NET2000 COMMUNICATIONS INC
10-Q, 2000-05-15
RADIOTELEPHONE COMMUNICATIONS
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<PAGE>   1
================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

(Mark One)

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

                   For the fiscal quarter ended March 31, 2000

                                       OR

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

            For the transition period from             to
                                           ------------   -----------

                             Commission File Number:
                                    000-29515

                          NET2000 COMMUNICATIONS, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                          <C>
         DELAWARE                                            51-0384995
         (State or other jurisdiction of                     (I.R.S. Employer Identification No.)
         incorporation or organization)

         2180 FOX MILL ROAD                                   20171
         HERNDON, VA                                         (Zip Code)
         (Address of principal executive offices)
</TABLE>

       Registrant's telephone number, including area code: (800) 825-2000

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.

        (1)   Yes {}               (2)   No  {X}

The number of shares outstanding of the Registrant's common stock as of April
30, 2000, was 37,754,668.

================================================================================

                                        i
<PAGE>   2

<TABLE>
<CAPTION>
INDEX

                                                                                                 Page

<S>                                                                                              <C>
PART I - FINANCIAL INFORMATION

ITEM 1.   Financial Statements

           Consolidated Balance Sheets at March 31, 2000 (Unaudited) and December
           31, 1999                                                                              1

           Unaudited Consolidated Statements of Operations for the Three Months
           Ending March 31, 2000 and 1999                                                        2

           Unaudited Consolidated Statements of Cash Flows for the Three Months
           Ended March 31, 2000 and 1999                                                         3

           Notes to the Unaudited Consolidated Financial Statements                              4

ITEM 2.   Management's Discussion and Analysis of Financial
           Condition and Results of Operations                                                   9

ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk                             27


PART II - OTHER INFORMATION

ITEM 1.   Legal Proceedings                                                                      27

ITEM 2.   Changes in Securities and Use of Proceeds                                              27

ITEM 3.   Defaults upon Senior Securities                                                        28

ITEM 4.   Submission of Matters to a Vote of Security Holders                                    28

ITEM 5.   Other Information                                                                      28

ITEM 6.   Exhibits and Reports on Form 8-K.                                                      29

Signatures                                                                                       31
</TABLE>

                                       ii
<PAGE>   3

PART I. -- FINANCIAL INFORMATION

                          NET2000 COMMUNICATIONS, INC.
                           CONSOLIDATED BALANCE SHEETS
                  (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                          MARCH 31,              DECEMBER 31,
                                                                             2000                    1999
                                                                        ---------------        -----------------
                                                                         (Unaudited)
<S>                                                                     <C>                    <C>
                                      ASSETS
Current assets:
  Cash and cash equivalents..........................................   $      191,248         $         5,523
  Restricted cash....................................................            3,644                   3,517
  Accounts receivable, net of allowance for doubtful
    Accounts of approximately $2,120 and $1,919 at
    March 31, 2000 and December 31, 1999, respectively...............            8,706                   7,595
  Other current assets...............................................              888                   1,528
                                                                        ---------------        -----------------
Total current assets.................................................          204,486                  18,163
Property and equipment, net of accumulated
  Depreciation.......................................................           91,157                  72,592
Other noncurrent assets..............................................            4,150                   3,598
Unamortized debt discount............................................            2,299                   7,315
                                                                        ---------------        =================
Total assets.........................................................   $      302,092         $       101,668
                                                                        ===============        =================

                       LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable...................................................   $        2,558         $           792
  Accrued expenses and other current liabilities.....................           24,087                  21,635
                                                                        ---------------        -----------------
Total current liabilities............................................           26,645                  22,427
Related party noncurrent liabilities.................................           24,534                  26,428
Other noncurrent liabilities.........................................              156                     215
Long-term debt.......................................................           52,966                  46,039
Redeemable convertible Series A, B and C preferred stock,
  $0.01 par value; 11,738,437 shares authorized, no shares
  and 11,738,437 issued and outstanding
  at March 31, 2000 and December 31, 1999 respectively...............               --                  80,940

Stockholders' equity (deficit):
  Common stock, $0.01 par value; 200,000,000 shares
    authorized, 37,680,502, and 10,189,562 shares issued
    and outstanding March 31, 2000 and December 31, 1999,
    respectively.....................................................              377                     102
Additional capital...................................................          317,301                  16,707
Deferred stock compensation..........................................           (8,975)                 (7,002)
Accumulated deficit..................................................         (110,912)                (84,188)
                                                                        ---------------        -----------------
         Total stockholders' equity (deficit)........................          197,791                 (74,381)
                                                                        ---------------        -----------------
         Total liabilities and stockholders' equity (deficit)........   $      302,092         $       101,668
                                                                        ===============        =================
</TABLE>

         See accompanying notes that are an integral part of these condensed
consolidated Financial Statements.

                                       1
<PAGE>   4

                          NET2000 COMMUNICATIONS, INC.
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                           FOR THE THREE MONTHS ENDING
                                                                           ---------------------------
                                                                                     MARCH 31,
                                                                                     ---------
                                                                             2000                   1999
                                                                        ---------------        ----------------

<S>                                                                     <C>                    <C>
Revenues..............................................................  $       10,612         $         5,057
  Operating costs and expenses:
  Operating costs.....................................................           8,519                   4,393
  Selling, general and administrative (exclusive of non-cash
     compensation expense shown below)................................          16,247                   6,648
  Non-cash compensation expense.......................................             660                      20
  Depreciation and amortization.......................................           2,440                     447
                                                                        ---------------        ----------------
Loss from operations..................................................         (17,254)                 (6,451)
Other income (expenses):
  Interest income.....................................................           1,084                     386
  Interest expense....................................................          (2,083)                   (107)
  Miscellaneous income................................................              12                       2
                                                                        ---------------        ----------------
Loss before provision for income taxes................................         (18,241)                 (6,170)
Provision for income taxes............................................              --                      --
                                                                        ---------------        ----------------
Loss before extraordinary item........................................         (18,241)                 (6,170)
Extraordinary debt extinguishment loss................................          (4,724)                     --
                                                                        ---------------        ----------------
Net loss..............................................................         (22,965)                 (6,170)
Preferred stock accretion.............................................          (3,759)                 (5,394)
                                                                        ---------------        ----------------
Net loss available to common stockholders.............................  $      (26,724)        $       (11,564)
                                                                        ===============        ================

Pro forma net loss available to common stockholders...................  $      (22,965)        $        (6,170)
                                                                        ===============        ================
Basic and diluted loss per shares:
  Available to common stockholders before extraordinary item..          $        (1.23)        $         (1.14)
  Extraordinary loss..................................................            (.26)                     --
                                                                        ---------------        ----------------
  Available to common stockholders....................................  $        (1.49)        $         (1.14)
                                                                        ===============        ================
Pro forma basic and diluted loss per share:
  Available to common stockholders before extraordinary item..          $         (.64)        $          (.25)
  Extraordinary loss..................................................            (.17)                     --
                                                                        ---------------        ----------------
  Available to common stockholders....................................  $         (.81)        $          (.25)
                                                                        ===============        ================
Shares used in calculation of loss per share:
Basic and diluted.....................................................      17,910,673              10,109,490
Pro forma basic and diluted...........................................      28,552,662              24,782,535
</TABLE>

         See accompanying notes that are an integral part of these condensed
consolidated Financial Statements.

                                       2
<PAGE>   5

                          NET2000 COMMUNICATIONS, INC.
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                              FOR THE THREE MONTHS ENDED
                                                                              --------------------------
                                                                                      MARCH 31,
                                                                                      ---------
                                                                             2000                   1999
                                                                        ---------------        ----------------
<S>                                                                     <C>                    <C>
OPERATING ACTIVITIES
Net loss..............................................................  $      (22,965)        $        (6,170)
Adjustments to reconcile net loss to net cash
  used in operating activities:
  Depreciation and amortization.......................................           2,440                     447
  Allowance for doubtful accounts.....................................             201                     126
  Deferred stock compensation.........................................             660                      20
  Amortization of debt discount.......................................             292                      --
  Extraordinary debt extinguishment loss..............................           4,724                      --
  Changes in operating assets and liabilities:
     Accounts receivable..............................................          (1,312)                 (2,332)
     Other current assets.............................................             640                    (443)
     Other noncurrent assets..........................................            (552)                    (73)
     Accounts payable.................................................           1,766                    (544)
     Accrued expenses and other current liabilities...................           2,673                   2,602
     Other noncurrent liabilities.....................................             (59)                 (2,575)
                                                                        ---------------        ----------------
Net cash used in operating activities.................................         (11,492)                 (8,942)

INVESTING ACTIVITIES
Acquisition of property and equipment.................................         (22,026)                 (7,941)
Increase in restricted cash...........................................            (127)                     (1)
                                                                        ---------------        ----------------
Net cash used in investing activities.................................         (22,153)                 (7,942)

FINANCING ACTIVITIES
Proceeds from note payable............................................          49,427                      --
Repayments on note payable............................................         (42,412)                     --
Proceeds from issuance of common stock................................         212,538                      --
Proceeds from notes payable to related party..........................              --                   9,843
Proceeds from exercise of stock options...............................             999                      --
Repayment of capital leases...........................................          (1,182)                   (624)
                                                                        ---------------        ----------------
Net cash provided by financing activities.............................         219,370                   9,219
Net increase (decrease) in cash.......................................         185,725                  (7,665)
Cash at the beginning of period.......................................           5,523                  33,439
                                                                        ---------------        ----------------
Cash at the end of period.............................................  $      191,248         $        25,774
                                                                        ===============        ================
</TABLE>

         See accompanying notes that are an integral part of these condensed
consolidated Financial Statements.

                                       3
<PAGE>   6

                          NET2000 COMMUNICATIONS, INC.

         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
              THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1.    DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

     Net2000 Communications, Inc. (the "Company") is a rapidly-growing,
innovative provider of state-of-the art broadband telecommunications services.
As a competitive local exchange carrier ("CLEC"), the Company offers businesses
located throughout the mid-Atlantic and northeastern regions of the United
States cutting-edge, responsive solutions as an alternative to traditional
telephone companies. The Company focuses on high-end customers, primarily large-
and medium-sized businesses, and offers an integrated package of high-speed
data, Internet access, local telephone, and long distance services, over a
single, high capacity broadband connection.

     The Company intends to offer services in major markets throughout the
United States in three phases over the next 21 months. Our Phase I deployment
consists of 13 switches that transfer data traffic and 5 switches that transfer
voice traffic in 10 markets in the telecommunications-rich Boston to Washington,
D.C. corridor. Our Phase II deployment will establish our national presence with
10 additional data switches and 2 additional voice switches in 10 new markets
and is scheduled to be completed in December, 2000. Our Phase III deployment,
scheduled to be completed by late 2002, entails adding 4 additional markets and
upgrading all of our existing data switches to Internet protocol-based (IP)
switches that can provide both data and voice services.

     The accompanying consolidated financial statements as of March 31, 2000,
and for the three months ended March 31, 2000 and March 31, 1999, are unaudited
and, in the opinion of management, include all adjustments (consisting of normal
recurring adjustments and accruals) necessary to present fairly the results for
the periods presented in accordance with generally accepted accounting
principles. Our results of operations for any interim period are not necessarily
indicative of the results of operations for any other interim period or for a
full fiscal year. These financial statements should be read in conjunction with
our audited financial statements for the year ended December 31, 1999, included
in the Company's final prospectus, dated March 6, 2000, filed with the
Securities and Exchange Commission in connection with the Company's initial
public offering.

2. INITIAL PUBLIC OFFERING

     On March 10, 2000, the Company completed an initial public offering of
11,500,000 shares of its common stock. The offered shares generated proceeds to
the company, net of underwriting commissions and related expenses, of
approximately $212,000. Concurrent with the offering, all 11,738,437 shares of
the Company's convertible preferred stock automatically converted into
14,673,045 shares of common stock.

     Approximately $42,300 of the proceeds from the initial public offering were
used to retire outstanding notes payable and related accrued interest. The early
extinguishment of the notes resulted in the Company incurring an extraordinary
loss in March of approximately $4,700 related to unamortized debt discounts.

                                       4
<PAGE>   7

                          NET2000 COMMUNICATIONS, INC.

         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

3. NET LOSS PER COMMON SHARE

    Basic and diluted net loss per common share is calculated by dividing the
net loss by the weighted average number of common shares outstanding. Pro forma
net loss per share is computed using the weighted average number of shares used
for basic and diluted per share amounts and the weighted average redeemable
convertible preferred stock outstanding as if such shares were converted to
common stock at the time of issuance.

<TABLE>
<CAPTION>

                                                                     FOR THE THREE MONTHS ENDING MARCH
                                                                     ---------------------------------
                                                                                     31,
                                                                                     ---
                                                                         2000                 1999
                                                                  -------------------   ------------------
<S>                                                                <C>                    <C>
Loss before extraordinary item...............................      $          (18,241)    $         (6,170)
Preferred stock accretion....................................                  (3,759)              (5,394)
                                                                  -------------------   ------------------
Loss available to common stockholders before
extraordinary item...........................................                 (22,000)             (11,564)

Extraordinary item...........................................                  (4,724)
                                                                  -------------------   ------------------
Net Loss available to common stockholders....................      $          (26,724)    $        (11,564)
                                                                  ===================   ==================
Weighted average of common shares, denominator
  For basic loss per share...................................              17,910,673           10,109,490
Effect of dilutive securities:
  Stock options..............................................                  --                    --
  Warrants...................................................                  --                    --
  Convertible stock..........................................                  --                    --
                                                                  -------------------   ------------------
Denominator for diluted loss per share.......................              17,910,673           10,109,490
Pro forma adjustment for redeemable preferred
  Stock......................................................              10,641,989           14,673,045
                                                                  -------------------   ------------------
Pro forma denominator for basic and diluted loss
  per share..................................................              28,552,662           24,782,535
                                                                  ===================   ==================
Loss per share
  Basic and diluted before extraordinary item................                  $(1.23)              $(1.14)
  Extraordinary loss.........................................                    (.26)               --
                                                                  ===================   ==================
  Basic and diluted..........................................                  $(1.49)              $(1.14)
                                                                  ===================   ==================

  Pro forma basic and diluted before extraordinary item                       $  (.64)             $  (.25)
  Extraordinary loss.........................................                    (.17)               --
                                                                  -------------------   ------------------
  Pro forma basic and diluted................................                 $  (.81)             $  (.25)
                                                                  ===================   ==================
</TABLE>

Due to their antidilutive effects, outstanding shares of preferred stock, stock
options and warrants to purchase shares of common stock were excluded from the
computation of diluted earnings per share for all periods presented.


                                       5
<PAGE>   8

                          NET2000 COMMUNICATIONS, INC.

         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

4. PROPERTY AND EQUIPMENT

    Property and equipment, including leasehold improvements, are recorded at
cost. Depreciation is calculated using the straight-line method over the
estimated useful life ranging between three and eight years. Leasehold
improvements are amortized over the lesser of the related lease term or the
useful life. Interest capitalized and included in the cost of switch equipment
was $539 and $790 for the three months ended March 31, 2000 and the year ended
December 31, 1999, respectively.

    Construction in process includes equipment and other costs of switches which
are not complete as of the balance sheet dates. When construction of a switch is
complete, the balance of the assets are transferred to switch equipment and
depreciated in accordance with the Company's policy.

    Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                            MARCH 31,          DECEMBER 31,
                                                                              2000                 1999
                                                                       -----------------   ------------------
                                                                         (Unaudited)
<S>                                                                    <C>                 <C>
      Software.........................................................$         15,355    $         11,978
      Computer equipment................................................         10,778               9,005
      Office furniture and equipment....................................          5,793               4,951
      Leasehold improvements............................................          8,635               7,973
      Vehicles..........................................................            295                 295
      Switch equipment................................................           29,599              21,958
      Construction in process.........................................           27,842              21,130
                                                                       -----------------   ------------------
                                                                                 98,297              77,290
      Less accumulated depreciation and amortization                             (7,140)             (4,698)
                                                                       -----------------   ------------------
                                                                       $         91,157    $         72,592
                                                                       =================   ==================
</TABLE>

5. DEBT

    LONG TERM DEBT

    Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                          MARCH 31,            DECEMBER 31,
                                                                             2000                   1999
                                                                       -----------------   ------------------
<S>                                                                    <C>                 <C>
      Senior Term Loan Facility, face amount $75,000, due July 30,
      2009, effective interest rate of 12%............................ $         48,415    $         41,390
      Note payable to bank............................................              108                 118
      Capital lease obligations.......................................            8,245               8,554
                                                                       -----------------   ------------------
         Total........................................................           56,768              50,062
      Less current maturities.........................................           (3,802)             (4,023)
                                                                       -----------------   ------------------
      Total long-term debt............................................ $         52,966    $         46,039
                                                                       =================   ==================
</TABLE>

    Included in accrued expenses and other current liabilities at March 31,
2000, and December 31, 1999, is $3,802 and $4,023, currently payable under
capital lease obligations and notes payable to bank.

                                       6
<PAGE>   9

                          NET2000 COMMUNICATIONS, INC.

         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

    SECURED CREDIT FACILITIES

    On January 7, 2000, the Company sold an aggregate of $75,000 in principal of
the Senior Discount note with Northern Telecom, Inc. ("Nortel"), and proceeds of
$41,500 were received. This note was paid off with the proceeds from the initial
public offering on March 10, 2000.

    See Note 9. Subsequent Events for commitment on a $200,000 Senior Secured
Credit Facility.

    The Company paid interest of $2,083 and $108 related to the notes payable
and capital leases for the three months ended March 31, 2000 and 1999,
respectively.

6. RELATED PARTY NON-CURRENT LIABILITIES

    At March 31, 2000 and December 31, 1999, the Company had outstanding
purchases totaling $24,534 and $26,428, respectively, of Nortel goods and
services which have been classified as a non-current liability as these
purchases are subsequently financed under the Senior Term Loan Facility.

7. EQUITY

    EQUITY TRANSACTIONS

    On January 12, 2000, the Board of Directors and stockholders of the Company
approved a stock dividend of 0.25 shares for each outstanding share of common
stock. All references in the accompanying financial statements to the number of
shares of common stock and per share amounts have been restated to reflect the
dividend.

    During the three months ended March 31, 2000, the Company's employees
exercised 1,317,895 options under its 1997 and 1999 stock option plans for
aggregate proceeds of $999.

    During the three months ended March 31, 2000, amortization expense for stock
based compensation was $660, and relates to employees whose salaries are
included in selling, general and administrative expense.

    ACCRETION TO REDEMPTION VALUE OF SERIES A, SERIES B AND SERIES C PREFERRED
STOCK

    The Company has accreted its preferred stock to its redemption value based
on the fair market value of the Company using the effective interest method. The
Company recorded accretion totaling $3,759 and $5,394 for the three months ended
March 31, 2000 and 1999, respectively. On March 10, 2000, all outstanding shares
of preferred stock were converted into common stock at the closing of the
Company's initial public offering.

                                       7
<PAGE>   10

                          NET2000 COMMUNICATIONS, INC.

         CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

8. COMMITMENTS

    OPERATING LEASES

    The Company currently leases office space and equipment under non-cancelable
operating lease agreements, with expirations through 2015. Rent expense for the
three months ended March 31, 2000 and March 31, 1999 was $1,611 and $393,
respectively.

    The future minimum lease payments under non-cancelable operating leases at
March 31, 2000 are as follows:

<TABLE>
<CAPTION>
              FISCAL YEAR
              -----------
<S>                                                                       <C>
            2000......................................................... $      5,849
            2001.........................................................        7,410
            2002.........................................................        7,046
            2003.........................................................        6,968
            2004.........................................................        6,603
            Thereafter...................................................       34,404
                                                                          ----------------
                      Total                                               $     68,280
                                                                          ================
</TABLE>

9. SUBSEQUENT EVENTS (DOLLARS IN THOUSANDS EXCEPT CUSTOMERS, ACCESS LINES AND
PRICE PER LINE)

    On January 7, 2000, the Company entered into a letter of intent with Access
One Communications Corporation ("Access One") to sell approximately 250 resale
customer accounts representing approximately 10,000 access lines. This sale
will facilitate our focus on servicing customers connected to our network.
Under the letter of intent, Access One would pay $750 per access line, subject
to downward adjustments, but no less than $500 per access line, if either (i)
certain gross margin targets are not met within 90 days from the closing date
or (ii) there is customer attrition within 90 days from the closing date.
Access One will also have a right of first refusal to acquire any future resale
customers that the Company may offer for sale for a two year period from
closing. The purchase price, which may range from $3,000 to $5,500, will be
payable in the form of an interest-free promissory note payable over the next
nine months.

    In February 2000, the Company and Williams Communications entered into a
non-binding letter of intent detailing a proposed transaction between the two
parties in which the Company would purchase from Williams telecommunications
services that include service on Williams' fiber optic lines between cities and
within cities, advanced data services and collocation services. The parties have
not yet signed a definitive agreement regarding this transaction, and the
Company is also pursuing alternatives with other service providers.

    On April 14, 2000, the Company entered into a commitment under which TD
Securities (USA), Inc. will underwrite and lead a $200,000 Senior Secured Credit
Facility for the Company. The $200,000 Senior Secured Credit Facility commitment
consists of a $100,000 revolving credit facility and a $100,000 delayed draw
term loan facility, and will replace the existing $75,000 Senior Term Loan
Facility.

                                       8
<PAGE>   11

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

    We are a rapidly-growing, innovative provider of state-of-the-art broadband
telecommunications services. We offer businesses located throughout the
mid-Atlantic and northeastern regions of the United States cutting-edge,
responsive solutions as an alternative to traditional telephone companies. We
focus on high-end customers, primarily large- and medium-sized businesses,
having a minimum of 50 business access lines and spending $50,000 annually for
Internet access, data and voice telecommunications services. Today, we offer an
integrated package of high-speed data, Internet access, local telephone and long
distance services, primarily delivered from our own network over a single, high
capacity "broadband" connection and conveniently billed on a single invoice.

    We began operations in 1993 as a sales agent selling Bell Atlantic local
telephone services to businesses. Under this program, we received a one-time
commission for selling complex and high-capacity telecommunications services.
From 1994 through 1997, we were the largest producing Bell Atlantic sales agent
based on annual sales revenue.

    We initially used the resale of telecommunications services as a market
entry strategy while we began the build-out of our network. In January 1998, we
began offering long distance and non-local data services on a resale basis. In
June 1998, we left the Bell Atlantic sales agent program and began offering
Net2000-branded local telecommunications services on a resale basis directly to
large- and medium-sized businesses. We subsequently ceased acquiring new resale
customers in markets where we deployed our own network. In March 1999, we
deployed our first switch and began offering facilities-based telecommunications
services. In March 1999, we also ceased reselling Bell Atlantic local services
in all markets except New York City and Long Island, where we ceased reselling
in November 1999. We no longer use local resale as a primary customer
acquisition strategy, we do not intend to do so in the future and plan to
migrate as many of our existing resale customers as possible to our network. In
limited circumstances, we use resale to satisfy customer needs for data and long
distance services outside our network area.

    We have rapidly deployed our network since commencing services. As of March
31, 2000, we have deployed a total of twelve switches in our network, including
three voice switches and nine data switches throughout the mid-Atlantic and
northeastern regions of the United States under Phase I of our network
deployment schedule. When we complete Phase II in December 2000, we are
scheduled to have deployed a total of seven voice and 23 data switches in major
markets throughout the United States, thereby completing our national data
backbone network. Our Phase III deployment, scheduled to be completed by late
2002, entails adding 4 additional markets and upgrading all of our existing data
switches to Internet protocol-based (IP) switches that can provide both data and
voice services.

                                       9
<PAGE>   12

    During the first quarter of 2000, we entered three new on-net markets
including Newark, New Jersey, Long Island, New York, and Philadelphia,
Pennsylvania. We have had success in selling services to customers, with
approximately 92,600 lines sold since beginning our sales efforts in June 1998.
The table below provides selected key operational data as of:

<TABLE>
<CAPTION>
                                                      MARCH 31,         DECEMBER 31,      MARCH 31,
                                                         2000               1999            1999
                                                         ----               ----            ----
<S>                                                     <C>                 <C>               <C>
      On-Net Markets Served..........................           9                   6              0
      Number of Switches Deployed....................          12                   9              0
      Addressable Market (Business Lines)............   9,309,668           6,437,218            N/A
      Total Lines Sold...............................      92,600              76,500         36,500
      Total Lines Installed..........................      68,400              55,900         20,500
      Sales Force Employees..........................         176                 152             83
      Total Employees................................         530                 485            218
      Average Access Line Count Per Customer.........          79                  78             72
</TABLE>

    We are building our network by initially deploying lower-cost data switches
and leasing fiber optic lines from others. As we experience increases in
customer traffic in a given market, we will consider deploying voice switches
and owning a portion of the fiber optic lines. By deploying this "smart-build"
network strategy, we believe it offers a number of competitive advantages over
the traditional build-out strategy by enabling us to:

    - improve operating margins;
    - broaden service offerings and enhance customer control by providing more
        efficient service;
    - reduce network capital requirements;
    - improve speed to market and mitigate the risk associated with investing
        capital in long term assets, thereby preserving capital for other uses
        such as sales and marketing; and
    - reduce operating expenses.

    Although we believe our smart-build strategy will improve our results of
operations over the long-term, this strategy is expected to have a negative
effect on our financial condition and results of operations over the short-term.
We expect significant losses and negative cash flow for at least the next
several years, which we expect will be primarily attributable to the deployment
of our national network and expected expansion of our operations.

REVENUE

    We generate most of our revenue from the sale of local, long distance,
Internet access and other data services to large- and medium-sized businesses.
We are currently offering our full suite of services on our network in markets
where we have deployed our voice and data network. In markets where we have
deployed data switches, we offer data and long distance services on our network
and in markets where we have not deployed either a data or voice switch, we
offer data and long distance services on a resale basis to meet the needs of our
large customers.

    Our revenue consists of monthly recurring charges, usage charges and
initial, non-recurring charges. Monthly recurring charges include the fees paid
by our customers for lines in service, additional features on those lines and
collocation space. Usage charges consist of fees paid for each call made
generally measured by the minute but also measured by the call. Non-recurring
revenue is typically derived from fees charged to install new customer lines.

                                       10
<PAGE>   13

    In addition to revenue generated from end-user customers, we also generate
revenue from access fees charged to long distance companies for the local
origination and termination of long distance calls from or to our customers. If
an imbalance occurs based on inbound versus outbound local calls, we may also be
owed reciprocal compensation from the incumbent local exchange telephone company
("ILEC"). We bill the access and reciprocal compensation to the long distance
companies and local telephone companies on a monthly basis. Reciprocal
compensation is recognized as revenue when cash is received. Reciprocal
compensation and access charges are not significant components of our revenue
and represented approximately 6% of the Company's first quarter revenues.
Although we expect revenue from reciprocal compensation and access charges to
increase as more customers come onto our network, we anticipate deriving the
majority of our revenue from the sale of our telecommunications services to
large- and medium-sized businesses.

    Since we began providing Net2000-branded telecommunications services on a
resale basis as a market entry strategy and because we only provisioned our
first customer on our network in May 1999, the majority of our revenue for the
year ended December 31, 1999 was derived from the resale of telecommunications
services. However, because we no longer use resale as a primary customer
acquisition strategy, we expect this revenue to quickly diminish in the future
as a percentage of revenue. Within the next 12 months we expect to transition
our existing local resale customers to our network or sell such customers to
another carrier.

    We have had discussions, and will continue to have discussions in the
foreseeable future, concerning potential strategic acquisitions. Any
acquisitions occurring during the remainder of 2000 may further increase
revenue.

OPERATING COSTS AND EXPENSES

    We expect that our primary operating costs and expenses will consist of the
cost of providing our services and selling, general and administrative expenses.

    OPERATING COSTS. Our most significant expense will be the cost of leasing
certain elements of the full "bundle" of traditional telephone services for sale
to our local service subscribers, the cost of leasing part of the data network
being used by our data customers and the cost of leasing parts of the long
distance network being used by our long distance service customers.

    We purchase local telephone service for our customers on a "wholesale" basis
pursuant to interconnection agreements with the traditional telephone companies
in our targeted markets. Typically, these agreements establish the terms and
conditions of the interconnection arrangements along with the cost per minute to
be charged by each party for the calls that travel between each carrier's
network. We also purchase local telephone service for our customers on a
"retail" basis from ILECs in situations where interconnection arrangements are
not in place due to network or regulatory considerations.

    We provide data services to our customers over our own switches in nine
markets and leased fiber optic lines, and in other areas by leasing part of the
data network requirements from various telecommunications companies pursuant to
written agreements.

    We have entered into agreements with long distance providers in order to
originate or terminate long distance traffic in areas where we cannot do so over
our own network. These agreements provide for the origination or termination of
long distance services on a per-minute basis and contain minimum usage volume
commitments. If we fail to meet minimum volume commitments, we may be obligated
to pay underutilization charges. To date, we have met our usage volume
commitments and have not incurred any underutilization charges.

                                       11
<PAGE>   14

    To minimize our costs, we lease fiber optic lines between cities on a fixed
cost basis pursuant to written agreements with the providers of fiber optic
lines. These fiber optic lines interconnect our switches, enabling us to
cost-effectively provide much of the data and long distance needs of our
customers. For the needs of our customers beyond our network coverage, we
purchase that capacity on a wholesale basis under our interconnection agreements
with other telecommunications companies.

    If we underestimate our need for fiber optic lines, we may be required to
obtain capacity through more expensive means. These costs are usage sensitive
and will increase as our customers' long distance calling volume increases. As
traffic on specific routes increases, we may lease flat-rated long distance
trunk capacity to reduce our variable costs and improve our gross margins.

    In construction of a switch for a new market, we capitalize as a component
of property and equipment only the non-recurring charges associated with our
initial network facilities and monthly recurring costs of those network
facilities until the switch begins to carry revenue producing traffic. Once we
have deployed a switch in a particular market, maintenance expense will be a
significant part of our ongoing cost of services.

    Our primary expense associated with providing Internet access to our
customers is the cost of interconnecting our network with a national Internet
service provider. Currently, we provide our customers direct connectivity to the
Internet through a national Internet access provider.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our selling, general and
administrative expenses include our infrastructure costs, including selling and
marketing costs, customer care, billing, corporate administration, personnel and
network maintenance expenses. The nature of these costs have been generally
consistent throughout our history; however, these costs have increased to
support our growth as a telecommunications service provider. Our selling,
general and administrative expenses exclude non-cash compensation expense, which
is classified on our income statement as non-cash compensation expense.

    We employ a direct sales force in each market where we deploy local voice
capability. To attract and retain a highly qualified sales force, we offer our
sales personnel a compensation package that emphasizes commissions. We expect to
incur significant selling and marketing costs as we continue to hire additional
personnel and expand our operations.

    In addition to our direct sales force, we utilize sales agents who sell our
services and typically focus on specific niche markets or industries, augmenting
our direct sales initiatives. Customers acquired through agents are serviced by
our customer care representatives, are invoiced by us, and have the same direct
relationship with us as any of our other customers.

    During the first quarter of 2000, we announced that we had successfully
achieved "electronic bonding" of T-1 circuits between our operating support
systems and Bell Atlantic. As a result, the Company may achieve the following
results:

    - significantly reduce the installation interval from order to billing;
    - reduce customer turnover;
    - reduce operational expenses; and
    - reduce errors and inefficiencies with manually processing orders.

    We have deployed a state-of-the-art billing system that provides
consolidated billing on a single invoice for all services we provide to our
customers. We began issuing invoices in the first quarter of 1998, billing long
distance services and, subsequently, local, Internet access and other data
services.

                                       12
<PAGE>   15

    We have developed tailored systems and procedures for operational support
and other back office systems that are required to provision and track a
customer order from point of sale to the installation and testing of service.
These systems are operational on a stand alone basis today and will interface
automatically with trouble management, inventory, billing, collection and
customer care systems by the end of the fourth quarter of 2000. In October 1999,
we implemented e.mpower, our e-commerce, web-based customer interface. During
the first quarter of 2000, we continued to build on the robust feature set of
e.mpower by providing customers the ability to review near real-time network
utilization statistics as well as further enhancements and value-added customer
capabilities.

    In addition to the significant development and implementation cost of our
back office systems, we expect to incur expenses to maintain and enhance such
systems and capabilities. Such enhancements will be necessary to ensure our
systems remain current, effective, and meet the changing demands of the
marketplace. We will also incur ongoing expenses for customer care and billing.
As our strategy stresses the importance of personalized customer care, we expect
that the expenses related to our customer care department will remain a
significant part of our ongoing administrative expenses.

    Along with the development cost of the systems, we will also incur ongoing
expenses for customer care and billing. As our strategy stresses the importance
of personalized customer care, we expect that the expenses related to our
customer care department will remain a significant part of our ongoing
administrative expenses. We expect the cost to maintain, enhance and operate
these systems and provide these critical functions will grow and will continue
to be a significant part of our ongoing general and administrative expenses.

    We incur other costs and expenses, including the costs associated with the
maintenance of our network, administrative overhead, office leases and bad debt.
We expect that these costs will grow significantly as we expand our operations
and that administrative overhead will be a large portion of these expenses
during the initial phases of our business expansion. However, we expect these
expenses to become smaller as a percentage of our revenue as we build our
customer base and increase revenues.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999.

    TOTAL REVENUE. Total revenue increased 108% to $10.6 million for the three
months ended March 31, 2000 from $5.1 million for the three months ended March
31, 1999. The increase resulted primarily from increased volume of providing
telecommunications services to large and medium-sized businesses. Revenue from
resale activities increased 61% to $8.2 million for the three months ended March
31, 2000 from $5.1 million for the three months ended March 31, 2000. Revenue
from direct provision of telecommunications services increased to $2.4 million
for the three months ended March 31, 2000 from zero for the three months ended
March 31, 1999.

    OPERATING COSTS. Operating costs increased 93% to $8.5 million for the three
months ended March 31, 2000, from $4.4 million for the three months ended March
31, 1999. This increase was attributable to the cost of providing the
telecommunications services underlying the increased revenue from
telecommunications services. Operating costs for resale activities increased 55%
to $6.8 million for the three months ended March 31, 2000 from $4.4 million for
the three months ended March 31, 1999. Operating costs for direct provision of
telecommunications services increased to $1.7 million for the three months ended
March 31, 2000 from zero for the three months ended March 31, 1999.

    SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 152% to $16.9 million for the three months ended March 31,
2000, from $6.7 million for the three months ended March 31, 1999. This increase
was primarily attributable to the increase in sales, delivery and support
associated with the increase in revenue discussed above, the launch of our
telecommunications services and the hiring of key senior management and other
personnel to develop and implement certain infrastructure initiatives to support
our growth to new markets.

                                       13
<PAGE>   16

    DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 380% to $2.4 million for the three months ended March 31, 2000, from
$0.5 million for the three months ended March 31, 1999. This increase was
primarily due to depreciation of network elements and amortization of back
office systems and software.

    OTHER INCOME (EXPENSES). Interest income increased 175% to $1.1 million for
the three months ended March 31, 2000, from $0.4 million for the three months
ended March 31, 1999. This increase was due to investment income generated from
the net proceeds of the initial public offering and the Senior Discount note.
Interest expense increased 2000% to $2.1 million for the three months ended
March 31, 2000, from $0.1 million for the three months ended March 31, 1999. The
increase was due to increased levels of debt.

     EXTRAORDINARY LOSS. The early extinguishment of the Senior Discount note
resulted in the Company incurring an extraordinary loss of $4.7 million during
the three months ended March 31, 2000.

     NET LOSS AVAILABLE TO COMMON STOCKHOLDERS. The net loss available to common
stockholders increased 130% to $26.7 million for the three months ended March
31, 2000, from $11.6 million for the three months ended March 31, 1999. The
increase resulted primarily from the expansion of our network, the growth of our
sales force, and development of our back office support systems.

LIQUIDITY AND CAPITAL RESOURCES

    The development of our business, the deployment and start-up of switching
facilities in our targeted markets and the establishment of reliable operations
support systems will require significant capital to fund the following:

    - capital expenditures,
    - working capital needs,
    - debt service and
    - the cash flow deficits generated by operating losses.

    Our principal capital expenditure requirements will include:

    - the purchase and installation of digital switches,
    - the development and licensing of operations support systems and other
         automated back office systems,
    - in certain cases, leasing excess fiber optic capacity where projected
         traffic volume growth makes it economically attractive to do so, and
    - the consummation of potential strategic acquisitions.

    To date, we have funded our start-up expenditures through the initial public
offering, the private sale of equity securities and a Senior Term Loan Facility
with Nortel. We raised approximately $212.0 million from our initial public
offering after the underwriters' discount and related expenses. In November
1998, May 1998 and October 1997, we raised a combined total of approximately
$50.5 million through the private placement of our preferred stock. We have
entered into a credit agreement with Nortel Networks whereby Nortel will provide
draws to us under a term loan arrangement in an aggregate principal amount of up
to $75 million. These are to be used for the purchase of telecommunications
equipment and related software licenses and for working capital purposes. To
secure the facility, we have granted Nortel a security interest in all of our
assets. The loans must be repaid over a five-year period commencing November
2001. Interest payments are due monthly in the case of base rate (prime based)
draws or at the end of the LIBOR loan period. Interest will accrue at a lower
rate if we meet specified financial tests. On December 23, 1999, TD Securities
(USA), Inc. and Goldman Sachs Credit Partners L.P. purchased this facility.
Outstanding under the senior term loan facility as of March 31, 2000 and
December 31, 1999, were $48.4 million and $41.4 million, respectively.

                                       14
<PAGE>   17

    In July 1999, we issued to Nortel a Senior Discount note with a face amount
of $75 million. On January 7, 2000, we borrowed $41.5 million of principal, the
full amount available under this facility. In conjunction with that borrowing,
in July 1999, we issued to Nortel warrants to purchase 1,119,930 shares of
common stock at $0.008 per share. The warrants may be exercised in whole or in
part during the ten year exercise period which is from July 30, 1999 to July 30,
2009. Our Senior Discount note was extinguished upon our initial public
offering, resulting in an extraordinary loss of approximately $4.7 million on
the extinguishment of debt.

    Net cash used in operating activities was $11.5 million for the three months
ended March 31, 2000 and $8.9 million for the three months ended March 31, 1999.
The increase of $2.6 million is primarily due to an increase in operating
losses, offset by an increase in non-cash reconciling items for deferred stock
compensation, extraordinary debt extinguishment, depreciation and amortization,
an increase in accounts receivable and a decrease in other noncurrent
liabilities. Net cash used in investing activities was $22.2 million for the
three months ended March 31, 2000 and $7.9 million for the three months ended
March 31, 1999. The increase of $14.3 million represents an increase in capital
expenditures during the first quarter for our expansion into new markets as well
as continued investment in our back office systems. Net cash provided by
financing activities was $219.4 million for the three months ended March 31,
2000 and $9.2 million for the three months ended March 31, 1999. The increase of
$210.2 million is primarily the result of net proceeds received from the
Company's initial public offering. Our capital expenditures were approximately
$7.9 million for the three months ended March 31, 1999 and approximately $22.0
million for the three months ended March 31, 2000. The increase of $14.1 million
was primarily due to the rapid deployment of our network as well as continued
investment in our back office systems.

     Many investment analysts use the measure of earnings before deducting
interest, taxes, depreciation and amortization, also commonly referred to as
"EBITDA," as a way of evaluating a company. EBITDA losses increased 147% to
$14.8 million for the three months ended March 31, 2000, from $6.0 million for
the three months ended March 31, 1999. We expect to experience additional
operating losses and negative EBITDA as a result of our development and market
expansion activities.

    On April 14, 2000, we entered into a commitment under which TD Securities
(USA), Inc. will underwrite and lead a $200 million Senior Secured Credit
Facility for the Company. The $200 million Senior Secured Credit Facility
commitment consists of a $100 million revolving credit facility and a $100
million delayed draw term loan facility, and will replace the existing $75
million Senior Term Loan Facility. We expect to close on this secured credit
facility prior to the end of the second quarter of 2000.

    We expect to make significant capital outlays for the foreseeable future to
continue the development activities called for in our current business plan and
to fund expected operating losses. Until such time as we begin to generate
positive cash flow from operations, these capital expenditures will need to be
financed with additional debt and equity capital. We believe that our current
resources will be sufficient to satisfy our liquidity needs for the succeeding
12 months; however, we cannot make any assurances to that effect. Thereafter, we
will need substantial additional capital. If our plans or assumptions change, if
our assumptions prove to be inaccurate, or if we experience unexpected costs or
competitive pressures, we will be required to seek additional capital sooner
than currently expected. In particular, if we elect to pursue significant
additional acquisition opportunities, our cash needs may be increased
substantially, both to finance any such acquisitions and to finance development
efforts in new markets. We cannot assure you that our current projection of cash
flow and losses from operations, which will depend upon numerous future factors
and conditions and many of which are outside of our control, will be accurate.
Actual results will almost certainly vary materially from our current
projections. It is likely that actual costs and revenues will vary from expected
amounts which will likely affect our future capital requirements. Because our
cost of expanding our network services and sales efforts, funding other
strategic initiatives and operating our business will depend on a variety of
factors, including, among other things:

    - the number of subscribers and the services for which they subscribe,
    - the nature and penetration of services that may be offered by us,
    - regulatory and legislative developments, and
    - the response of our competitors to a loss of customers to us and changes
         in technology.

                                       15
<PAGE>   18

    We believe that we have substantially funded Phases I and II of our business
plan with existing cash and committed borrowing capacity. We expect to fund the
capital expenditures and operating losses associated with Phase III by raising
additional capital from the equity or debt markets on an opportunistic basis. We
cannot assure you that we will be able to raise additional capital on
satisfactory terms or at all. If we decide to raise additional funds through the
incurrence of debt, our interest obligations will increase and we may become
subject to additional or more restrictive financial covenants. In the event that
we are unable to obtain such additional capital or to obtain it on acceptable
terms or in sufficient amounts, we may be required to delay the development of
our network and business plans or take other actions that could materially and
adversely affect our business, operating results and financial condition.

PROPOSED TRANSACTIONS

    On January 7, 2000, we entered into a letter of intent with Access One
Communications Corporation ("Access One") to sell approximately 250 resale
customer accounts representing approximately 10,000 access lines. This sale will
facilitate our focus on servicing customers connected to our network. Under the
letter of intent, Access One would pay $750 per access line, subject to downward
adjustments, but no less than $500 per access line, if either (i) certain gross
margin targets are not met within 90 days from the closing date or (ii) there is
customer attrition within 90 days from the closing date. Access One will also
have a right of first refusal to acquire any future resale customers that we may
offer for sale for a two year period from closing. The purchase price, which may
range from $3,000 to $5,500, will be payable in the form of an interest-free
promissory note payable over the next nine months.

    In February 2000, we and Williams Communications entered into a non-binding
letter of intent detailing a proposed transaction between the two parties in
which we will purchase from Williams telecommunications services that will
include service on Williams' fiber optic lines between cities and within cities,
advanced data services and collocation services. We expect this arrangement to
lower our network costs, allow us to offer new and improved services to our
customers and provide better control of our network connections. The parties
have not yet signed a definitive agreement regarding this transaction, and we
are also pursuing alternatives with other service providers.

IMPACT OF THE YEAR 2000 ISSUE

    We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
ongoing business as a result of the "Year 2000 issue." However, it is possible
that the full impact of the date change, which was of concern due to computer
programs that use two digits instead of four digits to define years, has not
been fully recognized. For example, it is possible that Year 2000 or similar
issues such as leap year-related problems may occur with billing, payroll, or
financial closings at month, quarterly, or year-end. We believe that any such
problems are likely to be minor and correctable. In addition, we could still be
negatively affected if our customers or suppliers are adversely affected by the
Year 2000 or similar issues. We currently are not aware of any significant Year
2000 or similar problems that have arisen for our customers and suppliers.

    We expended $0.3 million on Year 2000 readiness efforts from 1997 to 1999.
These efforts included replacing some outdated, noncompliant hardware and
noncompliant software as well as identifying and remediating Year 2000 problems.

                                       16
<PAGE>   19

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

     Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and we intend that such forward-looking statements be subject to the
safe harbors created thereby. The words "believes," "expects," "estimate,"
"anticipates," "will be," "should" and similar words or expressions identify
forward-looking statements made by us or on our behalf. These forward-looking
statements are subject to many uncertainties and factors that may cause our
actual results to be materially different from any future results expressed or
implied by such forward-looking statements. We do not undertake any obligation
to update or revise any forward-looking statements made by us or on our behalf,
whether as a result of new information, future events or otherwise.

RISK FACTORS

A SIGNIFICANT AMOUNT OF OUR BUSINESS COMES FROM A CONCENTRATED GROUP OF
CUSTOMERS AND ANY DECREASE IN REVENUE FROM THESE CUSTOMERS COULD ULTIMATELY
DECREASE OUR INCOME.

     A significant portion of our revenue as a competitive telecommunications
provider has been generated from a limited number of customers. In the three
months ended March 31, 2000, our top 10 customers, approximately 1% of our
customer base, accounted for approximately 23% of our revenue, and we expect
that these customers will continue to account for a significant portion of our
revenue in the future. The loss of a number of these key customers could
significantly decrease our revenue, which would seriously harm our operating
results and decrease our income.

OUR COSTS COULD RISE IF WE ARE UNABLE TO LEASE FIBER OPTIC LINES FROM OTHERS,
WHICH MAY NOT BE AVAILABLE ON ATTRACTIVE TERMS OR AT ALL.

     We initially seek to lease fiber optic lines from other telecommunications
services providers to interconnect our switches and have access to our customers
and the networks of other providers. We cannot assure you that service providers
will lease or continue to lease fiber optic lines to us on economically
attractive terms and on a timely basis. If we fail to obtain needed leased fiber
optic lines on satisfactory terms, our ability to reach certain markets could be
delayed or we may need to make additional unexpected up-front capital
expenditures to install our own fiber optic lines. In addition, any extended
interruption in a telecommunications services provider's network from which we
lease fiber optic lines could disrupt our operations and have a material adverse
effect on us.

RESISTANCE BY POTENTIAL CUSTOMERS TO ACCEPT US AS A NEW PROVIDER OF
TELECOMMUNICATIONS SERVICES MAY REDUCE OUR ABILITY TO INCREASE OUR REVENUE.

     The success of our service offerings will be dependent upon, among other
things, the willingness of additional customers to accept us as a new provider
of broadband telecommunications services. We cannot assure you that we will be
successful in overcoming the resistance of potential customers to change their
service provider, particularly those that purchase services from the ILECs, or
that customers will buy our services. The lack of customer acceptance would
reduce our ability to increase our revenue.

OUR LIMITED OPERATING HISTORY PROVIDING TELECOMMUNICATIONS SERVICES MAKES
EVALUATING OUR PERFORMANCE DIFFICULT.

     We began operating as a CLEC in July 1998. Prior to that, we were a sales
agent for Bell Atlantic, a business from which we transitioned in June 1998. As
a result of our limited operating history as a CLEC, you have limited operating
and financial data with which to evaluate our past performance and determine how
we will perform in the future. We cannot assure you that we will be able to
successfully operate our new business.

                                       17
<PAGE>   20

WE HAVE A HISTORY OF OPERATING LOSSES, AND WE MAY NOT BE PROFITABLE IN THE
FUTURE.

     We have incurred significant losses since we began operations as a CLEC and
expect to continue to incur losses in the future as we build our network. As of
March 31, 2000, we had an accumulated deficit of $111 million. We expect to
experience losses during our network and service deployment which will continue
for the foreseeable future. Prolonged effects of generating losses without
additional funding may restrict our ability to pursue our business strategy.
Unless our business plan is successful, your investment in our common stock may
result in a complete loss of your invested capital.

     If we cannot achieve profitability from operating activities, we may not be
able to meet:

     our capital expenditure requirements;

     our debt service obligations; or

     our working capital needs.

OUR FAILURE TO PROPERLY MANAGE GROWTH COULD ADVERSELY AFFECT THE CONTINUED
IMPLEMENTATION AND EXPANSION OF OUR SERVICE OFFERINGS.

     If we successfully implement our business plan, we will rapidly expand our
operations. We cannot assure you that we will successfully implement the
necessary operational and financial systems or that we will successfully
maintain the systems necessary to manage a competitive business in an evolving
industry. Any failure to implement and improve these systems at a pace
consistent with the growth of our business and industry changes could cause
customers to switch service providers which would have a material adverse effect
on us.

     We expect to expand our business plan to include additional switches,
markets and telecommunications services. We cannot assure you that we can:

     implement these additional switches or that such implementation will be
technically or economically feasible;

     successfully develop or market additional products and services; or

     operate and maintain our new networks and telecommunications services
profitably.

IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY MANAGEMENT AND PERSONNEL, WE MAY NOT
BE ABLE TO IMPLEMENT OUR BUSINESS PLAN.

     We believe that our future success will be due, in part, to our experienced
management team, including Messrs. Thomas, Heintzelman, Mendes and Clarke.
Losing the services of one or more members of our management team could
adversely affect our business and our expansion efforts and possibly prevent us
from:

     further deploying and improving our operational, financial and information
systems and controls;

hiring and retaining qualified sales, marketing, administrative, operating and
technical personnel; and

     training and managing new personnel.

                                       18
<PAGE>   21

     In addition, competition for qualified employees has intensified in recent
years, especially in the Northern Virginia region where we are headquartered,
and may become even more intense in the future. Our ability to implement our
business plan is dependent on our ability to hire and retain a large number of
new employees each year. If we are unable to hire sufficient qualified
personnel, our ability to increase revenue could be impaired, and customers
could experience delays in installation of service or experience lower levels of
customer care.

WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FUNDS, WHICH COULD PREVENT US FROM
IMPLEMENTING OUR BUSINESS PLAN.

     We need additional financing for future capital expenditures to implement
our business plan, including:

     automated back office systems;

     offering new broadband telecommunications services;

     acquisitions;

     paying scheduled principal and interest payments on our bank and TD
Securities (USA), Inc. debt; and financing operating losses.

     We cannot assure you that any additional financing we may need will be
available to us on favorable terms or at all. If we do not obtain needed
financing, our ability to implement our business plan will be impaired.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST OTHER COMPETITORS THAT HAVE
SIGNIFICANTLY GREATER RESOURCES THAN WE DO WHICH COULD CAUSE US TO LOSE
CUSTOMERS AND IMPEDE OUR ABILITY TO ATTRACT NEW CUSTOMERS.

     The telecommunications industry is highly competitive and is affected by
the introduction of new services by, and the market activities of, major
industry participants. Several of our competitors are substantially larger and
have greater financial, technical and marketing resources than we do. We have
not achieved, and do not expect to achieve, a significant market share for any
of the broadband telecommunications services we offer in our target markets. In
particular, larger competitors have certain advantages over us which could cause
us to lose customers and impede our ability to attract new customers, including:

     long-standing relationships and brand recognition with customers;

     financial, technical, marketing, personnel and other resources
substantially greater than ours;

     more funds to deploy telecommunications services;

     potential to lower prices of competitive telecommunications services; and

     fully-deployed networks.

     We face competition from other current and potential market entrants,
including:

     domestic and international long distance providers seeking to enter,
re-enter or expand entry into the local telecommunications marketplace; and

     other domestic and international competitive telecommunications providers,
resellers, cable television companies and electric utilities.

                                       19
<PAGE>   22

     A continuing trend toward combinations and strategic alliances in the
telecommunications industry could give rise to significant new competitors which
could cause us to lose customers and impede our ability to attract new
customers.

THE CONDUCT OF THE ILECS, INCLUDING BELL ATLANTIC, COULD CAUSE US TO LOSE
CUSTOMERS.

     Currently, we depend on our interconnection agreements with Bell Atlantic
and GTE, and in the future, we will need to execute similar agreements with the
other ILECs operating in our target markets. Interconnection agreements are
agreements between local telecommunications services providers that set forth
the terms and conditions governing how those providers will interconnect their
networks and/or purchase or lease certain network facilities and services. Our
interconnection agreements with Bell Atlantic and GTE provide that our
connection and maintenance orders will receive the same attention as Bell
Atlantic's and GTE's end-user customers and that Bell Atlantic and GTE will
provide capacity at key telecommunications intersections to keep call blockage
within industry standards. Accordingly, we are and will continue to be dependent
on Bell Atlantic and GTE and, as we expand our network, we will be dependent on
other ILECs, to assure uninterrupted service and competitive services. Blocked
calls result in customer dissatisfaction and risk the loss of business.
Interconnection agreements, such as our agreements with Bell Atlantic and GTE,
typically have short terms, requiring us to renegotiate frequently. Some of our
agreements with Bell Atlantic have one year or less remaining before we will
have to renegotiate them. If the terms of any interconnection agreements are not
favorable to us, it could have a material adverse effect on our business.

     ILECs may not provide timely installation of business access lines or
adequate service quality, thereby impairing our reputation with customers who
can choose to switch back to the ILECs. In addition, the prices set forth in our
interconnection agreements may be subject to significant rate increases at the
discretion of the regulatory authority in each state in which we operate. Part
of our profitability depends on these state-regulated rate structures. We cannot
assure you that the rates charged to us under the interconnection agreements
will allow us to offer low enough usage rates to attract a sufficient number of
customers and to operate our business profitably.

THE TELECOMMUNICATIONS INDUSTRY IS UNDERGOING RAPID TECHNOLOGICAL CHANGES, AND
OUR FAILURE TO KEEP UP WITH SUCH CHANGES COULD CAUSE US TO LOSE CUSTOMERS AND
IMPEDE OUR ABILITY TO ATTRACT NEW CUSTOMERS.

      The telecommunications industry is subject to rapid and significant
changes in technology, customer requirements and preferences and our failure to
keep up with such changes could cause us to lose customers and impede our
ability to attract new customers. New technologies could reduce the
competitiveness of our network. We may be required to select one technology over
another, but at a time when it would be impossible to predict with any certainty
which technology will prove to be the most economic, efficient or capable of
attracting customer usage. Subsequent technological developments may reduce the
competitiveness of our network and require unbudgeted upgrades or additional
products that could be expensive and time consuming. If we fail to adapt
successfully to technological changes or obsolescence or fail to obtain access
to important technologies, we could lose customers and impede our ability to
attract new customers.

                                       20
<PAGE>   23

A SYSTEM FAILURE COULD CAUSE DELAYS OR INTERRUPTIONS OF SERVICE WHICH COULD
CAUSE US TO LOSE CUSTOMERS.

     Our success will require that our network provides competitive reliability,
capacity and security. Some of the risks to our network and infrastructure
include:

     physical damage to business access lines;

     power surges or outages;

     capacity limitations;

     software defects;

     lack of redundancy; and

     disruptions beyond our control.

      Such disruptions may cause interruptions in service or reduced capacity
for customers, any of which could cause us to lose customers.

IF OUR BACK OFFICE AND CUSTOMER CARE SYSTEMS ARE UNABLE TO MEET THE NEEDS OF OUR
CUSTOMERS, WE MAY LOSE CUSTOMERS.

     Sophisticated back office processes and information management systems are
vital to our growth and our ability to achieve operating efficiencies. We are
dependent on Saville for our billing system, Metasolv for our provisioning
systems, and Siebel for our customer support system. We cannot assure you that
these systems will perform as expected as we grow our customer base which could
cause us to lose customers. The following could prevent our back office and
customer care systems from meeting the needs of our customers:

     failure of third-party vendors to deliver products and services in a timely
manner at acceptable costs;

     our failure to identify key information and processing needs;

     our failure to integrate products or services effectively;

     our failure to upgrade systems as necessary; or

     our failure to attract and retain qualified systems support personnel.

IF MISAPPROPRIATION CLAIMS AGAINST OUR SOFTWARE DEVELOPER ARE FOUND TO HAVE
MERIT, OUR USE OF THE E.MPOWER SOFTWARE COULD BE IMPEDED AND RESULT IN OUR
INABILITY TO PROVIDE A CUSTOMER SELF-CARE SYSTEM.

     The developer of e.mpower has been accused of misappropriating the
intellectual property of another of its customers for use in e.mpower. If this
customer's claims are found to have merit, our use of e.mpower could be impeded
and result in our inability to provide our customers with this self-care system.

                                       21
<PAGE>   24

DEREGULATION OF THE TELECOMMUNICATIONS INDUSTRY INVOLVES UNCERTAINTIES, AND THE
RESOLUTION OF THESE UNCERTAINTIES COULD ADVERSELY AFFECT OUR BUSINESS BY
FACILITATING GREATER COMPETITION AGAINST US, REDUCING POTENTIAL REVENUES OR
RAISING OUR COSTS.

     The Telecommunications Act of 1996 ("Telecommunications Act") provides for
significant deregulation of the telecommunications industry, including the local
telecommunications and long distance industries. This federal statute and the
related regulations remain subject to judicial review and additional rulemakings
of the Federal Communications Commission, or FCC, making it difficult to predict
what effect the legislation will have on us, our operations and our competitors.
Several regulatory and judicial proceedings have recently concluded, are
underway or may soon be commenced, that address issues affecting our operations
and those of our competitors, which may cause significant changes to our
industry. We cannot predict the outcome of these developments, nor can we assure
you that these changes will not have a material adverse effect on us.

GOVERNMENTAL REGULATIONS

    Our telecommunications services are subject to regulation by federal, state
and local government agencies. Generally, Internet and certain data services are
not directly regulated, although the underlying telecommunications services may
be regulated in certain instances. We hold various federal, state and local
regulatory authorizations for our regulated service offerings. The FCC has
jurisdiction over our facilities and services to the extent those facilities are
used in the provision of interstate or international telecommunications
services. State regulatory commissions also have jurisdiction over our
facilities and services to the extent they are used in intrastate
telecommunications services. Our network may also be subject to certain local
regulations such as licensing, building codes and generally applicable public
safety and welfare requirements. Many of the regulations issued by these
regulatory bodies may change and are the subject of various judicial
proceedings, legislative hearings and administrative proposals. We cannot
predict what impact, if any, these proceedings or changes will have on our
business or results of operations.

FEDERAL REGULATION

    The FCC regulates us as a non-dominant common carrier. Non-dominant carriers
are subject to lesser regulation than dominant carriers but remain subject to
the general requirements that they offer just and reasonable rates and terms of
service and do not unreasonably discriminate in the provision of services. We
have obtained authority from the FCC to provide domestic interstate long
distance services and international services between the United States and
foreign countries and have filed the required tariffs.

THE TELECOMMUNICATIONS ACT

    In February 1996, the Telecommunications Act was passed by the United States
Congress and signed into law by President Clinton. This comprehensive
telecommunications legislation was designed to increase competition in the
long-distance and local telecommunications industries. The Telecommunications
Act imposes a variety of duties on the ILECs to facilitate competition in the
provision of local telecommunications and access services. Like all local
telecommunications carriers, where we provide local telephone services, we are
required to provide network interconnection, reciprocal compensation, resale,
number portability, and access to rights-of-way. ILECs, such as the Regional
Bell Operating Companies ("RBOCs"), are subject to requirements in addition to
these, including the duty to: undertake additional obligations applicable to the
interconnection of their networks; permit collocation of competitors' equipment
at their central offices; provide access to individual network elements,
including network facilities, features and capabilities, on non-discriminatory
and cost-based terms; and offer their retail services for resale at wholesale
rates.

                                       22
<PAGE>   25

    The Telecommunications Act also eliminates certain pre-existing prohibitions
on the provision of traditional long distance services by the RBOCs and GTE on a
phased-in basis. RBOCs currently are permitted to provide long distance service
outside those states in which they provide local telecommunications service. In
order to provide this category of long distance services, the RBOCs must receive
all requisite state or federal regulatory approvals customary to the provision
of long distance services. RBOCs will be permitted to provide traditional long
distance service within the regions in which they also provide local
telecommunications service upon demonstrating to the FCC that they have complied
with a statutory checklist of requirements intended to open local telephone
markets to competition. GTE and other non-RBOC traditional telephone companies
are not limited by this regional restriction. To date, only Bell Atlantic has
been granted approval to provide long distance services in its local telephone
service region and that is restricted to long distance calls originating in New
York. Bell Atlantic and other RBOCs have initiated similar proceedings to obtain
such long distance service authority in other states. Entry of Bell Atlantic and
other RBOCs into the long distance business could result in substantial
competition to our services and may have a material adverse effect on us.

    When the FCC permits the RBOCs to provide traditional long distance service
in their local telephone service regions, they will be able to offer integrated
local and long distance services and may enjoy a significant competitive
advantage. However, the Telecommunications Act imposes restrictions on the RBOCs
after they are permitted to enter the long distance services market in their
local service regions, and the FCC imposed conditions on its approval of the
Bell Atlantic application for authority to provide long distance services in New
York that are intended to prevent Bell Atlantic from engaging in
anti-competitive behavior. The FCC has imposed similar conditions on its
approval of various mergers involving RBOCs, and we expect the FCC to continue
such oversight of RBOCs seeking to reenter the long distance market in their
operating regions.

    The FCC is charged with establishing national rules implementing certain
portions of the Telecommunications Act. In August 1996, the FCC released an
order adopting an extensive set of regulations governing network
interconnection, network unbundling and resale of ILEC services, under the
Telecommunications Act. In July 1997, the United States Court of Appeals for the
Eighth Circuit issued a decision vacating substantial portions of these rules,
principally on the ground that the FCC had improperly intruded into matters
reserved for state jurisdiction. In January 1999, the United States Supreme
Court reversed many aspects of the Eighth Circuit's decision, concluding that
the FCC has jurisdiction to implement the local competition provisions of the
Telecommunications Act. In so doing, the Supreme Court found that the FCC has
authority to establish pricing guidelines applicable to the provision of
unbundled network elements and the resale of ILEC services, to prevent ILECs
from disaggregating existing combinations of network elements, and to establish
rules enabling competitors to select all or portions of any existing ILEC
interconnection agreements for use in their own interconnection agreements with
traditional telephone companies. The Supreme Court, however, did not evaluate
the specific pricing methodology adopted by the FCC and has remanded the case to
the Eighth Circuit for further consideration. While the Supreme Court resolved
many issues, including the FCC's jurisdictional authority, other issues remain
subject to further consideration by the courts and the FCC.

    Although most of these FCC rules were upheld by the Supreme Court, the Court
found that the FCC had not adequately considered certain statutory criteria for
requiring ILECs to make unbundled network elements available to competitive
telecommunications providers. The FCC then conducted new proceedings to
reexamine which unbundled network elements ILECs must provide. On November 5,
1999, the FCC released an order in which it required that ILECs make available
most, but not all, of the network elements specified in its initial order, as
well as certain new network elements not included on the original list. The FCC
also clarified the obligation of ILECs to provide certain combinations of
network elements. Various parties have sought reconsideration and appeal of the
FCC's order. We are unable to predict the outcome of such reconsideration and
appellate proceedings.

                                       23
<PAGE>   26

    In the first half of 1998, four RBOCs petitioned the FCC to be relieved of
certain regulatory requirements in connection with their provision of advanced
telecommunications services. Advanced telecommunications services are wireline,
broadband telecommunications services, as opposed to traditional voice services,
and are widely used for Internet access, often relying on DSL technology and
data-switched technology. In response, in August 1998, the FCC issued an order
and notice which clarified its views on the applicability to advanced services
of existing statutory requirements in the Telecommunications Act relating to
network interconnection and unbundling. The FCC's decision is on appeal. The FCC
also solicited public comments on a wide variety of issues associated with the
provision of advanced services by wireline carriers. The FCC has not yet
determined whether it will permit ILECs generally to deploy advanced
telecommunications services through a separate affiliate, which would not be
regulated as an ILEC and, therefore, would not be subject to the
Telecommunications Act's unbundling and resale provisions, (although similar
treatment was extended to SBC Corporation as part of the approval of its merger
with Ameritech Corporation).

    In March 1999, the FCC adopted a further order strengthening the rights of
CLECs to obtain physical collocation for purposes of interconnecting with ILEC
networks. The order also requires ILECs to permit CLECs to collocate equipment
used for interconnection and/or access to unbundled network elements even if
such equipment includes certain switching or enhanced services functions.
Additionally, the FCC adopted rules designed to limit ILECs' ability to deny
CLECs the ability to deploy transmission hardware in collocation space by
purporting that the equipment will cause electrical interference with other
wires, and it proposed rules making these requirements more specific. In the
recent proceeding addressing unbundled network elements, however, the FCC
declined to require ILECs to provide CLECs with unbundled access to data
switching services, except in limited circumstances. The FCC's decisions on
these matters are currently subject or expected to be subject to judicial
review. On March 17, 2000, the United States Court of Appeals for the District
of Columbia Circuit reversed significant portions of the FCC's collocation order
and rules, and remanded the issue to the FCC for further proceedings. Among
other things, the appeals court decision seemingly overturns the FCC's decision
to require ILECs to permit competitors to collocate certain equipment that has
enhanced services functionality. We cannot be certain of the ultimate outcome of
these proceedings.

ACCESS REGULATION

    The FCC regulates the interstate access rates charged by ILECs for the
origination and termination of interstate long distance traffic. Over the past
few years, the FCC has implemented changes in interstate access rules that
result in the restructuring of the access charge system and changes in access
charge rate levels. On remand from an appeals court, the FCC is conducting
further proceedings to explain and refine its recent reforms affecting access
charge rate levels. The FCC also is considering several proposals to further
reform access charge rate structures that may result in the reduction of access
rates.

    The FCC has also raised the issue of whether it should begin to regulate the
access charges imposed by CLECs. Currently, CLECs are free to charge access
rates at any level they deem appropriate, subject to overarching statutory
requirements that such rates must be just, reasonable and non-discriminatory. A
decision by the FCC to regulate CLECs access charges could result in the
reduction of those charges for all CLECs and thereby reduce our access charge
revenues.

    Over the past few years, the FCC has granted ILECs significant flexibility
in pricing their interstate special and switched access services. We anticipate
that this pricing flexibility will result in ILECs lowering their prices in high
traffic density areas, the probable areas of competition with us. We also
anticipate that the FCC will grant ILECs increasing pricing flexibility as the
number of potential competitors increases in each of these markets. In August
1999, the FCC released an order that granted substantial additional pricing
flexibility to ILECs for certain interstate services. Among other things, the
FCC granted immediate pricing flexibility to many ILECs and also established a
framework for granting greater flexibility in the pricing of all interstate
access services once they satisfy certain prescribed competitive criteria. The
FCC also invited public comment on proposals for yet further ILEC pricing
flexibility.

                                       24
<PAGE>   27

    In addition, in various contexts, certain ILECs have asked the FCC to rule
that certain calls made over the Internet are subject to regulation as
telecommunications services including the assessment of interstate switched
access charges and universal service fund assessments. Although the FCC has
suggested that Internet-based telephone-to-telephone calls may be considered
telecommunications services, it has not reached a final decision on that issue.

UNIVERSAL SERVICE

    In 1997, the FCC established a significantly expanded universal service
regime to subsidize the cost of telecommunications services to high cost areas,
and to low-income customers and qualifying schools, libraries and rural health
care providers. Providers of telecommunications services, like us, as well as
certain other entities, must pay for these programs. Our share of the payments
into these subsidy funds will be based on our share of certain defined
telecommunications end-user revenues. Various states are also in the process of
implementing their own universal service programs. We are currently unable to
quantify the amount of subsidy payments we will be required to make in the
future or the effect that these required payments will have on our financial
condition. Moreover, the FCC's universal service rules remain subject to change,
which could increase our costs.

DETARIFFING

    In November 1996, the FCC issued an order that required non-dominant, long
distance carriers, like us, to cease filing tariffs for domestic long distance
services. Tariffing is a traditional requirement of telephone companies whereby
such companies publish for public inspection at state and federal regulatory
agencies all terms, conditions, pricing, and available services governing the
sale of all such services to the public. The FCC's order established a
nine-month transition period to allow carriers sufficient time to adjust for
detariffing. The U.S. Court of Appeals for the District of Columbia Circuit
subsequently stayed the detariffing order, pending its decision on challenges to
the FCC's order by several long distance companies. In June 1997, the FCC issued
another order stating that non-dominant local services providers may withdraw
their tariffs for interstate access services provided to long distance carriers.
In March 1999, the FCC adopted further rules that, while still maintaining
mandatory detariffing, required long distance carriers to make specific public
disclosures on the services providers' Internet websites of their rates, terms
and conditions for domestic interstate services. The effective date of these
rules was also delayed until the appeals court rendered a decision on the appeal
of the FCC's detariffing order. In April 2000, the appeals court affirmed the
FCC's mandatory detariffing order in its entirety. Once the court issues its
mandate, we expect the FCC to clarify the length of an appropriate transition
period to allow carriers to withdraw federal tariffs and move to contractual
relationships with their customers. Once the mandatory detariffing policy takes
effect, long distance carriers will be required to comply with the new public
information requirements imposed by the FCC in lieu of tariff filings. In the
absence of tariffs, non-dominant interstate services providers will no longer be
able to rely on the filing of tariffs with the FCC as a means of providing
notice to customers of prices, terms and conditions under which they offer their
domestic interstate services, and will have to rely more heavily on individually
negotiated agreements with end-users.

RECIPROCAL COMPENSATION

         The Telecommunications Act of 1996 requires both CLECs and ILECs to
establish reciprocal compensation arrangements for the transport and termination
of telecommunications traffic. When two different carriers collaborate to
complete a call, these reciprocal compensation arrangements ensure compensation
both for the originating carrier, which receives payment from the customer, and
for the terminating carrier, which gets paid by the originating carrier.

                                       25
<PAGE>   28

         In late 1998 and early 1999, the FCC determined that both dedicated
access and dial-up calls from a customer to an Internet service provider are
primarily interstate in nature and, therefore, are to be considered interstate
calls, subject to the FCC's jurisdiction. The FCC initiated a proceeding to
determine what effect this regulatory classification will have on the obligation
of a service provider to pay reciprocal compensation for dial-up calls to
Internet service providers and other customers that originate on one local
service provider's network and terminate on another local service provider's
network. The FCC also permitted existing reciprocal compensation arrangements
between service providers, as set forth in interconnection agreements and
approved by state regulatory commissions, to remain intact. The FCC currently is
determining whether a new compensation mechanism should be implemented. A
decision which invalidates current reciprocal compensation arrangements could
result in the reduction, or elimination, of revenue we receive from reciprocal
compensation payments for traffic terminated over our network to Internet
service providers and other customers. On March 24, 2000, the United States
Court of Appeals for the District of Columbia Circuit vacated the FCC's
determination that dial-up calls to Internet service providers are not "local"
calls for purposes of charging reciprocal compensation, and remanded the matter
to the FCC for further consideration.

STATE REGULATION

    The Telecommunications Act preempts state and local statutes and regulations
that would tend to prohibit the provision of competitive telecommunications
services. As a result, we will be free to provide the full range of local, long
distance and data services in all states in which we currently operate, and in
any states into which we may wish to expand. While this action greatly increases
our potential for growth, it also increases the amount of competition to which
we may be subject.

    Because we provide intrastate common carrier services, we are subject to
various state laws and regulations. Most state public utility and public service
commissions require some form of certification or registration before commencing
service. In most states, we are also required to file tariffs or price lists
setting forth the terms, conditions and prices for services that are classified
as intrastate. We are required to update or amend these tariffs when we adjust
our rates or add new products and are subject to various reporting and
record-keeping requirements in these states. Many states also require prior
approval for transfers of control of certified providers, corporate
reorganizations, acquisitions of telecommunications operations, assignment of
carrier assets, carrier stock offerings and incurrence of significant debt
obligations. States generally retain the right to sanction a service provider or
to revoke certification if a service provider violates applicable laws or
regulations.

    We are authorized to provide intrastate long distance services in all states
except Alaska and are in the process of obtaining intrastate long distance
authority in that state. We have authority to provide competitive local
telecommunications services in Connecticut, Delaware, the District of Columbia,
Illinois, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North
Carolina, Pennsylvania, Rhode Island, Virginia and West Virginia. We have
applied or are in the process of applying to obtain authority to provide
competitive local telecommunications services in Arizona, California, Colorado,
Florida, Georgia, Texas and Washington.

LOCAL INTERCONNECTION

    The Telecommunications Act imposes a duty upon all ILECs to negotiate in
good faith with potential competitive telecommunications providers to provide
interconnection to their networks, exchange local traffic, make unbundled
network elements available and permit resale of most local telephone services.
If negotiations do not succeed, we have a right to seek arbitration with the
state regulatory authority of any unresolved issues. Arbitration decisions
involving interconnection arrangements in several states have been challenged
and appealed to federal courts. We have entered into interconnection agreements
with Bell Atlantic in Delaware, the District of Columbia, Maryland,
Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and
West Virginia, with BellSouth in Alabama, Florida, Georgia, Kentucky, Louisiana,
Mississippi, North Carolina, South Carolina, and Tennessee, and with GTE in
Virginia. We have begun to negotiate similar agreements in the other states
where we have obtained status as a competitive local telecommunications services
provider.

                                       26
<PAGE>   29

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     We do not have operations subject to risks of foreign currency
fluctuations, nor do we use derivative financial instruments in our operations
or investment portfolio. Our earnings are affected by changes in interest rates
as our long term debt has variable interest rates based on either the Prime Rate
or LIBOR. If interest rates for our long term debt average 10% more for the
three months ended March 31, 2000 than they did as of December 31, 1999, our
interest expense would increase, and loss before taxes would increase by $1.3
million for the three months ended March 31, 2000. These amounts are determined
by considering the impact of the hypothetical interest rates on our borrowing
cost and outstanding debt balances. These analyses do not consider the effects
of the reduced level of overall economic activity that could exist in such an
environment. Further, in the event of a change of such magnitude, management
would likely take actions to further mitigate its exposure to the change.
However, due to the uncertainty of the specific actions that would be taken and
their possible effects, the sensitivity analysis assumes no changes in our
financial structure.

PART II. - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     From time to time, we are a party to routine litigation and proceedings in
the ordinary course of business. Currently, we are aware of the following
potential litigation:

     In November, 1999, Teligent, Inc. filed an action against Clara Vista
Corporation claiming that Clara Vista, who developed Teligent's "e.magine" bill
presentment, web interface software application, misappropriated Teligent trade
secrets and breached its agreement with Teligent when it developed our e.mpower
web-based software application. While we have not been named as a party in this
action, the claims raised by Teligent may affect us because we retained Clara
Vista to develop our "e.mpower" web-based software application. Clara Vista has
given us written assurances that it engaged in no such misappropriation. In
addition, in our written agreement governing the development of "e.mpower,"
Clara Vista expressly warrants that it has all necessary intellectual property
rights and licenses to perform under such agreement. While we cannot be certain
about the outcome of the action, we believe that we have adequate contractual
and legal protections in place to ensure our uninterrupted use of the "e.mpower"
web interface software.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     RECENT SALES OF UNREGISTERED SECURITIES

     The following information relates to securities issued or sold by us within
the period covered by this Form 10-Q. During that time, we issued unregistered
securities in the transactions described below. Securities issued in such
transactions were offered and sole in reliance upon the exemption from
registration under Section 4(2) of the Securities Act, relating to sales by an
issuer not involving any public offering, or under Rule 701 under the Securities
Act on the basis that these options were offered and sold either pursuant to a
written compensatory benefit plan or pursuant to written contracts relating to
compensation. The sales of securities were made without the use of an
underwriter and the certificates evidencing the shares bear a restrictive legend
permitting the transfer thereon only upon registration of the shares of an
exemption under the Act.

     (1) Between January 1, 2000 and March 10, 2000, we issued options to our
employees and directors exercisable for an aggregate of 1,177,801 shares of
common stock at an exercise price of $2.17 per share and 127,315 shares of
common stock at an exercise price of $3.20 per share, pursuant to our 1997 and
1999 stock plans.

                                       27
<PAGE>   30

     REPORT OF OFFERING OF SECURITIES AND USE OF PROCEEDS THEREFROM

     In March 2000, we commenced and completed a firm commitment underwritten
initial public offering of 11,500,000 shares of our common stock at a price of
$20.00 per share. The shares were registered with the Securities and Exchange
Commission pursuant to a registration statement on Form S-1 (No. 333-97987),
which was declared effective on March 6, 2000. The public offering was
underwritten by a syndicate of underwriters led by Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette, J. P. Morgan & Co., and Legg Mason Wood Walker
Incorporated, as their representatives. After deducting underwriting discounts
and commissions of $16.1 million and expenses of $1.9 million, we received net
proceeds of $212 million.

     We used $42.3 million of the proceeds to repay the outstanding principal
and interest on our Nortel facility. Nortel owns more than 10 percent of our
equity securities. As of May 15, 2000, we had invested the remaining net
proceeds from our initial public offering in short term investments with
durations less than one year. This use of proceeds from the offering does not
represent a material change in the use of proceeds described in the Registration
Statement. Other than for the repayment of our Nortel facility, none of the net
proceeds of the offering were paid directly or indirectly to any of our
directors or officers, or their associates, or persons owning 10 percent or more
of any class of our equity securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None

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

     (a) We held our annual meeting of stockholders on January 28, 2000 (the
"Annual Meeting").

     (b) At the Annual Meeting of Stockholders, two (2) members of our Board of
Directors, Clayton A. Thomas, Jr. and Peter B. Callowhill (the "Nominees") were
elected to serve until the 2003 Annual Meeting of Stockholders, or until their
respective successors are elected and duly qualified.

     (c) The following matters were voted upon at the Annual Meeting:

          (i) Both Nominees were elected as directors to serve until the 2003
Annual Meeting of Stockholders, or until their respective successors are elected
and duly qualified, with 100% of the shares of Common Stock present and voting
at the meeting voting for both Mr. Thomas and Mr. Callowhill (Votes for Mr.
Thomas: 21,804,980; votes against Mr. Thomas or withheld: 0. Votes for Mr.
Callowhill: 21,804,980; votes against Mr. Callowhill or withheld: 0).

          (ii) Our Amended and Restated Certificate of Incorporation was
approved by 87.7 of the issued and outstanding shares of Common Stock (Votes
for: 21,804,980; votes against or withheld: 0).

          (iii) Our Amended and Restated By-Laws were approved by 100% of the
shares present and voting at the meeting (Votes for: 21,804,980; votes against
or withheld: 0).

          (iv) The appointment of Ernst & Young LLP was our independent auditors
was ratified by 100% of the shares present and voting at the meeting (Votes for:
21,804,980; votes against or withheld: 0).

ITEM 5. OTHER INFORMATION

     Not applicable

                                       28
<PAGE>   31

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS

Unless otherwise indicated, all exhibits were filed as exhibits of like number
to Registration Statement on Form S-1, File No. 333-97987.
<TABLE>
<CAPTION>
EXHIBIT NO.                         DESCRIPTION
- -----------       ----------------------------------------------------------------------------------------------------
<S>               <C>
3.1               Amended and Restated Certificate of Incorporation of Net2000 (filed as Exhibit 3.1.2 to Registration
                  Statement on Form S-1, File No. 333-97987)
3.2               Amended and Restated Bylaws of Net2000 (filed as Exhibit 3.1.4 to Registration Statement on Form S-1,
                  File No. 333-97987)
10.1              Second Amended and Restated Investor Rights Agreement dated November 4, 1998, by and among Net2000
                  and certain stockholders named therein
10.2              Employment Agreement dated July 31, 1998, by and between Net2000 and Clayton A. Thomas, Jr.
10.3              Employment Agreement dated July 31, 1998, by and between Net2000 and Mark A. Mendes
10.4              Employment Agreement dated July 31, 1998, by and between Net2000 and Donald E. Clarke
10.5              Employment Agreement dated July 31, 1998, by and between Net2000 and Bruce Bednarski
10.6              Employment Agreement dated July 31, 1998, by and between Net2000 and Peter Callowhill
10.7              Employment Agreement dated November 15, 1999, by and between Net2000 and Clyde Heintzelman
10.8              1997 Equity Incentive Plan
10.9              1999 Stock Incentive Plan
10.10             1999 Employee Stock Purchase Plan
10.11             Incentive Stock Option Agreement dated October 27, 1997, by and between Net2000 and Mark A. Mendes
10.11.1           Preferred Stock Incentive Stock Option Agreement dated October 27, 1997, by and between Net2000 and
                  Mark A. Mendes
10.11.2           Amendment No. 1 to Preferred Stock Incentive Stock Option Agreement dated April 1, 1998 (related to
                  Exhibit 10.11.1)
10.11.3           Incentive Stock Option Agreement dated May 19, 1998, by and between Net2000 and Mark A. Mendes
10.11.4           Incentive Stock Option Grant Agreement dated February 10, 2000, by and between Net2000 and Mark A.
                  Mendes
10.11.5           Incentive Stock Option Grant Agreement dated February 10, 2000, by and between Net2000 and Mark A.
                  Mendes
10.12             Incentive Stock Option Agreement dated December 15, 1997, by and between Net2000 and Donald E. Clarke
10.12.1           Incentive Stock Option Agreement dated May 19, 1998, by and between Net2000 and Donald E. Clarke
10.12.2           Incentive Stock Option Agreement dated November 10, 1999, by and between Net2000 and Donald E. Clarke
10.12.3           Incentive Stock Option Grant Agreement dated February 10, 2000, by and between Net2000 and Donald E.
                  Clarke
10.12.4           Incentive Stock Option Grant Agreement dated February 10, 2000, by and between Net2000 and Donald E.
                  Clarke
10.13             Stock Option Agreement dated November 15, 1999, by and between Net2000 and Clyde Heintzelman
10.13.1           Incentive Stock Option Grant Agreement dated February 10, 2000, by and between Net2000 and Clyde
                  Heintzelman
</TABLE>

                                       29
<PAGE>   32

<TABLE>
<S>               <C>
10.13.2           Incentive Stock Option Grant Agreement dated January 28, 2000, by and between Net2000 and Clayton A.
                  Thomas, Jr.
10.13.3           Incentive Stock Option Grant Agreement dated February 10, 2000, by and between Net2000 and Clayton A.
                  Thomas, Jr.
10.14             Amended and Restated Credit Agreement dated July 30, 1999, by and among Net2000 Communications Group,
                  Inc., Nortel Networks Inc. and certain lenders named therein
10.14.1           First Amendment dated as of December 23, 1999 to the Amended
                  and Restated Credit Agreement dated July 30, 1999, by and
                  among Net2000 Communications Group, Inc., Nortel Networks Inc.
                  and certain lenders named therein
10.15             Form of Amended and Restated Guaranty Agreement dated July  30, 1999, signed by each of our
                  subsidiaries and Nortel Networks Inc.
10.16             Form of Amended and Restated Pledge and Security Agreement dated July 30, 1999, signed by each of our
                  subsidiaries and Nortel Networks Inc.
10.17             Note Purchase Agreement dated July 30, 1999, by and between Net2000 and Nortel Networks Inc.
10.17.1           First Amendment dated as of December 31, 1999 to the Note Purchase Agreement dated July 30, 1999, by
                  and between Net2000 and Nortel Networks Inc.
10.18             Warrant Agreement dated July 30, 1999, by and between Net2000 and Nortel Networks Inc.
10.19             Form of Warrant Certificate dated July 30, 1999, by and between Net2000 and Nortel Networks Inc.
10.20             Senior Discount Notes Due 2009 issued by Net2000 on July 30, 1999 to the holder identified therein
10.21             Exchange and Registration Rights Agreement dated July 30, 1999, by and between Net2000 and Nortel
                  Networks Inc.
10.22             Lease dated December 24, 1998, by and between Net2000 Communications Real Estate, Inc. and
                  Wellsford/Whitehall Holdings, L.L.C.
10.23             Lease dated February 19, 1999, by and between Net2000 Communications Real Estate, Inc. and Murdock
                  Atrium Limited Partnership
 10.24             Sublease Agreement dated June 21, 1999, by and between Net2000 Communications Real Estate, Inc. and
                  Virginia Electric and Power Company
10.25             Office Lease dated May 26, 1999, by and between Net2000 Communications Real Estate, Inc. and
                  KDC-Dulles Tech, LLC
10.26             Letter of intent dated January 7, 2000, by and between Net2000 and Access One Communications Corp
10.27*            Lease dated October 31, 1999, by and between Net2000 Communications Real Estate, Inc. and Hudson
                  Telecom Center, LLC
10.28*            Lease dated December 6, 1999, by and between Net2000 Communications Real Estate, Inc. and Hood
                  Business Park, LLC
10.29*            Lease dated December 15, 1999, by and between Net2000 Communications Real Estate, Inc. and Callowhill
                  Management, Inc.
10.30*            Financial Data Schedule
</TABLE>

- ----------------------
*Filed herewith.

REPORTS ON FORM 8-K.

         None.

                                       30
<PAGE>   33

                                   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.



Date:    May 15, 2000                       By:  /s/ DONALD E. CLARKE
                                                 --------------------
                                            Donald E. Clarke
                                            Chief Financial Officer, Executive
                                            Vice President and Treasurer

                                       31

<PAGE>   1
                                                                   Exhibit 10.27


                               AGREEMENT OF LEASE

                                     between

                           HUDSON TELECOM CENTER, LLC,

                                    Landlord

                                       and

                    NET2000 COMMUNICATIONS REAL ESTATE, INC.,

                                     Tenant


                                325 Hudson Street
                               New York, New York


                              Mayer, Brown & Platt
                                  1675 Broadway
                            New York, New York 10019
<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                             Page

<S>                                                                          <C>
DEFINITIONS ............................................................       1

ARTICLE 1
DEMISE, PREMISES, TERM, RENT ...........................................       7

ARTICLE 2
USE AND OCCUPANCY ......................................................       9

ARTICLE 3
ALTERATIONS ............................................................       9

ARTICLE 4
REPAIRS-FLOOR LOAD .....................................................      13

ARTICLE 5
WINDOW CLEANING ........................................................      15

ARTICLE 6
REQUIREMENTS OF LAW ....................................................      15

ARTICLE 7
SUBORDINATION ..........................................................      16

ARTICLE 8
RULES AND REGULATIONS ..................................................      19

ARTICLE 9
INSURANCE, PROPERTY LOSS OR DAMAGE; REIMBURSEMENT ......................      20

ARTICLE 10
DESTRUCTION-FIRE OR OTHER CAUSE ........................................      22

ARTICLE 11
EMINENT DOMAIN .........................................................      23

ARTICLE 12
ASSIGNMENT, SUBLETTING, MORTGAGE, ETC ..................................      25

ARTICLE 13
ELECTRICITY AND FUEL ...................................................      30
</TABLE>


                                      -i-
<PAGE>   3
                                TABLE OF CONTENTS
                                   (continued)

<TABLE>
<CAPTION>
                                                                              Page

<S>                                                                           <C>
ARTICLE 14
ACCESS TO PREMISES .....................................................      32

ARTICLE 15
CERTIFICATE OF OCCUPANCY ...............................................      33

ARTICLE 16
DEFAULT ................................................................      33

ARTICLE 17
REMEDIES AND DAMAGES ...................................................      36

ARTICLE 18
FEES AND EXPENSES ......................................................      38

ARTICLE 19
NO REPRESENTATIONS BY LANDLORD .........................................      39

ARTICLE 20
END OF TERM ............................................................      40

ARTICLE 21
QUIET ENJOYMENT ........................................................      41

ARTICLE 22
FAILURE TO GIVE POSSESSION .............................................      41

ARTICLE 23
NO WAIVER ..............................................................      42

ARTICLE 24
WAIVER OF TRIAL BY JURY ................................................      42

ARTICLE 25
INABILITY TO PERFORM ...................................................      43
</TABLE>


                                      -ii-
<PAGE>   4
                               TABLE OF CONTENTS
                                   (continued)

<TABLE>
<CAPTION>
                                                                             Page

<S>                                                                          <C>
ARTICLE 26
BILLS AND NOTICES ......................................................      43

ARTICLE 27
ESCALATION .............................................................      44

ARTICLE 28
SERVICES ...............................................................      49

ARTICLE 29
PARTNERSHIP TENANT .....................................................      52

ARTICLE 30
SECURITY ...............................................................      53

ARTICLE 31
[Intentionally Omitted .................................................      54

ARTICLE 32
CAPTIONS ...............................................................      54

ARTICLE 33
PARTIES BOUND ..........................................................      55

ARTICLE 34
BROKER .................................................................      55

ARTICLE 35
INDEMNITY ..............................................................      55

ARTICLE 36
ADJACENT EXCAVATION-SHORING ............................................      56

ARTICLE 37
MISCELLANEOUS ..........................................................      57

ARTICLE 38
RENT CONTROL ...........................................................      58
</TABLE>


                                     -iii-
<PAGE>   5
                                TABLE OF CONTENTS
                                   (continued)

<TABLE>
<CAPTION>
                                                                             Page

<S>                                                                          <C>
ARTICLE 39
ROOF RIGHTS AND TELECOMMUNICATIONS CARRIERS ...........................       59

ARTICLE 40
RENEWAL TERM ..........................................................       59

SCHEDULE A
RULES AND REGULATIONS .................................................      A-1

SCHEDULE B
ROOF RIGHTS, LOADING DOCK AND BASEMENT ................................      B-1

SCHEDULE C
TELECOMMUNICATIONS CARRIERS ...........................................      C-1

EXHIBIT A
LANDLORD'S WORK .......................................................      A-1

EXHIBIT B
LANDLORD'S BASE BUILDING WORK .........................................      B-1
</TABLE>



                                      -iv-
<PAGE>   6
         AGREEMENT OF LEASE, made as of the 31st day of October, 1999, between
Landlord and Tenant.

                                  WITNESSETH:

                  The parties hereto, for themselves, their legal
representatives, successors and assigns, hereby covenant as follows.

                                  DEFINITIONS

                  Capitalized terms used herein and not defined elsewhere in
this Lease shall have the meanings set forth below, each of which definition
shall be included within, and an integral and substantive part of, the terms,
covenants and provisions of this Lease:

                  "ADA" shall mean the Americans with Disabilities Act of 1990,
Public Law 101-336, U.S.C. Section 12101 et seq., as the same may be hereafter
amended from time to time, together with all regulations and guidelines
promulgated pursuant thereto or in connection therewith.

                  "ADA Bathroom" shall have the meaning set forth in Article
19 hereof.

                  "ADA Tenant Fund" shall have the meaning set forth in Section
3.4 hereof.

                  "Alterations" shall mean alterations, installations,
improvements, additions or other physical work or changes in or about the
Premises or any Licensed Area.

                  "Applicable Rate" shall mean the lesser of (x) two (2)
percentage points above the then current Base Rate, and (y) the maximum rate
permitted by applicable law.

                  "Assessed Valuation" shall have the meaning set forth in
Section 27.1 hereof.

                  "Bankruptcy Code" shall mean 11 U.S.C. Section 101 et seq., or
any statute of similar nature and purpose.

                  "Base Rate" shall mean the rate of interest publicly announced
from time to time by Citibank, N.A., or its successor, as its "base rate" (or
such other term as may be used by Citibank, N.A., from time to time, for the
rate presently referred to as its "base rate").

                  "Base Taxes" shall have the meaning set forth in Section 27.1
hereof.

                  "Broker" shall have the meaning set forth in Article 34
hereof.
<PAGE>   7
                  "Building" shall mean all the buildings, equipment and other
improvements and appurtenances of every kind and description now located or
hereafter erected, constructed or placed upon the land and any and all
alterations and replacements thereof, additions thereto and substitutions
therefor, known by the address of 325 Hudson Street, New York, New York.

                  "Building Systems" shall mean the mechanical, gas, electrical,
sanitary, heating, air conditioning, ventilating, elevator, plumbing,
life-safety and other service systems of the Building except for the
distribution portions located within the Premises.

                  "Business Days" shall mean all days, excluding Saturdays,
Sundays and all days observed by either the State of New York or the Federal
Government or by the labor unions servicing the Building as legal holidays.

                  "Carriers" shall have the meaning set forth in Schedule C,
attached hereto and made a part hereof.

                  "Commencement Date" shall have the meaning set forth in
Section 1.1 hereof.

                  "Comparison Year" shall have the meaning set forth in Section
27.1 hereof.

                  "Consumer Price Index" shall mean the Consumer Price Index
for All Urban Consumers published by the Bureau of Labor Statistics of the
United States Department of Labor, New York, N.Y. - Northeastern N.J. Area, All
Items (1982-84=100), or any successor index thereto, appropriately adjusted. In
the event that the Consumer Price Index is converted to a different standard
reference base or otherwise revised, the determination of adjustments provided
for herein shall be made with the use of such conversion factor, formula or
table for converting the Consumer Price Index as may be published by the Bureau
of Labor Statistics or, if said Bureau "shall not publish the same, then with
the use of such conversion factor, formula or table as may be published by
Prentice-Hall, Inc., or any other nationally recognized publisher of similar
statistical information. If the Consumer Price Index ceases to be published, and
there is no successor thereto, such other index as Landlord and Tenant shall
agree upon in writing shall be substituted for the Consumer Price Index. If
Landlord and Tenant are unable to agree as to such substituted index, such
matter shall be submitted to the American Arbitration Association or any
successor organization for determination in accordance with the regulations and
procedures thereof then obtaining for commercial arbitration. The costs of such
arbitration shall be shared equally by Landlord and Tenant.

                  "Deficiency" shall have the meaning set forth in Section 17.2
hereof.

                  "Electricity Additional Rent" shall have the meaning set forth
in Section 13.2 hereof.

                  "Escalation Rent" shall mean either individually or
collectively, as the case may be, the Tax Payment and the Porters' Wage Payment.


                                      -2-
<PAGE>   8
                  "Event of Default" shall have the meaning set forth in Section
16.1 hereof.

                  "Expiration Date" shall mean the Fixed Expiration Date or such
earlier or later date on which the Term shall sooner or later end pursuant to
any of the terms, conditions or covenants of this Lease or pursuant to law.

                  "Fair Market Rent" shall have the meaning set forth in Section
40.3 hereof.

                  "First Rental Period" shall have the meaning set forth in
Section 1.1 hereof.

                  "Fixed Expiration Date" shall have the meaning set forth in
Section 1.1 hereof.

                  "Fixed Rent" shall have the meaning set forth in Section 1.1
hereof.

                  "Generator" shall have the meaning set forth in Schedule C,
attached hereto and made a part hereof.

                  "Governmental Authority (Authorities)" shall mean the United
States of America, the State of New York, the City of New York, any political
subdivision thereof and any agency, department, commission, board, bureau or
instrumentality of any of the foregoing, now existing or hereafter created,
having jurisdiction over the Real Property or any portion thereof.

                  "HVAC" shall mean heat, ventilation and air conditioning.

                  "Increase" shall have the meaning set forth in Section 27.4
hereof.

                  "Indemnitees" shall mean Landlord, Mortgagee and Lessor, the
partners comprising Landlord, Mortgagee and Lessor and the partners,
shareholders, officers, directors, employees and agents (including, without
limitation, leasing and managing agents) of Landlord, Mortgagee and Lessor and
of the partners thereof.

                  "Initial Alterations" shall mean the Alterations to be made by
Tenant to initially prepare the Premises and Licensed Areas for Tenant's use and
occupancy.

                  "Landlord", on the date as of which this Lease is made, shall
mean Hudson Telecom Center, LLC, having an office at 400 Montgomery Street, San
Francisco, California 94104, but after a sale or transfer of the Building or
Real Property, "Landlord" shall mean the fee owner of the Building or Real
Property, as the case may be, and if there shall exist a Superior Lease, the
Lessee thereunder.

                  "Landlord's Appraiser" shall have the meaning set forth in
Section 40.3. hereof.

                  "Landlord's Determination" shall have the meaning set forth in
Section 40.3 hereof.


                                      -3-
<PAGE>   9
                  "Landlord's Notice" shall have the meaning set forth in
Section 40.3 hereof.

                  "Landlord's Work" shall have the meaning set forth in Article
19 hereof.

                  "Landlord's Base Building Work" shall mean the items set forth
in Exhibit B attached hereto.

                  "Lessor(s)" shall mean a lessor under a Superior Lease.

                  "Licensed Area(s)" shall mean, individually and collectively
as the context requires, an area or areas of the Building where Tenant is
granted a nonexclusive or exclusive license pursuant to the terms of this Lease
to install, maintain and operate (w) its telecommunication equipment and
facilities, including, without limitation, the appropriate wiring and cabling
associated therewith, in order to conduct its business and (x) the Generator.

                  "Licensed Area(s) Fair Market Rent" shall have the meaning set
forth in Section 40.3 hereof.

                  "Licensed Area(s) Rental Value" shall have the meaning set
forth in Section 40.3 hereof.

                  "Licensed Area Space Factor" shall mean the number of rentable
square feet contained in the Licensed Area(s), as determined by Landlord and set
forth in a notice given by Landlord to Tenant after such determination.

                  "Local 32B" shall have the meaning set forth in Section 27.1
hereof.

                  "Mortgage(s)" shall mean any trust indenture or mortgage which
may now or hereafter affect the Real Property, the Building or any Superior
Lease and the leasehold interest created thereby, and all renewals, extensions,
supplements, amendments, modifications, consolidations and replacements thereof
or thereto, substitutions therefor, and advances made thereunder.

                  "Mortgagee(s)" shall mean any trustee, mortgagee or holder of
a Mortgage.

                  "Mutual Determination" shall have the meaning set forth in
Section 40.3 hereof.

                  "Nondisturbance Agreement" shall have the meaning set forth in
Section 7.1 hereof.

                  "Overtime Periods" shall have the meaning set forth in Section
28.3 hereof.

                  "Parties" shall have the meaning set forth in Section 37.2
hereof.


                                      -4-
<PAGE>   10
                  "Partner" or "partner" shall mean any general partner of
Tenant.

                  "Partnership Tenant" shall have the meaning set forth in
Article 29 hereof.

                  "Person(s)" or "person(s)" shall mean any natural person or
persons, a partnership, a corporation and any other form of business or legal
association or entity.

                  "Porters" shall have the meaning set forth in Section 27.1
hereof.

                  "Porters' Wage Factor" shall have the meaning set forth in
Section 27.1 hereof.

                  "Porters' Wage Payment" shall have meaning set forth in
Section 27.1 hereof.

                  "Premises" shall mean, subject to the provisions of Section
4.3 hereof, the entire rentable area of the tenth (10th) Floor of the Building
which contains approximately eighteen thousand six hundred ninety-seven (18,697)
rentable square feet.

                  "Premises Fair Market Rent" shall have the meaning set forth
in Section 40.3 hereof.

                  "Premises Rental Value" shall have the meaning set forth in
Section 40.3 hereof.

                  "Prevailing Rate" shall have the meaning set forth in Section
12.6 hereof.

                  "R.A.B." shall have the meaning set forth in Section 27.1
hereof.

                  "Real Property" shall mean the Building, together with the
plot of land upon which it stands.

                  "Related Entity" shall have the meaning set forth in Section
12.4 hereof.

                  "Renewal Notice" shall have the meaning set forth in Section
40.1 hereof.

                  "Renewal Option" shall have the meaning set forth in Section
40.1 hereof.

                  "Renewal Term" shall have the meaning set forth in Section
40.1 hereof.

                  "Rent Commencement Date" shall mean the date which is five (5)
months after the Commencement Date.

                  "Rent Notice" shall have the meaning set forth in Section 40.3
hereof.

                  "Rent Per Square Foot" shall have the meaning set forth in
Section 12.7 hereof.


                                      -5-
<PAGE>   11
                  "Rental" shall mean and be deemed to include Fixed Rent,
Escalation Rent, all additional rent and any other sums payable by Tenant
hereunder.

                  "Requirement Period" shall have the meaning set forth in
Section 27.4 hereof.

                  "Requirements" shall mean all present and future laws, rules,
orders, ordinances, regulations, statutes, requirements, codes and executive
orders, extraordinary as well as ordinary, of all Governmental Authorities now
existing or hereafter created, and of any and all of their departments and
bureaus, and of any applicable fire rating bureau, or other body exercising
similar functions, affecting the Real Property or any portion thereof, or any
street, avenue or sidewalk comprising a part of or in front thereof or any vault
in order under the same, or requiring removal of any encroachment, or affecting
the maintenance, use or occupation of the Real Property or any portion thereof.

                  "Rules and Regulations" shall mean the rules and regulations
annexed hereto and made a part hereof as Schedule A, and such other and further
reasonable rules and regulations as Landlord or Landlord's agents may from time
to time adopt on at least ten (10) Business Days' prior written notice, subject
to Tenant's rights to dispute the reasonableness thereof as provided in Article
8 hereof.

                  "Second Rental Period" shall have the meaning set forth in
Section 1.1 hereof.

                  "Space Factor" shall mean the sum of (x) eighteen thousand six
hundred ninety-seven (18,697) and (y) the Licensed Area Space Factor as the same
may be increased or decreased pursuant to the terms hereof.

                  "Sublease Expenses" shall have the meaning set forth in
Section 12.7 hereof.

                  "Sublease Profit" shall have the meaning set forth in Section
12.7 hereof.

                  "Sublease Rent" shall have the meaning set forth in Section
12.7 hereof.

                  "Sublease Rent Per Square Foot" shall have the meaning set
forth in Section 12.7 hereof.

                  "Sublease Statement" shall have the meaning set forth in
Section 12.6 hereof.

                  "Superior Lease(s)" shall mean all ground or underlying leases
of the Real Property or the Building heretofore or hereafter made and all
renewals, extensions, supplements, amendments and modifications thereof.

                  "Tax Payment" shall have the meaning set forth in Section 27.2
hereof.

                  "Tax Statement" shall have the meaning set forth in Section
27.1 hereof.


                                      -6-
<PAGE>   12
                  "Tax Year" shall have the meaning set forth in Section 27.1
hereof.

                  "Taxes" shall have the meaning set forth in Section 27.1
hereof.

                  "Tenant", on the date as of which this Lease is made, shall
mean Net2000 Communications Real Estate, Inc., a Delaware corporation, having
its principal office at Net2000 Communications, 2195 Fox Mill, Herndon, Virginia
29171, but thereafter "Tenant" shall mean only the tenant under this Lease at
the time in question; provided, however, that the originally named Tenant, any
successor thereto or any assignee shall not be released from liability hereunder
in the event of any assignment of this Lease.

                  "Tenant's Appraiser" shall have the meaning set forth in
Section 40.3 hereof.

                  "Tenant's Determination" shall have the meaning set forth in
Section 40.3 hereof.

                  "Tenant's Notice" shall have the meaning set forth in Section
40.3 hereof.

                  "Tenant's Property" shall mean Tenant's movable fixtures and
movable partitions, telephone and other communication equipment, computer
terminals, furniture, furnishing, decorations and other items of personal
property.

                  "Tenant's Share" shall mean Ten and 71/100 percent (10.71%),
as the same may be increased or decreased pursuant to the terms hereof.

                  "Term" shall mean a term which shall commence on the
Commencement Date and shall expire on the Expiration Date.

                  "Third Appraiser" shall have the meaning set forth in Section
40.3 hereof.

                  "Wage Rate" shall have the meaning set forth in Section 27.1
hereof.

                  "Wage Statement" shall have the meaning set forth in Section
27.1 hereof.

                  "Unavoidable Delays" shall have the meaning set forth in
Article 25 hereof.

                                    ARTICLE 1
                          DEMISE, PREMISES, TERM, RENT

                  Section 1.1 Landlord hereby leases to Tenant and Tenant hereby
hires from Landlord the Premises for the Term to commence on the date which is
the earlier of (x) the date Landlord shall complete item (a) of Landlord's Work
and deliver possession of the Premises to Tenant and (y) the date on which
Tenant shall take possession of the Premises or any part thereof (the earlier of
the dates set forth in clauses (x) and (y) is referred to as the "Commencement
Date") and to end on the last day of the month in which occurs the date
immediately preceding


                                      -7-
<PAGE>   13
the fifteenth (15th) anniversary of the Rent Commencement Date (the "Fixed
Expiration Date"), at an annual rent (the "Fixed Rent") of:

         with respect to the Premises:

                  (1) Five Hundred Ninety-Eight Thousand Three Hundred Four and
00/100 Dollars ($598,304.00; $49,858.67 per month) for the period commencing on
the Rent Commencement Date and ending on the day immediately preceding the fifth
(5th) anniversary of the Commencement Date (the "First Rental Period");

                  (2) Six Hundred Fifty-Four Thousand Three Hundred Ninety-Five
and 00/100 Dollars ($654,393.00; $54,532.92 per month) for the period
commencing on the day next succeeding the end of the First Rental Period and
ending on the day immediately preceding the tenth (10th) anniversary of the
Commencement Date (the "Second Rental Period");

                  (3) Seven Hundred Ten Thousand Four Hundred Eighty-Six and
00/100 Dollars ($710,486.00; $59,207.17 per month) for the period commencing on
the day next succeeding the end of the Second Rental Period and ending on the
Fixed Expiration Date (the "Third Rental Period"); and

with respect to the Licensed Area(s):

(1)      the product of (x) the Licensed Area Space Factor and (y) Sixteen and
         00/100 Dollars for the First Rental Period; and

(2)      the product of (x) the Licensed Area Space Factor and (y) Seventeen and
         50/100 Dollars for the Second Rental Period; and

(3)      the product of (x) the Licensed Area Space Factor and (y) Eighteen and
         00/100 Dollars for the Third Rental Period;

which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance, on the first (1st) day of
each calendar month during the Term commencing on the Rent Commencement Date, at
the office of Landlord or such other place as Landlord may designate, without
any set-off, offset, abatement or deduction whatsoever, except that Tenant shall
pay the first monthly installment of Fixed Rent on the full execution hereof.

         Section 1.2 If the Rent Commencement Date shall occur on a date other
than the first (1st) day of any calendar month, on the Rent Commencement Date
Tenant shall pay to Landlord a sum equal to Eight Hundred Thirty and 98/100
Dollars ($830.98), multiplied by the number of calendar days in the period from
the Rent Commencement Date to the last day of the month in which the Rent
Commencement Date shall occur, both dates inclusive.


                                      -8-
<PAGE>   14
                                    ARTICLE 2
                                USE AND OCCUPANCY


         Section 2.1 Tenant shall use and occupy the Premises as general and
executive offices (including uses and activities incidental thereto) including
for the installation, operation and maintenance of switching and transmission
equipment and the Licensed Area(s) for the Generator and other peripheral
equipment in connection with Tenant's telecommunication business and, in each
instance, for no other purpose.

         Section 2.2 Tenant shall not use the Premises or any part thereof, or
permit the Premises or any part thereof to be used, (1) for a banking, trust
company, depository, guarantee or safe deposit business, retail brokerage or
securities business, (2) as a savings bank, a savings and loan association, or
as a loan company, (3) by the United States government, the City or State of New
York, any foreign government, the United Nations or any agency or department of
any of the foregoing, or (4) as an employment agency, executive search firm or
similar enterprise, labor union, school, or vocational training center (except
for the training of employees of Tenant intended to be employed at the
Premises).

                                    ARTICLE 3
                                   ALTERATIONS


         Section 3.1 (A) Tenant shall not make any Alterations without
Landlord's prior consent. Landlord agrees not to unreasonably withhold or delay
its consent to any proposed Alterations, provided that such Alterations (i) do
not affect any part of the Building other than the Premises, or require any
alterations to be performed in, or made to, any portion of the Building or the
Real Property other than the Premises, (ii) do not adversely affect the Building
Systems, (iii) do not affect any service required to be furnished by Landlord to
Tenant (unless Tenant agrees to waive same) or to any other tenant or occupant
of the Building, (iv) do or will not affect the certificate of occupancy for the
Building or the Premises, and (v) do not affect the structural components or
integrity of the Building. Notwithstanding the foregoing, as part of the Initial
Alterations, Landlord agrees not to unreasonably withhold or delay its consent
to any of the following Alterations: (1) the installation of a dry cooler unit
to furnish air conditioning to the Premises which dry cooler equipment shall be
located on the roof of the Building at a location designated by Landlord in its
sole discretion, subject to the provisions of Schedule B attached hereto and
made a part hereof, (2) the installation of four inch condensate drains in the
Premises for the HVAC equipment to be installed by Tenant in the Premises, (3)
the removal or capping of any heating systems or portions thereof (other than
steam risers and returns) located in the Premises, (4) an FM-200 fire
suppression system within the Premises (which system shall be connected to the
Building life safety system), (5) the relocation of any piping or other
equipment presently hung from the ceiling of the Premises, (6) the modification
of the Building's sprinkler system serving the Premises to a dry pipe system and
to relocate any sprinkler piping passing through the Premises, provided that
with respect to each of the items numbered (1) through (6), (w) the Building
Systems of the Building are not adversely affected thereby, (x)


                                      -9-
<PAGE>   15
services to any other portion of the Building, including, without limitation,
any tenantable space is not adversely affected (y) the use and occupancy of any
other tenantable space shall not be affected and (z) such Alterations are
performed in accordance with, and subject to, the terms and conditions of this
Article 3 as part of the Initial Alterations.

                  (B) (1) Prior to making any Alterations Tenant shall (i) if
required hereunder, submit to Landlord detailed plans and specifications
(including layout, architectural, mechanical and structural drawings) for each
proposed Alteration and shall not commence any such Alteration without first
obtaining Landlord's approval of such plans and specifications, (ii) supply such
additional information regarding the Alteration as Landlord shall reasonably
request, (iii) at Tenant's expense, obtain all permits, approvals and
certificates required by any Governmental Authorities, and (iv) furnish to
Landlord certificates thereof of workers' compensation (covering all persons to
be employed by Tenant, and Tenant's contractors and subcontractors in connection
with such Alteration) and comprehensive public liability (including property
damage coverage) insurance in such form, with such companies authorized to do
business in New York, for such periods and in such amounts as Landlord may
reasonably approve, naming Landlord and its agents, any Lessor and any
Mortgagee, as additional insures. Upon completion of such Alteration, Tenant, at
Tenant's expense, shall obtain certificates of final approval of such Alteration
required by any Governmental Authority and shall furnish Landlord with copies
thereof (it being agreed that all filings with Governmental Authorities to
obtain such permits, approvals and certificates shall be made at Tenant's
expense, by a Person designated by Landlord), together with the "as-built" plans
and specifications for such Alterations. All Alterations shall be made and
performed substantially in accordance with the plans and specifications therefor
as approved by Landlord, and strictly in compliance with all Requirements,
Insurance Requirements, the Rules and Regulations and all rules and regulations
relating to Alterations promulgated by Landlord, in its reasonable judgment. No
materials or equipment to be incorporated in the Premises as a result of any
Alterations or a part thereof shall be subject to any lien, encumbrance, chattel
mortgage or title retention or security agreement. In addition, no Alteration at
a cost for labor and materials (as reasonably estimated by Landlord's architect,
engineer or contractor) in excess of Fifty Thousand and 00/100 Dollars
($50,000.00) (which amount shall be increased on the third (3rd) anniversary of
the Commencement Date and annually thereafter by the annual percentage increase,
if any, in the Consumer Price Index from that in effect on the immediately
preceding anniversary of the Commencement Date), either individually or in the
aggregate with any other Alteration constructed in any twelve (12) month period,
shall be undertaken prior to Tenant's delivering to Landlord either (i) a
performance bond and labor and materials payment bond (issued by a surety
company and in form reasonably satisfactory to Landlord), each in an amount
equal to 125% of such estimated cost, or (ii) such other security as shall be
reasonably satisfactory to Landlord. All Alterations requiring Landlord's
consent shall be performed only under the supervision of an independent
licensed architect reasonably satisfactory to Landlord.

                  (C) Tenant shall be permitted to perform Alterations during
the hours reasonably prescribed by Landlord taking into account the nature of
the Alterations and the use and occupancy of the Building by other tenants. All
Tenant's Property installed by Tenant and


                                      -10-
<PAGE>   16
all Alterations in and to the Premises which may be made by Tenant at its own
cost and expense prior to and during the Term, shall remain the property of
Tenant, and upon the Expiration Date or earlier end of the Term, shall be
removed from the Premises by Tenant; provided, however, that Tenant shall repair
and restore in a good and worker like manner to good condition any damage to the
Premises or the Building caused by such removal.

                  (D) All Alterations shall be performed by contractors,
subcontractors or mechanics approved by Landlord (which approval shall not be
unreasonably withheld except with respect to any Alterations affecting any
Building System or structural components of the Building), at Tenant's expense
and at such times and in such manner as Landlord may from time to time
reasonably designate. Landlord agrees that provided that Tenant shall furnish
Landlord with all information reasonably requested by Landlord with respect to a
proposed contractor, Landlord shall either approve or disapprove such contractor
within ten (10) days after such request is made and such information is
furnished to Landlord.

                  (E) Any mechanic's lien filed against the Premises or the Real
Property for work claimed to have been done for, or materials claimed to have
been furnished to, Tenant shall be discharged by Tenant within fifteen (15) days
after Tenant shall have received notice thereof, at Tenant's expense, by payment
or filing the bond required by law. Tenant shall not, at any time prior to or
during the Term, employ, or permit the employment of, any contractor, mechanic,
laborer or subcontractor in the Premises, whether in connection with any
Alteration or otherwise, if such employment would unreasonably interfere or
cause any conflict with other contractors, mechanics, laborers or subcontractors
engaged in the construction, maintenance or operation of the Building by
Landlord, Tenant or others, or of any adjacent property owned by Landlord. In
the event of any such interference or conflict, Tenant, upon demand of Landlord,
shall cause all contractors, mechanics, laborers or subcontractors causing such
interference or conflict to leave the Building immediately.

         Section 3.2 Tenant shall pay to Landlord within thirty (30) days of
demand and as additional rent in connection with any Alteration, including,
without limitation, the Initial Alterations, the reasonable out-of-pocket
expenses incurred by Landlord in connection with such Alteration.

         Section 3.3 With respect to all Alterations, including, without
limitation all repair work and improvements made by Tenant pursuant to the
provisions of this Lease, Landlord shall have the right at all times to monitor
the performance of an Alteration for compliance with the Building regulations
and procedures, Requirements, Insurance Requirements, Rules and Regulations and
the terms and conditions of this Article 3. If Landlord reasonably determines
that any of such Building regulations and procedures, Requirements, Insurance
Requirements, Rules and Regulations or terms and conditions are not being
complied with in all material respects, Landlord shall notify Tenant of such
non-compliance, and if such non-compliance is not corrected (i) within fifteen
(15) days of such written notice, or (ii) immediately in cases of emergency or
in cases where the safety of people or property is threatened, then Landlord may
immediately require the cessation of all work being performed in or around the
Premises until


                                      -11-
<PAGE>   17
such time as Landlord is reasonably satisfied that the applicable Building
regulations and procedures, Requirements, Insurance Requirements, Rules and
Regulations or terms and conditions will be observed.

         Section 3.4 (A) In the event Landlord shall elect pursuant to Article
19 below not to construct the ADA Bathroom as described in clause (b) of
Landlord's Work, Landlord shall contribute an amount not to exceed Twenty-Five
Thousand and 00/100 Dollars ($25,000.00) (the "ADA Tenant Fund") toward the cost
of the construction of the ADA Bathroom only, provided that up to ten percent
(10%) of the ADA Tenant Fund may be applied toward so-called "soft costs"
incurred by Tenant in connection with the construction of the ADA Bathroom only,
including the reasonable fees and disbursements of architects, engineers and
other professionals and consultants, together with permit, filing and other
similar fees and charges.

                  (B) Landlord shall, within fifteen (15) days after receipt of
the items set forth in Section 3.4(C) hereof, render payment to Tenant for
construction of the ADA Bathroom, provided that there shall be no default which
has occurred and is continuing on the date of the request for such payment and
on the date such payment is to be made. The payment for such construction shall
be made from the ADA Tenant Fund.

                  (C) Landlord's obligation to make payment from the ADA Tenant
Fund shall be subject to Landlord's verification of the total cost of the ADA
Bathroom and receipt of: (a) a request for such payment from Tenant signed by
the designated representative of Tenant, together with a certification regarding
(i) the fact that the ADA Bathroom has been completed and (ii) aggregate amount
paid by Tenant with respect to construction of the ADA Bathroom, (b) copies of
all receipts, invoices and bills for the completed work and materials furnished
in connection with the construction of the ADA Bathroom and incorporated in the
Premises which have been paid by Tenant, (c) copies of all contracts, work
orders, change orders and other materials relating to the work or materials
which are the subject of the requested payment, (d) a certificate of Tenant's
independent licensed architect stating (i) that, in his opinion, the ADA
Bathroom construction was performed in a good and workerlike manner and
substantially in accordance with the final detailed plans and specifications for
such ADA Bathroom, as approved by Landlord and (ii) the construction of the ADA
Bathroom is complete other than minor punchlist items and (e) unconditional
waivers of lien from all contractors, subcontractors and materialmen who
performed the work, or furnished the materials in connection with the ADA
Bathroom.

                  (D) In no event shall the amount paid by Landlord to Tenant
under this Section 3.4 exceed the amount of the ADA Tenant Fund. Upon the
completion of the construction of the ADA Bathroom, any amount of the ADA Tenant
Fund which has not been used to pay for the construction of the ADA Bathroom
shall be retained by Landlord. Upon the payment of the entire ADA Tenant Fund
(or the portion thereof if upon completion of the ADA Bathroom the ADA Tenant
Fund is not exhausted), Landlord shall have no further obligation or liability
whatsoever to Tenant for further disbursement of any portion of the ADA Tenant
Fund to Tenant. It is expressly understood and agreed that Tenant shall
complete, at its sole cost and


                                      -12-
<PAGE>   18
expense, the ADA Bathroom, whether or not the ADA Tenant Fund is sufficient to
fund such completion. Any costs to complete the construction of the ADA Bathroom
in excess of the ADA Tenant Fund shall be the sole responsibility and obligation
of Tenant.

                                    ARTICLE 4
                               REPAIRS-FLOOR LOAD

         Section 4.1 Landlord shall operate, maintain and make all necessary
repairs (both structural and nonstructural) to the Building Systems and the
public portions of the Building and the structural portions of the Premises,
both exterior and interior, as well as latent defects in the portions of the
Building outside of the Premises and the structural components of the Premises,
in conformance with standards applicable to comparable buildings in Manhattan.
Tenant shall give Landlord prompt notice after discovery by Tenant of any
condition in any Building System, located in, servicing or passing through the
Premises which gives rise to or may give rise to an obligation of Landlord to
repair. Tenant, at Tenant's sole cost and expense, shall take good care of the
Premises and the exclusive Licensed Area(s) and the fixtures, equipment and
appurtenances therein and make all nonstructural repairs thereto as and when
needed to preserve them in good working order and condition, except for
reasonable wear and tear, obsolescence and damage for which Tenant is not
responsible pursuant to the provisions of Articles 10 and 11 hereof.
Notwithstanding the foregoing, all damage or injury to the Premises or to any
other part of the Building, or to its fixtures, equipment and appurtenances,
whether requiring structural or nonstructural repairs, caused by or resulting
from carelessness, negligent omission, neglect or improper conduct of, or
Alterations made by, Tenant, Tenant's agents, employees, invitees or licensees,
and not covered by Landlord's insurance policies and any waiver of subrogation
in favor of Tenant thereon, shall be repaired at Tenant's sole reasonable cost
and expense, either by Tenant to the reasonable satisfaction of Landlord (if the
required repairs are nonstructural in nature and do not affect any Building
System), or by Landlord (if the required repairs are structural in nature or
affect any Building System). Tenant also shall repair all damage to the Building
and the Premises and the Licensed Area(s) to the extent caused by the moving,
placement or replacement of Tenant's Property. All the aforesaid repairs shall
be of first quality and class consistent with first class office building work
or construction and shall be made in accordance with the provisions of Article 3
hereof If Tenant fails after thirty (30) days' notice (or such shorter period
(but in no event less than five (5) days or such shorter period as may be
required due to an emergency) as Landlord may be permitted pursuant to any
Superior Lease or Mortgage) to proceed with due diligence to make repairs
required to be made by Tenant, the same may be made by Landlord at the
reasonable expense of Tenant, and the expenses thereof incurred by Landlord,
with interest thereon at the Applicable Rate from the time the expense was
incurred, shall be forthwith paid to Landlord as additional rent within thirty
(30) days after rendition of a bill or statement therefor.

         Section 4.2 Tenant shall not place a load upon any floor of the
Premises exceeding two hundred (200) pounds per useable square foot "live load,"
and with respect to the Licensed Area(s) Tenant shall not place a load thereupon
exceeding the "live load" for which


                                      -13-
<PAGE>   19
such Area was designed. Tenant shall neither place nor move any safe, heavy
machines or machinery, heavy equipment, bulky matter or fixtures into or out of
the Building without Landlord's prior consent, which consent shall not be
unreasonably withheld. All work in connection therewith shall comply with the
Requirements and Insurance Requirements, and shall be done during such hours as
Landlord may reasonably designate. Business machines and mechanical equipment
shall be placed and maintained by Tenant at Tenant's expense in settings
sufficient in Landlord's reasonable judgment to absorb and prevent vibration,
noise and annoyance, other than a de minimis amount thereof Except as expressly
provided in this Lease, there shall be no allowance to Tenant for a diminution
of rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from Landlord, Tenant or
others making, or failing to make, any repairs, alterations, additions or
improvements in or to any portion of the Building or the Premises, or in or to
fixtures, appurtenances or equipment thereof.

         Section 4.3 Subject to the provisions of Section 4.4 hereof, Landlord
also shall have the right at any time, without the same constituting (i) a
breach by Landlord of any provisions of this Lease, (ii) a breach of Tenant's
quiet enjoyment, (iii) an actual or constructive eviction, or (iv) a release of
Tenant's obligations to pay Fixed Rent, Escalation Rent, or any items of Rental,
and without incurring any liability to Tenant therefor, to repair, change or
otherwise alter the arrangement or location of entrances or passageways, doors
and doorways, and corridors, elevators, stairs, toilets, or other space within
the Building other than the Premises and to change the name, number or
designation by which the Building is commonly known, provided any such repair,
change or alteration (a) does not unreasonably deprive Tenant of access to the
Building or the Premises, or (b) does not reduce the rentable area (except by a
de minimis amount) of the Premises. All parts (except surfaces facing the
interior of the Premises) of all floors, ceilings, walls, windows and doors
bounding the Premises (including exterior Building walls, exterior core corridor
walls, all roofs adjacent to the Premises, ail space in or adjacent to the
Premises used for shafts, stacks, stairways, chutes, pipes, conduits, ducts, fan
rooms, heating, air cooling, plumbing and other mechanical facilities, service
closets, and other Building facilities) are not part of the Premises, and
Landlord shall have the use thereof, as well as access thereto through the
Premises for the purposes of operation, maintenance, alteration and repair.

         Section 4.4 Landlord shall use its reasonable efforts to minimize
interference with Tenant's access to the Building and the Premises and
enjoyment, use and occupancy of the Premises in making any repairs, alterations,
additions or improvements and to perform and complete such repairs, alterations,
additions or improvements with due diligence; provide however, that Landlord
shall have no obligation to employ contractors or labor at so-called overtime or
other premium pay rates or to incur any other overtime costs or expenses
whatsoever.


                                      -14-
<PAGE>   20
                                    ARTICLE 5
                                WINDOW CLEANING


         Tenant shall not clean, nor require, permit, suffer or allow any window
in the Premises to be cleaned from the outside in violation of Section 202 of
the Labor Law, or any other applicable law, or of the rules of the Board of
Standards and Appeals, or of any other board or body having or asserting
jurisdiction.


                                    ARTICLE 6
                              REQUIREMENTS OF LAW

         Section 6.1 (A) Tenant, at its sole expense, shall comply with all
Requirements, including, without limitation, ADA (subject to Landlord's
obligations pursuant to Article 19 hereof), applicable to the manner of use of
the Premises and the Licensed Area(s) by Tenant, the making of Alterations or
the result of the making thereof and those applicable by reason of the nature or
type of business conducted in, or manner of use by Tenant of, the Premises and
the Licensed Area(s). Tenant shall not do or permit to be done any act or thing
upon the Premises or the Licensed Area(s) which will invalidate or be in
conflict with a standard all-risk insurance policy; and shall not do, or permit
anything to be done in or upon the Premises or the Licensed Area(s), or bring or
keep anything therein, except as now or hereafter permitted by the New York City
Fire Department, New York Board of Fire Underwriters, the Insurance Services
Office or other authority having jurisdiction and then only in such quantity and
manner of storage as not to increase the rate for fire insurance applicable to
the Building, or use the Premises in a manner (as opposed to mere use as general
"offices") which specifically because of such use shall increase the rate of
fire insurance on the Building or on property located therein, over that in
similar type buildings or in effect on the Commencement Date. If by reason of
Tenant's failure to comply with the provisions of this Article, the fire
insurance rate shall be higher than it otherwise would be, then Tenant shall
desist from doing or permitting to be done any such act or thing and shall
reimburse Landlord, as additional rent hereunder, for that part of all fire
insurance premiums thereafter paid by Landlord which shall have been charged
because of such failure by Tenant, and shall make such reimbursement within
thirty (30) days of demand by Landlord. In any action or proceeding wherein
Landlord and Tenant are parties, a schedule or "make up" of rates for the
Building or the Premises issued by the Insurance Services Office, or other body
fixing such fire insurance rates, shall be conclusive evidence of the facts
therein stated and of the several items and charges in the fire insurance rates
then applicable to the Building.


                                      -15-
<PAGE>   21
         (B) Landlord, at its sole cost and expense (but subject to recoupment
as provided in Article 27 hereof), shall comply with all other Requirements
applicable to the Premises and the Building, other than those Requirements which
Tenant or other tenants or occupants of the Building shall be required to comply
with, subject to Landlord's right to contest the applicability or legality
thereof. Landlord acknowledges that except as described in Section 6.1(A)
hereof Tenant shall have no responsibility for failure of the Building or the
common areas of the Building in which Tenant has appurtenant rights to comply
with any Requirements which are in effect and applicable to the Building or the
common areas of the Building in which Tenant has appurtenant rights any other
rights under this Lease.

                                    ARTICLE 7
                                  SUBORDINATION

         Section 7.1 If a Mortgage or Superior Lease shall encumber the
Premises, (a) any such Mortgagee shall execute and deliver to Tenant an
agreement to the effect that, if there shall be a foreclosure of its Mortgage,
such Mortgagee will not make Tenant a party defendant to such foreclosure, evict
Tenant, disturb Tenant's possession under this Lease, or terminate or disturb
Tenant's leasehold estate or rights hereunder provided no Event of Default shall
then be existing and/or (b) any such Lessor shall execute and deliver to Tenant
an agreement to the effect that if its Superior Lease shall terminate or be
terminated for any reason, Lessor will recognize Tenant as the direct Tenant of
such Lessor on the same terms and conditions as are contained in this Lease
(subject to the provisions, hereinafter set forth, including, without
limitation, Section 7.2 hereof) provided no Event of Default shall then be
existing (any such agreement, or any agreement of similar import, shall be
reasonably satisfactory to such Lessor or Mortgagee and shall contain such terms
and conditions which are reasonable and customary, including, without
limitation, the terms set forth in Section 7.2, being hereinafter called a
"Nondisturbance Agreement"). Provided that any Mortgagee or Lessor has delivered
a Nondisturbance Agreement to Tenant as set forth in this Section 7.1, this
Lease shall be subject and subordinate to such Superior Lease and to such
Mortgage, and to all renewals, extensions, supplements, amendments,
modifications, consolidations and replacements thereof or thereto, substitutions
therefor, and advances made thereunder. This clause shall be self-operative and
no further instrument of subordination shall be required to make the interest of
any Lessor or Mortgagee superior to the interest of Tenant hereunder, however,
Tenant shall execute and deliver promptly any certificate that Landlord may
request in confirmation of such subordination. If the date of expiration of any
Superior Lease shall be the same day as the Expiration Date, the Term shall end
and expire twelve (12) hours prior to the expiration of the Superior Lease.
Tenant shall not do anything that would constitute a default under any Superior
Lease or Mortgage, or omit to do anything that Tenant is obligated to do under
the terms of this Lease so as to cause Landlord to be in default thereunder. If,
in connection with the financing of the Real Property, the Building or the
interest of the lessee under any Superior Lease, or if in connection with the
entering into of a Superior Lease, any Mortgagee or Lessor shall request
reasonable modifications of this Lease that do not increase the monetary
obligations of Tenant under this Lease or materially or adversely affect the
rights or obligations of Tenant under this Lease, Tenant shall make such
modifications.


                                      -16-
<PAGE>   22
         Section 7.2 If at any time prior to the expiration of the Term, any
Superior Lease shall terminate or be terminated for any reason or any Mortgagee
comes into possession of the Real Property or the Building or the estate created
by any Superior Lease by receiver or otherwise, Tenant agrees, subject to the
terms of any Nondisturbance Agreement then in effect, at the election and upon
demand of any owner of the Real Property or the Building, or of the Lessor, or
of any Mortgagee in possession of the Real Property or the Building, to attorn,
from time to time, to any such owner, Lessor or Mortgagee or any person
acquiring the interest of Landlord as a result of any such termination, or as a
result of a foreclosure of the Mortgage or the granting of a deed in lieu of
foreclosure, upon the then executory terms and conditions of this Lease, subject
to the provisions of Section 7.1 hereof and this Section 7.2, for the remainder
of the Term, provided that such owner, Lessor or Mortgagee, as the case may be,
or receiver caused to be appointed by any of the foregoing, shall then be
entitled to possession of the Premises, and provided further that such owner,
Lessor or Mortgagee, as the case may be, or anyone claiming by, through or under
such owner, Lessor or Mortgagee, as the case may be, including a purchaser at a
foreclosure sale, shall not be:

                  (1) liable for any act or omission of any prior landlord
(including, without limitation, the then defaulting landlord), or

                  (2) subject to any defense or offsets which Tenant may have
against any prior landlord (including, without limitation, the then defaulting
landlord), or

                  (3) bound by any payment of Rental which Tenant may have made
to any prior landlord (including, without limitation, the then defaulting
landlord) more than thirty (30) days in advance of the date upon which such
payment was due, or

                  (4) bound by any obligation to make any payment to or on
behalf of Tenant, including, without limitation, payments on account of any ADA
Tenant Fund, or

                  (5) bound by any obligation to perform any work or to make
improvements to the Premises, except for (i) repairs and maintenance pursuant to
the provisions of Article 4, the need for which repairs and maintenance first
arises after the date upon which such owner, Lessor, or Mortgagee shall be
entitled to possession of the Premises, (ii) repairs to the Premises or any part
thereof as a result of damage by fire or other casualty pursuant to Article 10
hereof, but only to the extent that such repairs can be reasonably made from the
net proceeds of any insurance actually made available to such owner, Lessor or
Mortgagee, and (iii) repairs to the Premises as a result of a partial
condemnation pursuant to Article 11 hereof, but only to the extent that such
repairs can be reasonably made from the net proceeds of any award made available
to such owner, Lessor or Mortgagee, or

                  (6) bound by any amendment or modification of this Lease made
without its consent, or


                                      -17-
<PAGE>   23
                  (7) bound to return Tenant's security deposit, if any, until
such deposit has come into its actual possession and Tenant would be entitled to
such security deposit pursuant to the terms of this Lease.

Notwithstanding the foregoing, this Lease shall not terminate by reason of the
termination of any Superior Lease without the prior written consent of the
Mortgagee. The provisions of this Section 7.2 shall inure to the benefit of any
such owner, Lessor or Mortgagee, shall apply notwithstanding that, as a matter
of law, this Lease may terminate upon the termination of any such Superior
Lease, and shall be self-operative upon any such demand, and no further
instrument other than a Nondisturbance Agreement shall be required to give
effect to said provisions. Tenant, however, within five (5) days after written
notice of any such owner, Lessor or Mortgagee, shall execute, from time to time,
instruments in confirmation of the foregoing provisions of this Section 7.2,
including a Nondisturbance Agreement reasonably satisfactory to any such owner,
Lessor or Mortgagee, and acknowledging such attornment and setting forth the
terms and conditions of its tenancy. Nothing contained in this Section 7.2 shall
be construed to impair any right otherwise exercisable by any such owner, Lessor
or Mortgagee.

If required by the Mortgagee or the Lessor, Tenant promptly shall join in any
Nondisturbance Agreement to indicate its concurrence with the provisions thereof
and its agreement set forth in Section 7.2 hereof to attorn to such Mortgagee or
Lessor, as the case may be, as Tenant's landlord hereunder. Tenant shall
promptly so accept, execute and deliver any Nondisturbance Agreement proposed by
any such Mortgagee or Lessor which conforms with the provisions of this Article
7. Any such Nondisturbance Agreement may also contain other reasonable and
customary terms and conditions as may otherwise be required by such Mortgagee or
Lessor.

         Section 7.3 (a) From time to time, within fifteen (15) days next
following request by Landlord, any Mortgagee or any Lessor, Tenant shall deliver
to Landlord, such Mortgagee or such Lessor a written statement executed by
Tenant, in form reasonably satisfactory to Landlord, such Mortgagee or such
Lessor, (1) stating that this Lease is then in full force and effect and has not
been modified (or if modified, setting forth all modifications), (2) setting
forth the date to which the Fixed Rent, additional rent and other items of
Rental have been paid, (3) stating whether or not, to the best knowledge of
Tenant, Landlord is in default under this Lease, and, if Landlord is in default,
setting forth the specific nature of all such defaults, and (4) as to any other
matters reasonably requested by Landlord, such Mortgagee or such Lessor. Tenant
acknowledges that any statement delivered pursuant to this Section 7.3(a) may
be relied upon by any purchaser or owner of the Real Property or the Building,
or Landlord's interest in the Real Property or the Building or any Superior
Lease, or by any Mortgagee, or by an assignee of any mortgagee, or by any
Lessor.

                  (b) From time to time, within seven (7) days next following
request by Tenant, Landlord shall deliver to Tenant a written statement executed
by Landlord, in form reasonably satisfactory to Tenant, (1) stating that this
Lease is then in full force and effect and has not been modified (or if
modified, setting forth all modifications), (2) setting forth the date to which
the Fixed Rent, additional rent and other items of Rental have been paid, (3)
stating whether or not, to the best


                                      -18-
<PAGE>   24
knowledge of Landlord, Tenant is in default under this Lease, and, if Tenant is
in default, setting forth the specific nature of all such defaults, and (4) as
to any other matters reasonably requested by Tenant.

         Section 7.4 As long as any Superior Lease or Mortgage shall exist,
Tenant shall not seek to terminate this Lease by reason of any act or omission
of Landlord until Tenant shall have given written notice of such act or omission
to all Lessors and Mortgagees at such addresses as shall have been furnished to
Tenant by such Lessors and Mortgagees and, if any such Lessor or Mortgagee, as
the case may be, shall have notified Tenant within thirty (30) Business Days
following receipt of such notice of its intention to remedy such act or
omission, until a reasonable period of time shall have elapsed following the
giving of such notice, during which period such Lessors and Mortgagees shall
have the right, but not the obligation, to remedy such act or omission.

         Section 7.5. Tenant hereby irrevocably waives any and all right(s) it
may have in connection with any zoning lot merger or transfer of development
rights with respect to the Real Property including, without limitation, any
rights it may have to be a party to, to contest, or to execute, any Declaration
of Restrictions (as such term is defined in Section 12-10 of the Zoning
Resolution of The City of New York effective December 15, 1961, as amended) with
respect to the Real Property, which would cause the Premises to be merged with
or unmerged from any other zoning lot pursuant to such Zoning Resolution or to
any document of a similar nature and purpose, and Tenant agrees that this Lease
shall be subject and subordinate to any Declaration of Restrictions or any other
document of similar nature and purpose now or hereafter affecting the Real
Property. In confirmation of such subordination and waiver, Tenant shall execute
and deliver promptly any certificate or instrument that Landlord reasonably may
request.


                                    ARTICLE 8
                             RULES AND REGULATIONS

         Tenant and Tenant's contractors, employees, agents, invitees and
licensees and any Person claiming by, through or under Tenant shall comply with
the Rules and Regulations. If Tenant disputes the reasonableness of any
additional Rule or Regulation hereafter adopted by Landlord, the dispute shall
be determined by arbitration in the City of New York in accordance with the
rules and regulations then obtaining of the American Arbitration Association or
its successor. Any such determination shall be final and conclusive upon the
parties hereto. The right to dispute the reasonableness of any additional Rule
or Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice upon Landlord within fifteen (15) days after
receipt by Tenant of notice of the adoption of any such additional Rule or
Regulation. The costs of such arbitration shall be paid by the unsuccessful
party. Nothing in this Lease contained shall be construed to impose upon
Landlord any duty or obligation to enforce the Rules and Regulations or terms,
covenants or conditions in any other lease against any other tenant, and
Landlord shall not be liable to Tenant for violation of the same by any


                                      -19-
<PAGE>   25
other tenant, its employees, agents, visitors or licensees, except that Landlord
shall not enforce any Rule or Regulation against Tenant which Landlord shall not
then be enforcing against all other office tenants in the Building.


                                    ARTICLE 9
                  INSURANCE, PROPERTY LOSS OR DAMAGE: REIMBURSE

         Section 9.1 (A) Except due to the gross negligence of Landlord, its
agents or employees, neither Landlord nor its agents shall be liable (i) for any
injury or damage to persons or property, or interruption of Tenant's business,
resulting from fire or other casualty, (ii) for any such damage caused by other
tenants or persons in the Building or caused by construction of any private,
public or quasi-public work, nor (iii) for any latent defect in the Premises,
the Licensed Area(s) or in the Building (except to the extent Landlord shall be
required to repair same pursuant to Article 4 hereof). Nothing in the foregoing
shall affect any right of Landlord to the indemnity from Tenant to which
Landlord may be entitled under Article 35 hereof in order to recoup for payments
made to compensate for losses of third parties.

                  (B) Subject to the provisions of Section 4.4 hereof, if at any
time any windows of the Premises are temporarily closed, darkened or bricked-up
by reason of repairs, maintenance, alterations or improvements to the Building
or due to any Requirement, or any of such windows are permanently closed,
darkened or bricked up due to any Requirement, Landlord shall not be liable for
any damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor nor abatement of Fixed Rent or any other item of Rental
nor shall the same release Tenant from its obligations hereunder or constitute
an eviction.

         Section 9.2 Tenant shall obtain and keep in full force and effect (i)
an "all-risk" insurance policy for Tenant's Alterations and Tenant's Property at
the Premises and in the Licensed Area(s), (ii) a policy of commercial general
liability and property damage insurance on an occurrence basis on the standard
ISO form with such exceptions, exclusions and endorsements as Landlord shall
reasonably approve, with a broad form contractual liability endorsement, (iii)
such workers compensation insurance as may be required by applicable
Requirements, and (iv) business interruption insurance in commercially
reasonable amounts and periods and covering Tenant's obligations, including,
without limitation, its obligations under this Lease. Such policies shall
provide that Tenant is named as the insured. Landlord, Landlord's managing agent
and any Lessors and any Mortgagees (whose names shall have been furnished to
Tenant) shall be added as additional insureds, as their respective interests may
appear. Such policy with respect to clause (ii) above shall include a provision
under which the insurer agrees to indemnify and hold Landlord, Landlord's
managing agent, and such Lessors and Mortgagees harmless from and against all
cost, expense and/or liability arising out of or based upon any and all claims,
accidents, injuries and damages mentioned in Article 35. In addition, the policy
required to be carried pursuant to clause (ii) above shall contain a provision
that no act or omission of Tenant shall affect or limit the obligation of the
insurance company to pay the amount of any loss sustained and that the policy
shall be non-cancelable and non-


                                      -20-
<PAGE>   26
modifiable with respect to Landlord, such managing agent, and such Lessors and
Mortgagees (whose names and addresses shall have been furnished to Tenant)
unless thirty (30) days' written notice shall have been given to Landlord by
certified mail, return receipt requested, which notice shall contain the policy
number and the names of the insured and additional insureds. In addition, upon
receipt by Tenant of any notice of cancellation or any other notice from the
insurance carrier which may adversely affect the coverage of the insureds under
such policy of insurance, Tenant shall immediately deliver to Landlord and any
other additional insureds thereunder a copy of such notice. The minimum limits
of liability under the policy of insurance required to be carried pursuant to
clause (ii) above shall be a combined single limit with respect to each
occurrence in an amount of not less than $3,000,000 for injury (or death) to
persons and damage to property, which amount shall be increased from time to
time to that amount of insurance which in Landlord's reasonable judgment is then
being customarily required by prudent landlords of first-class office buildings
in New York City. All insurance required to be carried by Tenant pursuant to the
terms of this Lease shall be effected under valid and enforceable policies
issued by reputable and independent insurers permitted to do business in the
State of New York, and rated in Best's Insurance Guide, or any successor thereto
(or if there be none, an organization having a national reputation) as having a
general policyholder rating of "A" and a financial rating of at least "13."

         Section 9.3 Landlord shall obtain and keep in full force and effect
insurance against loss or damage by fire and other casualty to the Building as
may be insurable under then available standard forms of "all-risk" insurance
policies, in an amount equal to one hundred percent (100%) of the replacement
value thereof or in such lesser amount as will avoid co-insurance (including an
"agreed amount" endorsement).

         Section 9.4 On or prior to the Commencement Date, each party shall
deliver to the other party appropriate insurance certificates including evidence
of waivers of subrogation required pursuant to Section 9.5, required to be
carried by each party pursuant to this Article 9. Evidence of each renewal or
replacement of a policy shall be delivered by Tenant to Landlord at least twenty
(20) days prior to the expiration of such policy, and a copy of such replacement
policy or certificates thereof shall be delivered by Tenant to Landlord upon
request.

         Section 9.5 The parties hereto shall procure an appropriate clause in,
or endorsement on, any fire or extended coverage insurance covering the
Premises, the Licensed Area(s), the Building and personal property, fixtures and
equipment located thereon or therein, pursuant to which the insurance companies
waive subrogation or consent to a waiver of right of recovery and having
obtained such clauses or endorsements of waiver of subrogation or consent to a
waiver of right of recovery, will not make any claim against or seek to recover
from the other for any loss or damage to its property or the property of others
resulting from fire or other hazards covered by such fire and extended coverage
insurance, provided, however, that the release, discharge, exoneration and
covenant not to sue herein contained shall be limited by and coextensive with
the terms and provisions of the waiver of subrogation clause or endorsements or
clauses or endorsements consenting to a waiver of right of recovery. If the
payment of an additional premium is required for the inclusion of such waiver of
subrogation provision, each


                                      -21-
<PAGE>   27
party shall advise the other of the amount of any such additional premiums and
the other party at its own election may, but shall not be obligated to, pay the
same. If such other party shall not elect to pay such additional premium, the
first party shall not be required to obtain such waiver of subrogation
provision. If either party shall be unable to obtain the inclusion of such
clause even with the payment of an additional premium, then such party shall
attempt to name the other party as an additional insured (but not a loss payee)
under the policy. If the payment of an additional premium is required for naming
the other party as an additional insured (but not a loss payee), each party
shall advise the other of the amount of any such additional premium and the
other party at its own election may, but shall not be obligated to, pay the
same. If such other party shall not elect to pay such additional premium or if
it shall not be possible to have the other party named as an additional insured
(but not loss payee), even with the payment of an additional premium, then (in
either event) such party shall so notify the first party and the first party's
agreement to name the other party as an additional insured shall be satisfied.
Tenant acknowledges that Landlord shall not carry insurance on and shall not be
responsible for damage to, Tenant's Property or Alterations, and that Landlord
shall not carry insurance against, or be responsible for any loss suffered by
Tenant due to, interruption of Tenant's business.


                                   ARTICLE 10
                         DESTRUCTION-FIRE OR OTHER CAUSE

         Section 10.1 If the Premises shall be damaged by fire or other
casualty, and if Tenant shall give prompt notice thereof to Landlord, the damage
to the Premises, excluding damage to Alterations and Tenant's Property, shall be
diligently repaired by and at the expense of Landlord to substantially the
condition prior to the damage, with such modifications as shall be required in
order to comply with Requirements, and from the date of such damage until such
repairs shall be substantially completed (of which substantial completion
Landlord shall promptly notify Tenant) the Fixed Rent, Escalation Rent and Space
Factor shall be reduced in the proportion which the area of the part of the
Premises which is not usable by Tenant and not occupied by Tenant, as determined
by Landlord in its reasonable discretion, bears to the total area of the
Premises. Landlord shall have no obligation to repair any damage to, or to
replace, any Alterations or Tenant's Property.

         Section 10.2 Anything contained in Section 10.1 to the contrary
notwithstanding, if the Building shall be so damaged by fire or other casualty
that, in Landlord's reasonable opinion, substantial alteration, demolition, or
reconstruction of the Building shall be required (whether or not the Premises
shall have been damaged or rendered untenantable), then Landlord, at Landlord's
option, may, not later than forty-five (45) days following the damage, give
Tenant a notice in writing terminating this Lease, provided that Landlord may
not terminate this Lease unless it shall elect to terminate leases (including
this Lease), affecting at least fifty percent (50%) of the rentable area of the
Building. If Landlord elects to terminate this Lease, the Term shall expire upon
a date set by Landlord, but not sooner than the ninetieth (90th) day after such
notice is given, unless sooner if required by any Requirement or any Insurance
Requirement, and Tenant shall vacate the Premises and surrender the same to
Landlord in accordance with the


                                      -22-
<PAGE>   28
provisions of Article 20 hereof. Upon the termination of this Lease under the
conditions provided for in 10.2, Tenant's liability for Fixed Rent and
Escalation Rent and additional rent shall cease and any prepaid portion of Fixed
Rent and Escalation Rent for any period after such date shall be promptly
refunded by Landlord to Tenant.

         Section 10.3 (A) Within forty-five (45) days after notice to Landlord
of any damage described in Section 10.1 hereof, Landlord shall deliver to
Tenant a statement prepared by a reputable contractor setting forth such
contractor's good faith estimate as to the time required to repair such damage,
exclusive of time required to repair any Alterations (which are Tenant's
obligation to repair). If the estimated time period exceeds twelve (12) months
from the date of such statement, Tenant may elect to terminate this Lease by
notice to Landlord not later than thirty (30) days following receipt of such
statement. If Tenant makes such election, the Term shall expire upon the
thirtieth (30th) day after notice of such election is given by Tenant (or such
shorter period as required by any applicable Requirement or Landlord's insurance
carrier), and Tenant shall vacate the Premises and surrender the same to
Landlord in accordance with the provisions of Article 20 hereof.

                  (B) Notwithstanding the foregoing, if the Premises shall be
substantially damaged during the last year of the initial or renewal Term,
Landlord or Tenant may elect by notice, given within thirty (30) days after the
occurrence of such damage, to terminate this Lease and if either party makes
such election, the Term shall expire upon the thirtieth (30th) day after notice
of such election is given by such party and Tenant shall vacate the Premises and
surrender the same to Landlord in accordance with the provisions of Article 20
hereof. Tenant shall have no other options to cancel this Lease under this
Article 10.

         Section 10.4 This Article 10 constitutes an express agreement governing
any case of damage or destruction of the Premises or the Building by fire or
other casualty, and Section 227 of the Real Property Law of the State of New
York, which provides for such contingency in the absence of an express
agreement, and any other law of like nature and purpose now or hereafter in
force shall have no application in any such case.


                                   ARTICLE 11
                                 EMINENT DOMAIN

         Section 11.1 If the whole of the Real Property, the Building or the
Premises shall be acquired or condemned for any public or quasi-public use or
purpose, this Lease and the Term shall end as of the date of the vesting of
title with the same effect as if said date were the Expiration Date. If only a
part of the Real Property and not the entire Premises shall be so acquired or
condemned then, (1) except as hereinafter provided in this Section 11.1, this
Lease and the Term shall continue in force and effect but, if a part of the
Premises is included in the part of the Real Property so acquired or condemned,
from and after the date of the vesting of title, the Fixed Rent and the Space
Factor shall be reduced in the proportion which the area of the part of the
Premises so acquired or condemned bears to the total area of the Premises


                                      -23-
<PAGE>   29
immediately prior to such acquisition or condemnation and Tenant's Share shall
be redetermined based upon the proportion in which the ratio between the
rentable area of the Premises remaining after such acquisition or condemnation
bears to the rentable area of the Building remaining after such acquisition or
condemnation; (2) whether or not the Premises shall be affected thereby,
Landlord, at Landlord's option, may give to Tenant, within sixty (60) days next
following the date upon which Landlord shall have received notice of vesting of
title, a ninety (90) days' notice of termination of this Lease if Landlord shall
elect to terminate leases (including this Lease), affecting at least fifty
percent (50%) of the rentable area of the Building; and (3) if the part of the
Real Property so acquired or condemned shall contain a portion of the Premises
so that by reason of such acquisition or condemnation, Tenant no longer has
reasonable means of access to the Premises or if, in Tenant's reasonable
opinion, the portion of the Premises remaining shall be inadequate for Tenant to
conduct its business at the Premises, Tenant, at Tenant's option, may give to
Landlord, within sixty (60) days next following the date upon which Tenant shall
have received notice of vesting of title, a thirty (30) days' notice of
termination of this Lease. If any such thirty (30) days' notice of termination
is given, by Landlord or Tenant, this Lease and the Term shall come to an end
and expire upon the expiration of said thirty (30) days with the same effect as
if the date of expiration of said thirty (30) days were the Expiration Date. If
a part of the Premises shall be so acquired or condemned and this Lease and the
Term shall not be terminated pursuant to the foregoing provisions of this
Section 11.1, Landlord, at Landlord's expense, shall restore that part of the
Premises not so acquired or condemned to a self-contained rental unit to a
condition similar to that on the Commencement Date exclusive of Tenant's
Alterations. In the event of any termination of this Lease and the Term pursuant
to the provisions of this Section 11.1, the Fixed Rent shall be apportioned as
of the earlier of (i) the date of sooner termination or (ii) vesting of title,
and any prepaid portion of Fixed Rent or Escalation Rent for any period after
such date shall be refunded by Landlord to Tenant.

         Section 11.2 In the event of any such acquisition or condemnation of
all or any part of the Real Property, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation, Tenant shall have no
claim against Landlord or the condemning authority for the value of any
unexpired portion of the Term and Tenant hereby expressly assigns to Landlord
all of its right in and to any such award. Nothing contained in this Section
11.2 shall be deemed to prevent Tenant from making a separate claim in any
condemnation proceedings for the then value of any Tenant's Property included in
such taking, and for any moving expenses, provided that same does not reduce any
award or payment to Landlord.

         Section 11.3 If the whole or any part of the Premises shall be acquired
or condemned temporarily during the Term for any public or quasi-public use or
purpose, Tenant shall give prompt notice thereof to Landlord and the Term shall
not be reduced or affected in any way and Tenant shall continue to pay in full
all items of Rental payable by Tenant hereunder without reduction or abatement,
and Tenant shall be entitled to receive for itself any award or payments for
such use; provided, however, that:


                                      -24-
<PAGE>   30
                  (i) if the acquisition or condemnation is for a period not
         extending beyond the Term and if such award or payment is made less
         frequently than in monthly installments, the same shall be paid to and
         held by Landlord as a fund which Landlord shall apply from time to time
         to the Rental payable by Tenant hereunder, except that, if by reason of
         such acquisition or condemnation changes or alterations are required to
         be made to the Premises which would necessitate an expenditure to
         restore the Premises, then a portion of such award or payment
         reasonably considered by Landlord as appropriate to cover the expenses
         of the restoration shall be retained by Landlord, without application
         as aforesaid, and applied toward the restoration of the Premises as
         provided in Section 11.1 hereof; or

                  (ii) if the acquisition or condemnation is for a period
         extending beyond the Term, such award or payment shall be apportioned
         between Landlord and Tenant as of the Expiration Date; Tenant's share
         thereof, if paid less frequently than in monthly installments, shall be
         paid to Landlord and applied in accordance with the provisions of
         clause (i) above; provided, however, that the amount of any award or
         payment allowed or retained for restoration of the Premises shall
         remain the property of Landlord if this Lease shall expire prior to the
         restoration of the Premises.


                                   ARTICLE 12
                     ASSIGNMENT, SUBLETTING, MORTGAGE, ETC.

         Section 12.1 Except as expressly permitted herein, Tenant, without the
prior consent of Landlord in each instance, shall not (a) assign its rights or
delegate its duties under this Lease (whether by operation of law, transfers of
interests in Tenant or otherwise), mortgage or encumber its interest in this
Lease, in whole or in part, (b) sublet, or permit the subletting of, the
Premises or any part thereof, or (c) permit the Premises or Licensed Area(s) or
any part thereof to be occupied, or used for desk space, mailing privileges or
otherwise, by any person other than Tenant. As part of, and directly related to,
the conduct of Tenant's business Tenant may, without the prior consent of
Landlord and specifically exempt from the terms of Section 12.2 and Section 12.5
hereof, place telecommunications equipment of its customers in the Premises for
the exclusive use by Tenant for the exclusive transmission to and for the
exclusive benefit of such customers, of telecommunications services; provided,
however, that such customers shall not be granted access to operate such
equipment, or the right to occupy, the Premises in connection therewith. At the
request of Landlord made from time to time, Tenant shall promptly furnish
Landlord with a list of such customers and identify the equipment of such
customers located in the Premises.

         Section 12.2 If Tenant's interest in this Lease is assigned in
violation of the provisions of this Article 12, such assignment shall be void
and of no force and effect against Landlord; provided, however, that Landlord
may collect an amount equal to the then Fixed Rent plus any other item of Rental
from the assignee as a fee for its use and occupancy. If the Premises or any
part thereof are sublet to, or occupied by, or used by, any person other than


                                      -25-
<PAGE>   31
Tenant, whether or not in violation of this Article 12, Landlord, after default
by Tenant under this Lease, may collect any item of Rental of other sums paid by
the subtenant, user or occupant as a fee for its use and occupancy, and shall
apply the net amount collected to the Fixed Rent and other items of Rental
reserved in this Lease. No such assignment, subletting, occupancy or use,
whether with or without Landlord's prior consent, nor any such collection or
application of Rental or fee for use and occupancy, shall be deemed a waiver by
Landlord of any term, covenant or condition of this Lease or the acceptance by
Landlord of such assignee, subtenant, occupant or user as tenant hereunder. The
consent by Landlord to any assignment, subletting, occupancy or use shall not
relieve Tenant from its obligation to obtain the express prior consent of
Landlord to any further assignment, subletting, occupancy or use. Tenant shall
pay to Landlord a processing fee and the actual and reasonable attorneys' fees
and disbursements incurred by or on behalf of Landlord in connection with any
proposed assignment of Tenant's interest in this Lease or any proposed
subletting of the Premises or any part thereof. Neither any assignment of
Tenant's interest in this Lease nor any subletting, occupancy or use of the
Premises or any part thereof by any person other than Tenant, nor any collection
of Rental by Landlord from any person other than Tenant as provided in this
Section 12.2, nor any application of any such Rental as provided in this Section
12.2 shall, in any circumstances, relieve Tenant of its obligations under this
Lease on Tenant's part to be observed and performed. Any person or entity to
which this Lease is assigned pursuant to the provisions of the Bankruptcy Code
shall be deemed without further act or deed to have assumed all of the
obligations arising under this Lease on and after the date of such assignment.
Any such assignee shall execute and deliver to Landlord upon demand an
instrument confirming such assumption. No assignment of this Lease shall relieve
Tenant of its obligations hereunder and, subsequent to any assignment, Tenant's
liability hereunder shall continue notwithstanding any subsequent modification
or amendment hereof or the release of any subsequent tenant hereunder from any
liability, to all of which Tenant hereby consents in advance provided, however,
if any subsequent modification or amendment of this Lease made without the
consent of Tenant shall increase the obligations or liability of Tenant under
this Lease, any prior tenant, including Tenant, shall not be liable with respect
to any such increase, except if any such modification or amendment is made with
a Related Entity of Tenant, Tenant shall be bound by such modification or
amendment.

         Section 12.3 As long as Net2000 Communications Real Estate, Inc. or a
Related Entity is Tenant hereunder, Tenant shall have the privilege subject to
the terms and conditions hereinafter set forth, without the consent of Landlord,
to assign its interest in this Lease (i) to any corporation which is a successor
to Net2000 Communications Real Estate, Inc. either by merger or consolidation,
(ii) to a purchaser of all or substantially all of Net2000 Communications Real
Estate, Inc.'s assets (provided such purchaser shall have also assumed
substantially all of Tenant's liabilities), or (iii) to a corporation or other
entity which shall (1) control, (2) be under the control of, or (3) be under
common control with, Net2000 Communications Real Estate, Inc. (the term
"control" as used herein shall be deemed to mean ownership of more than 50% of
the outstanding voting stock of a corporation, or other majority equity and
control interest if Tenant is not a corporation) (any such entity being a
"Related Entity"). Tenant may also sublease all or any portion of the Premises
to a Related Entity without the consent of Landlord. Any assignment or
subletting described above may only be made upon the condition that (a) Tenant


                                      -26-
<PAGE>   32
shall give Landlord at least thirty (30) days' prior written notice thereof, (b)
any such assignee or subtenant shall continue to use the Premises as permitted
under Section 2.1 hereof, (c) the principal purpose of such assignment or
sublease is not the acquisition of Tenant's interest in this Lease (except if
such assignment or sublease is made to a Related Entity and is made for a valid
intracorporate business purpose and is not made to circumvent the provisions of
Section 12.1 of this Article), and (d) any such assignee (other than a Related
Entity) shall have a net worth and annual income and cash flow, determined in
accordance with generally accepted accounting principles, consistently applied,
after giving effect to such assignment, equal to or greater than Tenant's net
worth and annual income and cash flow, as so determined, on the date of such
assignment. Tenant shall, within ten (10) business days after execution thereof,
deliver to Landlord (a) a duplicate original instrument of assignment in form
and substance reasonably satisfactory to Landlord, duly executed by Tenant, and
(b) an instrument in form and substance reasonably satisfactory to Landlord,
duly executed by the assignee, in which such assignee shall assume observance
and performance of, and agree to be personally bound by, all of the terms,
covenants and conditions of this Lease on Tenant's part to be observed and
performed and (c) a duplicate original sublease in form and substance in
accordance with the provisions of this Article 6 duly executed by Tenant, as
sublandlord, and such Related Entity, as subtenant. Except as set forth above,
either a transfer of a controlling interest in the shares of Tenant (if Tenant
is a corporation or trust) or a transfer of a majority of the total interest in
Tenant (if Tenant is a partnership) at any one time or over a period of time
through a series of transfers, shall be deemed an assignment of this Lease and
shall be subject to all of the provisions of this Article 12, including, without
limitation the requirement that Tenant obtain Landlord's prior consent thereto.
The transfer of shares of Tenant (if Tenant is a corporation or trust) for
purposes of this Section 12.4 shall not include the sale of shares by persons
other than those deemed "insiders" within the meaning of the Securities Exchange
Act of 1934, as amended, which sale is effected through the "over-the-counter"
market or through any recognized stock exchange.

         Section 12.4 (A) Notwithstanding the provisions of Section 12.1 hereof,
if Landlord shall not exercise its rights pursuant to paragraph (B) of this
Section 12.4, Landlord shall not unreasonably withhold its consent to any
subletting of the Premises (if Tenant proposes to sublet a portion of the
Premises then, unless the context otherwise requires, references in this Section
12.4 to the Premises shall be deemed to refer to the portion of the Premises
proposed to be sublet by Tenant), provided that:

                  (1) the Premises shall not without Landlord's prior consent,
have been publicly advertised for subletting at a rental rate less than the
prevailing rental rate set by Landlord for comparable space in the Building (the
"Prevailing Rate");

                  (2) no Event of Default shall then exist;

                  (3) the proposed subtenant shall have a financial standing, be
of a character, be engaged in a business, and propose to use the Premises in a
manner in keeping with the standards in such respects of the other tenancies in
the Building,


                                      -27-
<PAGE>   33
                  (4) if Landlord has or within six (6) months thereafter
reasonably expects to have suitable space available in the Building comparable
to the space Tenant proposes to sublet, the proposed subtenant shall not be a
person or entity with whom Landlord is then negotiating or has received or given
an offer to comparable lease space in the Building;

                  (5) the character of the business to be conducted or the
proposed use of the Premises by the proposed subtenant shall not (a) be likely
to materially increase Landlord's operating expenses beyond that which would be
incurred for use by Tenant or for use in accordance with the standards of use of
other tenancies in the Building; (b) materially increase the burden on existing
cleaning services or elevators over the burden prior to such proposed
subletting; (c) require any alterations to be performed in or made to any
portion of the Building or the Real Property other than the Premises; or (d)
violate any provision or restrictions herein relating to the use or occupancy of
the Premises;

                  (6) the subletting shall be expressly subject to all of the
terms, covenants, conditions and obligations on Tenant's part to be observed and
performed under this Lease and the further condition and restriction that the
sublease shall not be assigned, encumbered or otherwise transferred or the
subleased premises further sublet by the subtenant in whole or in part, or any
part thereof suffered or permitted by the subtenant to be used or occupied by
others, without the prior written consent of Landlord in each instance;

                  (7) the subletting shall end no later than one (1) day before
the Expiration Date and shall not be for a term of less than two (2) years
unless it commences less than two (2) years before the Expiration Date;

                  (8) no subletting shall be for less than 2,200 contiguous
rentable square feet and at no time shall there be more than three (3)
occupants, including Tenant, in the Premises; and

                  (9) such sublease shall expressly provide that in the event of
termination, re-entry or dispossess of Tenant by Landlord under this Lease,
Landlord may, at its option, take over all of the right, title and interest of
Tenant, as sublessor under such sublease, and such subtenant shall, at
Landlord's option, attorn to Landlord pursuant to the then executory provisions
of such sublease, except that Landlord shall not (i) be liable for any previous
act or omission of Tenant under such sublease, (ii) be subject to any offset,
not expressly provided in such sublease, which therefore accrued to such
subtenant against Tenant, (iii) be bound by any previous modification of such
sublease or by any previous prepayment of more than one month's rent unless
previously approved by Landlord, (iv) be bound by any covenant to undertake or
complete any construction of the Premises or any portion thereof demised by such
sublease and (v) be bound by any obligation to make any payment to or on behalf
of the subtenant, except for services, repairs, maintenance and restoration
provided for under the sublease to be performed after the date of such
termination, re-entry or dispossess by Landlord under this Lease and which
Landlord is required to perform hereunder with respect to the subleased space at
Landlord's expense, it being expressly understood, however, that Landlord shall
not be bound by any


                                      -28-
<PAGE>   34
obligation to make payment to or on behalf of a subtenant with respect to
construction performed by or on behalf of such subtenant at the subleased
premises.

                  (B) At least ten (10) Business Days prior to any proposed
subletting Tenant shall submit a statement to Landlord (a "Sublease Statement")
containing the following information: (a) the name and address of the proposed
subtenant, (b) a description of the portion of the Premises to be sublet, (c)
the terms and conditions of the proposed subletting including the rent payable,
(d) the nature and character of the business of the proposed subtenant and (e)
any other information that Landlord may reasonably request. Landlord shall have
the right, exercisable within fifteen (15) days after Landlord's receipt of the
Sublease Statement, to terminate this Lease with respect to the portion of the
Premises to be sublet (the "Offered Space"). If Landlord exercises its option to
terminate this Lease with respect to the Offered Space, then the Fixed Rent,
Tenant's Share and Space Factor shall be reduced in the proportion to which the
rentable square footage of the Offered Space bears to the total rentable area of
the Premises immediately prior to Landlord's termination of this Lease with
respect to the Offered Space.

                           (1) The failure by Landlord to exercise its option
under Section 12.4(B) with respect to any subletting shall not be deemed a
waiver of such option with respect to any extension of such subletting or any
subsequent subletting of the Premises affected thereby.

         Section 12.5 (A) In connection with any subletting of all or any
portion of the Premises, Landlord shall be entitled to and Tenant shall pay to
Landlord a sum equal to fifty percent (50%) of any Sublease Profit derived
therefrom. All sums payable hereunder by Tenant shall be calculated on an
annualized basis, but shall be paid to Landlord, as additional rent, within ten
(10) days after receipt thereof by Tenant.

                  (B) For purposes of this Lease:

                           (1) "Rent Per Square Foot" shall mean the sum of the
then Fixed Rent, Escalation Rent and Electricity Additional Rent divided by the
Space Factor.

                           (2) "Sublease Profit" shall mean the product of (x)
the Sublease Rent Per Square Foot less the Rent Per Square Foot, and (y) the
number of rentable square feet constituting the portion of the Premises sublet
by Tenant.

                           (3) "Sublease Rent" shall mean any rent or other
consideration paid to Tenant directly or indirectly, by any subtenant, including
Landlord or its designee pursuant to Section 12.4(C) hereof, or any other amount
received by Tenant from or in connection with any subletting (including, but not
limited to sums paid for the sale or rental, or consideration received on
account of any contribution, of Tenant's Property or sums paid in connection
with the supply of electricity or HVAC or use of any services, equipment or
facilities located within the Licensed Area(s)) after deducting therefrom the
following sublease expenses (the "Sublease Expenses"): (i) in the event of a
sale of Tenant's Property, the then unamortized


                                      -29-
<PAGE>   35
or undepreciated cost thereof determined on the basis of Tenant's federal income
tax returns, (ii) the reasonable out-of-pocket costs and expenses of Tenant in
making such sublease such as brokers' fees, attorneys' fees, and advertising
fees paid to unrelated third parties, (iii) any sums paid to Landlord for a
processing fee and reasonable attorneys' fees and disbursements in connection
with such subletting, (iv) the cost of improvements or alterations costs made by
Tenant expressly and solely for the purpose of preparing that part of the
Premises for such subtenancy and (v) the unamortized unreimbursed cost of any
Tenant's Property leased to and used by such subtenant. In determining Sublease
Rent, the costs set forth in clauses (ii), (iii), (iv) and (v) shall be deducted
as and when incurred by Tenant.

                           (4) "Sublease Rent per Square Foot" shall mean the
Sublease Rent divided by the rentable square feet of the space demised under a
sublease.

                           (5) Sublease Profit shall be recalculated from time
to time to reflect any corrections in the prior calculation thereof due to (i)
subsequent payments received or made by Tenant, (ii) the final adjustment of
payments to be made by or to Tenant or (iii) mistake. Promptly upon the making
or receipt of any such discovery of any such mistake, Tenant shall submit to
Landlord a recalculation of the Sublease Profit as the case may be, and an
adjustment shall be made between Landlord and Tenant, if applicable with respect
thereto on account of prior payments made or credits received pursuant to this
Section 12.7.

                           (6) As used in this Section 12.5, "Tenant" shall also
include any Related Entity.


                                   ARTICLE 13
                              ELECTRICITY AND FUEL

         Section 13.1 Tenant shall at all times comply with the rules,
regulations, terms and conditions applicable to service, equipment, wiring and
requirements of the public utility or other electricity provider supplying
electricity to the Building. Landlord shall make available to Tenant in the
basement of the Building 2,800 amps, 208 volts, 3 phase 4 wire electrical
capacity. In the event that Tenant at any time during the Term fails to utilize
such electrical capacity or any reduced electrical capacity, Landlord may (but
shall not be obligated), upon written notice to Tenant (a) if required to do so
by any utility company, Governmental Authority or quasi-Governmental Authority
or (b) if the failure to do so would adversely affect the Building, reduce the
electrical capacity available to the Premises to the amount then being utilized
by Tenant. As part of the Initial Alterations, Tenant, at its sole cost and
expense, shall perform the work referred to in Paragraph B and Paragraph C of
Schedule B. Tenant shall not use or consume electric current that (a) exceeds
or, in Landlord's sole reasonable judgment, would exceed such capacity or (b)
exceeds the capacity of any of the electrical facilities and installations,
including, without limitation, any risers, serving the Premises. In the event
that, in Landlord's sole reasonable judgment, Tenant's electrical requirements
exceed such capacity, Landlord shall so notify Tenant of same. Within five (5)
days after receipt of such notice, Tenant shall cease such usage. If Tenant
shall require electric capacity in addition to the above-mentioned capacity and
Tenant is able to demonstrate


                                      -30-
<PAGE>   36
to Landlord's reasonable satisfaction that it will utilize all of its existing
capacity as well as any future capacity, and Landlord shall determine in its
reasonable judgment that any additional capacity shall neither adversely affect
the supply of electricity to existing tenants or prospective tenants of any
vacant space in the Building nor the supply of electricity to the Building for
the operation thereof, Tenant, at its sole cost and expense, shall have the
right, with Landlord's reasonable cooperation but at no cost or expense to
Landlord, to apply for the same directly to the public utility furnishing
electricity to the Building. If such additional capacity shall require the
installation of a vault and/or transformer, risers, switch gear or any other
equipment or facilities, Tenant, at its sole cost and expense, shall be
responsible for such installation and shall pay to Landlord as additional rent
hereunder Landlord's charges for the additional riser and basement space
required for such additional equipment. Moreover, to the extent that any such
installation, including, without limitation, any vault or transformer shall not
be fully utilized by Tenant, Landlord, may, upon written notice to Tenant, (a)
if required to do so by any utility company, Governmental Authority or
quasi-Governmental Authority or (b) the failure to do so would adversely affect
the Building, divert and utilize any such excess capacity for its own use or the
use by another tenant or occupant of the Building. In any such instance,
Landlord shall not use or allow another tenant to use Tenant's vault,
transformer, risers, switch gear, or any other equipment or facilities of Tenant
which have been installed for the purpose of facilitating such additional
electrical capacity. Any such installation shall be deemed an Alteration
hereunder and subject to the provisions of Article 3 hereof.

         Section 13.2 (A) Unless Landlord elects or is required to have Tenant
obtain electricity from the public utility company furnishing electricity to the
Building pursuant to the provisions of Section 13.3 hereof, electricity shall be
supplied by Landlord to the Premises and Tenant shall pay to Landlord, as
additional rent for such service, the amounts (the "Electricity Additional
Rent") as determined by a meter or submeter (installed by Landlord, at
Landlord's cost, for the purposes of measuring such consumption) at charges,
terms and rates set from time to time during the Term by the public utility
corporation serving the Buildings under the service classification in effect
pursuant to which Landlord purchases electricity.

                  (B) If electricity shall hereafter be supplied to the Building
on a "primary service" basis from the public utility corporation, Tenant shall
also pay to Landlord in equal monthly installments, as additional rent, an
amount equal to Tenant's Share of the costs incurred by Landlord in converting
the Building to such "primary service," amortized over the useful life as
Landlord actually establishes for income tax purposes pursuant to the Internal
Revenue Code of 1986, as amended, of the improvements made in connection
therewith.

                  (C) Where more than one meter measures the electricity
supplied to Tenant, the electricity rendered through each meter may be computed
and billed separately in accordance with the provisions hereinabove set forth.
Bills for the Electricity Additional Rent shall be rendered to Tenant at such
time as Landlord may elect, and Tenant shall pay the amount shown thereon to
Landlord within ten (10) days after receipt of such bill.


                                      -31-
<PAGE>   37
         Section 13.3 If Landlord shall be required or shall elect to
discontinue furnishing electricity to Tenant, this Lease shall continue in full
force and effect and shall be unaffected thereby, except only that from and
after the effective date of such discontinuance, Landlord shall not be obligated
to furnish electricity to Tenant and Tenant shall not be obligated to pay the
Electricity Additional Rent. If Landlord so discontinues furnishing electricity
to Tenant, Tenant shall diligently obtain electric energy directly from the
public utility furnishing electric service to the Building. The costs of such
service shall be paid by Tenant directly to such public utility. Such
electricity may be furnished to Tenant by means of the existing electrical
facilities serving the Premises, at no charge, to the extent the same are
available, suitable and safe for such purposes as determined by Landlord. All
meters and all additional panel boards, feeders, risers, wiring and other
conductors and equipment which may be required to obtain electricity shall be
installed by Landlord at Tenant's expense. Landlord, to the extent permitted by
applicable Requirements, shall not discontinue furnishing electricity to the
Premises until such installations have been made and Tenant shall be able to
obtain electricity directly from the public utility.


                                   ARTICLE 14
                               ACCESS TO PREMISES

         Section 14.1 (A) Tenant shall permit Landlord, Landlord's agents and
public utilities servicing the Building to erect, use and maintain, concealed
ducts, pipes and conduits in and through the Premises, and Landlord agrees to
use reasonable efforts to minimize any such activity so as not to disrupt
Tenant's business operations. Landlord or Landlord's agents shall have the right
to enter the Premises at all reasonable times upon reasonable prior notice
(except in case of emergency), which notice may be oral, to examine the same, to
show them to prospective purchasers, Mortgagees or lessees of the Building or
space therein, and to make such repairs, alterations, improvements or additions
(i) as Landlord may deem necessary to the Premises or to any other portion of
the Building, or (ii) which Landlord may elect to perform following ten (10)
days after notice following Tenant's failure to make or commence making and
thereafter diligently prosecute to completion repairs or perform any work which
Tenant is obligated to make or perform under this Lease, or (iii) for the
purpose of complying with all Requirements and Insurance Requirements, and
Landlord shall be allowed to take all material into and upon the Premises that
may be required therefor without the same constituting a breach by Landlord of
any provisions of this Lease, a breach of Tenant's quiet enjoyment, an eviction
or constructive eviction of Tenant in whole or in part, or a release of Tenant's
obligations to pay Fixed Rent, Escalation Rent, or any item of Rental, and the
Fixed Rent, Escalation Rent (and any other item of Rental) shall in no wise
abate while said repairs, alterations, improvements or additions are being made,
by reason of loss or interruption of business of Tenant, or otherwise.

                  (B) Any work performed or installations made pursuant to this
Article 14 shall be made with reasonable diligence and otherwise pursuant to
Section 4.4 hereof.

                  (C) Any pipes, ducts, or conduits installed in or through the
Premises pursuant to this Article 14 shall either be concealed behind, beneath
or within partitioning,


                                      -32-
<PAGE>   38
columns, ceilings or floors located or to be located in the Premises, or
completely furred at points immediately adjacent to partitioning columns or
ceilings located or to be located in the Premises, provided that the
installation of such pipes, ducts, or conduits, when completed, shall not reduce
the usable area of the Premises beyond a de minimis amount.

         Section 14.2 Upon reasonable prior notice to Tenant, Landlord may
exhibit the Premises to prospective tenants thereof during the twelve (12) month
period prior to the Expiration Date. If Tenant shall not be present when for any
reason entry into the Premises shall be necessary or permissible under the terms
of this Lease, Landlord or Landlord's agents may enter the same without
rendering Landlord or such agents liable therefor (during such entry Landlord or
Landlord's agents shall accord reasonable care under the circumstances to
Tenant's Property), and without in any manner affecting this Lease. Nothing
herein contained, however, shall be deemed or construed to impose upon Landlord
any obligation, responsibility or liability whatsoever, for the care,
supervision or repair of the Building or any part thereof, other than as herein
provided. Subject to Unavoidable Delays, Requirements and Insurance
Requirements, Tenant shall have access to the Premises and the Licensed Areas
and related ancillary facilities in the Building seven (7) days a week,
twenty-four (24) hours a day.


                                   ARTICLE 15
                            CERTIFICATE OF OCCUPANCY

         Tenant shall not at any time use or occupy the Premises in violation of
the certificate of occupancy at such time issued for the Premises or for the
Building and in the event that any department of the City or State of New York
shall hereafter contend or declare by notice, violation, order or in any other
manner whatsoever that the Premises are used for a purpose which is a violation
of such certificate of occupancy, Tenant shall, upon five (5) Business Days'
written notice from Landlord or any Governmental Authority, immediately
discontinue such use of the Premises. A temporary or permanent certificate of
occupancy will be in force upon the Commencement Date; provided, however,
neither such certificate, nor any provision of this Lease, nor any act or
omission of Landlord, shall be deemed to constitute a representation or warranty
that the Premises, or any part thereof, lawfully may be used or occupied for any
particular purpose or in any particular manner.


                                   ARTICLE 16
                                     DEFAULT

         Section 16.1 Each of the following events shall be an "Event of
Default" hereunder:

                  (A) if Tenant shall default (i) in the payment when due of (x)
any installment of Fixed Rent or (y) amounts owed to Landlord with respect to
the Initial Alterations for five (5) days after notice of such default is given
to Tenant, (ii) in the payment when due of


                                      -33-
<PAGE>   39
any other item of Rental and such default shall continue for thirty (30) days
after notice of such default is given to Tenant or (iii) in the performance when
due of any other obligation under this Lease and such default shall continue for
thirty (30) days after notice of such default is given to Tenant, except in the
case of any such default which cannot be cured within thirty (30) days after
such notice, then, provided that Tenant has commenced to cure such default and
is diligently pursuing such cure, ninety (90) days after such notice, except
that if Landlord shall have given one (1) such notice with respect to any of
items (i), (ii) or (iii) in any twelve (12) month period, Tenant shall not be
entitled to any further notice of its delinquency in the payment of Rental until
such time as twelve (12) consecutive months shall have elapsed without Tenant
having defaulted in any such payment; or

                  (B) if the Premises shall become abandoned; or

                  (C) if Tenant's interest in this Lease shall devolve upon or
pass to any person, whether by operation of law or otherwise, except as
expressly permitted under Article 12 hereof; or

                  (D)(1) if Tenant shall commence or institute any case,
proceeding or other action (A) seeking relief on its behalf as debtor, or to
adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other relief
with respect to it or its debts under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, or (B) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property; or

                           (2) if Tenant shall make a general assignment for the
benefit of creditors; or

                           (3) if any case, proceeding or other action shall be
commenced or instituted against Tenant (A) seeking to have an order for relief
entered against it as debtor or to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts under
any existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its property, which in either of such
cases (i) results in any such entry of an order for relief, adjudication of
bankruptcy or insolvency or such an appointment or the issuance or entry of any
other order having a similar effect or (ii) remains undismissed for a period of
ninety (90) days; or

                           (4) if any case, proceeding or other action shall be
commenced or instituted against Tenant seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its property which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within ninety (90) days from the entry thereof; or


                                      -34-
<PAGE>   40
                           (5) if Tenant shall take any action in furtherance
of, or indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clause (1), (2), (3) or (4) above; or

                           (6) if a trustee, receiver or other custodian is
appointed for any substantial part of the assets of Tenant which appointment is
not vacated or effectively stayed within ten (10) Business Days; or

                  (E) if Tenant shall default in the observance or performance
of any other material term, covenant or condition of this Lease on Tenant's part
to be observed or performed and Tenant shall fail to remedy such default within
thirty (30) days after notice by Landlord to Tenant of such default; provided,
however, that if such default is of such a nature that it can be remedied but
cannot be completely remedied within said period of thirty (30) days, Tenant
shall not be in default hereunder if (x) it commences to remedy such default
within said period of thirty (30) days and thereafter diligently prosecutes to
completion all steps necessary to remedy such default, and (y) the continuance
of such default would not subject Landlord, Lessor under a Superior Lease, or a
Mortgagee to criminal liability; or

                  (F) if this Lease is assigned (or all or a portion of the
Premises are subleased) to a Related Entity and such Related Entity shall no
longer (i) control, (ii) be under common control with, or (iii) be under the
control of Net2000 Communications Real Estate, Inc. (or any permitted successor
by merger, consolidation or purchase as provided herein).

         Section 16.2 (A) If an Event of Default (i) described in Section
16.1(D) hereof shall occur, or (ii) described in Section 16.1(A), (B), (C), (E),
or (F) shall occur and Landlord, at any time thereafter prior to the curing of
the Event of Default, at its option gives written notice to Tenant stating that
this Lease and the Term shall expire and terminate on the date Landlord shall
give Tenant such notice, which date shall be at least five (5) days after the
date of sending of the written notice to Tenant then this Lease and the Term and
all rights of Tenant under this Lease shall expire and terminate as if the date
on which the Event of Default described in clause (i) above occurred or the date
such notice is given to Tenant by Landlord were the Fixed Expiration Date and
Tenant immediately shall quit and surrender the Premises, but Tenant shall
nonetheless be liable for all of its obligations hereunder, as provided in
Articles 17 and 18 hereof. Anything contained herein to the contrary
notwithstanding, if such termination shall be stayed by order of any court
having jurisdiction over any proceeding described in Section 16.1(D) hereof, or
by federal or state statute, then, following the expiration of any such stay, or
if the trustee appointed in any such proceeding, Tenant or Tenant as
debtor-in-possession shall fail to assume Tenant's obligations under this Lease
within the period prescribed therefor by law or within one hundred twenty (120)
days after entry of the order for relief or as may be allowed by the court, or
if said trustee, Tenant or Tenant as debtor-in-possession shall fail to provide
adequate protection of Landlord's right, title and interest in and to the
Premises or adequate assurance of the complete and continuous future performance
of Tenant's obligations under this Lease as provided in Section 12.3(B),
Landlord, to the extent permitted by law or by leave of the court having
jurisdiction over such proceeding, shall have the right, at its election, to
terminate this Lease on


                                      -35-
<PAGE>   41
five (5) days' notice to Tenant, Tenant as debtor-in-possession or said trustee
and upon the expiration of said five (5) day period this Lease shall cease and
expire as aforesaid and Tenant, Tenant as debtor-in-possession or said trustee
shall immediately quit and surrender the Premises as aforesaid.

                  (B) If an Event of Default described in Section 16.1(A) hereof
shall occur, or this Lease shall be terminated as provided in Section 16.2(A)
hereof, Landlord, without notice, may reenter and repossess the Premises without
being liable to indictment, prosecution or damages therefor and may dispossess
Tenant by summary proceedings or otherwise.

         Section 16.3 If, at any time, (i) Tenant shall comprise two (2) or more
persons, or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
Lease shall have been assigned, the word "Tenant", as used in Section 16.1(E),
shall be deemed to mean any one or more of the persons primarily or secondarily
liable for Tenant's obligations under this Lease. Any monies received by
Landlord from or on behalf of Tenant during the pendency of any proceeding of
the types referred to in Section 16.1(E) shall be deemed paid as compensation
for the use and occupation of the Premises and the acceptance of any such
compensation by Landlord shall not be deemed an acceptance of Rental or a waiver
on the part of Landlord of any rights under Section 16.2.


                                   ARTICLE 17
                              REMEDIES AND DAMAGES

         Section 17.1 (A) If there shall occur any Event of Default, or this
Lease and the Term shall expire and come to an end as provided in Article 16
hereof:

                  (1) Tenant shall quit and peacefully surrender the Premises
and Licensed Area(s) to Landlord, and Landlord and its agents may immediately,
or at any time after such default or after the date upon which this Lease and
the Term shall expire and come to an end, re-enter the Premises and the Licensed
Area(s) or any part thereof without notice, either by summary proceedings, or by
any other applicable action or proceeding, or by force or otherwise (without
being liable to indictment, prosecution or damages therefor), and may repossess
the Premises and the Licensed Area(s) and dispossess Tenant and any other
persons from the Premises and the Licensed Area(s) and remove any and all of
their property and effects from the Premises and the Licensed Area(s); and

                  (2) Landlord, at Landlord's option, may relet the whole or any
part or parts of the Premises from time to time, either in the name of Landlord
or otherwise, to such tenant or tenants, for such term or terms ending before,
on or after the Expiration Date, at such rental or rentals and upon such other
conditions, which may include concessions and free rent periods, as Landlord, in
its sole discretion, may determine; provided, however, that Landlord shall have
no obligation to relet the Premises or any part thereof and shall in no event be
liable for refusal or failure to relet the Premises or any part thereof, and no
such refusal or failure shall


                                      -36-
<PAGE>   42
operate to relieve Tenant of any liability under this Lease or otherwise affect
any such liability, and Landlord, at Landlord's option, may make such repairs,
replacements, alterations, additions, improvements, decorations and other
physical changes in and to the Premises as Landlord, in its sole discretion,
considers advisable or necessary in connection with any such reletting or
proposed reletting, without relieving Tenant of any liability under this Lease
or otherwise affecting any such liability.

                  (B) Tenant hereby waives the service of any notice of
intention to re-enter or to institute legal proceedings to that end which may
otherwise be required to be given under any present or future law. Tenant, on
its own behalf and on behalf of all persons claiming through or under Tenant,
including all creditors, does hereby waive any and all rights which Tenant and
all such persons might otherwise have under any present or future law to redeem
the Premises and the Licensed Area(s), or to re-enter or repossess the Premises
and the Licensed Area(s), or to restore the operation of this Lease, after (a)
Tenant shall have been dispossessed by a judgment or by warrant of any court or
judge, or (b) any re-entry by Landlord, or (c) any expiration or termination of
this Lease and the Term, whether such dispossess, re-entry, expiration or
termination shall be by operation of law or pursuant to the provisions of this
Lease. The words "re-enter," "re-entry" and "re-entered" as used in this Lease
shall not be deemed to be restricted to their technical legal meanings. In the
event of a breach or threatened breach by Tenant, or any persons claiming
through or under Tenant, of any term, covenant or condition of this Lease,
Landlord shall have the right to enjoin such breach and the right to invoke any
other remedy allowed by law or in equity as if re-entry, summary proceedings and
other special remedies were not provided in this Lease for such breach. The
right to invoke the remedies hereinbefore set forth are cumulative and shall not
preclude Landlord from invoking any other remedy allowed at law or in equity.

         Section 17.2 (A) If this Lease and the Term shall expire and come to an
end as provided in Article 16 hereof, or by or under any summary proceeding or
any other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section 17.1, or by or under any summary proceeding or any other
action or proceeding, then, in any of said events:

                           (1) Tenant shall pay to Landlord all Fixed Rent,
Escalation Rent and other items of Rental payable under this Lease by Tenant to
Landlord to the date upon which this Lease and the Term shall have expired and
come to an end or to the date of re-entry upon the Premises by Landlord, as the
case may be;

                           (2) Tenant also shall be liable for and shall pay to
Landlord, as damages, any deficiency (referred to as "Deficiency") between the
Rental for the period which otherwise constituted the unexpired portion of the
Term and the net amount, if any, of rents collected under any reletting effected
pursuant to the provisions of clause (2) of Section 17.1 for any part of such
period (first deducting from the rents collected under any such reletting all of
Landlord's reasonable expenses in connection with the termination of this Lease,
Landlord's re-entry upon the Premises and with such reletting including, but not
limited to, actual costs for all repossession costs, brokerage commissions,
legal expenses, reasonable attorneys' fees and


                                      -37-
<PAGE>   43
disbursements, alteration costs, contribution to work and other expenses of
preparing the Premises for such reletting); any such Deficiency shall be paid in
monthly installments by Tenant on the days specified in this Lease for payment
of installments of Fixed Rent, Landlord shall be entitled to recover from Tenant
each monthly Deficiency as the same shall arise, and no suit to collect the
amount of the Deficiency for any month shall prejudice Landlord's right to
collect the Deficiency for any subsequent month by a similar proceeding; and

                           (3) whether or not Landlord shall have collected any
monthly Deficiency as aforesaid, Landlord shall be entitled to recover from
Tenant, and Tenant shall pay to Landlord, on demand, in lieu of any further
Deficiency as and for liquidated and agreed final damages, a sum equal to the
amount by which the Rental for the period which otherwise would have constituted
the unexpired portion of the Term exceeds the then fair and reasonable rental
value of the Premises for the same period, both discounted to present worth at
the Base Rate less the aggregate amount of Deficiencies theretofore collected by
Landlord pursuant to the provisions of clause (A)(2) of this Section 17.2 for
the same period; if, before presentation of proof of such liquidated damages to
any court, commission or tribunal, the Premises, or any part thereof, shall have
been relet by Landlord for the period which otherwise would have constituted the
unexpired portion of the Term, or any part thereof, the amount of rent reserved
upon such reletting shall be deemed, prima facie, to be the fair and reasonable
rental value for the part or the whole of the Premises so relet during the term
of the reletting.

                  (B) If the Premises, or any part thereof, shall be relet
together with other space in the Building, the rents collected or reserved under
any such reletting and the expenses of any such reletting shall be equitably
apportioned for the purposes of this Section 17.2. Tenant shall in no event be
entitled to any rents collected or payable under any reletting, whether or not
such rents shall exceed the Fixed Rent reserved in this Lease. Solely for the
purposes of this Article 17, the term "Escalation Rent" as used in Section
17.2(A) shall mean the Escalation Rent in effect immediately prior to the
Expiration Date, or the date of re-entry upon the Premises by Landlord, as the
case may be, adjusted to reflect any increase pursuant to the provisions of
Article 27 hereof for the Operating Year immediately preceding such event.
Nothing contained in Article 16 hereof or this Article 17 shall be deemed to
limit or preclude the recovery by Landlord from Tenant of the maximum amount
allowed to be obtained as damages by any statute or rule of law, or of any sums
or damages to which Landlord may be entitled in addition to the damages set
forth in this Section 17.2.


                                   ARTICLE 18
                                FEES AND EXPENSES

         Section 18.1 If Tenant shall default under this Lease, or if Tenant
shall fail to comply with its obligations under this Lease and the preservation
of property or the safety of any tenant, occupant or other person is threatened,
Landlord may (1) perform the same for the account of Tenant, or (2) make any
reasonable expenditure or incur any obligation for the payment of money,
including, but not limited to, reasonable attorneys' fees and disbursements in


                                      -38-
<PAGE>   44
instituting, prosecuting or defending any action or proceeding, and the cost
thereof, with interest thereon at the Applicable Rate from the date Tenant is
presented with a bill or statement, shall be deemed to be additional rent
hereunder and shall be paid by Tenant to Landlord within ten (10) days of
rendition of any bill or statement to Tenant therefor.

         Section 18.2 If Tenant shall fail to pay any installment of Fixed Rent,
Escalation Rent or any other item of Rental when due, Tenant shall pay to
Landlord, in addition to such installment of Fixed Rent, Escalation Rent or
other item of Rental, as the case may be, as a late charge and as additional
rent, (a) a sum equal to interest at the Applicable Rate on the amount unpaid,
computed from the date such payment was due to and including the date of payment
and (b) a late charge equal to ten percent (10%) of such overdue amount.


                                   ARTICLE 19
                         NO REPRESENTATIONS BY LANDLORD

         Section 19.1 Landlord and Landlord's agents have made no
representations or promises with respect to the Building, the Real Property, the
Premises or the Licensed Area(s), except as herein expressly set forth, and no
rights, easements or licenses are acquired by Tenant by implication or otherwise
except as expressly set forth herein. Tenant shall accept possession of the
Premises and the Licensed Area(s) in the condition which shall exist on the
Commencement Date "as is", and Landlord shall have no obligation to perform any
work or make any installations in order to prepare the Building, Premises or
Licensed Area(s) for Tenant's use and occupancy, except as set forth in Section
19.2 and Section 19.3 hereof.

         Section 19.2 Landlord shall (a) demolish the improvements existing in
the Premises as of the date hereof, and remove all debris therefrom, (b) using
building standard materials construct a unisex bathroom (the "ADA Bathroom") in
the Premises in a location approved by Landlord, which consent shall not be
unreasonably withheld or delayed, which bathroom shall comply with all
applicable Requirements, including, without limitation, ADA, (c) provide tie-ins
for the Premises to the Building fire alarm and life safety systems and (d)
complete the renovations and installations set forth on Exhibit A attached
hereto (the items described in clauses (a), (b), (c) and (d) are referred to as
"Landlord's Work"; provided, however, that Landlord may elect in lieu of
constructing the ADA Bathroom to require Tenant to construct the ADA Bathroom
and to pay to Tenant the ADA Tenant Fund in accordance with Section 3.4.
Landlord shall deliver to Tenant on or before the Commencement Date an ACP-5
certificate for the Premises. Tenant acknowledges and agrees that Landlord may
be performing the items of Landlord's Work, including the construction of the
ADA Bathroom, other than item (a) after the Commencement Date and the
performance of such construction work shall not affect the validity of this
Lease or the obligations of Tenant hereunder or give rise to any claim for
damages by Tenant on a claim for eviction, constructive or otherwise. In
connection with the construction of the ADA Bathroom, Landlord shall use
reasonable efforts to minimize interference with the performance of Tenant's
Initial Alterations. Tenant shall within ten (10) days after demand, which may
be made from time to time, pay to Landlord, as additional rent,


                                      -39-
<PAGE>   45
105% of (x) the cost and expense of performing the work in items number (1),
(2) and (3) on Exhibit A attached hereto and (y) one-sixth (1/6th) of the cost
and expense of ongoing maintenance, repair and if necessary, replacement of the
ventilation system referred to in items number (2) and (3) on Exhibit A attached
hereto and (z) Tenant's Share of the cost and expense of performing the work in
item number (4) on Exhibit A attached hereto.

         Section 19.3 Landlord shall complete items numbered 4, 5 and 6 of
Landlord's Base Building Work, as set forth on Exhibit B attached hereto, no
later than the Rent Commencement Date. Tenant acknowledges and agrees (i) that
items 4, 5 and 6 of Landlord's Base Building Work will not be complete by the
Commencement Date and (ii) that Landlord shall be performing other portions of
the Landlord's Base Building Work after the Rent Commencement Date and the
performance of such work shall not affect the validity of this Lease or the
obligations of Tenant hereunder or give rise to any claim for rescission or
damages by Tenant on a claim for eviction, constructive or otherwise; provide
that the performance of such work by Landlord shall not materially and
substantially interfere with Tenant's business operations.

         Section 19.4 In the event items 4, 5 and 6 of Landlord's Base Building
Work and all items of Landlord's Work are not substantially complete by the Rent
Commencement Date, then provided that, solely as a result of such items not
being substantially complete, Tenant shall not be able to use the Premises for
the conduct of business and Tenant shall not occupy the Premises or the Licensed
Areas for the conduct of business, Tenant shall be entitled to an abatement of
Fixed Rent for each day such Work, in Landlord's reasonable opinion, is not
substantially complete and Tenant is unable to use the Premises for conducting
its business.


                                   ARTICLE 20
                                   END OF TERM

         Upon the expiration or other termination of this Lease, Tenant shall
quit and surrender to Landlord the Premises, vacant, broom clean, in good order
and condition, ordinary wear and tear and damage for which Tenant is not
responsible under the terms of this Lease excepted, and Tenant shall remove all
of Tenant's Property and such Alterations as may be required to be removed
pursuant to Article 3 hereof; this obligation shall survive the expiration or
sooner termination of the Term. If the last day of the Term or any renewal
thereof falls on Saturday or Sunday, this Lease shall expire on the Business Day
immediately preceding. Tenant expressly waives, for itself and for any person
claiming through or under Tenant, any rights which Tenant or any such person may
have under the provisions of Section 2201 of the New York Civil Practice Law and
Rules and of any successor law of like import then in force in connection with
any holdover or summary proceedings which Landlord may institute to enforce the
foregoing provisions of this Article 20. Tenant acknowledges that possession of
the Premises must be surrendered to Landlord on the Expiration Date. The parties
recognize and agree that the damage to Landlord resulting from any failure by
Tenant to timely surrender possession of the Premises and the Licensed Area(s)
as aforesaid will be extremely substantial,


                                      -40-
<PAGE>   46
will exceed the amount of the monthly installments of the Fixed Rent and
Escalation Rent theretofore payable hereunder, and will be impossible to measure
accurately. Tenant therefore agrees that if possession of the Premises, and the
Licensed Area(s) are not surrendered to Landlord on or before the Expiration
Date, in addition to any other rights or remedies Landlord may have hereunder or
at law, and without in any manner limiting Landlord's right to demonstrate and
collect any damages suffered by Landlord and arising from Tenant's failure to
surrender the Premises as provided herein, Tenant shall pay to Landlord on
account of use and occupancy of the Premises for each month and for each portion
of any month during which Tenant holds over in the Premises after the Expiration
Date, a sum equal to one and one-half (1.5) times the aggregate of that portion
of the Fixed Rent, Escalation Rent and other items of Rental which were payable
under this Lease during the last month of the Term. Nothing herein shall permit
Tenant to retain possession of the Premises without written consent after the
Expiration Date or to limit in any manner Landlord's right to regain possession
of the Premises and/or the Licensed Area(s) through summary proceedings, or
otherwise, and no acceptance by Landlord of payments from Tenant after the
Expiration Date shall be deemed to be other than on account of the amount to be
paid by Tenant in accordance with the provisions of this Article 20. The
provisions of this Article 20 shall survive the Expiration Date.


                                   ARTICLE 21
                                 QUIET ENJOYMENT

         Provided no Event of Default has occurred and is continuing, Tenant may
peaceably and quietly enjoy the Premises subject, nevertheless, to the terms and
conditions of this Lease including, but not limited to, Section 37.2 hereof and
Article 7 hereof, including, without limitation, all Superior Leases and
Mortgages.


                                   ARTICLE 22
                           FAILURE TO GIVE POSSESSION

         Tenant waives any right to rescind this Lease under Section 223-a of
the New York Real Property law or any successor statute of similar nature and
purpose then in force and further waives the right to recover any damages which
may result from Landlord's failure for any reason to deliver possession of the
Premises on the date set forth in Section 1.1 hereof for the commencement of
the Term. If Landlord shall be unable to give possession of the Premises on the
date set forth in Section 1.1 hereof for the commencement of the Term, and
provided that Tenant is not responsible for such inability to give possession,
the Commencement Date shall be deemed to be the date upon which Landlord shall
have delivered possession of the Premises to Tenant and, except as hereinafter
provided, the Rent Commencement Date and the Fixed Expiration Date shall each be
postponed by one day for each day that Landlord fails to deliver possession of
the Premises to Tenant. No such failure to give possession on the date set forth
in


                                      -41-
<PAGE>   47
Section 1.1 hereof for the commencement of the Term or on the Commencement Date
shall in any way affect the validity of this Lease or the obligations of Tenant
hereunder or give rise to any claim for damages by Tenant or claim for
rescission of this Lease, nor shall the same be construed in any way to extend
the Term except as provided in this Article 22.


                                   ARTICLE 23
                                    NO WAIVE

         Section 23.1 No act or thing done by Landlord or Landlord's agents
during the Term shall be deemed an acceptance of a surrender of the Premises,
and no agreement to accept such surrender shall be valid unless in writing
signed by Landlord.

         Section 23.2 The failure of Landlord or Tenant to seek redress for
violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease, or any of the Rules and Regulations set forth or
hereafter adopted by Landlord, shall not prevent a subsequent act, which would
have originally constituted a violation, from having all of the force and effect
of an original violation. The receipt by Landlord or payment by Tenant of Fixed
Rent, Escalation Rent or any other item of Rental with knowledge of the breach
of any covenant of this Lease shall not be deemed a waiver of such breach. The
failure of Landlord to enforce any of the Rules and Regulations set forth, or
hereafter adopted, against Tenant or any other tenant in the Building shall not
be deemed a waiver of any such Rules and Regulations. No provision of this Lease
shall be deemed to have been waived by Landlord or Tenant, unless such waiver be
in writing signed by Landlord or Tenant, as the case may be. No payment by
Tenant or receipt by Landlord of a lesser amount than the monthly Fixed Rent or
other item of Rental herein stipulated shall be deemed to be other than on
account of the earliest stipulated Fixed Rent or other item of Rental, or as
Landlord may elect to apply same, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as Fixed Rent or other
item of Rental be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such Fixed Rent or other item of Rental or pursue any other remedy in
this Lease provided. This Lease contains the entire agreement between the
parties and all prior negotiations and agreements are merged herein. Any
executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of this Lease in whole or in part unless such
executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.


                                   ARTICLE 24
                            WAIVER OF TRIAL BY JURY

         The respective parties hereto shall and they hereby do waive trial by
jury in any action, proceeding or counterclaim brought by either of the parties
hereto against the other (except for personal injury or property damage) on any
matters whatsoever arising out of or in


                                      -42-
<PAGE>   48
any way connected with this Lease, the relationship of Landlord and Tenant
Tenant's use or occupancy of the Premises, or for the enforcement of any remedy
under any statute, emergency or otherwise. If Landlord commences any summary
proceeding against Tenant, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding (unless failure to impose
such counterclaim would preclude Tenant from asserting in a separate action the
claim which is the subject of such counterclaim), and will not seek to
consolidate such proceeding with any other action which may have been or will be
brought in any other court by Tenant.


                                   ARTICLE 25
                              INABILITY TO PERFORM

         Except as provided herein, this Lease and the obligation of Tenant to
pay Rental hereunder and perform all of the other covenants and agreements
hereunder on the part of Tenant to be performed shall in no wise be affected,
impaired or excused because Landlord is unable to fulfill any of its obligations
under this Lease expressly or impliedly to be performed by Landlord or because
Landlord is unable to make, or is delayed in making any repairs, additions,
alterations, improvements or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures, if Landlord is prevented or delayed from so
doing by reason of strikes or labor troubles, or by any cause whatsoever
reasonably beyond Landlord's control, including but not limited to, laws,
governmental preemption in connection with a national emergency or by reason of
any Requirements of any Governmental Authority or by reason of the conditions of
supply and demand which have been or are affected by war or other emergency
("Unavoidable Delays"). Landlord shall promptly notify Tenant of any Unavoidable
Delay which prevents Landlord from fulfilling any of its obligations under this
Lease.


                                   ARTICLE 26
                               BILLS AND NOTICES

         Except as otherwise expressly provided in this Lease, any bills,
statements, consents, notices, demands, requests or other communications given
or required to be given under this Lease shall be in writing and shall be deemed
sufficiently given or rendered if delivered by hand (against a signed receipt)
or if sent by registered or certified mail (return receipt requested) or via a
nationally recognized overnight delivery service addressed

                  if to Tenant: (a) at Tenant's business address of 2195 Fox
         Mill Road, Herndon, Virginia 20171, Attn: Mr. Barry J. Saville, 2195
         Fox Mill Road, Herndon, Virginia 20171, Attn: General Counsel and c/o
         the Premises at the Building, or (b) at any place where Tenant or any
         agent or employee of Tenant be found if mailed subsequent to Tenant's
         vacating, deserting, abandoning or surrendering the Premises, in each
         case with a copy to Watt, Tieder, Hoffar, Fitzgerald, L.L.P., 7929
         Westpark Drive, Suite 400, McLean, Virginia 22102, Attention: John G.
         Lavoie, Esquire, or


                                      -43-
<PAGE>   49
                  if to Landlord: Hudson Telecom Center LLC, c/o The Bristol
         Group, 400 Montgomery Street, San Francisco, California 94104,
         Attention: Mr. Jeffrey Kott, and with copies to (x) Mayer, Brown &
         Platt, 1675 Broadway, New York, New York 10019, Attn.: Mr. Robert I.
         Bressman, Esq. and (y) any Mortgagee or Lessor which shall have
         requested same, by notice given in accordance with the provisions of
         this Article 26 at the address designated by such Mortgagee or Lessor,
         or

to such other address(es) as either Landlord or Tenant may designate as its new
address(es) for such purpose by notice given to the other in accordance with the
provisions of this Article 26. Any such bill, statement, consent, notice,
demand, request or other communication shall be deemed to have been rendered or
given on the date when it shall have been hand delivered or three (3) Business
Days from when it shall have been mailed as provided in this Article 26.


                                   ARTICLE 27
                                   ESCALATION

         Section 27.1 For the purposes of this Article 27, the following terms
shall have the meanings set forth below.

                  (A) "Assessed Valuation" shall mean the amount for which the
Real Property is assessed pursuant to applicable provisions of the New York City
Charter and of the Administrative Code of the City of New York for the purpose
of imposition of Taxes.

                  (B) "Base Taxes" " shall mean the Taxes for the Tax Year
commencing July 1, 1999 and ending June 30, 2000.

                  (C) "Base Wage Rate" shall mean the Wage Rate in effect as of
January 1, 2000.

                  (D) "Comparison Year" shall mean the calendar year 2000 and
such subsequent calendar year during the Term.

                  (E) "Local 32B" shall mean Local 32B-32J of the Building
Service Employees International Union, AFL-CIO, or its successor, or if there
shall be no successor, then any other union representing employees employed at
the Building and performing similar services.

                  (F) "Porters" shall mean that classification of employee
engaged in the general maintenance and operation of Class A office buildings
most nearly comparable to the classification now applicable to porters in the
current agreement between R.A.B. and Local 32B (which classification is
currently termed "others" in said agreement).



                                      -44-
<PAGE>   50
                  (G) "Porters' Wage Factor" shall mean the sum of (x)
eighteen thousand six hundred ninety-seven (18,697) and (y) the Licensed Area
Space Factor.

                  (H) "Porters' Wage Payment" shall mean the amount obtained by
multiplying the Porters' Wage Factor by the amount by which the Wage Rate in
effect on January 1 of a Comparison Year exceeds the Base Wage Rate.

                  (I) "R.A.B." shall mean the Realty Advisory Board on Labor
Relations, Incorporated, or its successor.

                  (J) "Tax Statement" shall mean a statement setting forth a
comparison of Taxes for a Tax Year with the Base Taxes and the Tax Payment due
for such Tax Year pursuant to the provisions of this Article 27.

                  (K) "Tax Year" shall mean the period July 1 through June 30
(or such other period as hereinafter may be duly adopted by The City of New York
as its fiscal year for real estate tax purposes), any portion of which occurs
during the Term.

                  (L) "Taxes" shall mean the aggregate amount of real estate
taxes and any general or special assessments (exclusive of penalties and
interest thereon) imposed upon the Real Property (including, without limitation,
(i) assessments made upon or with respect to any "air" and "development" rights
now or hereafter appurtenant to or affecting the Real Property, (ii) any fee,
tax or charge imposed by any Governmental Authority for any vaults, vault space
or other space within or outside the boundaries of the Real Property, and (iii)
any taxes or assessments levied after the date of this Lease in whole or in part
for public benefits to the Real Property or the Building, including any Business
Improvement District taxes and assessments) without taking into account any
discount that Landlord may receive by virtue of any early payment of Taxes or on
account of any exemption or abatements of Taxes to which the Real Property is
entitled; provided, that if because of any change in the taxation of real
estate, any other tax or assessment, however denominated (including, without
limitation, any franchise, income, profit, sales, use, occupancy, gross receipts
or rental tax) is imposed upon Landlord or the owner of the Real Property or the
Building, or the occupancy, rents or income therefrom, in substitution for any
of the foregoing Taxes, such other tax or assessment shall be deemed part of
Taxes computed as if Landlord's sole asset were the Real Property. With respect
to any Tax Year, all reasonable expenses, including actual and reasonable
attorneys' fees and disbursements, experts' and other witnesses' fees, incurred
in contesting the validity or amount of any Taxes or in obtaining a refund of
Taxes shall be considered as part of the Taxes for such Tax Year. Anything
contained herein to the contrary notwithstanding, Taxes shall not be deemed to
include (i) any taxes on Landlord's net income or profits and shall also not
include: business, professional, occupational and license taxes (BPOL), gift,
transfer, excise, capital stock or succession taxes, (ii) franchise taxes, (iii)
estate or inheritance taxes or (iv) any similar taxes imposed on Landlord,
unless such taxes are levied, assessed or imposed in lieu of or as a substitute
for the whole or any part of the taxes, assessments, levies, impositions which
now constitute Taxes. In determining the amount of Taxes for any Tax Year (or
for the partial


                                      -45-
<PAGE>   51
calendar years in which the Term shall commence or expire), Taxes payable in
such Tax Year shall be apportioned for the portions of the Tax Years occurring
within such partial years.

                  (M) "Wage Rate" shall mean the composite hourly wage rate,
including the regular hourly wage rate required to be paid to Porters pursuant
to any agreement between R.A.B. and Local 32B in effect during the year in
question, exclusive of fringe benefits, which Wage Rate shall be based upon the
minimum effective number of hours in a calendar week which Porters are required
to work pursuant to such agreement, provided that if any such agreement shall
require Porters to be regularly employed on days or during hours when overtime
or other premium pay rates are in effect, then the term "regular hourly wage
rate" shall mean the regular average hourly wage rate for the hours in a
calendar week which Porters are required to be regularly employed (whether or
not actually at work in the Building), e.g., if as of November 1, 1999, an
agreement between R.A.B. and Local 32B would require the regular employment of
Porters for thirty-five (35) hours during a calendar week at a regular hourly
wage of $4.00 for the first thirty (30) hours and at an overtime hourly average
wage of $5.00 for the remaining five (5) hours, then the regular hourly wage
hereunder, as of November 1, 1999, would be the sum arrived at by dividing the
total weekly average wages of $145.00 by the minimum effective number of
required hours of employment per week. The computation of the regular hourly
wage rate shall be on the same basis whether based on an hourly or other pay
scale but predicated on the minimum effective number of hours during such
calendar week which Porters are required to work under such agreement whether
paid by Landlord or any independent contractor. If there is no such agreement in
effect from which such regular hourly rate is determinable, the computations
shall be made on the basis of the regular hourly wage rate, calculated as
provided above, being paid by Landlord or by the contractor performing porter or
cleaning services for Landlord as of the date any adjustment provided herein
shall be made and an appropriate retroactive adjustment shall be made when the
regular hourly wage rate is finally determined. If length of service shall be a
factor in determining any element of wages, it shall be conclusively presumed
that all employees have two (2) years of service.

                  (N) "Wage Statement" shall mean the written statement
furnished by Landlord to Tenant setting forth the Porters' Wage Payment.

         Section 27.2 (A) If the Taxes payable for any Tax Year (any part or all
of which falls within the Term) shall represent an increase above the Base
Taxes, then Tenant shall pay as additional rent for such Tax Year and continuing
thereafter until a new Tax Statement is rendered to Tenant, Tenant's Share of
such increase (the "Tax Payment"). Tenant shall not be entitled to any credit
against any Tax Payment on account of any discount that Landlord may receive by
virtue of any early payment of Taxes or on account of any exemptions or
abatements of Taxes to which the Real Property is entitled, attributable, in
whole or in part, to any other real property owned by Landlord or any affiliate
or any property with respect to which Landlord or such affiliate is the lessee
under any ground or underlying lease, and Taxes shall be calculated without
taking into account any such discounts, exemptions or abatements. The Taxes
shall be computed initially on the basis of the Assessed Valuation in effect at
the time the Tax Statement is rendered (as the Taxes may have been settled or
finally adjudicated prior to such time),


                                      -46-
<PAGE>   52
regardless of any then pending application, proceeding or appeal respecting the
reduction of any such Assessed Valuation, but shall be subject to subsequent
adjustment as provided in Section 27.3(A) hereof.

                  (B) At any time during or after the Term, Landlord may render
to Tenant a Tax Statement or Statements showing (i) a comparison of the Taxes
for a Tax Year with the Base Taxes and (ii) the amount of the Tax Payment
resulting from such comparison. Tenant shall pay Landlord, in two (2) equal
installments, in advance, on June 10th and December 10th of each year, the Tax
Payment shown thereon. If Taxes are required to be paid in full or on any other
date or dates than as presently required by the Governmental Authority imposing
the same, then the due date of the installments of the Tax Payment shall be
correspondingly accelerated or revised so that the Tax Payment (or the two (2)
installments thereof) is due at least twenty (20) days prior to the date the
corresponding payment is due to the Governmental Authority. If the Tax Year
established by The City of New York shall be changed, any Taxes for the Tax Year
prior to such change which are included within the new Tax Year and which were
the subject of a prior Tax Statement shall be apportioned for the purpose of
calculating the Tax Payment payable with respect to such new Tax Year.
Landlord's failure to render a Tax Statement during or with respect to any Tax
Year shall not eliminate or reduce Tenant's obligation to make Tax Payments
pursuant to this Article 27 for such Tax Year, and shall not prejudice
Landlord's right to render a Tax Statement during or with respect to any
subsequent Tax Year. Upon written request, but not more often than once a year,
Landlord shall furnish Tenant with a reproduced copy of the tax bill (or
receipted bill) for the Taxes for the current or next succeeding Tax Year (if
theretofore issued by the Governmental Authority).

                  (C) The Tax Payment shall be pro rated for any partial Tax
Year in which the Term of this Lease shall expire. If a Tax Statement is
furnished to Tenant after the commencement of the Tax Year in respect of which
such Tax Statement is rendered, Tenant shall within ten (10) Business Days
thereafter, pay to Landlord an amount equal to the amount of any underpayment of
the Tax Payment with respect to such Tax Year and, in the event of an
overpayment, Landlord shall either pay to Tenant or, at Landlord's election,
credit against subsequent payments of Fixed Rent, the amount of Tenant's
overpayment.

         Section 27.3 (A) Only Landlord shall be eligible to institute tax
reduction or other proceedings to reduce the Assessed Valuation. In the event
that, after a Tax Statement has been sent to Tenant, an Assessed Valuation which
had been utilized in computing the Taxes for a Tax Year other than the Base Tax
Year is reduced (as a result of settlement, final determination of legal
proceedings or otherwise), and as a result thereof a refund of Taxes is actually
received by or on behalf of Landlord, then, promptly after receipt of such
refund, Landlord shall send Tenant a Tax Statement adjusting the Taxes for such
Tax Year (taking into account the expenses mentioned in Section 27.1(L)) and
setting forth Tenant's Share of such refund and Tenant shall be entitled to
receive such Share by way of a credit against the Fixed Rent next becoming due
after the sending of such Tax Statement or, if no further Fixed Rent shall be
due, enclosing payment of the amount of Tenant's Share of such refund to Tenant;
provided, however, that Tenant's Share of such refund shall be limited to the
portion of the Tax Payment, if any, which



                                      -47-
<PAGE>   53
Tenant had theretofore paid to Landlord attributable to increases in Taxes for
the Tax Year to which the refund is applicable on the basis of the Assessed
Valuation before it had been reduced.

                  (B) In the event that, after a Tax Statement has been sent to
Tenant, the Assessed Valuation which had been utilized in computing the Base
Taxes is reduced (as a result of settlement, final determination of legal
proceedings or otherwise) then the Base Taxes shall be retroactively adjusted to
reflect such reduction, and all Tax Payments shall be calculated with giving
effect to such reduction in the Assessed Valuation with respect to such Base
Taxes.

         Section 27.4 (A) If the Wage Rate in effect for any Comparison Year (or
portion thereof, any part or all of which falls within the Term from and after
the Rent Commencement Date) shall be greater than the Base Wage Rate, then for
such Comparison Year, and continuing thereafter until a new Wage Statement is
rendered to Tenant, Tenant shall pay to Landlord, as additional rent, an amount
equal to the Porters' Wage Payment shown thereon as provided in paragraph (B)
below. Landlord shall render a Wage Statement to Tenant at any time during or
after the Term. The Porters' Wage Payment shall be prorated for any partial
calendar year in which the term of this Lease shall commence or expire.
Notwithstanding the foregoing, if, by reason of any Requirement, an increase in
the Wage Rate is reduced or does not take effect, or increases in the Wage Rate
are limited or prohibited, then for the period covered by such Requirement
("Requirement Period"), the applicable increase (the "Increase") in the Wage
Rate for purposes of this Article shall be the maximum increase or increases in
the Wage Rate permitted during the Requirement Period, and, upon the expiration
thereof, Tenant shall pay to Landlord, on demand, to the extent permitted by
applicable Requirements, the amount by which the aggregate Porters' Wage
Payments applicable to the Requirement Period exceeds the aggregate increase
paid for such period by Tenant pursuant to such Requirement, together with
interest thereon at the lesser of (i) the Base Rate or (ii) the maximum rate
permitted by law.

                  (B) At any time during or after each Comparison Year, Landlord
shall render to Tenant a Wage Statement setting forth the Porters' Wage Payment
for such Comparison Year. On the first day of the month following the furnishing
to Tenant of a Wage Statement, Tenant shall pay to Landlord an amount equal to
one-twelfth (1 /12th) of the Porters' Wage Payment shown thereon to be due for
such Comparison Year. If Landlord furnishes a Wage Statement for a Comparison
Year subsequent to the commencement thereof, then (i) until the first day of the
month following the month in which the Porters' Wage Statement is furnished to
Tenant, Tenant shall continue to pay to Landlord on the first day of each month
an amount equal to the monthly sum payable by Tenant to Landlord with respect to
the immediately previous Comparison Year;, (ii) promptly after the Wage
Statement is furnished to Tenant, Landlord shall give notice to Tenant stating
whether the amount previously paid by Tenant to Landlord for the current
Comparison Year was greater or less than the installments of the Porters' Wage
Payment to be paid for the current Comparison Year in accordance with the Wage
Statement, and (a) if there shall be a deficiency, Tenant shall pay the amount
thereof within ten (10) days after demand therefor, or (b) if there shall have
been an overpayment, Landlord shall credit the amount thereof against the next
monthly installments of the Fixed Rent payable under this Lease; and (iii) on
the first day of the month following the month in which the Wage


                                      -48-
<PAGE>   54
Statement is furnished to Tenant, and monthly thereafter throughout the
remainder of the current Comparison Year, Tenant shall pay to Landlord an amount
equal to one-twelfth (1/12th) of the Porters' Wage Payment shown on the Wage
Statement. Porters' Wage Payments shall be collectible by Landlord in the same
manner as Fixed Rent. Landlord's failure to render a Wage Statement shall not
prejudice Landlord's right to render a Wage Statement during or with respect to
any subsequent Comparison Year, and shall not eliminate or reduce Tenant's
obligation to make Porters' Wage Payments for such Comparison Year.

         Section 27.5 The expiration or termination of this Lease during any
Comparison Year or Tax Year shall not affect the rights or obligations of the
parties hereto respecting payments of Escalation Rent for such Comparison Year
or Tax Year and any Porters' Wage Statement or Tax Statement relating to such
Escalation Rent, may be sent to Tenant subsequent to, and all such rights and
obligations shall survive, any such expiration or termination. In determining
the amount of Escalation Rent for the Comparison Year and Tax Year in which the
Term shall expire, the payment of Escalation Rent for such Comparison Year and
Tax Year shall be prorated based on the number of days of the Term which fall
within such Comparison Year and Tax Year. Any payments due under such Porters'
Wage Statement or Tax Statement shall be payable within twenty (20) days after
such Statement is sent to Tenant.

                                   ARTICLE 28

                                    SERVICES

         Section 28.1 (A) Landlord shall provide passenger elevator service to
the Premises at all times.

                  (B) Commencing on the Commencement Date, there shall be one
(1) freight elevator serving the Premises on call on a "first come, first
served" basis on Business Days from 8:00 a.m. to 5:00 p.m., and on a
reservation, "first come, first served" basis from 5:00 p.m. to 8:00 a.m. on
Business Days and at any time on days other than Business Days. If Tenant shall
use the freight elevators (subject to availability) serving the Premises between
5:00 p.m. and 8:00 a.m. on Business Days or at any time on any other days,
Tenant shall pay Landlord additional rent for such use at Landlord's standard
rates. Tenant acknowledges that such charge by Landlord for the freight elevator
service may be increased from time to time during the term hereof based on
increases in Landlord's cost to provide such service. The foregoing
notwithstanding, in connection with (x) the performance of any Alterations,
including, without limitation, the Initial Alterations, (y) Tenant's initial
move of Tenant's Property into the Premises and (z) delivery to or from the
Premises of large or bulky deliveries, Tenant shall only be permitted to use the
freight elevators (subject to availability) serving the Premises between 5:00
p.m. and 8:00 a.m. on Business Days or at any time on Saturdays and Sundays and
shall pay Landlord additional rent for such use at Landlord's standard
rates.



                                      -49-
<PAGE>   55
         Section 28.2 Landlord shall have no obligation during the Term to
provide HVAC to the Premises. Subject to Article 3 hereof, Tenant shall be
permitted to install its own HVAC system to serve the Premises.

         Section 28.3 The Fixed Rent does not reflect or include any charge to
Tenant for the furnishing of any necessary freight elevator facilities during
periods ("Overtime Periods") other than the hours and days set forth above.
Accordingly, if Landlord shall furnish any such freight elevator facilities
Section 28.1 (B) hereof) to the Premises at the request of Tenant during
Overtime Periods, Tenant shall pay Landlord additional rent for such freight
elevator service, including the services of the operator thereof, as set forth
in Section 28.1 (B) hereof and Tenant shall pay Landlord additional rent for
such service at the standard rate per hour for such services. Landlord shall not
be required to furnish any such services during any Overtime Periods unless
Landlord has received advance notice from Tenant requesting such services prior
to 2:00 p.m. of the day upon which such services are requested or by 2:00 p.m.
of the last preceding Business Day if such Overtime Periods are to occur on a
day other than a Business Day. If Tenant fails to give Landlord such advance
notice, then, failure by Landlord to furnish or distribute any such services
during such Overtime Periods shall not constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of Rental, or relieve Tenant from any of its obligations under this Lease, or
impose any liability upon Landlord or its agents by reason of inconvenience or
annoyance to Tenant or injury to or interruption of Tenant's business or
otherwise.

         Section 28.4 Tenant, at Tenant's expense, shall cause the Premises and
the exclusive Licensed Area(s) to be cleaned in a manner reasonably satisfactory
to Landlord and by a Person approved by Landlord. Tenant shall pay to Landlord
the cost of removal of any of Tenant's refuse and rubbish from the Premises and
the Building. Bills for the same shall be rendered by Landlord to Tenant at such
time as Landlord may elect and shall be due and payable when rendered as
additional rent. Tenant, at Tenant's expense, shall cause all portions of the
Premises used for the storage, preparation, service or consumption of food or
beverages to be cleaned daily in a manner satisfactory to Landlord, and to be
exterminated against infestation by vermin, rodents or roaches regularly and, in
addition, whenever there shall be evidence of any infestation. Tenant shall not
permit any Person to enter the Premises or the Building for the purpose of
providing such extermination services, other than persons first approved by
Landlord, such approval not to be withheld unreasonably.

         Section 28.5 If the "sprinkler system" installed in the Building or any
of its appurtenances shall be damaged or injured or not in proper working order
by reason of any act, including, without limitation, the performance of any
Alterations thereto, or omission of Tenant, Tenant's agents, servants,
employees, licensees or visitors, Tenant shall forthwith restore the same to
good working condition at its own expense; and if the New York Board of Fire
Underwriters or the Insurance Services Office or any bureau, department or
official of the state or city government shall require that any changes,
modifications, alterations or additional sprinkler heads or other equipment be
made or supplied by reason of Tenant's particular business, or the Alterations
made by Tenant, or the location of the partitions, trade fixtures, or



                                      -50-
<PAGE>   56
other contents of the Premises placed by or on behalf of Tenant, Tenant shall,
at Tenant's reasonable expense, promptly make and supply such changes,
modifications, alterations, additional sprinkler heads or other equipment.

         Section 28.6 Landlord shall provide to the lavatories in the core area
of the Premises hot and cold water for ordinary drinking and lavatory purposes
and to the pantries and other lavatories in the Premises hot and cold water for
such purposes. If Tenant requires, uses or consumes water for any purpose in
addition to ordinary drinking or lavatory purposes, Landlord may install a water
meter and thereby measure Tenant's water consumption for all such additional
purposes. In such event (1) Tenant shall pay Landlord for the cost of the meter
and the cost of the installation thereof and through the duration of Tenant's
occupancy Tenant shall keep said meter and equipment in good working order and
repair at Tenant's own cost and expense; (2) Tenant shall pay for water consumed
as shown on said meter above the cost of ordinary water usage, as and when bills
are rendered as additional rent, and on default in making such payment Landlord
may pay such charges and collect the same from Tenant; and (3) Tenant shall pay
the sewer rent, charge or any other tax, rent, levy or charge which now or
hereafter is assessed, imposed or shall become a lien upon the Premises or the
realty of which they are a part pursuant to any Requirement made or issued in
connection with any such metered use, consumption, maintenance or supply of
water, water system, or sewage or sewage connection or system. The bill rendered
by Landlord for the above shall be based upon Tenant's actual consumption and
shall be payable by Tenant as additional rent within ten (10) Business Days of
rendition.

         Section 28.7 Landlord does not warrant that any services to be provided
by Landlord to Tenant pursuant to the terms of this Lease, or any other services
which Landlord shall supply (a) will be adequate for Tenant's particular
purposes or as to any other particular need of Tenant, (b) will be free of
interruption, curtailment or failure to supply. Furthermore, Landlord reserves
the right to stop service of the elevator, electrical, plumbing or other
services through the Building Systems or facilities in the Building when
necessary, by reason of accident or emergency, or for repairs, additions,
alterations, replacements or improvements in the reasonable judgment of Landlord
desirable or necessary to be made, until said repairs, alterations, replacements
or improvements shall have been completed (which repairs, alterations and
improvements shall be performed in accordance with Section 4.4 hereof). Except
as set forth in this Article 28, Landlord shall have no responsibility or
liability for interruption, curtailment or failure to supply HVAC, elevator,
electrical, plumbing or other Building Systems or facilities when prevented by
Unavoidable Delays or by any Requirement of any Governmental Authority or due to
the exercise of its right to stop service as provided in this Section 28.7. The
exercise of such right or such failure by Landlord shall not constitute an
actual or constructive eviction, in whole or in part, or, except as provided in
Section 14.3 hereof, entitle Tenant to any compensation or to any abatement or
diminution of Rental, or relieve Tenant from any of its obligations under this
Lease, or impose any liability upon Landlord or its agents by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise. Landlord agrees to use reasonable efforts to provide
Tenant with prior oral notice of any anticipated stoppage of service.


                                      -51-
<PAGE>   57
         Notwithstanding the foregoing in the event that Landlord intends to
enter the Premises to make repairs (including without limitation electrical,
mechanical, or plumbing work) that will involve disruption or interruption to
such Tenant's continuous telecommunications operations, Landlord agrees to
provide Tenant with not less than seventy-two (72) hours prior written notice of
Landlord's intent to enter the Premises, specifying in reasonable detail the
nature of the repairs and the extent, if known, of the planned interruption of
any utilities or Landlord's services. In the event that Landlord intends to
enter the Premises to make repairs that will not involve disruption or
interruption to Tenant's operations, Landlord agrees to provide Tenant with not
less than forty-eight (48) hours prior written notice of Landlord's intent to
enter the Premises. In either case, in the event that any interruption in the
services which Landlord is obligated to provide in this Article 28 is reasonably
expected, Landlord agrees to cooperate reasonably with Tenant in arranging for
temporary services. The foregoing provisions shall not apply in the case of an
emergency, in which case Landlord agrees to provide to Tenant as much notice,
which may be oral, as is practicable under the circumstances, and agrees to use
reasonable care and precaution in order to minimize the interruption or
disruption to Tenant's operations.

                                   ARTICLE 29

                                  PARTNERSHIP

         If Tenant is a partnership or a professional corporation (or is
comprised of two (2) or more Persons, individually or as co-partners of a
partnership or shareholders of a professional corporation) or if Tenant's
interest in this Lease shall be assigned to a partnership or a professional
corporation (or to two (2) or more Persons, individually or as co-partners of a
partnership or shareholders of a professional corporation) pursuant to Article
12 hereof (any such partnership, professional corporation and such Persons are
referred to in this Article 29 as "Partnership Tenant"), the following
provisions shall apply to each such Partnership Tenant: (a) none of the parties
comprising Partnership Tenant shall be personally liable for the obligations of
Tenant hereunder, (b) each of the parties comprising Partnership Tenant hereby
consents in advance to, and agrees to be bound by (x) any written instrument
which may hereafter be executed by Partnership Tenant or any successor
partnership, changing, modifying, extending or discharging this Lease, in whole
or in part, or surrendering all or any part of the Premises to Landlord (except
for any instrument which contradicts subparagraph (a) above), and (y) any
notices, demands, requests or other communications which may hereafter be given
by Partnership Tenant or by any of the parties comprising Partnership Tenant;
and (c) any bills, statements, notices, demands, requests or other
communications given or rendered to Partnership Tenant or to any of such parties
shall be binding upon Partnership Tenant and all such parties.



                                      -52-
<PAGE>   58
                                   ARTICLE 30

                                    SECURITY

         Tenant shall deposit with Landlord on the signing of this Lease the sum
of Five Hundred Ninety-Eight Thousand Three Hundred Four and 00/100 Dollars
($598,304.00), or at Tenant's option, a "clean," unconditional, irrevocable and
transferable letter of credit (the "Letter of Credit") in the same amount,
issued by and drawn on a bank satisfactory to Landlord and which is a member of
the New York Clearing House for the account of Landlord as security for the
faithful performance and observance by Tenant of the terms, conditions and
provisions of this Lease, including without limitation the surrender of
possession of the Premises and Licensed Area(s) to Landlord as herein provided.
Provided that no Event of Default shall have occurred and be continuing, Tenant
shall have the right (i) on the fifth (5th) anniversary of the Commencement Date
to reduce the amount of the Letter of Credit to the sum of Four Hundred
Forty-Eight Thousand Seven Hundred Twenty-Eight and 00/100 Dollars ($448,728.00)
and (ii) on the tenth (10th) anniversary of the Commencement Date to reduce the
amount of the Letter of Credit to the sum of Two Hundred Ninety-Nine Thousand
One Hundred Fifty-Two and 00/100 Dollars ($299,152.00). The Letter of Credit
shall provide (a) for the continuance of such credit for the period of at least
one (1) year from the date of issuance thereof, (b) for the automatic extension
of such Letter of Credit for additional periods of one (1) year from the initial
and each future expiration date thereof (the last such extension to provide for
the continuance of such Letter of Credit for at least three (3) months beyond
the Expiration Date), unless the bank which issued the Letter of Credit gives
Landlord notice of its intention not to renew such Letter of Credit not less
than sixty (60) days prior to the initial or any future expiration date of such
Letter of Credit, and (c) that in the event such notice is given by such bank
and Tenant shall not have delivered a new Letter of Credit in accordance with
the terms and conditions hereof at least thirty (30) days prior to the
expiration of the existing Letter of Credit, Landlord shall, after notice to
Tenant, have the right to present and draw on such Letter of Credit. In the
event that notice is given by such bank of its intention not to renew as above
and Tenant shall not have delivered a new Letter of Credit in accordance with
the terms and conditions hereof at least thirty (30) days prior to the
expiration of the existing Letter of Credit provided, then, in any such event,
Landlord may, after notice to Tenant, present and draw on such Letter of Credit
upon presentation by Landlord to such bank of a sight-draft and the Letter of
Credit and the proceeds of such Letter of Credit shall then be held and applied
as security (and be replenished, if necessary) as provided in this Article 30.
If an Event of Default exists in respect of any of the terms, provisions and
conditions of this Lease, including, but not limited to, the payment of Fixed
Rent or any other item of Rental, Landlord may apply or retain the whole or any
part of the security so deposited, or present the Letter of Credit for payment
and apply or retain the whole or any part of the proceeds thereof, as the case
may be, to the extent required for the payment of any Fixed Rent or any other
item of Rental as to which Tenant is in default or for any sum which Landlord
may expend or be required to expend by reason of Tenant's default in respect of
any of the terms, covenants and conditions of this Lease, including, but not
limited to, any damages or deficiency in the reletting of the Premises or
relicensing of the Licensed Area(s), whether such damages or deficiency accrue
or accrues before or after summary proceedings or other re-entry by Landlord. If
Landlord applies or retains any part of the proceeds of the Letter


                                      -53-
<PAGE>   59
of Credit or the security so deposited, or if the value of the security so
deposited declines for any reason whatsoever, as the case may be, Tenant, upon
demand, shall deposit with Landlord the amount so applied or retained or the
amount by which the value has declined so that Landlord shall have the full
deposit on hand at all times during the Term. If Tenant shall fully and
faithfully comply with all of the terms, provisions, covenants and conditions of
this Lease, the Letter of Credit and/or security, as the case may be, shall be
returned to Tenant after the Expiration Date and after delivery of possession of
the entire Premises and Licensed Area(s) to Landlord. In the event of a sale of
the Real Property or the Building or leasing of the Building, Landlord shall
have the right to transfer the Letter of Credit or security to the vendee or
lessee and Landlord shall thereupon be released by Tenant from all liability for
the return of such Letter of Credit or security, as the case may be, and Tenant
shall cause the bank which issued the Letter of Credit to issue an amendment to
the Letter of Credit or issue a new Letter of Credit naming the vendee or lessee
as the beneficiary thereunder. Tenant shall look solely to the new landlord for
the return of the Letter of Credit or security, as the case may be. The
provisions hereof shall apply to every transfer or assignment of the Letter of
Credit or security made to a new landlord. Tenant shall not assign or encumber
or attempt to assign or encumber the monies deposited herein as security and
neither Landlord nor its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance. Tenant
shall renew any Letter of Credit from time to time, at least sixty (60) days
prior to the expiration thereof, and deliver to Landlord a new Letter of Credit
or an endorsement to the Letter of Credit, and any other evidence required by
Landlord that the Letter of Credit has been renewed for a period of at least one
(1) year. If Tenant shall fail to renew the Letter of Credit as aforesaid,
Landlord may present the Letter of Credit for payment and retain the proceeds
thereof as security in lieu of the Letter of Credit. If at any time the security
held hereunder shall consist of cash, and not a Letter of Credit, Landlord shall
hold the same in an interest bearing money-market account and the interest
thereon (less a one percent (1%) administrative fee per annum and less the
amount of such interest which has been applied in the same manner that the
remainder of the security has been applied) shall be paid to Tenant to the
extent and at the same time the remainder of the security shall be returned to
Tenant hereunder.

                                   ARTICLE 31
                            [Intentionally Omitted]

                                   ARTICLE 32
                                    CAPTIONS

         The captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this Lease nor
the intent of any provision thereof.



                                      -54-
<PAGE>   60
                                   ARTICLE 33
                                  PARTIES BOUND

         The covenants, conditions and agreements contained in this Lease shall
bind and inure to the benefit of Landlord and Tenant and their respective legal
representatives, successors, and, except as otherwise provided in this Lease,
their assigns.

                                   ARTICLE 34
                                     BROKER

         Each party represents and warrants to the other that it has not dealt
with any broker or Person in connection with this Lease other than Cushman &
Wakefield, Inc. and Insignia/ESG (collectively, the "Broker"). The execution and
delivery of this Lease by each party shall be conclusive evidence that such
party has relied upon the foregoing representation and warranty. Tenant shall
indemnify and hold Landlord harmless from and against any and all claims for
commission, fee or other compensation by any Person (other than Broker) who
shall claim to have dealt with Tenant in connection with this Lease and for any
and all costs incurred by Landlord in connection with such claims, including,
without limitation, reasonable attorneys' fees and disbursements. Landlord shall
pay the Broker any commission, fee or compensation due the Broker in connection
with this Lease and shall indemnify and hold Tenant harmless from and against
any and all claims for commission, fee or other compensation by the Broker and
any Person who shall claim to have dealt with Landlord in connection with this
Lease and for any and all costs incurred by Tenant in connection with such
claims, including, without limitation, reasonable attorneys' fees and
disbursements. This provision shall survive the expiration or earlier
termination of this Lease.

                                   ARTICLE 35

                                   INDEMNITY

         Section 35.1 Tenant shall indemnify and save the Indemnities harmless
from and against (a) all claims of whatever nature against the Indemnities
arising from any act, omission or negligence of Tenant, its contractors,
licensees, agents, servants, employees, invitees or visitors, (b) all claims
against the Indemnities arising from any accident, injury or damage caused to
any person or to the property of any person and occurring during the Term in or
about the Premises or the exclusive Licensed Area(s), (c) all claims against the
Indemnities arising from any accident, injury or damage occurring outside of the
Premises but anywhere within or about the Real Property, where such accident,
injury or damage results or is claimed to have resulted from an act, omission or
negligence of Tenant or Tenant's agents, employees, invitees or visitors, and
(d) any breach, violation of nonperformance of any covenant, condition or
agreement in this Lease set forth and contained on the part of Tenant to be
fulfilled, kept, observed and performed; provided, however, that the foregoing
shall not be construed to require Tenant to indemnify Landlord against any
claims arising out of the negligence or the wilful act



                                      -55-
<PAGE>   61
of Landlord or its contractors, licensees, agents, servants, employees, invitees
or visitors. This indemnity and hold harmless agreement shall include indemnity
from and against any and all liability, fines, suits, demands, costs and
reasonable expenses of any kind or nature (including, without limitation,
attorneys' fees and disbursements) incurred in or in connection with any such
claim or proceeding brought thereon, and the defense thereof but shall be
limited to the extent any insurance proceeds collectible by Landlord under
policies owned by Landlord or such injured party with respect to such damage or
injury are insufficient to satisfy same. Tenant shall have no liability for any
consequential damages suffered either by Landlord or by any party claiming
through Landlord.

         Landlord shall indemnify and save Tenant harmless from and against all
third party claims arising from (a) any act or omission of Landlord, its agents
or employees and (b) Landlord's or its agent's or employee's ownership,
management or control of the Building, the land upon which the Building is
located, or the common areas. The foregoing shall not be construed to require
Landlord to indemnify Tenant against any claims arising out of the negligence or
wilful act of Tenant or its contractors, licensees, agents, servants,
employees, invitees or visitors. This indemnity and hold harmless agreement
shall be limited to the extent any insurance proceeds collectible by Tenant
under policies owned by Tenant with respect to such damage or injury are
insufficient to satisfy same. Landlord shall have no liability for any
consequential damages suffered either by Tenant or by any party claiming through
Tenant.

         Section 35.2 If any claim, action or proceeding is made or brought
against Landlord, with respect to which claim, action or proceeding Tenant shall
be obligated to indemnify Landlord against, pursuant to the terms of this Lease,
then, upon demand by Landlord, Tenant at its sole cost and expense, shall resist
or defend such claim, action or proceeding in Landlord's name, if necessary, by
such attorneys as Landlord shall approve, which approval shall not be
unreasonably withheld. Attorneys for Tenant's insurer shall hereby be deemed
approved for purposes of this Section 35.2. The provisions of this Article 35
shall survive the expiration or earlier termination of this Lease.

                                   ARTICLE 36
                          ADJACENT EXCAVATION-SHORING

         If an excavation shall be made upon land adjacent to the Premises, or
shall be authorized to be made, Tenant shall, upon reasonable advance notice,
afford to the person causing or authorized to cause such excavation, license to
enter upon the Premises for the purpose of doing such work as said person shall
deem necessary to preserve the wall or the Building from injury or damage and to
support the same by proper foundations without any claim for damages or
indemnity against Landlord, or diminution or abatement of Rental.


                                      -56-
<PAGE>   62
                                   ARTICLE 37
                                 MISCELLANEOUS

         Section 37.1 This Lease is offered for signature by Tenant and it is
understood that this Lease shall not be binding upon Landlord or Tenant unless
and until Landlord and Tenant shall have executed and delivered a fully executed
copy of this Lease to each other.

         Section 37.2 Neither the partners (direct or indirect) members,
comprising Landlord, nor the shareholders (nor any of the partners comprising
same), partners, directors or officers of any of the foregoing (collectively,
the "Parties") shall be liable for the performance of Landlord's obligations
under this Lease. Tenant shall look solely to Landlord to enforce Landlord's
obligations hereunder and shall not seek any damages against any of the Parties.
The obligations of Landlord under this Lease shall not be binding upon Landlord
named herein after the sale, conveyance, assignment or transfer by such Landlord
(or upon any subsequent landlord after the sale, conveyance, assignment or
transfer by such subsequent landlord) of its interest in the Building or the
Real Property, as the case may be, and in the event of any such sale,
conveyance, assignment or transfer, and the transfer of the security deposit to
the purchaser, grantee, assignee or transferee, as the case may be, Landlord
shall be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord hereunder to the extent that such transferee assumes the
obligations of Landlord under this Lease, subject to the terms hereof. Prior
to any such sale, conveyance, assignment or transfer, the liability of Landlord
for Landlord's obligations under this Lease shall be limited to Landlord's
interest in the Real Property and Tenant shall not look to any other property or
assets of Landlord or the property or assets of any of the Parties in seeking
either to enforce Landlord's obligations under this Lease or to satisfy a
judgment for Landlord's failure to perform such obligations. After any such
sale, conveyance, assignment or transfer, to the extent that the transferee
shall have not assumed Landlord's obligations under this Lease, the liability of
Landlord for such obligations shall be limited to the proceeds of such transfer
received by it.

         Section 37.3 Notwithstanding anything contained in this Lease to the
contrary, all amounts payable by Tenant to or on behalf of Landlord under this
Lease, whether or not expressly denominated Fixed Rent, Escalation Rent,
additional rent or Rental, shall constitute rent for the purposes of Section
502(b)(7) of the Bankruptcy Code.

         Section 37.4 Tenant shall reimburse Landlord as additional rent, within
ten (10) days after rendition of a statement, for all expenditures made by, or
damages or fines sustained or incurred by, Landlord, due to any Event of Default
by Tenant under this Lease, with interest thereon at the Applicable Rate.

         Section 37.5 This Lease shall not be recorded.

         Section 37.6 Tenant hereby waives any claim against Landlord which
Tenant may have based upon any assertion that Landlord has unreasonably withheld
or unreasonably delayed any consent or approval requested by Tenant, and Tenant
agrees that its sole remedy



                                      -57-
<PAGE>   63
shall be an action or proceeding to enforce any related provision or for
specific performance, injunction or declaratory judgment except in the case that
Landlord has maliciously or otherwise in bad faith withheld any such consent or
approval in which case Tenant may bring an action against Landlord for damages.
In the event of such determination, the requested consent or approval shall be
deemed to have been granted; however, Landlord shall have no liability to Tenant
for its refusal or failure to give such consent or approval in the absence of a
judicial determination of malice or bad faith on the part of Landlord. Tenant's
sole remedy for Landlord's unreasonably withholding or delaying consent or
approval shall be as provided in this Section 37.6.

         Section 37.7 All references in this Lease to the consent or approval of
Landlord shall be deemed to mean the written consent or approval of Landlord and
no consent or approval of Landlord shall be effective for any purpose unless
such consent or approval is set forth in a written instrument executed by
Landlord.

         Section 37.8 Landlord hereby waives any lien rights which it may
otherwise have concerning all of Tenant's trade fixtures and equipment, which
shall include furniture, moveable fixtures, equipment and supplies utilized by
Tenant in its business operations; and Tenant shall have the right to remove the
same at any time without Landlord's consent. Landlord acknowledges that pursuant
to a master purchase agreement by and between the parent corporation of Tenant
("NCGI") and Nortel Networks Inc and/or its affiliates ("Nortel Networks"), NCGI
purchased certain equipment to be located at the Premises. Landlord agrees to
endeavor to provide to Nortel Networks (or its successors or assigns of whom
Landlord shall have received notice) at its address specified below (or at the
addresses of its successors or assigns of which Landlord is subsequently
notified by notice given to Landlord in accordance with the provisions hereof),
a copy of any notice of default delivered to Tenant under this Lease
substantially concurrently with the delivery of such notice to Tenant, provided,
however, that the failure to provide such copy to Nortel Networks shall not
affect the effectiveness of any such notice to Tenant. For purposes of this
Section, the address of Nortel Networks is: Nortel Networks Inc., GMS 991 15
A40,2221 Lakeside Boulevard, Richardson, Texas 75082-4399, Attention: Charles M.
Helm, Esq.

                                   ARTICLE 38
                                  RENT CONTROL

         If at the commencement of, or at any time or times during the Term of
this Lease, the Rental reserved in this Lease shall not be fully collectible by
reason of any Requirement, Tenant shall enter into such agreements and take such
other steps (without additional expense to Tenant) as Landlord may reasonably
request and as may be legally permissible to permit Landlord to collect the
maximum rents which may from time to time during the continuance of such legal
rent restriction be legally permissible (and not in excess of the amounts
reserved therefor under this Lease). Upon the termination of such legal rent
restriction prior to the expiration of the Term, (a) the Rental shall become and
thereafter be payable hereunder in



                                      -58-
<PAGE>   64
accordance with the amounts reserved in this Lease for the periods following
such termination "and (b) Tenant shall pay to Landlord, if legally permissible,
an amount equal to (i) the items of Rental which would have been paid pursuant
to this Lease but for such legal rent restriction less (ii) the rents paid by
Tenant to Landlord during the period or periods such legal rent restriction was
in effect.

                                   ARTICLE 39
                  ROOF RIGHTS AND TELECOMMUNICATIONS CARRIERS

         A. Tenant shall have the right to have access to portions of the roof
of the Building as set forth on Schedule B attached hereto and made a part
hereof, for the purposes set forth therein.

         B. Tenant shall have the right to engage Carriers on the terms and
conditions provided for in Schedule C attached hereto and made a part hereof.

                                   ARTICLE 40
                                  RENEWAL TERM

         Section 40.1 Tenant shall have the option (the "Renewal Option") to
extend the term of this Lease for one (1) additional period of five (5) years
(the "Renewal Term"), which Renewal Term shall (i) commence on the date
immediately succeeding the Fixed Expiration Date, and (ii) end on the fifth
(5th) anniversary of the Fixed Expiration Date, provided that (a) Net2000
Communications Real Estate, Inc. shall be tenant hereunder, (b) this Lease shall
not have been previously terminated, (c) Tenant shall occupy at least eighty
percent (80%) of the Premises for the conduct of its business and (d) no Event
of Default shall then be occurring (x) on the date Tenant gives Landlord written
notice (the "Renewal Notice") of Tenant's election to exercise the Renewal
Option, and (y) on the Fixed Expiration Date, Such Renewal Option may be
exercised with respect to the entire Premises only and shall be exercisable by
Tenant delivering the Renewal Notice to Landlord at least twelve (12) months
prior to the Fixed Expiration Date. Time is of the essence with respect to the
giving of the Renewal Notice. Upon the giving of the Renewal Notice, Tenant
shall have no further right or option to extend or renew the Term.

         Section 40.2 If Tenant exercises the Renewal Option, the Renewal Term
shall be upon the same terms, covenants and conditions as those contained in
this Lease, except that (i) the Fixed Rent shall be deemed to mean the Fixed
Rent as determined pursuant to Section 40.3 hereof, (ii) Tenant shall not be
entitled to any rent abatement or credit against the Fixed Rent pursuant to
Article I hereof, (iii) the provisions of Article 19 with respect to Landlord's
Work shall not be applicable during the Renewal Term, (iv) Tenant shall not be
entitled to the ADA Tenant Fund with respect to the Renewal Term and (v) the
provisions of Section 40.1 of this Article relative to Tenant's right to renew
the Term of this Lease shall not be applicable. It is



                                      -59-
<PAGE>   65
expressly understood that during the Renewal Term, Tenant shall have no further
right to renew this Lease.

         Section 40.3 For the Renewal Term the Fixed Rent shall be determined as
follows:

         (A) The Fixed Rent for the Premises for the Renewal Term shall be an
amount equal to the greater of (a) the annual fair market rental value of the
Premises (the "Premises Fair Market Rent") on the first day of the Renewal Term
or (b) the Fixed Rent payable by Tenant on the Fixed Expiration Date (the
greater of (a) and (b) being hereinafter referred to as the "Premises Rental
Value"). The Fixed Rent for the Licensed Area(s) for the Renewal Term shall be
an amount equal to the greater of (x) the annual fair market value of the
Licensed Area(s) (the "Licensed Area(s) Fair Market Rent") on the first day of
the Renewal Term or (y) the Fixed Rent payable by Tenant on the Fixed Expiration
Date (the greater of (x) and (y) being hereinafter referred to as the "Licensed
Area(s) Rental Value"). The Premises Fair Market Rent and the Licensed Area(s)
Fair Market Rent are sometimes hereinafter referred to as the "Fair Market
Rent." The Fair Market Rent shall be determined as if the Premises and the
Licensed Area(s) were available in the then rental market for comparable first
class market buildings in midtown Manhattan and assuming that Landlord has had a
reasonable time to locate a tenant who rents with the knowledge of the uses to
which the Premises and the Licensed Area(s) can be adapted, and that neither
Landlord nor the prospective tenant is under any compulsion to rent, taking into
account:

                  (i) the fact that the Base Taxes and the Base Wage Rate
provided herein shall not change for the purpose of calculating the escalation
payments payable pursuant to Article 27 hereof, which payments shall continue to
be made during the Renewal Term;

                  (ii) the fact that as of the commencement of the Renewal Term,
Tenant shall not be required to pay, in addition to the escalation payments
presently provided for under this Lease, Tenant's Share of such other escalation
payments which Landlord is then charging tenants under other leases or offers
for leases in the Building or in other buildings then owned by Landlord or its
affiliates or under common management with the management company then managing
the Building or of such other escalation payments which other landlords are then
charging tenants under leases or offers for leases in other office buildings
which are similar in character or location to the Building;

                  (iii) the fact that Landlord shall not be obligated to perform
any work, including, without limitation, Landlord's Work, in the Premises or the
Licensed Area(s) to prepare the same for Tenant's occupancy and use;

                  (iv) the fact that Tenant shall not be entitled to the ADA
Tenant Fund during the Renewal Term; and



                                      -60-
<PAGE>   66
                  (v) the fact that Tenant shall not be entitled to any rent
abatement or credit against the Fixed Rent during the Renewal Term.

         During the Renewal Term, Escalation Rent shall continue to be paid
pursuant to Article 27 hereof.

         (B) For purposes of determining the Fair Market Rent, the following
procedure shall apply:

             (1) the Fair Market Rent shall be determined by Landlord on the
basis of the highest and best use of the Premises assuming that (i) the Premises
are free and clear of all leases and tenancies (including this Lease) and (ii)
the Licensed Area(s) are free and clear of all licenses (including the license
created by this Lease), and, at the election of Landlord, that the Premises and
the Licensed Area(s), as the case may be, are occupied by one (1) tenant or are
subdivided and occupied by more than one (1) tenant, whether improved or
unimproved.

             (2) Landlord shall give Tenant written notice (the "Rent Notice")
within one hundred twenty (120) days prior to the Fixed Expiration Date, which
Rent Notice shall set forth Landlord's determination of the Premises Fair Market
Rent and the Licensed Area(s) Fair Market Rent ("Landlord's Determination"). If
Landlord shall fail or refuse to give such Notice as aforesaid with respect to
the Premises Fair Market Rent, the Premises Rental Value shall be deemed to be
the Fixed Rent then payable by Tenant on the Fixed Expiration Date with respect
to the Premises, and if Landlord shall fail or refuse to give such Notice as
aforesaid with respect to the Licensed Area(s) Fair Market Rent, the Licensed
Area(s) Rental Value shall be deemed to be the Fixed Rent then payable by Tenant
on the Fixed Expiration Date with respect to the Licensed Area(s).

             (3) If Landlord's Determination with respect to the Premises or the
Licensed Area(s) exceeds the Fixed Rent with respect to the Premises and the
Licensed Area(s), respectively, payable by Tenant on the Fixed Expiration Date,
then Tenant shall give Landlord written notice ("Tenant's Notice"), within
thirty (30) days after Tenant's receipt of the Rent Notice, of whether Tenant
accepts or disputes Landlord's Determination with respect to the Premises or the
Licensed Area(s), as the case may be. If Tenant in Tenant's Notice accepts
Landlord's Determination or if Tenant fails or refuses to give Tenant's Notice
as aforesaid, Tenant shall be deemed to have accepted Landlord's Determination
for the Renewal Term in accordance with the terms of this Article. If Tenant in
Tenant's Notice disputes Landlord's Determination, Tenant shall deliver to
Landlord, within thirty (30) days after Tenant's receipt of the Rent Notice,
Tenant's determination of the Premises Fair Market Rent or the Licensed Area
Fair Market Rent, as the case may be ("Tenant's Determination"), as determined
by an independent real estate appraiser ("Tenant's Appraiser") together with a
copy of the appraisal prepared by Tenant's Appraiser.

             (4) Landlord shall give Tenant written notice ("Landlord's
Notice"), within thirty (30) days after Landlord's receipt of Tenant's
Determination, of whether Landlord

                                      -61-
<PAGE>   67
accepts or disputes Tenant's Determination. If Landlord in Landlord's Notice
accepts Tenant's Determination or if Landlord fails or refuses to give
Landlord's Notice as aforesaid. Landlord shall be deemed to have accepted
Tenant's Determination. If Landlord in Landlord's Notice disputes Tenant's
Determination, Landlord shall appoint an independent real estate appraiser
("Landlord's Appraiser"). If within thirty (30) days after Tenant's receipt of
Landlord's Notice in dispute, Landlord's Appraiser and Tenant's Appraiser shall
mutually agree upon the determination (the "Mutual Determination") of the
Premises Fair Market Rent or Licensed Area(s) Fair Market Rent, as the case may
be, their determination shall be final and binding upon the parties. If
Landlord's Appraiser and Tenant's Appraiser shall be unable to reach a Mutual
Determination within said thirty (30) day period, both of the Appraisers shall
jointly select a third independent real estate appraiser ("Third Appraiser")
whose fee shall be borne equally by Landlord and Tenant. In the event that
Landlord's Appraiser and Tenant's Appraiser shall be unable to jointly agree on
the designation of the Third Appraiser within five (5) days after they are
requested to do so by either party, then the parties agree to allow the American
Arbitration Association, or any successor organization to designate the Third
Appraiser in accordance with the rules, regulations and/or procedures then
obtaining of the American Arbitration Association or any successor organization.

             (5) The Third Appraiser shall conduct such hearings and
investigations as he may deem appropriate and shall, within thirty (30) days
after the date of designation of the Third Appraiser, choose either Landlord's
or Tenant's Determination, and such choice by the Third Appraiser shall be
conclusive and binding upon Landlord and Tenant. Each party shall pay its own
counsel fees and expenses if any, in connection with any arbitration under this
Section, including the expenses and fees of any Appraiser selected by it in
accordance with provisions of this Article. Any Appraiser appointed pursuant to
this Article shall be an independent real estate appraiser with at least ten
(10) years' experience in leasing and valuation of properties which are similar
in character to the Building, and a member of the American Institute of
Appraisers of the National Association of Real Estate Boards and a member of the
Society of Real Estate Appraisers. The Appraisers shall not have the power to
add to, modify or change any of the provisions of this Lease.

             (6) It is expressly understood that any determination of the Fair
Market Rent pursuant to this Article shall be based on the criteria stated in
Section 40.3 hereof.

         (C) After a determination has been made of the Rental Value for the
Renewal Term, the parties shall execute and deliver to each other an instrument
setting forth the Rental Value as hereinabove determined.

         (D) If the final determination of the Rental Value shall not be made on
or before the first day of the Renewal Term in accordance with the provisions of
this Article, pending such final determination Tenant shall continue to pay, as
the Fixed Rent for the Renewal Term, an amount equal to Landlord's Determination
(subject to escalation pursuant to Article 27 hereof). If, based upon the final
determination hereunder of the Rental Value, the payments made by Tenant on
account of the Fixed Rent for such portion of the Renewal Term were (i) less



                                      -62-
<PAGE>   68
than the Rental Value payable for the Renewal Term, Tenant shall pay to Landlord
the amount of such deficiency within five (5) days after demand therefor or
(ii) greater than the Rental Value payable for the Renewal Term, Landlord
promptly shall refund to Tenant the amount of such excess.



                                      -63-
<PAGE>   69
         IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.

                       Landlord

                       HUDSON TELECOM CENTER, LLC

                       By: See Attached Signature Block
                          ------------------------------------
                          Name:
                          Title:

                       Tenant

                       NET2000 COMMUNICATIONS REAL ESTATE, INC.

                       By: /s/ Jason Karp
                          -------------------------------------
                          Name:  Jason Karp
                          Title: Director-Legal and Regulatory Affairs
                                 Assistant Secretary

                                      -64-
<PAGE>   70
          Signature Block for Lease Between Hudson Telecom Center, LLC
                                       and
                    Net 2000 Communications Real Estate Inc.

Hudson Telecom Center, LLC,
a Delaware limited liability company

By: Bristol Telecom Center, LLC,
    a Delaware limited liability company
    Member

    By: Bristol Realty Holdings, LLC,
        a Delaware limited liability company,
        Its Sole Member

        By: Bristol Group, Inc.,
            a California corporation,
            Member

            /s/ Jeffrey S. Kott
            -------------------
            Jeffrey S. Kott
            Principal

            /s/ James J. Curtis
            -------------------
            James J. Curtis
            Principal
<PAGE>   71
                                   SCHEDULE A

                              RULES AND REGULATIONS

         (1) The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors, or halls shall not be obstructed or encumbered by Tenant
or used for any purpose other than ingress and egress to and from the Premises
and for delivery of merchandise and equipment in prompt and efficient manner,
using elevators and passageways designated for such delivery by Landlord.

         (2) No awnings, air-conditioning units, fans or other projections shall
be attached to the outside walls of the Building. No curtains, blinds, shades,
or screens, other than those which conform to Building standards as established
by Landlord from time to time, shall be attached to or hung in, or used in
connection with, any window or door of the Premises, without the prior written
consent of Landlord which shall not be unreasonably withheld or delayed. Such
awnings, projections, curtains, blinds, shades, screens or other fixtures must
be of a quality, type, design and color, and attached in the manner reasonably
approved by Landlord. All electrical fixtures hung in offices or spaces along
the perimeter of the Premises must be of a quality, type, design and bulb color
approved by Landlord, which consent shall not be withheld or delayed
unreasonably unless the prior consent of Landlord has been obtained for other
lamping.

         (3) No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by Tenant on any part of the outside of
the Premises or Building or on the inside of the Premises if the same can be
seen from the outside of the Premises without the prior written consent of
Landlord except that the names of Tenant and any Related Entity may appear on
the entrance door of the Premises. In the event of the violation of the
foregoing by Tenant, if Tenant has refused to remove same after reasonable
notice from Landlord, Landlord may remove same without any liability, and may
charge the reasonable expense incurred by such removal to Tenant. Interior signs
on doors and directory tablet shall be of a size, color and style reasonably
acceptable to Landlord.

         (4) The exterior windows and doors that reflect or admit light and air
into the Premises or the halls, passageways or other public places in the
Building, shall not be covered or obstructed by Tenant.

         (5) No showcases or other articles shall be put in front of or affixed
to any part of the exterior of the Building, nor placed in the halls, corridors
or vestibules, nor shall any article obstruct any air-conditioning supply or
exhaust without the prior written consent of Landlord.

         (6) The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein.
All damages resulting from any misuse of the fixtures shall be borne by Tenant.



                                      A-1
<PAGE>   72
         (7) Subject to the provisions of Article 3 of this Lease, Tenant shall
not mark, paint, drill into, or in any way deface any part of the Premises or
the Building. No boring, cutting or stringing of wires shall be permitted,
except with the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed, and as Landlord may direct.

         (8) No space in the Building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods or property of any
kind at auction or otherwise.

         (9) Tenant shall not make, or permit to be made, any unseemly or
unreasonably disturbing noises or unreasonably disturb or unreasonably interfere
with occupants of this or neighboring buildings or premises or those having
business with them whether by the use of any musical instrument, radio,
television set, talking machine, unmusical noise, whistling, singing, or in any
other way.

         (10) Tenant, or any of Tenant's employees, agents, visitors or
licensees, shall not at any time bring or keep upon the Premises any
inflammable, combustible or explosive fluid, chemical or substance except such
as are incidental to usual office occupancy.

         (11) No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by Tenant, nor shall any changes be made in existing
locks or the mechanism thereof, unless Tenant promptly provides Landlord with
the key or combination thereto. Tenant must, upon the termination of its
tenancy, return to Landlord all keys of stores, offices and toilet rooms, and in
the event of the loss of any keys furnished at Landlord's expense, Tenant shall
pay to Landlord the reasonable cost thereof.

         (12) No bicycles, vehicles or animals of any kind, except for seeing
eye dogs, shall be brought into or kept by Tenant in or about the Premises or
the Building.

         (13) All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place in the manner and
during the hours which Landlord or its agent reasonably may determine from time
to time. Landlord reserves the right to inspect all safes, freight or other
bulky articles to be brought into the Building and to exclude from the Building
all safes, freight or other bulky articles which violate any of these Rules and
Regulations or the Lease of which these Rules and Regulations are a part.

         (14) Tenant shall not occupy or permit any portion of the Premises
demised to it to be occupied as an office for a public stenographer or typist,
or for the possession, storage, manufacture, or sale of liquor, narcotics, dope,
or as a barber or manicure shop, or as an employment bureau. Tenant shall not
engage or pay any employees on the Premises, except those actually working for
Tenant at the Premises, nor advertise for labor giving an address at the
Premises.



                                      A-2
<PAGE>   73
         (15) Tenant shall not purchase spring water, ice, towels or other like
service, or accept barbering or bootblacking services in the Premises, from any
company or persons not approved by Landlord, which approval shall not be
withheld or delayed unreasonably and at hours and under regulations other than
as reasonably fixed by Landlord.

         (16) Landlord shall have the right to prohibit any advertising by
Tenant which, in Landlord's reasonable opinion, tends to impair the reputation
of the Building or its desirability as a building for offices, and upon written
notice from Landlord, Tenant shall refrain from or discontinue such advertising.

         (17) Landlord reserves the right to exclude from the Building between
the hours of 6:00 p.m. and 8:00 a.m. and at all hours on Saturdays, Sundays and
legal holidays all persons who do not present a pass to the Building signed or
approved by Landlord. Tenant shall be responsible for all persons for whom a
pass shall be issued at the request of Tenant.

         (18) Tenant shall, at its expense, provide artificial light for the
employees of Landlord while doing janitor service or other cleaning, and in
making repairs or alterations in the Premises.

         (19) The requirements of Tenant will be attended to only upon written
application at the office of the Building. Building employees shall not perform
any work or do anything outside of the regular duties, unless under special
instructions from the office of Landlord.

         (20) Canvassing, soliciting and peddling in the Building is prohibited
and Tenant shall cooperate to prevent the same.

         (21) There shall not be used in any space, or in the public halls of
the Building, either by Tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.

         (22) Tenant may, at its sole cost and expense and subject to compliance
with all applicable Requirements and the provisions of Articles 3 and 4 of this
Lease, install and maintain vending machines for the exclusive use by Tenant,
its officers, employees and business guests, provided that each machine, where
necessary shall have a waterproof mat thereunder and be connected to a drain.

         (23) Tenant shall keep the entrance door to the Premises closed at all
times.

         (24) Tenant shall comply with and abide by the reasonable standard
operating procedures established by Landlord for the Building.


                                      A-3
<PAGE>   74
         (25) Tenant shall, at its expense, issue to each employee of Tenant, an
identification card containing the name of the company and a photograph and
signature of such employee.

         Landlord shall provide Tenant with prior written notice of any material
changes, modifications or amendments to the Rules and Regulations set forth
herein.



                                      A-4
<PAGE>   75
                                   SCHEDULE B

                     ROOF RIGHTS, LOADING DOCK AND BASEMENT

         A. Roof Rights

             (1) Subject to the rights of other tenants in the Building,
Landlord shall make available to Tenant, for Tenant's own use (and not for
resale purposes) sufficient (as reasonably determined by Landlord) space on the
roof of the Building for any HVAC equipment which may be installed by Tenant in
accordance with Section 3.1 (such HVAC equipment shall be referred to as the
"Roof Equipment") at a location designated by Landlord in its sole discretion.
The area so designated shall be an exclusive Licensed Area, however, Tenant's
use of the roof of the Building shall be on a nonexclusive basis. In connection
therewith, and subject to the rights of other tenants and occupants of the
Building, Landlord shall make available to Tenant access to the roof for the
construction, installation, maintenance, repair, operation and use of the Roof
Equipment, as well as reasonable space in the Building to run ductwork from the
HVAC equipment to the Premises. The installation of the Roof Equipment shall
constitute an Alteration and shall be performed, at Tenant's sole cost and
expense (including, without limitation, any costs and expenses in connection
with reinforcing the roof of the Building, if required), in accordance with and
subject to the provisions of Article 3 hereof. All of the provisions of this
Lease with respect to Tenant's obligations hereunder shall apply to the
installation, use and maintenance of the Roof Equipment, including, without
limitation, provisions relating to compliance with Requirements, Insurance
Requirements, insurance, indemnity, repairs and maintenance. The license granted
to Tenant in this Schedule B shall not be assignable by Tenant separate and
apart from this Lease.

             (2) Tenant shall exercise its rights and perform its obligations
hereunder in such a way as to not cause interference with the use of the roof by
Landlord or other tenants or occupants of the Building and users of the roof. In
the event that the operation of Tenant's facilities causes or results in
interference with the operations of Landlord or other tenants, occupants or
users, Tenant agrees to eliminate such interference, including, without
limitation, reconfiguring or relocating Tenant's HVAC equipment, re-engineering
Tenant's roof operation, working with Landlord or other tenants, occupants or
users, and all other steps deemed necessary by Landlord to eliminate such
interference.

             (3) Landlord shall not have any obligations with respect to the
Roof Equipment or compliance with any Requirements relating thereto (including,
without limitation, the obtaining of any required permits or licenses, or the
maintenance thereof), nor shall Landlord be responsible for any damage that may
be caused to Tenant or the Roof Equipment by any other tenant or occupant of the
Building.

             (4) Tenant shall (i) be solely responsible for any damage caused as
a result of the use of the Roof Equipment, (ii) promptly pay any tax, license,
permit or other fees or charges



                                      B-1
<PAGE>   76
imposed pursuant to any Requirements relating to the installation, maintenance
or use of the Roof Equipment, (iii) promptly comply with all precautions and
safeguards recommended by Landlord's insurance company and all Governmental
Authorities, and (iv) perform all necessary repairs or replacements to, or
maintenance of, the Roof Equipment, except that at Landlord's option, Landlord
may elect to perform such repairs, replacements or maintenance at Tenant's sole
cost and expense.

         B. As part of the Initial Alterations, Tenant shall have the right to
install an emergency generator (the "Generator") in an area designated by
Landlord. In addition, as part of the Initial Alterations Tenant shall have the
right to install an emergency generator plug on the exterior of the Building in
a location selected by Landlord, in its sole discretion for the sole purpose of
connecting the Premises to the Generator. Such installation shall be an
Alteration under this Lease, and shall be performed in accordance with, and
subject to, the terms and conditions set forth in Article 3 of this Lease.
Tenant shall have the right to test the Generator once per week at a time
reasonably acceptable to Landlord.

         C. As part of the Initial Alterations, Tenant shall, at its sole cost
and expense, (i) construct an electrical room in the basement at a location
designated by Landlord in which to install Tenant's electrical transformer, (ii)
install such equipment as shall be necessary to bring the electrical capacity
provided to Tenant pursuant to Section 13.1 from Landlord's electrical room in
the basement to Tenant's electrical room in the basement, unless Landlord, at
its option, completes such work, (iii) install two (2) four inch (4") conduits
within the existing Building risers from Tenant's electrical room in the
basement to bring the electrical capacity from the basement to the Premises and
(iv) distribute such capacity within the Premises in a manner approved by
Landlord and as required for Tenant's business operations.

         D. As part of the Initial Alterations, Tenant shall have the right to
perform or install the following (i) eight(8) covered cable trays for fiber
optic cable to run from the point of entry to the Building to the "meet-me" room
of the Building located in the basement and from the "meet-me" room of the
Building located in the basement to the Premises; (ii) eight (8) six inch (6")
glycol risers subject to Landlord's approval as to their location; (iii) two (2)
bus ducts for Tenant's primary power from Tenant's electrical closet in the
basement to the Premises, subject to Landlord's approval as to their location;
and (iv) two (2) bus ducts for Tenant's emergency power from the Generator to
the Premises, subject to Landlord's approval as to their location.

         E. Tenant may, at its sole cost and expense, install a fuel storage
tank located in the basement of the Building, and use heating fuel therefrom,
subject to Landlord's approval as to its location. Landlord shall, at Tenant's
expense, install a submeter(s) on such tanks for the purpose of measuring
Tenant's fuel consumption and Tenant shall pay to Landlord from time to time
within ten (10) days after demand 105% of (a) Tenant's pro rata share (based on
the ratio of Tenant's fuel tanks installed to the number of total fuel tanks
purchased, installed and maintained) of the cost of the purchase, installation,
maintenance, repair and, if necessary, the



                                      B-2
<PAGE>   77
replacement of the fuel tanks plus (b) the cost to Landlord of the fuel consumed
by Tenant as shown by such submeter(s).

         F. Tenant acknowledges and agrees that the privileges granted Tenant
under this Schedule B shall merely constitute a license and shall not, now or at
any time after the installation of the Generator, be deemed to grant Tenant a
leasehold or other real property interest in the Building or any portion
thereof. The license granted to Tenant in this Schedule B shall automatically
terminate and expire upon the expiration or earlier termination of this Lease
and the termination of such license shall be self-operative and no further
instrument shall be required to effect such termination.



                                      B-3
<PAGE>   78
                                   SCHEDULE C

                           TELECOMMUNICATIONS CARRIERS

         Tenant shall have the right at no additional cost to Tenant to select
and utilize at least three (3) telecommunications carriers and as many
additional telecommunications carriers (the "Carriers") as Tenant shall be able
to accommodate within the conduits which have been allocated to Tenant pursuant
to Schedule B, item (C)(iii) in the riser equipment located upon the Premises
and the Building, provided that, all such Carriers shall be subject to all
applicable Requirements, to Landlord's approval which shall not be unreasonably
withheld or delayed and to the execution by such Carriers of an agreement
acceptable in form and substance including, without limitation, appropriate
indemnity and insurance provisions, to Landlord in its sole discretion pursuant
to which Landlord shall grant to the Carriers a license (which shall be
coextensive with the rights and privileges granted to Tenant under this Lease)
to install, operate, maintain, repair and replace cable and related equipment
within the Premises and such vertical risers and horizontal pathways within the
Building but outside of the Premises which are necessary to provide
telecommunications and data services to Tenant at the Premises. The License
contemplated herein shall be intended to permit the Carriers to co-locate with
Tenant at the Premises and shall not be intended to grant an exclusive right to
Tenant or any of the Carriers. Landlord reserves the right at its sole
discretion to grant, renew or extend licenses to other telecommunications and
data carriers for the purposes of locating telecommunications equipment in the
Building which may serve Tenant or other tenants in the Building. Nothing herein
shall grant to Carriers any greater rights or privileges than Tenant is granted
pursuant to the terms of this Lease. Tenant shall be responsible for ensuring
that such Carriers comply with the terms and conditions imposed upon Tenant
under this Lease, and, any failure by such Carriers to observe and comply with
the applicable terms, conditions, agreement and covenants on behalf of Tenant,
shall be a default hereunder.



                                      C-1
<PAGE>   79
                                   EXHIBIT A

                                 LANDLORD'S WORK

1.       Landlord shall close, by bricking over or otherwise, the windows in the
Premises located on the north side of the Building.

2.       Landlord shall install a ventilation system to ventilate the Generator.

3.       Landlord shall install a ventilation system to ventilate Tenant's fuel
room in the basement of the Building.

4.       Landlord shall provide a central Building signal and safety ground.

         All Landlord's Work shall be performed using building standard
         materials.



                                      A-1
<PAGE>   80
                                   EXHIBIT B

                         LANDLORD'S BASE BUILDING WORK

1.       Landlord shall install window and roof replacements.

2.       Landlord shall complete stairwell improvements.

3.       Landlord shall upgrade existing elevators.

4.       Landlord shall install a stub-up as support for the installation of
         Tenant's steel frame and dunnage equipment.


5.       Landlord shall upgrade utility shafts and install utility supports in
         critical areas of the Building.

6.       Landlord shall install core plumbing risers and fire protection risers.

7.       Landlord shall install grounding systems.

8.       Landlord shall install fire pumps, fire alarms and a base Building
         security system.

         All of Landlord's Base Building work shall be undertaken by Landlord
using building standard materials and procedures to the extent reasonably
necessary, in Landlord's sole, but reasonable, judgment, to prepare the Building
to accommodate Tenant's operations.

                                      B-1

<PAGE>   1
                                                                   EXHIBIT 10.28

                                     LEASE

LANDLORD:           Hood Business Park LLC, a Massachusetts
                    Limited Liability Company


TENANT:             Net 2000 Communications Real Estate, Inc., a
                    Delaware Corporation


PREMISES:           Hood Business Park, Charlestown, Massachusetts


DATED:              December 6th, 1999

<PAGE>   2


                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
ARTICLE             CAPTION                                               PAGE
<S>                                                                       <C>
       I            REFERENCE DATA                                         1
                    (A) Subjects Referred To                               1
                    (B) Exhibits                                           2
       II           PREMISES                                               3
       III          TERM AND CONSTRUCTION                                  4
                    (A) Term                                               4
                    (B) Landlord's Required Work                           4
                    (C) Tenant's Work                                      4
                    (D) General Construction Provisions.                   4
       IV           LANDLORD'S COVENANTS                                   5
                    (A) Landlord's Covenants During The Term               5
                    (B) Interruptions                                      5
       V            RENT                                                   6
                    (A) Fixed Rent                                         6
                    (B) Additional Rent - Taxes                            6
                    (C) Additional Rent - Operating Costs                  7
                    (D) Monthly Payments                                  10
                    (E) Additional Rent - Electricity, Gas, Water &
                          Sewer                                           10
       VI           TENANT'S COVENANTS                                    11
       VII          DEFAULT                                               16
                    (A) Events of Default                                 16
                    (B) Obligations Thereafter                            17
       VIII         CASUALTY AND TAKING                                   17
                    (A) Casualty And Taking                               17
                    (B) Reservation Of Award                              18
       IX           MORTGAGEE                                             18
                    (A) Subordination To Mortgages                        18
                    (B) Limitation On Mortgagee's Liability               19
                    (C) No Release Or Termination                         19
       X            GENERAL PROVISIONS                                    20
                    (A) Captions                                          20
                    (B) Short Form Lease                                  20
                    (C) Relocation                                        20
                    (D) Notices                                           20
                    (E) Successors And Assigns                            21
                    (F) No Surrender                                      21
                    (G) Waivers And Remedies                              21
                    (H) Self-Help                                         22
                    (I) Estoppel Certificate                              22
                    (J) Waiver Of Subrogation                             23
                    (K) Brokers                                           23
                    (L) Landlord's Defaults                               24
                    (M) Effectiveness Of Lease                            24
                    (N) Hazardous Materials                               24
                    (O) Delays                                            25
                    (P) Compliance With Laws                              25
                    (Q) Waiver Of Landlord's Lien                         25
</TABLE>


<PAGE>   3

<TABLE>
<S>                                                                       <C>
                    (R) Telecommunications                                26
                    (S) Generator                                         27
       XI           SECURITY DEPOSIT                                      27
       XII          MODIFICATION                                          29
       XIII         OPTION                                                29
                    (A) Option Term                                       29
                    (B) Option Rent                                       29

                    Exhibit A   Plan Showing Location Of The Building
                    Exhibit A-1 Condition of Building
                    Exhibit B   Landlord's Required Work
                    Exhibit C   Tenant's Work
                    Exhibit D   Landlord's Services
                    Exhibit E   Rules And Regulations
                    Exhibit F   Legal Description Of Lot
</TABLE>



<PAGE>   4


       Lease dated as of the 6th day of December, 1999, by and between Hood
Business Park LLC, a Massachusetts Limited Liability Company, as landlord
("Landlord"), and Net 2000 Communications Real Estate, Inc., a Delaware
corporation), as tenant ("Tenant").

                                   ARTICLE I
                                 REFERENCE DATA

1.   (A)  SUBJECTS REFERRED TO:

     Each reference in this lease to any of the following subjects shall be
construed to incorporate the data stated for the subject in this Section 1(A):

     LANDLORD'S ADDRESS: 90 Everett Avenue
                         Chelsea, MA  02150-2301

     LANDLORD'S MANAGING AGENT:    Nordblom Company
                                   31 Third Avenue
                                   Burlington, MA 01803-4470

     TENANT'S ADDRESS:   500 Rutherford Avenue
                         Charlestown, MA  02129

     BUILDING: That certain building designated as "500 Rutherford
               Avenue, Charlestown, MA  02129".

     RENTABLE FLOOR AREA OF TENANT'S SPACE:
     APPROXIMATELY 21,895 SQUARE FEET OF OFFICE SPACE

     TOTAL RENTABLE FLOOR AREA OF THE BUILDING:

               WAREHOUSE:  109,148 SQUARE FEET
               OFFICE:    191,717 SQUARE FEET
                          -------
               TOTAL:     300,865

     APPROXIMATE DELIVERY DATE:    WITHIN THIRTY (30) DAYS
                                   OF FULL LEASE
                                   EXECUTION

     ORIGINAL TERM: TEN (10) YEARS FROM THE
                    COMMENCEMENT DATE

     OPTION TERM:   ONE (1) OPTION FOR TEN (10) YEARS

     TENANT'S CONSTRUCTION PERIOD: NINETY (90) DAYS FROM
                                   THE DELIVERY DATE
                                   ("THE COMMENCEMENT
                                   DATE")

                                       1
<PAGE>   5
     FIXED RENT:

              DURING THE PERIOD COMMENCING ON THE COMMENCEMENT DATE AND
              CONTINUING THROUGH THE FIRST FIVE (5) YEARS OF THE ORIGINAL TERM
              -- THAT AMOUNT PER ANNUM EQUAL TO THE PRODUCT OF $17.75 AND THE
              RENTABLE SQUARE FOOT FLOOR AREA OF THE DEMISED PREMISES; AND

              DURING EACH YEAR OF THE BALANCE OF THE ORIGINAL TERM -- THAT
              AMOUNT PER ANNUM EQUAL TO THE PRODUCT OF $20.50 AND THE RENTABLE
              SQUARE FOOT FLOOR AREA OF THE DEMISED PREMISES.

     ADDITIONAL RENT FOR TAXES AND OPERATING COSTS:

              TENANT'S PRO RATA SHARE OF TAXES = 7.28 %

              TENANT'S PRO RATA SHARE OF OPERATING COSTS PRESENTLY ESTIMATED TO
              BE = 11.42%

     SECURITY AND RESTORATION DEPOSIT:

              DURING THE FIRST SIXTY (60) MONTHS OF THE TERM, AN AMOUNT EQUAL TO
              THE PRODUCT OF NINE (9) AND THE MONTHLY FIXED RENT PAYABLE DURING
              THE FIRST YEAR OF THE ORIGINAL TERM; DURING THE BALANCE OF THE
              TERM SAID AMOUNT SHALL BE REDUCED TO THE PRODUCT OF SIX (6) AND
              THE MONTHLY FIXED RENT PAYABLE UNDER THE LEASE AS OF THE SIXTY
              FIRST (61ST) MONTH OF THE TERM.

     GUARANTOR:           N/A

     PERMITTED USE:       GENERAL OFFICE USE AND AS A TELECOMMUNICATIONS SWITCH
                          FACILITY AND EQUIPMENT SUPPORT FUNCTIONS, PACKAGING,
                          ASSEMBLY/TESTING, DISTRIBUTION AND RELATED PURPOSES.
                          ANY SPECIAL PERMITS, REQUIREMENTS OF LAW OR LOCAL
                          AUTHORITIES, CHANGES IN CERTIFICATE OF OCCUPANCY AND
                          THE LIKE, AS NECESSARY DUE TO TENANT'S USE, SHALL BE
                          AT TENANT'S SOLE COST AND EXPENSE.

     PUBLIC LIABILITY INSURANCE LIMITS: BODILY INJURY:

                                   $1,000,000
     PROPERTY DAMAGE:              $ 500,000

     (B)  EXHIBITS

     The exhibits listed below in this Section are incorporated in this lease by
reference and are to be construed as part of this lease:

                                       2
<PAGE>   6

     EXHIBIT A          Plan Showing Location of the Building
     EXHIBIT A-1        Condition of Building
     EXHIBIT B          Landlord's Required Work
     EXHIBIT C          Tenant's Work
     EXHIBIT D          Landlord's Services
     EXHIBIT E          Rules and Regulations
     EXHIBIT F          Legal Description of Lot

                                   ARTICLE II
                                    PREMISES

2.   PREMISES

     Subject to and with the benefit of the provisions of this lease, Landlord
hereby leases to Tenant, and Tenant leases from Landlord, Tenant's space in the
Building comprising approximately 21,895 square feet of rentable office floor
area on the east side of the second floor, excluding exterior faces of exterior
walls, all common facilities of the Building and all building service fixtures
and equipment serving (exclusively or in common) other parts of the Building.
The Building is outlined in red upon the plan attached as Exhibit A. Tenant's
space, with such exclusions, is hereinafter referred to as "the demised
premises". Tenant shall have, as appurtenant to the demised premises, the right
to use in common with others entitled thereto, subject to reasonable rules from
time to time made by Landlord of which Tenant is given notice: (i) the common
facilities from time to time included in the Building or on the parcel of land
on which the Building is located (said parcel being more particularly described
in Exhibit F and being hereafter referred to as "the Lot"), to the extent from
time to time designated by Landlord; and (ii) the building service fixtures and
equipment serving the demised premises. The Lot is represented by the area
outlined by a bold line upon said Exhibit A. It is understood and agreed that
said plan is intended only to show the approximate size of the Lot as presently
constituted and the approximate size and location of the Building and for no
other purpose. Landlord reserves the right from time to time (a) to install,
repair, replace, use, maintain and relocate for service to the demised premises
and to other parts of the Building or either, building service fixtures and
equipment wherever located in the Building; including, without limitation, the
right to enter the demised premises to access the second floor primary electric
room located within the demised premises; (b) to alter, relocate or eliminate
any other common facility; (c) to designate specific parking areas upon the Lot
to be for the exclusive use of one or more users thereof; (d) to designate
specific traffic routes for trucks and other delivery vehicles; (e) to alter the
size of the Building, including, without limitation, converting warehouse space
to office space or office space to warehouse space; and (f) to increase and/or
decrease the size of the Lot by the acquisition of adjacent land and/or the
disposition of any portions thereof. No such increase or decrease shall be
deemed to have occurred until Landlord shall give Tenant notice thereof.
Landlord agrees that except in an emergency it shall provide Tenant with prior
reasonable notice before performing any work to the demised premises and,
further, Landlord agrees that there shall be no unreasonable impairment of
access to or egress from Tenant's business in the demised premises.

                                       3
<PAGE>   7

                                  ARTICLE III
                             TERM AND CONSTRUCTION

3.   (A) TERM

     To have and to hold for a period of ten (10) years ("the Term" or "the
Original Term") commencing upon the ninetieth (90th) day following the delivery
of the demised premises to Tenant with Landlord's Work substantially complete
(being hereafter referred to as "the Commencement Date") and, unless sooner
terminated as provided herein, ending at the end of the Term; provided that if
the Term (calculated as aforesaid) would expire prior to the last day of a
calendar month, the Term shall be extended so as to expire on the last day of
such calendar month.

     (B) LANDLORD'S REQUIRED WORK

     Landlord agrees to use reasonable efforts to complete Landlord's Required
Work (described in Exhibit B) on or before the Approximate Delivery Date, which
shall, however, be extended for a period equal to that of any delays due to
governmental regulations, scarcity of or inability to obtain labor or materials,
labor difficulties, casualty or other causes reasonably beyond Landlord's
control. Tenant's Construction Period shall commence upon the execution of this
lease by both Landlord and Tenant and delivery of the demised premises to Tenant
("Delivery Date"). Landlord agrees that upon the execution of this lease, Tenant
may access Tenant's space provided Tenant shall not interfere with the
performance of Landlord's Required Work.

     (C) TENANT'S WORK

     Tenant agrees to perform Tenant's Work in accordance with the provisions of
Exhibit C.

     (D) GENERAL CONSTRUCTION PROVISIONS

     All construction work required or permitted by this lease, whether by
Landlord or by Tenant, shall be done in a good and workmanlike manner and in
compliance with all applicable laws and all lawful ordinances, regulations and
orders of governmental authorities and insurance rating or inspection bureaus
having jurisdiction over the Building. Either party may inspect the work of the
other at reasonable times and shall promptly give notice of observed defects.
Landlord's Required Work shall be deemed to have been performed upon the
Approximate Delivery Date except for items which are incomplete or do not
conform with the requirements of Exhibit B and as to which Tenant shall, in
either case, have given written notice to Landlord prior to the expiration of
Tenant's Construction Period.

     (E) CONSTRUCTION ALLOWANCE

     As an inducement for Tenant to execute this lease and prepare the demised
premises for Tenant's occupancy, Landlord shall pay to Tenant that amount equal
to the product of $3.00 and the rentable square foot floor area of the demised
premises. So long as Tenant shall not then be in default in the performance of
its agreements contained in this lease beyond any applicable cure period,
Landlord shall pay said sum to Tenant upon the last to occur of: (a) the receipt
by Landlord of the rent payable hereunder for the first full month of the Term
of

                                       4
<PAGE>   8

this lease; or (b) the receipt by Landlord of waivers of liens from all
contractors and subcontractors supplying labor and/or material for Tenant's
work.

                                   ARTICLE IV
                              LANDLORD'S COVENANTS

4.   (A) LANDLORD'S COVENANTS DURING THE TERM:

     Landlord covenants during the Term:

     (1) To furnish, through Landlord's employees or independent contractors,
the services listed in Exhibit D; and

     (2) Except as otherwise provided in this lease, to make such structural
repairs to the roof, foundation, exterior walls, and common facilities of the
Building and the Building service fixtures and the Lot as may be necessary to
keep them in serviceable condition.

     (3) Landlord agrees to save Tenant harmless from, and indemnify Tenant
against, to the extent permitted by law, any and all injury, loss or damage and
any and all claims for injury, loss or damage, of whatever nature caused by or
resulting from, any act, omission or negligence of Landlord or its agents or
employees. It is a condition of this indemnification that the Landlord shall be
notified with reasonable promptness of any suits, proceedings, claims or demands
with respect to which the Tenant requests indemnification, and the Landlord
shall have the right to assume the entire control of the defense, compromise or
settlement thereof and the Tenant shall cooperate fully with the Landlord in
such defense.

     (B) INTERRUPTIONS

     Landlord shall not be liable to Tenant for any compensation or reduction of
rent by reason of inconvenience or annoyance or for loss of business arising
from (a) power losses or shortages, or (b) the necessity of Landlord's entering
the demised premises for any of the purposes in this lease authorized, including
without limitation, for repairing or altering the demised premises or any
portion of the Building or for bringing materials into and/or through the
demised premises in connection with the making of repairs or alterations.

     In case Landlord is prevented or delayed from making any repairs,
alterations or improvements or furnishing any service or performing any other
covenant or duty to be performed on Landlord's part, by reason of any cause
reasonably beyond Landlord's control, Landlord shall not be liable to Tenant
therefor, nor, except as expressly otherwise provided in Article VIII, shall
Tenant be entitled to any abatement or reduction of rent by reason thereof, nor
shall the same give rise to a claim in Tenant's favor that such failure
constitutes actual or constructive, total or partial, eviction from the demised
premises. Landlord reserves the right to stop any service or utility system when
necessary in Landlord's opinion by reason of accident or emergency or until
necessary repairs have been completed. Except in case of emergency repairs,
Landlord will give Tenant reasonable advance notice of any contemplated stoppage
and, in any event, Landlord will use reasonable efforts to avoid unnecessary
inconvenience to Tenant by reason thereof.

                                       5
<PAGE>   9
                                    ARTICLE V
                                      RENT

          5. (A) FIXED RENT

                 Tenant agrees to pay, without any offset or reduction whatever
          (except as made in accordance with the express provisions of this
          lease), fixed monthly rent equal to 1/12th of the Fixed Rent, such
          rent to be paid in equal installments in advance on the first day
          of each calendar month included in the Term commencing on the
          Commencement Date and for any portion of a calendar month at the
          beginning or end of Tenant's obligation to pay rent, a portion of
          such fixed monthly rent, prorated on a per diem basis. All
          payments of Fixed and additional rent shall be made in lawful
          money of the United States and shall be made to Hood Business Park
          LLC and sent to Landlord's Managing Agent at Managing Agent's
          Address set forth in Section (A) of Article I above, or to such
          other person and/or at such other address as Landlord may from
          time to time designate.

                 If any payment of rent or any other payment payable hereunder
          by Tenant to Landlord shall not be paid when due, the same shall
          bear interest from the date when the same was payable until the
          date paid at the lesser of (a) fifteen percent (15%) per annum, or
          (b) the highest lawful rate of interest which Landlord may charge
          to Tenant without violating any applicable law. Such interest
          shall constitute additional rent payable hereunder and shall be
          "the Lease Interest Rate".

                 (B) ADDITIONAL RENT - TAXES

                 (1) For the purposes of this Section, "Tax Year" shall mean the
          twelve-month period in use in the City of Boston for the purpose
          of imposing ad valorem taxes upon real property. In the event
          that said City changes the period of its tax year, "Tax Year"
          shall mean a twelve-month period commencing on the first day of
          such new tax year, and each twelve-month period commencing on an
          anniversary of such date during the Term of this lease. For
          purposes of this Section "the Property" shall mean the Lot and all
          improvements thereon, including the Building; and "the Factor"
          shall mean a fraction the numerator of which is the Rentable Floor
          Area of the demised premises and the denominator of which is the
          Total Rentable Floor Area of The Building. For purposes of this
          Section "the Building's Share of Real Estate Taxes" shall mean the
          sum of (i) the real estate taxes upon the Building (determined in
          accordance with the real estate tax bill, the assessor's records
          or a certification from the assessor), plus (ii) the product of
          the real estate taxes upon the Lot and a fraction the numerator of
          which is the number of square feet of rentable floor area
          contained within the Building and the denominator of which is the
          number of square feet of rentable floor area contained within all
          buildings located upon the Lot provided, however, that for
          purposes of this subsection (ii), if any portion of the Lot shall
          be separately assessed, the real estate taxes toward which Tenant
          shall be obligated to contribute shall include only those taxes on
          those portions of the Lot jointly assessed with the portion of the
          Lot on which the Building is located; and the denominator of said
          fraction shall be the number of square feet of rentable floor area
          contained within all buildings located upon those portions of the
          Lot which are jointly assessed with the portion of the Lot on
          which the Building is located.

                 (2) During the Term Tenant shall pay to Landlord, as additional
          rent, an amount equal to the Building's Share of Real Estate Taxes
          imposed with respect
                                        6
<PAGE>   10

          to the Property for each Tax Year multiplied by the Factor, such
          amount to be apportioned on a per diem basis for any fraction of a
          Tax Year contained within the Term.

                 (3) If Landlord shall receive any tax refund or rebate or sum
          in lieu thereof with respect to any Tax Year, then out of any balance
          remaining thereof, after deducting Landlord's reasonable expenses
          incurred in obtaining such refund, rebate or other sum, Landlord
          shall pay to Tenant, provided that Tenant is not then in default
          in the performance of any of its obligations hereunder, an amount
          equal to the Building's Share of such balance multiplied by the
          Factor; but in no event shall Landlord pay to Tenant out of such
          refund, rebate or other sum for any Tax Year more than the amount
          paid by Tenant to Landlord pursuant to this Section (B) for such
          Tax Year.

                 (4) Any betterment assessment, so-called "rent tax" or any
          other tax levied or imposed by any governmental authority in
          addition to, in lieu of or as a substitute for real estate taxes
          shall nevertheless be deemed to be real estate taxes for the purpose
          of this Section (B).  Furthermore, to the extent that any equipment
          installed as part of the Property (e.g. heating or air conditioning
          equipment) shall be classified as personal property for purposes of
          taxation, any personal property taxes thereon shall be deemed to be
          real estate taxes for purposes of this Section (B). Real estate taxes
          shall not include any tax upon Landlord's net income or profits and
          shall also not include: business, professional, occupational and
          license taxes, federal, state or local income taxes, franchise, gift,
          transfer, excise, capital stock, estate, succession, or inheritance
          taxes. Landlord shall pay all real property taxes and assessments by
          the date due, and shall, upon Tenant's written request, furnish
          Tenant with evidence of such payment. Landlord shall not include in
          taxes any interest or penalties incurred by Landlord by reason of
          Landlord's failure to pay in a timely manner any real property taxes
          and assessments provide Tenant has timely paid same. Landlord shall
          use its reasonable efforts in good faith to effect an equitable
          proration of real estate taxes and assessments on the Building and
          any other property owned by Landlord or an affiliate of Landlord.
          Landlord shall not recover more than one hundred percent (100%) of
          the real estate taxes, assessments and insurance premiums actually
          incurred by Landlord.

                 (5) In the event of any taking by eminent domain under
          circumstances whereby this lease shall not terminate, each of the
          Building's Share of Real Estate Taxes and the Factor shall be adjusted
          in order to reflect any change in rentable floor area.

                 (C)    ADDITIONAL RENT - OPERATING COSTS

                 (1) For the purposes of this Section, the following terms shall
          have the following respective meanings:

                 Operating Year: Each successive fiscal year (as adopted by
          Landlord) in which any part of the Term of this lease shall fall.

                    "Operating Expenses" shall mean all reasonable and actual
          costs or expenses incurred for the operation, cleaning, maintenance,
          repair and upkeep of the Property, including, without limitation, all
          costs of maintaining and repairing the Property (including snow
          removal, landscaping and grounds maintenance parking lot operation and
          maintenance, security, operation and repair of ventilating and
          air-conditioning equipment, elevators, lighting and any other

                                       7

<PAGE>   11

          Building equipment or systems) and of all repairs and replacements
          (other than repairs or replacements for which Landlord has received
          full reimbursement from contractors, other tenants of the Building or
          from others) necessary to keep the Property in good working
          order, repair, appearance and condition; all costs, including material
          and equipment costs for cleaning and janitorial services to the
          Building (including window cleaning of the Building); all costs of
          any reasonable insurance carried by Landlord relating to the
          Property; all costs related to provision of heat (including oil,
          electric, steam and/or gas), air-conditioning, and water (including
          sewer charges) and other utilities to the Building, (but excluding
          the reheat units in Tenant's VAV units); payments under all service
          contracts relating to the foregoing; all compensation, fringe
          benefits, payroll taxes and workmen's compensation insurance premiums
          related thereto with respect to any employees of Landlord or its
          affiliates engaged in security and maintenance of the Property;
          actual and reasonable attorneys' fees and disbursements (exclusive of
          any such fees and disbursements incurred in tax abatement proceedings
          or the preparation of leases) and auditing and other professional
          fees and expenses; and a management fee at market rates customarily
          paid with respect to buildings similar to the Building. Landlord
          shall provide Tenant a statement of Operating Expenses annually. Said
          statement shall be in reasonable detail and shall include a
          computation of Tenant's share.

          There shall not be included in such Operating Expenses: (i) brokerage
          fees (including rental fees) related to the operation of the
          Building; (ii) interest and depreciation charges incurred on the
          Property; (iii) expenditures made by Tenant with respect to (a)
          cleaning, maintenance and upkeep of the demised premises; and (b) the
          provision of electricity to the demised premises; (iv) income, excess
          profit, franchise taxes or other such taxes imposed on or measured by
          the gross or net income of Landlord from the operation of the
          Building; (v) rent for a management office and rent and expenses for
          a marketing office; (vi) any amounts paid to any person, firm or
          corporation related to or otherwise affiliated with Landlord or any
          general partner, officer, director or shareholder of Landlord or any
          of the foregoing, to the extent the same exceeds arms length
          reasonable prices paid in Boston, Massachusetts Metropolitan area for
          similar services or goods; costs incurred from removing any hazardous
          materials or other toxic materials or substances from either the
          Building or the demised premises, which materials or substances were
          present as of the date of this lease; (vii) costs relating to
          maintaining Landlord's existence, either as a corporation,
          partnership, trust or other entity, such as trustee's fees, annual
          fees, partnership expenses and legal and accounting fees (other than
          with respect to Building operations); (viii) attorney's fees and
          other costs and expenses incurred in connection with the negotiations
          or disputes with present or prospective tenants, other occupants of
          the Building, or other third parties; (ix) ground rent, if Landlord's
          interest in the land upon which the Building is located is derived
          solely from a ground lease; (x) costs or expenses of electricity
          provided to any leasable spaces within the Building; (xi) utilities
          and expenses incurred by any tenant directly (including HVAC, and
          cleaning services); and (xii) any other expenses for which Landlord
          actually received direct reimbursement from insurance, condemnation
          awards, other tenant's or any other source. Operating Expenses shall
          also 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
          prudent operation of the Building and the calculation of any expenses
          hereunder, it is understood that no expense shall be charged more
          than once. Landlord shall use its reasonable efforts in good faith to
          effect an equitable proration of bills for services rendered to the
          Building and to any other property owned by Landlord or an affiliate
          of
                                        8
<PAGE>   12

          Landlord. Landlord shall not recover more than one hundred percent
          (100%) of the Operating Expenses actually incurred by Landlord.
          Landlord agrees that it shall give Tenant copies of invoices upon
          request.

          If, during the Term of this lease, Landlord shall replace any capital
          items or make any capital expenditures reasonably necessary to
          maintain the structural integrity of the demised premises or the
          Building or of the utility systems servicing the demised premises, or
          which result in reducing Operating Expenses (collectively called
          "capital expenditures") the total amount of which is not properly
          included in Operating Expenses for the calendar year in which they
          were made, there shall nevertheless be included in Operating Expenses
          for each calendar year in which and after such capital expenditure is
          made the annual charge-off of such capital expenditure. (Annual
          charge-off shall be determined by (i) dividing the original cost of
          the capital expenditure by the number of years of useful life thereof
          [the useful life shall be reasonably determined by Landlord in
          accordance with generally accepted accounting principles and
          practices in effect at the time of acquistion of the capital item];
          and (ii) adding to such quotient an interest factor computed on the
          unamortized balance of such capital expenditure based upon an
          interest rate reasonably determined by Landlord as being the interest
          rate then being charged for long term mortgages by institutional
          lenders on like properties within the locality in which the Building
          is located.) Provided, further, that if Landlord reasonably concludes
          on the basis of engineering estimates that a particular capital
          expenditure will effect savings in Operating Expenses and that such
          annual projected savings will exceed the annual charge-off of capital
          expenditure computed as aforesaid, then and in such events, the annual
          charge-off shall be shall be determined by dividing the amount of such
          capital expenditure by the number of years over which the projected
          amount of such savings shall fully amortize the cost of such item or
          the amount of such capital expenditure; and by adding the interest
          factor, as aforesaid.

                 The foregoing are intended to describe only the extent of
          potential cost and expenses and impose no obligation on Landlord to
          incur same.

                 Building's Share of Operating Expenses: One hundred percent
          (100%) of the Operating Expenses with respect to the Building plus
          the product of the Operating Expenses with respect to the Lot and a
          fraction the numerator of which is the rentable floor area contained
          within the building and the denominator of which is the rentable
          floor area contained within all of the buildings located upon the Lot
          and not separately maintained by the tenants thereof.

                 (2)  During the Term Tenant shall pay to Landlord, as
          additional rent, an amount equal to the Building's Share of Operating
          Expenses for each Operating Year multiplied by a fraction, the
          numerator of which is the rentable floor area of the demised premises
          and the denominator of which is the total rentable floor area of
          office space within the Building, such amount to be apportioned on a
          per diem basis for any fraction of an Operator Year contained within
          the Term. Tenant's prorata share for heating, ventilating and air
          conditioning expenses shall not include said expenses for the 17,000
          square feet operating on Tenant's own system.

          (3)  In the event of any taking by eminent domain under circumstances
          whereby this lease shall not terminate, each of the Building's Share
          of Operating Expenses and the Factor shall be appropriately adjusted
          to reflect any change in rentable floor area.


                                       9
<PAGE>   13
       (D) MONTHLY PAYMENTS

       Payment on account of the additional rent described in Sections (B) and
(C) above shall be paid, as part of Tenant's total rent, monthly, and at the
times and in the fashion herein provided for the payment of Fixed Rent. For an
initial period from the Commencement Date until the end of the Tax Year during
which the term of this lease shall commence, the monthly amount so to be paid
shall be that amount reasonably estimated by Landlord for such purpose at the
commencement of the Term. Promptly after the end of said Tax Year, and promptly
after the end of each Tax Year thereafter, Landlord shall make a determination
of Tenant's share of real estate taxes and Operating Expenses; and if the
aforesaid payments theretofore made for such period by Tenant exceed Tenant's
share, such overpayment shall be credited against the payments thereafter to be
made by Tenant pursuant to this Section (D); and if Tenant's share is greater
than such payments theretofore made on account for such period, Tenant shall
make a suitable payment to Landlord. The initial monthly payment on account of
said additional rent shall be replaced after Landlord's determination of
Tenant's share for the preceding Tax Year by a payment which is one-twelfth
(1/12th) of Tenant's actual share thereof for the immediately preceding Tax
Year, with adjustments as appropriate where such period is less than a full
twelve-month period. Appropriate adjustments shall be made in said monthly
payment if the real estate taxes upon the Property for the current Tax Year
shall be known prior to the end of said Tax Year and/or if real estate taxes
shall be payable to the taxing authority in installments, all to the end that as
each payment of real estate taxes shall become payable Landlord shall have
received from Tenant payments sufficient in amount to pay Tenant's share of the
Building's Share of Real Estate Taxes then payable by Landlord. At Landlord's
election, Landlord may use its fiscal year rather than Tax Years for purposes of
the adjustments described in this Section.

       (E) ADDITIONAL RENT - ELECTRICITY, GAS, WATER & SEWER

       (1) If the demised premises shall have utility meters measuring only the
amount of the utilities consumed in the demised premises, commencing upon
Tenant's entry into the demised premises to perform Tenant's work, Tenant shall
pay to the utility companies furnishing such utilities, promptly upon the
receipt of bills therefor, the cost of such utilities consumed in the demised
premises. If the demised premises shall not have a utility meter for a utility
provided to the demised premises, then Tenant shall pay to Landlord upon demand
from time to time, as additional rent, the cost of such utility consumed in the
demised premises, as said cost shall be determined from time to time by a
reputable electrical engineer, selected by Landlord, who shall survey the
utility demands of the demised premises and of all other premises served by the
same utility meter as the demised premises and shall determine the cost of such
utility consumed in the demised premises on the basis of such survey. In lieu of
conducting surveys with respect to such utility consumption, Landlord may
install check-meters which will indicate the consumption of such utility within
the demised premises or within one or more other premises served by the same
utility meter which serves the demised premises. Tenant's charge shall in all
events be Tenant's cost of utility usage as so required with no profit increment
to Landlord.

       (2) Tenant's use of electricity in the demised premises shall not at any
time exceed the capacity of any of the electrical conductors or equipment in or
otherwise serving the demised premises. Landlord shall provide 1200 amp/480
volts or equivalent service to the Building. Tenant shall do all work necessary

                                       10



<PAGE>   14


and provide all necessary equipment in order to bring said 1200 amp/480 volts or
equivalent service to the demised premises. Tenant shall notify Landlord of such
work on the electrical system and shall provide Landlord with plans of such
work, which plans Landlord shall provide comments to within ten (10) days of
receipt. If Landlord fails to provide comments within such time, said plans
shall be deemed approved.

                                   ARTICLE VI
                               TENANTS COVENANTS

6. TENANT'S COVENANTS DURING THE TERM.

       Tenant covenants during the Term and such other time as Tenant occupies
any part of the demised premises:

       (1) To pay when due (a) all Fixed Rent and additional rent, (b) all taxes
which may be imposed on Tenant's personal property in the demised premises
(including, without limitation, Tenant's fixtures and equipment) regardless to
whomever assessed, and (c) all charges by any public utility for telephone and
other utility services rendered to the demised premises;

       (2) Except as otherwise provided in Article VIII and Section 4(A)(2), to
keep the demised premises in good order, repair and condition, reasonable wear
only excepted; to replace all light bulbs as necessary; maintain and replace all
interior glass; keep all utilities, pipes, conduits, drains and other
installations used in connection with the demised premises, including, without
limitation, the heating, ventilating and air conditioning systems which serve
only the demised premises in good order, condition and repair; and at the
expiration or termination of this lease peaceably to yield up the demised
premises and all changes and additions therein in such order, repair and
condition, first removing all goods and effects of Tenant and those claiming
under Tenant and any items the removal of which is required by any agreement
between Landlord and Tenant (or specified therein to be removed at Tenant's
election and which Tenant elects to remove), and repairing all damage caused by
such removal and restoring the demised premises and leaving them clean and neat.
Notwithstanding anything to the contrary contained herein, Tenant shall
forthwith remove from the demised premises (repairing any damage caused by such
removal) any installations, alterations, additions or improvements made by
Tenant except for those set forth on Exhibits B and C attached at the
commencement of the Term, and which Landlord requests Tenant to remove within
sixty (60) days after the expiration or termination of the term of this lease,
such removal to include returning the previously modified portions of the
demised premises to their condition prior to the making of such installations,
alterations, additions or improvements. Tenant's obligations hereunder shall
survive the expiration or termination of the term of this lease. For purposes of
this Section (2) the word "repairs" includes the making of replacements when
necessary. Tenant shall keep the demised premises clean and free of refuse and
provide all necessary janitorial services to the demised premises;

       (3) Continuously from the Commencement Date, to use and occupy the
demised premises only for the Permitted Use; and not to injure or deface the
demised premises, Building, or Lot; and not to permit in the demised premises
any auction sale, nuisance, or the emission from the demised premises of any
objectionable noise or odor; nor any use thereof which is improper, offensive,
contrary to law or ordinances, or liable to invalidate or increase the premiums


                                       11

<PAGE>   15


for any insurance on the Building (or any portion thereof) or its contents, or
liable to render necessary any alteration or addition to the Building. Tenant
shall obtain Landlord's consent prior to the installation of antennae or other
transmitting devices on the roof of the Building, and Tenant shall pay the fair
market rent (determined in the same manner as set forth in Section (B) of
Article 13 below) for locating said antennae and/or equipment on the roof of the
Building provided, however, that there shall be no charge for one (1) of
Tenant's GPS antennae. All antennae shall be reasonable in size and located in
an area approved by Landlord;

       (4) To comply with the rules and regulations set forth in Exhibit E and
all other reasonable rules and regulations hereafter made by Landlord (but only
after copies thereof have been delivered to Tenant) for the care and use of the
Building and Lot and their facilities and approaches, it being expressly
understood, however, that Landlord shall not be liable to Tenant for the failure
of other tenants of the Building to conform to such rules and regulations;

       (5) To keep the demised premises equipped with all safety appliances
required by law or ordinance or any other regulation of any public authority
and/or any insurance inspection or rating bureau having jurisdiction, and to
procure all licenses and permits required because of any use made by Tenant and,
if requested by Landlord, to do any work required because of such use, it being
understood that the foregoing provisions shall not be construed to broaden in
any way the Permitted Use;

       (6) Not without the prior written consent of Landlord to assign,
hypothecate, pledge or otherwise encumber this lease, to make any sublease or to
permit occupancy of the demised premises or any part thereof by anyone other
than Tenant, voluntarily or by operation of law, and as additional rent, to
reimburse Landlord promptly upon demand for reasonable legal and other expenses
incurred by Landlord in connection with any request by Tenant for consent to
assignment or subletting. Without intending to limit Landlord's discretion in
granting or withholding such consent, it is agreed that if Tenant requests
Landlord's consent to assign this lease or sublet more than fifty percent (50%)
of the demised premises, Landlord shall have the option, exercisable by written
notice to Tenant given within sixty days after receipt of such request, to
terminate this lease as of a date specified in such notice which shall be not
less than thirty or more than sixty days after the date of such notice. If
Landlord shall so terminate this lease, rent shall be apportioned as of the date
of termination, and Landlord may lease the demised premises or any portion
thereof to any person or entity (including without limitation, Tenant's proposed
assignee or subtenant, as the case may be) without any liability whatsoever to
Tenant by reason thereof. Landlord agrees that if it shall not exercise the
aforesaid right of termination, Landlord shall not unreasonably withhold, delay
or condition its consent to a request by Tenant to assign this lease or sublet
the demised premises as aforesaid. If Landlord shall consent to any assignment
of this lease by Tenant or a subletting of the whole of the demised premises by
Tenant at a rent which exceeds the rent payable hereunder by Tenant, or if
Landlord shall consent to a subletting of a portion of the demised premises by
Tenant at a rent in excess of the subleased portion's prorata share of the rent
payable hereunder by Tenant, then Tenant shall pay to Landlord, as additional
rent forthwith upon Tenant's receipt of each installment of any such excess
rent, one half (1/2) the amount of any such excess rent. Each request by Tenant
for permission to assign this lease or to sublet the whole or any part of the
demised premises shall be accompanied by a warranty by Tenant as to the amount
of rent to be paid to Tenant by the


                                       12

<PAGE>   16


proposed assignee or sublessee. For purposes of this Section (6), the term
"rent" shall mean all fixed rent, additional rent or other payments and/or
consideration payable by one party to another for the use and occupancy of
premises. Tenant agrees, however, that neither it nor anyone claiming under it
shall enter into any sublease, license, concession or other agreement for use,
occupancy or utilization of space in the demised premises which provides for
rental or other payment for such use, occupancy or utilization based, in whole
or in part, on the net income or profits derived by any person or entity from
the space leased, used, occupied or utilized (other than an amount based on a
fixed percentage or percentages of receipts or sales), and Tenant agrees that
any such purported sublease, license, concession or other agreement shall he
absolutely void and ineffective as a conveyance of any right or interest in the
possession, use, occupancy, or utilization of any part of the demised premises.
Tenant further agrees that any sublease, license, concession or agreement for
use, occupancy or utilization of space in the demised premises entered into by
it or by anyone claiming under it shall contain the provisions set forth in the
immediately preceding sentence. Tenant further agrees that if a sublease is
entered into, neither the rent payable thereunder nor the amount thereof passed
on to any person or entity shall have deducted therefrom any expenses or costs
related in any way to the subleasing of such space. If and whenever Tenant shall
not be a so-called "publicly held" company, it is understood and agreed that the
transfer of fifty percent (50%) or more of the stock in Tenant of any class
(whether at one time or at intervals) shall constitute an "assignment" of
Tenant's interest in this lease. If there shall be any assignment or subletting
by Tenant pursuant to the provisions of this paragraph, Tenant shall remain
primarily liable for the performance and observance of the covenants and
agreements herein contained on the part of Tenant to be performed and observed,
such liability to be (in the case of any assignment) joint and several with that
of such assignee. It is expressly understood and agreed that no assignment of
Tenant's interest in this lease shall be effective until such time as Tenant
shall deliver to Landlord an agreement from the assignee, which agreement shall
be reasonably satisfactory to Landlord in form and substance and shall provide
that the assignee agrees with Landlord to be primarily liable for the
performance and observance of the covenants and agreements herein contained on
the part of Tenant to be performed and observed, such liability to be joint and
several with that of Tenant. Landlord hereby agrees, however, that Tenant may
assign its interest in this lease or sublet the whole of the demised premises to
a) a corporation which owns all of the outstanding stock of Tenant ("Tenant's
Parent"); (b) a corporation wholly owned by Tenant or by Tenant's Parent ("a
Subsidiary"); or (c) a corporation resulting from the consolidation, joint
venture, partnership or merger of Tenant with any other corporation.
Notwithstanding the foregoing provisions, if the assignment or subletting is to
a Subsidiary, said assignment or subletting shall be valid only for such period
of time as said Subsidiary is wholly owned by Tenant or Tenant's Parent. In the
event that Tenant or Tenant's Parent shall ever sell or otherwise transfer any
interest in said Subsidiary to another person or entity, unless Landlord shall
have specifically assented thereto, the same shall be deemed to be a material
breach of this lease. Notwithstanding any terms of this lease to the contrary,
Tenant shall have the right to locate or collocate customer equipment and/or
equipment cabinets within the demised premises, provided that such equipment is
consistent and compatible with the utilities and services provided to the
demised premises. The parties hereto confirm and agree that the location or
collocation of such customer equipment shall not constitute a subletting or
assignment pursuant to the terms of this lease and shall not be subject to any
of the operative terms or provisions or regulating, subletting or assignment
hereunder;



                                       13

<PAGE>   17
      (7)   To defend Landlord, with counsel acceptable to Landlord, save
Landlord harmless from, and indemnify Landlord against any liability for injury,
loss, accident or damage to any person or property and from any claims, actions,
proceedings and expenses and costs in connection therewith (including, without
implied limitation, reasonable counsel's fees): (i) arising from the omission,
fault, willful act, negligence or other misconduct of Tenant or anyone claiming
under Tenant, or from any use made or thing done or occurring upon or about the
demised premises but not due to the ommission, fault, willful act, negligence or
other misconduct of Landlord, or (ii) resulting from the failure of Tenant to
perform and discharge its covenants and obligations under this lease;

      (8)   To maintain public liability insurance upon the demised premises in
amounts which shall, at the beginning of the Term, be at least equal to
$1,000,000.00 for bodily injury or death to one or more individuals and
$500,000.00 for damage to property, and from time to time (but not more often
than once annually) during the Term, shall be for such higher limits, if any, as
are customarily carried in the area in which the demised premises are located
upon property similar in type and use to the demised premises. Such insurance
shall name Landlord, Landlord's Managing Agent, and Landlord's Mortgagee as
additional insureds. Tenant shall deliver to Landlord certificates thereof, at
least fifteen (15) days prior to the Commencement Date, and each renewal
certificate thereof, at least fifteen (15) days prior to the expiration of the
policy it renews. Each such policy shall be written by a responsible insurance
company authorized to do business in the Commonwealth of Massachusetts and shall
provide that the same shall not be modified or terminated without at least
twenty (20) days' prior written notice to each named insured;

      (9)   To keep all employees working in the demised premises covered by
workmen's compensation insurance in amounts required by law, and to furnish
Landlord with certificates thereof;

     (10)   To permit Landlord and its agents entry: to examine the demised
premises at reasonable times upon five (5) days prior notice (except in an
emergency when Landlord may enter at any time upon whatever notice is reasonable
in the circumstances) and, if Landlord shall so elect, to make repairs,
alterations and replacements; to remove, at Tenant's expense, any changes,
additions, signs, curtains, blinds, shades, awnings, aerials, flagpoles, or the
like not consented to in writing; and to show the demised premises to
prospective tenants during the six (6) months preceding the expiration of the
Term and to prospective purchasers and mortgagees at all reasonable times.
Landlord agrees that in exercising its rights pursuant to this Section (10) it
shall not unreasonably interfere with Tenant's business in the demised premises;

     (11)   Not to place a load upon any part of the floor of the demised
premises exceeding that for which said floor was designed or in violation of
what is allowed by law; and not to move any safe, vault or other heavy equipment
in, about or out of the demised premises except in such manner and at such
times as Landlord shall approve in writing in each instance. Tenant's business
machines and mechanical equipment which cause vibration or noise that may be
transmitted to the Building structure or to any other space in the Building
shall be placed and maintained by Tenant in settings of cork, rubber, spring, or
other types of vibration eliminators sufficient to confine such vibration or
noise to the demised premises. The present floor load is 150 lbs. per square
foot. Tenant, at Tenant's expense and subject to Landlord's prior approval shall
be permitted to


                                       14
<PAGE>   18

upgrade an area of the demised premises of approximately 1000 rentable square
feet to a floor loading capacity of 300 lbs. per square foot, or such increased
limit in the battery room reasonably approved by Landlord. Tenant shall have the
right to place a reasonable amount of heating, ventilating and air conditioning
equipment approved by Landlord on the roof of the Building in locations and in a
manner reasonable acceptable to Landlord, which approval shall not be
unreasonably withheld or delayed;

     (12)   All the furnishings, fixtures, equipment, effects and property of
every kind, nature and description of Tenant and of all persons claiming by,
through or under Tenant which, during the continuance of this lease or any
occupancy of the demised premises by Tenant or anyone claiming under Tenant, may
be on the demised premises or elsewhere in the Building or on the Lot shall be
at the sole risk and hazard of Tenant, and if the whole or any part thereof
shall be destroyed or damaged by fire, water or otherwise, or by the leakage or
bursting of water pipes, steam pipes, or other pipes, by theft, or from any
other cause, no part of said loss or damage is to be charged to or to be borne
by Landlord, unless caused by the negligence or willful act of Landlord, its
agents, servants, contractors or employees;

     (13)   To pay promptly when due the entire cost of any work done on the
demised premises by Tenant and those claiming under Tenant; not to cause or
permit any liens for labor or materials performed or furnished in connection
therewith to attach to the demised premises; and immediately to discharge any
such liens which may so attach;

     (14)   Not to make any alterations, improvements, changes or additions to
the demised premises without Landlord's prior written consent. Landlord agrees
that it shall not unreasonably withhold its consent to alterations,
improvements, changes or additions to the demised premises provided same are (i)
interior; (ii) non-structural; (iii) do not affect the common utility lines or
other common mechanical systems of the Building; and (iv) costs less than Forty
Two Thousand Dollars ($42,000.00);

     (15)   To pay to Landlord two (2) times the total of the Fixed Rent and
additional rent then applicable for each month or portion thereof that Tenant
shall retain possession of the demised premises or any part thereof after the
termination of this lease, whether by lapse of time or otherwise, and also to
pay all damages sustained by Landlord on account thereof (but not consequential
or punitive damages); however, the provisions of this subsection shall not
operate as a waiver by Landlord of any right of re-entry provided in this lease
or as a matter of law;

     (16)   To insure the contents, equipment, and improvements of Tenant and
those claiming under Tenant, under policies covering at least fire and the
standard extended coverage risks, in amounts equal to the replacement cost
thereof, the terms of which policies shall provide that such insurance shall not
be canceled without at least twenty (20) days' prior written notice to Landlord.
Copies of such insurance certificates thereof, shall be delivered to Landlord at
least fifteen (15) days prior to the Commencement Date and each renewal policy
or certificate thereof, at least fifteen (15) days prior to the expiration of
the policy it renews; and

     (17)   To pay Landlord's expenses, including actual and reasonable
attorney's fees, incurred in enforcing any obligation of Tenant in this lease.


                                       15
<PAGE>   19

                                   ARTICLE VII
                                     DEFAULT

 7.   (A)  EVENTS OF DEFAULT

      (1)  If Tenant shall default in the payment of Fixed Rent, additional rent
or other payments required of Tenant, and if Tenant shall fail to cure said
default within seven (7) days after receipt of notice of said default from
Landlord, or (2) if Tenant shall default in the performance or observance of any
other agreement or condition on its part to be performed or observed and if
Tenant shall fail to cure said default within thirty (30) days after receipt of
notice of said default from Landlord (but if longer than thirty (30) days shall
be reasonably required to cure said default, then if Tenant shall fail to
commence the curing of such default within fifteen days after receipt of said
notice and diligently prosecute the curing thereof to completion), or (3)
subject to the provisions of Section (Q) of Article 10 below, if any person
shall levy upon, or take this leasehold interest or any part thereof upon
execution, attachment or other process of law, or (4) if Tenant or Guarantor
shall make an assignment of its property for the benefit of creditors, or (5) if
Tenant or Guarantor shall be declared bankrupt or insolvent according to law, or
(6) if any bankruptcy proceedings shall be commenced by or against Tenant or
Guarantor, or (7) if a receiver, trustee or assignee shall be appointed for the
whole or any part of Tenant's or Guarantor's property, then in any of said
cases, Landlord lawfully may immediately, or at any time thereafter, and without
any further notice or demand, enter into and upon the demised premises or any
part thereof in the name of the whole, and hold the demised premises as if this
lease had not been made, and expel Tenant and those claiming under it and
remove its or their property without being taken or deemed to be guilty of any
manner of trespass (or Landlord may send written notice to Tenant of the
termination of this lease), and upon entry as aforesaid (or in the event that
Landlord shall send Tenant notice of termination as above provided, on the fifth
day next following the date of sending of the notice), the term of this
lease shall terminate. Notwithstanding the provisions of clauses(1) of the
immediately preceding sentence, if Landlord shall have rightfully given Tenant
notice of default pursuant to said clause twice during any twelve-month period,
and if Tenant shall thereafter default in time payment of Fixed Rent, additional
rent or other payments required of Tenant, then Landlord may exercise the right
of termination provided for it in said immediately preceding sentence without
first giving Tenant notice of such default and the opportunity to cure the same
within the time provided in said clause (1). Tenant hereby expressly waives any
and all rights of redemption granted by or under any present or future laws in
the event of Tenant being evicted or dispossessed for any cause, or in the event
Landlord terminates this lease as provided in this Article.

      (B)  OBLIGATIONS THEREAFTER

      In case of any such termination, Tenant will indemnify Landlord each month
against all loss of Fixed Rent and additional rent and against all obligations
which Landlord may incur by reason of any such termination between the time of
termination and the expiration of the Term; or at the election of Landlord,
exercised at the time of termination or at any time thereafter, Tenant will
indemnify Landlord each month until the exercise of the election against all
loss of Fixed Rent and additional rent and against all obligations which
Landlord may incur by reason of such termination during the period between the
time of the termination and the exercise of the election, and upon the exercise
of the election


                                       16
<PAGE>   20


Tenant will pay to Landlord as damages such amount as at the time of the
exercise of the election represents the amount by which the rental value of the
demised premises for the period from the exercise of the election until the
expiration of the Term shall be less than the amount of rent and other payments
provided herein to be paid by Tenant to Landlord during said period (less a ten
percent (10%) discount rate). It is understood and agreed that at the time of
the termination or at any time thereafter Landlord may rent the demised
premises, and for a term which may expire before or after the expiration of the
Term, without releasing Tenant from any liability whatsoever, that Tenant shall
be liable for any expenses incurred by Landlord in connection with obtaining
possession of the demised premises, with removing from the demised premises
property of Tenant and persons claiming under it (including warehouse charges),
with putting the demised premises into good condition for reletting, and with
any reletting, including, but without limitation, actual and reasonable
attorneys' fees and brokers fees, and that any monies collected from any
reletting shall be applied first to the foregoing expenses and then to the
payment of Fixed Rent, additional rent and all other payments due from Tenant to
Landlord.

                                  ARTICLE VIII
                               CASUALTY AND TAKING

8.    (A) CASUALTY AND TAKING

      In case during the Term all or any substantial part of the demised
premises, the Building, or Lot or any one or more of them, are damaged by fire
or any other casualty or by action of public or other authority or are taken by
eminent domain, this lease shall terminate at Landlord's election, which may be
made notwithstanding Landlord's entire interest may have been divested, by
notice given to Tenant within thirty days after the occurrence of the event
giving rise to the election to terminate. Said notice shall, in the case of
damage as aforesaid, specify the effective date of termination which shall be
not less than thirty nor more than sixty days after the date of notice of such
termination. In the case of any such taking by eminent domain, the effective
date of the termination shall be the day on which the taking authority shall
take possession of the taken property. Fixed Rent and additional rent shall be
apportioned and adjusted as of the effective date of any such termination. If in
any such case the demised premises are rendered unfit for use and occupation and
this lease is not so terminated, Landlord shall use due diligence to put the
demised premises, or, in the case of a taking, what may remain thereof
(excluding any items which Tenant may be required or permitted to remove from
the demised premises at the expiration of the Term) into proper condition for
use and occupation, but Landlord shall not be required to spend more than the
net proceeds of insurance or award of damages it receives therefor, and a just
proportion of the Fixed Rent and additional rent according to the nature and
extent of the injury to the demised premises shall be abated until the demised
premises or such remainder shall have been put by Landlord in such condition;
and in case of a taking which permanently reduces the area of the demised
premises, a just proportion of the Fixed Rent shall be abated for the remainder
of the Term. Landlord agrees that if there shall be damage or destruction by
fire or casualty or by action of public or other authority or taking by eminent
domain, and if this lease shall not be terminated as provided for herein, and if
the demised premises shall not be repaired or restored within twelve (12) months
from the receipt by Landlord of the insurance proceeds or awards therefore,
Tenant shall have the right to terminate this lease by written notice to
Landlord given within sixty (60) days following the expiration of said twelve
(12) month period; provided, however,


                                       17
<PAGE>   21
that said restoration shall not have been completed by Landlord prior to
Landlord's receipt of said notice.

      (B) RESERVATION OF AWARD

      Landlord reserves to itself any and all rights to receive awards made for
damage to the demised premises, Building or Lot and the leasehold hereby
created, or any one or more of them, accruing by reason of any exercise of the
right of eminent domain or by reason of anything done in pursuance of public or
other authority. Tenant hereby releases and assigns to Landlord all of Tenant's
rights to such awards, and covenants to deliver such further assignments and
assurances thereof as Landlord may from time to time request. It is agreed and
understood, however, that Landlord does not reserve to itself, and Tenant does
not assign to Landlord, any damages payable for (i) movable equipment installed
by Tenant or anybody claiming under Tenant at its own expense or (ii)
relocation expenses, but in each case only if and to the extent that such
damages are recoverable by Tenant from such authority in a separate action and
without reducing Landlord's award of damages.

      (C) FIRE AND OTHER CASUALTY

      Landlord shall keep the Building insured at least against such casualties
and in such amounts as shall be required by the holder of a mortgage upon
premises of which the Building are a part, but in any event such insurance
shall cover loss due to fire and the usual extended coverage casualties and
shall be in an amount not less than eighty percent (80%) of the full
replacement value thereof exclusive of the foundation. Such insurance may be
written with a so-called eighty percent (80%) or ninety percent (90%)
co-insurance clause. Insurance against any or all of such risks may be
maintained under a blanket policy covering the demised premises and other real
estate of Landlord and/or its affiliated business organizations. It is
expressly understood and agreed that nothing in this lease contained shall be
deemed to create in Tenant any interest in said insurance policies or the
proceeds thereof.

                                   ARTICLE IX
                                   MORTGAGEE

9.    (A) SUBORDINATION TO MORTGAGES

      It is agreed that the rights and interest of Tenant under this lease
shall be: (i) subject and subordinate to the lien of any present or future
first mortgage and to any and all advances to be made thereunder, and to the
interest thereon, upon the demised premises or any property of which the
demised premises are a part, if the holder of such mortgage shall elect, by
notice to Tenant, to subject and subordinate the rights and interest of Tenant
under this lease to the lien of its mortgage; or (ii) prior to the lien of any
present or future first mortgage, if the holder of such mortgage shall elect,
by notice to Tenant, to give the rights and interest of Tenant under this lease
priority to the lien of its mortgage. It is understood and agreed that the
holder of such mortgage may also elect, by notice to Tenant, to make some
provisions hereof subject and subordinate to the lien of its mortgage while
granting other provisions hereof priority to the lien of its mortgage. In the
event of any of such elections, and upon notification by the holder of such
mortgage to that effect, the rights and interest of Tenant under this lease
shall be deemed to be subordinate to, or to have priority over, as the case may
be, the lien of said mortgage, irrespective of the time of execution or time of

                                       18

<PAGE>   22


recording of any such mortgage. Tenant agrees that it will, within fifteen (15)
business days of request by Landlord, execute, acknowledge and deliver any and
all instruments deemed by Landlord necessary or desirable to evidence or to
give notice of such subordination or priority. Tenant also agrees that if it
shall fail at any time to execute, acknowledge and deliver any such instrument
requested by Landlord, Landlord may, deem such information accurate. The word
"mortgage" as used herein includes mortgages, deeds of trust or other similar
instruments and modifications, consolidations, extensions, renewals,
replacements and substitutes thereof. Whether the lien of any mortgage upon the
demised premises or any property of which the demised premises are a part shall
be superior or subordinate to this lease and the lien hereof, Tenant agrees
that it will, upon request, attorn to the holder of such mortgage or anyone
claiming under such holder and their respective successors and assigns in the
event of foreclosure of or similar action taken under such mortgage. Tenant
further agrees that it shall not subordinate its interest in this lease to the
lien of any junior mortgage, security agreement or lease affecting the demised
premises, unless the holder of the first mortgage upon the demised premises or
property which includes the demised premises shall consent thereto.
Notwithstanding anything to the contrary contained in this Article 9, if Tenant
shall be required to subordinate this lease and the lien hereof to the lien of
any mortgage, Landlord shall use its best efforts to cause the present holder
of such mortgage to enter into an agreement with Tenant, recordable in form, to
the effect that in the event of foreclosure of, or similar action taken under,
such mortgage, Tenants possession of the demised premises shall not be
terminated or disturbed by such mortgage holder or anyone claiming under such
mortgage holder so long as Tenant shall not be in default under this lease. As
a condition to Tenant's subordination to any future mortgagee, Landlord shall
secure for Tenant such a nondisturbance agreement from each future mortgagee
hereafter encumbering the Building and the Lot recognizing Tenant's rights
under this lease.

      (B) LIMITATION ON MORTGAGEE'S LIABILITY

      Upon entry and taking possession of the mortgaged premises for any
purpose, the holder of a mortgage shall have all rights of Landlord, and during
the period of such possession Landlord, not such mortgage holder, shall have
the duty to perform all of Landlord's obligations hereunder. No such holder
shall be liable, either as a mortgagee or as holder of a collateral assignment
of this lease, to perform, or be liable in damages for failure to perform, any
of the obligations of Landlord unless and until such holder shall succeed to
Landlord's interest herein through foreclosure of its mortgage or the taking of
a deed in lieu of foreclosure, and thereafter such mortgage holder shall not be
liable for the performance of any of Landlord's obligations hereunder, except
for the performance of those obligations which arise during the period of time
that such mortgage holder holds Landlord's right, title and interest in this
lease, such liability to be limited to the same extent as Landlord's liability
is limited pursuant to Section 10(E) hereof.

      (C) NO RELEASE OR TERMINATION

      No act or failure to act on the part of Landlord which would entitle
Tenant under the terms of this lease, or by law, to be relieved of any of
Tenant's obligations hereunder or to terminate this lease, shall result in a
release or termination of such obligations or a termination of this lease
unless (i) Tenant shall have first given written notice of Landlord's act or
failure to act to Landlord's mortgagees of record, if any, specifying the act
or failure to act on

                                       19

<PAGE>   23

the part of Landlord which could or would be the basis of Tenant's rights and
(ii) such mortgagees, after receipt of such notice, have failed or refused to
correct or cure the condition complained of within a reasonable time
thereafter, but nothing contained in this Section (C) shall be deemed to impose
any obligation on any such mortgagee to correct or cure any such condition.
"Reasonable time" as used above means and includes a reasonable time to obtain
possession of the mortgaged premises, if the mortgagee elects to do so, and
thirty (30) days thereafter (but if it shall reasonably require more than
thirty (30) days then such longer period, provided mortgagee promptly thereafter
commences to cure and diligently prosecutes the curing of same to completion
with due diligence) to correct or cure the condition. Finally, Tenant agrees
that so long as any present or future mortgage shall remain in effect Tenant
shall not alter, modify, amend, change, surrender or cancel this lease nor pay
the rent due hereunder in advance for more than thirty (30) days, except as may
be required herein, without the prior written consent of the holder thereof,
and subject to the provisions of Section (A) of this Article 9, Tenant will not
seek to be made an adverse or defendant party in any action or proceeding
brought to enforce or foreclose such mortgage.

                                   ARTICLE X
                               GENERAL PROVISIONS

10.   (A) CAPTIONS

      The captions of the Articles are for convenience and are not to be
considered in construing this lease.

      (B) SHORT FORM LEASE

      Upon request of either party both parties shall execute and deliver a
short form of this lease in form appropriate for recording, and if this lease
is terminated before the Term expires, an instrument in such form acknowledging
the date of termination. No such short form lease shall contain any indication
of the amount of the rentals payable hereunder by Tenant.

      (C) RELOCATION

      Intentionally Omitted.

      (D) NOTICES

      All notices and other communications authorized or required hereunder
shall be in writing and shall be given by mailing the same by certified or
registered mail, return receipt requested, postage prepaid, by mailing the same
by a nationally recognized overnight delivery service or by having the same
delivered by a commercial delivery service such as Federal Express, UPS,
Purolator Courier and the like. If given to Tenant the same shall be directed
to Tenant at Tenant's Address or to such other person or at such other address
as Tenant may hereafter designate by notice to Landlord; and if given to
Landlord the same shall be directed to Landlord at Landlord's Address, or to
such other person or at such other address as Landlord may hereafter designate
by notice to Tenant. In the event the notice directed as above provided shall
not be received upon attempted delivery thereof to the proper address and shall
be returned by the Postal Service or delivery service to the sender because of
a refusal of receipt, the absence of a person to receive, or otherwise, the
time of the giving of such notice shall be the first business day on which
delivery was so attempted.

                                       20

<PAGE>   24


      After receiving notice from Landlord or from any person, firm or
other entity that such person, firm or other entity holds a mortgage which
includes the demised premises as part of the mortgaged premises, no notice from
Tenant to Landlord shall be effective unless and until a copy of the same is
given by certified or registered mail to such holder, and the curing of any of
Landlord's defaults by such holder shall be treated as performance by Landlord,
it being understood and agreed that such holder shall be afforded a reasonable
period of time after the receipt of such notice in which to effect such cure.

      (E) SUCCESSORS AND ASSIGNS

      The obligations of this lease shall run with the land, and this lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns, except that
the Landlord named herein and each successive owner of Landlord's interest in
this lease shall be liable only for the obligations of Landlord accruing during
the period of its ownership. Whenever Landlord's interest in this lease is
owned by a trustee or trustees, the obligations of Landlord shall be binding
upon Landlord's trust estate, but not upon any trustee, beneficiary or
shareholder of the trust individually. Without limiting the generality of the
foregoing, and whether or not Landlord's interest in this lease is owned by a
trustee or trustees, Tenant specifically agrees to look solely to Landlord's
interest in the Building and Lot for recovery of any judgment from Landlord, it
being specifically agreed that neither Landlord, any trustee, beneficiary or
shareholder of any trust estate for which Landlord acts nor any person or
entity claiming by, through or under Landlord shall ever otherwise be
personally liable for any such judgment.

      (F) NO SURRENDER

      The delivery of keys to any employee of Landlord or to Landlord's agent
or any employee thereof shall not operate as a termination of this lease or a
surrender of the demised premises.

      (G) WAIVERS AND REMEDIES

      The failure of Landlord or of Tenant to seek redress for violation of, or
to insist upon the strict performance of any covenant or condition of this
lease, or, with respect to such failure of Landlord, any of the rules and
regulations referred to in Section 6(4), whether heretofore or hereafter
adopted by Landlord, shall not be deemed a waiver of such violation nor prevent
a subsequent act, which would have originally constituted a violation, from
having all the force and effect of an original violation, nor shall the failure
of Landlord to enforce any of said rules and regulations against any other
tenant in the Building be deemed a waiver of any such rules or regulations as
far as Tenant is concerned. The receipt by Landlord of Fixed Rent or additional
rent with knowledge of the breach of any covenant of this lease shall not be
deemed a waiver of such breach by Landlord unless such waiver be in writing
signed by Landlord. No consent or waiver express or implied, by Landlord or
Tenant to or of any breach of any agreement or duty shall be construed as a
waiver or consent to or of any other breach of the same or any other agreement
or duty. No acceptance by Landlord of a lesser sum than the Fixed Rent and
additional rent then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent be deemed
as accord and satisfaction, and Landlord may accept

                                       21



<PAGE>   25
such check or payment without prejudice to Landlord's right to recover the
balance of such installment or pursue any other remedy available to it. The
specific remedies to which Landlord may resort under the terms of this lease
are cumulative and are not intended to be exclusive of any other remedies or
means of redress to which it may be lawfully entitled in case of any breach or
threatened breach by Tenant of any provisions of this lease. In addition to the
other remedies provided in this lease, Landlord shall be entitled to the
restraint by injunction of the violation or attempted or threatened violation
of any of the covenants, conditions or provisions of this lease or to a decree
compelling specific performance of any such covenants, conditions or
provisions. If any term of this lease, or the application thereof to any person
or circumstances shall be held, to any extent, to be invalid or unenforceable,
the remainder of this lease, or the application of such term to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall not be affected thereby, and each term of this lease shall
be valid and enforceable to the fullest extent permitted by law. If any
interest to be paid by Tenant hereunder shall exceed the highest lawful rate
which Landlord may recover from Tenant, such interest shall be reduced to such
highest lawful rate of interest.

      (H) SELF-HELP

      If Tenant shall at any time default in the performance of any obligation
under this lease, Landlord shall have the right, but shall not be obligated, to
enter upon the demised premises and to perform such obligation, notwithstanding
the fact that no specific provision for such performance by Landlord is made in
this lease with respect to such default. In performing such obligation,
Landlord may make any payment of money or perform any other act. All sums so
paid by Landlord (together with interest, from the time paid by Landlord until
the time Tenant repays the same to Landlord, at the rate of interest per annum
as set forth in Section (A) of Article V above, shall be deemed to be
additional rent and shall be payable to Landlord immediately on demand.
Landlord may exercise the foregoing right without waiving any other of its
rights or releasing Tenant from any of its obligations under this lease. In the
event Landlord fails to cure (or fails to promptly commence and diligently
pursue the cure of) any breach or failure by Landlord to comply with any of
Landlord's obligations under this lease with regard to the demised premises
within a reasonable period (not to exceed thirty (30) days except in the case
of an emergency in which case such shorter time as is warranted by the
particular circumstances) after Tenant furnishes Landlord with written notice
of such failure, then Tenant shall have right (but not the obligation) to
perform such obligation on Landlord's account and Landlord shall reimburse
Tenant within thirty (30) days of demand for the amount expended by Tenant in
performing such obligation (including, but not limited to, reasonable
attorneys' fees and cost of collection). If Landlord fails to make any payment
of any sum payable to Tenant hereunder within said thirty (30) days, then such
payment shall bear interest at the Lease Interest Rate from the date payable
until the date paid.

      (I) ESTOPPEL CERTIFICATE

      Tenant agrees from time to time after the Commencement Date, upon not
less than fifteen (15) business days' prior written request by Landlord, to
execute, acknowledge and deliver to Landlord a statement in writing certifying
that this lease is unmodified and in full force and effect; that Landlord has
completed Landlord's Required Work; that Tenant has no defenses, offsets or
counterclaims against its obligations to pay the Fixed Rent and additional rent
and to perform its

                                       22


<PAGE>   26


other covenants under this lease; that there are no uncured defaults of
Landlord or Tenant under this lease (or, if there have been any modifications,
that this lease is in full force and effect as modified and stating the
modifications, and, if there are any defenses, offsets, counterclaims, or
defaults, setting them forth in reasonable detail); and the dates to which the
Fixed Rent, additional rent and other charges have been paid. Any such
statement delivered pursuant to this Section (I) may be relied upon by any
prospective purchaser or mortgagee of premises which include the demised
premises or any prospective assignee of any mortgage.

      (J) WAIVER OF SUBROGATION

      (1) Tenant hereby releases Landlord to the extent of Tenant's insurance
coverage, from any and all liability for any loss or damage caused by fire or
any of the extended coverage casualties or any other casualty insured against,
even if such fire or other casualty shall be brought about by the fault or
negligence of Landlord or its agents, provided, however this release shall be
in force and effect only with respect to loss or damage occurring during such
time as Tenant's policies covering such loss or damage shall contain a clause
to the effect that this release shall not affect said policies or the right of
Tenant to recover thereunder. Tenant agrees that its fire and other casualty
insurance policies will include such a clause so long as the same is includable
without extra cost, or if extra cost is chargeable therefor, so long as
Landlord pays such extra cost. If extra cost is chargeable therefor, Tenant
will advise Landlord thereof and of the amount thereof. Landlord at its
election, may pay the same, but shall not be obligated to do so.

      (2) Landlord hereby releases Tenant, to the extent of the Landlord's
insurance coverage, from any and all liability for any loss or damage caused by
fire or any of the extended coverage casualties or any other casualty insured
against, even if such fire or other casualty shall be brought about by the
fault or negligence of Tenant or its agents, provided, however, this release
shall be in force and effect only with respect to loss or damage occurring
during such time as Landlord's policies covering such loss or damage shall
contain a clause to the effect that this release shall not affect said policies
or the right of Landlord to recover thereunder. Landlord agrees that its fire
and other casualty insurance policies will include such a clause so long as the
same is includable without extra cost, or if extra cost is chargeable therefor,
so long as Tenant pays such extra cost. If extra cost is chargeable therefor,
Landlord will advise Tenant thereof and of the amount thereof. Tenant at its
election may pay the same, but shall not be obligated to do so.

      (K)  BROKERS

      Tenant and Landlord hereby represents and warrant to the other that they
have dealt with no broker in connection with this lease other than Thompson,
Doyle, Hennessey & Everest and CB Richard Ellis Whittier Partners ("the Listed
Broker/s"), and there are no other brokerage commissions or other finders' fees
payable in connection herewith. Tenant hereby agrees to hold Landlord harmless
from, and indemnified against, all loss or damage (including without
limitation, the cost of defending the same) arising from any claim by any
broker other than"the Listed Broker/s, claiming to have dealt with Tenant.
Landlord shall pay the commission due the Listed Broker(s) by separate
agreement. Landlord hereby agrees to hold Tenant harmless from, and indemnified
against, all loss or damage (including without limitation, the cost of
defending the same) arising

                                       23

<PAGE>   27


from any claim by any broker other than"the Listed Broker/s, claiming to have
dealt with Landlord.

      (L) LANDLORD'S DEFAULTS

      Landlord shall not be deemed to have committed a breach of any obligation
to make repairs or alterations or perform any other act unless: (1) it shall
have made such repairs or alterations or performed such other act negligently;
or (2) it shall have received notice from Tenant designating the particular
repairs or alterations needed or the other act of which there has been failure
of performance and shall have failed to make such repairs or alterations or
performed such other act within thirty (30) days after the receipt of such
notice (but if it shall reasonably require longer than thirty (30) days then
such longer period, provided Landlord promptly commences such performance and
prosecutes the same to completion with due diligence); and in the latter event
Landlord's liability shall be limited to the cost of making such repairs or
alterations or performing such other act, together with interest at the Lease
Interest Rate, and subject, also, to the terms of Section (H) of this Article
10.

      (M) EFFECTIVENESS OF LEASE

      The submission of this lease for examination does not constitute a
reservation of, or option for, the demised premises, and this lease becomes
effective as a lease only upon execution and unconditional delivery thereof by
both Landlord and Tenant.

      (N) HAZARDOUS MATERIALS

      Tenant shall not (either with or without negligence) cause or permit the
escape, disposal or release of any biologically or chemically active or other
hazardous substances, or materials. Tenant shall not allow the storage or use
of such substances or materials in any manner not sanctioned by the applicable
permits, or by law or by the highest standards prevailing in the industry for
the storage and use of such substances or materials, nor allow to be brought
into the Lot any such materials or substances except to use in the ordinary
course of Tenant's business, and then only after written notice is given to
Landlord of the identity of such substances or materials. Tenant shall obtain
and maintain all proper permits required by applicable law or ordinance for the
storage and use of hazardous materials, and Tenant shall furnish evidence of
same upon request. Without limitation, hazardous substances and materials
shall include those described in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et
seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section
6901 et seq., any applicable state or local laws and the regulations adopted
under these acts. If any lender or governmental agency shall ever require
testing to ascertain whether or not there has been any release of hazardous
materials, then the reasonable costs thereof shall be reimbursed by Tenant to
Landlord upon demand as additional rent if such requirement applies to the
demised premises. In addition, Tenant shall execute affidavits, representations
and the like from time to time at Landlord's request concerning Tenant's best
knowledge and belief regarding the presence of hazardous substances or
materials on the demised premises. In all events, Tenant shall indemnify
Landlord in the manner elsewhere provided in this lease from any release of
hazardous materials on the demised premises occurring while Tenant is in
possession, or elsewhere if caused by Tenant or persons acting under Tenant.
The within covenants shall survive the expiration or earlier

                                       24


<PAGE>   28


termination of the term of this lease. Landlord represents and warrants that to
the best of Landlord's knowledge it is not in violation of any laws for the
presence, storage amid use of hazardous materials and Landlord has not received
notice of any alleged violation by Landlord of such laws. Landlord hereby
indemnifies Tenant and holds Tenant harmless from the cost of remediating any
hazardous materials on the Lot or in the Building or the Demised Premises and
not brought by Tenant onto or into such area.

      (O) DELAYS

      In any case where either party hereto is required to do any act (other
than make a payment of money), delays caused by or resulting from Act of God,
war, civil commotion, fire or other casualty, labor difficulties, mortgages of
labor, materials or equipment, government regulations or other causes beyond
such party's reasonable control (other than such party's financial condition)
shall not be counted in determining the time during which such act shall be
completed, whether such time be designated by a fixed date, a fixed time or "a
reasonable time". In any case where work is to be paid for out of insurance
proceeds or condemnation awards, due allowance shall be made, both to the party
required to perform such work and to the party required to make such payment,
for delays in the collection of such proceeds and awards.

      (P) COMPLIANCE WITH LAWS

      Landlord represents that the zoning regulations applicable to the
Building and any covenants, conditions or restrictions appertaining to the
Building permit the use of the demised premises for the uses contemplated
hereunder. Landlord hereby covenants and agrees at its expense to maintain the
Building (other than the demised premises) and the common areas of the Building
in compliance with all applicable laws, including but not limited to, ADA (as
hereinafter defined). To the best of Landlord's knowledge and belief, the
Building (other than the demised premises) and common areas of the Building
will be in compliance with such applicable Laws, in effect as of the Lease
Commencement Date. Landlord hereby agrees that Tenant shall have no
responsibility for failure of the Building (other than the demised premises) or
the Building or the common areas of the Building in which Tenant has
appurtenant rights to comply with applicable laws, statutes, ordinances and
regulations which are in effect and applicable to the Building or the common
areas of the Building in which Tenant has appurtenant rights as of the Lease
Commencement Date or pursuant to any other rights under this lease.

      As used in this Section, the Americans with Disabilities Act shall mean
the Americans with Disabilities Act of 1991,42 U.S.C. Section 12.101 et seq and
all regulations applicable thereto promulgated as of the date hereof
(collectively, "ADA"). Tenant shall have the responsibility to comply with the
requirements of the ADA in the demised premises. To the best of Landlord's
knowledge and belief, the common areas of the Building are in compliance with
the requirements of ADA. Landlord represents and warrants that the Landlord work
(base Building) shall be in compliance with or shall be made to comply with the
requirements of ADA.

      (Q) WAIVER OF LANDLORD'S LIEN

      Landlord hereby waives any lien rights which it may otherwise have
concerning all of Tenant's trade fixtures and equipment, which shall include

                                       25

<PAGE>   29


furniture, movable fixtures, equipment, any and all equipment and/or supplies
(collectively, "Personalty") utilized by Tenant in its business operations; and
Tenant shall have the right to remove the same at any time without Landlord's
consent.

      Landlord acknowledges that pursuant to a master purchase agreement by and
between the parent corporation of Tenant ("NCGI") and Nortel Networks Inc.
and/or its affiliates ("Nortel Networks"), said NCGI purchased certain equipment
and services comprising some of Tenant's trade fixtures and equipment ("Nortel
Equipment"). Landlord agrees that Nortel Networks and any other lenders of
Tenant or NCGI pursuant to the relevant credit agreement between such parties,
may enter upon the demised premises to remove said Personalty and/or Nortel
Equipment provided, however, (i) said entry shall be conducted in a manner
calculated not to unreasonably disturb Landlord and any other tenants of the
Property; (ii) any such entry shall be made subject to the terms of this Section
(Q); and (iii) any damage caused by such removal shall be promptly restored by
any such lender.

      The Landlord hereby agrees to provide Nortel Networks (or its successors
or assigns), at its address specified below (or at the addresses of its
successors or assigns of which the Landlord is subsequently notified), a copy of
any notice of default delivered to the Tenant under this lease substantially
concurrently with the delivery of such notice to the Tenant and agrees that,
prior to any termination of this lease as a result of a default of the Tenant
hereunder, the Landlord will provide written notice of such default to Nortel
Networks (or its successors or assigns), at its address specified below (or at
the address of its successors or assigns of which the Landlord is subsequently
notified), and afford Nortel Networks (or its successors or assigns) and the
lenders the same period of time allowed Tenant within which to cure such
default. For purposes of this Section (Q), the address of Nortel Networks is as
follows: Nortel Networks Inc., GMS 991 15 A40, 2221 Lakeside Boulevard,
Richardson, Texas 75082-4399, Attention: Charles M. Helm, Esquire; Telephone:
972/685-7839; Facsimile 972/684-3679.

      (R) TELECOMMUNICATIONS

      Tenant and Tenant's telecommunications companies, including but not
limited to local exchange telecommunications companies and alternative access
vendor services companies ("Telecommunications Companies"), shall have a
reasonable and necessary right of access to and within the lands or Buildings
comprising the Park (including any necessary easements or rights of way), at no
additional fee, costs or expense to Tenant, (except that Tenant shall reimburse
Landlord for the cost incurred by Landlord in reviewing any such easement or
right of way) for the installation and operation of telecommunications lines and
systems including but not limited to voice, video, data, and any other
telecommunications services provided over wire, fiber optic, microwave, wireless
and any other transmission systems, for a part or all of Tenant's
telecommunications within the Building and from the Building to any other
location (hereinafter collectively referred to as "Telecommunications Lines"),
with Landlord's prior written consent, which shall not be unreasonably withheld,
conditioned or delayed. Notwithstanding the foregoing, Tenant may perform any
installation, repair and/or maintenance to its Telecommunications Lines without
Landlord's consent where the equipment being installed, repaired or maintained
is not located in the area in which the Telecommunications Lines or any part
thereof of any other tenant or of Landlord are located. Tenant shall pay the
cost

                                       26


<PAGE>   30



of recording of any such easement and/or right of way. Tenant shall use all
reasonable efforts to cause same to be discharged of record upon expiration of
the Term.

      If at any time, Tenant's Telecommunications Companies or appropriate
governmental authorities relocate the point of demarcation from the location of
Tenant's telecommunications equipment in Tenant's telephone equipment room or
other location, to some other mutually agreed location within the equipment
room, or in any other manner transfer any obligations or liabilities for
telecommunications to Landlord or Tenant, whether by operation of law or
otherwise, upon Landlord's election, Tenant shall, at Tenant's sole expense and
cost: (i) within ninety (90) days after notice is first given to Tenant of
Landlord's election, cause to be completed by an appropriate telecommunications
engineering entity approved in advance in writing by Landlord, all details of
the Telecommunications Lines serving Tenant in the Building which details shall
include all appropriate plans, schematics, and specifications; and (ii) if
Landlord so elects, after written notice to Tenant of same, immediately
undertake the operation, repair and maintenance of the Telecommunications Lines
serving Tenant in the Building; and (iii) upon the termination of this lease for
any reason, or upon expiration of this lease, immediately, after written notice
to Tenant of the same, effect the complete removal of all or any portion or
portions of the Telecommunications Lines serving Tenant in the Building and
repair any damage caused thereby.

      (S) GENERATOR

      Landlord, hereby covenants and agrees that Tenant, at its sole cost and
expense, shall be allowed to install, maintain and operate at the Building in a
location described in Exhibit B attached hereto and as depicted on the plan
attached to Exhibit B, and approved by Landlord a standby generator and
associated diesel fuel storage tank approved by Landlord to backup commercial
power, all of which equipment and fuel shall be stored, maintained and utilized
by Tenant in accordance with all applicable laws, ordinances, covenants,
conditions and restrictions affecting the Building, it being hereby expressly
agreed by the parties that Landlord shall not have any obligations or
liabilities to Tenant, or any other person or entity in connection therewith,
and that Tenant will indemnify, defend and hold Landlord harmless from any and
all claims, demands, losses, liabilities, costs and expenses (including
reasonable attorney's fees, court costs, witness fees and the like) arising out
of or in connection therewith. Tenant shall be responsible for obtaining all
necessary permits, and Tenant's installations shall conform to all applicable
laws, ordinances, covenants, conditions and restrictions affecting the Building.
Tenant shall be responsible for all costs and expenses relating to the
installation, maintenance, operation or removal of such equipment, including,
without limitation, the repair or restoration of any damage caused thereby.

                                   ARTICLE XI
                        SECURITY AND RESTORATION DEPOSIT

      11. Upon the full execution of this lease, Tenant shall deliver to
Landlord cash or an irrevocable letter of credit for the amount of the Security
and Restoration Deposit, from a banking institution reasonably satisfactory to
both Landlord and Tenant, said letter of credit shall expire no earlier than one
(1) year from the date of such letter of credit which shall be promptly
delivered to Landlord. Upon notice of default to Tenant and the expiration of
any applicable



                                       27


<PAGE>   31



                                   ARTICLE XII
                                  MODIFICATION

      12. In the event that any holder or prospective holder of any mortgage
which includes the demised premises as part of the mortgaged premises, shall
request any modification of any of the provisions of this lease, other than a
provision directly related to the rents payable hereunder, the duration of the
term hereof, or the size, use or location of the demised premises, Tenant agrees
that Tenant will enter into an amendment of this lease containing each such
modification so requested.

                                  ARTICLE XIII
                                     OPTION

13. (A) OPTION TERM

        Tenant shall have the right, at its election, to extend the original
Term of this lease for an additional period of ten (10) years commencing upon
the expiration of the original Term, provided that Landlord shall receive
written notice from Tenant of the exercise of its election at least twelve (12)
months prior to the expiration of the original Term and provided further that
Tenant shall not be in default at the time of Landlord's receipt of such notice
in the performance or observance of any of the terms and agreements in this
lease contained on the part of Tenant to he performed or observed. The
expression "the original Term" means the period of ten (10) years referred to in
Section (A) of Article I above. Prior to the exercise by Tenant of said election
to extend the original Term, the expression "the Term of this lease" or any
equivalent expression shall mean the original Term; after the exercise by Tenant
of the aforesaid election, the expression "the Term of this lease" or any
equivalent expression shall mean the original Term as extended. Except as
expressly otherwise provided in this lease, all the agreements and conditions in
this lease contained shall apply to the additional period to which the original
Term shall be extended as aforesaid. If Landlord shall receive notice of the
exercise of the election in the manner and within the time provided aforesaid,
the Term shall be extended upon the receipt of the notice without the
requirement of any action on the part of Landlord.

      (B) OPTION RENT

          During the additional period for which the original Term of this lease
may be extended as set forth in Section (A) of this Article 13 above, the Fixed
Rent payable hereunder shall be adjusted so as to equal the greater of (a) the
Fixed Rent payable immediately prior thereto, or (b) the "fair market rent", as
mutually determined by Landlord and Tenant through the process of negotiation.
Notwithstanding anything to the contrary contained herein, however, if for any
reason whatsoever Landlord and Tenant shall not agree in writing upon the "fair
market rent" for said additional period at least six (6) months prior to the
expiration of the original Term, then the fair market rent for premises of the
size and nature of the demised premises shall be determined by licensed real
estate appraisers having at least five (5) years' experience in the appraisal of
commercial real estate in the Greater Boston area, one such appraiser to be
designated by each of Landlord and Tenant. If either party shall fail to
designate its appraiser by giving notice of the name of such appraiser to the
other party within fifteen (15) days after receiving notice of the name of the
other party's appraiser, then the appraiser chosen by the other party shall
determine the fair



                                       29


<PAGE>   32



market rent and his determination shall be final and conclusive. If the
appraisers designated by Landlord and Tenant shall disagree as to the fair
market rent, but if the difference between their estimates of fair market rent
shall be five percent (5%) or less of the greater of the estimates, then the
average of their estimates shall be the fair market rent for purposes hereof. If
the appraisers designated by Landlord and Tenant shall disagree as to the amount
of fair market rent, and if their estimates of fair market rent shall vary by
more than five percent (5%) of the greater of said estimates, then they shall
jointly select a third appraiser meeting the qualifications set forth above, and
his estimate of fair market rent shall be the fair market rent for purposes
hereof if it is not greater than the greater of the other two estimates and not
less than the lesser of the other two estimates. If said third appraiser's
estimate is greater than the greater of the other two estimates, then the
greater of the other two estimates shall be the fair market rent for purposes
hereof; and if the estimate of the third appraiser shall be less than the lesser
of the other two estimates, then the lesser of the other two estimates shall be
the fair market rent for purposes hereof. Each of Landlord and Tenant shall pay
for the services of its appraiser, and if a third appraiser shall be chosen,
then each of Landlord and Tenant shall pay for one-half of the services of the
third appraiser.

      EXECUTED as a sealed instrument in two or more counterparts as of the day
and year first above written.

                                 LANDLORD:


                                 HOOD BUSINESS PARK LLC
                                 BY: CATAMOUNT RUTHERFORD LLC
                                     ITS MANAGER


                                  /s/ STEPHEN J. KANEB
                                 ----------------------------------
                                 Stephen J. Kaneb, Manager


                                 TENANT:


                                 NET 2000 COMMUNICATIONS REAL ESTATE,
                                 INC.


                                 By          [SIG]
                                   --------------------------------
                                           Vice-President


                                 ATTEST:


                                 By /s/ ANGELA M. BELKA
                                   --------------------------------

                                   Fairfax, VA              Notary



                                        (Corporate Seal)




                                       30



<PAGE>   33

                                   EXHIBIT A

                     PLAN SHOWING LOCATION OF THE BUILDING


                               HOOD BUSINESS PARK

                           CHARLESTOWN, MASSACHUSETTS

                                   [GRAPHIC]


                                         [GRAPHIC]
                                         KEY PLAN

                                         [GRAPHIC]
                                         NORTH

                                         SITE PLAN

                                         [HOOD LOGO]
                                         HOOD BUSINESS PARK
                                         CHARLESTOWN, MASSACHUSETTS

                                         SEPTEMBER 30, 1995

                                         [SMMA LOGO]
<PAGE>   34
                                  EXHIBIT A-1

                             CONDITION OF BUILDING

BASE BUILDING
Extensive interior and exterior renovations have been completed accessing a new
working environment and virtual image. The improvements provided as part of
the base building are summarized below.

LOBBY CORE
A new central lobby core serving all three floors of the office includes:
      -  a first floor lobby with quality finishes and lobbies on the second
         and third floors to complement the first floor
      -  new restrooms at the core
      -  two new passenger elevators
      -  new scale tower with "monumental" stair from first to second floor
      -  an existing freight elevator with outside access so that deliveries
         are not made through the first floor lobby.

FACADE IMPROVEMENTS
Restoration of the Art Deco facade that includes:
      -  new window frames and tinted glazing on all office windows
      -  additional windows to provide more light and views
      -  a new "Grand" entry leading into a first class lobby

SITE IMPROVEMENTS
      -  improved lighting
      -  upgraded parking lot including visitor parking, islands, improved
         circulation and re-striping for parking and circulation.
      -  a comprehensive site signage and graphics program
      -  enhanced landscaping especially in the area of new "Grand" entry.
      -  pedestrian and vehicular access to Spice Street

BUILDING SYSTEMS
      -  new base building HVAC
      -  new base building electrical
      -  new restrooms at core
      -  new fire protection system
      -  new roofing
      -  existing stair towers to be cleaned, painted and revamped


                                       1
<PAGE>   35
                                   EXHIBIT B

                            LANDLORD'S REQUIRED WORK

Landlord Shall:

- -     Deliver the premises secure and in broom clean condition and ready for
      Tenant's work.

- -     Cap/Remove (4) skylights and replace with waterproof section of roof all
      in compliance with applicable codes.

- -     Comply with ADA and local building life safety codes throughout the lease
      term.

- -     Provide main sprinkler loop to the demised premises. Tenant, at Tenant's
      expense, will provide a pre-action valve system.

- -     Provide tie-ins to Building life and fire safety system(s).

- -     Provide pad space (minimum 10' x 10') for Tenant's diesel emergency 500
      KW generator and day tank and access to the same from a designated
      platform. Generator and tank shall be located in the "surge hall" space on
      the roof adjacent to the Tenant's space subject to local codes. (see
      attached plan.) In the event that the city will not allow the fuel tank to
      be located on the roof, then Landlord will work with Tenant to locate the
      tank in another location.

- -     Provide access way for an electrical conduit from generator to Tenant's
      service breaker as designated by Landlord.

- -     Provide the right and access to install horizontal and vertical conduit
      for fiber optics, subject to Landlord's approval, which approval shall not
      be unreasonably withheld.

- -     Provide/Certify a minimum of 150 lbs. Per square foot floor loading to
      the demised Premises.

- -     Tenant, at Tenant's expense and subject to Landlord approval, shall be
      allowed to upgrade an area (approximately 1,000 RSF) to a floor loading
      capacity of 300 lbs. Per square foot.

- -     Provide 1200 amp/480 volt service to Tenant. Tenant, at Tenant's expense
      and subject to Landlord Approval, shall be responsible for providing all
      work and equipment necessary to bring the service to the Premises, from
      the primary feeder serving the building.

- -     Tenant, at Tenant's expense, shall provide any electrical and utility
      metering equipment.

- -     Provide supplemental wall connections where necessary along eastern
      exterior wall (above windows).

- -     Remove radiator grills along eastern exterior wall.

- -     Landlord to complete, or cause to be completed, the common corridor that
      serves as primary access to Tenant. The corridor, which runs generally
      North/South will be constructed in conformance with base building
      standards.

- -     Landlord will reimburse Tenant (based on base building standards) for the
      cost in constructing the wall along the northwest corner of Tenant's
      space that defines the mechanical room/corridor.

- -     Repair all rough openings in ceiling to comply with current codes and to
      match adjacent ceiling.

- -     Treat underside of skylight caps with a coating (paint or equivalent) to
      comply with current code requirements if necessary. Caps were constructed
      with fire treated wood.

- -     Provide access for fuel lines to generator location on roof, in the event
      generator is located on roof.

- -     Provide and install base building blinds in windows along east elevation.
<PAGE>   36

      All of Tenant's work shall be done at Tenant's sole risk and expense.
Landlord shall not be a party to nor incur any liability as a result of any
contract to perform any of Tenant's work. All of Tenant's work shall be
performed in accordance with the schedule to be adopted by Landlord and
Landlord's general contractor for the performance of all work to be done in the
Building. All of Tenant's work shall be done by Tenant's contractors, labor and
means so that, as far as may be possible, such work shall be done without
interruption on account of strikes, work stoppages or similar causes of delay.
Tenant shall obtain lien waivers from all of its contractors and subcontractors
commencing work in the demised premises so that no mechanics' or materialmen's
liens shall attach to the demised premises or the Building as a result of
Tenant's work.

      All of Tenant's work shall be done by contractors, subcontractors and
labor previously approved by Landlord, which approval shall not be unreasonably
withheld or delayed. Such contractors, subcontractors and labor shall be subject
to the administrative supervision of the Landlord's architect or engineer and
general contractor. Landlord shall give reasonable access and entry to the
demised premises to Tenant and its contractors and subcontractors at reasonable
times and shall allow reasonable use of facilities located in the Building to
enable Tenant to complete Tenant's work. Tenant may bid Tenant's Work to up to
three (3) contractors. Landlord shall assess a one percent (1%)
supervision/management fee for monitoring Tenant's design and construction work.
Said fee shall be calculated on the total cost of Tenant's Work including
Landlord's construction allowance (excluding cost of furniture, fixtures and
equipment). Tenant shall reimburse Landlord for any reasonable and actual
out-of-pocket expenses relating to the approval, review and monitoring of
Tenant's Work.

      On the termination of this lease, Landlord reserves the right to require
Tenant to restore the HVAC duct work to its pre-existing condition in the
event that the relocation of the HVAC duct work by Tenant has adversely affected
the HVAC systems ability to serve the space vacated by the Tenant in the
fashion it was originally designed to.


                                       3
<PAGE>   37
                                    EXHIBIT E

                              RULES AND REGULATIONS

      1. The sidewalks, paved and/or landscaped areas shall not be obstructed or
encumbered by Tenant or used for any purpose other than ingress and egress to
and from the demised premises. No merchandise, boxes or pallets may be stored by
Tenant outside of the demised premises and no cars, trucks or trailers may be
parked on the Lot overnight without the prior written consent of Landlord.

      2. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by Tenant on any part of the demised premises or
Building so as to be visible from outside the demised premises without the prior
written consent of Landlord. In the event of the violation of this paragraph,
Landlord may remove same without any liability, and may charge the expense
incurred in such removal to Tenant, as additional rent.

      3. No awnings, curtains, blinds, shades, screens or other projections
shall be attached to or hung in, or used in connection with, any window of the
demised premises or any outside wall of the Building without the prior written
consent of Landlord. Such awnings, curtains, blinds, shades, screens or other
projections must be of a quality, type, design and color, and attached in the
manner, approved by Landlord.

      4. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed and
constructed, and no sweepings, rubbish, rags, acids, chemicals, process water,
cooling water or like substances shall be deposited therein. Said plumbing
fixtures and the plumbing system of the Building shall he used only for the
discharge of so-called sanitary waste. All damage resulting from any misuse of
said fixtures and/or plumbing system by Tenant or anyone claiming under Tenant
shall be borne by Tenant.

      5. Tenant must, upon the termination of its tenancy, return to Landlord
all locks, cylinders and keys to the demised premises and any offices therein.

      6. Tenant shall, at Tenants expense, provide artificial light and electric
current for the employees of Landlord and/or Landlord's contractors while making
repairs or alterations in the demised premises.

      7. Tenant shall not make, or permit to be made, any unseemly or disturbing
odors or noises or disturb or interfere with occupants of the Building or those
having business with them, whether by use of any musical instrument, radio,
machine, or in any other way.

      8. Canvassing, soliciting, and peddling in the Building are prohibited and
Tenant shall cooperate to prevent the same.

      9. Tenant shall keep the demised premises free at all times of pests,
rodents and other vermin, and at the end of each business day Tenant shall place
for collection in the place or places provided therefor all trash and rubbish
then in the demised premises.



                                       1
<PAGE>   38
      10. Landlord reserves the right to rescind, alter, waive and/or establish
any rules and regulations, which, in its judgment, are necessary, desirable or
proper for its best interests and the best interests of the occupants of the
Building.

      11. All of the work done by Tenant shall be done by such contractors,
labor and means so that, as far as may be possible, all work on the Property,
whether by Landlord or Tenant, shall be done without interruption on account of
strikes, work stoppages or similar causes of delay.

      12. The buildings of Hood Business Park are smoke free buildings, and
Tenant shall cause its employees and invitees who smoke to restrict such smoking
to areas designated as "smoking areas" by Landlord from time to time.



                                       2
<PAGE>   39
                                    EXHIBIT F

                            LEGAL DESCRIPTION OF LOT

PARCEL II


Being shown as Lot B on a plan entitled "Plan of Land in Boston, Mass.", dated
June 7, 1982 by Dana F. Perkins and Assoc., Inc., Civil Engineers and Surveyors,
recorded with Suffolk County Registry of Deeds, Book 9971, Page 454.

Included within the bounds of said Lot B is registered land shown on Land Court
Plan No. 12912A, dated April 20, 1928, a copy of which is filed with the
Suffolk County Registry District of the Land Court with Certificate of Title No.
24288.

There is appurtenant to said Lot B all rights and easements as may exist of
record, insofar as the same are now in force and applicable to be exercised in
common with all others lawfully entitled thereto, including, without limitation,
those rights and easements set forth or referred to in the following deeds: Deed
from Boston and Maine Railroad to H.P. Hood & Sons, Inc., dated July 21, 1960,
recorded with Suffolk County Registry of Deeds, Book 7493, Page 233; Deed from
David Massif, et al, Trustees of Massif Realty Trust to H.P. Hood &
Sons, Inc. dated December 19, 1963, recorded with Suffolk County Registry of
Deeds, Book 7810, Page 107; Deed from Boston and Maine Corporation to H.P. Hood
& Sons, Inc., dated September 9, 1969, recorded with Suffolk County Registry of
Deeds, Book 8310, Page 483; Deed from Whiting Milk Company, Inc. to H.P. Hood,
Inc., dated May 31, 1973, recorded with Suffolk County Registry of Deeds, Book
8631, Page 705; Deed from Boston and Maine Railroad to H.P. Hood & Sons, Inc.,
dated June 16, 1943, recorded with Suffolk County Registry of Deeds, Book
6040, Page 584; Deed from Boston and Maine Railroad to H.P. Hood & Sons, Inc.,
dated December 20, 1949, recorded with Suffolk County Registry of Deeds, Book
6572, Page 369 and Deed from Boston and Maine Railroad to H.P. Hood & Sons,
Inc. dated May 26, 1953, recorded with Suffolk County Registry of Deeds, Book
6873, Page 2, bounded and described as follows:

S 23 degrees 50' 38" E by said Rutherford Avenue, 1143.99 feet to a point at
land of David Massif; thence turning and running

S 47 degrees 49' 22" W by said land of Massif and by land of W.W.F. Paper Corp.,
716.04 feet to a point at land of B & M; thence turning and running

N 26 degrees 16' 38" W by said land of B & M, 84.52 feet to a point; thence
turning and running

N 35 degrees 33' 36" W still by said land of B & M, 134.90 feet to a point;
thence turning and running

N 30 degrees 10' 18" W still by said land of B & M, 519.55 feet to a point;
thence turning and running

N 26 degrees 23' 18" W still by said land of B & M, 51.62 feet to a point;
thence turning and running

N 30 degreesS 32' 31" W by said land of B & M, 344.11 feet to a point; thence
turning and running

N 49 degrees 53' 49" E still by said land of B & M, 94.19 feet to a point;
thence turning and running

N 45 degrees 39' 59" E still by said land of B & M, 170.84 feet to a point;
thence turning and running

N 49 degrees 55' 29" E still by said land of B & M, 322.29 feet to a point;
thence turning and running

N 51 degrees 14' 19" E still by said land of B & M, 259.17 feet to a point of
beginning.



<PAGE>   1

                                                                   EXHIBIT 10.29


               Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

                              One Financial Center
                           Boston, Massachusetts 02111

Daniel O. Gaquin                                                617 542 6000
                                                                617 542 2241 fax
Direct dial 617 348 1874
[email protected]

                                         February 15, 2000

     BY OVERNIGHT MAIL
     Jason Karp, Assistant Vice President
     Regulatory and Legal
     NET 2000 COMMUNICATIONS
     2180 Fox Mill Road
     Herndon, VA 20171

             Re:    Philadelphia Switch Site Lease
                    401 North Broad Street, Philadelphia, PA

     Dear Jason:

             Enclosed are the following:

             1.     Four (4) execution counterparts of the proposed switch site
                    lease at 401 North Broad St., Philadelphia;

             2.     Four (4) execution counterparts of a Memorandum of Lease
                    Agreement;

             3.     Proposed cover letter for your execution which details the
                    agreement on post-signing matters;

             4.     Marked Master Lease SNDA; and

             5.     Nortel Consent and Subordination Agreement.

             Also, a current lease Plan should be attached to the Leases as
Exhibit A.

             We have revised the term and rent commencement dates from February
1 to March 1 and also deleted the reference to ground rents in the Operating
Costs by handwritten changes on pages 1, 2 and 3. These changes should be
initialed by Net 2000's signer.





                        Boston Washington Reston New York


<PAGE>   2


MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.


Jason Karp
February 15, 2000
Page 2


             Also, note that the Leases should be accompanied by a check for the
Security Deposit and the first month's rent.

             Please call me with any questions or comments.

                                                  Sincerely,


                                                  /s/ DANIEL O. GAQUIN

                                                  Daniel O. Gaquin

DOG/jd
Enclosures
cc:          Troy A. Giammarco (w/enc.) (by overnight mail)
             Douglas B. McLaughlin, Esq. (w/enc.)


<PAGE>   3



                  [NET 2000 COMMUNICATIONS REAL ESTATE, INC.]



                                             February 15, 2000


Callowhill Management, Inc.
401 North Broad St.
Philadelphia, PA 19108

     RE:     Lease between Callowhill Management, Inc. and
             Net 2000 Communications Real Estate, Inc.;
             401 North Broad St., Philadelphia, PA

Gentlemen:

     Enclosed are (i) four (4) counterparts of the proposed Lease between
Callowhill Management, Inc. as Landlord, and Net 2000 Communications Real
Estate, Inc. ("Net 2000"), as Tenant, for space at 401 North Broad Street,
Philadelphia, all of which have been signed on behalf of Net 2000, (ii) four (4)
counterparts of a Memorandum of Lease Agreement for recording purposes, and
(iii) a check for $127,383.33, covering the rent for the first month of the Term
and the Security Deposit.

     Please note that we have made handwritten changes on pages 1, 2 and 3,
which should be initialed by the Landlord. Also, a plan of the demised premises
must attached as Exhibit A.

     As previously agreed with Troy Giammarco, the enclosed Leases are being
delivered to you for execution by the Landlord on the following understanding
and agreed:

     1)      The Landlord will obtain from the Master Lessor a Subordination and
Non-Disturbance Agreement in the form of the marked-up version which is enclosed
herewith;

     2)      The Landlord will use its best efforts to obtain a subordination
and non-disturbance agreement from the existing fee mortgagee in a form mutually
acceptable to such mortgagee and Net 2000;

     3)      The Landlord agrees to sign a Consent and Subordination Agreement
with Nortel Networks. Inc., or any successor to Nortel, in substantially the
form of the version enclosed herewith;

     4)      Following the signing of the Lease, the Landlord will cooperate
with Net 2000 to make reasonable changes to the Lease to correct language
conflicts which may have resulted from the addition of suggested revisions by
Net 2000 without the corresponding deletion of conflicting language; and



<PAGE>   4


     5)      Net 2000 will be given immediate access to the premises for the
purposes of preparing the premises for its occupancy, and that prior to the
commencement date of the Lease, such occupancy shall be upon all of the terms
and conditions of the Lease, except for the payment of rent and other charges.

     Would you please countersign this letter and return it together with
two (2) fully executed counterparts of the Lease and the Memorandum of Lease
Agreement. Thank you for your cooperation.



                                                  Very truly yours,

                                                  /s/ JASON KARP

                                                  Jason Karp


The terms of this letter are hereby acknowledged and agreed
to by the Landlord, Callowhill Management, Inc.


Callowhill Management, Inc.




By: ___________________

<PAGE>   5
                         MEMORANDUM OF LEASE AGREEMENT


           NAME AND ADDRESS
           OF LANDLORD:               CALLOWHILL MANAGEMENT, INC.
                                      401 North Broad Street
                                      Philadelphia, Pennsylvania 9108


           NAME AND ADDRESS
           OF TENANT:                 NET2000 COMMUNICATIONS REAL ESTATE, INC.
                                      2180 Fox Hill Road
                                      Herndon, Virginia 20171


           DATE OF LEASE:             December 15, 1999


           DESCRIPTION OF THE
           LEASED PREMISES:           23,000 square feet of space on the second
                                      floor and 1,800 square feet of space on
                                      the track level of the building located
                                      on the property at 401 North Broad Street,
                                      Philadelphia, Pennsylvania, which property
                                      is more particularly described in Exhibit
                                      A hereto.


           TERM OF LEASE:             Fifteen (15) years commencing on March 1,
                                      2000 and expiring at midnight on February
                                      28, 2015.


       Landlord and Tenant are entering into this Memorandum of Lease Agreement
pursuant to the provisions of the Act of General Assembly of Pennsylvania of
June 2, 1959, P.L. 454.

       This Memorandum of Lease Agreement is intended for recording
purposes only and does not supercede, diminish, add to or change the terms of
the Lease referred to herein.

       The parties hereto do hereby agree that this Memorandum of Lease
Agreement shall be interpreted in accordance with the laws of the Commonwealth
of Pennsylvania and shall be binding upon and inure to the benefit of the
parties herein, their heirs, personal representatives, successors and assigns.


<PAGE>   6


      IN WITNESS WHEREOF, the parties hereto have caused these
presents to be executed the ______ day of February, 2000.



                                                LANDLORD:

                                                CALLOWHILL MANAGEMENT, INC.



                                                By:
                                                    -------------------------
                                                    Name:
                                                    Its:

                                                TENANT:

                                                NET2000 COMMUNICATIONS REAL
                                                ESTATE, INC.


                                                By: /s/ JASON KARP
                                                    -------------------------
                                                    Name: Jason Karp
                                                    Its:  Asst. VP Reg. & Law
<PAGE>   7


                         COMMONWEALTH OF PENNSYLVANIA

County of_______________                                       ____________,2000


       Then personally appeared the above-named ____________________,
___________________ of Callowhill Management, Inc. and acknowledged the
foregoing instrument to be his/her free act and deed and the free act and deed
of Callowhill Management, Inc., before me,



                                          --------------------------------------
                                          Notary Public
                                          My commission expires:


                               STATE OF VIRGINIA

County of Fairfax                                                      2/25/2000

       Then personally appeared the above-named Jason Karp, ___________________
of Net2000 Communications Real Estate, Inc. and acknowledged the foregoing
instrument to be his/her free act and deed and the free act and deed of Net2000
Communications Real Estate, Inc., before me,



                                          /s/ SUSAN J. KERWIN
                                          --------------------------------------
                                          Notary Public
                                          My commission expires:



                                                    Susan J. Kerwin
                                                     Notary Public
                                                Commonwealth of Virginia
                                          My Commission Expires Dec. 31, 2001

<PAGE>   8


                                   EXHIBIT A

                               LEGAL DESCRIPTION
<PAGE>   9
                         SUBORDINATION, NON-DISTURBANCE
                            AND ATTORNMENT AGREEMENT

                                                      CALLOWHILL MANAGMENT, INC.

   THIS AGREEMENT,dated the ___ day of April, 1998, between (hereinafter called
"Master Lessee"), GERALD S. KAUFMAN CORP., with an office at 39 S. LaSalle
Street, Suite 1010, Chicago, Illinois 60603 (hereinafter called "GSK Corp"), and
NET 2000 COMMUNICATIONS REAL ESTATE, INC., a Delaware corporation, with an
office at 2180 Fox Hill Road, Herndon, VA 20171, (hereinafter called "Tenant").

                                  BACKGROUND:

A. Commerce Building of Philadelphia Inc., as lessor, entered into a certain
   lease agreement dated September 3, 1959 (the "Master Lease") with Rose
   Iacovone, as lessee, covering the building located at 401 North Broad Street,
   Philadelphia, PA (the "Property").

B. GSK Corp. (hereinafter called "Master Lessor") is the successors-in-interest
   to Commerce Building of Philadelphia Inc. pursuant to an assignment of the
   Master Lease, and Callowhill Management Inc. is the successor in interest to
   Rose Iacovone and the current holder of the lessee interest in and to the
   Master Lease.

C. Master Lessee and Tenant have entered into a certain lease of a portion of
   the Property (the "Lease").
<PAGE>   10
1. The Lease is and shall be subject and subordinate to the Master Lease insofar
   as it affects the real and personal property of which the Leased Premises
   forms a part, but only so long as this Agreement shall remain in full force
   and effect provided nothing contained in the Master Lease shall be deemed to
   adversely affect the rights of Tenant or increase the obligations of Tenant.

2. In the event Master Lessor takes possession of the Property and/or Leased
   Premises by termination of the Master Lease, or otherwise, Master Lessor
   agree not to affect or disturb Tenant's right to possession of the Leased
   Premises and any of its other rights under the Lease in the exercise of
   Master Lessor's rights so long as Tenant is not then in default, after
   applicable notice and/or grace periods, under any of the terms, covenants, or
   conditions of the Lease.

3. In the event that Master Lessor succeeds to the interest of Master Lessee or
   any other landlord under the Lease and/or to title to the Property and/or
   Leased Premises, Master Lessor and Tenant hereby agree after such succession
   to be bound to one another under all of the terms, covenants and conditions
   of the Lease' accordingly, from and after such event, Master Lessor and
   Tenant shall have the same remedies against one another for the breach of an
   agreement contained in the Lease as Tenant and Master Lessee had before
   Master Lessor succeeded to the interest of Master Lessee; provided, however,
   that Master Lessor shall not be:

  a) bound by any rent or additional rent which Tenant might have paid for more
     than the one month in advance to any prior landlord (including Master
     Lessee); or

  b) bound by any material amendment or modification of the Lease made without
     Master Lessor's written consent, which consent shall not be unreasonably
     withheld or delayed or
<PAGE>   11
   provided, however, that with respect to any default of Master Lessee (or the
   then landlord) under the Lease which cannot be remedied within such time (but
   which is capable of remedy), if Master Lessor commences to cure such default
   within such time and thereafter diligently proceeds and continues with such
   efforts, Master Lessor shall have such time as is reasonably necessary to
   complete curing such default.

6. Master Lessor agrees to make insurance and condemnation proceeds available
   for restoration as provided in the Lease notwithstanding any provisions in
   the Master Lease or any other document to the contrary.

7. In the event the Property or any part thereof shall be taken for public
   purposes by condemnation or transfer in lieu thereof or the same are damaged
   or destroyed, the rights of the parties to any condemnation award or
   insurance proceeds shall be determined and controlled by the applicable
   provisions of the Lease.

8. Should any action or proceeding be commenced to enforce any of the provisions
   of this Agreement or in connection with its meaning, the prevailing party in
   such action shall be awarded, in addition to any other relief it may obtain,
   its reasonable costs and expenses, including, without limitation, reasonable
   attorneys' fees and costs.

9. Tenant shall not be enjoined as a party/defendant in any action or proceeding
   which may be instituted or taken by reason of any default by Master Lessee
   (or the then landlord) in the performance of the terms, covenants, conditions
   and agreements set forth in the Master Lease.

10.
<PAGE>   12
11. This Agreement shall be binding upon and shall extend to and benefit the
    successors and assigns of the parties hereto (and to the permitted
    subtenants and concessionaires or Tenant) during the term of the Lease and
    any extension or renewal thereof. The term "Master Lessor" when used in
    this Agreement shall be deemed to include any person or entity which
    acquires title to or the right to possession of the Property and/or Leased
    Premises by, through or under Master Lessor and/or the Master Lease,
    whether directly or indirectly.

             IN WITNESS WHEREOF, the parties hereto have executed this Agreement
by their duly authorized officers the day and year first above written.

                                 MASTER LESSEE:
                                 CALLOWHILL MANAGEMENT, INC.

                                 BY:
                                    -----------------------
                             ATTEST:
                                    -----------------------

                                 /s/
                                ---------------------------


                                 /s/
                                ---------------------------
<PAGE>   13


STATE OF       :

               :   SS

COUNTY OF      :

       On this the ______ day of ______________, before me, the undersigned
Notary Public personally appeared Gerald S. Kaufman, who acknowledged himself to
be the President of Gerard S. Kaufman Corp. and that he as such President being
authorized to do so, executed the foregoing instrument for the purposes therein
contained by signing his name as President.

     Witness my hand and official seal.


     -----------------------------------
     Notary Public


STATE OF       :

               :   SS

COUNTY OF      :

       On this the ______ day of ______________, before me, the undersigned
Notary Public personally appeared _________________, who acknowledged himself
to be the ___________ of CALLOWHILL MANAGEMENT INC., a corporation, and that he
as such ______________, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself as _____________.

<PAGE>   14

                  LANDLORD CONSENT AND SUBORDINATION AGREEMENT

       This Landlord Consent and Subordination Agreement (this "Agreement") is
executed effective as of _________, 2000, by CALLOWHILL MANAGEMENT, INC. (the
"Landlord") to and for the benefit of NORTEL NETWORKS INC., both in its
individual capacity and as agent for the Lenders (hereinafter defined) and as a
Lender under the Credit Agreement (hereinafter defined) (in each such capacity,
hereinafter called "Nortel Networks"), and the Lenders.

                                   RECITALS:

       A. Pursuant to that certain Lease dated December 15, 1999 (as amended,
supplemented, restated or replaced from time to time, the "Lease") by and
between the Landlord, as lessor, and NET2000 COMMUNICATIONS REAL ESTATE, L.L.C.
(presently known as Net2000 Communications Real Estate, Inc.), as tenant or
lessee (the "Lessee"), the Landlord leased certain real property and related
interests (the "Premises"), to the Lessee, which Premises include approximately
24,800 square feet located on the second floor of the building located at 401
North Broad Street, Philadelphia, Pennsylvania, the legal description of which
is attached hereto as Exhibit A.

       B. The Lessee is a wholly owned subsidiary of Net2000 Communications
Group, Inc. ("NCGI").

       C. Nortel Networks and NCGI are parties to that certain Master Purchase
Agreement dated as of November 2, 1998 (as amended, supplemented or restated
from time to time, the "Supply Agreement") pursuant to which Nortel Networks has
sold and/or will sell and NCGI has purchased and/or will purchase certain
equipment and services.

       D. Nortel Networks, individually as a lender and as administrative agent
for certain other lenders to be identified (collectively, including Nortel
Networks and the successors and assigns of such other lenders and Nortel
Networks, the "Lenders") and NCGI have entered into that certain Amended and
Restated Credit Agreement dated as of July 30, 1999 (as amended, modified,
supplemented, and/or restated from time to time, the "Amended Credit Agreement")
pursuant to which the Lenders have agreed to make loans and perhaps provide
other credit extensions to the Lessee to, among other things, finance NCGI's
purchase of equipment under the Supply Agreement (the "Equipment").

       E. The Lessee has provided guarantees for such loans and liens on its
assets to secure such obligations related thereto pursuant to that certain
Amended and Restated Guaranty Agreement and Amended and Restated Pledge and
Security Agreement, both dated as of July 30, 1999, by and between Nortel
Networks and the Lessee.

       F. All amounts at any time owed or owing by NCGI to Nortel Networks under
the Supply Agreement and all loans and other extensions of credit that may be
made by the Lenders to NCGI pursuant to the Credit Agreement are or would be,
respectively, secured by various assets,

<PAGE>   15

including, without limitation, the Equipment and other personal property of the
Lessee and NCGI and/or Nortel Networks now or hereafter located on or about the
Premises.

       G. Nortel Networks requires that this Agreement be executed by the
Landlord in connection with the Supply Agreement and the Credit Agreement.

       NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Landlord hereby covenants and agrees with Nortel Networks and
the Lenders as follows (notwithstanding anything to the contrary contained in
the Lease):

       1.     Subordination of Liens, etc. (a) All equipment (including,
without limitation, the Equipment) and other property of the Lessee and/or
Nortel Networks from time to time located on or about the Premises (the
"Personal Property") is and shall remain personal property of the Lessee and/or
Nortel Networks (as applicable, as the Lessee and Nortel Networks may agree)
and shall not become any part of the Premises regardless of the manner of the
affixation thereto, and Nortel Networks and/or any Lender may at any time and
from time to time enter upon and otherwise have access to the Premises to
inspect, guard, maintain, prepare for sale, sell, repossess and/or remove the
Personal Property from the Premises in accordance with the terms of this
Agreement and/or the Lease, which sale, repossession and/or removal shall be
free and clear of any lien, security interest, right or claim ("Lien") which
the Landlord may now or hereafter have, such right and remedy of Nortel
Networks and the Lenders being independent of any other right or remedy Nortel
Networks and/or any Lender may have, and the Landlord will not in any manner
hinder, interfere or prevent any of the foregoing if carried out in accordance
with the terms of this Agreement. Notwithstanding the foregoing provisions of
this subparagraph (a), Nortel Networks and the Lenders may not, without the
prior written consent of the Landlord (which consent shall not be unreasonably
withheld, conditioned or delayed), enter upon or otherwise have access to the
Premises for the foregoing purposes at any time after the expiration of the
Access Period. For purposes hereof, the term "Access Period" shall mean the
period of time ending on the date that is the later to occur of (i) 45 days
after the initial date upon which the Lease is terminated and Nortel Networks
(or any successor "Administrative Agent" under the Credit Agreement) has
received written notice from the Landlord that such termination has occurred
(which notice may not be given prior to the date of termination of the Lease)
or (ii) the date upon which the Landlord recovers possession of the Premises
from the Lessee, whether by eviction in accordance with the laws of the
District of Columbia or the voluntary surrender of possession of the Premises
by the Lessee to the Landlord. Nortel Networks and the Lenders agree that they
will, from time to time promptly after any request by the Landlord to do so,
reimburse the Landlord for any and all damages directly caused by their removal
of the Personal Property from the Premises or repair such damages.

              (b)   Any and all liens, security interests, rights and claims of
every kind (whether contractual, statutory or otherwise) which the Landlord may
now or hereafter have with respect to the Personal Property or any portion
thereof (collectively, the "Landlord Liens"), and any and all rights or
remedies of every kind (whether contractual, statutory or otherwise) which the
Landlord may now or hereafter have to levy or distrain upon any Personal
Property or any interests therein or to claim or assert title to the Personal
Property or any portion thereof or to make any other claim

                                     -2-
<PAGE>   16

against the Personal Property or any portion thereof, are in each case hereby
expressly made and shall be subject and subordinate in every respect to any and
all liens, security interests, rights and claims and rights and remedies of
every kind (whether contractual, statutory or otherwise) which Nortel Networks
and/or any Lender may now or hereafter have with respect to the Personal
Property or any portion thereof (whether the same secure the indebtedness,
liabilities and/or obligations of the Lessee under the Supply Agreement and/or
the Credit Agreement or otherwise) (collectively, the "Nortel Networks Liens"),
including, without limitation, any rights to seize, hold, restrain, levy upon,
take possession of, sell or otherwise transfer or dispose of the Personal
Property. All Nortel Networks Liens in and to any Personal Property or proceeds
thereof shall in all respects be senior to and have priority over all Landlord's
Liens in and to any Personal Property or proceeds thereof irrespective of the
time or order of the creation or perfection of any Landlord's Liens.

              (c)   If at any time the Landlord comes into possession or control
of any proceeds of any Personal Property, such proceeds shall be held by the
Landlord for the benefit of Nortel Networks and the Lenders, to the extent of
their interests therein, and the same shall forthwith be paid and delivered to
Nortel Networks.

       2.     Assignment of Lease, etc. (a) The Lessee shall be permitted to
transfer and assign all right, title and interest of the Lessee in and to the
Lease to Nortel Networks and/or the Lenders and/or their successors and assigns
and, in the event of any such transfer or assignment, and provided Nortel
Networks and/or the Lenders and/or their successors or assigns (as applicable)
expressly assume in writing and agree to perform each of the Lessee's covenants,
duties and obligations which will arise and accrue from and after the date of
such transfer or assignment, the Landlord agrees that it will recognize Nortel
Networks and/or the Lenders and/or their successors and assigns (as applicable)
as the successor(s)-in-interest to the Lessee under the Lease as if Nortel
Networks and/or the Lenders and/or their successors or assigns (as applicable)
were the Lessee under the Lease; provided, however, that the Landlord shall not
be obligated to recognize Nortel Networks or any Lender as successor-in-interest
to the Lessee under the Lease unless such successor-in-interest is at least as
credit worthy as was the Lessee as of the initial date of the Lease.

              (b)   The Landlord hereby (i) confirms the existence and validity
of the Lease, (ii) confirms that the Landlord is the owner and holder of the
Lease, (iii) confirms that, to the Landlord's current, actual knowledge, no
monetary default and no other default has occurred under the terms of the Lease,
(iv) agrees to provide Nortel Networks (or its successors or assigns), at its
address specified below (or at the address of its successors or assigns of
which the Landlord is subsequently notified), a copy of any notice of default
delivered to the Lessee under the Lease substantially concurrently with the
delivery of such notice to the Lessee and, whether or not any notice of default
is delivered to the Lessee, agrees to notify Nortel Networks (or its successors
or assigns), at its address specified below (or at the address of its successors
or assigns of which the Landlord is subsequently notified), in writing within 30
days after the Lessee initially becomes in default under the Lease, and (v)
agrees that, prior to any termination of the Lease as a result of a default of
the Lessee thereunder, the Landlord will provide written notice of such default
to Nortel Networks (or its successors or assigns), at its address specified
below (or at the address of its successors or assigns of which the Landlord is
subsequently notified), and afford Nortel Networks (or its successors or
assigns) and the Lenders a period of time, after notice of such default is given

                                      -3-








<PAGE>   17
to Nortel Networks (or its successors or assigns), equal to the greater of (A)
the applicable cure period specified in the Lease or (B) 45 days after Nortel
Networks' receipt of such notice within which to cure such default. For purposes
of this Paragraph 2, the address of Nortel Networks is as follows:

          Nortel Networks Inc.
          GMS 991 15 A40
          2221 Lakeside Blvd.
          Richardson, Texas 75082-4399
          Attention:    Charles M. Helm, Esq.
          Telephone:    (972) 685-7839
          Telecopier:   (972) 684-3679

In addition, within ten business days after written request by Nortel Networks
(or its successors or assigns) or any Lender (which request may not occur more
often than twice during any calendar year in the case of an estoppel
certificate or other instrument referred to in clause (A) succeeding), the
Landlord will execute and deliver in favor of Nortel Networks (or its successors
or assigns) and/or the Lenders (as may be requested) (A) an estoppel certificate
or other instrument in form reasonably acceptable to Nortel Networks (or its
successors or assigns) or such Lender (as applicable) pursuant to which the
Landlord will, as of the then current date, reconfirm each of the matters
referred to in clauses (i), (ii) and (iii) preceding (or specify any facts which
prevent any such reconfirmation) and (B) in the event that Nortel Networks (or
its successors or assigns) or any Lender has succeeded to the rights of the
Lessee under the Lease in accordance with Section 2(a) hereof, a new lease with
respect to the Premises in form and substance essentially identical to the Lease
naming Nortel Networks (or its successor or assigns) and/or the Lenders (as may
be requested) as lessee and the Landlord as lessor.

          3. No Obligation of Nortel Networks or Lenders. Nothing contained
herein shall be deemed or construed to obligate Nortel Networks or any Lender to
take any action hereunder or under or with respect to the Lease or to perform or
discharge any indebtedness, liability, obligation or duty of the Lessee under
the Lease.

          4. Successors and Assigns. This Agreement shall inure to the benefit
of Nortel Networks and the Lenders and their successors and assigns, including
any person or entity who shall have succeeded to Nortel Networks' or any
Lender's interest by, through or under judicial foreclosure or private sale or
other proceedings, or deed in lieu of foreclosure, or otherwise. Without
limiting the generality of the foregoing, all rights, remedies, benefits and
privileges of Nortel Networks under this Agreement shall inure to the benefit of
the "Administrative Agent" and the "Lenders", as such terms are defined in the
Credit Agreement, under the Credit Agreement, and all such rights, remedies,
benefits and privileges may, at any time at the option of Nortel Networks and
without the necessity of any consent or approval of the Landlord or the Lessee,
be transferred or assigned to the "Administrative Agent" as such term is defined
in the Credit Agreement.



                                       -4-


<PAGE>   18




            Executed as of the date first above written.

                                             LANDLORD:

                                             CALLOWHILL MANAGEMENT, INC.

                                             By:
                                                ------------------------
                                             Name:
                                                  ----------------------
                                             Title:
                                                   ---------------------

            The foregoing Agreement is hereby agreed to and consented to by the
Lessee.

                                             LESSEE:

                                             NET2000 COMMUNICATIONS REAL
                                               ESTATE, INC. (formerly known as
                                               Net2000 Communications Real
                                               Estate, L.L.C.)

                                             By:
                                                ------------------------
                                             Name:
                                                  ----------------------
                                             Title:
                                                   ---------------------


                                       -5-


<PAGE>   19






STATE OF ___________)
                    )
COUNTY OF___________)

            This instrument was acknowledged before me on ____________ , 2000,
by ____________________, _________________________ of Callowhill Management,
Inc., a ________________________, on behalf of said entity.

                                        ----------------------------------------
                                        Notary Public for the State of_______

                                        ----------------------------------------
                                        Print Name of Notary

My Commission Expires:
                      ------

STATE OF ____________)
                     )
COUNTY OF____________)

            This instrument was acknowledged before me on _______________, 2000,
by ___________________, ________________ of Net2000 Communications Real Estate,
Inc., a Delaware corporation, on behalf of said entity.

                                        ----------------------------------------
                                         Notary Public for the State of______

                                        ----------------------------------------
                                        Print Name of Notary

My Commission Expires:
                       -------




                                       -6-




<PAGE>   20






                                    EXHIBIT A

                          LEGAL DESCRIPTION OF PREMISES










                                       -7-
<PAGE>   21

                            401 NORTH BROAD STREET
                          PHILADELPHIA, PENNSYLVANIA

THIS AGREEMENT OF LEASE ("Lease") is made this 15th day of December 1999, by (i)
CALLOWHILL MANAGEMENT, INC. (hereinafter referred to as "Landlord") and (ii) NET
2000 COMMUNICATIONS REAL ESTATE, INC. (hereinafter referred to as "Tenant")

WHEREAS, Tenant desires to lease space in the building located at 401 North
Broad Street, Philadelphia, Pennsylvania (the "Building") and Landlord is
willing to rent Tenant space in the Building, upon the terms, conditions,
covenants and agreements set forth herein.

NOW, THEREFORE, the parties hereto, intending legally to be bound, hereby
covenant and agree as set forth below.

THE PREMISES 1. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, for the term and upon the terms, conditions, covenants and agreements
hereinafter provided, 23,000 square feet of space, located on the 2nd floor and
1,800 square feet of space, located at the track level, of the Building (such
space being hereinafter referred to as the "premises"). The premises are
outlined in red on Exhibit A attached hereto and made a part hereof. The lease
of the premises includes the right, together with other tenants of the Building
and members of the public, to use the common public areas of the Building, but
includes no other rights not specifically set forth herein. Promptly following
the execution hereof, Landlord shall finish the premises as set forth in Exhibit
B attached hereto and made a part hereof. It is understood and agreed that
Landlord will not make, and is under no obligation to make, any structural or
other alterations, decorations, additions or improvements in or to the premises
except as set forth in Exhibits B.

TERM 2. The term of this Lease (hereinafter referred to as the "term") shall be
for a period commencing on March 1, 2000 (The "Lease Commencement Date") and
expiring at midnight on February 28, 2015 (the "Lease Expiration Date"). If,
pursuant to the provisions of the Lease, the term of this Lease begins on a date
other than the Lease Commencement Date indicated above, then Landlord shall
advise Tenant in writing of such shall be such date and thereafter the Lease
Commencement Date shall be such specified date. The Lease Expiration Date shall
remain unchanged. Tenant shall have the right to enter the Premises after the
execution hereof and prior to the Commencement Date to make alterations and
improvements and generally to prepare the Premises for Tenant's use and
occupancy. Such entry shall be upon all of the terms and conditions of this
lease, except that Tenant shall not be required to pay any Base Rent,
additional rent or other charges during or for such period, except for charges
for utilities.

RENT 3. Tenant shall pay as rent for the premises the following amounts (each of
which shall be considered rent and all of which are collectively referred to
herein as "rent"):

        (a) BASIC RENT. For the period commencing March 1, 2000 and expiring
February 28, 2005, the sum of seven hundred ninety-three thousand six hundred
and 00/100 Dollars ($793,600.00) annually, payable in equal monthly
installments, in advance, of sixty-six thousand one hundred thirty-three and
33/100 Dollars


                                       1
<PAGE>   22


($66,133.33) each, and for the period commencing March 1, 2005 and expiring
February 28, 2010, the sum of eight hundred sixty-eight thousand and 00/100
dollars ($868,000.00) annually, payable in equal monthly installments, in
advance, of seventy-two thousand three hundred thirty-three and 33/100 dollars
($72,333.33) each, and for the period commencing March 1, 2010 and expiring
February 28, 2015, the sum of nine hundred seventeen thousand six hundred and
00/100 dollars ($917,600.00) annually, payable in equal monthly installments,
in advance, of seventy-six thousand four hundred sixty-six and 67/100 dollars
($76,466.67) each, the first payment to be made upon the signing of this Lease
by Tenant, and the second and subsequent monthly payments to be made on the
first day of each and every calendar month (beginning with the second month)
during the term hereof. If the term of this Lease begins on a date other than
on the first day of a month, rent from such date until the first day of the
following month shall be prorated at the rate of one-thirtieth (1/30th) of the
fixed monthly rental for each day, payable in advance. Tenant will pay said
rent to Landlord, at the office of Landlord or to such other party or to such
other address as Landlord may designate from time to time by written notice to
Tenant.

       (b) INCREASE IN REAL ESTATE TAXES. Tenant shall pay to Landlord one and
eight tenths percent (1.8%) (being the approximate and agreed upon proportions
which the floor area of the premises bears to the total rentable floor area of
the premises bears to the total rentable floor area above grade of the Building)
of the increase in real estate taxes (including special assessments, if any, and
any other taxes now or hereafter imposed which are in the nature of or in
substitution for real estate taxes) levied on the Building and the land on
which the Building is situated (the "Land") over the "Base Real
Estate Taxes". For purposes hereof, the Base Real Estate Taxes are the annual
real estate taxes levied on the later of (i) the calendar year 2000 or (ii) the
calendar year of the Lease Commencement Date. At any time or times after the
year in which the Base Real Estate Taxes are determined, Landlord may submit to
Tenant a statement of Landlord's estimate of any such tax increase over the Base
Real Estate Taxes and within thirty (30) days after delivery of such statement
(including any statement delivered after the expiration or termination of this
Lease), and each month thereafter, Tenant shall pay to Landlord, as additional
monthly rent, an amount equal to one-twelfth (1/12) of the amount determined to
be Tenant's aforesaid percentage of such increase in annual real estate taxes.
Within ninety (90) days after the expiration of each calendar year in which
Tenant's monthly rent is increased pursuant to this paragraph, Landlord shall
submit, a statement showing the determination of the total increase and Tenant's
proportionate share of such increase. If such statement shows that Tenant's
monthly payments pursuant to this paragraph exceeded Tenant's share of the
actual increase incurred for the preceding calendar year, then Tenant may deduct
such overpayment from its next payment or payments of monthly rent. If such
statement shows that Tenant's share of Landlord's actual increase exceeded
Tenant's monthly payments for the preceding calendar year, then Tenant shall,
within thirty (30) days, pay the total amount of such deficiency to Landlord. In
the event that the Lease Expiration Date is not December 31st, the increase to
be paid by Tenant for the calendar year in which the Lease Expiration Date
occurs shall be determined by multiplying the amount of Tenant's share thereof
for the full calendar year by a fraction with the number of days during such
calendar year prior to the Lease Expiration Date as the numerator, and with 365
as the denominator. Any special


                                       2
<PAGE>   23

assessments or betterments shall be amortized over the longest period allowed by
law. Landlord warrants and represents that the Base Real Estate Taxes represent
a full and final assessment for the applicable Base Year (2000), without
abatement, reduction or deduction, and that such taxes are not subject to
abatement. Tenant shall not be liable for any Real Estate Taxes which are not
billed to Tenant within one (1) year after the year for which such taxes are
payable under the Lease. If Landlord receives a tax abatement for any year for
which taxes were paid by Tenant, Landlord shall promptly pay to Tenant Tenant's
pro-rata share of such abatement, less the reasonable costs and expenses
incurred to obtain the same. Landlord shall provide Tenant with a copy of
Landlord's tax bill with the annual statement.

       (c) INCREASE IN OPERATING COSTS. Tenant shall pay to Landlord one and
eight tenths (1.8%) (being the approximate and agreed upon proportion which the
floor area of the premises bears to the total rentable floor area above grade of
the Building) of the increase during the term of this Lease in Annual Operating
Charges (as hereinafter defined) over the Base Operating Charges (as hereinafter
defined). The Annual Operating Charges are hereby defined as the sum of the
following costs and expenses related directly to the operation and maintenance
of the common areas and facilities of the Building: (i) gas, electricity,
water, sewer and other utility charges (including surcharges) of whatever
nature, (ii) insurance, (iii) building personnel costs, including, but not
limited to, salaries, wages, fringe benefits and other direct and indirect
costs of engineers, superintendents, watchmen, porters and any other building
personnel, provided such costs are for on-site personnel involved directly in
building maintenance or personnel at the level of building manager or below,
(iv) costs of arms length third party service and maintenance contracts,
including, but not limited to, chillers, boilers, controls, elevators, mail
chute, window, janitorial and general cleaning, security services, and
management fee, (v) all other maintenance and repair expenses and supplies
which are deducted by Landlord in computing its Federal Income tax liability,
as permitted by federal law, (vi) any other costs and expenses (i.e. items
which are not capital improvements) incurred by Landlord in operating the
Building and (vii) the cost of any additional services not provided to the
Building at the Lease Commencement Date but thereafter provided by Landlord in
the prudent management of the Building. If, after determination of the Base
Operating Charges, Landlord installs energy saving devices designed to reduce
the level of consumption of one or more utility services provided in the
Building, then for purposes of subsection (i) of this Paragraph 3(a), the
charges for each such affected utility service shall be the lesser of either
the actual cost of such utility service plus the amortized cost of purchasing
and installing the energy saving device (as used by Landlord for federal income
tax purposes), or the present cost of providing the same level of such utility
service as was consumed in the twelve (12) month period immediately preceeding
the installation of the energy saving device(s) (level of service multiplied by
present rate charges for such service). In the event that any business, rent or
other taxes which are now or hereafter levied upon Tenant's use or occupancy of
the premises or Tenant's business at the premises or on Landlord specifically
and directly by virtue of Tenant's occupancy of the premises, are enacted,
changed or altered so that any of such taxes are levied against Landlord or the
mode of collection of such taxes is changed so that Landlord

                                      3
<PAGE>   24

is responsible for collection or payment such taxes, any and all such taxes
shall be deemed to be a part of the Annual Operating Charges and Tenant shall
pay the taxes that would otherwise be imposed on it to Landlord. Annual
Operating Charges shall not include (i) principal encumbrances, (ii) leasing
commissions payable by Landlord, (iii) deductions for depreciation of the
Building, (iv) capital improvements which are not deducted by Landlord in
computing its Federal Income tax liability, (v) leasehold improvement,
alterations and decorations or other work done for tenants of the Building, and
services (such as painting) performed for any tenant (including Tenant) of the
Building, whether at the expense of Landlord or such tenant, (to the extent that
such work or services are in excess of the work or services which Landlord is
required to furnish to Tenant under this Lease at Landlord's expense, (vi) costs
incurred in connection with the making of repairs which are the obligation of
another tenant of the Building, (vii) advertising and promotional expenditures
or contributions or gifts, (viii) costs incurred in connection with Landlord's
preparation, negotiation and/or enforcement of leases, including court costs and
attorneys' fees and disbursements in connection with any summary proceeding to
dispossess any tenant, (ix) financing and refinancing costs in respect of any
mortgage placed upon the Property, including points and commissions in
connection therewith, (x) interest or penalties for any late payments by
Landlord, (xi) costs (including, without limitation, attorneys' fees and
disbursements) incurred in connection with any judgment, settlement or
arbitration award resulting from any tort liability, (xii) compensation paid to
any Building employee to the extent that the same is not fairly allocable to the
work or service provided by such employee to the Property, (xiii) costs relating
to any retail, residential, garage or storage space in the Building, (xiv)
estate, franchise, succession, inheritance, profit, use, occupancy, gross
receipts, rental, capital gains, and transfer taxes imposed upon Landlord, the
Building or the Land, (xv) leasing and brokerage fees and commissions, (xvi)
costs of installing, operating and maintaining any specialty service such as an
observatory, park, broadcasting facilities, luncheon club, athletic or
recreational club, (xvii) costs (including increased Taxes and Operating Costs)
of any additions to the Building after the original construction, (xviii) costs
of any repairs, alterations, additions, changes, replacements and other terms
which, under generally accepted accounting principles, are classified properly
as capital expenditures, (xix) interest or amortization on any loan or mortgage
with respect to the Land or the Building, (xx) depreciation, amortization and/or
other non-cash charges, (xxi) costs of repairs or replacements incurred by
reason of fire or other casualty or caused by the exercise of the right of
eminent domain whether or not insurance proceeds or a condemnation award are
recovered or adequate for such purposes, (xxii) costs of any heating,
ventilating, air-conditioning, janitorial or other Building services provided to
other tenants during other than operating hours, (xxiii) management fees in
excess of the level of fair market management fees for comparable properties
(and in no event greater than three percent (3%) of gross rental collections per
year), (xxiv) rent or imputed rent on any portion of the Building used in
connection with the management or operation of the Building, (xxv) legal and
auditing fees or other professional fees, other than those reasonably incurred
in connection with the maintenance and routine operation of the Land and
Building, (xxvi) any rent, additional rent or other charge under any lease
                                       4

<PAGE>   25
or sublease to or assumed by Landlord, (xxvii) salaries and frinqe benefits of
personnel above the grade of building manager, wages, salaries and other
compensation paid for clerks or attendants in concession or newsstands operated
by Landlord, (xxviii) rent or other charges payable under any ground or
underlying lease, (xxix) costs of any item which are reimbursable to Landlord by
other tenants or third parties, (xxx) lease payments for rented equipment, the
cost of which equipment would constitute a capital expenditure if the equipment
were to have been purchased (except to the extent that amortization of any such
capital expenditure would be permitted as an Operating Expense pursuant to this
section), (xxxi) the cost of furnishing and installing replacement light bulbs
and ballasts in any tenanted areas of the Building, (xxxii) any expenditures on
account of Landlord' s acquisition of air or similar development rights,
(xxxiii) there shall be deducted from Operating Costs an amount equal to all
amounts received by Landlord through proceeds of insurance to the extent the
proceeds are compensation for expenses which (a) are included in Operating
Expenses hereunder, (b) are included in Operating Expenses for the Operating
Year in which the insurance proceeds are received or (c) will be included as
Operating Expenses in a subsequent Operating Year, (xxxiv) costs end expenses of
governmental licenses and permits, or renewals thereof, unless the same are for
governmental licenses or permits normal to the operation or maintenance of the
Land or Building, (xxxv) costs of any work or service performed for any facility
or property other than the Building, (xxxvi) costs of tools and equipment
purchased in connection with the initial operation, repair, decoration or
maintenance of the Land or Building, (xxxvii) costs related exclusively to the
garage or to any retail or storage space in, on or about the Building or
appurtenant or adjacent thereto, (xxxvii) any costs which are not an armslength
competitive market prices for goods or services including any amounts paid to
any person, firm or corporation related or otherwise affiliated with landlord or
any general partner, officer or director of Landlord or any of its general
partners, (xxxviii) costs relating to maintaining Landlord's existence, either
as a corporation, partnership, or other entity, such as trustee's fees, annual
fees, partnership organization or administration expenses, deed recordation
expenses, legal and accounting fees (other than with respect of Building
operations), (xxxix) costs incurred to contain, encapsulate, remove, or remedy
any hazardous or toxic wastes, materials or substances from either the Building
or Land and/or any tests or surveys obtained in connection with the above. The
Base Operating Charges are hereby defined as the Annual Operating Charges for
the later to occur of (i) the calendar years in which the Lease Commencement
Date occurs or (ii) or calendar year 2000. At any time or times after the year
in which the Base Operating Charges are determined, Landlord may submit to
Tenant an estimate of the increase of the Annual Operating Charges over the Base
Operating Charges and within thirty (30) days after the delivery of such
statement, and each month thereafter, Tenant will pay to Landlord, an additional
monthly rent, an amount equal to one-twelfth (1/12th) of the amount determined
to be Tenant's aforesaid percentage of the increases in Annual Operating
Charges. Within ninety (90) days after the expiration of each calendar year in
which Tenant's monthly rent is increased pursuant to this paragraph, Landlord
may submit, or upon the request of Tenant, Landlord shall submit, a statement
showing the determination of the total increase and Tenant's proportionate share
of such increase. If such statement shows

                                       5
<PAGE>   26

that Tenant's monthly payments pursuant to this paragraph exceeded Tenant's
share of the actual increase incurred for the preceding calendar year, then
Tenant may deduct such overpayment from its next payment or payments of monthly
rent. If such statement shows that Tenant's share of Landlord's actual increase
exceeded Tenant's monthly payments for the preceding calendar year, then Tenant
shall pay the total amount of such deficiency to Landlord within thirty (30)
days of receiving Landlord's statement. Such deficiency shall constitute
additional rent hereunder due and payable with the first monthly installment of
rent due after rendition of said statement, or if payments have been accelerated
pursuant to Paragraph 17(b)(iv) below, within thirty (30) days after rendition
of such statement. In the event that the Lease Expiration Date is not December
31st, the increase to be paid by Tenant for the calendar year in which the Lease
Expiration Date occurs shall be determined by multiplying the amount of Tenant's
share thereof for the full calendar year by a fraction with the number of days
during such calendar year prior to the Lease Expiration Date as the numerator,
and with 365 as the denominator.

     Tenant shall have the right to review and audit Landlord's books and
records from time to time, not more than once per calendar year, upon request,
to verify and reconcile the Real Estate Taxes and Operating Charges payable by
Tenant hereunder. Landlord agrees to cooperate with Tenant and provide Tenant
with reasonable substantiation of charges upon request, including copies of
invoices, and with access to Landlord's books and records during business hours
upon reasonable prior notice.

     If Tenant's review or audit discloses any overpayment by Tenant,
Landlord shall promptly refund the same to Tenant or Tenant may deduct such
amount from its next payment or payments of rent.

     Tenant shall not be liable to Landlord for any Operating Charges billed to
Tenant more than one (1) year after the year for which such charges were
incurred and are payable under this Lease.

     (d) INCREASE IN COST OF LIVING. DELETED

     (a)   DEMAND; TIME. Each of the foregoing amounts of rent shall be paid to
Landlord without demand and without deduction, set-off or counterclaim on the
first (1st) day of every month during the term of this Lease, except as
otherwise provided herein. If Landlord shall at any time or times accept rent
after it shall become due and payable, such acceptance shall not excuse a delay
upon subsequent occasions, or constitute, or be construed as, a waiver of any or
all of Landlord's rights hereunder.

USE OF PREMISES 4. Tenant will use and occupy the Premises solely for the
conduct of the following business: general office use and the installation,
operation and maintenance of equipment and facilities in connection with
Tenant's telecommunication business, including, without limitation, co-location
and the installation and use of racks, switches, conduits, cabling, and other
telecommunications equipment, and only in accordance with the uses permitted
under applicable zoning and other municipal regulations; without the prior
written consent of Landlord, the premises will not be used for any other
purpose. Tenant will not use or occupy the premises for any unlawful purpose,
and will comply with all present and future laws, ordinances, regulations, and
orders of the United States of America, the City of Philadelphia, and any other
public or quasi-public authority having jurisdiction over the Premises, relative
to

                                       6
<PAGE>   27

Tenant's specific manner of use. Landlord warrants and represents to Tenant that
the Building is zoned to permit Tenant's use of the Premises as a
telecommunications switch site as a matter of right. Landlord's consent to any
change of use shall not be unreasonably withheld or delayed.

ASSIGNMENT AND SUBLETTING 5. (a) Landlord's Consent Required. Tenant (or its
representatives, successors, or assigns) will not assign, transfer, mortgage or
otherwise encumber this Lease or sublet or rent (or permit occupancy or use of)
the premises, or any part thereof, without obtaining the prior written consent
of Landlord, which consent shall not be unreasonably withheld, delayed, or
conditioned, nor shall any assignment or transfer of this Lease or the right of
occupancy hereunder be effectuated by operation of law or otherwise without the
prior written consent of Landlord.

       (b)    Prerequisites to Sublease. Landlord shall not unreasonably
withhold its consent hereunder to any sublease by Tenant, provided that all of
the following conditions are met:

           (i) Tenant must first notify Landlord, in writing, of any proposed
sublease, at least sixty (60) days prior to the effective date of such proposed
sublease. Such notice must include a copy of the proposed sublease, and an
audited copy of the proposed subtenant's most recent financial statement, if
available, or other financial information satisfactory to Landlord in his
reasonable judgment, prepared by a certified public accountant.

           (ii) The subtenant must have a credit rating satisfactory to
Landlord (in Landlord's sole but reasonable judgment).

           (iii) The sublease must be specifically subject and subordinate to
this Lease, require that any subtenant must abide by all of the terms of this
Lease, and provide that any termination of this Lease shall extinguish the
sublease as well.

           (iv) The rent per square foot for any subleased space shall be no
less than the rate being charged Tenant for the premises. If the rent per square
foot for the subleased space exceeds the rate being charged Tenant for the
premises, or Tenant receives any other consideration in addition to the rent for
the subleased space, the sublease must provide that one-half of the amount of
such excess and/or additional consideration be paid to Landlord each month as
additional rent under this Lease due and payable on the first day of each month,
provided Tenant shall first be entitled to recoup any costs or expenses incurred
to effect the sublease, including brokerage commissions, attorneys' fees,
allowances or instructions or incentives.

           (v) The subtenant may not change the use of the premises, or
propose to conduct its business in a manner which, in Landlord's reasonable
judgment, is not appropriate for a buildinq in Downtown Philadelphia.

           (vi) The subtenant may not be a tenant, subtenant, or other occupant
of any part of the Building.

           (vii) The Tenant may not be in material default hereunder, or have
committed two events of default during the previous twelve (12) months, after
notice and expiration of any applicable cure period.

           (viii) DELETED

           (ix) DELETED

       (c) Option to Reclaim Premises. Except in the case of a permitted
transfer, if Tenant proposes to sublet 50% or more of the Premises, Landlord
shall have the option to reclaim any portion of the premises which Tenant
proposes to sublease, by giving written notice to Tenant within sixty (60) days
of Landlord's receipt of the notice specified in 5 (b)(i). Upon the


                                       7

<PAGE>   28

exercise of such option, Tenant shall, on the date when the proposed sublease
was to commence, surrender that portion of the premises to be reclaimed, and the
rent pursuant to 3(a), 3(b), and 3(c) above shall be reduced proportionately.
All other terms and conditions of this Lease shall otherwise remain in force and
effect. Landlord may make any alterations, modifications, or improvements to the
premises it deems necessary for the reclaiming of any portion of the premises,
provided Tenant's use and acceptance of the remaining premises or its access
thereto is not impaired.

       (d)    No Waiver or Release. The consent by Landlord to any assignment or
subletting shall not be construed as a waiver or release of Tenant from the
terms of any covenant or obligation under this Lease, nor shall the collection
or acceptance of rent from any such assignee, subtenant or occupant constitute
a waiver or release of Tenant of any covenant or obligation contained in this
Lease, nor shall any such assignment or subletting be construed to relieve
Tenant (or its representatives, successors, or assigns) from obtaining the
consent in writing of Landlord to any further assignment or subletting. In the
event that Tenant defaults hereunder, Tenant hereby assigns to Landlord the rent
due from any subtenant of Tenant and hereby authorizes each such subtenant to
pay said rent directly to Landlord.

       (e)    Notwithstanding anything to the contrary in this Lease, Tenant
shall be permitted to assign the Lease, or sublease all or any portion of the
premises, to an affiliate without Landlord's consent. Affiliates shall include
entities which; (i) are controlled by or are under common control with Tenant;
or (ii) result from a merger or consolidation of tenant; or (iii) acquires the
business being conducted on the premises.

       (f)    Notwithstanding anything to the contrary in Section 5 of this
Lease, Landlord's consent shall not be required with respect to the following:

              (1)    transactions with an entity into which Tenant is merged or
consolidated, or to which all or substantially all of the stock or assets of
Tenant are transferred, or to which all or substantially all of Tenant's
business at the premises is transferred;

              (2)    transactions with an entity which controls, is controlled
by or is under common control with Tenant;

              (3)    an initial public offering of Tenant's stock or the
trading of Tenant's stock on a nationally recognized securities exchange; or

              (4)    the collocation or licensing of telecommunications services
in any form, including the subletting of cabinets, racks and other equipment.

MAINTENANCE BY TENANT 6. (a) Obligations of Landlord and Tenant. Landlord shall
maintain and repair the public portions of the Building, both exterior and
interior, and keep them in good clean order and condition. All bulbs, tubes and
lighting fixtures for the premises shall be provided and installed by Tenant at
Tenant's cost and expense. Tenant will keep the interior and non-structural
portions of premises and fixtures and equipment therein in clean, safe and
sanitary condition, will take good care thereof, will suffer no waste or injury
thereto, and will, at the expiration or other termination of the term of this
Lease, surrender the same, broom clean, in the same order and condition in which
they are on the Lease Commencement Date, ordinary wear and tear and unavoidable
damage by the elements excepted.

                                        8


<PAGE>   29


       (b)    Damage to Premises or Building. All damage or injury to the
premises or to any other part of the Building, or to its fixtures, equipment and
appurtenances, whether requiring structural or nonstructural repairs, caused by
or resulting from carelessness, omission, neglect or improper conduct of Tenant,
Tenant's agents, employees, contractors, invitees or licensees, shall be
repaired promptly, at Tenant's sole cost and expense, by either Landlord, or by
Tenant subject to Landlord's direction and supervision (and in accordance with 7
hereof), at Landlord's option. If Landlord gives Tenant written notice that it
will be required to make such repairs, and Tenant fails within ten days of the
giving of such notice to proceed with due diligence to make the required
repairs, the same may be made by Landlord. All expenses incurred by Landlord in
making repairs or replacements under this 6(b) shall be collectible as
additional rent due and payable pursuant to 17(d) below; provided that Tenant
shall not be liable hereunder to the extent that Landlord is insured for such
hazards and damages under a policy containing a waiver of subrogation clause and
is reimbursed by its insurer for its losses.

       (c)    Notice of Defective Condition. Tenant shall give Landlord prompt
notice of any defective condition in any plumbing, heating system or electrical
lines located in, servicing or passing through the premises of which Tenant
becomes aware. Following such notice Landlord shall remedy the condition with
due diligence. Except if caused by Landlord's gross negligence or willful
misconduct, there shall be no allowance to Tenant for a diminution of rental
value and no liability on the part of Landlord by reason of inconvenience,
annoyance or injury to business arising from Landlord, Tenant or others, making
or failing to make any repairs, alterations, additions, or improvements in or to
a portion of the Building or the premises or in or to the fixtures,
appurtenances or equipment therof.

TENANT ALTERATIONS 7. (a) The original improvement of the premises by Landlord
for Tenant shall be in accordance with Exhibit B attached hereto. Except for
Tenant's Initial Improvements Tenant will not make or permit anyone to make any
alterations, decorations, additions or improvements, structural or otherwise
(hereafter the "Alterations"), in or to the premises or the Building, without
the prior written consent of Landlord, which shall not be unreasonably
withheld, conditioned, or delayed. Landlord may condition its original consent,
and may demand that Tenant post an additional security deposit to guarantee
such performance. Any Alterations, permitted by Landlord must be done by
licensed and insured contractors or mechanics approved by Landlord (whose
approval will not be unreasonably withheld), must conform to all rules and
regulations established from time to time by the Underwriters' Association of
Philadelphia and conform to all requirements of the Federal and City of
Philadelphia governments. Tenant (and its contractors and/or subcontractors),
before making any Alteration shall obtain, at its expense, all necessary
permits, certificates (including certificates of final approval upon
completion) and approvals, and shall deliver duplicates of same to Landlord.
Tenant will carry and will cause its contractors and subcontractors to carry,
such worker's compensation, liability, personal and property damage insurance
as is legally required. As an additional condition precedent to such written
consent of Landlord, Tenant agrees to obtain and deliver to Landlord written
and unconditional waivers of mechanics' and materialmens' liens upon the Land
and Building of which the


                                       9

<PAGE>   30
premises are a part, for all work, labor and services to be performed, and
materials to be furnished, by them in connection with such work, signed by
Tenant's general contractor, subcontractors, materialmen and laborers who
become involved in such work. If, notwithstanding the foregoing, any mechanic's
or matarialmen's lien is filed against the premises, the Building and or the
Land, for work claimed to have been done for, or materials claimed to have been
furnished to, Tenant, such lien shall be discharged by Tenant within twenty
(20) days thereafter, at Tenant's sole cost and expense by the payment thereof
or by filing any bond required by law. If Tenant shall fail to discharge any
such mechanic's or materialmen's lien, Landlord may, at its option, discharge
the same and treat the cost thereof as additional rent payable with the monthly
installment of rent next becoming due; it being hereby expressly covenanted and
agreed that such discharge by Landlord shall not be deemed to waive, or release,
the default of Tenant and not on behalf of Landlord, and that Tenant shall be
deemed to be the "owner" (and not the "agent" of Landlord). It is further
understood and agreed by Landlord and Tenant that any such Alterations shall be
conducted on behalf of Tenant and not on behalf of Landlord, and that Tenant
shall be deemed to be the "owner" (and not the "agent" of Landlord). It is
further understood and agreed that in the event Landlord shall give its written
consent to Tenant's making any such Alterations, such written consent shall not
be deemed to be an agreement or consent by Landlord to subject Landlord's
interest in the premises, the Building or the Land to any mechanic's or
materialmen's liens which may be filed in respect of any such alterations made
by or on behalf of Tenant. Landlord and Tenant agree that:

             (1) Tenant shall have the license and right, in preparing the
Premises for Tenant's occupancy and during the term of this Lease (i) to
utilize existing risers and conduit and/or install new conduit to all floors of
the Building, and (ii) to install cable, HVAC piping, electric wiring, fuel
lines and control circuitry through such risers and conduits as necessary to
connect Tenant's equipment and facilities. All work in such common areas will
be done by the Building designated contractor, at the expense of Tenant. The
installation of new conduit may include the removal and replacement of curbing
and/or sidewalks. There shall be no additional compensation payable by Tenant
for such right to use and place conduit and cable.

             (2) Any conduit and cable installed by Tenant shall become the
property of Landlord and shall be surrendered with the premises upon the
expiration of the Lease.

             (3) Tenant shall have the right to core drill from the premises to
the lowest level of the Building as necessary to install new conduit. The
scheduling of all core drilling shall be coordinated with the Landlord.

             (4) Tenant shall have the right to install HVAC equipment in the
premises or on the track level of the Building after such plans have been
submitted for approval.

             (5) Tenant shall have the right to install drains for HVAC
equipment.

             (6) Tenant shall have the right to relocate and reconnect primary
air ductwork and/or secondary water piping located in the premises, subject to
Landlord's approval, not to be unreasonably withheld, conditioned or delayed.

             (7) Tenant, at its sole cost and expense, shall provide to Tenant's
premises, Tenant's required electric capacity on a separate breaker with bus
duct dedicated to Tenant (such equipment will be designated by Landlord).

                                       10
<PAGE>   31



             (8) Tenant shall have the right to install a generator plug on the
track level adjacent to the loading dock area for the purpose of connecting the
premises to a portable generator in the event of a Building power failure.

             (9)  Tenant shall have the right to install a diesel generator and
fuel storage tanks at the track level of the Building.

             (10) Tenant shall have the right to install a fire suppression
system independent of the Building's systems. Such system shall be connected to
the building's life safety system.

             (11) Tenant shall have the right to modify the Building's sprinkler
system serving its premises to a dry system.

             (12) Tenant shall have the right, at no additional charge, during
the term of this Lease, to use a portion of the roof-top area of not more than
ten (10) square feet for the installation of one (1) GPS antenna (herein the
"Roof Area"). Subsequent installations shall be at Landlord's reasonable
discretion and at Tenant's sole cost and expense. Tenant's use of any portions
of the Building beyond the premises shall be the Tenant's sole risk, cost and
expense and Landlord shall have no responsibility therefore and no liability
on account of any damage to or interference with Tenant's equipment except to
the extent caused by the gross negligence or willful misconduct of Landlord or
any of its agents, employees or contractors. Tenant shall be solely responsible
for installing, operating, maintaining and repairing its equipment at its own
expense in a manner that causes no material interference with or damage to the
roof itself or any other person's or tenant's use of the roof (including
non-interference with other tenants' antennae). Tenant shall perform all of such
work in such a way as to not damage any Building systems or void any warranty
or guaranty relating thereto, and Landlord may require that Tenant use
contractors reasonably approved by Landlord in performing such work.

             (13) Tenant and its affiliates shall have the non-exclusive right
to provide telecommunications services to other tenants in the Building and/or
any other buildings owned by Landlord or its affiliates. Such right shall not
be deemed to be an exclusive right to provide such services and Landlord and/or
any tenant shall be free to choose any telecommunication providers of their
choice. Tenant shall have the right to place the telecommunications equipment
of its customers on the premises and such placement shall not be deemed an
assignment or sublease.

               (14) Before the commencement of any Tenant alterations, Tenant
shall be required to put waterproofing on the floor of the entire premises.

    (b) Indemnification. Tenant will indemnify and hold Landlord harmless from
and against any and all expenses, liens, claims or damages to person or property
which may or might arise directly or indirectly by reason of the making of any
Alterations. If any Alteration is made without the prior written consent of
Landlord, Landlord may correct or remove the same, and Tenant shall be liable
for any and all expenses incurred by Landlord in the performance of this work,
which shall be deemed additional rent due and payable pursuant to Paragraph 17
(d) below. All Alterations in or to the premises or the Building made by either
party shall immediately become the property of Landlord and shall remain upon
and be surrendered with the premises as a part thereof at the end of the term
hereof without disturbance, molestation or injury, Tenant shall, have the right
to remove, prior to the expiration of the term of this Lease, all furniture,
movable furnishings, or movable equipment installed in the premises at the
expense of Tenant. Without limiting the

                                       11
<PAGE>   32



foregoing, Tenant shall have the right to remove its telecommunications
switches and related equipment. If such property of Tenant is not removed by
Tenant prior to the expiration or termination of this Lease the same shall
become the property of the Landlord and shall be surrendered with the premises
as a part thereof; or at Landlord's option may be removed from the premises by
Landlord at Tenant's expense.

SIGNS AND FURNISHINGS   8. (a) Signs. No sign, advertisement or notice shall be
inscribed, painted, affixed or otherwise displayed on any part of the outside
or the inside of the Building except on the directories and the doors of
offices, and then only in such place, number, size, color and style as is
approved by Landlord and provided by Landlord at Tenant's cost and expense; if
any such sign, advertisement or notice is nevertheless exhibited by Tenant,
Landlord shall have the right to remove the same and Tenant shall be liable for
any and all expenses incurred by Landlord in said removal. Landlord shall have
the right to prohibit any advertisement of Tenant which in its opinion tends to
impair the reputation of the Building or its desirability as a high-quality
building for offices or for financial, insurance and other institutions of like
nature, and upon written notice from Landlord, Tenant shall immediately refrain
from and discontinue any such advertisement. Landlord agrees that Tenant may
install premises identification using Tenant's standard logo, trade name and
trade dress.

   (b) Furnishings. Landlord shall have the right to prescribe the weight and
position of safes and other heavy equipment or fixtures, which shall, if
considered necessary by the Landlord, stand on plank strips to distribute the
weight. Tenant shall not place a load upon any floor of the premises exceeding
either the floor load per square foot area which the floor of the premises was
designed to carry, or any maximum floor load allowed by law. Any and all
damage or injury to the premises or the Building caused by moving the property
of Tenant into, in or out of the premises, or due to the same being on the
premises, shall be repaired at the sole cost and expense of Tenant, by either
Landlord, or by Tenant under Landlord's direction and supervision (and in
accordance with Paragraph 7 hereof), at Landlord's option. No furniture,
equipment or other bulky matter of any description will be received into the
Building or carried in the elevators except as approved by Landlord, and all
such furniture, equipment, and other bulky matter shall be delivered only
through the designated delivery entrance of the Building. All moving of
furniture, equipment and other materials shall be performed by Tenant and its
contractors and shall be coordinated with Landlord who shall, however, not be
responsible for any damage to or charges for moving the same. Tenant agrees
promptly to remove from the sidewalks adjacent to the Building any of the
Tenant's furniture, equipment or other material there delivered or deposited.
Landlord warrants and represents to Tenant that the Building has a minimum
floor load of not less than 190 pounds per square foot. Landlord acknowledges
that Tenant's equipment includes very heavy equipment. Landlord will provide
Tenant with building plans and will coordinated with Tenant to chose the best
location for the placement of such equipment. Landlord shall also advise Tenant
of the location of similar equipment within the Building, including on floors
above the Premises. The delivery, moving and installation of such equipment
shall be under the direct supervision and control of Tenant, but shall be
scheduled and coordinated with Landlord.

                                      12
<PAGE>   33
TENANT'S EQUIPMENT   9.  Business machines and mechanical equipment belonging
to Tenant which cause noise or vibration that may be transmitted to the
structure of the Building or to any space herein to such a degree as to be
objectionable to Landlord or to any tenant in the Building, as those standards
are reasonably an commonly accepted in a telecommunications carrier hotel,
shall be installed and maintained by Tenant, at Tenant's expense, on vibration
eliminators or other devices sufficient to eliminate such noise and vibration.
Tenant covenants and agrees that at all times its use of electric current shall
not exceed the capacity of existing feeders to the building or the premises, or
the capacity of the risers or wiring installation in the Building or the
premises. Tenant may not use any electrical equipment which will overload such
installations or interfere with the use thereof by other tenants of the
Building.

ACCESS TO PREMISES   10.  Landlord or Landlord's agents shall have the right
(but shall not be obligated) to enter the Premises at any time during an
emergency, and at other reasonable times, to examine the Premises and to make
such repairs, replacements and improvements to the Premises or any portions of
the Building as Landlord may deem necessary and reasonably desirable or to
perform any work or effect any repairs which Tenant is obligated to perform
under this lease upon Tenant's failure to so perform, or for the purpose of
complying with laws, regulations and other directions of governmental
authorities. Tenant shall permit Landlord to use and maintain and replace pipes
and conduits in and through the premises.

       (a)  Landlord acknowledges that Tenant's Premises, including without
limitation, its switch site area, shall constitute a secure area. Tenant will
be installing elaborate security systems, which may include a palm-reader and a
card access system, to safeguard entry and access to the Premises. Except in
the event of extreme emergency, neither Landlord nor any of its agents or
contractors shall have access to the Premises except upon not less than 48
hours prior written notice to the Tenant, and then only in the presence of an
escort designated by Tenant. In the event of an extreme emergency (for example,
fire, bursting pipes, etc.), Landlord shall have access to the Premises,
provided that Landlord shall first attempt to notify Tenant of such entry by
phone, and Landlord shall be escorted by an employee of Tenant if one is
present on the Premises.

       (b)  Landlord acknowledges that in addition to Tenant's employees,
Tenant's customers shall have access to the Premises at all times, subject only
to such access and security systems and procedures as may be established by
Tenant from time to time. Landlord shall notify Tenant of any work conducted by
Landlord or other Tenants in the building, which may have an impact on the
Premises or Tenant's risers, feeders, or other electrical or telecommunication
equipment throughout the Building. Landlord agrees to coordinate any such work
with Tenant so as to avoid any interruption to the operation of Tenant's
business.

INSURANCE   11.  (a) Insurance Rating. Tenant will not conduct or permit to be
conducted, any activity, or place any equipment in or about the premises or the
Building, which will, in any way, increase the rate of fire insurance or other
insurance on the Building; and if any increase in the rate of fire insurance or
other insurance is stated by any insurance company or by the


                                       13
<PAGE>   34
applicable Insurance Rating Bureau to be due to any specific and unique
activity or equipment of Tenant in or about the premises or the Building, such
statement shall be conclusive evidence that the increase in such rate is due to
such activity or equipment and, as a result hereof, Tenant shall be liable for
such increase and shall reimburse Landlord therefor upon demand and any such sum
shall be considered additional rent due and payable pursuant to Paragraph 17
(d) below. Notwithstanding anything herein to the contrary, Landlord represents
that the Building is insured as a telecommunications switch site facility and
no such use by Tenant consistent therewith shall require Tenant to pay any
additional insurance charges.

       (b)  Liability Insurance.   Tenant shall carry public liability insurance
in a company or companies licensed to do business in the City of Philadelphia
and approved by Landlord, which approval shall not be unreasonably withheld
conditioned, or delayed. Said insurance shall be in minimum amounts approved by
Landlord from time to time (as set forth in the rules and regulations attached
hereto as Exhibit C), shall name Landlord as an additional insured, as its
interests may appear, and shall contain an endorsement that such policy shall
remain in full force and effect notwithstanding that the insured has waived his
right of action against any party prior to the occurrence of a loss. If
requested by Landlord, in writing, receipts evidencing payment for said
insurance shall be delivered to Landlord at least annually by Tenant. Each
policy shall contain an endorsement that will prohibit its cancellation prior to
the expiration of thirty (30) days after notice of such proposed cancellation to
Landlord.

SERVICES AND UTILITIES   12.  It is agreed that the Landlord will furnish
reasonably adequate heat and water. The Landlord will also provide elevator
service by means of automatically operated passenger elevators, provided,
however, that the Landlord shall have the right to temporarily remove elevators
from service as the same shall be required for servicing or maintaining the
elevators and/or the Building, as long as reasonable and safe alternative access
is provided during any such removal. The normal hours of operation of the
Building are 8:00 a.m. to 6:00 p.m. Monday through Friday (except legal
holidays). There are no normal hours of operation of the Building on Saturdays
or Sundays or legal holidays and Landlord shall not be obligated to maintain or
operate the Building at such time unless special arrangements are made by
Tenant. Landlord will furnish all services and utilities required by this Lease
only during the normal hours of operation of the Building, unless otherwise
specified herein. One automatically operated passenger elevator shall be subject
to call at all times. It is understood and agreed that Landlord shall not be
liable for failure to furnish, or for delays, suspensions or reduction in
furnishing, any of the utilities or services required to be performed by
Landlord caused by breakdown, maintenance, repairs, strikes, scarcity of labor
or materials, acts of God, Landlord's conformance to governmental legislation,
regulation, or judicial or administrative orders, except if caused by Landlord's
willful act or gross negligence, or from any other cause whatsoever.
Notwithstanding the above, Tenant shall have twenty-four (24) hour per day,
seven (7) days per week access to the Building and premises.

LIABILITY OF LANDLORD   13.  (a) No Liability, Landlord shall not be liable to
Tenant, its employees, agents, contractors, business invitees, licensees,
customers, clients, family


                                       14
<PAGE>   35
members, or guests for any damage, compensation or claim arising from the
necessity of repairing any portion of the premises or the Building, the
interruption in the use of the premises, accident or damage resulting from the
use or operation (by Landlord, Tenant, or any other person or persons
whatsoever) of elevators, or heating, cooling, electrical or plumbing equipment
or apparatus, or the termination of this Lease by reason of the destruction of
the premises, or from any fire, robbery, theft, and/or any other casualty, or
from any leakage in any part of the Building, or from any other cause
whatsoever. Tenant shall not be entitled to any abatement or diminution of rent
as a result of any of the foregoing occurrences, nor shall the same release
Tenant from its obligations hereunder nor constitute an eviction. Any goods,
property or personal effects, stored or placed by the Tenant in or about the
premises or Building, shall be at the risk of the Tenant, and the Landlord
shall not in any manner be held responsible therefor. Tenant acknowledges that
Landlord will not carry insurances on Tenant's furniture and/or furnishings or
any fixtures, equipment, improvements, or appurtenances removable by Tenant. It
is expressly agreed that Tenant shall look to its property damage insurance
policies, and not to Landlord or its agents or employees, for reimbursement for
any damages or losses incurred as a result of any of the foregoing occurrences,
and that said policies must contain waiver of subrogation clauses. Should
Tenant obtain a judgment against Landlord for any reason whatsoever, Tenant
agrees there shall be no recovery against Landlord in excess of Landlord's
specific partnership assets. The employees of the Landlord are prohibited from
receiving any packages or other articles delivered to the Building by Tenant.

       (b) Indemnity.  Tenant hereby agrees to indemnify and hold Landlord
harmless from and against any cost, damage, claim, liability or expense
(including attorney's fees) incurred by or claimed against Landlord, directly
or indirectly, as a result of or in any way arising from the use and occupancy
of the premises by Tenant or Tenant's employees, agents, contractors, invitees,
licensees, customers, clients, family members, or guests, or in any other
manner which relates to the business of Tenant; provided that Tenant shall not
be liable under this provision to the extent that Landlord is insured for such
hazards and damages under a policy which contains a waiver of subrogation
clause, and is reimbursed by its insurer for its costs, damages, claims,
liabilities or expenses. Tenant's liability under this lease extends to the
acts and omission's of any subtenant and any employee, agent, contractor,
invitee, licensee, customer, client, family ,member or guest of any subtenant.
An such cost, damage, claim, liability or expense incurred by Landlord, for
which Tenant is obligated to reimburse Landlord, shall be deemed additional
rent due and payable pursuant to Paragraph 17 (d) below.

       (c) Defense of any Action.  In case any action or proceeding is brought
against Landlord by reason of any claim under this Paragraph 13, Tenant, upon
written notice from Landlord, will at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Landlord in writing, whose approval
will not  be unreasonably withheld.

RULES AND REGULATIONS   14.  Tenant, its agents, employees, invitees,
licensees, customers, clients, family members and guests shall at all times
abide by and observe the rules and regulations attached hereto as Exhibit C. In
addition, Tenant, its agents, employees, invitees, licensees, customers,
clients, family members and guests shall abide by ana observe such other


                                       15

<PAGE>   36

reasonable rules or regulations as may be promulgated from time to time by
Landlord , with a copy sent to Tenant, for the operation and maintenance of the
Building; provided, however, that the same are in conformity with common
practice and usage in similar buildings and are not inconsistent with the
provisions of this Lease. Nothing contained in this Lease shall be construed to
impose upon Landlord any duty or obligation to enforce such rules and
regulations, or the terms, conditions or covenants contained in any other
lease, as against any other tenant, and Landlord shall not be liable by Tenant
for violation of the same by any other tenant, its employees, agents, business
invitees, licensees, customers, clients, family members or guests, provided
Landlord agrees to enorce such rules and regulations consistently and uniformly
and in a non-discriminate manner. If there is any inconsistency between this
Lease and the rules and regulations set forth in Exhibit C, this Lease shall
govern.

DAMAGE/CONDEMNATION   15.  (a) Damage to the Premises. If the Premises shall be
partially damaged by fire or other cause without the fault or neglect of
Tenant, its employees, agents, licensees, customers, clients, family members or
guests, Landlord shall diligently and as soon as practicable after such damage
occurs (taking into account the time necessary to effectuate a satisfactory
settlement with any insurance company involved) repair such damage at the
expense of Landlord; provided, however, that if the premises or Building is
damaged by fire or other cause to such extent that the damage cannot be fully
repaired within ninety (90) days from the date of such damage, Tenant, upon
written notice to Landlord, may terminate this Lease, in which event the rent
shall be apportioned and paid to the date of such damage. During the period
that Tenant is deprived of the use of the damaged portion of the premises,
Tenant shall be required to pay rent (as set forth in Paragraph 3) covering
only that part of the premises that Tenant is able to occupy and use for the
continuous conduct of Tenant's business and the rent for such space shall be
that portion of the total rent which the amount of square foot area remaining
that can be occupied by Tenant bears to the total square foot area of the
premises, subject however, to further adjustment based on the nature and extent
of any interference with the continuous conduct of Tenant's business. All
injury or damage to the premises or the Building caused by Tenant or its
agents, employees, contractors, licensees, or invitees, shall be repaired at
Tenant's sole cost and expense as provided in Paragraph 6 (b) above.
       (b) Condemnation.   If the whole or a substantial part (as hereinafter
defined) of the premises (or use or occupancy of the premises) shall be taken
or condemned by any governmental or quasi governmental authority for any public
or quasi-public use or purpose (including sale under threat of such a taking),
then the terms of this Lease shall cease and terminate as of the date when
title vests in such governmental or quasi-governmental authority, and the rent
shall be abated on the date when such title vests in such governmental or
quasi-governmental authority. If less than a substantial part of the premises
is taken or condemned by any governmental or quasi-governmental authority for
any public or quasi-public use or purpose (including sale under threat of such a
taking), the rent shall be equitably adjusted (on the basis of the number of
square feet before and after such event) on the date when title vests in such
governmental or quasi-governmental authority and the Lease shall otherwise
continue in full force and effect. Tenant shall



                                       16
<PAGE>   37

have no claim against Landlord (or otherwise) and hereby agrees to make no
claim against the condemning authority for any portion of the amount that may
be awarded as damage as a result of any governmental or quasi-governmental
taking or condemnation (or sale under threat of such taking or condemnation) or
for the value of any unexpired term of the Lease or for loss of profits or
moving expenses or for any other claim or cause of action. For purposes of this
Paragraph 15, a substantial part of the premises shall be considered to have
been taken if more than twenty-five percent (25%) of the premises, or if,
regardless of the amount of space taken, Tenant may not, in its reasonable
business judgment, efficiently operate its business from the remaining
premises, or if its telecommunication feds or equipment are impaired is
unusable by Tenant as a direct result of such taking.

BANKRUPTCY   16.  (a) Events of Bankruptcy. The following shall be Events of
Bankruptcy under this Lease.
         (i) Tenant's becoming insolvent, as that term is defined in Title II of
the United States Code, entitled Bankruptcy II U.S.C. 101 et seq. (the
"Bankruptcy Code"), or under the insolvency laws of any State, District,
Commonwealth or Territory of the United States ("Insolvency laws").
         (ii) the appointment of a receiver or custodian or any or all of
Tenant's property or assets, or the institution of a foreclosure action upon
any of Tenant's real or personal property;
         (iii) the filing of a voluntary petition under the provisions of the
Bankruptcy Code or Insolvency Laws;
         (iv) the filing of an involuntary petition against Tenant as the
subject debtor under the Bankruptcy Code or Insolvency Laws, which is either not
dismissed within thirty (30) days of filing, or results in the issuance of an
order for relief against the debtor, whichever is later; or
         (v) Tenant's making or consenting to an assignment for the benefit of
creditors or a common law composition of creditors.
       (b) Landlord's Remedies
         (i) Termination of Lease.   Upon the occurrence of an Event of
Bankruptcy, Landlord shall have the right to terminate this Lease by giving
written notice to Tenant; provided, however, that this Paragraph 16 (b)(i)
shall have no effect while a case in which Tenant is the subject debtor under
the Bankruptcy Code is pending, unless Tenant or its Trustees in bankruptcy is
unable to comply with the provisions of Paragraphs 16(v) and 16(vi) below.
Otherwise this Lease shall automatically cease and terminate, and Tenant shall
be immediately obligated to quit the premises upon the giving of notice
pursuant to this Paragraph 16(b)(i). Any other notice to quit, or notice of
Landlord's intention to re-enter is hereby expressly waived. If Landlord elects
to terminate this Lease, everything contained in this Lease on the part of
Landlord to be done and performed shall cease without prejudice, subject
however, to the right of Landlord to recover from Tenant all rent and any other
sums accrued up to the time of termination or recovery of possession by
Landlord, whichever is later and any other monetary damages or loss of reserved
rent sustained by Landlord.
       (ii)  Suit for Possession.   Upon termination of this Lease pursuant to
Paragraph 16(b)(i), Landlord may proceed to recover possession under and by
virtue of the Laws of the State of Pennsylvania, the City of Philadelphia, or
by such other proceedings, including reentry and possession, as may be
applicable.


                                      17
<PAGE>   38
      (iii) Reletting of Premises.   Upon termination of this Lease pursuant to
Paragraph 16(b)(i), the premises may be relet by Landlord for such rent and
upon such terms as are not unreasonable under the circumstances and, if the
full rental reserved under this Lease (and any of the costs, expenses, or
damages indicated below) shall not be realized by Landlord, Tenant shall be
liable for all damage sustained by Landlord, including, without limitation,
deficiency in rent, reasonable attorneys' fees, brokerage fees, and expenses of
placing the premises in first class rentable condition. Landlord, in putting
the premises in good order or preparing the same for rerental may, at
Landlord's option, make such alterations, repairs, of replacements in the
premises as Landlord, in Landlord's sole judgment, considers advisable and
necessary for the purpose of reletting the premises, and the making of such
alterations, repairs, or replacements shall not operate or be construed to
release Tenant from liability hereunder as aforesaid. Landlord shall in no
event be liable in any way whatsoever for failure to relet the premises, or in
the event that the premises are relet, for failure to collect the rent thereof
under such reletting, and in no event shall Tenant be entitled to receive any
excess, if any, of such net rent collected over the sums payable by Tenant to
Landlord hereunder.

      (iv) Monetary Damages.   Any damage or loss or rent sustained by Landlord
as a result of an Event of Bankruptcy may be recovered by Landlord, at
Landlord's option, at the time of the reletting, or in separate actions, from
time to time, as said damage shall have been made more easily ascertainable by
successive relettings, or, in a single proceeding deferred until the expiration
of the term of this Lease (in which event Tenant hereby agrees that the cause of
action shall not by deemed to have accrued until the date of expiration of said
term) or in a single proceeding prior to either the time of reletting or the
expiration of the term of this Lease, in which event Tenant agrees to pay
Landlord the difference between the present value of the rent reserved under
this Lease on the date of breach, discounted at eight percent (8%) per annum,
and the fair market value of the Lease on the date of breach. In the event
Tenant becomes the subject debtor in a case under the Bankruptcy Code, the
provisions of this Paragraph 16(b)(iv) may be limited by the limitations of
damage provisions of the Bankruptcy Code.

      (v) Assumption or Assignment by Trustee. In the event tenant becomes the
subject debtor in a case pending under the Bankruptcy Code, Landlord's right to
terminate this Lease Pursuant to this Paragraph 16 shall be subject to the
rights of the Trustee in bankruptcy to assume or assign this Lease unless the
Trustee (A) promptly cures all defaults under this Lease, (B) promptly
compensates Landlord for monetary damages, incurred as a result of such default,
and (C) provides adequate assurance of future performance.

      (vi) Adequate Assurance of Future Performance. Landlord and Tenant hereby
agree in advance that adequate assurance of future performance, as used in
Paragraph 16(b)(v) above, shall mean that all of the following minimum criteria
must be met: (A) the Trustee must pay to Landlord at the time the next payment
of rent is then due under this Lease, in addition to such payment of rent, an
amount equal to the next payment of rent due under this Lease, or the next three
(3) months rent due under this Lease, whichever is greater, said amount to be
held by Landlord in escrow until either the Trustee or Tenant defaults in its
payments of rent or other obligations under this Lease (whereupon Landlord shall
have the right to draw such escrowed funds) or until the expiration of this
Lease (whereupon


                                       18
<PAGE>   39
the funds shall be returned to the Trustee or Tenant); (B) The Tenant or Trustee
must agree to pay to Landlord, at any time the Landlord is authorized to and
does draw on the funds escrowed pursuant to Paragraph 16(b)(vi)(A) above, the
amount necessary to restore such escrow account to the original level required
by said provision; (c) Tenant must pay its estimated pro rata share of the cost
of all services provided by Landlord (whether directly or through agents or
contractors, and whether or not the cost of such services is to be passed
through to Tenant) in advance of the performance or provision of such services;
(D) The Trustee must agree that Tenant's business shall be conducted in a first
class manner, and that no liquidation sales, auctions, or other non-first class
business operations shall be conducted on the premises; (E) The Trustee must
agree that the use of the premises as stated in this Lease will remain
unchanged; (F) The Trustee must agree that the assumption or assignment of this
Lease will not violate or affect the rights of other tenants in the Building.

     (vii) Failure to Provide Adequate Assurance. In the event Tenant is unable
to (A) cure its defaults, (B) reimburse Landlord for its monetary damages, (C)
pay the rent due under this Lease, or any other payments required of Tenant
under this Lease, on time (or within five (5) days of the due date), or (D) meet
the criteria and obligations imposed by Paragraph 16(b)(vi) above, then Tenant
agrees in advance that it has not met its burden to provide adequate assurance
of future performance, and this Lease may be terminated by Landlord in
accordance with Paragraph 16(b)(vi) above.

DEFAULT OF TENANT 17. (a) Events of Default. The following shall be events of
Default under this Lease;

          (i) Tenant's failure to pay any monthly (or annual) installment of
rent (as required by Paragraph 3 or Paragraph 17(b)(iv) hereof) when due;
although no legal or formal demand has been therefor;

          (ii) Tenant's failure to timely make any other payment required under
this Lease, if such failure continues for a period of fifteen (15) days after
Landlord's written notice thereof to Tenant; provided that no such notice shall
be required if Landlord has sent Tenant a similar notice within one hundred
eighty (180) days of such failure; or

          (iii) Tenant's violation or failure to perform any of the other terms,
conditions, covenants or agreements herein made by Tenant, if such violation or
failure continued for a period of ten (10) days after Landlord's written notice
thereof to Tenant; provided that no such notice shall be required if Tenant has
received a similar notice within one hundred eighty (180) days of such violation
or failure. Provided that if any such default is not susceptible to being cured
within thirty (30) days, Tenant's cure period shall be extended for such time as
may be necessary to effect such cure with due diligence.

     (b) Landlord's Remedies. Should an Event or Default occur under this Lease,
Landlord may pursue any or all of the following remedies:

          (i) Termination of Lease. Landlord may terminate this Lease, by giving
written notice to Tenant. This Lease shall automatically cease and terminate,
and Tenant shall be immediately obligated to quit the premises, upon the giving
of notice pursuant to this Paragraph 17(b)(i). If Landlord elects to terminate
this Lease, everything contained in this Lease on the part of Landlord to be
done and performed shall cease without prejudice, subject however, to the right
of Landlord to recover from Tenant all rent and any other sums accrued up to


                                       19



<PAGE>   40





the time of termination or recovery of possession by Landlord, whichever is
later.

     (ii) Suit of Possession. Upon termination of this Lease pursuant to
Paragraph 17(b)(i), Landlord may proceed to recover possession under and by
virtue of the provisions of the State of Pennsylvania, the City of Philadelphia,
or by such other lawful proceedings, including re-entry and possession, as may
be applicable.

     (iii) Reletting of Premises. Should this Lease be terminated before the
expiration of the term of this Lease by reason of Tenant's default as
hereinabove provided, or if Tenant shall abandon or vacate the premises before
the expiration or termination of the term of this Lease without having paid
the rent for the remainder of such term, the premises may be relet by Landlord
for such rent and upon such commercially reasonable terms and, if the full
rental reserved under this Lease (and any of the costs, expenses or damages
indicated below) shall not be realized by Landlord, Tenant shall be liable for
all damages sustained by Landlord, including, without limitation, deficiency in
rent, reasonable attorneys' fees, reasonable brokerage fees, and expenses of
placing the premises in first class rentable condition. Landlord, in putting the
premises in good order or preparing the same for rerental may, at Landlord's
option, make such alterations, repairs, or replacements in the premises as
Landlord, in Landlord's sole reasonable judgment, considers advisable and
necessary for the purpose of reletting the premises, and the making of such
alterations, repairs, or replacements shall not operate or be construed to
release Tenant from liability hereunder as aforesaid. Landlord shall in no event
be liable in anyway whatsoever for failure to relet the demised premises, or in
the event that the demised premises are relet, for failure to collect the rent
thereof under such reletting, and on no event shall Tenant be entitled to
receive any excess, if any, of such net rent collected over the sums payable by
Tenant to Landlord hereunder. Landlord shall use reasonable efforts to mitigate
Tenant's damages and relet the Premises. In the event that the net rent received
by Landlord for any reletting exceeds the rent under this Lease, Tenant shall
not be entitled to such excess, however, any further damages to which Landlord
may be entitled against Tenant shall first be setoff against such excess.

     (iv) Acceleration of Payments. DELETED

     (v) Monetary Damages. Any damage or loss of rent sustained by Landlord may
be recovered by Landlord, at Landlord's option, at the time of the reletting, or
in separate actions, from time to time, as said damage shall have been made more
easily ascertainable by successive relettings, or, in a single proceeding
deferred until the expiration of the term of this Lease (in which event Tenant
hereby agrees that the cause of action shall not be deemed to have accrued until
the date of expiration of said term) or in a single proceeding prior to either
the time of reletting or the expiration of the term of this Lease, in which
event Tenant agrees to pay Landlord the difference between the present value of
the rent reserved under this Lease on the date of breach, discounted at eight
percent (8%) per annum, and the fair market value of the rent reserved under
Lease on the date of breach.

     (vi) Anticipatory Breach; Cumulative Remedies. DELETED

    (c) Waiver. If, under the provisions hereof, Landlord shall institute
proceedings against Tenant and a compromise or settlement thereof shall be made,
the same shall not constitute a waiver of any other covenant, condition or
agreement herein contained, nor of any of Landlord's rights hereunder. No waiver

                                       20


<PAGE>   41


by Landlord of any breach of any covenant, condition or agreement herein
contained shall operate as a waiver of such covenant, condition, or agreement
itself, or of any subsequent breach thereof. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly installments of rent here in
stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement on any check or letter
accompanying a check for payment of rent be deemed in accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such rent or to pursue any other remedy provided
in the Lease. No re-entry by Landlord, and no acceptance by Landlord of keys
from Tenant, shall be considered an acceptance of a surrender of the Lease. In
the event it is necessary for Landlord to consult legal counsel or file suit
against Tenant, Tenant shall pay any reasonable attorney's fees incurred by
Landlord, and same shall be additional rent due and payable pursuant to
Paragraph 17(d) below. If, under the provisions hereof, Tenant shall institute
proceedings against Landlord and a compromise or settlement thereof shall be
made, the same shall not constitute a waiver of any other covenant, condition or
agreement herein contained, nor any of Tenant's rights hereunder. No waiver by
Tenant of any breach of any covenant, condition or payment herein contained
shalloperated as a waiver of such covenant, condition or agreement itself, or
any subsequent breach thereof.

     (d) Right of Landlord to Cure Tenant's Default. If Tenant defaults in the
making of any payment or in the doing of any act herein required to be made or
done by Tenant, then, after notice and the expiration of any applicable cure
period, Landlord may, but shall not be required to, make such payment or do such
act, and charge the amount of the expense thereof, if made or done by Landlord,
with interest thereon at the rate per annum which is two percent (2%) greater
than the "prime rate" then in effect at Citibank, N.A. in New York City, from
the date paid by Landlord to the date of payment thereof by Tenant; provided,
however, that nothing herein contained shall be construed or implemented in such
a manner as to allow Landlord to charge or receive interest in excess of the
maximum legal rate then allowed by law. Such payment and interest shall
constitute additional rent hereunder due and payable with the first monthly
installment of rent due after rendition of a statement or bill therefor, or if
payments have been accelerated pursuant to Paragraph 17(b)(iv) above, within
fifteen (15) days after rendition of such statement or bill; provided that the
making of such payment or the taking of such action by Landlord shall not
operate to cure such default or to estop Landlord from the pursuit of any remedy
to which Landlord would otherwise be entitled.

     (e) Late Payment. If Tenant fails to pay any installment of rent (in
accordance with Paragraph 3, and together with any additional rent due
therewith) on or before the seventh (7th) day of the calendar month when such
installment becomes due and payable, Tenant shall pay to Landlord a late charge
of five percent (5%) of the amount of such installment, and, in addition, such
unpaid installment shall bear interest at the rate per annum which is two
percent (2%) greater than the "prime rate" then in effect at Citibank, N.A. in
New York City from the date such installment became due and payable to the date
of payment thereof by Tenant; provided, however, that nothing herein contained
shall be construed or implemented in such a manner as to allow Landlord to
charge or receive interest in excess of the maximum legal rate then allowed by
law. Such late charge and interest shall constitute additional rent hereunder


                                       21
<PAGE>   42
due and payable with the next monthly installment of rent due, or if payments
have been accelerated pursuant to Paragraph 17(b)(iv) above, due and payable
immediately.

     (f) Lien on Personal Property. DELETED

SUBORDINATION ATTORNMENT 18. This Lease is subject and subordinate to all ground
or underlying leases and to all mortgages which may now or hereafter affect such
leases on the real property of which the demised premises are a part and all
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying leases or by any mortgages, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Landlord may request. If, in
connection with the obtaining, continuing or renewing of financing for which the
real property of which the demised premises are a part represents collateral in
whole or in part, a banking, insurance or other lender shall request reasonable
modifications of this Lease as a condition of such financing, Tenant will not
unreasonably withhold or delay its consent thereto, provided that such
modifications do not increase the obligations of Tenant hereunder or materially
and adversely affect the rights of Tenant under this Lease.

If at any time prior to the expiration of the term, any underlying lease of the
property of which the demised premises are a part shall terminate or be
terminated for any reason, or if the holder of any superior mortgage on such
underlying lease or on such real property shall become the lessee under such
underlying lease or become the owner of such real property as a result of
foreclosure of its mortgage or by reason of a conveyance of such real property,
or if the holder of any superior mortgage shall obtain a new lease in lieu of
any terminated underlying lease by foreclosure or otherwise, or shall become a
mortgagee in possession of such real property, upon the occurrence of any such
event Tenant agrees, at the election and upon demands of any such owner of the
real property, or of any such holder of any superior mortgage (including a
leasehold mortgage) in possession of such real property, or of any such lessee
under any other underlying lease, covering premises which include the demised
premises, to attorn, from time to time, to any such owner, holder, or lessee,
upon the then executory terms and conditions of the lease, provided that such
owner, holder or lessee, as the case may be, shall then be entitled to
possession of the demised premises. The foregoing provisions of this Article
shall enure to the benefit of any such owner, holder or lessee, shall apply
notwithstanding that, as a matter of law, this lease may terminate upon the
termination of any underlying lease, shall be self-operative upon any such
demand, and no further instrument shall be required to give effect to said
provisions. Tenant, however, upon demand of any such owner, holder or lessee,
agrees to execute, from time to time, instruments in confirmation of the
foregoing provisions of this Article, satisfactory to any such owner, holder or
lessee, acknowledging such attornment and setting forth the terms and conditions
of its tenancy. Nothing contained in this Article shall be construed to impair
any right otherwise exercisable by any such owner, holder or lessee. Landlord
agrees that, prior to the Commencement Date, Landlord shall obtain for Tenant a
Subordination and Non-Disturbance

                                       22
<PAGE>   43
Agreement from any existing mortgagee of the Property, under which Tenant shall
agree to subordinate this Lease to said mortgage provided that the mortgagee
shall agree not to disturb Tenant's possession and to recognize this Lease in
the event of foreclosure or other action in lieu thereof, as long as the Tenant
continues to pay and perform its obligations hereunder in accordance with the
terms hereof.

POSSESSION/HOLDING OVER   19. (a) Possession.  DELETED
     (b)  Holding Over.  In the event that Tenant shall not immediately
surrender the premises on the date of expiration of the term hereof, Tenant
shall, by virtue of the provisions hereof, become a tenant by the month at one
hundred fifty percent (150%) of the monthly rent, including all additional
rent, in effect during the last month of the term of this Lease, which said
monthly tenancy shall commence with the first day next after the expiration of
the term of this Lease. Tenant, as a monthly tenant, shall by subject to all of
the terms, conditions, covenants and agreements of this Lease.  Tenant shall
give to Landlord at least thirty (30) days written notice of any intention to
quit the premises, and Tenant shall be entitled to thirty (30) days written
notice to quit the premises.

SECURITY DEPOSIT  20.  Simultaneously with the execution of the Lease, Tenant
shall deposit with the Landlord the sum of sixty-one thousand two hundred fifty
and 00/100 Dollars ($61,250.00), as a security deposit.  Such security deposit
(which shall not bear interest to Tenant unless required to do so by any
provision of law) shall be considered as security for the payment and
performance by Tenant of all of Tenant's obligations, covenants, conditions
and agreements under the Lease.  Upon the expiration of the term hereof (or any
renewal or extension thereof in accordance with this Lease), Landlord shall
(provided that Tenant is not in default under the terms hereof) return and pay
back such security deposit to Tenant, less such portion thereof as Landlord
shall have appropriated to make good any default by Tenant with respect to any
of Tenant's aforesaid obligations, covenants, conditions or agreements.  In the
event of any default by Tenant hereunder during the term of this Lease,
Landlord shall have the right, but shall not be obligated, to apply all of any
portion of the security deposit to cure such default, in which event Tenant
shall be obligated promptly to deposit with Landlord the amount necessary to
restore the security deposit to its original amount.  In the event of the sale
or transfer of Landlord's interest in the Building, Landlord shall have the
right to transfer the security deposit to such purchaser or transferee, in
which event Tenant shall look only to the new landlord for the return of the
security deposit and Landlord shall thereupon be released from all liability to
Tenant for the return of such security deposit.

COVENANTS OF LANDLORD  21.  (a) Quiet Enjoyment.  Landlord covenants that it
has the right to make this Lease for the term aforesaid, and that if Tenant
shall pay the rent and perform all of the covenants, terms, conditions and
agreements of this Lease to be performed by Tenant, Tenant shall, during the
term hereby created, freely, peaceably and quietly occupy and enjoy the full
possession of the premises without molestation or hinderance by Landlord or any
party claiming through or under Landlord, subject to provisions of Paragraph
(b) hereof.
     (b) Reservation.  Landlord hereby reserves to itself and its successors
and assigns the following rights (all of which are

                                       23
<PAGE>   44
hereby consented to by Tenant); (i) to change the street address and/or name of
the Building and/or the arrangement and/or location of entrances, passageways,
doors, doorways, corridors, elevators, stairs, toilets, or other public parts of
the Building, (ii) to use and maintain pipes and conduits in and through the
premises, and (iii) to grant to anyone the exclusive right to conduct any
particular business or undertaking in the Building.  No action taken by Landlord
pursuant to this Section shall interfere with them Tenant's business, use of the
Premises, or any of its telecommunications equipment, nor shall the granting of
any exclusive right to any other Tenant take precedence over Tenant's right to
conduct its business on the Premises, or any other lawful use permitted
hereunder.  No change made by Landlord shall interfere with Tenant's use of or
access to Premises and the appurtenances thereto, including Tenant's
telecommunications equipment, nor unreasonably inconvenience Tenant or
substantially diminish the useable space leased to Tenant.

MISCELLANEOUS  22. (a) No Representations by Landlord.  Tenant acknowledges that
neither Landlord nor any broker, agent or employee of Landlord has made any
representations or promises with respect to the premises or the Building except
as herein expressly set forth, and no rights, privileges, easements or
licenses are acquired by Tenant except as herein expressly set forth.  The
Tenant, by taking possession of the premises, shall accept the same "as is".
If, prior to taking possession of the premises, Tenant inspects the premises
and discovers any defects in the premises or violations of the building code
or other applicable law, Tenant shall not have the option of terminating this
Lease but shall immediately notify Landlord in writing of such defect, or
violation, and Landlord shall have thirty (30) days to cure such defect or
violation, which period may be extended if such defect or violation cannot
reasonably be cured in such thirty (30) day period and Landlord has taken
appropriate action during such period to cure same.

     (b)  No Partnership.  Nothing contained in this Lease shall be deemed or
construed to create a partnership or joint venture of or between Landlord and
Tenant, or to create any other relationship between the parties hereto other
than that of Landlord and Tenant.

     (c)  Brokers.  Landlord recognizes Colliers, Lanard & Axilbund and
Insignia Jackson Cross as the brokers procuring this Lease and shall pay said
broker a commission therefor pursuant to a separate agreement between said
broker and Landlord.  Landlord and Tenant each represent and warrant one to
another that except as set forth herein neither of them has employed any
broker, agent or finder in carrying on the negotiations relating to this
Lease.  Landlord shall indemnify and hold Tenant harmless, and Tenant shall
indemnify and hold Landlord harmless, from and against any claim or claims for
brokerage or other commission arising from or out of any breach of the foregoing
representation and warranty by the respective indemnitors.

    (d)  Estoppel Certificates.  Each party agrees, at any time and from time to
time, upon not less than ten (10) days prior written notice from the other
party, to execute, acknowledge and deliver to Landlord written statements or
other documents (i) certifying that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the Lease is in full
force and effect as modified and stating the modifications), (ii) stating the
dates to which the rent and any other charges hereunder have been paid by
Tenant, (iii)

                                       24
<PAGE>   45
stating whether or not to the best of its knowledge of Tenant, Landlord is in
default in the performance of any covenant, agreement or condition contained in
this Lease, and if so specifying each such default of which such party may have
knowledge, (iv) stating that this Lease is subject and subordinate to the Lien
of any deed of trust, mortgage, or other security instrument which may in the
future encumber or affect the Building, and any renewals, extensions,
modifications, recastings or refinancings thereof, and that if requested to do
so, Tenant will attorn to a secured party or purchaser that succeeds to
Landlord's interests as a result of any foreclosure action on the Building, and
(v) stating the address to which notices to Tenant should be sent. Any such
statement delivered pursuant hereto may be relied upon by any owner of the
Building or the Land, any prospective purchaser of the Building or the Land, any
mortgage or prospective mortgagee of the Building or the Land or of Landlord's
interest in either, or any prospective assignee of any such mortgagee.

       (e) Waiver of Jury Trial. Landlord and Tenant hereby waive trial by jury
in any action, proceeding or counterclaim brought by either of the parties
hereto against the other on or in respect of any matter whatsoever arising out
of or in any way connected with this Lease, the relationship of Landlord and
Tenant hereunder, Tenant's use or occupancy of the premises, and/or any claim of
injury or damage.

       (f) Notices. All notices or other communications hereunder shall be in
writing and shall be deemed duly given if hand delivered (with receipt
therefor), or if delivered by certified or registered mail, return receipt
requested, first-class, postage prepaid, or by a nationally recognized
overnight delivery service providing evidence of receipt, (i) if to Landlord at
Callowhill Management, Inc., 401 North Broad Street, Philadelphia, Pennsylvania
19108, with copy to Callowhill Management, Inc., c/o The Stillman Group, 670
White Plains Road, Scarsdale, New York 10583, and (ii) if to Tenant, at Net2000
Communications Services, Inc., 2180 Fox Mill Road, Herndon, Virginia 20171,
Attention: Legal Department, unless notice of a change of address is given
pursuant to the provisions of this article. If any notice sent by certified or
registered mail is returned to the sender by the United States Post Office as
undeliverable, notice shall be deemed duly given when mailed.

       (g) Governing Law. This Lease shall be construed and enforced in
accordance with the laws of the city of Philadelphia and State of Pennsylvania.
It is expressly understood that if any present or future law, ordinance,
regulation or order requires an occupancy permit for the premises, Tenant will
obtain such permit at Tenant's own expense.

       (h) Invalidity of Particular Provisions. If any provision of this Lease
or the application thereof to any person or circumstances shall to any extent
be invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and be enforced to the fullest extent permitted by
law.

       (i) Gender and Number. Feminine or neuter pronouns shall be substituted
for those of the masculine form, and the plural shall be substituted for the
singular number, in any place or places herein in which the context may require
such substitution.

       (j) Benefit and Burden. The provisions of this Lease shall be binding
upon, and shall inure to the benefit of, the parties hereto and each of their
respective representatives, successors

                                       25
<PAGE>   46
and assign. Landlord may freely and fully assign its interest hereunder,
provided the assignee assumes Landlord's obligations hereunder.

       (k) Captions. The captions and headings herein are for convenience of
reference only and in no way define or limit the scope or content of this Lease
or any provision thereof.

       (l) Entire Agreement. This Lease, together with the Exhibits attached
hereto, contains and embodies the entire agreement of the parties hereto, and
no representations, inducements or agreements, oral or otherwise, between the
parties not contained in this Lease and the Exhibits, shall be of any force or
effect. This Lease may not be modified, changed or terminated in whole or in
part in any manner other than by an agreement in writing duly signed by both
parties hereto.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal on
the day and year first hereinabove written.

ATTEST:

- ---------------------------------------
(Corporate Seal)

LANDLORD: Callowhill Management, Inc.

By:
   ------------------------------------

TENANT: Net2000 Communications Real Estate, Inc.

By:             [SIG]
   ------------------------------------

       The undersigned Broker hereby executes this Lease solely to agree to the
provisions of Paragraph 22(e) hereof.


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

BROKER:

By:
   ------------------------------------

                                       26
<PAGE>   47
       RIDER TO LEASE AGREEMENT BETWEEN CALLOWHILL MANAGEMENT, INC. AND
          NET2000 COMMUNICATIONS REAL ESTATE, INC. DATED December 15,
                                      1999

ELECTRIC CURRENT 23. (a) In addition to all rent and other charges provided for
in this Lease, Tenant shall pay Landlord for all electric current consumed by
Tenant at the demised premises. The cost to Tenant of all such electric current
shall be calculated at the General Service (GS) Rate of PECO Energy (PECO)
without regard to any other electric current used in the building, as such
rates may from time to time be increased decreased by such utility company.

       (b) The electric current consumed by Tenant at the demised premises
shall be determined by Tenant's meter. The electric current consumed by Tenant
at the demised premises shall be measured by such meter. Any installation by
Landlord of such a meter shall be performed at the expense of Tenant.

       (c) Payment of all amounts due hereunder from Tenant to Landlord for
electric current, other than such amounts which are determined by metering,
shall be made monthly in advance together with the rent due under this Lease.
Payment of all amounts due hereunder from Tenant for electric current which are
determined by metering shall be made by Tenant within thirty (30) days of the
date of each bill submitted by Landlord to Tenant therefor. Landlord shall bill
Tenant for all such amounts determined by meters not more often than monthly.

       (d)       (e)

       (f) Tenant shall provide and install, at Tenant's sole cost and expense,
all lamps, tubes, bulbs, starters, ballasts, transformers and like items used
or required in the demised premises.

       (g) Landlord shall not be liable to Tenant for any loss, damage or
expense which Tenant may sustain if the quality or character of electric
service furnished to the demised premises is changed, or if such service is no
longer available or suitable for Tenant's requirements, or if the supply of
electric current ceases or is interrupted or reduced as a result of any cause
other than Landlord's negligence or willful default. At any time during the
term hereof, Landlord may upon thirty (30) days prior written notice to Tenant
discontinue furnishing electric current to the demised premises without thereby
affecting this Lease in any manner or otherwise incurring any liability to
Tenant and Landlord shall in such case no longer be obligated to furnish
electric current to the demised premises. If Landlord shall give Tenant notice
of such intention to cease furnishing electric current to the demised premises
Tenant may contract for and receive such electric current directly from the
utility company then serving the Building, and if Tenant does so, Landlord
shall permit Tenant, at Tenant's sole cost, to use the portion of Landlord's
electrical distribution system then serving the demised premises to bring
electric current to the demised premises to the extent that such portion of
such system is available, suitable and may be safely so used, consistent with
concurrent and anticipated future use of the same, by Landlord and other
tenants in the Building; provided however, that Tenant, at Tenant's cost and
expense, shall furnish and install at such location in the Building as Landlord
shall designals, and maintain and keep in repair, any necessary metering
equipment used in connection with measuring Tenant's consumption of electric
current so supplied directly to Tenant by such utility company and any
necessary additional panel board, feeders, risers, wiring and other conductors
and

                                       27
<PAGE>   48
equipment which may be required to enable Tenant to obtain such electric
current. Landlord shall supply electric current of not less than 65 amps at
13,200KV for Tenant's consumption. Tenant shall take the electric current from
the main building service entry and install its own switches, transformer,
panel, risers, feeders and other distribution equipment for Tenant's use.
Tenant shall also have the right to install a diesel generator and fuel storage
tanks in Tenant's space on the Track level for supplementary and/or emergency
service to the Premises. Notwithstanding anything herein to the contrary, if
the character or quality of electric service to the Premises is changed,
altered, reduced or impaired so as to materially adversely affect Tenant's
ability to conduct business from the Premises, or if electric service is
interrupted for a period of thirty (30) days or more, Tenant shall have the
following rights and remedies: (1) the right to terminate the Lease, without
recourse, or (2) the right to abate the Base Rent, additional rent and other
charges due hereunder in full until such time as the electric power to the
Premises is fully restored.

24. DELETED

25.  (a) DELETED
     (b) When this Lease shall be terminated or when and as soon as the Term
shall have expired, it shall be lawful for any attorney as attorney for Tenant
to file an agreement for entering in any competent Court an amicable action and
judgment in ejectment against Tenant and all persons claiming under Tenant for
the recovery by Landlord of possession of the Demised Premises, for which this
Lease shall be his sufficient warrant, whereupon, if Landlord so desires, a
writ of Execution or of Possession may issue forthwith, without any prior writ
or proceeding whatsoever, and provided that if for any reason after such action
shall have been commenced the same shall be terminated and the possession of
the Demised Premises remain in or be restored to Tenant, Landlord shall have
the right upon any subsequent termination or expiration of this Lease, to bring
one or more amicable action or actions as hereinbefore set forth to recover
possession of the Demised Premises.

26.  OPTIONS TO EXTEND. Tenant is hereby granted three (3) consecutive
five-year options to extend ("Options to Extend") this Lease under the terms,
conditions, and provisions of this Lease, except that the monthly basic rent
for each of the five-year extension terms shall be at then-current market rent.
If Tenant intends to exercise any of its Options to Extend, Tenant shall give
Landlord written notice of its election to exercise the applicable Option to
Extend not less than six (6) months prior to the termination of the Original
Term or the extended term, as applicable. If Tenant fails to exercise any
Option to Extend the Original Term, the succeeding Option(s) to Extend shall
terminate and be of no further force or effect.



                                       28
<PAGE>   49
                                   EXHIBIT B

                         WORK AGREEMENT AND ALLOWANCES


Reference is made to a certain Agreement of Lease dated December 15, 1999 (the
"Lease") to which this Work Agreement and Allowances is attached. Definition of
terms are set forth in the Lease.

Landlord shall, at Landlord's sole cost and expense, on or before the
commencement date, do the following work ("Landlord's Work):

1.  Deliver the premises demolished and broom-clean with all
    windows repaired or replaced, as necessary, to weathertight
    condition.

2.  Construct a building standard demising wall and entrance
    doors. Entrance doors will be in a location acceptable to
    Tenant.

3.  Remove any asbestos from the premises.

At the time of delivery, the Premises and Building shall be in compliance with
all applicable building and safety laws, rules and ordinances and the building
electrical, mechanical and utility systems to be used by Tenant shall be in
good working order and sufficient for Tenant's intended use. Tenant shall, at
Tenant's sole cost and expense, have the right to perform alterations to the
premises by selecting a general contractor, construction manager,
subcontractor, architect and engineer of its choice, subject to Landlord's
reasonable approval. Landlord shall not receive any profit or charge any
supervisory fees for Tenant's alterations.

Prior to commencing any alterations, Tenant shall submit plans and
specifications to Landlord for approval and, if Landlord fails to approve or
disapprove within five (5) business days after submission, the same shall be
deemed approved by Landlord. Landlord shall notify Tenant at the time of plan
approval of all fixtures and equipment which must be removed at the end of the
term.



Initials of:


- ----------------------------------
Landlord








                                       29
<PAGE>   50









[sig]
- ----------------------------------
Tenant







                                       30
<PAGE>   51
                                   EXHIBIT C

                             RULES AND REGULATIONS

Reference is made to a certain Agreement of Lease dated December 15, 1999, (the
"Lease") to which these rules and regulations are attached. Definition of terms
are set forth in the Lease.

The following rules and regulations have been formulated for the safety and
well being of all tenants of the Building and to insure compliance with all
municipal and other requirements. Strict adherence to these rules and
regulations is necessary to guarantee that each and every tenant will enjoy a
safe and unannoyed occupancy in the Building in accordance with the Lease. Any
continuing violation of these rules and regulations by Tenant, after notice
from Landlord, shall be sufficient cause for termination of the Lease, at the
option of Landlord.

Landlord may, upon request by any tenant, waive the compliance by such tenant
to any of the foregoing rules and regulations, provided that (i) no waiver
shall be effective unless signed by Landlord or Landlord's authorized agent,
(ii) any such waiver shall not relieve such tenant from the obligation to
comply with such rule or regulation in the future unless expressly consented to
the Landlord, (iii) no waiver granted to any tenant shall relieve any other
tenant from the obligation of complying with the rules and regulations unless
such other tenant has received a similar waiver in writing from the Landlord,
and (iv) any such waiver by Landlord shall not relieve Tenant from any
obligation or liability of Tenant to Landlord pursuant to the Lease for any
loss or damage occasioned as a result of Tenant's failure to comply with any
such rule or regulation.

  1.  The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls or other parts of the Building not occupied by
any tenant shall not be obstructed or encumbered by any tenant or used for any
purpose other than ingress and egress to and from the premises and if the
premises are situated on the ground floor of the Building, the tenant thereof
shall, at said tenant's own expense, keep the sidewalks and curb directly in
front of premises clean and free from ice and snow. Landlord shall have the
right to control and operate the public portions of the Building, and the
facilities furnished for common use of the tenants, in such manner as Landlord
deems best for the benefit of the tenants generally. No tenant shall permit the
visit to the premises of persons in such numbers or under such conditions as to
interfere with the use and enjoyment by other tenants of the entrances,
corridors, elevators and other public portions or facilities of the Building.

  2.  No awnings or other projections shall be attached to the outside walls of
the Building without the prior written consent of Landlord. No drapes, blinds,
shades, or screens shall be attached to or hung in, or used in connection with,
any window or door of the premises, without the prior written consent of
Landlord. Such awnings, projections, curtains, blinds, shades, screens or other
fixtures must be of a quality, type, design and color, and attached in the
manner approved by Landlord.



                                       31
<PAGE>   52
3. No show cases or other articles shall be put in front of or affixed to any
part of the exterior of the Building, nor placed in the halls, corridors or
vestibules without the prior written consent of Landlord.

4. The water and wash closets and other plumbing fixtures shall not be used for
any purposes other than those for which they were constructed, and no sweepings,
rubbish, rags, or other substances shall be thrown therein. All damages
resulting from any misuse of the fixtures shall be borne by the tenant who, or
whose servants, employees, agents, visitors or licensees, shall have caused the
same.

5. There shall be no marking, painting, drilling into or in any way defacing the
Building or any part of the premises visible from public areas of the Building.
Tenant shall not construct, maintain, use or operate within the premises any
electrical device, wiring or apparatus in connection with a loud speaker system
or other sound system, except as reasonably required for its communication
system and approved prior to the installation thereof by Landlord. No such loud
speaker or sound system shall be constructed, maintained, used or operated
outside of the premises.

6. No bicycles, vehicles or animals, birds or pets of any kind shall be brought
into or kept in or about the premises, and no cooking (except for hot-plate
cooking by Tenant's employees for their own consumption, the location and
equipment of which is first approved by Landlord) shall be done or permitted by
any tenant on the premises. No tenant shall cause or permit any unusual or
objectionable odors to be produced upon or permeate from the premises.

7. No tenant shall make any unseemingly or disturbing noises or disturb or
interfere with occupants of this or neighboring buildings or premises or those
having business with them whether by the use of any musical instrument, radio,
talking machine, unmusical noise, whistling, singing, or in any other way. No
tenant shall throw anything out of the doors or windows or down the corridors or
stairs.

8. No inflammable, combustible or explosive fluid, chemical or substance shall
be brought or kept upon the premises.

9. No additional locks or bolts of any kind shall be placed upon any of the
doors, or windows by any tenant, nor shall any changes be made in existing locks
or the mechanism thereof. The doors leading to the corridors or main halls shall
be kept closed during business hours except as they may be used for ingress or
egress. Each tenant shall, upon the termination of his tenancy, restore to the
Landlord all keys of stores, offices, storage and toilet rooms either furnished
to, or otherwise procured by, such tenant, and in the event of the loss of any
keys so furnished, such tenant shall pay to Landlord the cost thereof. Tenant's
key system shall be separate from that for the rest of the Building.

10. Landlord reserves the right to inspect all freight to be brought into the
Building and to exclude from the Building all freight which violates any of
these rules and regulations on the Lease.

                                       32
<PAGE>   53

11. No tenant shall pay any employees on the premises, except those actually
working for such tenant on the premises.

12. Landlord reserves the right to exclude from the Building at all times any
person who is not known or does not properly identify himself to the Building
management or watchman on duty. Landlord may, at its option, require all persons
admitted to or leaving the Building between the hours of 6:00 p.m. and 8:00
a.m., Monday through Friday, and at any hour, Saturdays, Sundays and legal
holidays, to register. Each tenant shall be responsible for all persons for whom
he authorizes entry into or exit out of the Building, and shall be liable to
Landlord for all acts or omissions of such persons.

13. The promises shall not, at any time, be used for lodging or sleeping or for
any immoral or illegal purpose.

14. Each tenant, before closing and leaving the premises at any tine, shall see
that all windows are closed and all lights turned off.

15. Landlord's employees shall not perform any work or do anything outside of
the regular duties, unless under special instruction from the management of the
Building. The requirements of tenants will be attended to only upon application
to Landlord and any such special requirements shall be billed to Tenant (and
paid with the next installment of rent due) at the schedule of charges
maintained by Landlord from time to time or at such charge as is agreed upon in
advance by Landlord and Tenant.

16. Canvassing, soliciting and peddling in the Building is prohibited and each
tenant shall cooperate to prevent the same.

17. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards and Tenant shall be responsible to Landlord for any loss or
damage resulting from any deliveries of Tenant's to the Building.

18. Mats, trash or other objects shall not be placed in the public corridors.

19. Landlord does not maintain suite finishes which are nonstandard, such as
kitchens, bathrooms, wallpaper, special lights, etc. However, should the need
for repairs of items not maintained by Landlord arise, Landlord will arrange for
the work to be done at Tenant's expense.

20. Drapes installed by Landlord for the use of Tenant or drapes installed by
Tenant, which are visible from the exterior of the Building, must be cleaned by
Tenant at least once a year, without notice, at Tenant's own expense.

21. The amount of liability insurance required to be maintained by Tenant
pursuant to 11(b) of the lease is $500,000 for injury to one (1) person and $2
million for injury to a number of persons in a single occurrence and $100,000
for damage to property. Landlord may, from time to time require Tenant to
increase its insurance coverage to an amount determined by Landlord to be
satisfactory in Landlord's sole but reasonable

                                       33
<PAGE>   54

judgment. All such insurance policies shall contain waiver of subrogation
clauses.

Initials of:

- -----------------------------------
Landlord

- -----------------------------------
Tenant

                                       34

<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINACIAL INFORMATION EXTRACTED FROM NET2000
COMMUNICATIONS INC., FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED MARCH
31, 2000. (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
</LEGEND>

<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-START>                             JAN-01-2000
<PERIOD-END>                               MAR-31-2000
<CASH>                                         191,248
<SECURITIES>                                         0
<RECEIVABLES>                                   10,826
<ALLOWANCES>                                   (2,120)
<INVENTORY>                                          0
<CURRENT-ASSETS>                               204,486
<PP&E>                                          98,297
<DEPRECIATION>                                 (7,140)
<TOTAL-ASSETS>                                 302,092
<CURRENT-LIABILITIES>                           26,645
<BONDS>                                              0
                                0
                                          0
<COMMON>                                           377
<OTHER-SE>                                     197,414
<TOTAL-LIABILITY-AND-EQUITY>                   302,092
<SALES>                                         10,612
<TOTAL-REVENUES>                                10,612
<CGS>                                            8,519
<TOTAL-COSTS>                                    8,519
<OTHER-EXPENSES>                                19,347
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                             (2,083)
<INCOME-PRETAX>                               (18,241)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                           (18,241)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                (4,724)
<CHANGES>                                            0
<NET-INCOME>                                  (22,965)
<EPS-BASIC>                                     (1.49)
<EPS-DILUTED>                                   (1.49)


</TABLE>


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