NTFC CAPITAL CORPORATION
                      EQUIPMENT LOAN AND SECURITY AGREEMENT


     This EQUIPMENT LOAN AND SECURITY  AGREEMENT  ("Agreement"),  is dated as of
December 19, 1996, by and between the following parties:


LENDER/SECURED PARTY: NTFC CAPITAL CORPORATION, a Delaware corporation
                      with offices at 220 Athens Way, Nashville, Tennessee 37228
                      ("Lender")


BORROWER/DEBTOR:      GST Equipco, Inc, a Washington corporation with its 
                      principal place of business at 4317 N.E. Thurston Way, 
                      Vancouver, Washington 98662 ("Borrower")



This Loan and  Security  Agreement  includes  the general  terms and  conditions
contained  herein and all the exhibits and  schedules  attached  hereto,  all of
which are  incorporated  herein.  In the event of a conflict between the general
terms and  conditions  and any schedule,  the  additional  terms and  conditions
stated in the schedule shall control.

By executing  this Loan and Security  Agreement,  Lender agrees to make loans to
Borrower, and Borrower agrees to borrow from Lender and to provide collateral to
secure such loans, all on the terms and conditions set forth herein.


IN WITNESS WHEREOF,  the parties have executed this Loan and Security  Agreement
by their duly authorized representatives:


LENDER:                                   BORROWER:
-------                                   ---------

NTFC CAPITAL CORPORATION                  GST EQUIPCO, INC.

BY: /s/ authorized signatory              BY: /s/ Clifford V. Sander
-------------------------------           -------------------------------

TITLE: Secretary                          TITLE: Vice President & CEO
-------------------------------           -------------------------------

DATE: 12/19/96                            DATE: 12/19/96
-------------------------------           -------------------------------




<PAGE>




ARTICLE 1: DEFINITIONS
      1.1   Certain Definitions........................................1
      1.2   Accounting Principles; Subsidiaries........................9
      1.3   UCC Terms.................................................10
      1.4   General Construction; Captions............................10
      1.5   References to Documents and Laws..........................10

ARTICLE 2: LOANS
      2.1   Commitment................................................10
      2.2   Note and Payment Terms....................................10
      2.3   Procedures for Borrowing..................................12
      2.4   Prepayments...............................................13
      2.5   Computation of Interest...................................13
      2.6   Payments..................................................13
      2.7   Indemnity.................................................14
      2.8   Use of Proceeds...........................................14
      2.9   Fees......................................................14
      2.10  Lender's Expenses.........................................14
      2.11  Guaranty..................................................15

ARTICLE 3: COLLATERAL AND SECURITY AGREEMENT
      3.1   Grant of Security Interest................................15
      3.2   Priority of Security Interests............................15
      3.3   Further Documentation; Pledge of Instruments..............15
      3.4   Further Identification of Collateral......................16
      3.5   Remedies..................................................16
      3.6   Standard of Care..........................................16
      3.7   Advances to Protect Collateral............................16
      3.8   License to Use............................................16

ARTICLE 4: REPRESENTATIONS AND WARRANTIES
      4.1   Organization and Qualification............................17
      4.2   Authority and Authorization...............................17
      4.3   Execution and Binding Effect..............................17
      4.4   Governmental Authorizations...............................17
      4.5   Regulatory Authorizations.................................17
      4.6   Material Agreement; Absence of Conflicts..................17
      4.7   No Restrictions...........................................18
      4.8   Financial Statements......................................18
      4.9   Financial Accounting Practices............................18
      4.10  Accurate and Complete Disclosure..........................18
      4.11  No Event of Default; Compliance with Material Agreements..19
      4.12  Litigation................................................19
      4.13  Rights to Property........................................19
      4.14  Financial Condition.......................................19
      4.15  Taxes.....................................................19
      4.16  No Material Adverse Change................................19


                                       -i-

<PAGE>



      4.17  No Regulatory Event.......................................19
      4.18  Trade Relations...........................................19
      4.19  No Brokerage Fees.........................................19
      4.20  Margin Stock; Regulation U................................20
      4.21  Investment Company; Public Utility Holding Company........20
      4.22  Personal Holding Company; Subchapter S....................20
      4.23  ERISA.....................................................20
      4.24  Environmental Warranties..................................20
      4.25  Security Interests........................................20
      4.26  Place of Business.........................................21
      4.27  Location of Collateral....................................21
      4.28  Clear Title To Collateral.................................21
      4.29  Assumed Names.............................................21
      4.30  Transactions with Affiliates..............................21
      4.31  NTI Purchase Agreement....................................21

ARTICLE 5: CONDITIONS OF CLOSING......................................21
      5.1   Closing Certificates......................................21
      5.2   Opinion of Counsel........................................21
      5.3   Closing Documents.........................................22

ARTICLE 6: CONDITIONS OF LENDING
      6.1   Conditions for Initial Advance............................22
      6.2   Conditions for All Advances...............................23
      6.3   Affirmation of Representations and Warranties.............24
      6.4   Deadline for Funding Conditions...........................24

ARTICLE 7: AFFIRMATIVE COVENANTS
      7.1   Reporting and Information Requirements....................25
      7.2   Other Notices.............................................26
      7.3   Notice of Pension-Related Events..........................26
      7.4   Inspection Rights.........................................27
      7.5   Preservation of Corporate Existence and Qualification.....27
      7.6   Continuation of Business..................................27
      7.7   Insurance.................................................27
      7.8   Payment of Taxes, Charges, Claims and Current Liabilities.28
      7.9   Financial Accounting Practices............................29
      7.10  Compliance with Laws......................................29
      7.11  Use of Proceeds...........................................29
      7.12  Government Authorizations; Regulatory Authorizations, Etc.29
      7.13  Contracts and Franchises..................................30
      7.14  Consents..................................................30
      7.15  Construction and Storage..................................30
      7.16  Upgrade NTI Equipment.....................................30

ARTICLE 8: NEGATIVE COVENANTS
      8.1   Additional Indebtedness...................................30
      8.2   Restrictions on Liens and Sale of Collateral..............30


                                      -ii-

<PAGE>



      8.3   Limitation on Contingent Obligations......................31
      8.4   Fees and Commissions......................................31
      8.5   Prohibition of Mergers, Acquisitions, Name, Office 
             or Business Changes .....................................31
      8.6   Prohibition Against Changes to Leases. ...................32
      8.7   Limitation on Investments, Advances and Loans.............32
      8.8   Capital Expenditures......................................32
      8.9   Limitation on Leases......................................32
      8.10  Termination of NTI Purchase Agreement.....................32
      8.11  Removal of Collateral.....................................32
      8.12  Assumed Names.............................................32

ARTICLE 9: EVENTS OF DEFAULT
      9.1   Events of Default.........................................33
      9.2   Consequences of an Event of Default.......................35
      9.3   Exercise of Rights........................................35
      9.4   Rights of Secured Party...................................36
      9.5   Notices, Etc. Waived......................................36
      9.6   Additional Remedies.......................................36
      9.7   Application of Proceeds...................................37
      9.8   Discontinuance of Proceedings.............................37
      9.9   Power of Attorney.........................................37
      9.10  Regulatory Matters........................................38

ARTICLE 10: GENERAL CONDITIONS/MISCELLANEOUS
      10.1  Modifications and Waivers.................................38
      10.2  Advances Not Implied Waivers..............................39
      10.3  Deviation from Covenants..................................39
      10.4  Holidays..................................................39
      10.5  Records...................................................39
      10.6  Notices...................................................39
      10.7  FCC and PUC Approval......................................40
      10.8  Lender Sole Beneficiary...................................40
      10.9  Lender's Review of Information............................40
      10.10 No Joint Venture..........................................41
      10.11 Severability..............................................41
      10.12 Rights Cumulative.........................................41
      10.13 Duration; Survival........................................41
      10.14 Governing Law.............................................41
      10.15 Counterparts..............................................41
      10.16 Successors and Assigns....................................41
      10.17 Participation.............................................42
      10.18 Time of Essence...........................................42
      10.19 Disclosures and Confidentiality...........................42
      10.20 Jurisdiction and Venue....................................43
      10.21 Jury Waiver...............................................43
      10.22 Limitation on Liability...................................44
      10.23 Borrower Waivers..........................................44
      10.24 Schedules.................................................44


                                      -iii-

<PAGE>



      10.25 Agreement to Govern.......................................44
      10.26 Entire Agreement..........................................44



                                      -iv-

<PAGE>



                   SCHEDULES TO LOAN AND SECURITY AGREEMENT
                   ----------------------------------------

 Schedule 1       Borrower Information and Defined Terms
 Schedule 2.1     Maximum Loan Amount
 Schedule 2.2     Payment Terms and Governing Law
 Schedule 2.9     Fees
 Schedule 4.4     Required Consents
 Schedule 4.7     Restrictions on Loans
 Schedule 4.8     Financial Statements
 Schedule 4.12    Pending Litigation
 Schedule 4.25    UCC Filing Offices
 Schedule 4.26    Principal Offices and Location of Collateral
                   Schedule 4.29    Assumed Names
 Schedule 4.30    Permitted Transactions with Affiliates
 Schedule 4.31    NTI Purchase Agreement
 Schedule 6.2     Post-Closing Items
 Schedule 7.7     Insurance/Certificate
 Schedule 8.1     Permitted Specific Indebtedness
 Schedule 8.2     Permitted Specific Encumbrances

                    EXHIBITS TO LOAN AND SECURITY AGREEMENT
                    ---------------------------------------

 Exhibit A  Form of Note
 Exhibit B  Form of Borrowing Certificate
 Exhibit C  Form of Opinion of Counsel for Borrower and for Guarantor
             Exhibit D  Form of Landlord's Consent
 Exhibit E  Form of Lease
 Exhibit F  Form of Guaranty
 Exhibit G  Certificate Financial Condition




<PAGE>



                           LOAN AND SECURITY AGREEMENT


     THIS LOAN AND SECURITY AGREEMENT  ("Agreement") is dated as of the "Closing
Date" set forth on  Schedule 1 hereto,  by and  between  the entity or  entities
described  on  Schedule 1 hereto  (collectively,  "Borrower")  and NTFC  CAPITAL
CORPORATION, a Delaware corporation ("Lender"),  with offices at 220 Athens Way,
Nashville, Tennessee 37228.

                              B A C K G R O U N D:

     A.  Borrower has entered into a certain  purchase  agreement  with Northern
Telecom  Inc.,  as  described  on Schedule 1 hereto,  providing  for  Borrower's
purchase of certain  telecommunications  equipment and the license of associated
software, all as described therein, and has requested Lender to extend credit to
Borrower to finance  such  purchase  and  license,  as  described  on Schedule 1
hereto.

     B.  Borrower is  affiliated  with  certain  operating  Affiliates  (defined
below), to whom it will lease the Equipment and other Collateral  defined below,
subject to Lender's prior security interests and rights hereunder.

     C. GST USA,  Inc., the direct or indirect owner of all the capital stock of
Borrower,  and the  Affiliates  that will  lease the  Equipment,  has  partially
guaranteed the obligations of Borrower hereunder.

     D. Lender is willing to extend  such credit to Borrower  upon the terms and
conditions set forth in this Agreement.

     NOW,  THEREFORE,  in  consideration  of the  premises  and  of  the  mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:

                             ARTICLE 1: DEFINITIONS

     1.1 Certain Definitions. Certain terms are defined on Schedule 1 hereto. In
addition to other words and terms defined in the preamble hereof or elsewhere in
this Agreement,  or on the Schedules hereto, the following words and terms shall
have the following meanings unless the context otherwise clearly requires:

     "Advance(s)":  any  advance  or loan of funds  made by Lender  to  Borrower
pursuant to this Agreement.

     "Affiliate":  as  applied to any  Person,  any second  Person  directly  or
indirectly controlling, controlled by, or under common control with that Person,
or related to such Person by blood,  marriage or adoption.  For purposes of this
definition  and the  definition  of  "Subsidiary",  a Person  shall be deemed to
control another Person if such first Person  possesses,  directly or indirectly,
the power to direct,  or to cause the direction of, the  management and policies
of such  other  Person,  whether  through  ownership  of voting  securities,  by
contract  or  otherwise.   The  "Affiliates"  of  Borrower  shall  also  include
Affiliates that lease Equipment from Borrower and the Owners.



                                       -2-

<PAGE>



     "Basic Agreements": a collective reference to this Agreement, the Note, and
the Security Documents.

     "Borrowing Certificate": a certificate substantially in the form of Exhibit
B hereto.

     "Borrowing  Date": any Business Day on which an Advance is made to Borrower
hereunder.

     "Business  Day": a day other than a Saturday,  Sunday or other day on which
commercial  banks in Nashville,  Tennessee are  authorized or required by law to
close.

     "Calendar  Quarter":  each three month  period  starting on each January 1,
April 1, July 1, and October 1, during the term of this Agreement.

     "Carrier":  a provider of  telecommunications  services by  interconnection
with the System or contract with Borrower.

     "Cash":  at any time, the cash, cash  equivalents or marketable  investment
grade securities held by Borrower free of any claims or encumbrances.

     "Certificate of Financial Condition":  a certificate in the form of Exhibit
G hereto, executed by Borrower.

     "Change in  Control":  any change in the direct or indirect  control of, or
the ability or right to control, a majority of the voting shares of any class of
securities or ownership  rights in the Borrower or in the right and/or the power
to control the election of the board of directors of the Borrower.

     "Closing Date": as defined on Schedule 1 hereto.

     "Code": the Internal Revenue Code of 1986, as amended from time to time.

     "Collateral": as defined in Section 3.1 hereof.

     "Commitment": as defined in Section 2.1 hereof.

     "Communications Law": any and all of (i) the Communications Act of 1934, as
amended,  and any  similar  or  successor  federal  statute,  and the  rules and
regulations of the FCC thereunder, (ii) any state law governing the provision of
telecommunications  services,  and the rules and  regulations of the PUC, all as
the same may be in effect from time to time.

     "Contingent  Obligation":  as to any Person,  any obligation of such Person
guaranteeing,  directly or indirectly,  any Indebtedness,  leases,  dividends or
other  obligations  ("primary  obligations")  of any other Person (the  "primary
obligor") in any manner,  whether  directly or  indirectly,  including,  without
limitation,  any obligation of such Person,  whether or not  contingent,  (a) to
purchase any such primary  obligation  or any  property  constituting  direct or
indirect security therefor,  (b) to advance or supply funds (i) for the purchase
or payment of any such primary obligation or (ii) to maintain working capital or
equity capital of the primary  obligor or otherwise to maintain the net worth or
solvency  of the  primary  obligor,  (c) to  purchase  property,  securities  or
services  primarily  for the purpose of assuring  the owner of any such  primary
obligation of the ability of the primary obligor to make


                                       -3-

<PAGE>



payment of such primary  obligation  or (d) otherwise to assure or hold harmless
the owner of such primary obligation against loss in respect thereof.

     "Conversion Date": as defined on Schedule 2.2 hereto.

     "Debt Service": for any fiscal period of Borrower, the sum of all principal
and interest  payments  that  Borrower is required to make during such period on
account of all of its Indebtedness  including,  without limitation,  (a) amounts
due during such period on account of  capitalized  leases,  (b) the then current
portion  of  any   long-term   Indebtedness,   (c)  amounts  due  on  short-term
Indebtedness, and (d) amounts due under this Agreement and the Note.

     "Default":  any of the conditions or occurrences  specified in Section 9.1,
whether or not any requirement  for the giving of notice,  the lapse of time, or
both, or any other condition has been satisfied.

     "Default Rate": a rate of interest equal to the lesser of (i) three percent
(3%)  over  the  Interest  Rate,  or (ii) the  maximum  permissible  rate  under
applicable law in effect at any time.

     "Environmental  Law":  any current or future  federal,  state and local law
(including common law), statute, regulation, ordinance, rulings, codes, judicial
order,  administrative  order or terms of  licenses  or  permits  applicable  to
environmental  conditions  (including without limitation  conditions relating to
ambient air,  surface water,  groundwater,  land surface or subsurface  strata),
including without limitation all such laws governing employment, the generation,
use, storage,  disposal or  transportation  of toxic or hazardous  substances or
wastes (including,  without limitation,  asbestos and petroleum  products),  the
Comprehensive  Environmental  Response,  Compensation  and  Liability  Act,  the
Resource   Conservation   and  Recovery   Act,  the   Superfund   Amendment  and
Reauthorization  Act of 1986,  the Toxic  Substances  Control Act, the Clean Air
Act, the Water Pollution  Control Act, the Hazardous  Waste  Management Act, the
Mineral Lands and Leasing Act, the Surface Mining Control and  Reclamation  Act,
U.S. Department of Transportation  Regulations,  and all similar state and local
laws, regulations, all as now or hereafter amended.

     "ERISA":  the Employee  Retirement  Income Security Act of 1974, as amended
from time to time, and any successor statute.

     "Equipment": as defined in Section 3.1 hereof.

     "Equity Payment":  any distribution of earnings or capital to any Owner, or
any  redemption  of stock or  other  ownership  interests,  either  directly  or
indirectly, whether in cash or property or in obligations of the Borrower.

     "Event of  Default":  any of the events  specified  in Section  9.1 hereof,
provided that any  requirement  for the giving of notice,  the lapse of time, or
both,  or any  other  condition,  under  Section  9.1  or  otherwise,  has  been
satisfied.

     "Financing Termination Date": as defined on Schedule 2.2 hereto.

     "FCC":  the  Federal  Communications  Commission  of the  United  States of
America, and any successor, in whole or in part, to its jurisdiction.


                                       -4-

<PAGE>




     "First  Borrowing  Date":  the  date of the  first  borrowing  by  Borrower
hereunder.

     "GAAP":  subject to  Section  1.2  hereof,  generally  accepted  accounting
principles in the United States of America (as such  principles  may change from
time to time) applied on a consistent  basis (except for changes in  application
in which Borrower's  independent  certified public accountants concur),  applied
both to classification of items and amounts.

     "General Intangibles": as defined in Section 3.1 hereof.

     "Governmental Actions": actions by any Governmental Authority.

     "Governmental  Authority":  the federal government,  any state or political
subdivision  thereof,  any city or municipal  entity,  and any entity exercising
executive,  legislative,  judicial, regulatory or administrative functions of or
pertaining to government.

     "GST  Telecommunications":   GST  Telecommunications,   Inc.",  a  Canadian
corporation

     "Guarantor": as defined on Schedule 1 hereto.

     "Guaranty":  the Guaranty  executed by Guarantor,  pursuant to Section 2.11
hereof, substantially in the form of Exhibit F hereto.

     "Indebtedness":  as to any Person,  at a particular  time, (a) indebtedness
for borrowed money or for the deferred purchase price of property or services in
respect of which such Person is liable,  contingently or otherwise,  as obligor,
guarantor or otherwise,  or in respect of which such Person otherwise  assures a
creditor  against loss,  (b)  obligations  under leases which shall have been or
should be, in  accordance  with GAAP,  recorded as capital  leases in respect of
which obligations such Person is liable,  contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which obligations such Person assures a
creditor  against loss (c)  obligations of such Person to purchase or repurchase
accounts  receivable,  chattel paper or other payment rights sold or assigned by
such Person,  and (d)  indebtedness  or obligations of such Person under or with
respect to letters of credit, notes, bonds or other debt instruments.


     "Indenture":  the Senior  Notes  Indenture  dated as of December  19, 1995,
among GST USA,  Inc.,  GST  Telecommunications,  Inc.  and United  States  Trust
Company of New York, as Trustee, as it may be amended from time to time.

     "Initial Payment Date": as defined on Schedule 2.2 hereto.

     "Interest Only Period": as defined on Schedule 2.2 hereto.

     "Interest Payment Date": as defined on Schedule 2.2 hereto.

     "Interest Rate": as defined on Schedule 2.2 hereto.



                                       -5-

<PAGE>



     "Landlord Consent": a consent substantially in the form of Exhibit D hereto
or in other form  acceptable  to Lender,  to be executed by the  owner/landlord,
sublessor and/or licensor of any real property where any of the Collateral is to
be located.

     "Law": any law (including common law), constitution,  statute,  regulation,
rule, ordinance,  order,  injunction,  writ, decree or award of any governmental
body or court of competent  jurisdiction or of any arbitrator (including but not
limited to ERISA, the Code, the UCC, any applicable tax law, product safety law,
occupational safety or health law,  Communications Law, Environmental Law and/or
securities laws).

     "Lease": a Lease of the Equipment by Borrower as lessor and an Affiliate of
Borrower as lessee.

     "Lender's Expenses": as defined in Section 2.10 hereof.

     "LIBOR":  London Interbank Offered Rates as quoted from time to time in The
Wall Street Journal.

     "LIBOR Period": any calendar quarter during which a Loan is outstanding.

     "Lien":  any mortgage,  pledge,  hypothecation,  lien (statutory or other),
judgment  lien,  security  interest,   security   agreement,   charge  or  other
encumbrance, or other security arrangement of any nature whatsoever,  including,
without limitation,  any installment  contract,  conditional sale or other title
retention arrangement, any sale of accounts receivable or chattel paper, and any
assignment,  deposit  arrangement or lease intended as, or having the effect of,
security and the filing of any financing  statement  under the UCC or comparable
law of any jurisdiction.

     "Loan Documents":  a collective reference to this Agreement,  the Note, the
Security  Documents,  the  Guaranty,  and  all  other  documents,   instruments,
agreements and certificates  evidencing or securing any advance hereunder or any
obligation for the payment or performance  thereof and/or executed and delivered
in connection with any of the foregoing.

     "Mandatory Prepayments: as defined in Section 2.4(b) hereof.

     "Material Adverse Effect" or "Material Adverse Change":  a material adverse
effect  on, or  material  adverse  change in, (i) the  business,  operations  or
financial  condition  of  Borrower,  (ii) the ability of Borrower to perform its
obligations under this Loan Agreement, the Note, or the other Loan Documents, or
(iii) the Lender's ability to enforce the rights and remedies granted under this
Agreement or the other Loan  Documents,  in all cases whether  attributable to a
single  circumstance or event or an aggregation of circumstances or events, such
that it is unable to utilize the essential remedies provided herein.

     "Maturity  Date":  the date  defined on Schedule  2.2 hereto,  on which all
principal,  interest,  premium,  expenses, fees, penalties and other amounts due
under the Note shall be finally due and payable.

     "Management  Agreement":  the Services  Agreement  dated as of December 17,
1996 between the Borrower and the Guarantor.


                                       -6-

<PAGE>




     "Note":  collectively,  one or more promissory  notes issued by Borrower to
Lender pursuant to this Agreement, and all extensions, renewals,  modifications,
replacements, amendments, restatements and refinancings thereof.

     "NTI": Northern Telecom Inc., a Delaware corporation.

     "NTI  Equipment":  the  equipment  and  licensed or  sub-licensed  software
manufactured  or supplied  by NTI to  Borrower  at any time  pursuant to the NTI
Purchase  Agreement or any purchase  order issued by Borrower to NTI,  including
installation and construction services provided by NTI pursuant thereto.

     "NTI Purchase Agreement": the NTI Purchase Agreement identified on Schedule
4.31 hereto,  together with any amendments or supplements thereto, and any other
purchase agreement between NTI and Borrower for Equipment.

     "Obligations": all indebtedness, liabilities and obligations of Borrower to
Lender of any class or nature,  whether arising under or in connection with this
Agreement and/or the other Loan Documents or otherwise,  whether now existing or
hereafter  incurred,  direct or  indirect,  absolute or  contingent,  secured or
unsecured,  matured or  unmatured,  joint or  several,  whether  for  principal,
interest,   fees,  expenses,   lease  obligations,   indemnities  or  otherwise,
including, without limitation,  future advances of any sort, all future advances
made by Lender for taxes, levies,  insurance and/or repairs to or maintenance of
the Collateral,  the unpaid  principal  amount of, and accrued  interest on, the
Note, and any expenses of collection or protection of Lender's rights, including
reasonable attorneys' fees.

     "Organizational Documents": with respect to a corporation,  the articles of
incorporation  and by-laws of such  corporation;  with respect to a partnership,
the  certificate  of partnership  (or limited  partnership,  as applicable)  and
partnership  agreement,  together with the analogous documents for any corporate
or partnership general partner; with respect to a limited liability company, the
articles of  organization  and  operating  agreement of such  limited  liability
company; and in any case, any other document governing the formation and conduct
of business by such entity.

     "Owners":  all presently  existing and future  shareholders of Borrower and
all other Persons with direct ownership interests in Borrower.

     "Payment Date": as defined on Schedule 2.2 hereto.

     "Payment Schedule": as defined on Schedule 2.2 hereto.

     "PBGC": the Pension Benefit Guaranty Corporation established under Title IV
of  ERISA  or any  other  governmental  agency,  department  or  instrumentality
succeeding to its functions.

     "Permits":  all consents,  licenses,  notices,  approvals,  authorizations,
filings,  orders,  registrations,  and  permits  required  by  any  Governmental
Authority   for  the   operation   of  the   Equipment   (excluding   Regulatory
Authorizations),  issued or obtained as and when required in accordance with all
Requirements of Law.

     "Permitted Encumbrances": the Liens permitted under Section 8.2 hereof.


                                      -7-

<PAGE>




     "Person":   an  individual,   corporation,   limited   liability   company,
partnership, business or other trust, unincorporated association, joint venture,
joint-stock company, Governmental Authority or any other entity.

     "Plan":  any employee  pension  benefit plan to which Section 4021 of ERISA
applies and (i) which is  maintained  for employees of Borrower or (ii) to which
Borrower  made,  or was required to make,  contributions  at any time within the
preceding five (5) years.

     "Proceeds": as defined in Section 3.1 hereof.

     "PUC":  the  public  utilities  commission  for  the  state  or  any  other
jurisdiction in which the Borrower operates its  telecommunications  business or
any  portion of the  Equipment  is located,  or any  successor  agency,  and any
successor, in whole or in part, to its functions or jurisdictions.

     "Qualifying  Lease":  a  Lease  to  an  Affiliate  of  Borrower  in a  form
substantially similar to Exhibit E hereto.

     "Regulatory  Authorizations":  all  approvals,  authorizations,   licenses,
filings, notices, registrations,  consents, permits, exemptions,  registrations,
qualifications, designations, declarations, or other actions or undertakings now
or hereafter made by, to or in respect of any telecommunications governmental or
other regulatory authority,  including,  without limitation, any certificates of
public   convenience   and  all  grants,   approvals,   licenses,   filings  and
registrations  from  or to  the  FCC  or PUC or  under  any  Communications  Law
necessary in order to enable the Borrower to own and maintain the Equipment, and
any authorizations specified on Schedule 1 hereto.

     "Regulatory Event": any of the following events: (i) Lender becomes subject
to  regulation  as a  "carrier," a  "telephone  company," a "common  carrier," a
"public utility" under any applicable law or governmental  regulation,  federal,
state or  local,  solely as a result of the  transactions  contemplated  by this
Agreement  and the other Loan  Documents,  or (ii) Borrower  becomes  subject to
regulation by any Governmental Authority in any way that is materially different
from the  regulation  existing  at the  Closing  Date and that could  materially
adversely affect  Borrower's  ability to perform its material  obligations under
the Loan Documents or Lender's rights thereunder, or (iii) the FCC or PUC issues
an order revoking, denying or refusing to renew, or recommending the revocation,
denial or non- renewal of, any Regulatory Authorization.

     "Reportable  Event":  (i) a reportable  event  described in Section 4043 of
ERISA and regulations  thereunder,  (ii) a withdrawal by a substantial  employer
from a Plan to which  more than one  employer  contributes,  as  referred  to in
Section  4063(b) of ERISA,  or (iii) a  cessation  of  operations  at a facility
causing more than twenty percent (20%) of Plan participants to be separated from
employment, as referred to in Section 4062(f) of ERISA.

     "Required  Consents":  the Governmental  Authority approvals or consents of
other Persons  required with respect to the Borrower's  execution,  delivery and
performance  of this  Agreement  and the other Loan  Documents,  as described in
Section 4.4 hereto.

     "Requirement  of Law": as to any Person,  the  Organizational  Documents of
such Person,  and any law,  treaty,  rule or regulation,  or determination of an
arbitrator or a court or other Governmental  Authority,  in each case applicable
to or binding upon such Person or any of its properties or


                                       -8-

<PAGE>



transactions  or to which such Person or any of its property or  transactions is
subject,  including without limitation,  all applicable common law and equitable
principles,  all provisions of all applicable  state and federal  constitutions,
statutes,  rules,  regulations and orders of governmental bodies, all Permits or
Regulatory  Authorizations issued to Borrower,  all Communications Laws, and all
Environmental Laws.

     "Responsible  Officer":  with  respect  to  a  corporation,  its  Chairman,
President or any Vice President, its Chief Financial Officer or Treasurer;  with
respect to a  partnership,  its  general  partner  (or the  President,  any Vice
President or Treasurer of any corporate  general partner,  as applicable);  with
respect to a limited  liability  company,  a member or manager (or the Chairman,
President,  any Vice  President,  Chief  Financial  Officer or  Treasurer of any
corporate  member or manager),  or the  President  or any Vice  President of any
other Person.

     "Security Documents":  this Agreement, the Landlord Consents, all financing
statements,  and any other  documents  granting,  evidencing,  or perfecting any
security interest or Lien with respect to or securing any of the Obligations.

     "Site(s)": any of the sites where Equipment is or is to be located.

     "Software" and "Software Licenses": any software now or hereafter owned by,
or licensed  to,  Borrower  or with  respect to which  Borrower  has or may have
license or use rights,  which software is used in connection  with the operation
of Equipment.

     "Subsidiary":  as to any Person, any corporation or other entity that is an
Affiliate of such Person and of which shares of stock or equity interests having
ordinary  voting power with respect to the election of one or more  directors or
other managers of such  corporation are at the time directly or indirectly owned
or controlled by such Person  (regardless of any  contingency  which does or may
suspend or dilute the voting rights of such class).

     "System":  the complete  telecommunications  network or system of which the
Equipment forms or will form a part, as described on Schedule 1 hereto.

     "Total  Debt":  at any  time,  the  total  outstanding  liabilities  of the
Borrower,   including,  without  limitation,   current  liabilities,  long  term
Indebtedness,  all lease  obligations  under finance  leases,  operating  leases
and/or capital leases, all Contingent Obligations, and all the Obligations.

     "UCC": the Uniform  Commercial Code as the same may from time to time be in
effect in the State of New  York,  or the  Uniform  Commercial  Code of  another
jurisdiction,  to the extent it may be required to apply to any item or items of
Collateral.

     "Working  Capital":  unencumbered  and  unrestricted  capital  of  Borrower
available  for general  operational  purposes  after  provision  for all current
liabilities.

     1.2 Accounting  Principles;  Subsidiaries.  Except as otherwise provided in
this  Agreement,  all  computations  and  determinations  as  to  accounting  or
financial matters and all financial  statements to be delivered pursuant to this
Agreement  shall  be made  and  prepared  in  accordance  with  GAAP  (including
principles of consolidation where appropriate),  consistently  applied,  and all
accounting or financial terms shall have the meanings  ascribed to such terms by
GAAP. If at any time Borrower has any Subsidiaries, all accounting and financial
terms herein shall be deemed to include references to


                                       -9-

<PAGE>



consolidated and consolidating  principles,  and covenants,  representations and
agreements with respect to the Borrower and its properties and activities  shall
be  deemed  to  refer  to  the  Borrower  and  its   consolidated   Subsidiaries
collectively.

     1.3 UCC Terms.  Except as otherwise provided or amplified (but not limited)
herein,  terms used in this  Agreement  that are defined in Article 9 of the UCC
shall have the same meanings herein.

     1.4 General Construction; Captions. All definitions and other terms used in
this  Agreement  shall be equally  applicable  to the  singular and plural forms
thereof,  and all references to any gender shall include all other genders.  The
words  "hereof",  "herein" and "hereunder" and words of similar import when used
in this  Agreement  shall  refer  to this  Agreement  as a whole  and not to any
particular provision of this Agreement,  and Section,  subsection,  schedule and
exhibit  references  are to  this  Agreement  unless  otherwise  specified.  The
captions and table of contents in this  Agreement  and the other Loan  Documents
are for convenience only, and in no way limit or amplify the provisions hereof.

     1.5  References to Documents and Laws.  All defined terms and references in
this  Agreement  or the other Loan  Documents  with  respect to any  agreements,
notes, instruments,  certificates or other documents shall be deemed to refer to
such  documents  and to any  amendments,  modifications,  renewals,  extensions,
replacements,  restatements,  substitutions  and  supplements  of  and  to  such
documents.  All references to statutes and related regulations shall include any
amendments thereof and any successor statutes and regulations.

                                ARTICLE 2: LOANS

     2.1 Commitment. Subject to the terms and conditions herein provided, and so
long as no Event of Default has occurred  and is  continuing  hereunder,  Lender
agrees to lend to Borrower  from time to time before the  Financing  Termination
Date,  an  aggregate  principal  amount  not to exceed  the  amount set forth on
Schedule  2.1 hereto as the  maximum  principal  amount (the  "Commitment").  If
Borrower or NTI should terminate the NTI Purchase Agreement at any time prior to
the Initial Payment Date,  then the Commitment  shall  automatically  terminate,
subject to Lender's right to make further Advances hereunder, including, but not
limited to, Advances under Section 2.3 hereof.  All amounts  advanced  hereunder
shall be used solely for the  purchase  of NTI  Equipment  and related  services
(exclusive of sales tax) from NTI, and amounts not exceeding the amount (if any)
specified on Schedule 2.1 hereto may be used for legal fees,  charges,  expenses
and closing costs and other expenses  incurred by Borrower or incurred by Lender
and payable by Borrower under Section 2.10 hereof.

     2.2 Note and Payment Terms.

          (a)  Promissory  Note.  The  Loans  shall  be  evidenced  by the  Note
     substantially in the form of Exhibit A hereto, with appropriate insertions.
     The Note shall be executed by Borrower, payable to the order of Lender, and
     shall  evidence the  obligation of Borrower to repay all principal  amounts
     advanced  under or pursuant to this  Agreement,  together with interest and
     all other amounts due thereunder. The Note shall be dated the Closing Date,
     have a stated  maturity  that is the Maturity  Date,  and bear  interest on
     amounts  outstanding  from time to time at the Interest Rate from the First
     Borrowing  Date  until the Note or any  amount  thereunder  is paid in full
     (whether on the Maturity Date, by acceleration or otherwise). All schedules
     attached to the Note shall be deemed a part thereof.  Any such schedule may
     be


                                     -10-

<PAGE>



     amended by Lender  from time to time to reflect  changes in the  amounts of
     principal and interest due  thereunder,  but the failure to attach or amend
     any schedule  shall not diminish  the  obligation  of Borrower to repay all
     amounts due hereunder or on the Note.

          (b)  Interest  Payments.  Interest  shall  continue  to  accrue on the
     principal amount  outstanding on the Note at the Interest Rate and shall be
     payable,  in arrears, on each Interest Payment Date. Interest only shall be
     payable during the Interest Only Period, if any, and thereafter all accrued
     interest  shall  be  payable,  in  arrears,  with  the  principal  payments
     described below.

          (c)  Principal  Payments.  On the  Conversion  Date,  the  Note  shall
     automatically  convert to a term note,  and all principal  amounts due with
     respect to the Note shall be payable in installments in accordance with the
     Payment  Schedule  set forth on  Schedule  2.2  hereto,  commencing  on the
     Initial Payment Date and on each Payment Date thereafter until the Maturity
     Date.  The  amount  of each such  principal  installment  payment  shall be
     calculated,  at  the  outset,  by  taking  the  applicable  percentage  (as
     described  on Schedule 2.2 hereto) of the amount of all  principal  amounts
     outstanding on the Conversion Date; provided,  however,  that the principal
     payment  amounts  shall be  recalculated  by Lender  (based  on  applicable
     percentages) if any Advances are made hereunder after the Conversion  Date,
     based on the aggregate  amount of all Advances  made at any time.  Borrower
     and Lender  understand  that this payment  schedule is intended to amortize
     fully the principal amount of the Note and any other principal and interest
     amounts  outstanding  will be added to the final  payment  on the  Maturity
     Date. In any event, the entire outstanding principal amount of the Note and
     all  accrued  but unpaid  interest  and all other  outstanding  amounts due
     thereunder shall be paid on the Maturity Date.

          (d) Late Payments and Default Rate.  Notwithstanding the foregoing, if
     Borrower  shall  fail to pay  within  ten (10) days  after the due date any
     principal  amount or interest or other amount  payable under this Agreement
     or  under  the  Note,   Borrower  shall  pay  to  Lender,   to  defray  the
     administrative  costs of handling  such late  payments,  an amount equal to
     interest on the amount unpaid,  to the extent  permitted  under  applicable
     law, at the Default Rate (instead of the Interest Rate),  from the due date
     until such overdue  principal  amount,  interest or other unpaid  amount is
     paid in full (both before and after judgment)  whether or not any notice of
     default in the payment thereof has been delivered under Section 9.1 hereof.
     In addition,  but without  duplication,  upon the occurrence and during the
     continuance of an Event of Default, all outstanding amounts hereunder shall
     bear interest at the Default Rate (instead of the Interest Rate) until such
     amounts  are paid in full or such Event of Default is cured by  Borrower or
     waived in writing by Lender.

          (e) Excess Interest.  Notwithstanding  any provision of the Note, this
     Agreement or any other Loan Document to the  contrary,  it is the intent of
     Lender and Borrower that Lender or any subsequent  holder of the Note shall
     never be entitled to receive,  collect,  reserve or apply, as interest, any
     amount in excess of the maximum rate of interest permitted to be charged by
     applicable  Law,  as  amended or  enacted  from time to time.  In the event
     Lender,  or any subsequent  holder of the Note,  ever  receives,  collects,
     reserves or applies, as interest,  any such excess, such amount which would
     be excessive interest shall be deemed a partial prepayment of principal and
     treated as such,  or, if the principal  indebtedness  and all other amounts
     due are paid in full,  any  remaining  excess  funds shall  immediately  be
     applied to any


                                      -11-

<PAGE>



     other  outstanding  indebtedness of Borrower due to Lender,  and if none is
     outstanding,  shall be paid to Borrower.  In determining whether or not the
     interest  paid or  payable,  under any  specific  contingency,  exceeds the
     highest  lawful rate,  Borrower  and Lender  shall,  to the maximum  extent
     permitted under applicable law, (a) exclude  voluntary  prepayments and the
     effects  thereof  as it may relate to any fees  charged by Lender,  and (b)
     amortize,  prorate,  allocate, and spread, in equal parts, the total amount
     of interest  throughout the entire term of the indebtedness;  provided that
     if the  indebtedness  is paid and performed in full prior to the end of the
     full contemplated term hereof,  and if the interest received for the actual
     period of existence  hereof exceeds the maximum lawful rate,  Lender or any
     subsequent  holder of any Note shall  refund to Borrower the amount of such
     excess or credit the amount of such excess against the principal portion of
     the  indebtedness,  as of the date it was  received,  and,  in such  event,
     Lender  shall not be  subject  to any  penalties  provided  by any laws for
     contracting for, charging, reserving or receiving interest in excess of the
     maximum lawful rate.

     2.3 Procedures for Borrowing.

          (a) Timing of Advances.  Advances shall not be made more than once per
     calendar month, and all Advances in any calendar month shall be made on the
     same Borrowing Date. Each Advance (other than the last Advance) shall be in
     an aggregate principal amount of not less than $100,000.  No amounts may be
     borrowed  hereunder on or after the Financing  Termination  Date. Lender is
     hereby  authorized  to retain  from each  Advance  all  amounts of Lender's
     Expenses accrued and unpaid by Borrower,  for which invoices have been sent
     to Borrower at least five (5)  Business  Days before such  Advance.  In any
     event,  all  outstanding  legal  fees,  charges  and  expenses  not paid by
     Borrower  prior to any  Borrowing  Date shall be paid before any Advance is
     made or concurrently with such Advance.

          (b) Borrowing Certificates.  To request an Advance hereunder, Borrower
     shall  send to  Lender,  at  least  ten  (10)  Business  Days  prior to the
     requested  Borrowing Date, a completed  Borrowing  Certificate,  along with
     invoices and such other  supporting  documentation as Lender may reasonably
     request.  Lender is hereby  authorized to add to any Borrowing  Certificate
     all amounts payable by Borrower to Lender in respect of legal fees, charges
     and  expenses  arising  or  incurred  by Lender,  to the extent  such fees,
     charges  and  expenses  have then been  incurred or charged and may be paid
     from proceeds of the Loan.

          (c) Transmission of Advances.  Advances shall be made by wire transfer
     to the account(s) specified in the applicable Borrowing Certificate, except
     that (i)  proceeds of the Loans may be  transmitted,  at  Lender's  option,
     directly to an NTI account for payment of any unpaid NTI invoices, and (ii)
     Advances  shall  be  made to  Borrower  only to the  extent  that  Borrower
     provides Lender with satisfactory  evidence that the amount of such Advance
     has been paid to NTI. No further  authorization  shall be necessary for any
     such direct  disbursements,  and each such Advance  shall satisfy pro tanto
     the obligations of the Lender under this Agreement.

          (d) Borrowing Dates. Advances shall be made by Lender on the Borrowing
     Date  specified in the applicable  Borrowing  Certificate if all conditions
     for such Advance have been satisfied, or on such later Business Date as all
     conditions  for such Advance  shall have been  satisfied,  as determined by
     Lender.



                                      -12-

<PAGE>



          (e) Advances  After Default.  At its option,  after the occurrence and
     continuance  of a Default,  Lender may but shall not be  obligated  to make
     advances of portions of the Loan proceeds to any Person (including  without
     limitation NTI, suppliers,  sub-contractors and materialmen) to whom Lender
     in good faith determines payment is due with respect to the Equipment,  and
     any proceeds so  disbursed  by Lender  shall be deemed  disbursed as of the
     date on which the Person to whom  payment  is made  receives  the same.  No
     further  authorization  from  Borrower  shall be  necessary to warrant such
     direct  advances,  and the  execution  of this Loan  Agreement  by Borrower
     shall, and hereby does,  constitute an irrevocable  authorization and power
     of attorney  so to advance  proceeds  hereunder.  All such  Advances  shall
     satisfy pro tanto the obligations of Lender  hereunder and shall be secured
     by the Security Documents as fully as if made directly to Borrower.

     2.4 Prepayments.

          (a) Voluntary  Prepayments.  On or after the Initial Payment Date, the
     Borrower may, at its option,  at any time and from time to time, prepay the
     Loans in whole or in part,  upon at least thirty (30)  Business  Days prior
     written notice to the Lender  specifying the date and amount of prepayment,
     in a minimum amount of  $1,000,000,  plus the premium  described  below (if
     applicable),  or the remaining amounts  outstanding under this Agreement or
     the Note, if less, and all accrued but unpaid interest thereon. Such notice
     shall be  irrevocable  and the  principal  amount  specified in such notice
     shall  be due and  payable  on the date  specified  together  with  accrued
     interest on the amount  prepaid.  Amounts prepaid may not be reborrowed and
     shall be applied as provided in Section 2.4(c). In the event any prepayment
     is made or required to be made  during any LIBOR  Period  (other than on an
     Interest Payment Date),  Borrower shall pay a prepayment premium calculated
     in accordance with Schedule 2.2 hereto.  No voluntary  prepayments shall be
     permitted prior to the Initial Payment Date.

          (b) Mandatory Prepayment. Upon Lender's demand, if Borrower leases any
     Equipment other than pursuant to a Qualifying Lease, or if any Lease ceases
     to be a  Qualifying  Lease,  Borrower  shall prepay the Loans to the extent
     proceeds thereof were used to purchase such Equipment and related Software.
     All  such  prepayments  shall  include  all  principal,  accrued  interest,
     prepayment  premium (if any),  and expenses then  outstanding  and due (the
     "Mandatory Prepayments")

          (c) Application of Prepayments. Any prepayments shall be applied first
     to  interest,   then  to  premium,  then  to  expenses,  and  then  to  the
     installments of principal in reverse chronological order.

     2.5  Computation  of Interest.  Interest  shall be calculated  daily on the
basis of a 360-day year for the actual days  elapsed in the period  during which
it accrues.

     2.6  Payments.  All  payments  and  prepayments  to be made in  respect  of
principal,  interest,  prepayment  premiums or other  amounts due from  Borrower
hereunder  or under the Note shall be payable on or before 1:00 p.m.,  Nashville
time, on the day when due, without presentment, demand, protest or notice of any
kind, all of which are hereby  expressly  waived,  and an action  therefor shall
immediately  accrue. Such payments shall be made to Lender at Lender's office at
220 Athens Way, Nashville,  Tennessee  37228-1399,  or by wire at the account of
Lender at Bankers Trust Company,  New York, New York, ABA Routing No. 021001033,
Bank Account No. 50-232-803, or such other


                                      -13-

<PAGE>



location specified in writing by Lender, in immediately available funds, without
setoff, recoupment, counterclaims or any other deduction of any nature.

     2.7  Indemnity.  Borrower  hereby  indemnifies  Lender  against any losses,
claims, penalties, expenses, actions, suits, obligations,  liabilities and Liens
(and all costs and expenses,  including  reasonable  attorneys' fees incurred in
connection  therewith),  that Lender has sustained or incurred or may sustain or
incur in connection with any of the Collateral, or the enforcement,  performance
or  administration  of the Loan  Documents or as a consequence of any default by
Borrower in the performance or observance of any covenant or condition contained
in this  Agreement or the Loan  Documents,  including  without  limitation,  the
breach of any  representation  or warranty,  any failure of Borrower to pay when
due (by  acceleration  or otherwise) any principal,  interest,  fee or any other
amount due hereunder or under the Note, the actions of any Affiliate pursuant to
any Lease, or the failure of any Lease to be or remain a Qualifying  Lease,  and
any  failure of  Borrower  to comply  with all  applicable  Requirements  of Law
(collectively,  "Claims")  except to the extent of any Claims  caused  solely by
Lender's gross negligence or willful  misconduct.  Borrower's  obligations under
this  Section 2.7 shall be part of the  Obligations  and shall be secured by the
Collateral.  Borrower agrees that upon written notice by Lender of the assertion
of  any  Claims,   Borrower  shall,  at  Lender's  option,  either  assume  full
responsibility  for, or reimburse  Lender for the reasonable  costs and expenses
of, the defense  thereof.  Lender shall have no liability for  consequential  or
incidental  damages of any  nature.  The  provisions  of this  Section 2.7 shall
survive the termination of this Agreement and payment of the Obligations.

     2.8 Use of Proceeds.  The proceeds of the Advances  hereunder shall be used
by Borrower  only for the purposes  and in the amounts  described in Section 2.1
hereof, and no amounts repaid may be reborrowed.

     2.9 Fees.  Borrower  shall pay Lender the fees  described  on Schedule  2.9
hereto in connection with this Agreement.

     2.10 Lender's Expenses.  Borrower agrees (a) to pay or reimburse Lender for
all its  reasonable  costs,  fees,  charges and expenses  incurred or arising in
connection  with the  negotiation,  review,  preparation  and  execution of this
Agreement,  the Loan  Documents,  any  commitment  or  proposal  letter,  or any
amendment,  supplement,  waiver,  modification  to,  or  restructuring  of  this
Agreement,  the  Obligations  or the other Loan  Documents,  including,  without
limitation, reasonable legal fees and disbursements,  expenses, document charges
and other charges and expenses of Lender, (b) to pay or reimburse Lender for all
its reasonable costs, fees, charges and expenses incurred in connection with the
administration  of the Loans or the  enforcement,  protection or preservation of
any  rights  under or in  connection  with  this  Agreement  or any  other  Loan
Documents,   including,   without   limitation,   reasonable   legal   fees  and
disbursements,  audit fees and charges, and all out-of-pocket  expenses,  (c) to
pay,  indemnify,  and to hold Lender  harmless  from,  any and all recording and
filing fees and taxes and any and all liabilities  with respect to, or resulting
from any delay in paying,  stamp,  excise and other taxes (excluding  income and
franchise  taxes and taxes of similar  nature),  if any, which may be payable or
determined  to be payable in  connection  with the  execution  and  delivery  or
recordation  or  filing  of,  or  consummation   of  any  of  the   transactions
contemplated by, or any amendment,  supplement or modification of, or any waiver
or consent under or in respect of, this Agreement and the other Loan  Documents.
All of the amounts described in this Section are referred to collectively as the
"Lender's  Expenses",  shall be payable upon Lender's  demand,  and shall accrue
interest at the  Interest  Rate in effect when such demand is made from five (5)
days after the date of


                                      -14-

<PAGE>



demand until paid in full. All Lender's Expenses, and interest thereon, shall be
part of the Obligations  and shall be secured by the Collateral.  The agreements
in this Section 2.10 shall survive  repayment of the  Obligations.  All Lender's
Expenses that are outstanding on any Borrowing Date shall be paid before or with
such  advance.  If  Borrower  has not paid to Lender the amount of all  Lender's
Expenses  billed  to  Borrower  at least  five (5)  Business  Days  before  such
Borrowing  Date,  Lender shall be  authorized to retain from any Advance on such
Borrowing  Date  the  amount  of such  Lender's  Expenses  that  remain  unpaid.
Borrower's  obligation  to pay  Lender's  Expenses  shall not be  limited by any
limitation on the amount of the  Commitment  that may be designated as available
for such purposes,  and any amounts so designated  shall be used to pay Lender's
Expenses  accrued at the time of any Advance before any of Borrower's legal fees
or similar expenses.

     2.11 Guaranty. The Guarantor shall unconditionally guarantee prompt payment
and performance of all the Obligations pursuant to the Guaranty, subject only to
the limitations expressed therein..


                  ARTICLE 3: COLLATERAL AND SECURITY AGREEMENT

     3.1 Grant of Security  Interest.  Borrower  (as debtor)  hereby  assigns to
Lender as  collateral,  and grants to Lender  (as  secured  party) a  continuing
security interest in and to, all of the Borrower's right,  title and interest in
and to the following kinds and types of property, whether now owned or hereafter
acquired or arising, wherever located (collectively, the "Collateral"):

          (a) All  the  equipment,  goods  and  products  of NTI and any and all
     additions,  substitutions,  and replacements to or of any of the foregoing,
     together with all attachments,  components, parts, improvements,  upgrades,
     and accessions  installed  thereon or affixed thereto,  in each case to the
     extent that the purchase thereof by Borrower was financed with the proceeds
     of Advances made by Lender under this Agreement ("Equipment").

          (b) All general intangibles and intangible property  constituting part
     of, or  provided  by or through  NTI in  connection  with,  the  Equipment,
     including  without  limitation  the software and software  licenses,  other
     licenses,  license  rights,  rights  in  intellectual  property,   computer
     programming (including source codes, object codes and all other embodiments
     of computer  programming or  information),  warranties and  indemnification
     rights,  in each case to the extent that the  purchase  thereof by Borrower
     was  financed  with the  proceeds  of  Advances  made by Lender  under this
     Agreement ("General Intangibles"); and

          (c) All proceeds any of the foregoing ("Proceeds").

     3.2  Priority of Security  Interests.  The  security  interests  granted by
Borrower to Lender are and shall be continuing and  indefeasible  first-priority
security  interests  in the  Collateral,  subject  to no Liens  except for Liens
permitted under Section 8.2 hereof.

     3.3 Further Documentation; Pledge of Instruments. At any time and from time
to time, upon the written request of the Lender,  and at the sole expense of the
Borrower, the Borrower shall promptly execute, deliver and record any documents,
instruments, agreements and amendments, and take all such further action, as the
Lender may  reasonably  deem  desirable in obtaining  the full  benefits of this
Agreement  and of the rights  and  powers  herein  granted,  including,  without
limitation, the filing

                                      -15-

<PAGE>



of any  financing  statements  or  amendments  under the UCC. The Borrower  also
hereby  authorizes the Lender to file any such financing  statement or amendment
thereto,  without the signature of the  Borrower,  or with a copy or telecopy of
the  Borrower's  signature,  to the extent  permitted by  applicable  law, or to
execute any financing  statement or amendment  thereof on behalf of the Borrower
as  Borrower's  attorney-in-fact.  If any amount  payable under or in connection
with any of the Collateral  shall be or become  evidenced by any promissory note
or other instrument or any  certificated  securities,  such note,  instrument or
certificate shall be immediately  pledged and delivered to the Lender hereunder,
duly endorsed in a manner satisfactory to the Lender.

     3.4 Further  Identification  of  Collateral.  Borrower shall furnish to the
Lender  from time to time  statements  and  schedules  further  identifying  and
describing  the  Collateral  and  such  other  reports  in  connection  with the
Collateral as the Lender may reasonably request, all in reasonable detail.

     3.5  Remedies.  Lender  shall have all the rights and remedies of a secured
party under the UCC,  and shall be entitled  to  exercise  any and all  remedies
available under Article 9 hereof or otherwise available at law or in equity upon
the occurrence of an Event of Default.

     3.6 Standard of Care.  Except for the safe custody of any Collateral in its
possession  and the  accounting  for moneys  actually  received by it hereunder,
Lender  shall  have no  duty as to any  Collateral  or as to the  taking  of any
necessary  steps to preserve  rights  against  prior parties or any other rights
pertaining  to  any  Collateral.  Lender  shall  be  deemed  to  have  exercised
reasonable care in the custody and  preservation of any of the Collateral in its
possession if such Collateral is accorded treatment  substantially equal to that
which Lender  accords its own property,  and no failure of Lender to preserve or
protect any rights with respect to such Collateral against prior parties,  shall
be deemed a failure to exercise  reasonable  care in the custody or preservation
of such Collateral.

     3.7 Advances to Protect Collateral.  All insurance expense and all expenses
of  protecting,  storing,  warehousing,   insuring,  handling,  maintaining  and
shipping the  Collateral  (including,  without  limitation,  all rent payable by
Borrower to any  landlord of any  premises  where any of the  Collateral  may be
located), and, any and all taxes incurred in connection with the foregoing shall
be borne and paid by Borrower.  Lender may (but shall not be obligated  to) make
advances  to  preserve,  protect  or  obtain  any of the  Collateral,  including
advances to cure defaults under any of the System  Agreements or advances to pay
taxes,  insurance and the like,  and all such advances  shall become part of the
Obligations  owing to Lender hereunder and shall be payable to Lender on demand,
with  interest  thereon from the date of such advance  until paid at the Default
Rate in effect on the date of such advance.

     3.8  License to Use.  Lender is hereby  granted a license or other right to
use, without charge,  Borrower's and Affiliate's  labels,  patents,  copyrights,
rights of use of any name, trade secrets, tradenames, trademarks and advertising
matter,  or any tangible or intangible  property or rights of a similar  nature,
solely as it pertains to the Collateral, in advertising for sale and selling any
Collateral,  and  Borrower's  and  Affiliate's  rights  under all  licenses  and
franchise  agreements  with  respect to the  Collateral  shall inure to Lender's
benefit to the fullest extent permitted by applicable law.


     ARTICLE 4: REPRESENTATIONS AND WARRANTIES

     Borrower hereby represents and warrants to Lender as follows:


                                      -16-

<PAGE>




     4.1  Organization  and  Qualification.  The Borrower and each  Affiliate to
which any Equipment is leased is duly  organized,  validly  existing and in good
standing as a corporation under the laws of its state of organization.  Borrower
each Affiliate to which any Equipment is leased is duly qualified to do business
and in good  standing  in each  jurisdiction  in which the failure to receive or
retain such qualification would have a Material Adverse Effect.

     4.2  Authority  and  Authorization.  Borrower has all  requisite  corporate
right,  power,  authority and legal right to execute and deliver and perform its
obligations  under this Agreement,  to make the borrowings  provided for herein,
and to execute  and  deliver  and to  perform  its  obligations  under the Note.
Borrower's execution, delivery and performance of the Basic Agreements have been
duly and validly authorized by all necessary  corporate  proceedings on the part
of Borrower.  Each  Affiliate to which any Equipment is leased has all requisite
corporate  right,  power,  authority  and legal right to execute and deliver and
perform its obligations under the applicable Lease.

     4.3 Execution and Binding Effect.  This  Agreement,  the Note and all other
Basic Agreements have been or will be duly and validly executed and delivered by
the Borrower,  and constitute  or, when executed and delivered will  constitute,
the legal, valid and binding  obligations of Borrower  enforceable in accordance
with their respective  terms,  except as such  enforceability  may be limited by
bankruptcy, insolvency,  reorganization,  receivership, moratorium or other laws
affecting creditors' rights generally.

     4.4  Governmental  Authorizations.  Except for the consents  identified  on
Schedule  4.4 hereto  (the  "Required  Consents"),  no  authorization,  consent,
approval,   license,   exemption  or  other  action  by,  and  no  registration,
qualification,   designation,  declaration  or  filing  with,  any  Governmental
Authority  (other  than the  filing of  financing  statements  and  continuation
statements) is or will be necessary in connection with execution and delivery of
this  Agreement,  the Note or any  other  Loan  Documents  by  Borrower,  or the
execution or  performance  of any Lease by any  Affiliate,  consummation  of the
transactions  herein or therein  contemplated,  performance  of or compliance by
Borrower or any  Affiliate of Borrower with the terms and  conditions  hereof or
thereof or the legality, validity and enforceability hereof or thereof.

     4.5 Regulatory Authorizations.  The Guarantor,  Borrower and each Affiliate
to which any Equipment is leased, holds all authorizations, permits and licenses
required  by the  FCC or the  PUC or any  Communications  Law for the use of the
Equipment, and all such Regulatory  Authorizations are in full force and effect,
are subject to no further  administrative  or judicial  review and are therefore
final.  Lender  will  not  solely  by  reason  of the  execution,  delivery  and
performance  (other  than  the  enforcement  of  remedies)  of any  of the  Loan
Documents, be subject to the regulation or control of either the FCC or the PUC.

     4.6 Material Agreement; Absence of Conflicts. The execution and delivery of
this Agreement,  the Note and the other Loan Documents,  the consummation of the
transactions herein or therein contemplated and the performance of or compliance
with the terms  and  conditions  hereof  or  thereof  by  Borrower  will not (a)
materially violate any applicable Law; (b) conflict with or result in a material
breach of or a default under the Organizational Documents of the Borrower or any
agreement or instrument to which the  Guarantor,  Borrower or each  Affiliate to
which any Equipment is leased,  is a party or by which it and its  properties is
bound; or (c) result in the creation or imposition of any Lien upon any property
(now owned or hereafter  acquired) of Borrower except as otherwise  contemplated
by this Agreement.


                                      -17-

<PAGE>




     4.7 No  Restrictions.  Borrower is not a party or subject to any  contract,
agreement,  or restriction in its  Organizational  Documents that materially and
adversely  affects its business or the use or ownership of any of its properties
or operation of its  business.  Neither of the  Guarantor  nor the Borrower is a
party or subject to any  contract  or  agreement  which  restricts  its right or
ability  to incur  Indebtedness,  other  than the  Indenture  or as set forth on
Schedule 4.7, none of which prohibit the  Borrower's  execution of or compliance
with this Agreement.  Borrower has not agreed or consented to cause or permit in
the  future  (upon the  happening  of a  contingency  or  otherwise)  any of the
Collateral,  whether now owned or  hereafter  acquired,  to be subject to a Lien
that is not a Permitted Encumbrance.

     4.8 Financial Statements.  Borrower has furnished to Lender the most recent
annual  or  quarterly  financial  statements  (on a  consolidated  basis) of GST
Telecommunications,  the direct parent company of the Guarantor and the indirect
parent company of Borrower.  Borrower has also  furnished  Lender with a balance
sheet and income statement of the Borrower as of November 30, 1996, certified by
a Responsible Officer of the Borrower,  consisting of a balance sheet,  attached
as Schedule 4.8 hereof. Such financial statements (including, in the case of GST
Telecommunications  only,  the  notes  thereto)  present  fairly  the  financial
condition of GST  Telecommunications and Borrower, as the case may be, as of the
end of such fiscal  periods and the results of their  respective  operations and
the changes in their financial position for the fiscal period then ended, all in
conformity  with GAAP applied on a basis  consistent  with that of the preceding
fiscal period,  except that, in the case of the Borrower's financial statements,
no  notes  to  financials  are  contained  in  such  financial  statements.  Any
projections and pro forma financial  statements  delivered by Borrower to Lender
were prepared in good faith, based on reasonable assumptions,  including without
limitation,  the cost of capital.  Borrower agrees and Lender  acknowledges that
such  projections  will be based on reasonable  assumptions at the time of their
preparation,  but that there can be no assurance that such  projections  will be
realized  or that  actual  events  will  not  result  in  variations  from  such
projections.

     4.9  Financial  Accounting  Practices.  Borrower  has made and kept  books,
records and accounts which, in reasonable detail,  accurately and fairly reflect
its respective  transactions and dispositions of its assets,  and Borrower shall
maintain  a  system  of  internal  accounting  controls  sufficient  to  provide
reasonable  assurances  that (a)  transactions  are executed in accordance  with
management's general or specific authorization, (b) transactions are recorded as
necessary (i) to permit  preparation of financial  statements in conformity with
GAAP and (ii) to maintain  accountability  for  assets,  (c) access to assets is
permitted only in accordance with management's general or specific authorization
and (d) the  recorded  accountability  for assets is compared  with the existing
assets at reasonable  intervals and appropriate  action is taken with respect to
any differences.

     4.10 Accurate and Complete  Disclosure.  No representation or warranty made
by Borrower  under this  Agreement  and no statement  made by Borrower or by any
Owner or Guarantor in any financial statement,  certificate,  report, exhibit or
document  furnished by Borrower or any Owner or Guarantor to Lender  pursuant to
or in connection with this Agreement  (including  without limitation any filings
with the Securities Exchange Commission,  the FCC or the PUC) is or was false or
misleading as of the date made in any material respect (including by omission of
material  information  necessary  to  make  such  representation,   warranty  or
statement not  misleading) in light of the  circumstances  in which it was made.
There are no facts that evidence or create a Material Adverse Effect, or, so far
as the  Borrower  can now foresee,  will  evidence or create a Material  Adverse
Effect,  which has not been set forth in the financial statements referred to in
Section  4.8 hereof or  otherwise  disclosed  herein or in writing to the Lender
prior to the First Borrowing Date.


                                      -18-

<PAGE>




     4.11 No Event of Default; Compliance with Material Agreements. No event has
occurred and is continuing and no condition  exists which  constitutes a Default
or an Event of  Default  after  giving  effect to the  Advance to be made on the
First Borrowing Date. As of the date hereof, Borrower is not in violation of any
term of its  material  agreements  or  instruments  to which it is a party or by
which it or its properties is bound.

     4.12 Litigation.  Except as set forth in Schedule 4.12, there is no pending
action,  suit or threatened  proceeding by or before any Governmental  Authority
against or affecting Borrower or any of its properties, rights or licenses which
if adversely decided would have a Material Adverse Effect.

     4.13  Rights to  Property;  Intellectual  Property.  Borrower  has good and
marketable title, subject only to the Permitted Encumbrances,  to the Collateral
and to all personal and real  property  purported to be owned by it as reflected
in the most recent  balance sheet  referred to in Section 4.8 hereof  (except as
sold or otherwise  disposed of in the  ordinary  course of business as no longer
used or useful in the conduct of the  business).  Borrower owns or possesses the
right to use all patents,  trademarks,  service marks, trade names,  copyrights,
know-how, franchises, software and software licenses necessary for the operation
of its business, free from burdensome restrictions.

     4.14 Financial Condition.  The Borrower's financial condition is accurately
described  in the  Certificate  of  Financial  Condition  executed  by  Borrower
pursuant hereto.

     4.15 Taxes.  Borrower's federal tax  identification  number is set forth on
Schedule 1 hereto.  All tax returns  required to be filed by Borrower  have been
properly  prepared,  executed and filed,  and all taxes,  assessments,  fees and
other  governmental  charges  upon  Borrower  or  upon  any  of  its  respective
properties,  incomes,  sales or franchises which are shown to be due and payable
thereon have been paid,  other than taxes or assessments  the validity or amount
of which  Borrower is contesting in good faith.  Any reserves and provisions for
taxes on the  books of  Borrower  are  adequate  for all open  years and for its
current fiscal period.

     4.16 No Material Adverse Change. Since the date of the financial statements
referenced in Section 4.8, there has been no Material Adverse Change.

     4.17  No  Regulatory  Event.  No  Regulatory  Event  has  occurred  and  is
continuing.

     4.18 Trade  Relations.  There exists no actual or  threatened  termination,
cancellation  or limitation of, or any  modification  or change in, the business
relationship between Borrower or any Affiliate to which any Equipment is leased,
and any Carrier,  any labor  organizations,  any customer or any group  thereof,
which individually or in the aggregate, if terminated,  cancelled, or so limited
or modified and would have a Material Adverse Effect on the business of Borrower
or the  Guarantor,  or with any material  Supplier,  and there exists no present
condition or state of facts or circumstances which would have a Material Adverse
Effect  on  or  prevent   Borrower  from   conducting  its  business  after  the
consummation of the transaction contemplated by this Agreement.

     4.19  No  Brokerage  Fees.  No  brokerage  or  other  fee,   commission  or
compensation  is to be paid by  Borrower  to any Person in  connection  with the
loans to be made  hereunder.  Borrower  hereby  indemnifies  Lender  against any
claims  brought  against  Lender for brokerage fees or commissions of any Person
based on an agreement  with Borrower and agrees to pay all expenses  incurred by
Lender


                                     -19-

<PAGE>



in connection  with the defense of any action or  proceeding  brought to collect
any such brokerage fees or commissions.

     4.20 Margin Stock; Regulation U. Borrower is not engaged principally, or as
one of its  important  activities,  in the business of extending  credit for the
purpose of purchasing or carrying  margin stock.  The making of the Advances and
the use of the proceeds  thereof will not violate  Regulations  G, U or X of the
Board of Governors of the Federal Reserve System.

     4.21 Investment Company; Public Utility Holding Company. Borrower is not an
"investment  company" or a "company  controlled by an investment company" within
the meaning of the  Investment  Company Act of 1940,  as amended,  or a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary  company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, as amended.

     4.22 Personal  Holding  Company;  Subchapter S. Borrower is not a "personal
holding  company" as defined in Section 542 of the Code,  and  Borrower is not a
"Subchapter S" corporation within the meaning of the Code.

     4.23 ERISA.  (i) With  respect to any Plan,  to the  Borrower's  knowledge,
there is no Reportable Event currently under consideration by the PBGC which may
reasonably  result in any  material  liability  to the PBGC with  respect to any
Plan, (ii) no Plan has been  terminated,  (iii) no trustee has been appointed by
any United States  District Court to administer any Plan,  (iv) the PBGC has not
instituted  proceedings  to  terminate  any  Plan or to  appoint  a  trustee  to
administer  any such Plan,  (v) neither the Borrower nor any  Affiliate to which
Equipment is being leased has withdrawn,  completely or partially, from any Plan
and (vi)  neither the Borrower  nor any  Affiliate  to which  Equipment is being
leased has incurred secondary liability for withdrawal  liability payments under
any Plan.

     4.24  Environmental   Warranties.   Borrower  is  in  compliance  with  all
Environmental  Laws  applicable  to Borrower  or its  business or to the real or
personal  property  owned,  leased or operated  by  Borrower.  Borrower  has not
received  notice of, and is not aware of, any violations or alleged  violations,
or any liability or asserted liability,  under any such Environmental Laws, with
respect to Borrower or its business or its properties.

     4.25 Security  Interests.  The provisions of Article 3 hereof are effective
to create in favor of Lender a legal,  valid and enforceable Lien on or security
interest  in all  of the  Collateral,  and,  when  the  recordings  and  filings
described  on  Schedule  4.25 hereto  have been  effected in the public  offices
listed on said Schedule 4.25 (in each case, as such Schedule may be amended from
time to time),  this Agreement will create a perfected  first-priority  security
interest in all right, title, estate and interest of Borrower in the Collateral,
and  subject to no other Liens  except for  Permitted  Encumbrances.  All action
necessary or desirable  to protect and perfect  such  security  interest in each
item of the  Collateral  will have been duly taken prior to the First  Borrowing
Date.  The  recordings and filings shown on said Schedule 4.25 (as such Schedule
may be amended from time to time) are all the actions  necessary or advisable in
order to establish,  protect and perfect the security  interest of Lender in the
Collateral granted hereunder.



                                      -20-

<PAGE>



     4.26 Place of Business.  The chief  executive  offices of Borrower and each
Affiliate to which  Equipment  will be leased are  identified  on Schedule  4.26
hereto (as such  Schedule  may be  amended  from time to time).  The  Borrower's
principal place of business in the state(s) where the Equipment is to be located
is identified on Schedule 4.26 hereto.  The  Borrower's  records  concerning the
Collateral are kept at its principal place of business.

     4.27  Location of  Collateral.  The  Collateral  is and will be kept at the
locations  identified  on Schedule  4.26 hereto (as such Schedule may be amended
from time to time) or such other  locations  as may be permitted  under  Section
8.12.

     4.28 Clear Title To Collateral. The Borrower is the sole owner of each item
of the Collateral,  having good and marketable title thereto,  free and clear of
any and all Liens, claims, or rights of others, except for the security interest
granted herein to the Lender and the other Permitted Encumbrances.

     4.29 Assumed  Names.  Except as set forth on Schedule 4.29 hereto,  neither
Borrower nor any  Affiliate to which any Equipment is leased  conducts  business
under any assumed names or trade names, and has not conducted business under any
other names,  or any assumed names or trade names, at any time prior to the date
hereof.

     4.30 Transactions with Affiliates. No Affiliate and no officer, director or
Owner of  Borrower or any  individual  related by blood,  marriage,  adoption or
otherwise  to any such  officer,  director or Owner,  or any Person in which any
such officer,  director, Owner or individual related thereto owns any beneficial
interest, is a party to any agreement,  contract, commitment or transaction with
the Borrower or has any material  interest in any material  property used by the
Borrower, except for Qualifying Leases or as set forth on Schedule 4.30 hereto.

      4.31 NTI  Purchase  Agreement.  The NTI Purchase  Agreement  has been duly
executed and delivered by the Borrower and NTI, is in full force and effect, and
a true,  correct and complete copy thereof  (including all annexes,  attachments
and  amendments  thereto) has been  delivered to Lender,  and there are no other
side letters, waivers or other agreements affecting the terms thereof.


                        ARTICLE 5: CONDITIONS OF CLOSING

     On or before the Closing  Date,  the following  conditions  shall have been
satisfied:

     5.1  Closing  Certificates.  A  certificate  of  Borrower  signed by a duly
authorized   Responsible   Officer,   certifying   as  to  (i)  true  copies  of
Organizational Documents of Borrower in effect on such date; (ii) true copies of
all corporate action taken by Borrower relative to this Agreement,  the Note and
the other Loan Documents; and (iii) the names, true signatures and incumbency of
the  Responsible  Officers of Borrower  authorized  to execute and deliver  this
Agreement, the Note and the other Loan Documents.

     5.2 Opinion of Counsel.  Lender  shall have  received a written  opinion of
counsel for Borrower and the Guarantor,  substantially  in the form of Exhibit C
hereto, dated as of the Closing Date.



                                     -21-

<PAGE>



     5.3 Closing Documents.  Lender shall have received the following documents,
all in form and substance satisfactory to Lender:

          (a) Agreement. This Agreement, duly executed by Borrower;

          (b) Note. The Note, duly executed by Borrower;

          (c) Financing Statements.  All UCC-1 financing statements necessary to
     perfect the Liens granted hereby will be duly executed by Borrower and duly
     recorded  in  all  the  offices  identified  on  Schedule  4.25  hereto  in
     accordance with Section 6.2(k) hereof;

          (d) NTI  Purchase  Agreement.  A copy  of the  executed  NTI  Purchase
     Agreement;

          (e)  Insurance.  Policies and  certificates  of insurance  required by
     Section  7.7,  accompanied  by  evidence  of the  payment  of the  premiums
     therefor;

          (f)  Financial  Statements.  The  financial  statements  described  in
     Section 4.8 hereof;

          (g) Balance  Sheet.  A balance sheet of the Borrower,  dated as of the
     end of the month  preceding  the Closing  Date,  certified by a Responsible
     Officer as fairly presenting the financial condition of the Borrower.

          (h)  Certificate  of Financial  Condition.  A Certificate of Financial
     Condition, duly executed by a Responsible Officer of the Borrower.

          (i) Pre-Closing  Lien Searches.  Lien searches from all  jurisdictions
     reasonably  determined by Lender to be appropriate,  effective as of a date
     reasonably close to the Closing Date, reflecting no other Liens (other than
     Permitted Encumbrances) on any of the Collateral.

          (j) Guaranty. The Guaranty, duly executed by Guarantor,  substantially
     in the form of Exhibit F.

          (k) Leases.  Copies of all  executed  Leases,  each of which must be a
     Qualifying Lease in substantially the form of Exhibit E hereto.

          (l) Lease  Schedule.  An updated  Schedule  4.30,  which  contains  an
     accurate list of all executed and proposed Leases and their status.


                        ARTICLE 6: CONDITIONS OF LENDING

     6.1 Conditions for Initial Advance.  On or before the First Borrowing Date,
the following conditions shall have been met:

          (a)   Post-Closing   Lien   Searches.   Lender  shall  have   received
     satisfactory  results  of Lien  searches  in all  jurisdictions  reasonably
     determined by Lender to be appropriate,  reflecting the filing of financing
     statements in favor of Lender pursuant hereto and no other Liens other than
     Permitted Encumbrances in accordance with Section 6.2(k) hereof.


                                      -22-

<PAGE>




          (b)  Required  Consents.   Lender  shall  have  received  satisfactory
     evidence of the Borrower's obtaining the Required Consents.

          (c) Fees.  Lender shall have received the fee(s)  described in Section
     2.9 hereof.

          (d) Lease  Schedule.  An updated  Schedule  4.30,  which  contains  an
     accurate list of all executed and proposed Leases and their status.

     6.2  Conditions  for All  Advances.  The  obligation  of Lender to make any
Advance  hereunder is subject to the Borrower's  performance of its  obligations
hereunder on or before the date of such Advance,  and to the satisfaction of the
following  further  conditions on or before the Borrowing  Date for any Advance,
including the first Advance:

          (a) Filings, Registrations and Recordings. Any financing statements or
     other  recordings  required  hereunder  shall  have  been  properly  filed,
     registered  or  recorded in each  office in each  jurisdiction  required in
     order to create in favor of the Lender a perfected  first- priority Lien on
     the  Collateral,  subject to no other Lien;  the Lender shall have received
     acknowledgment  copies of all such filings,  registrations and recordations
     stamped by the appropriate  filing officer;  and Lender shall have received
     results of searches of such filing offices, and satisfactory  evidence that
     any other Liens (other than Permitted  Encumbrances) on the Collateral have
     been duly released,  that all necessary filing fees,  recording fees, taxes
     and other expenses  related to such filings,  registrations  and recordings
     have been paid in full.

          (b) Borrowing Certificate.  Lender shall have received a duly executed
     Borrowing  Certificate  in the form of  Exhibit  B,  including  a  detailed
     itemization of all costs of goods and services to be paid with the proceeds
     of the Advance  and  accompanied  by  supporting  documentation  reasonably
     satisfactory to Lender.

          (c) Reporting  Requirements.  Borrower shall have provided Lender with
     all relevant reports and information required under Article 7 hereof.

          (d) No Regulatory  Event. No Regulatory Event (in either Borrower's or
     Lender's reasonable determination) shall have occurred and be continuing or
     would  exist  upon  the  consummation  of  transactions  to  occur  on such
     Borrowing Date.

          (e) No  Default  or Event of  Default.  No Default or Event of Default
     shall have occurred and be continuing or would exist upon the  consummation
     of transactions to occur on such Borrowing Date.

          (f) No Material Adverse Change.  No Material Adverse Change shall have
     occurred,  or would occur after giving  effect to such  Advance,  since the
     date of the last  financial  statements  delivered  to Lender  pursuant  to
     Section 4.8 or 7.1 hereof.

          (g) Representations and Warranties. The representations and warranties
     contained in Article 4 hereof shall be true in all material respects on and
     as of the date of each such Advance hereunder.



                                      -23-

<PAGE>



          (h) Lender's Expenses.  All closing costs, and other Lender's Expenses
     shall have been paid in full,  (or shall be paid first from such Advance as
     provided in Section 2.3 hereof).

          (i)  Details,   Proceedings  and  Documents.  All  legal  details  and
     proceedings  in  connection  with  the  transactions  contemplated  by this
     Agreement shall be reasonably  satisfactory to Lender and Lender shall have
     received  all such  counterpart  originals  or certified or other copies of
     such documents and  proceedings in connection  with such  transactions,  in
     form and substance  reasonably  satisfactory to Lender,  as Lender may from
     time to time request.

          (j) Lease  Schedule.  An updated  Schedule  4.30,  which  contains  an
     accurate list of all executed and proposed Leases and their status.

          (k) Post-Closing  Items. The post-closing  items described on Schedule
     6.2 hereto,  if any, shall have been completed in the time  permitted,  and
     Borrower shall have provided Lender with satisfactory evidence thereof.

     6.3  Affirmation  of   Representations   and   Warranties.   Any  Borrowing
Certificate  or other  request  for any Advance  hereunder  shall  constitute  a
representation  and  warranty  that  (a)  the   representations  and  warranties
contained in Article 4 hereof are true and correct in all  material  respects on
and as of the date of such request with the same effect as though made on and as
of the date of such  request  and (b) on the date of such  request no Default or
Event of Default has occurred and is continuing or exists or will occur or exist
after giving  effect to such Advance (for this purpose such Advance being deemed
to have been made on the date of such  request).  Failure  of Lender to  receive
notice  from  Borrower  to the  contrary  before  such  Advance  is  made  shall
constitute  a further  representation  and  warranty  by  Borrower  that (x) the
representations  and  warranties of Borrower  contained in the first sentence of
this Section 6.3 are true and correct on and as of the date of such Advance with
the same effect as though made on and as of the date of such  Advance and (y) on
the date of the  Advance  no Default or Event of  Default  has  occurred  and is
continuing or exists or will occur or exist after giving effect to such Advance.

     6.4 Deadline for Funding  Conditions.  Lender shall have no  obligation  to
make any Advances  hereunder if all of the conditions set forth in Article 5 and
in  Sections  6.1 and 6.2  hereof  have not been  fully  satisfied  or waived by
Lender.


                        ARTICLE 7: AFFIRMATIVE COVENANTS

     Borrower hereby agrees that as long as the commitment  hereunder remains in
effect,  the Note remains  outstanding or unpaid or any other amount is owing to
Lender  hereunder or under any of the Loan  Documents,  Borrower  shall keep and
perform fully each and all of the following covenants:



                                      -24-

<PAGE>



     7.1 Reporting and Information Requirements.

          (a) Annual and Other Reports.  Promptly  after GST  Telecommunications
     files  its  Form  10-K,  Form  10-Q or any  other  report  or  registration
     statement containing financial information with the Securities and Exchange
     Commission,  Borrower shall furnish or cause to be furnished to Lender such
     report or registration statement.  Each Form 10-K of GST Telecommunications
     delivered  to Lender shall  contain the  requisite  consolidated  financial
     statements of GST Telecommunications and contain a report of an independent
     public  accounting  firm of recognized  national  standing  selected by GST
     Telecommunications  and  reasonably  satisfactory  to Lender,  which report
     shall be without  qualification that causes or would reasonably be expected
     to cause a Material Adverse Effect. At such time as Borrower is required to
     deliver to Lender any Form 10-K  filed by GST  Telecommunications  with the
     Securities and Exchange Commission, Borrower shall also provide Lender with
     separate unaudited annual financial  statements of Borrower as of the close
     of the same annual period.  At such time as Borrower is required to deliver
     to Lender any Form 10-Q filed by GST Telecommunications with the Securities
     and Exchange  Commission,  Borrower shall also provide Lender with separate
     unaudited quarterly financial  statements of Borrower consisting of balance
     sheet and related  statement  of income,  retained  earnings and changes in
     financial position as of the close of the same quarterly period.

          (b) Compliance  Certificates.  Within sixty (60) days after the end of
     each Calendar Quarter (other than fiscal year end),  Borrower shall deliver
     to  Lender  a  certificate  dated as of the end of such  Calendar  Quarter,
     signed on behalf of  Borrower  by a  Responsible  Officer of  Borrower  (i)
     stating that as of the date thereof no Event of Default has occurred and is
     continuing  or  exists,  or if an  Event of  Default  has  occurred  and is
     continuing  or  exists,  specifying  in detail  the  nature  and  period of
     existence thereof and any action with respect thereto taken or contemplated
     to be taken by Borrower;  and (ii)  stating that the signer has  personally
     reviewed  this  Agreement  and  that  such   certificate  is  based  on  an
     examination  made by or under the  supervision of the signer  sufficient to
     assure that such certificate is accurate.

          (c)  Projections.  If requested by Lender,  Borrower  shall deliver to
     Lender within thirty (30) days prior to the beginning of each calendar year
     projections of its  anticipated  income,  expenses,  cash flow,  assets and
     liabilities  for each month of such calendar  year,  prepared in good faith
     and in a manner  and format  consistent  with  other  financial  statements
     provided by Borrower to Lender.  Such projections  shall present fairly the
     anticipated financial condition of the Borrower and shall be certified by a
     Responsible   Officer  of  the   Borrower.   Borrower   agrees  and  Lender
     acknowledges that such projections will be based on reasonable  assumptions
     at the time of their  preparation  but that there can be no assurance  that
     such  projections will be realized or that actual events will not result in
     variations from such projections.  Upon Lender's request,  or following any
     material  change in the Borrower's  financial  condition or business,  such
     reports  shall be provided  to Lender  quarterly,  within  thirty (30) days
     prior to the beginning of each Calendar Quarter.

          (d) Other  Reports  and  Information.  Promptly  upon  their  becoming
     available to Borrower,  Borrower  shall deliver to Lender copies of (i) all
     regular  or special  reports or  effective  registration  statements  which
     Borrower shall file with Governmental  Authorities,  the FCC or the PUC (or
     any  successor  thereto)  or  any  securities   exchange,   (ii)  financial
     statements, material reports, and other information distributed by Borrower
     to its creditors or


                                      -25-

<PAGE>



     the financial community in general,  and (iii) all press releases issued by
     or concerning Borrower or the System.

          (e) Further Information. Borrower will promptly furnish to Lender such
     other  information  (including any report by independent  auditors) in such
     form as Lender may reasonably request.

     7.2 Other Notices. Promptly upon a Responsible Officer of Borrower becoming
aware of any of the  following,  Borrower  shall  give  Lender  notice  thereof,
together with a written  statement of a Responsible  Officer of Borrower setting
forth  the  details  thereof  and any  action  with  respect  thereto  taken  or
contemplated to be taken by Borrower:

          (a) a Default or Event of Default;

          (b) any Material Adverse Change;

          (c) a material default or breach by Borrower or any Affiliate which is
     leasing any Equipment  under any other  obligation  the default under which
     would cause a Material  Adverse Effect,  to which it is a party or by which
     it or its properties is bound;

            (d)  any  event  that  the  Borrower  reasonably   determines  would
      constitute  a  Regulatory  Event  with  respect  to  the  Borrower  or any
      Affiliate which has leased any Equipment;

          (e) the  commencement,  existence  or threat of any  proceeding  by or
     before any  Governmental  Authority  against  Borrower  which, if adversely
     decided, would have a Material Adverse Effect;

          (f)  Borrower's  receipt of any notice of  violation  of, or liability
     under, any Environmental Laws affecting Borrower or any Affiliate which has
     leased any Equipment or any of its properties;

          (g) the failure of any Lease to be or remain a Qualifying Lease;

          (h) any Change in Control or any material  change in the management of
     Borrower or the Guarantor;

          (i)  Borrower's  entering into any  transaction  with any Affiliate of
     Borrower  other  than  (a) the  Management  Services  Agreement  or (b) any
     Qualifying Lease; or

          (j) any change in Borrower's Certificate of Incorporation or By-Laws.

     7.3 Notice of  Pension-Related  Events. The Borrower shall promptly furnish
Lender with written notice upon the receipt by the Borrower or the administrator
of any Plan of any notice,  correspondence or other communication from the PBGC,
the IRS, the  Secretary  of  Treasury,  the  Department  of Labor,  or any other
Person,  as the case may be,  relating  to (i) any  Reportable  Event,  (ii) any
funding deficiency with respect to any Plan, (iii) any liability, either primary
or secondary, with respect to complete or partial withdrawal from any Plan, (iv)
proceedings to terminate any Plan


                                      -26-

<PAGE>



or (v) the  appointment  of a  trustee  for  any  Plan.  Such  notice  shall  be
accompanied  by any  pertinent  documents  including,  but not  limited  to, the
relevant  notice,  correspondence  or other  communication  and a statement of a
Responsible Officer of the Borrower describing the event or the action taken and
the reasons therefor.

     7.4 Inspection  Rights.  Borrower shall upon reasonable  notice permit such
persons as Lender may designate to visit and inspect the Collateral or any other
properties  of  Borrower,  to examine  its books and records and take copies and
extracts  therefrom  and  discuss  its  respective  affairs  with its  officers,
employees  and  independent  engineers  at such times and as often as Lender may
reasonably  request.  Borrower hereby authorizes such officers,  employees,  and
independent engineers to discuss with Lender the affairs of Borrower.

     7.5  Preservation of Corporate  Existence and  Qualification.  Borrower and
each Affiliate  which leases any Equipment  shall  maintain its existence,  good
standing  and  rights  in  full  force  and  effect  in  its   jurisdiction   of
organization.  Borrower shall qualify to do business and remain qualified and in
good  standing and shall obtain all necessary  authorizations  to do business in
each  jurisdiction  in which  failure  to  receive  or retain  such would have a
Material Adverse Effect.

     7.6  Continuation of Business.  Borrower and any Affiliate which leases any
Equipment shall continue to engage solely in the business  described on Schedule
1 hereto,  and shall  acquire and  maintain in full force and effect all rights,
privileges,  franchises and licenses necessary for the operation and maintenance
of the System  (including,  without  limitation  any  license  or  authorization
required by the FCC or any PUC).

     7.7 Insurance.

          (a) Borrower  shall  provide and maintain or cause to be maintained at
     all times  insurance in such forms and covering  such risks and hazards and
     in such amounts and with an insurance corporation with a Best rating of "A"
     or above,  licensed to do  business in the states  where the System and the
     Borrower are located,  including coverage of all leased Equipment, as shown
     on Schedule  7.7 hereto,  and  otherwise as may be required by the Security
     Documents.

          (b) Borrower shall cause (i) all physical damage insurance policies to
     contain a lender's or  mortgagee's  loss payable  provision  acceptable  to
     Lender with respect to the Collateral, and (ii) all such insurance policies
     to provide that no  assignment,  cancellation,  modification,  reduction in
     amount or adverse  change in coverage  thereof shall be effective  until at
     least thirty (30) days after receipt by Lender of written  notice  thereof,
     (iii) all such  insurance  policies to insure the  interests of Lender with
     respect  to the  Collateral  regardless  of any breach of or  violation  by
     Borrower of any warranties,  declarations or conditions  contained  therein
     and (iv) all such  insurance  policies to provide that Lender shall have no
     obligation or liability for premiums, commissions,  assessments or calls in
     connection  with such  insurance.  Lender shall be under no  obligation  to
     verify the adequacy or existence of any insurance coverage.  Borrower shall
     furnish Lender copies of, or acceptable  certificates  with respect to, all
     such policies  prior to the Closing Date,  and shall provide to Lender,  at
     least  thirty days prior to each policy  expiration  date,  evidence of the
     insurance  being  maintained  by Borrower in  compliance  with this Section
     7.7(b).



                                      -27-

<PAGE>



          (c) If the  Collateral  is partially or totally  damaged or destroyed,
     Borrower  shall give prompt notice to Lender,  and all insurance  proceeds,
     less the  costs of  collection  thereof,  shall be paid to or  retained  by
     Lender.  Settlements,  adjustments  or  compromises of any claims for loss,
     damage or  destruction  to the  Collateral  shall be made by  Borrower  and
     Lender as long as no Event of Default has occurred and is  continuing,  and
     otherwise shall be made solely by Lender.  Borrower  hereby  authorizes and
     directs any affected  insurance  company to pay such  proceeds  directly to
     Lender, and to rely on Lender's statement as to whether an Event of Default
     has  occurred.  Borrower  shall pay all costs of  collection  of  insurance
     proceeds payable on account of such damage or destruction. If no Default or
     Event of Default has occurred and is continuing on the date the  Collateral
     is partially or totally  damaged or destroyed,  Lender shall make available
     to Borrower the proceeds of any physical damage insurance  actually paid to
     Lender in respect of such damage or destruction  of the  Collateral  (after
     deducting  therefrom  any sums  retained  by  Lender in  reimbursement  for
     Lender's costs of collection) to pay the cost of restoration,  and Borrower
     shall proceed  promptly with the work of  restoration of the Collateral and
     shall  pursue  the  work  of  restoration  diligently  to  completion.  Any
     insurance  proceeds remaining after completion of work or restoration shall
     be paid over to Borrower.  Upon  completion  of any  restoration,  Borrower
     shall deliver to Lender a certificate stating that the restoration has been
     duly completed and accounting for the use of any insurance proceeds in such
     restoration.  If any  Default  or  Event of  Default  has  occurred  and is
     continuing  either on the date of such damage or destruction or on the date
     such  insurance  proceeds  are paid,  or if any Default or Event of Default
     shall occur prior to completion of such work of  restoration,  then Lender,
     at its option,  may apply such insurance  proceeds in payment of any of the
     Obligations, in such order as Lender may elect in its sole discretion.

     7.8 Payment of Taxes,  Charges,  Claims and Current  Liabilities.  Borrower
shall pay or discharge:

          (a) on or prior to the date on which  penalties  thereto  accrue,  all
     taxes,  assessments and other government  charges or levies imposed upon it
     or any of its  properties  or income or any  Equipment,  Software  or other
     Collateral (including such as may arise under Section 4062, Section 4063 or
     Section 4064 of ERISA, or any similar provision of law);

          (b)  on  or  prior  to  the  date  when  due,  all  lawful  claims  of
     materialmen,  mechanics,  carriers,  warehousemen,  and other like  persons
     which could result in creation of a Lien upon any such property;

          (c) on or prior to the date when due, all other lawful  claims  which,
     if unpaid,  might result in the  creation of a Lien upon any such  property
     (other than Permitted Encumbrances) or which, if unpaid, might give rise to
     a claim  entitled to priority over general  creditors of Borrower in a case
     under Title 11  (Bankruptcy)  of the United States Code, as amended,  or in
     any insolvency  proceeding or dissolution or winding-up  involving Borrower
     or any Affiliate which leases any Equipment; and

          (d) all other material current liabilities of Borrower so that none is
     overdue more than sixty (60) days.



                                      -28-

<PAGE>



     Notwithstanding  the  foregoing,  Borrower  shall be entitled to contest or
appeal the  requirements of any Law or Governmental  Authority or the payment of
any tax, assessment,  charge, levy or claim, or any judgment entered against the
Borrower  (collectively,  in this  Section 7.8,  the  "requirements"),  and such
occurrence  shall not constitute a Default or an Event of Default as long as (i)
such  requirements are being contested in good faith by appropriate  proceedings
diligently  conducted;  (ii)  Borrower has given Lender  written  notice of such
requirements  and its intent to contest them, with  supporting  reasons for such
contest,  before the addition of any  interest or  penalties  that may accrue on
such  requirements;  (iii) Borrower  maintains  adequate cash reserves and makes
other  appropriate  provisions  as may be  required  by GAAP to provide  for any
liability arising from such requirements;  (iv) the contesting of, or failure to
comply with,  such  requirements  does not in any way  jeopardize the Borrower's
ability  or  authority  to  operate  all or any  part of the  Collateral  or the
continuing  priority of Lender's security interests in the Collateral;  (vi) the
contesting  of, or failure to comply  with,  such  requirements  does not have a
Material Adverse Effect; and (vii) any foreclosure,  attachment, execution, sale
or  similar  proceeding  against  the  Borrower  or  any of  its  properties  in
connection  with any such  requirements  is duly  stayed by posting of a bond or
security deposit or by other action sufficient under applicable law to stay such
foreclosure, attachment, execution, sale or other proceedings.

     7.9 Financial  Accounting  Practices.  Borrower  shall make and keep books,
records and accounts which, in reasonable detail,  accurately and fairly reflect
its  transactions  and  dispositions  of its  assets  and  maintain  a system of
internal accounting  controls  sufficient to provide reasonable  assurances that
(a)  transactions  are  executed  in  accordance  with  management's  general or
specific authorization, (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with GAAP and (ii) to maintain
accountability  for assets, (c) access to assets is permitted only in accordance
with  management's  general  or  specific  authorization  and (d)  the  recorded
accountability  for assets is compared  with the existing  assets at  reasonable
intervals and appropriate action is taken with respect to any differences.

     7.10  Compliance  with Laws.  Borrower  shall  comply  and shall  cause any
Affiliate  which leases any  Equipment  to comply in all respects  with all Laws
applicable to Borrower or such  Affiliate,  provided that Borrower  shall not be
deemed to be in  violation  of this  Section  7.10 as a result of any failure to
comply  which  would not result in any  liability  or  exposure to Lender or any
fines,  penalties,  injunctive  relief or other  civil or  criminal  liabilities
which, in the aggregate,  would have a Material  Adverse Affect on the business,
operations or financial  condition of Borrower or such  Affiliate or the ability
of Borrower or such Affiliate to perform its  obligations  under this Agreement,
or any Lease, or the Note.

     7.11 Use of Proceeds. Borrower shall use the proceeds of Advances hereunder
only as set forth in Section 2.1 hereof.

     7.12 Government Authorizations;  Regulatory  Authorizations,  Etc. Borrower
and each Affiliate  which is leasing any Equipment shall at all times obtain and
maintain in force all Regulatory  Authorizations  and all other  authorizations,
permits, consents, approvals, licenses, exemptions and other actions by, and all
registrations,  qualifications,  designations,  declarations  and other  filings
with,  any  Governmental  Authority  necessary in connection  with execution and
delivery  of this  Agreement,  or any Lease,  or the Note,  consummation  of the
transactions herein or therein  contemplated,  performance of or compliance with
the terms and conditions  hereof or thereof or to ensure the legality,  validity
and enforceability hereof or thereof.


                                      -29-

<PAGE>




     7.13 Contracts and Franchises. Borrower shall comply with all agreements or
instruments to which it is a party or by which it or any of its properties  (now
owned or hereafter  acquired) may be subject or bound and shall maintain any and
all  franchises it may have or hereafter  acquire,  provided that Borrower shall
not be deemed to be in violation of this Section 7.13 as a result of any failure
to comply with any  agreement if such failure  would not have  Material  Adverse
Effect.

     7.14 Consents.  Borrower shall obtain Landlord's Consents for each location
identified  under  Schedule  4.26 within 30 days  following the Closing Date and
will use its best  efforts to obtain  such other  third  party  consents  (which
efforts  shall not require  the  payment of any amounts to such third  party) as
Lender  shall  reasonably  request  to  protect  its Liens and its access to the
Collateral.  Borrower's failure to obtain a Landlord's Consent from a particular
owner/landlord,  sublessor and/or licensor of any real property where any of the
Collateral  is to be  located  shall not  constitute  a  Default  or an Event of
Default if Guarantor agrees in writing to indemnify Lender against all costs and
expenses (including  reasonable attorney's fees and expenses) incurred by Lender
in any action by Lender against such  owner/landlord,  sublessor and/or licensor
to enforce or protect Lender's rights in the Collateral.

     7.15  Construction  and Storage.  The  Collateral  shall be  installed  and
equipped  in  full  compliance  with  the  Requirements  of  Law  affecting  the
Collateral except to the extent a failure to so comply would not have a Material
Adverse Effect on the construction or operation of the Collateral. All Equipment
financed  with the  proceeds of the Loan shall be  safeguarded  and stored until
installed in appropriate storage facilities owned or leased by Borrower.  In the
event of any  cessation of  construction  for more than fifteen (15)  successive
calendar days, Borrower shall make adequate provision,  reasonably acceptable to
Lender,   for  the  protection  of  all   Collateral   stored  on  site  against
deterioration, loss or damage.

     7.16 Upgrade NTI  Equipment.  Borrower  shall update or cause to be updated
the software used with any Equipment with software customarily used in equipment
of the same type as such Equipment within two releases of the most current batch
change supplement release. Borrower shall maintain the Equipment in good working
order and shall upgrade its  functionality  to include batch change  supplements
releases  generally  available to NTI  customers  and batch  change  supplements
upgrades included in the original  purchase price of the NTI Purchase  Agreement
in the form in effect on the Closing Date.


                          ARTICLE 8: NEGATIVE COVENANTS

     Borrower hereby agrees that so long as the Commitment  hereunder remains in
effect or the Note remains  outstanding  and unpaid or any other amount is owing
to Lender  hereunder  or under  any of the Loan  Documents,  Borrower  shall not
directly or indirectly  without prior written consent of Lender, do or permit to
exist any of the following:

     8.1 Additional  Indebtedness.  Create,  incur, assume or suffer to exist at
any one time  any  Indebtedness  other  than  any  Indebtedness  (i) owed by any
Affiliate of the Borrower and (ii) described in Schedule 8.1 hereto.

     8.2 Restrictions on Liens and Sale of Collateral. Create or suffer to exist
any Lien on the Collateral, or any part thereof, whether superior or subordinate
to the Lien of the Security Documents,


                                      -30-

<PAGE>



or assign,  convey, sell or otherwise dispose of or encumber its interest in the
Collateral, or any part thereof (including, without limitation, execution of any
lease),  nor  permit  any such  action to be  taken,  except  for the  following
permitted dispositions and encumbrances (the "Permitted Encumbrances"):  (i) the
Lien created  hereby and any purchase money Liens in favor of NTI created by the
NTI  Purchase  Agreement;  (ii) Liens for taxes not yet due,  or which are being
contested  in good  faith and by  appropriate  proceedings  in  accordance  with
Section 7.8 hereof; (iii) carriers', warehousemen's,  mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
are  overdue  for a period  not  longer  than sixty (60) days or which are being
contested  in good  faith and by  appropriate  proceedings  in  accordance  with
Section  7.8  hereof;   (iv)  pledges  or  liens  in  connection  with  workers'
compensation,  unemployment insurance and other social security legislation; (v)
deposits to secure the  performance  of bids,  trade  contracts  (other than for
borrowed  money),  leases,  statutory  obligations,  surety  and  appeal  bonds,
performance  bonds  and  other  obligations  of a like  nature  incurred  in the
ordinary course of business;  (vi) easements,  rights-of-way,  restrictions  and
other similar  encumbrances that are not substantial in amount, and which do not
in any case materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of Borrower;  (vii) judgment
liens with respect to which  execution  has been stayed  within ten (10) days by
appropriate  judicial proceedings and the posting of adequate security which may
not be any of the Collateral; (viii) Qualifying Leases; and (ix) specific liens,
if any, identified on Schedule 8.2 hereto.

     8.3 Limitation on Contingent Obligations.  Agree to, or assume,  guarantee,
endorse or otherwise in any way be or become responsible or liable for, directly
or  indirectly,  any  Contingent  Obligation  except  for (i) those  created  or
contemplated by the Loan Documents,  and (ii) Contingent  Obligations in respect
of any Affiliate of the Borrower.

     8.4 Fees and Commissions.  Without  Lender's prior written  consent,  which
will not be unreasonably withheld,  obligate itself to pay fees, expenses and/or
commissions (other than management fees paid in the ordinary course of business)
in  connection  with any sale of equity  interests,  placement  of debt or other
financial  transaction  with any entity other than the Lender or an Affiliate of
the Lender.

     8.5 Prohibition of Mergers, Acquisitions, Name, Office or Business Changes,
Etc.

          (a) Enter into or become the  subject of, any  transaction  of merger,
     acquisition or consolidation  or liquidate,  wind up or dissolve itself (or
     suffer any liquidation or dissolution), or convey, sell, lease, transfer or
     otherwise  dispose of, in one transaction or a series of transactions,  any
     of the Collateral.

          (b) Change its name or corporate  structure  without  giving Lender at
     least thirty (30) days advance written notice of such change,  and ensuring
     that any steps that Lender may deem  necessary to continue  the  perfection
     and priority of Lender's  security  interests in the Collateral  shall have
     been taken.

          (c) Change the fiscal year end of Borrower  from  September 30, except
     with the prior  written  consent  of  Lender,  which  consent  shall not be
     unreasonably withheld.



                                      -31-

<PAGE>



          (d) Amend,  restate or otherwise  modify, or violate any terms of, its
     Organizational Documents without the prior written consent of Lender, which
     consent will not be unreasonably withheld.

          (e) Conduct any business  other than that  expressly  permitted by the
     Borrower's Articles of Incorporation.

     8.6  Prohibition  Against  Changes to Leases.  Permit or  acquiesce  in any
change,  waiver or other  alteration with respect to any Lease that would have a
Material  Adverse  Effect.,  provided,  however,  that the Leases may be amended
without  Lender's  consent to the extent  permitted  by the terms of the Form of
Lease set forth in Exhibit E hereof.

     8.7 Limitation on Investments,  Advances and Loans.  (i) Organize,  create,
acquire,  capitalize  or own any  Subsidiaries  without  Lender's  prior written
consent  or (ii) make or  commit to make any  advance,  loan,  guarantee  of any
Indebtedness,  extension of credit or capital contribution to, or hold or invest
in or purchase or otherwise acquire any stock, bonds, notes, debentures or other
securities  of, or make any other  investment  in,  any Person  (other  than any
Affiliate of Borrower).

     8.8 Capital Expenditures. Directly or indirectly make or commit to make any
expenditure  in  respect  of  the  purchase  or  other  acquisition   (including
installment  purchases or capital leases) of fixed or capital assets, except for
(i)  expenditures  in  accordance  with any  projections  furnished  pursuant to
Section 7.1(c),  (ii) normal  replacements  and  maintenance  which are properly
charged to current  operations  and (iii)  purchases  by Borrower  under the NTI
Purchase Agreement.

     8.9 Limitation on Leases. Enter into any agreement,  or be or become liable
under any  agreement,  not in existence  as of the date hereof and  reflected on
Borrower's  financial  statements,  for the  lease,  hire or use of any  real or
personal, including, without limitation, capital or operating leases, except for
Qualifying  Leases;  provided  that  Borrower  may,  in the  ordinary  course of
business  and on terms  consistent  with  standard in the  industry,  enter into
leases or agreements office space, office equipment, vehicles or tools.

     8.10  Termination  of NTI Purchase  Agreement.  Fail to satisfy its minimum
purchase obligations under the NTI Purchase Agreement.

     8.11  Removal of  Collateral.  Remove or permit the removal of any material
part of the Collateral  (except for sales or leases of Inventory in the ordinary
course of business)  from the  locations  identified on Schedule  4.25,  without
giving Lender  thirty (30) days prior  written  notice of such move and ensuring
that any steps the Lender may deem  necessary  to continue  the  perfection  and
priority of Lender's security interest in the Collateral shall have been taken.

     8.12 Assumed Names.  Transact or engage in business under any assumed name,
fictitious name, tradestyle or "d/b/a."




                                      -32-

<PAGE>



                    ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES

     9.1 Events of Default.  An Event of Default  shall mean the  occurrence  or
existence of one or more of the  following  events or  conditions  (whatever the
reason for such Event of Default and whether voluntary,  involuntary or effected
by operation of Law):

          (a)  Payment  Default.  If Borrower  fails to pay any sum,  whether of
     principal or interest on the Note or any prepayment premiums,  or any other
     amount due  hereunder or under the Note within ten (10) calendar days after
     such amount becomes due; or

          (b) False Statement. If any statement, representation or warranty made
     by Borrower or by any Owner, Guarantor or Affiliate in any Loan Document or
     made in any financial statement,  certificate,  report, exhibit or document
     furnished  to Lender  pursuant  to any Loan  Document,  proves to have been
     untrue,  incomplete,  false or misleading in any material respect as of the
     time when made (including by omission of material information  necessary to
     make such  representation,  warranty or statement not  misleading) and such
     untruth,  falsity,  misleading  statement  or omission  shall not have been
     corrected  or remedied to the  satisfaction  of Lender  within  twenty (20)
     calendar days after the earlier of Borrower's (or the Owner's,  Guarantor's
     or Affiliate's) knowledge thereof or receipt of written notice thereof from
     Lender; or

          (c) Covenant  Defaults.  If Borrower  defaults in the  performance  or
     observance of any covenant or agreement in this Agreement, and such default
     continues for a period of twenty (20)  calendar  days after the  Borrower's
     receipt of written  notice from Lender  thereof,  except for  violations of
     Section  7.8(d),  which shall  become an Event of Default at the end of the
     sixty (60) day period  stated  therein  and  except for  specific  Defaults
     listed  elsewhere in this Section 9.1, as to which no notice or cure period
     shall apply unless specified; or

          (d) Undischarged  Judgments.  If one or more judgments for the payment
     of money has been  entered  against  Borrower,  or if a writ or  warrant of
     attachment,  garnishment,  execution, distraint or similar process has been
     issued against Borrower or any of its properties  having an aggregate value
     in an amount in excess of $250,000,  and any such  judgment,  writ or other
     process has remained  undischarged and unstayed for a period of thirty (30)
     calendar days,  unless the validity thereof is contested in compliance with
     Section 7.8 hereof; or

          (e) Default Under Third Party  Agreements.  If a default,  or event or
     condition  which  with  notice  or  lapse  of time or both  would  become a
     default,  occurs in any Lease and is not cured in the time permitted in the
     Lease,  or if any Lease ceases to be a Qualifying  Lease and Lender has not
     waived  such  event in  writing;  or that gives the  creditor  the right to
     accelerate  payment in  respect of any other  obligation  of  Borrower  for
     borrowed money (including  lease  obligations) in the amount of $250,000 in
     the  aggregate,  or under any two or more  such  other  obligations  of any
     amount; or

          (f) Dissolution;  Discontinuance  of Business,  Etc. If Borrower,  the
     Guarantor or any Affiliate which is leasing any Equipment  discontinues its
     usual business,  dissolves, has its Organizational Document revoked and not
     reinstated, winds up or liquidates itself or its business; or



                                      -33-

<PAGE>



          (g) Involuntary Bankruptcy or Receivership Proceedings. If a receiver,
     custodian, liquidator, or trustee of Borrower, any Owner, the Guarantor, or
     any Affiliate which is leasing any Equipment,  or of any of its property is
     appointed  by the order or  decree  of any  court or agency or  supervisory
     authority  having  jurisdiction;   or  an  order  is  entered  adjudicating
     Borrower,  any Owner, the Guarantor,  or any Affiliate which is leasing any
     Equipment  as bankrupt or  insolvent  and such order is not vacated  within
     thirty  (30) days;  or any of the  property  of  Borrower,  any Owner,  the
     Guarantor,  or any Affiliate which is leasing any Equipment is placed under
     the  control  of a  receiver  or other  third  party by court  order;  or a
     petition  is filed  against  Borrower,  any Owner,  the  Guarantor,  or any
     Affiliate  who  is  leasing  any  Equipment  under  any  state  or  federal
     bankruptcy, reorganization,  arrangement, insolvency, readjustment of debt,
     dissolution,  liquidation, or receivership law of any jurisdiction, whether
     now or hereafter in effect; or

          (h) Voluntary Bankruptcy.  If Borrower,  any Owner, the Guarantor,  or
     any Affiliate  which has leased any Equipment  takes  affirmative  steps to
     prepare to file,  or files,  a petition in voluntary  bankruptcy or to seek
     relief under any provision of any bankruptcy, reorganization,  arrangement,
     insolvency,  readjustment of debt,  dissolution,  or liquidation law of any
     jurisdiction, whether now or hereafter in effect, or consents to the filing
     of any petition against it under any such law; or

          (i) Assignments for Benefit of Creditors, Etc. If Borrower, any Owner,
     the  Guarantor,  or any Affiliate  which is leasing any Equipment  makes an
     assignment for the benefit of creditors, or admits in writing its inability
     to pay  its  debts  generally  as  they  become  due,  or  consents  to the
     appointment  of a receiver,  trustee,  or liquidator of itself or of all or
     any part of its properties; or

          (j) Non-compliance with Governmental  Requirements.  If Borrower fails
     to comply with any requirement of any Governmental  Authority within twenty
     (20) calendar days after notice in writing of such  requirement  shall have
     been given to  Borrower  by such  Governmental  Authority,  or such  longer
     period of time permitted  Borrower by such Governmental  Authority and such
     noncompliance  causes or  unreasonably  can be expected to cause a Material
     Adverse Effect; or

          (k)  Regulatory  Authorizations.  If any Regulatory  Authorization  in
     connection  with this Agreement or any other Loan Document or Lease, or any
     such  Regulatory  Authorization  now or  hereafter  necessary  to make this
     Agreement or the other Loan Documents or Leases legal,  valid,  enforceable
     and admissible in evidence or to permit Borrower or any Affiliate which has
     leased any  Equipment to conduct its business is not obtained or has ceased
     to be in full force and effect or has been  modified or amended or has been
     held to be illegal or invalid or is revoked or terminated, and is not being
     contested by Borrower in compliance  with Section 7.8 hereof and Lender has
     reasonably   determined  in  good  faith  (which   determination  shall  be
     conclusive)  that such  event or  occurrence  may have a  Material  Adverse
     Effect; or

          (l) Damage or  Destruction.  If the  proceeds of any  physical  damage
     insurance  actually  paid in  respect  of the  partial  or total  damage or
     destruction  of the  Collateral,  together with other  authorized  funds of
     Borrower or funds  contributed by third parties,  are insufficient to cover
     the cost of the  restoration  thereof  or if  Lender  determines  that such
     damage or


                                      -34-

<PAGE>



     destruction is so extensive  that repair or restoration  cannot be expected
     within a time period short enough to prevent a Material Adverse Effect;

          (m) Change in Control.  If any Change in Control  should occur without
     Lender's prior written consent,  which may be withheld in Lender's sole and
     absolute discretion; or

          (n) ERISA  Defaults.  If,  with  respect  to any  Plan,  (i) there has
     occurred  a  Reportable  Event  being  considered  by the  PBGC  which  may
     reasonably result in any material liability to the PBGC with respect to any
     Plan, (ii) a Plan has been  terminated,  (iii) a trustee has been appointed
     by a United States  District Court to administer a Plan, (iv) a PBGC or any
     other person has instituted proceedings to terminate a Plan or to appoint a
     trustee to  administer  any such  Plan,  (v)  either  the  Borrower  or any
     Affiliate has withdrawn, completely or partially, from any Plan (vi) either
     the  Borrower  or  any  Affiliate  has  incurred  secondary  liability  for
     withdrawal  liability payments under any Plan or (vii) a Plan has failed to
     meet the minimum funding standards established under the Code or ERISA; or

          (o)   Defaults   Under   Other  Loan   Documents.   If  any   default,
     misrepresentation  or breach  should occur under any  Security  Document or
     other Loan  Document and is not cured or waived  within the time  permitted
     therein,  or any such Loan  Documents  should cease to be in full force and
     effect,  or any  party  thereto  (other  than  Lender)  should  assert  any
     unenforceability  of, or deny  liability on, or admit  inability to perform
     under, any such Loan Document.

     9.2  Consequences  of an Event of  Default.  If any Event of Default  shall
occur and be  continuing  or shall exist,  Lender may, by notice to the Borrower
(i)  declare  its  obligation  to make  Advances  hereunder  and  any  remaining
commitment  hereunder to be  terminated,  where upon the same shall  immediately
terminate,  and (ii)  Lender  may,  by notice to  Borrower,  declare  the unpaid
principal  amount of the Note,  interest  accrued  thereon and all other amounts
owing by Borrower  hereunder or under the Note to be immediately due and payable
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived,  and an action therefor shall  immediately  accrue.
Such consequences  shall occur  automatically upon the occurrence of an Event of
Default  under  Section 9.1 (g) or (h),  without any notice or demand.  Upon the
occurrence of an Event of Default, Lender may, in its sole discretion,  exercise
any and all  remedies  available  to it under this Article 9 or under any of the
Loan Documents or under applicable law without further notice or period of grace
or opportunity to cure.

     9.3  Exercise  of  Rights.  Subject  to any  requirements  for FCC or other
governmental  approval upon the occurrence of any Event of Default,  the rights,
powers and privileges  provided in this Section and all other remedies available
to Lender under this  Agreement or by statute or by rule of law may be exercised
by Lender at any time from time to time whether or not the Obligations  shall be
due and payable, and whether or not Lender shall have instituted any foreclosure
or other action for the enforcement of this Agreement or the Note. No failure to
exercise nor any delay in exercising on the part of Lender,  any right,  remedy,
power or  privilege  hereunder  or under any of the other Loan  Documents  shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
right, power or privilege  hereunder or thereunder  preclude any other or future
exercise thereof or the exercise of any other right, remedy, power or privilege.



                                      -35-

<PAGE>



     9.4 Rights of Secured  Party;  Possession  or Sale of  Collateral.  Without
limiting the generality of the  foregoing,  Lender shall have all the rights and
remedies of a secured party under the UCC, and Lender may, to the fullest extent
permitted by applicable law, without demand and without advertisement or notice,
all of which Borrower waives,  at any time or times, sell and deliver any or all
Collateral held by or for it at public or private sale, for cash, upon credit or
otherwise,  at such prices and upon such terms as Lender deems advisable, in its
sole discretion,  and/or collect,  or enforce the collection of, the Collateral.
Lender may be the purchaser at any such sale. Upon the occurrence of an Event of
Default and upon Lender's request,  Borrower shall assemble, at its own expense,
any or all Equipment and other  Collateral at a convenient  place  acceptable to
Lender and shall pay to Lender or reimburse Lender for, on demand,  all costs of
collection  of  all  amounts  due,  and  enforcement  of all  rights  hereunder,
including  reasonable  attorneys' fees and legal  expenses,  and expenses of any
repairs to any realty or other  property to which any of such  Collateral may be
affixed. Upon an Event of Default Lender may, to the fullest extent permitted by
applicable law, without notice, advertisement,  hearing or process of law of any
kind,  enter upon any premises  where any of the  Collateral  may be located and
take possession of and remove such Collateral.

     9.5 Notices,  Etc. Waived.  Except as expressly provided in this Article 9,
Borrower hereby expressly  waives, to the fullest extent permitted by applicable
law,   presentment,   demand,   protest,  any  and  all  notices  of  any  kind,
advertisements,  hearing or process of law in  connection  with the  exercise by
Lender of any of its  rights and  remedies  upon the  occurrence  of an Event of
Default. If any notification of intended disposition of any of the Collateral is
required by law, such notification shall be deemed reasonably and properly given
if given in  accordance  with  Section 10.6 hereto at least ten (10) days before
such disposition.

     9.6 Additional  Remedies.  Lender's remedies upon the occurrence and during
the continuance of an Event of Default shall include, in addition to, and not in
lieu of, such  remedies as are  available at law or in equity or provided for in
any of the Loan  Documents,  the  following to the fullest  extent  permitted by
applicable law:

          (a) Foreclosure; Receivership. Lender shall be entitled to file one or
     more  suits at law or in  equity  to  collect  the  Obligations  and/or  to
     foreclose  on  Lender's  Liens on and  security  interests  created by this
     Agreement or the Security  Documents.  Lender may apply or require Borrower
     to apply for any  necessary  transfers,  assignments,  orders,  consents or
     licenses in connection  with the operation or abandonment of the Collateral
     or any part  thereof,  and the Lender shall also be entitled as a matter of
     right and without notice and without  requiring bond (notice and bond being
     hereby  waived),  without  regard  to the  solvency  or  insolvency  of the
     Borrower at the time of application  and without regard to the value of the
     Collateral  at  that  time,  to have a  receiver  appointed  by a court  of
     competent  jurisdiction  in order to  manage,  protect,  and  preserve  the
     Collateral  and to continue the operation of the business of Borrower,  and
     to collect  all  revenues  and  profits  thereof  and apply the same to the
     payment of all expenses and other  charges of such  receivership  until the
     sale or other final disposition of the Collateral. Borrower hereby consents
     to the appointment of such receiver.

          (b)  Right to Cure.  If  Borrower  fails in any  material  respect  to
     perform or comply with any of its agreements  contained herein or in any of
     the other Loan Documents or Leases, Lender may take whatever actions it may
     deem  appropriate  to perform or comply or otherwise  cause  performance or
     compliance  with such  agreement,  all at the  risk,  cost and  expense  of
     Borrower.


                                      -36-

<PAGE>




          (c)  Setoff.  If the  unpaid  principal  amount of the Note,  interest
     accrued  thereon or any other amount  owing by Borrower  hereunder or under
     the Note shall have become due and payable (by  acceleration or otherwise),
     Lender  shall have the right,  in addition to all other rights and remedies
     available  to it,  without  notice to  Borrower,  to setoff  against and to
     appropriate  and apply to such due and  payable  amounts any debt owing to,
     and any other  funds held in any manner for the  account  of,  Borrower  by
     Lender.  Such right  shall  exist  whether  or not Lender  shall have given
     notice or made any demand hereunder or under the Note,  whether or not such
     debt owing to or funds held for the  account of  Borrower is or are matured
     or  unmatured,   and  regardless  of  the  existence  or  adequacy  of  any
     collateral,  guaranty or any other security,  right or remedy  available to
     Lender. Borrower hereby consents to and confirms the foregoing arrangements
     and confirms Lender's rights of setoff.

     9.7  Application  of  Proceeds.  Any  proceeds  of any  of the  Collateral,
received by Lender  through sale or  disposition of the Collateral or otherwise,
may be  applied  by Lender  toward the  payment  of the  Obligations,  including
expenses in connection with the Collateral  (including reasonable fees and legal
expenses) in such order of application as Lender may from time to time elect.

     9.8 Discontinuance of Proceedings.  If Lender should proceed to enforce any
right or remedy  under  this  Agreement  or any other  Loan  Document,  and then
discontinue or abandon such  proceeding for any reason,  all rights,  powers and
remedies of Lender  hereunder  shall continue as if no such  proceeding had been
taken.

     9.9 Power of Attorney.  For the purpose of carrying out the  provisions and
exercising  the rights,  powers and  privileges  granted by the Loan  Documents,
including,  without  limitation,  this Article 9,  Borrower  hereby  irrevocably
constitutes and appoints Lender its true and lawful attorney-in-fact to execute,
acknowledge  and deliver any instruments and do and perform any acts such as are
referred  to  in  the  Loan  Documents  or  in  any  Lease,  including,  without
limitation,  this Article 9, in the name and on behalf of Borrower, from time to
time in  Lender's  reasonable  discretion  after the  occurrence  and during the
continuance  of an Event of Default,  in accordance  with the Loan  Documents or
Lease and any statute or rule of law.  This power of attorney is a power coupled
with an interest and cannot be revoked.  Borrower  hereby ratifies all that said
attorney-in-fact  shall  lawfully  do or  cause  to be  done  by  virtue  and in
accordance with the terms hereof.

     Without  limiting the  generality  of the  foregoing,  Lender may after the
occurrence  and during the  continuance  of an Event of Default do the following
without  notice to or assent by  Borrower  to  accomplish  the  purposes of this
Agreement:

          (a) upon failure of Borrower to timely pay or discharge taxes or Liens
     levied  or placed on or  threatened  against  the  Collateral,  effect  any
     repairs or any insurance  called for by the terms of this Loan Agreement or
     any other Loan Document,  and pay all or any part of the premiums  therefor
     and the costs thereof;

          (b) (i) direct any party liable for any payment on any  Collateral  to
     make  payment  of any  and all  monies  due and to  become  due  thereunder
     directly to Lender or as Lender shall direct;  (ii) in the name of Borrower
     or its own name or  otherwise,  take  possession of and endorse and collect
     any  checks,  drafts,  notes,  acceptances,  or other  instruments  for the
     payment of monies due under,  or otherwise  receive  payment of and receipt
     for any and all monies,  claims and other  amounts due and to become due at
     any time in respect of or arising out of any


                                      -37-

<PAGE>



     Collateral;  (iii) sign and endorse any invoices, freight or express bills,
     bills of lading,  storage or warehouse  receipts,  drafts against  debtors,
     assignments,  verifications  and notices in connection with the Collateral;
     (iv) commence and prosecute any suits,  actions or proceedings at law or in
     equity in any court of competent  jurisdiction to collect all or any of the
     Collateral and to enforce any other right in respect of any Collateral; (v)
     defend any suit, action or proceeding brought against Borrower with respect
     to any Collateral;  (vi) settle,  compromise or adjust any suit,  action or
     proceeding  described above upon  commercially  reasonable  terms under the
     circumstances  and,  in  connection  therewith,  give  such  discharges  or
     releases as Lender may reasonably  deem  appropriate;  and (vii)  generally
     sell, use, operate, transfer, pledge, make any agreement with respect to or
     otherwise deal with any of the Collateral as fully and completely as though
     Lender were the absolute  owner thereof for all  purposes,  subject only to
     the terms of the  Indenture  that would  cause such  action to be a default
     thereunder; and

          (c) at Lender's  option and  Borrower's  expense,  at any time or from
     time to time after the occurrence and during the continuance of an Event of
     Default,  do all  other  acts  and  things  that  Lender  reasonably  deems
     necessary to protect,  preserve or realize upon the Collateral and Lender's
     security interest therein,  in order to effect the intent of this Agreement
     and the other Loan Documents all as fully and effectively as Borrower might
     do.

     9.10  Regulatory  Matters.  Notwithstanding  any  provision to the contrary
contained  herein,  Lender  will not  exercise  any right or remedy  under  this
Agreement that requires prior FCC or PUC approval  without first  obtaining such
approval. If counsel to Lender reasonably determines that the consent of the FCC
or PUC is required in  connection  with any of the actions  that may be taken by
Lender in the  exercise of its rights  hereunder  or under any of the other Loan
Documents,  then Borrower, at its sole cost and expense,  agrees to use its best
efforts  to secure  such  consent  and to  cooperate  with  Lender in any action
commenced by Lender to secure such consent.  Upon the  occurrence and during the
continuation of an Event of Default Borrower shall promptly execute and/or cause
the execution of all applications, certificates, instruments and other documents
and papers that may be required  in order to obtain any  necessary  governmental
consent, approval or authorization,  and if Borrower fails or refuses to execute
such  documents,  the clerk of the court  with  jurisdiction  may  execute  such
documents on behalf of Borrower.


                  ARTICLE 10: GENERAL CONDITIONS/MISCELLANEOUS

     The following  conditions  shall be applicable  throughout the term of this
Agreement:

     10.1 Modifications and Waivers.  This Agreement,  the other Loan Documents,
or any provision thereof may not be changed,  waived or terminated  orally,  but
only by an instrument in writing signed by the party against whom enforcement of
the change,  waiver or termination is sought.  No action or course of dealing on
the part of Lender,  its officers,  employees,  consultants,  or agents, nor any
failure or delay by Lender  with  respect to  exercising  any right,  power,  or
privilege of Lender under the Note, this  Agreement,  or any other Loan Document
shall  operate  as a  waiver  thereof,  except  as  otherwise  provided  in this
Agreement. Any waiver shall be effective only to the extent and for the instance
specifically  identified in such  writing,  and shall not be deemed to imply any
future  waivers or other waivers.  No amendment to the Loan  Documents  shall be
effective without written agreement signed by both Borrower and Lender.


                                      -38-

<PAGE>




     10.2 Advances Not Implied Waivers. No waiver of the requirements  contained
in any Loan Document shall be effective unless in writing duly signed by Lender.
No Advance  hereunder  shall  constitute  a waiver of any of the  conditions  of
Lender's  obligation  to make  further  Advances  nor, in the event  Borrower is
unable to satisfy any such  condition,  shall any waiver of such  condition have
the effect of precluding  Lender from thereafter  declaring such inability to be
an Event of Default as herein provided.  Any Advance made by Lender and any sums
expended by Lender  pursuant to the Loan Documents  shall be deemed to have been
made  pursuant to this  Agreement,  notwithstanding  the existence of an uncured
Default  or Event of  Default.  No  Advance  at a time when an Event of  Default
exists shall  constitute  a waiver of any right or remedy of Lender  existing by
reason of such Event of Default,  including,  without  limitation,  the right to
accelerate  the  maturity  of  the  Indebtedness  evidenced  by the  Note  or to
foreclose  the Lien on the  Collateral  or to  refuse to make  further  advances
hereunder.

     10.3 Deviation from Covenants.  The procedure to be followed by Borrower to
obtain the consent of Lender to any deviation  from the  covenants  contained in
this Agreement or any other Loan Document shall be as follows:

          (a) Borrower  shall send a written  notice to Lender setting forth (i)
     the covenant(s)  relevant to the matter,  (ii) the requested deviation from
     the covenant(s) involved,  and (iii) the reason for the requested deviation
     from the covenant(s); and

          (b) Lender,  within a reasonable  time,  will send a written notice to
     Borrower,  permitting  or refusing  the  request,  but in no event will any
     deviation  from the covenants of this  Agreement or any other Loan Document
     be effective without the express prior written consent of Lender.  Lender's
     failure to provide  such  written  notice shall be deemed a refusal of such
     request.

     10.4 Holidays. Except as otherwise provided herein, whenever any payment or
action to be made or taken hereunder or under the Note shall be stated to be due
on a day which is not a Business  Day,  such  payment or action shall be made or
taken on the next  following  Business  Day and such  extension of time shall be
included in computing  interest or fees, if any, in connection with such payment
or action.

     10.5 Records.  From time to time Lender may send Borrower statements of the
unpaid principal  amount of the Note, the unpaid interest  accrued thereon,  the
Interest Rate or rates applicable to such unpaid principal amount,  the duration
of such applicability,  and the amount remaining available on any Loan, and each
statement shall be deemed correct and  conclusively  binding on Borrower (absent
manifest error).

     10.6  Notices.  All  notices,  requests,   demands,  directions  and  other
communications  (collectively,  "notices") required under the provisions of this
Agreement  or  any  other  Loan   Document   shall  be  in  writing   (including
communication by facsimile  transmission)  unless otherwise  expressly permitted
hereunder  and shall be sent by hand,  by  registered  or certified  mail return
receipt requested,  by overnight courier service maintaining records of receipt,
or by facsimile transmission with confirmation in writing mailed first-class, in
all cases with  charges  prepaid,  and any such  properly  given notice shall be
effective upon the earlier of receipt or (i) when delivered by hand, or (ii) the
third  Business Day after being mailed,  or (iii) the following  Business Day if
sent by overnight courier


                                      -39-

<PAGE>



service, or (iv) when sent by facsimile, answer back received. All notices shall
be addressed as follows:

     If to Borrower, to the Notice Address set forth on Schedule 1, with copies,
if any, as set forth on Schedule 1.

            If to Lender:     NTFC Capital Corporation
                              220 Athens Way
                              Nashville, Tennessee 37228
                              Attention: Legal Department
                              Telecopy:  (615) 734-5283

            With a copy to:   NTFC Capital Corporation
                              220 Athens Way
                              Nashville, Tennessee  37228
                              Attention:  Manager, Credit
                              Telecopy:  (615) 734-5283

     All notices  shall be sent to the  applicable  party at the address  stated
above or in accordance with the last unrevoked written direction from such party
to the other party hereto, given in accordance with the terms hereof.

     10.7 FCC and PUC Approval. The exercise of any rights or remedies hereunder
or under any other Loan  Document by Lender that may require FCC or PUC approval
shall be subject to obtaining such  approval.  Pending the receipt of any PUC or
FCC approval, Borrower shall not do anything to delay, hinder, interfere with or
obstruct the exercise of Lender's rights or remedies  hereunder or the obtaining
of such approvals.

     10.8 Lender Sole Beneficiary. All conditions of the obligation of Lender to
make any Advances  hereunder are imposed solely and  exclusively for the benefit
of Lender and its assigns  and no other  Person  shall have  standing to require
satisfaction of such conditions in accordance with their terms or be entitled to
assume that  Lender  will  refuse to make any  Advances in the absence of strict
compliance  with any or all such  conditions,  and no  Person  shall  under  any
circumstances  be deemed to be a beneficiary of such  conditions,  any or all of
which may be  freely  waived in whole or in part by Lender at any time if in its
sole discretion it deems it advisable to do so. Inspections and approvals of the
System,  and the workmanship and materials used therein impose no responsibility
or liability of any nature whatsoever on Lender,  and no Person shall, under any
circumstances, be entitled to rely upon such inspections and approvals by Lender
for any reason.  Lender's sole  obligation  hereunder is to make the Advances if
and to the extent required by this Agreement or the Notes.

     10.9 Lender's Review of Information.  Borrower acknowledges and agrees that
any  review  or  analysis  by  Lender  of   financial   information,   operating
information,  marketing  data or other  information  provided to Lender by or on
behalf of Borrower  at any time is and shall be  conducted  solely for  Lender's
benefit and internal use and that Lender is under no duty or  obligation to make
the results of such review or analysis  available to  Borrower.  Borrower is not
relying, and will not rely, on Lender for financial or business advice.



                                      -40-

<PAGE>



     10.10 No Joint  Venture.  Nothing in any of the Loan  Documents  or in this
Agreement shall be deemed to constitute any kind of  partnership,  joint venture
or  fiduciary  relationship  between the Lender and the  Borrower or between the
Lender and any Owners.

     10.11  Severability.  The  provisions of this  Agreement are intended to be
severable.  If any provision of this Agreement or the other Loan Documents shall
be held invalid or unenforceable  in whole or in part in any  jurisdiction  such
provision shall, as to such  jurisdiction,  be ineffective to the extent of such
invalidity or  unenforceability  without in any manner affecting the validity or
enforceability  thereof in any other  jurisdiction  or the remaining  provisions
hereof or thereof in any jurisdiction.

     10.12 Rights  Cumulative.  All rights,  powers and remedies herein given to
Lender are cumulative and not  alternative,  and are in addition to all statutes
or rules of law.

     10.13 Duration;  Survival.  All  representations and warranties of Borrower
contained herein or made in connection  herewith shall survive the making of and
shall not be waived by the  execution  and  delivery of this  Agreement  and the
other Loan Documents, any investigation by Lender, or the making of any Advances
hereunder.  All covenants  and  agreements  of Borrower  contained  herein shall
continue  in full force and effect  from and after the date hereof so long as it
may borrow hereunder and until payment in full of the Notes,  interest  thereon,
all fees and all  other  Obligations  of  Borrower.  Without  limitation,  it is
understood  that all  obligations  of Borrower to make  payments to or indemnify
Lender  shall  survive  the  payment  in  full  of the  Notes  and of all  other
Obligations.

     10.14  Governing  Law.  This  Agreement and the Notes and each of the other
Loan  Documents  shall be governed by and  construed  and enforced in accordance
with the internal  laws of the State of New York,  except to the extent that the
laws of  jurisdictions  where the Collateral is located may be required to apply
to the Collateral.

     10.15  Counterparts.  This  Agreement  may be  executed  in any  number  of
counterparts  (by  facsimile  transmission  or  otherwise)  and by the different
parties hereto on separate counterparts,  each of which, when so executed, shall
be deemed an original,  but all such  counterparts  shall constitute but one and
the same instrument.

     10.16  Successors  and Assigns.  This  Agreement  shall be binding upon and
inure to the benefit of Lender and Borrower and their respective  successors and
assigns; provided,  however, that Borrower may not assign or transfer any of its
rights or  obligations  hereunder or under the other Loan Documents (in whole or
in part)  without  the prior  written  consent  of Lender.  Notwithstanding  the
foregoing,  Lender may not assign its  rights or  obligations  hereunder  to any
Person,   or  to  any   Affiliate   of  any  Person,   that  is  a  provider  of
telecommunications  services or equipment in  competition  with  Borrower or its
Affiliates  (other than NTI).  Lender may assign,  transfer or pledge any of its
respective  rights or  obligations  hereunder or under the other Loan  Documents
without the prior written  consent of Borrower.  Upon receipt of written  notice
from Lender of such assignment by Lender permitted under this Section,  Borrower
shall  promptly  acknowledge  receipt  thereof in writing.  If Borrower is given
written  notice of any  assignment by Lender  permitted  under this Section,  it
shall  perform its  obligations  with respect to this  Agreement for the ratable
benefit  of the  applicable  assignee(s),  and,  if so  directed,  shall pay all
amounts due or to become due hereunder directly to the applicable assignee(s) or
to any other party  designated by such  assignee(s).  Borrower  shall not assert
against any such assignee any set-off, defense or counterclaim that Borrower may
have against Lender


                                      -41-

<PAGE>



or any person other than such assignee.  Borrower shall also execute and deliver
to Lender such  documentation  as any such  assignee may  reasonably  require to
evidence such assignment,  including but not limited to amended promissory notes
and acknowledgment of or consent to the assignment which may require Borrower to
make certain representations or reaffirmations as to some of the basic terms and
covenants  contained  herein.  Lender  shall not be relieved of its  obligations
hereunder as a result of any such sale, assignment,  transfer,  grant or pledge,
unless  such  assignee  specifically  assumes  all or  part of  Lender's  future
obligations  hereunder  in a  writing,  a copy of which  shall be  delivered  to
Borrower,  in  which  event  after  the  date  of  such  assignment,  Borrower's
obligations  to any such assignee shall be  proportionately  as set forth in the
assignment  with  respect to Lender,  and  Borrower  shall not look to Lender to
perform any of such assignee's  obligations hereunder which arise after the date
thereof.  Any  permitted  assignee  of  Lender  shall  be  entitled  to  rely on
Borrower's agreements as stated herein, as applicable, and shall be considered a
third party beneficiary thereof.  Except to the extent otherwise required by the
context of this Agreement,  the word "Lender" where used in this Agreement shall
mean and include any permitted  assignee of any Note originally issued to Lender
hereunder,  and any such  permitted  assignee  of any Note shall be bound by and
have  the  benefits  of this  Agreement  the same as if such  holder  had been a
signatory hereto.

     10.17 Participation.  Lender shall have the right to enter into one or more
participation agreements,  syndication agreements or similar agreements with one
or more participating  lenders or other parties approved by Lender on such terms
and  conditions  as  Lender  shall  deem  advisable.  Borrower  shall  furnish a
sufficient number of copies of reports and certificates to Lender so that Lender
and each participating lender shall receive a copy of each such document. Lender
shall provide  Borrower with notice of any such agreement.  Notwithstanding  the
foregoing,  Lender may not enter into any such agreement with any Person,  or to
any Affiliate of any Person, that is a provider of  telecommunications  services
or equipment.

     10.18 Time of  Essence.  Time is of the essence of this  Agreement  and the
Note and the other Loan Documents.

     10.19 Disclosures and Confidentiality.

          (a)  Borrower  agrees that it will  obtain  Lender's  written  consent
     before using or  generating  any press  release,  advertisement,  publicity
     materials or other  publication  in which the name or logo of Lender or any
     of its  Affiliates  is used or may be  reasonably  inferred,  and  will not
     distribute  any  such  materials  in the  absence  of  such  prior  written
     approval.

          (b) Each of Borrower and Lender  agrees that it will not,  directly or
     indirectly,  disclose to any third party the terms of this Agreement or the
     other Loan Documents or prior or future correspondence relating thereto, or
     the transactions  contemplated hereby. The term "third party" shall exclude
     only Borrower,  Lender,  their  respective  Affiliates and their respective
     attorney(s),  financial advisors subject to  confidentiality  restrictions,
     and certified  public  accountant(s).  Section 10.19 shall not restrict the
     disclosure of  information  to the extent that  Borrower or Lender,  as the
     case may be, deems such  disclosure  to be required by  applicable  law, by
     order  of  any  court  or  by  the  order,   rule  or   regulation  of  any
     administrative agency, including without limitation any requirements of the
     FCC,  any  PUC,  or  any  state  or  federal  securities  commissions  (the
     "Commissions");  provided,  however,  that,  except  for  disclosures  that
     Borrower or Lender  deems to be required  by the FCC,  PUC or  Commissions,
     each party shall provide the other with advance notice of any such required
     disclosure of


                                      -42-

<PAGE>



     information so that the informed  party may seek an appropriate  protective
     order and/or waive  compliance with this Section.  A party shall not oppose
     any action taken by the other to obtain an appropriate  protective order or
     other reliable assurance that the information will be accorded confidential
     treatment. The obligations set forth in this Section 10.19(b) shall survive
     the termination of this Agreement.

          (c) The  disclosure of  information  by either Lender or Borrower will
     not be restricted  under this Agreement if such information (i) has been or
     becomes published or is now, or in the future, in the public domain through
     (A) no  fault  of the  parties,  (B)  disclosure  other  than  unauthorized
     disclosure  by the  party  to whom the  information  is  disclosed,  or (C)
     disclosure  to  third  parties  by the  disclosing  party  without  similar
     restriction;  (ii) is property  (other than  proposal  letters,  commitment
     letters or other  correspondence  between  Lender and Borrower)  within the
     legitimate possession of the receiving party prior to disclosure hereunder;
     (iii) subsequent to disclosure hereunder, is lawfully received from a third
     party having rights  therein  without  restriction  of the third party's or
     receiving  party's rights to disseminate the information and without notice
     of any restriction against its further  disclosure;  (iv) is disclosed with
     the  written  approval  of the  other  party;  (v) is or  becomes  publicly
     available free of any obligation to keep it confidential.

          (d) Every  reference in this  Agreement to  disclosures of Borrower to
     Lender  (except  the  financial  statements),   to  the  extent  that  such
     references refer or are intended to refer to disclosures at or prior to the
     execution  of this  Agreement,  shall be deemed  strictly  to refer only to
     written disclosures delivered to Lender in connection with the execution of
     this Agreement.

     10.20 Jurisdiction and Venue.  BORROWER HEREBY IRREVOCABLY  CONSENTS TO THE
JURISDICTION  OF THE FEDERAL COURTS SITTING IN THE MIDDLE DISTRICT OF TENNESSEE,
AND IF NO FEDERAL  JURISDICTION  EXISTS,  TO THE  JURISDICTION  AND VENUE OF THE
STATE COURTS OF TENNESSEE FOR ANY SUIT BROUGHT OR ACTION COMMENCED IN CONNECTION
WITH THIS AGREEMENT,  THE OTHER LOAN DOCUMENTS,  OR THE OBLIGATIONS,  AND AGREES
NOT TO CONTEST VENUE OR JURISDICTION IN ANY SUCH COURTS. In any such litigation,
Borrower waives personal service of any summons, complaint or other process, and
agrees that the service  thereof may be made by  certified  or  registered  mail
direct to  Borrower  at its address  set forth in Section  10.6  hereof.  In the
alternative, in its sole discretion,  Lender may effect service upon Borrower in
any other form or manner  permitted by law. The choice of forum set forth herein
shall not be deemed to preclude the enforcement of any judgment obtained in such
forum or the taking of any action  under this  Agreement  to enforce the same in
any appropriate jurisdiction.

     10.21 Jury Waiver. BORROWER AND LENDER HEREBY KNOWINGLY AND WILLINGLY WAIVE
THEIR RIGHTS TO DEMAND A JURY TRIAL IN ANY ACTION OR PROCEEDING  INVOLVING  THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT, THE OBLIGATIONS, OR ANY RELATIONSHIP BETWEEN
THE LENDER AND  BORROWER.  THE  BORROWER  WARRANTS  AND  REPRESENTS  THAT IT HAS
REVIEWED THE  FOREGOING  WAIVERS WITH ITS LEGAL  COUNSEL AND HAS  KNOWINGLY  AND
VOLUNTARILY  WAIVED  ITS JURY TRIAL  RIGHTS  FOLLOWING  CONSULTATION  WITH LEGAL
COUNSEL.  IN THE EVENT OF  LITIGATION,  THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.


                                      -43-

<PAGE>




     10.22  Limitation on Liability.  LENDER SHALL HAVE NO LIABILITY UNDER OR IN
CONNECTION  WITH THIS  AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS FOR SPECIAL,
EXEMPLARY, PUNITIVE,  INCIDENTAL,  INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY SORT
IN ANY SUIT BROUGHT OR ACTION  COMMENCED IN CONNECTION WITH THIS AGREEMENT,  THE
OTHER LOAN DOCUMENTS,  OR THE OBLIGATIONS,  AND, EXCEPT TO THE EXTENT PROHIBITED
BY LAW,  EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
ACTION ANY SPECIAL, EXEMPLARY, PUNITIVE,  INCIDENTAL,  INDIRECT OR CONSEQUENTIAL
DAMAGES OF ANY SORT OTHER THAN ACTUAL DAMAGES.

     10.23 Borrower Waivers.  To the fullest extent permitted by applicable law,
the Borrower  hereby  waives (i)  presentment,  demand and protest and notice of
presentment,  protest,  default,  non payment,  maturity,  release,  compromise,
settlement,  extension  or renewal  of any or all  commercial  paper,  accounts,
contract  rights,  documents,  instruments,  chattel paper and guaranties at any
time held by Lender on which the  Borrower  may in any way be liable  and hereby
ratifies and confirms  whatever Lender may do in this regard;  (ii) notice prior
to taking  possession or control of the Collateral or any bond or security which
might be  required by any court  prior to  allowing  Lender to  exercise  any of
Lender's  remedies,  including the issuance of an immediate  writ of possession,
except as expressly required in any of the Loan Documents; (iii) any marshalling
of assets,  or any right to compel  Lender to resort first to any  Collateral or
other Persons before  pursuing the Borrower for payment of the  Obligations  and
any defenses based on suretyship or impairment of  Collateral;  (iv) the benefit
of all  valuation,  appraisement  and exemption  laws;  (v) any right to require
Lender to terminate  its  security  interest in the  Collateral  or in any other
property of the Borrower  until  termination of this Agreement and the execution
by the  Borrower and by any person whose loans to the Borrower are used in whole
or in part to satisfy the Obligations,  of an agreement indemnifying Lender from
any loss or damage Lender may incur as the result of  dishonored or  unsatisfied
items of any  account  debtor  applied to the  Obligations;  and (vi)  notice of
acceptance  hereof.  The Borrower  acknowledges that the foregoing waivers are a
material  inducement to Lender's entering into this Agreement and that Lender is
relying upon the foregoing waivers in its future dealings with the Borrower.

     10.24 Schedules.  The Schedules and Exhibits attached to this Agreement are
an integral part hereof, and are hereby made a part of this Agreement.

     10.25  Agreement to Govern.  In case of any  conflict  between the terms of
this Agreement and any of the other Loan Documents,  the terms of this Agreement
shall govern.

     10.26 Entire Agreement.  This Agreement, the other Loan Documents and other
documents, agreements and certificates executed by the parties contemporaneously
herewith or subsequent hereto constitute the entire agreement of the parties and
supersede all prior understandings and agreements,  written or oral, between the
parties hereto  relating to the subject matter hereof.  Borrower is not entering
into this  Agreement in reliance on  statements or  representations  made by any
Person other than as set forth herein.



         [END OF GENERAL TERMS AND CONDITIONS. NEXT PAGE IS SCHEDULE 1.]

                        [SIGNATURES ARE ON COVER PAGE. ]


                                      -44-

<PAGE>



                                                                 SCHEDULE 1 TO
                                                   LOAN AND SECURITY AGREEMENT
                                                   ---------------------------

                     BORROWER INFORMATION AND DEFINED TERMS
                     --------------------------------------

"Closing Date": December 19, 1996

"Borrower": GST Equipco, Inc., a Washington corporation

Borrower's federal employer/
      tax identification number: 91-1740514

Borrower's chief executive offices (including county):
            4317 North East Thurston Way
            Vancouver, Washington 98662


Borrower's Notice Address:
            4317 North East Thurston Way
            Vancouver, Washington 98662
            ATTN: Clifford V. Sander
            Vice President & Treasurer

      with copies to:
            Olshan Grundman Frome & Rosenzweig, L.L.P.
            505 Park Avenue
            New York, NY 1002
            ATTN: Stephen Irwin, Esq.
            and Daniel J. Gallagher, Esq.

"Guarantor": GST USA, Inc., a Delaware corporation, a wholly-owned subsidiary of
GST Telecommunications, Inc., the parent corporation of Borrower

"Regulatory Authorizations": The term "Regulatory Authorizations" shall include,
without limitation, the following:

"System":    The   term   "System"   shall   mean   a   digital   interconnected
telecommunications  network  owned and  operated by  Affiliates  of the Borrower
providing a range of enhanced  telecommunication  services  that  includes  long
distance, internet access, frame relay and a synchronous transfer mode services.
The  System is also  expected  to  provide  switched  access and local dial tone
services.  The System currently operates, or is expected to operate, in Arizona,
California, Hawaii, New Mexico, Oregon, Texas and Washington.


                                      -45-

<PAGE>



                                                              SCHEDULE 2.1 TO
                                                  LOAN AND SECURITY AGREEMENT
                                                  ---------------------------

                              MAXIMUM LOAN AMOUNTS
                              --------------------

Maximum principal amount
of all Loans:                       Fifty   Million    Dollars    ($50,000,000),
                                    including  up  to  $5,000,000  for  interest
                                    during   the  first   twelve   (12)   months
                                    following the Closing Date.

Maximum amount to be used for
closing costs and legal fees:       One Hundred Thousand Dollars ($100,000.00)



                                      -46-

<PAGE>



                                                              SCHEDULE 2.2 TO
                                                  LOAN AND SECURITY AGREEMENT
                                                  ---------------------------

                         PAYMENT TERMS AND GOVERNING LAW
                         -------------------------------

     1. Payment  Terms.  The  following  payment  terms shall apply to all Loans
under the Agreement.

     "Conversion Date": the first day following  expiration of the Interest Only
Period.

     "Financing Termination Date": December 31, 1998.

     "Initial  Payment Date": the first Business Day of the first (1st) month to
commence after the First Borrowing Date.

     "Interest  Only  Period":  the period  commencing  on the Closing  Date and
ending on December 31, 1998.

     "Interest  Payment Date":  the Initial  Payment Date and the first Business
Day of each calendar month thereafter.

     "Interest  Rate":  a floating  interest rate equal to the ninety day London
Interbank  Offered  Rates "LIBOR" as quoted from time to time in The Wall Street
Journal plus 350 basis points. The Interest Rate shall be adjusted automatically
with  respect  to any  loans  outstanding  on the  second  business  day of each
calendar  quarter  based upon the most  recent  rate  quoted in The Wall  Street
Journal  immediately  prior to the second business day of each calendar quarter,
and shall be expressed as an annual rate of interest,  compounded  monthly,  and
calculated on the basis of a 360-day year.

     "Maturity  Date":  the earlier of (i) December 31, 2003, and (ii) the first
Business Day of the eighty-fourth  (84th) Month after the Closing Date, on which
date  all  then-outstanding   principal,   interest,  premium,  expenses,  fees,
penalties and other amounts due under the Note shall be finally due and payable.

     "Payment Date": the Initial Payment Date and the first Business Day of each
month.

     "Payment  Schedule":  upon  expiration  of the  Interest  Only  Period  the
outstanding  principal balance shall be converted to a term loan to be amortized
and  repaid   quarterly  in  arrears  in  twenty  (20)   consecutive   quarterly
installments,  calculated as follows. The applicable  percentages to be used for
the calculation of such payment amounts are as follows:  (i) the first eight (8)
payments  shall each be equal to 3.75% of the  aggregate  amount of all Advances
made hereunder;  (ii) the next four (4) payments shall each be equal to 5.00% of
the aggregate  amount of all Advances made  hereunder;  (iii) the next seven (7)
payments  shall each be equal to 6.25% of the  aggregate  amount of all Advances
made hereunder; the final payment shall be in an amount equal to all outstanding
principal  hereunder,  plus all accrued and unpaid interest and all other unpaid
charges hereunder.

     "Prepayment Premium":  the prepayment premium referred to in Section 2.2 of
the Agreement shall be the amount required to compensate  Lender for any losses,
costs or expenses (excluding loss of profit) which it may incur as the result of
the prepayment (or any failure to make any such


                                      -47-

<PAGE>



prepayment  on the date  irrevocably  scheduled  therefor) of any portion of the
Loan on a date other than a Payment Date, including, without limitation, losses,
costs or expenses  incurred in  connection  with  unwinding or  liquidating  any
deposits  or funding or  financing  arrangement  with its  funding  sources,  as
determined by Lender (which  determination  shall be conclusive  absent manifest
error). Without limiting the effect of the preceding sentence, such compensation
shall  include  an amount  equal to the  excess,  if any,  of (i) the  amount of
interest which otherwise  would have accrued on the principal  amount so prepaid
to the next  succeeding  Payment  Date (the "Break  Period")  at  Lender's  then
current  Eurodollar cost of funds over (ii) the interest component of the amount
Lender would have bid in the  Eurodollar  market for Dollar  Deposits of leading
banks in  amounts  comparable  to such  principal  amount  and  with  maturities
comparable to the Break Period (as reasonably determined by Lender).

     2.  Choice  of Law.  Pursuant  to  Section  10.14  of the  Agreement,  this
Agreement  shall be governed by and  construed in  accordance  with the internal
laws of the State of New York.


                                      -48-