FIRSTWORLD COMMUNICATIONS INC, 10-Q, 1999-08-16

FIRSTWORLD COMMUNICATIONS INC
10-Q, 1999-08-16
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 0-24953

FIRSTWORLD COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 33-0521976
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)

________________

8390 E. CRESCENT PARKWAY
SUITE 300
GREENWOOD VILLAGE, CO 80111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)

(303) 874-8010
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL
YEAR, IF CHANGED SINCE LAST REPORT)
________________

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS:

[X] YES [_] NO

AS OF AUGUST 1, 1999, THE REGISTRANT'S OUTSTANDING COMMON STOCK CONSISTED OF
10,135,164 SHARES OF SERIES A COMMON STOCK AND 18,530,263 SHARES OF SERIES B
COMMON STOCK.

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FIRSTWORLD COMMUNICATIONS, INC.
INDEX

PAGE
---------
<S> <C>
FORWARD-LOOKING STATEMENTS 3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1999 (unaudited),
December 31, 1998 (unaudited) and September 30, 1998....................... 4
Consolidated Statements of Operations (unaudited) for the
Three months ended June 30, 1999 and 1998 and
Six months ended June 30,1999 and 1998..................................... 5
Consolidated Statements of Cash Flows (unaudited) for the
Six months ended June 30, 1999 and 1998.................................... 6
Notes to Consolidated Financial Statements................................... 7

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 11

Item 3. Quantitative and Qualitative Disclosures about Market Risk............. 18

PART II. OTHER INFORMATION

Item 1. Legal Matters.......................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders.................... 19
Item 6. Exhibits and Reports on Form 8-K....................................... 20

SIGNATURES...................................................................... 21
</TABLE>

2
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FORWORD-LOOKING STATEMENTS

All statements contained herein, as well as statements made in press
releases and oral statements that may be made by the Company or by officers,
directors or employees of the Company acting on its behalf, that are not
statements of historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors that could cause the actual results of the Company to be materially
different from historical results or from any future results expressed or
implied by such forward-looking statements. Among the factors that could cause
actual results to differ materially are the following: an unexpected business
interruption due to the failure of third parties to remediate Year 2000 issues;
the inability of the Company to retain necessary authorizations from the Federal
Communications Commission ("FCC") or state public utility commissions; an
increase in competition; the introduction of new technologies and competitors
into the Internet and telephony business; a merger of existing Internet and
telephony competitors; a change in the regulations governing the industry;
general business and economic conditions; and other risk factors described from
time to time in the Company's reports filed with the United States Securities
and Exchange Commission. In addition to statements that explicitly describe such
risks and uncertainties, readers are urged to consider statements that include
the terms "believes," "belief," "expects," "plans," "anticipates," "intends" or
the like to be uncertain and forward-looking. All cautionary statements made
herein should be read as being applicable to all forward-looking statements
wherever they appear. In this connection, investors should consider the risks
described herein. The Company assumes no obligation to update forward-looking
statements.

3
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

FIRSTWORLD COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, SEPTEMBER 30,
1999 1998 1998
--------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 24,249 $ 29,659 $ 72,039
Marketable securities 117,794 170,030 165,591
Interest receivable 1,657 2,228 3,017
Accounts receivable, net 6,639 4,663 493
Revenues in excess of billings 1,621 1,539 --
Prepaid expenses and other 2,486 399 317
--------------- --------------- ---------------
Total current assets 154,446 208,518 241,457
--------------- --------------- ---------------
Property and equipment, net 71,711 61,247 44,020
Deferred financing costs, net 7,785 8,259 8,217
Goodwill and intangibles, net 39,096 16,410 --
Other assets 3,974 382 411
--------------- --------------- ---------------
Total assets $ 277,012 $ 294,816 $ 294,105
=============== =============== ===============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable $ 8,144 $ 13,573 $ 6,611
Accrued interest 1,114 586 546
Accrued payroll related liabilities 2,556 1,156 222
Other accrued liabilities 7,918 2,835 694
Long-term debt, current portion 98 75 30
Capital lease obligations, current portion 455 259 788
--------------- --------------- ---------------
Total current liabilities 20,285 18,484 8,891
--------------- --------------- ---------------

Long-term debt, net of current portion and discount 275,526 258,135 249,726
Capital lease obligation, net of current portion 6,446 6,403 6,115
--------------- --------------- ---------------
Total liabilities 302,257 283,022 264,732
--------------- --------------- ---------------

Stockholders' equity (deficit):
Preferred stock, $.0001 par value per share,
10,000,000 shares authorized; no shares outstanding
Common stock, voting, $.0001 par value, 100,000,000 shares
authorized;
Series A, 10,135,164 shares designated; 10,135,164 shares
issued and outstanding at June 30, 1999, December 31,
1998 and September 30, 1998 1 1 1
Series B, 89,864,836 shares designated; 17,147,774,
16,137,958 and 15,929,708 shares issued and outstanding
at June 30, 1999, December 31, 1998 and September 30, 1998,
respectively 2 2 2
Additional paid-in capital 48,849 45,830 45,617
Warrants 31,963 31,963 31,963
Stockholder receivables (45) (158) (97)
Accumulated deficit (106,015) (65,844) (48,113)
--------------- --------------- ---------------
Total stockholders' equity (deficit) (25,245) 11,794 29,373
--------------- --------------- ---------------
Total liabilities and stockholders' equity (deficit) $ 277,012 $ 294,816 $ 294,105
=============== =============== ===============
</TABLE>

See notes to consolidated financial statements.

4
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FIRSTWORLD COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)

THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- -------------------------------

JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue:
Internet services $ 3,865 $ -- $ 6,277 $ --
Web integration and consulting services 7,124 -- 12,331 --
Telephony services 1,189 416 1,832 546
---------------- -------------- ------------- --------------
Total revenue 12,178 416 20,440 546
---------------- -------------- ------------- --------------

Cost and expenses:
Network and service costs 8,886 247 14,582 439
Selling, general and administrative expenses 13,723 4,898 24,635 7,423
Depreciation and amortization 4,325 811 7,314 1,362
---------------- -------------- ------------- --------------
Total costs and expenses 26,934 5,956 46,531 9,224
---------------- -------------- ------------- --------------

Loss from operations (14,756) (5,540) (26,091) (8,678)

Other income (expense):
Interest income 2,047 3,191 4,448 3,240
Interest expense (9,698) (8,592) (18,528) (9,723)
---------------- -------------- ------------- --------------
Total other expense (7,651) (5,401) (14,080) (6,483)
---------------- -------------- ------------- --------------

Net loss before extraordinary item (22,407) (10,941) (40,171) (15,161)

Extraordinary item - extinguishment of debt -- (4,731) -- (4,731)
---------------- -------------- ------------- --------------

Net loss $ (22,407) $ (15,672) $ (40,171) $ (19,892)
================ ============== ============= ==============

</TABLE>

See notes to consolidated financial statements.

5
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FIRSTWORLD COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------

JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (40,171) $ (19,892)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization expense 7,314 1,362
Amortization of deferred financing costs 474 416
Accretion of senior discount notes 17,320 8,546
Extraordinary loss on extinguishment of debt -- 3,674
Changes in assets and liabilities, net of effects of acquisitions:
Restricted cash related to operating activities -- 50
Accounts receivable (1,232) (224)
Interest receivable 571 (2,223)
Other assets (1,601) (378)
Accounts payable (6,030) 784
Accrued payroll related liabilities 1,380 --
Revenue in excess of billings (337) --
Other liabilities 1,948 (1,752)
------------- -------------
Net cash used by operating activities (20,364) (9,637)
------------- -------------

Cash flows from investing activities:
Purchases of held-to-maturity marketable securities (153,222) (145,425)
Maturities of held-to-maturity marketable securities 205,457 --
Acquisitions, net of cash acquired (22,096) --
Purchase of property and equipment (14,324) (9,822)
------------- -------------
Net cash provided (used) by investing activities 15,815 (155,247)
------------- -------------

Cash flows from financing activities:
Proceeds from issuance of senior discount notes and related warrants -- 242,698
Proceeds from issuance of Series A Common Stock and related warrants -- 26,137
Proceeds from issuance of Series B Common Stock and related warrants -- 18,757
Proceeds from exercise of stock options and warrants 719 99
Principal payments on debt and capital leases (1,580) (704)
Payments on revolving credit facility -- (16,300)
Proceeds from short-term borrowings and related warrants -- 426
Payment of deferred financing costs -- (828)
------------- -------------
Net cash (used) provided by financing activities (861) 270,285
------------- -------------

Net (decrease) increase in cash and cash equivalents (5,410) 105,401
Cash and cash equivalents, beginning of period 29,659 270
------------- -------------
Cash and cash equivalents, end of period $ 24,249 $ 105,671
============= =============

Supplemental cash flow information:
Effects of acquisition:
Assets acquired $ 29,268 $ --
Liabilities assumed (4,856) --
Common stock issued (2,316) --
Less cash paid (22,334) --
------------- -------------
Net cash acquired from acquisitions $ (238) $ --
============= =============
</TABLE>

See notes to consolidated financial statements.

6
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FIRSTWORLD COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of FirstWorld
Communications, Inc. ("FirstWorld") and its wholly owned subsidiaries
(collectively, the "Company"). All significant intercompany transactions and
balances have been eliminated in consolidation.

As the Company pursues acquisitions and expansion of its network and services
to additional areas or if the Company's available cash resources are not
sufficient to fund all of the Company's operating expenses and capital
expenditures, the Company will require additional capital. The Company may
obtain additional funding through the public or private sale of debt and/or
equity securities or through securing vendor financing and/or a bank credit
facility. However, there can be no assurance that the Company will obtain such
funding.

In the opinion of management, the accompanying consolidated financial
statements include all adjustments (consisting of normal recurring items)
necessary for a fair presentation of results for the interim periods presented
for the Company. The results of operations for any interim period are not
necessarily indicative of results for the full year. The consolidated financial
statements and footnote disclosures should be read in conjunction with the
audited consolidated financial statements and related notes thereto filed with
the Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1998, as amended on Form 10-K/A. Certain 1998 amounts have been reclassified to
conform to the 1999 basis of presentation.

2. CHANGE IN FISCAL YEAR

At a meeting held on October 16, 1998, the Board of Directors of the Company
voted to change the Company's fiscal year end from September 30 to December 31,
beginning with a short period ending on December 31, 1998.

3. REVENUE RECOGNITION

The Company primarily recognizes revenue on Internet and telephony services in
the month such services are provided. Amounts billed relating to future periods
are recorded as deferred revenue and are recognized in revenue as services are
rendered. Web integration and consulting services revenue consists primarily of
revenue generated by the Company's subsidiary, Optec, Inc., doing business as
FirstWorld Northwest, Inc. ("Optec") (described below). Revenues and expenses
related to web integration and consulting services are recognized under the
percentage-of-completion method of accounting based on the ratio that costs
incurred bear to the total estimated costs for each contract. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined.

4. BUSINESS ACQUISITIONS

Optec

The Company completed the acquisition of Optec on November 24, 1998. The
Company purchased for cash all of the outstanding capital stock of Optec from
Enron Communications, Inc. ("ECI"), an affiliate of a principal stockholder of
the Company. Optec is a telecommunications systems and data networks integrator
with operations primarily in Oregon and Washington. Simultaneous to this
transaction, the Company also purchased from ECI an indefeasible right of use to
fiber optic cable in a metropolitan area network serving Portland, Oregon with
routes connecting Beaverton and Hillsboro, Oregon (the "Fiber Optic Rights").
In addition, the Company obtained rights to OC-3 level capacity on a long-haul
network being developed by ECI that will connect up to 15 cities nationwide, for
approximately seven years depending on the completion dates of ECI's wide area
network (the "Long-haul Network Rights"). The Company paid an aggregate of
$18.3 million for the Optec capital stock, the Fiber Optic Rights and the Long-
haul Network Rights. The Company also repaid at closing approximately $4.0
million of Optec's indebtedness to ECI. The Company assigned values of $11.1
million, $9.2 million and $2.0 million to the Long-haul Network Rights, Optec
and the Fiber Optic Rights, respectively.

7
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The acquisition of Optec was accounted for under the purchase method of
accounting. The excess of the purchase price over the estimated fair value of
the acquired net assets, which is approximately $5.5 million, as adjusted, was
recorded as goodwill and will be amortized on a straight-line basis over 10
years. The Company is amortizing the Fiber Optic Rights on a straight-line
basis over 20 years. The Long-haul Network Rights have not yet been placed into
service, as a result, the Company is not amortizing this asset.

Slip.Net

On January 7, 1999, the Company purchased all of the outstanding capital stock
of Accelerated Information, Inc., a California corporation ("AI"), in exchange
for cash of approximately $10.5 million and 187,500 shares of the Company's
Series B Common Stock. By virtue of its acquisition of all of the outstanding
capital stock of AI, the Company also acquired Slip.Net, Inc., a California
corporation and a wholly owned subsidiary of AI ("Slip.Net"). Slip.Net is an
Internet service provider ("ISP") engaged in the business of providing Internet
access, web hosting services, e-commerce support and co-location services
primarily in the San Francisco Bay area.

The acquisition was accounted for under the purchase method of accounting. In
order to determine the total consideration paid, the Company assigned a value,
based on a valuation performed by an independent third party, of $3.68, as
adjusted, per share to the Series B Common Stock. This resulted in total
consideration of $11.1 million, as adjusted. The excess of the consideration
over the estimated fair value of the acquired net assets, which is approximately
$10.8 million, as adjusted, was recorded as goodwill and will be amortized on a
straight-line basis over three years.

Sirius

On March 2, 1999, the Company purchased all of the outstanding capital stock
of Sirius Solutions, Inc., d/b/a Sirius Connections, a California corporation
("Sirius"), in exchange for cash of approximately $7.5 million and 285,000
shares of the Company's Series B Common Stock. Sirius is an ISP engaged in the
business of providing Internet access, web hosting services, e-commerce support
and co-location services primarily in the San Francisco Bay area.

The acquisition was accounted for under the purchase method of accounting. In
order to determine the total consideration paid, the Company assigned a value,
based on a valuation performed by an independent third party of $4.02, as
adjusted, per share to the Series B Common Stock. This resulted in total
consideration of $8.6 million, as adjusted. The excess of the consideration over
the estimated fair value of the acquired net liabilities, which is approximately
$8.7 million, as adjusted, was recorded as goodwill and will be amortized on a
straight-line basis over three years.

Hypercon

On June 1, 1999, the Company purchased all of the outstanding capital stock of
Hypercon, Inc. ("Hypercon"), in exchange for cash of approximately $2.0 million
and 50,000 shares of the Company's Series B Common Stock. Subsequent to the
acquisition, the Company repaid approximately $215,000 in debt. Hypercon is an
ISP engaged in the business of providing Internet access, web hosting services,
e-commerce support and co-location services in the Houston metropolitan area.

8
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The acquisition was accounted for under the purchase method of accounting. In
order to determine the total consideration paid, the Company assigned a value of
$6.00 per share to the Series B Common Stock. This resulted in total
consideration of $2.3 million and assumption of certain liabilities. The excess
of the consideration over the estimated fair value of the acquired net
liabilities, which is approximately $2.9 million, was recorded as goodwill and
will be amortized on a straight-line basis over three years.

Internet Express

On June 14, 1999, the Company purchased all of the outstanding membership
interests of Internet Express, LLC ("Internet Express"), in exchange for cash of
approximately $1.0 million and 30,000 shares of the Company's Series B Common
Stock. Subsequent to the acquisition, the Company repaid approximately $918,000
in various liabilities. Internet Express is an ISP engaged in the business of
providing Internet access and web hosting services in the Denver metropolitan
area, Front Range of Colorado, Pueblo and Albuquerque.

The acquisition was accounted for under the purchase method of accounting. In
order to determine the total consideration paid, the Company assigned a value of
$6.00 per share to the Series B Common Stock. This resulted in total
consideration of $1.2 million and assumption of certain liabilities. The excess
of the consideration over the estimated fair value of the acquired net
liabilities, which is approximately $2.2 million, was recorded as goodwill and
will be amortized on a straight-line basis over three years.

inQuo

On June 22, 1999, the Company purchased all of the outstanding capital stock
of inQuo, Inc. ("inQuo"), in exchange for cash of approximately $844,000. inQuo
is an ISP engaged in the business of providing dedicated Internet access
including digital subscriber line ("DSL") in Salt Lake City metropolitan area.

The acquisition was accounted for under the purchase method of accounting. The
excess of the consideration over the estimated fair value of the acquired net
liabilities, which is approximately $1.0 million, was recorded as goodwill and
will be amortized on a straight-line basis over three years.

Pro Forma Acquisition Information

The following unaudited condensed pro forma information presents the unaudited
results of operations of the Company as if the acquisitions of the above
mentioned companies had occurred on January 1, 1998:

Three Months Ended Six Months Ended
---------------------------- ----------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
(In Thousands) (In Thousands)

Revenue...... $ 12,852 $ 8,556 $ 22,941 $ 14,545
Net loss..... $ (22,406) $ (15,354) $ (40,440) $ (19,641)

9
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These pro forma results do not necessarily represent results that would have
occurred if the consolidated acquisitions had taken place as of January 1, 1998,
nor are they necessarily indicative of the results of future operations.

5. EMPLOYEE BENEFITS PLANS

The 1999 Equity Incentive Plan (the "Incentive Plan") was adopted by the
Company's Board of Directors on March 8, 1999, which was approved by the
stockholders at the Company's 1999 Annual Meeting of Stockholders. The
principal purposes of the Incentive Plan are to provide incentives for key
employees and consultants of the Company through granting of options and stock
appreciation rights ("SARs").

The aggregate number of shares of Series B Common Stock of the Company
("Shares") or the equivalent in other equity securities which may be issued upon
exercise of options may not exceed 5,000,000. At August 1, 1999, there were an
aggregate of 1,985,250 Shares and 361,700 SARs outstanding under the Incentive
Plan at grant prices ranging from $6.00 to $7.50.

The Quarterly Bonus Program of the Company (the "Bonus Program") was adopted
by the Company's Board of Directors on May 3, 1999, which was also approved by
the stockholders at the Company's 1999 Annual Meeting of Stockholders. The Bonus
Program is intended to incentivize both individual productivity and employee
retention. A bonus paid out to each eligible employee in the Bonus Program is
based in part on the productivity of that participant's profit and loss center
and in part on that participant's individual performance. Certain executive
officers may elect to receive shares, in lieu of a cash bonus payment under the
Bonus Program. An aggregate of 200,000 Shares will be available for issuance
under the Bonus Program. The Company incurred expenses related to the Bonus
Program of approximately $640,000 and $1.0 million for the three and six months
ended June 31, 1999 and June 30, 1999, respectively.

6. SUBSEQUENT EVENTS

Transport Logic

On July 7, 1999, the Company acquired all of the outstanding capital stock of
Oregon Professional Services, Inc., an Oregon corporation ("OPS") in exchange
for approximately $7.2 million in cash and 393,000 shares of the Company's
Series B Common Stock. By virtue of its acquisition of all the outstanding
capital stock of OPS, the Company also acquired Transport Logic, Inc., an Oregon
corporation ("Transport Logic"), a wholly owned subsidiary of OPS. Transport
Logic is an ISP in the business of providing Internet access, web hosting
services, support for e-commerce and co-location services in the Pacific
Northwest.

InteleNet

On July 14, 1999, the Company purchased all of the outstanding capital stock
of InteleNet Communications, Inc., ("InteleNet") in exchange for cash of
approximately $16.0 million and 875,000 shares of the Company's Series B Common
Stock. Intelenet is an IPS providing advanced connectivity, data center
services and networking consulting in Southern California.

10
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7. OTHER MATTERS

City of Anaheim

On May 13, 1999, the City of Anaheim (the "City") filed a lawsuit in Orange
County Superior Court, Case Number 809281, against FirstWorld and FirstWorld
Anaheim, Inc. (collectively "FirstWorld Parties"). The City alleges that
FirstWorld Parties have repudiated their contractual obligations under the
Universal Telecommunications System Participation Agreement (the "Participation
Agreement"), the Agreement for Use of Operating Property (the "Operating
Property Agreement") and the Development Fee Agreement (the "Development
Agreement," and together with the Participation Agreement and the Operating
Property Agreement, the "UTS Agreements"). In addition, the City alleges, among
other things, that FirstWorld Parties materially breached their obligations
under the UTS Agreements by: (i) failing to commence construction of a
demonstration center in downtown Anaheim and that FirstWorld Parties will not
commence operation of this downtown demonstration center by June 30, 1999 under
the UTS Agreements; (ii) failing to provide verification that Substantial
Completion of Phase I, as each such term is defined in the UTS Agreements, has
been achieved; (iii) failing to provide a "Subsequent Implementation Program"
(as defined in the UTS Agreements); (iv) failing to comply with various auditing
procedures in the UTS Agreements; and (v) failing to make a quarterly payment
due under the Participation Agreement. The City alleges that it is entitled to
damages in excess of $45 million as well as costs, pre-judgment interest and
such other relief as the Court deems proper. The City also seeks specific
performance compelling FirstWorld Parties to completely perform under the UTS
Agreements. The Company has filed a motion to arbitrate the dispute, which will
be heard on September 9, 1999.

The Company believes that it is not in breach as alleged and intends to
vigorously defend the action; however, there can be no assurance that an
unfavorable outcome of this dispute would not have a material adverse effect on
the Company's results of operations, liquidity or financial position.

Dina Partners L.P.

On October 16, 1998, the Company filed a declaratory relief action in San
Diego Superior Court, asking the Court to find that the Company is not obligated
to offer stock to Dina Partners L.P. ("Dina") with respect to the December 30,
1997 equity investment by Spectra 3 and Enron. Dina had previously indicated in
conversations with FirstWorld officers and counsel and in writing that it
believed the Company had breached a certain Amended and Restated Investor Rights
Agreement to which the Company and Dina were parties by refusing to allow Dina
to purchase additional stock in the Company. On December 3, 1998, in answer to
the Company's complaint, Dina filed a general denial with the court. Although
the ultimate resolution of this dispute is subject to the uncertainties inherent
in litigation, the Company does not believe that the resolution of the
declaratory relief action will have a material adverse effect on the Company's
results of operations, liquidity or financial position.

Other

The Company is engaged in other legal actions arising in the ordinary course
of its business and believes that the outcome of these actions will not have a
material adverse effect on its results of operations, liquidity or financial
position.

11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The Company is a rapidly growing provider of data-centric communications
services. Our service offerings include high-speed Internet access, DSL, web
hosting and design, data center co-location, e-commerce support and web
integration and consulting services. To complement our data services offerings,
the Company also provides local and long distance telephony services. We are
also in the process of constructing several data centers that will house our
data, Internet and voice service equipment and provide space for customers to
co-locate their equipment. The Company's business strategy incorporates this
data-centric focus, with service offerings strategically bundled to address the
increasingly complex data and voice communications needs of small- and medium-
sized businesses. The Company is designing its systems to leverage advanced
Internet protocol technology to deliver its end-to-end solution set. The
Company uses a combination of both owned and leased facilities.

To date, the Company has experienced significant operating and net losses and
negative cash flow from operations. To achieve positive operating margins over
time, the Company must significantly increase the number of customers and
increase the products and services that it can provide to its customers. It is
anticipated that operating and net losses and negative operating cash flow from
operations will increase significantly for at least the next several years as
the Company implements its growth strategy of expanding its operations. See "-
- -Liquidity and Capital Resources."

REVENUE

The Company derives revenue from three primary sources: Internet services, web
integration and consulting services and telephony services.

Internet services revenue is derived from providing dial-up and dedicated
high-speed Internet access, DSL, web hosting and design and e-commerce services.
Revenues for all Internet services, other than e-commerce, are recognized as the
service is provided. Revenues for development of e-commerce applications are
recognized under the percentage-of-completion method of accounting based upon
the ratio that costs incurred bear to the total estimated costs for each e-
commerce application development. Amounts billed relating to future periods are
recorded as deferred revenue and are recognized in revenue as services are
rendered.

Web integration and consulting services revenue is derived from network
consulting, design, integration, equipment sales and management services.
Revenues are recognized under the percentage-of-completion method of accounting
based upon the ratio that costs incurred bear to the total estimated cost for
each contract.

Telephony services revenue is generated from local and long distance telephone
services. The Company generates telephony services revenue by replacing the
basic telephony services currently provided by ILECs, interexchange carriers
("IXCs") and competitive local exchange carriers ("CLECs"), including local,
long distance and other voice services. Revenues are recognized in the month
telephony services are provided. Amounts billed relating to future periods are
recorded as deferred revenue and are recognized in revenue as services are
rendered.

COSTS AND EXPENSES

Network and Service Costs

Network and service costs include a variety of service and network costs.
Service costs consist of payments to other communication carriers and DSL
wholesalers for monthly recurring and non-recurring telecommunications line
charges incurred to provide DSL, integrated services, digital network, frame
relay and telephony

12
<PAGE>

services as well as backbone transport charges. Additional service costs include
labor and materials associated with web integration and consulting services.
Network and service costs include rent and utilities associated with co-
locations, points of presence and network operations centers. We currently enter
into operating leases for a significant portion of our infrastructure and we
expect this practice to continue as we enter into new markets. Labor associated
with technical support, customer service, and line repair is also included in
network and service costs.

Selling, General and Administrative

Selling, general and administrative expenses consist of costs related to
selling, marketing, customer care, provisioning, billing and collections,
information technology, general management and overhead and other administrative
expenses. We expect that selling, general and administrative expenses will
increase significantly in the future as we expand operations into new markets
and grow our sales and marketing staff.

Depreciation and Amortization

Depreciation and amortization expense includes charges relating to
depreciation of property and equipment, which consists principally of network
infrastructure, telecommunications equipment, buildings and leasehold
improvements, furniture and equipment, and amortization of intangibles,
including goodwill. We depreciate our assets and network intrastructure on a
straight-line basis over the estimated useful life of each asset. Estimated
useful lives for our assets currently range from three to 20 years. In addition,
we have recorded goodwill in connection with our acquisitions, which we will
amortize over a period generally expected to be three years.

Interest Expense

Interest expense consists of interest expense associated with our debt. On
April 13, 1998, we completed our issuance of our senior notes. Interest expense
subsequent to April 13, 1998 primarily relates to our senior notes and interest
expense associated with our capital leases. Interest income during 1998 and
subsequent to 1998 was earned primarily from the proceeds raised from the
issuance of our senior notes.

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE THREE AND SIX MONTHS
ENDED JUNE 30, 1998

Revenues

Total revenues increased from $416,000 for the quarter ended June 30, 1998 to
$12.2 million for the quarter ended June 30, 1999, an increase of $11.8 million.
Additionally, total revenues increased from $546,000 for the six months ended
June 30, 1998 to $20.4 million, an increase of $19.9 million. Revenues
increased primarily due to increases in the aggregate number of data
communications customers. Most customers were acquired as a result of the
acquisitions of Optec, Slip.Net, Sirius, Hypercon, Internet Express and inQuo
and the continued expansion of our telephony services in the Los Angeles
metropolitan area.

Internet services. Internet services revenue was $3.9 million for the quarter
ended June 30, 1999 and $6.3 million for the six months ended June 30, 1999.
There were no revenues for Internet services during the three and six months
ended June 30,1998. Our provision of services to customers derived from the
five new acquisitions in 1999 contributed $3.3 million of the increase for the
quarter ended June 30, 1999 and $5.3 million for the six months ended June 30,
1999. The remaining increase is due to expansion of our customer base in the
Los Angeles metropolitan area.

Web integration and consulting services. Web integration and consulting
services revenue was $7.1 million for the quarter ended June 30, 1999 and $12.3
million for the six months ended June 30, 1999. The Company had no web
integration and consulting services revenue during the three and six months
ended June 30, 1998. Optec has generated approximately $6.4 million of web
integration and consulting revenue during the quarter ended June 30, 1999 and
$11.3 million for the six months ended June 30, 1999. The remaining increase is
due to expansion of our customer base in the Los Angeles metropolitan area.

Telephony services. Telephony services revenues increased from $416,000 for
the quarter ended June 30, 1998 to $1.2

13
<PAGE>

million for the quarter ended June 30, 1999, an increase of $773,000. Telephony
services increased from $546,000 for the six months ended June 30, 1998 to $1.8
million for the six months ended June 30, 1999, an increase of $1.3 million.
These increases are primarily due to the continued market penetration and
expansion of our customer base in the Los Angeles metropolitan area.

Costs and Expenses

Network and service costs. Network and service costs increased from $247,000
for the quarter ended June 30, 1998 to $8.9 million for the quarter ended June
30, 1999, an increase of $8.6 million. Network and service costs also increased
by $14.1 million during the six months ended June 30, 1999 compared to June 30,
1998. The Company's acquisition and the support of their continuing customers
increased network and service costs in aggregate by approximately $6.4 million
and $10.3 million for the three and six months ended June 30, 1999,
respectively. The remaining increase is due to the cost of providing service to
the expanded customer base in the Los Angeles metropolitan area.

Selling, general and administrative. Selling, general and administrative
expenses increased from $4.9 million for the quarter ended June 30, 1998 to
$13.7 million for the quarter ended June 30, 1999, an increase of $8.8 million.
For the six months ended June 30, 1999, selling, general and administrative
expenses were $24.6 million, a $17.2 million increase from June 30, 1998. The
Company's various acquisitions increased these expenses in aggregate by
approximately $4.1 million for the quarter ended June 30, 1999 and $6.8 million
for the six months ended June 30, 1999. The remaining increase is due to higher
overall expenses resulting from expansion of operations, in accordance with the
execution of the Company's business plan.

Depreciation and amortization. Depreciation and amortization expenses
increased from $811,000 for the quarter ended June 30, 1998 to $4.3 million for
the quarter ended June 30, 1999, an increase of $3.5 million. Additionally,
depreciation and amortization expenses increased from $1.4 million for the six
months ended June 30, 1998 to $7.3 million for the six months ended June 30,
1999, an increase of $6.0 million. The majority of the increase in depreciation
and amortization is due to the amortization of goodwill associated with the
Company's various acquisitions. Amortization of the goodwill associated with
these acquisitions approximated $1.8 million for the quarter ended June 30, 1999
and $3.1 million for the six months ended June 30, 1999. During the second
quarter of 1999, the Company reached an agreement with a vendor with regards to
certain equipment which was returned to such vendor. As a result, approximately
$700,000 of capitalized engineering and installation costs, among other things,
were written off. The remaining increase primarily relates to telecommunications
equipment placed in service and depreciation and amortization associated with
our acquisitions.

Interest income. Interest income decreased from $3.2 million for the quarter
ended June 30, 1998 to $2.0 million for the quarter ended June 30, 1999, a
decrease of $1.1 million. In April 1998, the Company completed a debt offering
and subsequently raised approximately $250.0 million in proceeds. As of June
30, 1999, the Company had approximately $142.0 million in cash and marketable
securities, a decline of approximately $108.0 million in cash and marketable
securities compared to the same prior year period, resulting in lower interest
income. For the six months ended June 30, 1999, interest income increased $1.2
million compared to the six months ended June 30, 1998. The increase is
attributable to the availability of funds from the debt offering, which have
been invested in marketable securities and cash equivalents. Marketable
securities consist of commercial paper with original maturities greater than
three months but less than six months. The Company has classified its marketable
securities as "held-to-maturity," as management has the intent and ability to
hold these securities to maturity.

Interest expense. Interest expense increased from $8.6 million for the quarter
ended June 30, 1998 to $9.7 million for the quarter ended June 30, 1999, an
increase of $1.1 million. Additionally, interest expense increased from $9.7
million for the six months ended June 30, 1998 to $18.5 million for the six
months ended June 30, 1999, an increase of $8.8 million. This increase relates
primarily to interest expense associated with the senior notes (as defined
below), inclusive of the amortization of related debt discount and deferred
financing costs, offset by a reduction in interest expense associated with a
revolving credit facility, which was terminated in April 1998, inclusive of the
amortization of related debt discount and deferred financing costs. The Company
is not currently scheduled to make any interest payments until the year 2003.

14
<PAGE>

Extraordinary Loss. An extraordinary loss on the extinguishment of debt was
recorded in the quarter ended and six months ended June 30, 1998 of $4.7
million. The Company reported no extraordinary loss in the three and six months
ended June 30, 1999. On September 16, 1997, the Company entered into a revolving
credit facility with a syndicate of lenders to provide financing for the
construction of telecommunication networks and for general working capital
purposes. The Company terminated the credit facility concurrently with the
closing of the senior notes and paid the syndicate of lenders a $1.0 million
termination fee pursuant to the terms thereof. The Company recorded an
extraordinary loss of approximately $4.7 million associated with such debt
extinguishment in the quarter ended June 30, 1998, which loss is inclusive of
the aforementioned termination fee and the write-off of unamortized debt
discount and deferred financing costs.

LIQUIDITY AND CAPITAL RESOURCES

The Company's existing operations have required and will continue to require
substantial capital investment for the installation of telecommunications
equipment, DSLs, IDCs, co-locations, fiber optics and other electronics and
related equipment and the funding of operating losses during the start-up phase
of markets targeted by the Company. In addition, the Company's business plan
calls for expansion into additional market areas. Such expansion will require
significant additional capital for the design, development and construction of
the Company's network, business acquisitions and the funding of operating losses
as a result of expanding the network into new markets.

To date, we have satisfied our cash requirements through the placement of debt
and equity securities. From our inception through June 30, 1999, we raised
approximately $67.0 million from the private sale of capital stock. On December
30, 1997, we consummated a private placement of equity securities to Spectra 3
and Enron. Aggregate proceeds from this offering totaled approximately $26.1
million, net of offering commissions and certain other advisory fees, and were
received on January 6, 1998.

On April 13, 1998, we completed an offering of debt securities pursuant to
Rule 144A under the Securities Act of 1933. In this debt offering, we sold
470,000 units consisting of 13% Senior Discount Notes due 2008 and warrants to
purchase an aggregate of 3,713,094 shares of our Series B Common Stock.
Concurrent with the debt offering, we also completed an additional $20.0 million
private placement of capital stock to Spectra 3 and Enron. The aggregate net
proceeds of the debt offering and the additional equity investment by Enron and
Spectra 3 were $260.7 million. As of June 30, 1999, we had $142.0 million of
cash and cash equivalents and marketable securities. We had an accumulated
deficit of $106.0 million at June 30, 1999.

The Company's most significant sources and uses of funds for the six months
ended June 30, 1999 are as follows (000s):
<TABLE>
<CAPTION>

<S> <C>
Sources of funds:
Maturities of held-to-maturity marketable securities $ 205,457
Proceeds from the exercise of stock options and warrants 719
----------
Total sources of cash $ 206,176
==========

Uses of funds:
Purchases of held-to-maturity marketable securities $ 153,222
Acquisitions, net of cash acquired 22,096
Net cash used by operating activities 20,364
Purchase of property and equipment 14,324
Payments associated with debt and capital leases 1,580
----------
Total uses of cash $ 211,586
==========
</TABLE>

The substantial capital investment required to initiate the Company's services
and the funding of the Company's initial operations has resulted in negative
cash flow since its inception. This negative cash flow is the result of the
Company's capital expansion and acquisition activities. The Company expects to
continue to experience negative cash flow for the foreseeable future due to
expansion through acquisitions and other activities associated with the
development of the Company's markets. There can be no assurance that break-even
cash flow can be attained in subsequent periods. Until sufficient cash flow is
generated, the Company will be required to utilize its current and future
capital resources to meet its

15
<PAGE>

cash flow requirements and may be required to issue additional debt and/or
equity securities. The Company continues to believe that it currently has
sufficient capital to execute its 1999 business plan.

Fair Value of Financial Instruments

With the exception of the Company's senior notes, management believes that the
carrying amounts shown for the Company's financial instruments reasonably
approximate their fair values. The fair value of the Company's senior notes,
determined based on quoted high-yield market bid prices, approximates $267.9
million at June 30, 1999. The carrying amount of such senior notes at June 30,
1999 was $275.3 million.

YEAR 2000 READINESS DISCLOSURE

Year 2000 Readiness

The Company has a comprehensive internal Year 2000 Compliance Program ("Year
2000 Program" or "the Program") designed to enable the Company to continue our
business without interruption as we move into the next millennium. The Company
has established this Program to address the impact of the year 2000 date
transition on its operations, pursuant to the Year

16
<PAGE>

2000 Information and Readiness Disclosure Act of 1998. This Program covers not
only our internal information systems and other IT-based facilities such as data
and voice communications, building management, and security systems, but also
the readiness and compliance programs of our key suppliers. The Company has
prepared a comprehensive project plan, which defines the major activities
covered by the Program. Relevant progress information is distributed on the
Company's web site, where customers can obtain the status and updates.

In 1998, the Company established a Year 2000 Project Team, consisting of
subject matter experts from relevant departments within the Company. A Project
Manager was appointed to coordinate existing projects and to oversee management
and execution of our plan to address Year 2000 issues. The Year 2000 Program is
sponsored by the Company's Chief Information Officer ("Executive Sponsor"), who
has ultimate responsibility for the Year 2000 Program. The Executive Sponsor
communicates Year 2000 progress weekly to the Company's senior management, and
monthly to the Company's Board of Directors.

The Company's Year 2000 Executive Sponsor oversees activities and schedules
defined in the Year 2000 Program. Policies, procedures, and standard approaches
for assessing and resolving issues and managing compliance have been, adapted
from both internal and external sources.

State of Year 2000 Readiness

The Company has adopted the California Public Utilities Commission's
definition of "Year 2000 Ready" and of "Year 2000 Compliant" in preparing for
the year 2000 date change. The Company's Year 2000 Program covers several
phases: taking inventory of hardware, software, third-party suppliers and
embedded systems; assessing business and customer risks associated with such
systems or suppliers; creating action plans to address known risks; executing
and monitoring action plans; and establishing and implementing contingency plans
and procedures.

A comprehensive inventory of all hardware, software, embedded systems, and
suppliers has been created and continues to be updated as the business moves
forward. This inventory is being used to drive the internal Year 2000 effort.

Action plans generally consist of assessing the year 2000 readiness of
systems; repairing, replacing, or retiring systems that are not Year 2000 Ready,
and testing repaired or replaced components and systems where possible. The
Company's Year 2000 Program encompasses information technology hardware and
software systems such as communications systems, desktop PCs, and custom-built
software programs, as well as systems with embedded technology, such as power
generators, temperature controls, alarms, security systems, and elevators.

Systems and applications have been grouped together, and each category has
been assigned a specific person within the Company's technical management for
Year 2000 Readiness. The categories are: (1) internal IT enterprise
applications, such as billing and customer service; (2) network infrastructure,
including corporate local and wide area networks, user workstations and off-the-
shelf software applications; (3) customer ISP platform; (4) customer telephony
platform; (5) corporate facilities (offices, phone systems, voice mail, etc.)

The Company is using a variety of software tools to assist in the Year 2000
assessment and testing processes for its business systems. Additionally, where
possible, the Company has tested its mission-critical applications. These tests
included transaction processing at various dates before, during, and after the
millennium, including the leap day in February 2000. While the Company does not
anticipate that the Year 2000 will cause disruption in its ability to provide
services, there can be no assurance that all systems, processes and platforms
will be Year 2000 ready given the Company's significant reliance on third-party
systems and providers.

The Company has recently acquired a number of additional companies and
business operations and intends to continue to make acquisitions from time to
time. As a part of the Company's due diligence in these acquisitions, the
Company makes a preliminary assessment of the state of the acquired businesses,
Year 2000 Readiness prior to closing. After closing the acquisition, the
Company undertakes the same compliance program adopted by the Company as a
whole, however since many of these acquisitions are very recent, the Company has
not made a full assessment of Hypercon, Internet Express, inQuo, InteleNet and
Transport Logic's Year 2000 Readiness at this time. The Company does believe
that such assessments will be completed in sufficient time to take appropriate
remedial action should Year 2000 issues be identified.

17
<PAGE>

The Company's Year 2000 Program also addresses third-party vendors. Certain
third party services or products are critical to the continued day-to-day
operation of the Company, including telecommunications services, electric power
and other utilities, and shipping services. These third parties include without
limitation switch vendors, network providers (including both local and long-haul
carriers), and other hardware and software vendors.

Most of the Company's third-party vendors are large, national companies,
providing services similar to those provided to the Company to literally
millions of other similar customers. Indeed, if some of these companies have
widespread failures in their systems, it will not only affect the Company but
whole geographic regions of customers. For example, if an incumbent ILEC loses
its switching or transmission platform, the Company, as well as virtually all
of our competitors, will be impacted.

To mitigate this risk, the Company has been communicating with these suppliers
concerning their Year 2000 readiness. We have collected and cataloged relevant
vendor information regarding Year 2000 compliance and matched it against the
Company's software and hardware inventory for compliance/non-compliance and
remediation. We continue to review that information for updates. The Company
intends to send Year 2000 compliance questionnaires to those critical vendors
where we have been unable to match compliance documentation with the Company's
utilized hardware, software and network servcies.

As the Company has shifted into more data-centric products and services, the
Company has established many new contractual relationships for services,
including carrier agreements, software and hardware platform purchases and
upgrades. In the course of these negotiations, if there was any perceived Year
2000 impact, the vendor was required to address their readiness as part of the
contract or service agreement.

There are several factors that mitigate or reduce the Company's exposure to
Year 2000 issues. Unlike legacy carriers with a large amount of internally-
developed applications, which were developed over many years or even decades,
most of the Company's systems are relatively new. For example, our telephony
billing system was first implemented in early 1998. We use industry-standard
hardware and software, including Sun, Microsoft, HP, Cisco, Lucent, Toshiba,
Micron and Dell, rather than unknown generic component hardware and/or software.
We stay very up to date with software releases because of standardization and
management issues, along with feature and performance. For example, we recently
upgraded our telephony-billing package with a newer, Y2K-compliant version to
take advantage of advanced features and improved throughput.

Most hardware components and systems are now Year 2000 Compliant. However, it
is envisaged that manufacturers will continue to produce patches until the end
of the year. Any such patches will be installed when they become available.

Except as otherwise described herein, the Company presently expects to
substantially complete its Year 2000 Program by October 1, 1999, and to continue
extensive monitoring throughout 1999. The status of the Company's readiness
efforts, except as described above regarding our recent acquisitions, is as
follows: inventory is substantially complete; risk assessment is substantially
complete; readiness assessment of systems is substantially complete; repair or
replacement of known non-compliant components is currently expected to be
substantially complete by the end of August 1999; conversion and testing
currently is expected to be substantially complete by the end of September 1999;
and contingency planning is currently expected to be complete by the end of
September 1999.

Risks Associated with Year 2000 Issues

A significant amount of the demand the Company has experienced in recent
months for its products and services may have been generated by the Company
continuing its acquisition and expansion strategy during 1999. The acquisition
of a company or customer that has failed to address its year 2000 issues could
have a material adverse effect on the Company's own Year 2000 effort. To
minimize the risk associated with this acquisition, the Company has instituted
certain guidelines that include Year 2000 readiness as a crucial due diligence
factor. In addition, as the Year 2000 approaches, customers may slow down
Internet and telephony systems purchases as they devote more time to preparing
and testing their systems for Year 2000 readiness, versus evaluating and
implementing new systems. Thus, the telecommunications industry and the Company
may experience a significant deceleration from the strong annual growth rates
historically experienced in the telecommunications marketplace.

18
<PAGE>

The Company anticipates that its products and services will be Year 2000
Compliant. There can be no assurances, however, that the Company's current
products and services do not contain undetected year 2000 defects. The most
reasonably likely worst case scenarios would include the partial failure of a
widely-sold Company product and service that is of mission-critical importance
to the Company's customers. Such a scenario could expose the Company to
litigation that could have a material adverse impact on the Company. Some
commentators have stated that a significant amount of litigation will arise out
of year 2000 compliance issues. However, because of the unprecedented nature of
such litigation, it is uncertain to what extent the Company could be affected by
it. Although the Company does not believe that it will incur any material costs
or experience material disruptions in its business associated with preparing its
internal systems for the year 2000, there can be no assurances that the Company
will not experience serious unanticipated negative consequences caused by
undetected year 2000 defects in its internal systems, including third party
software and hardware products and services. The most reasonably likely worst
case scenarios would include: (i) corruption of data contained in the Company's
internal information systems, rendering the data useless unless and until it was
corrected; (ii) failure of hardware, software, or other information technology
systems to correctly process or transmit date-sensitive data, causing an
interruption or failure of normal business operations; and (iii) failure of any
one of a number of third-party systems or interfaces, on which the Company
relies for its service platform, which could interfere with the Company's
operations. Such a scenario could have a material adverse impact on the Company.
In addition, there can be no assurances that the Company will not experience
serious unanticipated negative consequences caused by the failure of services
provided by third parties, such as electrical power, telecommunications
services, and shipping services. Due to the impossibility of knowing what
failures generally will result from the year 2000 date change (particularly
outside of countries such as the United States where year 2000 remediation has
progressed the furthest), and what effects such failures could have on third
party vendors, the Company is unable to assess the likelihood of a material
adverse impact on its results of operations, liquidity, or financial condition
due to such Year 2000 failures. The Company anticipates that it will experience
a significant increase in calls to customer support from customers seeking Year
2000 product information; information on migrating from older, non-compliant
products to compliant products; and assistance in handling other Year 2000
issues. The Company intends to develop a program to enable it to handle the
expected increase in calls. The Company may incur significant costs in
connection with this program. Among other things, the Company anticipates that
it will be required to reassign consultants to the customer support organization
on an interim basis, which could cause a decrease in consulting revenues. Such
costs or lost revenues cannot be estimated until the program planning is
completed.

Contingency Planning

Contingency planning is an inherent part of the Company's Year 2000 Compliance
Program. Potential points of failures are being identified and assessed for
probability of failure and impact to the business. The methodology includes
examining risk reduction measures as well as the development of detailed
contingency plans.

The Company is preparing a comprehensive contingency plan (the "Contingency
Plan") to address possible failures caused by the year 2000 date change. The
Contingency Plan will address, among other things, access to alternative third
party vendors for services and products such as access and transport services
manual "work-arounds" for software and hardware failures, and substitution of
hardware and software systems, if necessary. The Company currently expects to
complete the Contingency Plan by the end of August 1999. The Company has begun
addressing potential and expected effects of the year 2000 date change, by
planning for increased support staffing in late 1999 and early 2000 for issues
that may arise. Such existing plans will be incorporated into the Contingency
Plan. However, the Company cannot make any assurances that the Contingency Plan
will resolve any Year 2000 failures that may occur, in a manner which is
satisfactory or desirable to the Company.

Costs of Addressing Year 2000 Issues

The Company is continually upgrading and improving its information technology
systems and facilities, and the Company expenses all incremental costs to the
Company associated with Year 2000 compliance issues as incurred. Through June
30, 1999, such costs incurred were approximately $250,000, primarily consisting
of contract consulting fees. The Company expects to incur certain internal
costs, including salaries and benefits for two dedicated full-time equivalent
employees to address Year 2000 compliance issues, of which such costs represent
approximately 8% of the budgeted IT staff.

The Company has not yet determined the full cost of its Year 2000 Program and
its related impact on its financial condition. The Company currently has
budgeted $500,000 for the completion of its Year 2000 Program, and has included

19
<PAGE>

it as part of the normal 1999 IT operating budget. No assurance can be made,
however, as to the total cost for the Year 2000 Compliance Program until the
Program has been completed. While there can be no assurance, the Company does
not believe that any such additional costs will have a material impact on its
results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company believes there has been no significant changes in the market risk
associated with its financial instruments since September 30, 1998.

20
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

City of Anaheim

Dian Partners L.P.

On October 16, 1998, the Company filed a declaratory relief action in San
Diego Superior Court, asking the Court to find that the Company is not obligated
to offer stock to Dina Partners L.P. ("Dina") with respect to the December 30,
1997 equity investment by Spectra 3 and Enron. Dina had previously
indicated in conversations with FirstWorld officers and counsel and in writing
that it believed the Company had breached a certain Amended and Restated
Investor Rights Agreement to which the Company and Dina were parties by refusing
to allow Dina to purchase additional stock in the Company. On December 3, 1998,
in answer to the Company's complaint, Dina filed a general denial with the
court. Although the ultimate resolution of this dispute is subject to the
uncertainties inherent in litigation, the Company does not believe that the
resolution of the declaratory relief action will have a material adverse effect
on the Company's results of operations, liquidity or financial position.

Other

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Stockholders' of FirstWorld ("the Meeting") was held on
June 3, 1999, in which a total of 107,285,349 shares were represented out of the
118,312,841 shares entitled to vote. At the Meeting, four matters were
considered and acted upon: (1) Election of Directors for Series A and Series B
Common Stock; (2) Adoption of the 1999 Equity Incentive Plan of FirstWorld
Communications, Inc.; (3) Adoption of the 1998 Stock Purchase Plan of FirstWorld
Communications, Inc; and (4) Adoption of the FirstWorld Communications, Inc.
Quarterly Bonus Program.

Donald L. Sturm, C. Kevin Garland, Melanie L. Sturm, Sheldon S. Ohringer,
James O. Spitzenberger, and Stephen R. Horn were elected directors with
107,285,349 Series A and Series B Common Stock votes. John C. Stiska was
elected director with 7,085,349 Series B Common Stock votes. All members were
elected to serve until the next annual meeting of stockholders of the Company or
until their respective successors are duly elected and qualified.

The results of the 1999 Equity Incentive Plan, 1998 Stock Purchase Plan and
the Quarterly Bonus Program matters were as follows:
<TABLE>
<CAPTION>

1999 1998 Stock Quarterly
Action Equity Plan Purchase Plan Bonus Program
---------------- ----------- ------------- --------------
<S> <C> <C> <C>
For 107,203,412 107,212,456 107,193,393
Against 65,937 52,437 71,500
Abstain 16,000 20,456 20,456
Broker Non-Votes - - -

</TABLE>

21
<PAGE>

ITEM 6. Exhibits And Reports On Form 8-K

(a) Exhibits:

Exhibits 10.37 First Amendment to Employment Agreement, dated as of May
20, 1999, between the Company and Sheldon S. Ohringer.

Exhibit 10.38 Office Lease dated June 28, 1999, between Board of
Administration as Trustee for the Police and Fire
Department Retirement Fund and the Company.

Exhibit 27.1 Financial Data Schedule

(b) Two reports on Form 8-K were filed in the three month period ended June 30,
1999:

Were any financial
Item Reported statements filed? Date of filing
------------- ----------------- --------------
<S> <C> <C>

Item 5 - Other Event - Acquisition of Hypercon, Inc. No June 15, 1999

Item 5 - Other Event - Acquisition of Internet Express, LLC No June 29, 1999
</TABLE>

22
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

FIRSTWORLD COMMUNICATIONS, INC.,
a Delaware corporation
(Registrant)

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE

/s/ SHELDON S. OHRINGER President, Chief Executive Officer and Director August 13, 1999
- ----------------------------------------------
Sheldon S. Ohringer (Principal Executive Officer)

/s/ PAUL C. ADAMS Vice President of Finance, Treasurer and Assistant August 13, 1999
- ----------------------------------------------
Paul C. Adams Secretary (Principal Financial and Accounting
Officer)
</TABLE>

<PAGE>
Exhibit 10.37

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

This First Amendment to Employment Agreement (this "Amendment") is made as
of May 20, 1999 by and between FirstWorld Communications, Inc. and Sheldon S.
Ohringer.

Recitals

A. The parties entered into an Employment Agreement (the "Agreement")
dated as of September 28, 1998, with a Commencement Date of October 1, 1998.

B. The parties wish to amend the Agreement for the limited purposes set
forth in this Amendment.

Agreement

In consideration of the mutual promises of the parties set forth in this
Amendment and other good and valuable consideration the sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:

1. Section 5(e)(i) of the Agreement is deleted in its entirety and
replaced with the following:

"If the Company consummates a Qualified Initial Public Offering (as
defined in Section 5(d) above) with a price of at least $10.00 per
share (before giving effect to any subdivision (by any stock split,
stock dividend, recapitalization or otherwise), combination (by
reverse stock split or otherwise) or other adjustment in the number of
outstanding shares of the Company as determined on a fully diluted
basis made without the receipt of consideration to the Company after
the Commencement Date) before April 1, 2000, the Company shall pay
Executive a cash payment of $4,207,500 in accordance with the
provisions of Section 5(e)(iv) hereof."

2. The Agreement, as amended by this Amendment, shall continue in full
force and effect.

3. This Amendment may be executed in one or more counterparts, each of
which will be deemed to be an original but all of which together will constitute
one and the same instrument. This Amendment may be delivered by facsimile.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.

FirstWorld Communications, Inc.

By: /s/ Jeffery L. Dykes
----------------------------------------------
Jeffrey L. Dykes,
Senior Vice President, General Counsel
and Secretary

Sheldon S. Ohringer

/s/ Sheldon S. Ohringer
-------------------------------------------------

<PAGE>

OFFICE LEASE Exhibit 10.38

BETWEEN

BOARD OF ADMINISTRATION AS TRUSTEE
FOR THE POLICE AND FIRE
DEPARTMENT RETIREMENT FUND
----------------------------------

"LANDLORD"
----------

AND

FIRSTWORLD COMMUNICATIONS, INC.
-------------------------------

"TENANT"
--------

FOR SPACE AT
THE BUILDING KNOWN AS

"CRESCENT VII"
---------------------------------

8390 E. Crescent Parkway
------------------------
Greenwood Village, Colorado
---------------------------

Dated: June 28, 1999
------- ----

<PAGE>

TABLE OF CONTENTS

1. PREMISES; BUILDING; BUILDING COMPLEX; COMMON AREAS....................... 3

2. LEASE TERM............................................................... 3

3. RENT; SECURITY DEPOSIT................................................... 3
3.1. Base Rent......................................................... 3
3.2. Security Deposit.................................................. 3

4. TENANT FINISH AND ACCEPTANCE OF THE PREMISES
4.1. Landlord's Work................................................... 4
4.2. Postponement of Lease Commencement Date........................... 4
4.3. Acceptance of Premises............................................ 4
4.4. Partial Months; Lease Commencement Certificate.................... 5

5. OPERATING EXPENSES ...................................................... 5
5.1. Definitions Regarding Operating Expenses.......................... 5
5.2. Payment of Excess Operating Expenses ............................. 7
5.3. Partial Years .................................................... 8
5.4. Survival of Tenant's Obligation................................... 8
5.5. Tenant's Right to Question Excess Operating Expenses.............. 8
5.6. Operating Expense Adjustments .................................... 8

6. SERVICES................................................................. 9
6.1. Landlord's Services............................................... 9
6.2. Excess Usage...................................................... 9
6.3. Additional Services to Tenant..................................... 9
6.4. Interruption of Services.......................................... 10
6.5. Notice to Landlord................................................ 10

7. QUIET ENJOYMENT.......................................................... 10

8. USE AND OCCUPANCY........................................................ 10

9. MAINTENANCE AND REPAIRS.................................................. 11
9.1. Landlord's Obligations............................................ 11
9.2. Tenant's Obligations.............................................. 11

10. ALTERATIONS AND ADDITIONS................................................ 11
10.1. Alterations by Tenant ............................................ 11
10.2. Ownership and Removal of Alterations.............................. 12
10.3. Landlord's ADA Alterations ....................................... 13

11. ENTRY BY LANDLORD ....................................................... 13

12. MECHANICS LIENS ......................................................... 13

13. SUBLETTING AND ASSIGNMENT
13.1. Tenant's Right.....................................................13

i
<PAGE>

13.2. Other Restrictions; What Constitutes an Assignment.. 14
13.3. Certain Subleases................................... 14

14. DAMAGE TO PROPERTY; CLAIMS................................ 14
14.1. Landlord Not Liable................................. 14
14.2. Tenant's Indemnity.................................. 15

15. INSURANCE................................................. 15
15.1. Landlord's Insurance................................ 15
15.2. Tenant's Insurance.................................. 15
15.3. Waiver of Claims and Subrogation.................... 16

16. DAMAGE OR DESTRUCTION TO BUILDING......................... 16
16.1. Repair of Damage.................................... 16
16.2. Termination of Lease................................ 17

17. CONDEMNATION.............................................. 17

18. ESTOPPEL CERTIFICATE...................................... 17
18.1. Duty to Provide..................................... 17
18.2. Tenant's Failure to Deliver......................... 17

19. DEFAULT BY TENANT......................................... 18
19.1. Event of Default.................................... 18
19.2. Remedies of Landlord................................ 19
19.3. Late Charges and Interest........................... 20
19.4. Mitigation.......................................... 21
19.5. No Waiver........................................... 21
19.6. Landlord's Lien..................................... 21

20. SUBORDINATION AND ATTORNNMENT............................. 22
20.1. General............................................. 22
20.2. Lease Modifications................................. 22

21. SURRENDER AND HOLDING OVER................................ 22
21.1. Surrender........................................... 22
21.2. Property Not Removed................................ 22
21.3. Holding Over........................................ 23

22. LANDLORD DEFAULT.......................................... 23

23. NOTICE.................................................... 23

24. RULES AND REGULATIONS..................................... 24

25. PARKING................................................... 24

26. RIGHT TO RELOCATE TENANT.................................. 24

27. RIGHT TO DEMOLISH BUILDING................................ 24

ii
<PAGE>

27.1. Notice of Termination..................... 24
27.1. Surrender of Premises..................... 24

28. MISCELLANEOUS
28.1. Limitation of Landlord's Liability........ 25
28.2. No Merger................................. 25
28.3. Landlord's Use of Common Areas............ 25
28.4. Covenants are Independent................. 25
28.5. Severability.............................. 25
28.6. Captions and Terms........................ 25
28.7. Binding Effect; Governing Law............. 26
28.8. Tenant's Authority........................ 26
28.9. Joint and Several......................... 26
28.10. Acts Binding Landlord..................... 26
28.11. Changes in the Building; Use of Names..... 26
28.12. Change in Light or View................... 26
28.13. No Other Agreements; Amendments........... 26
28.14. Brokers................................... 27
28.15. Recordation............................... 27
28.16. Execution Required........................ 27
28.17. Attorney's Fees........................... 27
28.18. Time of Essence; Effective Dates.......... 27

Exhibits:
- ---------

EXHIBIT A - Floor Plan of Leased Premises
EXHIBIT B - Legal Description of Building
EXHIBIT C - Tenant Improvement Agreement (Work Letter)
EXHIBIT D - Rules and Regulations
EXHIBIT E - Lease Commencement Certificate

iii
<PAGE>

OFFICE LEASE

PART I

BASIC LEASE TERM SHEET

BUILDING: CRESCENT VII
---------------------------------------------------------
8390 E. Crescent Parkway, Greenwood Village, Colorado
---------------------------------------------------------

LEASE DATE:
---------------------------------------------------------
Board of Administration as Trustee for the Police and
LANDLORD: Fire Department Retirement Fund
---------------------------------------------------------
Address: 777 North First Street, #750
-----------------------------------------------
San Jose, CA 95112-6311
---------------------------------------------------------
TENANT: FIRSTWORLD COMMUNICATIONS, INC., a Delaware Corporation
---------------------------------------------------------
Address: Prior to 08/01/99 - 7100 E. Belleview Ave., #210
-----------------------------------------------
Greenwood Village, CO 80111
---------------------------------------------------------
Notice Address: After 08/01/99 - 8390 E. Crescent Pkwy,
---------------------------------------
#300, Greenwood Village, CO 80111
---------------------------------------------------------
BUILDING MANAGER: DTC MANAGEMENT. LLC
---------------------------------------------------------
Address: 8350 East Crescent Parkway. Suite 100
------------------------------------------
Greenwood Village. CO 80111
---------------------------------------------------------
LANDLORD'S BROKER: CUSHMAN REALTY CORPORATION
---------------------------------------------------------
TENANT'S BROKER: FREDERICK ROSS & COMPANY
(if any)
---------------------------------------------------------
LEASED PREMISES: Suite Number: 300 and 200 Floor: Third (entire) &
Second (part)
----------- ----------------
Address: 8390 E. Crescent Parkway,
------------------------------------------------
Greenwood Village, CO 80111
---------------------------------------------------------
Tenant's Rentable Area: 42,560
---------------------------------
LEASE TERM: Lease Commencement Date: 8/l/99 (3rd floor);
l/l/00 (2nd floor)
---------------------------------

Lease Expiration Date: 7/31/02 (Subject to termination
right outlined in Rider
to this Lease)
----------------------------------
Lease Term: 3 Years, plus 0 Months
--- ---
Note: Lease term on second floor is 31 months.

1
<PAGE>

BASE RENT Payable in monthly installments as follows:

Mos. 1-5: $47,636.00 Mos. 13-24: $86,893.33
-----------------------------------------------------------
Mos. 6-12: $85,120.00 Mos. 25-36: $88,666.67
-----------------------------------------------------------

BASE OPERATING
EXPENSES: Included in the base rent is a 1999 base year.
-----------------------------------------------------------
Tenant's Pro-Rata Share: 31-52% Building rentable area is
------
135,044

SECURITY DEPOSIT: None
-----------------------------------------------------------

PARKING SPACES: Number of Parking Spaces: 159 total spaces
--------------------------------
4 "A" spaces 98 surface spaces

Location of Parking Spaces: 16 "B" spaces 41 "B" spaces
(no charge)**
--------------------------------

A spaces $80.00/month
Parking Rate at Commencement: B spaces $60.00/month
-----------------------------

OPTIONS: See below (*)
-----------------------------------------------------------

GUARANTOR: Name: NONE
-----------------------------------------------------------

Address:
--------------------------------------------------

-----------------------------------------------------------

THIS BASIC LEASE TERM SHEET, together with the General Provisions in Part II
and any Exhibits as Part III, all constitute the entire lease between Tenant and
Landlord for the Leased Premises, made and entered into as of the Lease Date.

[TENANT'S INITIALS APPEAR HERE] [LANDLORD'S INITIALS APPEAR HERE]
- ------------------------------- ---------------------------------
TENANT'S INITIALS LANDLORD'S INITIALS

* Tenant shall have three (3) consecutive two (2) year options to renew the
lease. The rental rate shall be at the then prevailing market rates for like
space at the Crescent project. Tenant will give Landlord no less than six (6)
months notice to exercise said options.

** Landlord reserves the right to change the location of the 41 B spaces.
<PAGE>

PART II

GENERAL PROVISIONS

1. PREMISES: BUILDING: BUILDING COMPLEX: COMMON AREAS. In consideration of the
---------------------------------------------------
payment of the Rent and the performance of Landlord and Tenant's obligations
under the Lease, Landlord hereby leases to Tenant and Tenant leases from
Landlord the premises as described on the Basic Lease Term Sheet and as depicted
on Exhibit A (the "Premises") located in the building on the land described on
---------
Exhibit B (the "Building"), together with a non-exclusive right to use all
- ---------
common areas designated by Landlord for non-exclusive use of the tenants of the
Building. The Building, real property, plazas, landscaped and parking areas,
drives and related easements, common areas. and appurtenances are hereinafter
collectively sometimes called the "Building Complex" whether all or a part of
it. The "Common Areas" include the exterior plazas, Building entrances,
walkways, driveways to the Building, elevators, stairways, common lobbies and
corridors, and other areas designated from time-to-time by Landlord for the use
of all tenants of the Building; but specifically excluding (without limitation)
covered, handicapped and other parking reserved for visitors and for use by
those other than Tenant.

All inspections of the Premises or Building Complex during construction
under the Work Letter (defined in Paragraph 4) by Tenant its employees,
architects, agents or representatives shall be at Tenant's sole risk, and Tenant
shall indemnify and hold Landlord and its employees. partners, contractors, and
Building Manager harmless from and against any and all injuries, death, damages,
loss, claims, suits and liability arising out of any such inspection, except to
the extent caused by the negligence or willful misconduct of Landlord, its
agents or employees. Tenant shall not prior to the Lease Commencement Date enter
on the Premises or permit others to do so, except during normal work hours at
the Premises and after prior notice to and approval by Landlord and Landlord's
general contractor and subject to compliance with all safety requirements and
other rules of Landlord and the general contractor and the requirements of their
insurers and applicable laws and regulations.

2. LEASE TERM. The term of the Lease shall commence at 12:01 a.m. on the
----------
Lease Commencement Date and shall terminate at 12:00 midnight on the Lease
Expiration Date, as specified on the Basic Lease Term Sheet (the "Primary Lease
Term"). The Primary Lease Term, as it may be extended, is referred to as the
"Lease Term."

3. RENT: SECURITY DEPOSIT.
----------------------

3.1. Base Rent. Tenant shall pay to Landlord base rent for the Premises
---------
("Base Rent") as specified on the Basic Lease Term Sheet during the Primary
Lease Term. All installments of Base Rent shall be payable in advance, on the
first day of each calendar month during the Lease Term, except that the first
monthly installment of Base Rent shall be due and payable upon execution of this
Lease by Tenant. All Base Rent and Additional Rent (as hereinafter defined),
(collectively, "Rent") shall be paid without notice, demand, deduction, offset,
or abatement (except as otherwise expressly provided in this Lease), at
Landlord's address or at such other place as Landlord from time-to-time
designates in writing. In no event will the total Rent to be paid by Tenant
during any Lease Year ever be less than the Base Rent plus Tenant's Pro Rata
Share of increases in Operating Expenses under Paragraph 5.

<PAGE>

4. TENANT FINISH AND ACCEPTANCE OF THE PREMISES.
---------------------------------------------

4.1. Landlord's Work. If Landlord has agreed to make improvements or to
---------------
perform remodeling, work to the Premises, provisions with respect to any such
work are set forth in the work letter attached to this Lease as Exhibit C (the
---------
"Work Letter"). Other than as set forth in the Work Letter, Landlord shall have
no obligations for any remodeling or other work in the Premises, and Tenant
shall accept the Premises in their "as-is" condition on the date the Premises
is Ready for Tenant.

4.2. Postponement of Lease Commencement Date. If Landlord is to complete
---------------------------------------
the Tenant Finish Work (as defined in the Work Letter) and the Premises are not
Ready for Tenant on the Lease Commencement Date (except as set forth in the Work
Letter with respect to Tenant Delay), or if Landlord is delayed in delivering
the Premises to Tenant because a prior tenant falls to vacate, the Lease
Commencement Date shall be postponed until the earlier of: (i) the date the
Premises are Ready for Tenant; or (ii) the date Tenant takes occupancy of any
of the Premises, on which date all of the provisions of this Lease shall take
effect, including the payment of Rent. If the Premises are not Ready for Tenant
due to a delay caused by Landlord (and not because of a Tenant Delay, as defined
in the Work Letter), the postponement of Tenant's obligation to pay Rent shall
be in full settlement of all claims which Tenant might otherwise have by reason
of the Premises not being Ready for Tenant on the Lease Commencement Date.
"Ready for Tenant" shall mean either the date that Landlord has substantially
completed any Tenant Finish Work in the Premises to be performed by Landlord in
the Work Letter, or, if Landlord has no obligations to do Tenant Finish Work,
the date the Premises is delivered to Tenant. A certificate of substantial
completion from the architect (or other representative of Landlord) in charge of
supervising the Tenant Finish Work (if any) shall be the date the Premises are
Ready for Tenant.

4.3. Acceptance of Premises. Taking possession of the Premises by Tenant
----------------------
shall be conclusive evidence that the Premises are Ready for Tenant and of
satisfactory completion of any Tenant Finish Work which Landlord has agreed to
perform in the Work Letter, subject to any punch list items that do not
materially interfere with Tenant's use of the Premises.

4
<PAGE>

4.4. Partial Months: Lease Commencement Certificate. If the Lease
----------------------------------------------
Commencement Date does not begin on the First day of a month, Tenant shall pay
proportionate Rent in advance for the partial month and the partial month shall
be considered part of the first Lease Year (as defined in 5.1). In the event the
Lease Commencement Date is delayed, the Lease Expiration Date shall be extended
so that the Primary Lease Term will continue for the full period set forth in
the Basic Lease Term Sheet. At the request of either parry, Landlord and Tenant
shall execute a Lease Commencement Certificate, the form of which is attached
hereto as Exhibit E, setting forth among other things the Lease Commencement
--
Date and the Lease Expiration Date.

5. OPERATING EXPENSES.
-------------------

5.1. Definitions Regarding Operating Expenses. The following terms have the
----------------------------------------
following meanings with respect to their use in this Lease:

a. "Base Operating Expenses" is the amount specified on the Basic
Lease Term Sheet. It is understood and acknowledged by Tenant that Landlord has
not made any representation or given Tenant any assurances regarding current or
Base Operating Expenses or Additional Rent resulting from the calculation of
Base Operating Expenses (any estimates provided by Landlord are non-binding
estimates only). In the event that the actual Operating Expenses during any year
are less than the Base Operating Expenses, Tenant shall not be entitled to any
refund, credit or other form of reimbursement.

*See attached Rider

b. "Building Rentable Area" means the square footage of the Building
determined by measurement in accordance with the methods of measuring rentable
area and usable area as described in the Standard Method for Measuring Floor
Area in Office Buildings, ANSI Z65.1-1996, as promulgated by the Building Owners
and Managers Association (BOMA) International as modified for application to
Denver office buildings. Building Rentable Area is stipulated to be as shown on
the Basic Lease Term Sheet. If there is a significant change in the Building
Rentable Area as a result of an addition to the Building, partial destruction,
modification to building design. or similar cause which causes a reduction or
increase thereto on a permanent basis. Landlord shall make such adjustments in
the computations as shall be necessary to provide for any such change.

c. "Tenant's Pro Rata Share" means the percentage specified on the
Basic Lease Term Sheet. In the event Tenant, at any time during the Lease Term,
leases additional space in the Building, Tenant's Pro Rata Share shall be
recomputed by dividing the total rentable square footage of space then being
leased by Tenant (including any additional space) by the Building Rentable Area,
and the resulting percentage figure shall become Tenant's Pro Rata Share.

d. "Lease Year" means each calendar year during the Lease Term, except
that the first Lease Year shall begin on the Lease Commencement Date and end on
December 31 of that year, and the last Lease Year shall begin on January 1 of
the calendar year in which this Lease expires or is terminated and end on the
date it expires or terminates. If the first or last Lease Year is less than 12
months. Operating Expenses for these years shall be prorated.

e. "Operating Expenses" means all operating expenses of any kind or
nature (except as otherwise expressly provided in this subsection) as reasonably
determined by Landlord and which are incurred in connection with the ownership,
operation and maintenance of the Building Complex. Operating Expenses shall
include, but not be limited to:

i. All real property taxes and assessments levied against the
Building Complex by any governmental or quasi-governmental authority, including
any taxes, assessments,

5
<PAGE>

reassessments, surcharges, imposition, or other service, tax or other fees of a
nature now in effect or which shall hereafter be levied on the Building Complex
as a result of the use, ownership or operation of the Building Complex or for
any other reason. whether in lieu of or in addition to, any current real estate
taxes and assessments; provided, however, in no event shall the terms "taxes" or
"assessments include any federal or state income taxes levied or assessed on
Landlord, unless those taxes are a substitute for real property taxes
(collectively referred to as "Taxes"). Expenses incurred by Landlord for tax
consultants and in contesting the amount or validity of any Taxes shall be
included in such computations. "Assessments" shall include general and special
assessments, license tax, business license fee, business license tax, commercial
rental tax, levy, charge penalty or tax, imposed by any authority having the
direct power to tax, including any city, county state or federal government, or
any school, agricultural, lighting, water, drainage or other improvement or
special district, against the Premises, the Building or Building Complex or any
legal or equitable interest of Landlord therein. For the purposes of this Lease,
any special assessments shall be deemed payable in such number of installments
as is permitted by law, whether or not actually so paid;

ii. Costs of cleaning and other supplies, tools, materials and
equipment;

iii. Costs incurred in connection with obtaining and providing
energy for the Building Complex, including costs of propane, butane, natural
gas, steam, electricity, solar energy and fuel oils, coal or any other energy
sources as well as costs for heating, ventilation, and air conditioning services
("HVAC");

iv. Costs of water and sanitary and storm drainage services;

v. Costs of security services (if any) and janitorial
services;

vi. Costs of maintenance, repairs, alterations, improvements
and replacements, including materials, labor, equipment and maintenance
contracts; and

vii. Costs of maintenance and replacement of landscaping; and
costs of maintenance, repair, resurfacing, striping and repairing parking areas
and Common Areas, including trash, ice and snow removal;

viii. Insurance premiums in connection with the insurance carried
by Landlord in accordance with Paragraph 15, including fire and all-risk
coverage, together with loss of rent endorsement; the part of any claim required
to be paid under the deductible portion of any insurance policy carried by
Landlord in connection with the Building Complex; public liability insurance and
any other insurance carried by Landlord on the Building Complex;

ix. Labor costs, including wages and other payments, costs to
Landlord of workmen's compensation and disability insurance, payroll taxes,
fringe benefits, pension, profit sharing and all legal fees and other costs or
expenses incurred in resolving any labor dispute;

x. Professional building management fees and costs of
Building management space occupied by the Building Manager or its agents;

xi. Legal, accounting, inspection, and consultation fees
(including fees charged by consultants retained by Landlord for services that
are designed to produce a reduction in Operating Expenses or to reasonably
improve the operation, maintenance or state of repair of the

6
<PAGE>

Building Complex) incurred in the ordinary course of operating the Building
Complex; and a general overhead and administrative charge equal to 2% percent of
all Operating Costs.

xii. The costs of capital improvements and structural repairs and
replacements made in or to the Building Complex or the cost of any machinery or
equipment installed in the Building Complex in order to conform to any
applicable laws, ordinances, rules, regulations or orders of any governmental or
quasi-governmental authority having jurisdiction over the Building Complex
("Required Capital Improvement"); the costs of any capital improvements and
structural repairs and replacements designed primarily to reduce Operating
Expenses ("Cost Savings Improvements"); and a reasonable annual reserve for all
other capital improvements and structural repairs and replacements reasonably
necessary to permit Landlord to maintain the Building Complex. The expenditures
for Cost Savings Improvements shall be limited in any year to the amount of the
resulting reduction of Operating Expenses; and

xiii. Any other expense which under generally accepted real estate
standard for Class A buildings in the Denver Tech Center area would be
considered Operating Expenses.

f. "Operating Expenses" shall not include (i) costs of work, including
painting and decorating and tenant improvement work, which Landlord performs for
any tenant in the Building which is not for the benefit of all or most tenants
of the Building; (ii) costs of repairs or other work occasioned by fire,
windstorm or other insured casualty to the extent of insurance proceeds received
by Landlord; (iii) leasing commissions, advertising expenses, and other costs
incurred in leasing space in the Building; (iv) costs of repairs or rebuilding
necessitated by condemnation; (v) any interest on borrowed money or debt
amortization on Landlord's mortgages on the Building, except as specifically set
forth above; or (vi) depreciation on the Building.

5.2. Payment of Excess Operating Expenses. It is hereby agreed that
------------------------------------
commencing with the first Lease Year and continuing each month thereafter
through the Lease Term, Tenant shall pay to Landlord as Additional Rent at the
same time as Base Rent is paid an amount equal to 1/12 of Landlord's estimate of
Tenant's Pro Rata Share of the increase in Operating Expenses for the particular
Lease Year in excess of the Base Operating Expenses (the "Excess Operating
Expense"). Landlord shall deliver to Tenant, as soon as practicable following
the end of any Lease Year, an estimate of the Excess Operating Expenses for the
new Lease Year (the "Budget Sheet"). Until receipt of the Budget Sheet, Tenant
shall continue to pay its current monthly Tenant's Pro Rata Share of Excess
Operating Expenses based upon the estimate for the preceding Lease Year. If the
Budget Sheet reflects an estimate of Tenant's Pro Rata Share of Excess Operating
Expenses for the new Lease Year greater than the amount actually paid to the
date of receipt of the Budget Sheet for the new Lease Year, Tenant shall pay
such amount to Landlord within 30 days of receipt of the Budget Sheet. Upon
receipt of the Budget Sheet Tenant shall thereafter pay the amount of its
monthly Tenant's Pro Rata Share of the Excess Operating Expenses as set forth in
the Budget Sheet. As soon as practicable following the end of any Lease Year,
but not later than May 1, Landlord shall submit to Tenant a statement in
reasonable detail describing the computations of the Excess Operating Expenses
setting forth the exact amount of Tenant's Pro Rata Share of the increase, if
any, in Operating Expenses for the Lease Year just completed, and the
difference, if any, between the actual Tenant's Pro Rata Share of the increase
in Operating Expenses for the Lease Year just completed and the estimated amount
of Tenant's Pro Rata Share of the Excess Operating Expenses for such Lease Year
(the "Statement"). Notwithstanding the foregoing, Landlord's failure to deliver
the Statement to Tenant on or before May 1 shall not be a waiver of Landlord's
rights under this Paragraph. If the actual Tenant's Pro Rata Share of the Excess
Operating Expenses for the period covered by the Statement is higher than the
estimated Tenant's Pro Rata Share of the Excess Operating Expenses which Tenant

7
<PAGE>

previously paid during the Lease Year just completed. Tenant shall pay to
Landlord the difference within 30 days following receipt of the Statement from
Landlord. If the actual Tenant's Pro Rata Share of the Excess Operating Expenses
for the period covered by the Statement is less than the estimated Tenant's Pro
Rata Share of the Excess Operating Expenses which Tenant previously paid during
the Lease Year just completed, Landlord shall credit the excess against any sums
then owing or next becoming due from Tenant under this Lease. In no event will
Rent be less than Base Rent. In the event the Building is not fully occupied
during any particular Lease Year, Landlord shall adjust those Operating Expenses
which are affected by the occupancy rates for the particular Lease Year, or part
of it, as the case may be, to reflect an occupancy of not less than 95% percent
of the Building Rentable Area.

5.3. Partial Years. If the Lease Term covers a period of less than a full
-------------
calendar year during the first or last Lease Years, Tenant's Pro Rata Share of
the increase in Operating Expenses for the partial year shall be calculated by
proportionately reducing Operating Expenses to reflect the number of months in
that year.

5.4. Survival of Tenant's Obligation. Landlord's and Tenant's
-------------------------------
responsibilities with respect to the Excess Operating Expense survive the
expiration or termination of this Lease and Landlord shall have the right to
retain the Security Deposit, or so much thereof as it deems necessary, to secure
Tenant's obligations attributable to the Lease Year in which this Lease
terminates.

5.5 Tenant's Right to Question Excess Operating Expenses. If Tenant
----------------------------------------------------
questions the amount of Excess Operating Expenses as shown by the Statement,
Tenant shall notify Landlord within 30 days after receipt of the Statement. If
Tenant does not give Landlord notice within that time period. Tenant shall have
waived its right to dispute the Statement. If Tenant timely gives notice, it
shall have 90 days after giving notice to hire, at Tenant's sole expense, an
accredited member of the Colorado Society of CPA's ("Tenant's Accountants"), to
examine Landlord's books and records for the purpose of verifying the accuracy
of the Statement. If Tenant's Accountants determine that an error has been made,
notice describing the error in reasonable detail must be given to Landlord
during that 90-day period, or the right to question the Statement shall be
waived. and if such a notice is given, Landlord and Tenant shall endeavor to
agree upon the matter within the following 30 days. All information disclosed
to Tenant or Tenant's Accountants in connection with any such review shall be
kept confidential by Tenant and Tenant's Accountants and shall not be disclosed
or used by Tenant or Tenant's Accountants for any reason other than to verify
information set forth in the Statement. Notwithstanding the pendency of any
dispute over any particular Statement. Tenant shall continue to pay Landlord the
amount of the adjusted monthly installments of Additional Rent based upon the
Statement until the dispute is resolved. Delay by Landlord in submitting any
Statement for any Lease Year shall not affect the provisions of this Paragraph
or constitute a waiver of Landlord's rights as set forth herein for that or any
subsequent Lease Year.

5.6. Operating Expense Adjustments. Notwithstanding anything in this Lease
-----------------------------
to the contrary, if any lease entered into by Landlord with any tenant in the
Building is on a "net" basis, or provides for a different basis of computation
for any Operating Expenses with respect to its leased premises, then, to the
extent that Landlord determines that an adjustment should be made in making the
computations of Operating Expenses under this Lease. Landlord may modify the
computation of Base Operating Expenses, Building Rentable Area, and Operating
Expenses for any Lease Year in order to eliminate or otherwise modify any such
expenses which are paid for in whole or in part by that tenant. Furthermore,
Landlord shall also be permitted to make such adjustments and modifications to
the provisions of this Paragraph as shall be reasonably necessary, to achieve
the intent of this Lease or the intention of the parties hereto.

8
<PAGE>

6. SERVICES.
--------

6.1. Landlord's Services. Subject to the provisions of subparagraph 6.4.
-------------------
Landlord in accordance with standards established by Landlord from, time to time
for the Building, agrees: (1) to furnish running water for use in lavatories and
drinking fountains (and to the Premises if the Space Plans for the Premises so
provide); (2) to furnish, during Ordinary Business Hours, as hereinafter
defined, heated or cooled air to the Premises as may, in the judgment of
Landlord, be reasonably required for the comfortable use and occupancy of the
Premises, provided that the requirements of this Lease for occupancy and use of
the Premises are complied with by Tenant and provided it is used only for
standard office use; (3) to provide, during Ordinary Business Hours, the general
use of passenger elevators (if there are on the date of this Lease elevators in
the Building) for ingress and egress to and from the Premises; (4) to provide to
the Premises the standard janitorial services provided for other tenants of the
Building (including such window washing of the outside of exterior windows as
may, in the judgment of Landlord, be reasonably required), after Ordinary
Business Hours five days each week, excluding Holidays: and (5) to cause
electric current to be supplied to the Premises for all of Tenant's Standard
Electrical Usage. "Tenant's Standard Electrical Usage" means electrical
consumption for the standard tenant lighting used in the Building and ordinary
office equipment that operates on standard 110 voltage and does not require
special or additional ventilation or air conditioning. "Ordinary Business Hours"
as used herein means 7:00 a.m. to 6:00 p.m. Monday through Friday and 8:00 a.m.
to 12:00 p.m. on Saturdays, Holidays excepted. "Holidays," as used herein, means
New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
Christmas Day, and such other national holidays as may be observed by national
banks in Denver, Colorado.

6.2. Excess Usage. "Excess Usage" means any usage of electricity (1)
------------
during other than Ordinary Business Hours: or (2) in an amount in excess of
Tenant's Standard Electrical Usage; or (3) for "Special Equipment"; or (4) for
any requirement for standard HVAC services during other than Ordinary Business
Hours. "Special Equipment" means (a) any equipment consuming more than 0.5
kilowatts at rated capacity, (b) any equipment requiring a voltage other than
110 volts, single phase. or (c) equipment that requires the use of self-
contained HVAC units. If Tenant desires Excess Usage, it shall give Landlord at
least 24 hours prior notice, and Landlord shall use reasonable efforts to supply
it, at the expense of Tenant, at Landlord's standard rate as established by it
from time to time. Tenant shall reimburse Landlord for reasonable costs incurred
by Landlord in providing services for Excess Usage. Reasonable costs shall
include Landlord's costs for materials, additional wear and tear. on equipment,
utilities, and labor (including fringe benefits and overhead costs). Computation
of Landlord's cost for providing Excess Usage will be made by Landlord's
engineer, based on his engineering survey of Tenant's Excess Usage. Tenant shall
also reimburse Landlord for all costs of supplementing the Building HVAC System
and/or extending or supplementing any electrical service, as Landlord may
determine is necessary, as a result of Tenant's Excess Usage. Prior to
installation or use by Tenant of any equipment which will result in Excess
Usage or operation of the Premises for extended hours on an ongoing basis,
Tenant shall notify Landlord of such intended installation or use and obtain
Landlord's consent. In addition, Landlord shall have the right, if it determines
based on its reasonable judgment that Tenant is using electric current in excess
of Tenant's Standard Electrical Usage, to require Tenant at Tenant's sole cost
and expense, to install a check meter and/or flow meter to determine the amount
of such Excess Usage, and the cost of the check meter and/or flow meter,
including monitoring, installation and repair, shall be paid by Tenant.

6.3. Additional Services to Tenant. If Tenant requires janitorial or other
-----------------------------
services in addition to those required to be provided to all other tenants of
the Building, Tenant shall pay for those services monthly as Additional Rent. In
addition, Tenant shall pay as Additional Rent monthly with Base Rent

9
<PAGE>

any and all charges for utility services supplied and materials furnished
directly to the Premises. It is also understood and agreed that Tenant shall pay
the cost of replacing light bulbs and/or tubes and ballast used in all lighting
in the Premises other than the standard tenant lighting used in the Building.

6.4. Interruption of Services. Landlord may discontinue, reduce, or curtail
------------------------
heating, air conditioning, elevator, electrical, janitorial, lighting, or other
services, or any of them, at such times as it may be necessary by reason of
accident, repairs, alterations, improvements, strikes, lockouts, riots, acts of
God, application of Laws (as hereinafter defined) or due to any other happening
beyond the control of Landlord. In the event of any interruption, reduction, or
discontinuance of Landlord's services Landlord shall, if possible, give advance
notice to Tenant, but Landlord shall not be liable for damages to Tenant or any
other party as a result thereof nor shall the occurrence of any such event in
any way be construed as an eviction of Tenant, cause or permit an abatement,
reduction or set off of Rent or operate to release Tenant from any of Tenant's
obligations under this Lease.

6.5. Notice to Landlord. Tenant shall promptly notify Landlord or the
------------------
Building Manager of any interruption in the Building services or of any defects
in the Building or Building systems of which Tenant becomes aware and of which
Landlord is not aware, including defects in pipes, electric wiring, and HVAC
equipment. In addition, Tenant shall provide Landlord with prompt notification
of any matter or condition of which it becomes aware which may cause injury or
damage to the Building, the Building Complex, or to any person or property.

7. QUIET ENJOYMENT. Subject to the provisions of this Lease, all Laws and
---------------
any mortgage, easement covenants, reservations or other encumbrances on the
Building Complex, Landlord agrees to warrant and defend Tenant in the quiet
enjoyment and possession of the Premises during the Lease Term against any
person claiming under Landlord, so long as Tenant complies with its obligations
to pay Rent and performs all of its other obligations under this Lease.

8. USE AND OCCUPANCY. The Premises shall be used and occupied as business
-----------------
offices for the operation of Tenants business (the "Permitted Use") and for no
other purpose, and Tenant shall use it in a careful, safe, and proper manner,
and pay on demand for any damage, including repair of damage, to the Building
Complex caused by the use, act or neglect by Tenant, Tenant's agents or
employees, or any other person entering upon the Premises under express or
implied invitation of Tenant. Tenant shall at its sole cost, comply with all
applicable federal, state, city, quasi-governmental and utility provider laws,
statutes, ordinances, orders, codes, rules, regulations, covenants and
restrictions now or hereafter in effect, including the Americans With
Disabilities Act ("ADA") and all environmental laws (collectively referred to as
"Laws") applicable to Tenant's use, occupancy or alteration of the Premises, and
Tenant shall obtain all permits or licenses required for its business conducted
at the Premises. Tenant shall not commit waste or permit waste to be committed
or cause or permit any unpleasant odor or noise or other nuisance in or from the
Premises or on the Building Complex. Tenant shall not use the Premises for any
use that causes an increase in rates or cancellation of any insurance policy
covering the Building Complex. Tenant shall not store, keep, use, sell, dispose
of or offer for sale in, upon or from the Premises or the Building Complex any
article or substance prohibited by any insurance policy covering the Building
Complex or the Premises nor shall Tenant keep, store, produce, dispose of or
release on, in or from the Premises or the Building Complex (or allow others to
do so) any substance which may be deemed an infectious waste, hazardous waste,
hazardous or toxic material, or hazardous substance under any Laws (collectively
called "Hazardous Materials") except customary office and cleaning supplies
stored and used in accordance with Laws. Tenant represents and warrants to
Landlord that it shall not brine onto or allow other to bring any Hazardous
Materials onto the Building Complex, and that it has received no notice or
complaint from any governmental authority or third party that the business it

10
<PAGE>

intends to operate in the Premises or that any property or materials it intends
to keep or allow on the Building Complex or in the Premises is a Hazardous
Material or violates any Laws. Tenant shall give prompt notice to Landlord of
any such notice or complaint it has received or does receive in the future.
Tenant shall pay when due any taxes assessed with respect to Tenant's use or
occupancy of the Premises and Tenant's Property (as defined in Paragraph 10) and
any Alterations made by Tenant.

9. MAINTENANCE AND REPAIRS.
-----------------------

9.1. Landlord's Obligations. Landlord shall, subject to reimbursement as
----------------------
part of Operating Expenses, to the extent deemed reasonably necessary by
Landlord for operations of the Building Complex, repair and maintain: the
structural portions of the Building, elevators and escalators (if any),
plumbing, air conditioning, heating and electrical systems installed or
furnished by Landlord, the Building roof, the curtain wall, including all glass
connections at the perimeter of the Building, all exterior doors, including any
exterior plate glass within the Building, Building telephone and electrical
closets owned or operated by Landlord, the Common Areas of the Building Complex,
landscaping, and interior portions of the Building above and below grade which
are not within space leased to Tenant or other tenants in the Building.
Landlord shall have no obligation to make improvement to or to repair or
maintain the Premises during the Lease Term except as expressly required in this
Lease or in the Work Letter.

9.2. Tenant's Obligations. Tenant, at Tenant's sole cost and expense,
--------------------
except for services furnished by Landlord pursuant to Paragraph 6 and Landlord's
obligations under Paragraph 9.1, shall maintain, in good order, condition,
repair, and appearance the Premises, including the interior surfaces of the
ceilings (if damaged or discolored due in whole or in part to the act, neglect,
omission or fault of Tenant), walls and floors, all doors, interior glass
partitions or glass surfaces (not exterior windows) and pipes, electrical
wiring, switches, fixtures and other special items exclusively serving the
Premises, subject to the provisions of Paragraph 14. In the event Tenant fails
to maintain the Premises as required by this Paragraph 9.2, Landlord shall give
Tenant notice to do such acts as are required by this Paragraph 9.2. If within a
reasonable time not to exceed 30 days following Landlord's notice, Tenant fails
to perform its obligations under this Paragraph 9.2, or if those obligations
cannot reasonably be completed within 30 days, fails to promptly commence such
work and diligently pursue it to completion within a reasonable time not to
exceed 90 days, then Landlord shall have the right, but shall not be required,
to do such acts and expend such funds at the expense of Tenant as are reasonably
required to perform those obligations, without curing Tenant's default. The
funds so expended plus 20% of such amounts as an overhead/administrative charge
shall be due and payable by Tenant within 10 days after receipt of Landlord's
invoice. Landlord shall have no liability to Tenant for any damage,
inconvenience or interference with the use of the Premises by Tenant as a result
of performing or not performing any such obligations.

10. ALTERATIONS AND ADDITIONS
-------------------------

10.1. Alterations by Tenant. Except as expressly provided in the Work
---------------------
Letter, Tenant shall make no alterations, additions or improvements to the
Premises or the Building Complex (the "Alterations"), including the installation
of equipment or machinery which requires modifications to existing electrical
outlets or increases Tenant's usage of electricity beyond Tenant's Standard
Electrical Usage without obtaining the prior written consent of Landlord. Tenant
shall submit any such request to Landlord at least 30 days prior to the
commencement of the Alterations. Landlord may impose, as a condition to its
consent, and at Tenant's sole cost, such requirements as Landlord may deem
necessary in its judgment, including the manner in which the Alterations are
done, the material to be used, the

11
<PAGE>

architect and contractor by whom the work is to be performed and the times
during which the work is to be accomplished, approval of all plans and
specifications, and the procurement of all licenses and permits. Landlord shall
be entitled to or to require Tenant to post notices on and about the Premises
with respect to Landlord's non-liability for the Alterations and Tenant shall
not permit those notices to be defaced or removed. Tenant further agrees not to
connect any apparatus, machinery or device to the Building systems, including
electric wires, water pipes, fire, safety, heating and mechanical systems,
without the prior written consent of Landlord. Alterations which Tenant is
permitted to make shall be performed in a good and workmanlike manner and in
compliance with this Lease.

If Landlord permits any Alterations, then prior to the commencement of
those Alterations, Tenant shall deliver to Landlord certificates (and copies of
the policies if requested by Landlord) issued by insurance companies qualified
to do business in the state where the Premises are located evidencing that
workmen's compensation, public liability insurance and property damage
insurance, builder's risk coverage (if applicable) all in amounts, with
companies and on forms satisfactory to Landlord, are in force and maintained by
all such contractors and subcontractors engaged by Tenant to perform the work.
All such policies shall name Landlord as an additional insured and shall provide
that they may not be canceled or modified without 30 days' prior notice to
Landlord.

Tenant, at its sole cost and expense, shall cause any permitted Alterations
to be performed in compliance with all applicable requirements of insurance
policies. Laws, and governmental bodies having jurisdiction, in such manner as
not to interfere with other tenants or interfere with, delay, or impose any
additional expense Upon Landlord in the construction, maintenance or operation
of the Building Complex, and so as to maintain harmonious labor relations in the
Building and to not disturb other tenants' use of their premises or interfere
with Landlord's operation of the Building Complex. In addition, Tenant, at its
sole cost and expense, shall be responsible for the acquisition of auxiliary
aids, required under the ADA, including all Alterations required: (i) as a
result of Tenant, or any subtenant, assignee or concessionaire, being a Public
Accommodation (as defined in the ADA); (ii) as a result of the Premises being a
Commercial Facility (as defined in the ADA); (iii) as a result of any leasehold
improvements made to the Premises by or on behalf of Tenant, or any subtenant,
assignee or concessionaire (whether or not Landlord's consent to such leasehold
improvements was obtained); or (iv) as a result of the employment by Tenant, or
any subtenant, assignee or concessionaire, of any individual with a disability.

10.2. Ownership and Removal of Alterations. All Alterations, whether made
------------------------------------
by Landlord or Tenant, including all counters, screens, grilles, cabinetry work,
partitions, paneling, carpeting, drapes or other window coverings and light
fixtures (but not including Tenant's Property, as defined below), shall be
deemed a part of the real estate and the property of Landlord and shall remain
upon and be surrendered with the Premises without disturbance or injury, at the
end of the Lease Term, unless Landlord, by notice given to Tenant no later than
15 days after the end of the Lease Term or Tenant's possession, shall elect to
have Tenant remove all or any of the Alterations, and in that event, Tenant
shall promptly remove those Alterations. Any such removal, whether required or
permitted by Landlord, shall be at Tenant's sole cost and expense, and Tenant
shall restore and repair any damage caused by the removal. All movable
partitions, machines and equipment which are installed in the Premises by or for
Tenant, without expense to Landlord, which can be removed without damage to or
defacement of the Building or the Premises, and all unattached furniture,
furnishings and other articles of personal property owned by Tenant and located
in the Premises (all of which are herein called "Tenant's Property") shall be
and remain the property of Tenant and may be removed by it at any time during
the Lease Term, subject to the provisions of this Lease. However, if any of
Tenant's Property is removed, Tenant shall

12
<PAGE>

repair or pay the cost of repairing any damage to the Building Complex or the
Premises resulting from the removal.

10.3. Landlord's ADA A1terations. Landlord shall, subject to reimbursement
--------------------------
as part of Operating Expenses, be responsible for any alterations, modifications
or improvements to any Common Areas of the Building Complex which are required
by the ADA.

11. ENTRY BY LANDLORD. Landlord, the Building Manager and their employees,
-----------------
contractors and agents shall have the right to enter the Premises at all
reasonable times after advance notice to Tenant (except in the case of an
emergency or to provide janitorial services, which shall require no notice) for
the purpose of inspecting it, to supply any services to be provided by Landlord,
to show it to prospective purchasers, investors or Mortgagees, to make such
alterations, repairs, maintenance, improvements or additions to the Premises or
to the Building as Landlord may deem necessary or desirable, and during the last
270 days of the Lease Term or after an Event of Default to show it to
prospective tenants. Landlord may for these purposes, if Tenant is not present,
enter the Premises by means of a master key. Any such entry shall not entitle
Tenant to an abatement of Rent or any other claim against Landlord, except for
Landlord's negligence or willful misconduct.

12. MECHANICS LIENS. Tenant has no right or authority to impose or permit any
---------------
lien or claim against the Premises, the Building, the Building Complex or its
interest in or under this Lease. Tenant shall pay all costs for work done by or
for Tenant in the Premises (including work performed by Landlord or its
contractor at Tenant's request following the commencement of the Primary Lease
Term) and Tenant will keep the Premises and the Building Complex free and clear
of all mechanics' and other liens on account of work done by or for Tenant or
persons claiming under it, excluding any Tenant Finish Work performed by
Landlord pursuant to the Work Letter. Tenant agrees to indemnify, defend, and
save Landlord harmless of and from all liability, loss, damage, costs, or
expenses, including attorneys' fees, on account of any claims of any nature
whatsoever for work performed or for materials or supplies furnished to Tenant
or persons claiming under Tenant. Should any such claims be made or liens be
recorded against the Premises, the Building or the Building Complex or should
any action affecting the title thereto be commenced as a result of any such
work, Tenant shall cause the claim to be satisfied before being recorded, or if
the claim or lien is recorded to be removed of record within five days after
recording. If Tenant desires to contest any claim or lien, Tenant shall give
notice to Landlord of Tenant's intent to contest it and, within five days after
the recording of any such liens, Tenant shall either furnish to Landlord
adequate security satisfactory to Landlord of at least 150% of the amount of
the claim, plus estimated costs and interest or bond over any lien under CRS
38-22-131 and as soon as possible thereby have the lien against the Premises.
Building and Building Complex discharged and released in full. If a final
judgment establishing the validity or existence of any lien for any amount is
entered, Tenant shall immediately pay and satisfy it. If Tenant fails to pay any
amount in the time periods provided herein, Landlord may (but without being
required to do so) pay such lien or claim and any costs, and the amount so paid,
plus 20% of such amounts as an overhead/administration charge, together with
reasonable attorneys' fees incurred in connection therewith, shall be
immediately due from Tenant to Landlord.

13. SUBLETTING AND ASSIGNMENT.
-------------------------

13.1. Tenant's Right. Tenant cannot assign this Lease or sublet all or any
--------------
part of the Premises without the prior written consent of Landlord, *If Tenant
wants to assign this Lease or sublet all or a portion of the Premises, Tenant
shall first notify Landlord in writing of the name of the proposed assignee or
sub-tenant and the proposed use of the Premises, and provide such financial and
other

*which consent shall not be unreasonably withheld.

13
<PAGE>

information as Landlord may reasonably require about the proposed assignee or
subtenant. It shall not be unreasonable for Landlord to withhold its consent to
a proposed assignment or sublease for any reason, including, if (i) the
reputation, financial responsibility, or business of the proposed assignee or
subtenant is unacceptable to Landlord; (ii) the intended use of the Premises by
the proposed assignee or subtenant violates any Laws or requires modifications
to the Premises or the Building Complex to comply with Laws; (iii) if the
proposed assignee or subtenant is a present tenant of the Building. Tenant shall
have no right to assign this Lease or sublet any part of the Premises if a
notice of default has been delivered by Landlord to Tenant, which default has
not been cured, or if an Event of Default exists under this Lease, either at the
time of Tenant's request for Landlord's consent to an assignment or sublease or
at the time the assignment or sublease is scheduled to commence.

13.2. Other Restrictions: What Constitutes an Assignment. Any assignment or
--------------------------------------------------
subletting consented to by Landlord shall be in writing in a form acceptable to
Landlord. This Lease cannot be assigned or sublet by operation of law. Any
transfer of this Lease by a sale of all or substantially all of Tenant's assets,
merger, consolidation, liquidation, or change in ownership of or power to vote
the majority of outstanding stock of Tenant or, if Tenant is a partnership, any
withdrawal, replacement, or substitution of any partner or partners, either
general or limited, whether as the result of a single or series of transactions,
shall not constitute an assignment for purposes of this Paragraph 13. Any
assignment or subletting shall not affect the liability of the Tenant under this
Lease or release Tenant from its obligations. Consent by Landlord to any
assignment or sublease shall not relieve the Tenant from the requirement of
obtaining the prior written consent of Landlord to any subsequent assignment or
subletting and Landlord's consent to one assignment or subletting shall not
waive Landlord's right to refuse to consent to a subsequent request. If Landlord
consents to Tenant's request to assign this Lease or sublet all or a portion of
the Premises. Tenant shall pay Landlord, at the time consent is given, in
consideration for Landlord's written consent to the assignment or sublease, an
amount equal to $500 as a subletting/assignment fee. In addition, Tenant or
Tenant's assignee or sublessee shall be solely responsible for all costs
incurred in altering the Premises to conform to Laws due to any change in the
intended use of the Premises. If Tenant collects any rent or other amounts from
an assignee or subtenant in excess of the Rent for any monthly period, Tenant
shall pay Landlord the excess monthly, as and when received; and after a default
by Tenant under this Lease, Landlord shall have the right to collect any Rent
directly from any subtenant (or from any assignee from which is it not already
collecting directly). *See attached Rider

14. DAMAGE TO PROPERTY: CLAIMS.
--------------------------

14.1. Landlord Not Liable. Neither Landlord nor the Building Manager or
-------------------
their employees or agents shall have any liability for, and Tenant shall neither
hold nor attempt to hold Landlord the Building Manager and their employees and
agents liable for any injury or damage, either proximate or remote, occurring
through or caused by fire, water, steam, or any repairs, alterations, injury,
accident, or any other cause to or within the Premises, to Tenant's Property or
other personal property of Tenant or

14
<PAGE>

*except that caused by negligence or default of Landlord
others kept in the Premises or stored in other parts of the Building and/or
Common Areas, or for property of Tenant or others entrusted to employees of the
Building, or for loss of property by theft or otherwise (including loss or
damage in the parking areas) *by reason of the negligence or default of other
occupants or any other person or otherwise, and the keeping or storing of all
property of Tenant in the Building, Common Areas and/or Premises shall be at the
sole risk of Tenant, unless caused by the negligence or willful misconduct of
Landlord.

14.2. Tenant's Indemnity. Subject to provisions of Paragraph 15.3, Tenant
------------------
hereby agrees to indemnify, defend, and save Landlord and Building Manager
harmless of and from all actions, suits, fines, penalties, liability, loss,
damages, costs, or expenses, including reasonable attorneys' fees, resulting
from Tenant's use or occupancy of the Premises, or on account of injuries to the
person or property of Tenant or any third party, including any other tenant in
the Building Complex or to any other person rightfully in the Building Complex
for any purpose whatsoever, where the injuries are caused by the negligence,
acts or misconduct of the Tenant, Tenant's agents, servants or employees, or of
any other person entering upon the Premises under express or implied invitation
of Tenant, or resulting from any breach of this Lease by Tenant.

15. INSURANCE.
---------

15.1. Landlord's Insurance. Landlord agrees to carry and maintain
--------------------
commercial general liability insurance against personal injury, including death
and property damage, in or about the Building Complex (excluding Tenant's
Property), in such amounts as Landlord *deems appropriate. Landlord shall
maintain casualty insurance for the Building Complex, the shell and core of the
Building and the Premises (other than the insurance Tenant is required to carry
on the Premises) in such amounts, from such companies, and on such terms and
conditions, including insurance for loss of rent, as Landlord deems
appropriate from time to time. *reasonably

15.2. Tenant's Insurance. Tenant shall, at its own cost, at all times
------------------
during the Lease Term, procure and maintain:

a. Worker's Compensation Insurance, statutory coverage A and
Employers Liability Insurance with limits of $100,000 bodily injury by accident,
each accident, $500,000 limit for bodily injury by disease, and $100,000 bodily
injury by disease, each employee, each covering all persons employed by Tenant;

b. Insurance against all risks of direct physical loss to all of
Tenant's property in an amount equal to their full replacement cost;

c. Commercial General Liability Insurance, including coverage for
bodily injury and property damage, personal injury (deleting the exclusion on
employees and contractual liability), products and completed operations
contractual liability, owner's protective liability, and broad form property
damage with the following limits of liability: $1,000,000 any one occurrence
$1,000,000 personal injury and advertising any one occurrence, $2,000,000
general aggregate (other than products/completed operations) $2,000,000
products/completed operations aggregate limit $3,000,000 fire damage any one
fire, and $5,000 medical expense any one person such limits shall be endorsed to
apply at each of Tenant's locations.

d. Business Automobile Insurance insuring Tenant's liability
arising out of the ownership, maintenance, or use of hired, non-owned, and owned
automobiles with minimum limits of $1,000,000 per occurrence combined single
limit bodily injury and property damage.

<PAGE>

All such insurance shall be procured from responsible insurance company or
companies licensed to do business in the State where the Premises are located,
with an A.M. Best's ratings of not less than "A" and a Financial rating of not
less than "XI" in the most current available Best's Insurance Reports, and
shall be otherwise satisfactory to Landlord. All such policies (except Workmen's
Compensation) shall name Landlord and Building Manager as "additional
insureds," and shall be primary insurance over any other collectible insurance
by the Landlord or the Building Manager, and shall provide that it cannot be
canceled, non-renewed, or materially altered, without first giving 30-days prior
written notice to the Landlord. All such policies shall be on an Occurrence Form
and not on a Claims-Made Basis.

Tenant shall provide certificate(s) and if requested certified copies of
the policies, of such insurance to Landlord ten days prior to commencement of
the Lease Term and at least 30 days prior to their renewal date. The limits of
Tenant's insurance shall not, under any circumstances, limit the liability of
Tenant under this Lease.

15.3. Waiver of Claims and Subrogation. Each party hereby waives and
--------------------------------
releases the other party and its respective officers, directors, partners,
members, agents, representatives and employees, from any claim (including a
claim for negligence) which it might otherwise have against the other party for
loss, damage or destruction to its real and personal property (including the
Building, Building Complex, Premises and Tenant's Property) or for loss of
business arising out of or related to the use and occupancy of the Premises
occurring during the Lease Term which is insured or capable of being insured
against under insurance required under this Paragraph 15. Tenant also waives all
such rights of recovery against the Building Manager. Each party shall notify
its insurance carrier of this waiver provision and obtain an appropriate waiver
of subrogation provision in its policies.

16. DAMAGE OR DESTRUCTION TO BUILDING.
---------------------------------

16.1. Repair of Damage. In the event that the Premises or the Building is
----------------
damaged by fire or other insured casualty and insurance proceeds have been made
available to Landlord to repair the damage by the insurer and any Mortgagees,
the damage shall be repaired by and at the expense of Landlord to the extent of
the insurance proceeds, provided that the Premises can be made fit for
occupancy, in Landlord's reasonable opinion, within 180 days after the
occurrence of the damage without the payment of overtime or other premiums.
Until the repairs and restoration are completed, Rent shall be abated to the
extent of any recovery by Landlord under its loss of rent insurance related to
the Premises in proportion to the part of the Premises which is unusable by
Tenant in the conduct of its business as the result of the casualty, as may be
reasonably determined by Landlord (but there shall be no abatement of Rent by
reason of any portion of the Premises being unusable for a period of five days
or less or as set forth below). Landlord agrees to notify Tenant within 60 days
after the casualty if it estimates that it will be unable to repair and restore
the Premises within 180 days, which will state the approximate length of time
Landlord estimates will be required to complete the repairs and restoration, in
which event Landlord in its notice or Tenant in a notice given to Landlord
within 15 days thereafter may terminate this Lease effective 30 days from the
date of such notice (the "Termination Date"). However, Tenant may not terminate
this Lease or receive an abatement of Rent, as above stated, if the damage to
the Premises or the Building is in whole or in part the result of the act,
omission, fault or negligence of Tenant, its agents, contractors, employees,
licensees or invitees. In the event this Lease is terminated, Tenant shall pay
Rent until the Termination Date and shall forthwith surrender the Premises in
accordance with Paragraph 21.1. If Tenant fails so to surrender the Premises,
Landlord may reenter and take possession of the Premises and remove Tenant and
the property and Alterations Tenant is required to remove under Paragraph 10,
at Tenant's expense. Except as provided in this Paragraph 16, there shall be no
abatement of rent and no liability of Landlord by reason of any damage to or
interference with Tenant's business or property aris-

16
<PAGE>

ing from the casualty or the making of any such repairs, alterations or
improvements in or to the Building Complex or Premises. Tenant understands that
Landlord will not carry insurance of any kind on Tenant's Property, or any
Alterations installed in the Premises by or on behalf of Tenant, and that
Landlord shall not be obligated to repair any damage or replace any of Tenant's
Property or any such Alterations, which shall be Tenant's responsibility.

16.2. Termination of Lease. In addition to the reason stated in 16.1 above,
--------------------
if the Building or Building Complex is substantially damaged, to the extent that
Landlord, in its reasonable judgment, determines that it would be uneconomical
to reconstruct or repair the damage (although the Premises may not be affected,
or if affected, can be repaired within 180 days) and Landlord, within 60 days
after the damage, decides not to reconstruct or repair the damage, then
notwithstanding anything contained herein to the contrary, upon notice to that
effect given to Tenant within that 60-day period, Tenant shall pay Rent,
properly apportioned up to date of such termination, this Lease shall terminate
on the date provided in Landlord's notice of termination, and both parties
shall be released and discharged from all further obligations hereunder (except
those obligations which expressly survive termination of the Lease Term). A
total destruction of the Building or the Building Complex shall automatically
terminate this Lease as of the date of the destruction.

17. CONDEMNATION. If the entire Premises or substantially all of the Premises
------------
or any portion of the Building Complex which shall render the Premises
untenantable shall be taken by eminent domain or by condemnation or shall be
conveyed in lieu of any such taking, then this Lease, at the option of either
Landlord or Tenant exercised by either party giving notice to the other of such
termination within 30 days after such taking or conveyance, shall as of the date
Tenant is dispossessed of the Premises terminate and the Rent shall be
apportioned as of that date; and Tenant shall surrender the Premises as required
in this Lease to Landlord and Landlord may reenter and take possession of the
Premises on that date. In the event less than all of the Premises shall be taken
by that proceeding, Landlord shall promptly repair the Premises as nearly as
possible to its condition immediately prior to the taking, unless Landlord
elects not to reconstruct or rebuild for the same reasons provided in Paragraph
16.2. In the event of any such taking or conveyance, Landlord shall receive the
entire award or consideration for the portion of the Building or Building
Complex so taken.

18. ESTOPPEL CERTIFICATE.
--------------------

18.1. Duty to Provide. Tenant agrees at any time and from time to time on
---------------
or before ten days after written request by Landlord, to execute, acknowledge
and deliver to Landlord an estoppel certificate certifying (i) that this Lease
is unmodified and in full force and effect (or if there have been modifications,
that it is in full force and effect as modified, and stating the modifications),
(ii) that there have been no defaults by Landlord (to the best of Tenant's
knowledge) or by Tenant (or, if there have been defaults, describing the
default), (iii) the date to which Rent and other charges have been paid in
advance, if any, (iv) that Tenant claims no present charge, lien, claim or
offset against Rent, (v) that Rent is not prepaid for more than one month in
advance, and (vi) such other matters as may be reasonably required by Landlord,
any Mortgagee or prospective Mortgagee, or any potential purchaser of the
Building. It is intended that any such statement delivered pursuant to this
Paragraph may be relied upon by any prospective purchaser of all or any portion
of Landlord's interest, or by any Mortgagee or prospective Mortgagee.

18.2. Tenant's Failure to Deliver. Tenant acknowledges that it may be
---------------------------
difficult, if not impossible, for Landlord to sell or finance the Building
without such an estoppel certificate from Tenant, and that Landlord would not
enter into this Lease without Tenant's agreement to provide such an

<PAGE>

estoppel certificate. Tenant's failure to deliver the estoppel certificate in
the time and manner provided herein shall constitute an Event of Default. In
addition, Tenant agrees to pay any damages incurred by Landlord as a result of
Tenant's failure (including costs or damages resulting from a lost sale or
financing) which a court with proper jurisdiction determines to be appropriate.
In addition, in the event that Tenant does not execute and deliver the statement
required by this Paragraph 18, Tenant shall be in default under this Lease and
hereby grants to Landlord a power of attorney coupled with an interest to
act as Tenant's attorney in fact for the purpose of executing and delivering the
estoppel certificate required by this Paragraph 18.

19. DEFAULT BY TENANT.
-----------------

19.1. Event of Default. Each one of the following events is referred to
----------------
as an "Event of Default":

a. Any failure by Tenant to pay Rent on the due date unless the
failure is cured within 7 business days after notice by Landlord; however,
Tenant is not entitled to more than two notices of delinquent payments of Rent
during any calendar year and, if thereafter during that calendar year any Rent
is not paid when due, an Event of Default shall automatically occur;

b. If Tenant's interest in this Lease or in the Premises, or if all
or a substantial part of Tenant's Property, is seized or taken by process of law
or otherwise and is not released within 15 days;

c. Commencement by or against Tenant of a proceeding under any
provision of federal or state law relating to insolvency, bankruptcy, or
reorganization ("Bankruptcy Proceeding"), unless dismissed within 60 days after
commencement; the insolvency of Tenant or execution by Tenant of an assignment
for the general benefit of creditors; the convening by Tenant of a meeting of
its creditors or any significant class thereof for purposes of effecting a
moratorium upon or extension or composition of its debts; or the failure of
Tenant generally to pay its debts as they mature;

d. If a guarantor of this Lease, if any, or a general partner or
member of Tenant (if Tenant is a partnership, venture or company), becomes a
debtor under any Bankruptcy Proceeding, or becomes subject to receivership or
trusteeship proceedings, whether voluntary or involuntary; unless a substitute
guarantor, acceptable to Landlord in light of the responsibilities of Tenant
under this Lease, is provided to Landlord within 15 days;

h. If Tenant fails to perform or breaches any of the other
agreements, terms, covenants or conditions hereof on Tenant's part to be
performed (other than the obligation to pay Rent or any other charges payable
hereunder), and that default continues for a period of 20 days after notice by
Landlord to Tenant; provided, however, that if Tenant cannot reasonably cure the
default within 20 days,

18
<PAGE>

Tenant shall not be in default if it commences to cure the default within that
15 days and diligently pursues it to completion within a reasonable period of
time, not to exceed 60 days.

19.2. Remedies of Landlord. If any one or more Event of Default occurs,
--------------------
Landlord shall have the right at Landlord's election, then or at any time
thereafter, in addition to its other rights and remedies under this Lease or any
Laws, to do any one or more of the following:

a. Without demand or notice except as required by Laws, to enter and
retake possession of the Premises or any part of it and expel Tenant and those
claiming through or under Tenant and remove the effects of both or either,
without being guilty of trespass and without prejudice to any remedies for
unpaid of Rent or other breach of this Lease. If Landlord elects to enter and
retake possession pursuant to legal proceedings or pursuant to any notice
provided for by Laws, Landlord may, from time to time, without terminating this
Lease, relet the Premises or any part of it, in Landlord's or Tenant's name but
for the account of Tenant, for such periods (which may be greater or less than
the period which would otherwise have constituted the balance of the Lease Term)
and on such conditions and upon such other terms (which may include, among other
terms, leasing and brokerage fees, concessions of free rent and alteration and
repair of the Premises) as Landlord, in its sole discretion, may determine, and
Landlord shall be entitled to collect all the rents from the reletting. Landlord
shall in no way be responsible or liable for any failure to relet the Premises
or any part of it, or for any failure to collect any rent due upon reletting.
No such entry or repossession or notice by Landlord shall be construed as an
election on Landlord's part to terminate this Lease, unless written notice of
termination is given to Tenant. Landlord reserves the right following any such
entry and/or reletting to exercise its right to terminate this Lease by giving
Tenant notice, in which event the Lease will terminate as specified in that
notice.

b. If Landlord takes possession of the Premises without terminating
this Lease, Tenant shall pay to Landlord (i) the Rent and other sums payable
under this Lease, less (ii) the net proceeds, if any, of any reletting of the
Premises after deducting all of Landlord's expenses incurred in connection with
the reletting, including all repossession costs, leasing and brokerage fees,
concessions, attorneys' fees, expenses of employees, alteration and repair costs
("Reletting Expenses"). If, in connection with any reletting, the new lease
term extends beyond the Lease Term or the premises covered thereby include other
premises not part of the Premises, a fair apportionment of the Rent received
from the reletting and the Reletting Expenses will be made in determining the
net proceeds received from the reletting. In determining the net proceeds, any
rent concessions will be apportioned over the term of the new lease. Tenant
shall pay the amount due under this paragraph to Landlord monthly on the days on
which Rent is due under this Lease.

c. To give Tenant notice of termination of this Lease on the date
specified in that notice, and on that date Tenant's right to possession of the
Premises shall cease and this Lease shall terminate except as to Tenant's
liability as provided below. In the event this Lease is terminated pursuant to
the provisions of this subparagraph (c), Tenant shall remain liable to Landlord
for damages in an amount equal to the Rent and other amounts which would have
been owing by Tenant for the balance of the Lease Term had this Lease not
terminated, less the net proceeds, if any, from reletting of the Premises by
Landlord subsequent to termination, after deducting the Reletting Expenses.
Landlord shall be entitled to collect such damages from Tenant monthly on the
days on which Rent would have been payable if this Lease had not been
terminated. Alternatively, if this Lease is terminated, Landlord at its option
may recover immediately from Tenant as damages for loss of the bargain and not
as a penalty an amount equal to the worth at the time of termination of the
excess, if any, of the Rent payable under this Lease for the balance of the
Lease Term over the then Reasonable Rental Value of the Premises for the

19
<PAGE>

same period. "Reasonable Rental Value" shall be the amount of rent Landlord can
obtain for the remaining balance of the Lease Term, taking into account a
reasonable period for reletting, after deducting all estimated Reletting
Expenses.

d. Advance such monies, and take such other action, for Tenant's
account as reasonably may be required to perform Tenant's obligation or to
mitigate any default or Event of Default, but no such advance or action shall
cure the default or Event of Default. Tenant agrees to reimburse Landlord for
any such advances, as Additional Rent, upon demand from Landlord. Any such
advance, and any cost or expense so incurred, shall bear interest at the rate of
1-1/2% per month, compounded monthly, until paid by Tenant.

e. Suits for the recovery of Rent and damages may be brought by
Landlord, from time to time, at Landlord's election, and nothing herein shall be
deemed to require Landlord to wait until each installment is due or until the
expiration of the Lease Term. Each right and remedy provided for in this Lease
shall be cumulative and in addition to every other right or remedy provided for
in this Lease or now or hereafter existing at law or equity or otherwise,
including, but not limited to, suits for injunctive relief and specific
performance. The exercise or beginning of the exercise by Landlord of any one or
more rights or remedies shall not preclude the simultaneous or later exercise by
Landlord of other rights or remedies. All costs incurred by Landlord in
connection with collecting Rent or other amounts and damages owing by Tenant or
to enforce any provision of this Lease, shall also be recoverable by Landlord
from Tenant.

f. No failure by Landlord to insist upon the strict performance of any
agreement, term, covenant or condition hereof or to exercise any right or
remedy, and no acceptance of full or partial Rent during, the continuance of any
such breach shall constitute a waiver of any such breach or agreement, term,
covenant, or condition, except by written instrument executed by Landlord or
relieve Tenant from the obligation to make the full payment as and when due. No
waiver shall affect or alter this Lease, and each and every agreement, term,
covenant, and condition hereof shall continue in full force and effect with
respect to any other then existing or subsequent breach.

g. Nothing contained in this Lease shall limit or prejudice the right
of Landlord to obtain as liquidated damages in any bankruptcy or similar
proceeding the maximum amount allowed by Law at the time such damages are
proven, whether or not the amount is greater, equal to, or less than the amounts
recoverable, either as damages or Rent, referred to in any of the preceding
provisions of this Paragraph 19.2.

19.3. Late Charges and Interest.
-------------------------

a. Rent or other amounts owed by Tenant which are not received by
Landlord by the 5th day after the date they are due shall be subject to a late
charge of 5% of the amount due. Additionally, if Rent is not received by
Landlord within 15 days after it is due (or after notice of default, if notice
is required), the amount due shall be subject to an additional 5% late charge.
Rent and all other monetary obligations under this Lease not received by
Landlord when due shall also bear interest at the rate of 2% per month,
compounded monthly, from the date due until fully received by Landlord. Tenant
acknowledges that late payments will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which would be impossible or
extremely difficult to ascertain. Those costs include processing and accounting
charges, interest and late charges imposed by Mortgagees, and other general and
administrative expenses. Tenant agrees that the late charges and interest
contemplated by this Paragraph represent a fair and reasonable estimate of the
costs which Landlord will incur as a result of any such late payments by Tenant.
Acceptance of late charges and interest by Landlord shall not constitute a
waiver of

20
<PAGE>

Tenant's default with respect to any overdue amount, or prevent Landlord from
exercising any other rights or remedies under this Lease.

b. If Landlord does not receive any payment of Rent on or before the
dates set forth in this Lease on more than two occasions in any Lease Year, then
in addition to the late charges provided for in subparagraph (a) above, Tenant
shall pay a habitual late charge of 5% for every payment received by Landlord
after the first day of each subsequent month, until all payments of Rent have
been received by Landlord on or before the first day of every subsequent month
for at least 12 consecutive months.

19.4. Mitigation. Notwithstanding anything to the contrary contained
----------
elsewhere in this Lease, if Landlord terminates Tenant's right of possession
without terminating this Lease, Landlord shall use reasonable efforts to relet
the Premises so as to mitigate its damages pursuant to this Paragraph 19,
provided, however, that so long as Landlord uses such reasonable efforts
Landlord shall in no way be responsible or liable for any failure to relet the
Premises, or any part of it, or for any failure to collect any Rent due upon any
such reletting; and Landlord shall not be required to spend its own funds, to
give priority (or even equal opportunity) to the Premises over other rental
space owned by Landlord or its affiliates or to compromise in any way the terms,
uses or credit worthiness of a tenant upon or to which it would customarily
lease space such as the Premises; and Landlord shall be entitled, in its sole
discretion, to seek a single tenant for the entire Premises, even though it may
take a substantially longer period to obtain such a tenant and its efforts may
be unsuccessful; and this requirement shall not affect in any way Tenant's
obligation to obtain Landlord's consent under Paragraph 13.

19.5. No Waiver. No payments of Rent or money by Tenant to Landlord after
---------
notice of termination or after termination of this Lease, in any manner, shall
reinstate, continue, or extend the term of this Lease or affect any notice given
to Tenant prior to the payment, it being agreed that after the service of notice
of termination or the commencement of a suit or other final judgment granting
Landlord possession of the Premises, Landlord may receive and collect any sums
of Rent due or an other sums of money, whether as Rent or otherwise, and
exercise Landlord's rights and remedies hereunder, and shall not waive any
default or notice or in any manner affect any pending suit or judgment.

21
<PAGE>

20. SUBORDINATION AND ATTORNMENT.
----------------------------

20.1. General. This Lease, and all rights of Tenant under it, at
-------
Landlord's option shall be subordinate to any ground leases, deeds of trust,
mortgages and security agreements, including leasehold mortgages and building
loan agreements, now or hereafter placed upon the Building or the Building
Complex (including all advances made thereunder), and to all amendments,
renewals, replacements and extensions thereof (collectively, "Mortgage"), but
only if and when any Lessor or Mortgagee (as defined below) executes and
delivers to Tenant a non-disturbance and attornment agreement reasonably
acceptable to Landlord, Tenant and the Lessor or Mortgagee, under which, among
other provisions which may be included (1) Tenant agrees to recognize and attorn
to the Lessor or Mortgagee if it becomes the Landlord under this Lease, and (2)
the Lessor or Mortgagee (on behalf of itself and its successors and assigns in
interest) agrees to recognize Tenant's rights under this Lease as long as Tenant
is not in default under this Lease, notwithstanding defaults under any such
ground lease or Mortgage or foreclosure, receivership or sale thereunder. If any
holder of a Mortgage ("Mortgagee") or the lessor of any ground lease ("Lessor")
elects to have this Lease made superior to the lien of its Mortgage and gives
notice to Tenant, this Lease will be deemed prior to that Mortgage, whether this
Lease is dated prior or subsequent to the date of that Mortgage. In confirmation
of this non-disturbance and attornment, subordination or superior position, as
the case may be. Tenant shall promptly execute and deliver to Landlord (or such
other party so designated by Landlord) at Tenant's own cost and expense, within
10 days after request from Landlord any instruments as may be reasonably
required for this purpose by Mortgagee or Lessor, in recordable form if
requested. If Tenant fails to do so within that 10-day period, Tenant shall be
in default under this Lease, and Tenant hereby irrevocably grants to Landlord a
power of attorney coupled with an interest to act as Tenant's attorney-in-fact
for the purposes of executing whatever documents are necessary to evidence such
subordination or superior position. Tenant agrees to attorn to all successor
owners of the Building, whether such ownership is acquired by sale, foreclosure
of a Mortgage, or otherwise.

20.2. Lease Modifications. If, in connection with the procurement,
-------------------
continuation or renewal of any financing for the Building or the Building
Complex, the Mortgagee requests reasonable modifications of this Lease, Tenant
will not unreasonably withhold its consent, provided the modifications does not
adversely affect any rights of Tenant under this Lease or decrease the
obligations of Landlord under this Lease.

21. SURRENDER AND HOLDING OVER.
--------------------------

21.1. Surrender. Upon the expiration or termination of this Lease or
---------
termination of Tenant's right of possession, Tenant shall promptly surrender the
Premises to Landlord broom clean, in good order and condition, ordinary wear and
tear and loss by fire or other insured casualty excepted (except as otherwise
provided in Paragraphs 15 and 16), and Tenant shall remove Tenant's Property and
the Alterations and other property as required under Paragraph 10. If Tenant
fails to vacate the Premises on a timely basis as required, Tenant shall be
liable to Landlord for all costs incurred by Landlord as a result of that
failure, including, but not limited to, any amounts required to be paid to third
parties who were to have occupied the Premises.

21.2. Property Not Removed. All Tenant's Property not removed from the
--------------------
Premises upon the termination of this Lease or of Tenant's right of possession
for any cause whatsoever shall conclusively be deemed to have been abandoned and
may be appropriated, sold, stored, destroyed, or otherwise

22
<PAGE>

disposed of by Landlord without notice to Tenant or any other person and without
obligation to account therefor, Tenant shall pay Landlord all expenses incurred
in so doing.

21.3. Holding Over. If, after the termination of this Lease or of Tenant's
------------
right of possession, Tenant remains in possession of the Premises and continues
to pay Rent, and Landlord consents to the possession and accepts the Rent,
without any written agreement, the holding over shall be deemed a tenancy from
month-to-month, under all the provisions of this Lease, but at a monthly Rent
equivalent to 150% of the monthly installments of Rent paid by Tenant
immediately prior to the termination or the current market rental rate for the
Premises, whichever is greater. If, after the termination of this Lease or of
Tenant's right of possession, Tenant remains in possession without Landlord's
consent, Landlord will suffer damages, the amount of which will be difficult to
determine; therefore, Tenant shall pay to Landlord as liquidated damages an
amount equal to 150% of the Rent calculated on a per diem basis, applicable
under the Lease in the month immediately prior to the termination. All such Rent
shall be payable in advance on the same day of each month. The month-to-month
tenancy may be terminated by either party upon 10 days' notice prior to the end
of any such monthly period. Nothing contained herein shall be construed as
obligating Landlord to accept any Rent tendered by Tenant after any such
termination or as obligating Landlord to consent to any holding over, or as
relieving Tenant of its liability under this Lease.

22. LANDLORD DEFAULT. In the event of an alleged default on the part of Landlord
----------------
under this Lease, Tenant shall give notice to Landlord and shall afford Landlord
a reasonable opportunity to cure the default. Notice to Landlord of any such
alleged default shall be ineffective unless notice is simultaneously delivered
to any Mortgagee as hereafter provided. Tenant agrees to give all Mortgagees, by
certified mail, return receipt requested, a copy of any notice of default served
upon Landlord, provided that prior to such notice Tenant has been notified, in
writing (by way of notice of Assignment of Rents and Leases, or otherwise), of
the address of such Mortgagee. Tenant further agrees that if Landlord shall have
failed to cure the default within the time provided, then the Mortgagee shall
have an additional 30 days following a second notice from Tenant within which to
cure the default. If the default cannot be cured within that time, Mortgagee
shall have such additional time as may be necessary provided that within the 30
days, Mortgagee has commenced and is diligently pursuing the remedies necessary
to cure such default (including, but not limited to, commencement of foreclosure
proceedings, if necessary, to effect its cure). Tenant may be entitled to
equitable relief and actual damages, but not consequential or punitive damages,
incurred by Tenant as a result of any default by Landlord, but shall not be
entitled to any abatement of or offset against Rent until it receives a final
judgment authorizing it to do so.

23. NOTICE. All notices, demands or statements required or permitted to be given
------
to Landlord shall be in writing and shall be deemed duly served when received or
refused to be received in the United States mail, postage prepaid, certified or
registered, return receipt requested, addressed to Landlord at Landlord's
address shown on the Basic Lease Term Sheet or at the most recent address of
which Landlord has notified Tenant in writing. All notices, demands or
statements required or permitted to be given to Tenant shall be in writing and
shall be deemed duly served when received to any officer or agent of Tenant (or
a partner or member of Tenant if Tenant is a partnership or other entity or to
Tenant individually if Tenant is a sole proprietor) or manager of Tenant whose
office is in the Building, or when received in the United States mail, postage
prepaid, certified or registered, return receipt requested, addressed to Tenant
at the Premises, or, prior to Tenant's taking possession of the Premises, to the
address known to Landlord as Tenant's principal office address. Either party
shall have the right to designate in writing, served as above provided, a
different address to which notice is to be delivered. This Paragraph shall not
prohibit notice from being given as provided in Rule 4 of Colorado Rules of
Civil Procedure, as amended from time to time.

23
<PAGE>

24. RULES AND REGULATIONS. The rules and regulations attached as Exhibit D are
--------------------- ---------
deemed a part of this Lease, and Tenant agrees that Tenant and its employees,
agents or any others permitted by Tenant to occupy or enter the Premises shall
at all times abide by those rules and regulations. Tenant agrees that Landlord
may change the rules and regulations for the Premises and the Building Complex
from time to time (including the addition of rules and regulations regarding
parking), and Tenant agrees to abide by them upon receipt of notice of the
change.

25. PARKING. Tenant shall have the right to use the number of parking spaces
-------
indicated on the Basic Lease Term Sheet on an unassigned, non-exclusive basis.
Tenant shall pay Landlord's monthly rate, as it may change from time to time, at
the rate stated on the Basic Lease Term Sheet. Tenant shall receive one bill
monthly for all those spaces, and the parking space rent shall be paid to
Landlord as Additional Rent at the same time and place as Base Rent. Landlord
shall use reasonable diligence to make those spaces available; however, the
abatement of Tenant's obligation to pay for unavailable spaces during any period
shall constitute Tenant's sole remedy. All vehicles parked in the parking spaces
are at the sole risk of Tenant, Tenant's agents and invitees and Landlord shall
have no liability for loss or damage.

24
<PAGE>
28. MISCELLANEOUS.
-------------

28.1. Limitation of Landlord's Liability. The term "Landlord" as used in
----------------------------------
this Lease, so far as covenants or obligations on the part of Landlord are
concerned, shall mean and include only the owner or owners of the Building at
the time in question and, in the event of any transfer or transfers of the title
thereto, Landlord herein named (and in the case of any subsequent transfers or
conveyances, the then grantor) shall be automatically released, from and after
the date of the transfer or conveyance, of all liability as respects the
performance of any covenants or obligations on the part of Landlord thereafter
to be performed, provided that the Security Deposit then held by Landlord or the
then grantor at the time of the transfer shall be delivered to or credited to
the purchase price paid by the grantee. Notwithstanding anything to the
contrary contained herein, Landlord's liability under this Lease shall be
limited to Landlord's interest in the Building Complex, and Tenant shall not and
cannot seek any recovery or deficiency against any other assets or against any
partners, lenders, officers, directors, or employees of Landlord or against the
Building Manager.

28.2. No Merger. The termination of this Lease shall not be a merger, and
---------
such termination shall, at the option of Landlord, either terminate all
subleases and subtenancies or operate as an assignment to Landlord of any or all
such subleases or subtenancies.

28.3. Landlord's Use of Common Areas. Tenant agrees that Landlord has the
------------------------------
right to use the Common Areas for the general benefit of the Building Complex,
including for the purposes of completing or making repairs or alterations in any
portion of the Building. Landlord may use the Building Complex, the Common Areas
and one or more of the street entrances to the Building Complex as may be
necessary in Landlord's judgment to complete any such work or for other purposes
in connection with Landlord's management or operation of the Building Complex.

28.4. Covenants are Independent. This Lease shall be construed as though
-------------------------
the covenants between Landlord and Tenant are independent and not dependent, and
subject to Paragraph 22, Tenant shall not be entitled to any set off of the Rent
or other amounts owing hereunder against Landlord if Landlord fails to perform
its obligations.

28.5. Severability. If any provision of this Lease is held by a court of
------------
competent jurisdiction to be illegal, invalid, or unenforceable under any Laws,
it is the intention of the parties that the remainder of this Lease shall not be
affected and that the illegal, invalid, or unenforceable provision be replaced
by a provision (or construed to be) as similar in terms as possible and be
legal, valid, and enforceable.

28.6. Captions and Terms. The caption of each Paragraph is added as a
------------------
matter of convenience only and shall have no effect on the construction of any
provision or provisions of this Lease. The words "include" and "including" when
used in this Lease are intended in their illustrative sense, not as a
limitation, and the terms that follow such words are illustrative and not
exclusive. References to "provisions" of this Lease refers to all of the
provisions, terms, conditions, covenants and agreements in this Lease. The words
"shall" and "will" have the same meaning.

25
<PAGE>

28.7. Binding Effect: Governing Law. Subject to Paragraphs 13 and 28.1,
-----------------------------
this Lease shall inure to the benefit of, and be binding upon, Landlord and
Tenant and their respective heirs, administrators, successors and assigns. This
Lease is subject to and shall be construed in accordance with Colorado law.

28.8. Tenant's Authority. Tenant and the party executing this Lease on
------------------
behalf of Tenant represent to Landlord that they are authorized to do so by
requisite action of Tenant and that this Lease is binding on Tenant, and agree,
upon request, to deliver to Landlord a resolution or similar document or opinion
of counsel to that effect.

28.9. Joint and Several. If there are more than one entity or person which
-----------------
are the Tenant under this Lease, the obligations imposed upon Tenant under this
Lease shall be joint and several.

28.10. Acts Binding Landlord. No act or thing done by Landlord or
-----------------------
Landlord's agents during the term, including any agreement to accept the
surrender of the Premises or to amend or modify this Lease, shall be binding on
Landlord, unless in writing and signed by a person authorized to bind Landlord.
The delivery of keys to Landlord, or Landlord's agents, employees, or officers
shall not operate as a termination of this Lease or a surrender of the Premises.
No payment by Tenant or receipt by Landlord of a lesser amount than the full
monthly Rent and all other amounts owing, as herein stipulated, shall be deemed
to be other than on account of the earliest due Rent or other amounts, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as Rent be deemed an accord and satisfaction. Landlord may accept any
such check or payment without prejudice to Landlord's right to recover the
balance owed or to pursue any other remedy available to Landlord.

28.11. Changes in the Building: Use of Names. Landlord shall have the
-------------------------------------
right at any time to change the name of the Building, to increase the size of
the Building Complex by adding additional land, to construct other buildings or
improvements on any portion of the Building Complex or to change the location
and/or character of or to make alterations of or additions to the Building
Complex so long as the alterations and changes do not unreasonably interfere
with Tenant's occupancy of the Premises. In the event any additional buildings
are constructed or Landlord increases the size of the Building Complex, Landlord
and Tenant shall execute an amendment to this Lease which incorporates any
necessary modifications, additions, and adjustments. Tenant shall not use the
Building's name for any purpose other than as a part of its business address,
and Tenant shall not use the names Denver Technological Center, DTC, Crescent or
any variation, without Landlord's prior written approval and a license from the
owner of those tradenames. Any use of any of those names by Tenant shall
constitute a default under this Lease.

28.12. Change in Light or View. Tenant agrees that no diminution of light,
-----------------------
air, or view by any structure that may hereafter be erected (whether or not by
Landlord) shall entitle Tenant to any reduction of Rent or other charges under
this Lease, result in any liability of Landlord to Tenant, or in any way affect
this Lease or Tenant's obligations under it.

28.13. No Other Agreements: Amendments. Tenant acknowledges and agrees that
-------------------------------
it has not relied upon any statements, representations, agreements, or
warranties by Landlord, its agents or employees, except those expressed in this
Lease and that no amendment or modification of this Lease shall be valid or
binding unless in writing and executed by the parties hereto in the same manner
as the execution of this Lease, and that this Lease incorporates all prior
discussions and agreements.

26
<PAGE>
28.14. Brokers. Tenant represents and warrants to Landlord that no broker
-------
or agent negotiated or was instrumental in the negotiation or consummation of
this Lease, except Landlord's Broker and any Tenant's Broker specified in the
Basic Lease Term Sheet. Tenant agrees to indemnify and hold Landlord harmless
from and against any loss, expense, cost or liability incurred by Landlord as a
result of a claim by any other broker or finder, whether or not meritorious,
claiming through Tenant. Tenant acknowledges Landlord is not liable for any
representations by Landlord's Broker or Tenant's Broker regarding the Premises,
the Building, the Building Complex or this Lease.

28.15. Recordation. Tenant shall not record or permit to be recorded this
-----------
Lease or any memorandum of it; and any such recording shall be an Event of
Default.

28.16. Execution Required. Submission of this Lease or any letter regarding
------------------
it for examination or signature by Tenant shall not grant to Tenant an option or
right to lease the Premises; and this Lease shall not be effective as a lease or
otherwise binding on either party until execution and delivery by both Landlord
and Tenant.

28.17. Attorney's Fees. If either party brings an action to enforce any
---------------
provision of this Lease, the prevailing party shall be entitled to recover its
reasonable attorney's fees, as determined by the court.

28.18. Time of Essence: Effective Dates. Time is of the essence herein and,
--------------------------------
unless waived by Landlord (which it shall have the right, but not the
obligation, to so do), this Lease is contingent upon execution and delivery by
Tenant to Landlord no later than 5:00 p.m. on _______________, ______ without
any changes which are not approved by Landlord. This Lease shall become
effective only upon execution by Landlord and delivery of a fully-executed copy
of this Lease to Tenant.
*See attached Rider.

"Landlord"

BOARD OF ADMINISTRATION AS TRUSTEE FOR
THE POLICE AND FIRE DEPARTMENT
RETIREMENT FUND

By: /s/ EDWARD F. OVERTON
-----------------------------------
As its: Secretary
----------------------

"Tenant"

FIRSTWORLD COMMUNICATIONS, INC.
---------------------------------------
A DELAWARE CORPORATION

By: /s/ SHELDON S. OHRINGER
-----------------------------------
As its: President & CEO
----------------------

By: /s/ SCOTT M. CHASE
-----------------------------------
SVP, Corporate & Government Affairs

Attest:

By: /s/ CHRISTOPHER J. KUELLING
------------------------------
Title: Senior Corporate Counsel
---------------------------

27
<PAGE>

RIDER TO OFFICE LEASE
---------------------

Between
Board of Administration as Trustee for
the Police and Fire Department Retirement Fund
and
FirstWorld Communications, Inc.
Pertaining to Crescent VII Office Building

Tenant shall have the option to terminate this Lease at any time on the
following conditions:

1. Tenant must give notice of its election to terminate this Lease at least
six months before the termination date. The termination date can be no earlier
than July 31, 2001.

2. Tenant must not be in default under this Lease or the Agreement on the
date Tenant gives notice of its election to terminate or on the date this Lease
is to terminate.

3. If this Lease terminates pursuant to the provisions of this Rider, Tenant
shall pay a termination fee of one month's rent (equal to the last month of paid
rent) plus all unamortized tenant finish costs ($6.00 per rentable square foot
amortized at 11%).

4. If all these conditions have been met, this Lease shall terminate and
Tenant shall vacate the Premises in accordance with this Lease on the date
stated in Tenant's notice of termination and Tenant shall be fully released from
all obligations under the Lease subject to leaving the space broom clean and
normal wear and tear accepted. If all these conditions are not met, this option
to terminate and any election under it shall be void and of no effect.

Section 5. Operating Expenses
------------------

5.1.a (cont'd.) It is understood that Tenant shall have a 1999 base year
based on actual 1999 operating expenses and taxes.

A. Exclusions to Operating Expenses

1. Costs associated with the operation of the business of the ownership or
entity which constitutes "Landlord", as distinguished from the costs of
building operations, including, but not limited to, partnership accounting
and legal matters, costs of defending any lawsuits with any mortgagee (except
as the actions of Tenant may be in issue), costs of selling, syndicating,
financing, mortgaging or hypothecating any of Landlord's interest in the
Building, costs of any disputes between Landlord and its employees (it any)
not engaged in Building operation, disputes of Landlord with Building
management, or outside fees paid in connection with disputes with other
tenants.

2. Costs incurred in connection with the construction of the Building or in
connection with any major change in the Building, including but not limited
to, correcting defects in, or inadequacy of, the initial design or
construction of the Building, except for any cost associated with changes in
the code.

3. Depreciation, interest and principal payments on mortgages and other debt
costs, if any.

4. Expenses directly resulting from the gross negligence of Landlord, its
agents, servants or employees.
<PAGE>

5. Legal fees, space planner's fees, real estate broker's leasing commissions,
and advertising expenses incurred in connection with the original
development or original leasing of the Building or future leasing of the
Building.

6. Costs for which Landlord is reimbursed by its insurance carrier or any
other tenant's insurance carrier.

7. Any bad debt loss, rent loss, or reserves for bad debts or rent loss.

8. The expense of extraordinary services provided to other tenants in the
Building.

9. The wages of any employee who does not devote substantially all of his or
her time to the Building.

10. Fines and penalties.

11. Amounts paid as ground rental by Landlord.

12. Costs incurred due to Landlord's failure to comply with laws enacted on or
before the date the Building's Temporary Certificate of Occupancy was
validly issued; however, Tenant shall be responsible for any cost to comply
with any law or code due to Tenant's use.

13. Costs incurred by landlord with respect to goods and services (including
utilities sold and supplied to tenants and occupants of the Building) to
the extent that Landlord is entitled to reimbursement for such costs.

14. Costs, including permit, license and inspection costs, incurred with
respect to the installation of tenant improvements made for new tenants in
the Building or incurred in renovating or otherwise improving, decorating,
painting or redecorating vacant space for tenants or other occupants of the
Building.

15. Costs of alterations or improvements to the Premises or the Premises of
other tenants.

16. All items and services for which Tenant or any other tenant in the Building
reimburses Landlord or which Landlord provides selectively to one or more
tenants (other than Tenant) without reimbursement.

17. Electric power costs for which any tenant directly contracts with the local
public service company.

18. Expenses and costs not normally, in accordance with generally accepted
accounting principles, included by landlords of first class institutional
office buildings.

B. Discounts

It is understood that Common Area Operating Expenses shall be reduced by
all cash discounts, trade discounts, or quantity discounts received by
landlord or Landlord's managing agent in the purchase of any goods,
utilities or services in connection with the operation of the Building.
Landlord shall make payments for goods, utilities and services in a timely
manner to obtain the maximum possible discount. If capital items which are
customarily purchased by landlords of first class office buildings in the
same area all leased, rather than purchased, by Landlord, the decision by
landlord to lease the item in
<PAGE>

question shall not serve to increase Tenant's proportionate share of
Operating Costs beyond that which would have applied had the item in question
been purchased. In the calculation of any expenses hereunder, it is
understood that no expense shall be charged more than once.

Section 13. Subletting and Assignment
-------------------------

13.2 (cont'd.) Tenant shall have the right, without Landlord's approval, to
sublet or assign its Premises, or any part thereof, to any successor of
FirstWorld Communications resulting from a merger, consolidation, sale or
acquisition or to any entity affiliated with FirstWorld Communications so long
as in the event of merger, consolidation, sale or acquisition, the resulting
entity has an equal or greater net worth than FirstWorld Communications.

Section 29. Signage
-------

Landlord shall use its best efforts to create lobby identity acceptable to
Tenant. All associated costs shall be the responsibility of Tenant.

Section 30. Building Antennas and Microwave
-------------------------------

Tenant shall have the right, at its own expense, to install and operate
satellite or microwave receiving or transmitting dishes and other related
equipment on the roof of the Building at no charge for the term of the lease.
Tenant shall pay only actual operating and maintenance expenses attributable to
the use of the antennae and microwave. Such use shall be subject to receipt of
all required government approvals and shall not interfere with Building systems
or helipad. Specifications of such equipment shall be mutually agreed upon.

Exhibit C (continued) - Tenant Finish Allowance

Tenant shall be entitled to draw upon the Tenant Finish Allowance from time to
time by submitting a request for payment to Landlord upon such form reasonably
approved by Landlord. Subject to such request for payment being in compliance
with the requirements hereof, Landlord shall disburse the amount of such request
for payment to Tenant or its contractors and/or subcontractors. All requests for
payment shall be subject to the following requirements: (i) such requests for
payment shall be certified by Tenant, its general contractor and its architect;
(ii) Tenant shall submit to Landlord original mechanic's lien waivers executed
by all contractors, subcontractors and suppliers for all work and services
performed and materials supplied with respect to such request for payment and
otherwise in form in substance reasonably acceptable to Landlord; and (iii) all
other reasonable requirements of any lender of Landlord. Notwithstanding
anything to the contrary, Landlord shall not be obligated to disburse the final
draw upon the Tenant Finish Allowance until the following requirements have been
satisfied, in addition to the requirements provided in the preceding sentence:
(i) Tenant, its general contractor and its architect shall certify substantial
completion of the Tenant Finish Work to Landlord; (ii) Tenant shall submit to
Landlord original final mechanic's lien waivers executed by Tenant's general
contractor, subcontractors and suppliers for all work and services performed and
material supplied with respect to the Tenant Finish Work and otherwise in form
and substance reasonably acceptable to Landlord; (iii) Tenant shall provide to
landlord an original, unconditional Certificate of Occupancy for the Demised
Premises; and (iv) Tenant shall provide copies of all warranties, operation and
maintenance manuals, and record drawings (consisting of one reverse mylar sepia
and two blueprint copies) of the Tenant Finish.
<PAGE>

EXHIBIT A

DESCRIPTION OF PREMISES

[FLOOR PLAN APPEARS HERE]

- ------------------------------------------------------------------------------
L E V E L T W O P L A N

[FLOOR PLAN APPEARS HERE]
- ------------------------------------------------------------------------------
L E V E L T H R E E P L A N

VII CRESCENT

A-1
<PAGE>

EXHIBIT B

LEGAL DESCRIPTION

RESCENT PARCEL VII
- ------------------

PARCEL OF LAND LOCATED IN THE NORTHEAST QUARTER OF SECTION 16, TOWNSHIP 5
SOUTH, RANGE 67 WEST OF THE SIXTH PRINCIPAL MERIDIAN, DENVER TECHNOLOGICAL
CENTER, CITY OF GREENWOOD VILLAGE, COUNTY OF ARAPAHOE, STATE OF COLORADO AND
BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCING AT THE NORTH QUARTER CORNER OF SECTION 16, TOWNSHIP 5 SOUTH, RANGE 67
WEST OF THE SIXTH PRINCIPAL MERIDIAN; THENCE ALONG THE NORTH LINE OF THE
NORTHEAST QUARTER OF SAID SECTION 16 N89'52'59"E, A DISTANCE OF 1,074.00 FEET
HENCE LEAVING SAID NORTH LINE S00'07'01"E, A DISTANCE OF 467.54 FEET TO THE TRUE
POINT OF BEGINNING; THENCE ALONG A NON-TANGENT CURVE TO THE LEFT HAVING A RADIUS
OF 590.00 FEET, AN ARC LENGTH OF 77.15 FEET, A CENTRAL ANGLE OF 07'29'32" AND A
CHORD WHICH BEARS S69'19'05"E, A DISTANCE OF 77.09 FEET TO A POINT OF COMPOUND
CURVATURE; THENCE ALONG A CURVE TO THE LEFT HAVING A RADIUS OF 70.00 FEET, AN
ARC LENGTH OF 144.89 FEET. A CENTRAL ANGLE OF 10'46'54" AND A CHORD WHICH BEARS
S78'27'18"E, A DISTANCE OF 144.68 FEET TO A POINT ON THE WESTERLY RIGHT-OF-WAY
LINE OF DTC BOULEVARD; THENCE ALONG SAID RIGHT-OF-WAY LINE, A NON-TANGENT LINE
S00'36'55"W. A DISTANCE OF 476.46 FEET; THENCE DEPARTING SAID RIGHT-OF-WAY LINE
S89'53'15"W, A DISTANCE OF 335.60 FEET; THENCE N00-33'34"E A DISTANCE OF 5.79
FEET; THENCE N85'45'52"W A DISTANCE OF 8.08 FEET; THENCE N4'14'08"E A DISTANCE
OF 144.60 FEET; THENCE S85'45'52"E A DISTANCE OF 11.00 FEET TO A POINT OF
CURVATURE; THENCE 6.28 FEET ALONG THE ARC OF A CURVE TO THE LEFT HAVING A RADIUS
OF 4.00 FEET, A CENTRAL ANGLE OF 90'00'00" AND A CHORD WHICH BEARS 49'14'08"E A
DISTANCE OF 5.66 FEET TO A POINT OF TANGENCY; THENCE N4'14'08"E A STANCE OF
29.27 FEET TO A POINT OF CURVATURE; THENCE 15.92 FEET ALONG THE ARC OF A CURVE
TO THE RIGHT HAVING A RADIUS OF 36.00 FEET. A CENTRAL ANGLE OF 25'20'14" AND A
CHORD WHICH BEARS N16'54'15"E A DISTANCE OF 15.79 FEET TO A POINT OF TANGENCY;
THENCE N29'34'22"E A DISTANCE OF 115.60 FEET TO A POINT OF CURVATURE; HENCE 5.71
FEET ALONG THE ARC OF A CURVE TO THE LEFT HAVING A RADIUS OF 14.00 FEET, A
CENTRAL ANGLE OF 23'23'12" AND A CHORD WHICH BEARS N17'52'46"E A DISTANCE OF
5.67 FEET TO A POINT OF REVERSE CURVATURE; THENCE 97.42 FEET ALONG THE ARC OF
CURVE TO THE RIGHT HAVING A RADIUS OF 271.00 FEET, A CENTRAL ANGLE OF 20'35'51"
AND A CHORD WHICH BEARS N16'29'05"E A DISTANCE OF 96.90 FEET TO A POINT OF
TANGENCY; THENCE N26'47'00"E A DISTANCE OF 42.78 FEET; THENCE N12'49'41"W A
STANCE OF 18.93 FEET TO THE TRUE POINT OF BEGINNING.

SAID PARCEL CONTAINS 150614 SQUARE FEET (3.46 ACRES) MORE OR LESS.

B-1
<PAGE>
EXHIBIT C

TENANT IMPROVEMENT AGREEMENT

This Agreement is a part of the Office Lease entered into by BOARD OF
--------
ADMINISTRATION AS TRUSTEE FOR THE POLICE AND FIRE DEPARTMENT RETIREMENT FUND,
- ----------------------------------------------------------------------------
as Landlord, and FIRSTWORLD COMMUNICATIONS, INC. , as Tenant, pertaining to the
-------------------------------
CRESCENT VII Building (the "Lease"). Except as expressly provided to the
- ------------
contrary herein, all initially capitalized terms used in this Agreement shall
have the same meaning as set forth in the Lease to which this Exhibit C is
---------
attached.

1. Base Building Improvements. Landlord, at its expense, shall construct
--------------------------
in or for the Premises the following improvements with Building standard
materials and installation (the "Base Building Improvements"):

a. Structure: Subfloor, bearing walls, exterior weather walls;
columns, beams and roof or ceiling;

b. Floors: Bare finish, concrete slab floors;

c. Electrical: Primary electrical distribution system to the floor of
the Building on which the Premises are located;

d. Heating, Ventilation and Air Conditioning: Primary heating,
ventilation and air conditioning distribution system, installed and ready for
connection to the variable volume and/or mixing air distribution boxes and
supply and return ductwork to be provided as part of the Tenant Finish Work (as
defined below).

e. Telephone: A telephone terminal panel serving the Premises,
installed in a reasonable location designated by Landlord;

f. Plumbing: Building standard restroom plumbing and fixtures in the
Common Areas (unless the Premises includes the entire floor) on the floor of the
Building on which the Premises are located; and

g. Fire Safety System: Primary distribution for the fire safety system
required by applicable code (including, without limitation, fire sprinklers and
alarms) installed and ready for connection to the fire safety system for the
Premises to be provided as part of the Tenant Finish Work.

2. Preliminary Space Plans. Promptly after the effective date of the
-----------------------
Lease, Tenant shall have its space planners prepare plans and specifications
(the "Space Plans") for all leasehold improvements in addition to the Base
Building Improvements (the "Tenant Finish Work"), which Space Plans shall be
sufficient to obtain a bid for the construction of the Tenant Finish Work.
Within 10 days after the effective date of the Lease, Tenant shall furnish to
Landlord all information necessary regarding the Space Plans. Landlord shall
deliver to Tenant any comments it may have to the Space Plan within seven days
after receipt, and the Space Plans shall be finalized within 30 days after the
date of the Lease. The Space Plans shall be prepared at Tenant's expense.

C-1
<PAGE>

**Landlord
3. Landlord's Allowance. When the Space Plans are approved in writing by
--------------------
both Landlord and Tenant, Tenant shall obtain a bid for the construction of the
Tenant Finish Work. Tenant shall promptly notify ** of the amount of the bid or
bids and the amount required to prepare the architectural and engineering
construction drawings for the Tenant Finish Work (the "Estimated Work Cost"). If
the Estimated Work Cost is less than or equal to $6.00 per square foot of the
-----
Rentable Area of the Premises (the "Landlord's Allowance"), then Landlord shall
proceed in accordance with paragraph 4. The Landlord's Allowance shall be spent
and allocated to the Tenant Finish Work throughout the entire Premises and in
accordance with the Construction Drawings referred to in paragraph 4. Landlord's
Allowance shall be used solely for Tenant Finish Work which will include (i) all
fees and expenses incurred by Tenant in connection with the design and
construction of the Tenant Finish Work. (ii) testing and inspection costs.
Tenant shall not be entitled to any payment or Rent reduction for any part of
the Landlord's allowance not so used.
(SEE ATTACHED RIDER)

4. Construction of Tenant Finish Work. Tenant shall cause its architect and
----------------------------------
engineer to prepare construction drawings and specifications (the "Construction
Drawings") for the Tenant Finish Work, based strictly on the Space Plans, and
shall cause the Tenant Finish Work to be constructed in the Premises in
accordance with the Construction Drawings: provided, however, that Landlord's
contribution toward preparing the Construction Drawings and of constructing the
Tenant Finish Work shall not exceed the Landlord's Allowance. Prior to the
commencement of construction, Tenant shall be given an opportunity to review the
Construction Drawings to confirm that they conform to the Space Plans. Upon
substantial completion of the construction of the Tenant Finish Work and prior
to Tenant's occupancy of the Premises, Tenant shall pay to * the amount, if any,
by which the actual cost of preparing the Construction Drawings and of
constructing the Tenant Finish Work exceeds the Landlord's Allowance.

*selected contractor

If after commencement of the construction of the Tenant Finish Work, Tenant
wants to change the Construction Drawings or scope of the Tenant Finish Work, it
shall notify Contractor. Contractor shall then obtain an estimate of the
additional cost of the Tenant Finish Work, if any, resulting from any such
changes and within 10 days notify Tenant of the additional cost and any
resulting delay in completing the Tenant Finish Work; and within three business
days thereafter, Tenant shall advise contractor whether or not it wants to
proceed with the changes. If Tenant elects to proceed with the changes, it shall
promptly deliver a copy of the revised plans to Landlord for their review and
approval.

C-2
<PAGE>

6. Substantial Completion: Ready for Tenant. The Tenant Finish Work shall
----------------------------------------
be deemed to have been substantially completed and to be Ready for Tenant when
the Tenant has substantially completed the Tenant Finish Work, exclusive of any
punch list work.

7. General. All drawings, space plans, plans and specifications for any
-------
improvements or installations in the Premises are expressly subject to
Landlord's prior written approval*. Any approval by Landlord or Landlord's
architects or engineers of any of Tenant's drawings, plans or specifications
which are prepared in connection with construction of improvements in the
Premises shall not in any way constitute a representation or warranty of
Landlord as to the adequacy or sufficiency of the drawings, plans or
specifications, or the improvement to which they relate, for any use, purpose or
condition, but this approval shall merely be the consent of Landlord to Tenant's
construction of improvements in the Premises in accordance with those drawings,
plans or specifications. Failure by Tenant to pay any amount when due under this
Agreement or the failure by Tenant to perform any of its other obligations under
this Agreement shall be an Event of Default under Paragraph 19.1 of the Lease,
entitling Landlord to all of its remedies under the Lease as well as all
remedies otherwise available to Landlord.

*which shall not be unreasonably withheld or delayed.

C-3
<PAGE>

"Landlord"

BOARD OF ADMINISTRATION AS TRUSTEE FOR THE
POLICE AND FIRE DEPARTMENT RETIREMENT FUND

By: /s/ EDWARD F. OVERTON
---------------------------------------
As its: Secretary
---------------------------

"Tenant"

FIRSTWORLD COMMUNICATIONS, INC.,
-------------------------------------------
A DELAWARE CORPORATION

By: /s/ SHELDON S. OHRINGER
---------------------------------------
As its: President & CEO
---------------------------

Attest:
By: /s/ SCOTT M. CHASE
SVP, Corp & Govt Affairs

By: /s/ CHRISTOPHER J. KUELLING
-------------------------------
Title: Senior Corporate Counsel
----------------------------

C-4

<PAGE>

EXHIBIT D

RULES AND REGULATIONS

It is further agreed that the following rules and regulations shall be and
are hereby made a part of this Lease and Tenant agrees that Tenant's employees
and agents or any others permitted by Tenant to occupy or enter the Premises
will at all times abide by these rules and regulations as they may be amended or
supplemented from time to time. Capitalized terms have the same meaning as used
in the Lease, unless otherwise indicated.

1. The sidewalks, entries, passages, corridors, stairways, and elevators
of the Building Complex shall not be obstructed or locked or used for smoking,
storage or loitering by Tenant or Tenant's agents or employees or used for any
purpose other than ingress and egress to and from the Premises, it being
understood and agreed that such access may be obtained only via the elevators
(if any) in the lobby of the Building. The fire doors, including those in the
elevator lobbies, shall not be locked or obstructed by Tenant.

2. Furniture, equipment, or supplies will be moved in or out of the
Building only upon the elevator (if any) and access ways designated by Landlord
and then only during such hours and in such manner as may be prescribed by
Landlord. The Landlord shall have the right to approve or disapprove the movers
or moving company employed by Tenant and Tenant shall cause the movers to use
only the loading facilities and elevator designated by Landlord. In the event
Tenant's movers damage the elevator or any part of the Building, Tenant shall
forthwith pay to Landlord the amount required to repair that damage.

3. No safe or article, the weight of which may, in the opinion of
Landlord, constitute a hazard or damage to the Building or the Building's
equipment, shall be moved into the Premises. Safes and other equipment, the
weight of which is not excessive, shall be moved into, from, or about the
Building only during such hours and in such manner as shall be prescribed by
Landlord and landlord shall have the right to designate the location of such
articles in the Premises.

4. During the entire term of this Lease, Tenant shall, at Tenant's
expense, install and maintain under each and every caster chair a chair pad to
protect the carpeting.

5. No sign, advertisement or notice shall be inscribed, painted, or
affixed on any part of the inside or outside of the Building (including windows)
unless of such color, size, and style and in such place upon or in the Building
as shall be first designated by Landlord in writing but there shall be no
obligation or duty on Landlord to allow any sign, advertisement or notice to be
inscribed, painted, or affixed on any part of the inside or outside of the
building. A directory in a conspicuous place, for listing the names of tenants
in the Building will be provided by Landlord. Any necessary revision in the
directory will be made by Landlord at Tenant's expense within a reasonable time
after notice from Tenant of the change making the revision necessary. No
furniture shall be placed in front of the Building or in any lobby or corridor
of the building (whether included wholly within the Premises, or otherwise),
without the prior written consent of Landlord. Landlord shall have the right to
remove all non-permitted signs and furniture, without notice to Tenant, at the
expense of Tenant.

6. Tenant shall not do or permit anything to be done in the Premises or
bring or keep anything therein which would in any way increase the rate of fire
insurance on the Building or on property kept therein which would in any way
increase the rate of fire insurance on the Building or on property kept herein,
constitute a nuisance or waste, obstruct or interfere with the rights of other
tenants

D-1
<PAGE>

or in any way injure or annoy them, or conflict with the laws relating to fire
or with any regulations of the fire department, fire insurance underwriters, or
with any insurance policy upon the Building or any part thereof, or conflict
with any of the rules or ordinances of the Department of Health of the City and
County where the Building is located.

7. The janitor of the building may at all times keep a passkey and other
agents of Landlord shall at all times be allowed admittance to the Premises.

8. Water closets and other water fixtures shall not be used for any
purpose other than that for which they were intended and any damage resulting to
them from misuse on the part of Tenant or Tenant's agents or employees shall be
paid for by Tenant. No person shall waste water by tying back or wedging the
faucets or in any other manner.

9. Except for handicapped assistance dogs, no animals shall be allowed in
the offices, halls, corridors, and elevators in the Building. No person shall
disturb the occupants of the Building or adjoining buildings or premises by the
use of any radio, sound equipment, or musical instrument or by the making of
loud or improper noises.

10. Bicycles or other vehicles shall not be permitted in the offices,
halls, corridors, and elevators in the Building nor shall any obstruction of
sidewalks or entrances of the Building be permitted.

11. Tenant shall not allow anything to be placed on the outside of the
building, nor shall anything be thrown by Tenant or Tenant's agents or employees
out of the windows or doors or down the corridors, elevator shafts, or
ventilating ducts or shafts of the Building. Tenant, except In case of fire or
other emergency, shall not open any outside window. Tenant must at its own
expense dispose of crates, boxes, or similar large items of refuse which will
not fit into office waste paper baskets. In no event shall Tenant set any such
items in the corridors or other areas of the Building or garage facility.

12. No additional lock or locks shall be placed by Tenant on any door in
the Building, unless written consent of Landlord shall First have been obtained.
Two keys to the Premises and the toilet rooms, if locked by Landlord, will be
furnished by Landlord and neither Tenant nor Tenant's agents or employees shall
have any duplicate keys made. Landlord shall supply Tenant with such additional
keys as Tenant may require at Tenant's sole cost and expense. At the termination
of this tenancy, Tenant shall promptly return to Landlord all keys to offices,
toilet rooms, or vaults.

13. No window shades, blinds, screens, draperies, or other window coverings
will be attached or detached by Tenant without Landlord's prior written consent.
Tenant agrees to abide by Landlord's rules with respect to maintaining uniform
curtains, draperies and linings, or blinds at all windows and hallways.

14. If any Tenant desires telegraphic, telephonic, or other electric
connections, Landlord or Landlord's agents will direct the electricians as to
where and how the wires may be introduced. Without such directions, no boring or
cutting for wires will be permitted. Any such installation and connection shall
be made at Tenant's expense.

15. Tenant shall not install or operate any steam or gas engine or boiler
or carry on any mechanical business in the Premises. The use of oil, gas, or
inflammable liquids for heating, lighting, or any other purpose is expressly
prohibited. Explosives or other articles deemed extra hazardous shall not be
brought into the Building.

D-2
<PAGE>

16. Any painting or decorating, as may be agreed to be done by and at the
expense of Landlord, shall be done during regular weekday working hours.
Should Tenant desire such work on Saturdays, Sundays, Legal Holidays, or outside
of regular working hours, Tenant shall pay for the extra cost thereof.

17. Except as permitted by Landlord, Tenant shall not mark upon, paint
signs upon, cut drill into, drive nails or screws into, or in any way deface the
walls, ceilings, partitions, or floors of the Premises or of the Building and
any defacement, damage, or injury caused by Tenant or Tenant's agents or
employees shall be paid for by Tenant.

18. Smoking is prohibited in the Building, including all tenants' premises,
inside lobbies, stairwells, bathrooms, and other Common Areas and public areas
of the Building Complex and is restricted in all outside plaza areas of the
Building Complex to specific locations designated by Landlord as smoking areas,
if any.

19. Tenant shall be entitled to two sets of keys to the Premises. In the
event Tenant needs any additional keys, such keys must be requested from
Landlord. Tenant shall pay to Landlord the actual cost of making such additional
keys. Landlord reserves the right to refuse admittance to the Building at any
time other than during Ordinary Business Hours, to any person not producing a
key to the Premises and/or a pass issued by Landlord. In case of fire, invasion,
riot, public excitement or other commotion, Landlord also reserves the right to
prevent access to the Building while it continues. Landlord shall in no case be
liable for damages for the admission or exclusion of any person to or from the
Building.

20. No canvassing, soliciting, distribution of hand bills or other written
material, or peddling shall be permitted in the Building on the Building
Complex, and Tenant shall cooperate with Landlord in prevention and elimination
of same.

D-3
<PAGE>

EXHIBIT E

LEASE COMMENCEMENT CERTIFICATE

LANDLORD: BOARD OF ADMINISTRATION AS TRUSTEE FOR THE POLICE AND FIRE DEPARTMENT
RETIREMENT FUND
---------------------------------------------------------------------

TENANT: FIRSTWORLD COMMUNICATIONS, INC., A DELAWARE CORPORATION
---------------------------------------------------------------------

This Lease Commencement Certificate is made by Landlord and Tenant
pursuant to that certain Office Lease (the "Lease") entered into as of ________,
_____, for the Leased Premises known as Suite _____, in the Building known as
_______________ (the "Premises"). This constitutes a supplementary addendum to
the Lease as contemplated by Article 4 of the Lease.

1. Lease Commencement Date. Landlord and Tenant acknowledge and agree
-----------------------
that the Lease Commencement Date, as contemplated by Article 4 of the Lease, is
_______________, __________, and the Lease Expiration Date is _______________,
_____. Rent as contemplated by the Lease begins accruing to Landlord's benefit
as of _______________, _____. All covenants in the Lease contemplated to
begin on the Lease Commencement Date shall commence as of the Lease
Commencement Date.

2. Acceptance of Premises. Tenant has inspected and examined the
----------------------
Premises, and Tenant finds the Premises acceptable and satisfactory in all
respects in their current, "as is" condition, except for the "Punchlist Items"
attached hereto (if any). All of the work to be completed by Landlord, as
contemplated by the Lease and the Work Letter (attached as Exhibit C to the
---------
Lease), has been fully completed and fulfilled. The attached list of Punchlist
Items constitutes all matters which Tenant does not find fully and completely
acceptable, and as to which Tenant desires Landlord to perform corrective work.

3. Incorporation in Lease. This Certificate is incorporated into the
----------------------
Lease, and forms a supplementary and integral part thereof. This Certificate
shall be construed and interpreted in accordance with all other terms and
provisions of the Lease for all purposes.

"Landlord"

BOARD OF ADMINISTRATION AS TRUSTEE FOR THE
POLICE AND FIRE DEPARTMENT RETIREMENT FUND

By: ___________________________________________

As its: ___________________________________

"Tenant"

Attest: FIRSTWORLD COMMUNICATIONS, INC.,
_______________________________________________
A DELAWARE CORPORATION

By: __________________________ By: ___________________________________________

Title: _______________________ As its: ___________________________________

E-1

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 24,294
<SECURITIES> 117,794
<RECEIVABLES> 8,296
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 154,446
<PP&E> 71,711
<DEPRECIATION> 0
<TOTAL-ASSETS> 277,012
<CURRENT-LIABILITIES> 20,285
<BONDS> 275,526
0
0
<COMMON> 3
<OTHER-SE> (25,298)
<TOTAL-LIABILITY-AND-EQUITY> 277,012
<SALES> 20,440
<TOTAL-REVENUES> 20,440
<CGS> 14,582
<TOTAL-COSTS> 46,531
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,528
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (40,171)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,171)
<EPS-BASIC> 0
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</TABLE>