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

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                      FOR THE YEAR ENDED DECEMBER 31, 1999

                         Commission File Number: 0-24061

                                  US LEC CORP.
             (Exact name of registrant as specified in its charter)

                DELAWARE                          56-2065535
     (State or other jurisdiction of           (I.R.S. Employer
      incorporation or organization)          Identification No.)

                       401 NORTH TRYON STREET, SUITE 1000
                         CHARLOTTE, NORTH CAROLINA              28202
               (Address of principal executive offices)      (Zip Code)

       Registrant's telephone number, including area code: (704) 319-1000

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF ACT: NONE.

         Securities registered pursuant to Section 12(g) of Act: Class A Common
Stock, par value $.01 per share.

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes No [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         The aggregate market value of voting stock of the registrant held by
non-affiliates of the registrant was $ 454,741,141 as of March 17, 2000 based on
the closing sales price on The Nasdaq National Market as of that date. For
purposes of this calculation only, affiliates are deemed to be directors and
executive officers of the registrant.

         As of March 17, 2000, there were 10,443,541 shares of Class A Common
Stock and 17,075,270 shares of Class B Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
         Portions of the registrant's Annual Report to Stockholders for the year
ended December 31, 1999 are incorporated by reference into Part I, Part II and
Part IV of this report. Portions of the registrant's Proxy Statement for its
Annual Meeting of Stockholders to be held on May 9, 2000 are incorporated by
reference into Part III of this report.

<PAGE>

                                  US LEC CORP.
                         1999 ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                                         Page
                                                                                                                        ------
PART I

<S>                   <C>                                                                                               <C>
Item 1:              Business                                                                                              3

Item 2:              Properties                                                                                           21

Item 3:              Legal Proceedings                                                                                    21

Item 4.              Submission of Matters to a Vote of Security Holders                                                  21



PART II

Item 5:              Market for the Registrant's Common Stock and Related Stockholder Matters                             22

Item 6:              Selected Consolidated Financial Data                                                                 22

Item 7:              Management's Discussion and Analysis of Financial Condition and Results

                     of Operations                                                                                        22

Item 7A:             Quantitative and Qualitative Disclosures About Market Risk                                           22

Item 8:              Financial Statements and Supplementary Data                                                          22

Item 9.              Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                 22



PART III

Item 10:             Directors and Executive Officers of the Registrant                                                   22

Item 11:             Executive Compensation                                                                               22

Item 12:             Security Ownership of Certain Beneficial Owners and Management                                       22

Item 13:             Certain Relationships and Related Transactions                                                       23



PART IV

Item 14:             Exhibits, Financial Statement Schedules and Reports on Form 8-K                                      24
</TABLE>



<PAGE>

                                     PART I

ITEM 1.  BUSINESS

THE COMPANY


         US LEC Corp. ("US LEC" or the "Company") is a provider of integrated
telecommunications services, including: local, long distance, data, Internet and
enhanced services to customers in selected markets in North Carolina, Georgia,
Tennessee, Florida, Virginia, Alabama, Pennsylvania, Mississippi, South
Carolina, Kentucky, Washington D.C. and Maryland. The Company is also currently
certified to provide telecommunications services in Delaware, New Jersey, Texas,
Massachusetts, New York and Ohio. The predecessor to US LEC was incorporated in
June 1996 after passage of the Telecommunications Act of 1996 ("Telecom Act"),
which enhanced the competitive environment for local exchange services. On
December 31, 1996, the original corporation was merged into US LEC L.L.C., a
limited liability company. On December 31, 1997, in anticipation of an initial
public offering, US LEC L.L.C. was merged into US LEC. US LEC initiated service
in North Carolina in March 1997, becoming one of the first competitive local
exchange carriers ("CLEC") in North Carolina to provide switched local exchange
services. US LEC's network is comprised of seventeen Lucent 5ESS(R) AnyMedia(TM)
digital switches in Charlotte, Raleigh/Durham, Greensboro/Winston Salem,
Atlanta, Memphis, Nashville, Knoxville, Orlando, Miami, Tampa/St. Petersburg,
Jacksonville, Norfolk/Virginia Beach, Richmond, Birmingham, Philadelphia,
Northern Virginia/Washington D.C., and Baltimore, in addition to an Alcatel
MegaHub(R) 600ES switch in Charlotte. The Company primarily serves
telecommunications-intensive customers including businesses, universities,
financial institutions, professional service firms and practices, hospitals,
enhanced service providers, Internet service providers, hotels, and government
agencies. As of February 29, 2000, the Company had over 52,500 business trunks,
over 34,100 Internet service provider ("ISP")/enhanced service provider ("ESP")
trunks, and over 15,100 business lines in service.


BUSINESS STRATEGY


         US LEC's objective is to become a leading provider of integrated
telecommunications and data services to its existing and target customers and to
increase its market share by increasing its product portfolio and by providing
exceptional customer service. The principal elements of US LEC's business
strategy include:


         DEPLOY A CAPITAL-EFFICIENT NETWORK. US LEC utilizes a "smart-build"
strategy of purchasing and deploying switching equipment and leasing the
required fiber optic transmission capacity from competitive access providers
("CAPs"), other CLECs and incumbent local exchange carriers ("ILECs").
Management believes the Company's switch-based, leased-transport strategy
enables it to enter markets and generate revenue and positive cash flow more
rapidly than if the Company first constructed its own transmission facilities.
By leasing fiber transport, this smart-build strategy also reduces the up-front
capital expenditures required to build a network and enter new markets and avoid
the risk of "stranded" investment in under-utilized fiber networks. Management
also believes that the Company's ability to align its leased transmission costs
with customer orders permits a higher return on invested capital.


         FOCUS OF OPERATIONS. The Company focuses its network build out and
marketing presence in target markets composed of Tier I cities (major
metropolitan areas such as Atlanta, Miami, Washington D.C. and Philadelphia) and
Tier II cities (mid-size metropolitan areas such as Greensboro, Tampa and
Nashville). The Company has selected its target markets based on a number of
considerations, including the number of potential customers and other
competitors in such markets and the presence of multiple transmission facility
suppliers. The Company currently focuses on markets in the Southeast and
Mid-Atlantic United States. Management believes that the Company's clustered
network will enable it to take advantage of calling patterns and capture an
increasing portion of customer traffic on its network.

         TARGET TELECOMMUNICATIONS-INTENSIVE CUSTOMERS. The Company focuses its
primary sales efforts on telecommunications-intensive customers including
businesses, universities, financial institutions, professional service firms and
practices, hospitals, enhanced service providers, ISP's, hotels, and government
agencies. The volume of usage generated by the Company's target customers allows
the Company to efficiently concentrate the telecommunications traffic of its
customers. In addition, the Company frequently is able to sell enhanced, long
distance and data services to complement its core local services. This further
enhances network utilization

<PAGE>

and thereby improves margins, as fixed network costs are spread over a larger
base of minutes of use. Unlike many other CLECs, the Company does not resell
ILEC services.

         INSTALL A ROBUST TECHNOLOGY PLATFORM. The Company has chosen the
5ESS(R) Any Media(TM) digital switch manufactured by Lucent Technologies, Inc.
("Lucent") to provide a consistent technology platform throughout its network.
US LEC currently has 17 Lucent switches active throughout its network. To
enhance its service offerings, the Company deployed an Alcatel MegaHub(R) 600ES
("Alcatel") tandem switch in Charlotte. The Alcatel switch complements the
Lucent switches and improves US LEC's ability to provide enhanced services. The
Company has also deployed an Advanced Intelligent Network ("AIN") platform. This
AIN platform positions US LEC for enhanced services as well as allows the
Company Signaling System No. 7 ("SS7") connectivity independent of the ILECs.

         EMPLOY AN EXPERIENCED SALES FORCE. Management believes that the
Company's success in a particular market is enhanced by employing a direct sales
force with extensive local market and telecommunications sales experience. The
Company employed this strategy in building its sales force. Salespeople with
experience in a particular market provide the Company with extensive knowledge
of the Company's target customer base and in many cases have existing
relationships with target customers.

         IMPLEMENT EFFICIENT PROVISIONING PROCESSES WITH STATE-OF-THE-ART BACK
OFFICE SUPPORT. Management believes that a critical aspect of the success of a
CLEC is timely and effective provisioning systems, which includes the process of
transitioning ILEC customers to the Company's network. The Company focuses on
implementing effective and timely provisioning practices to efficiently
transition customers from the ILEC or other CLECs to the Company with minimal
disruption of the customer's operations. Among other things, US LEC is approved
by Lockheed Martin as a provider of Local Number Portability ("LNP") for its
customers. In addition, the US LEC Network Operations Center ("NOC") houses the
tools to monitor its network. The NOC provides network surveillance, real-time
alarm notification, dispatch services, and 24 hour x 7 day a week availability
and notification.

         OFFER A BROAD RANGE OF PRODUCTS AND SERVICES. US LEC offers customers a
broad range of telecommunication services, which can be bundled. Management
believes a broad product range, competitive pricing, and an opportunity to
bundle services gives US LEC customers an exceptional value. Local network
access is available in many forms including Integrated Services Digital Network
("ISDN"), Primary Rate Interface ("PRI"), T1 Access and Channel Access ("DSO").
Multiple local access services are also available, including business lines,
Private Branch Exchange ("PBX") trunks and Foreign Exchange trunks. US LEC also
offers its customers calling card, enhanced toll-free, digital private line,
dedicated high-speed internet access and competitively priced long distance
service, including intrastate, interstate, international and toll-free calls. US
LEC's efforts to add additional data products (such as frame relay and digital
subscriber line (DSL)) is consistent with the predominant trend in the
telecommunications industry of adding data products and services to traditional
voice products. To further this objective, the Company has deployed its
Asynchronous Transfer Mode ("ATM") and AIN platforms. These systems provide the
Company the ability to develop and offer advanced communications products and
services, such as Frame Relay and e-commerce services that are critical to
businesses throughout the United States.

US LEC'S NETWORK

         During 1999, the Company installed new Lucent 5ESS(R) Any Media(TM)
digital switches in five new cities, bringing the total to 16 local switches at
the end of 1999. During the first quarter of 2000, the Company activated its
seventeenth Lucent switch in Baltimore. The Company has announced plans to
activate additional Lucent switches in Chattanooga, Charleston, New York,
Boston, Pittsburgh, Atlanta, Louisville, New Orleans and West Palm Beach
bringing its total number of switches to 26 in addition to an Alcatel MegaHub(R)
600ES switch in Charlotte.

         US LEC utilizes a "smart build" strategy of purchasing and deploying
switching equipment and leasing fiber optic transmission capacity from CAPs,
other CLECs and ILECs.

         Calls originating with a US LEC customer are transported over leased
lines to the US LEC switch and can either be terminated directly on the
Company's network or routed to a long distance carrier, an ILEC or another CLEC,
depending on the location of the call recipient. Similarly, calls originating
from the public switched telephone network and destined for a US LEC customer
are routed through the US LEC switch and delivered to call recipients via leased
transmission facilities.

<PAGE>

         The Company has signed interconnection agreements with various ILECs,
including BellSouth Telecommunications, Inc. ("BellSouth"), GTE, Sprint, Bell
Atlantic and other carriers. These agreements provide the framework for the
Company to serve its customers when other local carriers are involved. The
agreement with BellSouth covers all states in BellSouth's operating area in
which US LEC operates. The interconnection agreement with BellSouth expired on
December 31, 1999 but continues in force until new interconnection agreement is
reached. When signed, the new agreement will be effective as of January 1, 2000.


PRODUCTS AND SERVICES

         The Company provides local dial-tone services to customers. Local
access is available in many different forms including ISDN, PRI, T1 Access and
Channel Access. The Company's network is designed to allow a customer to easily
increase or decrease capacity and utilize enhanced services as the
telecommunications requirements of the customer change. The Company also
provides access to third party directory assistance and operator services.

         US LEC provides domestic and international long distance services for
completing intrastate, interstate and international calls. The Company also
provides toll-free services and typical enhanced services such as voice mail.

         The Company is also adding data products to its portfolio of products.
Most notably, the Company now offers US LECnet, a direct, dedicated, high-speed
connection to the Internet. With US LECnet, the Company can bundle voice, data
and Internet access all on a single, converged, high-speed, digital access
facility. US LECnet can also be provisioned on separate facilities.

         The Company's ability to bundle local, long distance and data services
allows it to offer its customers more efficient use of transport facilities and
allows it to aggregate customers' monthly recurring and usage charges on a
single, consolidated invoice.

SALES AND MARKETING

         SALES. US LEC is building a highly motivated and experienced direct
sales force. The Company recruits salespeople with strong sales backgrounds in
its existing and target markets, including salespeople from long distance
companies, telecommunications equipment manufacturers, network systems
integrators, CLECs and ILECs. The Company expanded its sales force from 98
salespeople at December 31, 1998 to 180 salespeople at December 31, 1999 and
management expects to further increase the Company's sales force to
approximately 300 salespeople by the end of 2000. The Company plans to continue
to attract and retain highly qualified salespeople by offering them an
opportunity to work with an experienced management team in an entrepreneurial
environment and to participate in the potential economic rewards made available
through a results-oriented compensation program. The Company also utilizes
independent sales agents to identify and maintain customers.

         MARKETING. In its existing markets, US LEC seeks to position itself as
a high quality alternative to ILECs for local telecommunication services by
offering network reliability, bundled products and superior customer support at
competitive prices. The Company is building its reputation and brand identity by
working closely with its customers to develop services tailored to their
particular needs and by implementing targeted product offerings and promotional
efforts.

         The Company primarily uses three service marks: US LEC, a logo that
includes US LEC, and THE COMPETITIVE TELEPHONE COMPANY. These service marks have
been registered either on the principal or the supplemental register of the U.S.
Patent and Trademark Office for uses related to telecommunications services. The
Company also has pending trademark applications for these marks.

         CUSTOMER SERVICE. Management believes that the Company's ability to
provide superior customer service is a key factor in acquiring new customers and
reducing churn of existing customers. The Company has developed a customer
service strategy that is designed to effectively meet the service requirements
of its target customers. The principal salesperson for each customer provides
the first line of customer service by identifying and resolving any customer
needs. An account development representative is assigned to each customer to
supervise all aspects of customer relations and to provide a single point of
contact for all customer service issues. To support this locally-based team, the
Company also has a centrally based customer service and NOC team.

<PAGE>

         BILLING. US LEC outsources the preparation of customer bills, which are
available in a variety of formats to meet a customer's specific needs. US LEC
offers customers simplicity and convenience by sending one bill for all services
and the bill is sent out within a few days after the billing cycle.


SIGNIFICANT CUSTOMER

         In fiscal 1997, 1998, and 1999, BellSouth, operating in the majority of
the Company's markets, accounted for approximately 65%, 80%, and 70%,
respectively, of the Company's net revenue (before reduction for the $12.0
million and $27.8 million allowance in 1998 and 1999, respectively, described in
Note 6 to the Company's consolidated financial statements). The majority of this
revenue for 1998 and 1999 was generated from reciprocal compensation. Although
reciprocal compensation owed to the Company by BellSouth is not a customer
relationship in the traditional sense, BellSouth is shown here due to the
significant contribution to revenue. At December 31, 1997, 1998, and 1999,
BellSouth accounted for 67%, 94%, and 92% of the Company's total accounts
receivable before allowance, respectively. The majority of such receivables and
revenues are in dispute. The majority of these disputed receivables and revenues
have resulted from traffic associated with Metacomm, LLC ("Metacomm"), a
customer of the Company and BellSouth, and which became a related party to the
Company during 1998 (see Notes 6 and 8 to the Company's consolidated financial
statements).


EMPLOYEES

         As of December 31, 1999, the Company employed 460 people. The Company
expects to employ over 750 people by the end of 2000. The Company considers its
employee relations to be very good.


EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain information regarding the
executive officers of US LEC Corp:

<TABLE>
<CAPTION>
                 Name                       Age     Position
                 ----                       ---     --------
                 <S>                        <C>     <C>
                 Richard T. Aab             50      Chairman of the Board and Director
                 Tansukh V. Ganatra         56      Vice Chairman, Chief Executive Officer and Director
                 Aaron D. Cowell, Jr.       37      President
                 Michael K. Robinson        43      Executive Vice President and Chief Financial Officer
                 Robert D. Ingram           54      Executive Vice President-Engineering and Chief Technical Officer
</TABLE>


         RICHARD T. AAB co-founded US LEC in June 1996 and has served as
Chairman of the Board of Directors since that time. He also served as Chief
Executive Officer from June 1996 until July 1999. In 1982, he co-founded ACC
Corp., a publicly-traded international telecommunications company that was
acquired by Teleport Communications Group, Inc. ("Teleport") in 1998. Teleport
was subsequently acquired by AT&T. Between 1982 and 1997, Mr. Aab held various
positions with ACC Corp. including Chairman and Chief Executive Officer and
served as a director. Under Mr. Aab's leadership, ACC Corp. participated in the
introduction of competition into local and long distance telecommunications
markets in the United States, Canada and the United Kingdom.

         TANSUKH V. GANATRA co-founded US LEC in June 1996 and has served as a
director since that time. He also served as President and Chief Operating
Officer from June 1996 until July 1999, when he was named President and Chief
Executive Officer. In January 2000, he was named Vice Chairman and Chief
Executive Officer. Mr. Ganatra is a specialist in the field of intelligent
switching technology and transport network systems. From 1987 to 1997, Mr.
Ganatra held various positions with ACC Corp., including serving as its
President and Chief Operating Officer. Prior to joining ACC Corp., Mr. Ganatra
held various positions during a 19-year career with Rochester Telephone Corp.
(now Frontier Corp.), culminating with the position of Director of Network
Engineering.

         AARON D. COWELL, JR. joined US LEC in June 1998 as Executive Vice
President and General Counsel. He was named President in January 2000. Prior to
joining US LEC, Mr. Cowell was a partner with Moore & Van Allen, PLLC, a large
southeastern law firm. Mr. Cowell focussed on business and transactional law,
specializing in mergers and acquisitions. He also represented
telecommunications-related businesses throughout his career in private practice.
At Moore & Van Allen, he represented US LEC since its initial incorporation in
1996. He has been

<PAGE>

involved in numerous operating areas of US LEC's business and legal affairs,
including its IPO in April 1998. Mr. Cowell is a graduate of Harvard Law School.

         MICHAEL K. ROBINSON has been US LEC's Executive Vice President of
Finance and Chief Financial Officer since July 1998. Prior to joining US LEC,
Mr. Robinson held positions with the Telecom sector of Alcatel, an international
telecommunications equipment company headquartered in Paris, France. From 1996
to the July 1998, Mr. Robinson was Executive Vice President and Chief Financial
Officer of Alcatel Data Networks, developers and manufacturers of wide area
network data switching equipment for carrier and enterprise solutions, based in
Ashburn, Virginia. He was responsible for financial controls, treasury,
contracts management, information systems, and facilities. In addition to his
duties at Alcatel Data Networks, Mr. Robinson was responsible for the worldwide
financial operations of the Enterprise and Data Networking division for Alcatel.
From 1989 to 1995, Mr. Robinson was Vice President and Chief Financial Officer
with Alcatel Network Systems in Raleigh, North Carolina, and then in Richardson,
Texas. The company develops, manufactures, and markets transmission equipment
for telecommunications systems. Prior to joining Alcatel, Mr. Robinson held
various management positions with Windward International and Siecor Corp. He
brings over 14 years of telecommunications experience to US LEC. Mr. Robinson is
a graduate of the MBA program at Wake Forest.

         ROBERT D. INGRAM joined US LEC in September 1999 as its Executive Vice
President - Engineering and Chief Technology Officer. Mr. Ingram has almost 30
years of experience in the telecommunications industry. Immediately prior to
joining US LEC, Mr. Ingram served in the capacity of Vice President - Planning,
Engineering and Construction for Citizens Communications in Dallas, Texas, a
telecommunications provider operating approximately one million access lines in
13 states. In this role, Mr. Ingram was responsible for the integration of
engineering and construction activities in widely dispersed operating units. He
was instrumental in the implementation of Citizens' data services, in addition
to planning their network architecture and equipment selection for introducing
high-speed digital services, and he has extensive experience with both voice and
data networks. Previously, Mr. Ingram spent 22 years with Rochester Telephone in
similar functions.


REGULATION

         The following summary of regulatory developments and legislation does
not purport to describe all present and proposed federal, state and local
regulations and legislation affecting the telecommunications industry. Other
existing federal and state legislation and regulations are currently the subject
of judicial proceedings, legislative hearings and administrative proposals which
could change, in varying degrees, the manner in which this industry operates.
Neither the outcome of these proceedings, nor their impact upon the
telecommunications industry or the Company, can be predicted at this time. This
section also includes a brief description of regulatory and tariff issues
pertaining to the operation of the Company.

         OVERVIEW. The Company's services are subject to varying degrees of
federal, state and local regulation. The Federal Communications Commission (the
"FCC") generally exercises jurisdiction over the facilities of, and services
offered by, telecommunications common carriers that provide interstate or
international communications. The state regulatory commissions (herein "PUCs")
retain jurisdiction over the same facilities and services to the extent they are
used to provide intrastate communications.

         FEDERAL LEGISLATION. The Company must comply with the requirements of
common carriage under the Communications Act of 1934, as amended (the
"Communications Act"). The Telecom Act, enacted on February 8, 1996,
substantially revised the Communications Act. The Telecom Act establishes a
regulatory framework for the introduction of local competition throughout the
United States and was intended to reduce unnecessary regulation to the greatest
extent possible. Among other things, the Telecom Act preempts, after notice and
an opportunity for comment, any state or local government from prohibiting any
entity from providing telecommunications service.

         The Telecom Act also establishes a dual federal-state regulatory scheme
for eliminating other barriers to competition faced by competitors to the
incumbent local exchange carriers and other new entrants into the local
telephone market. Specifically, the Telecom Act imposes on ILECs certain
interconnection obligations, some of which are implemented by FCC regulations.
The Telecom Act contemplates that states will apply the federal regulations and
oversee the implementation of all aspects of interconnection not subject to FCC
jurisdiction as they oversee interconnection negotiations between ILECs and
their new competitors.

         The FCC has significant responsibility in the manner in which the
Telecom Act will be implemented especially in the areas of pricing, universal
service, access charges and price caps. The details of the rules adopted by

<PAGE>

the FCC will have a significant effect in determining the extent to which
barriers to competition in local services are removed, as well as the time frame
within which such barriers are eliminated.

         The PUCs also have significant responsibility in implementing the
Telecom Act. Specifically, the states have authority to establish
interconnection pricing, including unbundled loop charges, reciprocal
compensation and wholesale pricing consistent with the FCC regulations. The
states are also charged under the Telecom Act with overseeing the arbitration
process for resolving interconnection negotiation disputes between CLECs and the
ILECs and must approve interconnection agreements, and resolve contract
compliance disputes arising from interconnection agreements. See "Business --
Forward Looking Statements and Risk Factors -- Uncertainties Related to
Reciprocal Compensation" for a discussion of the actions before PUCs related to
its interconnection agreement with BellSouth.

         The Company has historically earned a significant portion of its
initial revenue in some markets from the ILEC in the form of reciprocal
compensation payments due to the Company. Several ILECs in the Company's
territory (principally BellSouth) have challenged the applicability of the
reciprocal compensation related to enhanced service providers and ISP customers
receiving more calls than they make. See "Business -- Forward Looking Statements
and Risk Factors -- Uncertainties Related to Reciprocal Compensation". (See Note
6 to the Company's Consolidated Financial Statements).

         The obligations imposed on ILECs by the Telecom Act to promote
competition, such as local number portability, dialing parity, reciprocal
compensation arrangements and non-discriminatory access to telephone poles,
ducts, conduits and rights-of-way also apply to CLECs, including the Company. As
a result of the Telecom Act's applicability to other telecommunications
carriers, it may provide the Company with the ability to reduce its own
interconnection costs by interconnecting directly with non-ILECs, but may also
cause the Company to incur additional administrative and regulatory expenses in
responding to interconnection requests. At the same time, the Telecom Act also
makes competitive entry into other service or geographic markets more attractive
to Regional Bell Operating Companies ("RBOC"), other ILECs, long distance
carriers and other companies and likely will increase the level of competition
the Company faces. See "Business - Competition".

         In addition, the Telecom Act provided that ILECs that are subsidiaries
of RBOCs could not offer in-region, long distance services across LATAs until
they had demonstrated that (i) they have entered into an approved
interconnection agreement with a facilities-based CLEC or that no such CLEC has
requested interconnection as of a statutorily determined deadline, (ii) they
have satisfied a 14-element checklist designed to ensure that the ILEC is
offering access and interconnection to all local exchange carriers on
competitive terms and (iii) the FCC has determined that in-region, inter-LATA
approval is consistent with the public interest, convenience and necessity.
Recently, the FCC approved Bell Atlantic's right to provide interLATA service in
New York, which is the only interLATA application by an RBOC that has been
approved to date. See "Business -- Forward Looking Statements and Risk
Factors--Regulation".

         FEDERAL REGULATION AND RELATED PROCEEDINGS. The Telecom Act and the
FCC's efforts to initiate reform have resulted in numerous legal challenges. As
a result, the regulatory framework in which the Company operates is subject to a
great deal of uncertainty. Any changes that result from this uncertainty could
have a material adverse effect on the Company. The FCC has adopted orders
eliminating tariff filing requirements for non-dominant carriers providing
interstate access and domestic interstate long distance services. However, on
February 13, 1997, the United States Court of Appeals for the District of
Columbia (the "D.C. Court of Appeals") granted motions for stay of the FCC order
detariffing domestic interstate long distance service pending judicial review of
that order. The result of this stay is that carriers must continue to file
tariffs for interstate long distance services. Tariff filing requirements remain
in place for international traffic. US LEC has filed federal interstate long
distance, interstate access and international tariffs.

         The FCC also has proposed reducing the level of regulation that applies
to the ILECs, and increasing their ability to respond quickly to competition
from the Company and others. For example, in accordance with the Telecom Act,
the FCC has applied "streamlined" tariff regulation to the ILECs, which greatly
accelerates the time prior to which changes to tariffed service rates may take
effect, and has eliminated the requirement that ILECs obtain FCC authorization
before constructing new domestic facilities. These actions will allow ILECs to
change service rates more quickly in response to competition. Similarly, the FCC
has afforded significant new pricing flexibility to ILECs subject to price cap
regulation. On August 5, 1999, the FCC adopted an order granting price cap ILECs
additional pricing flexibility. The order provides certain immediate regulatory
relief regarding price cap ILECs and sets forth a framework of "triggers" to
provide those companies with greater flexibility to set rates for interstate
access services. The order also initiated a rulemaking to determine whether the
FCC should regulate the access charges of CLECs, such as the Company. To the
extent such increased pricing flexibility is utilized for ILECs or

<PAGE>

such additional regulation is implemented, the Company's ability to compete with
ILECs for certain service could be adversely affected.

         The FCC has taken several actions related to the assignment of
telephone numbers, first in July 1995 mandating the responsibility for
administering and assigning local telephone numbers be transferred from the
RBOCs and a few other ILECs to a neutral entity, and second in July 1996
adopting a regulatory structure under which a wide range of number portability
issues would be resolved. In March 1997, the FCC affirmed its number portability
rules, but it extended slightly certain deadlines for the implementation of true
number portability. The FCC has established cost recovery rules for long-term
number portability.

         On August 8, 1996, the FCC issued an order containing rules providing
guidance to the ILECs, CLECs, long distance companies and PUCs regarding several
provisions of the Telecom Act. The rules include, among other things, FCC
guidance on: (i) discounts for end-to-end resale of ILEC retail local exchange
services (which the FCC suggested should be in the range of 17%-25%); (ii)
availability of unbundled local loops and other unbundled ILEC network elements;
(iii) the use of Total Element Long Run Incremental Costs in the pricing of
these unbundled network elements; (iv) average default proxy prices for
unbundled local loops in each state; (v) mutual compensation proxy rates for
termination of ILEC/CLEC local calls; and (vi) the ability of CLECs and other
service providers to opt into portions of previously-approved interconnection
agreements negotiated by the ILECs with other parties on a most favored nation
(or a "pick and choose") basis. See "Regulation -- Eighth Circuit Court of
Appeals Decision and Supreme Court Reversal" for a discussion of the Eighth
Circuit Court of Appeals decision related to this order.

         On May 8, 1997, the FCC released an order establishing a significantly
expanded federal universal service program which subsidized certain eligible
services. For example, the FCC established new subsidies for services provided
to qualifying schools and libraries with an annual cap of $2.25 billion and for
services provided to rural health care providers with an annual cap of $400
million. The FCC also expanded the federal subsidies to low-income consumers and
consumers in high-cost areas. Providers of interstate telecommunications
service, such as the Company, as well as certain other entities, must pay for
these programs. The Company's share of the schools, libraries and rural health
care funds is based on its share of the total industry telecommunications
service and certain defined telecommunications end user revenues. The Company's
share of all other federal subsidy funds is based on its share of the total
interstate telecommunications service and certain defined telecommunications end
user revenues. Although the Company has made minimal contributions to the fund,
the amount of the Company's required contribution changes each quarter. As a
result, the Company cannot predict the effect these regulations will have on the
Company in the future. In the May 8 order, the FCC also announced that it will
revise its rules for subsidizing service provided to consumers in high cost
areas. The United States Court of Appeals for the Fifth Circuit upheld those
rules.

         In a combined Report and Order and Notice of Proposed Rulemaking
released on December 24, 1996, the FCC made changes and proposed further changes
in the interstate access charge structure. In the Report and Order, the FCC
removed restrictions on an ILEC's ability to lower access prices and relaxed the
regulation of new switched access services in those markets where there are
other providers of access services. If this increased pricing flexibility is not
effectively monitored by federal regulators, it could have a material adverse
effect on the Company's ability to compete in providing interstate access
services. On May 16, 1997, the FCC released an order revising its access charge
rate structure. The new rules substantially increase the costs that ILECs
subject to the FCC's price cap rules ("price cap LECs") recover through monthly,
non-traffic sensitive access charges and substantially decrease the costs that
price cap ILECs recover through traffic sensitive access charges. In the May 16
order, the FCC also announced its plan to bring interstate access rate levels
more in line with cost. The plan will include rules to be established that grant
price cap LECs increased pricing flexibility upon demonstrations of increased
competition (or potential competition) in relevant markets. The manner in which
the FCC implements this approach to lowering access charge levels could have a
material effect on the Company's ability to compete in providing interstate
access services. Several parties have appealed the May 16 order. Those appeals
were consolidated and transferred to the United States Court of Appeals for the
Eighth Circuit which upheld the Commission's rules.

         As part of its overall plan to lower interstate access rates, the FCC
also released an order on May 21, 1997, in which the FCC revised its price cap
rules. In the May 21 order, the FCC increased the so-called X-Factor (the
percentage by which price cap LECs must lower their interstate access charges
every year, net of inflation and exogenous cost increases) and made it uniform
for all price cap LECs. The results of these rule changes will be both a
one-time overall reduction in price cap LEC interstate access charges and an
increase in the rate at which those charges will be reduced in the future.
Several parties have appealed the May 21 order. Those appeals were

<PAGE>

consolidated and transferred to the United States Court of Appeals for the Tenth
Circuit. They have been subsequently transferred to the D.C. Court of Appeals
where they are currently pending.

         On February 26, 1999, the FCC issued a declaratory ruling and notice of
proposed rulemaking concerning ISP traffic. The FCC concluded in its ruling that
ISP traffic is jurisdictionally interstate in nature. The FCC has requested
comment as to what reciprocal compensation rules should govern this traffic upon
expiration of existing interconnection agreements. The FCC also determined that
no federal rule existed that governed reciprocal compensation for ISP traffic at
the time existing interconnection agreements were negotiated and concluded that
it should permit states to determine whether reciprocal compensation should be
paid for calls to ISPs under existing interconnection agreements. In light of
the FCC order, state commissions which previously addressed this issue and
required reciprocal compensation to be paid for ISP traffic may reconsider and
may modify their prior rulings. To date, four PUCs in states where the Company
has earned reciprocal compensation have affirmed their prior position on this
issue. The FCC order has been appealed by several parties. On March 24, 2000,
the United States Court of Appeals for the D.C. Circuit vacated the FCC's
February 26, 1999 declaratory ruling and remanded it back to the FCC. The D.C.
Circuit Court of Appeals found that the FCC failed to clearly explain and
support why ISP traffic should fall under its jurisdiction as long distance in
nature rather than under the domain of state regulators as local in nature. This
ruling means the FCC will have to reexamine its rules covering reciprocal
compensation for ISP traffic. The Company cannot predict the results of such
reexamination.

         The Company also anticipates that the FCC will initiate a number of
additional proceedings, of its own volition and as a result of requests from
CLECs and others, as a result of the Telecom Act.

         The FCC also requires carriers to file periodic reports concerning
carriers interstate circuits and deployment of network facilities. The FCC
generally does not exercise direct oversight over cost justification and the
level of charges for services of non-dominant carriers, although it has the
power to do so. The FCC also imposes prior approval requirements on transfers of
control and assignments of operating authorizations. The FCC has the authority
to generally condition, modify, cancel, terminate, or revoke operating authority
for failure to comply with federal laws or rules, regulations and policies of
the FCC. Fines or other penalties also may be imposed for such violations. There
can be no assurance that the FCC or third parties will not raise issues with
regard to the Company's compliance with applicable laws and regulations.

         EIGHTH CIRCUIT COURT OF APPEALS DECISIONS AND THE SUPREME COURT
REVERSAL. Various parties, including ILECs and state PUCs, requested that the
FCC reconsider its own rules and/or filed appeals of the FCC's August 8, 1996
order.

         The U.S Court of Appeals for the Eighth Circuit ("8th Circuit") held
that, in general, the FCC does not have jurisdiction over prices for
interconnection, resale, leased unbundled network elements and traffic
termination. The 8th Circuit also overturned the FCC's "pick and choose" rules
as well as certain other FCC rules implementing the Telecom Act's local
competition provisions. In addition, the 8th Circuit decisions substantially
limited the FCC's authority to enforce the local competition provisions of the
Telecom Act. On January 25, 1999, U.S. Supreme Court reversed the 8th Circuit
and upheld the FCC's authority to issue regulations governing pricing of
unbundled network elements provided by the ILECs in interconnection agreements
(including regulations governing reciprocal compensation). In addition, the
Supreme Court affirmed the "pick and choose" rules which allows carriers to
choose individual portions of existing interconnection agreements with other
carriers and to opt-in only to those portions of the interconnection agreement
that they find most attractive. The Supreme Court did not, however, address
other challenges raised about the FCC's rules at the 8th Circuit because the 8th
Circuit did not decide those challenges. These challenges will now have to be
addressed by the 8th Circuit in light of the Supreme Court's decision. In
addition, the Supreme Court disagreed with the standard applied by the FCC for
determining whether an ILEC should be required to provide a competitor with
particular unbundled network elements. On remand, the FCC largely retained its
list of unbundled elements, but eliminated the requirement that ILECs provide
unbundled access to local switching for customers with four or more lines in the
top 50 MSAs, and the requirement to provide unbundled operator service and
directory assistance.

         The 8th Circuit decisions and the reversal by the Supreme Court
continue to create uncertainty about the rules governing pricing terms and
conditions of interconnection agreements. This uncertainty makes it difficult to
predict whether the Company will be able to rely on existing interconnection
agreements or have the ability to negotiate acceptable interconnection
agreements in the future.

         STATE REGULATION. The Company has all of the certifications necessary
to offer its current services in the states of:

<PAGE>

              STATE
              -----

              North Carolina
              Georgia
              Virginia
              Tennessee
              South Carolina
              Florida
              Alabama
              Washington, D.C.
              Pennsylvania
              Maryland
              Delaware
              New Jersey
              New York
              Massachusetts
              Kentucky
              Mississippi
              Ohio
              Texas

         The Company has applications pending with the following PUCs:
              Connecticut
              Louisiana

         To the extent that an area within a state in which the Company operates
is served by a small (in line counts) or rural ILEC not currently subject to
competition, the Company generally does not have authority to service those
areas at this time. Most states regulate entry into local exchange and other
intrastate service markets, and states' regulation of CLECs vary in their
regulatory intensity. The majority of states mandate that companies seeking to
provide local exchange and other intrastate services apply for and obtain the
requisite authorization from the PUC. This authorization process generally
requires the carrier to demonstrate that it has sufficient financial, technical,
and managerial capabilities and that granting the authorization will serve the
public interest.

         As a CLEC, the Company is subject to the regulatory directives of each
state in which the Company is certified. In addition to tariff filing
requirements, most states require that CLECs charge just and reasonable rates
and not discriminate among similarly situated customers. Some states also
require the filing of periodic reports, the payment of various regulatory fees
and surcharges, and compliance with service standards and consumer protection
rules. States also often require prior approvals or notifications for certain
transfers of assets, customers or ownership of a CLEC. States generally retain
the right to sanction a carrier or to revoke certifications if a carrier
violates relevant laws and/or regulations.

         In all of the states where US LEC is certified, the Company is required
to file tariffs or price lists setting forth the terms, conditions and/or prices
for services which are classified as intrastate. In some states, the Company's
tariff may list a range of prices or a ceiling price for particular services,
and in others, such prices can be set on an individual customer basis, although
the Company may be required to file tariff addenda of the contract terms. The
Company is not subject to price cap or to rate of return regulation in any state
in which it currently provides services.

         As noted above, the states have the primary regulatory role over
intrastate services under the Telecom Act. The Telecom Act allows state
regulatory authorities to continue to impose competitively neutral and
nondiscriminatory requirements designed to promote universal service, protect
the public safety and welfare, maintain the quality of service and safeguard the
rights of consumers. PUCs will implement and enforce most of the Telecom Act's
local competition provisions, including those governing the specific charges for
local network interconnection. In some states, those charges are being
determined by generic cost proceedings and in other states they are being
established through arbitration proceedings. Depending on how such charges are
ultimately determined, such charges could become a material expense to the
Company.

<PAGE>

COMPETITION

         As noted above, the regulatory environment in which the Company
operates is changing rapidly. The passage of the Telecom Act combined with other
actions by the FCC and state regulatory authorities continues to promote
competition in the provision of telecommunications services.

         ILECS. In each market served by its networks, the Company faces, and
expects to continue to face, significant competition from the ILECs, which
currently dominate their local telecommunications markets as a result of their
historic monopoly position.

         The Company competes with the ILECs in its markets for local exchange
services on the basis of product offerings, reliability, state-of-the-art
technology, price, route diversity, ease of ordering and customer service.
However, the ILECs have long-standing relationships with their customers and
provide those customers with various transmission and switching services, a
number of which the Company does not currently offer. In addition, ILECs enjoy a
competitive advantage due to their vast financial resources. The Company has
sought, and will continue to seek, to achieve parity with the ILECs in order to
become able to provide a full range of local telecommunications services. See
"Business -- Regulation" for additional information concerning the regulatory
environment in which the Company operates. Because US LEC leases fiber optic
transmission capacity to link its customers with its networks, and uses
state-of-the-art technology in its switch platforms, the Company has
demonstrated cost and service quality advantages over some currently available
ILEC networks.

         OTHER COMPETITORS. The Company also faces, and expects to continue to
face, competition from other potential competitors in certain of the markets in
which the Company offers its services. In addition to the ILECs, CAPs, and other
CLECs, potential competitors capable of offering switched local and long
distance services include long distance carriers, cable television companies,
electric utilities, microwave carriers, wireless telephone system operators and
private networks built by large end-users. Many of these potential competitors
enjoy competitive advantages based upon existing relationships with subscribers,
brand name recognition and vast financial resources. A continuing trend toward
business combinations and alliances in the telecommunications industry may
create significant new competitors to the Company.

         The Company believes that the Telecom Act, as well as a recent series
of completed and proposed transactions between ILECs and long distance companies
and cable companies, increase the likelihood that barriers to local exchange
competition will be removed. The Telecom Act, as passed, conditioned the
provision of in-region interLATA services by RBOCs upon a demonstration that the
market in which an RBOC seeks to provide such services has been opened to
competition. When ILECs that are RBOC subsidiaries are permitted to provide such
services they will be in a position to offer single source service. ILECs that
are not RBOC subsidiaries may offer single source service presently. The Telecom
Act's limitations on provision of in-region interLATA services have been
challenged by the RBOCs. See "Business - Regulation".

         The Company also competes with long distance carriers in the provision
of long distance services. Although the long distance market is dominated by a
few major competitors, hundreds of other companies also compete in the long
distance marketplace.

<PAGE>

FORWARD LOOKING STATEMENTS AND RISK FACTORS

         Except for historical statements and discussions, statements contained
in this report constitute "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. In addition, the Company's Annual
Report to Stockholders for the year ended December 31, 1999, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and subsequently filed Annual Reports
on Form 10-K may include forward looking statements. Other written or oral
statements which constitute forward looking statements have been made and may in
the future be made by or on behalf of US LEC, including statements regarding
future operating performance, share of new and existing markets, short-term and
long-term revenue, earnings and cash flow amounts, judicial, statutory and
regulatory developments and general industry growth rates and US LEC's
performance in relation thereto. These statements are identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "estimates" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. These forward looking statements are based on a
number of assumptions concerning future events, including the outcome of
judicial and regulatory proceedings, the adoption of balanced and effective
rules and regulations by the FCC and PUCs, and US LEC's ability to successfully
execute its strategy. These forward looking statements are also subject to a
number of uncertainties and risks, many of which are outside of US LEC's
control, that could cause actual results to differ materially from such
statements. These risks include, but are not limited to, the following:

         DISPUTED RECIPROCAL COMPENSATION. The Telecom Act requires ILECs to
provide reciprocal compensation to a CLEC for local traffic terminated on such
CLEC's network. Notwithstanding this requirement, a number of ILECs have taken
the position that traffic terminated to ESPs, including information service
providers such as ISPs, is not local traffic. A majority of the Company's
revenue is derived from reciprocal compensation amounts due from ILECs,
principally BellSouth. In August 1997, BellSouth notified the Company and other
CLECs that it considered traffic terminated to ESPs, including ISPs, to be
interstate traffic, and therefore not subject to reciprocal compensation, and
that BellSouth would not pay (or bill) reciprocal compensation under
interconnection agreements for this traffic. BellSouth is disputing the portion
of reciprocal compensation billed by the Company related to the transport and
termination of local traffic from its customers to ESPs, including ISPs and
information service providers, primarily on the basis that such traffic does not
terminate in the same local exchange and, as described below, the portion of the
billings related to traffic on certain networks (collectively referred to as
"Disputed Reciprocal Compensation"). The Company recorded Disputed Reciprocal
Compensation revenue of approximately $0, $42 million and $92 million for 1997,
1998 and 1999, respectively, net of a $0, $12 million and $27 million allowance,
respectively. Management believes that the Company has earned and is legally
entitled to this revenue and payments are due from BellSouth pursuant to the
interconnection agreements that BellSouth has with the Company.

         On February 26, 1998, following a petition by the Company, the North
Carolina Utilities Commission (the "NCUC") ordered BellSouth to bill and pay for
all ISP-related traffic (the "NCUC Order"). Following motions filed by
BellSouth, the NCUC stayed enforcement of its order until June 1, 1998. On April
27, 1998, BellSouth filed a petition for judicial review of the NCUC Order and
an action for declaratory judgment and other relief (including a request for an
additional stay) with the United States District Court for the Western District
of North Carolina ("U.S. District Court") pending determination of certain
related issues by the FCC. This action was filed against the Company and the
NCUC. In June 1999, the U.S. District Court dismissed BellSouth's petition
without prejudice and remanded back to the NCUC for further review. Following
the U.S District Court's remand, on June 22, 1999, the NCUC denied BellSouth's
request for a further stay of the NCUC Order. On July 16, 1999, the Company
received an $11 million payment from BellSouth for a portion of the Disputed
Reciprocal Compensation earned from North Carolina operations, and subject to
the NCUC Order.

         Other than denying BellSouth's request for a further stay, the only
action taken by the NCUC with respect to the remand from the U.S. District Court
is that the NCUC filed with the U.S. Fourth Circuit Court of Appeals (the "4th
Circuit") a notice of appeal of the U.S. District Court's order that rejected
the NCUC's defenses, including its defense that the 11th Amendment to the United
States Constitution bars BellSouth from making the NCUC a party to our
proceeding in the federal courts. The Company has also appealed and the United
States Justice Department has intervened in the appeal. Hearings on this matter
are scheduled for early April, 2000.

         In February 1999, the FCC issued a declaratory ruling (the "FCC
Ruling") which concluded that for jurisdictional purposes most calls delivered
to ISPs should be deemed to continue to Internet web sites, which are often
located in other states. Thus, the FCC ruled that such calls are
jurisdictionally "interstate" in nature. However, the FCC further declared that
where parties have previously agreed in interconnection agreements that
reciprocal compensation must be paid for traffic bound for ISPs, the parties
should be bound by those agreements, as interpreted

<PAGE>

and enforced by state regulatory bodies. The FCC also recognized that some
commissions might reconsider their decisions in light of its ruling. As noted,
the NCUC had ruled on February 26, 1998 in favor of the Company with respect to
payment for traffic bound to ISPs under the Company's first interconnection
agreement with BellSouth. To date, state regulatory bodies in at least
twenty-three states have considered the effect of the FCC Ruling and have
overwhelmingly reaffirmed their earlier decisions requiring payment of
reciprocal compensation for this type of traffic or for the first time
determined that such compensation is due. Included among these states are
Alabama, Florida, Louisiana, South Carolina and Tennessee, all of which are in
BellSouth's operating territory. In this regard, the Alabama Public Service
Commission concluded that the treatment of ISP traffic as local was so prevalent
in the industry at the time BellSouth entered into interconnection agreements
with CLECs that, if it is so intended, BellSouth had an obligation to negate
such local treatment in the agreements by specifically delineating that ISP
traffic was not local traffic subject to the payment of reciprocal compensation.
The Florida Public Service Commission reached a similar conclusion. Georgia and
Tennessee have also reaffirmed decisions that reciprocal compensation is owed
for calls to ISPs. In an arbitration of the terms of a new interconnection
agreement between BellSouth and another CLEC, the NCUC recently determined that
until the FCC issues a definitive ruling pursuant to the notice of proposed
rulemaking which was part of the FCC Ruling, reciprocal compensation should
continue to be paid under the new interconnection agreement. While US LEC was
not a party to this arbitration, management believes this decision to be
favorable in light of the U.S. District Court's remand (discussed above). Two
BellSouth states - South Carolina and Louisiana - have ruled that reciprocal
compensation is not due for traffic to ISPs. These decisions also came after the
FCC's Declaratory Ruling. All of these decisions have been appealed. The South
Carolina and Louisiana decisions represent a view adopted by very few other
states. (The Company does not provide local service in Louisiana or South
Carolina.)

         In February 2000, the Company received payment from GTE for reciprocal
compensation related to ISP and voice traffic in North Carolina. This payment
was pursuant to a commercial arbitration award rendered January 4, 2000
resulting from a proceeding before the American Arbitration Association. GTE was
ordered to pay US LEC approximately $650,000 for ISP traffic for the period
ending September 1999. The Company is currently working through dispute
resolution procedures with respect to subsequent periods.

         On September 14, 1998, the Company filed a complaint with the NCUC
seeking payment of facilities charges, non-ISP based reciprocal compensation and
intraLATA toll termination charges from BellSouth. Also on September 14, 1998,
BellSouth filed a complaint with the NCUC seeking to be relieved from its
obligations under its interconnection agreement with the Company to pay
reciprocal compensation for traffic related to networks including that operated
by Metacomm, LLC ("Metacomm"), a customer of BellSouth and the Company and, as
of June 1998, a related party of the Company. The two proceedings were
consolidated for purposes of discovery, which concluded June 16, 1999, and
hearings concluded in August 1999 with respect to BellSouth's complaint.
Hearings concerning US LEC's complaint have been continued by the NCUC pending
an order in the BellSouth complaint. The Company anticipates that the NCUC will
issue its ruling on BellSouth's complaint before the end of 2000. The BellSouth
proceeding primarily involves the treatment of traffic over a network
established by Metacomm and whether, under the interconnection agreements
between the Company and BellSouth and the Telecom Act, BellSouth is required to
pay reciprocal compensation to the Company for traffic associated with this
network and whether BellSouth has breached its interconnection agreements with
the Company by failing to pay reciprocal compensation for this traffic.

         In the NCUC proceedings filed September 14, 1998, BellSouth claims
principally that the traffic on Metacomm's network does not qualify for
reciprocal compensation because the Metacomm network was designed to generate
reciprocal compensation and that such traffic does not constitute
"telecommunications" subject to the reciprocal compensation payment provisions
of the Telecom Act and the interconnection agreements with BellSouth. In
addition, BellSouth has identified other issues on which it bases its claim that
the traffic on the Metacomm network is not compensable, including (1) that the
Company agreed to share reciprocal compensation with Metacomm, (2) that, as
disclosed in the Company's Form 10-Q for the period ended September 30, 1998,
Richard T. Aab, the largest shareholder of the Company and the Chairman of its
Board of Directors, acquired a controlling interest in Metacomm, (3) reciprocal
compensation has been billed on an "always-on" basis even though there is no
measurement of the amount of data transversing the network that is originated by
customers of Metacomm, (4) that the billed traffic includes traffic during
periods when Metacomm had not yet connected customers to its network or when
customers of Metacomm were not sending data over the network, (5) that the
Metacomm network includes facilities that cross LATA boundaries and, therefore,
data traversing these facilities is not local (and, therefore, is ineligible for
reciprocal compensation), (6) that Metacomm is an unlicensed reseller of US
LEC's services, not an end-user, and (7) that the Metacomm network is a
quasi-dedicated network which should not be eligible for reciprocal
compensation.

<PAGE>

         It is the Company's understanding that during the relevant period,
Metacomm was engaged in the business of developing and operating a high-speed,
always-on data network in North Carolina and its network provides users with
continuous access to data, wide area network services, software applications and
other services, including access to the Internet. In the course of the these
proceedings, the Company concluded, based on positions taken and information
provided by Metacomm, that Metacomm related traffic should not be considered to
be solely ISP traffic because its network provides additional services and
functions to users. Notwithstanding this determination, the Company believes
BellSouth will continue to contend the Disputed Reciprocal Compensation related
to the Metacomm network traffic is subject, in the first instance, to the
resolution of the ISP issue. The Company has recorded approximately $0, $50
million and $98 million of gross revenue, before allowances and before late
payment charges, for fiscal 1997, 1998 and 1999, respectively, related to
reciprocal compensation revenue generated as a result of Metacomm network
traffic.

         When the Metacomm network was originally developed, the Company agreed
to pay Metacomm commissions equal to a specified percentage of the reciprocal
compensation the Company receives from ILEC's for the network traffic. The
Company recorded approximately $200,000, $20 million and $39 million for 1997,
1998 and 1999, respectively, in reciprocal compensation commission expense
earned by Metacomm, which is included in cost of services in the accompanying
financial statements. As of December 31, 1998 and 1999, the Company had a
liability to Metacomm in the amount of $5.3 million and $22.8 million,
respectively, which is recorded as accrued commissions - related party in the
accompanying financial statements. The Company and Metacomm are parties to
agreements by which commissions earned by Metacomm related to reciprocal
compensation are not payable until the related reciprocal compensation is
collected from the ILEC. However, in fiscal 1997, 1998 and 1999, the Company
paid Metacomm $0, $8.3 million and $12 million prior to collecting the earned
reciprocal compensation from BellSouth. These payments are subject to a
repayment agreement if the related reciprocal compensation is ultimately not
collected from BellSouth

         The Company believes that calls to establish, maintain and manage data
network connections and intra-network communications generated by data
processing routers, which are necessary to maintain the functionality and
integrity of the Metacomm network, are within the definition of
"telecommunications" under the Telecom Act and constitute compensable traffic
subject to reciprocal compensation under the interconnection agreements the
Company has with BellSouth. The Company also believes that the issues raised by
BellSouth as additional bases for nonpayment does not excuse BellSouth from its
obligation to pay reciprocal compensation under its interconnection agreement
with the Company. Accordingly, the Company intends to defend vigorously against
BellSouth's claims and to prosecute vigorously its claims against BellSouth in
the above proceedings.

         As noted above, on July 16, 1999, the Company received a payment of $11
million from BellSouth representing a portion of the amounts due the Company for
ISP reciprocal compensation in North Carolina. In making the payment, BellSouth
stated that it was for ISP traffic the NCUC had ordered it to pay for in
February 1998, including late fees, and that it was reserving all of its appeal
rights with respect to the payment. BellSouth also stated that this payment did
not include any amounts at issue in its September 14, 1998 NCUC proceeding. This
partial payment did not cover all outstanding amounts the Company claims are due
from BellSouth in North Carolina and other states the Company serves. For
example, while the Company has outstanding amounts due from BellSouth for ISP
traffic in Tennessee, Georgia and Florida, BellSouth has not paid these amounts,
presumably because no orders specific to US LEC have been entered by state
commissions in those states directing BellSouth to pay the Company. However,
state commissions in these states have issued rulings in favor of other
competitive carriers and as discussed above, the state commissions in Florida
and Alabama have made rulings subsequent to the FCC Ruling. To address this
issue, the Company has filed the following additional actions against BellSouth
related to delinquent reciprocal compensation payments, none of which involve
Metacomm or any similar network:

         o On July 1, 1999, the Company filed a complaint against BellSouth
           before the Georgia Public Service Commission ("GAPSC"). The hearing
           with relation to this complaint concluded January 21, 2000. The
           Company anticipates receiving the ruling from the hearing officer in
           April 2000.

         o On July 2, 1999, the Company filed a complaint against BellSouth
           before the Florida Public Service Commission ("FLPSC"). This matter
           is scheduled for hearing in late April 2000.

         o On August 6, 1999, the Company filed a complaint against BellSouth
           before the Tennessee Regulatory Authority ("TRA"). This matter has
           not yet been scheduled for hearing.

         Management believes that the Company will ultimately obtain favorable
results in the state proceedings described above before the NCUC, GAPSC, FLPSC
and the TRA; however, BellSouth may elect to initiate additional

<PAGE>

proceedings (by way of appeal or otherwise) challenging amounts owed to the
Company. In this regard, BellSouth recently has asserted a variety of other
objections to paying portions of the reciprocal compensation billed by the
Company. They include assertions that US LEC has miscalculated late payment fees
due from BellSouth and that US LEC has billed reciprocal compensation using the
wrong rates. The Company believes BellSouth has asserted these issues and will
attempt to raise further issues in order to avoid or delay payment.

         If a decision adverse to the Company is issued in any of these
proceedings by any of the state commissions, and in particular the NCUC, or in
any appeal or review of a favorable decision by the U.S. District Court, state
commissions, or the FCC, or if either the FCC or any of the applicable state
commissions were to alter its view of reciprocal compensation, such an event
could have a material adverse effect on the Company's operating results and
financial condition. The Company's gross trade accounts receivable as of
December 31, 1998 and 1999 included approximately $54 million and $190 million,
respectively, of earned but uncollected Disputed Reciprocal Compensation (before
a $12 million and $39 million allowance and before late payment charges) of
which approximately $50 million and $148 million was generated as a result of
traffic related to the Metacomm network.

         In June 1999, the Company adopted an existing agreement to extend local
interconnection with BellSouth replacing the previous interconnection agreement,
which expired on June 15, 1999. The adopted interconnection agreement with
BellSouth expired on December 31, 1999 but continues in force until new
interconnection agreements are reached, the new agreements will be effective as
of January 1, 2000. The Company filed petitions for arbitration in all nine
states in BellSouth operating territory seeking to obtain a PSC ordered
interconnection agreement, but the Company anticipates that it will be able to
avoid the arbitration process by adopting interconnection agreements that are
either currently in effect or which will result from arbitrations involving
other CLECs. The Company's ability to obtain favorable terms for interconnection
following December 31, 1999 will depend on a number of factors, including
decisions of the FCC and state regulatory authorities. However, the Company
intends to pursue such agreements vigorously and does not anticipate any
interruption in interconnection service.

         The Company does anticipate that any such new interconnection
agreements will provide for reciprocal compensation at rates lower than in the
Company's current interconnection agreement. The Company also anticipates that
the reciprocal compensation related to Metacomm will not continue due to changes
in the terms of the interconnection agreement, changes in Metacomm's business or
the architecture of its network or a combination. In light of this, the Company
did not advance any payment to Metacomm in February 2000. In February, 2000 the
Company received a notice by which Metacomm notified BellSouth that due to
BellSouth's failure to pay reciprocal compensation, Metacomm was no longer able
to sustain its network operations. Metacomm instructed BellSouth to terminate
the facilities it provides to Metacomm. One effect of that termination will be
to reduce US LEC's revenue from the Metacomm network. US LEC estimates that the
reduction in quarterly revenue during 2000 will be approximately $18 million,
the reduction in cost of services related to commissions approximately $9
million, resulting in a decrease in earnings from operations of approximately $9
million.

         RISKS ASSOCIATED WITH IMPLEMENTATION OF GROWTH STRATEGY. The expansion
and development of US LEC's operations depend on, among other things, the
Company's ability to continue to (i) accurately assess potential new markets,
(ii) identify, hire and retain qualified personnel, (iii) lease access to
suitable fiber optic transmission facilities, (iv) purchase, install and operate
switches and related equipment and (v) obtain any required government
authorizations, all in a timely manner, at reasonable costs and on satisfactory
terms and conditions. In addition, US LEC has experienced rapid growth since its
inception, and management believes that sustained growth will place a strain on
operational, human and financial resources. The Company's ability to manage its
expansion effectively depends on the continued development of plans, systems and
controls for its operational, financial and management needs. Given the
Company's limited operating history, there can be no assurance that the Company
will be able to satisfy these requirements or otherwise manage its growth
effectively. The failure of US LEC to satisfy these requirements could have a
material adverse effect on the Company's financial condition and its ability to
fully implement its expansion plans.

         The Company's growth strategy also involves the following risks:

         QUALIFIED PERSONNEL. A critical component for US LEC's success is
hiring and retaining additional qualified managerial, sales and technical
personnel. Since its inception, the Company has experienced significant
competition in hiring and retaining personnel possessing necessary skills and
telecommunications experience. Although management believes the Company has been
successful in hiring and retaining qualified personnel, there can be no
assurance that US LEC will be able to do so in the future.

<PAGE>

         SWITCHES AND RELATED EQUIPMENT. An essential element of the Company's
current strategy is the provision of switched local service. There can be no
assurance that installation of the switches and associated equipment necessary
to implement the Company's business plan will be completed on a timely basis or
that the Company will not experience technological problems that cannot be
resolved in a satisfactory or timely matter. The failure of the Company to
install and operate successfully switches and other network equipment could have
a material adverse effect on the Company's financial condition and its ability
to enter additional markets.

         INTERCONNECTION AGREEMENTS. The Company has agreements for the
interconnection of its networks with the networks of the ILECs covering each
market in which US LEC either has or is currently installing a switching
platform. US LEC may be required to negotiate new interconnection agreements as
it enters new markets in the future. In addition, as its existing
interconnection agreements expire, it will be required to negotiate extension or
replacement agreements. There can be no assurance that the Company will
successfully negotiate such additional agreements for interconnection with the
ILECs or renewals of existing interconnection agreements on terms and conditions
acceptable to the Company. In June 1999, the Company adopted an existing
agreement to extend local interconnection with BellSouth replacing the previous
interconnection agreement, which expired on June 15, 1999. The adopted
interconnection agreement with BellSouth expired on December 31, 1999 but
continues in force until new interconnection agreements are reached. The new
agreements will be effective as of January 1, 2000. The Company filed petitions
for arbitration in all nine states in BellSouth operating territory seeking to
obtain a PUC ordered interconnection agreement, but the Company anticipates that
it will be able to avoid the arbitration process by adopting interconnection
agreements that are either currently in effect or which will result from
arbitrations involving other CLECs. The Company's ability to obtain favorable
terms for interconnection following December 31, 1999 will depend on a number of
factors, including decisions of the FCC and state regulatory authorities. See
"Business -- Regulation". The regulatory uncertainty makes negotiating and
enforcing such agreements more difficult and possibly more protracted, and could
result in the need to renegotiate existing agreements. The failure to negotiate
and obtain required interconnection agreements on terms and conditions
acceptable to the Company could have a material adverse effect on the Company's
ability to rapidly enter a particular market and on its operations in its
existing markets.

         ORDERING, PROVISIONING AND BILLING. The Company has developed processes
and procedures and is working with external vendors, including the ILECs, in the
implementation of customer orders for services, the provisioning, installation
and delivery of such services and monthly billing for those services. The
failure to manage effectively processes and systems for these service elements
or the failure of the Company's current vendors or the ILECs to deliver
ordering, provisioning and billing services on a timely and accurate basis could
have a material adverse effect upon the Company's ability to fully execute its
strategy.

         PRODUCTS AND SERVICES. The Company currently offers local, long
distance, data, Internet and enhanced services. In order to address the needs of
its target customers, the Company will be required to emphasize and develop
additional products and services. No assurance can be given that the Company
will be able to provide the range of telecommunication services that its target
customers need or desire.

         ACQUISITIONS. US LEC may acquire other businesses as a means of
expanding into new markets or developing new services. The Company is unable to
predict whether or when any prospective acquisitions will occur or the
likelihood of a material transaction being completed on favorable terms and
conditions. Such transactions would involve certain risks including, but not
limited to, (i) difficulties assimilating acquired operations and personnel;
(ii) potential disruptions of the Company's ongoing business; (iii) the
diversion of resources and management time; (iv) the possibility that uniform
standards, controls, procedures and policies may not be maintained; (v) risks
associated with entering new markets in which the Company has little or no
experience; and (vi) the potential impairment of relationships with employees or
customers as a result of changes in management. If an acquisition were to be
made, there can be no assurance that the Company would be able to obtain the
financing to consummate any such acquisition on terms satisfactory to it or that
the acquired business would perform as expected.

         DEPENDENCE ON KEY PERSONNEL. The Company's business is managed by a
small number of key executive officers, most notably Richard T. Aab, Chairman,
Tansukh V. Ganatra, Vice Chairman and Chief Executive Officer, Aaron D. Cowell,
Jr., President and Michael K. Robinson, Executive Vice President and Chief
Financial Officer. The loss of the services of one or more of these key people,
particularly Mr. Aab or Mr. Ganatra, could materially and adversely affect US
LEC's business and its prospects. None of the Company's executive officers have
employment agreements and the Company does not maintain key man life insurance
on any of its officers. The competition for qualified managers in the
telecommunications industry is intense. Accordingly, there can be no assurance
that US

<PAGE>

LEC will be able to hire and retain necessary personnel in the future to replace
any of its key executive officers, if any of them were to leave US LEC or be
otherwise unable to provide services to US LEC.

         RELIANCE ON LEASED CAPACITY. A key element of US LEC's business and
growth strategy is leasing fiber optic transmission capacity instead of
constructing its own transport facilities. In implementing this strategy, the
Company relies upon its ability to lease capacity from CAPs, other CLECs and
ILECs operating in its markets. In order for this strategy to be successful, the
Company must be able to negotiate and renew satisfactory agreements with its
fiber optic network providers, and the providers must process provisioning
requests on a timely basis, maintain their networks in good working order and
provide adequate capacity. Although US LEC enters into agreements with its
network providers that are intended to ensure access to adequate capacity and
timely processing of provisioning requests and although US LEC's interconnection
agreements with ILECs generally provide that the Company's connection and
maintenance orders will receive attention at parity with the ILECs and other
CLECs and that adequate capacity will be provided, there can be no assurance
that the ILECs and other network providers will comply with their contractual
(and, in the case of the ILECs, legally required) network provisioning
obligations, or that the provisioning process will be completed for the
Company's customers on a timely and otherwise satisfactory basis. Furthermore,
there can be no assurance that the rates to be charged to US LEC under future
interconnection agreements or lease agreements with other providers will allow
the Company to offer usage rates low enough to attract a sufficient number of
customers and operate its networks at satisfactory margins.

         COMPETITION. The telecommunications industry is highly competitive. In
each of the Company's existing and target markets, the Company competes and will
continue to compete principally with the ILECs serving that area. ILECs are
established providers of local telephone and exchange access services to all or
virtually all telephone subscribers within their respective service areas. ILECs
also have greater financial and personnel resources, brand name recognition and
long-standing relationships with customers and with regulatory authorities at
the federal and state levels and with most long distance carriers.

         The Company also faces, and expects to continue to face, competition
from other current and potential market entrants, including long distance
carriers seeking to enter, reenter or expand entry into the local exchange
marketplace, and from other CLECs, CAPs, cable television companies, electric
utilities, microwave carriers, wireless telephone system operators and private
networks built by large end-users. In addition, a continuing trend toward
combinations and strategic alliances in the telecommunications industry could
give rise to significant new competitors. Many of these current and potential
competitors have financial, personnel and other resources, including brand name
recognition, substantially greater than those of the Company, as well as other
competitive advantages over the Company.

         The Company also competes with long distance carriers in the
provisioning of long distance services. Although the long distance market is
dominated by few major competitors, hundreds of other companies also compete in
the long distance marketplace.

         In addition, the regulatory environment in which the Company operates
is undergoing significant change. As this regulatory environment evolves,
changes may occur which could create greater or unique competitive advantages
for all or some of the Company's current or potential competitors, or could make
it easier for additional parties to provide services. See "Business --
Competition".

         REGULATION. Although passage of the Telecom Act has resulted in
increased opportunities for companies that are competing with the ILECs, no
assurance can be given that changes in current or future regulations adopted by
the FCC or state regulators or other legislative or judicial initiatives
relating to the telecommunications industry would not have a material adverse
effect on the Company. In addition, although the Telecom Act, as passed,
conditions RBOCs' provisioning of in-region long distance service on a showing
that the local market has been opened to competition, in the event a RBOC has
satisfied these conditions, it could (i) remove the incentive RBOCs presently
have to cooperate with companies like US LEC to foster competition within their
service areas so that they can qualify to offer in-region long distance by
allowing RBOCs to offer such services immediately and (ii) give the RBOCs the
ability to offer "one-stop shopping" for both long distance and local service.

         In addition to the specific concern regarding the RBOC's ability to
provide in-region long distance, the regulatory environment facing the Company
is subject to numerous uncertainties. The FCC and PUC orders that were designed
to implement the Telecom Act have been challenged in numerous proceedings. As a
result, the Company must attempt to execute its business strategy without
knowing the rules that will govern its operations and its dealings with other
telecommunications companies. As the regulatory environment changes, it is
possible that the

<PAGE>

Company's strategy and its execution of the strategy may not be the optimal
choice. Any such changes could also result in additional, unanticipated
expenses. There can be no assurances that regulatory change will not have a
material and adverse effect on the Company. See "Business - Regulation".

         FUTURE CAPITAL AND OPERATING REQUIREMENTS. Implementation of the
Company's business strategy will require significant capital and operating
expenditures during 2000 and future years. In December 1999, the Company amended
its Senior Secured Credit Facility increasing the amount available under the
facility to $150 million (the "Credit Facility"). In addition, in February 2000,
the Company announced it had executed a letter of intent with affiliates of Bain
Capital, Inc. and Thomas H. Lee Partners, L.P. to invest up to $300 million in
convertible preferred stock of US LEC (the "Preferred Stock Investment"). The
investment will be made in two tranches. The first tranche of $200 million is
expected to close in the second quarter 2000. During the first year after
closing of the first tranche, the investors, at their option, may invest up to
an additional $100 million. See "Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources". The Company's principal capital expenditures relate to the purchase
and installation of its switching platform, related infrastructure and
facilities. Management expects to satisfy its capital and operating requirements
primarily with current cash balances, borrowings under the Credit Facility,
proceeds from the recently announced Preferred Stock Investment and cash flow
from operations, although there can be no assurance that the actual expenditures
required to implement the Company's business strategy will not exceed amounts
available from these sources. Also there can be no assurance that the planned
Preferred Stock Investment may close due to such factors as the failure of the
parties to agree on the terms of definitive agreements or the inability of the
parties to satisfy the closing conditions. In addition, the actual amount and
timing of the Company's future expenditures may differ materially from the
Company's estimates as a result of, among other things, the ability of the
Company to meet its planned expansion schedule, the number of its customers and
the services for which they subscribe and regulatory, technological and
competitive developments in the Company's industry. Due to the uncertainty of
these factors, actual revenues and costs may vary from expected amounts,
possibly to a material degree, and such variations are likely to affect the
implementation of the Company's business strategy.

         The Company also will continue to evaluate revenue opportunities in
planned and other markets as well as potential acquisitions. The Company expects
to obtain the capital required to pursue additional opportunities from the
Credit Facility and other borrowings, the planned Preferred Stock Investment,
the sale of additional equity or debt securities or cash generated from
operations. There can be no assurance, however, that the planned Preferred Stock
Investment will close, that the Company would be successful in raising
sufficient additional capital on acceptable terms or that the Company's
operations would produce sufficient positive cash flow to pursue such
opportunities should they arise. Failure to raise and generate sufficient funds,
or unanticipated increases in capital requirements may require the Company to
delay or curtail its expansion plans, which could have a material adverse effect
on the Company's growth and its ability to compete in the telecommunications
services industry.

         VARIABILITY OF QUARTERLY OPERATING RESULTS. As a result of the
significant expenses associated with the Company's expansion into new markets
and the anticipated decline in reciprocal compensation revenue, the Company's
operating results may vary significantly from period to period.

         CONTROL BY SINGLE STOCKHOLDER. As of March 17, 2000, Richard T. Aab
beneficially owns or otherwise controlled 100% of the outstanding shares of
Class B Common Stock representing approximately 94% of the Company's total
voting power. In addition, holders of Class B Common Stock are entitled to vote
as a separate class to elect two members of the Board of Directors and to vote
with the holders of Class A Common Stock for the election of other members of
the Board of Directors. As a result, Mr. Aab will be able to control the board
and all stockholder decisions and, in general, to determine (without the consent
of the Company's other stockholders) the outcome of any corporate transaction or
other matter submitted to the stockholders for approval, including mergers,
consolidations and the sale of all or substantially all of the Company's assets.
Mr. Aab also has the power to prevent or cause a change in control of the
Company. See "Item 12: Security Ownership of Certain Beneficial Owners and
Management".

<PAGE>



ITEM 2.  PROPERTIES

         The Company's corporate headquarters are located at its principal
office at 401 North Tryon Street, Suite 1000, Charlotte, North Carolina 28202.
The Company leases all of its administrative and sales offices and its switch
sites. The various leases expire in years ranging from 2000 to 2010. Most of
these leases have renewal options. Additional office space and switch sites will
be leased or otherwise acquired as the Company's operations and networks are
expanded and as new networks are constructed. The Company plans to move it's
corporate headquarters to a new facility located in the Southpark section of
Charlotte in the third quarter of 2000.

ITEM 3. LEGAL PROCEEDINGS

         US LEC is not currently a party to any material legal proceedings,
other than the GPSC, TRA, FPSC, NCUC and U.S. District Court proceedings related
to reciprocal compensation and other amounts due from BellSouth and the U.S.
District Court proceeding related to access fees due from Sprint Communications.
See "Business--Regulation" and "Forward Looking Statements and Risk Factors"
above and Note 6 to the Company's consolidated financial statements for a
detailed description of these proceedings.

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

         No matters were submitted to a vote of security holders during the
quarter ending December 31, 1999.


<PAGE>



                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         The information required to be furnished in response to Item 5 is
incorporated by reference to the inside back cover of the Company's 1999 Annual
Report to Stockholders (the "Annual Report"). This section of the Annual Report
has been included in Exhibit 13 to this report.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

         The information required to be furnished in response to Item 6 is
incorporated by reference to the section of the Annual Report that appears under
the heading "Selected Financial Data". This section of the Annual Report has
been included in Exhibit 13 to this report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         The information required to be furnished in response to Item 7 is
incorporated by reference to the section of the Annual Report that appears under
the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations". This section of the Annual Report has been included in
Exhibit 13 to this report.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The information required to be furnished in response to Item 7A is
incorporated by reference to the section of the Annual Report that appears under
the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations". This section of the Annual Report has been included in
Exhibit 13 to this report.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The information required to be furnished in response to Item 8 is
incorporated by reference to the sections of the Annual Report that appear under
the headings "Consolidated Balance Sheets," "Consolidated Statements of
Operations," "Consolidated Statements of Stockholders' Equity (Deficiency),"
"Consolidated Statements of Cash Flows," "Notes to Consolidated Financial
Statements" and "Independent Auditors' Report." These sections of the Annual
Report have been included in Exhibit 13 to this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         None.



<PAGE>



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required to be furnished in response to Item 10 with
respect to directors is incorporated by reference from the section of the proxy
statement for the Company's annual meeting of stockholders to be held May 9,
2000 (the "Proxy Statement") that appears under the heading "Election of
Directors". Information relating to the Company's executive officers is
contained in Part I of this report under the heading "Executive Officers of the
Registrant".

ITEM 11. EXECUTIVE COMPENSATION

         The information required to be furnished in response to Item 11 is
incorporated by reference from the sections of the Proxy Statement that appear
under the headings "Compensation of Directors" and "Compensation of Executive
Officers".

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required to be furnished in response to Item 12 is
incorporated by reference from the section of the Proxy Statement that appear
under the heading "Security Ownership of Certain Beneficial Owners and
Management".

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required to be furnished in response to Item 13 is
incorporated by reference from the section of the Proxy Statement that appear
under the heading "Certain Relationships and Related Transactions".


<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

       (a) Financial Statements, Financial Statement Schedules and Exhibits -
       The following documents are filed as part of this Form 10-K.

         (1)  Financial statements:

            A. Consolidated Balance Sheets as of December 31, 1998 and 1999

            B. Consolidated Statements of Operations for years ended December
               31, 1997, 1998 and 1999

            C. Consolidated Statements of Stockholders' Equity (Deficiency) for
               years ended December 31, 1997, 1998 and  1999

            D. Consolidated Statements of Cash Flows for the years ended
               December 31, 1997, 1998 and 1999

            E. Notes to Consolidated Financial Statements for the years ended
               December 31, 1997, 1998 and 1999

            F. Independent Auditors' Report

         (2)  Financial Statement Schedules:

            A. Schedule I - Independent Auditors' Report

            B. Schedule II -Valuation and Qualifying Accounts

         (3)  List of Exhibits:

<TABLE>
<CAPTION>


               No.                   Exhibit
               ---                   --------
<S>            <C>                   <C>
               3.1                   Form of Restated Certificate of Incorporation of the Company (1)
               3.2                   Bylaws of the Company (1)
               3.3                   Amendment No. 1 to Bylaws of the Company (1)
               4                     Form of Class A Common Stock Certificate (1)
               10.1                  US LEC Corp. 1998 Omnibus Stock Plan (1) (2)
               10.2                  Promissory Note, dated January 16, 1998, made by the company to Melrich
                                     Associates, LP (1)
               10.3                  Security Agreement dated January 16, 1998, by and between the Company and
                                     Melrich Associates, L.P. (1)
               10.4                  Promissory Note, dated January 16, 1998, made by the Company to Tansukh V.
                                     Ganatra (1)
               10.5                  Security Agreement, dated January 16, 1998, by and between the Company and
                                     Tansukh V. Ganatra (1)
               10.6                  Guaranty and Suretyship Agreement, dated January 16, 1998, by and among
                                     the Company and Richard T. Aab, Melrich Associates, L.P. and Tansukh V.
                                     Ganatra (1)
               10.7                  Contribution Agreement, dated February 14, 1998, by and between US LEC
                                     Corp. and Richard T. Aab (1)
               10.8                  Form of Non-transferable Warrant, dated August 4, 1997, issued Craig K.
                                     Simpson (1) (2)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>


               No.                                Exhibit
               ---                                -------

<S>                                                  <C>
               10.9                               Amended and Restated Class B Stockholders Agreement, dated as of January
                                                  1, 1998 (1)
               10.10                              Consulting Agreement, dated December 18, 1997, by and between the
                                                  Company and RTA Associates, LLC and related  termination letter, dated
                                                  January 1, 1998 (1)
               10.11                              Consulting Agreement, dated December 18, 1997 by and between the Company
                                                  and Super STAR Associates  Limited Partnership and related termination
                                                  letter, dated January 1, 1998 (1)
               10.12                              Second Amended Loan and Security Agreement, dated as of December 20,
                                                  1999, among US LEC Corp., certain operating subsidiaries of US LEC
                                                  Corp., General Electric Capital Corporation, First Union National Bank
                                                  and Wachovia Bank N.A.
               13                                 Specified portions (pages 12 to 46 and inside  back  cover) of the
                                                  Company's Annual Report to Stockholders  for the year ended December 31,
                                                  1999
               21                                 Subsidiaries of the Registrant
               23                                 Consent of Deloitte & Touche LLP
               27                                 Financial Data Schedule

</TABLE>

               (1) Incorporated by reference to Registration Statement from Form
                   S-1 (File No. 333-46341) filed February 13, 1998.

               (2) Indicates a management contract or compensatory plan or
                   arrangement.


         (b) Reports on Form 8-K.

               No Current Reports on Form 8-K were filed during the quarter
ending December 31, 1999.

<PAGE>

                                   SCHEDULE I

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
US LEC Corp.
Charlotte, North Carolina


We have audited the consolidated financial statements of US LEC Corp. and
subsidiaries as of December 31, 1999 and 1998, and for each of the three years
in the period ended December 31, 1999, and have issued our report thereon dated
February 29, 2000, which report includes an emphasis of a matter paragraph as to
a significant portion of the Company's accounts receivables and revenues
relating to reciprocal compensation currently in dispute; such financial
statements and report are included in your 1999 Annual Report to Stockholders
and are incorporated herein by reference. Our audits also included the
consolidated financial statement schedule of US LEC Corp. and subsidiaries,
listed in Item 14. This financial statement schedule is the responsibility of
the Corporation's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such consolidated financial statement schedule,
when considered in relation to the consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.




Charlotte, North Carolina
February 29, 2000


<PAGE>

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

                           US LEC CORP. (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                        ADDITIONS

                                       BALANCE AT BEGINNING     CHARGED TO      CHARGED TO                      BALANCE AT END
                                            OF PERIOD           COSTS AND         OTHER                            OF PERIOD
               DESCRIPTION               (DEC. 31, 1998)         EXPENSES        ACCOUNTS          DEDUCTIONS   (DEC. 31, 1999)
   ------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                 <C>                <C>                <C>           <C>
    Allowance against accounts               $12,024             $28,050            $0                 $0            $40,074
   receivables

</TABLE>

<PAGE>
                                   SIGNATURES

           Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

Date:   March 30, 1999                      By:        /s/ Richard T. Aab
                                                       ------------------

                                                       Richard T. Aab
                                                       Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

            Signature                            Title                                           Date
            -----------                          -----                                           -----


<S>              <C>                                      <C>                                          <C>
           /s/ Richard T. Aab                    Chairman of the Board                           March 30, 2000
           ------------------
           Richard T. Aab

           /s/ Tansukh V. Ganatra                Chief Executive Officer and                     March 30, 2000
           ----------------------                  Director (Principal Executive Officer)
           Tansukh V. Ganatra

           /s/ Michael K. Robinson               Executive Vice President and                    March 30, 2000
           -----------------------                Chief Financial Officer
           Michael K. Robinson                      (Principal Financial and Accounting Officer)


           /s/ David M. Flaum                    Director                                        March 30, 2000
           ------------------
           David M. Flaum

           /s/ Steven L. Schoonover              Director                                        March 30, 2000
           ------------------------
           Steven L. Schoonover

           /s/ John W. Harris                    Director                                        March 30, 2000
           ------------------
           John W. Harris

</TABLE>