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                             MASTER LEASE AGREEMENT

THIS MASTER LEASE AGREEMENT, dated as of ;June6, 1997 ("Agreement"), between
General Electric Capital Corporation, with an office at 4 North Park Drive Suite
500, Hunt Valley, MD 21030 (hereinafter called, together with its successors and
assigns. if any, "Lessor"), and Telco Systems, Inc., a corporation organized and
existing under the laws of the State of Delaware with its mailing address and
chief place of business at 63 Nahatan Street, Norwood, MA 07062 (hereinafter
called "Lessee").


                                  WITNESSETH:
I.       LEASING:

(a)      Subject to the terms and conditions set forth below, Lessor agrees to
         lease to LESSEE, AND LESSEE AGREE TO LEASE FROM LESSOR, THE EQUIPMENT
         ("EQUIPMENT") described in Annex A to any schedule hereto ("Schedule")
         or, if applicable, to Section A of any Schedule. TERMS DEFINED IN A
         SCHEDULE AND NOT OTHERWISE DEFINED herein shall have the meanings
         ascribed to them in such Schedule.

(b)      The obligation of Lessor to purchase Equipment from the manufacturer or
         supplier thereof ("Supplier") and to lease the same to Lessee under any
         Schedule shall be subject to receipt by Lessor, prior to the Lease
         Commencement Date (with respect to such Equipment), of each of the
         following documents in form and substance satisfactory to Lessor: (i) a
         Schedule relating to the Equipment then to be leased hereunder, (ii) a
         Purchase Order Assignment and Consent in the form of Annex B to the
         applicable Schedule, unless Lessor shall have delivered its purchase
         order for such Equipment, (iii) evidence of insurance which complies
         with the requirements of Section X and (iv) such other documents as
         Lessor may reasonably request. As a further condition to such
         obligations of Lessor, Lessee shall, upon delivery of such Equipment
         (but not later than the Last Delivery Date specified in the applicable
         Schedule) execute and deliver to Lessor a Certificate of Acceptance
         (which may be in the form of Annex C to the applicable Schedule)
         covering such Equipment, and, if requested by Lessor,-deliver to Lessor
         a bill of sale therefor (in form and substance satisfactory to Lessor).
         Lessor hereby appoints Lessee its agent for inspection and acceptance
         of the Equipment from the Supplier. Upon execution by Lessee of any
         Certificate of Acceptance, the Equipment described thereon shall be
         deemed to have been delivered to, and irrevocably accepted by, Lessee
         for lease hereunder

II.      TERM, RENT AND PAYMENT:

(a)      The rent payable hereunder and Lessee's right to use the Equipment
         shall commence on the date of execution by Lessee of the Certificate of
         Acceptance for such Equipment ("Lease Commencement Date"). The term of
         this Agreement shall be the period specified in the applicable
         Schedule. If any term is extended, the word "term" shall be deemed to
         refer to all extended term, and all provision of this Agreement shall
         apply during any extended term, except as may be otherwise specifically
         provided in writing.

(b)      Rent shall be paid to Lessor at its address stated above, except as
         otherwise directed by Lessor. Payments of rent shall be in the amount
         set forth in, and due in accordance with, the provisions of the
         applicable Schedule. If one or more Advance Rents are payable, such
         Advance Rent shall be (i) set forth on the applicable Schedule, (ii)
         due upon acceptance by Lessor of such Schedule, and (iii) v hen
         received by Lessor, applied to the first rent payment 


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         and the balance, if any, to the final rental payment(s) under such
         Schedule. In no event shall any Advance Rent or any other rent payments
         be refunded to Lessee. If rent is not paid within ten days of its due
         date, Lessee agrees to pay a late charge of five cents ($.05) per
         dollar on, and in addition to, the amount of such rent but not
         exceeding the lawful maximum, if any.

III.     RENT ADJUSTMENT:

(a)      The periodic rent payments m each Schedule have been calculated on the
         assumption (which, as between Lessor and Lessee, is mutual) that the
         maximum effective corporate income tax rate (exclusive of any minimum
         tax rate) for calendar-year taxpayer ("Effective Rate") will be
         thirty-five percent (35%) each year during the lease term.

(b)      If, solely as a result of Congressional enactment of any law
         (including, without limitation, any modification of, or amendment or
         addition to, the Internal Revenue Code of 1986, as amended, (the
         "Code")), the Effective Rate is higher than thirty-five percent (35%)
         for any year during the lease term, then Lessor shall have the right to
         increase such rent payments by requiring payment of a single additional
         sum equal to the product of (i) the Effective Rate (expressed as a
         decimal) for such year less .35 (or, in the event that any adjustment
         has been made hereunder for any previous year, the Effective Rate
         (expressed as a decimal) used in calculating the next previous
         adjustment) times (ii) the adjusted Termination Value, divided by (iii)
         the difference between the new Effective Tax Rate (expressed as a
         decimal) and one ( I ). The adjusted Termination Value shall be the
         Termination Value (calculated as of the first rental due in the year
         for which such adjustment is being made) less the Tax Benefits that
         would be allowable under Section 168 of the Code (as of the first day
         of the year for which such adjustment is being made and all subsequent
         years of the lease term). Lessee shall pay to Lessor the full amount of
         the additional rent payment on the later of (i) receipt of notice or
         (ii) the first day of the year for which such adjustment is being made.

(c)      Lessee's obligations under this Section lll shall survive any
         expiration or termination of this Agreement.

IV.      TAXES: Except as provided in Sections lll and XV(c), Lessee shall have
         no liability for taxes imposed by the United States of America or any
         State or political subdivision thereof which are on or measured by the
         net income of Lessor. Lessee shall report (to the extent that it is
         legally permissible) and pay promptly all other taxes, fees and
         assessments due, imposed, assessed or levied against any Equipment (or
         the purchase, ownership, delivery, leasing, possession, use or
         operation thereof), this Agreement (or any rentals or receipts
         hereunder), any Schedule, Lessor or Lessee by any foreign, federal,
         state or local government or taxing authority during or related to the
         term of this Agreement, including, without limitation, all license and
         registration fees, and all sales, use, personal property, excise, gross
         shall (i) reimburse Lessor upon receipt of written request for
         reimbursement for any Taxes charged to or assessed against Lessor, (ii)
         on request of Lessor, submit to Lessor written evidence of Lessee's
         payment of Taxes, (iii) on all reports or returns show the ownership of
         the Equipment by Lessor, and (iv) send a copy thereof to Lessor.

V.       REPORTS:

(a)      Lessee will notify Lessor in writing, within ten (10) days after any
         tax or other lien shall attach to any Equipment, of the full
         particulars thereof and of the location of such equipment on the date
         of such notification .


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(b)      Lessee will within ninety (90) days of the close of each fiscal year of
         Lessee, deliver to Lessor, Lessee's balance sheet and profit and loss
         statement, certified by a recognized firm of certified public
         accountants. Upon request Lessee will deliver to Lessor quarterly,
         within ninety (90) days of the close of each fiscal quarter of Lessee,
         in reasonable detail, copies of Lessee's quarterly financial report
         certified by the chief financial officer of Lessee.

(c)      Lessee will permit Lessor to inspect any Equipment during normal
         business hours.

(d)      Lessee will keep the Equipment at the Equipment Location (specified in
         the applicable Schedule) and will promptly notify Lessor of any
         relocation of Equipment. Upon the written request of Lessor. Lessee
         will notify Lessor forthwith in writing of the location of any
         Equipment as of the date of such notification.

(e)      Lessee will promptly and fully report to Lessor in writing if any
         Equipment is lost or damaged (where the estimated repair costs would
         exceed ten percent ( 10%) of its then fair market value), or is
         otherwise involved in an accident causing personal injury or property
         damage.

(f)      Within sixty (60) days after any request by Lessor, Lessee will furnish
         a certificate of an authorized officer of Lessee stating that he has
         reviewed the activities of Lessee and that, to the best of his
         knowledge, there exists no default (as described in Section Xll) or
         event which with notice or lapse of time (or both) would become such a
         default.

VI.      DELIVERY, USE AND OPERATION:

(a)      All Equipment shall be shipped directly from the Supplier to Lessee.

(b)      Lessee agrees that the Equipment shall be used by Lessee solely in the
         conduct of its business and in a manner complying with all applicable
         federal, state, and local laws and regulations.

(c)      LESSEE SHALL NOT ASSIGN, MORTGAGE, SUBLET OR HYPOTHECATE ANY EQUIPMENT,
         OR THE INTEREST OF LESSEE HEREUNDER. NOR SHALL LESSEE REMOVE ,ANY
         EQUIPMENT FROM THE CONTINENTAL UNITED STATES. WITHOUT THE PRIOR WRITTEN
         CONSENT OF THE LESSOR.

(d)      Lessee will keep the Equipment free and clear of all liens and
         encumbrances other than those which result from acts of Lessor

VII.     SERVICE:

(a)      Lessee will, at its sole expense, maintain each unit of Equipment in
         good operating order, repair, condition and appearance in accordance
         with manufacturer's recommendations, normal wear and tear excepted.
         Lessee shall, if at any time requested by Lessor, affix in a prominent
         position on each unit of Equipment plates, tags or other identifying
         labels showing ownership thereof by Lessor

(b)      Lessee will nor, without the prior consent of Lessor, affix or install
         any accessory, equipment or device on any Equipment if such addition
         will impair the originally intended function or use of such Equipment.
         All additions, repairs, parts, supplies, accessories, equipment, and
         devices furnished, attached or affixed to any Equipment which are not
         readily removable shall be made only in compliance with applicable law,
         including Internal


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         Revenue Service guidelines, and shall become the property of Lessor.
         Lessee will not, without the prior written consent of Lessor and
         subject to such conditions as Lessor may impose for its protection,
         affix or install any Equipment to or in any other personal or real
         property.

(c)      Any alterations or modifications to the Equipment that may, at any time
         during the term of this Agreement, be required to comply with any
         applicable law, rule or regulation shall be made at the expense of
         Lessee.

VIII.    STIPULATED LOSS VALUE: Lessee shall promptly and fully notify Lessor in
         writing if any unit of Equipment shall be or become worn out, lost,
         stolen, destroyed, irreparably damaged in the reasonable determination
         of Lessee, or permanently rendered unfit for use from any cause
         whatsoever (such occurrences being hereinafter called "Casualty
         Occurrences"). On the rental payment date next succeeding a Casualty
         Occurrence (the "Payment Date"), Lessee shall pay Lessor the sum of (x)
         the Stipulated Loss Value of such unit calculated as of the rental next
         preceding such Casualty Occurrence (-CALCULATION Date-); and (y) all
         rental and other amounts which are due hereunder as of the Payment
         Date. Upon payment of all sums due hereunder, the term of this lease as
         to such unit shall terminate and (except in the case of the loss, theft
         or complete destruction of such unit) Lessor shall be entitled to
         recover possession of such unit

IX.      LOSS OR DAMAGE: Lessee hereby assumes and shall bear the entire risk of
         any loss, theft, damage to, or destruction of, any unit of Equipment.

X.       INSURANCE: Lessee agrees, at is own expense, to keep all Equipment
         insured for such amounts and against such hazards as Lessor may
         require, including, but not limited to, insurance for damage to or loss
         of such Equipment and liability coverage for personal injuries, death
         or property damage! with Lessor named as additional insured and with a
         loss payable clause in favor of Lessor, as is interest may appear,
         irrespective of any breach of warranty or other act or omission of
         Lessee. The insurance shall provide (i) liability coverage in an amount
         equal to at least ONE MILLION U S. DOLLARS ($1,000,000.00) total
         liability per occurrence, unless otherwise stated in any Schedule, and
         (ii) casualty /property damage coverage in an amount equal to the
         higher of the Stipulated Loss Value or the full replacement cost of the
         Equipment; or at such other amounts as may be required by Lessor. All
         such policies shall be with companies, and on terms, satisfactory to
         Lessor. Lessee agrees to deliver to Lessor evidence of insurance
         satisfactory to Lessor. No insurance shall be subject to any
         co-insurance clause. Lessee hereby appoints Lessor as Lessee's
         attorney-in-fact to make proof of loss and claim for insurance, and to
         make adjustments with insurers and to receive payment of and execute or
         endorse all documents, checks or drafts in connection with payments
         made as a result of such insurance policies. Any expense of Lessor in
         adjusting or collecting insurance shall be become by Lessee. Lessee
         will not make adjustments with insurers except (i) with respect to
         claims for damage to any unit of Equipment where the repair costs do
         not exceed ten percent (10%) of such unit's fair market value, or (ii)
         with Lessors written consent. Said policies shall provide that the
         insurance may not be altered or canceled by the insurer until after
         shiny (30) days written notice to Lessor. Lessor may, at is option,
         apply proceeds of insurance, whole or in pan, to (i) repair or replace
         Equipment or any portion thereof, or (ii) satisfy any obligation of
         Lessee to Lessor hereunder.

XI.      RETURN OF EQUIPMENT:

(a)      Upon any expiration or termination of this Agreement or any Schedule,
         Lessee shall promptly, at its own cost and expense: (i) perform any
         testing and repairs required to place


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         the affected units of Equipment in the same condition and appearance as
         when received by Lessee (reasonable wear and tear excepted) and in good
         working order for their originally intended purpose; (ii) if
         deinstallation, disassembly or crating is required, cause such units to
         be deinstalled, disassembled and crated by an authorized manufacture's
         representative or such other service person as is satisfactory to
         Lessor; and (iii) return such units to a location within the
         continental United States as Lessor shall direct; (iv) ensure all
         Lessee installed markings which are not necessary for the operation,
         maintenance or repair of the Equipment are properly removed; (v)
         provide that all Equipment will be cleaned and cosmetically acceptable,
         and in such condition as to be immediately installed and put into use
         in a similar environment for which the Equipment was originally
         intended to be used; (vi) remove all waste material and fluid from the
         Equipment and dispose of in accordance with then current waste disposal
         laws; and (vii) obtain and pay for a policy of transit insurance for
         the redelivery period in an amount equal to the replacement value of
         1he equipment and name Lessor as the loss payee on all such policies of
         insurance.

(b)      Until Lessee has fully complied with the requirements of Section Xl(a)
         above, Lessee's rent payment obligation and all other obligations under
         this Agreement shall continue from month to month notwithstanding any
         expiration or termination of the lease term. Lessor may terminate such
         continued leasehold interest upon ten (10) days notice to Lessee.

(c)      At least ninety (90) days and not more than one hundred twenty (120)
         days prior to lease termination. Lessee shall: (i) provide to Lessor a
         detailed inventory of all component of the Equipment including model
         and serial numbers; and (ii) provide an up-to-date copy of all
         documentation pertaining to the Equipment including, but not limited to
         service manuals, blue pants, process flow,, diagrams, operating manuals
         and maintenance records.

(d)      At least one hundred twenty (120) days prior to and continuing up to
         lease termination. Lessee shall, upon receiving reasonable notice from
         Lessor, make the Equipment available for on-site operational
         inspections by potential purchasers. Lessee shall provide personnel,
         power and other requirements necessary to demonstrate electrical,
         hydraulic and mechanical systems for each item of Equipment.

XII.     DEFAULT:

(a)      Lessor may in writing declare this Agreement in default if Lessee
         breaches its obligation to pay rent or any other sum when due and fails
         to cure the breach within ten ( 10) days; Lessee breaches any of its
         insurance obligations under Section X; Lessee breaches any of is other
         obligations and fails to cure that breach within thirty (30) days after
         written notice thereof; any representation or warranty made by Lessee
         in connection with this Agreement shall be false or misleading in any
         material respect; Lessee becomes insolvent or ceases to do business as
         a going concern; any Equipment is illegally used; or a petition is
         filed by or against Lessee or any Guarantor of Lessee's obligations to
         Lessor under any bankruptcy or insolvency laws. Such declaration shall
         apply to all Schedules except as specifically excepted by Lessor.

(b)      After default, at the request of Lessor, Lessee shall comply with the
         provisions of Section Xl(a). Lessee hereby authorizes Lessor to enter,
         with or without legal process, any premises where any Equipment is
         believed to be and take possession thereof. Lessee shall, without
         further demand, forthwith pay to Lessor (i) as liquidated damages for
         loss of a bargain and not as a penalty, the Stipulated Loss Value of
         the Equipment (calculated as of the rental next preceding the
         declaration of default), and (ii) all rentals and other sums then due
         hereunder. Lessor may, but shall not be required to, sell Equipment at
         private or public sale, in bulk or in parcels, with or without notice,
         and without having the Equipment


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         present at the place of sale; or Lessor may, but shall not be required
         to, lease, otherwise dispose of or keep idle all or part of the
         Equipment; and Lessor may use Lessee's premises for any or all of the
         foregoing without liability for rent. costs, damages or otherwise. The
         proceeds of sale, lease or other disposition, if any, shall be applied
         in the following order of priorities: (1) to pay all of Lessor's cost,
         charges and expenses incurred in taking, removing, holding, repairing
         and selling, leasing or otherwise disposing of Equipment; then, (2) to
         the extent not previously paid by Lessee, to pay Lessor all sums due
         from Lessee hereunder; then (3) to reimburse to Lessee any sums
         previously paid by Lessee as liquidated damages; and (4) any surplus
         shall be retained by Lessor. Lessee shall pay any deficiency in ( I )
         and (2) forthwith

(c)      The foregoing remedies are cumulative, and any or all thereof may be
         exercised in lieu of or in addition to each other or any remedies at
         law, in equity, or under statute. Lessee waives notice of sale or other
         disposition (and the time and place thereof), and the manner and place
         of any advertising. Lessee shall pay Lessor's annual attorney's fees
         incurred in connection with the enforcement, assertion defense or
         preservation of Lessor's rights and remedies hereunder, or if
         prohibited by law, such lesser sum as may be permitted. Waiver of any
         default shall not be a waiver of any other or subsequent default.

(d)      Any default under the terms of this or any other agreement between
         Lessor and Lessee may be declared by Lessor a default under this and
         any such other agreement.

XIII.    ASSIGNMENT: Lessor may, without the consent of Lessee, assign this
         Agreement or any Schedule. Lessee agrees that if Lessee receives
         written notice of an assignment from Lessor, Lessee will pay all rent
         and all other amounts payable under any assigned Equipment Schedule to
         such assignee or as instructed by Lessor. Lessee further agrees to
         confirm in writing receipt of the notice of assignment as may be
         reasonably requested by assignee. Lessee hereby waives and agrees not
         to assert against any such assignee any defense, set-off, recoupment
         claim or counterclaim which Lessee has or may at any time have against
         Lessor for any reason whatsoever.

XIV.     NET LEASE; NO SET-OFF, ETC: This Agreement is a net lease. Lessee's
         obligation to pay rent and other amount due hereunder shall be absolute
         and unconditional. Lessee shall not be entitled to any abatement or
         reductions of, or set-offs against said rent or other amounts,
         including. without limitation, those arising or allegedly arising out
         of claims (present or future, alleged or annual and including claims
         arising out of strict tort or negligence of Lessor) of Lessee against
         Lessor under this Agreement or otherwise. Nor shall this Agreement
         terminate or the obligations of Lessee be affected by reason of any
         defect in or damage to, or loss of possession, use or destruction of,
         any Equipment from whatsoever cause. It is the intention of the parties
         that rents and other amounts due hereunder shall continue to be payable
         in all events in the manner and at the times set forth herein unless
         the obligation to do so shall have been terminated pursuant to the
         express terms hereof

XV.      INDEMNIFICATION:

(a)      Lessee hereby agrees to indemnify, save and keep harmless Lessor, its
         agents, employees, successors and assigns from and against any and all
         losses, damages, penalties, injuries, claims, anions and suits,
         including legal expenses, of whatsoever kind and nature, in contract or
         tort (but excluding all losses, damages, penalties, injuries, claims,
         anions and suits arising solely from willful misconduct or gross
         negligence of Lessor) including, but not limited to, Lessor's strict
         liability in tort, arising out of (i) the selection, manufacture,
         purchase, acceptance or rejection of Equipment, the ownership of
         Equipment during the term of this Agreement, and the delivery, lease,
         possession, maintenance, uses, condition,


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      return or operation of Equipment (including, without limitation, latent
      and other defects, whether or not discoverable by Lessor or Lessee and
      any claim for patent. trademark or copyright infringement or
      environmental damage) or (ii) the condition of Equipment sold or
      disposed of after use by Lessee any sublessee or employees of Lessee.
      Lessee shall. upon request. defend any actions based on. or arising out
      of any of the foregoing

(b)   Lessee hereby represents, warrants and covenants that (i) on the Lease
      Commencement Date for any unit of Equipment, such unit will qualify for
      all of the items of deduction and credit specified in Section C of the
      applicable Schedule ("Tax Benefits") in the hands of Lessor (all
      references to Lessor in this Section XV include Lessor and the
      consolidated taxpayer group of which Lessor is a member), and (ii) at
      no time during the term of this Agreement will Lessee take or omit to
      take, nor will it permit any sublessee or assignee to take or omit to
      take, any action (whether or not such an or omission is otherwise
      permitted by Lessor or the terms of this Agreement), which will result
      in the disqualification of any Equipment for, or recapture of, all or
      any portion of such Tax Benefits.

(c)   If as a result of a breach of any representation, warranty or covenant
      of the Lessee contained in this Agreement or any Schedule (x) tax
      counsel of Lessor shall determine that Lessor is not entitled to claim
      on its Federal income tax return all or any portion of the Tax Benefits
      with respect to any Equipment, or (y) any such Tax Benefit claimed on
      the Federal income tax return of Lessor is disallowed or adjusted by
      the Internal Revenue Service, or (z) any such Tax Benefit is recomputed
      or recaptured (any such determination, disallowance, adjustment,
      recomputation or recapture being hereinafter called a "Loss"), then
      Lessee shall pay to Lessor, as an indemnity and as additional rent,
      such amount as shall, in the reasonable opinion of Lessor, cause
      Lessor's after-tax economic yields and cash flows, computed on the same
      assumptions, including tax rates (unless any adjustment has been made
      under Section 111 hereof, in which case the Effective Rate used in the
      next preceding adjustment shall be substituted), as were utilized by
      Lessor in originally evaluating the transaction (such yields and flows
      being hereinafter called the "NET ECONOMIC Return") to equal the Net
      Economic Return that would have been realized by Lessor if such Loss
      had not occurred. Such amount shall be payable upon demand accompanied
      by a statement describing in reasonable detail such Loss and the
      computation of such amount.

(d)   All of Lessor's rights, privileges and indemnities contained in this
      Section XV shall survive the expiration or other termination of this
      Agreement and the rights, privileges and indemnities contained herein are
      expressly made for the benefit of, and shall be enforceable by Lessor, is
      successors and assigns.

XVI.  DISCLAIMER: LESSEE ACKNOWLEDGES THAT TT HAS SELECTED THE EQUIPMENT
      WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR
      DOES NOT MAKE, HAS NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE,
      ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR
      ORAL, WITH RESPECT TO THE EQUIPMENT LEASED HEREUNDER OR ANY COMPONENT
      THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN,
      COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP,
      MERCHAN'TABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY,
      PATENT, TRADEMARK OR COPYRIGHT INFRINGEMEN'T, OR TITLE. All such risks,
      as between Lessor and Lessee, are to be borne by Lessee. Without
      limiting the foregoing. Lessor shall have no responsibility or
      liability to Lessee or any other person with respect to any of the
      following, regardless of any negligence of Lessor (i) any liability,
      loss or damage caused or alleged to be caused directly or indirectly by
      any Equipment, any inadequacy thereof, any deficiency or defect (latent
      or otherwise) therein, or any other circumstance in connection
      therewith; (ii) the use, operation or performance of any Equipment or
      any risks 



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      relating thereto; (iii) any interruption of service, loss of business or
      anticipated profits or consequential damages; or (iv) the delivery,
      operation, servicing, maintenance, repair, improvement or replacement of
      any Equipment. If, and so long as, no default exists under this Lease,
      Lessee shall be, and hereby is, authorized during the term of this Lease
      to assert and enforce. at Lessee's sole cost and expense. from time to
      time. in the name of and for the account of Lessor and or Lessee. as their
      interests may

XVII. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee hereby
      represents and warrants to Lessor that on the date hereof and on the
      date of execution of each Schedule

(a)   Lessee has adequate power and capacity to enter into, and perform under,
      this Agreement and ail related documents (together, the "DOCUMENTS") AND
      IS DULY qualified to do business wherever necessary to y on its present
      business and operations, including the jurisdiction(s) where the Equipment
      is or is to be located.

(b)   The Documents have been duly authorized, executed and delivered by Lessee
      and constitute valid, legal and binding agreements, enforceable in
      accordance with their terms, except to the extent that the enforcement of
      remedies therein provided may be limited under applicable bankruptcy and
      insolvency laws.

(c)   No approval, consent or withholding of objections is required from any
      governmental authority or instrumentality with respect to the entry into
      or performance by Lessee of the Documents except such as have already
      herein obtained

(d)    The entry into and performance by Lessee of the Documents will not:
      (i) violate any judgment, order, law or regulation applicable to Lessee
      or any provision of Lessee's Certificate of Incorporation or by-laws;
      or (ii) result in any breach of, constitute a default under or result
      in the creation of any lien, charge, security interest or other
      encumbrance upon any Equipment pursuant to any indenture, mortgage,
      deed of trust, bank loan or credit agreement or other instrument (other
      than this Agreement) to which Lessee is a party

(e)   There are no suits or proceedings pending or threatened in court or before
      any commission, board or other administrative agency against or affecting
      Lessee, which will have a material adverse effect on the ability of Lessee
      to fulfill its obligations under this Agreement.

(f)   The Equipment accepted under any Certificate of Acceptance is and will
      remain tangible personal property.

(g)   Each Balance Sheet and Statement of Income delivered to Lessor has been
      prepared in accordance with generally accepted accounting principles, and
      since the date of the most recent such Balance Sheet and Statement of
      Income, there has been no material adverse change.

(h)   Lessee is and will be at all times validly existing and in good standing
      under the laws of the State of its incorporation (specified in the first
      sentence of this Agreement).

(i)   The Equipment will at all times be used for commercial or business
      purposes.

XVIII. EARLY TERMINATION:

(a)   On or after the First Termination Date (specified in the applicable
      Schedule), Lessee may, so long as no default exists hereunder, terminate
      this Agreement as to all (but not less than 



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      all) of the Equipment on such Schedule as of a rent payment date
      ("Termination Date") upon at least ninety (90) days prior written notice
      to Lessor.

(b)   Lessee shall, and Lessor may, solicit cash bids for the Equipment on an AS
      IS, WHERE IS BASIS without recourse to or warranty from Lessor, express or
      implied ("AS IS BASIS"). Prior to the Termination Date, Lessee shall (i)
      certify to Lessor any bids received by Lessee and (ii) pay to Lessor (A)
      the Termination Value (calculated as of the rental due on the Termination
      Date) for the Equipment. and (B) all rent and other sums due and unpaid as
      of the Termination Date.

(c)   Provided that all amounts due hereunder have been paid on the Termination
      Date, Lessor shall (i) sell the Equipment on an AS IS BASIS for cash to
      the highest bidder and (ii) refund the proceeds of such sale (net of any
      related expenses) to Lessee up to the amount of the Termination Value. If
      such sale is not consummated, no termination shall occur and Lessor shall
      refund the Termination Value (less any expenses incurred by Lessor) to
      Lessee.

(d)   Notwithstanding the foregoing, Lessor may elect by written notice, at any
      time prior to the Termination Date, not to sell the Equipment In that
      event on the Termination Date Lessee shall (i) return the Equipment (in
      accordance with Section XI) and (ii) pay to Lessor all amounts required
      under Section XVIII(B) LESS THE amount of the highest bid certified by
      Lessee to Lessor.

XIX.  PURCHASE OPTION:

(a)   So long as no default exists hereunder and the lease has not been earlier
      terminated, Lessee may at lease expiration, upon at least one hundred
      eighty ( 180) days prior written notice to Lessor, purchase all (but not
      less than all) of the Equipment in any Schedule on an AS IS WHERE IS
      BASIS, without recourse to or warranty from Lessor, express or implied,
      for cash equal to its then Fair Market Value (plus all applicable sales
      taxes).

(b)   "FAIR MARKET VALUE" SHALL mean the price which a willing buyer (who is
      neither a lessee in possession nor a used equipment dealer) would pay
      for the Equipment in an arm's-length transaction to a willing seller
      under no compulsion to sell; PROVIDED, HOWEVER, that in such
      determination: (i) the Equipment shall be assumed to be in the
      condition in which it is required to be maintained and resumed under
      this Agreement; (ii) in the case of any installed Equipment that
      Equipment shall be valued on an installed basis; and (iii) costs of
      removal from current location shall not be a deduction from such
      valuation. If Lessor and Lessee are unable to agree on the Fair Market
      Value at least one hundred thirty-five (135) days before lease
      expiration, Lessor shall appoint an independent appraiser (reasonably
      acceptable to Lessee) to determine Fair Market Value, and that
      determination shall be final, binding and conclusive. Lessee shall bear
      all costs associated with any such appraisal.

(c)   Lessee shall be deemed to have waived this option unless it provides
      Lessor with written notice of its irrevocable election to exercise the
      same within fifteen (15) days after Fair Market Value is determined (by
      agreement or appraisal).

XX.   MISCELLANEOUS:

(a)   LESSEE HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY
      CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
      INDIRECTLY, TIHIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS
      BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER 



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      OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP
      THAT IS BEING ESTABLISHED BETWEEN LESSEE AND LESSOR. THE SCOPE OF THIS
      WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY
      BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
      TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
      CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED
      EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT
      AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE, ANY
      RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO
      THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION,
      THIS LEASE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT

(b)   Unless and until Lessee exercises its rights under Section XIX above,
      nothing herein contained shall give or convey to Lessee any right title
      or interest in and to any Equipment except as a lessee. Any
      cancellation or termination by Lessor, pursuant to the provision of
      this Agreement, any Schedule, supplement or amendment hereto, or the
      lease of any Equipment hereunder, shall not release Lessee from any
      then outstanding obligations to Lessor hereunder. All Equipment shall
      at all times remain personal property of Lessor regardless of the
      degree of its annexation to any real property and shall not by reason
      of any installation in, or affixation to, real or personal property
      become a part thereof.

(c)   Time is of the essence of this Agreement Lessor's failure at anytime to
      require strict performance by Lessee of any of the provisions hereof
      shall not waive or diminish Lessor's right thereafter to demand strict
      compliance therewith. Lessee agrees, upon Lessor's request, to execute
      any instrument necessary or expedient for filing, recording or
      perfecting the interest of Lessor. All notices required to be given
      hereunder shall be deemed adequately given if sent by registered or
      certified mail to the addressee at its address stated herein, or at
      such other place as such addressee may have designated in writing. This
      Agreement and any Schedule and Annexes thereto constitute the entire
      agreement of the parties with respect to the subject matter hereof NO
      VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF ANY OF
      ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND
      SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO.

(d)   In case of a failure of Lessee to comply with any provision of this
      Agreement, Lessor shall have the right, but shall not be obligated, to
      effect such compliance, in whole or in part; and all moneys spent and
      expenses and obligations incurred or assumed by Lessor in effecting
      such compliance shall constitute additional rent due to Lessor within
      five days after the date Lessor sends notice to Lessee requesting
      payment. Lessor's effecting such compliance shall not be a waiver of
      Lessee's default.

(e)   Any rent or other amount not paid to Lessor when due hereunder shall bear
      interest, both before and after any judgment or termination hereof, at the
      lesser of eighteen percent (18%) per annum or the maximum rate allowed by
      law. Any provisions in this Agreement and any Schedule which are in
      conflict with any statute, law or applicable rule shall be deemed omitted
      modified or altered to conform thereto.

(f)   Adjustment to Capitalized Lessor's Cost Lessee hereby irrevocably
      authorizes Lessor to adjust the Capitalized Lessor's Cost up or down by
      no more than ten percent (10%) within each Schedule to account for
      equipment change orders, equipment returns, invoicing errors, and
      similar manner. Lessee acknowledges and agrees that the Rent shall be
      adjusted as a 



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<PAGE>   11
      result of such change in the Capitalized Lessor's Cost. Lessor shall send
      Lessee a written notice stating the final Capitalized Lessor's Cost, if
      different from that disclosed on the Schedule.

IN WITNESS WEIEREOF, Lessee and Lessor have caused this Schedule to be executed
by their duly authorized representatives as of the date first above written


      LESSOR:                                     LESSEE:


     General Electric Capital Corporation         Telco Systems, Inc.
     By;  Eric J. Staczek                         By: William J. Stuart
     Credit Analyst                               VP & CFO



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