MASTER EQUIPMENT LEASE AGREEMENT


LESSEE:  American Communications            LESSOR: AT&T Credit Corporation
                  Services, Inc.

Street Address:  131 National Business      Address:  44 Whippany Road
                     Parkway, Suite 100                Morristown, NJ 07962-1983


City, State, Zip:  Annapolis Junction,      Lease Number:  960823
                      Maryland 20701



                  1.  AGREEMENT.  Lessor  agrees to lease to Lessee  and  Lessee
agrees to lease from Lessor the equipment  (Equipment) described in any schedule
(Schedule) that incorporates  this Master Equipment Lease Agreement  (Agreement)
by  reference.  The  Equipment to be leased under the  Schedules  shall be up to
eight  Network  Systems 5ESS Systems  with total  purchase  prices not to exceed
$11,700,000  in the  aggregate,  subject to upward  adjustment  by Lessor in its
discretion.  A Schedule shall incorporate this Agreement by reference by listing
the above-referenced  Lease Number thereon.  Such lease shall be governed by the
terms and conditions of this  Agreement,  as well as by the terms and conditions
set  forth  in the  applicable  Schedule.  Each  Schedule  shall  constitute  an
agreement  separate and distinct from this Agreement and any other Schedule.  In
the event of a conflict between the provisions of this Agreement and a Schedule,
the provisions of the Schedule shall govern.

                  2. ASSIGNMENT OF PURCHASE  DOCUMENTS;  TRANSACTION  COSTS. (a)
Lessee  shall  execute  and  deliver  to Lessor a writing  acceptable  to Lessor
whereby Lessee:  (1) confirms Lessor's title to, and ownership of, the Equipment
described in the applicable  Schedule and (2) assigns all of Lessee's rights and
interest  in  and  to  any   purchase   order,   contract  or  other   documents
(collectively, Purchase Documents) relating thereto that Lessee has entered into
with Lucent Technologies Inc. (Seller) solely as such rights and interest relate
to such Equipment.  By executing the applicable Schedule,  Lessee represents and
warrants  (i) that  Lessee has  reviewed,  approved  and  received a copy of the
applicable  Purchase  Documents,  (ii) that  Lessee  may have  rights  under the
Purchase Documents and (iii) that Lessee may contact Seller for a description of
such rights.

                  (b) If any  funding  of the  purchase  price  of any  item  of
Equipment  occurs on any "Funding Date" (as defined in Section 4 below),  Lessor
will be  responsible  for and  provide  the  funds to pay  transaction  expenses
(Transaction Expenses), including the reasonable attorneys' fees and expenses of
counsel to Lessor and the Lessee and the fees and expenses of Lessee's financial
advisor,  solely to the extent that the Transaction Expenses do not exceed those
set forth in the  Pricing  Assumptions  on  Appendix A hereto.  Lessee  shall be
responsible for and provide the funds to pay  Transaction  Expenses in excess of
such amount and shall pay all Transaction Expenses if no funding of the purchase
price of items of  Equipment  occurs  prior to October 31, 1996 (other than as a
result of a breach of this  Agreement  by  Lessor) or if Lessee  decides  not to
proceed  with the  transactions  contemplated  herein  as a result  of any event
described in Section 4(iv) or 4(v).



<PAGE>


                                      - 2 -

                  3. DELIVERY;  ACCEPTANCE.  Lessee shall cause the Equipment to
be delivered to Lessee and installed at the Equipment  Location (as specified in
the  applicable  Schedule) and Lessee shall promptly  begin  acceptance  testing
pursuant  to agreed  upon test plans and  procedures  with  Seller to  determine
whether the Equipment  meets  acceptance  criteria.  Final  acceptance  shall be
deemed to occur upon the earliest of the following (Final  Acceptance Date): (i)
successful completion of acceptance testing; (ii) the end of the forty-fifth day
following  the date  installation  is  completed,  unless,  prior to such  date,
acceptance  testing has disclosed the existence of any material defect affecting
the ability of the  Equipment to perform as  warranted by Seller,  at which time
the testing period will be suspended,  with testing to resume upon correction of
the material  defect;  (iii)  Lessee's  failure to commence  acceptance  testing
within five working days after the date installation is completed; (iv) Lessee's
failure after commencement of acceptance testing to continue  acceptance testing
in accordance with the acceptance procedures agreed upon with the Seller; or (v)
Lessee's  written  acknowledgment  of acceptance of the  Equipment.  At Lessor's
option, if the Equipment has not been accepted within 180 days after delivery of
the Equipment to the Equipment  Location,  the Equipment shall be deemed to have
suffered  an "Event of Loss" (as  defined in Section  13  below).  Lessee  shall
evidence its final  acceptance of the  Equipment by executing and  delivering to
Lessor an acceptance certificate (Acceptance Certificate) in the form of Exhibit
D attached hereto, which shall establish Lessee's irrevocable acceptance of such
Equipment.

                  4. CONDITIONS PRECEDENT;  PURCHASE OF EQUIPMENT.  Lessor shall
have no obligation to purchase items of Equipment from Seller unless on the date
of the  execution  and  delivery  of the  Schedule  relating  thereto all of the
following  conditions shall be satisfied:  (i) no "Event of Default" (as defined
in Section 19) exists;  (ii) no event has occurred and is  continuing  that with
notice  or the  lapse of time or both  would  constitute  an  Event  of  Default
("Potential  Default");  (iii) on or prior to the date of the  execution  of the
initial  Schedule,  Lessee's  counsel has delivered to Lessor opinion letters in
form and  substance  satisfactory  to Lessor  with  respect to the  transactions
contemplated  herein;  (iv) on or  prior  to the  date of the  execution  of the
initial  Schedule,  no change in law shall have occurred that, in the reasonable
judgment  of Lessor or  Lessee  renders  the  transactions  contemplated  herein
uneconomic;   (v)  Lessor  shall  have   received   certificates   of  insurance
demonstrating  compliance by Lessee with the  requirements of Section 8; (vi) on
or prior to the date of the execution of the initial Schedule, Lessor shall have
received a certificate  of the  Secretary of the Lessee as to the  incumbency of
the  officers  of  the  Lessee,   the  due  authorization  of  the  transactions
contemplated by this Agreement,  and the accuracy of Lessee's by-laws, a copy of
which shall be attached thereto;  (vii) Lessee shall have executed and delivered
to Lessor appropriate  Uniform Commercial Code Financing  Statements to be filed
for precautionary purposes with respect to the Equipment Location; (viii) Lessee
shall  have  delivered  to  Lessor  landlord   waivers  in  form  and  substance
satisfactory to Lessor with respect to the Equipment Location; (ix) Seller shall
have consented in writing to the assignment of the Purchase Documents to Lessor;
(x)  Lessee  shall have  executed  and  delivered  to Lessor  the  Schedule  and
Commencement Certificate in the form of Exhibit C attached hereto ("Commencement
Certificate")  relating to the items of Equipment to be purchased by Lessor from
Seller,  which  Commencement  Certificate  shall be  dated  as of the date  such
Equipment is delivered by Seller to Lessee  (Commencement  Date); and (xi) on or
prior to the date of the execution of the initial Schedule, Seller shall execute
in favor of Lessee a Confirmation  Agreement in form and substance  satisfactory
to Lessee.  Upon satisfaction of all the conditions  precedent,  Lessor shall be
obligated to purchase the Equipment from Seller in accordance  with the terms of
the  Purchase  Documents,  including  the  payment  to  Seller  for each item of
Equipment,  of thirty-seven  and one-half  percent (37.5%) of the purchase price
thereof thirty days after shipment, thirty-seven and one-half percent (37.5%) of
the purchase price thereof thirty


<PAGE>


                                      - 3 -

days after the date installation  thereof is completed,  and twenty-five percent
(25%) of the purchase price thereof thirty days after the Final  Acceptance Date
(each of the  above  payment  dates  being a  "Funding  Date")  and to lease the
Equipment to Lessee.

                  5. TERM.  The initial  term of each  Schedule  (Initial  Term)
shall begin on the Commencement Date (regardless of whether the Final Acceptance
Date has occurred) and shall continue for the period specified in such Schedule.
Any renewal term of a Schedule  (Renewal Term) shall begin on the expiration of,
as  applicable,  the Initial Term or any preceding  Renewal Term  (collectively,
Term).  The then current Initial Term or the Renewal Term is sometimes  referred
to hereinafter as the Applicable Term.

                  6. RENT;  LATE  CHARGES.  Lessee shall pay Lessor the periodic
Rental  Payments  specified  in the  applicable  Schedule  quarterly  in arrears
beginning  three months after the applicable  Commencement  Date,  regardless of
whether  Lessee  has  received   notice  that  such  Rental  Payments  are  due.
Additionally,  if pursuant to this Agreement or the applicable Schedule the term
is  extended or a renewal  option  exercised,  Lessee  shall also pay all Rental
Payments  required  with respect  thereto.  All Rental  Payments will be sent to
Lessor's  above-referenced  address,  or to such other  address as  specified by
Lessor  in  writing.  The  Rental  Payments  are  based on the  methodology  and
assumptions  set forth in  Appendix  A (the  "Pricing  Assumptions")  subject to
adjustment  as set forth in Section 7. Lessee  agrees to pay Lessor  interest on
any Rental Payment (or other amount due  hereunder)  that is not paid within ten
days of its due  date at the rate of 1 1/2% per  month on any such  amounts  (or
such lesser rate as is the maximum rate allowable under  applicable  law). Also,
in the event that more than one Schedule is entered into hereunder,  the parties
will  use  their  best  efforts  to  implement  a  common  billing  date for all
Schedules.

                  7.  TAX INDEMNITY; ADJUSTMENTS.  (a)  This Agreement has been
entered into on the basis of the following Tax Assumptions:

         (1) the Federal rate of income tax on Lessor's  taxable  income will be
35% and the assumed  state tax rate on Lessor's  taxable  income will be 7% (the
"State Rate");

         (2) Lessor will have sufficient taxable income to utilize all
deductions arising hereunder;

         (3) Lessor  will be  entitled,  for  Federal  income tax  purposes,  to
depreciation deductions with respect to each item of Equipment,  computed on the
basis that the  Equipment  is "5-year  property"  within the  meaning of section
168(e) of the  Internal  Revenue  Code of 1986,  as amended and in effect on the
date hereof (the "Code") by using the 200% declining  balance method,  switching
to the straight-line  method for the first taxable year of Lessor for which such
method  yields a larger  allowance,  by assuming the salvage  value is zero,  by
using a 5-year  recovery  period and a half-year  convention,  and by assuming a
full first tax year ("Depreciation Deductions");

         (4) the initial tax basis of the Equipment for purposes of computing
Depreciation Deductions will be equal to the Total Purchase Prices thereof set
forth on the Schedules;



<PAGE>


                                      - 4 -

         (5) Lessor will be entitled to amortize the  Transaction  Expenses on a
straight-line  basis  over a period not longer  than the  initial  Terms for the
Schedules (the "Amortization Deductions");

         (6) at all times during any Applicable Term,  Lessor will be treated as
the owner and lessor of the Equipment for Federal and state income tax purposes,
Lessee, as the lessee thereof, and the lease as a "true lease";

         (7) Lessor  will be  entitled to claim  depreciation  and  amortization
deductions for state income tax purposes to the same extent and at the same time
as the Depreciation  Deductions and the Amortization Deductions are deducted for
Federal income tax purposes (the "State Tax Deductions");


         (8) Lessor will not at any time during any Applicable  Term be required
to include in its gross income for Federal,  state,  local or foreign income tax
purposes  any amounts  attributable  to the  Equipment or the  transactions  and
activities  contemplated by this Agreement other than: (i) Rental  Payments,  in
the  amounts  and at the  times  accrued  in  accordance  with the  terms of the
Schedules, (ii) Stipulated Loss Value or Termination Value, in each case reduced
as appropriate by Lessor's adjusted tax basis in the Equipment, (iii) any amount
to  the  extent  offset  by  deductions  (other  than  Depreciation  Deductions,
Amortization  Deductions or State Tax  Deductions)  of the same character in the
taxable year of Lessor in which such  amounts are  included in income,  (iv) any
amount paid by Lessee  pursuant to the  exercise of any  purchase  option to the
extent the amount exceeds Lessor's adjusted tax basis in the Equipment,  and (v)
any other amounts to the extent such amounts are  calculated so as to include an
indemnification  for taxes payable by Lessor as a consequence  of the receipt or
accrual  thereof  (the  inclusion  in  Lessor's  gross  income of any amount not
described in clauses (i) through (v) being hereinafter referred to as an "Income
Inclusion");

         (9) in each of  Lessor's  tax years  during any  Applicable  Term,  one
hundred percent of the aggregate income,  gain, loss and deductions with respect
to the  transactions  contemplated  by this Agreement will be treated as derived
from, or allocable to,  sources  within the United States of America  within the
meaning of section 861 of the Code; and

         (10) Lessor is an accrual basis calendar year taxpayer.


         (b)  Lessee represents and warrants that during the Applicable Term of
each Schedule:

         (1)  assuming  that  Lessor is and will remain the owner of, and is and
will remain in a trade or business with respect to, the Equipment, the Equipment
in the hands of Lessor,  after  delivery and  acceptance  under Section 3 of the
Agreement, will have been "placed in service" within the meaning of sections 167
and 168 of the Code and will not require  additions or  modifications to make it
suitable for its intended use;

         (2)  the initial tax basis of the Equipment for purposes of computing
Depreciation Deductions will be equal to the Total Purchase Prices thereof set
forth on the Schedules;



<PAGE>


                                      - 5 -

         (3) the factual  information about the Equipment provided in writing to
Lessor by Lessee or any officer, employee, agent, servant or affiliate of Lessee
was  accurate  upon  delivery  and on the  Commencement  Date  for  the  initial
Schedule;

         (4) on the applicable Funding Date, no member of the Lessee Group (as
defined in Revenue Procedure 75-21, 1975-1 C.B. 715, as modified by Revenue
Procedure 79-48, 1979-2 C.B. 529) of which Lessee is a member will have, nor
will it acquire at any time during any Applicable Term, any investment in any
item of Equipment within the meaning of Section 4(4) of Revenue Procedure 75-21,
1975-1 C.B. 715, as modified by Revenue Procedure 79-48, 1979-2 C.B. 529, that
is not permitted thereunder;

         (5) neither Lessee, any sublessee of any item of Equipment or any other
person  using  or  possessing  an  item of  Equipment,  including  any  trustee,
receiver,  liquidator,  or debtor in  possession  (other than the  Lessor,  or a
person  acting  through  the  Lessor)  or  any  affiliate,   transferee,  agent,
sublessee,  employee,  successor  or assign of any of the  forgoing  (a  "Lessee
Person")  will  claim  depreciation  deductions  as owner of the  Equipment  for
Federal and state income tax purposes  unless the Internal  Revenue  Service has
made a final  determination  that Lessor is not the owner of the  Equipment  for
Federal income tax purposes (except as to severable  modifications  not financed
by Lessor);

         (6) the  Equipment  will not  constitute  "tax-exempt  use property" as
defined  in section  168(h) of the Code  solely as a result of the status of (i)
Lessee or (ii) any assignee or sublessee of Lessee's  interest in the  Equipment
(other then Lessor,  any affiliate of Lessor,  or any person claiming use of any
item of Equipment by or through Lessor);

         (7) the Equipment  will not be utilized in foreign  service beyond that
which is permitted  under section 861(c) of the Code to meet one hundred percent
United States source requirements;

         (8) assuming  that Lessor is treated as the owner of the  Equipment for
Federal income tax purposes, such Equipment will qualify for 5-year Depreciation
Deductions;

         (9) the Equipment will not be "limited use property" (as defined in
Revenue Procedure 75-28, 1975-1 C.B. 752 and Revenue Procedure 76-30, 1976-2
C.B. 647), and no Lessee Person will make any improvement, modification, or
addition to any item of Equipment to cause such Equipment to become limited use
property;

         (10) no Lessee Person will use any item of Equipment in a way that will
cause the Equipment to be deemed used predominantly outside the United States of
America; and

         (11) no Lessee  Person  shall at any time  during any  Applicable  Term
either  abandon any item of  Equipment  or cease to use any item of Equipment in
its normal business activities (except during temporary periods of non-use which
are normal in Lessee's business).

         (c) (1) If as a result of (i) any act or omission (other than an act or
omission which is expressly  required by the terms of this Agreement),  (ii) the
failure of any Lessee Person to take any action required under the terms of this
Agreement (other than an omission which is expressly required by the terms of


<PAGE>


                                      - 6 -

this Agreement), (iii) the breach or inaccuracy of any representation,  covenant
or warranty  contained in Section 7(b), or (iv) any  replacement,  modification,
substitution  or  improvement  of  the  Equipment  whether  or not  required  or
permitted,  Lessor  shall  lose the  right to claim or shall  not  claim (as the
result of advice by independent tax counsel,  selected by Lessor,  to the effect
that  there is no  substantial  authority  (as  defined in  Treasury  Regulation
Section  1.6662-4(d)) for such claim),  shall suffer a disallowance of, or shall
be required to recapture,  all or any portion of any tax benefit with respect to
any item of  Equipment,  or shall be required to make an Income  Inclusion  (any
such event hereinafter referred to as a "Tax Loss"), then Lessee shall indemnify
Lessor for such Tax Loss as  provided in  Sections  7(c)(2)  and (3) hereof.  It
shall be  conclusively  presumed that Lessor shall have suffered a loss of State
Tax  Deductions  at the  State  Rate  in the  event  Lessor  suffers  a loss  of
Depreciation Deductions or Amortization Deductions.

         (2) In the event Lessor shall suffer a Tax Loss as described in Section
7(c)(1),  Lessee  shall pay to Lessor as an  indemnity,  on the next  succeeding
Payment  Date  after  written  notice  to Lessee by Lessor of such Tax Loss such
amount or amounts as, in the reasonable opinion of Lessor,  shall cause Lessor's
net after-tax cash flows and net after-tax yield (the "Net Economic  Return") to
equal the Net  Economic  Return that would have been  realized by Lessor if such
Tax Loss  had not  occurred,  and  shall  be  based  upon the same  assumptions,
specifically  including the assumptions set forth in Section 7(a) hereof (except
as such assumptions should be modified as a result of such Tax Loss) and pricing
analysis  used by Lessor  in  determining  the  amount  of the  periodic  Rental
Payments,  and such amount or amounts shall take into account any  subsequent or
offsetting tax benefits realized or to be realized by Lessor as a result of such
Tax Loss;  provided,  however,  that if all Applicable Terms under the Schedules
shall have  expired  prior to the time any such  payment  would be due, all such
payments  shall be  payable by Lessee in a lump sum not later than 30 days after
written demand by Lessor.

         (3) The accuracy of the  calculation set forth in Section 7(c)(2) shall
be subject to  verification,  upon the request of Lessee,  by an accounting firm
selected  by  Lessor  and  approved  by  Lessee,  which  approval  shall  not be
unreasonably  withheld.  In order to enable  such  accountants  to  verify  such
calculations,   Lessor  shall  provide  to  such   accountants  (for  their  own
confidential  use and not to be  disclosed  to Lessee or any  other  person  and
subject  to the  execution  of a  satisfactory  confidentiality  agreement)  all
information  reasonably necessary for such verification,  including any computer
analyses used by Lessor to calculate such amount or amounts.  Such  accountants'
determination  shall  be  binding  upon  Lessor  and  Lessee.  The  cost of such
verification  shall be borne by Lessee unless it is  determined  that the actual
amount payable deviates by more than 10% from the amount  originally  determined
by Lessor, in which case such costs will be borne by Lessor.

         (d) Notwithstanding anything to the contrary set forth in Section 7(c),
Lessor shall not be entitled to any payment under Section 7(c) in respect of any
Tax Loss arising as a direct result of one or more of the following events:

         (1) an amendment to, or change in, the Code, any Regulation thereunder,
any published  Revenue  Ruling or other document of the Treasury or the Internal
Revenue  Service,  any  applicable  state  statutes,   regulations,  or  similar
documents,  or the rate of tax  under  the laws of the  United  States or of any
state on the taxable  income of  corporations,  which is  promulgated or enacted
after the Commencement Date;


<PAGE>


                                      - 7 -


         (2) the  imposition of the  provisions of the  alternative  minimum tax
pursuant  to  section  55 of the Code or any other  minimum  tax or  alternative
minimum tax under applicable state or local income tax laws;

         (3) a claim or  determination  that the lease is not a "true lease" for
tax purposes or that Lessor is not the owner or lessor of any item of Equipment,
other than as a direct  result of a breach of any of  Lessee's  representations,
covenants or warranties  under this Agreement,  or as a direct result of any act
or omission of Lessee (other than an act or omission which is expressly required
by the terms of this Agreement);

         (4) the failure of Lessor to claim in a timely or proper manner any
Depreciation Deductions or Amortization Deductions (unless Lessor obtains an
opinion of independent tax counsel, selected by Lessor, to the effect that
substantial authority, as defined in Treas. Reg. Section 1.6662-4(d), to so
claim does not exist);

         (5) a failure of Lessor to have  sufficient  taxable  income to utilize
the  Depreciation  Deductions  or  Amortization  Deductions  or the inability of
Lessor to utilize such Deductions;

         (6) a sale,  transfer or other disposition by Lessor of any interest in
any item of Equipment  other than a sale or other transfer  pursuant to Lessor's
exercise of remedies following an Event of Default;

         (7)  any claim or assessment of Lessor for the environmental tax
imposed by section 57 of the Code to which Lessor is subject from time to time;

         (8)  the application of section 465, 467 or 469 of the Code;

         (9)  any tax election made by Lessor or any status of Lessor that is
inconsistent with the Tax Assumptions; or

         (10) a claim or determination  that Lessor is not holding the Equipment
in the ordinary  course of a trade or business or that Lessor did not enter into
the transaction for profit.

         (e) If,  by reason of any  indemnity  payment  made by Lessee to Lessor
pursuant to this  Section 7, Lessor  subsequently  realizes a Federal,  state or
local income tax benefit not  previously  taken into  account in  computing  the
amount of such  indemnity  payment (and  provided that no Event of Default shall
have  occurred  and be  continuing  and that Lessee shall have made all payments
then due and owing to Lessor under this  Agreement),  Lessor shall pay to Lessee
an amount  equal to the sum of (1) the actual  reduction  in Federal,  state and
local income taxes realized by Lessor and attributable to such tax benefit,  and
(2) the actual  reduction in Federal,  state and local income taxes  realized by
Lessor as a result of its  payment  pursuant  to this  Section  7(e);  provided,
however, that Lessor shall not be obligated to make any payment pursuant to this
Section 7(e) in excess of the amount of all prior indemnity payments from Lessee
to Lessor  pursuant to this  Section 7, less all prior  payments  from Lessor to
Lessee pursuant to this Section 7(e).



<PAGE>


                                      - 8 -

         (f) In the event a claim shall be made by the Internal  Revenue Service
which, if successful, would result in a Tax Loss under circumstances which would
require  Lessee to indemnify  Lessor for such Tax Loss,  Lessor hereby agrees to
notify Lessee promptly in writing of such claim, to forebear  payment of the tax
claimed for at least 30 days after such  notice,  to give to Lessee any relevant
information  requested  by it relating  to such claim which may be  particularly
within the knowledge of Lessor, other than Lessor's tax returns,  and, if Lessee
shall request,  within 30 days after such notice,  that such claim be contested,
to take such action in  connection  with  contesting  such claim as Lessee shall
reasonably  request  in  writing  from time to time,  but only if Lessee  shall,
contemporaneously   with  such  initial  request,   have  (1)  acknowledged  its
obligation to indemnify  Lessor for such claim pursuant to this Section 7 in the
event  that the  contest  is  unsuccessful,  (2)  made  provision  for  Lessor's
indemnification in a manner reasonably  satisfactory to Lessor for any liability
or loss which Lessor may from time to time incur as a result of contesting  such
claim,  and  reimbursement,  on an After-Tax Basis (as defined  below),  for all
costs and expenses  including  (without  limitation)  reasonable  legal fees and
expenses,  which Lessor may incur in connection with contesting such claim,  and
(3)  furnished  Lessor with an opinion of  independent  tax counsel,  reasonably
satisfactory to Lessor, to the effect that there is substantial authority within
the meaning of Treas. Reg.  ss.1.6662-4(d) in favor of the allowance of the item
proposed to be adjusted.  Lessor shall make reasonable  efforts to advise Lessee
of all action taken or proposed to be taken by the Internal  Revenue Service and
of all action  proposed to be taken by Lessor,  and shall consider in good faith
any suggestions of Lessee  relating to the conduct of any contest  hereunder and
shall use its best efforts to permit Lessee upon request reasonable  opportunity
to review the content of  documentation,  protests,  memoranda  of fact and law,
briefs,  and  stipulations  of fact,  each  relating  exclusively  to a proposed
adjustment  in the income  taxes of Lessor for which Lessee would be required to
indemnify  Lessor  pursuant  to this  Section  7. In no event  shall  Lessor  be
required to contest any claim if an Event of Default  shall have occurred and be
continuing, nor shall Lessor be required, whether or not an Event of Default has
occurred  and is  continuing,  to continue  any contest of any claim  beyond the
level of administrative proceedings with the Internal Revenue Service unless the
amount of the indemnity payment Lessee would be obligated to make hereunder with
respect to the claim being contested shall exceed $100,000, in which case Lessor
shall not be required to continue such contest beyond a Federal court of primary
jurisdiction;  provided,  however, that if Lessor prevails in a Federal court of
primary  jurisdiction and the Internal  Revenue Service files an appeal,  Lessor
shall make  reasonable  efforts to sustain the decision of the Federal  Court of
primary  jurisdiction.  Lessor shall not be required to contest any claim if the
subject matter thereof shall be of a continuing nature and shall have previously
been  decided  adversely  in a contest  conducted  pursuant  to this  Agreement.
Notwithstanding  anything to the contrary in this Section 7(f),  Lessor need not
initiate or continue  any contest of a claim with respect to which it has waived
in writing its right to any indemnity under Section 7(c) of this  Agreement.  In
the event that Lessor is obligated  hereunder  to proceed to a Federal  court of
primary jurisdiction and a decision is made to pay the tax and sue for a refund,
Lessee shall make Lessor an interest-free loan in the amount of such tax and, to
the extent  attributable  to a  disallowance  for which  Lessee is  obligated to
indemnify Lessor under this Section 7, related  interest,  fines,  penalties and
additions to tax.

                  (g) Economic Factors  Adjustment.  In addition,  the amount of
each periodic  Rental Payment  remaining to be paid during the Applicable  Term,
the Stipulated  Loss Value Factors,  the early buyout amount and the Termination
Value Factors  described in the Schedules  (collectively,  the Economic Factors)
(and for any  adjustments  set forth in (i) below,  the EBO Date (as  defined in
Section


<PAGE>


                                      - 9 -

18(a)) will also be adjusted) may be adjusted upwards or downwards,  as the case
may be to preserve the Lessor's Net Economic Return,  through both the EBO Date,
and the  expiration of the Initial Term, as initially  anticipated by the Lessor
in approving the  transactions  contemplated by this Agreement in the event that
(i) with respect to any  Schedule,  on or prior to its  Commencement  Date,  the
Pricing  Assumptions  described on Appendix A hereto (other than that the Lessor
is the owner of the  Equipment for federal or state tax purposes) are other than
as originally  assumed;  or (ii) the actual amount and timing of the Transaction
Expenses are different than as assumed in the Pricing Assumptions.

                  (h) Purchase  Price  Adjustment.  The Total Purchase Price (as
specified  in the  applicable  Schedule)  and Rental  Payment  set forth in each
Schedule are estimates,  and if the final invoice from Seller  specifies a Total
Purchase Price (including taxes, delivery,  installation and other charges) that
is greater or less than such  estimated  Total  Purchase  Price,  Lessee  hereby
authorizes  Lessor to adjust the Total  Purchase Price and Rental Payment on the
applicable  Schedule to reflect the final invoice amount (Final Invoice Amount).
However,  if the Final Invoice Amount exceeds the estimated Total Purchase Price
by more than 10%,  Lessor will notify Lessee and obtain  Lessee's  prior written
approval of the aforementioned adjustments;  provided, however that such written
approval  shall not be required  when such  adjustments  are caused by Equipment
changes or system reconfigurations requested or caused by Lessee. All references
in this Agreement and in any Schedule to Total Purchase Price and Rental Payment
shall mean the  estimates  thereof  specified  in the  applicable  Schedule,  as
adjusted pursuant to this Section 7.

                  (i) Interest Rate  Adjustment.  On the first Funding Date with
respect to each Schedule the Lessor will adjust the Lessee's  implicit  interest
rate (upwards or downwards)  with respect to the Equipment  being funded on such
date by  eighty-five  percent  (85%) of any  change  in the ask  yield  for U.S.
Treasury  Notes  maturing in the month and year  closest to four years after the
applicable Funding Date) equal to or greater than fifteen (15) basis points from
6.7% per  annum  and  maintain  a similar  rental  pattern,  as set forth in the
Eastern  Edition of The Wall  Street  Journal  two  business  days prior to such
Funding Date.

                  (j) FAS 13. No  adjustment  to the Economic  Factors  shall be
permitted to cause the lease of any  Equipment  hereunder not to be treated with
respect to the Lessee as an operating lease under Financial  Accounting Standard
13.

                  8.  INSURANCE.  At its own expense,  Lessee shall  provide and
maintain,  with  carriers  rated A or better by A.M.  Best,  with respect to the
Equipment,  commercial general liability and property insurance in such amounts,
against such risks and with such  deductibles as are typical in the industry for
telecommunications  lease  transactions,  and as are acceptable to Lessor. In no
event shall the amount of property  insurance coverage for the Equipment be less
than  the  Stipulated  Loss  Value  of the  Equipment.  Self-insurance  shall be
permitted only with the prior written approval of Lessor.  Lessor shall be named
as an additional  insured on all  liability  insurance  policies.  Each property
insurance  policy shall contain the insurer's  agreement to give Lessor 30 days'
prior written notice before  cancellation or material change thereof,  and shall
name Lessor as loss payee with  respect to any  aggregate  claim  thereunder  in
excess of $500,000. Each property insurance policy shall also provide that as to
the Lessor insurance shall not be invalidated by any act,  omission or breach by
Lessee.  Any  proceeds of property  insurance  carried and paid for by Lessee in
excess of the Stipulated


<PAGE>


                                     - 10 -

Loss  Value  of the  Equipment  shall be for the  benefit  of the  Lessee.  Each
commercial general liability insurance policy shall name Lessor as an additional
insured. Lessee shall deliver to Lessor the insurance policies or copies thereof
or  certificates  of such  insurance on or before the  Commencement  Date of the
applicable Schedule, and/or before renewal.

                  9. TAXES. (a) Lessee shall reimburse,  protect,  save and keep
harmless Lessor, its affiliates and their directors, officers, employees, agents
and representatives,  on an After-Tax Basis (as defined below),  against (or pay
directly,   but  only  if  instructed  by  Lessor)  all  taxes,   fees,  duties,
governmental  charges  and  assessments,  of any  nature  whatsoever,  including
interest,  fines, additions to tax, and penalties thereon, imposed by any taxing
authority with respect to the Equipment, on its purchase,  ownership,  delivery,
possession, transportation,  operation, rental, return to Lessor or its purchase
by Lessee, transfer of title,  registration,  or otherwise with respect to or in
connection with the transactions contemplated by this Agreement,  including, but
not  limited  to,  sales  and use  taxes,  property  taxes and all  license  and
registration  fees  (collectively,  "Taxes").  Lessee shall reimburse Lessor for
(or, with Lessor's consent, directly pay) these Taxes pursuant to this Section 9
whether they are imposed upon Lessor, any other indemnified person,  Lessee, the
Equipment or this  Agreement.  Lessee shall not be required to reimburse  Lessor
pursuant to this Section 9 for the following: (1) taxes based upon, measured by,
or  with  respect  to net or  gross  income,  receipts,  minimum  tax,  capital,
franchise or net worth  imposed by the United States of America or by any state,
local or foreign jurisdiction (other than sales, use, property,  rental,  lease,
ad valorem or  value-added  taxes (other than a value-added  tax that replaces a
tax imposed on net or gross  income));  (2) taxes on items of tax  preference or
any  minimum  tax;  (3)  taxes  resulting  from  Lessor's  disposition  (whether
voluntary or  involuntary)  of the Equipment or of any interest  therein  (other
than taxes  resulting from a transfer or  disposition  after an Event of Default
has occurred  and while such Event of Default is  continuing,  or in  connection
with a Loss, or from any  replacement  of the  Equipment by Lessee,  or from any
voluntary  termination  of this Agreement by Lessee);  (4) taxes  resulting from
either the willful  misconduct or gross  negligence of Lessor or from the breach
of Lessor's representations, warranties or obligations under this Agreement; (5)
taxes which  arise out of or are caused by any act or  omission of Lessor  where
such act or  omission  is  expressly  prohibited  by this  Agreement;  (6) taxes
related to the Equipment in respect of any period after the  expiration or early
termination of the Applicable Term relating  thereto and return of the Equipment
in accordance with Section 18 hereof; and (7) taxes imposed against a transferee
or  assignee,  if any,  of Lessor to the extent of the excess of such taxes over
the amount of taxes  which  would have been  imposed  had there not been such an
assignment or transfer.

         (b)  Notwithstanding  Section 9(a) above,  Lessee's  obligation to pay,
reimburse  or hold  harmless  Lessor  for  Taxes in the  nature of or in lieu of
sales,  use,  transfer or similar  types of Taxes,  including  interest,  fines,
additions to tax and penalties,  if any,  thereon  (collectively,  "Sales Tax"),
arising  out of  Lessor's  acquisition  and  leasing  of the  Equipment,  or any
replacement  of the  Equipment by Lessee,  shall be  conditioned  upon  Lessor's
delivering to the Seller (in the case of Lessor's  acquisition of the Equipment)
and to Lessee (in the case of any replacement by Lessee) such properly completed
and validly executed resale  certificates or similar  documents as may timely be
reasonably  requested  in  writing by Lessee,  within 10  business  days of such
request.   Lessor  shall  register  for  Sales  Tax  purposes  with  the  taxing
authorities  in all  applicable  jurisdictions  as necessary to permit Lessor to
perform its obligations under this Section 9(b).



<PAGE>


                                     - 11 -

         (c) Where required by an applicable  jurisdiction,  Lessee shall pay to
Lessor  Sales Tax on that  portion of the total  amount of each  Rental  Payment
allocable to each item of Equipment calculated at the tax rate applicable to the
jurisdiction  in which  each  respective  item of  Equipment  is  located on the
Commencement  Date.  Lessor shall report and remit such Sales Tax as required by
the applicable jurisdiction. In the event that Sales Tax is imposed by any state
taxing authority  attributable to the Rental Payments, in excess of that paid by
Lessee to Lessor pursuant to this Section 9(c),  Lessee shall  reimburse  Lessor
(or pay directly,  but only if instructed by Lessor), on an After-Tax Basis, for
all such additional  taxes,  including,  interest,  fines,  additions to tax and
penalties thereon.

         (d)  Unless  otherwise  required  by  law,  upon  commencement  of  the
Applicable Term,  Lessee shall be responsible for reporting the Equipment for ad
valorem  property tax purposes where applicable and Lessor shall not include the
Equipment in any ad valorem or other similar tax returns filed by Lessor.

         (e) If any claim is made against Lessor, by commencement of proceedings
against Lessor or otherwise, for Taxes, including interest,  fines, additions to
tax,  and  penalties  thereon for which  Lessee  would have a  reimbursement  or
payment  obligation  pursuant  to  this  Section  9,  Lessor  shall  as  soon as
reasonably practical notify Lessee of such claim in writing; provided,  however,
that  Lessor's  failure  to  provide  such  notice  shall  not  reduce  Lessee's
obligations  under  this  Section  9 except  to the  extent  that  such  failure
materially  prejudices  Lessee's ability to pursue its contest rights hereunder.
Lessee may, at its expense,  in good faith and by appropriate  administrative or
legal proceedings, contest or defend an asserted claim or liability for which it
is indemnifying  Lessor under this Section 9, so long as (1) no Event of Default
shall have  occurred and be  continuing,  and (2) in the  reasonable  opinion of
Lessor,  such  contest  or  defense  is being  diligently  conducted  by persons
reasonably  satisfactory to Lessor.  To the extent permitted by law, any contest
or defense  conducted  pursuant to this  Section 9(e) may be conducted by Lessee
either  in its own name or,  if  required  by the  applicable  jurisdiction,  in
Lessor's name.  Lessee shall reimburse  Lessor,  on an After-Tax  Basis, for all
costs and expenses,  including  (without  limitation)  reasonable legal fees and
expenses,  which  Lessor may incur in  connection  with such contest or defense.
Lessor agrees to offer its good faith cooperation and assistance,  at no cost or
expense to Lessor, in Lessee's conduct of such contest or defense.

         (f) "After-Tax  Basis" shall mean an amount which,  after  deduction of
all Taxes  (without  respect to any  exclusion  provided in Section 9(a) hereof)
imposed  by any  and  all  jurisdictions  that  are  required  to be paid by the
recipient  in respect  of the  receipt  or  accrual  of such  amount,  and after
consideration of any current deduction,  credit or other tax benefit realized by
the recipient and attributable to the indemnified Tax, cost or expense, is equal
to the amount required to be indemnified against on an After-Tax Basis.

                  10. REPAIRS;  USE; LOCATION;  LABELS. Lessee shall: (a) at its
own expense, keep the Equipment in good repair,  condition and working order and
maintained in accordance  with the  manufacturer's  recommended  engineering and
maintenance  standards;  (b) use  the  Equipment  lawfully  and  exclusively  in
connection  with its  business  operations  and for the  purpose  for  which the
Equipment  was designed and intended;  and (c) not move the  Equipment  from the
Equipment  Location (i) to any location  outside the United States of America or
(ii)  without  providing  Lessor  with at least ten days  prior  written  notice
thereof, payment of any filing fees and taxes for filing Uniform Commercial Code


<PAGE>


                                     - 12 -

Financing Statements,  and landlord waivers substantially in the form of Exhibit
D hereto with respect to any such  location,  to any other  location  within the
United States of America. If Lessor supplies Lessee with labels stating that the
Equipment is owned by Lessor,  Lessee  shall affix such labels to the  Equipment
pursuant to Lessor's instructions.

                  11. MAINTENANCE;  ALTERATIONS; INSPECTION. At its own expense,
Lessee  shall:  (a)  maintain  the  Equipment  in the  same  condition  as  when
delivered,  subject only to ordinary wear and tear, and in good operating  order
and appearance,  and consistent with Seller's specifications as set forth in the
Purchase Documents, and shall properly handle and dispose of batteries and other
hazardous materials; (b) make all alterations or additions to the Equipment that
may be  required  or  supplied  by the  Seller or legally  necessary,  including
upgrading  the  Equipment  at no expense to Lessor with  Seller's  then  current
generic  software  release not later than one year after the initial  release of
such  software,  which  software  shall remain the property of the Lessor unless
Lessee acquires the Equipment pursuant to Section 13 or Section  18(a)(1),(2) or
(4); and (c) make no other alterations or additions to the Equipment (except for
alterations or additions that will not decrease or impair the fair market-value,
useful life, condition,  performance or residual value of any item of Equipment,
or that will not cause such item of Equipment to become  "limited use  property"
(as defined in Rev. Proc. 75-28).  Any  modifications,  alterations or additions
that Lessee makes to the Equipment shall become Lessor's property and shall also
be deemed to be Equipment  unless such  modifications,  alterations or additions
are readily removable without damage to the Equipment.  Upon request, Lessor, or
any party  designated  by Lessor,  shall have the right to inspect the Equipment
and Lessee's  records at any reasonable time upon reasonable  notice or upon the
occurrence  and  during  the  continuance  of an Event of  Default,  at any time
without notice.

                  12.   PERSONAL PROPERTY; LIENS AND ENCUMBRANCES; TITLE;
SUBSTITUTION.  The  Equipment  shall  at all  times  remain  personal  property,
notwithstanding  that the  Equipment,  or any part thereof,  may be (or becomes)
affixed or attached to real property or any improvements thereon. Except for the
interest  of  Lessor,  Lessee  shall  keep the  Equipment  free and clear of all
levies, liens and encumbrances of any nature whatsoever. Except as expressly set
forth in this Agreement, the Equipment shall at all times remain the property of
Lessor and Lessee shall have no right,  title or interest therein.  Lessee shall
have the  right,  for any  valid  business  reason  in the  Lessee's  reasonable
opinion,  to substitute  any item of Equipment with a similar piece of equipment
having a fair market value, residual value, utility and remaining useful life at
least equal to the replaced  item of  Equipment's  fair market  value,  residual
value,  utility  and  remaining  useful  life,  assuming  the  replaced  item of
Equipment  was in the  condition  required  by  this  Agreement.  Prior  to such
substitution, Lessee will, with respect to a substitution for items of Equipment
with an aggregate original cost in excess of $50,000,  (i) furnish Lessor with a
full warranty  bill of sale and an assignment of warranties  with respect to the
replacement item of Equipment, (ii) cause a Schedule supplement, subjecting such
replacement  item of  Equipment to the  applicable  Schedule,  duly  executed by
Lessee, to be delivered to Lessor for execution and, upon such execution,  to be
filed for  recordation  if requested  by Lessor,  (iii)  furnish  Lessor with an
opinion of Lessee's counsel, to the effect that (x) the bill of sale referred to
in clause (i) above  constitutes  an effective  instrument for the conveyance of
title to the  replacement  item of Equipment  to Lessor,  (y) legal title to the
replacement  item of Equipment has been  delivered to Lessor,  free and clear of
all  liens,  and (z) all  filings,  recordings  and other  action  necessary  or
appropriate to perfect and protect Lessor's  interest in the replacement item of
Equipment have been


<PAGE>


                                     - 13 -

accomplished, and (iv) indemnify in accordance with the tax indemnity provisions
of Section 7 and the provisions of Section 9, Lessor for any risk of adverse tax
consequences as a result of or relating to such substitution.

                  13. RISK OF LOSS. As between  Lessor and Lessee,  Lessee shall
bear the entire risk of loss, theft, destruction or damage to the Equipment from
any cause whatsoever or requisition of the Equipment by any governmental  entity
or the taking of title to the Equipment by eminent  domain or otherwise.  Lessee
shall advise Lessor in writing within 10 days of any such occurrence.  Except as
provided below, no such occurrence shall relieve Lessee of the obligation to pay
Lessor Rental Payments and all other amounts owed hereunder. In the event of any
such occurrence,  Lessee may if such occurrence has not materially  impaired the
Equipment  (in  Lessor's  reasonable  judgment)  place  the  Equipment  in  good
condition  and repair  reasonably  satisfactory  to Lessor and  continue  making
Rental Payments.  An item of Equipment shall be deemed to have suffered an Event
of Loss if (a) such item of Equipment  suffers an actual or  constructive  total
loss or insurance  proceeds are received on that basis with respect to such item
of  Equipment;  (b)  such  item of  Equipment  is lost or  stolen  for a  period
exceeding  one hundred  and twenty  (120) days;  (c) such item of  Equipment  is
damaged beyond  economic  repair or is permanently  unfit for commercial use for
its intended purpose;  (d) title to such item of Equipment is taken or such item
of Equipment  requisitioned  for use by any governmental  authority for a period
extending  beyond the  earlier of 270 days or the  remainder  of the  Applicable
Term.  Upon the occurrence of any Event of Loss,  Lessee may elect either to pay
the Stipulated  Loss Value of the affected item of Equipment as set forth on the
Schedule or replace the item of Equipment in  accordance  with the  substitution
procedures  described in Section 12. Any  Stipulated  Loss Value  payment  shall
occur on the next  Rental  Payment  Date.  Upon  Lessor's  full  receipt of such
Stipulated  Loss  Value  and any  other  amounts  owing  hereunder  or under the
applicable  Schedule with respect to such item of Equipment:  (y) the applicable
Schedule shall terminate,  and except as provided in Section 25, Lessee shall be
relieved of all obligations under the applicable Schedule;  and (z) Lessor shall
transfer all of its  interest in the  affected  items of Equipment to Lessee "AS
IS, WHERE IS," and without any warranty,  express or implied from Lessor,  other
than the absence of any liens or claims by, through,  or under Lessor. If Lessee
elects to substitute  Equipment,  then upon  completion of all the  substitution
procedures  set forth in Section 12, Lessor shall release to Lessee any property
insurance payments received by Lessor in connection with such Event of Loss.

                  14.  NON-CANCELABLE  NET LEASE.  ALL LEASES HEREUNDER SHALL BE
NON-CANCELABLE  NET  LEASES,  AND  LESSEE  AGREES  THAT IT HAS AN  UNCONDITIONAL
OBLIGATION TO PAY ALL RENTAL  PAYMENTS AND OTHER AMOUNTS WHEN DUE ON OR PRIOR TO
THE TERMINATION OF THE LEASES.  LESSEE IS NOT ENTITLED TO ABATE OR REDUCE RENTAL
PAYMENTS  OR ANY OTHER  AMOUNTS  DUE, OR TO SET OFF ANY  CHARGES  AGAINST  THOSE
AMOUNTS. LESSEE IS NOT ENTITLED TO RECOUPMENTS,  CROSS-CLAIMS,  COUNTERCLAIMS OR
ANY OTHER  DEFENSES  TO ANY RENTAL  PAYMENTS  OR OTHER  AMOUNTS  DUE  HEREUNDER,
WHETHER THOSE  DEFENSES ARISE OUT OF CLAIMS BY LESSEE  AGAINST  LESSOR,  SELLER,
THIS AGREEMENT, ANY SCHEDULE OR OTHERWISE.  NEITHER DEFECTS IN EQUIPMENT, DAMAGE
TO IT, NOR ITS LOSS, DESTRUCTION OR LATE DELIVERY SHALL TERMINATE THIS AGREEMENT
OR ANY SCHEDULE,  OR AFFECT  LESSEE'S  OBLIGATIONS  HEREUNDER.  UNLESS  LESSEE'S
OBLIGATION TO


<PAGE>


                                     - 14 -

PAY RENTAL  PAYMENTS  AND OTHER  AMOUNTS  HAS BEEN  TERMINATED  PURSUANT  TO THE
EXPRESS  TERMS OF THIS  AGREEMENT,  ALL RENTAL  PAYMENTS AND OTHER AMOUNTS SHALL
CONTINUE TO BE DUE AND PAYABLE HEREUNDER.

                  15.  LESSOR  DISCLAIMERS;   LIMITATION  OF  REMEDIES.   IT  IS
SPECIFICALLY  UNDERSTOOD AND AGREED THAT: (A) LESSOR SHALL NOT BE DEEMED TO HAVE
MADE ANY REPRESENTATION,  WARRANTY OR PROMISE MADE BY SELLER, NEITHER SELLER NOR
LESSOR SHALL ACT AS, OR BE DEEMED TO BE, AN AGENT OF THE OTHER, AND LESSOR SHALL
NOT BE BOUND BY, OR LIABLE FOR,  ANY  REPRESENTATION  OR PROMISE  MADE BY SELLER
(EVEN IF LESSOR IS AFFILIATED  WITH SELLER);  (B) LESSOR SHALL NOT BE LIABLE FOR
ANY FAILURE OF ANY EQUIPMENT OR ANY DELAY IN ITS DELIVERY OR  INSTALLATION;  (C)
LESSOR SHALL NOT BE LIABLE FOR ANY BREACH OF ANY  WARRANTY  THAT SELLER MAY HAVE
MADE; (D) LESSEE HAS SELECTED ALL EQUIPMENT  WITHOUT  LESSOR'S  ASSISTANCE;  (E)
LESSOR IS NOT A MANUFACTURER  OF ANY EQUIPMENT;  AND (F) LESSOR HAS NOT MADE AND
DOES NOT NOW MAKE ANY  REPRESENTATION  OR  WARRANTY,  EXPRESS OR  IMPLIED,  WITH
RESPECT TO THE DESIGN,  COMPLIANCE WITH SPECIFICATIONS,  OPERATION, OR CONDITION
OF ANY  EQUIPMENT  (OR ANY PART  THEREOF),  THE  MERCHANTABILITY  OR  FITNESS OF
EQUIPMENT FOR A PARTICULAR  PURPOSE,  OR ISSUES REGARDING  PATENT  INFRINGEMENT,
TITLE AND THE LIKE. IT IS FURTHER  AGREED THAT LESSOR SHALL HAVE NO LIABILITY TO
LESSEE,  LESSEE'S  CUSTOMERS,  OR ANY THIRD  PARTIES FOR ANY  DIRECT,  INDIRECT,
SPECIAL OR  CONSEQUENTIAL  DAMAGES ARISING OUT OF THIS AGREEMENT OR ANY SCHEDULE
OR CONCERNING ANY EQUIPMENT, OR FOR ANY DAMAGES BASED ON STRICT OR ABSOLUTE TORT
LIABILITY  OR  LESSOR'S  NEGLIGENCE;  PROVIDED,  HOWEVER,  THAT  NOTHING IN THIS
AGREEMENT  SHALL  DEPRIVE  LESSEE OF ANY RIGHTS IT MAY HAVE  AGAINST  ANY PERSON
OTHER THAN LESSOR. LESSEE SHALL LOOK SOLELY TO SELLER FOR ANY AND ALL CLAIMS AND
WARRANTIES  RELATING TO THE  EQUIPMENT.  Lessor hereby assigns to Lessee for the
Term
of the  applicable  Schedule  the  right to  enforce,  provided  Lessor  has not
exercised any of its remedies under Section 20, and such  enforcement is pursued
in Lessee's name, any representations,  warranties and agreements made by Seller
pursuant to the Purchase Documents, and Lessee may retain any recovery resulting
from any such  enforcement  efforts.  TO THE EXTENT PERMITTED BY APPLICABLE LAW,
LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A LESSEE BY ARTICLE
2A OF THE UCC AND ANY RIGHTS NOW OR HEREAFTER  CONFERRED BY STATUTE OR OTHERWISE
THAT MAY LIMIT OR MODIFY  LESSOR'S  RIGHTS AS DESCRIBED IN THIS SECTION OR OTHER
SECTIONS OF THIS AGREEMENT.

                  16. LESSEE REPRESENTATIONS AND WARRANTIES.  Lessee represents,
warrants and  covenants to Lessor on the date of the  execution  and delivery of
this Agreement and on each  Commencement  Date that: (a) Lessee is a corporation
duly  organized,  validly  existing  and in  good  standing  under  the  laws of
Delaware,  has all requisite  corporate  power and authority to own its property
and assets and to carry on its  business as now  conducted,  is  qualified to do
business in every  jurisdiction  where such  qualification  or  registration  is
required, except where the failure so to qualify would not


<PAGE>


                                     - 15 -

materially  adversely  affect the  financial  condition  of Lessee,  and has the
corporate  power and authority to execute,  deliver and perform its  obligations
under  this  Agreement,  all  Schedules  and  all  other  related  documents  or
instruments  (collectively,  Fundamental Agreements) to which it is or will be a
party; (b) this Agreement and each other Fundamental Agreement to which it its a
party have been duly  authorized by all  necessary  corporate  action,  and have
been, or prior to the applicable Commencement Date will have been, duly executed
and  delivered by it, and neither the execution  and delivery  thereof,  nor the
consummation of the  transactions on its part  contemplated  hereby and thereby,
nor compliance by it with any of the terms and provisions hereof or thereof, (i)
requires any approval of its  stockholders or approval or consent of any trustee
or  holders  of any  indebtedness  or  obligations  of  Lessee,  except for such
approvals  and  consents as have been duly  obtained,  and are in full force and
effect,  (ii) contravenes,  as to Lessee,  any existing law, or (iii) in any way
contravenes its governing corporate documents or by-laws; (c) this Agreement and
each  other  Fundamental  Agreement  to  which  it is a party  are,  or upon due
execution and delivery  thereof by all other parties thereto will be, its legal,
valid and binding  obligation,  enforceable  against it in  accordance  with its
terms,  except as may be  limited  by  bankruptcy,  insolvency,  reorganization,
moratorium or similar laws relating to or limiting  creditors'  rights generally
or by equitable  principles  relating to  enforceability;  (d) the execution and
delivery by Lessee of each  Fundamental  Agreement  to which it is a party,  the
consummation of the  transactions  contemplated  thereby and its compliance with
the terms  thereof do not require the consent or the  approval or  authorization
of,  or  filing,   except  as  contemplated   in  the  Fundamental   Agreements,
registration or qualification  with, any  governmental  authority on the part of
Lessee as a condition to such execution, delivery and compliance, except such as
have been made or  obtained  and are in full  force and  effect;  (e) Lessee has
delivered to Lessor copies of (i) the  consolidated  balance sheet of Lessee and
its  consolidated  subsidiaries  as of June 30, 1995,  and related  consolidated
statements  of  operations  and  stockholders'  equity for the fiscal  year then
ended, accompanied by the report of KPMG Peat Marwick, independent auditors; and
(ii) the unaudited  consolidated  balance  sheet of Lessee and its  consolidated
subsidiaries  as of March  31,  1996,  and the  related  unaudited  consolidated
statements of operations and stockholders' equity for the nine-month period then
ended,  and in the  case of the  statements  referred  to in  clause  (i),  such
statements  fairly  present,  in accordance with generally  accepted  accounting
principles,  the financial position of Lessee and its consolidated  subsidiaries
as of such date and, in the case of the  statements  referred to in clause (ii),
have been prepared on a basis  consistent  with that employed in the preparation
of the  financial  statements  referred to in clause (i),  and in the opinion of
management of Lessee reflect all adjustments  necessary for a fair  presentation
of the results for the interim period presented,  and since June 30, 1995, there
has been no material  adverse change in the condition  (financial or otherwise),
operations, properties or prospects of the Lessee (Material Adverse Change); (f)
except as set forth in Schedule 16, there are no actions,  suits or  proceedings
at law or in equity  pending  or, in the case of  actions  or  proceedings  by a
governmental  authority,  to the  knowledge  of  Lessee,  threatened  against or
affecting Lessee or any business, property or rights of Lessee (A) which involve
any Fundamental Agreement or the transactions  contemplated thereby or (B) as to
which there is a reasonable  possibility of an adverse  determination and which,
if adversely  determined,  would reasonably be expected,  individually or in the
aggregate,  to result in a Material Adverse Change or in the inability of Lessee
to perform its  obligations  under any  Fundamental  Agreement  to which it is a
party, or adversely  affect the value of the Equipment in any material  respect;
(g)  Lessee  has filed or caused  to be filed all  federal,  state and local tax
returns  required to have been filed by it and has paid or caused to be paid all
taxes as shown on such returns or on any assessment received by it to the extent
that such taxes have become due, except such taxes the amount, applicability


<PAGE>


                                     - 16 -

or  validity  of  which  are  being  contested  in  good  faith  by  appropriate
proceedings  and with  respect to which Lessee shall have set aside on its books
adequate reserves as are required by generally accepted  accounting  principles;
(h) as of any  Commencement  Date, the chief executive office of Lessee shall be
located at the address set forth on the cover page hereof or such other location
that an officer of Lessee has certified to Lessor in writing;  (i) ALL EQUIPMENT
IS LEASED FOR BUSINESS PURPOSES ONLY, AND NOT FOR PERSONAL,  FAMILY OR HOUSEHOLD
PURPOSES;  and (k) all  Equipment  is tangible  personal  property and shall not
become a fixture or real property under Lessee's use thereof.

                  17. GENERAL INDEMNITY.  Lessee shall indemnify, hold harmless,
and, if so  requested  by Lessor,  defend  Lessor  against  all claims  (Claims)
directly or  indirectly  arising out of or connected  with the  Equipment or any
Fundamental Agreement but not Claims arising solely from the gross negligence or
willful  misconduct  of the Lessor.  Claims  refers to all losses,  liabilities,
damages, penalties,  expenses (including legal fees and costs), claims, actions,
and suits, whether in contract or in tort, whether caused by Lessor's negligence
or  otherwise,  and whether  based on a theory of strict  liability of Lessor or
otherwise,  and  includes,  but is not limited to,  matters  regarding:  (a) the
selection,  manufacture,  purchase, acceptance,  rejection, ownership, delivery,
lease,  possession,  maintenance,  use,  condition,  return or  operation of the
Equipment; (b) any latent defects or other defects in any Equipment,  whether or
not discoverable by Lessor or by Lessee; (c) any patent, trademark, or copyright
infringement;  and (d) the condition of any Equipment arising or existing during
Lessee's use.

                  18.  OPTIONS; SURRENDER.  (a)  Options.  Lessee shall have the
options specified below.  Upon payment of the amount described in clauses (1),
(2) or (3) below and any other amounts owing with respect to the items of
Equipment subject to such options under this Agreement or the applicable
Schedules (other than future Rental Payments), and return of the Equipment to
Lessor if the Termination Option is exercised, the applicable Schedule shall
terminate, and except as provided in Section 25, Lessee shall be relieved of all
obligations under the applicable Schedule, and if the Early Buyout Option or the
Fair Market Value Purchase Option has been exercised, Lessor shall transfer all
of its interest in the affected items of Equipment to Lessee "AS IS, WHERE IS,"
and without any warranty, express or implied from Lessor, other than the absence
of any liens or claims by, through, or under Lessor.

                  (1) Early Buyout Option.  Provided that no Event of Default or
Potential  Default has then  occurred and is  continuing,  Lessee shall have the
option  to  purchase  all,  but not  less  than all of the  items  of  Equipment
constituting an individual 5ESS switch on the date (EBO Date) and for a purchase
price  specified  by  Lessor  in the  applicable  Schedule  for  such  items  of
Equipment.  Such option will be exercisable upon  irrevocable  written notice to
Lessor from Lessee given at least ninety (90) days prior to the  applicable  EBO
Date.

                  (2) Fair Market Value Purchase Option.  Provided that no Event
of Default or  Potential  Default has then  occurred and is  continuing,  Lessee
shall have the option to  purchase  all,  but not less than all, of the items of
Equipment  constituting  an individual  5ESS switch at the end of the applicable
Term for its then Fair Market Value,  which shall mean the cash  purchase  price
which would be obtained in an arm's-length  transaction  between an informed and
willing buyer and an informed and willing  seller,  under no compulsion to sell,
excluding any value attributable to improvements which may


<PAGE>


                                     - 17 -

be removed by Lessee pursuant to Section 11, without  consideration  of Lessee's
purchase or renewal  options and on an uninstalled  basis,  but assuming  (other
than in the  case of an  exercise  of  remedies  hereunder)  that  such  item of
Equipment  was in the  condition  required  hereunder,  together  with any other
payments then due and owing under the applicable Schedule. The Fair Market Value
shall be  subject  to a cap ("FMV  Cap") set forth in the  applicable  Schedule.
Lessee shall provide  Lessor with at least 180 days prior written  notice of its
intent to  purchase  Equipment  for Fair  Market  Value.  Such  notice  shall be
irrevocable  unless the Fair Market  Value is more than  fifteen  percent  (15%)
above any estimate  thereof provided by Lessee in such written notice and Lessee
notifies Lessor in writing not later than five days after the  determination  of
Fair Market  Value of its  decision to revoke  exercise of the Fair Market Value
purchase  option.  If Lessor and Lessee  cannot agree on such Fair Market Value,
the Fair Market Value shall be determined by an independent  appraiser  selected
by Lessor and Lessee, provided, however, that if Lessor and Lessee are unable to
agree upon an independent appraiser, each shall select an independent appraiser,
and such independent  appraiser shall select a third independent appraiser which
shall determine the Fair Market Value. Lessee shall be responsible for and shall
pay all costs and expenses associated with any appraisal.

                  (3) Termination  Option.  Provided that no Event of Default or
Potential  Default has then  occurred  and is  continuing,  Lessee will have the
right,  upon provision of 180 days  irrevocable  written notice,  to terminate a
Schedule  with  respect to all, but not less than all, of the items of Equipment
constituting  an individual  5ESS switch on any Rental Payment Date occurring on
or after  the  third  anniversary  of the  Commencement  Date for such  items of
Equipment if Lessee  determines in good faith (and,  upon  request,  provides an
officer's  certificate to such effect),  without  discriminating  among items of
Equipment or other similar equipment owned or leased by Lessee,  that such items
of  Equipment  have become  obsolete or surplus to its needs.  If  requested  by
Lessor,  Lessee will use commercially  reasonable efforts to sell the applicable
items of  Equipment to an  unrelated  third party but the failure to  consummate
such a sale shall not relieve Lessee of any payment obligations set forth in the
next  sentence.  Upon such a  termination,  Lessee  will pay to Lessor an amount
equal  to any  deficiency  between  the  Termination  Value  for  such  items of
Equipment,  determined as set forth on the applicable Schedule, and the net cash
proceeds of any sale of such items of  Equipment  received by Lessor from Lessee
and shall surrender the affected items of Equipment to Lessor in accordance with
the provisions of Section 18(b).

                  (4)  Renewal  Option.  Provided  that no Event of  Default  or
Potential  Default has then  occurred and is  continuing,  Lessee shall have the
option upon provision of irrevocable  written notice delivered at least 120 days
prior to the expiration of the Applicable Term and upon execution of appropriate
documentation, to renew any Schedule with respect to all, but not less than all,
of the items of Equipment  constituting  an individual 5ESS switch for a Renewal
Term of not less than one year or the remainder of the useful life of such items
of Equipment, whichever period is shorter, for the then Fair Market Rental Value
of such items of  Equipment,  payable  quarterly in arrears.  Fair Market Rental
Value shall mean with  respect to an item of  Equipment,  the cash rental  which
would be obtained in an arm's-length transaction between an informed and willing
lessee (other than a lessee in current  possession)  and an informed and willing
lessor,  under no  compulsion  to lease,  excluding  any value  attributable  to
improvements  that Lessee is permitted to remove  pursuant to Section 11, and on
an  uninstalled  basis,  but assuming  (other than in the case of an exercise of
remedies hereunder) that such


<PAGE>


                                     - 18 -

item of Equipment was in the condition  required  hereunder.  Fair Market Rental
Value shall be determined  in the same manner as Fair Market Value,  at the sole
cost and expense of Lessee.

                  (b) Surrender.  Unless Lessee exercises one of the options set
forth in Section  18(a)(1),  (2) or (4), or acquires the  Equipment  pursuant to
Section 13 hereof,  Lessee shall at its expense,  reinstall,  inspect,  test and
properly pack the  Equipment,  and return the Equipment at the expiration of the
Term in the condition and with the software  required by Section 11, free of all
liens and rights of others,  by  delivering  it on board such common  carrier as
Lessor may  specify  with  freight  prepaid  to not more than two (2)  locations
within  the  continental  United  States of  America  specified  by  Lessor  and
reasonably  acceptable  to Lessee.  If Lessee so  agrees,  Lessor and its agents
shall have the right to enter upon any premises  where  Equipment may be located
to perform  any of Lessee's  tasks  noted  above in this  Section 18, and Lessee
shall  reimburse  Lessor for all costs and expenses  Lessor incurs in fulfilling
such tasks. Lessee agrees that the Equipment,  when returned to Lessor, shall be
in the same  condition  as when  delivered to Lessee,  reasonable  wear and tear
excepted. (If the Equipment is not in such condition, Lessee shall be liable for
all costs and expenses Lessor incurs to place the Equipment in such  condition.)
If requested by Lessor,  Lessee,  at its sole risk and expense,  shall store the
Equipment at any of the two above described locations for a period not to exceed
sixty (60) days,  during which period the  Equipment  shall be subject to all of
the terms and  conditions  hereof,  except  for the  obligation  to make  Rental
Payments.  At Lessor's  risk and  expense,  Lessor  shall be entitled to require
Lessee to store the  Equipment at such  locations  for an  additional  period of
ninety (90) days.

                  19. EVENTS OF DEFAULT.  Any of the following shall  constitute
an Event of Default under this Agreement and all Schedules:  (a) Lessee fails to
pay any Rental Payment,  Stipulated  Loss Value payment,  early buyout amount or
Termination  Value  payment  within five days after its due date;  or (b) Lessee
fails to pay any other amount  payable to Lessor  hereunder  within fifteen (15)
days  after its due date;  or (c) any  representation  or  warranty  made by the
Lessee in any Fundamental Agreement shall prove to have been untrue when made in
any material  respect;  or (d) Lessee fails to maintain in full force and effect
any  insurance  required  by  Section 8; or (e) a loss by Lessor of title to the
Equipment  occurs  (other than as a result of action or inaction by Lessor);  or
(f)  Lessee  fails to  perform  or  observe  any other  covenant,  condition  or
agreement  to be  performed  or  observed  by Lessee  hereunder  or in any other
Fundamental  Agreement,  and Lessee fails to cure any such breach  within thirty
(30) days after notice thereof;  provided,  however, that if such failure is not
likely to result in the forfeiture or loss of title to any item of Equipment and
is  capable  of cure but  cannot  be cured by  payment  of money or by  diligent
efforts  within such thirty (30) day period but such  diligent  efforts shall be
properly commenced within the cure period and Lessee is diligently pursuing, and
shall  continue to pursue  diligently,  remedy of such failure,  the cure period
shall be extended for an additional  period of time as may be necessary to cure,
not to exceed an  additional  150 days or to extend  beyond the then  Applicable
Term;  or (g) Lessee makes an assignment  for the benefit of creditors,  whether
voluntary  or   involuntary;   or  (h)  a  proceeding   under  any   bankruptcy,
reorganization, arrangement of debts, insolvency or receivership law is filed by
or against  Lessee or Lessee takes any action to authorize  any of the foregoing
matters and with respect to any such  proceeding  filed against  Lessee,  either
such proceeding remains  undismissed or unstayed for a period of sixty (60) days
or the relief  sought in such  proceeding  is  granted;  or (i)  Lessee  becomes
insolvent  or fails  generally  to pay its debts as they  become due; or (j) the
Equipment  is levied  against,  seized or attached  (other than by a  commercial
creditor  of  Lessor),  or Lessee  seeks to  effectuate  a bulk sale of Lessee's
inventory or assets; or (k) Lessee voluntarily or


<PAGE>


                                     - 19 -

involuntarily dissolves or is dissolved, or terminates or is terminated;  or (l)
any final judgments, decrees, writs of execution, attachments or garnishments or
any liens or any other legal  processes shall be issued or levied against Lessee
or any of its  assets  in  amounts  which in the  aggregate  would  result  in a
Material Adverse Change with respect to Lessee.

                  20.  REMEDIES.  If an Event of Default occurs,  Lessor may, in
its  sole  discretion,  exercise  one or more  of the  following  remedies:  (a)
terminate this Agreement or any or all Schedules;  or (b) take possession of, or
render unusable,  any Equipment  wherever the Equipment may be located,  without
demand or notice,  without any court  order or other  process of law and without
liability  to Lessee for any  damages  occasioned  by such  action,  and no such
action shall constitute a termination of any Schedule;  or (c) require Lessee to
deliver the  Equipment at a location  designated  by Lessor;  or (d) declare the
Stipulated  Loss Value (as  calculated  by Lessor as of the date of the Event of
Default) for each applicable  Schedule due and payable as liquidated damages for
loss of a  bargain  and not as a  penalty  and in  lieu  of any  further  Rental
Payments  under the  applicable  Schedule;  or (e)  proceed  by court  action to
enforce  performance by Lessee of any Schedule and/or to recover all damages and
expenses incurred by Lessor by reason of any Event of Default;  or (f) terminate
any  other  Fundamental  Agreement  that  Lessor  may have with  Lessee;  or (g)
exercise  any other  right or remedy  available  to Lessor at law or in  equity.
Also,  Lessee shall pay Lessor all costs and expenses  (including legal fees and
costs and fees of  collection  agencies)  incurred by Lessor in enforcing any of
the terms,  conditions or provisions of this  Agreement.  Upon  repossession  or
surrender of any Equipment, Lessor shall lease, sell or otherwise dispose of the
Equipment in a  commercially  reasonable  manner,  with or without notice and at
public or private sale, and apply the net proceeds  thereof (after deducting all
expenses  (including legal fees and costs) incurred in connection  therewith) to
the amounts  owed to Lessor  hereunder;  provided,  however,  that Lessee  shall
remain liable to Lessor for any deficiency  that remains after any sale or lease
of such  Equipment.  Lessee  agrees  that with  respect  to any notice of a sale
required  by law to be  given,  ten days'  notice  shall  constitute  reasonable
notice.  These  remedies  are  cumulative  of every other right or remedy  given
hereunder  or now or  hereafter  existing  at law or in equity or by  statute or
otherwise, and may be enforced concurrently therewith or from time to time.

                  21. LESSOR'S  PERFORMANCE OF LESSEE'S  OBLIGATIONS.  If Lessee
fails to perform any of its obligations hereunder, Lessor may perform any act or
make any payment that Lessor deems reasonably  necessary for the maintenance and
preservation of the Equipment and Lessor's interests therein; provided, however,
that the  performance  of any act or  payment  by  Lessor  shall not be deemed a
waiver of, or release Lessee from, the obligation at issue.  All sums so paid by
Lessor,  together with  expenses  (including  legal fees and costs)  incurred by
Lessor in connection  therewith,  shall be paid to Lessor by Lessee  immediately
upon demand.

                  22.  COVENANTS.  (a)  Reporting Requirements.  Lessee shall
furnish to Lessor:

                  (1) as soon as  available  and in any event  within fifty (50)
         days after the end of each of the first three  fiscal  quarters of each
         fiscal year of Lessee,  consolidated  balance  sheets of the Lessee and
         its  subsidiaries as of the end of such fiscal quarter and consolidated
         statements of operations of Lessee and its subsidiaries for such fiscal
         quarter and for the period commencing at the end of the previous fiscal
         year and ending with the end of such fiscal quarter, all in


<PAGE>


                                     - 20 -

          accordance with generally accepted accounting principles, certified by
          the chief financial officer of Lessee;

                  (2) as soon as  available  and in any  event  within  120 days
         after the end of each fiscal year of Lessee, a copy of the annual audit
         report for such fiscal year for Lessee and its subsidiaries,  including
         therein  consolidated  balance sheets of Lessee and its subsidiaries as
         of  the  end  of  such  fiscal  year  and  consolidated  statements  of
         operations of Lessee and its  subsidiaries for such fiscal year, all in
         accordance with generally accepted accounting principles,  in each case
         certified (without  qualification) by nationally recognized independent
         public  accountants,  to the effect  that,  in making  the  examination
         necessary  for the signing of such annual  report by such  accountants,
         they have not become aware of any Event of Default or Potential Default
         that has occurred and is  continuing,  or, if they have become aware of
         such Event of Default or Potential  Default,  describing  such Event of
         Default or Potential Default and the steps, if any, being taken to cure
         it;

                  (3) as soon as possible and in any event within five (5) days,
         in the case of an Event of Default, and ten (10) days, in the case of a
         Potential  Default,  after an  officer of Lessee  shall  have  obtained
         knowledge thereof, notice of the occurrence of such Event of Default or
         Potential  Default,  and a statement of the chief financial  officer of
         Lessee  setting  forth  details of such  Event of Default or  Potential
         Default and the action which Lessee has taken and proposes to take with
         respect thereto;

                  (4) prompt written notice of the filing or commencement of, or
         any  notice  of  intention  of any  individual  or  entity  to  file or
         commence,  any action, suit or proceeding,  whether at law or in equity
         or by or before any governmental  authority  against Lessee as to which
         there is a  reasonable  possibility  of an  adverse  determination  and
         which,  if adversely  determined,  could  result in a Material  Adverse
         Change or in the inability of Lessee to perform its  obligations  under
         any Fundamental Agreement;

                  (5) as soon as possible  and in any event within five (5) days
         after  receipt  thereof,  copies of any  material  notices  received by
         Lessee from Seller relating to  noncompliance  with any of the Purchase
         Documents; and

                  (6)  such  other  information   respecting  the  condition  or
         operations,   financial  or   otherwise,   of  Lessee  or  any  of  its
         subsidiaries  or  the  Equipment  as  Lessor  may  from  time  to  time
         reasonably request;  provided,  however, that any information which the
         Lessee regards as valuable and  confidential  and identified in writing
         as such by the Lessee (the "Confidential  Information") will be used by
         the Lessor solely for purposes of the transactions contemplated by this
         Agreement  and  the  other  Fundamental  Agreements  and  will  be kept
         confidential  by  Lessor  and  Lessor  will  not  disclose  any  of the
         Confidential  Information to any person or entity;  provided,  further,
         that  such  confidentiality  obligation  shall  not  apply  to (i)  any
         information disclosed to persons or entities employed by or expected to
         become  engaged in  evaluating,  approving,  structuring,  auditing  or
         administering  lease  transactions  hereunder  who agree to comply with
         this  confidentiality  provision,  including,  without limitation,  the
         Lessor's representatives,  attorneys, advisors, accountants, and rating
         agencies, (ii) any information which


<PAGE>


                                     - 21 -

         is or  becomes  available  to the Lessor  from a source  other than the
         Lessee or its  subsidiaries  (iii) any information  which is or becomes
         available to the public other than as a result of  disclosure by Lessor
         or its above-described  representatives or agents, (iv) any information
         required or  requested  by any  governmental  agency or  representative
         thereof  or  pursuant  to  legal  process,  or (v) any  information  in
         connection  with the exercise of any remedy under this  Agreement;  and
         provided,  further,  that  nothing  herein  shall  prevent  Lessor from
         disclosing such  information to any bona fide assignee,  or prospective
         assignee,  or any of their respective  representatives that have agreed
         to comply with this  confidentiality  provision in connection  with the
         contemplated assignment of any Schedule hereunder.
 .
                  (b) Merger or  Consolidation.  Lessee  shall not merge into or
consolidate  with any other entity unless (i) the surviving or successor  entity
expressly assumes in writing all of the obligations of Lessee  hereunder,  under
the Schedules and under the other Fundamental Agreements,  (ii) the surviving or
successor  entity  has a net  worth  determined  in  accordance  with  generally
accepted  accounting  principles,  after giving effect to such  consolidation or
merger at least equal to that of Lessee prior to such  consolidation  or merger,
(iii) no Event of Default or Potential Default shall occur or exist after giving
effect to such merger or consolidation, and (iv) at the sole cost and expense of
the surviving or successor entity,  the surviving or successor entity shall have
executed,   delivered  and  recorded  all  Uniform   Commercial  Code  Financing
Statements  and made such other  filings or  recordings  requested  by Lessor to
protect Lessor's ownership interest in the Equipment.

                  (c) Sale of Assets.  Lessee shall not sell, lease, transfer or
otherwise dispose of a substantial  portion of its assets for less than the fair
market value or fair market rental value, thereof, as applicable,  as determined
by the board of  directors  of Lessee in good faith and  certified in writing to
Lessor that such  determination  was made in the best business  judgment of such
board of directors.

                  (d) Corporate and Franchise  Existence.  Lessee shall preserve
and maintain its corporate existence,  rights,  franchises and privileges in its
jurisdiction of its organization,  and in all other  jurisdictions in which such
qualification  is necessary in view of its business and  operations and property
and  preserve,  protect and keep in full force and effect its rights,  licenses,
permits,  franchises,   authorizations,   patents,  trademarks,  copyrights  and
tradenames material to its business and to the use of the Equipment.

                  (e)  Compliance with Laws, Etc.  Lessee shall comply with all 
laws and regulations applicable to it and to the Equipment and all material
contractual obligations applicable to it and to the Equipment.

                  (f)  Obligations  and  Taxes.  Lessee  shall  pay  all  of its
indebtedness and obligations promptly and in accordance with their terms and pay
and discharge promptly all taxes, assessments and governmental charges or levies
imposed  upon it or upon its income or  profits  or in respect of its  property,
before the same shall become in default, as well as all lawful claims for labor,
materials and supplies or otherwise  which, if unpaid,  might become a lien upon
such properties or any part thereof; provided, however, that Lessee shall not be
required to pay and  discharge  or to cause to be paid and  discharged  any such
tax, assessment, charge, levy or claim so long as the validity or amount thereof
shall be contested in good faith by appropriate  proceedings diligently pursued,
and Lessee shall set aside


<PAGE>


                                     - 22 -

on its books such  reserves as are  required by  generally  accepted  accounting
principles with respect to any such tax,  assessment,  charge,  levy or claim so
contested.

                  23.  ASSIGNMENT BY LESSOR.  Lessor shall have the  unqualified
right to assign,  pledge,  transfer,  mortgage  or  otherwise  convey any of its
interests hereunder or in any Schedule, in whole but not in part, without notice
to, or consent of, Lessee to (1) any Permitted Assignee,  and (2) if an Event of
Default has occurred and Lessor is exercising any of its remedies hereunder,  to
any  person or entity.  A  Permitted  Assignee  shall be (1) any  subsidiary  or
affiliate  of  Lessor,  or (2) an  institutional  lender or  investor  (i) whose
business  includes  loans  or  leases  to  telecommunications  companies  or the
purchase of securities of telecommunications companies, (ii) which, in the event
Lessor's obligations to Lessee are being assumed by such Permitted Assignee, has
a tangible net worth determined in accordance with generally accepted accounting
principles of at least  $50,000,000 or provides a guaranty in form and substance
satisfactory  to Lessee of all of its  obligations to Lessee by an entity having
such  tangible  net worth,  and (iii)  which is not a  competitor  of either (1)
Lessee in the  telecommunications  market for the provision of competitive local
exchange services or (2) any telecommunications  long distance or inter-exchange
carrier  (solely  with respect to the market for  provision of long  distance or
telecommunications  services)  which is a  customer  of Lessee,  which  customer
accounted for more than five percent (5%) of Lessee's  consolidated  revenues in
its then most recent  four fiscal  quarters.  If a Permitted  Assignee  does not
assume Lessor's  obligations to Lessee with respect to the items of Equipment or
Schedule being assigned to such Permitted  Assignee,  then Lessor shall continue
to remain  liable to Lessee  for the  performance  of such  obligations.  If any
Schedule is assigned, Lessee shall: (a) unless otherwise specified by the Lessor
and the Permitted  Assignee  specified by Lessor,  pay all amounts due under the
applicable  Schedule to such Permitted  Assignee,  notwithstanding  any defense,
setoff  or  counterclaim  whatsoever  that  Lessee  may have  against  Lessor or
Permitted Assignee;  (b) not permit the applicable Schedule to be amended or the
terms  thereof  waived  without  the  prior  written  consent  of the  Permitted
Assignee;  (c) not require the Permitted  Assignee to perform any obligations of
Lessor, other than those that are expressly assumed in writing by such Permitted
Assignee;  and (d) execute such  acknowledgments  thereto as may be requested by
Lessor. It is further agreed that: (x) each Permitted Assignee shall be entitled
to all of Lessor's rights,  powers and privileges under the applicable Schedule,
to the extent assigned;  (y) any Permitted  Assignee may reassign its rights and
interests under the applicable  Schedule to another Permitted  Assignee with the
same force and effect as the assignment  described herein;  and (z) any payments
received by the  Permitted  Assignee  from Lessee with  respect to the  assigned
portion of the Schedule shall, to the extent thereof,  discharge the obligations
of Lessee to Lessor with respect to the assigned portion of the Schedule.

                  24.  ASSIGNMENT OR SUBLEASE BY LESSEE.  WITHOUT LESSOR'S PRIOR
WRITTEN  CONSENT,  LESSEE  SHALL NOT ASSIGN THIS  AGREEMENT  OR ANY  SCHEDULE OR
ASSIGN ITS RIGHTS IN OR SUBLET THE EQUIPMENT OR ANY INTEREST THEREIN;  provided,
however,  that as long as no Event of Default or Potential  Default has occurred
and is  continuing,  Lessee may  sublease or assign a Schedule to an  affiliate,
joint  venture or a  wholly-owned  subsidiary  of Lessee  that is an entity duly
organized under the laws of one of the states of the United States of America or
the District of Columbia and is not the subject of a bankruptcy proceeding if on
or  prior  to the date of such  sublease  or  assignment:  (a)  Lessee  and such
sublessee or assignee execute and deliver to Lessor a writing (to be provided by
Lessor if an assignment or in the


<PAGE>


                                     - 23 -

form of Exhibit A hereto if a sublease) whereby the sublessee or assignee agrees
to assume  joint and  several  liability  with  Lessee  for the full and  prompt
payment,  observance and  performance  when due of all of the obligations of the
Lessee  under such  Schedule;  (b) no such  assignment  or  sublease  causes the
affected  items of Equipment  to be  "tax-exempt  use  property" as such term is
defined in Section  168(h) of the Code;  (c) the term of any such  sublease does
not extend  beyond the then  Applicable  Term;  (d) any such  sublease  shall be
subject and subordinate to this Agreement and any applicable  Schedule and shall
be  consistent  with the  provisions  hereof and thereof;  (e) any such sublease
shall prohibit further subleasing; (f) Lessee at its sole cost and expense makes
all filings and recordations  requested by Lessor to protect Lessor's  ownership
interest in the affected items of Equipment; and (g) Lessee shall provide Lessor
with a landlord  waiver  substantially  in the form of Exhibit B attached hereto
with respect to each new Equipment  Location.  In no event,  however,  shall any
such sublease or assignment discharge or diminish any of Lessee's obligations to
Lessor under such Schedule. So long as no Event of Default exists and sublessees
are not in default of their sublease  obligations,  sublessees shall be entitled
to quiet  enjoyment  of the  items of  Equipment  they  have  subleased.  Lessor
acknowledges  that any  resale  of  capacity  to  customers  of Lessee or any of
Lessee's  affiliates  with respect to any Equipment or partitioning of Equipment
by  provision  of  dedicated  use  thereof to  customers  of Lessee or  Lessee's
affiliates shall not constitute an assignment or a sublease of a Schedule or any
Equipment. Lessee covenants and agrees that any such resale or partitioning will
be expressly subject to and subordinate to the terms of this Agreement.

                  25. SURVIVAL; QUIET ENJOYMENT. All representations, warranties
and covenants  made by Lessee  hereunder  shall survive the  termination of this
Agreement  and shall  remain in full force and effect.  All of Lessor's  rights,
privileges,  and  indemnities,  to the extent  they are fairly  attributable  to
events or  conditions  occurring or existing on or prior to the  termination  of
this Agreement,  shall survive such termination and be enforceable by Lessor and
any  successors  and  assigns.  So long as no Event of Default  exists,  neither
Lessor nor any Permitted  Assignee will interfere with Lessee's quiet  enjoyment
of the Equipment.

                  26.  TRUE LEASE; FILING FEES; FURTHER ASSURANCES; NOTICES.
Lessor and Lessee intend the  transactions  described herein and in any Schedule
to be a true  lease,  and  Lessee  hereby  authorizes  Lessor to file  financing
statements to give public notice of Lessor's ownership of the Equipment.  If any
such  transaction is deemed by a court of competent  jurisdiction  to be a lease
intended for security, to secure payment and performance of Lessee's obligations
under this  Agreement and any  Schedule,  Lessee grants Lessor and its assigns a
purchase  money  security  interest  in the  Equipment  and in all  attachments,
accessories,  additions,  substitutions,  products,  replacements,  rentals  and
proceeds (including insurance proceeds) (collectively, Collateral). Lessee shall
execute and timely deliver to Lessor financing statements or any other documents
Lessor deems necessary to perfect or protect Lessor's  security  interest in the
Collateral.  If Lessee  fails to execute any such  document,  Lessor or Lessor's
agent is hereby authorized to file any of the foregoing signed only by Lessor or
by Lessor's  agent.  Lessor or Lessor's agent may file as a financing  statement
any Fundamental  Agreement Lessor deems necessary to perfect or protect Lessor's
security  interest  in  the  Collateral,   and  Lessee  agrees  that  a  carbon,
photographic or other reproduction of any Fundamental Agreement or any financing
statement is sufficient as a financing statement. Lessee will promptly reimburse
Lessor for any filing or  recordation  fees or expenses  (including  lien search
fees,  legal fees and costs)  incurred by Lessor in perfecting or protecting its
interests in the Equipment and under this Agreement. Lessee shall promptly


<PAGE>


                                     - 24 -

execute and deliver to Lessor such  documents  and take such  further  action as
Lessor may from time to time reasonably request in order to carry out the intent
and purpose of this  Agreement  and to protect the rights and remedies of Lessor
created or intended to be created  hereunder.  All notices under this  Agreement
shall be sent to the respective party at its address set forth on the front page
of this Agreement or on the applicable  Schedule or at such other address as the
parties may provide to each other in writing from time to time.  Any such notice
mailed to said address  shall be effective  when  deposited in the United States
mail, duly addressed and with first class postage prepaid.

                  27. WAIVER OF JURY TRIAL;  SUCCESSORS.  LESSEE AND LESSOR EACH
IRREVOCABLY  WAIVE  ALL  RIGHT  TO  TRIAL  BY JURY IN ANY  LAWSUIT,  PROCEEDING,
COUNTERCLAIM  OR ANY OTHER  LITIGATION  OR PROCEEDING  UPON,  ARISING OUT OF, OR
RELATED TO THIS AGREEMENT,  ANY OTHER FUNDAMENTAL AGREEMENT,  OR THE DEALINGS OR
RELATIONSHIP BETWEEN OR AMONG LESSOR,  LESSEE,  SELLER OR ANY OTHER PERSON. This
Agreement  and all  Schedules  inure to the benefit of and are binding  upon the
permitted successors or assigns of Lessor and Lessee.

                  28. NO  WAIVER;  LESSOR  APPROVAL.  Any  failure  of Lessor to
require  strict  performance  by Lessee,  or any written waiver by Lessor of any
provision hereof,  shall not constitute consent or waiver of any other breach of
the same or any other  provision  hereof.  Neither this  Agreement nor any other
Fundamental  Agreement shall be binding upon Lessor unless and until executed by
Lessor.

                  29. CAPTIONS; COUNTERPARTS;  LESSOR'S AFFILIATES. The captions
contained in this  Agreement are for  convenience  only and shall not affect the
interpretation of this Agreement.  Only one counterpart of the Schedule shall be
marked "Original" (Original), and all other counterparts thereof shall be marked
as,  and shall be,  duplicates.  To the  extent  that any  Schedule  constitutes
chattel paper (as such term is defined in the Uniform  Commercial Code in effect
in any applicable  jurisdiction),  no security  interest in such Schedule may be
created  through the transfer or  possession of any  counterpart  other than the
Original.  Lessee  understands  and agrees that AT&T Capital  Corporation or any
affiliate or subsidiary  thereof may, as lessor,  execute  Schedules  under this
Agreement,  in which event the terms and conditions of the  applicable  Schedule
and this  Agreement  as it relates to the lessor  under such  Schedule  shall be
binding  upon and shall  inure to the  benefit  of such  entity  executing  such
Schedule as lessor, as well as any successors or assigns of such entity.

                  30.      CHOICE OF LAW; INTEGRATION; ENTIRE AGREEMENT.  EACH
LEASE UNDER THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO
CONFLICTS OF LAW PROVISIONS) OF THE STATE OF NEW JERSEY (STATE).  If any
provision of this Agreement or such Schedule shall be prohibited by or invalid
under that  law,  such  provision  shall be  ineffective  only to the  extent of
such prohibition or invalidity,  without invalidating the remainder of such
provision or the  remaining  provisions  of this  Agreement or such  Schedule.
Lessor and Lessee consent to the jurisdiction of any local,  state or Federal
court located within the State,  and waive any objection  relating to improper
venue or forum non  conveniens  to the  conduct  of any  proceeding  in any such
court.  This Agreement  and all other  Fundamental  Agreements  executed by both
Lessor and Lessee constitute the entire agreement between Lessor and Lessee
relating to the leasing of the Equipment, and supersede all prior agreements
relating


<PAGE>


                                     - 25 -

thereto, whether written or oral, and may not be amended or modified except in a
writing signed by the parties hereto.



<PAGE>




AMERICAN COMMUNICATIONS                      AT&T CREDIT CORPORATION
  SERVICES, INC.

/s/ RICHARD A. KOZAK
By: Richard A. Kozak
     (Lessee Authorized Signature)                (Lessor Authorized Signature)

/s/ RICHARD A. KOZAK                         /s/ EDWARD F. GROMEK
     C.E.O and President

(Type/Print Name)                                 (Type/Print Name)

-------------------------------------        -----------------------------------
C.E.O. and President                         -----------------------------------
(Title)                                           (Title)

-------------------------------------        -----------------------------------
August 26, 1996                              -----------------------------------
(Date)                                            (Date)