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                                                                   EXHIBIT 10.21
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                                 AIRCRAFT LEASE

                                     BETWEEN

                 MAURICE J. GALLAGHER, JR. AND TIMOTHY P. FLYNN
                               JOINTLY, AS LESSOR

                                       AND

                            MGC COMMUNICATIONS, INC.
                                     LESSEE

                            AS OF DECEMBER_____, 1999

                                    COVERING

                           ISRAELI AIRCRAFT INDUSTRIES
                                  MODEL - ASTRA

                                 SERIAL NO. 011

                    UNITED STATES REGISTRATION NUMBER N705MA

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                            AIRCRAFT LEASE AGREEMENT

This Lease Agreement, dated as of the ____th day of December, 1999 (the
"Lease"), is by and between Maurice J. Gallagher, Jr. and Timothy P. Flynn,
each, an individual person (each of whom are married persons) having residence
in the State of Nevada (jointly, the "Lessor"), and MGC Communications, Inc. a
corporation organized and existing under the laws of the State of Nevada
("Lessee").

In consideration of and subject to the mutual covenants, terms and conditions
contained in this Lease, Lessee and Lessor agree as follows:

The Lease set forth as follows constitutes a sublease of the Aircraft. Lessor
currently leases the Aircraft from Pacific Coast Group, Inc., a Nevada
corporation, the Owner pursuant to an Aircraft Lease Agreement dated ________,
1999 (hereinafter, the "Headlease").

Capitalized terms shall be as defined in this Lease and in Exhibit A hereto.

SECTION 1. LEASE OF AIRCRAFT; DELIVERY; CONDITIONS PRECEDENT.

      1.1 Lease of Aircraft. Subject to satisfaction of the conditions set forth
in Section 1.3 hereof, Lessor agrees to and does hereby rent, lease and hire,
and Lessee agrees to and does hereby rent, lease and hire the Aircraft described
in the Aircraft Lease Supplement (the "Supplement"), to be executed by Lessor
and Lessee upon delivery of the Aircraft to Lessee hereunder. Such Supplement
shall be substantially in the form annexed hereto as Exhibit B. By execution and
delivery of the Supplement by Lessee, Lessee shall confirm to Lessor that Lessee
has accepted the Aircraft for lease hereunder and is satisfied that the Aircraft
has been delivered by Lessor in the condition required by the Lease. Whenever
reference is made herein or in the Supplement to the Lease, it shall include the
Lease and the Supplement, all of which shall be deemed the Lease of the Aircraft
described in the Supplement and to which all of the terms and provisions hereof
shall apply.

      1.2 Delivery. The Aircraft shall be tendered for delivery to Lessee at Las
Vegas, NV. Upon such tender, Lessee shall be entitled to inspect the Aircraft
and determine, in its sole discretion whether or not to accept delivery of and
lease the Aircraft. If Lessee refuses to accept delivery or fails to accept
delivery within a reasonable time after such inspection, Lessor may, by written
notice, terminate this Lease, whereupon neither Lessee nor Lessor shall have any
further rights or obligations hereunder. Acceptance of delivery of the Aircraft
by Lessee shall be on an "AS IS, WHERE IS" basis and in accordance with the
further terms hereof.

      1.3 Conditions Precedent and Condition Subsequent. Lessor's obligation to
lease or deliver the Aircraft hereunder shall be subject to and conditioned upon
satisfaction of the following conditions precedent on or before the Delivery
Date and in the case of (e), after the Delivery Date:

      (a) Lessor shall have received the payment of Basic Rent for the first
      month of the Term as set forth in Section 3.1;

      (b) the representations and warranties of Lessee contained in Section 5
      hereof shall each be true and accurate on and as of the Delivery Date
      (except to the extent that such representations and warranties relate
      solely to an earlier or later date);

      (c) no event shall have occurred and be continuing, or shall reasonably be
      expected to occur, which would constitute an Event of Loss or an Event of
      Default or which would constitute an Event of Loss or an Event of Default
      but for the lapse of time or the giving of notice or both; and

      (d) Lessor shall have received the following, in each case in form and
      substance satisfactory to Lessor, on or before the Delivery Date:

            (i) a Lease Supplement (including Delivery Receipt) duly authorized
            and executed by Lessee, covering the Aircraft and effective as of
            the Delivery Date for the Aircraft;

            (ii) an insurance certificate and report with respect to the
            Aircraft as required by Section 12 hereof; and,

            (iii) such other documents as the Lessor may reasonably request.
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      (e) Lessor shall have received, no later than 60 days after the date of
      this Lease, evidence of the ratification of this Lease and Lessee's
      performance hereunder by the Board of Directors of Lessee; provided,
      however, if , on or before 60 days after the date of this Lease, the Board
      of Directors of Lessee shall have disapproved this Lease and Lessee's
      performance hereunder, Lessor shall be so notified by Lessee and Lessee
      shall immediately, and not later than five days thereafter, return the
      Aircraft to Lessor in accordance with the terms of this Lease, whereupon
      such return of the Aircraft, this Lease shall terminate. In any case,
      Lessee's representations and warranties with respect to authorization of
      this Lease are true and correct and are in no way modified by the terms
      hereof. Failure of Lessee to deliver the Board ratification as stated
      above as and when required, shall constitute an immediate Event of Default
      under this Lease.

SECTION 2. TERM

      2.1 Term. The Term of this Lease shall begin on the Delivery Date
specified in the Lease Supplement and shall expire on the Expiration Date set
forth in the Supplement.

SECTION 3. RENT; MSP PAYMENTS; NO SET-OFF

      3.1 Rent.

      (a) Basic Rent. Commencing on the Delivery Date, Lessee shall pay to
      Lessor as Basic Rent the amount of "Basic Rent" set forth in Annex Two to
      Exhibit B hereto on each Basic Rent Date during the Term.

      (b) MSP Payments. In addition to the payment of Basic Rent, Lessee shall
      pay "MSP Payments", if any are required pursuant to an existing
      maintenance support program for the engines, as follows: upon the Delivery
      Date, Lessor shall, in addition to lease of the Aircraft to Lessee,
      transfer to Lessee, but only for the duration of the Lease, Lessor's
      agreement with the manufacturer of the Engines for maintenance of the
      Engines pursuant to which Lessee shall pay such manufacturer a usage fee
      on a per-cycle or per-hour basis in exchange for maintenance by the
      manufacturer (such agreement shall herein be referred to as the "MSP
      Agreement"). Payments required to be made to the manufacturer under the
      MSP Agreement shall be sometimes referred to herein as "MSP Payments".
      Lessee shall supply to Lessor, on a monthly basis, a copy of each of the
      reports on Engine usage for the prior month that Lessee shall supply (and
      is required to supply) to the manufacturer under the MSP Agreement,
      including, without limitation, evidence of the payment of all MSP
      Payments. Failure of Lessee to comply in any way with the terms and
      conditions of the MSP Agreement shall constitute an Event of Default under
      the Lease. The MSP Payments shall constitute supplemental Rent under the
      terms of the Lease.

      Lessee shall bear and pay all costs, expenses, charges, fees, assessments,
      and payments that accrue under the MSP Agreement during the term of the
      Lease and Lessee shall bear any repair or maintenance costs with respect
      to the Engines not covered by the MSP Agreement. Lessee shall comply with
      all terms and conditions of the MSP Agreement such that there shall not
      occur during the term of the Lease any default or event that would allow
      the manufacturer to terminate the MSP Agreement for any reason

      (c) In addition, Lessee shall pay or cause to be paid on the date provided
      herein all other amounts payable hereunder (including the MSP Payments and
      Stipulated Loss Value) which the Lessee assumes the obligation to pay, or
      agrees to pay, under the Lease to Lessor or others (such sums, including
      Basic Rent being hereinafter collectively referred to as "Rent").

      (d) In reliance on the prompt payment by Lessee of Rent and other payments
      due hereunder, Lessor has made or will make certain financial commitments.
      If Lessee fails to pay Rent or any other amount, when due, Lessor will
      suffer loss and damage, the exact nature and amount of which may be
      difficult or impossible to ascertain. Lessee shall pay Lessor, on demand,
      to the extent permitted by applicable law (by way of agreed compensation
      for loss and damage and not as a penalty), interest (computed on the basis
      of a 360-day year of actual days elapsed) in the amount of 16% per annum
      or the highest rate permitted by Nevada law, whichever is less (such
      lesser amount being herein defined as the "Late Payment Rate") on any
      payment not paid within five (5) days after the date due for any period
      during which the same shall be overdue. Interest payable hereunder will
      accrue on a day-to-day basis and be compounded monthly.

      (e) All payments of Rent due hereunder shall be made in United States
      Dollars by wire transfer in immediately
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      available funds so as to be received by 2:00 p.m. local time at the place
      of payment on the day in question by deposit to:

                        Imperial Bank
                        Walnut Creek, CA
                        ABA:
                        For the acct. of: Pacific Coast Group, Inc.
                        Acct. # 0018-501- 031

      or to such other account as Lessor may from time to time, upon reasonable
      notice, direct to Lessee in writing. If any payment shall be due on a day
      which is not a Business Day, it shall be due on the next succeeding
      Business Day.

      (f) All payments by Lessee under this Lease, including Rent, interest,
      fees, indemnities or any other item, shall be made in full without any
      deduction or withholding whether in respect of set-off, defense,
      counterclaim, duties, taxes or Impositions (as defined in Section 8,
      imposed in any jurisdiction from which such payments are made) unless
      Lessee is prohibited by law from doing so, in which event Lessee will
      gross up the payment amount such that the net payment received by Lessor
      after any deduction or withholding equals the amounts called for under
      this Lease. Lessee shall also: (i) ensure that the deduction or
      withholding does not exceed the minimum amount legally required; (ii) pay
      to the relevant government entities within the period for payment
      permitted by applicable law the full amount of the deduction or
      withholding (including the full amount of any deduction or withholding
      from any additional amount paid pursuant hereto); and (iii) furnish to
      Lessor within thirty (30) days after each payment an official receipt of
      the relevant government entities involved for all amounts so deducted or
      withheld.

      (g) The Rent and other amounts payable by Lessee under this Lease are
      exclusive of any value added tax, turnover tax or similar tax or duty. If
      a value added tax or any similar tax or duty is payable in any
      jurisdiction in respect of any Rent or other amount as aforesaid, Lessee
      shall pay all such tax or duty and indemnify and defend each Indemnified
      Person against any claims for the same and any related claims, losses or
      liabilities.

      (h) The expiration or other termination of this Lease or Lessee's
      obligation to pay Basic Rent hereunder shall not limit or modify the
      obligations of Lessee to pay any sum which otherwise becomes due or
      accrues during the Lease Term.

      3.2 No Set-Off. This Lease is a net lease and, except in instances in
which Lessee has actually paid Lessor the Stipulated Loss Value, Lessee's
obligation to pay all Rent payable hereunder shall be absolute and unconditional
and shall not be affected by any circumstance whatsoever.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF LESSOR; DISCLAIMERS.

      4.1 Lessor Warranty. Lessor warrants that during the Term of this Lease,
if no Event of Default has occurred and is continuing, Lessee's quiet enjoyment
of the Aircraft shall not be interrupted by Lessor or anyone claiming through or
under Lessor.

      4.2 Disclaimer. The warranty set forth in Section 4.1 of this Lease is in
lieu of all other warranties of Lessor, whether written, oral, express or
implied with respect to the Lease of the Aircraft.

      (a) UPON LESSEE'S ACCEPTANCE OF THE AIRCRAFT AND EXECUTION OF THE
      SUPPLEMENT AND DELIVERY RECEIPT, THEN AS BETWEEN LESSOR AND LESSEE, LESSEE
      UNCONDITIONALLY ACKNOWLEDGES AND AGREES THAT NEITHER LESSOR NOR ANY OF ITS
      OFFICERS, SHAREHOLDERS, DIRECTORS, EMPLOYEES OR REPRESENTATIVES HAVE MADE
      OR WILL BE DEEMED TO HAVE MADE ANY TERM, CONDITION, REPRESENTATION,
      WARRANTY OR COVENANT, EXPRESSED OR IMPLIED (WHETHER STATUTORY OR
      OTHERWISE), AS TO (I) THE CAPACITY, AGE, AIRWORTHINESS, VALUE, QUALITY,
      DESCRIPTION, CONDITION (WHETHER OF THE AIRCRAFT, ANY ENGINE, ANY PART
      THEREOF OR THE TECHNICAL RECORDS), DESIGN, WORKMANSHIP, MATERIALS,
      MANUFACTURE, CONSTRUCTION, OPERATION, DESCRIPTION, STATE, MERCHANTABILITY,
      PERFORMANCE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE OR SUITABILITY OF
      THE AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER
      DEFECTS, WHETHER OR NOT DISCOVERABLE, KNOWN OR UNKNOWN, APPARENT OR
      CONCEALED, EXTERIOR OR INTERIOR, (II) THE ABSENCE OF ANY INFRINGEMENT OF
      ANY PATENT, TRADEMARK,
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      COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS, (III) ANY IMPLIED
      WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF
      TRADE OR (IV) ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
      IMPLIED WITH RESPECT TO THE AIRCRAFT, ENGINES, OR ANY PART THEREOF, ALL OF
      WHICH ARE HEREBY EXPRESSLY EXCLUDED AND EXTINGUISHED. LESSEE AGREES NOT TO
      LOOK TO LESSOR OR ANY INDEMNIFIED PERSON FOR DAMAGES OR RELIEF ARISING OUT
      OF THE FAILURE OF SUCH AIRCRAFT TO CONFORM TO ANY DESCRIPTION OF THE
      AIRCRAFT.

      (c) Lessee agrees to lease the Aircraft "AS IS, WHERE IS AND WITH ALL
      FAULTS".

      (d) Lessee hereby waives, as between Lessee and Lessor, and agrees not to
      seek to establish or enforce any rights or remedies, express or implied
      (whether statutory or otherwise), against Lessor or the Aircraft relating
      to any of the matters mentioned in this Section 4 and the leasing thereof
      by Lessor to Lessee.

      (e) DELIVERY BY LESSEE TO LESSOR OF THE SUPPLEMENT AND DELIVERY RECEIPT
      WILL BE CONCLUSIVE PROOF AS BETWEEN LESSOR AND LESSEE THAT LESSEE'S
      TECHNICAL EXPERTS HAVE EXAMINED, INSPECTED AND INVESTIGATED THE AIRCRAFT,
      ENGINES AND EACH PART THEREOF AND (I) EACH IS AIRWORTHY AND IN GOOD
      WORKING ORDER AND REPAIR AND (II) THE AIRCRAFT, ENGINES, EACH PART THEREOF
      AND THE TECHNICAL RECORDS ARE WITHOUT DEFECT (WHETHER OR NOT DISCOVERABLE
      AT DELIVERY) AND IN EVERY WAY SATISFACTORY TO LESSEE.

      (f) Lessee agrees that no Indemnified Person will be liable to Lessee, any
      sublessee or any Person, whether in contract or tort and however arising,
      for any unavailability, loss of use or service, cost, loss (consequential,
      incidental or otherwise), liability, damage or delay of, from, to or in
      connection with the Aircraft, any Person or property whatsoever, whether
      on board the Aircraft or elsewhere and irrespective of whether such
      occurrences arise from any act or omission or the active or passive
      negligence or other fault of any Indemnified Person.

      (g) Lessor shall not be liable for any expense in repairing or replacing
      any item of the Aircraft or be liable to supply the Aircraft or any item
      in lieu of the Aircraft or any part thereof if same is lost, confiscated,
      damaged, destroyed or otherwise rendered unfit for use.

      (h) LESSEE HEREBY WAIVES ANY AND ALL RIGHTS TO THE REMEDIES SET FORTH IN
      THE UNIFORM COMMERCIAL CODE, AS ADOPTED BY THE STATE OF NEVADA .

      (i) The amount of the Basic Rent contained herein is based, in part, on
      the exculpatory clauses stated above.

SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF LESSEE

Lessee covenants, represents and warrants to Lessor (which warranties and
covenants shall survive the execution hereof and will continue through the
Expiration Date) that: (i) Lessee is a corporation duly organized and existing
in good standing under the laws of the State of Nevada; is duly qualified to do
business wherever necessary to carry on its present business and operations and
to perform its obligations under this Lease; (ii) this Lease and the necessary
documentation relating thereto, when executed by Lessee, will have been duly
authorized by all necessary corporate action on the part of Lessee, and does not
require any stockholder approval, and does not contravene any law binding on
Lessee or contravene Lessee's Certificate of Incorporation or By-Laws, or any
indenture, loan agreement, credit agreement, or other contractual agreement to
which Lessee is a party or by which it is bound; (iii) neither the execution and
delivery by Lessee of this Lease, nor the leasing of the Aircraft, nor the
performance by Lessee of any of its obligations nor compliance with any of its
covenants hereunder, require the consent or approval of, or the giving of notice
to, the FAA, or any other federal, state or foreign governmental authority; (iv)
this Lease, when entered into and delivered by Lessee, will constitute the
legal, valid and binding obligations of Lessee, enforceable against the Lessee
in accordance with the terms hereof; (v) there are no pending or threatened
actions or proceedings before any court or administrative agency which may
materially adversely affect Lessee's financial condition or operation, or the
payment and performance of its obligations hereunder; (vi) the Aircraft shall be
based and primarily used in the United States and the Aircraft will not be "used
predominantly outside the United States" within the meaning of Section
168(g)(1)(A) of the Internal Revenue Code of the United States, as amended.;
(vii) the chief place of business of Lessee is as set forth in the notice
section hereto, and Lessee agrees to give the Lessor prior written notice of any
relocation of said chief place of business from its present location; and (viii)
the Principal Location of the Aircraft is as defined in Exhibit A attached
hereto, and the Lessee agrees not to change such Principal Location without the
consent of Lessor, which consent
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shall not be unreasonably withheld.

SECTION 6. RETURN OF AIRCRAFT

      6.1 General Return Conditions. Upon the expiration of or the earlier
termination of the Lease, Lessee, at Lessee's own expense, shall return the
Aircraft to Lessor at Las Vegas, Nevada or such other location as is mutually
agreed to by Lessor and Lessee. Additionally, the Aircraft, upon such return:
(a) Shall be free and clear of all liens or encumbrances of any kind or nature
whatsoever, other than Lessor Liens; and, (b) shall be in full compliance with
all provisions set forth in Exhibit C hereto, which provisions are incorporated
into this Section 6.1 by reference. Any reference to Section 6 hereof shall
include Exhibit C.

      6.2 Ground Inspection. During the maintenance checks performed immediately
prior to the proposed redelivery and at the actual return of the Aircraft,
Lessor or its representatives will have an opportunity to fully inspect the
Aircraft and the Technical Records to Lessor's satisfaction. Unless otherwise
agreed in writing by the parties, any deficiencies from the Aircraft return
condition requirements set forth in this Section 6 will be corrected by Lessee,
at Lessee's cost, prior to the demonstration flight described in this Section 6.

      6.3 Demonstration Flight. Immediately prior to the proposed redelivery of
the Aircraft, Lessee will carry out for Lessor or Lessor's representatives a
demonstration flight in the Aircraft in accordance with Manufacturer's standard
flight operation check flight procedures, for one hour in duration as necessary
to perform such check flight procedures. Flight costs and fuel will be furnished
by and at the expense of Lessee. Unless otherwise agreed in writing by the
parties, any deficiencies from the Aircraft return condition requirements set
forth in this Section 6 shall be corrected by Lessee, at Lessee's cost, prior to
return of the Aircraft.

      6.4 Lessee's Continuing Obligations. In the event Lessee does not return
the Aircraft to Lessor on the Expiration Date and in the condition required by
this Section 6 for any reason, the obligations of Lessee under this Lease will
continue. Such event shall not be considered a renewal of the terms of the Lease
or of Lessee's rights to use the Aircraft, an extension of the Lease Term or a
waiver of Lessee's Event of Default or any right of Lessor hereunder. Lessee
shall fully indemnify Lessor, on demand, for all loss and damage (including
incidental loss and damage and consequential loss and damage and fees and
disbursements of legal counsel), liabilities, actions, proceedings, costs and
expenses thereby suffered or incurred by Lessor. Until the Aircraft is
redelivered to Lessor and put in the condition required by this Section 6,
Lessee shall pay the amount of Basic Rent for each day from the scheduled
Expiration Date until the date the Aircraft is returned to Lessor in the proper
condition specified hereunder. Payment shall be made upon presentation of
Lessor's invoice to Lessee.

      6.5 Return Acceptance Receipt. Upon return of the Aircraft in accordance
with the terms of the Lease, Lessee shall prepare and execute two (2) Return
Acceptance Receipts in such form as Lessor shall prescribe and Lessor will
countersign and return one such Return Acceptance Receipt to Lessee.

      6.6 Indemnities and Insurance. The insurance requirements and the
indemnities set forth in Sections 12 and 13, respectively, shall apply to each
Indemnified Person during return of the Aircraft, including the ground
inspection. With respect to the demonstration flight, the Indemnified Persons
will receive the same protections as Lessor on Lessee's Aviation and Airline
General Third Party Liability Insurance.

      6.7 Airport and Navigation Charges. Lessee shall ensure that upon return
of the Aircraft any and all airport, navigation and other charges (including,
without limitation, any Eurocontrol or other like air traffic control charges)
which shall give rise, or may if unpaid, give rise to any lien, right of
detention, right of sale or other Lien in relation to the Aircraft, any Engine
or any Part, whether incurred in respect of the Aircraft or any other aircraft
operated by Lessee, have been paid and discharged in full (whether or not due)
and Lessee shall, at Lessor's request, produce evidence thereof satisfactory to
Lessor.

      6.8 Fuel. Upon return of the Aircraft, each fuel tank shall contain the
same quantity of fuel as was contained in such tanks when the Aircraft was
delivered to the Lessee on the Delivery Date or, in the case of differences in
such quantity, an appropriate adjustment will be made by payment at the then
current market price of fuel.

SECTION 7. LIENS

Lessee shall not directly or indirectly create, incur, assume, consent to,
suffer or permit to exist any Liens on or with respect to the Aircraft, the
Engines or any part thereof, the Lessor's title thereto or any interest of the
Lessor therein (and the Lessee will
<PAGE>   7

promptly, at its own expense, take such action as may be necessary duly to
discharge any such Lien). For purposes of this Lease, Lien shall mean any lien,
mortgage, encumbrance, pledge, charge, lease, right or other security interest
of any kind, including any thereof arising under any conditional sales or other
title retention agreement.

SECTION 8. TAXES

      8.1 Indemnity. Lessee agrees to pay and indemnify Lessor and any
Indemnified Person for, and to hold and save Lessor and any Indemnified Person
harmless from and against, all license and registration fees, import and export
duties, gross receipts, income, sales, use, excise, personal property, ad
valorem, value added, leasing, leasing use, stamp, landing, airport use or other
taxes, levies, imposts, duties, charges or withholdings of any nature, together
with any penalties, fines or interest thereon (except to the extent resulting
from the gross negligence or willful misconduct of the Lessor or its employees
or agents) ("Impositions"), arising out of the transactions contemplated by the
Lease and imposed against Lessor, an Indemnified Person, Lessee or the Aircraft
or any part thereof by any government or other taxing authority upon or with
respect to the Aircraft or any part thereof or upon purchase of the Aircraft by
Lessor, or the delivery, ownership, delivery financing, leasing, possession,
use, maintenance, operation, import, export, sale, or return thereof, or upon
the rentals, receipts or earnings arising therefrom, or upon or with respect to
the Lease and its terms and conditions.

      8.2 Exclusions. The provisions of Section 8.1 shall not apply to: (a) Any
Imposition upon, based on, or measured by the net income of Lessor and imposed
by the United States federal government; or, (b) any Imposition in respect to
the Aircraft to the extent it is unrelated to this Lease (or operation of the
Aircraft hereunder) and attributable to the period of time prior to delivery of
the Aircraft to Lessee or after return of the Aircraft to Lessor under this
Lease; or, (c) any Imposition to the extent attributable to Lessor's voluntary
sale or transfer (or any involuntary sale or transfer resulting from a Lessor
Lien) of the Aircraft or assignment of this Lease (except a sale made pursuant
to Section 17 hereof or a transfer made pursuant to Section 11 hereof).

      8.3 After Tax Basis. The amount which Lessee is required to pay with
respect to any Impositions indemnified against under Section 8.1 is an amount
sufficient to restore the Indemnified Person on an after-tax basis to the same
position the Indemnified Person would have been in had such Impositions not been
incurred.

      8.4 Payment Date. Any amount payable to Lessor or an Indemnified Person
pursuant to this Section 8 shall be paid by Lessee within ten (10) days after
receipt of written demand therefor from an Indemnified Person accompanied by a
written statement describing in reasonable detail the basis for such indemnity
claim and the computation of the amount so payable; provided, however, that such
amount need not be paid by Lessee prior to the earlier of, (i) the date any
Imposition is payable to the appropriate government entity or taxing authority
or, (ii) in the case of amounts which are being contested by Lessee in good
faith or by the Indemnified Person pursuant to Section 8.5, the date such
contest is finally resolved.

      8.5 Contest. If a claim is made against the Lessee or an Indemnified
Person for any Imposition, the party receiving notice of such claim shall
promptly notify the other. Provided no Default or Event of Default shall have
occurred and be continuing, Lessee shall be entitled, at Lessee's cost and
expense, to contest any Imposition, provided: (a) Lessee is obligated to pay
such Imposition under the provisions of this Section 8; (b) the Indemnified
Person is reasonably satisfied there are reasonable grounds for contest and
Lessee has either paid such Imposition or deposited an amount equal thereto with
the Indemnified Person as security for such payment;(c) the contest by Lessee is
made in good faith, with due diligence and by appropriate proceedings; and, (d)
counsel for the Indemnified Person shall have reasonably determined that
nonpayment of any such Imposition or the contest of any such payment in such
proceedings does not adversely affect the title, property or rights of the
Indemnified Person.

      8.6 Refunds. Upon receipt by an Indemnified Person of a refund of all or
any part of any Imposition (including any deductions or withholdings referred to
in Section 3) which Lessee has paid, the Indemnified Person will reimburse
Lessee the net amount of any such Imposition refunded (plus any related
gross-ups paid pursuant to Section 8.3, if appropriate to achieve the intent of
these provisions).

      8.7 Cooperation. Lessee and Lessor will cooperate with one another in
providing information which may be reasonably required to fulfill each party's
tax filing requirements and any audit information request arising from such
filing.

      8.8 Survival. The representations, warranties, indemnities and agreements
of Lessee provided for in this Section 8 shall survive the expiration or other
termination of this Lease.
<PAGE>   8

SECTION 9. REGISTRATION AND MAINTENANCE; OPERATION, COMPLIANCE AND USE;
REPLACEMENT PARTS; IMPROVEMENTS; ETC.

      9.1 Title and Registration. Lessee, at Lessee's own expense, shall cause
the Aircraft to remain on the FAA Aircraft Registry in the name of Lessor at all
times during the Term of the Lease. Lessee further covenants and agrees not to
register, matriculate or record an interest in the Aircraft, whether
provisionally or finally, with any other agency or instrumentality of the United
States, or any other nation or any political subdivision of any of them. The
Lessee undertakes, to the extent permitted by applicable law, to do all such
further acts, deeds, assurances or things as may, in the reasonable opinion of
the Lessor, be necessary or desirable in order to protect or preserve Lessor's
title to the Aircraft.

      9.2 Maintenance.

      (a) During the Lease Term and until the Aircraft is returned to Lessor in
      the condition required by the Lease, Lessee alone has the obligation, at
      Lessee's expense, to maintain and repair the Aircraft, Engines, and all of
      the Parts in accordance with Lessee's FAA-approved maintenance program
      (which shall be substantially the same as the maintenance program
      recommended by the Manufacturer pursuant to which the Aircraft was
      maintained prior to delivery to Lessee and which shall have been approved
      by Lessor) or any other maintenance program approved by Owner and Lessor
      (herein referred to as the "Maintenance Program") and Lessee shall, in
      compliance with the rules and regulations of the FAA and the Maintenance
      Program, (i) keep the Airframe, including all installed components, and
      each Engine in as good condition as when delivered to the Lessee
      hereunder, ordinary wear and tear excepted and consistent with the
      accumulation of hours and cycles on the Airframe; (ii) keep the Aircraft
      in such operating condition as may be necessary to enable the
      airworthiness certification of such Aircraft (and the Airworthiness
      Certificate) to be maintained in good standing at all times under the
      Federal Aviation Act; (iii) maintain the Aircraft in the same manner and
      with the same care as used by Lessee with respect to similar aircraft and
      engines operated by Lessee and without in any way discriminating against
      the Aircraft; (iv) promptly furnish the Lessor such information as may be
      required to enable the Lessor to file any reports required by any
      governmental authority as a result of the ownership of the Aircraft; and,
      (v) comply with all requirements of the MSP Agreement.

      (b) Without limiting the provisions of (a) above, Lessee agrees that such
      maintenance and repairs shall include, but shall not be limited to, each
      of the following specific items: (i) Incorporation in the Aircraft of all
      airworthiness directives and AD Notes of the FAA and all other mandatory
      inspection, maintenance requirements and mandatory instructions from the
      FAA and those issued by the Manufacturer; (ii) incorporation in the
      Aircraft of all service bulletins of Manufacturer, the Engine
      Manufacturer, and other applicable vendors; (iii) maintenance of all
      Aircraft records required by the FAA or the Maintenance Program, in
      English, including recording the number of hours and cycles the Aircraft
      operates and all maintenance and repairs performed on the Aircraft; and
      (iv) compliance with the MSP Agreement.

      (c) All maintenance and repair of the Aircraft (other than routine flight
      line maintenance) shall be performed only by an FAA approved repair
      station reasonably satisfactory to Lessor.

      (d) For purposes of this subsection (d), the term "Mandatory Improvement"
      shall mean all airworthiness directives applicable to the Aircraft, and
      modifications to the Aircraft, which are mandated by rule or regulation of
      the FAA which are issued during the Term and compliance with which is
      required during the Term. The Lessee shall bear the cost of all Mandatory
      Improvements; provided, however, if an individual Mandatory Improvement is
      estimated to cost in excess of US$50,000 to perform (materials and labor
      included), Lessee shall have the right, upon notice to Lessor, to
      terminate this Lease in full compliance with the Lease (except for
      compliance with the relevant Mandatory Improvement) upon the date falling
      thirty (30) days prior to the date on which compliance therewith is due;
      provided further, however, if the Lessor agrees to bear the costs of such
      Mandatory Improvement which are in excess of US$50,000, Lessee shall not
      have the right to terminate this Lease and the Mandatory Improvement shall
      be made with Lessor reimbursing Lessee for such excess cost. Lessee shall
      provide Lessor with prompt notice of the issuance of any Mandatory
      Improvement which may cost in excess of US$50,000 to perform.

      9.3 Operation, Compliance and Use.

      (a) Lessee agrees the Aircraft shall be possessed, used and operated in
      compliance with any and all statutes, laws, ordinances, regulations and
      mandatory standards or directives of any governmental agency applicable to
      the maintenance, use or operation thereof, and in compliance with any
      airworthiness certificate, license or registration
<PAGE>   9

      relating to the Aircraft issued by any agency and in compliance with the
      bulletins issued by the Manufacturer and required to be complied with as a
      condition to the continued effectiveness of the Aircraft's FAA Certificate
      of Airworthiness. Lessee will not permit the Aircraft to fly into any
      airport or country if so doing would cause either Lessor or Lessee to be
      in violation of any United States laws applicable to either of Lessor or
      Lessee. Lessee will not operate or permit the Aircraft to be operated in a
      manner, for any time period, such that Lessor or a third party shall be
      deemed to have operational control of the Aircraft. Lessee shall not
      operate or permit the Aircraft to be operated under either Part 121 or 135
      of the United States Federal Aviation Regulations, or otherwise be
      operated for passenger, cargo or mail carriage for remuneration or hire
      pursuant to FAR Part 135 or 121. Lessee shall supply its own pilots and
      flight crews duly licensed by the FAA and who have at least a minimum of
      total pilot hours required by the FAA and any other appropriate agency of
      the Government of the United States having jurisdiction thereof and/or as
      may be required by the companies issuing the insurance policies required
      herein, whichever is greater. The Aircraft shall be used solely in a
      passenger configuration for which Lessee is duly authorized by the FAA. At
      all times during the term, Lessee shall keep and maintain a copy of the
      lease by Owner to Lessor and this Lease on board the Aircraft.

      (b) Lessee shall pay all costs incurred in the operation of the Aircraft
      during the Lease Term, for profit or otherwise, including the costs of
      flight crews, cabin personnel, fuel, oil, lubricants, maintenance,
      insurance, landing and navigation fees, airport charges, passenger service
      and any and all other expenses of any kind or nature directly or
      indirectly, in connection with or related to the use, lease, possession,
      movement and operation of the Aircraft. The obligations, covenants and
      liabilities of Lessee under this paragraph arising prior to return of the
      Aircraft to Lessor will continue in full force and effect, notwithstanding
      the termination of this Lease or expiration of the Lease Term.

      (c) Lessee agrees throughout the Lease Term to maintain operational
      control of the Aircraft and to use the Aircraft in accordance with
      applicable U.S. Department of Transportation and FAA regulations and laws
      and regulations of any country, state, territory or municipality into or
      over which Lessee may operate. Lessee shall comply with all health and
      police regulations and all rules and orders relating to the Aircraft which
      such Aircraft may be subject to in its use and operation during the Lease
      Term. Lessee will not employ, suffer or cause the Aircraft to be used in
      any business or activity forbidden by law.

      (d) Lessee will not use or permit the Aircraft to be used in any manner or
      for any purpose or activity not covered by the insurance policies Lessee
      is required to carry and maintain as set forth in the Lease. Lessee will
      not carry any objects, materials or goods of any description excepted or
      exempted from such insurance policies or do any other act or permit to be
      done anything which could reasonably be expected to invalidate or limit
      any of such insurance policies.

      (e) Lessee shall promptly pay when due all enroute navigation charges,
      navigation service charges and all other charges payable by Lessee for the
      use of or for services provided at any airport, whether in respect of the
      Aircraft or any other aircraft of Lessee, and will indemnify and hold and
      save Lessor and each other Indemnified Person harmless in respect of same.

      (f) Throughout the Term of this Lease, the possession, operation, use and
      maintenance of the Aircraft shall be at the sole risk and expense of the
      Lessee.

      9.4 Replacement Parts. Lessee, at Lessee's cost and expense, shall
promptly replace with new, newly overhauled, or serviceable Parts all Parts
which may from time to time become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered or declared unfit for
use on the Aircraft for any reason whatsoever. Additionally, in the ordinary
course of maintenance, service, repair, overhaul or testing, Lessee may, at its
own cost and expense, remove any Parts, whether or not worn out, lost, stolen,
destroyed, seized, confiscated, damaged beyond repair or permanently rendered or
declared unfit for use on the Aircraft, provided that Lessee shall, at its own
cost and expense, replace such Parts as promptly as practicable. All replacement
Parts described in the preceding two sentences of this Section 9.4 shall be free
and clear of all Liens, except Lessor Liens; shall have been certified for use
on the Aircraft under the Manufacturer's type certificate for the Aircraft and
shall be in as good operating condition as, and shall have a value and utility
at least equal to, the Parts replaced, assuming such replaced Parts were in the
condition and repair required to be maintained by the terms hereof (replacement
Parts meeting this criteria are hereinafter called "Replacement Parts"). All
Parts, at any time removed from the Airframe or any Engine, shall remain the
property of Lessor, no matter where located, until such time as such Parts shall
be replaced by Parts which have been incorporated or installed in or attached to
the Airframe or such Engine and which meet the requirements for Replacement
Parts specified above. Immediately upon any Replacement Part being incorporated
<PAGE>   10

into, installed in or attached to the Airframe or any Engine as above provided,
without further act, (i) title to the removed Part shall thereupon vest in
Lessee, or such other person then entitled thereto, free and clear of all rights
of Lessor and shall no longer be deemed a Part hereunder; (ii) title to such
Replacement Part shall thereupon vest in Lessor; and, (iii) such Replacement
Part shall become subject to the Lease and be deemed part of the Airframe or
Engine, as the case may be, for all purposes hereof, to the same extent as the
Parts originally incorporated or installed in or attached to the Airframe or
such Engine and title thereto shall immediately vest in Lessor upon
incorporation into the Airframe or Engine, as the case may be. Lessee, upon
Lessor's request, shall deliver, or cause to be delivered, to Lessor a bill of
sale, paid invoice or other evidence of title covering any such Replacement
Part.

      9.5 Improvements and Modifications. Lessee, without expense to Lessor,
shall make, or cause to be made, such alterations and modifications of and
additions to the Aircraft and each Engine as may be required from time to time
to comply with all airworthiness directives and regulations, standards and
requirements of the FAA and any other governmental authority having jurisdiction
during the Term of the Lease. Only with Lessor's consent (which shall not be
unreasonably withheld), may Lessee make or cause to be made, alterations and
modifications of and additions to the Aircraft and each Engine which are not
required by law, but which are voluntary.

      9.6 Technical Records. Lessee, at Lessee's expense, shall at all times
maintain and preserve, in the English language, all manuals, logbooks, flight
records, maintenance records, modification and overhaul records and pertinent
historical records relating to the Aircraft, as shall be delivered to Lessee and
as shall from time to time be required by applicable law or in order to comply
with all applicable regulations and requirements of the FAA ("Technical
Records").

      9.7 Aircraft Marking. Lessee agrees, at Lessee's expense, to, (i) cause
the Airframe and Engines to be kept numbered with the registration number and/or
serial number therefor as specified in the Supplement; (ii) maintain the
equivalent passenger configuration, appearance and coloring of the Aircraft as
when accepted by Lessee hereunder or as otherwise approved by Lessor which
approval shall not be unreasonably withheld; (iii) affix and maintain on the
Airframe adjacent to the airworthiness certificate and on each Engine a metal
nameplate bearing such information as Lessor requests and bearing such other
information as from time to time is required by law or applicable regulations or
as is otherwise necessary in order to protect the title of Lessor to the
Aircraft and each Engine and the rights of Lessor under the Lease.

SECTION 10. INSPECTION AND MONTHLY REPORTS

Lessor shall have the right, but not the duty, to inspect the Aircraft, the
Engines and their respective records, logs, manuals and other materials relating
thereto and to observe Lessee's maintenance procedures at all times and wherever
located or performed. Such inspection shall be on reasonable notice to Lessee
and shall not unreasonably interfere with operation and use of the Aircraft by
Lessee. Upon request of Lessor, Lessee shall confirm to Lessor the location of
the Aircraft and shall, at any reasonable time, make the Aircraft, and Lessee's
records pertaining to the Aircraft, available to Lessor for inspection at a
mutually agreed upon location. Additionally, during the Term of the Lease,
Lessee shall furnish to Lessor, monthly, by the fifth (5th) day of each month, a
written summary of the hours and cycles of usage of the Airframe and the
Engines, together with such other data required on the form prescribed by
Lessor, as well as such other information as the Lessor may reasonably request.

SECTION 11. LOSS OR DESTRUCTION

      11.1 Event of Loss. Upon the occurrence of an Event of Loss with respect
to the Airframe or the Airframe and the Engines and/or engines then installed
thereon, Lessee shall notify Lessor thereof within two (2) days of the date
thereof. Sixty (60) days after such Event of Loss (the date of which shall be
determined in accordance with the definition of Event of Loss) or the date
insurance proceeds are received in respect thereto, whichever shall be the
earlier date, Lessee shall pay to Owner the Stipulated Loss Value of the
Aircraft, together with any other sums then due under the Lease and Lessor's and
Owner's costs and expenses related to such Event of Loss. Upon making such
Stipulated Loss Value payment in respect hereof and all sums due and owing with
respect thereto, Lessee's obligation to pay further Basic Rent for the Aircraft
shall cease and the Lease shall terminate. Upon Owner's receipt of the
Stipulated Loss Value of the Aircraft, together with any other sums then due
under the Lease, together with Lessor's and Owner's costs and expenses related
to such Event of Loss, Lessor shall procure the delivery to Lessee or insurers
to Lessee, depending upon the direction of the insurers which have paid Owner
the Stipulated Loss Value, Owner's title to the Aircraft such title to be
strictly "AS IS" and "WHERE IS" without any warranties whatsoever, except that
there are no liens arising through Owner, whereupon Lessee shall be entitled to
recover possession of the Aircraft, unless possession thereof is required to be
delivered to an insurance carrier in order to settle an insurance claim arising
out of such Event of Loss. Neither Owner nor Lessor shall be under any duty to
Lessee to pursue any claim to recover
<PAGE>   11

the Aircraft or Engines, but Lessee may, at Lessee's expense, pursue same in
such manner as may be satisfactory to Lessor and the Owner.

      Proceeds of the insurance required in Section 12 (headed "Insurance")
herein below, if paid to Owner, Lessor, or the Lender prior to the time Lessee
is required to pay the Stipulated Loss Value, shall be applied to the amount of
Stipulated Loss Value otherwise payable by Lessee.

      11.2 Event of Loss with Respect to an Engine. Upon the occurrence of an
Event of Loss with respect to an Engine under circumstances in which there has
not occurred an Event of Loss with respect to the Airframe, Lessee shall give
Lessor prompt written notice thereof and shall, on the date insurance proceeds
are received in respect to such Event of Loss or within sixty (60) days after
the occurrence of such Event of Loss (the date of which shall be determined in
accordance with the definition of Event of Loss) whichever shall be the earlier
date, duly convey to the Owner, as replacement for the Engine with respect to
which such Event of Loss occurred, title to another engine (such engine to be of
the same or another comparable manufacturer, of the same or improved
modification status, value, utility, performance and efficiency and suitable for
installation and use on the Airframe) free and clear of all Liens (except
Lessor's Liens) and having a value and utility at least equal to, and being in
as good operating condition as, the Engine with respect to which such Event of
Loss occurred, assuming such Engine was of the value and utility and in the
condition and repair required by the terms hereof. Prior to or at the time of
any such conveyance, the Lessee, at Lessee's expense, shall furnish Lessor and
Owner with such documents to evidence such conveyance as Lessor and Owner shall
reasonably request, including, without limitation, a Bill of Sale. Upon full
compliance by Lessee with the terms of this paragraph, Lessor will cause Owner
to transfer to Lessee, without recourse or warranty (except as to Lessor Liens),
all of Owner's right, title and interest in and to the Engine with respect to
which such Event of Loss occurred. For all purposes hereof, each such
replacement engine shall, after such conveyance, be deemed an "Engine" as
defined herein, and shall be deemed part of the property leased hereunder. No
Event of Loss with respect to an Engine under the circumstances contemplated by
the terms of this paragraph shall result in any reduction or abatement in any
sum due hereunder, including Lessee's obligation to pay Basic Rent.

      11.3 Loss Not Constituting an Event of Loss. If the Aircraft or any part
thereof suffers loss or damage not constituting an Event of Loss of such
Aircraft or the Airframe, all the obligations of Lessee under this Lease will
continue in full force, and Lessee shall promptly repair or replace all damaged
or lost Parts, at Lessee's own expense, in accordance with the Lease. In the
event of any loss or damage to the Aircraft, other than an Event of Loss of such
Aircraft or Airframe, Lessee shall, at Lessee's sole expense, fully repair such
Aircraft in order that such Aircraft is placed in airworthy condition and in
substantially the same condition as existed prior to such loss or damage and, in
addition thereto, Lessee shall pay to Owner an amount equal to the diminution in
market value of the Aircraft as a result of such damage determined by an
industry expert selected by Owner, who shall inspect the Aircraft and the damage
and provide to Owner, Lessor and Lessee a report providing the good faith
estimate of the diminution in market value. Lessee shall pay Owner such amount
within thirty (30) days after demand thereof by Owner. Lessee will notify Lessor
and Owner forthwith of any loss, theft or damage to the Aircraft together with
Lessee's proposals for carrying out repair. In the event either Owner or Lessor
does not agree with Lessee's proposals for repair, Lessor will so notify Lessee
within two (2) Business Days after its receipt of such proposals. Lessee, Lessor
and Owner shall then consult with the Aircraft Manufacturer and the
Manufacturer's directions or recommendations as to the manner in which to carry
out repairs shall be conclusive and binding on Lessee, Lessor and Owner. If the
Manufacturer declines to give directions or recommendations, Lessee shall carry
out repairs in accordance with the reasonable joint directions of Lessor and
Owner.

      11.4 Risk of Loss, No Release of Obligations. Except as provided in this
Section 11, Lessee shall bear the entire risk of loss and shall not be released
from its obligations hereunder in the event of any damage to the Aircraft or any
Engine or any Part of either or any Event of Loss relating thereto.

SECTION 12. INSURANCE

Lessee represents, warrants and agrees to allow the Aircraft to be operated only
in areas and only in a manner for which each policy of insurance required by the
provisions of this Section 12 shall be in full force and effect.

      12.1 Public Liability and Property Damage Insurance. Lessee shall at all
times carry throughout the Term, at Lessee's sole expense, with insurers of
recognized responsibility, aircraft liability insurance including, without
limitation, passenger legal liability, property damage liability and contractual
liability insurance (exclusive of manufacturer's product liability insurance)
with respect to the Aircraft, in an amount not less than US$100,000,000 combined
single limit and cargo
<PAGE>   12

liability insurance. Such insurance shall evidence coverage for "Y2K" risks, in
accordance with industry standards.

      12.2 Insurance Against Loss or Damage to the Aircraft. Lessee shall at all
times maintain in effect, at Lessee's sole expense, with insurers of recognized
responsibility, "all-risk" aircraft hull and war risk insurance covering the
Aircraft and "all-risk" coverage of Engines and Parts while temporarily removed
from the Aircraft and not replaced by similar components, including, without
limitation, war risk, governmental confiscation and expropriation and hijacking
insurance, and fire, transit and extended coverage with respect to any Engines
or Parts while removed from the Aircraft; provided, that such insurance shall at
all times be for an amount not less than the Stipulated Loss Value.

With respect to insurance proceeds under the foregoing policies, (a) if such
payments are received with respect to the Airframe (or the Airframe and the
Engines installed thereon), payments as shall not exceed the Stipulated Loss
Value required to be paid by Lessee shall be applied in reduction of Lessee's
obligation to pay such amount, if not already paid by Lessee, or, if already
paid by Lessee, shall be applied to reimburse Lessee for its payment of such
amount, and the balance, if any, of such payments remaining thereafter shall be
paid to Lessee; and, (b) if such payments are received with respect to an Event
of Loss with respect to an Engine such payments shall be paid to Lessee,
provided that Lessee shall have fully performed or, concurrently therewith, will
fully perform the terms of Section 11.2 with respect to the Event of Loss for
which such payments are made.

The insurance payments for any property damage loss to any Airframe or any
Engine not constituting an Event of Loss with respect thereto or with respect to
an Event of Loss of an Engine shall be paid as follows: (a) to Lessee if the
amount of insurance payment(s) is less than US$25,000, to be applied by Lessee
for accomplishing repairs and/or replacements as required; and (b) solely to
Lessor if the amount of insurance payment(s) is greater than US$25,000, to be
held and reimbursed to Lessee for accomplishing repairs and/or replacements as
required, or for Lessor to pay suppliers directly for such repairs and/or
replacements.

      12.3 Reports, Etc. Lessee will furnish, or cause to be furnished, to
Lessor and Lender on or before the Delivery Date and on the renewal dates of
Lessee's relevant insurance policies, a report, signed by a recognized
independent firm of insurance brokers (the "Insurance Brokers"), describing in
reasonable detail the hull and liability insurance (and property insurance for
detached engines and parts) then carried and maintained with respect to the
Aircraft and stating the opinion of such firm that such insurance complies with
the terms hereof. Lessee will cause such Insurance Brokers to agree to advise
Owner, Lessor and Lender in writing, (i) of any default in the payment of any
premium which default might invalidate or render unenforceable, in whole or in
part, any insurance on the Aircraft or Engines, and (ii) at least 30 days (seven
days in the case of war risk and allied perils coverage) prior to the
cancellation (but not scheduled expiration) or material adverse change of any
insurance maintained pursuant to this Section 12. In the event that Lessee shall
fail to maintain or cause to be maintained insurance as herein provided, Lessor
or Lender may at its option provide such insurance and, in such event, Lessee
shall, upon demand, reimburse Lessor , Owner or Lender for the cost thereof. No
such payment, performance or compliance shall be deemed to cure any Event of
Default or otherwise relieve the Lessee of its obligations under this Lease.

      12.4 Application of Payments During Existence of a Default or an Event of
Default. Any amount referred to in this Section 12 which is payable to or
retainable by Lessee shall not be paid to or retained by Lessee if at the time
of such payment or retention a Default or an Event of Default shall have
occurred and be continuing, but shall be held by or paid over to Lessor as
security for the obligations of Lessee under this Lease and, if Lessor declares
the Lease to be terminated, applied against the obligations under the Lease as
and when due. At such time as there shall not be continuing any such Default or
Event of Default, such amount shall be paid to Lessee to the extent not
previously applied in accordance with the preceding sentence.

      12.5 Terms of Insurance Policies. Any policies carried in accordance with
Sections 12.1 and 12.2 hereof covering the Aircraft, and any policies taken out
in substitution or replacement for any such policies: (a) Shall name Lessor,
Owner and the Lender and each of their respective officers, directors, employees
and agents as additional insureds (the "Additional Insureds"), as their
interests may appear (but without imposing on such party liability to pay
premiums with respect to such insurance) to the full extent and amount of
aircraft liability insurance coverage held by Lessee, and shall name Owner and
the Lender as sole, joint, loss payees ("Sole Loss Payee") with respect to
proceeds payable for an Event of Loss and in accordance with Section 12.2 above
with respect to damage not constituting an Event of Loss; (b) shall have
deductibles in amounts not exceeding $50,000; (c) shall provide that if the
insurers cancel such insurance for any reason whatsoever, or if any material
change is made in the insurance which adversely affects the interest of the
Additional Insureds or Sole Loss Payee, or such insurance shall lapse for
non-payment of premium, such cancellation, lapse, or change shall not be
effective as to the Additional Insureds or Sole Loss Payee for 30 days after
receipt (seven days after sending such notice in the case of war risk and allied
perils coverage) by the Additional Insureds or Sole Loss Payee of written notice
by such insurers of such
<PAGE>   13

cancellation or change, provided, however, that if any notice period specified
above is not reasonably obtainable, such policies shall provide for as long a
period of prior notice as shall then be reasonably obtainable; (d) shall provide
that in respect of the Additional Insureds' or Sole Loss Payee's interests in
such policies the insurance shall not be invalidated by any action, inaction or
omission of Lessor or Lessee and shall insure the interests of the Additional
Insureds or Sole Loss Payee regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by the Lessee; (e)
shall be primary without any right of contribution from any other insurance
which is carried by Lessee, or the Additional Insureds or Sole Loss Payee; (f)
shall expressly provide that all of the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate policy
covering each insured; (g) shall provide that the insurers waive any right, (i)
to set-off or counterclaim or any other deduction, whether by attachment or
otherwise, in respect of any liability of Lessee or any Additional Insured to
the extent of any money owed to Lessee or the Additional Insureds and, (ii) any
right to subrogation; (h) shall provide that losses shall be adjusted with
Lessee and Lessor jointly, unless and until the insurers have received written
notice of an Event of Default which is continuing (in which case adjustments
shall be with Lessor solely) or until insurers have paid to Lessor and the
Lender the Stipulated Loss Value (in which case adjustments shall be made with
Lessee solely), ; (i) shall contain a 50/50 clause per AVS 103 or its
equivalent; and, (j) shall include and insure (to the extent of the risks
covered by the policies) the indemnity provisions of Section 13 and Lessee will
maintain such insurance of the indemnities for a minimum of three (3) years
following the Expiration Date of the Lease.

SECTION 13. INDEMNIFICATION

      13.1 Indemnity. Lessee assumes liability for, and hereby agrees to
indemnify, protect, save and keep harmless Lessor, and each of the Indemnified
Persons and its respective assignees, partners, employees, officers, directors
and affiliates from and against any and all liabilities, obligations, losses,
damages, penalties, claims (including, without limitation, claims involving
strict or absolute liability in tort), actions, suits, costs, expenses and
disbursements (including, without limitation, legal fees and expenses) in
connection with the Lease or the Aircraft of any kind and nature whatsoever
("Claims") which may be imposed on, incurred by or asserted against them,
arising out of:

      (a) The Lease or any transactions contemplated hereby;

      (b) The operation, possession, use, non-use, maintenance, storage,
      overhaul or testing of the Aircraft, any Engine or any Part during the
      Lease Term by Lessee, any sublessee or any other Person whatsoever,
      whether or not the same is in compliance with the terms of the Lease,
      including, without limitation, claims for death, personal injury, property
      damage, consequential and punitive damages, other loss or harm to any
      Person whatsoever and claims relating to any laws, including, without
      limitation, environmental control, noise and pollution laws, rules or
      regulations;

      (c) The manufacture, design, sale, purchase, acceptance, rejection,
      delivery, condition, repair, modification, servicing, rebuilding,
      airworthiness, registration, re-registration, performance, nondelivery,
      sublease, merchantability, fitness for use, substitution or replacement of
      the Aircraft, any Engine or any Part under the Lease or other transfer of
      use or possession of the Aircraft, any Engine or any Part, including under
      a pooling or interchange arrangement, including, without limitation,
      latent and other defects, whether or not discoverable, and patent,
      trademark or copyright infringement; or

      (d) Any non-compliance by Lessee with any term of this Lease or the
      falsity or inaccuracy of any representation or warranty of Lessee set
      forth herein or in any other document delivered by Lessee in connection
      with this Lease.

      LESSEE AGREES THAT NEITHER LESSOR NOR OWNER SHALL BE LIABLE TO LESSEE FOR
      ANY CLAIM CAUSED DIRECTLY OR INDIRECTLY BY THE INADEQUACY OF THE AIRCRAFT
      OR ANY PART THEREOF FOR ANY PURPOSE OR ANY DEFICIENCY OR DEFECT THEREIN OR
      THE USE OF MAINTENANCE THEREOF OR ANY REPAIRS, SERVICING OR ADJUSTMENTS
      THERETO OR ANY DELAY IN PROVIDING OR FAILURE TO PROVIDE ANY THEREOF OR ANY
      INTERRUPTION OR LOSS OF SERVICE OR USE THEREOF OR ANY LOSS OF BUSINESS,
      ALL OF WHICH SHALL BE THE RISK AND RESPONSIBILITY OF THE LESSEE. The
      foregoing indemnity is intended to include and cover any Claim to which
      Lessor, Owner or the Lender may be subject (in contract, tort, strict
      liability, or under other theory) regardless of the negligence or fault,
      active or passive or any other type, of Lessor, Owner or the Lender but
      shall not include claims against Lessor or Owner which have accrued prior
      to the delivery of the Aircraft to Lessee.

      13.2 After-Tax Basis. The amount which Lessee will be required to pay with
respect to any Claim indemnified against under Section 13.1 will be an amount
sufficient to restore the Indemnified Person, on an after-tax basis, to the same
<PAGE>   14

position the Indemnified Person would have been in had such Claim not been
incurred.

      13.3 Timing of Payment. It is the intent of the parties that each
Indemnified Person will have the right to indemnification for Claims hereunder
as soon as a claim is made, whether or not meritorious and whether or not
liability is established. Lessee will pay an Indemnified Person for Claims
pursuant to this Section 13 within ten (10) days after receipt of a written
demand therefor from such Indemnified Person accompanied by a written statement
describing in reasonable detail the basis for such indemnity.

      13.4 Subrogation. Upon the full and final payment of any indemnity
pursuant to this Section 13 by Lessee, Lessee will be subrogated to any right of
the Indemnified Person in respect of the matter against which such indemnity has
been made.

      13.5 Notice. Each Indemnified Person and Lessee will give prompt written
notice one to the other of any liability of which such party has knowledge for
which Lessee is, or may be, liable under Section 13; provided, however, that
failure to give such notice will not terminate any of the rights of Lessor under
this Section 13 except to the extent that Lessee has been materially prejudiced
by the failure to provide such notice.

      13.6 Refunds. If any Indemnified Person obtains a recovery of all or any
part of any amount which Lessee has paid to such Indemnified Person, such
Indemnified Person will pay to Lessee the net amount recovered by such
Indemnified Person (including any related gross-ups paid pursuant to Section
13.2, if appropriate to reflect the intent of these provisions).

      13.7 Defense of Claims. Unless a Default has occurred and is continuing,
Lessee and its insurers will have the right (in each such case at Lessee's sole
expense) to investigate or, provided that Lessee or its insurers has not
reserved the right to dispute liability with respect to any insurance policies
pursuant to which coverage is sought, defend or compromise any claim covered by
insurance for which indemnification is sought pursuant to Section 13 and each
Indemnified Person will cooperate with Lessee or its insurers with respect
thereto. If Lessee or its insurers are retaining attorneys to handle such claim,
such counsel must be reasonably satisfactory to the Indemnified Person. If not,
the Indemnified Person will have the right to retain counsel of their choice at
Lessee's expense.

      13.8 Survival of Obligation. The representations, warranties, indemnities
and agreements of Lessee provided for in this Section 13 survive the expiration
or other termination of this Lease.

SECTION 14. RESERVED

SECTION 15. SUBLEASE; POSSESSION; ASSIGNMENT; MERGER

      15.1 No Assignment or Sublease by Lessee. No assignment, novation,
transfer, mortgage or other charge may be made by Lessee of any of its rights or
obligations with respect to the Aircraft or the Lease. Lessee shall not
sublease, or otherwise transfer or relinquish possession of the Airframe or any
Engine or install any Engine or permit any Engine to be installed on any
airframe other than the Airframe.

      15.2 Lessor's and Owner's Assignment. Lessor and Owner may assign or
create a security interest in all its rights hereunder in and to the Aircraft
and the Engines, including, without limitation, the right to receive payments of
Rent, including, without limitation, receipt of insurance proceeds, to and for
the benefit of any Person. Lessee agrees to execute and deliver any
acknowledgment and consent thereto as may be requested by Lessor, Owner or the
Lender. Lessor may assign all or a portion of its rights and obligations
hereunder upon any sale of the Aircraft or assignment of its lease with Owner.
Lessee agrees to execute and deliver any acknowledgement and consent thereto as
may be requested by Lessor.

      15. 3 Merger. Lessee agrees that prior to any consolidation with or merger
into any other corporation and prior to the conveyance, transfer or lease of all
or substantially all of its assets as an entirety to any person or entity,
Lessee shall notify Lessor and at Lessor's request, Lessee shall obtain and
deliver the due acknowledgment (by the successor entity or person) of the
obligations of the Lessee under this Lease and confirmation of continued
compliance herewith after such consolidation, merger or conveyance of assets.

SECTION 16. EVENTS OF DEFAULT

The term "Event of Default," wherever used herein, shall mean any of the
following events under the Lease (whatever the reason for such Events of Default
and whether it shall be voluntary or involuntary, or come about or be affected
by operation
<PAGE>   15

of law, or be pursuant to or in compliance with any judgment, decree or order of
any court or any order, rule, or regulation of any administrative or
governmental body):

      (a) Lessee fails to take delivery of the Aircraft when obligated to do so
      under the terms of this Lease;

      (b) Lessee fails to make a Rent or other payment due hereunder in the
      manner and within five (5) consecutive days after date provided herein;

      (c) Lessee fails at any time to obtain or maintain the insurance required
      by Section 12;

      (d) Lessee fails to return the Aircraft to Lessor on the Expiration Date
      in accordance with and in the condition required by Section 6;

      (e) Lessee shall fail to maintain the Aircraft, any of the Engines or any
      Parts or to maintain adequate Aircraft Technical Records in accordance
      with the terms of this Lease and such failure is not corrected within ten
      (10) days;

      (f) Lessee fails to observe or perform any of its other obligations
      hereunder and fails to cure the same within fifteen (15) days after the
      occurrence thereof. If such failure cannot by its nature be cured within
      fifteen (15) days, Lessee will have the reasonable number of days
      necessary to cure such failure (not to exceed a period of thirty (30)
      days) so long as Lessee uses diligent and best efforts to do so and gives
      Lessor written notice thereof and the failure does not result in any
      danger of sale, forfeiture or loss of the Aircraft or Engine;

      (g) Any representation or warranty of Lessee herein proves to be untrue or
      incorrect in any material respect;

      (h) The registration of the Aircraft is canceled other than as a result of
      an action or omission of Lessor;

      (i) Lessee abandons the Aircraft or Engines or they are no longer in the
      possession and unencumbered control (other than Lessor Liens) of Lessee
      except as permitted under this Lease;

      (j) Lessee either temporarily or permanently discontinues business or
      sells or otherwise disposes of all or substantially all of its assets
      (unless Lessee shall have complied with Section 15.3);

      (k) Reserved;

      (l) Lessee, (i) suspends payment on its debts or other obligations, (ii)
      is unable to or admits inability to pay its debts or other obligations as
      they fall due, (iii) is adjudicated or becomes bankrupt or insolvent or,
      (iv) proposes or enters into any composition or other arrangement for the
      benefit of its creditors generally;

      (m) Any proceedings, resolutions, filings or other steps are instituted
      with respect to Lessee relating to bankruptcy liquidation, reorganization
      or protection from creditors of Lessee or a substantial part of Lessee's
      property. If instituted by Lessee, the same shall be an immediate Event of
      Default. If instituted by another Person, the same shall be an Event of
      Default if not dismissed, remedied or relinquished within thirty (30)
      days;

      (n) Any order, judgment or decree is entered by any court of competent
      jurisdiction appointing a receiver, trustee or liquidator of Lessee or a
      substantial part of Lessee's property, or if a substantial part of
      Lessee's property is to be sequestered. If instituted or done with the
      consent of Lessee, the same shall be an immediate Event of Default. If
      instituted by another Person, the same shall be an Event of Default if not
      dismissed, remedied or relinquished within thirty (30) days; or,

      (o) The Lease is or becomes wholly or partly invalid, ineffective or
      unenforceable due to reasons beyond Lessor's control and either, (i)
      Lessee fails in its continuing performance notwithstanding such
      invalidity, ineffectiveness or unenforceability, or, (ii) after good faith
      negotiations, Lessor and Lessee have not arrived at a mutually acceptable
      alternative basis for continuation of this Lease within fifteen (15) days
      after Lessor's notice requiring negotiation.

SECTION 17. REMEDIES

      17.1 Lessor's General Rights. Upon the occurrence of any Event of Default,
all rights of Lessee hereunder will
<PAGE>   16

immediately cease and terminate and Lessor may do all or any of the following at
its option (in addition to such other rights and remedies which Lessor may have,
but subject to any requirements of applicable law):

      (a) For Lessee's account, do anything that may reasonably be required to
      cure any Event of Default or recover from Lessee all reasonable costs,
      including legal fees and expenses incurred in doing so and interest at the
      Late Payment Rate;

      (b) Proceed by appropriate court action or actions to enforce performance
      of the Lease and to recover any damages for the breach hereof, including
      the amounts specified in Section 17.2; and,

      (c) Terminate the Lease by taking possession of the Aircraft or by serving
      notice requiring Lessee to return the Aircraft to Lessor at any location
      specified by Lessor. If Lessor takes possession of the Aircraft, it may
      enter upon Lessee's premises where the Aircraft is located without
      liability. Upon repossession of the Aircraft, Lessor will then be entitled
      to sell, lease, keep idle or otherwise deal with the Aircraft as if this
      Lease had never been made.

      17.2 Lessee Liability for Damages. If an Event of Default occurs, Lessor
has the right to recover from Lessee all of the following:

      (a) All amounts which are then due and unpaid hereunder, and which become
      due prior to the earlier of Lessor's recovery of possession of the
      Aircraft or Lessee making an effective tender thereof;

      (b) Any lost profits suffered by Lessor because of Lessor's inability to
      place the Aircraft on lease with another lessee on financial terms as
      favorable to Lessor as the terms hereof or because whatever use, if any,
      to which Lessor is able to put the Aircraft upon its return or the funds
      arising from a sale or other disposition of the Aircraft are not as
      profitable to Lessor as leasing the Aircraft in accordance with the terms
      hereof would have been;

      (c) All costs associated with Lessor's exercise of its remedies hereunder,
      including, but not limited to, repossession costs, legal fees and
      disbursements, Aircraft storage costs and Aircraft re-lease or sale costs;

      (d) Any loss, cost, expense or liability sustained by Lessor due to
      Lessee's failure to redeliver the Aircraft in the condition required by
      the Lease; and,

      (e) Any other losses (including lost profits), damage, expense, cost or
      liability which Lessor suffers or incurs as a result of the Event of
      Default and/or termination of this Lease, including, without limitation,
      an amount sufficient to fully compensate Lessor for any loss or damage to
      Lessor's residual interest in the Aircraft caused by Lessee's default.

      17.3 Remedies Non-Exclusive and Waiver of Default. No remedy referred to
herein is intended to be exclusive, but each shall be cumulative and in addition
to any other remedy referred to above or otherwise available to Lessor at law or
in equity. Only by written notice to Lessee, Lessor may, at its election, waive
any Default or Event of Default and its consequences and annul or rescind any
prior notice of termination of this Lease. No express waiver by Lessor of any
Default or Event of Default hereunder shall in any way be, or be construed to be
a waiver of any future or subsequent Default or Event of Default. The failure or
delay of Lessor in exercising any rights granted it hereunder upon any
occurrence of any of the contingencies set forth herein shall not constitute a
waiver of any such rights upon the continuation or recurrence of any such
contingencies or similar contingencies, and any single or partial exercise of
any particular right by Lessor shall not exhaust the same or constitute a waiver
of any other right provided herein.

      17.4 Present Value of Payments. In calculating Lessor's damages hereunder
upon an Event of Default, all Rent and other amounts which would have been due
hereunder during the Lease Term if an Event of Default had not occurred will be
calculated on a present value basis using a discounting rate of five percent
(5%) per annum.

      17.5 U.S. Bankruptcy Code. To the extent that the provisions of Section
1110 of Title 11 of the United States Code may at any time be applicable hereto,
any right of Lessor to take possession of the Aircraft or any Engine shall not
be affected by the power of the courts to enjoin such taking of possession.

SECTION 18. NOTICES
<PAGE>   17

All notice provided for or required under the terms and provisions hereof shall
be in writing and any such notice shall be deemed given when properly sent and
received by facsimile (with written confirmation by mail), when personally
delivered or where sent and received by overnight courier service, or three (3)
days after it is deposited in the United States Mail with proper postage prepaid
for first class certified mail, return receipt requested, addressed as follows:

If to Lessor:     Maurice J. Gallagher, Jr. and Timothy P. Flynn
                  3291 North Buffalo Drive
                  Suite 8
                  Las Vegas, Nevada 89129
                  Telephone Number: 702 256 4323
                  Facsimile Number: 702 256 7209

If to Lessee:     MGC Communications, Inc.
                  171 Sullys Trail
                  Suite 202
                  Pittfford, New York  14534
                  Attn: Linda Sunbury
                  Tel. 716 218 6540
                  Fax  716 218 0881

or to such other address as Lessor or Lessee may, from time to time, designate
in writing.

SECTION 19. GOVERNING LAW AND JURISDICTION; FURTHER ASSURANCES

      19.1 Nevada Law. This Lease is being delivered in the State of Nevada,
United States of America, and will in all respects be governed by and construed
in accordance with the laws of the State of Nevada (notwithstanding the conflict
laws of the State of Nevada), United States of America.

      19.2 Non-Exclusive Jurisdiction in Nevada. The parties hereby consent to
the non-exclusive jurisdiction of the Federal District Court for the District of
Nevada or the State of Nevada Court in Las Vegas, Nevada United States of
America. Nothing herein will prevent either party from bringing suit in any
other appropriate jurisdiction.

      19.3 Prevailing Party in Dispute. If any legal action or other proceeding
is brought in connection with any provisions in the Lease, the prevailing party
will be entitled to recover reasonable attorneys' fees and disbursements and
other costs incurred in such action or proceedings. The prevailing party will
also, to the extent permissible by law, be entitled to receive pre-and
post-judgment interest at the Late Payment Rate.

      19.4 Further Assurances. Lessee shall promptly and duly execute and
deliver to Lessor such further documents and assurances and take such further
action as Lessor may from time to time reasonably request in order to carry out
more effectively the intent and purpose of the Lease and to establish and
protect the rights and remedies created or intended to be created in favor of
Lessor.

SECTION 20. PURCHASE OPTION.

      20. 1 Provided that this Lease has not been earlier terminated and there
exists no continuing Event of Default by Lessee at the time of the exercise of
its purchase option hereunder and at the time of the purchase of the Aircraft
pursuant hereto and all prior defaults have been cured, Lessee, by giving Lessor
not more than one hundred and eighty (180) and not less than ninety (90) days'
written notice prior to any Purchase Option Date as specified in Annex 2 to
Exhibit B, may on any Purchase Option Date elect to purchase the Aircraft from
the Lessor (who shall be required to purchase the Aircraft from Owner) for an
amount equal to the Fair Market Value of the Aircraft on the applicable Purchase
Option Date , plus any amounts owed to Lessor but unpaid under this Lease and
any applicable sales, use, property or excise taxes based on or measured by such
sale and any other expenses of transfer with respect thereto (such amounts, the
"Purchase Option Amount"). If Lessee elects to exercise said purchase option,
the Aircraft shall be purchased on the applicable Purchase Option Date and by
the delivery at such time by Lessee to Lessor of payment, in cash, via direct
wire transfer, of the amount of the Purchase Option Amount. Upon payment of such
amount (plus all other amounts owed hereunder, as aforesaid), Lessor shall upon
request of Lessee, deliver a Bill of Sale for the Aircraft, on an "as-is,
where-is, with all faults" basis, without representations
<PAGE>   18

or warranties of any kind whatsoever, except as to warranty of title and being
free of Lessor Liens. Lessee and Lessor shall enter into an industry standard
purchase agreement which is consistent herewith, within 15 business days after
the exercise by Lessee of its purchase option and Lessee shall, in connection
therewith, deposit with Lessor a 10% non-refundable deposit. If Lessee does not
elect to exercise said purchase option on the Expiration Date, Lessee shall
redeliver the Aircraft to Lessor pursuant to and under the terms and conditions
of this Lease. If, during the term, Lessor shall, pursuant to the terms hereof,
terminate this Lease upon or as a result of default by Lessee hereunder, all
rights of Lessee to purchase the Aircraft shall terminate and be of no further
force or effect (regardless of whether or not Lessee shall have given notice of
the exercise of the purchase option and regardless of whether or not a purchase
agreement shall have been entered into by the parties pursuant thereto). Lessor
and Lessee recognize that Lessor is not the owner of the Aircraft but Lessor
represents that Lessee's rights under this Section are granted pursuant to
Lessor's rights to purchase the Aircraft under its lease of the Aircraft with
the Owner and that such rights to purchase are consistent with Lessee's rights
hereunder.

SECTION 21. MISCELLANEOUS

      21.1 Transaction Costs. Lessor and Lessee shall each bear their own
counsel fees in connection with the development and execution of the Lease.

      21.2 Binding on Successors. The Lease, including all agreements,
covenants, representations, and warranties, shall be binding upon and inure to
the benefit of, and may be enforced by, (i) the Lessor and its successors,
assigns and agents and, (ii) Lessee and Lessee's successors and, to the extent
permitted hereby, assigns.

      21.3 Survival. All agreements, indemnities, representations and warranties
contained in the Lease or any agreement, document or certificate delivered
pursuant hereto or thereto or in connection herewith or therewith shall survive
the execution and delivery of the Lease and the expiration or other termination
of the Lease.

      21.4 Additional Documents. Upon Lessor's reasonable request, Lessee shall
furnish to Lessor audited financial statements and other information concerning
the financial condition of Lessee as well as periodic estoppel certificates
certifying that, (i) this Lease is in full force and effect, (ii) to Lessee's
knowledge after due inquiry no Default exists and, (iii) Lessee has no claims
under the Lease against Lessor or Lessor's Assignee.

      21.5 Power of Attorney. Lessee hereby irrevocably appoints Lessor as its
attorney, coupled with an interest, for the purpose of putting into effect the
intent of the Lease following an Event of Default, including without limitation,
the return, and repossession of the Aircraft. Lessee will take all steps
required under the laws of the State of Nevada to provide such power of attorney
to Lessor.

      21.6 Lessor Performance for Lessee. The exercise by Lessor of its remedy
of performing a Lessee obligation hereunder is not a waiver of and will not
relieve Lessee from the performance of such obligation at any time or from the
performance of any of its other obligations hereunder. If a Default shall occur
hereunder, Lessor may make the payment or perform or comply with the agreement,
the non-payment, nonperformance or noncompliance which caused such Default and
the amount of such payment and the amount of the reasonable expense of Lessor
incurred in connection with such payment or the performance of or compliance
with such agreement, as the case may be, together with interest at the Late
Payment Rate, shall be payable by Lessee to Lessor upon demand, and such action
shall not be deemed a cure or waiver of any Default or Event of Default
hereunder by Lessee unless or until Lessor is reimbursed by Lessee.

      21.7 Application of Payments. Any amounts paid or recovered in respect of
Lessee's abilities hereunder may be applied to Rent, interest at the Late
Payment Rate, fees or any other amount due hereunder in such proportions, order
and manner as Lessor determines in its absolute discretion.

      21.8 Usury Laws. The parties intend to contract in strict compliance with
applicable usury laws. No provision hereof shall be construed to create a
contract for the use, forbearance or detention of money requiring payment of
interest at a rate in excess of the maximum interest rates permitted by law. All
sums deemed to constitute interest in excess of the maximum lawful rate shall,
at Lessor's option, either be refunded to Lessee or credited to the payment of
Rent.

      21.9 Delegation by Lessor. Lessor may delegate to any Person(s) all or any
of the rights, powers or discretion vested in it by the Lease and any such
delegation may be made upon such terms and conditions as Lessor in its absolute
discretion thinks fit.
<PAGE>   19

      21.10 Reserved.

      21.11 Rights of Parties. The rights of the parties hereunder are
cumulative, not exclusive, may be exercised as often as each party considers
appropriate and are in addition to its rights under general Law. The rights of
one party against the other party are not capable of being waived or amended
except by an express waiver or amendment, made in writing. Any failure to
exercise or any delay in exercising any of such rights will not operate as a
waiver or amendment of that or any other such right; any defective or partial
exercise of any such rights will not preclude any other or further exercise of
that or any other such right; and, no act or course of conduct or negotiation on
a party's part or on its behalf will in any way preclude such party from
exercising any such right or constitute a suspension or any amendment of any
such right.

      21.12 Further Assurances. Each party agrees from time to time to do and
perform such other and further acts and to execute and deliver any and all such
other instruments as may be required by law or reasonably requested by the other
party to establish, maintain or protect the rights and remedies of the
requesting party or to carry out and effect the intent and purpose of the Lease.

      21.13 Headings. All sections and paragraph headings and captions are
purely for convenience and will not affect the interpretation of this Lease.

      21.14 Invalidity of any Provision. If any of the provisions of the Lease
become invalid, illegal or unenforceable in any respect under any Law, the
offending provision or provisions shall be deleted from the Lease and the
validity, legality and enforceability of the remaining provisions will not in
any way be affected or impaired.

      21.15 Negotiation. The terms of the Lease are agreed by Lessor from its
office in Las Vegas, Nevada.

      21.16 Time of the Essence. Time is of the essence in the performance of
all obligations of the parties under the Lease.

      21.17 Amendments in Writing. The provisions of the Lease may only be
amended or modified by a writing executed by Lessor and Lessee.

      21.18 Execution in Counterparts. The Lease may be executed in
counterparts, and four (4) counterparts of the Lease have been executed. One
counterpart has been marked "Original" and the other counterparts have been
marked either "LESSEE'S COUNTERPART," "LESSOR'S COUNTERPART," or "FAA FILING
COUNTERPART."

      21.19 Entire Agreement. The Lease, together with the Exhibits and
Supplements thereto, constitutes the entire agreement between the parties in
relation to the Leasing of the Aircraft by Lessor to Lessee and supersedes all
previous proposals, agreements and other written or oral communications in
relation hereto. The parties acknowledge there have been no representations,
warranties, promises, guarantees or agreements, express or implied, except as
set forth herein. The Lease shall constitute an agreement by lease and nothing
herein shall be construed as conveying to Lessee any right, title or interest in
or to the Aircraft, except as a lessee only.

22. SECTION 22 TRUTH-IN-LEASING.

LESSEE CERTIFIES THAT FROM THE DATE OF INITIAL UNITED STATES REGISTRATION OF THE
AIRCRAFT LEASED HEREUNDER TO THE LEASE COMMENCEMENT DATE WITH RESPECT THERETO,
THE AIRCRAFT HAS BEEN MAINTAINED AND INSPECTED UNDER PART 91 OF THE FEDERAL
AVIATION REGULATIONS AND THAT DURING THE LEASE TERM WITH THERETO, THE AIRCRAFT
WILL BE MAINTAINED AND INSPECTED UNDER PART 91 OF THE FEDERAL AVIATION
REGULATIONS. DURING THE LEASE TERM WITH RESPECT TO SUCH AIRCRAFT, LESSEE WILL BE
RESPONSIBLE FOR OPERATIONAL CONTROL OF EACH SUCH AIRCRAFT AND LESSEE CERTIFIES
THAT IT UNDERSTANDS ITS RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FEDERAL
AVIATION REGULATIONS. AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL
AND PERTINENT FEDERAL AVIATION REGULATIONS CAN OBTAINED FROM THE NEAREST FAA
FLIGHT STANDARDS DISTRICT OFFICE.

23. SECTION 23 FEDERAL INCOME TAX BENEFITS
<PAGE>   20

Lessee acknowledges that Owner is the owner of the Aircraft for state law and
Federal income tax purposes and that accelerated depreciation or cost recovery
deductions on the full amount of the Aircraft cost will be available to Owner.
Lessee acknowledges that Owner intends to claim and take all applicable
depreciation deductions with respect to the Aircraft in accordance with Section
168 of the Internal Revenue Code of 1986, as amended (the "Code"). Lessee
understands, agrees and acknowledges that Lessee's breach of certain express
covenants of this Lease could lead to loss by Owner of such deductions and
Lessee shall be liable therefor (through claims by Owner against Lessor under
the Headlease) if arising out of breach by Lessee hereunder.
<PAGE>   21

      IN WITNESS WHEREOF, the parties hereto have caused this Aircraft Lease
Agreement to be duly executed, as of the date first above written.

MAURICE J. GALLAGHER, JR.
Lessor

_________________________________

TIMOTHY P. FLYNN
Lessor

_________________________________

MGC COMMUNICATIONS, INC.
Lessee

By:______________________________

Print Name:______________________

Title:___________________________

                                      -21-
<PAGE>   22

                                    EXHIBIT A
                                   DEFINITIONS

      (a) All references in the Lease to designated Sections and other
subdivisions are to designated Sections and other subdivisions of the Lease, and
the words "herein," "hereto" and "hereunder" and other words of similar import
refer to the Lease as a whole and not to any particular Section or other
subdivision.

      (b) Except as otherwise indicated, all the agreements or instruments
defined herein or in the Lease shall mean such agreements or instruments as the
same may from time to time be supplemented or amended or the terms thereof
waived or modified to the extent permitted by, and in accordance with, the terms
thereof.

      (c) The terms defined herein and in the Lease shall, for purposes of the
Lease and all exhibits thereto, have the meanings assigned to them and shall
include the plural as well as the singular.

      (d) Unless the context otherwise requires, the following terms shall have
the following meanings for all purposes of this Lease:

      "Aircraft" means the Airframe to be delivered and leased hereunder,
together with the two Engines identified in the Lease Supplement, as the Engines
constituting a part of the Aircraft (or any Replacement Engine substituted for
any such Engine pursuant to Section 11.2 hereof), whether or not any of such
initial or substituted engines may from time to time be installed on such
Airframe or may be installed on any other airframe.

      "Airframe" means, (i) the Israeli Aircraft Industries Model Astra
aircraft, serial number 011, US Reg. No. N705MA (excluding Engines or engines
from time to time installed thereon) specified in the Lease Supplement; (ii) any
and all Parts so long as the same shall be incorporated or installed in or
attached to such Airframe and so long as title thereto shall remain vested in
Lessor in accordance with the terms of Section 9.4 after removal from such
Airframe; and, (iii) all logs and Technical Records related to such Airframe.

      "Basic Rent" means the monthly rental payable pursuant to Section 3.1 and
as set forth in Annex Two to Exhibit B.

      "Basic Rent Date" means, the Delivery Date and the same calendar date of
each month as the Delivery Date, after the Delivery Date, throughout the Term of
this Lease.

      "Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks are required or authorized to be closed in Las Vegas,
Nevada or the place of payment of Rent as Lessor may from time to time designate
pursuant to Section 3.1 hereof.

      "Claims" shall have the meaning set forth in Section 13 of the Lease
captioned "Indemnification."

      "Default" shall mean an event which, after the giving of notice or lapse
of time, or both, would mature into an Event of Default.

      "Delivery Date" in respect to the Aircraft means the date of the Lease
Supplement.

      "Delivery Receipt" shall mean that document exchanged by Lessor and Lessee
upon delivery of the Aircraft to Lessee, referred to in the Supplement.

      "Engine" means each of the two Garrett Airesearch Model TFE731-3C engines
listed by manufacturer's serial numbers in the Lease Supplement as the engines
constituting a part of the Aircraft, in each case whether or not from time to
time installed on the Airframe covered by such Lease Supplement or any other
airframe and any Replacement Engine that may from time to time be substituted
for an Engine pursuant to Section 11.2, together in each case, with any and all
Parts incorporated or installed thereon or attached thereto and any and all
Parts removed therefrom so long as title thereto shall remain vested in Lessor
in accordance with Section 9.4 and all logs and Technical Records relating to
such Engine; provided, however, that at such time as a Replacement Engine shall
be substituted for an Engine in full compliance with the applicable provisions
hereof, the replaced Engine shall cease to be an Engine hereunder. The term
"Engines" also means, as of any date of determination, all Engines then leased
hereunder.

                                      -22-
<PAGE>   23

      "Event of Default" has the meaning specified in Section 16.

      "Event of Loss" means, with respect to the Aircraft or any Engine, any of
the following events or conditions with respect to such property: (a)
Destruction, damage beyond economic repair or being rendered permanently unfit
for normal use for any reason whatsoever (the date of which shall be the date
such event occurs or, if not known, the date on which the Aircraft, Airframe or
Engine was last seen by Lessee); (b) Actual, constructive, compromised, arranged
or agreed total loss (the date of which shall be the earlier of the date on
which the loss is agreed or compromised by the insurers or sixty (60) days after
the date of notice to Lessee's broker or insurers claiming such total loss); (c)
Requisition of title, confiscation, forfeiture or any compulsory acquisition or
taking whatsoever (the date of which shall be the date on which the same takes
effect); (d) Sequestration, detention or seizure for more than ninety (90)
consecutive days (the date of which shall be the earlier of the date on which
insurers make payment on the basis of a total loss or the date of expiration of
such period); (e) Requisition for use for more than ninety (90) consecutive days
(the date of which shall be the earlier of the date on which the insurers make
payment on the basis of a total loss or the date of expiration of such period);
(f) The loss of the Aircraft due to theft or disappearance for a period in
excess of fifteen (15) consecutive days (the date of which shall be the earlier
of the final day of such period or the date on which insurers make payment on
the basis of a total loss); (g) Any other occurrence which deprives Lessee of
use or possession for a period of thirty (30) consecutive days or longer (the
date of which shall be the earlier of the final day of such period or the date
on which insurers make payment on the basis of a total loss); (h) With respect
to any Engine, any divestiture of title to such engine shall be treated as an
Event of Loss. An Event of Loss with respect to an Aircraft shall be deemed to
have occurred if an Event of Loss shall occur with respect to its Airframe.

      "Expiration Date" shall be the date thereof set forth in the Supplement.

      "FAA" means the United States Federal Aviation Administration and any
successor agency or agencies.

      "Fair Market Value" means, unless otherwise set forth in Annex Two to
Exhibit B, the value of the Aircraft determined by majority vote of a panel of
three industry recognized appraisers, one selected by each of Lessor and Owner,
jointly, and Lessee and the third appointed by the two so selected, whose
decision shall be based on determining the fair market value of the Aircraft
based on an arms-length sale of the Aircraft by a seller acting under no
compulsion to sell and a buyer acting under no compulsion to buy, which panel
shall be selected and the determination made, no later than sixty days prior to
the Expiration of the Lease.

      "Federal Aviation Act" means the United States Federal Aviation Act of
1958, as amended from time to time, or any similar legislation of the United
States enacted in substitution or replacement thereof.

      "Impositions" shall have the meaning set forth in Section 8 of the Lease
captioned "Taxes."

      "Indemnified Person" means Lessor, the Owner, the Lender and each of their
respective officers, directors, shareholders, agents and representatives.

      "Late Payment Rate" means the interest rate specified and defined in
Section 3.1(e) hereof.

      "law" means any (i) statute, decree, constitution, regulation, order or
any directive of any governmental entity (ii) treaty or pact, compact or other
agreement to which any governmental entity is a signatory or party, and (iii)
judicial or administrative interpretation or application.

      "Lease Supplement" or "Supplement" means a lease supplement substantially
in the form of Exhibit B, to be entered into between Lessor and Lessee on the
Delivery Date for the purpose of leasing the Aircraft under and pursuant to the
terms of the Lease, and any subsequent Lease Supplement entered into in
accordance with the terms hereof.

      "Lender" means any lender to Owner, and who holds a first priority
security interest over the Aircraft, and any other lender notified to Lessee by
Lessor and/or Owner in writing.

      "Lessor Lien" means any Lien or disposition of title with respect to the
Aircraft, the Airframe, any Engine or any Part that arises as a result of or
results from (i) taxes or expenses imposed on Owner, Lessor or any Assignee (or
the consolidated group of taxpayers of which any of them is a part), other than
taxes or expenses for which Lessee is obligated but fails to

                                      -23-
<PAGE>   24

indemnify pursuant to any provisions of this Lease, (ii) any claim against
Lessor, Owner or any Assignee involving or arising out of events or conditions
not related to the transactions contemplated by this Lease or (iii) any
voluntary transfer by Lessor or Owner of all or any portion of its interest in
the Aircraft or this Lease pursuant to Section 15.

      "Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
sublease, security interest, conditional sale agreement, title retention
agreement or claim as provided in Section 7 hereof.

      "Maintenance Program" shall have the meaning set forth in Section 9.2 of
the Lease.

      "Manufacturer" shall mean with respect to the Airframe, Israeli Aircraft
Industries, and its successors and assigns and shall mean, with respect to the
Engines, Garrett Airesearch and its successors and assigns.

      "month" shall mean a period commencing on one day in a calendar month and
ending on the day in the next succeeding calendar month the date of which
numerically corresponds to the date of such first day, provided that if there is
no numerically corresponding date in the next succeeding calendar month, such
period shall end on the last day of the next succeeding calendar month and
"months" and "monthly" shall be construed accordingly.

      "Owner" means Pacific Coast Group, Inc., a Nevada corporation.

      "Parts" means all appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature (but excluding
complete Engines and engines, but including propellers) so long as the same
shall be incorporated or installed in or attached to the Airframe or any Engine
or so long as title thereto shall remain vested in Lessor in accordance with
Section 9.4 after removal therefrom. Reference is made to the Aircraft records
and logs for a partial list of Parts incorporated in or on the Aircraft.

      "Person" shall mean any individual, partnership, corporation, trust,
unincorporated association or joint venture, a government or any department or
agency thereof, or any other entity.

      "Principal Location" shall mean the airport at Rochester, New York, or
such other location selected by Lessee with Lessor's prior written approval,
which approval shall not be unreasonably withheld or delayed.

      "Purchase Option" shall mean the rights of Lessee to purchase the Aircraft
under Section 20.1 of this Lease.

      "Rent" means Basic Rent and all other sums payable hereunder which the
Lessee assumes the obligation to pay, or agrees to pay to the Lessor or others,
collectively.

      "Replacement Parts" shall have the meaning set forth in Section 9.4 of the
Lease.

      "Stipulated Loss Value" for the Aircraft, payable with respect to any
event as provided in the Lease, means the amount, set forth in the Lease
Supplement and Annex Two of Exhibit B hereto, throughout the entire Lease Term
and any extension thereof, and through such later date until the Aircraft is
redelivered to Lessor, and as may be adjusted pursuant to the Lease Supplement.

      "Technical Records" shall mean all manuals, logbooks, flight records,
maintenance records, modification and overhaul records, and historical records
relating to the Aircraft and either delivered hereunder or required by the FAA.

      "Term" or "Lease Term" shall mean the period between the Delivery Date as
specified in the Supplement and the later of, the Expiration Date (as specified
in the Supplement) and the return of the Aircraft to Lessor as required under
this Lease.

      "United States Government" means the United States of America or any
agency or instrumentality thereof.

                                      -24-
<PAGE>   25

                                    Exhibit B
                                LEASE SUPPLEMENT

      LEASE SUPPLEMENT, dated December _____, 1999, between Maurice J.
Gallagher, Jr. and Timothy P. Flynn, individual persons (who are married
persons) each of whom reside in the State of Nevada, jointly, as "Lessor", and
MGC Communications, Inc. and , a corporation organized under the laws of the
State of Nevada, as "Lessee".

      Lessor and Lessee have heretofore entered into that certain Aircraft Lease
Agreement dated December ___ 1999 (herein called the "Lease Agreement", the
defined terms therein being hereinafter used with the same meaning). The Lease
Agreement provides for the execution and delivery of a Lease Supplement,
substantially in the form hereof, for the purpose of leasing a specific aircraft
under the Lease Agreement as and when delivered by Lessor to Lessee in
accordance with the terms thereof.

      The Lease Agreement relates to the aircraft and engines described below,
and this Lease Supplement is attached to a counterpart of the Lease Agreement
and made a part thereof and such counterpart of the Lease Agreement, together
with this Lease Supplement, shall be considered to be one document.

      NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:

      1. Lessor hereby delivers and leases to Lessee under the Lease Agreement,
and Lessee hereby accepts and leases from Lessor under the Lease Agreement the
following described IAI Astra aircraft (the "Aircraft"), which Aircraft, as of
the date hereof, consists of the following components:

      (a) one IAI Astra Airframe: U.S. registration number N705MA, serial number
      011;

      (b) two (2) Garrett Airesearch Model TFE731-3C engines bearing,
      respectively, manufacturer's serial numbers P96105C, and P96110C (the
      "Engines") (each of said Engines has 750 or more rated takeoff horsepower
      or the equivalent of such horsepower);

      (c) the other equipment listed in Annex One hereto.

      2. Lessee hereby delivers to Lessor a Memorandum of Delivery in the form
      prescribed by Lessor (as set forth in Exhibit D to the Lease).

      3. The Delivery Date of the Aircraft is the date of this Lease Supplement
      set forth in the opening paragraph hereof.

      4. The first Basic Rent Date for the Aircraft is the Delivery Date.

      5. The Expiration Date of the Lease Term in respect to the Aircraft
      covered by this Supplement is _____________.

      6. Lessee hereby confirms to Lessor, that (a) Lessee shall perform all of
its obligations as set forth in the Lease Agreement, and in particular confirms
that, in accordance with Section 3 of the Lease Agreement, Lessee shall pay to
Lessor the Basic Rent on each Basic Rent Date during the Term for the delivered
Aircraft; and (b) there exists no Default or Event of Default under the Lease.

      This document is intended only as a summary of terms more fully set forth
in the Lease Agreement and in the event of any seeming conflict between this
Supplement and the Lease Agreement, the Lease Agreement shall be controlling.

      7. The Stipulated Loss Value of the Aircraft covered by this Supplement is
and shall be $ 6,000,000 from the Delivery Date through the Expiration Date, and
through return of the Aircraft to Lessor under the Lease; provided, however,
annually, on the anniversary of the Delivery Date, at Lessor's option, the
Lessor and Lessee shall agree on an increase to the Stipulated Loss Value based
on an increase in the market value of the Aircraft reasonably determined by
Lessor and utilizing accepted industry information. Any increase in the
Stipulated Loss Value shall be acknowledged in writing by Lessor and Lessee and
shall effect an amendment to this Lease.

                                      -25-
<PAGE>   26

      8. Lessee hereby confirms to Lessor, (i) that Lessee has made a thorough
and diligent inspection of the Aircraft, Engines and their respective records,
(ii) that the Aircraft and Engines fully conform to the requirements of the
Lease Agreement, and (iii) that Lessee has accepted the Aircraft for all
purposes under the Lease Agreement.

      9. All of the terms and provisions of the Lease Agreement are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.

      IN WITNESS WHEREOF, the parties hereto have caused this Lease Supplement
to be duly executed by their respective officers thereunto duly authorized as of
the date first above written.

MAURICE J. GALLAGHER, JR.
Lessor

_________________________________

TIMOTHY P. FLYNN
Lessor

_________________________________

MGC COMMUNICATIONS, INC.
Lessee

By:______________________________

Print Name:______________________

Title:___________________________

                                      -26-
<PAGE>   27

                                    ANNEX ONE
                                  To Exhibit B

                                 IAI Astra 1125
                                Serial Number 011

AIRFRAME:             6048 Total Time 4563 Total Landings

ENGINES:              Garrett TFE 731-3C-200G on MSP
                              LT P96105C 5770 TT
                              RT P96110C 5796 TT

AVIONICS:             Collins Five Tube EFIS
                      Collins APS- 80 Auto Pilot
                      Collins VNI-80B Vertical Nav System
                      Dual Collins VHF - 22A Comm Systems
                      Dual Collins VIR - 32A Nav Receivers
                      Dual Collins TDR 90 Transponders
                      Collins WXT - 250 Color Radar
                      Collins ALT-55 Radio Altimeter
                      Collins ADF - 60 ADF
                      Collins FPA-80 Profile Advisory System
                      Dual UNS1-K Flight Mgt Systems with GPS
                      Fairchild A100 CVR
                      Wulfsburg FliteFone VI
                      Dual HF Transceivers King KHF 950

FEATURES/OPTIONS:     Extended Range Fuel Tanks
                      Thrust Reversers
                      Current on MSP
                      " C " Check 2/98, "A" check 11/99 by Garrett, LAX

INTERIOR:             8 Passenger - Five Light Gray Leather
                      Swiveling/Reclining Chair
                      Three Place Divan done in Gray Leather
                      All Cabinets and Trim Completed in Rosewood.
                      Forward Galley - Aft fully enclosed Lav
                      Interior Leather Refuburished and Fireblocked 1/96

EXTERIOR:             Overall Matterhorn White with Maroon and Gray Accent
                      Stripes

                                      -27-
<PAGE>   28

                                    ANNEX TWO
                                  To Exhibit B

                                 IAI Astra 1125
                                Serial Number 011

                               CONFIDENTIAL TERMS
                      (TO BE OMITTED FROM FAA FILING COPY)

The following terms and in the Lease shall, for purposes of the Lease and all
exhibits thereto, have the additional meanings assigned to them or shall be the
amounts as follows:

Basic Rent:                      Throughout the Ten (10) Year term, Lessee shall
                                 pay Lessor as "Basic Rent" an amount of US
                                 $65,000.00 on the Basic Rent Dates 1 through 36
                                 and an amount of US $52,000 on the Basic Rent
                                 Dates 37 through 120.

Engine Reserve payments:         Pursuant to the MSP Agreement.

Stipulated Loss Value:           $6,000,000.00 throughout the Lease Term and
                                 through return of the Aircraft to Lessor
                                 (subject to adjustment as set forth in the
                                 Lease Supplement).

Purchase Option Dates:           Shall be the Basic Rent Date's in the following
                                 months and the parties agree that the Fair
                                 Market Value of the Aircraft on those dates
                                 shall be as indicated.

                                 Month    Fair Market Value
                                 13       $5,700,000
                                 25       $5,350,000
                                 37       $4,990,000
                                 120      Established in accordance with the
                                          definition of Fair Market Value.

Delivery Date:                   December ____, 1999

Expiration Date:                 December ____, 2009

Delivery Location:               Las Vegas, NV

Notices:                         See Section 18 of the Lease

Principal Location:              Rochester, NY

                       THE NEXT PAGE IS THE SIGNATURE PAGE

                                      -28-
<PAGE>   29

IN WITNESS WHEREOF, the parties hereto have, as of the day and year first above
written, caused this Rental Schedule to be executed in their respective
corporate names.

MAURICE J. GALLAGHER, JR.
Lessor

_________________________________

TIMOTHY P. FLYNN
Lessor

_________________________________

MGC COMMUNICATIONS, INC.
Lessee

By:______________________________

Print Name:______________________

Title:___________________________

                                      -29-
<PAGE>   30

                                    EXHIBIT C
                                RETURN CONDITIONS

1. Condition of Aircraft - General. At the time of its return to Lessor under
Section 6 of this Lease, the Aircraft shall have been maintained and repaired in
full compliance with the provisions of Section 9 of this Lease, to similar
standards and quality of other aircraft owned or operated by Lessee, so long as
such standards and quality do not conflict with FAA requirements, and shall also
meet the following criteria:

1.1   Operating Condition. The Aircraft (including all installed components,
      Parts and the Engines) shall be in as good an operating condition as it
      was on delivery, normal wear and tear excepted, consistent with the
      accumulation of hours and cycles on the Airframe, and with all the
      Aircraft systems, equipment, components and Parts functioning fully, in
      accordance with their intended use.

1.2   Certificate of Airworthiness. The Aircraft shall have, and be in
      compliance with, a current valid Standard Certificate of Airworthiness
      issued by the FAA and shall be current and in full compliance with all
      requirements specified in the Lessee's maintenance program applicable to
      the Aircraft.

1.3   Compliance with Government Requirements. The Aircraft shall have had
      accomplished thereon and be in compliance with all outstanding orders,
      notes, directives and instructions affecting the Aircraft, issued and made
      mandatory by the FAA or other relevant authority, compliance with which is
      required to be completed by such return date.

1.4   Deferred Maintenance. All deferred maintenance items and outstanding
      discrepancies in respect to the Aircraft shall be accomplished and/or
      corrected prior to the return of such Aircraft, without regard to any
      Minimum Equipment List (MEL), waiver, deviation or exception. Any
      terminating action required by an Airworthiness Directive, Mandatory
      Service Bulletin, or requirement of the Federal Aviation Authority shall
      have been complied with at the time of redelivery to Lessor.

1.5   Configuration. Upon its return, the Aircraft shall have two Engines and
      all its Parts properly installed thereon, and shall be in the same
      configuration (unless otherwise agreed between the Lessee and Lessor) as
      when delivered to Lessee hereunder, except for Airworthiness Directives or
      other mandatory improvements required under Section 9 of this Lease.

1.6   Appearance. Upon its return, the Aircraft shall be clean by major airline
      standards. Additionally, the interior and exterior of the Aircraft shall
      be in good repair and condition, consistent with reasonable scheduled
      passenger airline appearance standards.

1.7   Manuals and Technical Records. All manuals, logbooks, flight records,
      maintenance records, modification and overhaul records, and historical
      records relating to the Aircraft and either delivered hereunder or
      required by the FAA ("Technical Records"), shall be returned with the
      Aircraft, at which time all Technical Records shall be in full compliance
      with all FAA rules, regulations and requirements and be current with the
      latest entries and revisions posted therein. In the event the Technical
      Records or other data are missing or incomplete, Lessor shall have the
      right to cause the Technical Records or other data to be reconstructed or
      completed at Lessee's expense.

1.8   Scheduled Maintenance. There shall be no scheduled maintenance due with
      respect to the Aircraft at the time of return of the Aircraft to Lessor
      and within six months thereafter. Aircraft shall be delivered fresh from
      an "A" inspection and shall have not accumulated more than 100 hours since
      the performance of the last "B" inspection. All installed components shall
      have a similar time remaining to their next scheduled inspection/overhaul
      (as determined by the Manufacturer's current Chapter 5 Inspection
      Requirements) as at the time of delivery.

2.    Engines. The Engines shall be current, fully paid and in good standing
      under the terms of the MSP Agreement. Lessee shall execute and deliver
      such further documents and agreements to effect transfer of the MSP
      Agreement, if any, to Lessor at the end of the Term.

3.    Termination of Lease. Lessee shall execute and deliver to Lessor a
      termination of this Lease, as to the Aircraft being returned, in form
      suitable for recording at the FAA Aircraft Registry, as Lessor may
      request, to make clear upon public records that the Aircraft is free and
      clear of all rights of Lessee hereunder or otherwise.

                                      -30-
<PAGE>   31

                                    EXHIBIT D

                                    IAI Astra

                             MEMORANDUM OF DELIVERY

The undersigned hereby acknowledges that on this ______ day of December, 1999,
at Las Vegas, Nevada, did receive and accept delivery of that certain IAI Astra
, model 20, serial number 116, registration number N705MA, including its Garrett
model TFE 731-3A engines, serial numbers P-96105C and P-96110C, and other
appliances, parts, additions, accessories, instruments, components and other
items of equipment now installed thereon as per attached specification,
(collectively the "Aircraft"); and together with all available log books and
pilot manuals. The undersigned does hereby further acknowledge and agree that
the aforesaid Aircraft is in full compliance with the provisions of the Aircraft
Lease Agreement dated as of December ___ 1999, by and between the undersigned
and Maurice J. Gallagher, Jr. and Timothy P. Flynn, jointly, as Lessor.

Purchaser hereby accepts delivery of the Aircraft "AS IS" and "WHERE IS", with
all faults, and agrees that the Seller shall have no obligation whatsoever in
respect to correction of any discrepancies or conditions.

Executed as of the time and date first shown above.

MGC Communications, Inc.
By:____________________________________

Title:_________________________________

                                      -31-<PAGE>   1

                                                                   Exhibit 10.22

                              AMENDED AND RESTATED

                          SECURITIES PURCHASE AGREEMENT

                                 by and between

                       PROVIDENCE EQUITY PARTNERS III L.P.

                  PROVIDENCE EQUITY OPERATING PARTNERS III L.P.

                            J K & B CAPITAL III L.P.

                              J K & B CAPITAL, L.P.

                            J K & B CAPITAL II, L.P.

                          J K & B CAPITAL III QIP, L.P.

                                       and

                            MGC COMMUNICATIONS, INC.

                          Dated as of November 19, 1999
<PAGE>   2

                         LIST OF EXHIBITS AND SCHEDULES

Exhibit A            Certificate of Designation
Exhibit B            Form of Registration Rights Agreement
Exhibit C            Form of Securityholders' Agreement
Exhibit D            Form of Opinion of Counsel to the Company
Exhibit E            Form of Opinion of Regulatory Counsel to the Company
Exhibit F            Amendment to Certificate of Designation for Series B
                     Preferred
Exhibit G            Form of Promissory Note

Schedule 2.1:        List of Purchasers

Schedule 3.4(a):     Capitalization

Schedule 3.4(b):     Options, Etc.

Schedule 3.4(c):     Registration Rights

Schedule 3.5:        Subsidiaries; Other Interests

Schedule 3.6:        September Balance Sheet

Schedule 3.9         Title to Assets

Schedule 3.10        Necessary Property

Schedule 3.11        Compliance with Law

Schedule 3.12        No Material Adverse Change

Schedule 3.13        No Brokers

Schedule 3.14        Network

Schedule 3.15        Customers and Suppliers

Schedule 3.16:       Year 2000 Compliance Plan

                                      -2-
<PAGE>   3

                              AMENDED AND RESTATED
                          SECURITIES PURCHASE AGREEMENT

                            MGC COMMUNICATIONS, INC.
                            3301 North Buffalo Drive
                             Las Vegas, Nevada 89129

                                                         As of November 19, 1999

Providence Equity Partners III L.P.
901 Fleet Center
50 Kennedy Plaza
Providence, Rhode Island 02903

Providence Equity Operating Partners III L.P.
901 Fleet Center
50 Kennedy Plaza
Providence, Rhode Island 02903

JK&B Capital III L.P.
JK&B Capital, L.P.
JK&B Capital II, L.P.
JK&B Capital III QIP, L.P.
205 N. Michigan Avenue, Suite 808
Chicago, Illinois 60601

Ladies and Gentlemen:

      The undersigned, MGC Communications, Inc., a Nevada corporation (the
"Company"), hereby agrees with you as follows:

                                    ARTICLE I

                                   DEFINITIONS

      Section 1.1. Definitions. Capitalized terms used herein and not otherwise
defined herein shall have the meanings set forth in this Article I:

      Business Day. The term "Business Day" shall mean any day other than
Saturday, Sunday, a federal holiday or other day on which commercial banks in
the State of Rhode Island or Las Vegas, Nevada are required or permitted to
close by law.
<PAGE>   4

      Charter. The term "Charter" means the certificate or articles of
incorporation, by-laws, statute, constitution, joint venture, certificate of
limited partnership, partnership agreement, articles of organization, limited
liability company operating agreement or other organizational document of any
Person other than an individual, each as from time to time amended or modified.

      Closing Date. The term "Closing Date" shall have the meaning specified in
Section 2.2 or such other date as the Company and the Purchasers may agree upon.

      Common Stock. The term "Common Stock" shall mean the Common Stock, $.001
par value, of the Company.

      Company. The term "Company" shall mean MGC Communications, Inc., a Nevada
corporation.

      Contract. The term "Contract" means any contract, plan, lease, commitment,
indenture or other agreement.

      Current Financial Statements. The term "Current Financial Statements"
shall have the meaning specified in Section 3.6.

      Equity Securities. The term "Equity Securities" means all shares of
capital stock of the Company, including (i) all classes of shares of capital
stock, voting and non-voting (including, without limitation, the Purchased
Securities), (ii) any warrants, options or other rights to subscribe for or to
acquire, directly or indirectly, whether pursuant to any division or split of
any class of shares of capital stock of the Company or in connection with a
combination, exchange, reorganization, recapitalization, reclassification,
merger, consolidation or similar business combination transaction involving the
Company or otherwise, (iii) any other equity interests in the Company or any
bonds, notes, debentures, or other securities convertible into or exchangeable
for, directly or indirectly, any shares of capital stock or equity interests of
the Company and (iv) any interests in any of the foregoing in each case
outstanding at any time.

      FCC. The term "FCC" shall mean the Federal Communications Commission.

      GAAP. The term "GAAP" shall mean generally accepted accounting principles
applied on a basis consistent with prior periods and such that a chartered
accountant would, insofar as the use of accounting principles is pertinent, be
in a position to deliver an unqualified opinion as to financial statements in
which such principles have been properly applied.

      Governmental Authority. The term "Governmental Authority" shall mean any
government or any agency, bureau, board, commission, court, department,
official, political subdivision, tribunal or other instrumentality of any
government (foreign, federal, local or otherwise) and shall include any
international regulatory or trade body or organization and the FCC and any State
Regulatory Agency.

      Income Statement. The term "Income Statement" shall have the meaning
specified in

4
<PAGE>   5

Section 3.6.

      Indebtedness. The term "Indebtedness" shall mean all obligations,
contingent (to the extent required to be reflected in financial statements
prepared in accordance with GAAP) and otherwise, which in accordance with GAAP
should be classified on the obligor's balance sheet as liabilities, including
without limitation, in any event and whether or not so classified: (i) all debt
and similar monetary obligations, whether direct or indirect; (ii) all
liabilities secured by any mortgage, pledge, security interest, lien, charge or
other encumbrance existing on property owned or acquired subject thereto,
whether or not the liability secured thereby shall have been assumed; (iii) all
guarantees, endorsements and other contingent obligations whether direct or
indirect in respect of Indebtedness or performance of others, including any
obligation to supply funds to or in any manner to invest in, directly or
indirectly, the debtor to purchase Indebtedness or to assure the owner of
Indebtedness against loss, through an agreement to purchase goods, supplies or
services for the purpose of enabling the debtor to make payment of the
Indebtedness held by such owner or otherwise and (iv) obligations to reimburse
issuers of any letters of credit.

      Licenses. The term "Licenses" shall mean all licenses, permits, consents,
approvals, concessions and authorizations of all Governmental Authorities,
whether foreign, federal, state or local, including, without limitation, the
Federal Communications Commission and any State Regulatory Agency and their
equivalents in foreign countries.

      Lien. The term "Lien" shall mean (a) any encumbrance, mortgage, pledge,
lien, charge or other security interest of any kind upon any property or assets
of any character, or upon the income or profits therefrom; (b) any acquisition
of or agreement to have an option to acquire any property or assets upon
conditional sale or other title retention agreement, device or arrangement
(including a capitalized lease); or (c) any sale, assignment, pledge or other
transfer for security of any accounts, general intangibles or chattel paper,
with or without recourse.

      Majority Purchasers. The term "Majority Purchasers" shall mean, at any
time, the record holders of more than fifty percent (50%) of the outstanding
Purchased Securities.

      Material Adverse Effect. The term "Material Adverse Effect" shall mean,
with respect to any Person, any effect that is, or series of related effects
that are, in the aggregate, materially adverse to the business, assets,
properties, condition (financial or otherwise) or prospects of such Person.

      Person. The term "Person" shall mean an individual, partnership, limited
liability company, corporation, association, trust, joint venture,
unincorporated organization and any Governmental Authority.

      Purchased Securities. The term "Purchased Securities" shall mean the
Series C Preferred being purchased by the Purchasers pursuant to Section 2.1 of
this Agreement, the Common Stock issuable upon conversion of the Series C
Preferred or otherwise and any capital stock or other securities of the Company
issued or issuable in exchange therefor upon an exchange, conversion,
reorganization, reclassification, recapitalization, merger, consolidation or
other similar business transaction involving the Company, its Subsidiaries or
otherwise.

5
<PAGE>   6

      Purchaser. The term "Purchaser" shall mean the several purchasers named in
Schedule 2.1 (individually, a "Purchaser" and collectively, the "Purchasers")
and their respective successors and assigns.

      Related Agreements. The term "Related Agreements" shall mean the
Securityholders' Agreement and the Registration Rights Agreement.

      Registration Rights Agreement. The term "Registration Rights Agreement"
shall mean that certain Amended and Restated Registration Rights Agreement,
dated the Closing Date, by and among the Company, and the Purchasers, in the
form of Exhibit B attached hereto, as the same may be amended, modified or
supplemented from time to time.

      SEC. The term "SEC" shall mean the Securities and Exchange Commission.

      SEC Documents. The term "SEC Documents" shall have the meaning specified
in Section 3.17.

      Securities Act. The term "Securities Act" shall mean all applicable
securities laws, rules, regulations, notices and policies in force in the United
States, as amended, modified or supplemented from time to time.

      Securityholders' Agreement. The term "Securityholders' Agreement" shall
mean that certain Amended and Restated Securityholders' Agreement among the
Company, the Purchasers and certain holders of the Company's outstanding Common
Stock and Series B Preferred, in the form of Exhibit C attached hereto, as the
same may be amended, modified or supplemented from time to time.

      September Balance Sheet. The term "September Balance Sheet" shall have the
meaning specified in Section 3.6.

      Series C Preferred. The term "Series C Preferred" shall mean the Series C
Preferred Stock, $.001 par value, of the Company.

      State Regulatory Agency. The term "State Regulatory Agency" means any of
the various state regulatory agencies with primary regulatory jurisdiction over
telecommunications matters.

      Subsidiary. The term "Subsidiary" shall mean any Person of which the
Company or other specified Person now or hereafter shall at the time own,
directly or indirectly through a Subsidiary, at least a majority of the
outstanding Equity Securities (or other shares of beneficial interest) entitled
to vote generally.

      Tax or Taxes The term "Tax" or "Taxes" shall mean all taxes, charges,
fees, levies, imposts and other assessments, including all income, sales, use,
goods and services, value added, capital, capital gains, alternative net worth,
transfer, profits, withholding, payroll, employer health, excise, real property
and personal property taxes, and any other taxes, customs duties,

6
<PAGE>   7

fees, assessments or similar charges in the nature of a tax, including, without
limitation, pension plan contributions and workers compensation premiums,
together with any interest, fines and penalties imposed by any Governmental
Authority, and whether disputed or not.

      Section 1.2. Hereof, Herein, etc. 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. Unless otherwise specified herein, the term "or" has the inclusive
meaning represented by the term "and/or" and the term "including" is not
limiting. All references as to "Sections", "Subsections", "Articles",
"Schedules" and "Exhibits" shall be to Section, Subsections, Articles, Schedules
and Exhibits, respectively, of this Agreement unless otherwise specifically
provided.

      Section 1.3. Computation of Time Periods. In the computation of periods of
time from a specified date to a later specified date, unless otherwise specified
herein the words "commencing on" mean "commencing on and including", the word
"from" means "from and including" and the words "to" and "until" each means "to
and including".

                                   ARTICLE II

                    SALE AND PURCHASE OF PURCHASED SECURITIES

      Section 2.1. Sale and Purchase of the Purchased Securities. Subject to all
of the terms and conditions hereof and in reliance on the representations and
warranties set forth or referred to herein, the Company agrees to issue and sell
to each Purchaser and each Purchaser agrees to purchase, on the Closing Date,
the number of Purchased Securities set forth opposite the name of such Purchaser
on Schedule 2.1, at a purchase price per share equal to $28.00 (the "Per Share
Price"). Notwithstanding the foregoing, in the event the Company issues shares
of Common Stock, Series D Convertible Preferred Stock ("Series D Preferred") or
other class or series of Preferred Stock prior to the Closing Date and the
effective price per share of Common Stock issued or issuable upon conversion of
the Series D Preferred or effective cost per share of Common Stock of such other
class or series of Preferred Stock upon conversion is less than the Per Share
Price, such Per Share Price shall be reduced to the lowest of the issue price of
such Common Stock, such effective price per share of Common Stock issuable upon
conversion of the Series D Preferred or effective cost per share of Common Stock
issuable pursuant to such other class or series of Preferred Stock and the
number of shares of Purchased Securities to be purchased by each Purchaser shall
be increased proportionally. In addition, in such event appropriate changes
shall be made herein and in the Exhibits hereto to give effect to such lower Per
Share Price.

      Section 2.2. Closing. The closing of the purchase and sale of the
Purchased Securities contemplated by Section 2.1 (the "Closing") will take place
at the offices of Edwards & Angell, 2800 BankBoston Plaza, Providence, Rhode
Island 02903 at 10:00 a.m. on a mutually agreeable date within five (5) business
days of satisfaction of the Conditions to Closing contained in Article V (the
"Closing Date"). Subject to the satisfaction of the conditions to Closing set
forth in Article V, as payment in full for the Purchased Securities being
purchased by the Purchasers under this Agreement on the Closing Date, each
Purchaser shall deliver to the Company, in

7
<PAGE>   8

immediately available funds, the amount set forth opposite such Purchaser's name
under the heading "Aggregate Purchase Price of the Purchased Securities" on
Schedule 2.1, provided, however, that JK&B Capital III, L.P. shall pay for the
Purchased Securities to be purchased by it by delivery to the Company of $1.4
million in immediately available funds and the balance by delivery of its
promissory note due March 1, 2000 in the form set forth as Exhibit G.

      Section 2.3. Use of Proceeds. Proceeds from the sale of the Purchased
Securities hereunder shall be used for the expansion of the Company's
telecommunications network and sales and marketing program and for working
capital and general corporate purposes, as determined from time to time by the
Company's Board of Directors and consistent with the Company's business plan in
effect at such time.

                                   ARTICLE III

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

      In order to induce the Purchasers to enter into this Agreement and to
purchase the Purchased Securities, the Company hereby represents and warrants
that:

      Section 3.1. Organization and Existence. (a) The Company is duly
organized, validly existing and in good standing in its jurisdiction of
organization and is duly qualified as a foreign corporation and authorized to do
business in all other jurisdictions in which the nature of its business or
property makes such qualification necessary except where the failure to so
qualify would not have a Material Adverse Effect. The Company has the power to
own its properties and to carry on its business as now conducted and as proposed
to be conducted.

      (b) Each of the Company's Subsidiaries is duly organized, validly existing
and in good standing in its jurisdiction of incorporation and is duly qualified
as a foreign entity and authorized to do business in all other jurisdictions in
which the nature of its business or property makes such qualification necessary
and where the failure to so qualify would not have a Material Adverse Effect.
Each of the Subsidiaries has the power to own its properties and to carry on its
business as now conducted and as proposed to be conducted. The Company holds of
record all outstanding shares of each Subsidiary.

      Section 3.2. Authorization; No Conflicts. The execution, delivery and
performance by the Company of this Agreement and of each Related Agreement, and
the issuance and sale by the Company of the Purchased Securities hereunder, (a)
are within its power and authority, and (b) have been duly authorized by all
necessary action of the Company (including the audit committee of the Company's
Board of Directors) and its stockholders and by all other requisite proceedings.
Neither the execution and delivery by the Company of this Agreement or any
Related Agreement nor the consummation by the Company of the transactions
contemplated thereby (including, without limitation, the purchase and sale of
the Purchased Securities hereunder) (a) will violate any provision of the
Charter of the Company or any of its Subsidiaries, (b) will violate or conflict
with any applicable statute, law, ordinance, rule, regulation, order, judgment,
writ, injunction, license, permit or decree applicable to the Company or any of
its Subsidiaries, (c) will conflict with or constitute a violation of or a
default (or an

8
<PAGE>   9

event which with notice or lapse of time or both, would constitute a default)
under, or will result in the termination of, or accelerate performance required
by, any Contract to which the Company or any of its Subsidiaries is a party or
to which any of the assets or properties of the Company or any of its
Subsidiaries are subject, (d) will result in the creation of any Lien upon any
of the Equity Securities of the Company or any of its Subsidiaries or upon any
of the property or assets of the Company or any of its Subsidiaries, or (e) will
require the consent, authorization or approval of, or notice to or filing or
registration with, any Person, other than stockholder approval, if required by
Nasdaq.

      Section 3.3. Enforceability. The execution and delivery by the Company of
this Agreement and of each of the Related Agreements, and the issuance and sale
by the Company of the Purchased Securities hereunder, will result in legally
binding obligations of the Company enforceable against the Company in accordance
with the respective terms and provisions hereof and thereof, subject, however,
to limitations with respect to enforcement imposed by law in connection with
bankruptcy or similar proceedings, or to the extent that equitable remedies such
as specific performance and injunction are in the discretion of the court from
which they are sought.

      Section 3.4. Capitalization.

      (a) Schedule 3.4(a) accurately sets forth the number, type and class of
Equity Securities the Company is authorized to issue, the name and address of
those Persons owning 5% or more of the Company's outstanding Equity Securities
immediately prior to giving effect to the transactions contemplated hereby and
the number and class of Equity Securities owned by each such record owner. All
of the Company's issued Equity Securities have been duly authorized, validly
issued and outstanding and are fully paid and non-assessable.

      (b) Options, Etc. Except as set forth on Schedule 3.4(b) and except for
the rights of the Purchasers hereunder, no Person has any rights (either
pre-emptive or otherwise) or options to subscribe for or purchase from the
Company, or any warrants or other agreements providing for or requiring the
issuance by the Company of, any Equity Securities or other securities
convertible into or exchangeable for, or exercisable into Equity Securities of
the Company, or any voting trusts, proxies or agreements relating to the voting
of the Company's or any Subsidiary's Equity Securities. The number of shares of
Common Stock available for issuance under the Company's Stock Option Plan is
4,640,000. Schedule 3.4(b) sets forth the (i) name of each Person holding such
convertible or exchangeable securities, (ii) the type of security, (iii) the
amount of shares of Common Stock issuable upon exercise of such securities, and
(iv) the exercise price of such securities.

      (c) Registration Rights. Except as set forth on Schedule 3.4(c) and as
provided under the Registration Rights Agreement, no other holder of Equity
Securities has registration rights with respect to such Equity Securities.

      Section 3.5. Subsidiaries; Other Ownership Interests. Except as set forth
on Schedule 3.5 hereto, the Company does not have any Subsidiaries (foreign or
domestic) and does not own or hold of record and/or beneficially own or hold,
directly or through a Subsidiary, any Equity

9
<PAGE>   10

Securities of any corporation, general or limited partnership, limited liability
company, business trust or joint venture or in any other unincorporated trade or
business enterprise. Except as set forth on Schedule 3.5 hereto, all outstanding
Equity Securities of each such Subsidiary and such other business enterprises is
owned by the Company or another Subsidiary of the Company as set forth on such
Schedule 3.5, free and clear of any Lien, is validly issued and outstanding, and
is fully paid and non-assessable, and there are no commitments for the purchase
or sale of, and no options, warrants or other rights to subscribe for or
purchase, any Equity Securities of any such Subsidiary.

      Section 3.6. Reports and Financial Statements. Each Purchaser has
heretofore been furnished with the consolidated balance sheet and statement of
income and cash flow of the Company and its subsidiaries as of September 30,
1999 (the "September Balance Sheet") and statement of income for the nine-month
period ended September 30, 1999 (the "Income Statement", and together with the
September Balance Sheet, the "Current Financial Statements"), such September
Balance Sheet being attached hereto as Schedule 3.6.

      Section 3.7. Indebtedness and Liens. Neither the Company nor any of its
Subsidiaries has Indebtedness or Liens upon any of their properties other than
those which are reflected on the September Balance Sheet and Indebtedness
incurred in the ordinary course of business since September 30, 1999.

      Section 3.8. Taxes.

      (a) Each of the Company and its Subsidiaries has prepared and filed on
time with all appropriate Governmental Authorities all Tax returns and other
material documents that it has been required to file in respect of any Taxes for
all fiscal periods ending on or prior to the Closing Date and all such returns
or other material documents are correct and complete in all material respects.

      (b) Each of the Company and its Subsidiaries has paid in full all Taxes
due on or before the date hereof and, in the case of such Taxes accruing on or
before such date that are not due on or before such date, the Company has made
adequate provision in its books and records and financial statements (including
the September Balance Sheet) for such payment.

      Section 3.9. Title to Assets. Except as disclosed on Schedule 3.9, the
Company and its Subsidiaries own all of their assets, and have good and
marketable title with respect thereto, reflected in the September Balance Sheet,
subject to no Liens.

      Section 3.10. Necessary Property. Except as may be set forth in Schedule
3.10 and the other Schedules hereto, the properties and assets owned, leased by
or licensed to the Company or any of its Subsidiaries and reflected in the
Current Financial Statements and any properties or assets acquired since
September 30, 1999, constitute all of the material real and personal properties,
tangible and intangible, which are necessary, used or useful in the conduct of
its business in the manner and to the extent presently conducted by them.

10
<PAGE>   11

      Section 3.11. Compliance with Law.

      (a) Except as may be set forth in Schedule 3.11, neither the Company nor
any Subsidiary is in default under, or in violation of, any laws, rules or
regulations (including, without limitation, foreign, federal, state or local
laws, rules or regulations relating to the issuance or sale of securities,
telecommunications, anti-trust, occupational safety, the protection of the
environment, transportation, storage or disposal of hazardous waste,
anti-pollution and air and water quality laws), or any Licenses, granted by, or
any judgment, decree, writ, injunction or order of, any Governmental Authority,
applicable to its business or any of its properties or assets, which defaults
and violations would in the aggregate expose the Company and its Subsidiaries to
liabilities in excess of an aggregate of $250,000 or otherwise materially
adversely affect the assets or properties or business or operations of the
Company and its Subsidiaries or requiring or prohibiting future activities.
Neither the Company nor any Subsidiary has received any notification alleging
any violations of any of the foregoing with respect to which adequate corrective
action has not been taken.

      (b) Except as set forth on Schedule 3.11, there are no proceedings or
investigations pending or threatened, before the FCC or any State Regulatory
Agency directed specifically at the Company or, in the case of matters of
general applicability to the telecommunications industry, in which the Company
is identified for possible disparate treatment or whose outcome may have a
disparate impact on the Company in which any of the following matters are being
considered which are reasonably likely to have a material adverse effect on the
Company, nor has the Company or any of its Subsidiaries received written notice
or inquiry from the FCC or any State Regulatory Agency, indicating that any of
such matters should be considered or may become the object of consideration or
investigation specifically regarding the Company which are reasonably likely to
have a material adverse effect on the Company or, in the case of matters of
general applicability to the telecommunications industry, in which the Company
is identified for possible disparate treatment or whose outcome may have a
disparate impact on the Company: (a) increases or reductions in access charges,
universal service contributions or the like; (b) traffic routing restrictions or
restrictions on use of facilities; (c) reduction or restriction of rates charged
to customers; (d) reduction of earnings; (e) refunds or other forfeitures of
amounts previously charged to customers; (f) use of NXX codes; or (g) failure to
meet any expense, infrastructure, service quality or other commitments
previously made to or imposed by the FCC or any State Regulatory Agency.

      (c) Except as set forth on Schedule 3.11, neither the Company nor any of
its Subsidiaries has any outstanding commitments made in the context of a matter
or proceeding related specifically to the Company or, in the case of matters of
general applicability to the telecommunications industry, in which the Company
is identified for possible disparate treatment or whose outcome may have a
disparate impact on the Company (and no such obligations have been imposed upon
the Company and remain outstanding), regarding: (a) increases or reductions in
access charges, universal service contributions or the like; (b) traffic routing
restrictions or restrictions on use of facilities; (c) reduction or restriction
of rates charged to customers; (d) reduction of earnings; (e) refunds or other
forfeitures of amounts previously charged to customers; (f) use of NXX codes; or
(g) expenses, infrastructure expenditures, service quality or

11
<PAGE>   12

other regulatory requirements, to or by the FCC or any State Regulatory Agency,
in each case which are reasonably likely to have a material adverse effect on
the Company.

      Section 3.12. No Material Adverse Changes. Except as disclosed in the
Company's SEC Documents or as set forth on Schedule 3.12, since December 31,
1998, there has occurred no material adverse change in the business, assets,
properties, prospects, operations, or condition (financial or otherwise) of the
Company or any of its Subsidiaries, whether or not in the ordinary course of
business, whether separately or in the aggregate with other occurrences or
developments, and whether insured against or not.

      Section 3.13. No Brokers. Except as set forth on Schedule 3.13, the
Company has not employed any broker, finder, advisor or intermediary in
connection with the transactions contemplated hereby which would be entitled to
a broker's, finder's or similar fee or commission in connection therewith or
upon the consummation of the transactions contemplated by this Agreement or any
Related Agreement.

      Section 3.14. Network.

      (a) Schedule 3.14 sets forth, as of September 30, 1999, (i) the location
of each switch owned by the Company and the switch's make and model and (ii) the
location of all of the Company's colocation sites.

      (b) The Company's switches are (i) fully installed, (ii) interconnected to
the incumbent telephone company's local network and (iii) capable of carrying
commercial traffic.

      (c) The Company's colocation sites possess all of the necessary equipment
to carry commercial traffic and are linked via leased or owned transmission
cable to a switch owned by the Company.

      Section 3.15. Customers and Suppliers.

      (a) Schedule 3.15 sets forth as of September 30, 1999 (i) the total number
of lines sold and (ii) the total number of lines in service.

      (b) Less than three percent (3%) of the Company's consolidated revenues is
derived from local resale of telecommunications services.

      Section 3.16. Year 2000 Compliance. The Company has performed an audit to
determine if the material hardware and software systems used by the Company and
the Company's key vendors and suppliers are Year 2000 Compliant or will be Year
2000 Compliant by December 31, 1999, and, based on that, has formulated a plan
to make such systems Year 2000 Compliant, as more particularly described on
Schedule 3.16 (the "Year 2000 Compliance Plan"). The term "Year 2000 Compliant"
as used herein means that the computer systems at issue will accurately process,
provide, and receive date data from, into, and between the twentieth and
twenty-first centuries, including the years 1999 and 2000, and leap year
calculations. The Company represents that it is using its best efforts to
achieve the goals set

                                       12
<PAGE>   13

forth in its Year 2000 Compliance Plan, and that if such goals are achieved, the
material hardware and software systems used by the Company will be Year 2000
Compliant by December 31, 1999.

      Section 3.17. Financial Reports and SEC Documents. The Company's Annual
Reports on Form 10-K for the fiscal years ended December 31, 1998 and December
31, 1997, and all other reports, registration statements, definitive proxy
statements or information statements filed or to be filed by it under the
Securities Act, or under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act,
in the form filed or to be filed with the SEC (collectively, "SEC Documents"),
as of the date filed, (A) complied or will comply as to form with the applicable
requirements under the Securities Act or the Exchange Act, as the case may be,
and (B) did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; and each of the balance sheets contained in or
incorporated by reference into any of the Company's SEC Documents (including the
related notes and schedules thereto) fairly presents, or will fairly present,
the financial position of the Company and its Subsidiaries as of its date, and
each of the statements of income and changes in stockholders' equity and cash
flows or equivalent statements in the Company's SEC Documents (including any
related notes and schedules thereto) fairly presents, or will fairly present,
the results of operations, changes in stockholders' equity and changes in cash
flows, as the case may be, of the Company and its Subsidiaries for the period to
which they relate, in each case, in compliance with applicable accounting
requirements and with the published rules of the SEC with respect thereto and in
accordance with GAAP consistently applied during the periods involved, except,
in each case, as may be noted herein, subject to normal year-end audit
adjustments in the case of unaudited statements.

      Section 3.18. Disclosure. No representation, warranty or statement made in
this Agreement, any Purchased Security, any Related Agreement or any agreement,
certificate, statement or document furnished by or on behalf of the Company in
connection herewith or therewith when considered as a whole contains any untrue
statement of material fact or omits to state a material fact necessary in order
to make the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading.

                                   ARTICLE IV

                           PURCHASERS' REPRESENTATIONS

      Each of the Purchasers hereby, severally and not jointly, represents and
warrants to the Company as follows:

      Section 4.1. Organization and Good Standing. Such Purchaser is validly
existing and in good standing under the laws of the state of its formation.

      Section 4.2. Authorization. This Agreement and the Related Agreements to
which such Purchaser is a party have been executed by a duly authorized Person
on its behalf and the execution, delivery and performance hereof and thereof (a)
have been duly authorized by all appropriate action, and (b) will not violate
the provision of any material law or regulation of any

13
<PAGE>   14

Governmental Authority applicable to it or constitute a violation of any
material agreement or instrument by which it is bound.

      Section 4.3. Enforceability. The execution and delivery of this Agreement
and the Related Agreements and the transactions contemplated thereunder will
result in legally binding obligations of such Purchaser enforceable against such
Purchaser in accordance with the respective terms and provisions hereof and
thereof, subject, however, to limitations with respect to enforcement imposed by
law in connection with bankruptcy or similar proceedings or to the extent that
equitable remedies such as specific performance and injunction are in the
discretion of the court from which they are sought.

      Section 4.4. Investment Intent. Such Purchaser (i) is an "accredited
investor" as defined in Regulation D of the Securities Act, (ii) is acquiring
the Purchased Securities to be purchased by such Purchaser pursuant to Section
2.1 hereof for investment and not with a view to the distribution thereof, and
(iii) has not engaged any broker, agent or finder who may claim a fee in
connection with the acquisition of the Purchased Securities.

                                    ARTICLE V

            CONDITIONS TO PURCHASERS' OBLIGATION TO PURCHASE AND THE
                          COMPANY'S OBLIGATION TO SELL

      Section 5.1. Purchasers' Closing Conditions. Each Purchaser's obligation
to purchase the Purchased Securities pursuant to Section 2.1 is subject to
compliance by the Company with its agreements herein contained, and to the
satisfaction, on or prior to the Closing Date of the following conditions:

      (a) Related Agreements. Each of the Related Agreements shall have been
executed and delivered in the form attached hereto or in such other form
satisfactory to the Purchasers. All covenants, agreements and conditions
contained in the Related Agreements which are to be performed or complied with
on or prior to the Closing Date shall have been performed or complied with in
all material respects.

      (b) Charter Documents. The Purchasers shall have received from the Company
a copy, certified by the appropriate Governmental Authority to be true and
complete as of a date no more than twenty (20) days prior to the Closing Date,
of (a) the certificate of incorporation of the Company and (b) a certificate,
dated not more than twenty (20) days prior to the Closing Date, of the relevant
Governmental Authority or other appropriate official of each State in which the
Company is incorporated or qualified to do business, as to the Company's good
standing in such State or qualification to do business, as the case may be.

      (c) Proof of Action. The Purchasers shall have received from the Company
copies, certified by a duly authorized officer thereof to be true and complete
as of the Closing Date, of the records of all action taken to authorize the
execution, delivery and performance of this Agreement and each of the Related
Agreements to which the Company is a party.

14
<PAGE>   15

      (d) Incumbency Certificate. The Purchasers shall have received from the
Company an incumbency certificate, dated the Closing Date, signed by a duly
authorized officer thereof and giving the name and bearing a specimen signature
of each individual who shall be authorized to sign, in the name and on behalf of
the Company, this Agreement and each of the Related Agreements to which the
Company is or is to become a party, and to give notices and to take other action
on behalf of the Company under each of such documents.

      (e) Legal Opinion. The Purchasers shall have received from Ellis, Funk,
Goldberg, Labovitz & Dokson, P.C., counsel to the Company, an opinion
substantially in the form of Exhibit D attached hereto.

      (f) Regulatory Opinion. The Purchasers shall have received from Kelley
Drye & Warren LLP, regulatory counsel to the Company, an opinion reasonably
satisfactory to the Purchasers, or otherwise substantially in the form of
Exhibit E attached hereto.

      (g) Representations and Warranties; Covenants; Officers' Certificates. The
representations and warranties contained or incorporated by reference herein
shall be true and correct in all material respects (except those representations
and warranties qualified by materiality, which shall be true and correct in all
respects) on and as of the Closing Date. The Company shall have performed and
complied with all conditions and agreements required to be performed or complied
with by it prior to the Closing. The Purchasers shall have received on the
Closing Date a certificate with respect to the foregoing executed by an
authorized officer of the Company.

      (h) Legality; Governmental and Other Authorizations. The purchase of the
Purchased Securities shall not be prohibited by any law or governmental order or
regulation, and shall not subject any Purchaser to any penalty, special Tax, or
other onerous condition. All necessary consents, approvals, Licenses, orders and
authorizations of, and registrations, declarations and filings with, any
Governmental Authority (including the FCC and any State Regulatory Agency) or
any other Person, with respect to any of the transactions contemplated by this
Agreement or any of the Related Agreements, shall have been duly obtained or
made and shall be in full force and effect. The Nasdaq Stock Market ("Nasdaq")
shall have issued written confirmation to the Company satisfactory to the
Purchasers stating that stockholder approval of the transactions contemplated
hereby is not required by Nasdaq's rules and regulations or, if the approval of
the Company's stockholders is so required, then such approval shall have been
validly obtained.

      (i) Filing of Certificate of Designation. The Purchasers shall have
received satisfactory evidence of the filing of the Certificate of Designation
with the Secretary of State of Nevada.

      (j) Payment of Certain Fees and Disbursements. The Purchasers shall have
been reimbursed for all reasonable costs and expenses (including, but not
limited to, legal, consulting and accounting) incurred by them through the
Closing Date in connection with the transactions contemplated by this Agreement.

      (k) Amendment. The Certificate of Designation for the Series B Preferred
shall have

15
<PAGE>   16

been amended to read as set forth in Exhibit F hereto.

      (l) General. All instruments and corporate proceedings in connection with
the transactions contemplated by this Agreement and the Related Agreements shall
be satisfactory in form and substance to the Purchasers and their counsel, and
the Purchasers shall have received copies of all documents, including, without
limitation, records of corporate or other proceedings, opinions of counsel and
consents which the Purchaser may have reasonably requested in connection
therewith.

      The agreements, certificates, documents, other evidence of compliance and
opinions described in this Section 5.1 shall be in form and substance reasonably
acceptable to each Purchaser, and shall, except as otherwise provided, be
delivered to the Purchasers at the Closing; provided, however, any one or more
of the foregoing conditions may be waived with the prior written consent of each
Purchaser.

      Section 5.2. Company's Closing Conditions. The Company's obligation to
sell the Purchased Securities pursuant to Section 2.1 is subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:

      a. Representations and Warranties. The representations and warranties of
the Purchasers contained herein shall be true and correct in all material
respects (except those representations and warranties qualified by materiality,
which shall be true and correct in all respects) on and as of the Closing Date.

      b. Sufficient Investment. The Purchasers shall be prepared to purchase at
least $35,000,000 of Purchased Securities pursuant to Section 2.1.

      c. Certain Agreements. The Securityholders Agreement and Registration
Rights Agreement shall have been executed and delivered by the Purchasers.

      d. Charter Amendment. The Company's Board of Directors and the holders of
a majority of the Company's outstanding Series B Preferred Stock shall have
approved the Certificate of Designation for the Series C Preferred and the
Amended and Restated Certificate of Designation for the Company's Series B
Preferred Stock.

                                   ARTICLE VI

                 COVENANTS APPLICABLE TO THE COMPANY WHILE ANY
                      PURCHASED SECURITIES ARE OUTSTANDING

      The Company covenants that while any of the Purchased Securities are held
by any of the Purchasers or an assignee thereof, other than a transferee
pursuant to a public sale, the Company will cooperate with the Purchasers and
will execute, acknowledge and deliver, or cause to be executed, acknowledged or
delivered, all such further acts, deeds, documents, assignments, transfers,
conveyances, powers of attorney and assurances as the Purchasers shall
reasonably request to carry out to the satisfaction of the Purchasers the
transactions contemplated by this

16
<PAGE>   17

Agreement and the Related Agreements.

                                   ARTICLE VII

                DELIVERY OF FINANCIAL AND OTHER REPORTS WHILE ANY
                      PURCHASED SECURITIES ARE OUTSTANDING

      The Company hereby agrees that so long as 250,000 shares of Series C
Preferred are outstanding (subject to adjustment for stock splits, stock
dividends and similar events) it will provide to each Purchaser holding at least
250,000 shares of Series C Preferred and/or Common Stock (subject to adjustment
for stock splits, stock dividends and similar events) (a "Qualified Purchaser")
the information called for by the following provisions, so long as such
Qualified Purchaser has acknowledged in writing that it will be precluded from
trading in the Company's stock while in possession of material information
concerning the Company that has not been disclosed to the public:

      Section 7.1. Monthly Statements. Within thirty (30) days after the end of
each month, commencing with the month ending October 31, 1999, the Company will
deliver to each Qualified Purchaser internal, unaudited consolidated balance
sheet and statement of income and retained earnings and of cash flow of the
Company and its Subsidiaries as of the end of each such month, together with
comparative information to the results for the same month of the prior year, and
to the budget for such month and year to date results with a comparison of such
year-to-date information to budget and to the comparable period of the prior
year.

      Section 7.2. Other Financial Information. The Company will deliver to each
Qualified Purchaser prior to the commencement of each fiscal year, an annual
budget and projected monthly balance sheets and statements of income and
quarterly statements of cash flow for such fiscal year, prepared on a
comparative basis to the previous year and as soon as practical after
preparation thereof, complete copies of all quarterly (if any) or annual
budgetary analyses or forecasts of the Company and its Subsidiaries in the form
customarily prepared by management for its own internal use or the use of the
Board of Directors of the Company.

      Section 7.3. Officers' Certificates. Together with delivery of the
financial statements of the Company and its Subsidiaries pursuant to Sections
7.1 and 7.2, the Company shall deliver to each Qualified Purchaser a certificate
of the President, chief financial officer or Treasurer of the Company to the
effect that (a) such statements have been prepared in accordance with GAAP and
present fairly the financial position of the Company and its Subsidiaries as of
the dates specified and the results of its operations and cash flow with respect
to the periods specified (subject in the case of interim financial statements
and the year-end financials, when delivered prior to their having been audited,
only to normal year-end audit adjustments), and (b) such officers have caused
the provisions of this Agreement and the Purchased Securities to be reviewed and
have no knowledge of any default, or if either such officer has such knowledge,
specifying such default and the nature thereof, and what action the Company has
taken, is taking or proposes to take with respect thereto.

      Section 7.4. Notice of Litigation, Defaults, Etc. The Company will
promptly give

17
<PAGE>   18

notice to each Qualified Purchaser of any litigation or any administrative
proceeding to which the Company or any of its Subsidiaries may hereafter become
a party which may result in a Material Adverse Effect on the Company or any of
its Subsidiaries. Forthwith upon any officer of the Company obtaining knowledge
of any material default under a material agreement or any default or event of
default under this Agreement or any Related Agreement, the Company will furnish
a notice specifying the nature and period of existence thereof, what action the
Company has taken, is taking or proposes to take with respect thereto. Promptly
after the receipt thereof, the Company will provide copies of any reports as to
adequacies in accounting controls submitted by independent accountants with
respect to the Company and its Subsidiaries.

      Section 7.5. Other Information. The Company will deliver to each Qualified
Purchaser copies of all papers distributed from time to time to the members or
stockholders of the Company at such time as such papers are so distributed to
them. In addition, from time to time upon the request of a Qualified Purchaser,
the Company will furnish such information regarding the business, affairs,
prospects and financial condition of the Company and its Subsidiaries as the
representatives or officers of a Qualified Purchaser may reasonably request.
Each such representative and officer shall have the right during normal business
hours to examine the books and records of the Company or any of its Subsidiaries
to make copies, notes and abstracts therefrom, and to make an independent
examination, at such Qualified Purchaser's cost, of the books and records of the
Company or any of its Subsidiaries, all at such reasonable times and intervals
as the applicable Qualified Purchaser may reasonably request.

                                  ARTICLE VIII

                               EXPENSES; INDEMNITY

      Section 8.1. Expenses. The Company hereby agrees to pay at the Closing all
reasonable fees, costs and expenses incurred by the Purchasers in connection
with the transactions hereunder and in connection with any amendments or waivers
(whether or not the same become effective) hereof and all reasonable expenses
incurred by the Purchasers in connection with the enforcement of any rights
hereunder or with respect to any Purchased Security, including without
limitation (i) the cost and expenses of preparing and duplicating this
Agreement, each Related Agreement and the Purchased Securities; (ii) the cost of
delivering to each Purchaser's principal office, insured to such Purchaser's
satisfaction, the Purchased Securities sold to such Purchaser hereunder and any
securities delivered to such Purchaser in exchange therefor or upon any
exercise, conversion or substitution thereof; (iii) the reasonable fees,
expenses and disbursements of one counsel for the Purchasers, in connection with
the preparation, administration or interpretation of this Agreement and the
Related Agreements and other agreements, documents and instruments mentioned
herein or therein, the Closing, any amendments, modifications, approvals,
consents or waivers hereto, thereto, hereunder or thereunder; (iv) the
out-of-pocket fees, expenses and costs incurred by the Purchasers in connection
with the Purchasers' due diligence investigation of the Company and its
Subsidiaries; and (v) all Taxes (other than Taxes determined with respect to
income and Taxes relating to any transfer of the Purchased Securities to any
Person other than to the Company) including, without limitation, any recording
fees, filing fees and documentary stamp and similar Taxes at any time payable in
respect of this Agreement or any Related Agreement or the issuance of any of the
Purchased Securities and any securities

18
<PAGE>   19

issued in exchange therefor or upon any exercise, conversion or substitution
thereof. Further, the Company agrees to pay all reasonable legal, consulting,
accounting, appraisal and investment banking fees and charges incurred by any
holder of the Purchased Securities or their representatives in connection with
the enforcement of or preservation of rights under this Agreement or any Related
Agreement in the event of a breach or reasonably alleged breach by the Company
of its obligations hereunder or thereunder.

      Section 8.2. Indemnification. The Company hereby further agrees to
indemnify, exonerate and hold each Purchaser and its (if applicable) general and
limited partners and their respective shareholders, officers, directors,
employees and agents free and harmless from and against any and all actions,
causes of action, suits, losses, liabilities, damages and expenses, including,
without limitation, reasonable attorneys' fees and disbursements, incurred in
any capacity by any of the indemnities as a result of or relating to (i) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with proceeds from the sale of any of the Purchased Securities, (ii)
the execution, delivery, performance or enforcement of this Agreement, the
Related Agreements or any agreement, document or instrument contemplated hereby
or thereby (including, without limitation, any failure by the Company to comply
with any of the covenants thereunder), or (iii) any breach of any representation
or warranty of the Company in this Agreement or any Related Agreement.

      Section 8.3. Brokers' Fees. The Company hereby indemnifies each Purchaser
against and agrees that it will hold it harmless from any claim, demand or
liability for any broker's, finder's or similar fee or commission alleged to
have been incurred by the Company (and not by a Purchaser) in connection with
the transactions contemplated by this Agreement or any Related Agreement.

                                   ARTICLE IX

                                     NOTICES

      Any notices or other communications required to be given pursuant to this
Agreement shall be in writing and shall be deemed given: (i) upon delivery, if
by hand; (ii) three (3) Business Days after mailing, if sent by registered or
certified mail, postage prepaid, return receipt requested; (iii) one (1)
Business Day after mailing, if sent via overnight courier; or (iv) upon
transmission, if sent by telex or facsimile except that if such notice or other
communication is received by telex or facsimile after 5:00 p.m. on a Business
Day at the place of receipt, it shall be effective as of the following Business
Day. All notices and other communications hereunder shall be given as follows:

      (a)   If to the Company, to it at:

            MGC Communications, Inc.
            3301 North Buffalo Drive
            Las Vegas, Nevada 89129
            Attention: Maurice J. Gallagher, Jr.
            Facsimile: (702) 310-5715
            Telephone: (702) 310-1000

19
<PAGE>   20

            with a copy to:

            Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.
            3490 Piedmont Rd., Suite 400
            Atlanta, GA 30305
            Attention: Robert B. Goldberg, Esq.
            Facsimile: 404-233-2188
            Telephone: 404-233-2800 X222

      (b)   If to Providence Equity Partners III L.P. or Providence Equity
            Operating Partners III L.P., to it at:

            c/o Providence Equity Partners L.L.C.
            901 Fleet Center
            50 Kennedy Plaza
            Providence, Rhode Island 02903
            Attention: Mark Masiello
            Facsimile: (401) 751-1790
            Telephone: (401) 751-1700

            with a copy to:

            Edwards & Angell, LLP
            2800 BankBoston Plaza
            Providence, Rhode Island 02903
            Attention: David K. Duffell, Esq.
            Facsimile: 401-276-6602
            Telephone: 401-274-9200

      (c)   If to another Purchaser, to it at the address set forth on Schedule
            2.1

Any party may change its address for receiving notice by written notice given to
the other names above in the manner provided above.

                                    ARTICLE X

                       SURVIVAL OF COVENANTS, AGREEMENTS,
                    REPRESENTATIONS AND WARRANTIES, TRANSFER

      All covenants, agreements, representations and warranties made herein to
the Purchasers or the Company or in any other document referred to herein or
delivered to the Purchasers or the Company pursuant hereto shall be deemed to
have been relied on by each of the Purchasers and the Company, notwithstanding
any investigation made by any of the Purchasers or on their behalf, or by the
Company, and shall survive the execution and delivery of this Agreement and
other such documents and the delivery to the Purchasers of the Purchased
Securities for a period of eighteen (18) months after the Closing Date, except
for the representations and warranties

20
<PAGE>   21

contained in Sections 3.1, 3.2, 3.3, and 3.8 which shall survive the Closing and
continue in full force and effect forever thereafter (subject to any applicable
statute of limitations). Whether or not any express assignment has been made in
this Agreement, the provisions of this Agreement that are for the benefit of any
Purchaser as the holder of any Purchased Securities are also for the benefit of,
and enforceable by, all subsequent holders of the Purchased Securities, and the
provisions of this Agreement that subject any Purchaser to obligations as the
holder of any Purchased Securities also subject all subsequent holders of
Purchased Securities thereto.

                                   ARTICLE XI

                             AMENDMENTS AND WAIVERS

      No modification to or amendment of any provision of this Agreement shall
be effective against the Company or any Purchaser unless such modification or
amendment is approved in writing by the Majority Purchasers and the Company. No
waiver of the rights and obligations hereunder of any party hereto shall be
effective unless such waiver is in writing and duly executed and delivered by
(a) the Majority Purchasers (in the event such waiver is sought by the Company),
or (b) the Company (in the event such waiver is sought by any Purchaser). The
failure of any party hereto to enforce any of provision of this Agreement shall
in no way be construed as a waiver of such provision and shall not affect the
right of such party thereafter to enforce each and every provision of this
Agreement in accordance with its terms. Any amendment or waiver effected in
accordance with this Article XI shall be binding upon the Company and each
holder of any Purchased Security sold pursuant to this Agreement.

                                   ARTICLE XII

                              WAIVER OF JURY TRIAL

      EACH OF THE COMPANY AND THE PURCHASERS HEREBY EXPRESSLY WAIVES ANY RIGHT
IT MAY HAVE TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING EXISTING UNDER OR
RELATING TO THIS AGREEMENT, THE PURCHASED SECURITIES OR ANY OF THE RELATED
AGREEMENTS.

                                  ARTICLE XIII

                                  GOVERNING LAW

      THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF RHODE ISLAND WITHOUT GIVING EFFECT TO ANY CHOICE OR
CONFLICT OF LAW PROVISION OR RULE THAT WOULD CAUSE THE APPLICATION OF THE
SUBSTANTIVE LAWS OF ANY OTHER STATE, AND SHALL BIND AND INURE TO THE BENEFIT OF
THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.

                                   ARTICLE XIV

21
<PAGE>   22

                              PUBLIC ANNOUNCEMENTS

      The Company hereby acknowledges that each Purchaser will have the right to
publicize its investment in the Company as contemplated hereby by means of a
press release reasonably acceptable to the Company, a tombstone advertisement or
other customary advertisement in newspapers and other periodicals. The Majority
Purchasers shall have the right to reasonably approve in advance the content of
any public announcement by the Company regarding the transactions contemplated
hereby.

                                   ARTICLE XV

                               TIME OF THE ESSENCE

                 Time shall be of the essence of this Agreement.

                                   ARTICLE XVI

                ENTIRE AGREEMENT; COUNTERPARTS; SECTION HEADINGS

      This Agreement, the Purchased Securities and the Related Agreements set
forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby and supersede any prior written or oral
understandings with respect thereto. This Agreement may be executed
simultaneously in one or more counterparts thereof, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument. Signatures sent by telecopy shall be deemed to constitute original
signatures. The headings in this Agreement are for convenience of reference only
and shall not alter or otherwise affect the meaning hereof.

                  [Remainder of page intentionally left blank.]

22
<PAGE>   23

      If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and the accompanying copies thereof in the appropriate
space below.

                                        Very truly yours,

                                        MGC COMMUNICATIONS, INC.

                                        By:
                                            Name:
                                            Title:

Accepted and agreed to:

PROVIDENCE EQUITY PARTNERS III L.P.
By: Providence Equity Partners III L.L.C., its general partner

By:________________________________
   Managing Director

PROVIDENCE EQUITY OPERATING PARTNERS III L.P.
By: Providence Equity Partners III L.L.C., its general partner

By:________________________________
   Managing Director

JK&B CAPITAL III L.P.
By: JK&B Capital, LLC, its general partner

By:

                [Signature page to Securities Purchase Agreement]

                                       23
<PAGE>   24

JK&B CAPITAL, L.P.
By:                                              , its general partner

By:

JK&B CAPITAL II, L.P.
By:                                              , its general partner

By:

JK&B CAPITAL III QIP, L.P.
By:                                              , its general partner

By:

                [Signature page to Securities Purchase Agreement]

24
<PAGE>   25

                                  SCHEDULE 2.1

                               List of Purchasers

<TABLE>
<CAPTION>
                                                                     Aggregate
                                                                  Purchase Price
                                    Number of Purchased               of the
                                     Securities to be               Purchased
            Name and Address            Purchased *                 Securities
            ----------------        -------------------           --------------
<S>                                 <C>                           <C>
      1. Providence Equity
            Partners III L.P.       886,259 shares of
         Suite 900, Fleet Center    Series C
         50 Kennedy Plaza           Convertible
         Providence, RI  02903      Preferred Stock                  $24,815,252

      2. Providence Equity
         Operating
            Partners III L.P.       6,598 shares of
         Suite 900, Fleet Center    Series C
         50 Kennedy Plaza           Convertible
         Providence, RI  02903      Preferred Stock                     $184,744

      3. JK&B Capital III L.P.      225,000 shares of
         205 N. Michigan Avenue     Series C
         Suite 808                  Convertible
         Chicago, IL  60601         Preferred Stock                   $6,300,000

      4. JK&B Capital, L.P.         59,524 shares of
         205 N. Michigan Avenue     Series C
         Suite 808                  Convertible
         Chicago, IL  60601         Preferred Stock                   $1,666,672

      5. JK&B Capital II, L.P.      29,762 shares of
         205 N. Michigan Avenue     Series C
         Suite 808                  Convertible
         Chicago, IL  60601         Preferred Stock                     $833,336

      6. JK&B Capital III QIP, L.P. 42,857 shares of
         205 N. Michigan Avenue     Series C
         Suite 808                  Convertible
         Chicago, IL  60601         Preferred Stock                   $1,200,000

                             Total:           1,250,000              $35,000,004
</TABLE>

* Subject to adjustment as provided in Section 2.1.
<PAGE>   26

                                   Exhibit A
                                       to
                          Securities Purchase Agreement

                          Dated as of November 19, 1999

                           Certificate of Designation

26
<PAGE>   27

                                    Exhibit B
                                       to
                          Securities Purchase Agreement

                          Dated as of November 19, 1999

                      Form of Registration Rights Agreement

27
<PAGE>   28

                                    Exhibit C
                                       to
                          Securities Purchase Agreement

                          Dated as of November 19, 1999

                       Form of Securityholders' Agreement

28
<PAGE>   29

                                    Exhibit D
                                       to
                          Securities Purchase Agreement

                          Dated as of November 19, 1999

                        Form of Company Corporate Opinion

29
<PAGE>   30

                                    Exhibit E
                                       to
                          Securities Purchase Agreement

                          Dated as of November 19, 1999

                       Form of Company Regulatory Opinion

30
<PAGE>   31

                                    Exhibit G
                                       to
                          Securities Purchase Agreement

                          Dated as of November 19, 1999

                             Form of Promissory Note

31

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