<PAGE>
 
                                                                            10.4

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

                              AGREEMENT OF LEASE

                                    between



                              ONE PENN PLAZA LLC

                                   Landlord

                                      and


                          FOCAL COMMUNICATIONS CORP.

                                    Tenant


                           Portion of the 28th Floor
                                One Penn Plaza
                              New York, New York



                              PROSKAUER ROSE LLP
                                 1585 Broadway
                         New York, New York 10036-8299

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


<PAGE>
 
<TABLE>
<CAPTION>
                               TABLE OF CONTENTS
                               -----------------

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

ARTICLE 1-      DEMISE, PREMISES, TERM, RENT.................................  9
ARTICLE 2-      USE AND OCCUPANCY............................................ 10
ARTICLE 3-      ALTERATIONS.................................................. 10
ARTICLE 4-      REPAIRS-FLOOR LOAD........................................... 16
ARTICLE 5-      WINDOW CLEANING.............................................. 17
ARTICLE 6-      REQUIREMENTS OF LAW.......................................... 17
ARTICLE 7-      SUBORDINATION................................................ 19
ARTICLE 8-      RULES AND REGULATIONS........................................ 22
ARTICLE 9-      INSURANCE, PROPERTY LOSS OR DAMAGE; REIMBURSEMENT............ 22
ARTICLE 10-     DESTRUCTION-FIRE OR OTHER CAUSE.............................. 25
ARTICLE 11-     EMINENT DOMAIN............................................... 28
ARTICLE 12-     ASSIGNMENT, SUBLETTING, MORTGAGE, ETC........................ 30
ARTICLE 13-     ELECTRICITY.................................................. 42
ARTICLE 14-     ACCESS TO PREMISES........................................... 46
ARTICLE 15-     CERTIFICATE OF OCCUPANCY..................................... 48
ARTICLE 16-     DEFAULT...................................................... 49
ARTICLE 17-     REMEDIES AND DAMAGES......................................... 52
ARTICLE 18-     LANDLORD FEES AND EXPENSES................................... 54
ARTICLE 19-     NO REPRESENTATIONS BY LANDLORD............................... 55
ARTICLE 20-     END OF TERM.................................................. 55
ARTICLE 21-     QUIET ENJOYMENT.............................................. 56
ARTICLE 22-     FAILURE TO GIVE POSSESSION................................... 56
ARTICLE 23-     NO WAIVER.................................................... 57
ARTICLE 24-     WAIVER OF TRIAL BY JURY...................................... 58
ARTICLE 25-     INABILITY TO PERFORM......................................... 58
ARTICLE 26-     BILLS AND NOTICES............................................ 59
ARTICLE 27-     ESCALATION................................................... 59
ARTICLE 28-     SERVICES..................................................... 67
ARTICLE 29-     PARTNERSHIP TENANT........................................... 70
ARTICLE 30-     VAULT SPACE.................................................. 71
ARTICLE 31-     SECURITY..................................................... 71
ARTICLE 32-     CAPTIONS..................................................... 73
ARTICLE 33-     PARTIES BOUND................................................ 73
ARTICLE 34-     BROKER....................................................... 73
ARTICLE 35-     INDEMNITY.................................................... 73
ARTICLE 36-     ADJACENT EXCAVATION-SHORING.................................. 75
ARTICLE 37-     MISCELLANEOUS................................................ 75
ARTICLE 38-     RENT CONTROL................................................. 77

</TABLE>
 
<PAGE>
 

Schedule A      - Rules and Regulations
Schedule B      - Cleaning Specifications
EXHIBIT "A"     - Floor Plan
EXHIBIT "B"     - List of Approved Contractors
EXHIBIT "C"     - HVAC Specifications

<PAGE>
 
     AGREEMENT OF LEASE, made as of the 25th day of September, 1998, between
Landlord and Tenant.


                                  WITNESSETH:
                                  -----------

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


                                  DEFINITIONS
                                  -----------

     "ACM" shall have the meaning set forth in Section 19.2 hereof.

     "Affiliate" shall mean a Person which shall (1) Control (2) be under the
Control of, or (3) be under common Control with the Person in question.

     "Alteration Fee" shall have the meaning set forth in Section 3.2 hereof.

     "Alterations" shall mean alterations, installations, improvements,
additions or other physical changes (other than decorations) in or about the
Premises.

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

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

     "Assignment Proceeds" shall have the meaning set forth in Section 12.8
hereof.

     "Assignment Statement" shall have the meaning set forth in Section 12.8
hereof.

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

     "Base Electric Rate" shall mean the Electric Rate as of the date hereof.

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

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

<PAGE>
 
     "Base Rate" shall mean the rate of interest publicly announced from time to
time by The Chase Manhattan Bank, N.A., or its successor, as its "prime lending
rate" (or such other term as may be used by The Chase Manhattan Bank, N.A., from
time to time, for the rate presently referred to as its "prime lending rate"),
which rate was 8.50% on August 18, 1998.

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

     "Broker" shall have the meaning set forth in Article 34 hereof.

     "Building" shall mean all the buildings, equipment and other improvements
and appurtenances of every kind and description now located or hereafter
erected, constructed or placed upon the land and any and all alterations, and
replacements thereof, additions thereto and substitutions therefor, known by the
address of One Penn Plaza, New York, New York.

     "Building Systems" shall mean the mechanical, gas, electrical, sanitary,
heating, air conditioning, ventilating, elevator, plumbing, life-safety and
other service systems of the Building.

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

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

     "Control" or "control" shall mean direct or indirect ownership of more than
fifty percent (50%) of the outstanding voting stock of a corporation or other
majority equity and control interest if not a corporation and the possession,
directly or indirectly, of power to direct or cause the direction of the
management and policy of such corporation or other entity, whether through the
ownership of voting securities, by statute or according to the provisions of a
contract.

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

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

     "Electric Rate" shall have the meaning set forth in Section 13.3 hereof.

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

     "Electricity Inclusion Factor" shall have the meaning set forth in Section
13.2 hereof.

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

     "Escalation Rent" shall mean, individually or collectively, the Tax Payment
and the Operating Payment.


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

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

     "1st Rental Period" shall have the meaning set forth in Section 1.1 hereof.

     "1st Security Period" shall mean the period commencing on the Commencement
Date and ending on the day immediately preceding the first (1st) anniversary of
the Rent Commencement Date.

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

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

     "4th Security Period" shall mean the period commencing on the third (3rd)
anniversary of the Rent Commencement Date and ending on the Fixed Expiration
Date.

     "Full Value" shall have the meaning set forth in Section 13.2 hereof.

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

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

     "HVAC Systems" shall mean the Building Systems providing HVAC.

     "Indemnitees" shall mean Landlord, the partners comprising Landlord and its
and their members, partners, shareholders, officers, directors, employees,
agents and contractors, Lessors and Mortgagees.

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

     "Landlord", on the date as of which this Lease is made, shall mean One Penn
Plaza LLC, a New York limited liability company, having an office c/o MRC
Management LLC, at 330 Madison Avenue, New York, New York 10017, but thereafter,
"Landlord" shall mean only the fee owner of the Real Property or if there shall
exist a Superior Lease, the tenant thereunder.


                                       3
<PAGE>
 
     "Landlord's Engineer" shall have the meaning set forth in Section 13.2
hereof.

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

     "Letter of Credit" shall have the meaning set forth in Section 31.1 hereof.

     "Long Lead Work" shall mean any item which is not a stock item and must be
specially manufactured, fabricated or installed or is of such an unusual,
delicate or fragile nature that there is a substantial risk that

          (i) there will be a delay in its manufacture, fabrication, delivery or
     installation, or

          (ii) after delivery, such item will need to be reshipped or
     redelivered or repaired

so that in Landlord's reasonable judgment the item in question cannot be
completed when the standard items are completed even though the item of Long
Lead Work in question is (1) ordered together with the other items required and
(2) installed or performed (after the manufacture or fabrication thereof) in the
order and sequence that such Long Lead Work and other items are normally
installed or performed in accordance with good construction practice. In
addition, "Long Lead Work" shall include any standard item which in accordance
with good construction practice should be completed after the completion of any
item of work in the nature of the items described in the immediately preceding
sentence.

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

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

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

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

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

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

     "Operation of the Property" shall mean the maintenance, repair and
management of the Real Property and the curbs, sidewalks and areas adjacent
thereto.

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


                                       4
<PAGE>
 
     "Parties" shall have the meaning set forth in Section 37.2 hereof.

     "Partner" or "partner" shall mean any partner of Tenant, any employee of a
professional corporation which is a partner comprising Tenant, and any
shareholder of Tenant if Tenant shall become a professional corporation.

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

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

     "Premises" shall mean, subject to the provisions of Section 14.4 hereof,
the portion of the twenty-eighth (28th) floor (Suite 2832) of the Building as
set forth on the floor plan attached hereto and made a part hereof as Exhibit
"A".

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

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

     "Recapture Space" shall have the meaning set forth in Section 12.6 hereof.

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

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

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

     "Rent Commencement Date" shall mean the date which shall be ninety (90)
days after the Commencement Date.

     "Replaced Premises" shall have the meaning set forth in Section 37.12
hereof.

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

     "Rules and Regulations" shall mean the rules and regulations annexed hereto
and made a part


                                       5
<PAGE>
 
hereof as Schedule A, and such other and further rules and regulations as
Landlord or Landlord's agents may from time to time adopt on such notice to be
given as Landlord may elect, subject to Tenant's right to dispute the
reasonableness thereof as provided in Article 8 hereof.

     "2nd Rental Period" shall have the meaning set forth in Section 1.1 hereof.

     "2nd Security Period" shall mean the period commencing on the first (1st)
anniversary of the Rent Commencement Date and ending on the day immediately
preceding the second (2nd) anniversary of the Rent Commencement Date.

     "Security Amount" shall mean:

          (a) during the 1st Security Period, One Hundred Six Thousand Four
Hundred Twenty-Eight Dollars ($106,428.00), and

          (b) during the 2nd Security Period, Eighty-Five Thousand One Hundred
Forty-Two and 40/100 Dollars ($85,142.40);

          (c) during the 3rd Security Period, Sixty-Three Thousand Eight Hundred
Fifty-Six and 80/100 Dollars ($63,856.80); and

          (d) during the 4th Security Period, Forty-Two Thousand Five Hundred
Seventy-One and 20/100 Dollars ($42,571.20).

     "Space Factor" shall mean Seven Thousand Six Hundred Two (7,602) as the
same may be increased or decreased pursuant to the terms hereof.

     "Specialty Alterations" shall mean Alterations consisting of kitchens,
executive bathrooms, raised computer floors, computer installations, vaults,
libraries, internal staircases, dumbwaiters, pneumatic tubes, vertical and
horizontal transportation systems, and other Alterations of a similar character.

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

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

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

     "Substitute Premises" shall have the meaning set forth in Section 37.12
hereof.

     "Substitution Date" shall have the meaning set forth in Section 37.12
hereof.

     "Superior Lease(s)" shall mean all ground or underlying leases of the Real
Property or the


                                       6
<PAGE>
 
Building and all renewals, extensions, supplements, amendments and modifications
thereof.

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

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

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

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

     "Tenant" on the date as of which this Lease is made, shall mean Focal
Communications Corp., a Delaware corporation, having an office at 200 N. LaSalle
Street, Chicago, IL 60601 but thereafter "Tenant" shall mean only the tenant
under this Lease at the time in question; provided, however, that the originally
named tenant and any assignee of this Lease shall not be released from liability
hereunder in the event of any assignment of this Lease.

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

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

     "Tenant's Engineer" shall have the meaning set forth in Section 13.2
hereof.

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

     "Tenant's Share" shall mean Three Thousand Nine Hundred Forty-Two ten
thousandths percent (0.3942%) as the same may be increased or decreased pursuant
to the terms hereof.

     "Tenant's Tax Share" shall mean Three Thousand Six Hundred Sixty-Nine ten
thousandths percent (0.3669%) as the same may be increased or decreased pursuant
to the terms hereof.

     "Tentative Monthly Escalation Charge" shall have the meaning set forth in
Section 27.4 hereof.

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

     "Third Engineer" shall have the meaning set forth in Section 13.3 hereof.

     "3rd Security Period" shall mean the period commencing on the second (2nd)
anniversary of the Rent Commencement Date and ending on the day immediately
preceding the third (3rd) anniversary of the Rent Commencement Date.


                                       7
<PAGE>
 
     "Unavoidable Delays" shall have the meaning set forth in Article 25
hereof.


                                       8
<PAGE>
 
                                   ARTICLE 1
                          DEMISE, PREMISES, TERM, RENT
                          ----------------------------


     Section 1.1. Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord the Premises for the Term to commence on the date hereof (the
"Commencement Date") and to end on the date (the "Fixed Expiration Date") which
is the last day of the month in which the day immediately preceding the fifth
(5th) anniversary of the Rent Commencement Date shall occur, at an annual rent
(the "Fixed Rent") of:

          (1) Three Hundred Four Thousand Eighty Dollars ($304,080.00) for the
period (the "1st Rental Period") commencing on the Rent Commencement Date and
ending on the day immediately preceding the date which is two and one-half (2.5)
years after the Commencement Date, or if the Commencement Date shall occur other
than on the first day of the month, ending on the last day of the month in which
the date which is two and one-half (2.5) years after the Commencement Date
occurs ($25,340.00 per month);

          (2) Three Hundred Nineteen Thousand Two Hundred Eighty-Four Dollars
($319,284.00) for the period (the "2nd Rental Period") commencing on the day
next succeeding the end of the 1st Rental Period and ending on the Fixed
Expiration Date ($26,607.00 per month), and which Tenant agrees to pay in lawful
money of the United States which shall be legal tender in payment of all debts
and dues, public and private, at the time of payment, in equal monthly
installments in advance, on the first (1st) day of each calendar month during
the Term commencing on the Rent Commencement Date, at the office of Landlord or
such other place as Landlord may designate, without any set-off, offset,
abatement or deduction whatsoever, except that Tenant shall pay the first full
monthly installment on the execution hereof. At the request of Landlord, Fixed
Rent shall be payable when due by wire transfer of funds to an account
designated from time to time by Landlord.

     Section 1.2. If the Rent Commencement Date shall occur on a date other than
the first (1st) day of any calendar month, then, on the Rent Commencement Date
Tenant shall pay to Landlord a sum equal to Eight Hundred Forty-Four and 67/100
Dollars ($844.67), multiplied by the number of calendar days in the period from
the Rent Commencement Date to the last day of the month in which the Rent
Commencement Date shall occur, both dates inclusive.

     Section 1.3. Tenant shall pay to Landlord, as additional rent, on account
of electricity consumed at the Premises the sum of Two Thousand One Hundred
Eighty-Five and 58/100 Dollars ($2,185.58) per month during the period
commencing on the Commencement Date and ending on the day immediately preceding
the Rent Commencement Date. If such period shall commence or end on a date other
than the first (1st) day of a calendar month, such monthly amount on account of
electricity shall be appropriately adjusted.


                                       9
<PAGE>

                                   ARTICLE 2
                               USE AND OCCUPANCY
                               -----------------

     Section 2.1. Tenant shall use and occupy the Premises as general and
executive offices, uses incidental thereto and for no other purpose.

     Section 2.2. (A) Tenant shall not use the Premises or any part thereof, or
permit the Premises or any part thereof to be used, (1) for the business of
photographic, multilith or multigraph reproductions or offset printing, except
in connection with, either directly or indirectly, Tenant's own business and/or
activities, (2) for a banking, trust company, depository, guarantee or safe
deposit business, (3) as a savings bank, a savings and loan association, or as a
loan company, (4) for the sale of travelers checks, money orders, drafts,
foreign exchange or letters of credit or for the receipt of money for
transmission, (5) as a stockbroker's or dealer's office or for the underwriting
or sale of securities, (6) by the United States government, the City or State of
New York, any foreign government, the United Nations or any agency or department
of any of the foregoing or any other Person having sovereign or diplomatic
immunity, (7) as a restaurant or bar or for the sale of confectionery, soda or
other beverages, sandwiches, ice cream or baked goods or for the preparation,
dispensing or consumption of food or beverages in any manner whatsoever, except
for consumption by Tenant's officers, employees and business guests, (8) as an
employment agency, executive search firm or similar enterprise, labor union,
school, or vocational training center (except for the training of employees of
Tenant intended to be employed at the Premises), or (9) as a barber shop or
beauty salon.

          (B) In connection with, and incidental to, Tenant's use of the
Premises for general and executive offices as provided in this Article 2,
Tenant, at its sole cost and expense and upon compliance with all applicable
Requirements, may install a "dwyer" or similar unit in the Premises for the
purpose of warming food for the officers, employees and business guests of
Tenant (but not for use as a public restaurant), provided that Tenant shall
obtain all permits required by any Governmental Authorities for the operation
thereof and such installation shall comply with the provisions of this Lease,
including, without limitation, Article 3 hereof. Tenant may also install, at its
sole cost and expense and subject to and in compliance with the provisions of
Articles 3 and 4 hereof, vending machines for the exclusive use of the officers,
employees and business guests of Tenant, each of which vending machines (if it
dispenses any beverages or other liquids or refrigerates) shall have a
waterproof pan located thereunder, connected to a drain.


                                   ARTICLE 3
                                  ALTERATIONS
                                  -----------

     Section 3.1. (A) Tenant shall not make any Alterations without Landlord's
prior consent. Landlord shall not unreasonably withhold or delay its consent to
any proposed nonstructural Alterations, provided that such Alterations (i) are
not visible from the outside of the Building, (ii) do not affect any part of the
Building other than the Premises or require any alterations, installations,


                                      10
<PAGE>
 
improvements, additions or other physical charges to the performed in or made to
any portion of the Building or the Real Property other than the Premises, (iii)
do not affect any service required to be furnished by Landlord to Tenant or to
any other tenant or occupant of the Building, (iv) do not affect the proper
functioning of any Building System, (v) do not reduce the value or utility of
the Building, and (vi) do not affect the certificate of occupancy for the
Building or the Premises.

          (B) (1) Prior to making any Alterations, including, without
limitation, the Initial Alterations, Tenant shall (i) submit to Landlord
detailed plans and specifications (including layout, architectural, mechanical
and structural drawings) for each proposed Alteration and shall not commence any
such Alteration without first obtaining Landlord's approval of such plans and
specifications, which, in the case of nonstructural Alterations which meet the
criteria set forth in Section 3.1(A) above, shall not be unreasonably withheld
or delayed, (ii) at Tenant's expense, obtain all permits, approvals and
certificates required by any Governmental Authorities, it being agreed that all
filings with Governmental Authorities to obtain such permits, approvals and
certificates shall be made, at Tenant's expense, by a Person designated by
Landlord (provided the rates of such Person are commercially competitive), and
(iii) furnish to Landlord duplicate original policies or certificates thereof of
worker's compensation (covering all persons to be employed by Tenant, and
Tenant's contractors and subcontractors in connection with such Alteration) and
comprehensive public liability (including property damage coverage) insurance in
such form, with such companies, for such periods and in such amounts as Landlord
may reasonably approve, naming Landlord and its agents, any Lessor and any
Mortgagee, as additional insureds. Upon completion of such Alteration, Tenant,
at Tenant's expense, shall obtain certificates of final approval of such
Alteration required by any Governmental Authority and shall furnish Landlord
with copies thereof, or "field" plans and specifications for such Alterations
reflecting the final installations prepared by, or on behalf of, Tenant, it
being agreed that all filings with Governmental Authorities to obtain such
permits, approvals and certificates shall be made, at Tenant's expense, by a
Person designated by Landlord (provided the rates of such Person are
commercially competitive). All Alterations shall be made and performed
substantially in accordance with the plans and specifications therefor as
approved by Landlord, all Requirements, the Rules and Regulations, and all rules
and regulations relating to Alterations promulgated by Landlord in its
reasonable judgment. All materials and equipment to be incorporated in the
Premises as a result of any Alterations or a part thereof shall be first quality
and no such materials or equipment (other than Tenant's Property) shall be
subject to any lien, encumbrance, chattel mortgage or title retention or
security agreement. In addition, no Alteration shall be undertaken prior to
Tenant's delivering to Landlord either (i) a performance bond and labor and
materials payment bond (issued by a surety company and in form reasonably
satisfactory to Landlord), each in an amount equal to 120% of the cost of such
Alteration (as reasonably estimated by Landlord's architect, engineer, or
contractor), or (ii) such other security as shall be reasonably satisfactory to
Landlord or required by any Mortgagee or Lessor. If, as a result of any
Alterations performed by Tenant, including, without limitation, the Initial
Alterations, any alterations, installations, improvements, additions or other
physical changes are required to be performed or made to any portion of the
Building or the Real Property other than the Premises in order to comply with
any Requirement(s), which alterations, installations, improvements, additions or
other physical changes would not otherwise have had to be performed or made
pursuant to applicable

                                      11
<PAGE>
 
Requirement(s) at such time, Landlord, at Tenant's sole cost and expense, may
perform or make such alterations, installations, improvements, additions or
other physical changes and take such actions as Landlord shall deem reasonably
necessary and Tenant, within ten (10) days after demand therefor by Landlord,
shall provide Landlord with such security as Landlord shall reasonably require,
in an amount equal to 120% of the cost of such alterations, installations,
improvements, additions or other physical changes, as reasonably estimated by
Landlord's architect, engineer or contractor. All Alteration(s) shall be
performed only under the supervision of an independent licensed architect
approved by Landlord, which approval shall not be unreasonably withheld.

               (2) Subject to Section 3.1(A) above, Landlord reserves the right
to disapprove any plans and specifications in part, to reserve approval of items
shown thereon pending its review and approval of other plans and specifications,
and to condition its approval upon Tenant making revisions to the plans and
specifications or supplying additional information. Any review or approval by
Landlord of any plans and/or specifications or any preparation or design of any
plans by Landlord's architect or engineer (or any architect or engineer
designated by Landlord) with respect to any Alteration is solely for Landlord's
benefit, and without any representation or warranty whatsoever to Tenant or any
other Person with respect to the compliance thereof with any Requirements, the
adequacy, correctness or efficiency thereof or otherwise.

          (C) Tenant shall be permitted to perform Alterations during the hours
of 8:00 A.M. to 6:00 P.M. on Business Days, provided that such work shall not
interfere with or interrupt the operation and maintenance of the Building or
unreasonably interfere with or interrupt the use and occupancy of the Building
by other tenants in the Building. Otherwise, Alterations shall be performed at
such times and in such manner as Landlord may from time to time reasonably
designate. All Tenant's Property installed by Tenant and all Alterations in and
to the Premises which may be made by Tenant at its own cost and expense prior to
and during the Term, shall remain the property of Tenant. Upon the Expiration
Date, Tenant shall remove Tenant's Property from the Premises and, at Tenant's
option, Tenant also may remove, at Tenant's cost and expense, all Alterations
made by Tenant to the Premises, provided, however, in any case, that Tenant
shall repair and restore in a good and workerlike manner to good condition any
damage to the Premises or the Building caused by such removal. Notwithstanding
the foregoing, however, provided that Tenant submits to Landlord together with
Tenant's submission of plans and specifications for Alterations (including,
without limitation, the Initial Alterations) for Landlord's review, a statement
directing Landlord's attention to the provisions of this Section 3.1(C) with
respect to Landlord's obligation to notify Tenant which Alterations (including,
without limitation, the Initial Alterations) constitute Specialty Alterations
and whether Landlord will require Tenant to remove such Specialty Alterations,
and in the event Landlord requires such removal, Tenant shall remove such
Specialty Alterations on or prior to the Expiration Date and, in each case,
repair in a good and workerlike manner to good condition any damage to the
Premises or the Building caused by such removal. Notwithstanding the foregoing
(but except as provided in the preceding sentence), however, Landlord, upon
notice given at least thirty (30) days prior to the Fixed Expiration Date or
upon such shorter notice as is reasonable under the circumstances upon the
earlier expiration of the Term, may require Tenant to remove any Specialty
Alterations, and to repair and restore in a good and

                                       12
<PAGE>
 
workerlike manner to good condition any damage to the Premises or the Building
caused by such removal.

          (D) (1) All Alterations shall be performed, at Tenant's sole cost and
expense, by Landlord's contractor(s) or by contractors, subcontractors or
mechanics approved by Landlord. Prior to making an Alteration, at Tenant's
request, Landlord shall furnish Tenant with a list of contractors who may
perform Alterations to the Premises on behalf of Tenant (it being agreed that
the list of contractors approved by Landlord with respect to the Initial
Alterations is attached hereto and made a part hereof as Exhibit "B". If Tenant
engages any contractor set forth on the list, Tenant shall not be required to
obtain Landlord's consent for such contractor unless, prior to the earlier of
(a) entering into a contract with such contractor, and (b) the commencement of
work by such contractor, Landlord shall notify Tenant that such contractor has
been removed from the list.

               (2) Notwithstanding the foregoing, with respect to any Alteration
affecting any Building System, (i) Tenant shall select a contractor from a list
of approved contractors furnished by Landlord to Tenant (containing at least
three (3) contractors) and (ii) the Alteration shall, at Tenant's cost and
expense, be designed by Landlord's engineer for the relevant Building System.

          (E) Any mechanic's lien filed against the Premises or the Real
Property for work claimed to have been done for, or materials claimed to have
been furnished to, Tenant shall be discharged by Tenant within thirty (30) days
after Tenant shall have received notice thereof (or such shorter period if
required by the terms of any Superior Lease or Mortgage), at Tenant's expense,
by payment or filing the bond required by law. Tenant shall not, at any time
prior to or during the Term, directly or indirectly employ, or permit the
employment of, any contractor, mechanic or laborer in the Premises, whether in
connection with any Alteration or otherwise, if such employment would interfere
or cause any conflict with other contractors, mechanics or laborers engaged in
the construction, maintenance or operation of the Building by Landlord, Tenant
or others, or of any adjacent property owned by Landlord. In the event of any
such interference or conflict, Tenant, upon demand of Landlord, shall cause all
contractors, mechanics or laborers causing such interference or conflict to
leave the Building immediately.

          (F) Tenant shall commence performance of the Initial Alterations by
not later than thirty (30) days after the Commencement Date, subject to
extension by reason of delays out of Tenant's reasonable control, shall
thereafter diligently continuously prosecute the same to completion, and shall
substantially complete the Initial Alterations on or before the date which is
ninety (90) days after the Commencement Date, subject to extension by reason of
delays out of Tenant's reasonable control.

     Section 3.2. Tenant shall pay to Landlord or to Landlord's agent, as
additional rent, all actual third-party out-of-pocket costs and expenses
incurred by Landlord or Landlord's agent in connection with any Alterations,
including, without limitation, the Initial Alterations (the "Alteration Fee").
The Alteration Fee shall be paid by Tenant within fifteen (15) Business Days
after demand therefor.


                                      13
<PAGE>
 
Tenant also shall pay any fee charged by any Lessor or Mortgagee in reviewing
the plans and specifications for such Alterations or inspecting the progress of
completion of the same.

     Section 3.3. Upon the request of Tenant, Landlord, at Tenant's cost and
expense, shall join in any applications for any permits, approvals or
certificates required to be obtained by Tenant in connection with any permitted
Alteration (provided that the provisions of the applicable Requirement shall
require that Landlord join in such application) and shall otherwise cooperate
with Tenant in connection therewith, provided that Landlord shall not be
obligated to incur any cost or expense, including, without limitation,
attorneys' fees and disbursements, or suffer any liability in connection
therewith.

     Section 3.4. (A) Landlord shall contribute an amount not to exceed One
Hundred Fifty-Two Thousand Forty Dollars ($152,040.00) (the "Tenant Fund")
toward (i) the "hard" cost of the Initial Alterations, and (ii) architect's and
engineering fees, permit fees, expediter's fees and designers' fees in
connection with the Initial Alterations (such "soft costs" and related costs
referred to in this clause (ii) incurred by Tenant in connection with the
Initial Alterations being collectively referred to herein as "Related Costs").

          (B) Landlord shall disburse a portion of the Tenant Fund to Tenant
from time to time, within thirty (30) days after receipt of the items set forth
in Section 3.4(C) hereof, provided that on the date of a request and on the date
of disbursement from the Tenant Fund no Event of Default shall have occurred and
be continuing. Disbursements from the Tenant Fund shall not be made more
frequently than monthly, and shall be in an amount equal to the aggregate
amounts theretofore paid or payable (as certified by an officer of Tenant of the
rank of vice-president or higher authorized to make such certification, and
Tenant's independent, licensed architect) to Tenant's contractors,
subcontractors and materialmen which have not been the subject of a previous
disbursement from the Tenant Fund multiplied by a fraction, the numerator of
which is One Hundred Fifty-Two Thousand Forty Dollars ($152,040.00) and the
denominator of which is the total cost of the Initial Alterations as estimated
by Tenant's independent licensed architect and as approved by Landlord (which
approval shall not be unreasonably withheld), which fraction shall be subject to
readjustment as provided by Section 3.4(C) hereof (but in no event shall such
fraction be greater than one (1)); provided, however, that (i) in no event shall
Tenant be entitled to a disbursement from the Tenant Fund on account of Related
Costs unless and until Tenant shall have received its first disbursement of the
Tenant Fund for the cost of the Initial Alterations (other than Related Costs),
and (ii) in no event shall disbursements of the Tenant Fund on account of
Related Costs exceed Fifteen Thousand Two Hundred Four Dollars ($15,204.00).

          (C) Landlord's obligation to make disbursements from the Tenant Fund
shall be subject to Landlord's verification of the total cost of the Initial
Alterations as estimated by Tenant's independent licensed architect and receipt
of: (a) a request for such disbursement from Tenant signed by an officer of
Tenant of the rank of vice-president or higher authorized to make such request,
together with the certification required by Section 3.4(B) hereof, (b) copies of
all receipts, invoices and bills for the work completed and materials furnished
in connection with the Initial


                                      14
<PAGE>
 
Alterations and incorporated in the Premises which are to be paid from the
requested disbursement or which have been paid by Tenant and for which Tenant is
seeking reimbursement, (c) copies of all contracts, work orders, change orders
and other materials relating to the work or materials which are the subject of
the requested disbursement or reimbursement, (d) if requested by Landlord,
waivers of lien from all contractors, subcontractors and materialmen involved in
the performance of the Initial Alterations relating to the portion of the
Initial Alterations theretofore performed and materials theretofore provided and
for which previous disbursements and/or the requested disbursement has been or
is to be made (except to the extent such waivers of lien were previously
furnished to Landlord upon a prior request), (e) a certificate of Tenant's
independent licensed architect stating (i) that, in his opinion, the portion of
the Initial Alterations theretofore completed and for which the disbursement is
requested was performed in a good and workerlike manner and substantially in
accordance with the final detailed plans and specifications for such Initial
Alterations, as approved by Landlord, (ii) the percentage of completion of the
Initial Alterations as of the date of such certificate, and (iii) the revised
estimated total cost to complete the Initial Alterations and (f) the amount of
the Alteration Fee then payable pursuant to Section 3.2 hereof. If the revised
estimated total cost of the Initial Alterations increases above the original
estimated total cost of the Initial Alterations by more than five percent (5%),
then the denominator of the fraction referred to in Section 3.4(B) hereof shall
be adjusted appropriately.

          (D) In no event shall the aggregate amount paid by Landlord to Tenant
under this Section 3.4 exceed the amount of the Tenant Fund. Upon the completion
of the Initial Alterations and satisfaction of the conditions set forth in
Section 3.4(E) hereof, any amount of the Tenant Fund which has not been
previously disbursed shall be retained by Landlord. Upon the disbursement of the
entire Tenant Fund (or the portion thereof if upon completion of the Initial
Alterations the Tenant Fund is not exhausted), Landlord shall have no further
obligation or liability whatsoever to Tenant for further disbursement of any
portion of the Tenant Fund to Tenant. It is expressly understood and agreed that
Tenant shall complete, at its sole cost and expense, the Initial Alterations,
whether or not the Tenant Fund is sufficient to fund such completion. Any costs
to complete the Initial Alterations in excess of the Tenant Fund shall be the
sole responsibility and obligation of Tenant.

          (E) Within thirty (30) days after completion of the Initial
Alterations, Tenant shall deliver to Landlord general releases and waivers of
lien from all contractors, subcontractors and materialmen involved in the
performance of the Initial Alterations and the materials furnished in connection
therewith (unless same previously were furnished pursuant to Section 3.4(C)
hereof), and a certificate from Tenant's independent licensed architect
certifying that (i) in his opinion the Initial Alterations have been performed
in a good and workerlike manner and completed in accordance with the final
detailed plans and specifications for such Initial Alterations as approved by
Landlord and (ii) all contractors, subcontractors and materialmen have been paid
for the Initial Alterations and materials furnished through such date.

          (F) Tenant warrants and covenants that it shall incur costs and
expenses in excess of One Hundred Thirty-Six Thousand Eight Hundred Thirty-Six
Dollars ($136,836.00) toward the "hard" cost of the Initial Alterations.



                                      15
<PAGE>
 
                                   ARTICLE 4
                              REPAIRS-FLOOR LOAD
                              ------------------


     Section 4.1. Landlord shall operate, maintain and make all necessary
repairs (both structural and nonstructural) to the part of Building Systems
which provide service to the Premises (but not to the distribution portions of
such Building Systems located within the Premises) and the public portions of
the Building, both exterior and interior, in conformance with standards
applicable to non-institutional first class office buildings in Manhattan.
Tenant, at Tenant's sole cost and expense, shall take good care of the Premises
and the fixtures, equipment and appurtenances therein and the distribution
systems and shall make all nonstructural repairs thereto as and when needed to
preserve them in good working order and condition, except for reasonable wear
and tear, obsolescence and damage for which Tenant is not responsible pursuant
to the provisions of Article 10 hereof. Notwithstanding the foregoing, all
damage or injury to the Premises or to any other part of the Building and
Building Systems, or to its fixtures, equipment and appurtenances, whether
requiring structural or nonstructural repairs, caused by or resulting from
carelessness, omission, neglect or improper conduct of, or Alterations made by,
Tenant, Tenant's agents, employees, invitees or licensees, shall be repaired at
Tenant's sole cost and expense, by Tenant to the reasonable satisfaction of
Landlord (if the required repairs are nonstructural in nature and do not affect
any Building System), or by Landlord (if the required repairs are structural in
nature or affect any Building System). All of the aforesaid repairs shall be of
first quality and of a class consistent with non-institutional first class
office building work or construction and shall be made in accordance with the
provisions of Article 3 hereof. If Tenant fails after ten (10) days' notice (or
such shorter period as Landlord may be permitted pursuant to any Superior Lease
or Mortgage or such shorter period as may be required due to an emergency) to
proceed with due diligence to make or commence making repairs required to be
made by Tenant, the same may be made by Landlord at the expense of Tenant, and
the expenses thereof incurred by Landlord, with interest thereon at the
Applicable Rate, shall be forthwith paid to Landlord as additional rent within
fifteen (15) Business Days after rendition of a bill or statement therefor.
Tenant shall give Landlord prompt notice of any defective condition in the
Building or in any Building System, located in, servicing or passing through the
Premises.

     Section 4.2. Tenant shall not place a load upon any floor of the Premises
exceeding fifty (50) pounds per square foot "live load". Tenant shall not move
any safe, heavy machinery, heavy equipment, business machines, freight, bulky
matter or fixtures into or out of the Building without Landlord's prior consent,
which consent shall not be unreasonably withheld, and shall make payment to
Landlord of Landlord's actual out-of-pocket costs in connection therewith. If
such safe, machinery, equipment, freight, bulky matter or fixtures requires
special handling, Tenant shall employ only persons holding a Master Rigger's
license to do said work. All work in connection therewith shall comply with all
Requirements and the Rules and Regulations, and shall be done during such hours
as Landlord may reasonably designate. Business machines and mechanical equipment
shall be placed and maintained by Tenant at Tenant's expense in settings
sufficient in Landlord's reasonable judgment to absorb and prevent vibration,
noise and annoyance. Except as


                                      16
<PAGE>
 
expressly provided in this Lease, there shall be no allowance to Tenant for a
diminution of rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from Landlord, Tenant or
others making, or failing to make, any repairs, alterations, additions or
improvements in or to any portion of the Building or the Premises, or in or to
fixtures, appurtenances or equipment thereof.

     Section 4.3. Landlord shall use its reasonable efforts to minimize
interference with Tenant's use and occupancy of the Premises in making any
repairs, alterations, additions or improvements; provided, however, that
Landlord shall have no obligation to employ contractors or labor at so-called
overtime or other premium pay rates or to incur any other overtime costs or
expenses whatsoever, except that Landlord, at its expense but subject to
recoupment pursuant to Article 27 hereof, shall employ contractors or labor at
so-called overtime or other premium pay rates if necessary to make any repair
required to be made by it hereunder to remedy any condition that either (i)
results in a denial of access to the Premises, (ii) threatens the health or
safety of any occupant of the Premises, or (iii) except in the case of a fire or
other casualty, materially interferes with Tenant's ability to conduct its
business in the Premises. In all other cases, at Tenant's request, Landlord
shall employ contractors or labor at so-called overtime or other premium pay
rates and incur any other overtime costs or expenses in making any repairs,
alterations, additions or improvements, and Tenant shall pay to Landlord, as
additional rent, within fifteen (15) Business Days after demand, an amount equal
to the difference between the overtime or other premium pay rates and the
regular pay rates for such labor and any other overtime costs or expenses so
incurred.

                                   ARTICLE 5
                                WINDOW CLEANING
                                ---------------

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

                                   ARTICLE 6
                              REQUIREMENTS OF LAW
                              -------------------

     Section 6.1. (A) Tenant, at its sole cost and expense, shall comply with
all Requirements applicable to the use and occupancy of the Premises, including,
without limitation, those applicable to the making of any Alterations therein or
the result of the making thereof and those applicable by reason of the nature or
type of business operated by Tenant in the Premises except that (other than with
respect to the making of Alterations or the result of the making thereof) Tenant
shall not be under any obligation to make any Alteration in order to comply with
any Requirement applicable to the mere general "office" use (as opposed to the
manner of use) of the Premises, unless otherwise expressly required herein.
Tenant shall knowingly not do or permit to


                                      17
<PAGE>
 
be done any act or thing upon the Premises which will invalidate or be in
conflict with a standard "all-risk" insurance policy; and shall not do, or
permit anything to be done in or upon the Premises, or bring or keep anything
therein, except as now or hereafter permitted by the New York City Fire
Department, New York Board of Fire Underwriters, the Insurance Services Office
or other authority having jurisdiction and then only in such quantity and manner
of storage as not to increase the rate for fire insurance applicable to the
Building, or use the Premises in a manner (as opposed to mere use as general
"offices") which shall increase the rate of fire insurance on the Building or
on property located therein, over that in similar type buildings or in effect on
the Commencement Date. If by reason of Tenant's failure to comply with the
provisions of this Article, the fire insurance rate shall be higher than it
otherwise would be, then Tenant shall desist from doing or permitting to be done
any such act or thing and shall reimburse Landlord, as additional rent
hereunder, for that part of all fire insurance premiums thereafter paid by
Landlord which shall have been charged because of such failure by Tenant, and
shall make such reimbursement within fifteen (15) Business Days after demand by
Landlord. In any action or proceeding wherein Landlord and Tenant are parties, a
schedule or "make up" of rates for the Building or the Premises issued by the
Insurance Services Office, or other body fixing such fire insurance rates, shall
be conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates then applicable to the Building.

          (B) Landlord, at its sole cost and expense (but subject to recoupment
as provided in Article 27 hereof), shall comply with all Requirements applicable
to the Premises and the Building which affect Tenant's use or occupancy of the
Premises other than those Requirements with respect to which Tenant or other
tenants or occupants of the Building shall be required to comply, subject to
Landlord's right to contest the applicability or legality thereof.

     Section 6.2. Tenant, at its sole cost and expense and after notice to
Landlord, may contest by appropriate proceedings prosecuted diligently and in
good faith, the legality or applicability of any Requirement affecting the
Premises, provided that (a) Landlord (or any Indemnitee) shall not be subject to
imprisonment or to prosecution for a crime, nor shall the Real Property or any
part thereof be subject to being condemned or vacated, nor shall the certificate
of occupancy for the Premises or the Building be suspended or threatened to be
suspended by reason of non-compliance or by reason of such contest; (b) before
the commencement of such contest, if Landlord or any Indemnitee may be subject
to any civil fines or penalties or other criminal penalties or if Landlord may
be liable to any independent third party as a result of such noncompliance,
Tenant shall furnish to Landlord either (i) a bond of a surety company
satisfactory to Landlord, in form and substance reasonably satisfactory to
Landlord, and in an amount equal to one hundred twenty percent (120%) of the sum
of (A) the cost of such compliance, (B) the criminal or civil penalties or fines
that may accrue by reason of such non-compliance (as reasonably estimated by
Landlord), and (C) the amount of such liability to independent third parties (as
reasonably estimated by Landlord), and shall indemnify Landlord (and any
Indemnitee) against the cost of such compliance and liability resulting from or
incurred in connection with such contest or non-compliance (except that Tenant
shall not be required to furnish such bond to Landlord if it has otherwise
furnished any similar bond required by law to the appropriate Governmental
Authority and has named Landlord as a beneficiary


                                      18
<PAGE>
 
thereunder) or (ii) other security reasonably satisfactory in all respects to
Landlord; (c) such non-compliance or contest shall not constitute or result in a
violation (either with the giving of notice or the passage of time or both) of
the terms of any Mortgage or Superior Lease, or if such Superior Lease or
Mortgage shall condition such non-compliance or contest upon the taking of
action or furnishing of security by Landlord, such action shall be taken or such
security shall be furnished at the expense of Tenant; and (d) Tenant shall keep
Landlord regularly advised as to the status of such proceedings. Without
limiting the applicability of the foregoing, Landlord (or any Indemnitee) shall
be deemed subject to prosecution for a crime if Landlord (or any Indemnitee), a
Lessor, a Mortgagee or any of their officers, directors, partners, shareholders,
agents or employees is charged with a crime of any kind whatsoever, unless such
charges are withdrawn ten (10) days before Landlord (or any Indemnitee), such
Lessor or such Mortgagee or such officer, director, partner, shareholder, agent
or employee, as the case may be, is required to plead or answer thereto.


                                   ARTICLE 7
                                 SUBORDINATION
                                 -------------

     Section 7.1. This Lease shall be subject and subordinate to each and every
Superior Lease and to each and every Mortgage. This clause shall be self-
operative and no further instrument of subordination shall be required from
Tenant to make the interest of any Lessor or Mortgagee superior to the interest
of Tenant hereunder; however, Tenant shall execute and deliver promptly any
instrument, in recordable form, that Landlord, any Mortgagee or Lessor may
request to evidence and confirm such subordination. If the date of expiration of
any Superior Lease shall be the same day as the Expiration Date, the Term shall
end and expire twelve (12) hours prior to the expiration of the Superior Lease.
Tenant shall not omit to do anything that Tenant is obligated to do under the
terms of this Lease so as to cause Landlord to be in default under any Superior
Lease or Mortgage. If, in connection with the financing of the Real Property,
the Building or the interest of the lessee under any Superior Lease, or if in
connection with the entering into of a Superior Lease, any lending institution
or Lessor shall request reasonable modifications of this Lease that do not
increase Tenant's monetary obligations under this Lease, or materially adversely
affect or diminish the rights, or materially increase the other obligations of
Tenant under this Lease, Tenant shall make such modifications.

     Section 7.2. If at any time prior to the expiration of the Term, any
Superior Lease shall terminate or be terminated for any reason or any Mortgagee
comes into possession of the Real Property or the Building or the estate created
by any Superior Lease by receiver or otherwise, Tenant agrees, at the election
and upon demand of any owner of the Real Property or the Building, or of the
Lessor, or of any Mortgagee in possession of the Real Property or the Building,
to attorn, from time to time, to any such owner, Lessor or Mortgagee or any
person acquiring the interest of Landlord as a result of any such termination,
or as a result of a foreclosure of the Mortgage or the granting of a deed in
lieu of foreclosure, upon the then executory terms and conditions of this Lease,
subject to the provisions of Section 7.1 hereof and this Section 7.2, for the
remainder of the Term, provided that such owner, Lessor or Mortgagee, or
receiver caused to be appointed by any of the foregoing,


                                      19
<PAGE>
 
as the case may be, shall then be entitled to possession of the Premises and
provided further that such owner, Lessor or Mortgagee, as the case may be, or
anyone claiming by, through or under such owner, Lessor or Mortgagee, as the
case may be, including a purchaser at a foreclosure sale, shall not be:

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

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

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

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

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

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

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

The provisions of this Section 7.2 shall enure to the benefit of any such owner,
Lessor or Mortgagee, shall apply notwithstanding that, as a matter of law, this
Lease may terminate upon the termination of any Superior Lease, shall be self-
operative upon any such demand, and no further instrument shall be required to
give effect to said provisions. Tenant, however, upon demand of any such owner,
Lessor or Mortgagee, shall execute, at Tenant's expense, from time to time,
instruments, in recordable form, in confirmation of the foregoing provisions of
this Section 7.2, reasonably satisfactory to any such owner, Lessor or
Mortgagee, acknowledging such attornment and setting


                                      20
<PAGE>
 
forth the terms and conditions of its tenancy. Nothing contained in this Section
7.2 shall be construed to impair any right otherwise exercisable by any such
owner, Lessor or Mortgagee. Notwithstanding the provisions of this Section 7.2,
this Lease shall not terminate by reason of the termination of any Superior
Lease without the prior written consent of the Mortgagee of the Mortgage which
is a first mortgage on Landlord's interest in the Real Property or the leasehold
estate created by such Superior Lease.

     Section 7.3. From time to time, within seven (7) days next following
request by Landlord, any Mortgagee or any Lessor, Tenant shall deliver to
Landlord, such Mortgagee or such Lessor a written statement executed by Tenant,
in form reasonably satisfactory to Landlord, such Mortgagee or such Lessor, (1)
stating that this Lease is then in full force and effect and has not been
modified (or if modified, setting forth all modifications), (2) setting forth
the date to which the Fixed Rent, Escalation Rent and other items of Rental have
been paid, (3) stating whether or not, to the best knowledge of Tenant, Landlord
is in default under this Lease, and, if Landlord is in default, setting forth
the specific nature of all such defaults, and (4) as to any other matters
reasonably requested by Landlord, such Mortgagee or such Lessor. Tenant
acknowledges that any statement delivered pursuant to this Section 7.3 may be
relied upon by any purchaser or owner of the Real Property or the Building, or
Landlord's interest in the Real Property or the Building or any Superior Lease,
or by any Mortgagee, or by an assignee of any Mortgagee, or by any Lessor.

     Section 7.4. From time to time, within seven (7) days next following
request by Tenant but not more frequently than twice in any twelve (12) month
period, Landlord shall deliver to Tenant a written statement executed by
Landlord (i) stating that this Lease is then in full force and effect and has
not been modified (or if modified, setting forth all modifications), (ii)
setting forth the date to which the Fixed Rent, Escalation Rent and any other
items of Rental have been paid, (iii) stating whether or not, to the best
knowledge of Landlord (but without having made any investigation), Tenant is in
default under this Lease, and, if Tenant is in default, setting forth the
specific nature of all such defaults, and (iv) as to any other matters
reasonably requested by Tenant and related to this Lease.

     Section 7.5. As long as any Superior Lease or Mortgage shall exist, Tenant
shall not seek to terminate this Lease by reason of any act or omission of
Landlord until Tenant shall have given written notice of such act or omission to
all Lessors and Mortgagees at such addresses as shall have been furnished to
Tenant by such Lessors and Mortgagees and, if any such Lessor or Mortgagee, as
the case may be, shall have notified Tenant within ten (10) Business Days
following receipt of such notice of its intention to remedy such act or
omission, until a reasonable period of time shall have elapsed following the
giving of such notice, during which period such Lessors and Mortgagees shall
have the right, but not the obligation, to remedy such act or omission.

     Section 7.6. Tenant hereby irrevocably waives any and all right(s) it may
have in connection with any zoning lot merger or transfer of development rights
with respect to the Real Property including, without limitation, any rights it
may have to be a party to, to contest, or to execute, any Declaration of
Restrictions (as such term is used in Section 12-10 of the Zoning Resolution of
The


                                      21
<PAGE>
 

City of New York effective December 15, 1961, as amended) with respect to the
Real Property, which would cause the Premises to be merged with or unmerged from
any other zoning lot pursuant to such Zoning Resolution or to any document of a
similar nature and purpose, and Tenant agrees that this Lease shall be subject
and subordinate to any Declaration of Restrictions or any other document of
similar nature and purpose now or hereafter affecting the Real Property. In
confirmation of such subordination and waiver, Tenant shall execute and deliver
promptly any certificate or instrument that Landlord reasonably may request.


                                   ARTICLE 8
                             RULES AND REGULATIONS
                             ---------------------

     Tenant and Tenant's contractors, employees, agents, visitors, invitees and
licensees shall comply with the Rules and Regulations. Tenant shall have the
right to dispute the reasonableness of any additional Rule or Regulation
hereafter adopted by Landlord. If Tenant disputes the reasonableness of any
additional Rule or Regulation hereafter adopted by Landlord, the dispute shall
be determined by arbitration in the City of New York in accordance with the
rules and regulations then obtaining of the American Arbitration Association or
its successor. Any such determination shall be final and conclusive upon the
parties hereto. The right to dispute the reasonableness of any additional Rule
or Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice upon Landlord within thirty (30) days after
receipt by Tenant of notice of the adoption of any such additional Rule or
Regulation. Nothing in this Lease contained shall be construed to impose upon
Landlord any duty or obligation to enforce the Rules and Regulations or terms,
covenants or conditions in any other lease against any other tenant, and
Landlord shall not be liable to Tenant for violation of the same by any other
tenant, its employees, agents, visitors or licensees.


                                   ARTICLE 9
               INSURANCE, PROPERTY LOSS OR DAMAGE; REIMBURSEMENT
               -------------------------------------------------

     Section 9.1. (A) Any Building employee to whom any property shall be
entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's
agent with respect to such property and neither Landlord nor its agents shall be
liable for any damage to property of Tenant or of others entrusted to employees
of the Building, nor for the loss of or damage to any property of Tenant by
theft or otherwise. Neither Landlord nor its agents shall be liable for any
injury (or death) to persons or damage to property, or interruption of Tenant's
business, resulting from fire or other casualty; nor shall Landlord or its
agents be liable for any such injury (or death) to persons or damage caused by
other tenants or persons in the Building or caused by construction of any
private, public or quasi-public work; nor shall Landlord be liable for any
injury (or death) to persons or damage to property or improvements, or
interruption of Tenant's business, resulting from any latent defect in the
Premises or in the Building (provided that the foregoing shall not relieve
Landlord from its obligations, if any, to repair such latent defect pursuant to
the provisions of Article 4 hereof or affect



                                      22
<PAGE>
 
Tenant's right, if any, regarding an abatement of the Fixed Rent and Escalation
Rent as set forth in Section 14.2 hereof). Anything in this Article 9 to the
contrary notwithstanding, except as set forth in Articles 4, 10, 13, 28, and 35
of this Lease and otherwise as expressly provided herein, Landlord shall not be
relieved from responsibility directly to Tenant for any loss or damage caused
directly to Tenant wholly or in part by the negligent acts or omissions of
Landlord. Nothing in the foregoing sentence shall affect any right of Landlord
to the indemnity from Tenant to which Landlord may be entitled under Article 35
hereof in order to recoup for payments made to compensate for losses of third
parties.

          (B) If at any time any windows of the Premises are temporarily closed,
darkened or bricked-up due to any Requirement or by reason of repairs,
maintenance, alterations, or improvements to the Building, or any of such
windows are permanently closed, darkened or bricked-up due to any Requirement,
Landlord shall not be liable for any damage Tenant may sustain thereby and
Tenant shall not be entitled to any compensation therefor, nor abatement or
diminution of Fixed Rent or any other item of Rental, nor shall the same release
Tenant from its obligations hereunder, nor constitute an actual or constructive
eviction, in whole or in part, by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business, or otherwise, nor
impose any liability upon Landlord or its agents. If at any time the windows of
the Premises are temporarily closed, darkened or bricked-up, as aforesaid, then,
unless Tenant is required pursuant to the Lease to perform the repairs,
maintenance, alterations, or improvements, or to comply with the Requirements,
which resulted in such windows being closed, darkened or bricked-up, Landlord
shall perform such repairs, maintenance, alterations or improvements and comply
with the applicable Requirements with reasonable diligence and otherwise take
such action as may be reasonably necessary to minimize the period during which
such windows are temporarily closed, darkened, or bricked-up.

          (C) Tenant shall immediately notify Landlord of any fire or accident
in the Premises.

     Section 9.2. Tenant shall obtain and keep in full force and effect (i) an
"all risk" insurance policy for Tenant's Specialty Alterations and Tenant's
Property at the Premises in an amount equal to one hundred percent (100%) of the
replacement value thereof, and (ii) a policy of commercial general liability and
property damage insurance on an occurrence basis, with a broad form contractual
liability endorsement. Such policies shall provide that Tenant is named as the
insured. Landlord, Landlord's managing agent, Landlord's agents and any Lessors
and any Mortgagees (whose names shall have been furnished to Tenant) shall be
added as additional insureds, as their respective interests may appear, with
respect to the insurance required to be carried pursuant to clauses (i) and (ii)
above. Such policy with respect to clause (ii) above shall include a provision
under which the insurer agrees to indemnify, defend and hold Landlord,
Landlord's managing agent, Landlord's agents and such Lessors and Mortgagees
harmless from and against, subject to the limits of liability set forth in this
Section 9.2, all cost, expense and liability arising out of, or based upon, any
and all claims, accidents, injuries and damages mentioned in Article 35. In
addition, the policy required to be carried pursuant to clause (ii) above shall
contain a provision that (a) no act or


                                      23
<PAGE>
 
omission of Tenant shall affect or limit the obligation of the insurer to pay
the amount of any loss sustained and (b) the policy shall be non-cancellable
with respect to Landlord, Landlord's managing agent, Landlord's agents and such
Lessors and Mortgagees (whose names and addresses shall have been furnished to
Tenant) unless thirty (30) days' prior written notice shall have been given to
Landlord by certified mail, return receipt requested, which notice shall contain
the policy number and the names of the insured and additional insureds. In
addition, upon receipt by Tenant of any notice of cancellation or any other
notice from the insurance carrier which may adversely affect the coverage of the
insureds under such policy of insurance, Tenant shall immediately deliver to
Landlord and any other additional insured hereunder a copy of such notice. The
minimum amounts of liability under the policy of insurance required to be
carried pursuant to clause (ii) above shall be a combined single limit with
respect to each occurrence in an amount of $5,000,000 for injury (or death) to
persons and damage to property, which amount shall be increased from time to
time to that amount of insurance which in Landlord's reasonable judgment is then
being customarily required by prudent landlords of non-institutional first class
buildings in New York City. The insurance described in clause (i) above may be
effected by a policy or policies of blanket insurance which cover property
located in other premises in addition to the Premises, but only if (a) the
protection afforded thereunder is not less than that which would have been
afforded under a separate policy or policies relating only to Tenant's Specialty
Alterations and Tenant's Property in the Premises, and (b) in all other respects
any such policy shall comply with the other provisions of this Article 9. Any
blanket policy shall include a provision that the aggregate limit shall apply
separately to Tenant's Specialty Alterations and Tenant's Property in the
Premises and that the insurer will provide notice to Landlord if the aggregate
limit is reduced by either payment of a claim or the establishment of a reserve
for claims, if such payments or reserves exceed $250,000.00. Tenant agrees that,
in the event that the aggregate limit applying to the Premises is reduced by the
payment of a claim or establishment of a reserve in excess of $250,000.00,
Tenant shall take all practical and immediate steps to have the aggregate limit
restored by endorsement to the existing policy or the purchase of additional
insurance policies with a single limit of not less than $5,000,000.00. All
insurance required to be carried by Tenant pursuant to the terms of this Lease
shall be effected under valid and enforceable policies issued by reputable and
independent insurers permitted to do business in the State of New York, and
rated in Best's Insurance Guide, or any successor thereto (or if there be none,
an organization having a national reputation) as having a general policyholder
rating of "A" and a financial rating of at least "XIII".

     Section 9.3. On or prior to the Commencement Date, Tenant shall deliver to
Landlord appropriate certificates of insurance, including evidence of waivers of
subrogation required pursuant to Section 10.5 hereof, required to be carried by
Tenant pursuant to this Article 9. Evidence of each renewal or replacement of a
policy shall be delivered by Tenant to Landlord at least twenty (20) days prior
to the expiration of such policy.

     Section 9.4. Tenant acknowledges that Landlord shall not carry insurance
on, and shall not be responsible for damage to, Tenant's Property or Specialty
Alterations, and that Landlord shall not carry insurance against, or be
responsible for any loss suffered by Tenant due to, interruption of Tenant's
business (it being expressly understood and agreed that the foregoing shall not
affect


                                      24
<PAGE>
 
Tenant's right, if any, regarding an abatement of the Fixed Rent and Escalation
Rent pursuant to Section 14.2 hereof);

     Section 9.5. If notwithstanding the recovery of insurance proceeds by
Tenant for loss, damage or destruction of its property (or rental value or
business interruptions) Landlord is liable to Tenant with respect thereto or is
obligated under this Lease to make replacement, repair or restoration, then, at
Landlord's option, either (i) the amount of the net proceeds of Tenant's
insurance against such loss, damage or destruction shall be offset against
Landlord's liability to Tenant therefor, or (ii) shall be made available to
Landlord to pay for replacement, repair or restoration.


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

     Section 10.1. (A) If the Premises (including Alterations other than
Specialty Alterations) shall be damaged by fire or other casualty, and if Tenant
shall give prompt notice thereof to Landlord, the damage, with such
modifications as shall be required in order to comply with Requirements shall be
diligently repaired by and at the expense of Landlord to substantially the
condition prior to the damage, and until such repairs which are required to be
performed by Landlord (excluding Long Lead Work) shall be substantially
completed (of which substantial completion Landlord shall promptly notify
Tenant) the Fixed Rent, Escalation Rent and Space Factor shall be reduced in the
proportion which the area of the part of the Premises which is not usable by
Tenant, as determined by Landlord in its reasonable discretion, bears to the
total area of the Premises immediately prior to such casualty. Upon the
substantial completion of such repairs (excluding Long Lead Work), Landlord
shall diligently prosecute to completion any items of Long Lead Work remaining
to be completed. Landlord shall have no obligation to repair any damage to, or
to replace, any Specialty Alterations or Tenant's Property, which Tenant shall
complete promptly after substantial completion of Landlord's repair obligations
under this Article 10. In addition, Landlord shall not be obligated to repair
any damage to, or to replace, any Alterations unless Tenant shall have notified
Landlord of the completion of such Alterations and the cost thereof, and shall
have maintained adequate records with respect to such Alterations. Tenant shall
make all necessary repairs to the Specialty Alterations and same shall be
completed promptly after substantial completion of Landlord's repair obligations
under this Article 10. Landlord shall use its reasonable efforts to minimize
interference with Tenant's use and occupancy in making any repairs pursuant to
this Section. Anything contained herein to the contrary notwithstanding, if the
Premises (including any Alterations) are damaged by fire or other casualty at
any time prior to the completion of the Initial Alterations, Landlord's
obligation to repair the Premises (and any Alterations) shall be limited to
repair of the part of the Building Systems serving the Premises on the
Commencement Date, but not the distribution portions of such Building Systems
located within the Premises, the floor and ceiling slabs of the Premises and the
exterior walls of the Premises, all to substantially the same condition which
existed on the Commencement Date, with such modifications as shall be required
in order to comply with Requirements.



                                      25
<PAGE>
 
          (B) Prior to the substantial completion of Landlord's repair
obligations set forth in Section 10.1 (A) hereof, Landlord shall provide Tenant
and Tenant's contractor, subcontractors and materialmen access to the Premises
to perform Specialty Alterations (or Alterations, if Landlord is not obligated
to repair same pursuant to the provisions hereof), on the following terms and
conditions (but not to occupy the same for the conduct of business):

               (1) Tenant shall not commence work in any portion of the Premises
until the date specified in a notice from Landlord to Tenant stating that the
repairs required to be made by Landlord have been or will be completed to the
extent reasonably necessary, in Landlord's discretion, to permit the
commencement of the Specialty Alterations (or Alterations, if Landlord is not
obligated to repair same pursuant to the provisions hereof) then prudent to be
performed in accordance with good construction practice in the portion of the
Premises in question without interference with, and consistent with the
performance of, the repairs remaining to be performed.

               (2) Such access by Tenant shall be deemed to be subject to all of
the applicable provisions of this Lease, including, without limitation, Tenant's
obligation to pay to Landlord an amount equal to the Electricity Inclusion
Factor, or, if applicable, the Electricity Additional Rent except that there
shall be no obligation on the part of Tenant solely because of such access to
pay any Fixed Rent or Escalation Rent with respect to the affected portion of
the Premises for any period prior to substantial completion of the repairs.

               (3) It is expressly understood that if Landlord shall be delayed
from substantially completing the repairs due to any acts of Tenant, its agents,
servants, employees or contractors, including, without limitation, by reason of
the performance of any Specialty Alteration (or Alteration, if Landlord is not
obligated to repair same pursuant to the provisions hereof), by reason of
Tenant's failure or refusal to comply or to cause its architects, engineers,
designers and contractors to comply with any of Tenant's obligations described
or referred to in this Lease, or if such repairs are not completed because under
good construction scheduling practice such repairs should be performed after
completion of any Specialty Alteration (or Alteration, if Landlord is not
obligated to repair same pursuant to the provisions hereof), then such repairs
shall be deemed substantially complete on the date when the repairs would have
been substantially complete but for such delay and the expiration of the
abatement of the Tenant's obligations hereunder shall not be postponed by reason
of such delay. Any additional costs to Landlord to complete any repairs
occasioned by such delay shall be paid by Tenant to Landlord within fifteen (15)
Business Days after demand, as additional rent.

     Section 10.2. Anything contained in Section 10.1 hereof to the contrary
notwithstanding, if the Building shall be so damaged by fire or other casualty
that, in Landlord's opinion, substantial alteration, demolition, or
reconstruction of the Building shall be required (whether or not the Premises
shall have been damaged or rendered untenantable), then Landlord, at Landlord's
option, may, not later than ninety (90) days following the damage, give Tenant a
notice in writing terminating this Lease, provided that if the Premises are not
substantially damaged or rendered substantially untenantable, Landlord may not
terminate this Lease unless it shall elect to terminate


                                      26
<PAGE>
 
leases (including this Lease), affecting at least fifty percent (50%) of the
rentable area of the Building (excluding any rentable area occupied by Landlord
or its Affiliates). If Landlord elects to terminate this Lease, the Term shall
expire upon a date set by Landlord, but not sooner than the tenth (10th) day
after such notice is given, and Tenant shall vacate the Premises and surrender
the same to Landlord in accordance with the provisions of Article 20 hereof.
Upon the termination of this Lease under the conditions provided for in this
Section 10.2, the Fixed Rent and Escalation Rent shall be apportioned and any
prepaid portion of Fixed Rent and Escalation Rent for any period after such date
shall be refunded by Landlord to Tenant.

     Section 10.3. (A) Within forty-five (45) days after notice to Landlord of
any damage described in Section 10.1 hereof, Landlord shall deliver to Tenant a
statement prepared by a reputable contractor setting forth such contractor's
estimate as to the time required to repair such damage, exclusive of time
required to repair any Specialty Alterations (which are Tenant's obligation to
repair) or to perform Long Lead Work. If the estimated time period exceeds
twelve (12) months from the date of such statement, Tenant may elect to
terminate this Lease by notice to Landlord not later than thirty (30) days
following receipt of such statement. If Tenant makes such election, the Term
shall expire upon the thirtieth (30th) day after notice of such election is
given by Tenant, and Tenant shall vacate the Premises and surrender the same to
Landlord in accordance with the provisions of Article 20 hereof. If Tenant shall
not have elected to terminate this Lease pursuant to this Article 10 (or is not
entitled to terminate this Lease pursuant to this Article 10), the damages shall
be diligently repaired by and at the expense of Landlord as set forth in Section
10.1 hereof.

          (B) Notwithstanding the foregoing, if the Premises shall be
substantially damaged during the last year of the Term, Landlord or Tenant may
elect by notice, given within thirty (30) days after the occurrence of such
damage, to terminate this Lease and if either party makes such election, the
Term shall expire upon the thirtieth (30th) day after notice of such election is
given by either party to the other party, and Tenant shall vacate the Premises
and surrender the same to Landlord in accordance with the provisions of Article
20 hereof.

          (C) Except as expressly set forth in this Section 10.3, Tenant shall
have no other options to cancel this Lease under this Article 10.

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

     Section 10.5. The parties hereto shall procure an appropriate clause in, or
endorsement on, any fire or extended coverage insurance covering the Premises,
the Building and personal property, fixtures and equipment located thereon or
therein, pursuant to which the insurance companies waive subrogation or consent
to a waiver of right of recovery and having obtained such clauses or
endorsements of waiver of subrogation or consent to a waiver of right of
recovery, will not make any


                                      27
<PAGE>
 
claim against or seek to recover from the other for any loss or damage to its
property or the property of others resulting from fire or other hazards covered
by such fire and extended coverage insurance, provided, however, that the
release, discharge, exoneration and covenant not to sue herein contained shall
be limited by and be coextensive with the terms and provisions of the waiver of
subrogation clause or endorsements or clauses or endorsements consenting to a
waiver of right of recovery. If the payment of an additional premium is required
for the inclusion of such waiver of subrogation provision, each party shall
advise the other of the amount of any such additional premiums and the other
party at its own election may, but shall not be obligated to, pay the same. If
such other party shall not elect to pay such additional premium, the first party
shall not be required to obtain such waiver of subrogation provision. If either
party shall be unable to obtain the inclusion of such clause even with the
payment of an additional premium, then such party shall attempt to name the
other party as an additional insured (but not a loss payee) under the policy. If
the payment of an additional premium is required for naming the other party as
an additional insured (but not a loss payee), each party shall advise the other
of the amount of any such additional premium and the other party at its own
election may, but shall not be obligated to, pay the same. If such other party
shall not elect to pay such additional premium or if it shall not be possible to
have the other party named as an additional insured (but not loss payee), even
with the payment of an additional premium, then (in either event) such party
shall so notify the first party and the first party shall not have the
obligation to name the other party as an additional insured. Tenant acknowledges
that Landlord shall not carry insurance on and shall not be responsible for
damage to, Tenant's Property or Specialty Alterations or any other Alteration
prior to the completion of the Initial Alterations, and that Landlord shall not
carry insurance against, or be responsible for any loss suffered by Tenant due
to, interruption of Tenant's business.


                                   ARTICLE 11
                                 EMINENT DOMAIN
                                 --------------

     Section 11.1. If the whole of the Real Property, the Building or the
Premises shall be acquired or condemned for any public or quasi-public use or
purpose, this Lease and the Term shall end as of the date of the vesting of
title with the same effect as if said date were the Expiration Date. If only a
part of the Real Property and not the entire Premises shall be so acquired or
condemned then, (1) except as hereinafter provided in this Section 11.1, this
Lease and the Term shall continue in force and effect, but, if a part of the
Premises is included in the part of the Real Property so acquired or condemned,
from and after the date of the vesting of title, the Fixed Rent and the Space
Factor shall be reduced in the proportion which the area of the part of the
Premises so acquired or condemned bears to the total area of the Premises
immediately prior to such acquisition or condemnation and Tenant's Share and
Tenant's Tax Share shall each be redetermined based upon the proportion in which
the ratio between the rentable area of the Premises remaining after such
acquisition or condemnation bears to the rentable area of the Building remaining
after such acquisition or condemnation; (2) whether or not the Premises shall be
affected thereby, Landlord, at Landlord's option, may give to Tenant, within
sixty (60) days next following the date upon which Landlord shall have received
notice of vesting of title, a thirty (30) days' notice of termination of



                                      28
<PAGE>
 
this Lease if Landlord shall elect to terminate leases (including this Lease),
affecting at least fifty percent (50%) of the rentable area of the Building
(excluding any rentable area leased by Landlord or its Affiliates); and (3) if
the part of the Real Property so acquired or condemned shall contain more than
fifteen percent (15%) of the total area of the Premises immediately prior to
such acquisition or condemnation, or if, by reason of such acquisition or
condemnation, Tenant no longer has reasonable means of access to the Premises,
Tenant, at Tenant's option, may give to Landlord, within sixty (60) days next
following the date upon which Tenant shall have received notice of vesting of
title, a thirty (30) days' notice of termination of this Lease. If any such
thirty (30) days' notice of termination is given by Landlord or Tenant, this
Lease and the Term shall come to an end and expire upon the expiration of said
thirty (30) days with the same effect as if the date of expiration of said
thirty (30) days were the Expiration Date. If a part of the Premises shall be so
acquired or condemned and this Lease and the Term shall not be terminated
pursuant to the foregoing provisions of this Section 11.1, Landlord, at
Landlord's expense, shall restore that part of the Premises not so acquired or
condemned to a self-contained rental unit inclusive of Tenant's Alterations
(other than Specialty Alterations), except that if such acquisition or
condemnation occurs prior to completion of the Initial Alterations, Landlord
shall only be required to restore that part of the Premises not so acquired or
condemned to a self-contained rental unit exclusive of Tenant's Alterations.
Upon the termination of this Lease and the Term pursuant to the provisions of
this Section 11.1, the Fixed Rent and Escalation Rent shall be apportioned and
any prepaid portion of Fixed Rent and Escalation Rent for any period after such
date shall be refunded by Landlord to Tenant.

     Section 11.2. In the event of any such acquisition or condemnation of all
or any part of the Real Property, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation, Tenant shall have no
claim against Landlord or the condemning authority for the value of any
unexpired portion of the Term and Tenant hereby expressly assigns to Landlord
all of its right in and to any such award. Nothing contained in this Section
11.2 shall be deemed to prevent Tenant from making a separate claim in any
condemnation proceedings for the then value of any Tenant's Property included in
such taking, and for any moving expenses.

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

               (i) if the acquisition or condemnation is for a period not
          extending beyond the Term and if such award or payment is made less
          frequently than in monthly installments, the same shall be paid to and
          held by Landlord as a fund which Landlord shall apply from time to
          time to the Rental payable by Tenant hereunder, except that, if by
          reason of such acquisition or condemnation changes or alterations are
          required to be made to the Premises which would necessitate an
          expenditure to

                                       29
<PAGE>
 
          restore the Premises, then a portion of such award or payment
          considered by Landlord as appropriate to cover the expenses of the
          restoration shall be retained by Landlord, without application as
          aforesaid, and applied toward the restoration of the Premises as
          provided in Section 11.1 hereof; or

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

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

     Section 12.1. (A) Except as expressly permitted herein, Tenant, without the
prior consent of Landlord in each instance, shall not (a) assign its rights or
delegate its duties under this Lease (whether by operation of law, transfers of
interests in Tenant or otherwise), mortgage or encumber its interest in this
Lease, in whole or in part, (b) sublet, or permit the subletting of, the
Premises or any part thereof, or (c) permit the Premises or any part thereof to
be occupied or used for desk space, mailing privileges or otherwise, by any
Person other than Tenant.

          (B) If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other consideration
payable or otherwise to be delivered in connection with such assignment shall be
paid or delivered to Landlord, shall be and remain the exclusive property of
Landlord and shall not constitute property of Tenant or of the estate of Tenant
within the meaning of the Bankruptcy Code. Any and all monies or other
consideration constituting Landlord's property under the preceding sentence not
paid or delivered to Landlord shall be held in trust for the benefit of Landlord
and shall be promptly paid to or turned over to Landlord.

     Section 12.2. (A) If Tenant's interest in this Lease is assigned in
violation of the provisions of this Article 12, such assignment shall be void
and of no force and effect against Landlord; provided, however, that Landlord
may collect an amount equal to the then Fixed Rent plus any other item of Rental
from the assignee as a fee for its use and occupancy, and shall apply the net
amount collected to the Fixed Rent and other items of Rental reserved in this
Lease. If the Premises or any part thereof are sublet to, or occupied by, or
used by, any Person other than Tenant, whether or not in violation of this
Article 12, Landlord, after default by Tenant under this Lease, including,
without limitation, a subletting or occupancy in violation of this Article 12,
may collect any item of Rental or other sums paid by the subtenant, user or
occupant as a fee for its use and occupancy, and shall apply the net amount
collected to the Fixed Rent and other items of Rental reserved in this Lease. No
such assignment, subletting, occupancy or use, whether with or without
Landlord's prior consent,

                                       30
<PAGE>
 
nor any such collection or application of Rental or fee for use and occupancy,
shall be deemed a waiver by Landlord of any term, covenant or condition of this
Lease or the acceptance by Landlord of such assignee, subtenant, occupant or
user as tenant hereunder. The consent by Landlord to any assignment, subletting,
occupancy or use shall not relieve Tenant from its obligation to obtain the
express prior consent of Landlord to any further assignment, subletting,
occupancy or use.

          (B) Tenant shall reimburse Landlord within fifteen (15) Business Days
after demand thereof for any actual out-of-pocket costs that may be incurred by
Landlord in connection with any proposed assignment of Tenant's interest in this
Lease or any proposed subletting of the Premises or any part thereof, including,
without limitation, any reasonable processing fee, reasonable attorneys' fees
and disbursements and the reasonable costs of making investigations as to the
acceptability of the proposed subtenant or the proposed assignee.

          (C) Neither any assignment of Tenant's interest in this Lease nor any
subletting, occupancy or use of the Premises or any part thereof by any Person
other than Tenant, nor any collection of Rental by Landlord from any Person
other than Tenant as provided in this Section 12.2, nor any application of any
such Rental as provided in this Section 12.2 shall, in any circumstances,
relieve Tenant of its obligations under this Lease on Tenant's part to be
observed and performed.

          (D) Any Person to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code shall be deemed without further act or deed to
have assumed all of the obligations arising under this Lease on and after the
date of such assignment. Any such assignee shall execute and deliver to Landlord
upon demand an instrument confirming such assumption. No assignment of this
Lease shall relieve Tenant of its obligations hereunder and, subsequent to any
assignment, Tenant's liability hereunder shall continue to the extent of the
obligations contained in this Lease (as the same may have been amended or
modified prior to any such assignment), notwithstanding any subsequent
modification or amendment hereof or the release of any subsequent tenant
hereunder from any liability, to which release Tenant hereby consents in
advance.

     Section 12.3. (A) If Tenant assumes this Lease and proposes to assign the
same pursuant to the provisions of the Bankruptcy Code to any Person who shall
have made a bona fide offer to accept an assignment of this Lease on terms
acceptable to Tenant, then notice of such proposed assignment shall be given to
Landlord by Tenant no later than twenty (20) days after receipt by Tenant, but
in any event no later than ten (10) days prior to the date that Tenant shall
make application to a court of competent jurisdiction for authority and approval
to enter into such assignment and assumption. Such notice shall set forth (a)
the name and address of such Person, (b) all of the terms and conditions of such
offer, and (c) adequate assurance of future performance by such Person under the
Lease as set forth in Paragraph (B) below, including, without limitation, the
assurance referred to in Section 365(b)(3) of the Bankruptcy Code. Landlord
shall have the prior right and option, to be exercised by notice to Tenant given
at any time prior to the effective date of such proposed assignment, to accept
an assignment of this Lease upon the same terms and conditions and for the same
consideration, if any, as the bona fide offer made by such Person, less any
brokerage commissions which would otherwise be payable by Tenant out of the
consideration to be


                                      31
<PAGE>
 
paid by such Person in connection with the assignment of this Lease.

          (B) The term "adequate assurance of future performance" as used in
this Lease shall mean that any proposed assignee shall, among other things, (a)
deposit with Landlord on the assumption of this Lease the sum of the then Fixed
Rent as security for the faithful performance and observance by such assignee of
the terms and obligations of this Lease, which sum shall be held by Landlord in
accordance with the provisions of Article 31 hereof, (b) furnish Landlord with
financial statements of such assignee for the prior three (3) fiscal years, as
finally determined after an audit and certified as correct by a certified public
accountant, which financial statements shall show a net worth of at least six
(6) times the then Fixed Rent for each of such three (3) years, (c) grant to
Landlord a security interest in such property of the proposed assignee as
Landlord shall deem necessary to secure such assignee's future performance under
this Lease, and (d) provide such other information or take such action as
Landlord, in its reasonable judgment shall determine is necessary to provide
adequate assurance of the performance by such assignee of its obligations under
the Lease.

     Section 12.4. (A) As long as Focal Communications Corp. is Tenant, Tenant
shall have the privilege, subject to the terms and conditions hereinafter set
forth, without the consent of Landlord but subject to Tenant's satisfaction of
conditions set forth in clauses (1), (4) and (5) of Section 12.8(A) hereof, and
without Landlord having the right granted in Section 12.8(B) hereof to
recapture, to assign its interest in this Lease (i) to any corporation which is
a successor to Tenant either by merger or consolidation, (ii) to a purchaser of
all or substantially all of Tenant's assets (provided such purchaser shall have
also assumed substantially all of Tenant's liabilities) or (iii) to a Person
which shall (1) Control, (2) be under the Control of, or (3) be under common
Control with Tenant (any such Person referred to in this clause (iii) being a
"Related Entity"). As long as Focal Communications Corp. is Tenant, Tenant also
shall have the privilege, subject to the terms and conditions hereinafter set
forth, without the consent of Landlord but subject to Tenant's satisfaction of
conditions set forth in clauses (3), (6) through (8) and (10) of Section 12.6(A)
and without Landlord having the right granted in Section 12.6(B) hereof to
recapture, to sublease all or any portion of the Premises to a Related Entity.
Any assignment or subletting described above may only be made upon the condition
that (a) any such assignee or subtenant shall continue to use the Premises for
the conduct of the same business as Tenant was conducting prior to such
assignment or sublease, (b) the principal purpose of such assignment or sublease
is not the acquisition of Tenant's interest in this Lease or to circumvent the
provisions of Section 12.1 of this Article (except if such assignment or
sublease is made to a Related Entity and is made for a valid intracorporate
business purpose and is not made to circumvent the provisions of Section 12.1 of
this Article), and (c) in the case of an assignment other than to a Related
Entity, any such assignee shall have a net worth and annual income and cash
flow, determined in accordance with generally accepted accounting principles,
consistently applied, after giving effect to such assignment, equal to the
greater of Tenant's net worth and annual income and cash flow, as so determined,
on (i) the date immediately preceding the date of such assignment, and (ii) the
Commencement Date. Tenant shall, within ten (10) Business Days after execution
thereof, deliver to Landlord either (x) a duplicate original instrument of
assignment in form and substance reasonably satisfactory to Landlord, duly


                                      32
<PAGE>
 
executed by Tenant, together with an instrument in form and substance reasonably
satisfactory to Landlord, duly executed by the assignee, in which such assignee
shall assume observance and performance of, and agree to be personally bound by,
all of the terms, covenants and conditions of this Lease on Tenant's part to be
observed and performed from and after the effective date of the assignment, or
(y) a duplicate original sublease in form and substance reasonably satisfactory
to Landlord, duly executed by Tenant and the subtenant.

          (B) If Tenant is a partnership, the admission of new Partners, the
withdrawal, retirement, death, incompetency or bankruptcy of any Partner, or the
reallocation of partnership interests among the Partners shall not constitute an
assignment of this Lease, provided the principal purpose of any of the foregoing
is not to circumvent the restrictions on assignment set forth in the provisions
of this Article 12. The reorganization of Tenant from a professional corporation
into a partnership or the reorganization of a Tenant from a partnership into a
professional corporation, shall not constitute an assignment of this Lease,
provided that immediately following such reorganization the Partners of Tenant
shall be the same as the shareholders of Tenant existing immediately prior to
such reorganization, or the shareholders of Tenant shall be the same as the
Partners of Tenant existing immediately prior to such reorganization, as the
case may be. If Tenant shall become a professional corporation, each individual
shareholder in Tenant and each employee of a professional corporation which is a
shareholder in Tenant shall have the same personal liability as such individual
or employee would have under this Lease if Tenant were a partnership and such
individual or employee were a Partner in Tenant. If any individual Partner in
Tenant is or becomes an employee of a professional corporation, such individual
shall have the same personal liability under this Lease as such individual would
have if he and not the professional corporation were a Partner of Tenant.

          (C) Except as set forth above, either a transfer (including the
issuance of treasury stock or the creation and issuance of new stock or a new
class of stock) of a controlling interest in the shares of Tenant or of any
entity which holds an interest in Tenant through one or more intermediaries (if
Tenant or such entity is a corporation or trust) or a transfer of a majority of
the total interest in Tenant or of any entity which holds an interest in Tenant
through one or more intermediaries (if Tenant or such entity is a partnership or
other entity) at any one time or over a period of time through a series of
transfers, shall be deemed an assignment of this Lease and shall be subject to
all of the provisions of this Article 12, including, without limitation, the
requirement that Tenant obtain Landlord's prior consent thereto. A public
offering of shares of Tenant's stock or other form of economic ownership of
Tenant shall not constitute an assignment of this Lease. The transfer of shares
of Tenant or of any entity which holds an interest in Tenant through one or more
intermediaries (if Tenant or such entity is a corporation or trust) for purposes
of this Section 12.4 shall not include the sale of shares by persons other than
those deemed "insiders" within the meaning of the Securities Exchange Act of
1934, as amended, which sale is effected through the "over-the-counter market"
or through any recognized stock exchange.

     Section 12.5. If, at any time after the originally named Tenant herein
may have assigned Tenant's interest in this Lease, this Lease shall be
disaffirmed or rejected in any proceeding of the types described in paragraph
(E) of Section 16.1 hereof, or in any similar proceeding, or in the event



                                      33
<PAGE>
 
of termination of this Lease by reason of any such proceeding or by reason of
lapse of time following notice of termination given pursuant to said Article 16
based upon any of the Events of Default set forth in such paragraph, any prior
Tenant, including, without limitation, the originally named Tenant, upon request
of Landlord given within thirty (30) days next following any such disaffirmance,
rejection or termination (and actual notice thereof to Landlord in the event of
a disaffirmance or rejection or in the event of termination other than by act of
Landlord), shall (1) pay to Landlord all Fixed Rent, Escalation Rent and other
items of Rental due and owing by the assignee to Landlord under this Lease to
and including the date of such disaffirmance, rejection or termination, and (2)
as "tenant", enter into a new lease with Landlord of the Premises for a term
commencing on the effective date of such disaffirmance, rejection or termination
and ending on the Expiration Date, unless sooner terminated as in such lease
provided, at the same Fixed Rent and upon the then executory terms, covenants
and conditions as are contained in this Lease, except that (a) Tenant's rights
under the new lease shall be subject to the possessory rights of the assignee
under this Lease and the possessory rights of any person claiming through or
under such assignee or by virtue of any statute or of any order of any court,
(b) such new lease shall require all defaults existing under this Lease to be
cured by Tenant with due diligence, and (c) such new lease shall require Tenant
to pay all Escalation Rent reserved in this Lease which, had this Lease not been
so disaffirmed, rejected or terminated, would have accrued under the provisions
of Article 27 hereof after the date of such disaffirmance, rejection or
termination with respect to any period prior thereto. If any such prior Tenant
shall default in its obligation to enter into said new lease for a period of
thirty (30) days next following Landlord's request therefor, then, in addition
to all other rights and remedies by reason of such default, either at law or in
equity, Landlord shall have the same rights and remedies against such Tenant as
if such Tenant had entered into such new lease and such new lease had thereafter
been terminated as of the commencement date thereof by reason of such Tenant's
default thereunder.

     Section 12.6. (A) Notwithstanding the provisions of Section 12.1 hereof, if
Landlord shall not exercise its rights pursuant to paragraph (B) of this Section
12.6, Landlord shall not unreasonably withhold or delay its consent to any
subletting of the Premises, provided that:

               (1) the Premises shall not, without Landlord's prior consent,
have been listed or otherwise publicly advertised for subletting at a rental
rate less than the greater of (i) the sum of the Fixed Rent, Electricity
Additional Rent (if applicable), and Escalation Rent then payable hereunder, and
(ii) the prevailing rental rate set by Landlord for comparable space in the
Building or if there is no comparable space, the prevailing rental rate
reasonably determined by Landlord (the "Prevailing Rate");

               (2) Intentionally Omitted Prior to Execution;

               (3) no Event of Default shall have occurred and be continuing;

               (4) upon the date Tenant delivers the Tenant Statement to
Landlord and upon the date immediately preceding the commencement date of any
sublease approved by Landlord, the proposed subtenant shall have a financial
standing (taking into consideration the



                                      34
<PAGE>
 
obligations of the proposed subtenant under the sublease) reasonably
satisfactory to Landlord, be of a character, be engaged in a business, and
propose to use the Premises in a manner in keeping with the standards in such
respects of the other tenancies in the Building;

               (5) the proposed subtenant (or any Person who directly or
indirectly, Controls, is Controlled by or is under common Control with the
proposed subtenant) shall not be a tenant or subtenant of any space in the
Building, nor shall the proposed subtenant (or any Person who directly or
indirectly, Controls, is Controlled by or is under common Control with the
proposed subtenant) be a Person with whom Landlord is negotiating or discussing
to lease space in the Building; if Tenant shall propose to sublease space and is
about to commence negotiations with a tenant, subtenant or prospective
subtenant, Tenant shall advise Landlord of the identity of such prospective
subtenant and Landlord shall promptly advise Tenant if the execution of a
sublease with such tenant, subtenant or prospective subtenant would violate the
provisions of this clause (5);

               (6) the character of the business to be conducted or the proposed
use of the Premises by the proposed subtenant shall not (a) be likely to
increase (beyond a de minimis amount) Landlord's operating expenses beyond that
which would be incurred for use by Tenant or for use in accordance with the
standards of use of other tenancies in the Building; (b) increase (beyond a de
minimis amount) the burden on existing cleaning services or elevators over the
burden prior to such proposed subletting; (c) violate any provision or
restrictions herein relating to the use or occupancy of the Premises; or (d)
require any alterations, installations, improvements, additions or other
physical changes to be performed in or made to any portion of the Building or
the Real Property other than the Premises; if Landlord shall have consented to
a sublease and, as a result of the use and occupancy of the subleased portion of
the Premises by the subtenant, operating expenses are increased, then Tenant
shall pay to Landlord, within fifteen (15) Business Days after demand, as
additional rent, all resulting increases in operating expenses;

               (7) the subletting shall be expressly subject to all of the
terms, covenants, conditions and obligations on Tenant's part to be observed and
performed under this Lease and the further condition and restriction that the
sublease shall not be modified without the prior written consent of Landlord,
which consent shall not be unreasonably withheld, or assigned (by operation of
law or otherwise; for purposes of this clause (7), the transfer of a majority of
the issued and outstanding capital stock of any corporate subtenant or the
transfer of a majority of the total interest in a subtenant (if a partnership or
other entity), however accomplished, whether in a single transaction or in a
series of related or unrelated transactions, shall be deemed an assignment of
the sublease, except that the transfer of the outstanding capital stock of a
corporate subtenant shall be deemed not to include the sale of such stock by
persons other than those deemed "insiders" within the meaning of the Securities
Exchange Act of 1934, as amended, which sale is effected through the "over-the-
counter market" or through any recognized stock exchange) encumbered or
otherwise transferred or the subleased premises further sublet by the subtenant
in whole or in part, or any part thereof suffered or permitted by the subtenant
to be used or occupied by others, without the prior written consent of Landlord
in each instance;


                                      35
<PAGE>
 
               (8) the subletting shall end no later than one (1) day before the
Expiration Date and shall not be for a term of less than two (2) years unless it
commences less than two (2) years before the Expiration Date;

               (9) no subletting shall be for less than the entire Premises,
unless to a Related Entity; and

               (10) such sublease shall expressly provide that in the event
of termination, re-entry or dispossess of Tenant by Landlord under this Lease,
Landlord may, at its option, take over all of the right, title and interest of
Tenant, as sublessor under such sublease, and such subtenant, at Landlord's
option, shall attorn to Landlord pursuant to the then executory provisions of
such sublease, except that Landlord shall not be:

                    (i) liable for any act or omission of Tenant under such
sublease, or

                    (ii) subject to any defense or offsets which such subtenant
may have against Tenant, or

                    (iii) bound by any previous payment which such subtenant
may have made to Tenant more than thirty (30) days in advance of the date upon
which such payment was due, unless previously approved by Landlord, or

                    (iv) bound by any obligation to make any payment to or on
behalf of such subtenant, or

                    (v) bound by any obligation to perform any work or to
make improvements to the Premises, or

                    (vi) bound by any amendment or modification of such
sublease made without its consent, or

                    (vii) bound to return such subtenant's security deposit, if
any, until such deposit has come into its actual possession and such subtenant
would be entitled to such security deposit pursuant to the terms of such
sublease.

          (B) At least fifteen (15) Business Days prior to any proposed
subletting of the Premises, Tenant shall submit a statement to Landlord (a
"Tenant Statement") containing the following information: (a) the name and
address of the proposed subtenant, (b) the terms and conditions of the proposed
subletting, including, without limitation, the rent payable and the value
(including cost, overhead and supervision) of any improvements (including any
demolition to be performed) to the Premises for occupancy by such subtenant, (c)
the nature and character of the business of the proposed subtenant, and (d) any
other information that Landlord may reasonably



                                      36
<PAGE>
 
request, together with a statement specifically directing Landlord's attention 
to the provisions of this Section 12.6(B) requiring Landlord to respond to 
Tenant's request within fifteen (15) Business Days after Landlord's receipt of
the Tenant Statement. Landlord shall have the right, exercisable by notice to
Tenant within fifteen (15) Business Days after Landlord's receipt of the Tenant
Statement, to sublet (in its own name or that of its designee) the Premises
("Recapture Space") from Tenant on the terms and conditions set forth in the
Tenant Statement, subject to the further provisions of paragraph (C) of this
Section 12.6. If Landlord shall fail to notify Tenant within said fifteen (15)
Business Day period of Landlord's intention to exercise its rights pursuant to
this Section 12.6(B) or of Landlord's consent to or disapproval of the proposed
subletting pursuant to the Tenant Statement as contemplated by Section 12.6(A)
hereof, or if Landlord shall have consented to such subletting as provided in
Section 12.6(A) hereof, Tenant shall have the right to sublease the Premises to
such proposed subtenant on the same terms and conditions set forth in the Tenant
Statement, subject to the terms and conditions of this Lease, including, without
limitation, paragraph (A) of this Section 12.6. If Tenant shall not enter into
such sublease within sixty (60) days after the delivery of the Tenant Statement
to Landlord, then the provisions of Section 12.1 hereof and this Section 12.6
shall again be applicable to any other proposed subletting. If Tenant shall
enter into such sublease within sixty (60) days as aforesaid, Tenant shall
deliver a true, complete and fully executed counterpart of such sublease to
Landlord within five (5) days after execution thereof.

          (C) If Landlord exercises its option to sublet the Recapture Space,
such sublease to Landlord or its designee as subtenant (each, a "Recapture
Sublease") shall:

               (1)  be at a rental equal to the lesser of (x) the sum of the
Fixed Rent and Escalation Rent then payable hereunder and (y) the sublease rent
set forth in the Tenant Statement and otherwise be upon the same terms and
conditions as those contained in this Lease (as modified by the Tenant
Statement, except such as are irrelevant or inapplicable and except as otherwise
expressly set forth to the contrary in this paragraph (C);

               (2)  give the subtenant the unqualified and unrestricted right,
without Tenant's permission, to assign such sublease and to further sublet the
Recapture Space or any part thereof and to make any and all changes,
alterations, and improvements in the Recapture Space;

               (3)  provide in substance that any such changes, alterations, and
improvements made in the Recapture Space may be removed, in whole or in part,
prior to or upon the expiration or other termination of the Recapture Sublease
provided that any material damage and injury caused thereby shall be repaired
(it being expressly understood and agreed that Tenant shall not be required to
remove or responsible for the performance of any Alterations which Landlord or
its designee as subtenant under the Recapture Sublease shall install in the
Recapture Space);

               (4)  provide that (i) the parties to such Sublease expressly
negate any intention that any estate created under such Sublease be merged with
any other estate held by either of said parties, (ii) prior to the commencement
of the term of the Recapture Sublease, Tenant, at its sole cost and expense
(unless the Tenant Statement provides otherwise), shall make such alterations

                                      37

<PAGE>
 
as may be required or reasonably deemed necessary by the subtenant, and (iii) at
the expiration of the term of such Sublease, Tenant shall accept the Recapture
Space in its then existing condition, broom clean; and

               (5) provide that the subtenant or occupant may use and occupy the
Recapture Space for any lawful purpose (without regard to any limitation set
forth in the Tenant Statement).

          (D) Performance by Landlord, or its designee, under a Recapture
Sublease shall be deemed performance by Tenant of any similar obligation under
this Lease and Tenant shall not be liable for any default under this Lease or
deemed to be in default hereunder if such default is occasioned by or arises
from any act or omission of the subtenant under the Recapture Sublease or is
occasioned by or arises from any act or omission of any occupant under the
Recapture Sublease.

          (E) If Landlord is unable to give Tenant possession of the Recapture
Space at the expiration of the term of the Recapture Sublease by reason of the
holding over or retention of possession of any tenant or other occupant, then
(w) Landlord shall continue to pay all charges previously payable, and comply
with all other obligations, under the Recapture Sublease until the date upon
which Landlord shall give Tenant possession of the Recapture Space free of
occupancies, (x) neither the Expiration Date nor the validity of this Lease
shall be affected, (y) Tenant waives any rights under Section 223-a of the Real
Property Law of New York, or any successor statute of similar import, to rescind
this Lease and further waives the right to recover any damages from Landlord
which may result from the failure of Landlord to deliver possession of the
Recapture Space at the end of the term of the Recapture Sublease, and (z)
Landlord, at Landlord's expense, shall use its reasonable efforts to deliver
possession of the Recapture Space to Tenant and in connection therewith, if
necessary, shall institute and diligently and in good faith prosecute holdover
and any other appropriate proceedings against the occupant of such Space; if
Landlord fails to prosecute such proceedings in such manner and such failure
continues after reasonable notice thereof by Tenant, Tenant may prosecute such
proceedings in Landlord's name and at Landlord's expense.

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

     Section 12.7. (A) In connection with any subletting of the Premises,
Tenant shall pay to Landlord an amount equal to fifty percent (50%) of any
Sublease Profit derived therefrom. Anything contained herein to the contrary
notwithstanding Tenant shall not be entitled to any proceeds derived from or
relating to (directly or indirectly) any subletting of the Recapture Space by
Landlord or its designee to a subtenant. All sums payable hereunder by Tenant
shall be calculated on an annualized basis, but shall be paid to Landlord, as
additional rent, within ten (10) days after receipt thereof by Tenant.

          (B) For purposes of this Lease:

                                      38

<PAGE>
 
               (1) "Sublease Profit" shall mean the excess of (i) the Sublease
Rent over (ii) the then Fixed Rent, Escalation Rent and, if applicable,
Electricity Additional Rent.

               (2) "Sublease Rent" shall mean any rent or other consideration
paid to Tenant directly or indirectly by any subtenant or any other amount
received by Tenant from or in connection with any subletting (including, but not
limited to, sums paid for the sale or rental, or consideration received on
account of any contribution, of Tenant's Property or sums paid in connection
with the supply of electricity or HVAC) less the Sublease Expenses.

               (3) "Sublease Expenses" shall mean: (i) in the event of a sale of
Tenant's Property, the then unamortized or undepreciated cost thereof determined
on the basis of Tenant's federal income tax returns, (ii) the reasonable out-of-
pocket costs and expenses of Tenant in making such sublease, such as brokers'
fees, attorneys' fees, and advertising fees paid to unrelated third parties,
(iii) any sums paid to Landlord pursuant to Section 12.2(B) hereof, (iv) the
cost of improvements or alterations made by Tenant expressly and solely for the
purpose of preparing that portion of the Premises for such subtenancy (or cash
allowances in lieu thereof, provided that the same are consistent with the then
existing market conditions in midtown Manhattan) if not used by Tenant
subsequent to the expiration of the term of the sublease, and (v) the
unamortized or undepreciated cost of any Tenant's Property leased to and used by
such subtenant. In determining Sublease Rent, the costs set forth in clauses
(ii), (iii) and (iv) shall be amortized on a straight-line basis over the term
of such sublease and the costs set forth in clause (v) shall be amortized on a
straight line basis over the greater of the longest useful life of such
improvements, alterations or Property (as permitted pursuant to the Internal
Revenue Code of 1986, as amended) and the term of such sublease.

               (4) Sublease Profit shall be recalculated from time to time to
reflect any corrections in the prior calculation thereof due to (i) subsequent
payments received or made by Tenant, (ii) the final adjustment of payments to be
made by or to Tenant, and (iii) mistake. Promptly after receipt or final
adjustment of any such payments or discovery of any such mistake, Tenant shall
submit to Landlord a recalculation of the Sublease Profit, and an adjustment
shall be made between Landlord and Tenant, on account of prior payments made or
credits received pursuant to this Section 12.7. In addition, if Sublease
Expenses utilized for the purpose of calculating Sublease Profit included an
amount attributable to the cost of the improvements made by Tenant expressly and
solely for the purpose of preparing the Premises for the occupancy of the
subtenant and subsequent to the expiration of the sublease such improvements
and/or alterations were not demolished and/or removed, Sublease Profits shall be
recalculated as if the cost of such improvements and/or alterations were not
incurred by Tenant and Tenant promptly shall pay to Landlord fifty percent (50%)
of the additional amount of such Sublease Profit resulting from such
recalculation.

     Section 12.8. (A) Notwithstanding the provisions of Section 12.1 hereof, if
Landlord shall not exercise its rights pursuant to paragraph (B)(2) of this
Section 12.8, Landlord shall not unreasonably withhold its consent to an
assignment of this Lease in its entirety provided that:

                                      39

<PAGE>
 
               (1) no Event of Default shall have occurred and be continuing;

               (2) upon the date Tenant delivers the Assignment Statement to
Landlord and upon the date immediately preceding the date of any assignment
approved by Landlord, the proposed assignee shall have a financial standing
(taking into consideration the obligations of the proposed assignee under this
Lease) reasonably satisfactory to Landlord, be of a character, be engaged in a
business, and propose to use the Premises in a manner in keeping with the
standards in such respects of the other tenancies in the Building;

               (3) the proposed assignee (or any Person who directly or
indirectly, Controls, is Controlled by or is under common Control with the
proposed assignee) shall not be a person or entity with whom Landlord is
negotiating to lease space in the Building at the time of receipt of an
Assignment Statement;

               (4) the character of the business to be conducted or the proposed
use of the Premises by the proposed assignee shall not (a) be likely to increase
(beyond a de minimis amount) Landlord's operating expenses beyond that which
would be incurred for use by Tenant or for use in accordance with the standards
of use of other tenancies in the Building; (b) increase (beyond a de minimis
amount) the burden on existing cleaning services or elevators over the burden
prior to such proposed assignment; (c) violate any provision or restrictions
herein relating to the use or occupancy of the Premises; (d) require any
alterations, installations, improvements, additions or other physical changes to
be performed in or made to any portion of the Building or the Real Property
other than the Premises; or (e) violate any provision or restrictions in any
other lease for space in the Building or in any Superior Lease or Mortgage; if
Landlord shall have consented to an assignment and, as a result of the use and
occupancy of the Premises by Tenant/assignee, operating expenses are increased,
then Tenant shall pay to Landlord, within fifteen (15) Business Days after
demand, as additional rent, all resulting increases in operating expenses; and

               (5) the assignee shall agree to assume all of the obligations of
Tenant under this Lease from and after the date of the assignment.

          (B)  (1) At least fifteen (15) Business Days prior to any proposed
assignment, Tenant shall submit a statement to Landlord (the "Assignment
Statement") containing the following information: (i) the name and address of
the proposed assignee, (ii) the essential terms and conditions of the proposed
assignment, including, without limitation, the consideration payable for such
assignment and the value (including cost, overhead and supervision) of any
improvements (including any demolition to be performed) to the Premises proposed
to be made by Tenant to prepare the Premises for occupancy by such assignee,
(iii) the nature and character of the business of the proposed assignee, and
(iv) any other information that Landlord may reasonably request, together with a
statement specifically directing Landlord's attention to the provisions of this
Section 12.8(B) requiring Landlord to respond to Tenant's request within fifteen
(15) Business Days after Landlord's receipt of the Assignment Statement. The
Assignment Statement shall be executed by Tenant and the proposed assignee and
shall indicate both parties' intent (but not necessarily binding

                                      40

<PAGE>
 
obligation) to enter into an assignment agreement conforming to the terms and
conditions of the Assignment Statement and on such other terms and conditions to
which the parties may agree which are not inconsistent with the essential terms
set forth in the Assignment Statement.

               (2) Landlord shall have the right, exercisable within fifteen
(15) Business Days after Landlord's receipt of the Assignment Statement, to take
an assignment of this Lease (in its own name or that of its designee) for the
same consideration payable to Tenant pursuant to the terms of the Assignment
Statement (less the amount of any brokerage commission which would have been
payable on account of the assignment pursuant to the Assignment Statement),
provided Landlord shall take possession of the Premises "as is" in its condition
as of the date of such assignment and shall be entitled to a credit against the
consideration otherwise payable in the amount, if any, of the value of any
improvements, work or demolition proposed to be provided or performed by Tenant
pursuant to the Assignment Statement.

               (3) If Landlord shall fail to notify Tenant within said fifteen
(15) Business Day period of Landlord's intention to exercise its rights pursuant
to paragraph (B)(2) of this Section 12.8 or of Landlord's consent to or
disapproval of the proposed assignment pursuant to the Assignment Statement, or
if Landlord shall have consented to such assignment as provided in Section
12.8(A) hereof, Tenant shall be free to assign the Premises to such proposed
assignee on the same terms and conditions set forth in the Assignment Statement.
If Tenant shall not enter into such assignment within sixty (60) days after the
delivery of the Assignment Statement to Landlord, then the provisions of this
Section 12.8 shall again be applicable in their entirety to any proposed
assignment.

               (4) If Tenant shall propose to assign this Lease and is about to
commence negotiations with a prospective assignee, Tenant shall advise Landlord
of the identity of such prospective assignee and Landlord shall, within five (5)
Business Days, advise Tenant if the execution of an assignment agreement with
such prospective assignee would violate the provisions of paragraph (A)(3)
of this Section 12.8.

          (C) If Tenant shall assign this Lease, Tenant shall deliver to
Landlord, within five (5) days after execution thereof, (x) a duplicate original
instrument of assignment in form and substance reasonably satisfactory to
Landlord, duly executed by Tenant, and (y) an instrument in form and substance
reasonably satisfactory to Landlord, duly executed by the assignee, in which
such assignee shall assume observance and performance of, and agree to be
personally bound by, all of the terms, covenants and conditions of this Lease on
Tenant's part to be observed and performed.

          (D) Tenant shall pay to Landlord, upon receipt thereof, an amount
equal to fifty percent (50%) of all Assignment Proceeds. For purposes of this
paragraph (D), "Assignment Proceeds" shall mean all consideration payable to
Tenant, directly or indirectly, by any assignee, including Landlord pursuant to
paragraph (B) of this Section 12.8, or any other amount received by Tenant from
or in connection with any assignment (including, but not limited to, sums paid
for the

                                      41
<PAGE>
 
sale or rental, or consideration received on account of any contribution, of
Tenant's Property) after deducting therefrom: (i) in the event of a sale (or
contribution) of Tenant's Property, the then unamortized or undepreciated cost
thereof determined on the basis of Tenant's federal income tax returns, (ii) the
reasonable out-of-pocket costs and expenses of Tenant in making such assignment,
such as brokers' fees, attorneys' fees, and advertising fees paid to unrelated
third parties, (iii) any payments required to be made by Tenant in connection
with the assignment of its interest in this Lease pursuant to Article 31 of the
Tax law of the State of New York or any real property transfer tax of the United
States or the City or State of New York (other than any income tax), (iv) any
sums paid by Tenant to Landlord pursuant to Section 12.2(B) hereof, (v) the cost
of improvements or alterations made by Tenant expressly and solely for the
purpose of preparing the Premises for such assignment, as determined by Tenant's
federal income tax returns, (vi) the unamortized or undepreciated cost of any
Tenant's Property leased to and used by such assignee, and (vii) the then
unamortized or undepreciated cost of the Alterations determined on the basis of
Tenant's federal income tax returns less the Tenant Fund. If the consideration
paid to Tenant for any assignment shall be paid in installments, then the
expenses specified in this paragraph (D) shall be amortized over the period
during which such installments shall be payable. If Landlord exercises its right
to take an assignment of this Lease pursuant to the provisions of Section
12.8(B) hereof, in no event shall Tenant be entitled to any proceeds derived
from or relating to (directly or indirectly) any lease or sublease of the
Premises by Landlord or further assignment of the Lease.

     Section 12.9. Notwithstanding any other provision of this Lease, neither
Tenant nor any direct or indirect assignee or subtenant of Tenant may enter into
any lease, sublease, license, concession or other agreement for use, occupancy
or utilization of space in the Premises which provides for a rental or other
payment for such use, occupancy or utilization based in whole or in part on the
net income or profits derived by any person from the property leased, occupied
or utilized, or which would require the payment of any consideration which would
not fall within the definition of "rents from real property", as that term is
defined in Section 856(d) of the Internal Revenue Code of 1986, as amended.

                                  ARTICLE 13
                                  ELECTRICITY
                                  -----------

     Section 13.1. Tenant shall at all times comply with the rules, regulations,
terms and conditions applicable to service, equipment, wiring and requirements
of the public utility supplying electricity to the Building. The risers serving
the Premises shall be capable of supplying five (5) watts of electricity per
usable square foot of the Premises and Tenant shall not use any electrical
equipment which, in Landlord's reasonable judgment, would exceed such capacity
or interfere with the electrical service to other tenants of the Building. In
the event that, in Landlord's sole judgment, Tenant's electrical requirements
necessitate installation of an additional riser, risers or other proper and
necessary equipment, Landlord shall so notify Tenant of same. Within five (5)
Business Days after receipt of such notice, Tenant shall either cease such use
of such additional electricity or shall request that additional electrical
capacity (specifying the amount requested) be made available to

                                      42
<PAGE>
 
Tenant. Landlord, in Landlord's reasonable judgment (taking into consideration
the potential needs of present and future tenants of the Building and of the
Building itself) shall determine whether to make available such additional
electrical capacity to Tenant and the amount of such additional electrical
capacity to be made available. If Landlord shall agree to make available
additional electrical capacity and the same necessitates installation of an
additional riser, risers or other proper and necessary equipment, including,
without limitation, any switchgear, the same shall be installed by Landlord. Any
such installation shall be made at Tenant's sole cost and expense, and shall be
chargeable and collectible as additional rent and paid within fifteen (15)
Business Days after the rendition of a bill to Tenant therefor. Landlord shall
not be liable in any way to Tenant for any failure or defect in the supply or
character of electric service furnished to the Premises by reason of any
requirement, act or omission of the utility serving the Building or for any
other reason not attributable to the negligence of Landlord, whether electricity
is provided by public or private utility or by any electricity generation system
owned and operated by Landlord.

     Section 13.2. (A) Unless Landlord elects to supply electricity to the
Premises pursuant to Section 13.3 or Landlord is required to have Tenant obtain
electricity from the public utility furnishing electricity to the Building
pursuant to the provisions of Section 13.4 hereof, Landlord shall furnish
electric current to the Premises for the use of Tenant for the operation of the
lighting fixtures and the electrical receptacles for ordinary office equipment,
including a reasonable number of personal desktop computers, print copies,
facsimile machines, and other equipment of similar kind or nature, in the
Premises on a "rent inclusion" basis, that is, there shall be no separate charge
to Tenant for such electric current by way of measuring such electricity service
on any meter. The Fixed Rent set forth in this Lease includes an annual charge
for electricity service of Twenty-Six Thousand Two Hundred Twenty-Six and 90/100
Dollars ($26,226.90) (such amount, as it may be increased pursuant to the
provisions of this Lease, being referred to as the "Electricity Inclusion
Factor"). The parties agree that although the charge for furnishing electrical
energy is included in the Fixed Rent on a so-called "rent inclusion" basis, the
value to Tenant of such service may not be fully reflected in the Fixed Rent.
Accordingly, Tenant agrees that Landlord, at Landlord's option, may cause a
reputable and independent electrical engineer or electrical consulting firm,
selected by Landlord (such engineer or consulting firm being hereinafter
referred to as "Landlord's Engineer"), to make a determination, following the
commencement of Tenant's normal business activities in the Premises, of the Full
Value of such service to Tenant. As used herein, the "Full Value" to Tenant of
such service shall mean the product obtained by multiplying the demand and
consumption of electric energy at the Premises by the Electric Rate. Landlord's
Engineer shall certify such determination in writing to Landlord and Tenant. If
the Full Value to Tenant is in excess of the Electricity Inclusion Factor, the
Electricity Inclusion Factor and the Fixed Rent shall be increased by such
excess. However, if it shall be so determined that the Full Value to Tenant of
such service does not exceed the Electricity Inclusion Factor, there shall
nevertheless be no decrease in the Electricity Inclusion Factor or in the Fixed
Rent.

          (B) If during the Term the Electric Rate shall increase over the Base
Electric Rate, the Electricity Inclusion Factor (and therefore the Fixed Rent)
shall be proportionately increased.

                                      43

<PAGE>
 
          (C)  (i)  Landlord, from time to time during the Term, may cause
Landlord's Engineer to survey the demand and consumption of electrical energy at
the Premises. If the then Full Value shall exceed the then Electricity Inclusion
Factor, the Electricity Inclusion Factor (and therefore the Fixed Rent), shall
be proportionately increased, based on the increased demand and consumption and
the then prevailing Electric Rate.

               (ii)  Landlord shall furnish to Tenant a written statement (an
"Electricity Statement") setting forth Landlord's determination of any increase
which has occurred in the Full Value and the Electricity Inclusion Factor (and
therefore the Fixed Rent) pursuant to the provisions of either Sections 13.2(A),
(B), or (C)(i). Any such increase in the Electricity Inclusion Factor and the
Fixed Rent shall be effective as of the date of such increase in the Electric
Rate or the consumption and demand of electric energy by Tenant and shall be
retroactive to such dates if necessary. Any retroactive increase shall be paid
by Tenant within fifteen (15) Business Days after demand and such amount shall
be collectible by Landlord as Fixed Rent hereunder.

               (iii)  Each such Electricity Statement given by Landlord pursuant
to Section 13.2(C)(ii) above, shall be conclusive and binding upon Tenant,
unless within thirty (30) days after the receipt of such Electricity Statement,
Tenant shall notify Landlord that it disputes the correctness of the Electricity
Statement. If such dispute is based on Tenant's demand and consumption of
electric current, Tenant shall submit a survey and determination of such
adjustment, made at its sole cost and expense, by a reputable and independent
electrical engineer or electrical consulting firm ("Tenant's engineer"), within
thirty (30) days after receipt of such Electricity Statement. If Landlord and
Tenant are unable to resolve the dispute differences between them within thirty
(30) days after receipt by Landlord of a copy of the determination of Tenant's
Engineer, the dispute shall be decided by a third reputable and independent
electrical engineer or electrical consulting firm ("Third Engineer"). If the
parties shall fail to agree upon the designation of the Third Engineer within
forty (40) days after the receipt by Landlord of the determination of Tenant's
Engineer, then either party may apply to the American Arbitration Association or
any successor thereto for the designation of the Third Engineer. The Third
Engineer shall conduct such hearings as he deems appropriate. The Third
Engineer, within thirty (30) days after his designation, shall select the
determination of either Landlord's Engineer or Tenant's Engineer and such
determination shall be conclusive and binding upon the parties whether or not a
judgment shall be entered in any court. The fees of the Third Engineer and the
costs of arbitration shall be paid equally by the parties, except that each
party shall pay its own counsel fees and expenses, if any, in connection with
the arbitration. Pending the resolution of such dispute by agreement or
arbitration as aforesaid, Tenant shall pay the increase in the Electricity
Inclusion Factor in accordance with the Electricity Statement, without prejudice
to Tenant's position, as herein provided. If the dispute shall be resolved
Tenant's favor, Landlord, at its option, shall either credit the amount of such
overpayment against subsequent monthly installments of Fixed Rent hereunder or
pay to Tenant the amount of such overpayment.

          (D) Landlord's failure during the Term to prepare and deliver any
Electricity Statement, or bills, or Landlord's failure to make a demand, under
this Article or any other provisions

                                      44

<PAGE>
 
of this Lease, shall not in any way be deemed to be a waiver of, or cause
Landlord to forfeit or surrender, its rights to collect any portion of the
increase in the Electricity Inclusion Factor (and therefore the Fixed Rent)
which may have become due pursuant to this Article 13 during the Term. Tenant's
liability for the amounts due under this Article 13 shall survive the expiration
or sooner termination of this Lease and Landlord's obligation, if any, to refund
any payments by Tenant in excess of the amounts required to be paid by Tenant to
Landlord pursuant to this Article 13 shall survive the expiration or sooner
termination of this Lease. The preceding sentence shall not, however, be
construed as limiting or restricting, in any manner whatsoever, Landlord's right
pursuant to this Lease or pursuant to law to offset any such overpayments by
Tenant against any amounts which may be due and payable as provided in this
Lease.

          (E) In no event shall any adjustment of the payments made or to be
made hereunder result in a decrease in Fixed Rent or additional rent payable
pursuant to any other provision of this Lease, or in the amount paid for
electricity for the prior year.

          (F) The Electricity Inclusion Factor shall be collectible by Landlord
in the same manner as Fixed Rent.

          (G) For the purposes of this Section 13.2, Landlord and Tenant agree
that the term "Electric Rate" (including all applicable surcharges, demand
charges, energy charges, fuel adjustment charges, time of day charges, taxes and
other sums payable in respect thereof) shall mean the service classification
pursuant to which Landlord purchases electricity from the utility company
servicing the Building.

          (H) If Landlord discontinues furnishing electricity to Tenant pursuant
to this Section 13.2, the Fixed Rent shall be decreased by the Electricity
Inclusion Factor effective as of the date Landlord discontinues the provision of
electricity in such manner.

     Section 13.3. (A) If Landlord shall no longer elect to have electricity
furnished to the Premises pursuant to Section 13.2 hereof then, unless Landlord
is required to have Tenant obtain electricity from the public utility company
furnishing electricity to the Building pursuant to the provisions of Section
13.4 hereof, electricity shall be furnished by Landlord to the Premises and
Tenant shall pay to Landlord, as additional rent for such service, during the
Term, an amount (the "Electricity Additional Rent") equal to (i) the amount
Landlord actually pays to the utility company to provide electricity to the
Premises, including all applicable surcharges, demand charges, time-of-day
charges, energy charges, fuel adjustment charges, rate adjustment charges, taxes
and other sums payable in respect thereof, based on Tenant's demand and/or
consumption of electricity (and/or any other method of quantifying Tenant's use
of or demand for electricity as set forth in the utility company's tariff) as
registered on a meter or submeter (installed by Landlord at Landlord's sole cost
and expense) for purposes of measuring such demand, consumption and/or other
method of quantifying Tenant's use of or demand for electricity (it being agreed
that such meter or submeter shall measure demand and consumption, and off-peak
and on-peak use, in either case to the extent such factors are relevant in
making the determination of Landlord's cost) plus (ii) an amount equal

                                      45

<PAGE>
 
to the out-of-pocket costs and expenses incurred by Landlord in connection with
reading such meters and preparing bills therefor. Tenant, from time to time,
shall have the right to review Landlord's meter readings, and Landlord's
calculation of the Electricity Additional Rent, at reasonable times and on
reasonable prior notice, by giving notice thereof to Landlord on or prior to the
ninetieth (9Oth) day after the date when Landlord gives Tenant a bill or
statement for the Electricity Additional Rent.

          (B) Where more than one meter measures the electricity supplied to
Tenant, the electricity rendered through each meter may be computed and billed
separately in accordance with the provisions hereinabove set forth. Bills for
the Electricity Additional Rent shall be rendered to Tenant at such time as
Landlord may elect, and Tenant shall pay the amount shown thereon to Landlord
within ten (10) days after receipt of such bill. Tenant expressly acknowledges
that in connection with the installation of the meters or submeters, the
electricity being supplied to the Premises shall be temporarily interrupted.
Landlord shall use reasonable efforts to minimize interference with the conduct
of Tenant's business in connection with such installation; provided, however,
that Landlord shall have no obligation to employ contractors or labor at so-
called overtime or other premium pay rates or to incur any other overtime costs
or expenses whatsoever.

     Section 13.4. If Landlord is required by Requirements or the public utility
serving the Premises to discontinue furnishing electricity to Tenant this Lease
shall continue in full force and effect and shall be unaffected thereby, except
only that from and after the effective date of such discontinuance, Landlord
shall not be obligated to furnish electricity to Tenant and Tenant shall not be
obligated to pay the Electricity Additional Rent. If Landlord so discontinues
furnishing electricity to Tenant, Tenant shall use diligent efforts to obtain
electric energy directly from the public utility furnishing electric service to
the Building. The costs of such service shall be paid by Tenant directly to such
public utility. Such electricity may be furnished to Tenant by means of the
existing electrical facilities serving the Premises, at no charge, to the extent
the same are available, suitable and safe for such purposes as determined by
Landlord. All meters and all additional panel boards, feeders, risers, wiring
and other conductors and equipment which may be required to obtain electricity
shall be installed by Landlord at Tenant's expense. Provided Tenant shall use
and continue to use diligent efforts to obtain electric energy directly from the
public utility, Landlord, to the extent permitted by applicable Requirements,
shall not discontinue furnishing electricity to the Premises until such
installations have been made and Tenant shall be able to obtain electricity
directly from the public utility.


                                  ARTICLE 14
                              ACCESS TO PREMISES
                              ------------------ 

     Section 14.1. (A) Tenant shall permit Landlord, Landlord's agents,
representatives, contractors and employees and public utilities servicing the
Building to erect, use and maintain, concealed ducts, pipes and conduits in and
through the Premises. Landlord, Landlord's agents,

                                      46

<PAGE>
 
representatives, contractors, and employees and the agents, representatives,
contractors, and employees of public utilities servicing the Building shall have
the right to enter the Premises at all reasonable times upon reasonable prior
notice (except in the case of an emergency in which event Landlord and
Landlord's agents, representatives, contractors, and employees may enter without
prior notice to Tenant), which notice may be oral, to examine the same, to show
them to prospective purchasers, or prospective or existing Mortgagees or
Lessors, and to make such repairs, alterations, improvements, additions or
restorations (i) as Landlord may deem necessary or desirable to the Premises or
to any other portion of the Building, or (ii) which Landlord may elect to
perform following ten (10) days after notice, except in the case of an emergency
(in which event Landlord and Landlord's agents, representatives, contractors,
and employees may enter without prior notice to Tenant), following Tenant's
failure to make repairs or perform any work which Tenant is obligated to make or
perform under this Lease, or (iii) for the purpose of complying with any
Requirements, a Superior Lease or a Mortgage, and Landlord shall be allowed to
take all material into and upon the Premises that may be required therefor
without the same constituting an eviction or constructive eviction of Tenant in
whole or in part and the Fixed Rent (and any other item of Rental) shall in no
wise abate (except to the extent expressly set forth in Section 14.2 hereof)
while said repairs, alterations, improvements, additions or restorations are
being made, by reason of loss or interruption of business of Tenant, or
otherwise.

          (B) Any work performed or installations made pursuant to this Article
14 shall be made with reasonable diligence and otherwise pursuant to the
provisions of Section 4.3 hereof.

          (C) Except as hereinafter provided, any pipes, ducts, or conduits
installed in or through the Premises pursuant to this Article 14 shall be
concealed behind, beneath or within partitioning, columns, ceilings or floors
located or to be located in the Premises. Notwithstanding the foregoing, any
such pipes, ducts, or conduits may be furred at points immediately adjacent to
partitioning columns or ceilings located or to be located in the Premises,
provided that the same are completely furred and that the installation of such
pipes, ducts, or conduits, when completed, shall not reduce the usable area of
the Premises beyond a de minimis amount.

     Section 14.2. If due to any work or installation performed by Landlord
hereunder or failure by Landlord to perform its obligations hereunder (other
than by reason of Unavoidable Delays, (i) Tenant shall be unable for at least
twenty (20) consecutive Business Days to operate its business in the Premises in
substantially the same manner as such business was operated prior to the
performance of such work or installation or such failure, (ii) such interruption
shall occur during business hours, and (iii) Tenant shall have been unable,
after using reasonable efforts, to relocate its employees and property located
in that portion of the Premises which is the subject of such work or
installation or such failure so as to have been unable to have continued to
operate its business, the Fixed Rent and the Escalation Rent shall be reduced on
a per diem basis in the proportion in which the area of the portion of the
Premises which is unusable bears to the total area of the Premises for each day
subsequent to the aforesaid twenty (20) day period that such portion of the
Premises remains unusable.

                                      47

<PAGE>
 
     Section 14.3. During the twelve (12) month period prior to the Expiration
Date, Landlord may exhibit the Premises to prospective tenants thereof.

     Section 14.4. If Tenant shall not be present when for any reason entry into
the Premises shall be necessary or permissible, Landlord or Landlord's agents,
representatives, contractors or employees may enter the same without rendering
Landlord or such agents liable therefor if during such entry Landlord or
Landlord's agents shall accord reasonable care under the circumstances to
Tenant's Property, and without in any manner affecting this Lease. Nothing
herein contained, however, shall be deemed or construed to impose upon Landlord
any obligation, responsibility or liability whatsoever, for the care,
supervision or repair of the Building or any part thereof, other than as herein
provided.

     Section 14.5. Landlord also shall have the right at any time, without the
same constituting an actual or constructive eviction and without incurring any
liability to Tenant therefor, to change the arrangement or location of entrances
or passageways, doors and doorways, and corridors, elevators, stairs, toilets,
or other public parts of the Building and to change the name, number or
designation by which the Building is commonly known, provided any such change
does not (a) unreasonably reduce, interfere with or deprive Tenant of access to
the Building or the Premises or (b) reduce the rentable area (except by a de
minimis amount) of the Premises. All parts (except surfaces facing the interior
of the Premises) of all walls, windows and doors bounding the Premises
(including exterior Building walls, exterior core corridor walls, exterior doors
and entrances), all balconies, terraces and roofs adjacent to the Premises, all
space in or adjacent to the Premises used for shafts, stacks, stairways, chutes,
pipes, conduits, ducts, fan rooms, heating, air cooling, plumbing and other
mechanical facilities, service closets and other Building facilities are not
part of the Premises, and Landlord shall have the use thereof, as well as access
thereto through the Premises for the purposes of operation, maintenance,
alteration and repair.

                                  ARTICLE 15
                           CERTIFICATE OF OCCUPANCY

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

                                      48
<PAGE>
 
                                  ARTICLE 16
                                    DEFAULT
                                    -------

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

          (A) If Tenant shall default in the payment when due of any installment
of Fixed Rent and such default shall continue for three (3) Business Days after
notice of such default is given to Tenant, or in the payment when due of any
other item of Rental and such default shall continue for three (3) Business Days
after notice of such default is given to Tenant, or

          (B) if Tenant shall default in the observance or performance of any
term, covenant or condition on Tenant's part to be observed or performed under
any other lease with Landlord or Landlord's predecessor in interest of space in
the Building and such default shall continue beyond any grace period set forth
in such other lease for the remedying of such default; or,

          (C) if the Premises shall become deserted or abandoned; or

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

          (E) (1) if Tenant shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due; or

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

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

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

                                      49
<PAGE>
 
insolvency or such an appointment or the issuance or entry of any other order
having a similar effect or (ii) remains undismissed for a period of sixty (60)
days; or

               (5) if any case, proceeding or other action shall be commenced or
instituted against Tenant seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its property which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within sixty (60) days from the entry thereof; or

               (6) if Tenant shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clauses (2), (3), (4) or (5) above; or

               (7) if a trustee, receiver or other custodian is appointed for
any substantial part of the assets of Tenant which appointment is not vacated or
stayed within seven (7) Business Days; or

          (F) if Tenant shall fail more than five (5) times during any twelve
(12) month period to pay any installment of Fixed Rent or any item of Rental
when due, or

          (G) if Tenant shall fail to pay any installments of Fixed Rent or
items of Rental when due as required by this Lease, and Landlord shall bring
more than one (1) summary dispossess proceeding during any twelve (12) month
period; or

          (H) if (1) this Lease is assigned (or all or a portion of the Premises
are subleased) to a Related Entity, and such (2) Related Entity shall no longer
(i) Control, (ii) be under common Control with, or (iii) be under the Control of
Tenant (or any permitted successor by merger, consolidation or purchase as
provided herein), and (3) Tenant shall not have obtained Landlord's consent to
such assignment or sublease in accordance with the provisions of Article 12
hereof for an assignee or subtenant who shall not be a Related Entity on or
before the date which is the date upon which such Related Entity shall cease to
(x) Control, (y) be under common Control with, or (z) be under the Control of
Tenant (or any permitted successor by merger, consolidation, or purchase as
provided herein) and (a) in the event of an assignment of this Lease, Tenant
shall have failed to, at least fifteen (15) Business Days prior to the date such
assignee shall cease to be a Related Entity, deliver to Landlord a duplicate
original instrument of an assignment and assumption in form and substance
reasonably satisfactory to Landlord, duly executed by such assignee and the
originally named Tenant, whereby the assignee shall assign this Lease and all
rights such assignee may have hereunder to the originally named Tenant, or (b)
in the event of a sublease of the Premises, Tenant shall have failed to, at
least fifteen (15) Business Days prior to the date such subtenant ceases to be a
Related Entity, deliver to Landlord a duplicate original instrument in form and
substance reasonably satisfactory to Landlord, duly executed by such subtenant
and Tenant terminating such sublease; or

                                      50
<PAGE>
 
          (I) if Landlord shall present the Letter of Credit to the bank which
issued the same in accordance with the provisions of Article 31 hereof, and the
bank shall fail to honor the Letter of Credit and pay the proceeds thereof to
Landlord for any reason whatsoever; or

          (J) if Tenant shall default in the observance or performance of any
other term, covenant or condition of this Lease on Tenant's part to be observed
or performed and Tenant shall fail to remedy such default within twenty (20)
days after notice by Landlord to Tenant of such default, or if such default is
of such a nature that it cannot with due diligence be completely remedied within
said period of twenty (20) days and Tenant shall not commence within said period
of twenty (20) days, or shall not thereafter diligently prosecute to completion,
all steps necessary to remedy such default.

     Section 16.2. (A) If an Event of Default (i) described in Section 16.1 (E)
hereof shall occur, or (ii) described in Sections 16.1(A), (B), (C), (D), (F),
(G), (H), (I) or (J) shall occur and Landlord, at any time thereafter, at its
option gives written notice to Tenant stating that this Lease and the Term shall
expire and terminate three (3) days after the date Landlord shall give Tenant
such notice, then this Lease and the Term and all rights of Tenant under this
Lease shall expire and terminate as if the date on which the Event of Default
described in clause (i) above occurred or three (3) days after the date of such
notice, pursuant to clause (ii) above, as the case may be, were the Fixed
Expiration Date and Tenant immediately shall quit and surrender the Premises,
but Tenant shall nonetheless be liable for all of its obligations hereunder, as
provided for in Articles 17 and 18 hereof. Anything contained herein to the
contrary notwithstanding, if such termination shall be stayed by order of any
court having jurisdiction over any proceeding described in Section 16.1(E)
hereof, or by federal or state statute, then, following the expiration of any
such stay, or if the trustee appointed in any such proceeding, Tenant or Tenant
as debtor-in-possession shall fail to assume Tenant's obligations under this
Lease within the period prescribed therefor by law or within one hundred twenty
(120) days after entry of the order for relief or as may be allowed by the
court, or if said trustee, Tenant or Tenant as debtor-in-possession shall fail
to provide adequate protection of Landlord's right, title and interest in and to
the Premises or adequate assurance of the complete and continuous future
performance of Tenant's obligations under this Lease as provided in Section
12.3(B), Landlord, to the extent permitted by law or by leave of the court
having jurisdiction over such proceeding, shall have the right, at its election,
to terminate this Lease on five (5) days' notice to Tenant, Tenant as debtor-in-
possession or said trustee and upon the expiration of said five (5) day period
this Lease shall cease and expire as aforesaid and Tenant, Tenant as debtor-in-
possession or said trustee shall immediately quit and surrender the Premises as
aforesaid.

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

     Section 16.3. If at any time, (i) Tenant shall be comprised of two (2) or
more persons, or (ii)

                                      51
<PAGE>
 
Tenant's obligations under this Lease shall have been guaranteed by any person
other than Tenant, or (iii) Tenant's interest in this Lease shall have been
assigned, the word "Tenant", as used in Section 16.1(E), shall be deemed to mean
any one or more of the persons primarily or secondarily liable for Tenant's
obligations under this Lease. Any monies received by Landlord from or on behalf
of Tenant during the pendency of any proceeding of the types referred to in
Section 16.1(E) shall be deemed paid as compensation for the use and occupation
of the Premises and the acceptance of any such compensation by Landlord shall
not be deemed an acceptance of Rental or a waiver on the part of Landlord of any
rights under Section 16.2.

                                  ARTICLE 17
                             REMEDIES AND DAMAGES

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

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

               (2) Landlord, at Landlord's option, may relet the whole or any
portion or portions of the Premises from time to time, either in the name of
Landlord or otherwise, to such tenant or tenants, for such term or terms ending
before, on or after the Expiration Date, at such rental or rentals and upon such
other conditions, which may include concessions and free rent periods, as
Landlord, in its sole discretion, may determine; provided, however, that
Landlord shall have no obligation to relet the Premises or any part thereof and
shall in no event be liable for refusal or failure to relet the Premises or any
part thereof, or, in the event of any such reletting, for refusal or failure to
collect any rent due upon any such reletting, and no such refusal or failure
shall operate to relieve Tenant of any liability under this Lease or otherwise
affect any such liability, and Landlord, at Landlord's option, may make such
repairs, replacements, alterations, additions, improvements, decorations and
other physical changes in and to the Premises as Landlord, in its sole
discretion, considers advisable or necessary in connection with any such
reletting or proposed reletting, without relieving Tenant of any liability
under this Lease or otherwise affecting any such liability.

          (B) Tenant hereby waives the service of any notice of intention to re-
enter or to institute legal proceedings to that end which may otherwise be
required to be given under any present or future law. Tenant, on its own behalf
and on behalf of all persons claiming through or under Tenant, including all
creditors, does further hereby waive any and all rights which Tenant and

                                      52
<PAGE>
 
all such persons might otherwise have under any present or future law to redeem
the Premises, or to re-enter or repossess the Premises, or to restore the
operation of this Lease, after (a) Tenant shall have been dispossessed by a
judgment or by warrant of any court or judge, or (b) any re-entry by Landlord,
or (c) any expiration or termination of this Lease and the Term, whether such
dispossess, re-entry, expiration or termination shall be by operation of law or
pursuant to the provisions of this Lease. The words "re-enter," "re-entry" and
"re-entered" as used in this Lease shall not be deemed to be restricted to their
technical legal meanings. In the event of a breach or threatened breach by
Tenant, or any persons claiming through or under Tenant, of any term, covenant
or condition of this Lease, Landlord shall have the right to enjoin such breach
and the right to invoke any other remedy allowed by law or in equity as if re-
entry, summary proceedings and other special remedies were not provided in this
Lease for such breach. The right to invoke the remedies hereinbefore set forth
are cumulative and shall not preclude Landlord from invoking any other remedy
allowed at law or in equity.

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

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

               (2) Tenant also shall be liable for and shall pay to Landlord, as
damages, any deficiency (referred to as "Deficiency") between the Rental for the
period which otherwise would have constituted the unexpired portion of the Term
and the net amount, if any, of rents collected under any reletting effected
pursuant to the provisions of clause (2) of Section 17.1(A) for any part of
such period (first deducting from the rents collected under any such reletting
all of Landlord's expenses in connection with the termination of this Lease,
Landlord's re-entry upon the Premises and with such reletting, including, but
not limited to, all repossession costs, brokerage commissions, legal expenses,
attorneys' fees and disbursements, alteration costs, contribution to work and
other expenses of preparing the Premises for such reletting); any such
Deficiency shall be paid in monthly installments by Tenant on the days
specified in this Lease for payment of installments of Fixed Rent; Landlord
shall be entitled to recover from Tenant each monthly Deficiency as the same
shall arise, and no suit to collect the amount of the Deficiency for any month
shall prejudice Landlord's right to collect the Deficiency for any subsequent
month by a similar proceeding; and

               (3) whether or not Landlord shall have collected any monthly
Deficiency as aforesaid, Landlord shall be entitled to recover from Tenant, and
Tenant shall pay to Landlord, on demand, in lieu of any further Deficiency as
and for liquidated and agreed final damages, a sum equal to the amount by which
the Rental for the period which otherwise would have constituted the

                                      53
<PAGE>
 
unexpired portion of the Term (commencing on the date immediately succeeding
the last date with respect to which a Deficiency, if any, was collected) exceeds
the then fair and reasonable rental value of the Premises for the same period,
both discounted to present worth at the Base Rate; if, before presentation of
proof of such liquidated damages to any court, commission or tribunal, the
Premises, or any part thereof, shall have been relet by Landlord for the period
which otherwise would have constituted the unexpired portion of the Term, or any
part thereof, the amount of rent reserved upon such reletting shall be deemed,
prima facie, to be the fair and reasonable rental value for the part or the
whole of the Premises so relet during the term of the reletting.

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

                                   ARTICLE 18
                           LANDLORD FEES AND EXPENSES

     Section 18.1. If an Event of Default shall have occurred and be continuing,
Landlord may (1) as provided in Section 14.1 hereof, perform the same for the
account of Tenant, or (2) make any expenditure or incur any obligation for the
payment of money, including, without limitation, reasonable attorneys' fees and
disbursements in instituting, prosecuting or defending any action or proceeding,
and the cost thereof, with interest thereon at the Applicable Rate, shall be
deemed to be additional rent hereunder and shall be paid by Tenant to Landlord
within fifteen (15) Business Days of rendition of any bill or statement to
Tenant therefor and if the term of this Lease shall have expired at the time of
making of such expenditures or incurring of such obligations, such sums shall be
recoverable by Landlord as damages.

     Section 18.2. If Tenant shall fail to pay any installment of Fixed Rent,
Escalation Rent or any other item of Rental within three (3) Business Days after
any of the same shall be due, Tenant shall pay to Landlord, in addition to such
installment of Fixed Rent, Escalation Rent or other item of Rental, as the case
may be, as a late charge and as additional rent, a sum equal to interest at the
Applicable Rate on the amount unpaid, computed from the date such payment was
due to and including the date of payment.

                                      54
<PAGE>
 
                                   ARTICLE 19
                         NO REPRESENTATIONS BY LANDLORD
                         ------------------------------

     Section 19.1. Landlord and Landlord's agents and representatives have made
no representations or promises with respect to the Building, the Real Property
or the Premises except as herein expressly set forth, and no rights, easements
or licenses are acquired by Tenant by implication or otherwise except as
expressly set forth herein. Tenant shall accept possession of the Premises in
the condition which shall exist on the Commencement Date "as is" (subject to the
provisions of Section 4.1 hereof), and Landlord shall have no obligation to
perform any work or make any installations in order to prepare the Premises for
Tenant's occupancy.

     Section 19.2. (A) If Tenant during the performance of the Initial
Alterations shall uncover or discover any asbestos or asbestos-containing
materials (collectively, "ACM") in the Premises which are required by
Requirements to be abated by removal, enclosure or encapsulation then Landlord,
at its cost and expense, shall promptly commence and diligently proceed to abate
the same in accordance with all applicable Requirements, except that in no event
shall Landlord be required to remove, encapsulate or otherwise abate any ACM
which is contained in column enclosures. Upon the uncovering or discovery of any
such ACM, Tenant shall immediately vacate the Premises (or the affected portion,
if in the judgment of Landlord and Landlord's certified asbestos removal
contractor, it is possible for persons to safely remain in any other portion of
the Premises) and shall cause all of its contractors, subcontractors, mechanics,
materialmen, laborers and all other parties to do the same. Tenant shall have no
right to re-enter the Premises (or such affected portion) until all of such ACM
shall have been abated as aforesaid by Landlord in accordance with all
applicable Requirements.

          (B) If Tenant shall discover ACM in the performance of its Initial
Alterations and Tenant shall actually be delayed in the performance and
completion of the Initial Alterations in the entire Premises by reason of its
discovery of ACM in the Premises, Tenant's vacating the entire Premises, and
Landlord's removing of such ACM as aforesaid, then the Rent Commencement Date
shall be postponed one day for each day Tenant is so delayed in the completion
of the Initial Alterations. If Tenant shall not be required to vacate the entire
Premises, but only a portion of the Premises and Tenant shall actually be
delayed in the performance and completion of the Initial Alterations with
respect to such portion of the Premises which Tenant is required to vacate, then
the Rent Commencement Date shall not be postponed, but rather, the Fixed Rent
and Escalation Rent appropriately prorated for such portion of the Premises
which Tenant is required to vacate shall be abated for a period equal to the
number of days for which Tenant is delayed in the performance and completion of
the Initial Alterations in such portion of the Premises.

                                  ARTICLE 20
                                  END OF TERM
                                  -----------

     Upon the expiration or other termination of this Lease, Tenant shall quit
and surrender to

                                       55
<PAGE>
 
Landlord the Premises, vacant, broom clean, in good order and condition,
ordinary wear and tear and damage for which Tenant is not responsible under the
terms of this Lease excepted, and otherwise in compliance with the provisions of
Article 3 hereof. If the last day of the Term or any renewal thereof falls on
Saturday or Sunday, this Lease shall expire on the Business Day immediately
preceding. Tenant expressly waives, for itself and for any person claiming
through or under Tenant, any rights which Tenant or any such person may have
under the provisions of Section 2201 of the New York Civil Practice Law and
Rules and of any successor law of like import then in force in connection with
any holdover summary proceedings which Landlord may institute to enforce the
foregoing provisions of this Article 20. Tenant acknowledges that possession of
the Premises must be surrendered to Landlord on the Expiration Date. The parties
recognize and agree that the damage to Landlord resulting from any failure by
Tenant to timely surrender possession of the Premises as aforesaid will be
extremely substantial, will exceed the amount of the monthly installments of the
Fixed Rent and Rental theretofore payable hereunder, and will be impossible to
accurately measure. Tenant therefore agrees that if possession of the Premises
is not surrendered to Landlord within twenty-four (24) hours after the
Expiration Date, in addition to any other rights or remedies Landlord may have
hereunder or at law, and without in any manner limiting Landlord's right to
demonstrate and collect any damages suffered by Landlord and arising from
Tenant's failure to surrender the Premises as provided herein, Tenant shall pay
to Landlord on account of use and occupancy of the Premises for each month and
for each portion of any month during which Tenant holds over in the Premises
after the Expiration Date, a sum equal to the greater of (i) two (2) times the
aggregate of that portion of the Fixed Rent, Escalation Rent and Rental which
was payable under this Lease during the last month of the Term, and (ii) the
then fair market rental value for the Premises. Nothing herein contained shall
be deemed to permit Tenant to retain possession of the Premises after the
Expiration Date or to limit in any manner Landlord's right to regain possession
of the Premises through summary proceedings, or otherwise, and no acceptance by
Landlord of payments from Tenant after the Expiration Date shall be deemed to be
other than on account of the amount to be paid by Tenant in accordance with the
provisions of this Article 20. The provisions of this Article 20 shall survive
the Expiration Date.

                                  ARTICLE 21
                                QUIET ENJOYMENT
                                ---------------

     Provided no Event of Default has occurred and is continuing, Tenant may
peaceably and quietly enjoy the Premises subject, nevertheless, to the terms and
conditions of this Lease.

                                   ARTICLE 22
                           FAILURE TO GIVE POSSESSION
                           --------------------------

     Tenant waives any right to rescind this Lease under Section 223-a of the
New York Real Property Law or any successor statute of similar nature and
purpose then in force and further waives the right to recover any damages which
may result from Landlord's failure for any reason to deliver

                                      56
<PAGE>
 
possession of the Premises on the date set forth in Section 1.1 hereof for the
commencement of the Term. The provisions of this Article are intended to
constitute an "express provision to the contrary" within the meaning of Section
223-a of the New York Real Property Law. No such failure to give possession on
the date set forth in Section 1.1 hereof for the commencement of the Term shall
in any wise affect the validity of this Lease or the obligations of Tenant
hereunder or give rise to any claim for damages by Tenant or claim for
rescission of this Lease, nor shall the same be construed in any wise to extend
the Term.

                                   ARTICLE 23
                                   NO WAIVER
                                   ---------

     Section 23.1. No act or thing done by Landlord or Landlord's agents during
the Term shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept such surrender shall be valid unless in writing signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys of the Premises prior to the termination of this Lease. The
delivery of keys to any employee of Landlord or of Landlord's agents shall not
operate as a termination of this Lease or a surrender of the Premises. In the
event Tenant at any time desires to have Landlord sublet the Premises for
Tenant's account, Landlord or Landlord's agents are authorized to receive said
keys for such purpose without releasing Tenant from any of the obligations under
this Lease, and Tenant hereby relieves Landlord of any liability for loss of or
damage to any of Tenant's effects in connection with such subletting.

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



                                       57
<PAGE>
 
agreement is in writing and signed by the party against whom enforcement of the
change, modification, discharge or abandonment is sought.

     Section 23.3. The failure of Tenant to seek redress for violation of, or to
insist upon the strict performance of, any covenant or condition of this Lease
on Landlord's part to be performed, shall not be deemed a waiver of such breach
or prevent a subsequent act which would have originally constituted a violation
of the provisions of this Lease from having all of the force and effect of an
original violation of the provisions of this Lease. The payment by Tenant of
Fixed Rent, Escalation Rent or any other item of Rental or performance of any
obligation of Tenant hereunder with knowledge of any breach of any covenant of
this Lease shall not be deemed a waiver of such breach, and payment of the same
by Tenant shall be without prejudice to Tenant's right to pursue any remedy
against Landlord in this Lease provided.

                                   ARTICLE 24
                            WAIVER OF TRIAL BY JURY
                            -----------------------
     
     The respective parties hereto shall and they hereby do waive trial by jury
in any action, proceeding or counterclaim brought by either of the parties
hereto against the other (except for personal injury or property damage) on any
matters whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
or for the enforcement of any remedy under any statute, emergency or otherwise.
If Landlord commences any summary proceeding against Tenant, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding (unless failure to impose such counterclaim would preclude Tenant
from asserting in a separate action the claim which is the subject of such
counterclaim), and will not seek to consolidate such proceeding with any other
action which may have been or will be brought in any other court by Tenant.


                                   ARTICLE 25               
                             INABILITY TO PERFORM
                             --------------------
     
     This Lease and the obligation of Tenant to pay Rental hereunder and
perform all of the other covenants and agreements hereunder on the part of
Tenant to be performed shall in no wise be affected, impaired or excused because
Landlord is unable to fulfill any of its obligations under this Lease expressly
or impliedly to be performed by Landlord or because Landlord is unable to make,
or is delayed in making any repairs, additions, alterations, improvements or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures, if Landlord is prevented or delayed from so doing by reason of strikes
or labor troubles or by accident, or by any cause whatsoever beyond Landlord's
control, including, but not limited to, laws, governmental preemption in
connection with a national emergency or by reason of any Requirements of any
Governmental Authority or by reason of failure of the HVAC, electrical,
plumbing, or other Building Systems in the Building, or by reason of the
conditions of supply and demand which have been or are affected



                                       58
<PAGE>
 
by war or other emergency ("Unavoidable Delays").

                                   ARTICLE 26
                               BILLS AND NOTICES
                               -----------------  

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

          if to Tenant (a) at Focal Communications Corp., 200 North LaSalle,
          Chicago, Illinois 60601, Attn.: Director of Real Estate, and (b) at
          Focal Communications Corp., 200 North LaSalle, Chicago, Illinois
          60601, Attn.: Executive Vice President, or (c) at any place where
          Tenant or any agent or employee of Tenant may be found if mailed
          subsequent to Tenant's vacating, deserting, abandoning or surrendering
          the Premises, in each case with a copy to Jones, Day, Reavis & Pogue,
          599 Lexington Avenue, New York, New York 10022, Attn.: Robert J.
          Shansky, Esq., or

          if to Landlord at Landlord's address set forth in this Lease, Attn.:
          Mr. Kevin R. Wang, and with copies to (y) Proskauer Rose LLP, 1585
          Broadway, New York, New York 10036, Attn.: Lawrence J. Lipson, Esq.,
          and (z) each Mortgagee and Lessor which shall have requested same, by
          notice given in accordance with the provisions of this Article 26 at
          the address designated by such Mortgagee or Lessor, or

to such other address(es) as Landlord, Tenant or any Mortgagee or Lessor may
designate as its new address(es) for such purpose by notice given to the other
in accordance with the provisions of this Article 26. Any such bill, statement,
consent, notice, demand, request or other communication shall be deemed to have
been rendered or given on the date when it shall have been hand delivered or
three (3) Business Days from when it shall have been mailed as provided in this
Article 26. Anything contained herein to the contrary notwithstanding, any
Operating Statement, Tax Statement or any other bill, statement, consent,
notice, demand, request or other communication from Landlord to Tenant with
respect to any item of Rental (other than any "default notice" if required
hereunder) may be sent to Tenant by regular United States mail.

                                   ARTICLE 27
                                   ESCALATION
                                   ----------

     Section 27.1. For the purposes of this Article 27, the following terms
  shall have the


                                       59
<PAGE>
 
                                    

meanings set forth below.

          (A) "Assessed Valuation" shall mean the amount for which the Real
Property is assessed pursuant to applicable provisions of the New York City
Charter and of the Administrative Code of the City of New York for the purpose
of calculating all or any portion of the Taxes payable with respect to the Real
Property.

          (B) "Base Operating Expenses" shall mean the Operating Expenses for
the Base Operating Year.

          (C) "Base Operating Year" shall mean the calendar year ending December
31, 1998.

          (D) "Base Taxes" shall mean the Taxes for the Tax Year commencing July
1, 1998 and ending June 30, 1999.

          (E) (1) "Operating Expenses" shall mean the aggregate of those costs
and expenses (and taxes, if any, thereon, including without limitation, sales
and value added taxes) paid or incurred by or on behalf of Landlord (whether
directly or through independent contractors) in respect of the Operation of the
Property which, are properly chargeable to the Operation of the Property
together with and including (without limitation) the costs of gas, oil, steam,
water, sewer rental, electricity (for the portions of the Real Property not
leased to and occupied by tenants or available for occupancy), HVAC and other
utilities furnished to the Building and utility taxes, and the expenses incurred
in connection with the Operation of the Property such as insurance premiums,
attorneys' fees and disbursements, auditing and other professional fees and
expenses, and all reasonable expenses (including attorneys' fees and
disbursements, experts' and other witnesses' fees) incurred in contesting the
validity or amount of any Taxes or in obtaining a refund of any Taxes, but
specifically excluding:

                    (i)       Taxes,
                    (ii)      franchise or income taxes imposed upon Landlord,
                    (iii)     debt service on Mortgages,
                    (iv)      leasing commissions,
                    (v)       capital improvements (except as otherwise provided
herein),
                    (vi) the cost of electrical energy furnished directly to
Tenant and other tenants of the Building,



                                       60
<PAGE>
 
                    (vii) the cost of tenant installations incurred in
connection with preparing space for a new tenant,

                    (viii) salaries and fringe benefits of personnel above the
grade of building manager and such building manager's supervisor,

                    (ix) rent paid under Superior Leases (other than in the
nature of Rent consisting of Taxes or Operating Expenses),

                    (x) any expense for which Landlord is otherwise compensated
through the proceeds of insurance or is otherwise compensated by any tenant
(including Tenant) of the Building for services in excess of the services
Landlord is obligated to furnish to Tenant hereunder,

                    (xi) legal fees incurred in connection with any negotiation
of, or disputes arising out of, any space lease in the Building,

                    (xii) depreciation, except as provided herein,

                    (xiii) Landlord's advertising and promotional costs for the
Building,

                    (xiv) lease takeover costs incurred by Landlord in
connection with the entering into space leases in the Building and costs
incurred by Landlord to relocate tenants in the Building in order to consummate
a specific space lease or to accommodate a specific tenant's request,

                    (xv) interest, fines, penalties and late charges incurred by
Landlord for late payment, except to the extent the same shall be due to the act
or omission of Tenant, and

                    (xvi) the cost of any judgment, settlement or arbitration
award resulting from any liability of Landlord,

except, however, that if Landlord is not furnishing any particular work or
service (the cost of which if performed by Landlord would constitute an
Operating Expense) to a tenant who has undertaken to perform such work or
service in lieu of the performance thereof by Landlord, Operating Expenses shall
be deemed to be increased by an amount equal to the additional Operating
Expenses which reasonably would have been incurred during such period by
Landlord if it had at its own expense furnished such work or services to such
tenant. Any insurance proceeds received with respect to any item previously
included as an Operating Expense shall be deducted from Operating Expenses for
the Operating Year in which such proceeds are received; provided, however, to
the extent any insurance proceeds are received by Landlord in any Operating
Year with respect to any item which

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<PAGE>
 
was included in Operating Expenses during the Base Operating Year, the amount of
insurance proceeds so received shall be deducted from Base Operating Expenses
and (x) the Base Operating Expenses shall be retroactively adjusted to reflect
such deduction and (y) all retroactive Operating Payments resulting from such
retroactive adjustment shall be due and payable when billed by Landlord. Until
such time as the electricity supplied to each floor of the Building and the
common and public areas of the Building (including, without limitation, the
Building Systems) shall be separately metered or submetered, Operating Expenses
shall include an amount equal to (x) (i) Landlord's cost (utilizing the
electrical rates applicable to the Building including energy charges, demand
charges, time-of-day charges, fuel adjustment charges, rate adjustment charges,
sales tax and any other factors used by the public utility in computing its
charges to Landlord) of furnishing electric current to the entire Building,
multiplied by (ii) the number of kilowatt hours of electric current furnished to
the public and common areas of the Building (including, without limitation, the
Building Systems) and other areas not available for occupancy as determined by a
survey prepared by an independent, reputable electrical engineer selected by
Landlord, plus (y) an amount equal to Landlord's out-of-pocket costs in
connection with the same.

               (2) In determining the amount of Operating Expenses for any
Operating Year, if less than all of the Building rentable area shall have been
occupied by tenant(s) at any time during any such Operating Year, Operating
Expenses shall be determined for such Operating Year to be an amount equal to
the like expenses which would normally be expected to be incurred had all such
areas been occupied throughout such Operating Year.

               (3)  (a) If any capital improvement is made during any Operating
Year in compliance with a Requirement, whether or not such Requirement is valid
or mandatory, or in lieu of a repair, then the cost of such improvement shall be
included in Operating Expenses for the Operating Year in which such improvement
was made; provided, however, to the extent the cost of such improvement is
required to be capitalized for federal income tax purposes, such cost shall be
amortized over the useful economic life of such improvement as reasonably
estimated by Landlord, and the annual amortization, together with interest
thereon at the then Base Rate, of such improvement shall be deemed an Operating
Expense in each of the Operating Years during which such cost of the improvement
is amortized.

                    (b) If any capital improvement is made during any Operating
Year either for the purpose of saving or reducing Operating Expenses (as, for
example, a labor-saving improvement), then the cost of such improvement shall be
included in Operating Expenses for the Operating Year in which such improvement
was made; provided, however, such cost shall be amortized over such period of
time as Landlord reasonably estimates such savings or reduction in Operating
Expenses will equal the cost of such improvement and the annual amortization,
together with interest thereon at the then Base Rate, of such improvement shall
be deemed an Operating Expense in each of the Operating Years during which such
cost of the improvement is amortized; provided, further, however, the amortized
cost of such improvement included in any Operating Year shall not exceed the
amount which Tenant would have paid had such improvement not been made. Any
portion of the amortized cost of any such capital improvement which may not be
included in

           
                                       62
<PAGE>
 
Operating Expenses in an Operating Year by reason of the foregoing limitation
may be included in Operating Expenses for subsequent Operating Years (subject to
such limitation).

          (F) "Operating Statement" shall mean a statement in reasonable detail
setting forth a comparison of the Operating Expenses for an Operating Year with
the Base Operating Expenses and the Escalation Rent for the preceding Operating
Year pursuant to the provisions of this Article 27.

          (G) "Operating Year" shall mean the calendar year within which the
Commencement Date occurs and each subsequent calendar year for any part or all
of which Escalation Rent shall be payable pursuant to this Article 27.

          (H) "Taxes" shall mean the aggregate amount of real estate taxes and
any general or special assessments (exclusive of penalties and interest thereon)
imposed upon the Real Property (including, without limitation, (i) assessments
made upon or with respect to any "air" and "development" rights now or hereafter
appurtenant to or affecting the Real Property, (ii) any fee, tax or charge
imposed by any Governmental Authority for any vaults, vault space or other space
within or outside the boundaries of the Real Property, and (iii) any taxes or
assessments levied after the date of this Lease in whole or in part for public
benefits to the Real Property or the Building, including, without limitation,
any Business Improvement District taxes and assessments) without taking into
account any discount that Landlord may receive by virtue of any early payment of
Taxes; provided, that if because of any change in the taxation of real estate,
any other tax or assessment, however denominated (including, without limitation,
any franchise, income, profit, sales, use, occupancy, gross receipts or rental
tax) is imposed upon Landlord or the owner of the Real Property or the Building,
or the occupancy, rents or income therefrom, in substitution for any of the
foregoing Taxes, such other tax or assessment shall be deemed part of Taxes
computed as if Landlord's sole asset were the Real Property. Anything contained
herein to the contrary notwithstanding, Taxes shall not be deemed to include (w)
any taxes on Landlord's income, (x) franchise taxes, (y) estate or inheritance
taxes or (z) any similar taxes imposed on Landlord, unless such taxes are
levied, assessed or imposed in lieu of or as a substitute for the whole or any
part of the taxes, assessments, levies, impositions which now constitute Taxes.

          (I) "Tax Statement" shall mean a statement in reasonable detail
setting forth a comparison of the Taxes for a Tax Year with the Base Taxes.

          (J) "Tax Year" shall mean the period July 1 through June 30 (or such
other period as hereinafter may be duly adopted by the Governmental Authority
then imposing taxes as its fiscal year for real estate tax purposes), any
portion of which occurs during the Term.

     Section 27.2. (A) If the Taxes payable for any Tax Year (any part or all of
which falls within the Term) shall represent an increase above the Base Taxes,
then Tenant shall pay as additional rent for such Tax Year and continuing
thereafter until a new Tax Statement is rendered to Tenant, Tenant's Tax Share
of such increase (the "Tax Payment") as shown on the Tax Statement with

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<PAGE>
 
respect to such Tax Year. Tenant shall be obliged to pay the Tax Payment
regardless of whether Tenant is exempt in whole or part, from the payment of any
Taxes by reason of Tenant's diplomatic status or for any other reason
whatsoever. The Taxes shall be computed initially on the basis of the Assessed
Valuation in effect at the time the Tax Statement is rendered (as the Taxes may
have been settled or finally adjudicated prior to such time) regardless of any
then pending application, proceeding or appeal respecting the reduction of any
such Assessed Valuation, but shall be subject to subsequent adjustment as
provided in Section 27.3 hereof.

          (B) At any time during or after the Term, Landlord may render to
Tenant a Tax Statement or Statements showing (i) a comparison of the Taxes for
the Tax Year with the Base Taxes and (ii) the amount of the Tax Payment
resulting from such comparison. On the first day of the month following the
furnishing to Tenant of a Tax Statement, Tenant shall pay to Landlord a sum
equal to 1/12th of the Tax Payment shown thereon to be due for such Tax Year
multiplied by the number of months of the Term then elapsed since the
commencement of such Tax Year. Tenant shall continue to pay to Landlord a sum
equal to one-twelfth (1/12th) of the Tax Payment shown on such Tax Statement on
the first day of each succeeding month until the first day of the month
following the month in which Landlord shall deliver Tenant a new Tax Statement.
If Landlord furnishes a Tax Statement for a new Tax Year subsequent to the
commencement thereof, promptly after the new Tax Statement is furnished to
Tenant, Landlord shall give notice to Tenant stating whether the amount
previously paid by Tenant to Landlord for the current Tax Year was greater or
less than the installments of the Tax Payment for the current tax year in
accordance with the Tax Statement, and (a) if there shall be a deficiency,
Tenant shall pay the amount thereof within ten (10) days after demand therefor,
or (b) if there shall have been an overpayment, Landlord shall credit the amount
thereof against the next monthly installments of the Fixed Rent payable under
this Lease. Tax Payments shall be collectible by Landlord in the same manner as
Fixed Rent. Landlord's failure to render a Tax Statement shall not prejudice
Landlord's right to render a Tax Statement during or with respect to any
subsequent Tax Year, and shall not eliminate or reduce Tenant's obligation to
make Tax Payments for such Tax Year. Notwithstanding anything to the contrary
contained in this Article 27, Landlord shall be deemed to have waived its right
to collect the Tax Payment for a Tax Year if Landlord shall have failed to
deliver the Tax Statement with respect to such Tax Year by the date which is two
(2) years after the later to occur of (x) the date on which Landlord shall have
received the appropriate bill from the Governmental Authority, and (y) the date
which is the last day of the Tax Year in question.

     Section 27.3. (A) Only Landlord shall be eligible to institute tax
reduction or other proceedings to reduce the Assessed Valuation. In the event
that, after a Tax Statement has been sent to Tenant, an Assessed Valuation which
had been utilized in computing the Taxes for a Tax Year is reduced (as a result
of settlement, final determination of legal proceedings or otherwise), and as a
result thereof a refund of Taxes is actually received by or on behalf of
Landlord, then, promptly after receipt of such refund, Landlord shall send
Tenant a Tax Statement adjusting the Taxes for such Tax Year and setting forth
Tenant's Tax Share of such refund and Tenant shall be entitled to receive such
Share, at Landlord's option, either by way of a credit against the Fixed Rent
next becoming due after the sending of such Tax Statement or by a refund to the
extent no further Fixed Rent is due;

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<PAGE>
 
provided, however, that Tenant's Tax Share of such refund shall be limited to
the portion of the Tax Payment, if any, which Tenant had theretofore paid to
Landlord attributable to increases in Taxes for the Tax Year to which the refund
is applicable on the basis of the Assessed Valuation before it had been reduced.

          (B) In the event that, after a Tax Statement has been sent to Tenant,
the Assessed Valuation which had been utilized in computing the Base Taxes is
reduced (as a result of settlement, final determination of legal proceedings or
otherwise) then, and in such event: (i) the Base Taxes shall be retroactively
adjusted to reflect such reduction, and (ii) all retroactive Tax Payments
resulting from such retroactive adjustment shall be due and payable when billed
by Landlord. Landlord promptly shall send to Tenant a statement setting forth
the basis for such retroactive adjustment and Tax Payments.

     Section 27.4. (A) If the Operating Expenses for any Operating Year (any
part or all of which falls within the Term) shall be greater than the Base
Operating Expenses, then Tenant shall pay as additional rent for such Operating
Year and continuing thereafter until a new Operating Statement is rendered to
Tenant, Tenant's Share of such increase (the "Operating Payment") as hereinafter
provided.

          (B) At any time during or after the Term Landlord may render to Tenant
an Operating Statement or Statements showing (i) a comparison of the Operating
Expenses for the Operating Year in question with the Base Operating Expenses,
and (ii) the amount of the Operating Payment resulting from such comparison.
Landlord's failure to render an Operating Statement during or with respect to
any Operating Year in question shall not prejudice Landlord's right to render an
Operating Statement during or with respect to any subsequent Operating Year, and
shall not eliminate or reduce Tenant's obligation to make payments of the
Operating Payment pursuant to this Article 27 for such Operating Year.

          (C) On the first day of the month following the furnishing to Tenant
of an Operating Statement, Tenant shall pay to Landlord a sum equal to 1/12th of
the Operating Payment shown thereon to be due for the preceding Operating Year
multiplied by the number of months (and any fraction thereof) of the Term then
elapsed since the commencement of such Operating Year in which such Operating
Statement is delivered, less Operating Payments theretofore made by Tenant for
such Operating Year and thereafter, commencing with the then current monthly
installment of Fixed Rent and continuing monthly thereafter until rendition of
the next succeeding Operating Statement. Tenant shall pay on account of the
Operating Payment for such Year an amount equal to 1/12th of the Operating
Payment shown thereon to be due for the preceding Operating Year. Any Operating
Payment shall be collectible by Landlord in the same manner as Fixed Rent.
Nothwithstanding anything to the contrary contained in this Article 27, Landlord
shall be deemed to have waived its right to collect the Operating Payment for an
Operating Year if Landlord shall have failed to deliver the Operating Statement
with respect to such Operating Year by the date which is two (2) years after the
last day of the Operating Year in question.

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<PAGE>
 
          (D) (1) As used in this Section 27.4, (i) "Tentative Monthly
Escalation Charge" shall mean a sum equal to 1/12th of the product of (a)
Tenant's Share, and (b) the difference between (x) the Base Operating Expenses
and (y) Landlord's estimate of Operating Expenses for the Current Year, and (ii)
"Current Year" shall mean the Operating Year in which a demand is made upon
Tenant for payment of a Tentative Monthly Escalation Charge.

               (2) At any time in any Operating Year, Landlord, at its option,
in lieu of the payments required under Section 27.4(C) hereof, may demand and
collect from Tenant, as additional rent, a sum equal to the Tentative Monthly
Escalation Charge multiplied by the number of months in said Operating Year
preceding the demand and reduced by the sum of all payments theretofore made
under Section 27.4(C) with respect to said Operating Year, and thereafter,
commencing with the month in which the demand is made and continuing thereafter
for each month remaining in said Operating Year, the monthly installments of
Fixed Rent shall be deemed increased by the Tentative Monthly Escalation Charge.
Any amount due to Landlord under this Section 27.4(D) may be included by
Landlord in any Operating Statement rendered to Tenant as provided in Section
27.4(B) hereof.

          (E) (1) After the end of the Current Year and at any time that
Landlord renders an Operating Statement or Statements to Tenant as provided in
Section 27.4(B) hereof with respect to the comparison of the Operating Expenses
for said Operating Year or Current Year, with the Base Operating Expenses, as
the case may be, the amounts, if any, collected by Landlord from Tenant under
Section 27.4(C) or (D) on account of the Operating Payment or the Tentative
Monthly Escalation Charge, as the case may be, shall be adjusted, and, if the
amount so collected is less than or exceeds the amount actually due under said
Operating Statement for the Operating Year, a reconciliation shall be made as
follows: Tenant shall be debited with any Operating Payment shown on such
Operating Statement and credited with the amounts, if any, paid by Tenant on
account in accordance with the provisions of subsection (C) and subsection
(D)(2) of this Section 27.4 for the Operating Year in question. Tenant shall pay
any net debit balance to Landlord within fifteen (15) days next following
rendition by Landlord of an invoice for such net debit balance; any net credit
balance shall be applied against the next accruing monthly installments of Fixed
Rent.

               (2) If the sum of the Tentative Monthly Escalation Charges and
payments made by Tenant in accordance with subsection (C) of this Section 27.4
for any Operating Year shall have exceeded the Operating Payment for such
Operating Year by more than ten percent (10%), interest at the Applicable Rate
on the portion of the overpayment that exceeds the applicable Operating Payment
by more than ten percent (10%) determined as of the respective dates of such
payments by Tenant and calculated from such respective dates to the dates on
which such amounts are credited against the monthly installments of Fixed Rent,
shall be so credited. Any amount owing to Tenant subsequent to the Term shall be
paid to Tenant within ten (10) Business Days after a final determination has
been made of the amount due to Tenant.

     Section 27.5. Any Operating Statement sent to Tenant shall be conclusively
binding upon Tenant unless, within one hundred eighty (180) days after such
Statement is sent, Tenant shall send

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<PAGE>
 
a written notice to Landlord objecting to such Statement and specifying the
respects in which such Statement is disputed. If such notice is sent, Tenant
(together with its independent certified public accountants, provided such
accountants are approved by Landlord, with such approval not to be unreasonably
withheld or delayed) may examine Landlord's books and records relating to the
Operation of the Property to determine the accuracy of the Operating Statement.
Tenant recognizes the confidential nature of such books and records and agrees
to maintain the information obtained from such examination in strict confidence.
If after such examination, Tenant still disputes such Operating Statement,
either party may refer the decision of the issues raised to a reputable
independent firm of certified public accountants, selected by Landlord and
approved by Tenant, which approval shall not be unreasonably withheld or delayed
as long as such firm of certified public accountants is one of the so-called
"big-six" public accounting firms or if at such time there is no group of
accounting firms commonly referred to as "big-six", then a nationally recognized
firm of at least one hundred fifty (150) partners or principals who are
certified public accountants, and the decision of such accountants shall be
conclusively binding upon the parties. The fees and expenses involved in such
decision shall be borne by the unsuccessful party (and if both parties are
partially successful, such fees and expenses shall be apportioned between
Landlord and Tenant in inverse proportion to the amount by which such decision
is favorable to each party). Notwithstanding the giving of such notice by
Tenant, and pending the resolution of any such dispute, Tenant shall pay to
Landlord when due the amount shown on any such Operating Statement, as provided
in Section 27.4 hereof.

     Section 27.6. Except as expressly provided herein, the expiration or
termination of this Lease during any Operating Year or Tax Year shall not affect
the rights or obligations of the parties hereto respecting any payments of
Operating Payments for such Operating Year and any payments of Tax Payments for
such Tax Year, and any Operating Statement relating to such Operating Payment
and any Tax Statement relating to such Tax Payment, may be sent to Tenant
subsequent to, and all such rights and obligations shall survive, any such
expiration or termination. In determining the amount of the Operating Payment
for the Operating Year or the Tax Payment for the Tax Year in which the Term
shall expire, the payment of the Operating Payment for such Operating Year or
the Tax Payment for the Tax Year shall be prorated based on the number of days
of the Term which fall within such Operating Year or Tax Year, as the case may
be. Any payments due under such Operating Statement or Tax Statement shall be
payable within fifteen (15) Business Days after such Statement is sent to
Tenant.

                                  ARTICLE 28
                                   SERVICES
                                   --------

     Section 28.1. (A) Landlord shall provide passenger elevator service to the
Premises on Business Days from 8:00 A.M. to 6:00 P.M. and have an elevator
subject to call at all other times. Subject to Landlord's reasonable security
procedures and rules, Landlord shall provide access to the Building and the
Premises twenty-four (24) hours per day, three hundred sixty-five (365) days per
year.

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<PAGE>
 
          (B) There shall be one (1) freight elevator serving the Premises and
the entire Building on call on a "first come, first served" basis on Business
Days from 8:00 A.M. 12:00 P.M. and from 2:00 P.M. to 5:00 P.M., and on a
reservation, "first come, first served" basis from 12:00 P.M. to 2:00 P.M. and
5:00 P.M. to 8:00 A.M. on Business Days and at any time on days other than
Business Days. If Tenant shall use the freight elevators serving the Premises
between 12:00 P.M. to 2:00 P.M. and 5:00 P.M. and 8:00 A.M. on Business Days or
at any time on any other days, Tenant shall pay Landlord, as additional rent for
such use, the standard rates then fixed by Landlord for the Building, or if no
such rates are then fixed, at reasonable rates.

          (C) Landlord shall not be required to furnish any freight elevator
services during the hours from 12:00 P.M. to 2:00 P.M. and 5:00 P.M. to 8:00
A.M. on Business Days and at any time on days other than Business Days unless
Landlord has received advance notice from Tenant requesting such services prior
to 2:00 P.M. of the day upon which such service is requested or by 2:00 P.M. of
the last preceding Business Day if such periods are to occur on a day other than
a Business Day.

     Section 28.2. Landlord, at Landlord's expense (but subject to recoupment
pursuant to Article 27 hereof), shall furnish to the perimeter of the Premises
(for distribution by Tenant within the Premises) through the HVAC System, when
required for the comfortable occupancy of the Premises, HVAC in accordance with
the specifications set forth on Exhibit "C" annexed hereto and made a part
hereof, on a year round basis from 8:00 A.M. to 6:00 P.M. on Business Days.
Landlord, throughout the Term, shall have free access to any and all mechanical
installations of Landlord, including, but not limited to, air-cooling, fan,
ventilating and machine rooms and electrical closets; Tenant shall not construct
partitions or other obstructions which may interfere with Landlord's free access
thereto, or interfere with the moving of Landlord's equipment to and from the
enclosures containing said installations. Neither Tenant, nor its agents,
employees or contractors shall at any time enter the said enclosures or tamper
with, adjust or touch or otherwise in any manner affect said mechanical
installations. Tenant shall draw and close the draperies or blinds for the
windows of the Premises whenever the HVAC System is in operation and the
position of the sun so requires and shall at all times cooperate fully with
Landlord and abide by all of the reasonable regulations and requirements which
Landlord may prescribe for the proper functioning and protection of the HVAC
System.

     Section 28.3. The Fixed Rent does not reflect or include any charge to
Tenant for the furnishing of any necessary HVAC to the Premises during periods
other than the hours and days set forth above ("Overtime Periods"). Accordingly,
if Landlord shall furnish such HVAC to the Premises at the request of Tenant
during Overtime Periods, Tenant shall pay Landlord additional rent for such
services at the standard rates then fixed by Landlord for the Building, or if no
such rates are then fixed, at reasonable rates. Landlord shall not be required
to furnish any such services during any Overtime Periods unless Landlord has
received advance notice from Tenant requesting such services prior to 2:00 P.M.
of the day upon which such services are requested or by 2:00 P.M. of the last
preceding Business Day if such Overtime Periods are to occur on a day other than
a Business Day. If Tenant fails to give Landlord such advance notice, then,
failure by Landlord to furnish or

                                       68
<PAGE>
 
distribute any such services during such Overtime Periods shall not constitute
an actual or constructive eviction, in whole or in part, or entitle Tenant to
any abatement or diminution of Rental, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Landlord or its
agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business or otherwise. If more than one tenant
utilizing the same system as Tenant requests the same Overtime Periods for the
same services as Tenant, the charge to Tenant shall be adjusted pro rata.

     Section 28.4. Provided Tenant shall keep the Premises in order, Landlord,
at Landlord's expense, subject to recoupment pursuant to Article 27 hereof,
shall cause the Premises, excluding any portions thereof used for the storage,
preparation, service or consumption of food or beverages, to be cleaned,
substantially in accordance with the standards set forth in Schedule B annexed
hereto and made a part hereof. Tenant shall pay to Landlord the cost of removal
of any of Tenant's refuse and rubbish from the Premises and the Building to the
extent that the same exceeds the refuse and rubbish usually attendant upon the
use of such Premises as offices. Bills for the same shall be rendered by
Landlord to Tenant at such time as Landlord may elect and shall be due and
payable when rendered as additional rent. Tenant, at Tenant's sole cost and
expense, shall cause all portions of the Premises used for the storage,
preparation, service or consumption of food or beverages to be cleaned daily in
a manner satisfactory to Landlord, and to be exterminated against infestation by
vermin, rodents or roaches regularly and, in addition, whenever there shall be
evidence of any infestation. Any such exterminating shall be done at Tenant's
sole cost and expense, in a manner satisfactory to Landlord, and by Persons
approved by Landlord. If Tenant shall perform any cleaning services in addition
to the services provided by Landlord as aforesaid, Tenant shall employ the
cleaning contractor providing cleaning services to the Building on behalf of
Landlord or such other cleaning contractor as shall be approved by Landlord.
Tenant shall comply with any recycling program and/or refuse disposal program
(including, without limitation, any program related to the recycling, separation
or other disposal of paper, glass or metals) which Landlord shall impose or
which shall be required pursuant to any Requirements.

     Section 28.5. If the New York Board of Fire Underwriters or the Insurance
Services Office or any Governmental Authority, department or official of the
state or city government shall require or recommend that any changes,
modifications, alterations or additional sprinkler heads or other equipment be
made or supplied by reason of Tenant's business, or the location of the
partitions, trade fixtures, or other contents of the Premises, Landlord, at
Tenant's cost and expense, shall promptly make and supply such changes,
modifications, alterations, additional sprinkler heads or other equipment.

     Section 28.6. Landlord reserves the right to stop service of the HVAC
System or the elevator, electrical, plumbing or other Building Systems when
necessary, by reason of accident or emergency, or for repairs, additions,
alterations, replacements or improvements in the judgment of Landlord desirable
or necessary to be made, until said repairs, alterations, replacements or
improvements shall have been completed (which repairs, additions, alterations,
replacements and improvements shall be performed in accordance with Section 4.3
hereof). Landlord shall have no

                                      69

<PAGE>
 
responsibility or liability for interruption, curtailment or failure to supply
HVAC, elevator, electrical, plumbing or other Building Systems when prevented by
Unavoidable Delays or by any Requirement of any Governmental Authority or due to
the exercise of its right to stop service as provided in this Article 28 and the
exercise of such right or such failure by Landlord shall not constitute an
actual or constructive eviction, in whole or in part, or entitle Tenant to any
compensation or to any abatement or diminution of Rental, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Landlord
or its agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise.

     Section 28.7. Landlord shall make available to Tenant the computerized
directory in the lobby of the Building for up to ten (10) listings. The initial
programming shall be without charge to Tenant. From time to time, but not more
frequently than once every three (3) months, Landlord shall reprogram the
computerized directory to reflect such changes in the listings therein as Tenant
shall request, and Tenant promptly after request shall pay to Landlord a
reasonable reprogramming charge for each reprogramming Tenant requests. If
Landlord replaces the computerized directory with a standard directory in the
lobby of the Building, Tenant shall be entitled to Tenant's Share of such
listings on such directory.

                                   ARTICLE 29
                               PARTNERSHIP TENANT
                               ------------------

     If Tenant is a partnership (including, without limitation, a limited
liability partnership) or a limited liability company or a professional
corporation (or is comprised of two (2) or more Persons, individually or as co-
partners of a partnership (including, without limitation a limited liability
partnership), as members of a limited liability company or as shareholders of a
professional corporation) or if Tenant's interest in this Lease shall be
assigned to a partnership (including, without limitation, a limited liability
partnership) a limited liability company or a professional corporation (or to
two (2) or more Persons, individually or as co-partners of a partnership, as
members of a limited liability company or shareholders of a professional
corporation) pursuant to Article 12 hereof (any such partnership, professional
corporation and such Persons are referred to in this Article 29 as "Partnership
Tenant"), the following provisions shall apply to such Partnership Tenant: (a)
the liability of each of the parties comprising Partnership Tenant shall be
joint and several; (b) each of the parties comprising Partnership Tenant hereby
consents in advance to, and agrees to be bound by (x) any written instrument
which may hereafter be executed by Partnership Tenant or any successor entity,
changing, modifying, extending or discharging this Lease, in whole or in part,
or surrendering all or any part of the Premises to Landlord, and (y) any
notices, demands, requests or other communications which may hereafter be given
by Partnership Tenant or by any of the parties comprising Partnership Tenant;
(c) any bills, statements, notices, demands, requests or other communications
given or rendered to Partnership Tenant or to any of such parties shall be
binding upon Partnership Tenant and all such parties; (d) if Partnership Tenant
shall admit new partners, shareholders or members, as the case may be,
Partnership Tenant shall give Landlord notice of such event not later than ten
(10) Business Days prior to the admission of such partner(s), shareholder(s)

                                      70

<PAGE>
 
or member(s) together with an assumption agreement in form and substance
satisfactory to Landlord pursuant to which each of such new partners,
shareholders or members, as the case may be, shall, by their admission to
Partnership Tenant, agree to assume joint and several liability for the
performance of all of the terms, covenants and conditions of this Lease (as the
same may have been or thereafter be amended) on Tenant's part thereafter to be
observed and performed; it being expressly understood and agreed that each such
new partner, shareholder or member (as the case may be) shall be deemed to have
assumed joint and several liability for the performance of all of the terms,
covenants and conditions of this Lease (as the same may have been or thereafter
be amended), whether or not such new partner, shareholder or member shall have
executed such assumption agreement, and that neither Tenant's failure to deliver
such assumption agreement nor the failure of any such new partner or
shareholder, as the case may be, to execute or deliver any such agreement to
Landlord shall vitiate the provisions of this clause (d) of this Article 29).

                                  ARTICLE 30
                                  VAULT SPACE
                                  -----------

     Notwithstanding anything contained in this Lease or indicated on any
sketch, blueprint or plan, any vaults, vault space or other space outside the
boundaries of the Real Property are not included in the Premises. Landlord makes
no representation as to the location of the boundaries of the Real Property. All
vaults and vault space and all other space outside the boundaries of the Real
Property which Tenant may be permitted to use or occupy are to be used or
occupied under a revocable license, and if any such license shall be revoked, or
if the amount of such space shall be diminished or required by any Governmental
Authority or by any public utility company, such revocation, diminution or
requisition shall not constitute an actual or constructive eviction, in whole or
in part, or entitle Tenant to any abatement or diminution of Rental, or relieve
Tenant from any of its obligations under this Lease, or impose any liability
upon Landlord. Any fee, tax or charge imposed by any Governmental Authority for
any such vaults, vault space or other space occupied by Tenant shall be paid by
Tenant.

                                  ARTICLE 31
                                   SECURITY
                                   --------

     Section 31.1. Tenant shall deposit with Landlord on the signing of this
Lease the Security Amount for the 1st Security Period, or at Tenant's option, a
"clean," unconditional, irrevocable and transferable letter of credit (the
"Letter of Credit") in the same amount, satisfactory to Landlord, issued by and
drawn on a bank satisfactory to Landlord and which is a member of the New York
Clearing House Association, for the account of Landlord, for a term of not less
than one (1) year, as security for the faithful performance and observance by
Tenant of the terms, covenants, conditions and provisions of this Lease,
including, without limitation, the surrender of possession of the Premises to
Landlord as herein provided. If an Event of Default shall occur and be
continuing, Landlord may apply the whole or any part of the security so
deposited, or present the Letter of Credit

                                      71
<PAGE>
 
for payment and apply the whole or any part of the proceeds thereof, as the case
may be, (i) toward the payment of any Fixed Rent, Escalation Rent or any other
item of Rental as to which Tenant is in default, (ii) toward any sum which
Landlord may expend or be required to expend by reason of Tenant's default in
respect of any of the terms, covenants and conditions of this Lease, including,
without limitation, any damage, liability or expense (including, without
limitation, reasonable attorneys' fees and disbursements) incurred or suffered
by Landlord, and (iii) toward any damage or deficiency incurred or suffered by
Landlord in the reletting of the Premises, whether such damages or deficiency
accrue or accrues before or after summary proceedings or other re-entry by
Landlord. If Landlord applies or retains any part of the proceeds of the Letter
of Credit or the security so deposited, as the case may be, Tenant, upon demand,
shall deposit with Landlord the amount so applied or retained so that Landlord
shall have the full deposit on hand at all times during the Term. If Tenant
shall fully and faithfully comply with all of the terms, provisions, covenants
and conditions of this Lease, the Letter of Credit or the security, as the case
may be, shall be returned to Tenant after the Expiration Date and after delivery
of possession of the Premises to Landlord. In the event of a sale or leasing of
the Real Property or the Building, Landlord shall have the right to transfer the
Letter of Credit or security, as the case may be, to the vendee or lessee and
Landlord shall thereupon be released by Tenant from all liability for the return
of such security or the Letter of Credit, as the case may be, and Tenant shall
cause the bank which issued the Letter of Credit to issue an amendment to the
Letter of Credit or issue a new Letter of Credit naming the vendee or lessee as
the beneficiary thereunder. Tenant shall look solely to the new landlord for the
return of the Letter of Credit or the security, as the case may be. The
provisions hereof shall apply to every transfer or assignment of the Letter of
Credit or security made to a new landlord. Tenant shall not assign or encumber
or attempt to assign or encumber the monies deposited herein as security and
neither Landlord nor its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance. Tenant
shall renew any Letter of Credit from time to time, at least thirty (30) days
prior to the expiration thereof, and deliver to Landlord a new Letter of Credit
or an endorsement to the Letter of Credit, and any other evidence required by
Landlord that the Letter of Credit has been renewed for a period of at least one
(1) year. If Tenant shall fail to renew the Letter of Credit as aforesaid,
Landlord may present the Letter of Credit for payment and retain the proceeds
thereof as security in lieu of the Letter of Credit.

     Section 31.2. Provided no Event of Default shall have occurred and be
continuing, on the first day of the 2nd Security Period, 3rd Security Period and
the 4th Security Period, respectively, (a) if the Letter of Credit is on
deposit, Tenant shall be entitled to replace the Letter of Credit on deposit
with Landlord with a Letter of Credit in the Security Amount applicable to such
Security Period, or (b) if Tenant shall have deposited with Landlord cash
security in lieu of a Letter of Credit, if the Security Amount for such Security
Period is less than the security then on deposit for the immediately preceding
Security Period, and provided that Tenant shall have fully and faithfully
complied with all of the terms, provisions, covenants and conditions of this
Lease, Landlord shall refund to Tenant an amount equal to the amount by which
the Security Amount for such Security Period exceeds the security then on
deposit for the immediately preceding Security Period.

                                       72
<PAGE>
 
                                  ARTICLE 32
                                   CAPTIONS
                                   --------

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

                                  ARTICLE 33
                                 PARTIES BOUND
                                 -------------

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

                                  ARTICLE 34
                                    BROKER
                                    ------

     Each party represents and warrants to the other that it has not dealt with
any broker or Person in connection with this Lease other than Grubb Ellis New
York, Inc. and Helmsley-Spear, Inc. (collectively "Broker"). The execution and
delivery of this Lease by each party shall be conclusive evidence that such
party has relied upon the foregoing representation and warranty. Tenant shall
indemnify and hold Landlord harmless from and against any and all claims for
commission, fee or other compensation by any Person (other than Broker) who
shall claim to have dealt with Tenant in connection with this Lease and for any
and all costs incurred by Landlord in connection with such claims, including,
without limitation, reasonable attorneys' fees and disbursements. Landlord shall
pay Broker a commission pursuant to a separate agreements between Landlord and
each of the companies comprising Broker. The provisions of this Article 34 shall
survive the Expiration Date.


                                  ARTICLE 35
                                   INDEMNITY
                                   ---------

     Section 35.1. (A) Subject to Section 12.6(D) hereof, Tenant shall not do or
permit any act or thing to be done upon the Premises which may subject Landlord
to any liability or responsibility for injury, damages to persons or property or
to any liability by reason of any violation of any Requirement, and shall
exercise such control over the Premises as to fully protect Landlord against any
such liability. Tenant shall indemnify and save the Indemnitees harmless from
and against (a) all claims of whatever nature against the Indemnitees arising
from any act, omission or negligence of Tenant, its contractors, licensees,
agents, servants, employees, invitees or visitors, (b) all claims against the
Indemnitees arising from any accident, injury or damage whatsoever caused to any
person or to the property of any person and occurring during the Term in or
about the Premises, (c) all claims against the Indemnitees arising from any
accident, injury or damage occurring outside of

                                      73
<PAGE>
 
the Premises but anywhere within or about the Real Property, where such
accident, injury or damage results or is claimed to have resulted from an act,
omission or negligence of Tenant or Tenant's contractors, licensees, agents,
servants, employees, invitees or visitors, and (d) any breach, violation or non-
performance of any covenant, condition or agreement in this Lease set forth and
contained on the part of Tenant to be fulfilled, kept, observed and performed.
This indemnity and hold harmless agreement shall include indemnity from and
against any and all liability, fines, suits, demands, costs and expenses of any
kind or nature (including, without limitation, reasonable attorneys' fees and
disbursements) incurred in or in connection with any such claim or proceeding
brought thereon, and the defense thereof but except with respect to claims with
respect to bodily injury or death, shall be limited to the extent any insurance
proceeds collectible by Landlord under policies owned by Landlord or such
injured party with respect to such damage or injury are insufficient to satisfy
same. Tenant shall have no liability for any consequential damages suffered
either by Landlord or by any party claiming through Landlord.

          (B) Except as provided in Articles 4, 9, 10, 13, 28, 36 and 37 hereof
and otherwise as expressly provided herein, Landlord shall indemnify and save
Tenant its shareholders, directors, officers, Partners, employees and agents
harmless from and against all claims against Tenant arising from any direct
damage to the Premises and any bodily injury to Tenant's employees, agents or
invitees resulting from the acts, omissions or negligence of Landlord or its
agents. This indemnity and hold harmless agreement shall include indemnity from
and against any and all liability, fines, suits, demands, costs and expenses of
any kind or nature (including, without limitation, reasonable attorneys' fees
and disbursements) incurred in or in connection with any such claim or
proceeding brought thereon, but except with respect to claims with respect to
bodily injury or death, shall be limited to the extent any insurance proceeds
collectible by Tenant or such injured party with respect to such damage or
injury are insufficient to satisfy same. Landlord shall have no liability for
any consequential damages suffered either by Tenant or by any party claiming
through Tenant.

     Section 35.2. If any claim, action or proceeding is made or brought against
either party, which claim, action or proceeding the other party shall be
obligated to indemnify such first party against pursuant to the terms of this
Lease, then, upon demand by the indemnified party, the indemnifying party, at
its sole cost and expense, shall resist or defend such claim, action or
proceeding in the indemnified party's name, if necessary, by such attorneys as
the indemnified party shall approve, which approval shall not be unreasonably
withheld. Attorneys for the indemnifying party's insurer are hereby deemed
approved for purposes of this Section 35.2. Notwithstanding the foregoing, an
indemnified party may retain its own attorneys to defend or assist in defending
any claim, action or proceeding involving potential liability of Five Million
Dollars ($5,000,000) or more, and the indemnifying party shall pay the
reasonable fees and disbursements of such attorneys. The provisions of this
Article 35 shall survive the expiration or earlier termination of this Lease.

                                       74
<PAGE>
 
                                  ARTICLE 36
                          ADJACENT EXCAVATION-SHORING
                          ---------------------------

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


                                  ARTICLE 37
                                 MISCELLANEOUS
                                 -------------

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

     Section 37.2. The obligations of Landlord under this Lease shall not be
binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building or the Real Property, as the case may be, and in the event of
any such sale, conveyance, assignment or transfer, Landlord shall be and hereby
is entirely freed and relieved of all covenants and obligations of Landlord
hereunder. The partners, shareholders, directors, officers and principals,
direct and indirect, comprising Landlord (collectively, the "Parties") shall not
be liable for the performance of Landlord's obligations under this Lease. Tenant
shall look solely to Landlord to enforce Landlord's obligations hereunder and
shall not seek any damages against any of the Parties. The liability of Landlord
for Landlord's obligations under this Lease shall be limited to Landlord's
interest in the Real Property and Tenant shall not look to any other property or
assets of Landlord or the property or assets of any of the Parties in seeking
either to enforce Landlord's obligations under this Lease or to satisfy a
judgment for Landlord's failure to perform such obligations.

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

     Section 37.4. Tenant's liability for all items of Rental shall survive the
Expiration Date.

     Section 37.5. Tenant shall reimburse Landlord as additional rent, within
fifteen (15) Business Days after rendition of a statement, for all expenditures
made by, or damages or fines

                                      75
<PAGE>
 
sustained or incurred by, Landlord, due to any default by Tenant under this
Lease, with interest thereon at the Applicable Rate.

     Section 37.6. This Lease shall not be recorded.

     Section 37.7. Tenant hereby waives any claim against Landlord which Tenant
may have based upon any assertion that Landlord has unreasonably withheld or
unreasonably delayed any consent or approval requested by Tenant, and Tenant
agrees that its sole remedy shall be an action or proceeding to enforce any
related provision or for specific performance, injunction or declaratory
judgment. In the event of a determination that such consent or approval has been
unreasonably withheld or delayed, the requested consent or approval shall be
deemed to have been granted; however, Landlord shall have no liability to Tenant
for its refusal or failure to give such consent or approval. Tenant's sole
remedy for Landlord's unreasonably withholding or delaying consent or approval
shall be as provided in this Section 37.7.

     Section 37.8. This Lease contains the entire agreement between the parties
and supersedes all prior understandings, if any, with respect thereto. This
Lease shall not be modified, changed, or supplemented, except by a written
instrument executed by both parties.

     Section 37.9. Tenant hereby (a) irrevocably consents and submits to the
jurisdiction of any Federal, state, county or municipal court sitting in the
State of New York in respect to any action or proceeding brought therein by
Landlord against Tenant concerning any matters arising out of or in any way
relating to this Lease; (b) irrevocably waives personal service of any summons
and complaint and consents to the service upon it of process in any such action
or proceeding by mailing of such process to Tenant at the address set forth
herein and hereby irrevocably designates Jones, Day, Reavis & Pogue or other law
firm located in Manhattan if disclosed to Landlord in writing (or if not so
located, then upon any member of the law firm of Jones, Day, Reavis & Pogue, or
their successor, if so located in Manhattan), to accept service of any process
on Tenant's behalf and hereby agrees that such service shall be deemed
sufficient; (c) irrevocably waives all objections as to venue and any and all
rights it may have to seek a change of venue with respect to any such action or
proceedings; (d) agrees that the laws of the State of New York shall govern in
any such action or proceeding and waives any defense to any action or proceeding
granted by the laws of any other country or jurisdiction unless such defense is
also allowed by the laws of the State of New York; and (e) agrees that any
final judgment rendered against it in any such action or proceeding shall be
conclusive and may be enforced in any other jurisdiction by suit on the judgment
or in any other manner provided by law. Tenant further agrees that any action or
proceeding by Tenant against Landlord in respect to any matters arising out of
or in any way relating to this Lease shall be brought only in the State of New
York, county of New York. In furtherance of the foregoing, Tenant hereby agrees
that its address for notices given by Landlord and service of process under this
Lease shall be the Premises. Notwithstanding the foregoing provisions of this
Section 37.9, Tenant may, by written notice to Landlord, change the designated
agent for acceptance of service of process to any other law firm located in the
City, county and State of New York.

                                       76
<PAGE>
 
     Section 37.10. Unless Landlord shall render wntten notice to Tenant to the
contrary in accordance with the provisions of Article 26 hereof, MRC Management
LLC is authorized to act as Landlord's agent in connection with the performance
of this Lease, including, without limitation, the receipt and delivery of any
and all notices and consents in accordance with Article 26. Tenant shall direct
all correspondence and requests to, and shall be entitled to rely upon
correspondence received from, MRC Management LLC, as agent for the Landlord in
accordance with Article 26. Tenant acknowledges that MRC Management LLC, is
acting solely as agent for Landlord in connection with the foregoing, and
neither MRC Management LLC nor any of its direct or indirect partners, officers,
shareholders, directors or employees shall have any liability to Tenant in
connection with the performance of Landlord's obligations under this Lease and
Tenant waives any and all claims against any such party arising out of, or in
any way connected with, this Lease or the Real Property.

     Section 37.ll. (A) All of the Schedules and Exhibits attached hereto are
incorporated in and made a part of this Lease, but, in the event of any
inconsistency between the terms and provisions of this Lease and the terms and
provisions of the Schedules and Exhibits hereto, the terms and provisions of
this Lease shall control. Wherever appropriate in this Lease, personal pronouns
shall be deemed to include the other genders and the singular to include the
plural. All Article and Section references set forth herein shall, unless the
context otherwise specifically requires, be deemed references to the Articles
and Sections of this Lease.

          (B) If any term, covenant, condition or provision of this Lease, or
the application thereof to any person or circumstance, shall ever be held to be
invalid or unenforceable, then in each such event the remainder of this Lease or
the application of such term, covenant, condition or provision to any other
Person or any other circumstance (other than those as to which it shall be
invalid or unenforceable) shall not be thereby affected, and each term,
covenant, condition and provision hereof shall remain valid and enforceable to
the fullest extent permitted by law.

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

                                  ARTICLE 38
                                 RENT CONTROL
                                 ------------

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

                                      77
<PAGE>
 
for the periods following  such termination, and (b) tenant shall pay to 
Landlord, if legally permissible, an amount equal to (i) the items of Rental 
which would have been paid pursuant to this Lease but for such legal rent 
restriction less (ii) the rents paid by Tenant to Landlord during the period or 
periods such legal rent restriction was in effect.

                                      78
<PAGE>
 
     IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.

                             ONE PENN PLAZA LLC, Landlord
 
                             By: Vornado Realty, L.P.
   
                                 By: Vornado Realty Trust
  
                                     By: 
                                         --------------------------
                                         Name:
                                         Title:


                             FOCAL COMMUNICATIONS CORP., Tenant

                             By: Brian F. Addy
                                 -----------------------------
                                 Name:  Brian F. Addy
                                 Title: Executive Vice President
                                  
                                 Fed. Id. No. 364128831
                                              -------------


                                      79
<PAGE>
 
STATE OF NEW YORK  )
                   )ss.:
COUNTY OF NEW YORK )

     On the 10th day of September, 1998, before me personally came Brian Addy,
to me known, who, being by me duly sworn, did depose and say that he resides at
No. 200 North LaSalle Street, Chicago, IL; that he is the Executive Vice
President of FOCAL COMMUNICATIONS CORP., the corporation described and which
executed the foregoing instrument; that he signed his name thereto by order of
the board of managers of said corporation.


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

         "OFFICIAL SEAL"
      ROBERT DALE ANDERSON                   /s/ Robert Dale Anderson
Notary Public, State of Illinois           ---------------------------
 My Commission Expires 05/07/00                    Notary Public    

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

                                      80
<PAGE>
 
                                  Schedule A
                                  ----------

                             RULES AND REGULATIONS
                             ---------------------

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

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

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

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

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

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

     (7) Subject to the provisions of Article 3 of this Lease, Tenant shall not
mark, paint, drill

                                      A-1
<PAGE>
 
into, or in any way deface any part of the Premises or the Building. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed, and as Landlord may direct.

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

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

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

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

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

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

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

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

                                      A-2
<PAGE>
 
     (16) Landlord shall have the right to prohibit any advertising by Tenant
which, in Landlord's reasonable opinion, tends to impair the reputation of the
Building or its desirability as a building for offices, and upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.

     (17) Landlord reserves the right to exclude from the Building between the
hours of 6 P.M. and 8 A.M. and at all hours on days other than Business Days all
persons who do not present a pass to the Building signed or approved by
Landlord. Tenant shall be responsible for all persons for whom a pass shall be
issued at the request of Tenant and shall be liable to Landlord for all acts of
such persons.

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

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

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

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

     (22) Except as specifically provided in Section 2.2 of this Lease, Tenant
shall not do any cooking, conduct any restaurant, luncheonette or cafeteria for
the sale or service of food or beverages to its employees or to others, or cause
or permit any odors of cooking or other processes or any unusual or
objectionable odors to emanate from the Premises.

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

     (24) Landlord shall have the right to require that all messengers and other
Persons delivering packages, papers and other materials to Tenant (i) be
directed to deliver such packages, papers and other materials to a Person
designated by Landlord who will distribute the same to Tenant or (ii) be
escorted by a person designated by Landlord to deliver the same to Tenant.

     (25) Landlord and its agents reserve the right to inspect all packages,
boxes, bags, handbags, attache cases, suitcases, and other items carried into
the Building, and to refuse entry into the Building to any person who either
refuses to cooperate with such inspection or who is carrying any object which
may be dangerous to persons or property. In addition, Landlord reserves the
right to implement such further measures designed to ensure safety of the
Building and the persons and property located therein as Landlord shall deem
necessary or desirable.

                                      A-3
<PAGE>
 
                                  Schedule B
                                  --------- 

                            CLEANING SPECIFICATIONS

GENERAL CLEANING:

NIGHTLY
-------

     General Offices:

     1.   All hardsurfaced flooring to be swept using approved dustdown
          preparation.

     2.   Carpet sweep all carpets, moving only light furniture (desks, file
          cabinets, etc. not to be moved).

     3.   Hand dust and wipe clean all furniture, fixtures and window sills.

     4.   Empty and clean all ash trays and screen all sand urns.

     5.   Empty and clean all waste disposal cans and baskets.

     6.   Dust interiors of all waste disposal cans and baskets.

     7.   Wash clean all water fountains and coolers.

     Public Lavatories (Base Building):

     1.   Sweep and wash all floors, using proper disinfectants.
        
     2.   Wash and polish all mirrors, shelves, bright work and enameled
          surfaces.
        
     3.   Wash and disinfect all basins, bowls and urinals.
        
     4.   Wash all toilet seats.
        
     5.   Hand dust and clean all partitions, tile walls, dispensers and
          receptacles in lavatories and restrooms.
        
     6.   Empty paper receptacles and remove wastepaper.
        
     7.   Fill and clean all soap, towel and toilet tissue dispensers as needed,
          supplies therefore
        

                                      B-1
<PAGE>
 
          to be furnished by Landlord at a reasonable charge to Tenant. If the
          Premises consists of a part of a rentable floor, said charge to Tenant
          shall be that portion of a reasonable charge for such supplies that is
          reasonably allocable to Tenant.

     8.   Empty and clean sanitary disposal receptacles.

WEEKLY:
-------

     1.   Vacuum clean all carpeting and rugs.

     2.   Dust all door louvres and other ventilating louvres within a person's
          reach.

     3.   Wipe clean all brass and other bright work.

QUARTERLY:
----------

High dust the Premises complete, including the following:

     1.   Dust all pictures, frames, charts, graphs and similar wall hangings
          not reached in nightly cleaning.
          
     2.   Dust clean all vertical surfaces, such as walls, partitions, doors
          and door bucks and other surfaces not reached in nightly cleaning.
          
     3.   Dust all pipes, ventilating and air-conditioning louvres, ducts, high
          mouldings and other high areas not reached in nightly cleaning.
          
     4.   Dust all venetian blinds.

Wash exterior and interior of windows periodically, subject to weather
conditions and requirements of law.

                                      B-2
<PAGE>
 
                                  EXHIBIT "A"
                                  ----------- 

                                  FLOOR PLAN

This floor plan is annexed to and made a part of this Lease solely to indicate 
the Premises by outlining and diagonal marking. All areas, conditions, 
dimensions and locations are approximate.



                                      86
<PAGE>
 
                                   [ART TK]

                                      87
<PAGE>
 
                                  EXHIBIT "B"
                                  -----------

                         LIST OF APPROVED CONTRACTORS



                                      88


<PAGE>
 
                           APPROVED CONTRACTORS LIST

<TABLE>
<CAPTION>
 
GENERAL CONTRACTORS                 PHONE NUMBER              CONTACT PERSON
<S>                                 <C>                       <C>
     Ambassador Construction        (212) 922-1020            Bill Bennett
     Lehr Construction              (212) 353-1160            Gerald Lazer
     Lesal Interiors.(Ocean Valley) (718) 776-0077            Gary Sherwood
     Structure Tone                 (212) 481-6100            John White
     TriStar Corp.                  (212) 436-0808            Bill Weiner

                                SUB-CONTRACTORS

ASBESTOS ABATEMENT
--------------------------------------------------------------------------------

     NAC                            (212) 219-0880            Mike Caputo
     Abtron                         (516) 364-4678            Jim Thurston
     Abatement Int.                 (718) 994-2000            Bill McKenzie


AWNINGS
--------------------------------------------------------------------------------
 
     Acme Awning Co.                (718) 409-1881            Ken Cohen


BLINDS
--------------------------------------------------------------------------------

     Ultimate Services              (203) 531-0623            David Marinelli


BOILERS
--------------------------------------------------------------------------------

     M.P.S.                         (718) 834-9393            Nick Papps
     Marine Welding                 (212) 991-3203            William Falco


CERAMIC
--------------------------------------------------------------------------------

     Quarry Tile                    (212) 679-8889            Helen Stember
     Port Morris                    (718) 378-6100            Vincent Lauricella


CONCRETE
--------------------------------------------------------------------------------
   
     Melva                          (718) 482-1932            Chris Batalias
     Lesal Interiors                (718) 776-0077            Gary Sherwood
     Landsite Contracting           (516) 938-8200            Adriano P. Lott
     Francis A. Lee Exterior
       Restoration Corp.            (516) 938-2000            Francis A. Lee


CONVECTORS/COVERS
--------------------------------------------------------------------------------

     Wenig Corp.                    (718) 542-3600            Ray Zimmerman
     Hack Environmental             (914) 946-3800            Ken Hack
     Airflux                        (516) 752-1234            Al Wenksus

</TABLE> 


                                  Page 1 of 5

<PAGE>

<TABLE>
 
DEMOLITION
--------------------------------------------------------------------------------
<S>                                 <C>                       <C>
     General Container, Inc.        (718) 834-8100            Charlie Raffa
     Advance Carting                (212) 691-3200            Gene Skowronski
     Riteway                        (212) 458-8900            Nick Verna
     Dacosta Demolition             (718) 565-8588            Ernie Dacosta


DRYWALL/SHEETROCK
--------------------------------------------------------------------------------

     CLK construction               (212) 986-4580            Cory Koven
     Dejil                          (718) 939-3700            Sy Levine
     Ess & Vee                      (718) 786-1100            Tony Verderame
     John Moresky                   (516) 735-7015            John Moresky
     Nordic Interiors, Inc.         (718) 456-7000            Lloyd Jacobson
     Lesal Interiors                (718) 776-0077            Gary Sherwood
     Sweeney & Harkin Carpentry
       Dry Wall Corp. (S & H)       (718) 392-0190            Don Masterson


ELECTRIC
--------------------------------------------------------------------------------

     Forest Electric                (212) 594-4110            Phil Altheim
     I Lite                         (212) 262-9488            Anthony Izzo
     C.W. Greene                    (212) 267-0440            James Angus
     Egg Electric                   (212) 633-9551            Ellen Aschendorf

 
ELECTRIC SUPPLIES
--------------------------------------------------------------------------------
 
     Benfield Electrical Supply     (718) 706-9209 ext. 269   Mike O'Brien


FLOORING
--------------------------------------------------------------------------------

     Ashland Industries             (914) 777-4507            Carmine Notaro
     Lorraine Flooring              (718) 482-0068            Stephen Verderame


FOLDING WALLS
--------------------------------------------------------------------------------

     Modernfold Doors               (212) 684-4210            Robert Styles
     National (Manhattan)           (212) 924-1567            Edmund Grecco


GLASS REPLACEMENT
--------------------------------------------------------------------------------

     East Side Glass                (212) 674-8355            Mark Rosen
     Knickerbocker Glass            (212) 247-8500            Sidney Glasser


H.V.A.C.
--------------------------------------------------------------------------------

     JDP Mechanical                 (718) 204-5500            Peter Manos Jr.
     Omega Cooling                  (212) 268-7100            Ron Irving
     Nelson Air Device              (718) 729-3801            Nelson Blitz
     P.J. Mechanical                (212) 243-2555            Mitchell Singer
     P & L Mechanical               (212) 966-6054            Tom Lacorazza
     Penguin Air Conditioning       (718) 706-2528            William Ash
     Refrigeration Resources        (516) 921-5149            George Gerlinsky

</TABLE>

                                  Page 2 of 5

<PAGE>
<TABLE> 
<CAPTION> 
 
HARDWARE/DOORLOCKS
--------------------------------------------------------------------------------
    <S>                             <C>                       <C> 
     Midtown                        (212) 730-2052            Bill Ferrara
     Weinstein & Holtzman           (212) 233-4651            Jeff Hymowitz

HARDWARE/BUILDING SUPPLIES
--------------------------------------------------------------------------------
     Crest Supply                   (212) 967-2276            Vincent Zerbo
     Consolidated Supply            (718) 824-2033            Mark Wisner

LATH & ACOUSTICS
--------------------------------------------------------------------------------
     Ess & Vee Acoustical           (718) 786-1100            Tony Verderame
     Superior                       (516) 352-0300            Quinn Mesorana

LIGHTING
--------------------------------------------------------------------------------
     Speclite                       (516) 822-8800            James Willey
     Project Lighting               (718) 417-8182            Tony Capranzano
     Benfield Electrical Supply     (718) 706-9209 ext. 269   Mike O'Brien

MARBLE
--------------------------------------------------------------------------------
     Quarry Tile                    (212) 679-8889            Helen Stember
     Joe Cochoran                   (516) 423-8737            Joe Cochoran

MASONRY / PLASTER
--------------------------------------------------------------------------------
     Cirroccio Ozzino (C & O)       (516) 847-0185
     Indelicato                     (713) 409-9022            Ed DiGiacomo
 
METAL / GLASS PARTITIONS
--------------------------------------------------------------------------------
     F & F                          (201) 402-7710            Eric Frank
     Metralite                      (718) 961-1770            Don Silverman
     Acme                           (718) 384-7800            George DeFeis
     Abbott

PAINTING
--------------------------------------------------------------------------------
     Bond Painting                  (212) 944-0070            Stuart Feld
     J.I. Haas                      (212) 687-6678            Jay Hass
     Hudson Shatz                   (212) 757-6363            George Story
     Wexler Services Corp.          (212) 245-1110            Vera Young

PLUMBING
--------------------------------------------------------------------------------
     B & Z Mechanical               (212) 967-2276            Bill Bowerman
     PAR Plumbing                   (516) 887-4000            Sandi Deutsch
     American Contracting           (212) 736-6618            Richard Silver

WIRE MESH
--------------------------------------------------------------------------------
     Acorn Wire & Iron works        (212) 697-7370            Bert Damone
</TABLE> 

                                 Page 3 of 5 
<PAGE>
<TABLE> 
<CAPTION>  

RAISED FLOOR
--------------------------------------------------------------------------------
     <S>                            <C>                       <C> 
     (Gayle, King, Carr)
     Donn Floors
      (Werner Krebs)                (212) 325-5400            Val Bonanno
     Raised Floors                  (201) 778-2444            Eric Lagerstrum
     Computer Floors                (201) 340-3666            Tor Sundlin
     American Computer Floors
     C-Teg Mfg.                     (212) 686-8994
 
RIGGING
------------------------------------------------------------------------------- 
     Aalco Transport & storage      (516) 789-8000            Jeff Krevat
     Francis A. Lee Exterior        (516) 938-2000            Francis A. Lee
        Restoration Corp.

ROLLING DOORS
--------------------------------------------------------------------------------
     Franklin Sq. Iron Works        (201) 612-1995            Richie Singer
     American Industrial Door       (516) 586-8006            Ed Jurman
     Atlas Doors                    (201) 572-5700            Tom Eodice
     McKenzie Group                 (212) 227-1630
     Miric Industries               (212) 594-9898            Mike Petrico

ROOFING
--------------------------------------------------------------------------------
     Melva Const. Corp.             (718) 482-1932            Chris Batalias
     A. Best                        (718) 779-3003            Lon Best
     Arrow Restoration              (713) 729-0411            Marshall Geller
     Empire National Const. Corp.   (212) 594-1800            Paul Pfeifer

SCREENS
--------------------------------------------------------------------------------
     Lejac                          (516) 334-0855            Todd Norris
     Raven                          (212) 534-8408            Martin Soss
     Jenteen                        (201) 755-2127            Jerry Segal
 
SECURITY (CARD ACCESS; CAMERA/MONITORS)
--------------------------------------------------------------------------------
     Security Technologies Group    (609) 452-0985            Ken Hopkins
     SBM Media                      (212) 268-6130            Patrick Barry

SIGNS
--------------------------------------------------------------------------------
     Ensign Systems, Inc.           (718) 416-2052            Kevin Ryan
     Engraphics                     (212) 691-0777            Susan Perdoch
     Forest sign Co.                (212) 319-0100            Richard McGovern


SPRINKLER
--------------------------------------------------------------------------------
     CGA Associates                 (973) 696-2405            Carl Guinta
     Columbia Mechanical            (212) 594-3014            Nick Pizzone
     Sirina Fire Protection         (516) 942-0400            Tony Florez
     Abco peerless Sprinkler        (516) 294-6850            Tim Bowe
</TABLE> 

                                  Page 4 of 5
<PAGE>
<TABLE> 
<CAPTION> 

STRUCTURAL STEEL &
STEEL WORK
--------------------------------------------------------------------------------
     <S>                             <C>                      <C> 
     Franklin Iron Works            (201) 612-1995            Richie Singer
     Burgess Steel Products         (212) 563-6000            Eugene Guerin
     Koenig Iron Works              (212) 924-4333            Norman Rosenbaum

TOILET ARTICLES
--------------------------------------------------------------------------------
     LeJac                          (516) 334-0855            Tod Morris
     Flush Metal                    (718) 784-3380            Jack Rubin
     Jenteen

WATERPROOFING
--------------------------------------------------------------------------------
     Melva                          (718) 482-1932            Chris Batalias
     A. Best Contracting            (718) 779-3003            Lon Best
     Arrow Restoration              (718) 729-0411            Marshall Geller
     Francis A. Lee Exterior
      & Restoration Corp.           (516) 938-2000            Francis A. Lee
     Empire National Const. Corp.   (212) 594-1800            Paul Pfeifer

WOODEN FLOORS
--------------------------------------------------------------------------------
     Capital (Hoboken)
     Designed Wood Flooring
      Center                        (212) 925-6633            Arnold Feinberg
     Elite Flooring                 (212) 228-1050            Robert Rutledge

WOODWORKERS
--------------------------------------------------------------------------------
     Antal
     Millwright Woodwork            (212) 755-1020            Martin Sherlock
     Midhattan                      
     Capital                        
     Nordic                         (718) 456-7000            Lloyd Jacobson
     Infra-Structures               (516) 243-0700            Robert Larson

WINDOWS
--------------------------------------------------------------------------------
     Air Master                     (718) 932-3434 or         Mark Wisner
                                    (914) 777-4500
     Metro Windows                  (516) 360-8811            Elliot Glasser
</TABLE> 


May 22, 1998 (10:35AM)


                                  Page 5 of 5
<PAGE>
 
                                  EXHIBIT "C"
                              HVAC SPECIFICATIONS

1.   Landlord shall, through the HVAC System of the Building, furnish to the
Premises, on an all year round basis, air-conditioning, ventilation and heating
during the hours from 8:00 A.M. to 6:00 P.M. on Business Days. Provided Tenant
shall comply with the Rules and Regulations with respect to the HVAC System, the
HVAC System will be designed to provide summer interior conditions of 78 degrees
Fahrenheit when outside conditions are 95 degrees Fahrenheit and winter interior
conditions of 68 degrees Fahrenheit with outside conditions of 10 degrees
Fahrenheit.

2.   Tenant acknowledges that its has been advised that the conditions
hereinbefore described cannot be maintained in the event of the occupancy of the
Premises by more than an average of one person for each 100 square feet of
usable area, or if Tenant installs and operates lighting, machines and
appliances, the total connected electrical loan of which exceeds 5.5 watts per
square foot of usable area, or if Tenant places or installs furniture, fixtures
or equipment closer than 24 inches to the perimeter HVAC convectors. Tenant, at
its sole cost and expense, agrees to move any item closer than 24 inches to the
HVAC convector, on request, so as to give access for maintenance, repair or
replacement thereof.

3.   Tenant agrees to keep and cause to be kept closed all window in, and the
exterior doors to, the Premises, at all times. Tenant further agrees to
cooperate fully with Landlord and to abide by all regulations and requirements
which Landlord may reasonably prescribe for the proper functioning and
protection of said HVAC System.