collectively as the "Seller Welfare Plans"). Any restrictions on coverage for
pre-existing  conditions,  actively at work requirements,  waiting periods,  and
requirements for evidence of insurability under the Buyer Welfare Plans shall be
waived in the Buyer Welfare Plans for  Transferred  Employees,  and  Transferred
Employees  shall receive  credit under the Buyer Welfare Plans for  co-payments,
payments under a deductible limit made by them, and for  out-of-pocket  maximums
applicable to them during the plan year of the Seller  Welfare Plan in which the
Closing Date occurs. As soon as practicable on or after the Closing Date, Seller
shall  deliver to Buyer a list of the  Transferred  Employees  who had  credited
service  under a Seller  Welfare  Plan,  together  with  each  such  Transferred
Employee's  service,  co-payment,  deductible and out-of-pocket  payment amounts
under such plan.

                                       32
<PAGE>

     (b) Buyer shall provide or cause to be provided  retiree  medical,  dental,
and life benefits to each retiree of the Business identified in Schedule 10.7 as
updated as of the Closing Date (the "Retirees") and to each Transferred Employee
who is considered to be a  "grandfathered  employee"  (as  hereinafter  defined)
under the same terms and  conditions  as applied to such Retiree or  Transferred
Employee  immediately  prior to the  Closing  Date,  and  Seller  shall  have no
obligation or liability,  contingent or otherwise,  to provide retiree  medical,
dental or life benefits to any such Retiree or Transferred  Employee on or after
the Closing Date. For purposes of this Section 10.7, a "grandfathered  employee"
is a union or nonunion  Transferred  Employee  who met "Rule 55"  (meaning  such
employee's age plus years of service equaled or exceeded  fifty-five (55)) as of
November 30,  1998.  Schedule  10.7  identifies,  as of December 31, 2001,  each
Retiree and each Active Employee who is a "grandfathered employee." Seller shall
update and deliver to Buyer an updated Schedule 10.7  concurrently with Seller's
updating and delivery to Buyer of the updated list required by Section  10.1(b).
Buyer agrees not to terminate or materially modify those post-retirement benefit
provisions  covering  "grandfathered"  Transferred  Employees,  Retirees,  their
spouses and dependents that are in effect immediately prior to the Closing Date.

     (c)  Within  sixty  (60) days  after the  Closing  Date,  Seller  agrees to
transfer to an exempt trust  established by Buyer under Section 501(c)(9) of the
IRC ("Buyer's VEBA") the amount held under any trust established by Seller under
Section  501(c)(9) of the IRC ("Seller's VEBA") to fund  post-retirement  health
care  and  life  insurance  benefits  for the  Business.  Such  amount  shall be
determined  based upon the  records of Seller  and any third  Person  engaged by
Seller to administer Seller's VEBA. Buyer agrees that Buyer's VEBA will apply an
amount at least equal to the sum of the assets  transferred  from  Seller's VEBA
(and  earnings  thereon  calculated  at the rate of return  generated by Buyer's
VEBA) to provide  post-retirement health care and life insurance benefits on and
after the Closing  Date to the  Retirees  and, as  applicable,  the  Transferred
Employees who become  eligible for such benefits  after  Closing.  Upon Closing,
Buyer  shall  be   responsible   for  all   obligations  of  Seller  to  provide
post-retirement  health care and life  insurance  benefits  to such  Transferred
Employees  and  Retirees,  and Seller and Seller's  VEBA shall cease to have any
liability, contingent or otherwise, for such benefits.

     Section 10.8  Flexible Spending Accounts.  Within sixty (60) days after the
Closing  Date,  Seller  shall  transfer to Buyer's  flexible  benefits  plan any
balances standing to the credit of Transferred Employees under Seller's flexible
benefits plan as of the date  immediately  prior to the Closing Date. As soon as
practicable  after the Closing  Date,  Seller  shall  provide to Buyer a list of
those  Transferred  Employees that have  participated in the health or dependent
care reimbursement accounts of Seller,  together with their elections made prior
to the Closing Date with respect to such account, and balances standing to their
credit as of the date immediately prior to the Closing Date.

     Section 10.9  Employment Agreements.  Buyer shall assume all obligations of
each employment agreement to which Seller or its Affiliates is a party and which
covers any Transferred Employee immediately prior to the Closing Date.

     Section  10.10  Vacation.  Seller shall pay to  Transferred  Employees  any
"banked"  vacation  credited to them prior to the Closing Date. On and after the
Closing Date,  Buyer shall provide to each Transferred  Employee  vacation in an
amount equal to the Transferred  Employee's vacation entitlement for the year of
the  Closing  reduced  by the  number of  vacation  days  that such  Transferred
Employee has taken prior to the Closing.

                                       33
<PAGE>

     Section 10.11 Severance. In the event that Buyer terminates the services of
any Transferred  Employee within  twenty-four  (24) months following the Closing
Date  without  cause,  Buyer  shall  provide  to any such  Transferred  Employee
severance or separation pay benefits that are at least equal to the severance or
separation pay benefits that would have been paid by Seller had Seller continued
to employ such Transferred  Employee through the period ending on the employee's
date of termination  from Buyer,  based on Seller's  severance or separation pay
program at the Closing Date; provided,  however, that if a collective bargaining
agreement that is applicable to a union Transferred Employee would provide for a
greater benefit to be paid by Buyer,  the terms and conditions of such agreement
shall instead be applicable.

     Section  10.12  Plant Closing  Notice.  Upon not less than 60 days' written
notice from Buyer of Buyer's then present intention to terminate any Transferred
Employees  after the Closing,  Seller shall give any notice required to be given
by Seller under Chapter 394B, Hawaii Revised Statutes,  as amended.  Buyer shall
have the right to review and approve  such notice  prior to Seller's  release of
the same.  Seller  shall not be  obligated  to provide any notice if in Seller's
reasonable opinion,  after consultation with counsel and with Buyer, such action
(including  the  content of such  notice)  reasonably  could  result in Seller's
violation of any Legal Requirement or Order.

                                   ARTICLE XI
                                   TAX MATTERS

     Section 11.1  Purchase Price Allocation.  Prior to the Closing Date,  Buyer
and Seller shall use their good faith efforts to agree upon the allocation  (the
"Allocation") of the Purchase Price, the Assumed  Liabilities and other relevant
items  (including,  for  example,  adjustments  to the  Purchase  Price)  to the
individual assets or classes of assets within the meaning of Section 1060 of the
IRC. If Buyer and Seller agree to such  Allocation  prior to Closing,  Buyer and
Seller  covenant  and agree  that (i) the values  assigned  to the assets by the
parties' mutual  agreement  shall be conclusive and final for all purposes,  and
(ii)  neither  Buyer nor Seller will take any position  before any  Governmental
Body or in any Proceeding that is in any way inconsistent  with such Allocation.
Notwithstanding  the  foregoing,   if  Buyer  and  Seller  cannot  agree  to  an
Allocation,  Buyer and Seller  covenant  and agree to file,  and to cause  their
respective Affiliates to file, all Tax Returns and schedules thereto (including,
for example,  amended  returns,  claims for refund,  and those returns and forms
required under Section 1060 of the IRC and any Treasury regulations  promulgated
thereunder) consistent with each of such party's good faith Allocations,  unless
otherwise required because of a change in any Legal Requirement.

                                       34
<PAGE>
     Section 11.2  Cooperation with Respect to Like-Kind Exchange.  Buyer agrees
that Seller may, at Seller's election prior to the Closing Date, direct that all
or a portion of the Purchase  Price be  delivered to a "qualified  intermediary"
(as defined in Treasury Regulation  ss.1.1031(k) - (g)(4)) as to enable Seller's
relinquishment  of the  Assets to  qualify as part of a  like-kind  exchange  of
property  covered by Section  1031 of the IRC. If Seller so elects,  Buyer shall
cooperate  with Seller (but without  being  required to incur any  out-of-pocket
costs in the course thereof) in connection with Seller's  efforts to effect such
like-kind exchange, which cooperation shall include, without limitation,  taking
such  actions  as Seller  requests  in order to enable  Seller to  qualify  such
transfer as part of a like-kind  exchange of property covered by Section 1031 of
the IRC  (including  any actions  required to facilitate the use of a "qualified
intermediary"),  and Buyer  agrees  that  Seller  may  assign all or part of its
rights and delegate  all or part of its  obligations  under this  Agreement to a
person or entity acting as a qualified  intermediary  to qualify the transfer of
the Assets as part of a like-kind  exchange of property  covered by Section 1031
of the IRC.  Buyer and Seller agree in good faith to use  reasonable  efforts to
coordinate  the  transactions  contemplated  by this  Agreement  with any  other
transactions  engaged in by either Buyer or Seller;  provided  that such efforts
are not required to include an  unreasonable  delay in the  consummation  of the
transactions contemplated by this Agreement.

     Section 11.3  Transaction  Taxes.  Buyer shall bear and be responsible  for
paying any Hawaii sales, use, transfer, documentary,  registration, business and
occupation and other similar Taxes,  other than Hawaii General Excise Taxes,  if
any,  (including  related  penalties  (civil or criminal),  additions to tax and
interest)  imposed with respect to the  transfer of Assets  (including  the Real
Property)  to  Buyer  ("Transaction  Taxes"),  regardless  of  whether  the  tax
authority seeks to collect such Taxes from Seller or Buyer. Seller shall prepare
all tax filings  related to any  Transaction  Taxes  (other than with respect to
Real Property and motor vehicle title transfer and registration,  which shall be
prepared by Buyer).  Seller shall bear and be responsible  for any costs similar
to Transaction  Taxes imposed by any  Governmental  Body other than the State of
Hawaii or one of its political  subdivisions.  Fifteen (15) days prior to making
any such  filings,  the filing party shall  provide to the  nonfiling  party the
filing party's work papers for the nonfiling  party's  review and approval.  Ten
(10) days prior to the filing date,  the  non-filing  party shall provide to the
filing party approval of such work papers.  Buyer shall also be responsible  for
(i)  administering  the payment of such  Transaction  Taxes,  (ii)  defending or
pursuing any Proceedings related thereto,  and (iii) paying any expenses related
thereto.  Seller  shall  give  prompt  written  notice to Buyer of any  proposed
adjustment  or  assessment  of  any  Transaction   Taxes  with  respect  to  the
transaction, or of any examination of said transaction in a sales, use, transfer
or similar tax audit.  In any  proceedings,  whether formal or informal,  Seller
shall permit Buyer to participate and control the defense of such proceeding and
shall  take all  actions  and  execute  all  documents  required  to allow  such
participation.  Seller shall not  negotiate a settlement  or  compromise  of any
Transaction  Taxes  without the prior  written  consent of Buyer,  which consent
shall not be unreasonably withheld.

     Section 11.4 Taxes Based on Revenues. All Taxes arising with respect to the
revenues of the Business shall be prorated between Buyer and Seller, with Seller
being  obligated to reimburse Buyer only for the portion of any such Tax that is
applicable to the cash received by Seller prior to the Closing Date that relates
to the  revenues of the Business  being taxed.  Upon receipt by Buyer of the tax
bill, invoice or other statement regarding such Taxes, Buyer shall calculate the
pro rata share of such tax bill,  invoice  or other  statement  attributable  to
Buyer and Seller. Buyer then shall forward, as soon as practicable,  to Seller a
copy  of  such  tax  bill,  invoice  or  statement  along  with  the  supporting
documentation  relating  to the  calculation  of the pro rata  share to  Seller.
Seller then shall forward to Buyer payment in immediately available funds of its
pro rata share of such Taxes as soon as  practicable  in advance of the due date
of the tax bill,  invoice or statement  and in time to avoid the  incurrence  of
penalties or interest. Upon its receipt of such payment, Buyer will pay the full
amount of the tax bill, invoice or statement to the applicable taxing authority.
In the event Seller first receives a tax bill,  invoice or statement relating to
the revenues of the Business from a taxing  authority,  Seller shall immediately
forward such tax bill, invoice or statement to Buyer.

                                       35
<PAGE>

                                   ARTICLE XII
                              ENVIRONMENTAL MATTERS

     Section 12.1  Environmental Due Diligence.

     (a) Right to Conduct Environmental Due Diligence.  Regarding  environmental
matters,  other than any additional  environmental  due diligence that Buyer may
conduct  pursuant to this Section 12.1,  Buyer has completed its  reasonable and
prudent  environmental  due diligence prior to the Effective  Date,  including a
review of the  Environmental  Data and Phase I environmental  assessments of the
Assets.  Buyer also has required Seller to make the  representations  concerning
environmental matters set forth in Section 5.14, upon which Buyer is relying. In
light of these actions, Buyer agrees not to conduct additional environmental due
diligence   (including   employee  interviews  and  sampling  of  any  media  or
wastewater) except in accordance with this Section 12.1. All activities of Buyer
regarding  environmental  due  diligence  shall be  conducted  to  minimize  any
inconvenience  or  interruption  of the normal use and enjoyment of the Business
and the Assets.

     (b) Delivery of Environmental  Reports.  Seller has made available to Buyer
before the Effective Date copies of all written environmental audits, reports or
studies in Seller's  possession  of which  Seller has  Knowledge  and which were
prepared after December 31, 1996  (including any updated  environmental  audits,
reports and studies  regarding the foregoing  which were prepared after the date
of execution of the Original  Agreement),  concerning  the existence or possible
existence  of  Hazardous  Materials  on, or under or adjacent to any of the Real
Property  or  relating  to  potential   Environmental  Liability  of  Seller  in
connection with the Business or the Assets. Buyer shall provide to Seller copies
of all reports,  assessments and other information composed or compiled by Buyer
or  Buyer's  environmental  consultant(s)  promptly  following  Buyer's  receipt
thereof.  Buyer shall treat all such  information  delivered  to, or composed or
compiled by, Buyer or Buyer's environmental  consultant(s) as Environmental Data
in accordance with the procedures of Section 12.1(c).

     (c) Confidentiality of Environmental Data. All audits,  reports and studies
delivered  to or  prepared  by Buyer and all  other  information  collected  and
generated as a result of Buyer's  environmental  due  diligence  ("Environmental
Data")  will be  subject  to the terms  and  conditions  of the  Confidentiality
Agreement,  except as otherwise expressly provided in this Section 12.1. Neither
Buyer  nor  its  environmental  consultant(s)  shall  disclose  or  release  any
Environmental  Data  without  the prior  written  consent of Seller and all such
information shall be kept strictly confidential. The Environmental Data shall be
prepared at the request of counsel to Buyer and, to the fullest extent permitted
by law,  shall be the work product of such counsel and  constitute  confidential
attorney/client  communications.  The  Environmental  Data shall be  transferred
among  Buyer  and its  consultant(s)  in a manner  that  will  preserve,  to the
greatest extent possible, such privileges. Buyer expressly agrees that until the
Closing,  it will not  distribute  the  Environmental  Data to any  third  party
without Seller's prior written consent.  After the Closing, Buyer agrees that it
will not distribute the  Environmental  Data to any third party without Seller's
prior  written  consent,  except as required by law or by express  provisions of
Buyer's  corporate  compliance  program if Seller is provided  written notice at
least ten (10) days prior to such distribution,  provided,  however,  that for a
period of two (2) years  after  the  Closing  Date,  Buyer  may  distribute  the
Environmental  Data to any  potential  purchaser  of the Assets only after first
notifying the Seller.

                                       36
<PAGE>

     (d)  Environmental  Consultants.  Buyer  may  retain  one or  more  outside
environmental   consultants  to  assist  in  its   environmental  due  diligence
concerning the Assets and shall notify Seller of the environmental consultant or
consultants Buyer intends to retain. Thereafter, Seller shall have five (5) days
after  receipt of such  notification  to notify  Buyer in  writing  of  Seller's
objection  (which  must be for good cause) and  substantiate  the basis for that
objection.  If Seller  does not  object  for good  cause and  substantiate  that
objection  within  said  five (5) day  period,  Seller  shall be  deemed to have
consented to Buyer's selection.

     (e)   Completed   Phase  I  Reviews.   Buyer  has  completed  its  Phase  I
environmental  assessment  activities  with  respect  to the  Assets,  including
reviewing existing  environmental reports,  correspondence,  permits and related
materials regarding the Assets,  individual site inspections and all other Phase
I activities as set forth in the ASTM protocol  regarding  Phase I environmental
assessments, and has delivered to Seller a true and complete copy of the related
Phase I assessment  report from Buyer's  environmental  consultant.  The parties
mutually acknowledge that all incidents and conditions addressed in such Phase I
assessment  report  comprise  either  incidents  and  conditions  that  had been
previously  disclosed  by Seller in  writing  to Buyer or,  with  respect to the
previously  undisclosed  incidents and conditions,  are incidents and conditions
that are not  reasonably  likely  to  result  in any  significant  Environmental
Liabilities.

     (f) Further  Phase I Reviews.  Buyer may not  conduct  any further  Phase I
environmental assessment activities with respect to the Assets without the prior
written consent of Seller, which consent may be withheld, conditioned or delayed
by Seller in its sole discretion.  Any further Phase I environmental  assessment
activities  permitted  by Seller  shall not  include any  sampling or  intrusive
testing and shall be conducted in accordance with ASTM standards regarding Phase
I assessments. As soon as reasonably practicable after completion of any further
Phase I assessment  activities,  Buyer's environmental  consultant shall prepare
and deliver to Buyer a written report with respect thereto.

     (g) Phase II  Reviews.  Buyer may not  conduct  any Phase II  environmental
assessment activities with respect to the Assets (including, but not limited to,
the taking and analysis of soil, surface water and groundwater samples,  testing
of buildings,  drilling wells,  taking soil borings and excavating)  without the
prior written consent of Seller,  which consent may be withheld,  conditioned or
delayed by Seller in its sole discretion.

     (h) Additional Due Diligence.  Notwithstanding  the foregoing,  if prior to
Closing  Seller  receives  notice of any  Proceeding  or  Threatened  Proceeding
arising under  Environmental Laws or if Seller otherwise acquires Knowledge that
is reasonably likely to require a change to Schedule 5.14, Seller promptly shall
notify  Buyer of the same and Buyer may request that Seller  authorize  Buyer to
conduct specific  additional  environmental due diligence measures if and to the
extent that such  measures are required to determine the extent of any potential
Environmental  Liability  relating  thereto.  Such  authorization  shall  not be
unreasonably  withheld,  conditioned or delayed by Seller.  Any such  additional
environmental  due diligence shall be conducted at Buyer's sole expense.  Within
ten (10) days  following the  completion  of any  additional  environmental  due
diligence  conducted  by Buyer  pursuant to this  Section  12.1(h),  Buyer shall
notify  Seller of each incident of potential  Environmental  Liability of Seller
that Buyer in good faith has determined is reasonably likely to result in Losses
in excess of $1,000,000 (each, a "New Material Environmental Liability").  Prior
to  Closing,  Seller may  respond to and remedy any New  Material  Environmental
Liability.  Any  New  Material  Environmental  Liability  not  responded  to and
remedied by Seller to Buyer's  reasonable  satisfaction  shall be  considered  a
Retained Environmental Liability for purposes of this Agreement.

                                       37
<PAGE>

     (i)  Indemnity  for  Due  Diligence  Activities.  Buyer  hereby  agrees  to
indemnify and hold harmless  Seller,  Seller's  Affiliates and their  respective
officers, directors,  employees, agents, successors and assigns from and against
any and all Losses  with  respect to persons or  property  arising  out of or in
connection with any site visit by Buyer or its  environmental  consultant(s) and
resulting from an act or omission of Buyer or its environmental consultant(s).

                                  ARTICLE XIII
                                 INDEMNIFICATION

     Section 13.1  Indemnification by Seller. From and after Closing and subject
to the other  provisions of this Article XIII,  Seller shall  indemnify and hold
harmless  Buyer,  its  Representatives,  Affiliates,  successors  and  permitted
assigns  (collectively,  the "Buyer  Indemnitees")  from and against any and all
Losses arising out of or resulting from:

     (a) any representations and warranties made by Seller in this Agreement not
being true and correct when made or when  required by this  Agreement to be true
and  correct,  or any  breach or  default  by Seller in the  performance  of its
covenants,  agreements,  or  obligations  under this  Agreement  required  to be
performed prior to Closing;

     (b) any breach or default by Seller in the  performance  of its  covenants,
agreements,  or obligations under this Agreement  required to be performed after
Closing; and

     (c)  the  Retained  Liabilities,   including  the  Retained   Environmental
Liabilities.

     Section 13.2  Indemnification  by Buyer. From and after Closing and subject
to the other  provisions  of this Article XIII,  Buyer shall  indemnify and hold
harmless  Seller,  its  Representatives,  Affiliates,  successors  and permitted
assigns  (collectively,  the "Seller  Indemnitees") from and against any and all
Losses arising out of or resulting from:

     (a) any  representations and warranties made by Buyer in this Agreement not
being true and correct when made or when  required by this  Agreement to be true
and  correct,  or any  breach  or  default  by Buyer in the  performance  of its
covenants,  agreements,  or  obligations  under this  Agreement  required  to be
performed prior to Closing;

     (b) any  breach or default by Buyer in the  performance  of its  covenants,
agreements,  or obligations under this Agreement  required to be performed after
Closing, including the Buyer's IDRB Obligations;

     (c) Assumed Liabilities,  including the Assumed Environmental  Liabilities;
and

     (d) any  event as a result  of  which  the  interest  on the  Bonds  may be
included in the gross income of the  recipient  for  purposes of federal  income
taxation,  to the  extent  such event  arises  out of or  results  from any act,
negligence,  fault or failure of Buyer or any  assignee,  lessee or successor of
Buyer, including any violation of the representations, warranties, covenants and
agreements  set forth in  Section  6.7(a) or in the IDRB  Obligations  Agreement
executed and delivered by Buyer in accordance with Sections 6.7(a) and 8.1(d).

                                       38
<PAGE>

     Section 13.3 Limitations on Seller's Liability. Notwithstanding anything to
the contrary in this Agreement, the liability of Seller under this Agreement and
any documents  delivered in connection  herewith or contemplated hereby shall be
limited as follows:

     (a) IN NO EVENT  SHALL  SELLER BE LIABLE TO THE BUYER  INDEMNITEES  FOR ANY
EXEMPLARY,  PUNITIVE,  SPECIAL, INDIRECT,  CONSEQUENTIAL,  REMOTE OR SPECULATIVE
DAMAGES;  provided,  however,  that if Buyer is held liable to a third party for
any of such damages and Seller is  obligated  to indemnify  Buyer for the matter
that gave rise to such  damages,  then Seller shall be liable for, and obligated
to reimburse Buyer for, such damages.

     (b) The representations, warranties, covenants and agreements of Seller set
forth in this Agreement  shall survive the Closing for a period of one year, and
all representations,  warranties,  covenants and agreements of Seller under this
Agreement and the indemnities  granted by Seller in Section 13.1 shall terminate
at 5:00 p.m., local time in Stamford,  Connecticut,  on the first anniversary of
the Closing Date;  provided,  however,  that such indemnities shall survive with
respect  only to the  specific  matters  that is the  subject of a proper  Claim
Notice  delivered  in good faith in  compliance  with the  requirements  of this
Section  13.3  until  the  earlier  to  occur  of (A) the  date on which a final
nonappealable  resolution of the matter  described in such Claim Notice has been
reached or (B) the date on which the matter  described  in such Claim Notice has
otherwise reached final  resolution.  In no event shall any amounts be recovered
from Seller under  Section  13.1 or  otherwise  for any matter for which a Claim
Notice  is not  delivered  to  Seller  prior  to the  close of  business  on the
applicable date set forth above.

     (c) Notwithstanding anything to the contrary in this Agreement, in no event
shall Seller indemnify the Buyer Indemnitees,  or be otherwise liable in any way
whatsoever to the Buyer Indemnitees,  for any Losses until the Buyer Indemnitees
have  suffered  Losses  (determined  after giving  effect to the  provisions  of
Section  13.3(f))  that are in excess  of a  deductible  in an  amount  equal to
$5,400,000,  after which point  Seller will be obligated  only to indemnify  the
Buyer Indemnitees from and against further Losses in excess of such deductible.

     (d) Notwithstanding anything to the contrary in this Agreement, in no event
shall Seller indemnify the Buyer Indemnitees,  or be otherwise liable in any way
whatsoever  to the Buyer  Indemnitees,  for any Losses  that are in excess of an
amount equal to $5,400,000.

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

                                       39
<PAGE>

     (f)  Seller  shall  have no  liability  for any  claim  or Loss (A) that is
covered by insurance  maintained by or for the benefit of Buyer or any Affiliate
of Buyer (including any such insurance  coverage  applicable to the Business the
benefit of which the Buyer will realize) or for which Buyer  otherwise  recovers
payments in respect of such Loss from any other  sources  (whether in a lump sum
or stream  of  payments)  or (B) that is the type  normally  recoverable  by the
Business  through rates.  No cost or expense  relating to any such claim or Loss
shall be  included  in  determining  the extent of Losses  suffered by the Buyer
Indemnitees for purposes of Section 13.3(c) or Section 13.3(d).  Buyer agrees to
use its  commercially  reasonable  efforts to give timely and effective  written
notice  to  the   appropriate   insurance   carrier(s)  of  any   occurrence  or
circumstances which, in the judgment of Buyer consistent with its customary risk
management  practices,  appear likely to give rise to a claim against Buyer that
is likely to involve one or more  insurance  policies of Buyer.  Any such notice
shall be given in good  faith by Buyer  without  regard  to the  possibility  of
indemnification payments by Seller under Section 13.1, and shall be processed by
Buyer  in good  faith  and in a  manner  consistent  with  its  risk  management
practices involving claims for which no third party contractual  indemnification
is  available.  Buyer agrees that (i) if it is entitled to receive  payment from
Seller for a Loss, and (ii) if Buyer has obtained  insurance which may cover the
claim or matter  giving rise to such Loss,  then (iii) such  insurance  shall be
primary coverage and Buyer will make a claim under such insurance (if such claim
can be made in good faith) before  enforcing  its right to receive  payment from
Seller.  If at any time  subsequent  to the receipt by a Buyer  Indemnitee of an
indemnity payment from Seller hereunder, such Buyer Indemnitee (or any Affiliate
thereof) receives any recovery, settlement or other similar payment with respect
to the Loss for which it receives such indemnity payment,  such Buyer Indemnitee
shall  promptly  pay to Seller an amount  equal to the amount of such  recovery,
less (for  insurance  proceeds  only) any  out-of-pocket  costs incurred by such
Buyer  Indemnitee (or its Affiliates) in connection  with claim  preparation and
settlement,  but in no event  shall any such  payment  exceed the amount of such
indemnity  payment;  provided,  that if such net  recover  reduces the amount of
Losses actually  incurred by the Buyer  Indemnitees  below the deductible amount
set forth in Section  13.3(c) and if Seller has made other payments to the Buyer
Indemnitees  for other Losses in excess of such  deductible  amount,  then Buyer
also  shall  promptly  pay to  Seller  an amount  equal to the  portion  of such
payments  made by Seller  that  Seller  would not have  been  obligated  to make
pursuant to Section 13.3(c) had the Losses of the Buyer Indemnitees not included
the Losses covered by such net recovery.  No other costs or expense  relating to
any such recovery shall reduce the amount of such payment to Seller.

     (g)   Notwithstanding  any  language  contained  in  any  Related  Document
(including deeds and other conveyance  documents relating to the Real Property),
the  representations  and  warranties of Seller set forth in this Agreement will
not be merged into any such Related Document and the indemnification obligations
of Seller, and the limitations on such obligations,  set forth in this Agreement
shall  control.  No provision  set forth in any such Related  Document  shall be
deemed to enlarge, alter or amend the terms or provisions of this Agreement.

     Section 13.4  Claims Procedure.

                                       40
<PAGE>

     (a) All claims for indemnification under Section 13.1 or 13.2, or any other
provision  of this  Agreement  except as  otherwise  expressly  provided in this
Agreement,  shall be asserted and resolved  pursuant to this Article  XIII.  Any
Person claiming indemnification hereunder referred to as the "Indemnified Party"
and any Person  against whom such claims are asserted  hereunder is  hereinafter
referred  to as the  "Indemnifying  Party."  In the event  that any  Losses  are
asserted against or sought to be collected from an Indemnified  Party by a third
party,  said Indemnified Party shall with reasonable  promptness  provide to the
Indemnifying Party a Claim Notice. The Indemnifying Party shall not be obligated
to  indemnify  the  Indemnified  Party with  respect  to any such  Losses if the
Indemnified  Party fails to notify the Indemnifying  Party thereof in accordance
with the provisions of this Agreement in reasonably  sufficient time so that the
Indemnifying Party's ability to defend against the Losses is not prejudiced. The
Indemnifying  Party shall have 30 days from the personal  delivery or receipt of
the Claim  Notice  (the  "Notice  Period") to notify the  Indemnified  Party (i)
whether  or not it  disputes  the  liability  of the  Indemnifying  Party to the
Indemnified  Party  hereunder with respect to such Losses and/or (ii) whether or
not it  desires,  at the sole cost and  expense of the  Indemnifying  Party,  to
defend the Indemnified Party against such Losses;  provided,  however,  that any
Indemnified  Party is hereby authorized prior to and during the Notice Period to
file any  motion,  answer or other  pleading  that it shall  deem  necessary  or
appropriate to protect its interests or those of the Indemnifying  Party (and of
which it shall have given notice and opportunity to comment to the  Indemnifying
Party) and not  prejudicial  to the  Indemnifying  Party.  In the event that the
Indemnifying  Party notifies the Indemnified Party within the Notice Period that
it desires to defend the Indemnified Party against such Losses, the Indemnifying
Party  shall  have the right to defend  all  appropriate  proceedings,  and with
counsel of its own  choosing,  which  proceedings  shall be promptly  settled or
prosecuted by them to a final  conclusion.  If the Indemnified  Party desires to
participate in, but not control,  any such defense or settlement it may do so at
its  sole  cost  and  expense.  If  requested  by the  Indemnifying  Party,  the
Indemnified  Party  agrees  to  cooperate  with the  Indemnifying  Party and its
counsel in contesting any Losses that the  Indemnifying  Party elects to contest
or,  if  appropriate  and  related  to the  claim in  question,  in  making  any
counterclaim  against  the  Person  asserting  the third  party  Losses,  or any
cross-complaint  against  any  Person.  No claim  may be  settled  or  otherwise
compromised without the prior written consent of the Indemnifying Party.

     (b) The  Indemnified  Party  shall  provide  reasonable  assistance  to the
Indemnifying Party and provide access to its books, records and personnel as the
Indemnifying  Party reasonably  requests in connection with the investigation or
defense of the Losses.  The  Indemnifying  Party shall  promptly upon receipt of
reasonable  supporting   documentation   reimburse  the  Indemnified  Party  for
out-of-pocket  costs  and  expenses  incurred  by the  latter in  providing  the
requested assistance.

     (c) With regard to third party claims for which Buyer or Seller is entitled
to  indemnification  under Section 13.1 or 13.2, such  indemnification  shall be
paid by the  Indemnifying  Party  upon:  (i) the entry of an Order  against  the
Indemnified  Party and the expiration of any applicable appeal period; or (ii) a
settlement  with the consent of the  Indemnifying  Party,  provided that no such
consent need be obtained if the Indemnifying Party fails to respond to the Claim
Notice as provided in Section 13.4(a). Notwithstanding the foregoing but subject
to  Section  13.4(a),   and  provided  that  there  is  no  dispute  as  to  the
applicability of  indemnification,  expenses of counsel to the Indemnified Party
shall be  reimbursed  on a current  basis by the  Indemnifying  Party as if such
expenses are a liability of the Indemnifying Party.

     Section 13.5  Exclusive Remedy. Except as otherwise provided in Section 6.4
or 14.6, the rights,  remedies and obligations of the Buyer  Indemnitees and the
Seller  Indemnitees set forth in this Article XIII will be the exclusive rights,
remedies and  obligations of such Persons after the Closing with respect to this
Agreement,  the  events  giving  rise to  this  Agreement  and the  transactions
provided  for  herein or  contemplated  hereby or  thereby.  No  Proceeding  for
termination or  rescission,  or claiming  repudiation,  of this Agreement or the
Bill of Sale may be brought or  maintained  by either party against the other on
and after the  Closing  Date no matter  how  severe,  grave or  fundamental  any
breach, default or nonperformance may be by one party. Accordingly,  the parties
hereby  expressly  waive and forego any and all rights they may possess to bring
any such Proceeding.

                                       41
<PAGE>

     Section 13.6  Indemnification for Negligence. WITHOUT LIMITING OR ENLARGING
THE SCOPE OF THE  INDEMNIFICATION  OBLIGATIONS SET FORTH IN THIS  AGREEMENT,  AN
INDEMNIFIED PARTY SHALL BE ENTITLED TO  INDEMNIFICATION  HEREUNDER IN ACCORDANCE
WITH THE TERMS  HEREOF,  REGARDLESS  OF WHETHER THE LOSS OR CLAIM GIVING RISE TO
SUCH  INDEMNIFICATION  OBLIGATION  IS THE  RESULT  OF THE  SOLE,  CONCURRENT  OR
COMPARATIVE  NEGLIGENCE,  STRICT LIABILITY,  VIOLATION OF ANY LAW OR OTHER LEGAL
FAULT OF OR BY SUCH  INDEMNIFIED  PARTY.  THE PARTIES AGREE THAT THIS  PARAGRAPH
CONSTITUTES A CONSPICUOUS LEGEND.

     Section 13.7  Waiver and Release. Buyer, on behalf of itself and each other
Buyer Indemnitee,  hereby forever waives, relieves,  releases and discharges the
Seller  Indemnitees  and their  successors  and assigns from any and all rights,
liabilities,  Proceedings (including future Proceedings) and Losses of any Buyer
Indemnitee,  whether  known or  unknown  on the  Closing  Date,  which any Buyer
Indemnitee has or incurs, or may in the future have or incur,  arising out of or
related to any Assumed Environmental Liability.

                                   ARTICLE XIV
                               GENERAL PROVISIONS

     Section 14.1  Expenses.  Except as otherwise specifically  provided herein,
each Party will pay all costs and expenses of its  performance of and compliance
with this  Agreement,  except Buyer will pay all real estate  transfer taxes and
real estate  recording fees, if any,  including  expenses of counsel  associated
with real estate title, transfer and recording issues.

     Section  14.2  Notices.  All  notices,  requests  and other  communications
hereunder  shall be in  writing  and shall be deemed  to have  been  given  upon
receipt if either (a)  personally  delivered,  (b) sent by prepaid  first  class
mail,  and  registered or certified and a return  receipt  requested (c) sent by
overnight delivery via a nationally  recognized carrier or (d) by facsimile with
completed transmission acknowledged:

                  If to Seller, to:

                  Citizens Communications Company
                  1460 Poydras Street, Suite 1800
                  New Orleans, LA 70112
                  Attention: Kenneth L. Cohen
                  Telecopier:  (504) 544-5822

                  with a copy to:

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

                  and:

                                       42
<PAGE>

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

                  If to Buyer, to:

                  Kauai Island Utility Co-Op
                  2970 Haleko Road, Suite #205
                  Lihue, Kauai, HI  96766
                  Attention: Gregg Gardiner, Chairman
                  Telecopier: (808) 245-7428

                  with a copy to:

                  McCorriston Miller Mukai MacKinnon LLP 5 Waterfront Plaza, 4th
                  Floor 500 Ala Moana Blvd.
                  Honolulu, HI 96813
                  Attention: Brian Hirai
                  Telecopier: (808) 524-8293

or at such  other  address  or number as shall be given in writing by a party to
the other party.

     Section 14.3  Assignment.  This Agreement may not be assigned, by operation
of law or otherwise,  by any party hereto  without the prior written  consent of
the other party hereto, such consent not to be unreasonably withheld;  provided,
however,  in the event of any such  assignment  by a party by  operation  of law
without the consent of the other party as required  above,  such other party may
consent to such  assignment  after it has  occurred  and,  in such  event,  this
Agreement  and all the  provisions  hereof  shall be  binding  upon  the  Person
receiving such  assignment by operation of law.  Notwithstanding  the foregoing,
(a) Buyer may  assign  this  Agreement,  without  the prior  written  consent of
Seller, to any direct or indirect wholly-owned subsidiary of Buyer provided such
subsidiary  assumes  in  writing  all of the  duties  and  obligations  of Buyer
hereunder (provided that no such assignment by Buyer shall in any way operate to
enlarge,  alter or change any  obligation  due to Seller or relieve Buyer of its
obligations hereunder if such subsidiary fails to perform such obligations, with
the  understanding  that Buyer shall be jointly and  severally  liable with such
subsidiary for any  nonperformance of Buyer's  obligations  hereunder);  and (b)
Seller  may  assign  all or part of its  rights or  delegate  all or part of its
duties under this  Agreement,  without the prior written  consent of Buyer, to a
qualified  intermediary  chosen  by  Seller  to  structure  all or  part  of the
transactions  contemplated hereby as a like-kind exchange of property covered by
Section 1031 of the IRC.

     Section 14.4  Successor  Bound.  Subject to the provisions of Section 14.3,
this  Agreement  shall be binding  upon and inure to the  benefit of the parties
hereto and their respective successors and permitted assigns.

                                       43

<PAGE>

     Section 14.5  Governing Law. The validity, performance,  and enforcement of
this  Agreement  and all Related  Documents,  unless  expressly  provided to the
contrary,  shall be governed by the laws of the State of Delaware without giving
effect to the principles of conflicts of law of such state.

     Section 14.6  Dispute Resolution.  Except as otherwise provided in Sections
3.2(b) and 6.4, and this Section 14.6, any dispute, controversy or claim between
the parties relating to, arising out of or in connection with this Agreement (or
any subsequent agreements or amendments thereto), including as to its existence,
enforceability,  validity,  interpretation,  performance  or  breach  or  as  to
indemnification or damages,  including claims in tort, whether arising before or
after the termination of this Agreement (any such dispute,  controversy or claim
being herein referred to as a "Dispute") shall be settled without litigation and
only by use of the following alternative dispute resolution procedure:

     (a) At  the  written  request  of a  party,  each  party  shall  appoint  a
knowledgeable, responsible representative to meet and negotiate in good faith to
resolve any Dispute.  The  discussions  shall be left to the  discretion  of the
representatives.   Upon  agreement,   the   representatives  may  utilize  other
alternative  dispute  resolution  procedures  such as mediation to assist in the
negotiations.  Discussions and correspondence among the parties' representatives
for purposes of these negotiations shall be treated as confidential  information
developed for the purposes of settlement,  exempt from discovery and production,
and without the  concurrence  of both  parties  shall not be  admissible  in the
arbitration  described  below,  or in any lawsuit.  Documents  identified  in or
provided  with such  communications,  which are not prepared for purposes of the
negotiations,  are not so exempted and may, if otherwise admissible, be admitted
in the arbitration.

     (b) If  negotiations  between  the  representatives  of the  parties do not
resolve the Dispute within 60 days of the initial written  request,  the Dispute
shall be submitted to binding arbitration by a single arbitrator pursuant to the
Commercial  Arbitration  Rules,  as then amended and in effect,  of the American
Arbitration Association (the "Rules").  Either party may demand such arbitration
in accordance with the procedures set out in the Rules.  The  arbitration  shall
take  place in San  Francisco,  California.  The  arbitration  hearing  shall be
commenced within 60 days of such party's demand for arbitration.  The arbitrator
shall have the power to and will instruct each party to produce evidence through
discovery (i) that is reasonably requested by the other party to the arbitration
in order to prepare and  substantiate  its case and (ii) the production of which
will not  materially  delay the  expeditious  resolution  of the  dispute  being
arbitrated;  each party hereto agrees to be bound by any such  discovery  order.
The  arbitrator  shall  control  the  scheduling  (so as to  process  the matter
expeditiously) and any discovery.  The parties may submit written briefs. At the
arbitration  hearing,  each party may make written and oral presentations to the
arbitrator,  present  testimony and written evidence and examine  witnesses.  No
party  shall be  eligible  to  receive,  and the  arbitrator  shall not have the
authority to award,  exemplary or punitive damages. The arbitrator shall rule on
the  Dispute  by  issuing a written  opinion  within 30 days  after the close of
hearings.  The arbitrator's  decision shall be binding and final.  Judgment upon
the  award  rendered  by the  arbitrator  may be  entered  in any  court  having
jurisdiction.

                                       44
<PAGE>

     (c) Each  party  will bear its own costs and  expenses  in  submitting  and
presenting its position with respect to any Dispute to the arbitrator; provided,
however,  that if the  arbitrator  determines  that  the  position  taken in the
Dispute  by the  nonprevailing  party  taken  as a whole  is  unreasonable,  the
arbitrator may order the nonprevailing party to bear such fees and expenses, and
reimburse the prevailing  party for all or such portion of its reasonable  costs
and expenses in submitting and presenting its position,  as the arbitrator shall
reasonably  determine  to be fair  under the  circumstances.  Each  party to the
arbitration  shall pay one-half of the fees and expenses of the  arbitrator  and
the American Arbitration Association.

     (d) Notwithstanding any other provision of this Agreement, (i) either party
may commence an action to compel  compliance  with this Section 14.6 and (ii) if
any party, as part of a Dispute,  seeks injunctive relief or any other equitable
remedy,  including specific  enforcement,  then such party shall be permitted to
seek such  injunctive  or  equitable  relief in any  federal  or state  court or
competent  jurisdiction  before,  during or after the pendency of a mediation or
arbitration proceed under this Section 14.6.

     Section  14.7  Cooperation.  Each of the parties  hereto  agrees to use its
reasonable  best  efforts to take or cause to be taken all action,  and to do or
cause to be done all things  necessary,  proper or  advisable  under  applicable
laws,  regulations  or  otherwise,  to  consummate  and to  make  effective  the
transactions contemplated by this Agreement,  including, without limitation, the
timely  performance of all actions and things  contemplated by this Agreement to
be taken or done by each of the parties hereto.

     Section 14.8  Construction  of Agreement.  The terms and provisions of this
Agreement  represent the results of negotiations  between Buyer and Seller, each
of which has been  represented  by counsel of its own  choosing,  and neither of
which  has  acted  under  duress  or  compulsion,  whether  legal,  economic  or
otherwise.  Accordingly,  the terms and  provisions of this  Agreement  shall be
interpreted and construed in accordance with their usual and customary meanings,
and  Buyer and  Seller  hereby  waive the  application  in  connection  with the
interpretation  and  construction  of this  Agreement  of any rule of law to the
effect that  ambiguous  or  conflicting  terms or  provisions  contained in this
Agreement  shall be  interpreted  or construed  against the party whose attorney
prepared  the  executed  draft or any  earlier  draft of this  Agreement.  It is
understood and agreed that neither the specification of any dollar amount in the
representations and warranties  contained in this Agreement nor the inclusion of
any  specific  item in the  Schedules or Exhibits is intended to imply that such
amounts or higher or lower amounts, or the items so included or other items, are
or are not  material,  and none of the parties shall use the fact of the setting
of such amounts or the fact of any  inclusion of any such item in the  Schedules
or Exhibits in any dispute or controversy  between the parties as to whether any
obligation, item or matter is or is not material for purposes hereof.

     Section 14.9  Publicity.  No party  hereto  shall issue,  make or cause the
publication  of any press  release or other  announcement  with  respect to this
Agreement  or the  transactions  contemplated  hereby,  or  otherwise  make  any
disclosures  relating  thereto,  without  the consent of the other  party,  such
consent not to be unreasonably withheld or delayed; provided, however, that such
consent shall not be required where such release or  announcement is required by
applicable law or the rules or regulations  of a securities  exchange,  in which
event  the  party so  required  to issue  such  release  or  announcement  shall
endeavor,  wherever possible, to furnish an advance copy of the proposed release
to the other party.

                                       45
<PAGE>

     Section  14.10  Waiver.  Except as  otherwise  expressly  provided  in this
Agreement,  neither  the  failure  nor any  delay  on the  part of any  party to
exercise  any right,  power or  privilege  hereunder  shall  operate as a waiver
thereof,  nor shall any single or partial  exercise or waiver of any such right,
power or  privilege  preclude  any other or  further  exercise  thereof,  or the
exercise of any other right,  power or privilege  available to each party at law
or in equity.

     Section 14.11  Parties in Interest. This Agreement (including the documents
and  instruments  referred to herein) is not intended to confer upon any Person,
other than the parties hereto and their  successors and permitted  assigns,  any
rights  or  remedies  hereunder;  provided,  however,  that the  indemnification
provisions  in Article XIII shall inure to the benefit of the Buyer  Indemnitees
and the Seller Indemnitees as provided therein.

     Section 14.12  Section and  Paragraph  Headings.  The section and paragraph
headings in this Agreement are for reference  purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.

     Section  14.13  Amendment.  This  Agreement  may  be  amended  only  by  an
instrument in writing executed by the parties hereto.

     Section 14.14  Entire Agreement. This Agreement, the Exhibits and Schedules
hereto and the documents specifically referred to herein and the Confidentiality
Agreement  constitute the entire agreement,  understanding,  representations and
warranties  of the parties  hereto,  and supersede  all prior  agreements,  both
written and oral,  between Buyer and Seller,  including the Original  Agreement.
All  Exhibits  and  Schedules  annexed  hereto or  referred to herein are hereby
incorporated  in and  made a part  of this  Agreement  as if set  forth  in full
herein.  Disclosure  of any  fact  or  item  in  any  Schedule  referenced  by a
particular paragraph or Section in this Agreement shall, should the existence of
the fact or item or its contents be relevant to any other  paragraph or Section,
be deemed to be  disclosed  with  respect  to that  other  paragraph  or Section
whether or not any explicit cross-reference appears therein.

     Section  14.15  Counterparts.  This  Agreement  may be executed in multiple
counterparts,  each of  which  shall be  deemed  an  original,  and all of which
together shall constitute one and the same instrument.

     Section  14.16  Severability.  If any  term  or  other  provision  of  this
Agreement is invalid,  illegal or incapable of being enforced by any rule of law
or public policy,  all other  conditions and provisions of this Agreement  shall
nevertheless  remain in full force and effect so long as the  economic  or legal
substance of the transactions  contemplated hereby is not affected in any manner
materially  adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall  negotiate  in good  faith to modify  this  Agreement  so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that  transactions  contemplated  hereby are  fulfilled  to the greatest
extent possible.

                      [SIGNATURES APPEAR ON FOLLOWING PAGE]

                                       46

<PAGE>

     IN WITNESS WHEREOF,  the parties have executed and delivered this Agreement
as of the date first written above.

                         CITIZENS COMMUNICATIONS COMPANY

                         By: /s/  Scott N. Schneider
                            ------------------------------------------
                            Scott N. Schneider,
                            Vice Chairman and Executive Vice President

                         KAUAI ISLAND UTILITY CO-OP

                         By:  /s/  Gregg Gardiner
                            ----------------------------
                            Gregg Gardiner,
                            Chairman

              [Signature page to Amended and Restated Purchase and
                Sale Agreement (Kauai Electric) between Citizens
                 Communications Company and Kauai Island Utility
                                     Co-Op.]

                                       47

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