Document:

CONFORMED COPY

                            DATED 20th October, 2000

                                       By

                                  VIATEL, INC.

                                   RELATING TO

                          E170,600,000 LEASING FACILITY

                                       FOR

                               VIATEL U.K. LIMITED

                    -----------------------------------------
                        CORPORATE GUARANTEE AND INDEMNITY
                    -----------------------------------------

                                [Graphic removed]

<PAGE>

                                      INDEX
<TABLE>
<CAPTION>
CLAUSE                                                                      PAGE
<S>      <C>                                                                 <C>

1.       Interpretation....................................................    1
2.       Guarantee.........................................................    3
3.       Payments..........................................................    6
4.       Taxes and Calculation of Payments.................................    7
5.       Representations and Warranties....................................    8
6.       Undertakings......................................................   11
7.       Currency Indemnity................................................   12
8.       Evidence..........................................................   13
9.       Amendments and Waivers............................................   13
10.      Changes to the Parties............................................   14
11.      Set-off...........................................................   14
12.      Severability......................................................   14
13.      Counterparts......................................................   14
14.      Notices...........................................................   15
15.      Expenses..........................................................   15
16.      Further Assurance.................................................   16
17.      Language..........................................................   16
18.      Jurisdiction......................................................   16
19.      Waiver of Immunity................................................   17
20.      confidentiality...................................................   18
21.      Governing Law.....................................................   18

SCHEDULE OF COVENANTS......................................................   19

SIGNATORIES................................................................   50
</TABLE>

<PAGE>

THIS GUARANTEE AND INDEMNITY is dated 20th October, 2000,

BETWEEN:

(1)      VIATEL,  INC.  a  company  incorporated  under the laws of the State of
         Delaware and with its principal  place of business at 685 Third Avenue,
         New York, NY 10017, USA (the "COMPANY"); and

(2)      DRESDNER KLEINWORT BENSON FINANCE LIMITED (Registered No. 212857) whose
         registered  office is at 20 Fenchurch  Street,  London EC3P 3DB (in its
         capacity  as  security  trustee for and on behalf of itself and each of
         the Lessor Risk Parties,  and together with its  successors,  permitted
         assigns and permitted transferees, the "LESSOR").

BACKGROUND:

(A)      This Lease Guarantee relates to a E170,600,000  lease purchase facility
         to be made  available  to the  Lessee by the Lessor on the terms of the
         Master Lease Purchase Agreement.

(B)      It is  intended  that  this  Lease  Guarantee  takes  effect  as a deed
         notwithstanding that a party may execute it only under hand.

IT IS AGREED as follows:

1.       INTERPRETATION

1.1      DEFINITIONS

         In this Lease Guarantee:

         "AFFILIATE"

         means a  subsidiary  or a  holding  company  of a person  or any  other
         subsidiary of that holding company for which purpose  "SUBSIDIARY"  and
         "HOLDING  COMPANY"  have  the  meanings  respectively  given to them by
         section 736 and 736A of the Companies Act 1985.

         "BUSINESS DAY"

         means a day (other than a Saturday or a Sunday) on which banks are open
         for business in London and New York.

         "EVENT OF DEFAULT"

         means an Event of Default  as that term is defined in the Master  Lease
         Purchase Agreement.

         "GROUP"

         means,  in relation to any company,  that company and any company which
         is a holding company or subsidiary of such holding  company,  for which
         purpose   "SUBSIDIARY"   and  "HOLDING   COMPANY"   have  the  meanings
         respectively given to them by section 736 and 736A of the Companies Act
         1985.

<PAGE>

         "INCAPACITY"

         means, in relation to a person, the death,  bankruptcy,  unsoundness of
         mind, insolvency, liquidation, dissolution, winding-up, administration,
         receivership, amalgamation,  reconstruction or other incapacity of that
         person  whatsoever  (and,  in the case of a  partnership,  includes the
         termination or change in the composition of the partnership).

         "INDEMNIFIED PERSONS"

         means the Lessor and each other Lessor Risk Party and their  respective
         agents, assigns, directors, employees, officers, secondees and servants
         and "INDEMNIFIED PERSON" shall be construed accordingly.

         "LESSEE"

         means Viatel U.K. Limited.

         "MASTER LEASE PURCHASE AGREEMENT"

         means the master lease purchase agreement of even date herewith between
         the Lessor and the Lessee.

         "MATERIAL CONTRACTS" includes:

         (i)      any material licence issued to the Lessee,  the Company or any
                  other  member  of the  Company's  Group and  required  for the
                  installation and utilisation of telecommunications networks in
                  the Relevant Countries in which Equipment is located; or

         (ii)     any other licence or agreement the termination or expiration
                  of which would cause a Material Adverse Change.

         "MATERIAL SUBSIDIARY"

         means any  Subsidiary  (as defined in the Schedule of Covenants to this
         Lease Guarantee) which is not an Unrestricted Subsidiary (as defined in
         the Schedule of Covenants to this Lease Guarantee).

         "SECURED LIABILITIES"

         means all present and future  obligations and liabilities  (whether for
         the payment of money or otherwise,  whether  actual or  contingent  and
         whether owed jointly or severally or in any other capacity  whatsoever)
         of the Lessee to the Lessor under the  Transaction  Documents  together
         with all legal and other costs,  charges and expenses  which the Lessor
         may properly incur in enforcing or obtaining  payment or performance of
         any  such  monies,  obligations  or  liabilities  from  the  Lessee  or
         attempting so to do.

         "SECURITY INTEREST"

         means any mortgage,  pledge,  security interest,  encumbrance,  lien or
         charge of any kind (including, without limitation, any conditional sale
         or other title  retention  agreement or lease in the nature  thereof or
         any agreement to give any security interest).

                                       2
<PAGE>

         "SECURITY PERIOD"

         means  the  period  from the date of this  Lease  Guarantee  until  the
         Secured   Liabilities   have  been   unconditionally   and  irrevocably
         discharged and paid in full.

         "VAT"

         means value added tax as provided for, in the United  Kingdom,  in VATA
         and  in  any  other  Relevant  Country,   equivalent   legislation  and
         legislation (whether delegated or otherwise) supplemental thereto or in
         any primary or  subordinate  legislation  promulgated  by the  European
         Union or any body or agency  thereof and any tax similar or  equivalent
         to value added tax imposed by any country other than the United Kingdom
         and any similar or turnover Tax  replacing or introduced in addition to
         any of the same.

         "VATA"

         means the Value Added Tax Act 1994.

1.2      Construction

         (a)      The  principles  of   construction   set  out  in  Clause  1.2
                  (Construction)  of the Master Lease Purchase  Agreement  shall
                  apply to this Lease Guarantee as if set out in full herein and
                  as if all references  therein to "this Master  Agreement" were
                  references to this Lease Guarantee.

         (b)      A term defined in the Master Lease Purchase  Agreement has the
                  same meaning when used in this Lease  Guarantee,  unless it is
                  otherwise  defined  in this  Lease  Guarantee  or the  context
                  otherwise requires.

         (c)      A person  who is not a party to this Lease  Guarantee  may not
                  enforce  its  terms  under  the  Contracts  (Rights  of  Third
                  Parties) Act 1999.

2.       GUARANTEE

2.1      GUARANTEE

         The Company irrevocably and unconditionally:

         (a)      as  principal   obligor   guarantees   to  the  Lessor  prompt
                  performance by the Lessee of all of the Secured Liabilities;

         (b)      undertakes  with the Lessor that  whenever the Lessee does not
                  pay any  amount  when  due  under  or in  connection  with any
                  Transaction Document, the Company shall forthwith on demand by
                  the Lessor pay that  amount as if the  Company  instead of the
                  Lessee were expressed to be the principal obligor;

         (c)      as a separate and independent stipulation,  agrees that if any
                  purported  obligation  or  liability of the Lessee which would
                  have been the  subject  of this  Lease  Guarantee  had it been
                  valid  and  enforceable  is  not  or  ceases  to be  valid  or
                  enforceable  against  the  Lessee  on  any  ground  whatsoever
                  whether  or  not  known  to  the  Lessor  (including,  without
                  limitation, any irregular exercise or absence of any corporate
                  power or lack of  authority  of,  or  breach  of duty by,  any

                                       3
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                  person  purporting to act on behalf of the Lessee or any legal
                  or other  limitation,  whether  under the  Limitation  Acts or
                  otherwise or any disability or Incapacity or any change in the
                  constitution of the Lessee) the Company shall  nevertheless be
                  liable to the Lessor in respect of that  purported  obligation
                  or liability  as if the same were fully valid and  enforceable
                  and the Company were the principal  debtor in respect  thereof
                  and  shall be paid or caused  to be paid by the  Company  upon
                  demand of the Lessor; and

         (d)      as  principal  obligor  and  as  a  separate  and  independent
                  obligation  and  liability,  indemnifies  the Lessor on demand
                  against any Losses suffered by any of the Indemnified  Persons
                  from  time to  time  in  connection  with  or as a  direct  or
                  indirect result of:

                  (i)      any of the  warranties and  representations  from the
                           Lessee to the Lessor  made in any of the  Transaction
                           Documents  being untrue or  inaccurate in any respect
                           when made or deemed to be made;

                  (ii)     any breach, default or failure by the Lessee duly and
                           punctually  to perform and observe any of the Secured
                           Liabilities; and

                  (iii)    any of the Transaction  Documents in whole or in part
                           being or becoming void, voidable, invalid, illegal or
                           unenforceable  as  against  the Lessee for any reason
                           whatsoever, whether or not known to the Lessor.

2.2      CONTINUING GUARANTEE

         This Lease  Guarantee is a continuing  guarantee and will extend to the
         ultimate   balance  of  all  sums  payable  by  the  Lessee  under  the
         Transaction  Documents,  regardless  of  any  intermediate  payment  or
         discharge in whole or in part.

2.3      REINSTATEMENT

         (a)      Where any discharge  (whether in respect of the obligations of
                  the Lessee or any security for those obligations or otherwise)
                  is made in whole or in part or any  arrangement is made on the
                  faith of any payment,  security or other  disposition which is
                  avoided or must be  restored  on  insolvency,  liquidation  or
                  otherwise  without  limitation,  the  liability of the Company
                  under this  Clause 2 shall  continue  as if the  discharge  or
                  arrangement had not occurred.

         (b)      The  Lessor  may  concede  or  compromise  any claim  that any
                  payment,  security or other disposition is liable to avoidance
                  or restoration.

2.4      WAIVER OF DEFENCES

         The obligations of the Company under this Clause 2 will not be affected
         by an act,  omission,  matter or thing which,  but for this  provision,
         would reduce,  release or prejudice any of its  obligations  under this
         Clause 2 or  prejudice  or diminish  those  obligations  in whole or in
         part, including (whether or not known to it or the Lessor):

         (a)      any time or waiver granted to, or composition with, the Lessee
                  or any other person;

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         (b)      the release of the Lessee or any other  person under the terms
                  of any  composition  or  arrangement  with any creditor of any
                  member of the Company's Group;

         (c)      the  taking,  variation,   compromise,  exchange,  renewal  or
                  release  of, or  refusal or  neglect  to  perfect,  take up or
                  enforce,  any rights against,  or security over assets of, the
                  Lessee  or  any  other  person  or  any   non-presentation  or
                  non-observance  of  any  formality  or  other  requirement  in
                  respect of any  instrument  or any failure to realise the full
                  value of any security;

         (d)      any   Incapacity  or  lack  of  powers,   authority  or  legal
                  personality  of or  dissolution  or change in the  members  or
                  status of the Lessee or any other person;

         (e)      any  variation  (however  fundamental)  or  replacement  of  a
                  Transaction Document or any other document or security so that
                  references to that Transaction Document in this Clause 2 shall
                  include each variation or replacement;

         (f)      any   unenforceability,   illegality   or  invalidity  of  any
                  obligation of any person under any Transaction Document or any
                  other  document or security,  to the intent that the Company's
                  obligations under this Clause 2 shall remain in full force and
                  their guarantee be construed accordingly,  as if there were no
                  unenforceability, illegality or invalidity; or

         (g)      any postponement,  discharge,  reduction,  non-provability  or
                  other similar  circumstance  affecting  any  obligation of the
                  Lessee  under  a  Transaction   Document  resulting  from  any
                  insolvency, liquidation or dissolution proceedings or from any
                  law,  regulation or order so that each such  obligation  shall
                  for the  purposes  of the  Company's  obligations  under  this
                  Clause 2 be construed as if there were no such circumstance.

2.5      IMMEDIATE RECOURSE

         The Company waives any right it may have of first  requiring the Lessor
         (or any trustee or agent on its  behalf) to proceed  against or enforce
         any other rights or security or claim  payment  from any person  before
         claiming from the Company under this Clause 2.

2.6      APPROPRIATIONS

         Until all amounts which may be or become payable by the Lessee under or
         in connection with the Transaction Documents have been irrevocably paid
         in full,  the Lessor or any other  Lessor Risk Party (or any trustee or
         agent on its behalf) may:

         (a)      refrain from applying or enforcing any other moneys,  security
                  or rights held or  received by the Lessor or any other  Lessor
                  Risk Party (or any  trustee or agent on its behalf) in respect
                  of those amounts, or apply and enforce the same in such manner
                  and order as it sees fit  (whether  against  those  amounts or
                  otherwise)  and  the  Company  shall  not be  entitled  to the
                  benefit of the same; and

         (b)      hold  in an  interest  bearing  suspense  account  any  moneys
                  received  from the  Company,  or on account  of the  Company's
                  liability, under this Clause 2.

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<PAGE>

2.7      NON-COMPETITION

         Until all amounts which may be or become payable by the Lessee under or
         in connection with the Transaction Documents have been irrevocably paid
         in full,  the  Company  shall  not,  after a claim  has been made or by
         virtue of any payment or performance by them under this Clause 2:

         (a)      be subrogated to any rights, security or moneys held, received
                  or receivable by the Lessor or any other Lessor Risk Party (or
                  any  trustee  or agent on its  behalf) or be  entitled  to any
                  right of  contribution  or indemnity in respect of any payment
                  made or moneys received on account of the Company's  liability
                  under this Clause 2;

         (b)      claim,  rank, prove or vote as a creditor of the Lessee or its
                  respective  estate  in  competition  with the  Lessor  (or any
                  trustee or agent on its behalf); or

         (c)      receive,   claim  or  have  the   benefit   of  any   payment,
                  distribution or security from or on account of the Lessee,  or
                  exercise any right of set-off as against the Lessee,

         unless the Lessor  otherwise  directs.  The Company shall hold in trust
         for  and  forthwith  pay or  transfer  to the  Lessor  any  payment  or
         distribution  or benefit of  security  received  by it contrary to this
         Clause 2.7 or as directed by the Lessor.

2.8      ADDITIONAL SECURITY

         This Lease Guarantee is in addition to and is not in any way prejudiced
         by any other security now or subsequently held by the Lessor.

3.       PAYMENTS

3.1      PLACE

         All payments by the Company under this Lease Guarantee shall be made to
         the Lessor in the currency and to its account at such office or bank as
         would be applicable to the corresponding  payments by the Lessee in the
         relevant currency under the Master Lease Purchase Agreement.

3.2      FUNDS

         Payments  under this Lease  Guarantee  to the Lessor  shall be made for
         value on the due date at such times and in such funds as the Lessor may
         specify  to the  Company  as  being  customary  at  the  time  for  the
         settlement of  transactions  in the relevant  currency in the place for
         payment.

3.3      CURRENCY

(a)      Any other  amount  payable  under this Lease  Guarantee  is,  except as
         otherwise provided in this Lease Guarantee,  payable in the currency in
         which the relevant Loss was incurred, or the relevant claim is made, by
         the Lessor.

3.4      SET-OFF AND COUNTERCLAIM

         All payments made by a Company under this Lease Guarantee shall be made
         without set-off or counterclaim.

                                       6
<PAGE>

3.5      NON-BUSINESS DAYS

         If a payment under this Lease  Guarantee is due on a day which is not a
         Business  Day, the due date for that payment  shall instead be the next
         succeeding Business Day.

3.6      DEFAULT INTEREST

         In addition to its liability under Clause 2.1 above,  the Company shall
         pay or cause to be paid to the  Lessor,  on  demand,  to the extent not
         paid by the Lessee,  interest at the rate specified in Clause 6.3 (Late
         Payments) of the Master Lease Purchase Agreement (both before and after
         judgment) accruing on a day to day basis, and on the basis of a 360 day
         year (or a 365 day year when the  amount in  respect  of which  default
         interest is payable under this Clause 3.6 is  denominated in a currency
         where it is customary for banks or financial  institutions to calculate
         interest on such a basis), on each amount (or any part thereof) for the
         time being due to the Lessor under this Lease Guarantee and unpaid from
         the date of demand on the  Company for  payment  until  payment is made
         (but  excluding the day on which value for any payment made is received
         by the Lessor).

3.7      SUSPENSE ACCOUNTS

         Any money  received in connection  with this Lease  Guarantee  (whether
         before or after any  Incapacity  of the Lessee or the  Company)  may be
         placed to the credit of an interest  bearing  suspense  account  with a
         view to  preserving  the rights of the Lessor to prove for the whole of
         its  claims  against  the Lessee or any other  person  liable or may be
         applied in or towards  satisfaction of such of the Secured  Liabilities
         as the  Lessor  may from  time to time  conclusively  determine  in its
         absolute discretion.

4.       TAXES AND CALCULATION OF PAYMENTS

4.1      GROSS-UP

         All payments by the Company  under this Lease  Guarantee  shall be made
         without any  deduction  and free and clear of and without  deduction or
         withholding  for or on account of any Taxes,  except to the extent that
         the Company is required by law to make payment subject to any Taxes. If
         any Tax or amounts in  respect  of Tax must be  deducted,  or any other
         deductions  must be  made,  from  any  amounts  payable  or paid by the
         Company,  under the Transaction  Documents,  the Company shall pay such
         additional  amounts as may be necessary to ensure  (taking into account
         any  deduction or  withholding  on such  additional  amounts)  that the
         Lessor  receives a net amount  equal to the full amount  which it would
         have  received  had payment  not been made  subject to Tax or any other
         deduction.

4.2      TAX RECEIPTS

         All Taxes  required  by law to be  deducted  or withheld by the Company
         from any amounts paid or payable  under this Lease  Guarantee  shall be
         paid by the Company when due and the Company  shall,  within 30 days of
         the payment being made, deliver to the Lessor evidence  satisfactory to
         the Lessor  (including  all relevant tax receipts) that the payment has
         (to the extent  required by law) been duly remitted to the  appropriate
         authority.

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4.3      VALUE ADDED TAX

         Save where expressly provided to the contrary,  all payments made under
         this Lease Guarantee are calculated  without regard to VAT. If any such
         payment  constitutes the whole or any part of the  consideration  for a
         taxable or deemed taxable  supply,  the amount of that payment shall be
         increased by an amount  equal to the amount of VAT which is  chargeable
         in respect of the taxable supply in question  subject to the production
         by the person  making the supply to the  recipient  of such supply of a
         valid VAT invoice in respect thereof.

5.       REPRESENTATIONS AND WARRANTIES

5.1      REPRESENTATIONS AND WARRANTIES

         The Company makes the  representations  and  warranties set out in this
         Clause 5 to the Lessor.

5.2      STATUS

(a)      It is a corporation,  duly  incorporated and validly existing under the
         laws of the State of Delaware; and

(b)      it has the power to own its assets and carry on its  business  as it is
         being conducted.

5.3      POWERS AND AUTHORITY

         It has the power to enter into and perform, and has taken all necessary
         action to authorise the entry into,  performance  and delivery of, this
         Lease  Guarantee  and  the  transactions  contemplated  by  this  Lease
         Guarantee.

5.4      LEGAL VALIDITY

         This  Lease  Guarantee   constitutes  its  legal,   valid  and  binding
         obligation   enforceable  in  accordance   with  its  terms  except  as
         enforcement  may be limited by  bankruptcy,  insolvency or similar laws
         affecting  creditors' rights generally or equitable principles relating
         to or limiting creditors' rights generally.

5.5      AUTHORISATIONS

         All  authorisations  (i)  required in  connection  with the entry into,
         performance,  validity and  enforceability  of this Lease Guarantee and
         the transactions contemplated by this Lease Guarantee or (ii) necessary
         to ensure the validity or  enforceability  of this Lease  Guarantee and
         such  transactions  have been obtained or effected (as appropriate) and
         are in full force and  effect and will  remain in full force and effect
         until the Secured Liabilities are discharged in full.

5.6      FINANCIAL STATEMENTS

         To the extent consistent with Clause 6.2 (Financial  Information),  its
         audited  consolidated  financial  statements most recently delivered to
         the Lessor:

         (a)      have  been  prepared  by  a  reputable   accounting   firm  in
                  accordance with US GAAP, consistently applied; and

                                       8
<PAGE>

         (b)      fairly  represent  the  financial  condition of the  Company's
                  Group as at the date to which they were drawn up,

         and,  except for matters  disclosed  in the Second  Quarter  2000 10-Q,
         there has been no Material Adverse Change in the financial condition of
         the  Company's  Group  taken as a whole  since the date to which  those
         accounts were drawn up.

5.7      PARI PASSU RANKING

         The obligations of the Company under this Lease Guarantee rank and will
         rank at least  pari  passu  with all its other  unsecured  obligations,
         except those which are mandatorily preferred by law.

5.8      STAMP DUTIES

         No stamp or  registration  duty or similar taxes or charges are payable
         in the State of New York or the State of  Delaware  in  respect of this
         Lease Guarantee.

5.9      IMMUNITY

         (a)      The   execution  of  this  Lease   Guarantee  by  the  Company
                  constitutes, and its exercise of its rights and performance of
                  its obligations  under this Lease  Guarantee will  constitute,
                  private and commercial acts done and performed for private and
                  commercial purposes; and

         (b)      The Company will not be entitled to claim  immunity from suit,
                  execution,   attachment   or  other   legal   process  in  any
                  proceedings  taken in the State of New York and/or  England in
                  relation to any Transaction Documents to which it is a party.

5.10     NO ADVERSE CONSEQUENCES

         Subject to the  reservations  (if any)  contained in the legal  opinion
         issued  pursuant  to  paragraphs  6(ii) of Part I of  Schedule 3 to the
         Master Lease Purchase Agreement:

         (a)      it is not  necessary  under the laws of the States of New York
                  or Delaware:

                  (i)      in order to enable the  Lessor to enforce  its rights
                           under this Lease Guarantee; or

                  (ii)     by reason of the execution of this Lease Guarantee or
                           any other Transaction  Document or the performance by
                           it of its  obligations  under this Lease Guarantee or
                           any other Transaction Documents,

                  that the Lessor should be licensed, qualified or otherwise
                  entitled to carry on business in the States of New York or
                  Delaware; and

         (b)      the  Lessor  is not and will  not be  deemed  to be  resident,
                  domiciled or carrying on business in the States of New York or
                  Delaware by reason only of the execution,  performance  and/or
                  enforcement of this Lease  Guarantee or any other  Transaction
                  Document.

                                       9
<PAGE>

5.11     JURISDICTION/GOVERNING LAW

         Subject  to the  reservations  contained  in the legal  opinion  issued
         pursuant  to  paragraphs  6(ii) of Part I of  Schedule  3 to the Master
         Lease Purchase Agreement:

         (a)      the:

                  (i)      irrevocable submission under Clause 18 (Jurisdiction)
                           to the jurisdiction of the courts of England;

                  (ii)     agreement  that this Lease  Guarantee  is governed by
                           English law; and

                  (iii)    agreement  not to claim any  immunity  to which it or
                           its assets may be entitled,

                  of the Company are legal, valid and binding under the laws of
                  the States of New York and Delaware; and

         (b)      any  judgment  obtained in England will be  recognised  and be
                  enforceable  by the  courts  of the  States  of New  York  and
                  Delaware.

5.12     NON-CONFLICT

         The  entry  into  and  performance  by  it  of,  and  the  transactions
         contemplated by, this Lease Guarantee does not and will not:

         (a)      conflict with any  applicable law or regulation or judicial or
                  official order; or

         (b)      conflict with the constitutional documents of the Company; or

         (c)      conflict  with any document  which is binding upon the Company
                  or upon any asset of the Company.

5.13     NO DEFAULT

         No other event is outstanding  which constitutes (or with the giving of
         notice,  lapse of time,  determination of materiality or the fulfilment
         of any other applicable  condition or any combination of the foregoing,
         would  reasonably  be  expected  to  constitute)  a  default  under any
         document which is binding on the Company or any asset of the Company to
         an extent or in a manner which might effect a Material Adverse Change.

5.14     LITIGATION

         Except as otherwise  disclosed in the Company's  periodic  filings with
         the U.S. Securities and Exchange Commission, no litigation, arbitration
         or administrative proceedings are current or, to its knowledge, pending
         or threatened  against any member of the Viatel,  Inc. Group which,  if
         adversely determined, would effect a Material Adverse Change.

5.15     SHAREHOLDINGS

         The  Lessee is a wholly  owned  direct or  indirect  subsidiary  of the
         Company.

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<PAGE>

5.16     MATERIAL CONTRACTS

         Each  of the  Material  Contracts  to  which  the  Company  is a  party
         constitutes its legal,  valid and binding obligation and is enforceable
         by the Company in accordance  with its terms (except as enforcement may
         be  limited  by  bankruptcy,   insolvency  or  similar  laws  affecting
         creditors'  rights  generally  or equitable  principles  relating to or
         limiting creditors' rights generally) and all material  authorisations,
         approvals,  consents,  licences,  exemptions,  filings,  recordings and
         other matters necessary in connection with the entry into, performance,
         validity  and  enforceability  of  the  Material  Contracts  have  been
         obtained and are in full force and effect.

5.17     ACCURACY OF INFORMATION

         To the  best  of its  knowledge  and  belief  all  written  information
         supplied  by the  Company to the Lessor was true as at the date that it
         was  supplied  and the Company has not failed to disclose to the Lessor
         any  information  which,  if  disclosed,  might  adversely  affect  the
         decision  of a person  considering  whether  to enter  into this  Lease
         Guarantee and/or the Master Lease Purchase Agreement in the capacity of
         the Lessor.

5.18     NOTE INDENTURES

         The  covenants  contained  in the  Schedule of  Covenants to this Lease
         Guarantee are not materially less onerous than the covenants  contained
         in the Indenture (as that term is defined in the Schedule of Covenants)
         which  Indenture  contains,  on an  overall  basis,  the  most  onerous
         covenants  imposed on the Company in any Indenture  entered into by the
         Company.

5.19     TIMES FOR MAKING REPRESENTATIONS AND WARRANTIES

         The representations and warranties set out above in this Clause 5 shall
         survive the execution of this Lease Guarantee and shall be deemed to be
         repeated  on (i) the date of this Lease  Guarantee  and (ii) other than
         the  representations and warranties set out in Clause 5.6, each Initial
         Term Start Date.

6.       UNDERTAKINGS

6.1      DURATION

         The  undertakings in this Clause 6 of, and in the Schedule of Covenants
         to,  this Lease  Guarantee  remain in force from the date of this Lease
         Guarantee for so long as any amount is or may be outstanding  under the
         Transaction Documents.

6.2      FINANCIAL INFORMATION

         The Company will supply to the Lessor:

         (i)      as soon as the same are available (and in any event within 120
                  days of the end of each of its  financial  years) its  audited
                  consolidated financial statements for that financial year; and

                                       11
<PAGE>

         (ii)     as soon as the same are available  (and in any event within 60
                  days  of  the  end of  each  of its  financial  quarters)  its
                  unaudited consolidated financial statements for that financial
                  quarter.

6.3      INFORMATION - MISCELLANEOUS

         The Company will supply to the Lessor:

         (a)      all  documents  that  are  not  filed  at the  Securities  and
                  Exchange  Commission  in the United  States  despatched by the
                  Company  to its  shareholders  or public  debtholders  (or any
                  class  of them) or by it to its  creditors  generally  (or any
                  class of them) at the same time as they are despatched;

         (b)      as  soon  as  reasonably   practicable  after  becoming  aware
                  thereof,   details   of   any   litigation,   arbitration   or
                  administrative  proceedings  which are current,  threatened or
                  pending which if adversely determined, would effect a Material
                  Adverse Change; and

         (c)      promptly such further information in the possession or control
                  of  the  Company   regarding  the   financial   condition  and
                  operations  of  the  Company  as  the  Lessor  may  reasonably
                  request.

6.4      NOTIFICATION OF POTENTIAL EVENT OF DEFAULT

         As soon as practicable after becoming aware thereof,  the Company shall
         notify the Lessor of any Event of Default or Potential Event of Default
         together   with  details  of  any  action  being  taken  in  connection
         therewith.

6.5      AUTHORISATIONS

         The Company will promptly:

         (a)      obtain, maintain and comply with the terms of; and

         (b)      supply certified copies to the Lessor of,

         any  authorisation  required  under any applicable law or regulation to
         enable it to perform  its  obligations  under,  or for the  validity or
         enforceability of, this Lease Guarantee.

6.6      PARI PASSU RANKING

         The  Company  will  procure  that  its  obligations  under  this  Lease
         Guarantee  do and will  rank at least  pari  passu  with all its  other
         present  and  future  unsecured  obligations,  except  for  obligations
         mandatorily preferred by law.

6.7      MATERIAL CONTRACTS

         The Company  undertakes  that it will and will procure that the Lessee,
         each Permitted Sub-Lessee and each Material Subsidiary will:

         (a)      comply in all material respects with all its obligations under
                  the Material Contracts to which it is a party; and

                                       12
<PAGE>

         (b)      maintain  and in good  faith  enforce  its  rights  under  the
                  Material  Contracts  to the  extent  necessary  to ensure  its
                  compliance   with  its   obligations   under  the  Transaction
                  Documents.

6.8      COVENANTS/UNDERTAKINGS IN THE SCHEDULE OF COVENANTS

         The Company  undertakes  that it will comply with each of the covenants
         and  undertakings  set out in the  Schedule of  Covenants to this Lease
         Guarantee.

7.       CURRENCY INDEMNITY

         (a)      If the Lessor  receives an amount in respect of the  Company's
                  liability  under this Lease  Guarantee or if that liability is
                  converted into a claim, proof, judgment or order in a currency
                  other than the currency (the "CONTRACTUAL  CURRENCY") in which
                  the  amount  is  expressed  to be  payable  under  this  Lease
                  Guarantee:

                  (i)      the  Company   shall   indemnify  the  Lessor  as  an
                           independent obligation against any Losses arising out
                           of or as a result of the conversion;

                  (ii)     if the amount received by the Lessor,  when converted
                           into the contractual currency at a market rate in the
                           usual  course of its business is less than the amount
                           owed in the contractual  currency,  the Company shall
                           forthwith  on demand  pay to the  Lessor an amount in
                           the contractual currency equal to the deficit; and

                  (iii)    the  Company  shall  forthwith  on demand  pay to the
                           Lessor concerned any exchange costs and taxes payable
                           in connection with any such conversion.

         (b)      The Company  waives any right it may have in any  jurisdiction
                  to pay any amount  under this  Lease  Guarantee  in a currency
                  other than that in which it is expressed to be payable.

8.       EVIDENCE

8.1      ACCOUNTS

         Accounts  maintained  by the  Lessor  in  connection  with  this  Lease
         Guarantee are prima facie evidence of the matters to which they relate.

8.2      CERTIFICATES AND DETERMINATIONS

         Any  certification  or  determination by the Lessor of a rate or amount
         under this  Lease  Guarantee  is, in the  absence  of  manifest  error,
         conclusive evidence of the matters to which it relates.

9.       AMENDMENTS AND WAIVERS

9.1      PROCEDURE

         Any term of this Lease  Guarantee  may be  amended  or waived  with the
         agreement of the Company and the Lessor.

                                       13
<PAGE>

9.2      WAIVERS AND REMEDIES CUMULATIVE

         The rights of the Lessor under this Lease Guarantee:

         (a)      may be exercised as often as necessary;

         (b)      are  cumulative  and not  exclusive  of its  rights  under the
                  general law; and

         (c)      may be waived only in writing and specifically.

         Delay in exercising or  non-exercise  of any such right is not a waiver
of that right.

10.      CHANGES TO THE PARTIES

10.1     TRANSFERS BY THE COMPANY

         Except as provided by paragraph 2.16 of the Schedule of Covenants,  the
         Company may not assign,  transfer,  novate or dispose of any of, or any
         interest  in,  their  rights  and/or   obligations   under  this  Lease
         Guarantee.

10.2     TRANSFERS BY LESSOR

         (a)      The Company consents to any assignment,  transfer, novation or
                  Lease  Participation  Arrangement made under and in accordance
                  with the terms of the Master Lease Purchase Agreement.

         (b)      Any reference in this Lease Guarantee to a Lessor includes the
                  Lessor's permitted successors, assigns and transferees.

         (c)      The  Company   acknowledges  the  provisions  of  Clause  22.3
                  (Dealings  by  the  Lessor)  of  the  Master  Lease   Purchase
                  Agreement   and  agrees,   that  its   consent   will  not  be
                  unreasonably  withheld,  conditioned  or delayed in connection
                  with any  assignment  or  transfer  proposed  by the Lessor in
                  accordance  with Clause 22.3  (Dealings  by the Lessor) of the
                  Master Lease Purchase Agreement.

11.      SET-OFF

         The Lessor may set off any matured obligation owed by the Company under
         this Lease Guarantee (to the extent  beneficially  owned by the Lessor)
         against any  obligation  (whether or not matured) owed by the Lessor to
         the  Company,  regardless  of the place of payment,  booking  branch or
         currency of either  obligation.  If the  obligations  are in  different
         currencies,  the Lessor may convert either  obligation at a market rate
         of  exchange  in its usual  course of  business  for the purpose of the
         set-off.  If either  obligation is unliquidated or  unascertained,  the
         Lessor may set off in an amount estimated by it in good faith to be the
         amount of that obligation.

12.      SEVERABILITY

         If a provision of this Lease Guarantee is or becomes  illegal,  invalid
         or unenforceable in any jurisdiction, that shall not affect:

                                       14
<PAGE>

         (a)      the validity or  enforceability  in that  jurisdiction  of any
                  other provision of this Lease Guarantee; or

         (b)      the validity or enforceability in other  jurisdictions of that
                  or any other provision of this Lease Guarantee.

13.      COUNTERPARTS

         This Lease Guarantee may be executed in any number of counterparts, and
         this has the same effect as if the signatures on the counterparts  were
         on a single copy of this Lease Guarantee.

14.      NOTICES

14.1     GIVING OF NOTICES

         All notices or other  communications  under or in connection  with this
         Lease Guarantee shall be given in writing and, unless otherwise stated,
         may be made by letter or  facsimile.  Any such notice will be deemed to
         be given as follows:

         (a)      if by letter, when delivered  personally or on actual receipt;
                  and

         (b)      if by facsimile, when received in legible form.

         However,  a notice given in accordance with the above but received on a
         non working day or after  business  hours in the place of receipt  will
         only be deemed to be given on the next working day in that place.

14.2     ADDRESSES FOR NOTICES

(a)      The address and facsimile number of the Company are:

         685 Third Avenue
         New York
         New York 10017

         Facsimile:        00 1 212 350 9250
         Attention:        General Counsel

         or such other address or facsimile  number as the Company may notify to
         the Lessor by not less than five Business Days' notice.

(b)      The address and facsimile number of the Lessor are:

         PO Box 18075
         Riverbank House
         2 Swan Lane
         London  EC4R 3UX

         Facsimile:        +44 (0) 20 7475 9594
         Attention:        Kevin Whiting, Leasing Team

                                       15
<PAGE>

         or such other  address or facsimile  number as the Lessor may notify to
         the Company by not less than five Business Days' notice.

15.      EXPENSES

         The Company shall indemnify the Lessor, on a full indemnity basis, from
         and against, and on demand reimburse the Lessor for, all costs, charges
         and expenses properly incurred by the Lessor in exercising or enforcing
         or endeavouring to exercise or enforce,  any right or remedy  conferred
         upon the Lessor  hereunder or by law including in  connection  with any
         action brought by the Lessor to recover any payment due  hereunder,  or
         relating  to any breach of any  covenant  or  obligation  in this Lease
         Guarantee, whether or not any such action progresses to judgment.

16.      FURTHER ASSURANCE

         The Company  agrees from time to time, at its sole  expense,  to do and
         perform such other and further acts and execute and deliver any and all
         such  other  instruments  as may  be  required  by  law  or  reasonably
         requested by the Lessor to  establish,  maintain and protect the rights
         and  remedies  of the Lessor and to carry out and effect the intent and
         purpose of this Lease Guarantee.

17.      LANGUAGE

         (a)      Any  notice  given  under or in  connection  with  this  Lease
                  Guarantee shall be in English.

         (b)      All other documents  provided under or in connection with this
                  Lease Guarantee shall be:

                  (i)      in English; or

                  (ii)     if not in English, accompanied by a certified English
                           translation   and,   in  this   case,   the   English
                           translation  shall  prevail  unless the document is a
                           statutory or other official document.

18.      JURISDICTION

18.1     SUBMISSION

         For the  benefit of the Lessor,  the Company  agrees that the courts of
         England have  jurisdiction  to settle any disputes in  connection  with
         this Lease Guarantee and accordingly submits to the jurisdiction of the
         English courts.

         Without  prejudice to the immediately  preceding  paragraph and for the
         benefit of the Lessor, the Company agrees that any New York State court
         or Federal  court sitting in New York City has  jurisdiction  to settle
         any disputes in connection  with this Lease  Guarantee and  accordingly
         submits to the jurisdiction of those courts.

18.2     SERVICE OF PROCESS

         Without prejudice to any other mode of service, the Company:

         (a)      irrevocably  appoints  as its agent  for  service  of  process
                  Viatel UK Limited in  relation to any  proceedings  before the
                  English courts in connection with this Lease Guarantee;

                                       16
<PAGE>

         (b)      agrees  that  failure  by a process  agent to notify it of the
                  process will not invalidate the proceedings concerned;

         (c)      consents  to the  service  of  process  relating  to any  such
                  proceedings by prepaid posting of a copy of the process to its
                  address for the time being applying under Clause 14 (Notices);
                  and

         (d)      agrees  that if the  appointment  of any person  mentioned  in
                  paragraph (a) above ceases to be effective,  the Company shall
                  immediately  appoint a further  person  in  England  to accept
                  service of process on its behalf in England and,  failing such
                  appointment  within 15 days, the Lessor is entitled to appoint
                  such a person by notice to the Company.

18.3     FORUM CONVENIENCE AND ENFORCEMENT ABROAD

         The Company:

         (a)      waives  objection  to the  English,  New York State and United
                  States' courts on grounds of  inconvenient  forum or otherwise
                  as  regards   proceedings   in  connection   with  this  Lease
                  Guarantee; and

         (b)      agrees that a judgment or order of an English,  New York State
                  or  United  States'  court  in  connection   with  this  Lease
                  Guarantee is conclusive  and binding on it and may be enforced
                  against it in the courts of any other jurisdiction.

18.4     NON-EXCLUSIVITY

         Nothing  in this  Clause  18 limits  the  right of the  Lessor to bring
         proceedings   against  the  Company  in  connection   with  this  Lease
         Guarantee:

         (a)      in any other court of competent jurisdiction; or

         (b)      concurrently in more than one jurisdiction.

18.5     WAIVER OF JURY TRIAL

         EACH PARTY TO THIS LEASE  GUARANTEE  WAIVES ANY RIGHTS IT MAY HAVE TO A
         JURY  TRIAL OF ANY CLAIM OR CAUSE OF ACTION  BASED ON OR  ARISING  FROM
         THIS LEASE GUARANTEE OR THE TRANSACTIONS  CONTEMPLATED  HEREBY.  In the
         event of  litigation,  this Lease  Guarantee  may be filed as a written
         consent to a waiver of jury trial.

19.      WAIVER OF IMMUNITY

         The Company irrevocably and unconditionally:

         (a)      agrees that if the Lessor brings proceedings against it or its
                  assets in relation to this Lease  Guarantee,  no immunity from
                  those  proceedings  (including,   without  limitation,   suit,
                  attachment prior to judgment, other attachment,  the obtaining
                  of judgment,  execution or other  enforcement) will be claimed
                  by or on behalf of itself or with respect to its assets;

                                       17
<PAGE>

         (b)      waives any such right of  immunity  which it or its assets now
                  has or may subsequently acquire; and

         (c)      consents  generally in respect of any such  proceedings to the
                  giving of any relief or the issue of any process in connection
                  with those proceedings,  including,  without  limitation,  the
                  making, enforcement or execution against any assets whatsoever
                  (irrespective  of its use or  intended  use but subject to any
                  third party rights therein) of any order or judgment which may
                  be made or given in those proceedings.

20.      CONFIDENTIALITY

         This  Lease   Guarantee  and  the  other   Transaction   Documents  are
         confidential  information  of the  Company,  the Lessee and the Lessor.
         Neither  the  Company  nor the Lessor  (or any  member of the  Lessor's
         Group) shall  disclose to any person any  information  relating to this
         Lease Guarantee and the other Transaction Documents other than:

         (a)      to its respective employees or agents; or

         (b)      to any prospective or actual Lessor Risk Parties having a need
                  to know for the purposes of determining  whether to enter into
                  negotiations or negotiating and documenting this  transaction;
                  or

         (c)      if required to do so by any Applicable Law,

         without,  in the case of the Company,  the prior written consent of the
         Lessor  (who  shall not  unreasonably  withhold  or delay its  consent,
         provided  that,  without  prejudice  to any other right to withhold its
         consent,  the Lessor shall be entitled to withhold  its consent  unless
         and until it has obtained the prior  written  consent of Nortel to such
         disclosure)  and, in the case of the Lessor,  the prior written consent
         of the Company  (which the Company shall not  unreasonably  withhold or
         delay).  If the  Company  or the  Lessor  is  required  at any  time to
         disclose any such information  contained in this Lease Guarantee or any
         of the other Transaction  Documents,  the Company or the Lessor, as the
         case may be, shall  promptly  notify the Lessor or, as the case may be,
         the  Company  and at the  request  and expense of the Lessor or, as the
         case may be, the Company  will  request  confidential  treatment of the
         information  identified  by the  Lessor  or,  as the case  may be,  the
         Company  as  confidential  and the  Lessor  or, as the case may be, the
         Company shall agree (such agreement not to be unreasonably  withheld or
         delayed,  provided always that, without prejudice to any other right to
         withhold  its  agreement,  the Lessor shall be entitled to withhold its
         agreement unless and until it has obtained the prior written consent of
         Nortel) the form of  disclosure  (unless  there is a statutory  form or
         requirement).

         For the  avoidance of doubt,  this Clause 20 shall not apply in respect
         of information  which is in or which comes into the public domain other
         than as a result of a breach of this Clause 20.

21.      GOVERNING LAW

         This Lease Guarantee is governed by English law.

This Lease  Guarantee  has been entered into as a deed on the date stated at the
beginning of this Lease Guarantee.

                                       18
<PAGE>

                              SCHEDULE OF COVENANTS

1.       DEFINITIONS AND CONSTRUCTION

1.1      DEFINITIONS

         In this Schedule 1, the following  words,  terms and phrases shall have
         the following meanings:

         "ACQUIRED INDEBTEDNESS"

         means Indebtedness of a Person existing at the time such Person becomes
         a  Material   Subsidiary  or  assumed  in  connection   with  an  Asset
         Acquisition by the Company or a Material Subsidiary and not Incurred in
         connection with, or in anticipation of, such Person becoming a Material
         Subsidiary or such Asset Acquisition.

         "ADJUSTED CONSOLIDATED NET INCOME"

         means for any period, the aggregate net income (or loss) of the Company
         and its Material  Subsidiaries for such period determined in conformity
         with generally accepted accounting principles;

         PROVIDED  that the  following  items  shall be  excluded  in  computing
         Adjusted Consolidated Net Income (without duplication):

         (i)      the net income (or loss) of any Person  that is not a Material
                  Subsidiary,  except  (x) with  respect to net  income,  to the
                  extent  of the  amount  of  dividends  or other  distributions
                  actually   paid  to  the  Company  or  any  of  its   Material
                  Subsidiaries  by such  Person  during such period and (y) with
                  respect  to  net  losses,  to the  extent  of  the  amount  of
                  Investments made by the Company or any Material  Subsidiary in
                  such Person during such period;

         (ii)     solely  for  the  purposes  of   calculating   the  amount  of
                  Restricted Payments that may be made pursuant to Paragraph 2.2
                  (iv)(C)  hereof  (and  in  such  case,  except  to the  extent
                  includable  pursuant to clause (i) above),  the net income (or
                  loss) of any  Person  accrued  prior to the date it  becomes a
                  Material Subsidiary or is merged into or consolidated with the
                  Company  or  any  of  its  Material  Subsidiaries  or  all  or
                  substantially  all of the  property  and assets of such Person
                  are   acquired  by  the   Company  or  any  of  its   Material
                  Subsidiaries;  (iii) the net income of any Material Subsidiary
                  to the extent that the  declaration or payment of dividends or
                  similar  distributions by such Material Subsidiary of such net
                  income is not at the time  permitted  by the  operation of the
                  terms of its charter or any agreement,  instrument,  judgment,
                  decree,  order,  statute,  rule  or  governmental   regulation
                  applicable  to such  Material  Subsidiary;  (iv) any  gains or
                  losses (on an after-tax basis) attributable to Asset Sales and
                  sales of capacity or dark  fibres;  (v) except for purposes of
                  calculating the amount of Restricted Payments that may be made
                  pursuant to Paragraph 2.2 (iv)(C)  hereof,  any amount paid or
                  accrued as dividends on Preferred  Stock of the Company or any
                  Material  Subsidiary  owned by Persons  other than the Company
                  and any of its Material  Subsidiaries;  (vi) all extraordinary
                  gains and  extraordinary  losses;  and (vii) any  compensation
                  expense paid or payable  solely with Capital Stock (other than
                  Disqualified Stock) of the Company or any options, warrants or
                  other rights to acquire Capital Stock (other than Disqualified
                  Stock) of the Company.

                                       19
<PAGE>

         "ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS"

         means the  total  amount of  assets  of the  Company  and its  Material
         Subsidiaries  (less  applicable  depreciation,  amortization  and other
         valuation  reserves),  except to the extent resulting from write-ups of
         capital assets  (excluding  write-ups in connection with accounting for
         acquisitions  in conformity with GAAP),  after deducting  therefrom (i)
         all current  liabilities  of the Company and its Material  Subsidiaries
         (excluding  intercompany  items) and (ii) all  goodwill,  trade  names,
         trademarks,  patents,  unamortized  debt discount and expense and other
         like  intangibles,  all as set forth on the most  recent  quarterly  or
         annual  consolidated  balance  sheet of the  Company  and its  Material
         Subsidiaries  supplied to the Lessor in  accordance  with Clause 6.2 of
         this Lease Guarantee.

         "AFFILIATE"

         means,  as  applied  to  any  Person,  any  other  Person  directly  or
         indirectly  controlling,  controlled  by, or under  direct or  indirect
         common  control  with,  such Person.  For purposes of this  definition,
         "control"   (including,    with   correlative   meanings,   the   terms
         "controlling,"  "controlled  by" and "under common control  with"),  as
         applied to any Person, means the possession, directly or indirectly, of
         the  power to  direct  or cause the  direction  of the  management  and
         policies  of such  Person,  whether  through  the  ownership  of voting
         securities, by contract or otherwise.

         "ASSET ACQUISITION"

         means:

         (i)      an   investment   by  the  Company  or  any  of  its  Material
                  Subsidiaries in any other Person pursuant to which such Person
                  shall become a Material  Subsidiary or shall be merged into or
                  consolidated   with  the  Company  or  any  of  its   Material
                  Subsidiaries;

         PROVIDED that such Person's primary  business is related,  ancillary or
         complementary  to the  businesses of the Company or any of its Material
         Subsidiaries on the date of such investment; or

         (ii)     an   acquisition  by  the  Company  or  any  of  its  Material
                  Subsidiaries  of the  property  and assets of any Person other
                  than the  Company  or any of its  Material  Subsidiaries  that
                  constitute substantially all of a division or line of business
                  of such Person; PROVIDED that the property and assets acquired
                  are related,  ancillary or  complementary to the businesses of
                  the Company or any of its Material Subsidiaries on the date of
                  such acquisition.

         "ASSET DISPOSITION"

         means  the  sale or  other  disposition  by the  Company  or any of its
         Material  Subsidiaries  (other than to the Company or another  Material
         Subsidiary) of (i) all or substantially all of the Capital Stock of any
         Material Subsidiary or (ii) all or substantially all of the assets that
         constitute  a division or line of business of the Company or any of its
         Material Subsidiaries.

         "ASSET SALE"

         means any sale,  transfer  or other  disposition  (including  by way of
         merger, consolidation or sale-leaseback transaction) in one transaction
         or a  series  of  related  transactions  by the  Company  or any of its

                                       20
<PAGE>

         Material  Subsidiaries  to any Person  other than the Company or any of
         its Material Subsidiaries of:

         (i)      all or any of the Capital Stock of any Material Subsidiary;

         (ii)     all or  substantially  all of the  property  and  assets  of a
                  division  or line of  business  of the  Company  or any of its
                  Material Subsidiaries; or

         (iii)    any other property and assets (other than the Capital Stock or
                  other Investment in an Unrestricted Subsidiary) of the Company
                  or any of  its  Material  Subsidiaries  outside  the  ordinary
                  course of business of the Company or such Material  Subsidiary
                  and,  in each case,  that is not  governed by  Paragraph  2.16
                  (When Company may merge etc.) of this Schedule;

         PROVIDED that "Asset Sale" shall not include:

         (a)      sales or other  dispositions  of  inventory,  receivables  and
                  other current assets;

         (b)      sales,  transfers or other dispositions of assets constituting
                  a Restricted  Payment permitted to be made under Paragraph 2.2
                  hereof;

         (c)      sales,  transfers or other  dispositions of assets with a fair
                  market value (as certified in an Officers' Certificate) not in
                  excess of $1 million in any  transaction  or series of related
                  transactions;

         (d)      sales or other  dispositions  of assets for  consideration  at
                  least  equal to the fair  market  value of the assets  sold or
                  disposed  of, to the extent  that the  consideration  received
                  would  constitute  property or assets of the kind described in
                  Paragraph 2.8 (b)(i)(B) hereof;

         (e)      any liquidation of Temporary Cash Investments; or

         (f)      a transfer,  directly or  indirectly,  of receivables or other
                  payment rights arising from a transfer of indefeasible  rights
                  of use or dark fibre,  which transfer of receivables or rights
                  is to a special  purpose  entity  created  for the  purpose of
                  issuing  securities to be paid or redeemed from, or beneficial
                  interests in, the cash or revenues  generated  from the assets
                  transferred;  PROVIDED that the consideration  received by the
                  Company  is at least  equal to the  fair  market  value of the
                  asset transferred and the proceeds are used by the Company (A)
                  to repay unsubordinated  Indebtedness of the Company owed to a
                  Person other than the Company or a Material Subsidiary, (B) to
                  invest in the manner  described  in  Paragraph  2.8  (b)(i)(B)
                  hereof  or (C)  for  working  capital  purposes  or (g)  other
                  transfers of capacity or dark fibre.

         "AVERAGE LIFE"

         means at any date of  determination  with respect to any debt security,
         the  quotient  obtained by dividing  (i) the sum of the products of (a)
         the  number of years  from such date of  determination  to the dates of
         each successive  scheduled  principal payment of such debt security and
         (b) the  amount of such  principal  payment by (ii) the sum of all such
         principal payments.

                                       21
<PAGE>

         "BOARD OF DIRECTORS"

         means the Board of  Directors of the Company as required by the context
         or any  committee of such Board of  Directors  duly  authorized  to act
         under the Indenture.

         "BOARD RESOLUTION"

         means a copy of a  resolution,  certified by the Secretary or Assistant
         Secretary  of the  Company as required by the context to have been duly
         adopted by the Board of Directors and to be in full force and effect on
         the date of such certification, and delivered to the Lessor.

         "BUSINESS DAY"

         means  any  day  except  a  Saturday,  Sunday  or  other  day on  which
         commercial  banks in the City of New York or in the City of London  are
         authorised or required by law to close.

         "CAPITAL STOCK"

         means,  with  respect to any  Person,  any and all  shares,  interests,
         participations or other equivalents (however designated, whether voting
         or  non-voting) in equity of such Person,  whether  outstanding on 19th
         March, 1999 or issued thereafter,  including,  without limitation,  all
         Common Stock and Preferred Stock.

         "CAPITALISED LEASE"

         means,  as applied to any Person,  any lease of any  property  (whether
         real,  personal or mixed) of which the discounted  present value of the
         rental  obligations of such Person as lessee,  in conformity with GAAP,
         is required to be capitalized on the balance sheet of such Person.

         "CAPITALISED LEASE OBLIGATIONS"

         means the discounted  present value of the rental  obligations  under a
         Capitalized Lease.

         "CHANGE OF CONTROL"

         means such time as (i) a "person"  or a "group"  (within the meaning of
         Sections  13(d) and 14(d) (2) of the Exchange Act) becomes the ultimate
         "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
         more  than 50% of the total  voting  power of the  Voting  Stock of the
         Company  on a fully  diluted  basis;  or (ii)  individuals  who on 19th
         March,  1999  constitute the Board of Directors  (together with any new
         directors whose election by the Board of Directors or whose  nomination
         to the Board of Directors  for election by the  Company's  stockholders
         was  approved  by a vote of at least  two-thirds  of the members of the
         Board of Directors  then in office who either were members of the Board
         of Directors on 19th March,  1999 or whose  election or nomination  for
         election was previously so approved) cease for any reason to constitute
         a majority of the members of the Board of Directors then in office.

         "COMMISSION"

         means the  Securities  and  Exchange  Commission,  as from time to time
         constituted,  created  under the  Exchange Act or, if at any time after
         the execution of this  instrument  such  Commission is not existing and

                                       22
<PAGE>

         performing  the duties now assigned to it under the TIA,  then the body
         performing such duties at such time.

         "COMMON STOCK"

         means,  with  respect to any  Person,  any and all  shares,  interests,
         participations or other equivalents (however designated, whether voting
         or non-voting) of such Person's  common stock,  whether now outstanding
         or  issued  after  the  date  of  the  Indenture,   including,  without
         limitation, all series and classes of such common stock.

         "COMPANY"

         means Viatel, Inc.

         "CONSOLIDATED EBITDA"

         means, for any period, Adjusted Consolidated Net Income for such period
         plus,  to the extent  such  amount was  deducted  in  calculating  such
         Adjusted  Consolidated Net Income,  (i) Consolidated  Interest Expense,
         (ii)  income  taxes,  (iii)  depreciation  expense,  (iv)  amortization
         expense and (v) all other non-cash items reducing Adjusted Consolidated
         Net Income  (other than items that will require  cash  payments and for
         which an accrual or reserve is, or is  required  by GAAP to be,  made),
         less all non-cash items  increasing  Adjusted  Consolidated Net Income,
         all as  determined  on a  consolidated  basis for the  Company  and its
         Material  Subsidiaries in conformity  with GAAP;  PROVIDED that, if any
         Material  Subsidiary  is  not  a  Wholly  Owned  Material   Subsidiary,
         Consolidated  EBITDA  shall be reduced  (to the  extent  not  otherwise
         reduced in  accordance  with GAAP) by an amount equal to (A) the amount
         of the Adjusted  Consolidated Net Income  attributable to such Material
         Subsidiary  multiplied by (B) the percentage  ownership interest in the
         income of such  Material  Subsidiary  not owned on the last day of such
         period by the Company or any of its Material Subsidiaries.

         "CONSOLIDATED INTEREST EXPENSE"

         means,  for any period,  the aggregate amount of interest in respect of
         Indebtedness (including,  without limitation,  amortization of original
         issue  discount on any  Indebtedness  and the  interest  portion of any
         deferred  payment   obligation,   calculated  in  accordance  with  the
         effective interest method of accounting; all commissions, discounts and
         other  fees and  charges  owed with  respect  to  letters of credit and
         bankers' acceptance  financing;  the net costs associated with Interest
         Rate  Agreements;  and  interest  in  respect of  Indebtedness  that is
         Guaranteed   or  secured  by  the  Company  or  any  of  its   Material
         Subsidiaries, and all but the principal component of rentals in respect
         of Capitalised Lease Obligations paid,  accrued or scheduled to be paid
         or to be accrued by the Company and its  Material  Subsidiaries  during
         such periods).

         "CONSOLIDATED LEVERAGE RATIO"

         means, on any Transaction  Date, the ratio of (i) the aggregate  amount
         of  Indebtedness  of the Company  and its  Material  Subsidiaries  on a
         consolidated  basis  outstanding on such  Transaction Date to (ii) four
         times  Consolidated  EBITDA for the then most recent fiscal quarter for
         which  financial  statements of the Company have been  presented to the
         Lessor in accordance with Clause 6.2 of this Lease Guarantee;  PROVIDED
         that, in making the foregoing  calculation,  (A) PRO FORMA effect shall
         be given to the  Incurrence  or  repayment  of any  Indebtedness  to be
         Incurred or repaid on the Transaction  Date; (B) PRO FORMA effect shall
         be given to Asset Dispositions and Asset Acquisitions (including giving

                                       23
<PAGE>

         PRO  FORMA  effect  to  the   application  of  proceeds  of  any  Asset
         Disposition) that occur from the beginning of the then most recent four
         fiscal quarters through the Transaction Date (the "REFERENCE  PERIOD"),
         as if they had occurred and such proceeds had been applied on the first
         day of such Reference  Period;  and (C) PRO FORMA effect shall be given
         to asset  dispositions  and asset  acquisitions  (including  giving PRO
         FORMA effect to the  application of proceeds of any asset  disposition)
         that have been made by any Person that has become a Material Subsidiary
         or has been merged with or into the Company or any Material  Subsidiary
         during  such  Reference  Period and that would have  constituted  Asset
         Dispositions or Asset Acquisitions had such transactions  occurred when
         such Person was a Material  Subsidiary as if such asset dispositions or
         asset  acquisitions were Asset  Dispositions or Asset Acquisitions that
         occurred on the first day of such  Reference  Period;  PROVIDED that to
         the extent that clause (B) or (C) of this  sentence  requires  that PRO
         FORMA  effect be given to an Asset  Acquisition  or Asset  Disposition,
         such PRO FORMA  calculation  shall be based  upon the four full  fiscal
         quarters  immediately  preceding the Transaction Date of the Person, or
         division  or line of  business  of the  Person,  that  is  acquired  or
         disposed of for which financial information is available,

         "CONSOLIDATED NET WORTH"

         means, at any date of determination,  stockholders' equity as set forth
         on the most recently available quarterly or annual consolidated balance
         sheet of the Company and its Material  Subsidiaries or, as the case may
         be, of the Lessee or any Permitted  Sub-Lessee  or, as the case may be,
         of any company and its Group into which the Company,  the Lessee or any
         Permitted  Sub-Lessee  may  merge or to which  the  Company,  Lessee or
         Permitted  Sub-Lessee may sell,  convey,  transfer,  lease or otherwise
         dispose of all or substantially  all of its assets and with which it is
         consolidated  in accordance with Paragraph 2.16 (which shall be as of a
         date not more than 90 days prior to the date of such  computation,  and
         which,  in the  case  of the  Company,  shall  not  take  into  account
         Unrestricted   Subsidiaries),   including,   without  limitation,   the
         respective  amounts  reported on such  balance  sheet  attributable  to
         Preferred Stock, less any amounts attributable to Disqualified Stock or
         any equity security  convertible into or exchangeable for Indebtedness,
         the cost of treasury  stock and the principal  amount of any promissory
         notes  receivable  from the sale of the Capital Stock of the Company or
         any of its  Restricted  Subsidiaries  or,  as the case  may be,  of the
         Lessee  or any  Permitted  Sub-Lessee  or,  as the case may be,  of the
         Company into which the Company,  the Lessee or any Permitted Sub-Lessee
         may merge or to which the Company,  Lessee or Permitted  Sub-Lessee may
         sell,  convey,   transfer,   lease  or  otherwise  dispose  of  all  or
         substantially  all of its assets and with which it is  consolidated  in
         accordance with Paragraph 2.16 or any of its Subsidiaries, each item to
         be determined in conformity with GAAP (excluding the effects of foreign
         currency  exchange  adjustments  under Financial  Accounting  Standards
         Board Statement of Financial  Accounting Standards No. 52 of the United
         States of America).

         "CURRENCY AGREEMENT"

         means any foreign exchange  contract,  currency swap agreement or other
         similar agreement or arrangement.

         "DISQUALIFIED STOCK"

         means any class or series of Capital  Stock of any  Person  that by its
         terms or otherwise  is (i) required to be redeemed  prior to the end of
         the Final Initial Term,  (ii) redeemable at the option of the holder of
         such class or series of  Capital  Stock at any time prior to the end of
         the Final Initial Term or (iii)  convertible  into or exchangeable  for
         Capital Stock  referred to in clause (i) or (ii) above or  Indebtedness

                                       24
<PAGE>

         having a scheduled maturity prior to the end of the Final Initial Term;
         PROVIDED that any Capital Stock that would not constitute  Disqualified
         Stock but for provisions  thereof  giving holders  thereof the right to
         require such Person to repurchase or redeem such Capital Stock upon the
         occurrence of an "asset sale" or "change of control" occurring prior to
         the end of the Final  Initial  Term shall not  constitute  Disqualified
         Stock if the "asset sale" or "change of control" provisions  applicable
         to such  Capital  Stock are no more  favorable  to the  holders of such
         Capital Stock than the provisions  contained in Paragraphs 2.8 and 2.10
         hereof,  and such  Capital  Stock,  or the  agreements  or  instruments
         governing the redemption  rights  thereof,  specifically  provides that
         such Person will not  repurchase  or redeem any such stock  pursuant to
         such  provision  prior to the Company's  prepayment  of the  applicable
         Capital Outstanding pursuant to Paragraphs 2.8 and 2.10 hereof.

         "EXCESS PROCEEDS"

         has the meaning provided in Paragraph 22.8 hereof.

         "EXCHANGE ACT"

         means  the  Securities  Exchange  Act of 1934 of the  United  States of
         America, as amended.

         "FAIR MARKET VALUE"

         means  the  price  that  would be paid in an arm's  length  transaction
         between an informed and willing  seller under no compulsion to sell and
         an informed and willing buyer under no compulsion to buy, as determined
         in good faith by the Board of Directors,  whose  determination shall be
         conclusive if evidenced by a Board Resolution.

         "FINAL INITIAL TERM"

         means:

         (a)      at any time during the Commitment  Period, the period from the
                  date of this  Agreement  until the date which  falls 36 months
                  after the end of the Commitment Period; and

         (b)      after the end of the Commitment Period, the Initial Term which
                  has the latest Initial Term Start Date.

         "GAAP"

         means generally accepted accounting  principles in the United States of
         America  as in  effect  as of  19th  March,  1999,  including,  without
         limitation,  those set forth in the opinions and  pronouncements of the
         Accounting  Principles  Board of the  American  Institute  of Certified
         Public  Accountants and statements and  pronouncements of the Financial
         Accounting  Standards  Board or in such other  statements by such other
         entity  as  approved  by  a  significant   segment  of  the  accounting
         profession.  All ratios and  computations  contained  or referred to in
         this Schedule  shall be computed in  conformity  with GAAP applied on a
         consistent  basis,  except  that  calculations  made  for  purposes  of
         determining  compliance  with the terms of the covenants and with other
         provisions of this Schedule  shall be made without giving effect to (i)
         the  amortization  or write-off of any expenses  incurred in connection
         with negotiating,  agreeing and executing the Transaction Documents and
         (ii) except as  otherwise  provided,  the  amortization  of any amounts
         required or permitted by  Accounting  Principles  Board Opinion Nos. 16
         and 17.

                                       25
<PAGE>

         "GUARANTEE"

         means any obligation,  contingent or otherwise,  of any Person directly
         or indirectly  guaranteeing  any  Indebtedness of any other Person and,
         without  limiting the  generality  of the  foregoing,  any  obligation,
         direct or  indirect,  contingent  or  otherwise,  of such Person (i) to
         purchase or pay (or advance or supply funds for the purchase or payment
         of) such  Indebtedness of such other Person (whether  arising by virtue
         of partnership arrangements, or by agreements to keep-well, to purchase
         assets,   goods,   securities   or  services   (unless  such   purchase
         arrangements  are on  arm's-length  terms and are  entered  into in the
         ordinary course of business) , to take-or-pay, or to maintain financial
         statement conditions or otherwise) or (ii) entered into for purposes of
         assuring in any other  manner the obligee of such  Indebtedness  of the
         payment  thereof or to protect  such  obligee  against  loss in respect
         thereof (in whole or in part); PROVIDED that the term "GUARANTEE" shall
         not include  endorsements  for  collection  or deposit in the  ordinary
         course  of  business.  The  term  "Guarantee"  used  as a  verb  has  a
         corresponding meaning.

         "HOLDER" or "NOTEHOLDER"

         means the registered holder of any Note.

         "INCUR"

         means,  with  respect to any  Indebtedness,  to incur,  create,  issue,
         assume, Guarantee or otherwise become liable for or with respect to, or
         become responsible for, the payment of, contingently or otherwise, such
         Indebtedness,  including  an  "Incurrence"  of  Acquired  Indebtedness;
         PROVIDED  that  neither the accrual of interest  nor the  accretion  of
         original   issue   discount   shall  be  considered  an  Incurrence  of
         Indebtedness.

         "INDEBTEDNESS"

         means, with respect to any Person at any date of determination (without
         duplication),  (i) all  indebtedness of such Person for borrowed money,
         (ii) all  obligations  of such Person  evidenced by bonds,  debentures,
         notes or other  similar  instruments,  (iii)  all  obligations  of such
         Person in respect of  letters  of credit or other  similar  instruments
         (including   reimbursement   obligations  with  respect  thereto,   but
         excluding  obligations  with  respect to  letters of credit  (including
         trade letters of credit) securing  obligations  (other than obligations
         described  in (i) or (ii) above or (v) , (vi) or (vii)  below)  entered
         into in the  ordinary  course of  business of such Person to the extent
         such  letters of credit are not drawn  upon or, if drawn  upon,  to the
         extent such drawing is reimbursed no later than the third  Business Day
         following receipt by such Person of a demand for  reimbursement),  (iv)
         all  obligations of such Person to pay the deferred and unpaid purchase
         price of property or services,  which  purchase  price is due more than
         six months after the date of placing such property in service or taking
         delivery and title thereto or the completion of such  services,  except
         Trade Payables,  (v) all Capitalized  Lease Obligations of such Person,
         (vi) all  Indebtedness  of other Persons secured by a Lien on any asset
         of such  Person,  whether or not such  Indebtedness  is assumed by such
         Person;  PROVIDED  that the  amount of such  Indebtedness  shall be the
         lesser  of (A) the  fair  market  value of such  asset at such  date of
         determination  and  (B) the  amount  of such  Indebtedness,  (vii)  all
         Indebtedness  of other Persons  Guaranteed by such Person to the extent
         such Indebtedness is Guaranteed by such Person and (viii) to the extent
         not otherwise  included in this definition,  obligations under Currency
         Agreements and Interest Rate Agreements.  The amount of Indebtedness of
         any Person at any date shall be the outstanding balance at such date of
         all  unconditional  obligations,  as described  above,  and the maximum
         liability at such time with respect to contingent  obligations upon the

                                       26
<PAGE>

         occurrence of the contingency giving rise to the obligation,  which, in
         the  case of a  Guarantee,  shall  be the  outstanding  balance  of the
         Guaranteed  Indebtedness,  PROVIDED (A) that the amount  outstanding at
         any time of any Indebtedness issued with original issue discount is the
         face amount of such Indebtedness less the remaining unamortized portion
         of the original issue discount of such  Indebtedness at the time of its
         issuance as determined in conformity with GAAP, (B) that money borrowed
         and set  aside at the time of the  Incurrence  of any  Indebtedness  in
         order to prefund the payment of the interest on such Indebtedness shall
         not be deemed  to be  "Indebtedness"  so long as such  money is held to
         secure the payment of such interest and (C) that Indebtedness.

         "INDENTURE"

         means the Senior Euro Notes Indenture dated as of 19th March,  1999 and
         entered  into by the Company (as issuer)  with The Bank of New York (as
         trustee) as originally executed or as it nay be amended or supplemented
         from  time  to  time by one or  more  indentures  supplemental  thereto
         entered into pursuant to the applicable provisions thereof.

         "INTEREST RATE AGREEMENT"

         means any interest  rate  protection  agreement,  interest  rate future
         agreement,   interest  rate  option   agreement,   interest  rate  swap
         agreement, interest rate cap agreement, interest rate collar agreement,
         interest  rate  hedge  agreement,  option or future  contract  or other
         similar agreement or arrangement.

         "INVESTMENT"

         in any  Person  means any  direct or  indirect  advance,  loan or other
         extension of credit (including, without limitation, by way of Guarantee
         or similar arrangement; but excluding extensions of credit to customers
         in the ordinary  course of business that are, in conformity  with GAAP,
         recorded as accounts  receivable on the balance sheet of the Company or
         its Material  Subsidiaries) or capital contribution to (by means of any
         transfer  of cash or  other  property  to  others  or any  payment  for
         property or services for the account or use of others), or any purchase
         or  acquisition  of Capital Stock,  bonds,  motes,  debentures or other
         similar  instruments  issued by, such Person and shall  include (i) the
         designation of a Material Subsidiary as an Unrestricted  Subsidiary and
         (ii)  the  fair  market  value  of the  Capital  Stock  (or  any  other
         Investment),  held by the Company or any of its Material  Subsidiaries,
         of (or in) any  Person  that has  ceased to be a  Material  Subsidiary,
         including,  without limitation,  by reason of any transaction permitted
         by clause (iii) of Paragraph 2.3 hereof;  PROVIDED that the fair market
         value of the Investment remaining in any Person that has ceased to be a
         Material   Subsidiary   shall  not  exceed  the  aggregate   amount  of
         Investments  previously  made in such  Person  valued  at the time such
         Investments were made less the net reduction of such  Investments.  For
         purposes of the definition of  "Unrestricted  Subsidiary" and Paragraph
         2.2 hereof;

                                       27
<PAGE>

         "Investment"  shall include the fair market value of the assets (net of
         liabilities  (other  than  liabilities  to  the  Company  or any of its
         Material  Subsidiaries))  of any Material  Subsidiary  at the time that
         such Material Subsidiary is designated an Unrestricted Subsidiary, (ii)
         the fair  market  value of the assets (net of  liabilities  (other than
         liabilities to the Company or any of its Material Subsidiaries)) of any
         Unrestricted  Subsidiary at the time that such Unrestricted  Subsidiary
         is designated a Material  Subsidiary shall be considered a reduction in
         outstanding  Investments and (iii) any property  transferred to or from
         an Unrestricted  Subsidiary shall be valued at its fair market value at
         the time of such transfer.

         "LIEN"

         means any mortgage,  pledge,  security interest,  encumbrance,  lien or
         charge of any kind (including, without limitation, any conditional sale
         or other title  retention  agreement or lease in the nature  thereof or
         any agreement to give any security interest).

         "MATERIAL SUBSIDIARY"

         means the Lessee or Permitted  Sub-Lessee  and any other  Subsidiary of
         the Company other than an Unrestricted Subsidiary.

         "NET CASH PROCEEDS"

         means,  (a) with respect to any Asset Sale,  the proceeds of such Asset
         Sale in the form of cash or cash  equivalents,  including  payments  in
         respect of deferred payment obligations (to the extent corresponding to
         the principal,  but not interest,  component  thereof) when received in
         the  form of  cash  or cash  equivalents  (except  to the  extent  such
         obligations  are  financed or sold with  recourse to the Company or any
         Material Subsidiary) and proceeds from the conversion of other property
         received  when  converted  to  cash  or  cash  equivalents,  net of (i)
         brokerage  commissions and other fees and expenses  (including fees and
         expenses of counsel and investment bankers) related to such Asset Sale,
         (ii)  provisions for all taxes (whether or not such taxes will actually
         be paid or are payable) as a result of such Asset Sale  without  regard
         to the  consolidated  results  of  operations  of the  Company  and its
         Material  Subsidiaries,  taken  as a  whole,  (iii)  payments  made  or
         required  to be made to  repay  Indebtedness  or any  other  obligation
         outstanding  at the time of such Asset Sale that  either (A) is secured
         by a Lien on the  property or assets sold or (B) is required to be paid
         as a result of such sale,  (iv) payments made or required to be made to
         Persons having a beneficial interest in the assets subject to the Asset
         Sale, and (v) appropriate  amounts to be provided by the Company cc any
         Material  Subsidiary as a reserve  against any  liabilities  associated
         with such Asset Sale, including, without limitation,  pension and other
         post-employment    benefit   liabilities,    liabilities   related   to
         environmental   matters  and  liabilities  under  any   indemnification
         obligations  associated  with such Asset  Sale,  all as  determined  in
         conformity  with GAAP,  and (b) with respect to any issuance or sale of
         Capital  Stock,  the  proceeds of such  issuance or sale in the form of
         cash or cash  equivalents,  including  payments  in respect of deferred
         payment obligations (to the extent corresponding to the principal,  but
         not interest,  component  thereof) when received in the form of cash or
         cash equivalents (except to the extent such obligations are financed or
         sold with  recourse  to the  Company or any  Material  Subsidiary)  and
         proceeds from the conversion of other property  received when converted
         to cash or cash equivalents, net of attorney's fees, accountants' fees,
         underwriters' or placement  agents' fees,  discounts or commissions and
         brokerage,  consultant and other fees incurred in connection  with such
         issuance or sale and net of taxes paid or payable as a result thereof.

                                       28
<PAGE>

         "NOTES"

         means  any of the  Notes,  as  defined  in the  Indenture  or any other
         indenture  entered  into by the  Company,  that are  authenticated  and
         delivered  under any such  indenture and remain  outstanding  as at the
         date of this Lease  Guarantee.  For all purposes of this Schedule,  the
         term  "Notes"  shall  include  any  Exchange  Notes  to be  issued  and
         exchanged for any Notes.

         "OFFER TO PURCHASE"

         means an offer  to  purchase  Notes  by the  Company  from the  Holders
         commenced  by mailing a notice to the Trustee and each Holder  stating:
         (i) the covenant pursuant to which the offer is being made and that all
         Notes  validly  tendered  will be  accepted  for  payment on a PRO RATA
         basis; (ii) the purchase price and the date of purchase (which shall be
         a Business  Day no earlier than 30 days nor later than 60 days from the
         date such notice is mailed) (the "PAYMENT  DATE");  (iii) that any Note
         not tendered  will continue to accrue  interest  pursuant to its terms;
         (iv) that,  unless the Company  defaults in the payment of the purchase
         price,  any Note accepted for payment pursuant to the offer to Purchase
         shall cease to accrue  interest on and after the Payment Date; (v) that
         Holders  electing  to have a Note  purchased  pursuant  to the Offer to
         Purchase will be required to surrender the Note, together with the form
         entitled  "Option of the Holder to Elect  Purchase" on the reverse side
         of the Note completed,  to the Paying Agent at the address specified in
         the  notice  prior  to  the  close  of  business  on the  Business  Day
         immediately  preceding  the Payment  Date;  (vi) that  Holders  will be
         entitled to withdraw their election if the Paying Agent  receives,  not
         later than the close of business on the third Business Day  immediately
         preceding  the Payment  Date,  a telegram,  facsimile  transmission  or
         letter setting forth the name of such Holder,  the principal  amount of
         Notes  delivered  for  purchase  and a  statement  that such  Holder is
         withdrawing his election to have such Notes  purchased;  and (vii) that
         Holders whose Notes are being purchased only in part will be issued new
         Notes equal in principal amount to the unpurchased portion of the Notes
         surrendered; PROVIDED that each Note purchased and each new Note issued
         shall be in a principal  amount of Euro 1,000 or an  integral  multiple
         thereof.  On the Payment Date, the Company shall (i) accept for payment
         on a PRO RATA basis Notes or portions thereof  tendered  pursuant to an
         Offer to Purchase;  (ii) deposit with the Paying Agent money sufficient
         to pay the purchase price of all Notes or portions thereof so accepted;
         and (iii) deliver,  or cause to be delivered,  to the Trustee all Notes
         or portions thereof so accepted together with an Officers'  Certificate
         specifying  the Notes or portions  thereof  accepted for payment by the
         Company.  The Paying Agent shall  promptly mail to the Holders of Notes
         so accepted  payment in an amount equal to the purchase price,  and the
         Trustee shall promptly authenticate and mail to such Holders a new Note
         equal  in  principal  amount  to any  unpurchased  portion  of the Note
         surrendered; PROVIDED that each Note purchased and each new Note issued
         shall be in a principal  amount of Euro 1,000 or an  integral  multiple
         thereof.  The Company will publicly announce the results of an Offer to
         Purchase as soon as  practicable  after the Payment  Date.  The Trustee
         shall act as the Paying  Agent for an Offer to  Purchase.  The  Company
         will  comply  with  Rule  14e-l  under the  Exchange  Act and any other
         securities laws and regulations  thereunder to the extent such laws and
         regulations are  applicable,  in the event that the Company is required
         to repurchase Notes pursuant to an Offer to Purchase.

         "OFFICER"

         means, with respect to the Company,  (i) the Chairman of the Board, the
         Vice Chairman of the Board, the President, the Chief Executive Officer,
         the Chief Financial Officer or a Vice President, and (ii) the Treasurer
         or any Assistant Treasurer, or the Secretary or any Assistant Secretary
         of the Company.

                                       29
<PAGE>

         "OFFICERS' CERTIFICATE"

         means a certificate  signed by one Officer  listed in clause (i) of the
         definition  thereof  and  one  Officer  listed  in  clause  (ii) of the
         definition thereof; PROVIDED, HOWEVER, that any such certificate may be
         signed  by  any  two  of  the  Officers  listed  in  clause  (i) of the
         definition  thereof in lieu of being  signed by one  Officer  listed in
         clause (i) of the  definition  thereof and one Officer listed in clause
         (ii) of the definition thereof.  Each Officers' Certificate (other than
         certificates  provided pursuant to TIA Section 314(a)(4)) shall include
         the statements provided for in TIA Section 314(e).

         "PAYING AGENT"

         has the meaning provided in Section 2.4 of the Indenture.

         "PERMITTED INVESTMENT"

         means (i) an  Investment  in the Company or a Material  Subsidiary or a
         Person  which  will,  upon  the  making  of such  Investment,  become a
         Material  Subsidiary  or be  merged  or  consolidated  with  or into or
         transfer or convey all or  substantially  all its assets to the Company
         or a Material Subsidiary;  PROVIDED that such Person's primary business
         is related, ancillary or complementary to the businesses of the Company
         or any of its  Material  Subsidiaries  on the date of such  Investment;
         (ii) Temporary  Cash  Investments;  (iii)  payroll,  travel and similar
         advances  to  cover  matters  that  are  expected  at the  time of such
         advances  ultimately to be treated as expenses in accordance with GAAP;
         (iv)  Investments  received in the  bankruptcy or  reorganization  of a
         Person or any exchange of such  Investment  with the issuer  thereof or
         taken in  settlement  of or other  resolution  of claims or disputes or
         acquired as the result of foreclosure of any secured Investment and, in
         each  case,   extensions,   modifications  and  renewal  thereof;   (v)
         Investments  in  prepaid  expenses,  negotiable  instruments  held  for
         collection and lease,  utility and worker's  compensation,  performance
         and other similar deposits;  (vi) Interest Rate Agreements and Currency
         Agreements  designed  solely to protect  the  Company  or its  Material
         Subsidiaries against fluctuations in interest rates or foreign currency
         exchange rates; (vii) loans or advances to officers or employees of the
         Company or any Material  Subsidiary that do not in the aggregate exceed
         $1 million at any time outstanding;  (viii)  investments  consisting of
         securities  issued by or  beneficial  interests  in a  special  purpose
         entity  referred to in clause (f) of the definition of "Asset Sale" and
         which are received in exchange for assets that are  transferred  by the
         Company or a Material  Subsidiary  to such special  purpose  entity and
         used for the purpose referred to therein;  (ix) Investments as a result
         of  consideration  received  in  connection  with an Asset Sale made in
         compliance  with Paragraph 2.8 hereof,  and (x) securities set aside at
         the time of Incurrence of  Indebtedness in order to prefund the payment
         of interest on such Indebtedness.

         "PERMITTED JOINT VENTURE"

         means any joint venture between the Company or any Material  Subsidiary
         and (i) any Person,  other than a Subsidiary,  engaged in the provision
         or sale of telecommunications services or (ii) any Person engaged as an
         independent sale representative of the Company; PROVIDED that, prior to
         making  any  Investment  in  such a  Person,  the  Company's  Board  of
         Directors shall have determined that such Investment fits the Company's
         strategic  plan and is on terms  that  are fair and  reasonable  to the
         Company.

                                       30
<PAGE>

         "PERMITTED WHOLESALE CONSORTIUM"

         means any Person in which the Company invests for the principal purpose
         of leasing or otherwise  acquiring  transmission rights with respect to
         long distance  telecommunications;  PROVIDED that,  prior to making any
         Investment  in such a Person,  the Company's  Board of Directors  shall
         have  determined  that such  Investment will afford the Company greater
         economic  benefits than it could otherwise obtain from other sources of
         transmission rights.

         "PERSON"

         means an individual, a corporation,  a partnership, a limited liability
         company,  a joint venture,  an association,  a trust, an unincorporated
         organization  or  any  other  entity  or   organization,   including  a
         government  or political  subdivision  or an agency or  instrumentality
         thereof.

         "POTENTIAL EVENT OF DEFAULT"

         means any event  that is, or after  notice or  passage  of time or both
         would be, an Event of Default.

         "PREFERRED STOCK" or "PREFERRED STOCK"

         means,  with  respect to any  Person,  any and all  shares,  interests,
         participation or other equivalents (however designated,  whether voting
         or non-voting) of such Person's preferred or preference stock,  whether
         now outstanding or issued after the date of this Indenture,  including,
         without  limitation,  all  series  and  classes  of such  preferred  or
         preference stock.

         "SECURITIES ACT"

         means the Securities Act of 1933, as amended.

         "STATED MATURITY"

         means (i) with respect to any debt security, the date specified in such
         debt  security  as the  fixed  date on which the  final  instalment  of
         principal  of such  debt  security  is due and  payable  and (ii)  with
         respect to any scheduled  instalment of principal of or interest on any
         debt  security,  the date  specified in such debt security as the fixed
         date on which such instalment is due and payable.

         "STRATEGIC SUBORDINATED INDEBTEDNESS"

         means  Indebtedness of the Company  Incurred to finance the acquisition
         of a  Person  engaged  in a  business  that is  related,  ancillary  or
         complementary  to the  business  conducted by the Company or any of its
         Material Subsidiaries, which Indebtedness by its terms, or by the terms
         of any agreement or instrument  pursuant to which such  Indebtedness is
         Incurred,  (i) is expressly made subordinate in right of payment to the
         Notes and (ii)  provides  that no  payment  of  principal,  premium  or
         interest on, or any other  payment  with respect to, such  Indebtedness
         may be made  prior  to the  payment  in  full  of all of the  Company's
         obligations  under  the  Notes;  PROVIDED  that such  Indebtedness  may
         provide  for and be repaid at any time from the  proceeds  of a capital
         contribution, the sale of Capital Stock (other than Disqualified Stock)
         of the Company, or other Strategic  Subordinated  Indebtedness Incurred
         after the Incurrence of such Indebtedness.

                                       31
<PAGE>

         "SUBSIDIARY"

         means,  with respect to any Person,  any  corporation,  association  or
         other business entity of which more than 50% of the voting power of the
         outstanding  Voting  Stock is owned,  directly or  indirectly,  by such
         Person and one or more other Subsidiaries of such Person.

         "TEMPORARY CASH INVESTMENT"

         means any of the following: (i) direct obligations of the United States
         of   America  or  any  agency   thereof   or   obligations   fully  and
         unconditionally  guaranteed  by the  United  States of  America  or any
         agency thereof,  (ii) time deposit accounts,  eurodollar time deposits,
         bankers'   acceptances,   certificates  of  deposit  and  money  market
         deposits,  in  each  case  maturing  within  one  year  of the  date of
         acquisition  thereof  and  issued by a bank or trust  company  which is
         organized  under the laws of the United  States of  America,  any state
         thereof or any  foreign  country  recognized  by the  United  States of
         America,  and which bank or trust  company  has  capital,  surplus  and
         undivided profits  aggregating in excess of $50 million (or the foreign
         currency  equivalent  thereof) and has outstanding  debt which is rated
         "A" (or such  similar  equivalent  rating)  or  higher  by at least one
         nationally  recognized  statistical rating  organization (as defined in
         Rule 436 under the Securities Act), or any money-market  fund sponsored
         by a  registered  broker  dealer  or  mutual  fund  distributor,  (iii)
         repurchase  obligations  with a term  of not  more  than  30  days  for
         underlying  securities  of the  types  described  in  clause  (i) above
         entered into with a bank meeting the qualifications described in clause
         (ii) above,  (iv)  commercial  paper,  maturing  not more than one year
         after the date of acquisition,  issued by a corporation  (other than an
         Affiliate of the Company)  organized and in existence under the laws of
         the United States of America,  any state thereof or any foreign country
         recognized by the United States of America with a rating at the time as
         of which any investment  therein is made of "P-2" (or higher) according
         to Moody's or "A-2" (or higher)  according to S&P, (v) securities  with
         maturities of one year or less from the date of  acquisition  issued or
         fully and  unconditionally  guaranteed  by any state,  commonwealth  or
         territory  of  the  United  States  of  America,  or by  any  political
         subdivision or taxing authority thereof,  and rated at least "A" by S&P
         or Moody's, and (vi) shares or other interests in an investment company
         the  assets  of which  consist  solely  of (A)  securities  of the type
         described  in clauses  (i)  through  (v) above and (B)  mortgage-backed
         securities  rated  AAA or the  equivalent  by  S&P,  Moody's  or  Fitch
         Investor Services, Inc.

         "TIA"

         means, the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
         77aaa-77bbb), as amended from time to time.

         "TRADE PAYABLES"

         means,  with respect to any Person,  any accounts  payable or any other
         indebtedness or monetary obligation to trade creditors created, assumed
         or Guaranteed by such Person or any of its Subsidiaries  arising in the
         ordinary course of business in connection with the acquisition of goods
         or services.

                                       32
<PAGE>

         "TRANSACTION DATE"

         means,  with  respect  to the  Incurrence  of any  Indebtedness  by the
         Company or any of its Material Subsidiaries, the date such Indebtedness
         is to be Incurred and, with respect to any Restricted Payment, the date
         such Restricted Payment is to be made.

         "TRUSTEE"

         means  the  party  named  as such in the  Indenture  until a  successor
         replaces it in accordance  with the  provisions of Article Seven of the
         Indenture, and thereafter means such successor.

         "UNRESTRICTED SUBSIDIARY"

         means  (i)  any   Subsidiary  of  the  Company  that  at  the  time  of
         determination  shall be  designated an  Unrestricted  Subsidiary by the
         Board  of  Directors  in  the  manner  provided  below;  and  (ii)  any
         Subsidiary of an  Unrestricted  Subsidiary.  The Board of Directors may
         designate  any Material  Subsidiary  (including  any newly  acquired or
         newly  formed   Subsidiary  of  the  Company)  to  be  an  Unrestricted
         Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or
         holds  any  Lien  on any  property  of,  the  Company  or any  Material
         Subsidiary;  PROVIDED  that (A) any  Guarantee  by the  Company  or any
         Restricted  Subsidiary of any  Indebtedness of the Subsidiary  being so
         designated shall be deemed an "Incurrence" of such  Indebtedness and an
         "Investment"  by the Company or such Material  Subsidiary  (or both, if
         applicable)  at the  time  of  such  designation;  (B)  either  (1) the
         Subsidiary  to be so  designated  has total assets of $1,000 or less or
         (2) if such Subsidiary has assets greater than $1,000, such designation
         would be permitted  under Clause 2.2 hereof and (C) if applicable,  the
         Incurrence of Indebtedness and the Investment referred to in Clause (A)
         of this proviso  would be permitted  under Clause 2.1 hereof and Clause
         2.2 hereof.  The Board of  Directors  may  designate  any  Unrestricted
         Subsidiary to be a Material Subsidiary; PROVIDED that (i) no Default or
         Event of Default  shall have  occurred and be continuing at the time of
         or after  giving  effect  to such  designation  and (ii) all  Liens and
         Indebtedness of such Unrestricted  Subsidiary  outstanding  immediately
         after such  designation  would,  if  Incurred  at such time,  have been
         permitted  to be Incurred  (and shall be deemed to have been  Incurred)
         for all purposes of this Lease  Guarantee.  Any such designation by the
         Board of Directors  shall be evidenced to the Lessor by promptly filing
         with the Lessor a copy of the Board  Resolution  giving  effect to such
         designation   and  an  Officers'   Certificate   certifying  that  such
         designation complied with the foregoing provisions.

         "VOTING STOCK"

         means,  with respect to any Person,  Capital Stock of any class or kind
         ordinarily  having  the power to vote for the  election  of  directors,
         managers or other voting members of the governing body of such Person.

         "WHOLLY OWNED"

         means,  with respect to any Subsidiary of any Person,  the ownership of
         all of the outstanding Capital Stock of such Subsidiary (other than any
         director's  qualifying  shares  or  Investments  by  foreign  nationals
         mandated by applicable  law) by such Person or one or more Wholly Owned
         Subsidiaries of such Person.

                                       33
<PAGE>

1.2      RULES OF CONSTRUCTION

         Unless the context otherwise requires:

         (i)      a term has the meaning assigned to it;

         (ii)     an  accounting  term not  otherwise  defined  has the  meaning
                  assigned to it in accordance with GAAP;

         (iii)    "or" is not exclusive;

         (iv)     words in the  singular  include the  plural,  and words in the
                  plural include the singular;

         (vi)     "herein,"  `hereof' and other words of similar import refer to
                  this Schedule as a whole and not to any  particular  Paragraph
                  or other subdivision; and

         (vii)    all  references  to  Paragraphs  refer to  Paragraphs  of this
                  Schedule unless otherwise indicated.

2.       COVENANTS

2.1      LIMITATION ON INDEBTEDNESS

         (a)      The Company  will not, and will not permit any of its Material
                  Subsidiaries to, Incur any Indebtedness (other than the Notes,
                  any   Indebtedness   under  the   Transaction   Documents  and
                  Indebtedness  existing on 19th March, 1999); PROVIDED that the
                  Company may Incur  Indebtedness if, after giving effect to the
                  Incurrence   of  such   Indebtedness   and  the   receipt  and
                  application  of  the  proceeds  therefrom,   the  Consolidated
                  Leverage Ratio would be greater than zero and less than 6:1.

                  Notwithstanding  the  foregoing,  the Company and any Material
                  Subsidiary  (except as specified below) may Incur each and all
                  of the following:

                  (i)      Indebtedness  outstanding at any time in an aggregate
                           principal  amount  not  to  exceed  $100  million  of
                           Indebtedness  that is PARI PASSU with or subordinated
                           to the Notes and the  Transaction  Documents and $150
                           million of  Indebtedness  that is subordinated to the
                           Notes and the Transaction Documents,  less any amount
                           of such Indebtedness  permanently  repaid as provided
                           under paragraph 2.8 below;

                  (ii)     Indebtedness owed:

                           (A)      by any Material Subsidiary to the Company or
                                    another Material Subsidiary; or

                           (B)      by the Company to any Material Subsidiary;

                           PROVIDED  that any event  which  results  in any such
                           Material   Subsidiary   ceasing   to  be  a  Material
                           Subsidiary  or  any   subsequent   transfer  of  such
                           Indebtedness  (other  than to the  Company or another
                           Material  Subsidiary)  shall be deemed, in each case,
                           to constitute an Incurrence of such  Indebtedness not
                           permitted by this Paragraph 2.1(a)(ii);

                                       34
<PAGE>

                  (iii)    Indebtedness  issued  in  exchange  for,  or the  net
                           proceeds of which are used to repay, redeem, defease,
                           refinance,  refund, extend, renew, replace, discharge
                           or otherwise retire any then outstanding Indebtedness
                           (other than  Indebtedness  Incurred  under  Paragraph
                           2.1(a) sub paragraph (i), (ii), (iv),  (vi),  (viii),
                           (xi) or (xii))  and any  refinancings  thereof  in an
                           amount  not to exceed  the  amount so  refinanced  or
                           refunded (plus premiums, penalties, accrued interest,
                           fees and expenses);  PROVIDED that  Indebtedness  the
                           proceeds of which are used to refinance or refund the
                           Notes   and  for   the   Transaction   Documents   or
                           Indebtedness that is PARI PASSU with, or subordinated
                           in right of  payment  to,  the Notes and the  Capital
                           Outstanding  under the  Transaction  Documents  shall
                           only be permitted under this sub paragraph (iii) if:

                           (A)      in case the  Notes  or,  as the case may be,
                                    the    Capital    Outstanding    under   the
                                    Transaction Documents are refinanced in part
                                    or the Indebtedness to be refinanced is PARI
                                    PASSU   with  the  Notes  and  the   Capital
                                    Outstanding under the Transaction Documents,
                                    such new  Indebtedness,  by its  terms or by
                                    the  terms of any  agreement  or  instrument
                                    pursuant to which such new  Indebtedness  is
                                    outstanding,  is  expressly  made PARI PASSU
                                    with, or subordinate in right of payment to,
                                    the remaining  Notes or, as the case may be,
                                    the    Capital    Outstanding    under   the
                                    Transaction Documents;

                           (B)      in case the Indebtedness to be refinanced is
                                    subordinated  in  right  of  payment  to the
                                    Notes and the Capital  Outstanding under the
                                    Transaction     Documents,      such     new
                                    Indebtedness,  by its  terms or by the terms
                                    of any agreement or  instrument  pursuant to
                                    which  such new  Indebtedness  is  issued or
                                    remains   outstanding,   is  expressly  made
                                    subordinate in right of payment to the Notes
                                    and  the  Capital   Outstanding   under  the
                                    Transaction Documents at least to the extent
                                    that the  Indebtedness  to be  refinanced is
                                    subordinated  to the Notes  and the  Capital
                                    Outstanding under the Transaction Documents;
                                    and

                           (C)      such new Indebtedness,  determined as of the
                                    date of Incurrence of such new Indebtedness,
                                    does  not  mature  prior  to the  end of the
                                    Final  Initial  Term  or,  if  earlier,  the
                                    Stated  Maturity of the  Indebtedness  to be
                                    refinanced or refunded, and the Average Life
                                    of such new  Indebtedness  is at least equal
                                    to  the   remaining   Average  Life  of  the
                                    Indebtedness to be refinanced or refunded,

                           PROVIDED FURTHER that in no event may Indebtedness of
                           the   Company   be   refinanced   by   means  of  any
                           Indebtedness of any Material  Subsidiary  pursuant to
                           this sub paragraph (iii);

                  (iv)     Indebtedness:

                           (A)      in respect of performance,  surety or appeal
                                    bonds  provided  in the  ordinary  course of
                                    business;

                           (B)      under Currency  Agreements and Interest Rate
                                    Agreements;

                           PROVIDED that such agreements:

                                       35
<PAGE>

                                    (a)      are designed  solely to protect the
                                             Company  or  any  of  its  Material
                                             Subsidiaries  against  fluctuations
                                             in foreign currency  exchange rates
                                             or interest rates; and

                                    (b)      do not increase the Indebtedness of
                                             the obligor outstanding at any time
                                             other   than   as   a   result   of
                                             fluctuations  in  foreign  currency
                                             exchange rates or interest rates or
                                             by reason of fees,  indemnities and
                                             compensation   payable  thereunder;
                                             and

                                    (C)      arising from  agreements  providing
                                             for indemnification,  adjustment of
                                             purchase     price    or    similar
                                             obligations,  or from Guarantees or
                                             letters of credit,  surety bonds or
                                             performance   bonds   securing  any
                                             obligations  of the  Company or any
                                             of   its   Material    Subsidiaries
                                             pursuant to such agreements, in any
                                             case  Incurred in  connection  with
                                             the  disposition  of any  business,
                                             assets   or   Material   Subsidiary
                                             (other    than     Guarantees    of
                                             Indebtedness Incurred by any Person
                                             acquiring  all  or any  portion  of
                                             such  business,  assets or Material
                                             Subsidiary   for  the   purpose  of
                                             financing such  acquisition),  in a
                                             principal  amount not to exceed the
                                             gross proceeds actually received by
                                             the   Company   or   any   Material
                                             Subsidiary in connection  with such
                                             disposition;

                  (v)      Indebtedness  of the  Company,  to the extent the net
                           proceeds thereof are promptly:

                           (A)      used to  purchase  the Notes  tendered in an
                                    Offer  to  Purchase  made as a  result  of a
                                    Change in Control; or

                           (B)      used to  exercise  the  prepayment  right in
                                    respect of the Capital  Outstanding  (or the
                                    relevant part  thereof) in  accordance  with
                                    Clause  16.3 of the  Master  Lease  Purchase
                                    Agreement;

                  (vi)     Guarantees  of the  Notes,  the Lease  Guarantee  and
                           Guarantees  of  Indebtedness  of the  Company  by any
                           Material  Subsidiary  PROVIDED the  Guarantee of such
                           Indebtedness  is permitted by and made in  accordance
                           with Section 4.07 of the Indenture;

                  (vii)    Indebtedness   (including   Guarantees)  Incurred  to
                           finance  the  cost  (including  the  cost of  design,
                           development, acquisition, construction, installation,
                           improvement,   transportation   or   integration)  of
                           acquiring  equipment,  inventory  or  network  assets
                           (including  acquisitions by way of Capitalised  Lease
                           and  acquisitions  of the  Capital  Stock of a Person
                           that becomes a Material  Subsidiary  to the extent of
                           the fair market value of the equipment,  inventory or
                           network  assets  so  acquired)  by the  Company  or a
                           Material  Subsidiary  after the date  upon  which the
                           Master  Lease  Purchase  Agreement is executed by the
                           Lessor and the Lessee;

                  (viii)   Indebtedness of the Company not to exceed, at any one
                           time outstanding, two times:

                           (A)      the  Net  Cash  Proceeds   received  by  the
                                    Company after 19th March,  1999 as a capital
                                    contribution  or from the  issuance and sale
                                    of   its   Capital    Stock    (other   than

                                       36
<PAGE>

                                    Disqualified  Stock) to a Person that is not
                                    a Subsidiary of the Company, to the extent:

                                    (I)      such  capital  contribution  or Net
                                             Cash  Proceeds  have not been  used
                                             pursuant to paragraph 2.2(iv)(C)(2)
                                             or sub-paragraph  (iii), (iv), (vi)
                                             or (vii) of paragraph 2.2(iv)(C) of
                                             this  Schedule to make a Restricted
                                             Payment; and

                                    (II)     if such capital contribution or Net
                                             Cash    Proceeds    are   used   to
                                             consummate a  transaction  pursuant
                                             to   which   the   Company   Incurs
                                             Acquired  Indebtedness,  the amount
                                             of such Net Cash  Proceeds  exceeds
                                             one-half  of the amount of Acquired
                                             Indebtedness so Incurred; and

                           (B)      80% of the fair  market  value  of  property
                                    (other  than  cash  and  cash   equivalents)
                                    received  by the  Company  after 19th March,
                                    1999  from  the  sale of its  Capital  Stock
                                    (other than Disqualified  Stock) to a Person
                                    that is not a Subsidiary of the Company,  to
                                    the extent:

                                    (I)      such capital  contribution  or sale
                                             of Capital  Stock has not been used
                                             pursuant  to  sub-paragraph  (iii),
                                             (iv),  (vi) or (vii)  of  paragraph
                                             2.2(iv)(C)   hereof   to   make   a
                                             Restricted Payment; and

                                    (II)     if  such  capital  contribution  or
                                             Capital Stock is used to consummate
                                             a transaction pursuant to which the
                                             Company       Incurs       Acquired
                                             Indebtedness,   80%  of  the   fair
                                             market   value   of  the   property
                                             received  exceeds  one-half  of the
                                             amount of Acquired  Indebtedness so
                                             Incurred    PROVIDED    that   such
                                             Indebtedness  does not mature prior
                                             to the  end of  the  Final  Initial
                                             Term and has an Average Life longer
                                             than the Capital  Outstanding under
                                             the Transaction Documents;

                  (ix)     Acquired Indebtedness;

                  (x)      Strategic Subordinated Indebtedness;

                  (xi)     Indebtedness  in respect of bankers'  acceptance  and
                           letters  of  credit,  all in the  ordinary  course of
                           business,  in an aggregate amount  outstanding at any
                           time of up to $10 million;

                  (xii)    Indebtedness  arising from the honouring by a bank or
                           other  financial  institution of a check,  or similar
                           instrument  inadvertently  (except  in  the  case  of
                           daylight overdrafts) drawn against insufficient funds
                           in the  ordinary  course of business,  PROVIDED  that
                           such   Indebtedness  is  extinguished   within  three
                           Business Days of Incurrence.

         (b)      Notwithstanding any other provision of this Paragraph 2.1, the
                  maximum amount of Indebtedness  that the Company or a Material
                  Subsidiary  may Incur pursuant to this Paragraph 2.1 shall not
                  be deemed to be  exceeded,  with  respect  to any  outstanding
                  Indebtedness  due solely to the result of  fluctuations in the
                  exchange rates of currencies.

                                       37
<PAGE>

         (c)      For  purposes  of  determining   any   particular   amount  of
                  Indebtedness  under this Paragraph 2.1, (1) Guarantees,  Liens
                  or  obligations  with respect to letters of credit  supporting
                  Indebtedness  otherwise  included in the determination of such
                  particular  amount  shall  not be  included  and (2) any Liens
                  granted pursuant to the equal and ratable provisions  referred
                  to in Paragraph 2.1 shall not be treated as Indebtedness.  For
                  purposes of determining compliance with this Paragraph 2.1, in
                  the event that an item of  Indebtedness  meets the criteria of
                  more  than  one of the  types  of  Indebtedness  described  in
                  sub-paragraphs  (i) to (xii) of Paragraph 2.1(a), the Company,
                  in its sole discretion,  shall classify, and from time to time
                  may reclassify, such item of Indebtedness and only be required
                  to include the amount and type of such  Indebtedness in one of
                  such clauses.

2.2      LIMITATION ON RESTRICTED PAYMENTS

         The  Company  will not,  and will not permit any  Material  Subsidiary,
         directly or indirectly to:

         (i)      declare or pay any  dividend  or make any  distribution  on or
                  with  respect to its Capital  Stock  (other than  dividends or
                  distributions  payable  solely in shares of its Capital  Stock
                  (other than  Disqualified  Stock) or in  options,  warrants or
                  other rights to acquire  shares of such Capital  Stock and PRO
                  RATA  dividends or  distributions  on Common Stock of Material
                  Subsidiaries  held by minority  stockholders)  held by Persons
                  other than the Company or any of its Material Subsidiaries;

         (ii)     purchase,  redeem,  retire or otherwise  acquire for value any
                  shares of Capital Stock of:

                  (A)      the Company or an Unrestricted  Subsidiary (including
                           options,  warrants  or other  rights to acquire  such
                           shares of Capital Stock) held by any Person; or

                  (B)      a Material Subsidiary (including options, warrants or
                           other rights to acquire such shares of Capital Stock)
                           held by any  Affiliate  of the Company  (other than a
                           Wholly Owned  Material  Subsidiary) or any holder (or
                           any  Affiliate  of such  holder) of 5% or more of the
                           Capital Stock of the Company;

         (iii)    make any voluntary or optional principal payment, or voluntary
                  or  optional  redemption,  repurchase,  defeasance,  or  other
                  acquisition or retirement for value,  of  Indebtedness  of the
                  Company  that is  subordinated  in  right  of  payment  to the
                  amounts outstanding under the Transaction Documents; or

         (iv)     make any  Investment  (after  19th March  1999),  other than a
                  Permitted  Investment,  in any Person  (such  payments  or any
                  other  actions  described  in  subparagraphs  (i) through (iv)
                  above being collectively "RESTRICTED PAYMENTS")

         if, at the time of, and after giving effect to, the proposed Restricted
         Payment:

                  (A)      a  Potential  Event of  Default  or Event of  Default
                           shall have occurred and be continuing;

                  (B)      the  Company  could  not  Incur  at  least  $1.00  of
                           Indebtedness under Paragraph 2.1(a); or

                  (C)      the aggregate amount of all Restricted  Payments (the
                           amount,  if other than in cash,  to be  determined in
                           good   faith  by  the  Board  of   Directors,   whose

                                       38
<PAGE>

                           determination  shall be conclusive and evidenced by a
                           Board  Resolution) made after 19th March,  1999 shall
                           exceed the sum of:

                           (1)      50% of the aggregate  amount of the Adjusted
                                    Consolidated Net Income (or, if the Adjusted
                                    Consolidated  Net  Income  is a loss,  minus
                                    100% of the amount of such loss) (determined
                                    by excluding income resulting from transfers
                                    of  assets  by  the  Company  or a  Material
                                    Subsidiary  to an  Unrestricted  Subsidiary)
                                    accrued  on a  cumulative  basis  during the
                                    period  (taken  as  one  accounting  period)
                                    beginning  on the  first  day of the  fiscal
                                    quarter  immediately  following  19th March,
                                    1999 and  ending on the last day of the last
                                    fiscal  quarter  preceding  the  Transaction
                                    Date for which  reports have been filed with
                                    the  Commission  or  provided  to the Lessor
                                    pursuant  to  Clause  6.3 of the  Guarantee;
                                    PLUS

                           (2)      the aggregate Net Cash Proceeds  received by
                                    the  Company  after  19th  March,  1999 as a
                                    capital  contribution  or from the  issuance
                                    and sale  permitted by the  Indenture of its
                                    Capital   Stock  (other  than   Disqualified
                                    Stock) to a Person  who is not a  Subsidiary
                                    of the  Company,  including  an  issuance or
                                    sale   permitted   by  this   Guarantee   of
                                    Indebtedness   of  the   Company   for  cash
                                    subsequent  to 19th  March,  1999  upon  the
                                    conversion of such Indebtedness into Capital
                                    Stock (other than Disqualified Stock) of the
                                    Company,  or from the  issuance  to a Person
                                    who is not a  Subsidiary  of the  Company of
                                    any  options,  warrants  or other  rights to
                                    acquire  Capital  Stock of the  Company  (in
                                    each  case,  exclusive  of any  Disqualified
                                    Stock  or any  options,  warrants  or  other
                                    rights that are  redeemable at the option of
                                    the holder,  or are required to be redeemed,
                                    prior to the end of the Final Initial Term),
                                    in each case  except to the extent  such Net
                                    Cash Proceeds are used to Incur Indebtedness
                                    pursuant   to   sub-paragraph    (viii)   of
                                    Paragraph 2.1(b); PLUS

                           (3)      an  amount  equal  to the net  reduction  in
                                    Investments   (other  than   reductions   in
                                    Permitted   Investments)   in   any   Person
                                    resulting   from  payments  of  interest  on
                                    Indebtedness, dividends, repayments of loans
                                    or advances,  or other  transfers of assets,
                                    in each case to the Company or any  Material
                                    Subsidiary  or from  the Net  Cash  Proceeds
                                    from the return of capital,  redemption,  or
                                    sale of any such Investment (except, in each
                                    case,  to the  extent  any such  payment  or
                                    proceeds are included in the  calculation of
                                    Adjusted  Consolidated Net Income),  or from
                                    redesignations of Unrestricted  Subsidiaries
                                    as  Material  Subsidiaries  (valued  in each
                                    case  as  provided  in  the   definition  of
                                    "INVESTMENTS"),  or from the  release of any
                                    Guarantee  that   constituted  a  Restricted
                                    Payment, to the extent of such release,  not
                                    to  exceed,  in each  case,  the  amount  of
                                    Investments  previously  made by the Company
                                    or any Material Subsidiary in such Person or
                                    Unrestricted Subsidiary.

         The foregoing provision shall not be violated by reason of:

         (i)      the payment of any  dividend  within 60 days after the date of
                  declaration  thereof  if,  at said date of  declaration,  such
                  payment would comply with the foregoing paragraph;

                                       39
<PAGE>

         (ii)     the redemption, repurchase, defeasance or other acquisition or
                  retirement for value of  Indebtedness  that is subordinated in
                  right of  payment  to the  Notes and the  amounts  outstanding
                  under the Transaction Documents including premium; if any, and
                  accrued  and  unpaid  interest,  with the  proceeds  of, or in
                  exchange   for,    Indebtedness   Incurred   under   Paragraph
                  2.1(a)(iii) of this Schedule;

         (iii)    the  repurchase,  redemption or other  acquisition  of Capital
                  Stock  of  the  Company  or  an  Unrestricted  Subsidiary  (or
                  options,  warrants  or other  rights to acquire  such  Capital
                  Stock) in exchange  for,  or out of the  proceeds of a capital
                  contribution or a substantially concurrent offering of, shares
                  of  Capital  Stock  (other  than  Disqualified  Stock)  of the
                  Company (or options,  warrants or other rights to acquire such
                  Capital Stock);

         (iv)     the  making  of  any  principal  payment  or  the  repurchase,
                  redemption,  retirement,  defeasance or other  acquisition for
                  value of  Indebtedness of the Company which is subordinated in
                  right of  payment  to the  Notes and the  amounts  outstanding
                  under the Transaction Documents in exchange for, or out of the
                  proceeds  of  a  capital   contribution   or  a  substantially
                  concurrent  offering  of,  shares of the Capital  Stock (other
                  than Disqualified Stock) of the Company (or options,  warrants
                  or other rights to acquire such Capital Stock);

         (v)      payments or distributions to dissenting  stockholders pursuant
                  to  applicable  law,  pursuant  to or  in  connection  with  a
                  consolidation, merger or transfer of assets that complies with
                  the provisions of Paragraph 2.16;

         (vi)     Investments  in any Person the  primary  business  of which is
                  related,  ancillary  or  complementary  to the business of the
                  Company  or any of its  Material  Subsidiaries  on the date of
                  such  Investments;  PROVIDED  that  the  aggregate  amount  of
                  Investments made pursuant to this  sub-paragraph (vi) does not
                  exceed $30 million at any one time outstanding;

         (vii)    Investments acquired in exchange for Capital Stock (other than
                  Disqualified  Stock) of the  Company or the Net Cash  Proceeds
                  from the  issuance and sale of such  Capital  Stock,  PROVIDED
                  that such  proceeds are so used within 180 days of the receipt
                  thereof;

         (viii)   the redemption, repurchase, retirement or other acquisition of
                  any  Capital  Stock of the Company  (or  options,  warrants or
                  other rights to acquire  such Capital  Stock) from an employee
                  or former  employee of the Company or any of its  Subsidiaries
                  (or from such person's estate,  heirs or  representatives)  in
                  connection   with  such   employee's   death,   disability  or
                  termination of employment,  PROVIDED that the aggregate amount
                  expended pursuant to this paragraph does not exceed $1 million
                  per annum plus the  cumulative  amount of such per annum limit
                  not  used in  prior  years  and the cash  proceeds  from  such
                  Investments,  PROVIDED  that such proceeds are used within 180
                  days of the receipt thereof;

         (ix)     Investments in Permitted  Wholesale  Consortiums and Permitted
                  Joint Ventures not exceeding,  at the time of the  Investment,
                  the sum of:

                  (A)      10%  of  the  consolidated  revenue  of  the  Company
                           (excluding  with respect to Persons in whom an equity
                           interest  is owned by Persons  other than the Company
                           and its Material Subsidiaries,  the PRO RATA share of
                           such  revenue   attributable  to  such  other  equity
                           holders)  accrued on a  cumulative  basis  during the

                                       40
<PAGE>

                           period (taken as one accounting  period) beginning on
                           the  first  day  of the  first  full  fiscal  quarter
                           immediately  following 19th March, 1999 and ending on
                           the last day of the last fiscal quarter preceding the
                           date of such Investment; and

                  (B)      the Net Cash  Proceeds  from the  disposition  of the
                           Company's  interest in any such  Permitted  Wholesale
                           Consortium or Permitted Joint Venture; and

         (x)      other Restricted Payments in an aggregate amount not to exceed
                  $10 million, increased by the amount of any Restricted Payment
                  made  pursuant  to this  Paragraph  2.2 (iv) to (x) that is an
                  Investment and is not outstanding,

         PROVIDED that,  except in the case of  sub-paragraph  (i) and (iii), no
         Potential  Event of Default or Event of Default shall have occurred and
         be continuing or occur as a consequence  of the actions or payments set
         forth therein.

         Each Restricted Payment permitted  pursuant to the preceding  paragraph
         (other than the Restricted  Payment referred to in  sub-paragraph  (ii)
         thereof, an exchange of Capital Stock for Capital Stock or Indebtedness
         referred to in  sub-paragraph  (iii) or (iv) thereof and an  Investment
         referred to in clause (vi) thereof), and the Net Cash Proceeds from any
         capital  contribution  or any issuance of Capital Stock  referred to in
         Paragraph 2.2(iv)(C),  (ii), (iii), (iv) and (vi), shall be included in
         calculating  whether the conditions of Paragraph  2.2(iv)(C)  have been
         met with respect to any subsequent  Restricted  Payments.  In the event
         the  proceeds of an  issuance of Capital  Stock of the Company are used
         for  the  repayment  of  Capital   Outstanding  under  the  Transaction
         Documents  or  the  redemption,  repurchase  or  other  acquisition  of
         Indebtedness that is PARI PASSU with the Capital  Outstanding under the
         Transaction  Documents,  then the Net Cash  Proceeds  of such  issuance
         shall be  included  in  Paragraph  2.2(iv)(C)  only to the extent  such
         proceeds  are  not  used  for  such  redemption,  repurchase  or  other
         acquisition of Indebtedness.

         Any Restricted Payments made in other than cash shall be valued at fair
         market value.  The amount of any Investment  "outstanding"  at any time
         shall be deemed to be equal to the  amount  of such  Investment  on the
         date made,  less the return of capital,  repayment of loans,  return on
         capital  and release of  Guarantees,  in each case of or to the Company
         and its Material  Subsidiaries  with respect to such  Investment (up to
         the amount of such investment on the date made).

2.3      LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF MATERIAL
         SUBSIDIARIES

         The Company will not sell, and will not permit any Material Subsidiary,
         directly or  indirectly,  to issue or sell, any shares of Capital Stock
         of a Material Subsidiary  (including options,  warrants or other rights
         to purchase shares of such Capital Stock)

         EXCEPT:

         (i)      to any Company or a Wholly Owned Material Subsidiary;

         (ii)     issuances  of  director's   qualifying   shares  or  sales  to
                  non-United  States of America  nationals  of shares of Capital
                  Stock of non-United  States of America Material  Subsidiaries,
                  to the extent required by applicable law;

         (iii)    if,  immediately after giving effect to such issuance or sale,
                  such Material Subsidiary would no longer constitute a Material
                  Subsidiary and any Investment in such Person  remaining  after

                                       41
<PAGE>

                  giving  effect  to such  issuance  or  sale  would  have  been
                  permitted to be made under  paragraph  2.2 if made on the date
                  of such issuance or sale;

         (iv)     a pledge or hypothecation of or Lien on any Capital Stock of a
                  Subsidiary to the extent not prohibited under paragraph 2.6;
                  or

         (v)      sales by the Company or Material  Subsidiaries of Common Stock
                  of a Material  Subsidiary,  PROVIDED  that the Company or such
                  Material  Subsidiaries apply the Net Cash Proceeds, if any, of
                  any  such  sale  in  accordance   with  paragraph   2.8(b)(i),
                  sub-paragraphs (A) or (B).

2.4      LIMITATION ON ISSUANCES OF GUARANTEES BY MATERIAL SUBSIDIARIES

         The  Company  will not  permit any  Material  Subsidiary,  directly  or
         indirectly,  to Guarantee any Indebtedness of the Company which is PARI
         PASSU  with or  subordinate  in right of  payment  to the  Notes or the
         amounts  outstanding  under  the  Transaction  Documents   ("Guaranteed
         Indebtedness"), unless:

         (i)      such Material Subsidiary  simultaneously executes and delivers
                  a supplement to this Lease Guarantee providing for a Guarantee
                  (a   "Subsidiary   Guarantee")   of  payment  of  the  amounts
                  outstanding  under the Transaction  Documents by such Material
                  Subsidiary; and

         (ii)     such Material  Subsidiary  waives,  and will not in any manner
                  whatsoever  claim or take the  benefit  or  advantage  of, any
                  rights of reimbursement, indemnity or subrogation or any other
                  rights against the Company or any other Material Subsidiary as
                  a result of any payment by such Material  Subsidiary under its
                  Subsidiary Guarantee;

         PROVIDED that this  paragraph  shall not be applicable to any Guarantee
         of any Material  Subsidiary that existed at the time such Person became
         a Material  Subsidiary  and was not Incurred in connection  with, or in
         contemplation  of, such Person becoming a Material  Subsidiary.  If the
         Guaranteed Indebtedness is

         (A)      PARI PASSU with the Capital  Outstanding under the Transaction
                  Documents,  then the Guarantee of such Guaranteed Indebtedness
                  shall be PARI PASSU with, or  subordinated  to, the Subsidiary
                  Guarantee; or

         (B)      subordinated to the Capital  Outstanding under the Transaction
                  Documents,  then the Guarantee of such Guaranteed Indebtedness
                  shall be subordinated to the Subsidiary  Guarantee at least to
                  the extent that the Guaranteed Indebtedness is subordinated to
                  the Capital Outstanding under the Transaction Documents.

         Notwithstanding the foregoing,  any Subsidiary  Guarantee by a Material
         Subsidiary may provide by its terms that it shall be automatically  and
         unconditionally released and discharged upon:

         (i)      any sale, exchange or transfer, to any Person not an Affiliate
                  of any  Company,  of all of the  Company's  and each  Material
                  Subsidiary's Capital Stock in, or all or substantially all the
                  assets of, such Material  Subsidiary (which sale,  exchange or
                  transfer is not prohibited by the Indenture); or

                                       42
<PAGE>

         (ii)     the release or discharge of the  Guarantee  which  resulted in
                  the creation of such Subsidiary Guarantee,  except a discharge
                  or release by or as a result of payment under such Guarantee.

2.5      LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES

(a)      The Company will not, and will not permit any Material  Subsidiary  to,
         directly or  indirectly,  enter into,  renew or extend any  transaction
         (including,  without limitation,  the purchase, sale, lease or exchange
         of property or assets, or the rendering of any service) with any holder
         (or any Affiliate of such holder) of 5% or more of any class of Capital
         Stock  of the  Company  or with any  Affiliate  of the  Company  or any
         Material  Subsidiary,  except  upon fair and  reasonable  terms no less
         favorable  to the  Company or such  Material  Subsidiary  than could be
         obtained,  at the time of such  transaction or, if such  transaction is
         pursuant to a written  agreement,  at the time of the  execution of the
         agreement providing therefor, in a comparable arm's-length  transaction
         with a Person that is not such a holder or an Affiliate.

(b)      The foregoing limitation does not limit, and shall not apply to:

         (i)      transactions;  (A) approved by a majority of the disinterested
                  members of the Board of Directors or (B) for which the Company
                  or a  Material  Subsidiary  delivers  to the  Lessor a written
                  opinion of a  nationally  recognised  investment  banking firm
                  stating  that the  transaction  is fair to the Company or such
                  Material Subsidiary from a financial point of view;

         (ii)     any  transaction  solely  between  the  Company and any of its
                  Material Subsidiaries or solely between Material Subsidiaries;

         (iii)    the  payment  of  reasonable  and  customary  regular  fees to
                  directors of the Company who are not employees of the Company;

         (iv)     any payments or other transactions pursuant to any tax-sharing
                  agreement  between the Company and any other Person with which
                  the Company files a consolidated  tax return or with which the
                  Company is part of a consolidated group for tax purposes;

         (v)      compensation,  indemnification and other benefits paid or made
                  available to officers, directors and employees in the ordinary
                  course  of  business  in  connection  with  services  actually
                  rendered and consistent with past practice;

         (vi)     transactions  in  accordance  with  the  Existing  Stockholder
                  Agreements as in effect on 19th March, 1999; or

         (vii)    any Restricted Payments not prohibited by Paragraph 2.2 of the
                  Indenture.

         Notwithstanding  the  foregoing,  any  transaction or series of related
         transactions covered by the sub-paragraph (a) of this paragraph 2.5 and
         not covered by sub-paragraphs (b)(ii) through (b)(v) of this Paragraph,
         the aggregate  amount of which  exceeds $2.0 million in value,  must be
         approved  or  determined  to be  fair  in the  manner  provided  for in
         sub-paragraph (b)(i) (A) or (B) of this Paragraph 2.5.

                                       43
<PAGE>

2.6      LIMITATION ON LIENS

         The Company will not, and will not permit any Material  Subsidiary  to,
         create,  incur, assume or suffer to exist any Lien on any of its assets
         or  properties  of  any  character   (including,   without  limitation,
         licenses),  or any  shares  of  Capital  Stock or  Indebtedness  of any
         Material  Subsidiary,   without  making  effective  provision  for  all
         obligations  under the Transaction  Documents and all other amounts due
         under this Lease Guarantee to be directly  secured equally and rateably
         with (or, if the  obligation or liability to be secured by such Lien is
         subordinated in right of payment of the amounts  outstanding  under the
         Transaction Documents, prior to) the obligation or liability secured by
         such Lien.

         The foregoing limitation does not apply to:

         (i)      Liens existing on 19th March, 1999;

         (ii)     Liens granted after 19th March,  1999 on any assets or Capital
                  Stock of the Company or their Material Subsidiaries created in
                  favour of the Holders or the Lessor;

         (iii)    Liens with  respect  to the  assets of a  Material  Subsidiary
                  granted by such Material Subsidiary to the Company or a Wholly
                  Owned Material  Subsidiary to secure Indebtedness owing to the
                  Company or such other Material Subsidiary;

         (iv)     Liens  securing  Indebtedness  permitted to be Incurred  under
                  paragraph  2.1(a)(iii)  which is Incurred to refinance secured
                  Indebtedness;  PROVIDED  that such  Liens do not  extend to or
                  cover any  property or assets of the  Company or any  Material
                  Subsidiary  other than the  property  or assets  securing  the
                  Indebtedness being refinanced;

         (v)      Liens on the Capital Stock of, or any property or assets of, a
                  Material  Subsidiary  securing  Indebtedness  of such Material
                  Subsidiary permitted under paragraph 2.1;

         (vi)     Liens on the Capital Stock of Material Subsidiaries that own a
                  substantial  portion  of  assets  financed  with  Indebtedness
                  Incurred under paragraph 2.1(a)(vii) if such liens secure only
                  such Indebtedness; or

         (vii)    Permitted Liens.

2.7      LIMITATION ON SALE-LEASEBACK TRANSACTIONS

         The Company will not, and will not permit any Material  Subsidiary  to,
         enter into any sale-leaseback  transaction  involving any of its assets
         or  properties  whether now owned or  hereafter  acquired,  whereby the
         Company or its Material  Subsidiary  sells or transfers  such assets or
         properties  and then or thereafter  leases such assets or properties or
         any part thereof or any other assets or properties which the Company or
         its  Material  Subsidiary,  as the  case  may  be,  intends  to use for
         substantially  the same purpose or purposes as the assets or properties
         sold or transferred;  PROVIDED that a sale-leaseback  transaction shall
         not  include  any lease in  connection  with  which any  Company or its
         Material  Subsidiary acquires assets or property in anticipation of the
         substantially contemporaneous sale or transfer to the lessor under such
         lease.

         The  foregoing   restriction  does  not  apply  to  any  sale-leaseback
         transaction if:

         (i)      the lease is for a period, including renewal rights, of not in
                  excess of three years;

                                       44
<PAGE>

         (ii)     the  lease  secures  or  relates  to  industrial   revenue  or
                  pollution control bonds;

         (iii)    the  transaction  is solely  between a Company  and any of its
                  Material  Subsidiary or solely between Material  Subsidiaries;
                  or

         (iv)     the  Company  or any of its  Material  Subsidiary,  within  12
                  months after the sale or transfer of any assets or  properties
                  is completed, applies an amount not less than the net proceeds
                  received   from  such  sale  in  accordance   with   paragraph
                  2.8(b)(i), sub-paragraph (A) or (B).

2.8      LIMITATION ON ASSET SALES

(a)      The  Company  will  not,  and  will  not  permit  any of  its  Material
         Subsidiaries to, consummate any Asset Sale, unless:

         (i)      the  consideration  received by the  Company or such  Material
                  Subsidiary  is at least equal to the fair market  value of the
                  assets sold or disposed of; and

         (ii)     at least 75% of the consideration received consists of cash or
                  Temporary Cash Investments.

(b)      In the event and to the extent that the Net Cash  Proceeds  received by
         the Company or any of its Material  Subsidiaries from one or more Asset
         Sales  occurring  on or  after  the date  hereof  in any  period  of 12
         consecutive  months  exceed 10% of Adjusted  Consolidated  Net Tangible
         Assets  (determined as of the date closest to the  commencement of such
         12-month  period for which a consolidated  balance sheet of the Company
         and its  Subsidiaries  has been  filed with the  Commission),  then the
         Company shall or shall cause its relevant Material Subsidiary to:

         (i)      within 12 months after the date Net Cash  Proceeds so received
                  exceed 10% of Adjusted Consolidated Net Tangible Assets;

                  (A)      apply  an  amount  equal  to  such  excess  Net  Cash
                           Proceeds   to   permanently   repay    unsubordinated
                           Indebtedness   of  the   Company,   or  any  Material
                           Subsidiary  providing a Subsidiary Guarantee pursuant
                           to  paragraph  2.4  or   Indebtedness  of  any  other
                           Material  Subsidiary,  in each case owing to a Person
                           other  than  a  Company   or  any  of  its   Material
                           Subsidiaries; or

                  (B)      invest an equal amount,  or the amount not so applied
                           pursuant to sub-paragraph  (A) above (or enter into a
                           definitive  agreement  committing to so invest within
                           12 months after the date of such  agreement),  either
                           in property or assets (other than current  assets) of
                           a nature or type or that are used in a  business,  or
                           in a company  having  property and assets of a nature
                           or type,  or engaged in a  business,  in either  case
                           similar  or  related  to the  nature  or  type of the
                           property  and  assets  of, or the  business  of,  the
                           Company or any of its Material  Subsidiaries existing
                           on the date of such investment (as determined in good
                           faith by the Board of Directors,  whose determination
                           shall  be   conclusive   and  evidenced  by  a  Board
                           Resolution); and

         (ii)     apply (no later than the end of the 12-month  period  referred
                  to in clause (i)) such excess Net Cash Proceeds (to the extent
                  not  applied  pursuant  to  clause  (i))  as  provided  in the
                  following  paragraph of this Paragraph 2.8. The amount of such
                  excess Net Cash  Proceeds  required  to be  applied  (or to be
                  committed to be applied)  during such  12-month  period as set

                                       45
<PAGE>

                  forth in clause (i) of the preceding  sentence and not applied
                  as so  required  by the day  prior  to the end of such  period
                  shall constitute "EXCESS PROCEEDS".

         If, as of the first day of any calendar month,  the aggregate amount of
         Excess  Proceeds not  theretofore  subject to a  prepayment  of Capital
         Outstanding pursuant to this Paragraph 2.8 totals at least $10 million,
         the Company must exercise, not later than the fifteenth Business Day of
         such month, the prepayment right in respect of the Capital  Outstanding
         (or  part   thereof)  in   accordance   with  Clause  16.3   (Voluntary
         Termination) of the Master Lease Purchase Agreement equal to the Excess
         Proceeds on such date.

2.9      PROHIBITION ON SALE OR OTHER DISPOSAL OF EQUIPMENT

         The  Company  will  not,  and  will  not  permit  any of  its  Material
         Subsidiaries, to sell or otherwise dispose (or purport so to do) any of
         the Equipment  other than in accordance  with the  provisions of Clause
         16.3 (Voluntary Termination) of the Master Lease Purchase Agreement.

2.10     CHANGE OF CONTROL

         The  Company  would not permit or effect a Change of Control in respect
         of  itself,  the other  Guarantor  (if any),  the  Lessee or any of the
         Permitted  Sub-Lessees  unless,  concurrently  with,  or prior to, such
         Change of  Control  being  consummated,  the Lessee  exercises,  or has
         exercised,   the   prepayment   right  under  Clause  16.3   (Voluntary
         Termination) of the Master Lease Purchase  Agreement in respect of such
         amount of the Capital Outstanding as is equal to:

         (a)      in the case of a proposed  Change of  Control of the  Company,
                  the other  Guarantor  (if any), or the Lessee the whole of the
                  Capital Outstanding;

         (b)      in the case of a  proposed  Change  of  Control  of any of the
                  Permitted  Sub-Lessees,  so much of the Capital Outstanding as
                  relates  to  the  Equipment   sub-leased  to  that   Permitted
                  Sub-Lessee,

         and the Lessee has  unconditionally  and irrevocably paid to the Lessor
         an  amount  equal to the  Capital  Outstanding  (or the  relevant  part
         thereof) together with all the other amounts referred to in Clause 16.3
         (Voluntary Termination) of the Master Lease Purchase Agreement.

2.11     EXISTENCE

         Except as otherwise provided or permitted in this Schedule, the Company
         will do or cause to be done all things  necessary  to preserve and keep
         in full force and effect its existence and the existence of each of its
         Material Subsidiaries in accordance with the respective  organisational
         documents of the Company and each such  Subsidiary  (as the same may be
         amended from time to time) and the rights (whether pursuant to charter,
         partnership  certificate,  agreement,  statute or otherwise),  material
         licenses  and  franchises  of the  Company  and each  such  Subsidiary;
         PROVIDED  that the Company  shall not be required to preserve  any such
         right,  license  or  franchise,   or  the  existence  of  any  Material
         Subsidiary,  if the  maintenance or  preservation  thereof is no longer
         desirable  in the  conduct  of the  business  of the  Company  and  its
         Material Subsidiaries taken as a whole.

                                       46
<PAGE>

2.12     PAYMENT OF TAXES AND OTHER CLAIMS

         The  Company  will  pay  or  discharge  and  shall  cause  each  of its
         Subsidiaries  to pay or discharge,  or cause to be paid or  discharged,
         before the same shall become delinquent:

         (i)      all  material  taxes,  assessments  and  governmental  charges
                  levied or imposed upon:

                  (a)      the Company or any such Subsidiary;

                  (b)      the income or profits of any such Subsidiary which is
                           a corporation; or

                  (c)      the  property of the Company or any such  Subsidiary;
                           and

         (ii)     all material lawful claims for labour,  materials and supplies
                  that, if unpaid,  might by law become a Lien upon the property
                  of the Company or any such Subsidiary;

         PROVIDED that the Company shall not be required to pay or discharge, or
         cause to be paid or  discharged,  any such tax,  assessment,  charge or
         claim the amount, applicability or validity of which is being contested
         in good faith by appropriate  proceedings,  for which adequate reserves
         have been established.

2.13     MAINTENANCE OF PROPERTIES AND INSURANCE

         The Company will cause all properties  used or useful in the conduct of
         its business or the business of any of its Material Subsidiaries, to be
         maintained  and  kept in  good  condition,  repair  and  working  order
         (ordinary  wear and tear  excepted)  and  supplied  with all  necessary
         equipment  and will cause to be made all necessary  repairs,  renewals,
         replacements,  betterments  and  improvements  thereof,  all  as in the
         judgment of the Company may be necessary  so that the business  carried
         on in connection therewith may be properly and advantageously conducted
         at all  times;  PROVIDED  that  nothing  in this  Paragraph  2.13 shall
         prevent the Company or any such Subsidiary from  discontinuing the use,
         operation or maintenance of any of such  properties or disposing of any
         of them, if such  discontinuance or disposal is, in the judgment of the
         Company,  desirable  in the  conduct of the  business of the Company or
         such Subsidiary.

         The Company will  provide or cause to be  provided,  for itself and its
         Material Subsidiaries, insurance (including appropriate self-insurance)
         against  loss or damage of the kinds  customarily  insured  against  by
         corporations  similarly  situated  and  owning  like  properties,  with
         reputable  insurers  or with the  government  of the  United  States of
         America, or an agency or instrumentality thereof, in such amounts, with
         such  deductibles  and by  such  methods  as  shall  be  customary  for
         corporations similarly situated in the industry in which the Company or
         such  Material  Subsidiary,  as the  case  may be,  is then  conducting
         business.

2.14     COMPLIANCE CERTIFICATES

         The principal accounting officer and the principal financial officer of
         the Company shall certify to the Lessor in writing, on or before a date
         not more than 90 days after the end of each fiscal year of the Company,
         that a review has been  conducted of the  activities of the Company and
         its  Material   Subsidiaries   and  the   Company's  and  its  Material
         Subsidiaries'  performance  under  this  Lease  Guarantee  and that the
         Company has fulfilled all obligations hereunder,  or, if there has been
         a default in the  fulfilment of any such  obligation,  specifying  each
         such default and the nature and status thereof.  The Company shall also

                                       47
<PAGE>

         notify the Lessor of any default or defaults in the  performance of any
         covenants or agreements under this Lease Guarantee.

2.15     WAIVER OF STAY, EXTENSION OR USURY LAWS

         The Company  covenants  (to the extent that it may lawfully do so) that
         it will  not at any  time  insist  upon,  or  plead,  or in any  manner
         whatsoever  claim or take the  benefit  or  advantage  of,  any stay or
         extension  law or any  usury law or other law that  would  prohibit  or
         forgive  the  Company  from  paying all or any  portion of the  amounts
         outstanding  from  time to time  under  the  Transaction  Documents  as
         contemplated herein,  wherever enacted, now or at any time hereafter in
         force,  or that may affect the  covenants  or the  performance  of this
         Lease  Guarantee;  and (to the extent  that it may  lawfully do so) the
         Company  hereby  expressly  waives all benefit or advantage of any such
         law  and  covenants  that it will  not  hinder,  delay  or  impede  the
         execution  of any power herein  granted to the Lessor,  but will suffer
         and permit the  execution of every such power as though no such law had
         been enacted.

2.16     WHEN COMPANY MAY MERGE, ETC.

         (a)      The  Company  will not,  and will not permit the Lessee or any
                  Permitted Sub-Lessee to, consolidate with, merge with or into,
                  or sell, convey,  transfer,  lease or otherwise dispose of all
                  or  substantially  all  of  its  property  and  assets  (as an
                  entirety or  substantially an entirety in one transaction or a
                  series of related  transactions)  to, any Person or permit any
                  Person to merge with or into the Company or the Lessee or such
                  Permitted Sub-Lessee unless:

                  (i)      the   Company  or  the   Lessee  or  such   Permitted
                           Sub-Lessee or another  member of the Company's  Group
                           shall be the continuing Person, or:

                           (A)      the Person (if other than the Company or the
                                    Lessee or such Permitted  Sub-Lessee) formed
                                    by  any  such  consolidation  involving  the
                                    Company or into which the  Company is merged
                                    or that acquired or leased such property and
                                    assets of the  Company or the Lessee or such
                                    Permitted  Sub-Lessee shall be a corporation
                                    organised  and  validly  existing  under the
                                    laws of the United  States of America or any
                                    jurisdiction   thereof   or  a  company   or
                                    corporation  organised and validly  existing
                                    under  the laws of the  jurisdiction  of the
                                    entity with which such merger is made; and

                           (B)      the Person (if other than the Company or the
                                    Lessee or such Permitted  Sub-Lessee)  shall
                                    expressly     assume,     by    supplemental
                                    agreements,  executed  and  delivered to the
                                    Lessor,   all  of  the  obligations  of  the
                                    Company,   the   Lessee  or  the   Permitted
                                    Sub-Lessee,  as the case may be,  under each
                                    of the  Transaction  Documents  to which the
                                    Company  or the  Lessee  or  such  Permitted
                                    Sub-Lessee is a party;

                  (ii)     immediately  after giving effect to such transaction,
                           no  Potential  Event of  Default  or Event of Default
                           shall have occurred and be continuing;

                  (iii)    immediately  after giving effect to such  transaction
                           on a PRO FORMA basis:

                           (A)      if  the   Company  is  merging  or  selling,
                                    conveying,    transferring,    leasing    or
                                    otherwise  disposing of all or substantially
                                    all  of its  assets,  the  Consolidated  New

                                       48
<PAGE>

                                    Worth of the company  becoming the successor
                                    obligor under the Transaction Documents must
                                    be at least  equal to the  Consolidated  Net
                                    Worth  of  the  Company  and  its   Material
                                    Subsidiaries   immediately   prior   to  the
                                    merger; and

                           (B)      if the Lessee or a Permitted  Sub-Lessee  is
                                    merging or selling, conveying, transferring,
                                    leasing  or  otherwise  disposing  of all or
                                    substantially   all  of  its   assets,   the
                                    Consolidated  Net Worth of the  Company  and
                                    its Material  Subsidiaries after such merger
                                    must be at least  equal to the  Consolidated
                                    Net Worth of the  Company  and its  Material
                                    Subsidiaries   immediately   prior  to  such
                                    merger  and the  ownership  interest  of the
                                    Company   in  the   company   becoming   the
                                    successor   obligor  under  the  Transaction
                                    Documents   must   have  a   share   of  the
                                    Consolidated  Net  Worth  of such  successor
                                    obligor which is at least equal to the share
                                    of the  Consolidated Net Worth of the Lessee
                                    or,  as  the  case  may  be,  the  Permitted
                                    Sub-Lessee owned by the Company (directly or
                                    indirectly,    legally   or    beneficially)
                                    immediately prior to the merger;

                  (iv)     immediately  after giving effect to such  transaction
                           on a PRO FORMA  basis,  the  Company,  or any  Person
                           becoming the  successor  obligor to the Company under
                           the Transaction Documents,  as the case may be, could
                           Incur at least $1.00 of Indebtedness  under paragraph
                           2.1(a);  PROVIDED that this  sub-paragraph (iv) shall
                           not apply to (1) a  consolidation,  merger or sale of
                           all (but  not less  than  all) of the  assets  of the
                           Company if all Liens and  Indebtedness of the Company
                           or any Person  becoming the successor  obligor to the
                           Company under the Transaction Documents,  as the case
                           may be, and its Restricted  Subsidiaries  outstanding
                           immediately after such transaction would, if Incurred
                           at such time, have been permitted to be Incurred (and
                           all such Liens and Indebtedness, other than Liens and
                           Indebtedness   of  the  Company  and  its  Restricted
                           Subsidiaries  outstanding  immediately  prior  to the
                           transaction,  shall be deemed to have been  Incurred)
                           for  all   purposes  of  this   Indenture  or  (2)  a
                           consolidation, merger or sale of all or substantially
                           all of the  assets  of the  Company  if,  immediately
                           after  giving  effect  to such  transaction  on a PRO
                           FORMA basis,  the Company or any Person  becoming the
                           successor  obligor  under the  Transaction  Documents
                           shall have a Consolidated  Leverage Ratio equal to or
                           less  than  the  Consolidated  Leverage  Ratio of the
                           Company immediately prior to such transaction; and

                  (v)      the   Company  or  the   Lessee  or  such   Permitted
                           Sub-Lessee   delivers  to  the  Lessor  an  Officers'
                           Certificate (attaching the arithmetic computations to
                           demonstrate  compliance with sub-paragraphs (iii) and
                           (iv)  above)  and  Opinion of  Counsel,  in each case
                           stating that such  consolidation,  merger or transfer
                           and such  supplemental  indenture  complies with this
                           provision and that all conditions  precedent provided
                           for herein  relating  to such  transaction  have been
                           complied with;

                  PROVIDED, HOWEVER, that sub-paragraphs (iii) and (iv) above do
                  not apply if, in the good faith  determination of the Board of
                  Directors,  whose  determination shall be evidenced by a Board
                  Resolution,  the principal  purpose of such  transaction is to
                  change the state of incorporation of the Company or the Lessee
                  or such Permitted  Sub-Lessee;  and PROVIDED  FURTHER that any
                  such  transaction  shall not have as one of its  purposes  the
                  evasion of the foregoing limitations.

                                       49
<PAGE>

(b)      Upon any consolidation or merger, or any sale, conveyance,  transfer or
         other  disposition  of all or  substantially  all of the  property  and
         assets of the  Company or the Lessee or such  Permitted  Sub-Lessee  in
         accordance with Paragraph 2.16(a),  the successor Person formed by such
         consolidation or into which the Company or the Lessee or such Permitted
         Sub-Lessee  is merged or to which such sale,  conveyance,  transfer  or
         other disposition is made shall succeed to, and be substituted for, and
         may  exercise  every  right and power of, the  Company or the Lessee or
         such Permitted Sub-Lessee under the Transaction Documents with the same
         effect as if such successor Person had been named as the Company or the
         Lessee or such Permitted Sub-Lessee herein.

                                       50
<PAGE>

                                   SIGNATORIES

COMPANY

EXECUTED as a deed by               )
VIATEL, INC.                        )
a company duly incorporated         )
in the state of New York            )
acting by Allan L. Shaw             )
and James P. Prenetta, Jr.          )
acting under the                    )
authority of that company           )
                                           ALLAN L. SHAW
                                    ............................................
                                    Director

                                           JAMES P. PRENETTA, JR.
                                    ............................................
                                    Director

LESSOR

DRESDNER KLEINWORT BENSON FINANCE LIMITED

By:

         KEVIN JOHN WHITING

         (AUTHORISED SIGNATORY)

         RICHARD ALASTAIR BIRCH

         (AUTHORISED SIGNATORY)<PAGE>
                                                                   EXHIBIT 10.38

                                     MASTER
                                 LEASE AGREEMENT

MASTER LEASE Number    UKCSC1265    dated October 27, 2000
between:

CISCO SYSTEMS CAPITAL (also known as Leasetec UK Limited)

having its principal place of business at: Ashurst Manor, Ashurst Park,
                            Church Lane, Sunninghill, Ascot, Berkshire, SL5 7DD

(hereafter called "the Lessor")

and

VIATEL U.K. LIMITED

having its principal place of business at:  Parnell House, 25 Wilton Road,
                                             London, SW1V 1LW UK
(hereafter called "the Lessee)

<PAGE>

1. DEFINITIONS
In this Master Lease the following words or expressions shall have the following
meanings:

"BUSINESS  DAY"  means a day on which  banks are open for  business  in  London,
England, and New York, New York, except Saturdays.

"CERTIFICATE OF ACCEPTANCE"  means,  in relation to the Products,  a certificate
delivered  by  Lessor,  and  countersigned  by the  Lessee  confirming  that the
Products fully meet the Lessee's requirements.

"COMMENCEMENT  DATE" means the date when the Products are deemed accepted by the
Lessee pursuant to Article 8 hereunder.

"EQUIPMENT"  means, in relation to each Equipment  Schedule,  the equipment from
time to time subject to such  Schedule,  and includes  each and every part of it
and all substitutions,  replacements, renewals and additions (wherever made) and
all manuals, operating instructions and documents relating thereto.

"EQUIPMENT SCHEDULE" means an agreement  substantially in the form of Addendum A
hereto, signed by Lessee and Lessor,  listing items to be leased and the related
rentals.

"EVENTS OF DEFAULT" means the events specified in Article 17.1.

"LEASE  PAYMENTS"  means the  payment  of  rentals  specified  in the  Equipment
Schedule(s) as varied or amended pursuant to the terms of the Lease.

"LESSEE" includes its successors and permitted assigns.

"LESSOR" includes its successors and assigns.

"LICENSED  PROCESSOR"  means a processor or equipment  configuration of the type
specified in the Equipment Schedule and which may be in a Software Licence.

"MASTER  LEASE" means this  agreement  and includes its Addenda and Exhibits but
excludes any associated Equipment Schedules.

"PRODUCTS" means, in relation to each Equipment Schedule,  the Equipment and the
Software listed thereon.

"SOFTWARE"  means,  in relation to each  Equipment  Schedule,  the operating and
application  Software from time to time subject to such Schedule and all updates
thereto.

"SOFTWARE LICENCE" means the right granted by the Supplier to use the Software.

"STANDARD  TERMS"  means  the  terms and  conditions  of supply of the  Supplier
applicable to the Lessee.

"SUPPLIER"  means Cisco  Systems,  Inc.,  or any affiliate  thereof  (other than
Lessor) or any,  Value Added  Reseller  of Cisco  products,  or any  licensor of
Software.

2. OBJECT

The Lessor  hereby agrees to lease to the Lessee and the Lessee hereby agrees to
take on lease from the Lessor the Products on the terms and  conditions  of this
Master  Lease  and any  additional  terms  set out in the  applicable  Equipment
Schedule.  Each Equipment  Schedule shall  constitute a separate and independent
Lease  (a  "Lease");   the   original  of  such  Lease  shall   consist  of  the
manually-signed Equipment Schedule and a reprographic copy of the Master Lease.

3. TERM

This Master Lease and each  Equipment  Schedule  shall come into force as of the
date of their signature by the Lessor and Lessee;  the Master Lease shall remain

<PAGE>

effective as long as any Equipment Schedule is in effect. The term of each Lease
shall commence on the  Commencement  Date and shall continue  thereafter for the
number of months or years as  specified  in such Lease  (hereinafter  called the
"Initial  Term").

Provided no Event of Default shall have occurred and be  continuing,  the Lessee
may extend the Initial Term to the extent  provided in the applicable  Equipment
Schedule. Lessee will notify the Lessor in writing of its decision to extend the
Initial  Term  pursuant to any such right at least three (3) months prior to the
expiration  date of the Initial  Term or the  then-current  extended  term.  The
Lessee  will  execute at the  Lessor's  request  any  amendment  that may in the
Lessor's  opinion be required  to the Lease  before  such  extension  comes into
effect.

The Lessee may terminate all or any Leases at any time by giving 30 days' notice
in writing to the Lessor, by returning the Products to the location specified by
the Lessor within the  jurisdiction in which they were  originally  installed in
compliance  with the Equipment  Schedule,  in the condition  required  under the
Lease,  and by paying such sum as would be payable  under  clause  17.2(c)  upon
termination of such Lease(s) under clause 17.2(b).  Any such notice, once given,
shall be irrevocable.

4. LEASE PAYMENTS/TAXES

The Lessee shall pay the Lessor the Lease Payments specified in the Lease at the
intervals  specified  therein.

The first  Lease  Payment  shall be due on the  Commencement  Date.  The  Lessee
acknowledges  that such Lease  Payments are to be made without notice or invoice
and without defence, counterclaim, recoupment or set-off and that its obligation
to pay the  Lease  Payments  and any  other  amounts  owing  hereunder  shall be
absolute and  unconditional.  The Lessor will make reasonable  efforts to supply
invoices  to the  Lessee  but lack  thereof  does  not  alleviate  the  Lessee's
obligation to pay.

The Lessee  shall make Lease  Payments to the Lessor by direct  debit,  standing
order or by such other means and to such address as the Lessor shall  reasonably
stipulate. Time shall be of the essence to all sums payable hereunder.

Any Lease  Payments  or other sums  payable  hereunder  not paid on the due date
shall be subject to late charges at a rate of 3% per annum above one-month LIBOR
as of the last Business Day of each  calendar  month  (commencing  with the rate
based upon the calendar month immediately preceding such due date) as determined
by Lessor from the applicable Reuters screen,  without prejudice to the Lessor's
right hereunder to treat non-payment as a repudiatory  breach of this Lease. All
sums due to the Lessor under this Lease are (unless  otherwise stated) exclusive
of Value Added Tax ("VAT") and any other  applicable  sales or turnover taxes or
duties which may from time to time be introduced, which shall be charged thereon
in accordance  with the relevant  regulations in force at the time of making the
taxable  supply  and  shall be paid by the  Lessee.

For the purpose of United Kingdom  taxation,  and irrespective of the accounting
treatment to be adopted by the Lessee, the Lessee shall not be entitled to claim
capital  allowances  on the  Products.  The Lessee  shall take such steps as the
Lessor  may  reasonably  require  in  connection  with the  application  for and
preservation of any available capital allowances for the benefit of the Lessor.

5. WARRANTY OF QUIET ENJOYMENT AND DISCLAIMER OF WARRANTIES

The Lessor  warrants to the Lessee  that,  so long as the Lessee shall not be in
default of any of the provisions of this Lease or of the licence  referred to in
clause 6, the Lessor will not disturb the Lessee's quiet and peaceful possession
of the  Products  and the  Lessee's  unrestricted  use thereof for the  purposes
intended  in the Lease.

The Lessee shall be entitled to the benefit of and the Lessor hereby (so long as
there exists no Event of Default)  assigns to Lessee all warranties given by the
Supplier on the whole or any part of the  Products  (subject to the  limitations
and exclusions contained in Supplier's Standard Terms),  insofar as such benefit
is capable of being  transferred  to the  Lessee.  If any such  warranty  is not
capable of being  transferred,  then Lessor shall take  commercially  reasonable
efforts to enforce same, (i) at the cost and expense of Lessee,  (ii) subject to
execution of indemnity agreement by Lessee in form and substance satisfactory to
Lessor,  and (iii)  provided  Lessee  is not in breach of any term or  provision
hereof.

<PAGE>

THE LESSOR MAKES NO EXPRESS OR IMPLIED  CONDITIONS OR WARRANTIES  CONCERNING THE
CONDITION,  DESCRIPTION,  QUALITY OR  PERFORMANCE  OF THE  PRODUCTS  OR OF THEIR
MERCHANTABILITY  OR FITNESS FOR A  PARTICULAR  PURPOSE AND HEREBY  EXCLUDES  THE
SAME.  THE LESSOR SHALL HAVE NO  LIABILITY  FOR ANY DAMAGES IN CONTRACT OR TORT,
WHETHER DIRECT OR  CONSEQUENTIAL,  FOR LOSS,  DAMAGE OR INJURY  SUSTAINED BY THE
LESSEE AS A RESULT OF ANY DEFECT OR MALFUNCTION OF THE PRODUCTS.

The Lessee  acknowledges that no representation has been made by or on behalf of
the Lessor in relation to the  Products  and agrees that the Lessor shall not be
liable for any delay in delivery of the Products or any part  thereof  howsoever
caused.

Nothing  herein shall  exclude or restrict the Lessor's  liability  for death or
personal injury  resulting from the negligence or intentional  misconduct of the
Lessor or its employees while acting in the course of their employment.

6. SOFTWARE LICENCE

The Lessee agrees to indemnify and hold the Lessor harmless from and against any
and all claims, costs, expenses, damages,  liabilities and reasonable legal fees
that the Lessor may suffer or incur as a result of any  dispute  that may arise,
in any way whatsoever,  in connection with any Software  Licence relating to any
Products.

The Lessee  undertakes to continue  making Lease  Payments to the Lessor in full
without  deduction  or  set-off  of any kind  for the full  term of each and any
Equipment Schedule  notwithstanding  termination of the Software License for any
reason whatsoever.

Notwithstanding the terms of this Lease, the Software Licences may be terminated
by the Suppliers  thereof in accordance  with their terms.  The Lessor agrees to
exercise  reasonable  efforts to notify the Lessee of any claim of  infringement
brought against it in relation to any such Software Licenses, provided, however,
that any failure to provide such notice shall not be deemed to provide the basis
for any claim of damages or other compensation by the Lessee.

7. RETURN OF PRODUCTS

Upon  termination (by expiration or otherwise) of each Equipment  Schedule,  the
Lessor or such  other  party as may be  appointed  by the Lessor  shall,  at the
Lessee's  sole cost and  expense,  de-install  the Products and prepare them for
return to the Lessor.  The Lessee shall,  pursuant to the Lessor's  instructions
and at the  Lessee's  sole  cost and  expense  (including,  without  limitation,
expenses of storage, transportation,  import and export, if applicable, tariffs,
taxes, and in-transit insurance),  promptly return the Products to the Lessor in
the same  operating  order,  repair,  condition and appearance as when received,
except for normal depreciation and wear and tear, and eligible for a maintenance
contract  with the Supplier or a third party  maintenance  provider  approved by
Lessor at standard rates.  The Lessee shall return the Products to the Lessor by
delivering them within 30 days of such termination of such Equipment Schedule to
the Lessor at its address set forth herein or at such other  address  within the
jurisdiction  in which they were  originally  installed in  accordance  with the
applicable Equipment Schedule as reasonably directed by the Lessor.

Until return of the Products to the Lessor,  the Lessee shall be responsible for
all  storage  and for proper and safe  custody of the  Products,  and  continued
insurance in accordance with the terms hereof.  If the Products are not returned
when required by the foregoing terms, the Lessee shall pay the Lessor rentals at
the Lessor's month-to-month rental rates.

8. LESSEE'S ACCEPTANCE

The  Lessee's  acceptance  of the  Products  shall occur when the Lessee signs a
Certificate of Acceptance stating that the Products fully meet its requirements,
or upon thirty (30) days from their date of delivery to the Lessee without prior
written objection (in reasonable  detail) by the Lessee delivered to the Lessor,
whichever  shall occur first.  The Lessee agrees on the date of  acceptance  and
satisfaction of the matters stated in such certificate to execute and deliver to
the Lessor a Certificate of Acceptance of the Products.

<PAGE>

9. TITLE, LOCATION AND INSPECTION

The  Lessee  shall  have no right,  title or  interest  in the  Products  leased
hereunder except as expressly set forth in this Lease. The Lessee at its expense
will  protect and defend the owner's  title and the  interests of the Lessor and
any secured party and/or assignee and will keep the Products free and clear from
any and all claims,  liens,  encumbrances  and legal  processes  of the Lessee's
creditors and other persons.

The Lessee shall immediately  notify third parties of the Lessor's rights in the
Products in case of exercise by them of any claim in possession of said Products
and will  promptly  inform the Lessor of such claims;  the Lessee shall bear all
reasonable  legal costs on a full  indemnity  basis which the Lessor may have to
disburse in order to defend its rights as the Lessor of the Products.

The  parties  acknowledge  that the  Products  are or will be  installed  at the
premises listed on each Equipment  Schedule,  or as specified on the invoice for
the Products from the Supplier relating to such Equipment  Schedule.  As between
the Lessor and the Lessee, the Lessee assumes the full expense of transportation
and insurance to, and  installation  of the Products at, the Lessee's  site. The
Lessee shall not remove any Products from the location  shown on the  applicable
Equipment  Schedule  without in each  instance (i) if the new location is within
the same legal jurisdiction, giving the Lessor not less than fifteen days' prior
written  notice  thereof,  and (ii) if the new location is within  another legal
jurisdiction, obtaining the Lessor's prior written consent thereto, such consent
not to be unreasonably withheld or delayed.

All  Products  shall at all times be and remain  personal  property;  the Lessee
shall  exercise  reasonable  efforts to provide the Lessor with any  certificate
which the Lessor may reasonably  require from the owner (which  expression shall
include any person having title to or interest in such premises) of the premises
where the  Products  are to be  installed.  The  Lessor  may  require  plates or
markings  to be  affixed  to the  Products  to  indicate  its  interest  in such
Products.

The Lessor shall have the right,  upon reasonable prior notice to the Lessee and
during Lessee's regular business hours (subject to satisfaction of customary and
reasonable  security and  confidentiality  policies of Lessee or, in the case of
co-located  Products of the entity  owning or  controlling  such  facility),  to
inspect the  Products at their  location.  The Lessee  shall,  upon the Lessor's
request make the Lessee's  records  pertaining to the Products  available to the
Lessor for inspection.

10. USE AND MAINTENANCE

The Lessee  shall use the  Products  in a good and careful  manner,  in a proper
environment and in compliance with the applicable operating instructions and all
applicable  laws and  regulations  and for no other  purpose than that for which
such Products were designed.

The  Lessee  shall  not make any  alterations,  enhancements,  modifications  or
attachments to the Products without the Lessor's prior written consent if and to
the extent any such  alteration,  enhancement,  modification,  or attachment (i)
would reasonably be expected to impair the  marketability,  function or value of
the Product,  or (ii) is not subject to removal or  detachment  without  causing
cosmetic or functional damage to the Product or (iii) could cause the Product to
become  subject  to the  claim or lien of any  third  person.  Unless  otherwise
agreed, all such alterations, enhancements,  modifications and attachments shall
become a part of the Products.  Lessee  agrees to remove any such  attachment at
the end of the term of the Lease,  unless such removal  would result in cosmetic
or  functional  damage  to the  Product,  and upon such  removal,  title to such
attachment shall revert to Lessee.

Lessee, at its sole cost and expense, shall during the continuance of this
Lease,

(i)  maintain the Products in good repair,  condition  and working  order,  fair
     wear and tear excepted,

(ii) enter into and  maintain  in full force and effect  during the term of
     the applicable Equipment Schedule a standard maintenance contract with
     the  Supplier  or  a  third  party  maintenance   provider  reasonably
     acceptable to Lessor and comply with all of its obligations  contained
     therein.

In the event the Lessee  contracts for  maintenance  with a party other than the
Supplier,  the Lessee shall, at the Lessor's request,  provide the Lessor with a
copy of such maintenance  contract.  All parts furnished in connection with such
maintenance  or repair,  shall  thereupon  become the property of the Lessor and

<PAGE>

part of the Products  for all  purposes  hereof.  Upon  Lessor's  request at the
expiration  of the Initial Term (or, in the event of any  extension of the Term,
upon the expiration of such  extension),  the Lessee will have the Supplier or a
third party maintenance  provider approved by Lessor inspect the Products at the
Lessee's cost in order to confirm whether such Products meet the Supplier's then
current operating standards and are eligible for a maintenance contract with the
Supplier or a third party  maintenance  provider approved by the Lessor; if they
do not, the Lessee will be required to have the Products  serviced to bring them
up to such  standards  prior to their  return to the Lessor and the Lessee shall
pay rental for the  period  during  which  their  return is delayed at  Lessor's
month-to-month rental rates.

11. INSURANCE/RISK OF LOSS

The Lessee shall  during the term of this Lease insure the Products  against all
insurable  risks in an amount not less than the amount that would be required to
be paid to Lessor  under  paragraph  (c) of this clause 11 and shall  insure the
Lessor and the Lessee  against  liability  to others for injury,  loss or damage
caused by the  Products in each case with a reputable  insurer and in amounts of
coverage and  deductibles  customary  among  businesses for items similar to the
Products (but not less than $1 million per occurrence).

The Lessee's  obligation to maintain  insurance  shall  commence on the delivery
date of the  Products and shall  continue  until the Initial Term or any renewal
term  terminates and the Products are returned to the Lessor.  Furthermore,  the
Lessee shall pay the cost of any specific insurance to be taken by the Lessor in
connection with the delivery of the Products to the Lessee.

The Lessee shall  cooperate and cause its insurers to cooperate  with the Lessor
with respect to the Products;  the Lessee shall have the Lessor's interest noted
on the insurance policy and produce on request written evidence of insurance and
of the payment of premiums. If adequate insurance is not evidenced to the Lessor
upon such request,  the Lessor may effect the insurance and claim  reimbursement
with the next Lease Payment.

The Lessee  hereby  assumes  and bears the entire risk of loss,  theft,  damage,
destruction or requisition of the Products during the continuance of the term of
each Lease and until  return of the  Equipment  to Lessor;  no such event  shall
relieve the Lessee from its  obligation to make Lease Payments or to perform any
other  obligation under the Lease,  except if such Lease terminates  pursuant to
paragraph (c) below.

The Lessee shall notify the Lessor  promptly in writing of the occurrence of any
of the above  events and Lessee at the option of the Lessee  (provided  that the
Lessee shall,  no later than the date on which payment under paragraph (c) below
would be required, elect one of the following) shall:

a) place the  Products in good  repair,  condition  and  working  order at the
    sole cost and expense of the Lessee, or

b) replace  such  Products  with like ones from the  Supplier or its  authorized
   agents in good repair,  condition and working order, with clear title thereto
   in Lessor at the sole cost and  expense of the  Lessee,  and  following  such
   replacement  the new product(s)  shall be deemed to be the "Products" for the
   purpose of the Lease, or

c) pay to Lessor within 30 days after demand therefor (or, if later, prior to 60
   days after the occurrence of the applicable  casualty  event) an amount equal
   to the  total  Lease  Payments  and other  sums past due and owing  hereunder
   (using a discount at the rate of 4% per annum) and (without  prejudice to any
   other  right or remedy of the  Lessor)  the lease of such  Products  shall be
   terminated.

The proceeds of any Lessee  insurance  payable with respect to any loss,  theft,
damage,  destruction or requisition of the Products shall be applied towards one
of the following (as Lessor shall promptly elect):

(i)  Lessee's replacement, restoration or repair of the Products or

(ii) payment of any of the  Lessee's  other  obligations  under this Lease.  The
     Lessee hereby  appoints the Lessor as the Lessee's  agent in order to claim
     and/or receive payment of and execute and endorse all documents, cheques or
     drafts  issued with respect to such loss,  theft,  damage,  destruction  or
     requisition  under any insurance policy relating  thereto.  Any proceeds of
     Lessee insurance  remaining after  application  above shall, be paid to the
     Lessee.

<PAGE>

12. INTELLECTUAL PROPERTY RIGHTS

     The Lessor  disclaims  all  liability for  violation,  misappropriation  or
infringement  of  intellectual  property  rights  (including  but not limited to
claims concerning  patents,  copyrights and trade secrets) and further disclaims
any  liability  for  incidental  or  consequential  damages.  No  rights  to any
intellectual  property are conveyed,  assigned or licensed under this Lease, nor
shall the foregoing  disclaimer  impair any right or claim of Lessee against any
Supplier. Lease Payments for Software are made in lieu of license fees otherwise
due for such Software under the related Software License.

13. TRANSFER OF RIGHTS

     The Lessee shall not transfer, sell, assign, sublet, sublicense,  part with
possession,  pledge or  encumber  any right or  interest  in the Lease or in the
Products  without the Lessor's  prior  written  consent,  such consent not to be
unreasonably withheld or delayed,  provided,  however, the Lessee may assign the
Lease or sublet the Products to any  subsidiary of Viatel,  Inc.  located in any
jurisdiction  previously approved by the Lessor,  provided prompt written notice
thereof is given to the Lessor.  Such consent  shall not relieve the Lessee from
its obligations set forth in the Lease. The Lessee  acknowledges that the Lessor
may sell and assign its interest  absolutely or grant a security interest in the
Lease and/or in the Products listed therein in whole or in part.

     The Lessee  hereby  agrees that upon receipt of a notice of  assignment  of
this Lease,  it shall pay  directly to the Lessor's  assignee or secured  party,
unconditionally,  all amounts which become due hereunder.  The Lessee represents
that it will not assert  against  the  Lessor's  assignee  or secured  party any
claims by way of defence or set-off, counterclaim, recoupment or otherwise which
the Lessee may have against the Lessor, Supplier or any third party.

14. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE LESSEE

     14.1 The Lessee hereby  represents and warrants that,  with respect to this
Master Lease and to the Equipment  Schedules  executed  pursuant hereto:  a) the
execution,  delivery  and  performance  thereof  by the  Lessee  have  been duly
authorized by all necessary corporate action and shall not contravene any law or
obligation to which the Lessee or Viatel, Inc. is bound;

b) this  Master  Lease and each  Equipment  Schedule  constitute  legal,  valid
    and  binding agreements of the Lessee;

c) each Product has been selected on the basis of the Lessee's own judgement;

d) the  Products  are  personal  property and will not, by or through any act or
   omission of Lessee (or any successor or  predecessor  in interest of Lessee),
   be or become fixtures under any applicable law;

e) all financial  statements furnished to the Lessor are true and correct in all
   material  respects  and there has been no material  adverse  change since the
   date of such  statements  and the Lessee  shall  provide  the Lessor with the
   annual  audited  financial  statements of Viatel,  Inc.  (unless at such time
   Viatel,  Inc. is a reporting  company  under the  Securities  Exchange Act of
   1934) and such other  financial  information  as the  Lessor  may  reasonably
   request from time to time; and

f) the Lessee has received all necessary import and export licenses  required by
   any government in connection with the shipment,  delivery,  installation  and
   usage of the Equipment as contemplated by the Lease.

     14.2 The Lessee further  warrants and covenants that Viatel,  Inc. shall at
all  times  observe  and  perform  or cause to be  observed  and  performed  the
obligations  set forth in Sections 4.03 through 4.11, and 4.13 through 4.15, and
Section  5.01 of that  Senior  Euro Notes  Indenture  dated as of April 20, 2000
between Viatel, Inc. and The Bank of New York (the "Indenture"),  which sections
(together with all applicable  defined terms) of such Indenture are incorporated
herein by this  reference  in the form  existing on the  execution  date of such
Indenture.

     14.3 [Redacted]

<PAGE>

15. GENERAL INDEMNITY

     15.1 The Lessee shall and does hereby agree to defend,  indemnify  and hold
the Lessor and any assignee and any secured  party of the Lessor  harmless  from
and  against  any and all  claims,  cost,  expenses,  damages  and  liabilities,
including  storage and reasonable legal fees on a full indemnity basis,  arising
directly or indirectly, whether in breach of contract or tort, or from any other
applicable  rule of law arising in connection  with, or pertaining to the lease,
manufacture,  design, possession, import, export, licensing, operation, control,
use, maintenance,  delivery or return of the Products.  The Lessee shall further
indemnify and hold the Lessor  harmless  from all losses,  costs,  damages,  and
expenses (including reasonable attorneys' fees), if for any reason the Lessor is
not able to assert its  ownership  rights or regain  possession of the Products,
including  due to the fact that the  Products  are  located  outside  the United
Kingdom,  or at the site of  another  company.  Lessor and any  assignee  and/or
secured party may at its option and at its sole expense, participate in any such
action with counsel of its own choice.

     The  provisions  of this Article  shall  survive any  expiration  or sooner
termination of this Master Lease and any Equipment Schedule.

     15.2 The indemnities contained in clause 15.1 (General Indemnity) shall not
extend to:

a) any claim made by any person  pursuant to that clause (a "Claim") in relation
   to any of the Lessor,  any assignee or any secured  party of the Lessor (each
   an  "Indemnitee") to the extent that that Claim is paid pursuant to any other
   indemnity provision of this Agreement and/or by the proceeds of any insurance
   received by an Indemnitee;

b) any Claim to the extent arising from:

     (i)  any act or omission of any Indemnitee  which  constitutes a breach of,
          or an express  representation  given by the Indemnitee being incorrect
          under this Agreement, or wilful misconduct of such Indemnitee; or

     (ii) an act of gross negligence of the Indemnitee;

c)   any Claim  resulting  directly from the Lessee  acting on the  Indemnitee's
     written instructions;

d)   any Claim in respect of taxes;

e)   any Claim in respect  of loss of profit,  indirect  or  consequential  loss
     suffered  by any  Indemnitee;  or

f)   any Claim to the extent it arises  directly  as a result of a lien over any
     of the Products  which is entered into by or assessable  against the Lessor
     or any superior titleholder to Lessor.

16. FURTHER ASSURANCES

If  reasonably  requested  by the  Lessor,  the Lessee  shall  promptly  secure,
execute,  and/or deliver to Lessor such further  documents and take such further
action as Lessor  shall  reasonably  deem  necessary to carry out the intent and
purpose of this Lease and to protect the Lessor's interest in the Products.

17. DEFAULT, ETC.

     17.1 EVENTS OF DEFAULT

An Event of Default shall occur hereunder if:

a)   The  Lessee  fails  to pay any  Lease  Payment  or other  payment  required
     hereunder  or under any Lease within ten (10) days after the due date or if
     no date is specified  within ten (10) days of written demand by the Lessor;
     or

<PAGE>

b)   The Lessee fails to perform or observe or cause to be performed or observed
     (i) any  warranty or covenant set forth in Article 14.2 and such failure is
     not remedied  within 30 days of the date written  notice of such failure is
     provided to Viatel,  Inc. by the Trustee or Holders of more than 25% of the
     Notes under (and as defined in) the Indenture,  or (ii) any other covenant,
     condition or  agreement  to be  performed or observed by it hereunder  and,
     other than a failure to maintain  insurance  under Article 11 or a transfer
     of any Product in violation of Article 13, shall fail to remedy such breach
     within 30 days after being required by the Lessor in writing to do so; or

c)   The  Lessee  makes  any  representation   herein  or  in  any  document  or
     certificate furnished to the Lessor in connection herewith which shall have
     been materially false and inaccurate; or

d)   A voluntary  agreement  is approved,  or a petition  for an  administration
     order is presented,  or a receiver or administrative  receiver is appointed
     over any of the  Lessee's  assets or any  undertaking  or a  resolution  or
     petition  to  wind  up  the  Lessee  is  passed  or  presented  or  if  any
     circumstances  arise  which  entitles  the Court or a creditor to appoint a
     receiver,  administrative receiver or administrator or to present a winding
     up petition or make a winding-up  order and, except in the event the Lessee
     or any of its affiliates has sought or acquiesced in such  presentation  or
     appointment, any such proceeding is not dismissed or vacated within 30 days
     of commencement; or

e)   The Lessee  ceases or  threatens  to cease or carry on  business  or if the
     Lessee  sells,  transfers  or disposes of all or  substantially  all of its
     assets; or

f)   Any governmental consent or approval at any time necessary to enable Lessee
     to comply with its material  obligations  under this Lease or the Equipment
     Schedule,  or any licence  required in relation to the Products is revoked,
     withheld or modified or fails to remain in full force and effect; or

g)   The Lessee or Viatel,  Inc. shall suffer or commit any breach or default in
     respect of Indebtedness  (as such term is defined in the Indenture)  having
     an  outstanding  principal  amount of $10 million or more in the aggregate,
     (i) which breach or default has caused the holder of such  Indebtedness  to
     declare  such  Indebtedness  to be due  and  payable  prior  to its  Stated
     Maturity (as defined in the Indenture) and such  Indebtedness  has not been
     discharged  in full or such  acceleration  rescinded or annulled  within 10
     days of such acceleration, or (ii) which breach or default shall consist of
     a failure to make a  principal  payment at the final (but not any  interim)
     fixed maturity and such default payment shall not have been made, waived or
     extended within 30 days of such payment default; or

h)   The Products or any part thereof are illegally used or confiscated; or

i)   There shall occur any event of default under Section  6.01(g) or (h) of the
     Indenture; or

j)   The Lessee shall cease to be a subsidiary of Viatel, Inc.

     17.2 REMEDIES

Upon the  occurrence  of any of the above Events of Default,  the Lessor may, as
its option, exercise any one or more of the following remedies:

a)   Proceed by appropriate court action to enforce performance by the Lessee of
     the  applicable  terms and  conditions  of all or any  Leases or to recover
     damages for the breach thereof;

b)   By notice terminate all or any Leases whereupon all rights of the Lessee to
     use the  Products  listed  on the  terminated  Equipment  Schedule(s)  will
     absolutely  cease;  the  Lessee,  if so  requested,  will,  at its  expense
     promptly  return  the  Products  to the  Lessor  at the  place  within  the
     jurisdiction  of original  installation  in accordance  with the applicable
     Equipment  Schedule  designated by the Lessor and in the condition required
     pursuant to the terms hereof, or the Lessor,  at its option,  may enter the
     premises  where the  Products  are  located and take  immediate  possession
     thereof and remove the same.

c)   In the case of  termination  of any Lease  pursuant to sub-clause b) above,
     the Lessee shall pay the Lessor:

     (1)  all arrears in Lease  Payments and other sums due  hereunder as at the
          date of  termination  plus  interest as specified  herein for past due
          amounts, plus,

<PAGE>

     (2)  an amount equal to the aggregate of the Lease Payments which would but
          for  termination  have  become  due  and  payable  from  the  date  of
          termination  up to the end of the term of the Lease less a discount on
          each  Lease  Payment  for  accelerated  receipt  at the rate of 4% per
          annum.

Following  return of the Products to Lessor pursuant to this clause,  the Lessor
will  proceed to either sell or re-lease  the  Equipment  in such a manner as it
deems appropriate in its sole discretion. In the event that as a result thereof,
the aggregate amount previously received by the Lessor pursuant to paragraph (c)
of this Section exceeds the amount that would have been payable had such sale or
re-lease  occurred before the payment under paragraph (c), then the Lessor shall
remit such  excess to the Lessee  promptly  thereafter.

d)   Avail  itself  of any other  remedy or  remedies  available  at law,  or in
     bankruptcy or insolvency proceedings.

     The remedies  herein set forth shall be cumulative  and not  exclusive.  In
     addition, the Lessee shall be liable for

     (i)  all reasonable costs and expenses  incurred in repossessing,  storing,
          repairing, restoring and selling or leasing the Products.

     (ii) all other amounts owing by the Lessee hereunder, and

     (iii)all reasonable costs and expenses,  including (without limitation) all
          legal  costs on a full  indemnity  basis  incurred  by the Lessor as a
          result of the Lessee's default hereunder.

     17.3 CHANGE OF CONTROL

Upon the  occurrence of a "Change of Control" (as defined in the  Indenture) the
Lessee shall:

a)   Promptly notify the Lessor of such occurrence; and

b)   Unless  otherwise  agreed by the Lessor,  within 30 days of such occurrence
     pay the Lessor the amount that would be due and payable  under clause 11(c)
     had  there  occurred  a  casualty  event  relating  to all  such  Products,
     whereupon  (i) the Leases  shall be  terminated,  and (ii) the Lessor shall
     transfer  its  right,  title and  interest  in and to the  Products  to the
     Lessee, without representation or warranty.

18. NOTICES

All  notices  and other  communications  made or required to be given under this
Lease shall be in writing and shall be deemed  given upon  receipt  when sent by
registered  or  recorded  mail,  return  receipt  requested,  or  by  recognised
overnight  delivery courier,  or when delivered  personally,  or by telefax with
mail  confirmation:

In case of the  Lessor:  at the  address  set  forth in the
applicable  Equipment  Schedule  with a copy to any assignee or secured party at
the address(es) set forth in any notice thereof given to the Lessee;

In case of the Lessee: at the address set forth in the applicable Equipment
Schedule.

19. MISCELLANEOUS

a) The  Lessor  and the  Lessee  acknowledge  that  there are no  agreements  or
   understandings,  written or oral,  between  the  Lessor  and the Lessee  with
   respect to the leasing of the Products  except as set forth herein and in the
   Equipment  Schedule  and that this Master Lease and each  Equipment  Schedule
   contain the entire  agreement  between the Lessor and the Lessee with respect
   thereto;

b) Neither this Master Lease nor any Equipment Schedule may be altered, modified
   or terminated  except by a written statement signed by the party against whom
   enforcement of such alteration, modification or termination is sought;

c) The  headings  set  forth  herein  and  in the  Equipment  Schedule  are  for
   convenience  only and  shall not  define or limit any of the terms  herein or
   therein;

<PAGE>

d) If more than one  Lessee is named in this  Master  Lease or in the  Equipment
   Schedule, the liability of each Lessee shall be joint and several.

e) This  Master  Lease  and any  associated  Equipment  Schedules  shall  become
   effective  and  binding as of the date it is  accepted  by the Lessor and the
   Lessee, and shall be binding upon and inure as of such date to the benefit of
   both parties hereto and their  respective legal  representatives,  successors
   and assigns, unless otherwise expressly provided herein;

f) All  agreements,  representations,  indemnities  and  warranties  made by the
   Lessee in this Master Lease, any Equipment Schedule or any document delivered
   pursuant  hereto or  thereto  shall be for the  benefit  of the  Lessor,  any
   assignee and any secured  party and shall  survive the  expiration  or sooner
   termination of this Master Lease or such Equipment Schedule.

g) (1)The Lessee acknowledges that it has or will contract with the Supplier for
   any  maintenance,  support,  consultancy,   facilities  management  or  other
   services  listed on the  Equipment  Schedule  which will be  provided  to the
   Lessee by the  Supplier  under the terms of the relevant  services  agreement
   entered into between the Supplier and the Lessee or, in the absence  thereof,
   then under the  Supplier's  Standard  Terms  relating  thereto (such separate
   services agreement or Standard Terms, as applicable, being referred to herein
   as the "Services Agreement").

   (2)The  Lessor shall have no obligation  whatsoever  and makes no warranty or
   representation  regarding  the  quality of  services  or  performance  of any
   obligation  under the Services  Agreement,  and shall have no other liability
   whatsoever  in  contract,   tort,   negligence  or  otherwise  in  connection
   therewith.

   (3)The  Lessee  undertakes  with the  Lessor,  subject to the  express  terms
   hereof,  to continue  making  Lease  Payments  to the Lessor in full  without
   deduction or set-off of any kind for the full term of each Equipment Schedule
   notwithstanding   termination  of  the  Services  Agreement  for  any  reason
   whatsoever,  or any  negligence  on the part of the Supplier or any breach by
   the  Supplier of its  obligations  thereunder.  The Lessee  accepts  that the
   Lessee's  sole remedy in respect of such  termination,  negligence  or breach
   shall be against the Supplier under the Services Agreement or otherwise.

   (4)The undertaking shall apply  notwithstanding  that the Lease Payments have
   been  calculated  partly by  reference  to the level of fees which the Lessee
   would  have  been  obligated  to pay under the  Services  Agreement  had such
   obligation to pay not been assigned to the Lessor.

h) No omission or delay by the Lessor at any time to enforce any right or remedy
   reserved to it or to require  performance  by the Lessee of any of the terms,
   covenants or provisions of this Master Lease or any Equipment Schedule at the
   times  designated  herein or therein,  shall be a waiver of any such right or
   remedy to which the  Lessor is  entitled,  nor shall it in any way affect the
   right of the Lessor to thereafter enforce such provision;

i) If any term or provision of this Master Lease or of any Equipment Schedule or
   the application thereof to any person or circumstance shall, to any extent be
   held invalid or unenforceable,  the remainder of this Master Lease or of such
   Equipment  Schedule or the  application of such terms or provision to persons
   or   circumstances   other  than  those  to  which  it  is  held  invalid  or
   unenforceable  shall not be affected  thereby and each term and  provision of
   this  Master  Lease  and any such  Equipment  Schedule  shall  be  valid  and
   enforceable to the fullest extent permitted by law;

j) Upon execution of this Master Lease, the Lessee shall provide the Lessor with
   certified   resolutions  addressed  to  the  Lessor  in  form  and  substance
   satisfactory to the Lessor.

k) This  Master  Lease and each  Equipment  Schedule  shall in all  respects  be
   governed by, and construed in accordance with English Law;

i) The Parties hereby submit to the exclusive jurisdiction of the English
   Courts.

<PAGE>

SIGNED FOR AND ON BEHALF OF LESSEE: VIATEL U.K. LIMITED

-----------------------------------
SIGNATURE

-----------------------------------
NAME

-----------------------------------
TITLE

-----------------------------------
DATE

SIGNED IN THE PRESENCE OF:

-----------------------------------
SIGNATURE

-----------------------------------
NAME AND TITLE

-----------------------------------
DATE

<PAGE>

SIGNED FOR AND ON BEHALF OF LESSOR: CISCO SYSTEMS CAPITAL

-----------------------------------
SIGNATURE

-----------------------------------
NAME

-----------------------------------
TITLE

-----------------------------------
DATE

SIGNED IN THE PRESENCE OF:

-----------------------------------
SIGNATURE

-----------------------------------
NAME AND TITLE

-----------------------------------
DATE

<PAGE>

                                   ADDEMDUM A

Equipment Schedule No. to Master Lease Agreement No.     dated  October 27, 2000

Lessee:             VIATEL U.K. LIMITED
Address for         Parnell House, 25 Wilton Reed, London, SW1V 1LW
  Notices:          United Kingdom

Lessor:           CISCO SYSTEMS CAPITAL
Address for       Ashurst Manor, Ashurst Park, Church Lane, Sunninghill, Ascot,
 Notices:         Berkshire, SL5 7DD

  APPLICATION
  -----------

We  hereby  apply  to take  the  Products  set out in  this  Equipment  Schedule
("Schedule")  on  lease on the  terms  set out  below  and in the  Master  Lease
Agreement terms and conditions.  We confirm before signing this Schedule we read
the terms and  particulars  and that our signature is made on the  understanding
that upon your  acceptance of this Schedule we will be bound by all the terms of
this Schedule and the Master Lease Agreement terms and conditions.

For and on behalf of Lessee:                   Agreed for and on behalf Cisco
                                               Systems Capital (the "Lessor"):

Signature:                                     Signature:

Title:                                         Title:

Witness Name:                                  Witness Name:

Signature:                                     Signature:

Date                                           Agreement Date:

<PAGE>

A. LEASE TERMS
--------------

Initial Term       Payment Frequency       Number of Lease        Lease Payment
   Payments       (Monthly/Quarterly         Payments          Amount (excl VAT)
                  Half Yearly/Yearly)
-------------     -------------------      ----------------    -----------------

B. SPECIAL TERMS
----------------

At the end of the Initial Term the Lessee has the option to use all and not less
than all of the Products at an annual  charge of 0.1% of the original  equipment
cost, payable annually in advance.

C. EQUIPMENT
------------

      QTY                TYPE                              DESCRIPTION
      ---                ----                              -----------

INSTALLATION SITE
-------------------

<PAGE>

C. EQUIPMENT CONTINUED /2...
----------------------------

      QTY                TYPE                              DESCRIPTION
      ---                ----                              -----------

INSTALLATION SITE
-------------------

C. EQUIPMENT CONTINUED /3...
----------------------------

      QTY                TYPE                              DESCRIPTION
      ---                ----                              -----------

<PAGE>

                                                        PURCHASE OPTION ADDENDUM
                                                        (Master Lease Agreement)

This  PURCHASE  OPTION  ADDENDUM  dated as of , is an  attachment  to  Equipment
Schedule No. to Master Lease  Agreement  No.--- dated  October 27, 2000,  (Such
Equipment  Schedule  and Master Lease  Agreement  are  hereinafter  collectively
referred to as, the "Lease"),  between CISCO SYSTEMS  CAPITAL ("the Lessor") and
Viatel U.K.  Limited ("the Lessee").  Unless  otherwise  specified  herein,  all
capitalized  terms shall have the  meanings  ascribed to them in the Lease.  The
Lessor and the Lessee hereby agree as follows:

      So long as no Event of Default shall have  occurred and be continuing  and
      the Lessee shall have given the Lessor at least ninety (90) days,  but not
      more than one hundred eighty (180) days, prior written notice,  the Lessee
      shall have the option to purchase  the Products at the  expiration  of the
      Initial Term (the  "Purchase  Option Date") for a purchase  price equal to
      $1.00 + VAT (the "Purchase Option Price").  Payment of the Purchase Option
      Price,  together with all applicable  sales taxes,  including VAT, and all
      other  amounts  due and owing by the  Lessee  under the Lease  (including,
      without limitation, Lease Payments) on or before the Purchase Option Date,
      shall be made on the Purchase  Option Date in immediately  available funds
      against  delivery to the Lessee of all of the  Lessor's  right,  title and
      interest in and to the  Products  ON AN "AS IS" "WHERE IS" BASIS,  WITHOUT
      ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING
      WITHOUT LIMITATION,  THE CONDITION OF THE PRODUCTS,  THEIR MERCHANTABILITY
      OR THEIR FITNESS FOR ANY PARTICULAR  PURPOSE.  THE LESSOR MAY SPECIFICALLY
      DISCLAIM ANY SUCH REPRESENTATIONS AND WARRANTIES. If and to the extent the
      purchase  option is exercised,  Section 7 and the last sentence of Section
      10 of the Lease shall not apply in respect of the equipment related to the
      above-mentioned Equipment Schedule.

Except as modified  hereby,  all of the terms,  covenants and  conditions of the
Lease  shall  remain in full  force and effect  and are in all  respects  hereby
ratified and affirmed.

IN WITNESS  WHEREOF,  Lessor and  Lessee  have  executed  this  Purchase  Option
Addendum as of the date first above written.

Signed for and on behalf of Lessor:      Signed for and on behalf of Lessee:
CISCO SYSTEMS CAPITAL                    VIATEL U.K. LIMITED

Signature:--------------------------     Signature:--------------------------

Name:     --------------------------     Name:     --------------------------

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

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