Document:

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                                                                   EXHIBIT 10.7

Renco
Renco Properties, Inc.

                                October 3, 1996

Mr. Michael Liccardo
Lexar Micro Systems
47421 Bayside Parkway
Fremont, California  94538

          Re:  Renco 36
          Bayside Technology Park
          Fremont, California

Dear Mike:

          I enjoyed the opportunity to meet you and learn a little about your
new venture.  You asked for a formal written proposal; so here it is:

          Renco Properties is pleased to make the following proposal to Lexar
Micro Systems to lease space in Bayside Technology Park in Fremont, California.

LANDLORD:           Renco Investment Company
                    a California partnership

TENANT:             Lexar Micro Systems, Inc.

PREMISES:           Approximately 22,788 square feet of space in the building
                    identified as Renco 36 located at 47421 Bayside Parkway,
                    Fremont, California.

LEASE TERM:         The term of the Lease shall be two (2) years.

COMMENCEMENT:       The lease shall commence on January 1, 1997, upon the
                    expiration of the existing lease with Cirrus Logic.

RENTAL:             The Base Monthly Rent during the term of the lease
                    shall be as follows:

                    $21,649.00 per month for the first twelve months,

                    $25,668.00 per month for the next twelve months.

                    As Additional Rent, Lexar Micro Systems shall pay the actual
                    operating costs for the building including but not limited
                    to: taxes, assessments, insurance, and maintenance costs.

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INTERIOR IMPROVEMENTS:   Lexar Micro Systems shall accept the building in its
                         current condition, "As Is", with the exception that
                         Cirrus Logic will be required to place the mechanical
                         systems in good operating condition and otherwise
                         satisfy the conditions in its lease to leave the
                         premises in good condition and repair.

SECURITY DEPOSIT:             Upon signing the Lease, Lexar Micro Systems shall
                              post a Security Deposit equal to the last month's
                              base monthly rent and shall repay the first
                              month's rent.

APPROVAL OF FINANCIAL
CONDITION:                    This proposal and the execution of a Lease are
                              conditioned upon Renco's approval of Lexar Micro
                              System's current financial condition at the time
                              of Lease execution.

LEASE FORM:                   Lexar Micro Systems shall use substantially the
                              same lease form as the current Cirrus Logic lease
                              with the exception that the management fee shall
                              be 3% of the base monthly rent.

BROKER:                       The parties acknowledge that no real estate broker
                              was involved in this transaction and no commission
                              shall be due.

TERM OF PROPOSAL:             This proposal will remain in full force and effect
                              for five days from the date of this proposal,
                              subject to prior proposals and subject to the
                              execution of a lease within two weeks from the
                              date of this letter.

We look forward to working with you to continue your occupancy in Bayside
Technology Park.

                                    Sincerely,
                                    Renco Properties, Inc.

                                    William N. Neidig
                                    Executive Vice President

                                    Accepted for Lexar Micro Systems

                                    By:_________________________________________
                                         Michael Liccardo

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                       Office Space Lease Summary/Lease

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                                                      File No.  ________________

                             INDUSTRIAL SPACE LEASE

                               (MULTI-TENANT NET)

          THIS LEASE, dated 10/25/96 for reference purposes only, is made by and
between Renco Investment Company, a California Partnership ("Landlord"), and
Lexar Micro Systems, a California Corporation ("Tenant"), to be effective and
binding upon the parties as of the date the last of the designated signatories
to this Lease shall have executed this Lease (the "Effective Date of this
Lease").

                                   ARTICLE 1

                                  REFERENCES

          1.1  REFERENCES:  All references in this Lease (subject to any further
clarifications contained in this Lease) to the following terms shall have the
following meaning or refer to the respective address, person, date, time period,
amount, percentage, calendar year or fiscal year as below set forth:

     A. Tenant's Address for Notices:     47421 Bayside Parkway
                                          Fremont, CA  94538

     B. Tenant's Representative:
           Phone Number:

     C. Landlord's Address for Notice:    1285 Oakmead Parkway
                                          Sunnyvale, CA  94086

     D. Landlord's Representative:        William F. Neidig
           Phone Number:                  (408) 730-5500

     E. Intended Commencement Date:       January 1, 1997

     F. Intended Term:                    Two (2) Years

     G. Lease Expiration Date:            December 31, 1998

     H. Tenant's Punchlist Period:        One (1) Day

     I. First Month's Prepaid Rent:       $21,649.00

     J. Last Month's Prepaid Rent:        -0-

     K. Tenant's Security Deposit:        $25,668.00

     L. Late Charge Amount:               Ten percent (10%) of the delinquent
                                          amount

     M. Tenant's Required Liability
        Coverage:                         $3,000,000 Single limit

     N. Tenant's Number of Parking
        Spaces:                           88

     O. Brokers:                          None
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     P. Project or Property:  That certain real property situated in the
City of Fremont, County of Alameda, State of California, as presently improved
with Two (2) buildings, which real property is shown on the Site Plan attached
hereto as Exhibit "A" and is commonly known as or otherwise described as
follows:  Renco 36 and Renco 37.

     Q. Building:  That certain Building within the Project in which the
Leased Premises are located, which Building is shown outlined in red on Exhibit
"A" hereto.

     R. Common Areas:  The "Common Areas" shall mean those areas within
the Project which are located outside the buildings and which are provided and
designated by Landlord from time to time for general use by tenants of the
Project including driveways, pedestrian walkways, parking spaces, landscaped
areas and enclosed trash disposal areas.

     S. Leased Premises:  That certain space which is a portion of the
Building, which space is shown outlined in red on the Floor Plan attached hereto
as Exhibit "B" consisting of approximately 22,788 square feet of gross leasable
area and, for purposes of this Lease, agreed to contain said number of square
feet.  The Leased Premises are commonly known as or otherwise described as
follows:

               47421 Bayside Parkway
               Fremont

     T. Base Monthly Rent:  The term "Base Monthly Rent" shall mean the
following:  Twenty One Thousand Six Hundred Forty-nine dollars ($21,649,000) for
each of the first twelve months of the lease term.   Twenty Five Thousand Six
Hundred Sixty-eight dollars ($25,668.00) for each of the next twelve months of
the lease term.

     U. Permitted Use:  The term "Permitted Use" shall mean the
following:  Office, Research and Development, Light assembly and the storage of
tenant's own material.

     V. Exhibits.  The term "Exhibits" shall mean the Exhibits to this
Lease which are described as follows:

          Exhibit "A" -- Site Plan showing the Project and delineating the
                         Building in which the Leased Premises are located.

          Exhibit "B" -- Floor Plan outlining the Leased Premises.

          Exhibit "D" -- Acceptance Agreement.

     W. Addenda.  The term "Addenda" shall mean the Addendum (or Addenda)
to this Lease which is (or are) described as follows:  First Addendum to Lease

                                   ARTICLE 2

                      LEASED PREMISES, TERM AND POSSESSION

          2.1  DEMISE OF LEASED PREMISES:  Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord for Tenant's own use in the conduct of
Tenant's business and not for purposes of speculation in real estate, for the
Lease Term and upon the terms and subject to the condition of this Lease, that
certain interior space described in Article 1(s) as the Leased Premises,
reserving and excepting to Landlord the exclusive right to one-half of all
excess rentals and assignment considerations (as defined in Section 7.5), all
profits to be derived from any assignments or sublettings by Tenant during the
Lease Term by reason of the appreciation in the

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fair market rental value of the Leased Premises, Landlord further reserves the
right to install, maintain, use and replace ducts, wires, conduits and pipes
leading through the Leased Premises in locations which will not materially
interfere with Tenant's use of the Leased Premises.  Tenant's lease of the
Leased Premises, together with the appurtenant right to use the Common Areas as
described in Article 2.2 below, shall be conditioned upon and be subject to the
continuing compliance by Tenant with (i) all the terms and conditions of the
Lease, (ii) all Laws governing the use of the Leased Premises and the Project,
(iii) all Private Restrictions, easements and other matters now of public record
respecting the use of the Leased Premises and the Project, and (iv) all
reasonable rules and regulations from time to time established by Landlord.  See
Addendum Paragraph 2.1.

     2.2  RIGHT TO USE COMMON AREAS:  As an appurtenant right to Tenant's right
to the use of the Leased Premises, Tenant shall have the non-exclusive right to
use the Common Areas in conjunction with other tenants of the Project and their
invitees, subject to the limitations on such use as set forth in Article 4, and
solely for the purpose for which they were designed and intended.  Tenant's
right to use the Common Areas shall terminate concurrently with any termination
of this Lease.

     2.3  LEASE COMMENCEMENT DATE AND LEASE TERM:  The term of this Lease shall
begin, and the Lease Commencement Date shall be deemed to have occurred, on the
Intended Commencement Date (as set forth in Article 1) unless either (i)
Landlord is unable to deliver possession of the Leased Premises to Tenant on the
Intended Commencement Date, in which case the Lease Commencement Date shall be
as determined pursuant to Article 2.4 below or (ii) Tenant enters into
possession of the Leased Premises prior to the Intended Commencement Date, in
which case the Lease Commencement Date shall be as determined pursuant to
Article 2.7 below (the "Lease Commencement Date").  The term of this Lease shall
end on the Lease Expiration Date (as set forth in Article 1), irrespective of
whatever date the Lease Commencement Date is determined to be pursuant to the
foregoing sentence.  The Lease Term shall be the period of time commencing on
the lease Commencement Date and ending on the Lease Expiration Date (the "Lease
Term").

     2.4  DELIVERY OF POSSESSION:  Landlord shall deliver to Tenant possession
of the Leased Premises on or before the Intended Commencement Date (as set forth
in Article 1) in their presently existing condition, broom clean, unless
Landlord shall have agreed, as a condition to Tenant's obligation to accept
possession of the Leased Premises, pursuant to an Exhibit or Addends attached to
and made a part of this Lease to modify existing interior improvements or to
make, construct and/or install additional specified improvements within the
Leased Premises, in which case Landlord shall deliver to Tenant possession of
the Leased Premises on or before the Intended Commencement Date as so modified
and/or improved.  If Landlord is unable to so deliver possession of the Leased
Premises to Tenant on or before the Intended Commencement Date, for whatever
reason other than Landlord's failure to commence construction of diligently
pursue it to completion to the extent it is within Landlord's reasonable control
to do so.  Landlord shall not be in default under this Lease, nor shall this
Lease be void, voidable or cancelable by Tenant until the lapse of one hundred
twenty days after the Intended Commencement Date (the "delivery grace period";
however, the Lease Commencement Date shall not be deemed to have occurred until
such date as Landlord notifies Tenant that the Leased Premises are Ready for
Occupancy.  Additionally, the delivery grace period above set forth shall

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be extended for such number of days as Landlord may be delayed in delivering
possession of the Leased Premises to Tenant by reason of Force Majeure or the
actions of Tenant. If Landlord is unable to deliver possession of the Leased
Premises to Tenant within the described delivery grace period (including any
extensions thereof by reason of Force Majeure or the actions of Tenant), then
Tenant's sole remedy shall be to cancel and terminate this Lease, and in no
event shall Landlord be liable to Tenant for such delay. Tenant may not cancel
this Lease at nay time after the date Landlord notifies Tenant the Leased
Premises are Ready for Occupancy unless Landlord's notice is not given in good
faith.

     2.5  ACCEPTANCE OF POSSESSION:  Tenant acknowledges that it has inspected
the Leased Premises and is willing to accept them in their existing condition,
broom clean, unless Landlord shall have agreed, as a condition to Tenant's
obligation to accept possession of the Leased Premises, pursuant to an Exhibit
or Addenda attached to and made part of this Lease to modify existing interior
improvements or to make, construct and/or install additional specified
improvements within the Leased Premises, in which case Tenant agrees to accept
possession of the Leased Premises when Landlord has substantially completed such
modifications or improvements and the Leased Premises are Ready for Occupancy.
If Landlord shall have so modified existing improvements or constructed
additional improvements within the Leased Premises for Tenant, Tenant shall,
within Tenant's Punchlist Period (as set forth in Article 1) which shall
commence on the date that Landlord notifies Tenant that the Leased Premises are
Ready for Occupancy, subject to Landlord as signed copy of the Acceptance
Agreement attached hereto as Exhibit "D" together with a punchlist of all
incomplete and/or improper work performed by Landlord.  Upon the expiration of
Tenant's Punchlist Period, Tenant shall be conclusively deemed to have accepted
the Leased Premises in their then-existing condition as so delivered by Landlord
to Tenant, except as to those items reasonably set forth in the punchlist
submitted to Landlord prior to the expiration of said period.  Landlord agrees
to correct all items reasonably set forth in Tenant's punchlist, provided that
such punchlist was submitted to Landlord within Tenant's Punchlist Period.
Additionally, Landlord agrees to place in good working order all existing
plumbing, lighting, heating, ventilating and air conditioning systems within the
Leased Premises and all man doors and roll-up truck doors serving the Leased
Premises to the extent that such systems and/or items are not in good operating
condition as of the date Tenant accepts possession of the Leased Premises;
provided that, and only if, Tenant notifies Landlord in writing of such failures
or deficiencies within 15 business days from the date Tenant so accepts
possession of the Leased Premises.  See Addendum Paragraph 2.5.

     2.6  SURRENDER OF POSSESSION:  Immediately prior to the expiration or upon
the sooner termination of this Lease, Tenant shall remove all of Tenant's signs
from the exterior of the Building and shall remove all of Tenant's equipment,
trade fixtures, furniture, supplies, wall decorations and other personal
property from the Leased Premises, and shall vacate and surrender the Leased
Premises to Landlord in the same condition, broom clean, as existed at the Lease
Commencement Date.  Landlord, at Tenant's expense, shall retain a mechanical
contractor to serve all heating, ventilation and air conditioning equipment, and
Tenant shall pay the cost to restore (or replace a required), said equipment to
good working order.  Tenant shall pay the cost of restoring or replacing all
trees, shrubs, plants, lawn and ground cover, and repair (or replace as
required) all paved surfaces of the Property, and otherwise satisfy all
requirements to repair any damage or wear to the Leased Premises, Building,
Common Areas, Outside Areas, and/or

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Property. Tenant shall repair all damage to the Leased Premises caused by Tenant
or by Tenant's removal of Tenant's property and all damage to the exterior of
the Building caused by Tenant's removal of Tenant's signs. Tenant shall patch
and refinish, to Landlord's reasonable satisfaction, all penetrations made by
Tenant or its employees to the floor, walls or ceiling of the Lease Premises,
whether such penetrations were made with Landlord's approval or not Tenant shall
clean, repair or replace all stained or damaged ceiling tiles, wall coverings
and clean or replace as my be required floor coverings to [illegible] all burned
out light bulbs and damaged light lenses, and clean and repaint all painted
walls. Tenant shall repair all damage caused by Tenant to the exterior surface
of the Building and the paved surfaces of the outside areas adjoining the Leased
Premises and, where necessary, replace or resurface same. Additionally, Tenant
shall, prior to the expiration or sooner termination of this Lease, remove any
improvements constructed or installed by Tenant which Landlord requests be so
removed by Tenant and repair all damage caused by such removal. If the Leased
Premises are not surrendered to Landlord in the condition required by this
Article at the expiration or sooner termination of this Lease, Landlord may, at
Tenant's expense, so remove Tenant's signs, property and/or improvements not so
removed and make such repairs and replacements not so made or hire, at Tenant's
expense, independent contractors to perform such work. Tenant shall be liable to
Landlord for all costs incurred by Landlord in returning the Leased Premises to
the required condition, plus interest on all costs incurred from the date paid
by Landlord at the then maximum rate of interest not prohibited by Law until
paid, payable by Tenant to Landlord within ten days after receipt of a statement
therefore from Landlord, and Tenant be deemed to have impermissibly held over
until such time as such required work is completed, and Tenant shall pay Base
Monthly Rent and Additional Rent in accordance with the terms of Section 13.2
(Holding Over) until such work is completed. Tenant shall indemnify Landlord
against loss or liability resulting from delay by Tenant in surrendering the
Leased Premises, including, without limitation, any claims made by any
succeeding tenant or any losses to Landlord due to lost opportunities to lease
to succeeding tenants.

     2.7  EARLY OCCUPANCY:  If Tenant's enters into possession of the Leased
Premises prior to the Intended Commencement Date (or permits its contractors to
enter the Leased Premises prior to the Intended Commencement Date), unless
otherwise agreed in writing by landlord, the Lease Commencement Date shall be
deemed to have occurred on such sooner date, and Tenant shall be obligated to
perform all its obligations under this Lease, including the obligation to pay
rent, from that sooner date.

                                   ARTICLE 3
                   RENT, LATE CHARGES AND SECURITY DEPOSITS

     3.1  BASE MONTHLY RENT:  Commencing on the Lease Commencement Date (as
determined pursuant to Article 2.3 above) and continuing throughout the Lease
Term, Tenant shall pay to Landlord, without prior demand therefore, in advance
on the first day of each calendar month, as base monthly rent, the amount set
forth as "Base Monthly Rent" in Article 1 (the "Base Monthly Rent").

     3.2  ADDITIONAL RENT:  Commencing on the Lease Commencement Date (as
determined pursuant to Article 2.3 above) and continuing throughout the Lease
Term, in addition

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to the Base Monthly Rent, Tenant shall pay to Landlord as additional rent (the
"Additional Rent") the following amounts:

          A.   Tenant's Proportionate Share of all Building Operating Expenses
(as defined in Article 13).  Payment shall be made by whichever of the following
methods (or combination of methods) is (are) from time to time  designated by
Landlord:

               (1)  Landlord may bill to Tenant, on a periodic basis not more
frequently than monthly, Tenant's Proportionate Share of such expenses (or group
of expenses) as paid or incurred by Landlord, and Tenant shall pay such share of
such expenses within ten days after receipt of a written bill therefore from
Landlord; and/or

               (2)  Landlord may deliver to Tenant Landlord's reasonable
estimate of any given expense (or group of expenses, such as Landlord's
Insurance Costs or Real Property Taxes) which it anticipates will be paid or
incurred for the ensuing calendar or fiscal year, as Landlord may determine, and
Tenant shall pay its Proportionate Share of such expenses for such year in equal
monthly installments during such year with the installments of Base Monthly
Rent. Landlord reserves the right to change from time to time the method of
billing Tenant its Proportionate Share of such expenses or the periodic basis on
which such expenses are billed.

          B.   Landlord's share of the consideration received by Tenant upon
certain assignments and sublettings as required by Article 7;

          C.   Any legal fees and costs that Tenant is obligated to pay or
reimburse to Landlord pursuant to Article 13; and

          D.   Any other shares or reimbursements due Landlord from Tenant
pursuant to the terms of this Lease.  See Addendum Paragraph 3.2.

     3.3  YEAR-END ADJUSTMENTS:  If Landlord shall have elected to charge Tenant
its Proportionate Share of the Building Operating Expenses (or any group of such
expenses) on an estimated basis in accordance with the provisions of Article
3.2A(2) above, Landlord shall furnish to Tenant within three months following
the end of the applicable calendar or fiscal year, as the case may be, a
statement setting forth (i) the amount of such expenses paid or incurred during
the just ended calendar or fiscal year, as appropriate, and (ii) Tenant's
Proportionate Share of such expenses for such period.  If Tenant shall have paid
more than its Proportionate Share of such expenses for the stated period,
Landlord shall, at its election, either (i) credit the amount of such
overpayment toward the next ensuing payment or payments of Additional Rent that
would otherwise be due or (ii) refund in cash to Tenant the amount of such
overpayment.  If such year-end statement shall show that Tenant did not pay its
Proportionate Share of any such expenses in full, then Tenant shall pay to
Landlord the amount of such underpayment within ten days from Landlord's billing
of same to Tenant.  The provisions of this Article shall survive the expiration
or sooner termination of this Lease.  See Addendum Paragraph 3.3.

     3.4  LATE CHARGE AND INTEREST ON RENT IN DEFAULT:  Tenant acknowledges that
the late payment by Tenant of any monthly installment of Base Monthly Rent or
any Additional Rent will cause Landlord to incur certain costs and expenses not
contemplated under this Lease, the exact amounts of which are extremely
difficult or impractical to fix.  Such

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costs and expenses will include, without limitation, administration and
collection costs and processing and accounting expenses. Therefore, if any
installment of Base Monthly Rent is not received by Landlord from Tenant within
six calendar days after the same becomes due, Tenant shall immediately pay to
Landlord a late charge in an amount equal to the amount set forth in Article 1
as the "Late Charge Amount", and if any Additional Rent is not received by
Landlord within six calendar days after same becomes due, Tenant shall
immediately pay to Landlord a late charge in an amount equal to 57 percent of
the Additional Rent not so paid. Landlord and Tenant agree that this late charge
represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for its loss suffered by reason of [illegible]
provision for a late charge be deemed to grant to Tenant a grace period
extension of time within which to pay any rental installment or prevent Landlord
from exercising any right or remedy available to Landlord upon Tenant's failure
to pay each rental installment due under this Lease when due, including the
right to terminate this Lease. If any rent remains delinquent for a period in
excess of 10 calendar days, then, in addition to such late charge, Tenant shall
pay to Landlord interest on any rent that is not so paid from said tenth day at
the then maximum rate of interest not prohibited by Law until paid. See Addendum
Paragraph 3.4.

     3.5  PAYMENT OF RENT:  Except an specifically provided otherwise in this
Lease all rent shall be paid in lawful money of the United States, without any
abatement, deduction or offset for any reason whatsoever, to Landlord at such
address as Landlord may designate from time to time.  Tenant's obligation to pay
Base Monthly Rent and all Additional Rent shall be prorated at the commencement
and expiration of Lease Term.  The failure by Tenant to pay any Additional Rent
as when due, and Landlord shall have the same rights and remedies against Tenant
as landlord would have if Tenant failed to pay the Base Monthly Rent when due.

     3.6  PREPAID RENT:  Upon signing this Lease, Tenant shall immediately pay
to Landlord the amount set forth in Article 1 as "First Month's Prepaid Rent" as
prepayment of rent for credit against the first installment(s) of Base Monthly
Rent due hereunder.

     3.7  SECURITY DEPOSIT:  Upon signing this Lease, Tenant shall immediately
deposit with Landlord the amount set forth in Article 1 as the "Security
Deposit" as security for the performance by Tenant of the terms of this Lease to
be performed by Tenant, and not as prepayment of rent.  Landlord may apply such
portion or portions of the Security Deposit as are reasonably necessary for the
following purposes: (i) to remedy any default by Tenant in the payment of Base
Monthly Rent or Additional Rent or a late charge or interest on defaulted rent:
(ii) to repair damage to the Leased Premises caused by Tenant; (iii) to clean
and repair the Leased Premises following their surrender to Landlord if not
surrendered in the condition required pursuant to the provisions of Article 2;
and (iv) to remedy any other default of Tenant to the extent permitted by Law
including, without limitation, paying in full on Tenant's behalf any sums
claimed by materialmen or contractors of Tenant to be owing to them by Tenant
for work done or improvements made at Tenant's request to the Leased Premises.
In this regard, Tenant hereby waives any restriction on the uses to which the
Security Deposit may be applied as contained in Section 1950.7(c) of the
California Civil Code and/or any successor statute.  In the event the Security
Deposit or any portion thereof is so used, Tenant shall pay to Landlord,
promptly upon demand, an amount in cash sufficient to restore the Security
Deposit to the full original sum.  if Tenant fails to promptly restore the
Security Deposit and if Tenant shall have paid to Landlord any sums as "Last
Month's Prepaid Rent", Landlord may, in addition to any

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other remedy Landlord may have under this Lease, reduce the amount of Tenant's
Last Month's Prepaid Rent by transferring all or portions of such Last Month's
Prepaid Rent to Tenant's Security Deposit until such Security Deposit is
restored to the amount set forth in Article 1. Landlord shall not be deemed a
trustee of the Security Deposit. Landlord may use the Security Deposit in
Landlord's ordinary business and shall not be required to segregate it from its
general accounts. Tenant shall not be entitled to any interest on the Security
Deposit. If Landlord transfers the Building during the Lease Term, Landlord may
pay the Security Deposit to any subsequent owner in conformity with the
provisions of Section 1950.7 of the California Civil Code and/or any successor
statute, in which event the transferring landlord shall be released from all
liability for the return of the Security Deposit. Tenant specifically grants to
Landlord (and hereby waives the provisions of California Civil Code Section
1950.7 to the contrary) a period of sixty days following a surrender of the
Leased Premises by Tenant to Landlord within which to return the Security
Deposit (less permitted deductions) to Tenant, it being agreed between Landlord
and Tenant that sixty days is a reasonable period of time within which to
inspect the Leased Premises, make required repairs, receive and verify workmen's
billings therefore, and prepare a final accounting with respect to such deposit.
In no event shall the Security Deposit, or any portion thereof, be considered
prepaid rent. See Addendum Paragraph 3.7.

                                   ARTICLE 4
                    USE OF LEASED PREMISES AND COMMON AREAS

     4.1  PERMITTED USE:  Tenant shall be entitled to use the Leased Premises
solely for the "Permitted Use" as set forth in Article 1 and for no other
purpose whatsoever.  Tenant shall continuously and without interruption use the
Leased Premises for such purpose for the entire Lease Term.  Any discontinuance
of such use for a period of thirty consecutive calendar days shall be, at
Landlord's election, a default by Tenant under the terms of this Lease.  Subject
to the limitations contained in this Article 4.  Tenant shall have the right to
use the Common Areas, in conjunction with other tenants and during normal
business hours, solely for the purposes for which they were intended and for no
other purposes whatsoever.  Tenant shall not have the right to use the exterior
surfaces of exterior walls, the area beneath the floor or the area above the
ceiling of the Leased Premises.  See Addendum Paragraph 4.1.

     4.2  GENERAL LIMITATIONS ON USE:  Tenant shall not do or permit anything to
be done in or about the Leased Premises, the Building, the Common Area or the
Project which does or could (i) interfere with the rights of other tenants or
occupants of the Building or the Project, (ii) jeopardize the structural
integrity of the Building or (iii) cause damage to any part of the Building or
the Project.  Tenant shall not operate any equipment within the Leased Premises
which does or could (i) injure, vibrate or shake the Leased Premises or the
Building, (ii) damage, overload, corrode, or impair the efficient operation of
any electrical, plumbing, sewer, heating, ventilating or air conditioning
systems within or servicing the Leased Premises or the Building or (iii) damage
or impair the efficient operation of the sprinkler system (if any) within or
servicing the Leased Premises or the Building.  Tenant shall not install any
equipment or antennas on or make any penetrations of the exterior walls or roof
of the Building.  Tenant shall not affix any equipment to or make any
penetrations or cuts in the floor, ceiling or walls of the Leased Premises.
Tenant shall not place any loads upon the floors, foundations or supporting
structural components.  Tenant shall place any explosive, flammable or harmful
fluids, including Hazardous Materials, or other waste materials in the drainage
systems of the Building or the

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Project. Tenant shall not drain or discharge any fluids in the landscaped areas
or across the paved areas of the Project. Tenant shall not use any area located
outside the Leased Premises for the storage of its materials, supplies,
inventory or equipment, and all such materials, supplies, inventory and
equipment shall at all times be stored within the Leased Premises. Tenant shall
not commit nor permit to be committed any waste in or about the Leased Premises,
the Common Areas or the Project. The provisions of this Section 4.2 shall not
prohibit Tenant's installation of equipment within Premises. See Addendum
Paragraph 6.1.

     4.3  NOISE AND EMISSIONS:  all noise generated by Tenant in its use of the
Leased Premises shall be confined or muffled so that is does not interfere with
the businesses of or annoy other tenants of the Building or the Project.  All
dust, fumes, odors and other emissions generated by Tenant's use of the Leased
Premises shall be sufficiently dissipated in accordance with sound environmental
practices and exhausted from the Leased Premises in such a manner so as not to
interfere with the businesses of or annoy other tenants of the Building or the
Project, or cause any damage to the Lease Premises or the Building or any
component part thereof or the property of other tenants of the Building or the
Project.

     4.4. TRASH DISPOSAL:  Tenant shall provide trash and garbage disposal
facilities inside the Leased Premises for all of its trash, garbage and waster
requirements and shall cause such trash garbage and waster to be regularly
removed from the Leased Premises at Tenant's sole cost.  Tenant shall deep all
outside the Leased Premises and all firm corridors and mechanical equipment
rooms in or about the Leased Premises free and clear of all trash, garbage,
waste and boxes containing same at all times.

     4.5  PARKING:  Tenant is allocated, and Tenant and its employees and
invitees shall have the non-exclusive right to use, not more than the number of
parking spaces set forth in Article 1 as "Tenant's Number of Parking Spaces".
Tenant shall not, at any time, use or permit its employees or invitees to use
more parking spaces than the number so allocated to Tenant.  Tenant shall not
have the exclusive right to use any specific parking spaces, and Landlord
reserves the right to designate from time to time the location of the parking
spaces allocated for Tenant's use.  In the event Landlord elects or is so
required by any Law to limit or control parking within the Project, whether by
validation of parking tickets or any other method, Tenant agrees to participate
in such validation or other program as reasonably established by Landlord.
Tenant shall not, at any time, park or permit to be parked any trucks or
vehicles adjacent to entryways or lading areas within the Project so as to
interfere in any way with the use of such areas, nor shall Tenant, at any time,
park or permit the parking of Tenant's trucks or other vehicles, or the trucks
and vehicles of Tenant's suppliers or others, in any portion of the Common Areas
not designated by Landlord for such use by Tenant.  Tenant shall not, at any
time, park or permit to be parked any recreational vehicles, inoperative
vehicles or equipment on any portion of the common parking area or other Common
Areas of the Project.  Tenant agrees to assume responsibility for compliance by
its employees and invitees with the parking provisions contained herein.  if
Tenant or its employees park any vehicle within the Project in violation of
these provisions, then Landlord may charge Tenant, as Additional Rent, and
Tenant agrees to pay, as Additional Rent, Fifty Dollars per day for each day or
partial day that each such vehicle is illegally parked, or parked in any area
other than that designated.  Tenant hereby authorizes Landlord, at Tenant's sole
expense, to tow away from the Project and store until

                                       7
<PAGE>

redeemed by its owner any vehicle belonging to Tenant or Tenant's employees
parked in violation of these provisions.

     4.6  SIGNS:  Tenant shall not place or install on or within any portion of
the Leased Premises, the Building, the Common Areas or the Project any sign
(other than a business identification sign first approved by Landlord in
accordance with this Article), advertisements, banners, placards or pictures
which are visible from the exterior of the Leased Premises.  Tenant shall not
place or install on or within any portion of the Leased Premises, the Building,
the Common Areas or the Project any business identification sign which is
visible from the exterior of the Leased Premises until Landlord shall have first
approved in writing the location, size, content, design, method of attachment
and material to be used in the making of such sign.  Any signs, once approved by
Landlord, shall be installed only in strict compliance with Landlord's approval,
at Tenant's expense, using a person first approved by Landlord to install same.
Landlord may remove any signs (not first approved in writing by Landlord),
advertisements, banners, placards or pictures so placed by Tenant on or with the
Leased Premises, the Building, the Common Areas or the Project and charge to
Tenant the cost of such removal, together with any costs incurred by Landlord to
repair any damage caused thereby, including any cost incurred to restore the
surface upon which such sign was so affixed to its original condition.  Tenant
shall remove any such signs, repair any damage caused thereby, and restore the
surface upon which the sign was affixed to its original condition, all to
Landlord's reasonable satisfaction, upon the termination of this Lease.
Landlord's approval of Tenant's Business name signage shall not be unreasonably
withheld.

     4.7  COMPLIANCE WITH LAWS AND PRIVATE RESTRICTIONS:  Tenant shall not use
or permit any person to use the Leased Premises in any manner which violates any
Laws or Private Restrictions.  Tenant shall abide by and shall promptly observe
and comply with, at its sole cost and expense, of record as of the date of this
Lease or amendments to Private restrictions approved by Tenant all Laws and
Private Restrictions respecting the use and occupancy of the Leased Premises,
the Building, the Common Areas or the Project and shall defend with competent
counsel, indemnify and hold Landlord harmless from any claims, damages or
liability resulting from Tenant's failure to do so.  Addendum Paragraph 4.7.

     4.8  COMPLIANCE WITH INSURANCE REQUIREMENTS:  With respect to any insurance
policies carried by Landlord in accordance with the provisions of this Lease,
Tenant shall not conduct (nor permit any other person to conduct) any activities
within the Leased Premises, or store, keep or use anything within the Leased
Premises which (i) is prohibited under the terms of any of such policies, (ii)
could result in the termination of the coverage afforded under any of such
policies, (iii) could give to the insurance carrier the right to cancel any of
such policies, or (iv) could cause an increase in the rates (over standard
rates) charged for the coverage afforded under any of such policies.  Tenant
shall comply with all requirements of any insurance company, insurance
underwriter, or Board of First Underwriter which are necessary to maintain, at
standard rates, the insurance coverages carried by either Landlord or Tenant
pursuant to this Lease.  See Addendum Paragraph 4.8.

     4.9  LANDLORD'S RIGHT TO ENTER:  Landlord and its agents shall have the
right to enter the Leased Premises during normal business hours and subject to
Tenant's reasonable security measures for the purpose of (i) inspecting the
same; (ii) supplying any services to be

                                       8
<PAGE>

provided by Landlord to Tenant; (iii) showing the Leased Premises to prospective
purchasers, mortgagees or tenants; (iv) making necessary alterations, additions
or repairs; (v) performing any of Tenant's obligations when Tenant has failed to
do so after giving Tenant reasonable written notice of its intent to do so; and
(vi) posting notices of non-responsibility for "For Lease" or "For Sale" signs.
Additionally, Landlord shall have the right to enter the Leased Premises at
times of emergency. Any entry into the Leased Premises or portions thereof
obtained by Landlord in accordance with this Article shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into, or
a detainer of, the Leased Premises or an eviction, actual or constructive, of
Tenant from the Leased Premises or any portion thereof. See Addendum Paragraph
4.9.

     4.10 CONTROL OF COMMON AREAS:  Landlord shall at all times have exclusive
control of the Common Areas.  Landlord shall have the right, without the same
constituting an actual or constructive eviction and without entitling Tenant to
any reduction in or abatement of rent, to: (i) temporarily close any part of the
Common Areas to whatever extent required in the opinion of Landlord's counsel to
prevent a dedication thereof or the accrual of any prescriptive rights therein:
(ii) temporarily close all or any part of the Common Areas to perform
maintenance or for any other reason deemed sufficient by Landlord; (iii) change
the shape, size, location of driveways, entrances, exits, parking spaces,
parking areas sidewalks, directional or locator signs, or the direction of the
flow of traffic, and (iv) to make additions to the Common Areas including,
without limitation, the construction of parking structures.  Landlord shall have
the right to change the name or address of the Building.  Tenant, in its use of
the Common Areas, shall keep he Common Areas free and clear of all obstructions
created or permitted by Tenant.  If, in the opinion of Landlord, unauthorized
persons are using any of the Common Areas by reason of, or under claim of, the
express or implied authority or consent of Tenant, then Tenant, upon demand of
Landlord, shall restrain, to the fullest extent then allowed by Law, such
unauthorized use, and shall initiate  such appropriate proceedings as may be
required to so restrain such use.  Nothing contained herein shall affect the
right of Landlord at any time to remove any unauthorized person from the Common
Areas or to prohibit the use of the Common Areas by unauthorized persons,
including, without limitation, the right to prohibit mobile food and beverage
vendors.  in exercising any such right regarding the Common Areas, Landlord
shall make a reasonable effort to minimize any disruption to Tenant's business.

     4.11 ENVIRONMENTAL PROTECTION:  Landlord may voluntarily cooperate in a
reasonably manner with the efforts of all governmental agencies in reducing
actual or potential environmental damage.  Tenant shall not be entitled to
terminate this Lease or to any reduction in or abatement of rent by reason of
such compliance or cooperation.  Tenant agrees at  all times to cooperate fully
with Landlord and to abide by all rules and regulations and requirements which
Landlord may reasonably prescribe in order to comply with the requirements and
recommendations of governmental agencies regulating, or otherwise involved in,
the protection of the environment.  See Addendum Paragraph 4.12.

     4.12 OUTSIDE AREAS:  No materials, pallets, supplies, tanks or containers
whether above or below ground level, equipment, finished products or semi-
finished products, raw materials, inoperable vehicles or articles of any nature
shall be stored upon or permitted to remain outside of the Leased Premises
expect in fully fenced and screened areas outside the

                                       9
<PAGE>

Building which have been designated for such purpose and have been approved in
writing by landlord for such use by Tenant.

     4.14 HAZARDOUS MATERIALS:  Landlord and Tenant agree as follows with
respect to the existence or use of Hazardous Materials on the Property:

          A.   Any handling, transportation, storage, treatment, disposal or use
of Hazardous Materials by Tenant, Tenant's Agents, or any other party after the
Effective Date of this Lease in or about the Property shall strictly comply with
all applicable Hazardous Materials Laws.  Tenant shall indemnify, defend upon
demand with counsel reasonably acceptable to Landlord, and hold harmless
Landlord from and against any and all liabilities, losses, claims, damages, lost
profits, consequential damages, interests, penalties, fines, court costs,
remediation costs, investigation costs, and other expenses which result from or
arise in any manner whatsoever out of the use, storage, treatment,
transportation, release, or disposal of Hazardous Materials on or about the
Property by tenant, Tenant's Agents, Permitees, or Invitees after the Effective
Date.

          B.   If the presence of Hazardous Materials on the Property caused or
permitted by Tenant, Tenant's Agents, Permittees, or Invitees after the
Effective Date of this Lease results in contamination or deterioration of water
or soil or any other part of the Property, then Tenant shall promptly take any
and all action necessary or investigate and premeditate such contamination.
Tenant shall further be solely responsible for, and shall defend, indemnify and
hold Landlord and its agents harmless from and against all claims, costs and
liabilities, including attorney's fees and costs, arising out of or in
connection with any investigation and remediation (including investigative
analysis, removal, cleanup, and/or restoration work) required hereunder to
return the Leased Premises, Building, Common Areas, Outside Areas, and/or
Property and any other property of whatever nature to their condition existing
prior to the appearance of such Hazardous Materials.

          C.   Landlord and Tenant shall each give written notice to the other
as soon as reasonably practicable of (i) any communication received from any
governmental authority concerning Hazardous Materials which relates to the
Property, and (ii) any contamination or the Property by Hazardous Materials
which constitutes a violation of any Hazardous Materials Law.  Tenant
acknowledges that Landlord, as the owner of the Property, at Landlord, as the
owner of the Property, at Landlord's election, shall have the sole right at
Tenant's expense to negotiate, defend, approve, and/or appeal any action taken
or order issued with regard to Hazardous Materials by any applicable
governmental authority.  Tenant may use small quantities of household chemicals
such as adhesive, lubricants, and cleaning fluids in order to conduct its
business at the Premises and such other Hazardous materials as are necessary to
the operation of Tenant's business of which Landlord receives notice prior to
such Hazardous Materials being brought onto the Property (or any portion
thereof) and which Landlord consents in writing may be brought onto the
Property.  In granting Landlord's consent, Landlord may specify the location and
manner of use, storage, or handling of any Hazardous Material.  Landlord's
consent shall in no way relieve Tenant from any of its obligations as contained
herein.  Tenant shall notify Landlord in writing at least ten (10) days prior to
the first appearance of any Hazardous Material on the Leased Premises, Building,
Common Areas, Outside Areas, and/or Property.  Tenant shall provide Landlord
with a list of all Hazardous Materials and the quantities of each Hazardous

                                      10
<PAGE>

Material to be stored, or used, on any portion of the Property, and upon
Landlord's request Tenant shall provide Landlord with copies of any and all
hazardous materials Management Plans, Material Safety Data Sheets, Hazardous
Waste Manifests, and other documentation maintained or received by Tenant
pertaining to the Hazardous Materials used, stored, or transported on any
portion of the Property.  At any time during the Lease Term, Tenant shall,
within five days after written request therefore received from Landlord,
disclose in writing all Hazardous Materials that are being used by Tenant on the
Property (or have been used on the Property), the nature of such use, and the
manner of storage and disposal.

          D.   Landlord may cause testing wells to be installed on the Property
and may cause the ground water to be tested to detect the presence of Hazardous
Material by the use of such tests as are then customarily used for such
purposes.  If Tenant so requests, Landlord shall supply Tenant with copies of
such test results.  The cost of such tests and of the installation, maintenance,
repair and replacement of such wells shall be paid by Tenant if such tests
disclose the existence of facts which give rise to liability of Tenant pursuant
to its indemnity given in A and/or B above.  Landlord may retain consultants to
inspect the Property, conduct periodic environmental audits, and review any
information provided by Tenant.  Tenant shall pay the reasonable cost of fees
charged by Landlord and/or Landlord's consultants as a Project maintenance Cost.

          E.   Upon the expiration or earlier termination of the Lease, Tenant,
at its sole cost shall remove all Hazardous Materials from the Property and
shall provide a certificate to Landlord from a registered consultant
satisfactory to Landlord, certifying that Tenant has caused no contamination of
building9s), soil or groundwater in or about the Leased Premises, Building,
Common Areas, Outside Areas, or Property.  If Tenant fails to so surrender the
Property, Tenant shall indemnify and hold Landlord harmless from all damages
resulting from Tenant's failure to surrender the Property as required by this
Subsection, including without limitation, any claims or damages in connection
with the condition of the Property including, without limitation, damages
occasioned by the inability to Lease the Property (or any portion thereof) or a
reduction in the fair market and/or rental value of the Property, Building,
Common Areas, Outside Areas, and/or Property by reason of the existence of any
Hazardous Materials in or around the Leased Premises, Building, Common Areas,
Outside Areas, and/or Property.  If any action is required to be taken by a
governmental authority to test, monitor, and/or clean up Hazardous Materials
from the Leased Premises, Building, Common Areas, Outside Areas, and/or Property
and such action is not completed prior to the expiration or earlier termination
of the Lease, Tenant shall be deemed to have impermissibly held over until such
time as required action is completed, and Tenant shall pay Base Monthly Rent and
Additional Rent in accordance with the terms of Section 13.2 (Holding Over).  In
addition, Landlord shall be entitled to all damages directly or indirectly
incurred in connection with such holding over, including without limitation,
damages occasioned by the inability to Lease the Property or a reduction of the
fair market and/or rental value of the Leased Premises, Building, Common Areas,
Outside Areas, and/or Property.

     F.   As used herein, the term "Hazardous Materials(s)" means any hazardous
or toxic substance, material or waste, which is or becomes regulated by any
federal, state, regional or local governmental authority because it is in any
way hazardous, toxic, carcinogenic, mutagenic or otherwise adversely affects any
part of the environment or creates risks of any such hazards or effects,
including, but not limited to, petroleum; asbestos, and polychlorinated bipheyls
and any

                                      11
<PAGE>

material, substance, or waste (a) defined as a "hazardous waste," "extremely
hazardous waste" or "restricted hazardous waste" under Sections 25115, 25117 or
25122.7, or listed pursuant to Section 25140 of the California Health and Safety
Code, division 20, Chapter 6.5 (Hazardous Waste Control Law); (b) defined as a
"hazardous substance" under Section 25316 of the California Health and Safety
Code, Division 20, Chapter 6.8 (Carpenter-Presley Tanner Hazardous Substance
Account Act); (c) defined as a "hazardous material," "hazardous substance" or
"hazardous waste" under Section 25501 of the California Health and Safety Code,
Division 20, Chapter 6.98 (Hazardous Materials Release Response Plans and
Inventory); (d) defined as a "hazardous substance" under Section 25281 of the
California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage
of Hazardous Substances); (e) defined as a "hazardous substance" pursuant to
Section 311 of the Clean Water Act, 33 United States Code Sections 1251 et seq.
                                                                        -- ---
(33 U.S.C. 1321) or listed pursuant to Section 307 of the Clean Water Act (33
U.S.C. 1317); (f) defined as a "hazardous waste" pursuant to Section 1004 of the
Resource Conservation and Recovery Act, 42 United States Code Section 6901 et
                                                                           --
seq. (42 U.S.C. 6903); or (g) defined as a "hazardous substance" pursuant to
---
Section 101 of the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 United States Code Section 9601 et seq. (41 U.S.C. 9601) or
                                                  -- ---
(h) defined as a "hazardous substance" pursuant to Section 311 of the Federal
Water Pollution Control Act, 33 U.S.C. 1251 et seq. or (i) listed pursuant to
                                            -- ---
Section 307 of the Federal Water Pollution Control Act (33 U.S.C. 1317) or (j)
regulated under the Toxic Substances Control Act (15 U.S.C. 2601 et seq.) or (k)
                                                                 -- ---
defined as a "hazardous material" under Section 66680 or 66084 of Title 22 of
the California Code of Regulations (Administrative Code) (l) listed in the
United States Department of Transportation Hazardous Materials Table (49 C.F.R.
172.101) or (m) listed by the Environmental Protection Agency as "hazardous
substances" (40 C.F.R. Part 302) and amendments thereto. The term "Hazardous
Material Laws" shall mean (i) all the foregoing laws as amended form time to
time and (ii) any other federal, state, or local law, ordinance, regulation, or
order regulating Hazardous Materials.

     G.   Tenant's failure to comply with any of the requirements of this
Section regarding the storage, use, disposal or transportation of Hazardous
Materials, or the appearance of any Hazardous Materials on the Leased Premises,
Building, Common Area, Outside Area, and/or the Property without Landlord's
consent shall be an Event of Default as defined in this Lease.  The obligations
of Landlord and Tenant under this Section shall survive the expiration or
earlier termination of the Lease Term.  The rights and obligations of Landlord
and Tenant within respect to issues relating to Hazardous Materials are
exclusively established by this section.  In the event of any inconsistency
between any other part of this Lease and this Section, the terms of this Section
shall control.

                                   ARTICLE 5
                 REPAIRS, MAINTENANCE, SERVICES AND UTILITIES

     5.1  REPAIR AND MAINTENANCE:  Except in the case of damage to or
destruction of the Leased Premises, the Building or the Project caused by an Cat
of God or other peril, in which case the provisions of Article 10 shall control,
the parties shall have the following obligations and responsibilities with
respect to the repair and maintenance of the Leased Premises, the Building and
the Common Areas.  See Addendum Paragraph 5.1.

                                      12
<PAGE>

          A.   Tenants Obligation:  Tenant shall, at all times during the Lease
Term and at its sole cost and expense, regularly clean and continuously keep and
maintain in good order, condition and repair the Leased Premises and every part
thereof and all appurtenances thereto, including, without limiting the
generality of the foregoing, (i) all interior walls, floors and ceilings, (ii)
all windows, doors and skylights, (iii) all electrical wiring, conduits,
connectors and fixtures, (iv) all plumbing, pipes, sinks, toilets, faucets and
drains, (v) all lighting fixtures, bulbs and lamps, (vi) all heating,
ventilating and air conditioning equipment located within the Leased Premises or
located outside the Leased premises (e.g. rooftop compressors) and serving the
Leased Premises (_____________________ defined in Subarticle B below), and (vii)
all entranceways to the Leased Premises, Tenant, if requested to do so by
Landlord, shall hire, at Tenant's sole cost and expense, a licensed heating,
ventilating and air conditioning contractor to regularly, and periodically
inspect (not less frequently than every three months) and perform required
maintenance on the heating, ventilating and air conditioning equipment and
systems serving the Leased Premises, or alternatively, Landlord may, at its
election, contract in its own name for such regular and periodic inspections of
and maintenance on such heating, ventilating and air conditioning equipment and
systems and charge to Tenant, as Additional Rent, the cost thereof.  Subject to
Section 9.2 of this Lease, Tenant shall, at its sole cost and expense, repair
all damage to the Building, the Common Areas or the Project caused by the
activities of Tenant, its employees, invitees or contractors promptly following
written notice from Landlord to so repair such damage, provided that Landlord
shall make available to Tenant any insurance proceeds (if any) available for
said repairs.  If Tenant shall fail to perform the required maintenance or fail
to make repairs required of it pursuant to this Article within a reasonable
period of time following notice from Landlord to do so, then Landlord may, at
its election and without waiving any other remedy it may otherwise have under
this Lease or at Law, perform such maintenance or make such repairs and charge
to Tenant, as Additional Rent, the costs so incurred by Landlord for same.  All
glass within or a part of the Leased Premises, both interior and exterior, is at
the sole risk of Tenant and any broken glass shall promptly be replaced by
Tenant at Tenant's expense with glass of the same kind, size and quality.

          B.   Landlord's Obligation:  Landlord shall, at all times during the
Lease Term, maintain in good condition and repair:  (i) the exterior and
structural parts of the Building (including the foundation, subflooring, load-
bearing and exterior walls, and roof); (ii) the Common Areas; and (iii) the
electrical and plumbing systems located outside the Leased Premises which
service the Building.  Additionally, to the extent that the Building contains
central heating, ventilating and/or air conditioning systems located outside the
Leased Premises which are designed to service, and are then servicing, more than
a single tenant within the Building ("Common HVAC"), Landlord shall maintain in
good operating condition and repair such Common HVAC equipment and systems.  The
provisions of this Subarticle B shall in no way limit the right of Landlord to
charge to tenants of the Project, as Additional Rent pursuant to Article 3, the
costs incurred by Landlord in making such repairs and/or performing such
maintenance.

     5.2  SERVICES AND UTILITIES:  The parties shall have the following
responsibilities and obligations with respect to obtaining and paying the cost
of providing the following utilities and other services to the Leased Premises.

                                      13
<PAGE>

          A.   Gas and Electricity.  Tenant shall arrange, at its sole cost and
expense and in its own name, for the supply of gas and electricity to the Leased
Premises.  In the event that such services are not separately metered, Tenant
shall, at its sole expense, cause such meters to be installed.  Tenant shall be
responsible for determining if the local supplier of gas and/or electricity can
supply the needs of Tenant and whether or not the existing gas and/or electrical
distribution systems within the Building and the Leased Premises are adequate
for Tenant's needs.  Tenant shall pay all charges for gas and electricity as so
supplied to the Leased Premises.

          B.   Water:  Landlord shall provide the Leased Premises with water for
lavatory and drinking purposes only.  Tenant shall pay, as Additional Rent, the
cost to Landlord of providing water to the Leased Premises.  In the event
Landlord believes that Tenant is using more water than what normally would be
required for lavatory and drinking purposes, Landlord at its election may (i)
periodically charge Tenant, as Additional Rent, a sum equal to Landlord's
estimate of the cost of Tenant's excess water usage or (ii) install (or require
Tenant to install at Tenant's sole cost) a separate meter for purposes of
measuring Tenant's water usage and, based upon such meter readings, periodically
charge Tenant, as Additional Rent, a sum equal to Landlord's estimate of the
cost of Tenant's excess water usage.  In the event that Landlord shall so
install such a separate meter, Tenant shall pay to Landlord, upon demand, the
costs incurred by Landlord in purchasing and installing such meter and
thereafter all costs incurred by Landlord in maintaining said meter.  The cost
of Tenant's water usage shall include any costs to Landlord in keeping account
of such usage and all governmental fees, public charges or the like attributable
to or based upon (such as sewer usage fees) the use of water to the extent of
such usage.

          C.   Security Service:  Tenant acknowledges that Landlord is not
responsible for the security of the Leased Premises or the protection of
Tenant's property or Tenant's employees, invitees or contractors, and that to
the extent Tenant determines that such security or protection services are
advisable or necessary, Tenant shall arrange for and pay the costs of providing
same.

          D.   Trash Disposal:  Tenant acknowledges that Landlord is not
responsible for the disposal of Tenant's waste, garbage or trash and that Tenant
shall arrange, in its own name and at its sole cost, for the regular and
periodic removal of such waste, garbage or trash from the Leased Premises.  In
no event shall Landlord be required to provide trash bins for the disposal of
Tenant's waste, garbage or trash.

     5.3  ENERGY AND RESOURCE CONSUMPTION:  Landlord may voluntarily cooperate
in a reasonable manner with the efforts of governmental agencies and/or utility
suppliers in reducing energy or other resource consumption within the Project.
Tenant shall not be entitled to terminate this Lease or to any reduction in or
abatement of rent by reason of such compliance or cooperation.  Tenant agrees at
all times to cooperate fully with Landlord and to abide by all reasonable rules
established by Landlord (i) in order to maximize the efficient operation of the
electrical, heating, ventilating and air conditioning systems and all other
energy or other resource consumption systems within the Project and/or (ii) in
order to comply with the requirements and recommendations of utility suppliers
and governmental agencies regulating the consumption of energy and/or other
resources.  See Addendum Paragraph 5.4.

                                      14
<PAGE>

     5.4  LIMITATION OF LANDLORD'S LIABILITY:  Landlord shall not be liable to
Tenant for injury to Tenant, its employees, agents, invitees or contractors,
damage to Tenant's property or loss of Tenant's business or profits, nor shall
Tenant be entitled to terminate this Lease or to any reduction in or abatement
of rent by reason of (i) Landlord's failure to perform any maintenance or
repairs to the Project until Tenant shall have first notified Landlord, in
writing, of the need for such maintenance or repairs, and then only after
Landlord shall have had a reasonable period of time following its receipt of
such notice within which to perform such maintenance or repairs, or (ii) any
failure, interruption, rationing or other curtailment in the supply of water,
electric current, gas or other utility service to the Leased Premises, the
Building or the Project from whatever cause (other than Landlord's active
negligence or willful misconduct), or (iii) the unauthorized intrusion or entry
into the Leased Premises by third parties (other than Landlord).  See Addendum
Paragraph 5.5.

                                   ARTICLE 6
                         ALTERATIONS AND IMPROVEMENTS

     6.1  BY TENANT:  Tenant shall not make any alterations to or modifications
of the Leased Premises or construct any improvements to or within the Leased
Premises without Landlord's prior written approval, and then not until Landlord
shall have first approved, in writing, the plans and specifications therefore,
which approval shall not be unreasonably withheld.  All such modifications,
alterations or improvements, once so approved, shall be made, constructed or
installed by Tenant at Tenant's expense, using a licensed contractor first
approved by Landlord, in substantial compliance with the Landlord-approved plans
and specifications therefore.  All work undertaken by Tenant shall be done in
accordance with all Laws and in a good and workmanlike manner using new
materials of good quality.  Tenant shall not commence the making of any such
modifications or alterations or the construction of any such improvements until
(i) all required governmental approvals and permits shall have been obtained,
(ii) all requirements regarding insurance imposed by this Lease have been
satisfied, (iii) Tenant shall have given Landlord at least five business days
prior written notice of its intention to commence such work so that Landlord may
post and file notices of non-responsibility, and (iv) if requested by Landlord,
Tenant shall have obtained contingent liability and broad form builder's risk
insurance in an amount satisfactory to Landlord to cover any perils relating to
the proposed work not covered by insurance carried by Tenant pursuant to Article
9.  In no event shall Tenant make any modifications, alterations or improvements
to the Common Areas or any areas outside of the Leased Premises.  As used in
this Article, the term "modifications, alterations and/or improvements" shall
include, without limitation, the installation of additional electrical outlets,
overhead lighting fixtures, drains, sinks, partitions, doorways or the like.
See Addendum Paragraph 6.1.

     6.2  OWNERSHIP OF IMPROVEMENTS:  All modifications, alterations or
improvements made or added to the Leased Premises by Tenant (other than Tenant's
inventory, equipment, movable furniture, wall decorations and trade fixtures)
shall be deemed real property and a part of the Leased Premises, but shall
remain the property of Tenant during the Lease Term.  Any such modifications,
alterations or improvements, once completed, shall not be altered or removed
from the Leased Premises during the Lease Term without Landlord's written
approval first obtained in accordance with the provisions of Article 6.1 above.
At the expiration or sooner termination of the Lease, all such modifications,
alterations and improvements (other

                                      15
<PAGE>

than Tenant's inventory, equipment, movable furniture, wall decorations and
trade fixtures) if not removed by Tenant shall automatically become the property
of Landlord and shall be surrendered to Landlord as a part of the Leased Premise
as required pursuant to Article 2, unless Landlord shall require Tenant to
remove any of such modifications, alterations or improvements in accordance with
the provisions of Article 2, in which case Tenant shall so remove same. Landlord
shall have no obligation to reimburse to Tenant all or any portion of the cost
or value of any such modifications, alterations or improvements so surrendered
to Landlord. All modifications, alterations or improvements which are installed
or constructed on or attached to the Leased Premises by Landlord at Landlord's
expense shall be deemed real property, and a part of the Leased Premises and
shall be the property of Landlord. All lighting, plumbing, electrical, heating,
ventilating and air conditioning fixtures, partitioning, window coverings, wall
coverings and floor coverings installed by Tenant shall be deemed improvements
to the Leased Premises and not trade fixtures of Tenant. See Addendum Paragraphs
2.6 and 6.2.

     6.3  ALTERATIONS:  Tenant may remove its trade fixtures and leasehold
improvement constructed by Tenant at its expense.  At its sole cost, Tenant
shall make all modifications, alterations and improvements to the Leased
Premises that are required by any Law because of (i) Tenant's use or occupancy
of the Leased Premises, the Building, the Outside Areas, or the Property, (ii)
Tenant's application for any permit or governmental approval, or (iii) Tenant's
making of any modifications, alterations or improvements to or within the Leased
Premises.  If Landlord shall, at any time during the Lease Term, (i) be required
by any governmental authority to make any modifications, alterations or
improvements to the Building or the Project, (ii) modify the existing (or
construct additional) capital improvements or provide building service equipment
for the purpose of reducing the consumption of utility services or project
maintenance costs for the property, the cost incurred by Landlord in making such
modifications, alterations or improvements, interest at a rate equal to
____________ quoted by Wells Fargo Bank, N.T. & S.A. from time to time as its
prime rate (2%) ("Wells Prime Plus Two"), cost of money factor, shall be
amortized by Landlord over the useful life of such modifications, alterations or
improvements, as determined in accordance with generally accepted accounting
standards, and the monthly amortized cost of such modifications, alterations and
improvements as so amortized shall be considered a Project Maintenance Cost.

     6.4  LIENS:  Tenant shall keep the Leased Premises, the Building and the
Property free from any liens and shall pay when due all bills arising out of any
work performed, materials furnished, or obligations incurred by Tenant, its
agents, employees or contractors relating to the Leased Premises.  If any such
claim of lien is recorded against Tenant's interest in this Lease, the Leased
Premises, the Building or the Project, Tenant shall bond against, discharge or
otherwise cause such lien to be entirely released within ten days after receipt
of written notice from Landlord.

                                   ARTICLE 7
                      ASSIGNMENT AND SUBLETTING BY TENANT

     7.1  BY TENANT:  Tenant shall not sublet the Leased Premises (or any
portion which shall not be unreasonably withheld thereof) or assign or encumber
its interest in this Lease, whether voluntarily or by operation of Law, without
Landlord's prior written consent first obtained in accordance with the
provisions of this Article 7.  Any attempted subletting,

                                      16
<PAGE>

assignment or encumbrance without Landlord's prior written consent, at
Landlord's election, shall constitute a default by Tenant under the terms of
this Lease. The acceptance of rent by Landlord from any person or entity other
than Tenant, or the acceptance of rent by Landlord from Tenant with knowledge of
a violation of the provisions of this Article, shall not be deemed to be a
waiver by Landlord of any provision of this Article or this Lease or to be a
consent to any subletting by Tenant or any assignment or encumbrance of Tenant's
interest in this Lease. See Addendum Paragraph 7.1.

     7.2  MERGER OR REORGANIZATION:  If Tenant is a corporation, any
dissolution, merger, consolidation or other reorganization of Tenant, or the
sale or other transfer in the aggregate over the Lease Term of a controlling
percentage of the capital stock of Tenant, shall be deemed a voluntary
assignment of Tenant's interest in this Lease.  The phrase "controlling
percentage" means the ownership of and the right to vote stock possessing more
than fifty percent of the total combined voting power of all classes of Tenant's
capital stock issued, outstanding and entitled to vote for the election of
directors.  If Tenant is a partnership, a withdrawal or change, whether
voluntary, involuntary or by operation of Law, of any general partner, or the
dissolution of the partnership, shall be deemed a voluntary assignment of
Tenant's interest in this Lease.  See Addendum Paragraph 7.2.

     7.3  LANDLORD'S ELECTION:  If Tenant shall desire to assign its interest
under this Lease or to sublet the Leased Premises.  Tenant must first notify
Landlord, in writing, of its intent to so assign or sublet, at least fifteen
(15) days in advance of the date it intends to so assign its interest in this
Lease or sublet the Leased Premises but not sooner than one hundred eighty days
in advance of such date, specifying in detail the terms of such proposed
assignment or subletting, including the name of the proposed assignee or
sublessee, the proposed assignee's or Sublessee's intended use of the Leased
Premises, a current financial statement of such proposed assignee or sublessee
and the form of documents to be used in effectuating such assignment or
subletting.  Landlord shall have a period of ten (10) days following receipt of
such notice within which to do one of the following:  (i) on the condition that
the proposed Transferee immediately enter into a direct lease of the Leased
Premises with Landlord (or, in the case of a partial sublease, a lease for the
portion proposed to be so sublet) on the same terms and conditions contained in
Tenant's notice, or (ii) so that Landlord is thereafter free to lease the Leased
Premises (or, in the case of a partial sublease, the portion proposed to be so
sublet) to whomever it pleases on whatever terms are acceptable to Landlord.  In
the event Landlord elects to so terminate this Lease, then (i) if such
termination is conditioned upon the execution of a lease between Landlord and
the proposed Transferee, Tenant's obligations under this Lease shall not be
terminated until such Transferee executes a new lease with Landlord, enters into
possession, and commences the payment of rent, and (ii) if Landlord elects
simply to terminate this Lease (or, in the case of a partial sublease, terminate
this Lease as to the portion to be so sublet), the Lease shall so terminate in
its entirety (or as to the space to be so sublet) fifteen (15) days after
Landlord has notified Tenant in writing of such election.  In the case of a
partial termination of the Lease, the Base Monthly Rent and Tenant's
proportionate share shall be reduced to an amount which bears the same
relationship to the original amount thereof as the area of that part of the
Leased Premises which remains subject to the Lease bears to the original area of
the Leased Premises.  Landlord and Tenant shall execute a cancellation agreement
with respect to the Lease to effect such termination or partial termination, or
(b) if Landlord shall not have elected to cancel and terminate this Lease, to
either (i) consent to such requested assignment or

                                      17
<PAGE>

subletting subject to Tenant's compliance with the conditions set forth in
Article 7.4 below or (ii) refuse to so consent to such requested assignment or
subletting, provided that such consent shall not be unreasonably refused. It
shall not be unreasonable for Landlord to withhold its consent to any proposed
assignment or subletting if (i) the proposed assignee's or subtenant's
anticipated use of the Premises involves the storage, use or disposal of a
Hazardous Material; (ii) if the proposed assignee or subtenant has been required
by any prior landlord, lender or governmental authority to clean up Hazardous
Materials unlawfully discharged by the proposed assignee or subtenant; or (iii)
if the proposed assignee or subtenant is subject to investigation or enforcement
order or proceeding by any governmental authority in connection with the use,
disposal or storage of a Hazardous Material. During such ten (10) business day
period, Tenant covenants and agrees to supply to Landlord, upon request, all
necessary or relevant information which Landlord may reasonably request
respecting such proposed assignment or subletting and/or the proposed assignee
or sublessee.

     7.4  CONDITIONS TO LANDLORD'S CONSENT.  If Landlord elects to consent, or
shall have been ordered to so consent by a court of competent jurisdiction, to
such requested assignment, subletting or encumbrance, such consent shall be
expressly conditioned upon the occurrence of each of the conditions below set
forth, and any purported assignment, subletting or encumbrance made or ordered
prior to the full and complete satisfaction of each of the following conditions
shall be void and, at the election of the Landlord, which election may be
exercised at any time following such a purported assignment, subletting or
encumbrance but prior to the satisfaction of each of the stated conditions,
shall constitute a material default by Tenant under this Lease giving Landlord
the absolute right to terminate this Lease unless such default is promptly cured
by satisfying in full each such condition by the assignee, sublessee or
encumbrances.  The conditions are as follows:  See Addendum Paragraph 7.4.

          A.   Landlord having approved in form and substance the assignment or
sublease agreement (or the encumbrance agreement), which approval shall not be
unreasonably withheld by Landlord if the requirements of this Article 7 are
otherwise complied with.

          B.   Each such sublessee or assignee having agreed, in writing
satisfactory to Landlord and its counsel and for the benefit of Landlord, to
assume, to be bound by, and to perform the obligations of this Lease to be
performed by Tenant (or, in the case of an encumbrance, each such encumbrancer
having similarly agreed to assume, be bound by and to perform Tenant's
obligations upon a foreclosure or transfer in lieu thereof), which relate to
space their subleased.

          C.   Tenant having reimbursed to Landlord all reasonable costs and
reasonable attorneys fees incurred by Landlord in conjunction with the
processing and documentation of any such requested subletting, assignment or
encumbrance.

          D.   Tenant having delivered to Landlord a complete a fully-executed
duplicate original of such sublease agreement, assignment agreement or
encumbrance (as applicable) and all related agreements.

          E.   Tenant having paid, or having agreed in writing to pay as to
future payments, to Landlord fifty (50%) percent of all assignment consideration
or excess rentals to be

                                      18
<PAGE>

paid to Tenant or to any other on Tenant's behalf or for Tenant's benefit for
such assignment or subletting as follows:

               (1)  If Tenant assigns its interest under the Lease and if all or
a portion of the consideration for such assignment is to be paid by the assignee
at the time of the assignment, that Tenant shall have paid to Landlord and
Landlord shall have received an amount equal to fifty (50%) percent of the
assignment consideration so paid or to be paid whichever is the greater) at the
time of the assignment by the assignee; or

               (2)  If Tenant assigns its interest under this Lease and if
Tenant is to receive all or a portion of the consideration for such assignment
in future installments, that Tenant and Tenant's assignee shall have entered
into a written agreement with and for the benefit of Landlord satisfactory to
Landlord and its counsel whereby Tenant and Tenant's assignee jointly agree to
pay to Landlord an amount equal to fifty (50%) percent of all such future
assignment consideration installments to be paid by such assignee as and when
such assignment consideration is so paid.

               (3)  If Tenant subleases the Leased Premises, that Tenant and
Tenant's sublessee shall have entered into a written agreement with and for the
benefit of Landlord satisfactory to landlord and its counsel whereby Tenant and
Tenant's sublessee jointly agree to pay to Landlord fifty (50%) percent of all
excess rentals to be paid by such sublessee as and when such excess rentals are
so paid.

     7.5  ....:  this Article, the term "assignment consideration" shall mean
all consideration to be paid by the assignee to Tenant or to any other on
Tenant's behalf or for Tenant's benefit as consideration for such assignment,
less any commissions paid by Tenant to a licensed real estate broker for
arranging such assignment (not to exceed then standard rates), and the term
"excess rentals" shall mean all consideration to be paid by the sublessee to
Tenant or to any other on Tenant's behalf or for Tenant's benefit for the
sublease of the Leased Premises in excess of the rent due Landlord under the
terms of this Lease for the same period, less any commissions paid by Tenant to
a licensed real estate broker for arranging such sublease (not to exceed then
standard rates).  Tenant agrees that the portion of any assignment consideration
and/or excess rentals arising from and assignment or subletting by Tenant which
is to be paid to Landlord pursuant to this Article now is and shall then be the
property of Landlord and not the property of Tenant.  See Addendum Paragraph 7.2
and Paragraph 7.5.

     7.6  PAYMENTS:  All payments required by this Article to be made to
Landlord shall be made in cash in full as and when they become due.  At the time
Tenant, Tenant's assignee or sublessee makes each such payment to Landlord,
Tenant or Tenant's assignee or sublessee, as the case may be, shall deliver to
Landlord an itemized statement in reasonable detail showing the method by which
the amount due Landlord was calculated and certified by the party making such
payment as true and correct.

     7.7  GOOD FAITH:  The rights granted to Tenant by this Article are granted
in consideration of Tenant's express covenant that all pertinent allocations
which are made by Tenant between the rental value of the Leased Premises and the
value of any of Tenant's personal property which may be conveyed or leased
concurrently with and which may

                                      19
<PAGE>

reasonably be considered a part of the same transaction as the permitted
assignment or subletting shall be made fairly, honestly and in good faith. If
Tenant shall breach this Covenant of Good Faith, Landlord may immediately
declare Tenant to be in default under the terms of this Lease and terminate this
Lease and/or exercise any other rights and remedies Landlord would have under
the terms of this Lease in the case of a material default by Tenant under this
Lease.

     7.8  EFFECT OF LANDLORD'S CONSENT:  No subletting, assignment or
encumbrance, even with the consent of Landlord, shall relieve Tenant of its
personal and primary obligation to pay rent and to perform all of the
obligations to be performed by Tenant hereunder.  Consent by Landlord to one or
more assignments or encumbrances of Tenant's interest in this Lease or to one or
more sublettings of the Leased Premises shall not be deemed to be a consent to
any subsequent assignment, encumbrance or subletting.  If Landlord shall have
been ordered by a court of competent jurisdiction to consent to a requested
assignment or subletting, or such an assignment or subletting shall have been
ordered over the objection of Landlord, such assignment or subletting shall not
be binding between the assignee (or sublessee) and Landlord until such time as
all conditions set forth in Article 7.4 above have been fully satisfied (to the
extent not then satisfied) by the assignee or sublessee, including, without
limitation, the payment to Landlord of all agreed assignment considerations
and/or excess rentals then due Landlord.

     7.9  PROHIBITED FINANCIAL TRANSACTIONS:  Tenant shall not, without
Landlord's consent, enter into or do any of the following acts if to do so would
result in Tenant having a net worth or net income after such action or event
that is less than Tenant's net worth and/or net income as of the date of this
Lease: (i) make any distribution or declare or pay any cash dividends on, or
purchase, acquire, redeem or retire any of its capital stock, of any class,
whether now or hereafter outstanding, (ii) acquire, merge, or consolidate with
or into any other business organization, (iii) make any changes in Tenant's
financial structure or (iv) borrow funds, pledge assets, or lease or sell
equipment or other property.  Landlord and Tenant understand and agree that the
value of the Leased Premises is influenced by Tenant that are not conducted in
the normal course of its business which would reduce Tenant's net worth and/or
net income and thereby would adversely effect the value of the Leased Premises.

                                   ARTICLE 8
               LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY

     8.1  LIMITATION ON LANDLORD'S LIABILITY AND RELEASE:  Landlord shall not be
liable to Tenant for, and Tenant hereby releases Landlord and its partners and
officers from, any and all liability, whether in contract, tort or on any other
basis, for any injury to or any damage sustained by Tenant, its agents,
employees, contractors or invitees; any damages to Tenant's property; or any
loss to Tenant's business, loss of Tenant's profits or other financial loss of
Tenant resulting from or attributable to the condition of, the management of,
the maintenance of, or the protection of the Leased Premises, the Building, the
Project or the Common Areas, including, without limitation, any such injury,
damage or loss resulting from (i) the failure, interruption, rationing or other
curtailment or cessation in the supply of electricity, water, gas or other
utility service to the Project, the Building or the Leased Premises: (ii) the
vandalism or forcible entry into the Building or the Leased Premises; (iii) the
penetration of water into or onto any portion of the Leased Premises through
roof leaks or otherwise; (iv) the failure to provide security and/or adequate
lighting in or about the Project, the Building or the

                                      20
<PAGE>

Leased Premises; (v) the existence of any design or construction defects within
the Project, the Building or the Leased Premises; (vi) the failure of any
mechanical systems to function properly (such as the HVAC systems); or (vii) the
blockage of access to any portion of the Project, the Building or the Leased
Premises, except to the extent such damage was proximately caused by the
Landlord's active negligence or willful misconduct, or Landlord's failure to
perform an obligation expressly undertaken pursuant to this Lease but only if
Tenant shall have given Landlord prior written notice to perform such obligation
and Landlord shall have failed to perform such obligation within a reasonable
period of time following receipt of written notice from Tenant to so perform
such obligation. In this regard, Tenant acknowledges that it is fully apprised
of the provisions of Law relating to releases, and particularly to those
provisions contained in Section 1542 of the California Civil Code which read as
follows: A general release does not extent to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor. Notwithstanding such statutory provision, and for the purpose of
implementing a full and complete release and discharge, Tenant hereby (i) waives
the benefit of such statutory provision and (ii) acknowledges that, subject to
the exceptions specifically set forth herein, the release and discharge set
forth in this Article is a full and complete settlement and release and
discharge of all claims and is intended to include in its effect, without
limitation, all claims which Tenant, as of the date hereof, does not know of or
suspect to exist in its favor.

     8.2  TENANT'S INDEMNIFICATION OF LANDLORD:  Tenant shall defend, with
_______ ______ satisfactory to Landlord, any claims made or legal actions filed
or threatened by third parties against Landlord which result in the death,
bodily injury, personal injury, damage to property or interference with
contractual or other rights suffered by any third party, (including other
Tenants within the Project) which (i) occurred within the Leased Premises or
(ii) resulted from Tenant's use or occupancy of the Leased Premises or the
Common Areas or (iii) resulted from Tenant's activities in or about the Leased
Premises, the Building or the Project, and Tenant shall indemnify and hold
Landlord, Landlord's principals, employees and agents harmless from any loss
(including loss of rents by reason of vacant space which otherwise would have
been leased but for such activities), liabilities, penalties, or expense
whatsoever (including all legal fees incurred by Landlord with respect to
defending such claims) resulting therefrom, except to the extent proximately
cause by the active negligence or willful misconduct of Landlord.  This
indemnity agreement shall survive the expiration or sooner termination of this
Lease, provided that Tenant shall not be required to indemnify Landlord under
this section 8.2 with respect to events that first occur after the later of (a)
the date of the expiration, or sooner termination, of this Lease, or (b) the
date Tenant actually vacates the Premises, provided that Landlord has actual
notice of such vacation.  Tenant shall not be obligated to indemnify Landlord
against loss resulting from the negligence of Landlord or its agents, employees
or contractors.

                                   ARTICLE 9
                                   INSURANCE

     9.1  TENANT'S INSURANCE:  Tenant shall maintain insurance complying with
all of the following:

          A.   Tenant shall procure, pay for and keep in full force and effect,
at all times during the Lease Term, the following:

                                      21
<PAGE>

               (1)  Commercial General Liability insurance insuring Tenant
against liability for bodily injury, death, property damage and personal injury
occurring at the Leased Premises, or resulting from Tenant's use or occupancy of
the Leased Premises or the Building, Outside Areas, Property, or Common Areas or
resulting from Tenant's activities in or about the Leased Premises. Such
insurance shall be on an occurrence basis with a combined single limit of
liability of not less than the amount of Tenant's Required Liability Coverage
(as set forth in Article 1). The policy or policies shall be endorsed to name
Landlord and such others as are designated by Landlord as additional insured in
the form equivalent to CG20111185 or successor and shall contain the following
additional endorsement: "The insurance afforded to the additional insured is
primary insurance. If the additional insured have other insurance which is
applicable to the loss on a contributing, excess or contingent basis, the amount
of this insurance company's liability under this policy shall not be reduced by
the existence of such other insurance. Any insurance carried by the additional
insureds shall be excess and non contributing with the insurance provided by the
Tenant." The policy shall not canceled or reduced without at least 30 days
written notice to additional insureds. If the policy insurers more than one
location, it shall be endorsed to show that the limits and aggregate apply per
location using endorsement CG25041185 or successor. Tenant's policy shall also
contain the severability of interest and cross-liability endorsement or clauses.

               (2)  Fire and property damage insurance in so-called Special Form
plus earthquake and flood insuring Tenant against loss from physical damage to
Tenant's personal property, inventory, stock, trade fixtures and improvements
within the Leased Premises with coverage for the full actual replacement cost
thereof:

               (3)  Plate-glass insurance, at actual replacement cost;

               (4)  Boiler and Machinery insurance, if applicable;

               (5)  Liability insurance to cover sale or distribution of food
and beverages arising out of the distribution, sale, or consumption of food
and/or beverages including alcoholic beverages at the Leased Premises for not
less than the Tenant's Required Liability Coverage as set forth in Article1;

               (6)  Workers' compensation insurance and any other employee
benefit insurance sufficient to comply with all Laws which policy shall be
endorsed to provide thirty (30) days written notice of cancellation to Landlord;

               (7)  With respect to making alterations or the construction of
improvements or the like undertaken by Tenant, contingent liability and
builder's risk insurance, in an amount and with coverage satisfactory to
Landlord;

               (8)  Business Income Insurance at a minimum of 50% co-insurance
including coverage for loss of business income due to damage to equipment from
perils covered under the so-called Special Form plus perils of earthquake and
flood; and

               (9)  Comprehensive Auto Liability insurance with a combined
single limit coverage of not less than the amount of Tenant's Required Liability
Coverage (as set forth in Article 1) for bodily injury and/or property damage
liability for: a) Owned autos; b) Hired or

                                      22
<PAGE>

borrowed autos; c) Non-owned autos; d) Auto blanket contractual form CA0029. The
policy shall be endorsed to provide 30 days written notice of cancellation to
Landlord.

          B.   Each policy of liability insurance required to be carried by
Tenant pursuant to this Article or actually carried by Tenant with respect to
the Leased Premises or the Property (i) shall be in a form satisfactory to
Landlord, (ii) shall be provided by carriers admitted to do business in the
state of California, with a Best rating of "A/VI" or better and/or acceptable to
Landlord. Property insurance shall contain a waiver and/or a permission to waive
by the insurer any right of subrogation against Landlord, its principals,
employees, agents and contractors which might arise by reason of any payment
under such policy or by reason of any act or omission of Landlord, its
principals, employees, agents or contractors.

          C.   Prior to the time Tenant or any of its contractors enters the
Leased Premises, Tenant shall deliver to the Landlord with respect to each
policy of insurance required to be carried by Tenant pursuant to this Article, a
certificate of the insurer certifying, in a form satisfactory to the Landlord,
that the policy has been issued and premium paid providing the coverage required
by this Article and containing the provisions herein.  Attached to such a
certificate shall be endorsements naming Landlord as additional insured, and
including the wording under primary insurance above.  With respect to each
renewal or replacement of any such insurance, the requirements of this Article
must be complied with not less than 30 days prior to the expiration or
cancellation of the policy being renewed or replaced.  Landlord may at any time
and from time-to-time inspect and/or copy any and all insurance policies
required to be carried by Tenant pursuant to this article.  If Landlord's
lender, insurance broker or advisor or counsel reasonably determines at any time
that the form or amount of coverage set forth in Article 9.1(A) for any policy
of insurance Tenant is required to carry pursuant to this Article is not
adequate, then Tenant shall increase the amount of coverage for such insurance
to such greater amount or change the form as Landlord's lender, insurance broker
or advisor or counsel reasonably deems adequate (provided however such increase
level of coverage may not exceed the level of coverage for such insurance
commonly carried by comparable businesses similarly situated and operating under
similar circumstances).

          D.   The Commercial General Liability insurance carried by Tenant
shall specifically insure the performance by Tenant of the Indemnification
provisions set forth in Article 8.2 of this lease provided, however, nothing
contained in this Article 9 shall be construed to limit the liability of Tenant
under the Indemnification provisions set forth in said Article 8.2.

     9.2  LANDLORD'S INSURANCE:  With respect to insurance maintained by
Landlord:

          A.   Landlord shall maintain, as the minimum coverage required of it
by this Lease, property insurance in so-called "Special" form insuring Landlord
(and such others as Landlord may designate) against loss from physical damage to
the Building with coverage of not less than one hundred percent of the full
actual replacement cost thereof and against loss of rents for a period of not
less than twelve months.  Such property damage insurance, at Landlord's election
but without any requirement on Landlord's behalf to do so, (i) may be written in
so-called Special Form, excluding only those perils commonly excluded from such
coverage by Landlord's then property damage insurer; (ii) may provide coverage
for physical damage to the

                                      23
<PAGE>

improvements so insured for up to the entire full actual replacement cost
thereof; (iii) may be endorsed to include (or separate policies which may be
carried to cover) loss or damage caused by any additional perils against which
Landlord may elect to insure, including earthquake and/or flood; (iv) may
provide coverage for loss of rents for a period of up to twelve months; and/or
(v) may contain "deductibles" per occurrence in an amount reasonably acceptable
to Landlord. Landlord shall not be required to cause such insurance to cover any
of Tenant's personal property, inventory and trade fixtures, or any
modifications, alterations or improvements made or constructed by Tenant to or
within the Leased Premises.

          B.   Landlord shall maintain Commercial General Liability insurance
insuring Landlord (and such others as are designated by Landlord) against
liability for personal injury, bodily injury, death, and damage to property
occurring in, on or about, or resulting from the use or occupancy of the
Project, or any portion thereof, with combined single limit coverage of at least
Two Million Dollars.  Landlord may carry such greater coverage as Landlord or
Landlord's Lender, insurance broker or advisor or counsel may from time to time
determine is reasonably necessary for the adequate protection of Landlord and
the Project.

          C.   Landlord may maintain any other insurance which in the opinion of
its lender, insurance broker or advisor, or legal counsel is prudent to carry
under this given circumstances provided such insurance is commonly carried by
owners of property similarly situated and operation under similar circumstances,
and cost thereof is customarily paid by tenants pursuant to industrial triple
net leases.

     9.3  MUTUAL WAIVER OF SUBROGATION:  Landlord hereby releases Tenant, and
Tenant hereby releases Landlord and its respective partners and officers,
agents, employees and servants, from any and all liability for loss, damage or
injury to the property of the other in or about the Leased Premises which is
caused by or results from a peril or event or happening which would be covered
by insurance required to be carried under the terms of this Lease, or is covered
by insurance actually carried and in force at the time of the loss, by the party
sustaining such loss; provided, however, that such waiver shall be effective
only to the extent permitted by the insurance covering such loss and to the
extent such insurance is not prejudiced thereby.

                                  ARTICLE 10
                           DAMAGE TO LEASED PREMISES

     10.1 LANDLORD'S DUTY TO RESTORE:  If the Leased Premises are damaged by any
peril after the Effective Date of this Lease, Landlord shall restore the Leased
Premises, as and when required by this Article, unless this Lease is terminated
by Landlord pursuant to Article 10.2 or by Tenant pursuant to Article 10.3.  All
insurance proceeds available from the fire and property damage insurance carried
by Landlord shall be paid to and become the property of Landlord.  If this Lease
is terminated pursuant to either Article 10.2 and 10.3, all insurance proceeds
available from insurance carried by Tenant which cover loss to property that is
Landlord's property or would become Landlord's property on termination of this
Lease shall be paid to and become the property of Landlord, and the remainder of
such proceeds shall be paid to and become the property of Tenant. If this Lease
is not terminated pursuant to either Article 10.2 or 10.3, all insurance
proceeds available from insurance carried by Tenant which cover loss to property
that is Landlord's property shall be paid to and become the property of
Landlord, and

                                      24
<PAGE>

all proceeds available which cover loss to property which would become the
property of Landlord upon the termination of this Lease shall be paid to and
remain the property of Tenant. If this Lease is not so terminated, then upon
receipt of the insurance proceeds (if the loss is covered by insurance) and the
issuance of all necessary governmental permits, Landlord shall commence and
diligently prosecute to completion the restoration of the Leased Premises, to
the extent then allowed by Law, to substantially the same condition in which the
Leased Premises existed as of the Lease Commencement Date. Landlord's obligation
to restore shall be limited to the Leased Premises and interior improvements
constructed by Landlord. Landlord shall have no obligation to restore any other
improvements to the Leased Premises or any of the Tenant's personal property,
inventory or trade fixtures. Upon completion of the restoration by Landlord,
Tenant shall forthwith replace or fully repair all of Tenant's personal
property, inventory, trade fixtures and other improvements constructed by Tenant
to like or similar condition as existed at the time of such damage or
destruction.

     10.2 LANDLORD'S RIGHT TO TERMINATE:  Landlord shall have the option to
terminate this Lease in the event any of the following occurs, which option may
be exercised only by delivery to Tenant of a written notice of election to
terminate within thirty days after the date of such damage or destruction:

          A.   The Building is damaged by any peril covered by valid and
collectible insurance actually carried by Landlord and in force at the time of
such damage or destruction (and "insured peril") to such an extent that the
estimated cost to restore the Building exceeds the lesser of (i) the insurance
proceeds available from insurance actually carried by Landlord, or (ii) seventy-
five percent of the then actual replacement cost thereof;

          B.   The Building is damaged by an uninsured peril, which peril
Landlord was required to insure against pursuant to the provisions of Article 9
of this Lease, to such an extent that the estimated cost to restore the Building
exceeds the lesser of (i) the insurance proceeds which would have been available
had Landlord carried such required insurance, or (ii) seventy-five percent of
the then actual replacement cost thereof;

          C.   The Building is damaged by an uninsured peril, which peril
Landlord was not required to insure against pursuant to the provisions of
Article 9 of this Lease, to any extent.

          D.   The Building is damaged by any peril and, because of the Laws
then in force, the Building (i) can not be restored at reasonable cost or (ii)
if restored, can not be used for the same use being made thereof before such
damage.

          The determination of Landlord's property and Tenant's Property shall
be made pursuant to Paragraph 6.2.does not elect to terminate this Lease or is
_________________________________ as reasonably practicable, Landlord shall
furnish Tenant with the written opinion of Landlord's architect or construction
consultant as to when the restoration work required of Landlord may be complete.
Tenant shall have the option to terminate this Lease in the event any of the
following occurs, which option may be exercised in the case of A or B below only
by delivery to Landlord of a written notice of election to terminate within
seven days after Tenant receives from Landlord the estimate of the time needed
to complete such restoration:

                                      25
<PAGE>

          A.   The Leased Premises are damaged by any peril and, in the
reasonable opinion of Landlord's architect or construction consultant, the
restoration of the Leased Premises cannot be substantially completed within
twelve months after the date of such notice from Landlord; or

          B.   The Leased Premises are damaged by any peril within nine months
of the last day of the Lease Term and, in the reasonable opinion of Landlord's
architect or construction consultant, the restoration of the Leased Premises
cannot be substantially completed within ninety days after the date such
restoration is commenced.

          See Addendum Paragraph 10.3

     10.4 TENANT'S WAIVER:  Landlord and Tenant agree that the provisions of
Article 10.3 above, captioned "Tenant's Right to Terminate", are intended to
supersede and replace the provisions contained in California Civil Code, Section
1932, Subdivision 2, and California Civil Code, Section 1934, and accordingly,
Tenant hereby waives the provisions of said Civil Code Sections and the
provisions of any successor Code Sections or similar Laws hereinafter enacted.

     10.5 ABATEMENT OF RENT:  In the event of damage to the Leased Premises
which does not result in the termination of this Lease, the Base Monthly Rent
(and any Additional Rent) shall be temporarily abated during the period of
restoration in proportion to the degree to which Tenant's use of the Leased
Premises is impaired by such damage.

                                  ARTICLE 11
                                 CONDEMNATION

     11.1 LANDLORD'S RIGHT TO TERMINATE:  Subject to Article 11.3, Landlord
shall have the option to terminate this Lease if, as a result of a taking by
means of the exercise of the power of eminent domain (including inverse
condemnation and/or a voluntary sale or transfer by Landlord under threat of
condemnation to an entity having the power of eminent domain), (i) all or any
part of the Leased Premises is so taken, (ii) twenty (20%) percent of the
Buildings leasable area is so taken, (iii) more than eighty-five (85%) percent
of the Common Area is so taken, or (iv) because of the Laws then in force, the
Leased Premises may not be used for the same use being made thereof before such
taking, whether or not restored as required by Article 11.4 below.  Any such
option to terminate by Landlord must be exercisable within a reasonable period
of time, to be effective as of the date possession is taken by the condemnor.

     11.2 TENANT'S RIGHT TO TERMINATE:  Subject to Article 11.3, Tenant shall
have the option to terminate this Lease if, as a result of any taking by means
of the exercise of the power of eminent domain (including inverse condemnation
and/or a voluntary sale or transfer by Landlord to an entity having the power of
eminent domain under threat of condemnation), (i) substantially all of the
Leased Premises is so taken, (ii) thirty-three and one-third percent or more of
the Leased Premises is so taken and the part of the Leased Premises that remains
cannot, within a reasonable period of time, be made reasonably suitable for the
continued operation of the Tenant's business, or (iii) there is a taking of a
portion of the Common Area and, as a result of such taking, Landlord cannot
provide parking spaces within the Project (or within a

                                      26
<PAGE>

reasonable distance therefrom) equal in number to at least sixty-six and two-
thirds percent of Tenant's Number of Parking Spaces (as set forth in Article 1),
whether by rearrangement of the remaining parking areas in the Common Area
(including, if Landlord elects, construction of multi-dock parking structures or
re-striping for compact cars where permitted by Law), or by providing
alternative parking facilities on other land within reasonable walking distance
of the Leased Premises. Tenant must exercise such option within a reasonable
period of time, to be effective on the later to occur of (i) the date that
possession of that portion of the Common Area or the Leased Premises that is
condemned is taken by the condemnor or (ii) the date Tenant vacates the Leased
Premises.

     11.3 TEMPORARY TAKING:  If any portion of the Leased Premises is
temporarily less, this Lease shall remain in effect except that if any portion
of the Leased Premises is temporarily taken for a period which either exceeds 9
months or which extends beyond the natural expiration of the Lease Term, then
Landlord and Tenant shall have the option to terminate this Lease, effective on
the date possession is taken by the condemnor.

     11.4 RESTORATION AND ABATEMENT OF RENT:  If any part of the Leased Premises
is taken by condemnation and this Lease is not terminated, then Landlord shall
repair any damage occasioned thereby to the remainder of the Leased Premises to
a condition reasonably suitable for Tenant's continued operations and otherwise,
to the extent practicable, in the manner and to the extent provided in Article
10.1  As of the date possession is taken by the condemning authority, (i) the
Base Monthly Rent shall be reduced in the same proportion that the area of that
part of the Leased Premises so taken (less any addition to the area of the
Leased Premises by reason of any reconstruction) bears to the area of the Leased
Premises immediately prior to such taking, and (ii) Tenant's Proportionate Share
shall be appropriately adjusted.

     11.5 DIVISION OF CONDEMNATION AWARD:  Any award made for any condemnation
of the Project, the Building, the Common Areas or the Leased Premises, or any
portion thereof, shall belong to and be paid to Landlord, and Tenant hereby
assigns to Landlord all of its right, title and interest in any such award;
provided, however, that Tenant shall be entitled to receive any condemnation
award that is made directly to Tenant (i) for the taking of personal property,
inventory or trade fixtures belonging to Tenant, (ii) for the interruption of
Tenant's business or its moving costs, (iii) for loss of Tenant's goodwill, or
(iv) for any temporary taking where this Lease is not terminated as a result of
such taking, or (v) for the value of any leasehold improvements installed by
Tenant at its cost that Tenant could remove pursuant to Paragraph 6.2.  The
rights of Landlord and Tenant regarding any condemnation shall be determined as
provided in this Article, and each party hereby waives the provisions of Section
1265.130 of the California Code of Civil Procedure, and the provisions of any
similar law hereinafter enacted, allowing either party to petition the Superior
Court to terminate this Lease and/or allocating condemnation awards between
Landlord and Tenant in the event of a taking of the Leased Premises.

                                  ARTICLE 12
                             DEFAULT AND REMEDIES

     12.1 EVENTS OF TENANT'S DEFAULT:  Tenant shall be in default of its
obligations under this Lease if any of the following events occur:

                                      27
<PAGE>

          A.   Tenant shall have failed to pay Base Monthly Rent or any
Additional Rent within six days after receiving written notice from Landlord; or

          B.   Tenant shall have done or permitted to have been done any act,
use or thing in its use, occupancy or possession of the Leased Premises or in
its use of the Common Areas which is prohibited by the terms of this Lease; or

          C.   Tenant shall have failed to perform any term, covenant or
condition of this Lease, except those requiring the payment of Base Monthly Rent
or Additional Rent, within 30 days after written notice from Landlord to Tenant
specifying the nature of such failure and requesting Tenant to perform same.

          D.   Tenant shall have sublet the Leased Premises or assigned or
encumbered its interest in this Lease in violation of the provisions contained
in Article 7, whether voluntarily or by operation of Law; or

          E.   Tenant shall have failed to continuously occupy the Leased
Premises for a period of 10 consecutive days; or

          F.   Tenant or any Guarantor of this Lease shall have permitted or
suffered the sequestration or attachment of, or execution on, or the appointment
of a custodian or receiver with respect to, all or any substantial part of the
property or assets of Tenant (or such Guarantor) or any property or asset
essential to the conduct of Tenant's (or such Guarantor's) business, and Tenant
(or such Guarantor) shall have failed to obtain a return or release of the same
within thirty days thereafter, or prior to sale pursuant to such sequestration,
attachment or levy, whichever is earlier; or

          G.   Tenant or any Guarantor of this Lease shall have made a general
assignment of all or a substantial part of its assets for the benefit of its
creditors; or

          H.   Tenant or any Guarantor of this Lease shall have allowed (or
sought) to have entered against it a decree or order which:  (i) grants or
constitutes an order for relief, appointment of a trustee, or confirmation of a
reorganization plan under the bankruptcy laws of the United States; (ii)
approves as properly filed a petition seeking liquidation or reorganization
under said bankruptcy laws or any other debtor's relief law or similar statute
of the United States or any state thereof; or (iii) otherwise directs the
winding up or liquidation of Tenant; provided, however, if any decree or order
was entered without Tenant's consent or over Tenant's objection, Landlord may
not terminate this Lease pursuant to this Subarticle if such decree or order is
rescinded or reversed within thirty days after its original entry.

          I.   Tenant or any Guarantor of this Lease shall have availed itself
of the protection of any debtor's relief law, moratorium law or other similar
Law which does not require the prior entry of a decree of order.

     12.2 LANDLORD'S REMEDIES:  In the event of any default by Tenant, and
without limiting Landlord's right to indemnification as provided in Article 8.2,
Landlord shall have the following remedies, in addition to all other rights and
remedies provided by Law or otherwise provided in this Lease, to which Landlord
may resort cumulatively, or in the alternative:

                                      28
<PAGE>

          A.   Landlord may, at Landlord's election, keep this Lease in effect
and enforce, by an action at law or in equity all of its rights and remedies
under this Lease including, without limitation, (i) the right to recover the
rent and other sums as they become due by appropriate legal action, (ii) the
right to make payments required of Tenant, or perform Tenant's obligations and
be reimbursed by Tenant for the cost thereof with interest at the then maximum
rate of interest not prohibited by Law from the date the sum is paid by Landlord
until Landlord is reimbursed by Tenant, and (iii) the remedies of injunctive
relief and specific performance to prevent Tenant from violating the terms of
this Lease and/or to compel Tenant to perform its obligations under this Lease,
as the case may be.

          B.   Landlord may, at Landlord's election, terminate this Lease by
giving Tenant written notice of termination, in which event this Lease shall
terminate on the date set forth for termination in such notice.  Any termination
under this Subarticle shall not relieve Tenant from its obligation to pay to
Landlord all Base Monthly Rent and Additional Rent then or thereafter due, or
any other sums due or thereafter accruing to Landlord, or from any claim against
Tenant for damages previously accrued or then or thereafter accruing.  In no
event shall any one or more of the following actions by Landlord, in the absence
of a written election by Landlord to terminate this Lease, constitute a
termination of this Lease:

               (1)  Appointment of a receiver or keeper in order to protect
Landlord's interest hereunder;

               (2)  Consent to any subletting of the Leased Premises or
assignment of this Lease by Tenant, whether pursuant to the provisions hereof,
or otherwise; or

               (3)  Any other action by Landlord or Landlord's agents intended
to mitigate the adverse effects of any breach of this Lease by Tenant,
including, without limitation, any action taken to maintain and preserve the
Leased Premises or any action taken to relet the Leased Premises, or any portion
thereof, for the account of Tenant and in the name of Tenant.

          C.   In the event Tenant breaches this Lease and abandons the Leased
Premises, Landlord may terminate this Lease, but this Lease shall not terminate
unless Landlord gives Tenant written notice of termination.  No act by or on
behalf of Landlord intended to mitigate the adverse effect of such breach,
including those described by Subarticles B(1), (2) and (3) immediately
preceding, shall constitute a termination of Tenant's right to possession unless
Landlord gives Tenant written notice of termination.  If Landlord does not
terminate this Lease by giving written notice of termination, Landlord may
enforce all its rights and remedies under this Lease, including the right to
recover rent as it becomes due under this Lease as provided in California Civil
Code Section 1951.4, as in effect on the Effective Date of this Lease.

          D.   In the event Landlord terminates this Lease, Landlord shall be
entitled, at Landlord's election, to damages in an amount as set forth in
California Civil Code Section 1951.2, as in effect on the Effective Date of this
Lease.  For purposes of computing damages pursuant to said Section 1951.2, an
interest rate equal to the maximum rate of interest then not prohibited by Law
shall be used where permitted.  Such damages shall include, without limitation:

                                      29
<PAGE>

               (1)  The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided,
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent; and

               (2)  Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease, or which in the ordinary course of things would be likely to
result therefrom, including, without limitation, the following: (i) expenses for
cleaning, repairing or restoring the Leased Premises; (ii) expenses for
altering, remodeling or otherwise improving the Leased premises for the purpose
of reletting, including removal of existing leasehold improvements but excluding
installation of additional leasehold improvements (regardless of how the same is
funded, including reduction of rent, a direct payment or allowance to a new
tenant, or otherwise); (iii) broker's fees, advertising costs and other expenses
of reletting the Leased Premises; (iv) costs of carrying the Leased Premises,
which costs would have been billed to Tenant as Additional Rent had Tenant not
defaulted and which include, but are not limited to: taxes, insurance premiums,
landscape maintenance, HVAC maintenance, utility charges and security
precautions; (v) expenses incurred in removing, disposing of and/or storing any
of Tenant's personal property, inventory or trade fixtures remaining therein;
(vi) attorneys' fees, expert witness fees, court costs and other reasonable
expenses incurred by Landlord (but not limited to taxable costs) in retaking
possession of the Leased Premises, establishing damages hereunder, and re-
leasing the Leased Premises; and (vii) any other expenses, costs or damages
otherwise incurred or suffered as a result of Tenant's default. [allowable to
the remainder of the term of this Lease -- unsure where this text goes above]

     12.3 LANDLORD'S DEFAULT AND TENANT'S REMEDIES:  In the event Landlord fails
to perform any of its obligations under this Lease, Landlord shall nevertheless
not be in default under the terms of this Lease until such time as Tenant shall
have first given Landlord written notice specifying the nature of such failure
to perform its obligations, and then only after Landlord shall have had a
reasonable period of time following its receipt of such notice within which to
perform such obligations.  In the event of Landlord's default as above set
forth, then, and only then, Tenant shall have the following remedies only:

          A.   Tenant may then proceed in equity or at law to compel Landlord to
perform its obligations and/or to recover damages proximately caused by such
failure to perform (except as and to the extent Tenant has waived its right to
damages as provided in this Lease).

          B.   Tenant, at its option, may then cure any default of Landlord at
Landlord's cost.  If, pursuant to this Subarticle, Tenant reasonably pays any
sum to any third party or docs any act that requires the payment of any sum to
any third party at any time by reason of Landlord's default, the sum paid by
Tenant shall be immediately due from Landlord to Tenant at the time Tenant
supplies Landlord with an invoice therefore (provided such invoice sets forth
and is accompanied by a written statement of Tenant setting forth in reasonable
detail the amount paid, the party to whom it was paid, the date it was paid, and
the reasons giving rise to such payment), together with interest at twelve
percent per annum from the date of such invoice until Tenant is reimbursed by
Landlord.  Tenant may not offset such sums against any installment of rent due
Landlord under the terms of this Lease.

                                      30
<PAGE>

          C.   The remedies afforded Tenant in this Section 12.3 are granted in
addition to any and all remedies afforded Tenant at law or in equity.

     12.4 LIMITATION ON TENANT'S RECOURSE:  If Landlord is a corporation, trust,
partnership, joint venture, unincorporated association, or other form of
business entity, Tenant agrees that (i) the obligations of Landlord under this
Lease shall not constitute personal obligations of the officers, directors,
trustees, partners, joint venturers, members, owners, stockholders, or other
principals of such business entity and (ii) Tenant shall have recourse only to
Landlord's then equity interest, if any, in the Property for the satisfaction of
such obligations and not against the assets of such officers, directors,
trustees, partners, joint venturers, members, owners, stockholders or principals
(other than to the extent of their interest in the Property).  Tenant shall look
exclusively to such equity interest of Landlord, if any, in the Property for
payment and discharge of any obligations imposed upon Landlord hereunder, and
Landlord is hereby released and relieved of any other obligations hereunder.
Additionally, if Landlord is a partnership, then Tenant covenants and agrees:

          A.   No partner of Landlord shall be sued or named as a party in any
suit or action brought by Tenant with respect to any alleged breach of this
Lease (except to the extent necessary to secure jurisdiction over the
partnership and then only for that sole purpose);

          B.   No service of process shall be made against any partner of
Landlord except for the sole purpose of securing jurisdiction over the
partnership; and

          C.   No writ of execution shall be levied against the assets of any
partner of Landlord other than to the extent of his interest in Property.

Tenant further agrees that each of the foregoing covenants and agreements shall
be enforceable by Landlord and by any partner of Landlord and shall be
applicable to any actual or alleged misrepresentation or non-disclosure made
respecting this Lease or the Leased Premises or any actual or alleged failure,
default or breach of any covenant or agreement either expressly or implicitly
contained in this Lease or imposed by statute or at common law.

     12.5 TENANT'S WAIVER:  Landlord and Tenant agree that the provisions of
Article 12.3 above are intended to supersede and replace the provisions of
California Civil Code 1932(l), 1941 and 1942, and accordingly, Tenant hereby
waives the provisions of Section 1932(l), 1941 and 1942 of the California Civil
Code and/or any similar or successor Law regarding Tenant's right to terminate
this Lease or to make repairs and deduct the expenses of such repairs from the
rent due under this Lease.

                                  ARTICLE 13
                              GENERAL PROVISIONS

     13.1 TAXES ON TENANT'S PROPERTY.  Tenant shall pay before delinquency any
and all taxes, assessments, license fees, use fees, permit fees and public
charges of whatever nature or description levied, assessed or imposed against
Tenant or Landlord by a governmental agency arising out of, caused by reason of
or based upon Tenant's estate in this Lease, Tenant's ownership of property,
improvements made by Tenant to the Leased Premises, improvements made by
Landlord for Tenant's use within the Leased Premises, Tenant's use (or estimated
use)

                                      31
<PAGE>

of public facilities or services or Tenant's consumption (or estimated
consumption) of public utilities, energy, water or other resources. On demand by
Landlord, Tenant shall furnish Landlord with satisfactory evidence of these
payments. If any such taxes, assessments, fees or public charges are levied
against Landlord, Landlord's property, the Building or the Project, or if the
assessed value of the Building or the Project is increased by the inclusion
therein of a value placed upon same, then Landlord, after giving written notice
to Tenant, shall have the right, regardless of the validity taxes, assessment,
fee or public charge so paid on Tenant's (unable to read) receives an invoice
from Landlord setting forth the amount of such taxes, assessment, fee or public
charge so levied, pay to Landlord, as Additional Rent, the amount set forth in
said invoice. Failure by Tenant to pay the amount so invoiced within said ten
day period shall be conclusively deemed a default by Tenant under this Lease.
Tenant shall have the right, and with Landlord's full cooperation if Tenant is
not then in default under the terms of this Lease, to bring suit in any court of
competent jurisdiction to recover from the taxing authority the amount of any
such taxes, assessment, fee or public charge so paid.

     13.2 HOLDING OVER:  This Lease shall terminate without further notice on
the Lease Expiration Date (as set forth in Article 1).  Any holding over by
Tenant after expiration of the Lease Term shall neither constitute a renewal nor
extension of this Lease nor give Tenant any rights in or to the Leased Premises
except as expressly provided in this Article.  Any such holding over shall be
deemed an unlawful detainer of the Leased Premises unless Landlord has consented
to same.  Any such holding over to which Landlord has consented shall be
construed to be a tenancy from month to month, on the same terms and conditions
herein specified insofar as applicable, except that the Base Monthly Rent shall
be increased to an amount equal to one hundred fifty percent of the Base Monthly
Rent payable during the last full month immediately preceding such holding over.

     13.3 SUBORDINATION TO MORTGAGES:  This Lease is subject and subordinate to
all underlying ground leases and to all mortgages and deed of trust which affect
the Building and are of public record as of the Effective Date of this Lease,
and to all renewals, modifications, consolidations, replacements and extensions
thereof.  However, if the lessor under any such ground lease or any Lender
holding any such mortgage or deed of trust shall advise Landlord that it desires
or requires this Lease to be made prior and superior thereto, then, upon written
request of Landlord to Tenant, Tenant shall promptly execute, acknowledge and
deliver any and all documents or instruments which Landlord and such lessor or
Lender deem necessary or desirable to make this Lease prior thereto.  Tenant
hereby consents to Landlord's ground leasing the land underlying the Building
and/or encumbering the Building as security for future loans on such terms as
Landlord shall desire, all of which future ground leases, mortgages or deeds of
trust shall be subject and subordinate to this Lease.  However, if any lessor
under any such future ground lease or any Lender holding such future mortgage or
deed of trust shall desire or require that this Lease be made subject and
subordinate to such future ground lease, mortgage or deed of trust, then Tenant
agrees, within ten days after Landlord's written request therefore, to execute,
acknowledge and deliver to Landlord any and all documents or instruments
requested by Landlord or such lessor or Lender as may be necessary or proper to
assure the subordination of this Lease to such future ground lease, mortgage or
deed of trust; but only if such lessor or Lender agrees to recognize Tenant's
rights under this Lease and not to disturb Tenant's quiet possession of the
Leased Premises so long as Tenant is not in default under this Lease.

                                      32
<PAGE>

     13.4 TENANT'S ATTORNMENT UPON FORECLOSURE:  Tenant shall, upon request,
attorn (i) to any purchaser of the Building at any foreclosure sale or private
sale conducted pursuant to any security instrument encumbering the Building,
(ii) to any grantee or transferee designated in any deed given in lieu of
foreclosure of any security interest encumbering the Building, or (iii) to the
lessor under any underlying ground lease of the land underlying the Building,
should such ground lease be terminated; provided that such purchaser, grantee or
lessor recognizes Tenant's rights under this Lease.

     13.5 MORTGAGEE PROTECTION:  In the event of any default on the part of
Landlord, Tenant will give notice by registered mail to any Lender or lessor
under any underlying ground lease who shall have requested, in writing, to
Tenant that it be provided with such notice, and Tenant shall offer such Lender
or lessor a reasonable opportunity to cure the default, including time to obtain
possession of the Leased Premises by power of sale or judicial foreclosure or
other appropriate legal proceedings if reasonably necessary to effect a cure.

     13.6 ESTOPPEL CERTIFICATES:  Tenant will, following any request by
Landlord, promptly execute and deliver to Landlord an estoppel certificate (i)
certifying that this Lease is unmodified and in full force and effect, or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect, (ii) stating the date to
which the rent and other charges are paid in advance, if any, (iii)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specifying such defaults if any are claimed,
and (iv) certifying such other information about this Lease as may be reasonably
requested by Landlord.  Tenant's failure to execute and deliver such estoppel
certificate within ten days after Landlord's request therefore shall be a
material default by Tenant under this Lease, and Landlord shall have all of the
rights and remedies available to Landlord as Landlord would otherwise have in
the case of any other material default by Tenant, including the right to
terminate this Lease and sue for damages proximately caused thereby, it being
agreed and understood by Tenant that Tenant's failure to so deliver such
estoppel certificate in a timely manner could result in Landlord being unable to
perform committed obligations to other third parties which were made by Landlord
in reliance upon this covenant of Tenant.  Landlord and Tenant intend that any
statement delivered pursuant to this Article may be relied upon by any Lender or
purchaser or prospective Lender or purchaser of the Building, the Project, or
any interest therein.  See Addendum Paragraph 13.6

     13.7 TENANT'S FINANCIAL INFORMATION:  Tenant shall, within ten business
days after Landlord's request therefore, deliver to Landlord a copy of a current
financial statement, including an income statement and balance sheet, and any
such other information reasonably requested by Landlord regarding Tenant's
financial condition.  Tenant acknowledges that Landlord has and will rely on the
truth and accuracy of the information provided by Tenant to Landlord both prior
to and during the term of the Lease.  Landlord shall be entitled to disclose
such financial statements or other information to its Lender, to any present or
prospective principal of or investor in Landlord, or to any prospective Lender
or purchaser of the Building, the Project or any portion thereof or interest
therein.  Any such financial statement or other information which is marked
"confidential" or "company secrets" (or is otherwise similarly marked by Tenant)
shall be confidential and shall not be disclosed by Landlord to any third party
except as specifically provided in this Article, unless the same becomes a part
of the public domain without the fault of Landlord.

                                      33
<PAGE>

     13.8  TRANSFER BY LANDLORD:  Landlord and its successors in interest shall
have the right to transfer their interest in the Building, the Project, or any
portion thereof at any time and to any person or entity.  In the event of any
such transfer, the Landlord originally named herein (and in the case of any
subsequent transfer, the transferor), from the date of such transfer, (i) shall
be automatically relieved, without any further act by any person or entity, of
all liability for the performance of the obligations of the Landlord hereunder
which may accrue after the date of such transfer and (ii) shall be relieved of
all liability for the performance of the obligations of the Landlord hereunder
which have accrued before the date of transfer if its transferee agrees to
assume and perform all such prior obligations of the Landlord hereunder.  Tenant
shall attorn to any such transferee.  After the date of any such transfer, the
term "Landlord" as used herein shall mean the transferee of such interest in the
Building or the Project.

     13.9  FORCE MAJEURE:  The obligations of each of the parties under this
Lease (other than the obligation to pay money) shall be temporarily excused if
such party is prevented or delayed in performing such obligation by reason of
any strikes, lockouts or labor disputes; inability to obtain labor, materials,
fuels or reasonable substitutes therefore; governmental restrictions,
regulations, controls, action or inaction; civil commotion; inclement weather,
fire or other acts of God; or other causes (except financial inability) beyond
the reasonable control of the party obligated to perform (including acts or
omissions of the other party for a period equal to the period of any such
prevention, delay or stoppage.

     13.10 NOTICES:  Any notice required or desired to be given by a party
regarding this Lease shall be in writing and shall be personally served, or in
lieu of personal service may be given by: (i) delivery by Federal Express,
United Parcel Service or similar commercial service, (ii) electronic facsimile
transmission, or (iii) by depositing such notice in the United States mail,
postage prepaid, addressed to the other party as follows:

           A.   If addressed to Landlord, to Landlord at its Address for Notices
(as set forth in Article 1).

           B.   If addressed to Tenant, to Tenant at its Address for Notices (as
set forth in Article 1).

Any notice given by registered mail shall be deemed to have been given on the
third business day after its deposit in the United States mail.  Any notice
given by certified mail shall be deemed given on the date receipt was
acknowledged to the postal authorities.  Any notice given by mail other than
registered or certified mail shall be deemed given only if received by the other
party, and then on the date of receipt.  In the event of notice by electronic
facsimile transmission or commercial carrier, notice shall be deemed received on
the date of confirmation documented by the transmission or carrier.  Each party
may, by written notice to the other in the manner aforesaid, change the address
to which notices addressed to it shall thereafter be mailed.

     13.11 ATTORNEYS' FEES:  In the event any party shall bring any action,
arbitration proceeding or legal proceeding alleging a breach of any provision of
this Lease to recover rent, to terminate this Lease, or to enforce, protect,
determine or establish any term or covenant of this Lease or rights or duties
hereunder of either party, the prevailing party shall be entitled to recover
from the non-prevailing party as a part of such action or proceeding, or in a
separate

                                      34
<PAGE>

action for that purpose brought within one year from the determination of such
proceeding, reasonable attorneys' fees, expert witness fees, court costs and
other reasonable expenses incurred by the prevailing party. In the event that
Landlord shall be required to retain counsel to enforce any provision of this
Lease, and if Tenant shall thereafter cure (or desire to cure) such default,
Landlord shall be conclusively deemed the prevailing party, and Tenant shall pay
to Landlord all attorneys' fees, expert witness fees, court costs and other
reasonable expenses so incurred by Landlord promptly upon demand provided that
Landlord has first notified Tenant in writing that Landlord was retaining
counsel in connection with such matter prior to Landlord's retention of counsel.
Landlord may enforce this provision by either (i) requiring Tenant to pay such
fees and costs as a condition to curing its default or (ii) bringing a separate
action to enforce such payment, it being agreed by and between Landlord and
Tenant that Tenant's failure to pay such fees and costs upon demand shall
constitute a breach of this Lease in the same manner as a failure by Tenant to
pay the Base Monthly Rent, giving Landlord the same rights and remedies as if
Tenant failed to pay the Base Monthly Rent.

     13.12 DEFINITIONS:  Any term that is given a special meaning by any
provision in this Lease shall, unless otherwise specifically stated, have such
meaning whenever used in this Lease or in any Addenda or amendment hereto. In
addition to the terms defined in Article 1, the following terms shall have the
following meanings: See Addendum Paragraph 13.12

           A.   REAL PROPERTY TAXES:  The term "Real Property Tax" or "Real
Property Taxes" shall each mean (i) all taxes, assessments, levies and other
charges of any kind or nature whatsoever, general and special, foreseen and
unforeseen (including all installments of principal and interest required to pay
any general or special assessments for public improvements and any increases
resulting from reassessments caused by any change in ownership or new
construction), now or hereafter imposed by any governmental or quasi-
governmental authority or special district having the direct or indirect power
to tax or levy assessments, which are levied or assessed for whatever reason
against the Project or any portion thereof, or Landlord's interest therein, or
the fixtures, equipment and other property of Landlord that is an integral part
of the Project and located thereon, or Landlord's business of owning, leasing or
managing the Project or the gross receipts, income or rentals from the Project;
(ii) all charges, levies or fees imposed by any governmental authority against
Landlord by reason of or based upon the use of or number of parking spaces
within the Project, the amount of public services or public utilities used or
consumed (e.g. water, gas, electricity, sewage or surface water disposal) at the
Project, the number of persons employed by tenants of the Project, the size
(whether measured in area, volume, number of tenants or whatever) or the value
of the Project, or the type of use or uses conducted within the Project; and
(iii) all costs and fees (including attorneys' fees) incurred by Landlord in
contesting any Real Property Tax and in negotiating with public authorities as
to any Real Property Tax.  If, at any time during the Lease Term, the taxation
or assessment of the Project prevailing as of the Effective Date of this Lease
shall be altered so that in lieu of or in addition to any Real Property Tax
described above there shall be levied, assessed or imposed (whether by reason of
a change in the method of taxation or assessment, creation of a new tax or
charge, or any other cause) an alternate, substitute, or additional tax or
charge (i) on the value, size, use or occupancy of the Project or Landlord's
interest therein or (ii) on or measured by the gross receipts, income or rentals
from the Project, or on Landlord's business of owning, leasing or managing the
Project or (iii) computed in any manner with respect to the operation of the
Project, then any such tax or charge, however designated, shall be included
within the meaning

                                      35
<PAGE>

of the terms "Real Property Tax" or "Real Property Taxes" for purposes of this
Lease. If any Real Property Tax is partly based upon property or rents unrelated
to the Project, then only that part of such Real Property Tax that is fairly
allocable to the Project shall be included within the meaning of the terms "Real
Property Tax" or "Real Property Taxes". Notwithstanding the foregoing, the terms
"Real Property Tax" or "Real Property Taxes" shall not include estate,
inheritance, transfer, gift or franchise taxes of Landlord or the federal or
state income tax imposed on Landlord's income from all sources. Notwithstanding
the above, Tenant shall only be liable for Real Property taxes which relate to
the Lease Term.

          B.   LANDLORD'S INSURANCE COSTS:  The term "Landlord's Insurance
Costs" shall mean the costs to Landlord to carry and maintain the policies of
fire and property damage insurance, including quake and flood, for the Project
and general liability insurance required, or permitted, to be carried by
Landlord pursuant to Article 9, together with any deductible amounts paid by
Landlord upon the occurrence of any insured casualty or loss, which are
recoverable by Landlord from Tenant pursuant to this Lease

          C.   PROJECT MAINTENANCE COSTS:  The term "Project Maintenance Costs"
shall mean all costs and expenses (except Landlord's Insurance Costs and Real
Property Taxes) paid or incurred by Landlord in protecting, operating,
maintaining, repairing and preserving the Project and all parts thereof,
including without limitation, (i) professional management fees (equal to five
percent of annualized Base Monthly Rent), (ii) the amortizing portion of any
costs incurred by Landlord in the making of any modifications, alterations or
improvements as set forth in Article 6, which are so amortized during the Lease
Term, (iii) costs of complying with governmental regulations governing Tenant's
use of Hazardous Materials, and Landlord's costs of monitoring Tenant's use of
Hazardous Materials including fees charged by Landlord's consultants to
periodically inspect the Premises and the Property, and (iv) such other costs as
may be paid or incurred with respect to operating, maintaining and preserving
the Project, such as repairing, replacing and resurfacing the exterior surfaces
of the buildings (including roofs), repairing, replacing, and resurfacing paved
areas, repairing structural parts of the buildings, cleaning, maintaining,
repairing, or replacing the interior of the Leased Premises both during the
Lease Term and upon the termination of the Lease, and maintaining, repairing or
replacing, when necessary electrical, plumbing, sewer, drainage, heating,
ventilating and air conditioning systems serving the buildings, providing
utilities to the common areas, maintenance, repair, replacement or installation
of lighting fixtures, directional or other signs and signals, irrigation or
drainage systems, trees, shrubs, materials, maintenance of all landscaped areas,
and depreciation and financing costs on maintenance and operating machinery and
equipment (if owned) and rental paid for such machinery and equipment (if
leased).

          D.   READY FOR OCCUPANCY:  The term "Ready for Occupancy" shall mean
the date upon which (i) the Leased Premises are available for Tenant's occupancy
in a broom clean condition and (ii) the improvements, if any, to be made to the
Leased Premises by Landlord as a condition to Tenant's obligation to accept
possession of the Leased Premises have been substantially completed and the
appropriate governmental building department (i.e. the City building department,
if the Project is located within a City, or otherwise the County building
department) shall have approved the construction of the improvements as
substantially complete or is willing to so approve the construction of such
improvements as substantially complete subject only to compliance with specified
conditions which are the responsibility of Tenant to

                                      36
<PAGE>

satisfy or is willing to allow Tenant to occupy subject to its receiving
assurances that specified work will be completed.

          E.   TENANT'S PROPORTIONATE SHARE:  The term "Tenant's Proportionate
Share" or "Tenant's Share", as used with respect to an item pertaining to the
Building, shall each mean that percentage obtained by dividing the leasable
square footage contained within the Leased Premises (as set forth in Article 1)
by the total leasable square footage contained within the Building as the same
from time to time exists or, as used with respect to an item pertaining to the
Project, shall each mean that percentage obtained by dividing the leasable
square footage contained within the Leased Premises (as set forth in Article 1)
by the total leasable square footage contained within the Project as the same
from time to time exists, unless, as to any given item, such a percentage
allocation unfairly burdens or benefits a given tenant(s), in which case
Landlord shall have the exclusive right to equitably allocate such item so as to
not unfairly burden or benefit any given tenant(s).  Landlord's determination of
any such special allocation shall be final and binding upon Tenant unless made
in bad faith.

          F.   BUILDING'S PROPORTIONATE SHARE:  The term "Building's
Proportionate Share" or "Building's Share" shall each mean that percentage which
is obtained by dividing the leasable square footage contained within the
Building by the leasable square footage contained within all buildings located
within the Project, unless, as to any given item, such a percentage allocation
unfairly burdens or benefits a given building(s), in which case Landlord shall
have the exclusive right to equitably allocate such item so as to not unfairly
burden or benefit any given building(s).  Landlord's determination of any such
special allocation shall be final and binding upon Tenant unless made in bad
faith.

          G.   BUILDING OPERATING EXPENSES:  The term "Building Operating
Expenses" shall mean and include the Building's Share of all Real Property
Taxes, plus the Building's Share of all Landlord's Insurance Costs, plus the
Building's Share of all Project Maintenance Costs, plus an accounting fee equal
to five percent of all such costs.

          H.   LAW:  The term "Law" shall mean any judicial decision and any
statute, constitution, ordinance, resolution, regulation, rule, administrative
order, or other requirement of any municipal, county, state, federal, or other
governmental agency or authority having jurisdiction over the parties to this
Lease, the Leased Premises, the Building or the Project, or any of them in
effect either at the Effective Date of this Lease or at any time during the
Lease Term, including, without limitation, any regulation, order, or policy of
any quasi-official entity or body (e.g. a board of fire examiners or a public
utility or special district).

          I.   LENDER:  The term "Lender" shall mean the holder of any Note or
other evidence of indebtedness secured by the Project or any portion thereof.

          J.   PRIVATE RESTRICTIONS:  The term "Private Restrictions" shall mean
all recorded covenants, conditions and restrictions, private agreements,
easements, and any other recorded instruments affecting the use of the Project,
as they may exist from time to time.

          K.   RENT:  The term "rent" shall mean collectively Base Monthly Rent
and all Additional Rent.

                                      37
<PAGE>

     13.13 GENERAL WAIVERS:  One party's consent to or approval of any act by
the other party, requiring the first party's consent or approval shall not be
deemed to waive or render unnecessary the first party's consent to or approval
of any subsequent similar act by the other party.  No waiver of any provision
hereof or any breach of any provision hereof shall be effective unless in
writing and signed by the waiving party.  The receipt by Landlord of any rent or
payment with or without knowledge of the breach of any other provision hereof
shall not be deemed a waiver of any such breach.  No waiver of any provision of
this Lease shall be deemed a continuing waiver unless such waiver specifically
states so in writing and is signed by both Landlord and Tenant.  No delay or
omission in the exercise of any right or remedy accruing to either party upon
any breach by the other party under this Lease shall impair such right or remedy
or be construed as a waiver of any such breach theretofore or thereafter
occurring.  The waiver by either party of any breach of any provision of this
Lease shall not be deemed to be a waiver of any subsequent breach of the same or
any other provisions herein contained.

     13.14 MISCELLANEOUS:  Should any provision of this Lease prove to be
invalid or illegal, such invalidity or illegality shall in no way affect, impair
or invalidate any other provision hereof, and such remaining provisions shall
remain in full force and effect.  Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor.  Any copy of this Lease which is executed by the parties shall be deemed
an original for all purposes.  This Lease shall, subject to the provisions
regarding assignment, apply to and bind the respective heirs, successors,
executors, administrators and assigns of Landlord and Tenant.  The term "party"
shall mean Landlord or Tenant as the context implies.  If Tenant consists of
more than one person or entity, then all members of Tenant shall be jointly and
severally liable hereunder.  This Lease shall be construed and enforced in
accordance with the Laws of the State in which the Leased Premises are located.
The language in all parts of this Lease shall in all cases be construed as a
whole according to its fair meaning, and not strictly for or against either
Landlord or Tenant.  The captions used in this Lease are for convenience only
and shall not be considered in the construction or interpretation of any
provision hereof.  When the context of this Lease requires, the neuter gender
includes the masculine, the feminine, a partnership or corporation or joint
venture, and the singular includes the plural.  The terms "must", "shall",
"will" and "agree" are mandatory.  The term "may" is permissive.  When a party
is required to do something by this Lease, it shall do so at its sole cost and
expense without right of reimbursement from the other party unless specific
provision is made therefor.  Where Tenant is obligated not to perform any act or
is not permitted to perform any act, Tenant is also obligated to restrain any
others reasonably within its control, including agents, invitees, contractors,
subcontractors and employees, from performing said act.  Landlord shall not
become or be deemed a partner or a joint venturer with Tenant by reason of any
of the provisions of this Lease.  See Addendum Paragraph 13.14

                                  ARTICLE 14
                              CORPORATE AUTHORITY
                         BROKERS AND ENTIRE AGREEMENT

     14.1  CORPORATE AUTHORITY:  If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
Tenant is validly formed and duly authorized and existing, that Tenant is
qualified to do business in the State in which the Lease Premises are located,
that Tenant has the full right and legal authority to enter

                                      38
<PAGE>

into this Lease, that he or she is duly authorized to execute and deliver this
Lease on behalf of Tenant in accordance with the bylaws and/or a board of
directors' resolution of Tenant, and that this Lease is binding upon Tenant in
accordance with its terms. Tenant shall, within thirty days after execution of
this Lease, deliver to Landlord a certified copy of the resolution of its board
of directors authorizing or ratifying the execution of this Lease, and if Tenant
fails to do so, Landlord at its sole election may elect to (i) extend the
Intended Commencement Date by such number of days that Tenant shall have delayed
in so delivering such corporate resolution to Landlord or (ii) terminate this
Lease.

     14.2 BROKERAGE COMMISSIONS:  Tenant warrants that it has not had any
dealings with any real estate broker(s), leasing agent(s), finder(s) or
salesmen, other than those persons or entities named in Article 1 as the
"Brokers" with respect to the lease by it of the Leased Premises pursuant to
this Lease, and that it will indemnify, defend with competent counsel, and hold
Landlord harmless from any liabilities for the payment of any real estate
brokerage commissions, leasing commissions or finder's fees claimed by any other
real estate broker(s), leasing agent(s), finder(s) or salesmen to be earned or
due and payable by reason of Tenant's agreement or promise (implied or
otherwise) to pay (or have Landlord pay) such a commission or finder's fee by
reason of its leasing the Leased Premises pursuant to this Lease.

     14.3 ENTIRE AGREEMENT:  This Lease, the Exhibits (as described in Article
1) and the Addenda (as described in Article 1), which Exhibits and Addenda are
by this reference incorporated herein, constitute the entire agreement between
the parties, and there are no other agreements, understandings or
representations between the parties relating to the lease by Landlord of the
Leased Premises to Tenant, except as expressed herein.  No subsequent changes,
modifications or additions to this Lease shall be binding upon the parties
unless in writing and signed by both Landlord and Tenant.

     14.4 LANDLORD'S REPRESENTATIONS:  Tenant acknowledges that neither Landlord
nor any of its agents made any representations or warranties respecting the
Project, the Building or the Leased Premises, upon which Tenant relied in
entering into this Lease, which are not expressly set forth in this Lease.
Tenant further acknowledges that neither Landlord nor any of its agents made any
representations as to (i) whether the Leased Premises may be used for Tenant's
intended use under existing Law or (ii) the suitability of the Leased Premises
for the conduct of Tenant's business or (iii) the exact square footage of the
Leased Premises, and that Tenant relied solely upon its own investigations
representing said matters.  Tenant expressly waives any and all claims for
damage by reason of any statement, representation, warranty, promise or other
agreement of Landlord or Landlord's agent(s), if any, not contained in this
Lease or in any Addenda hereto.

                                      39
<PAGE>

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
respective dates below set forth with the intent to be legally bound thereby as
of the Effective Date of this Lease.

AS LANDLORD:                          AS TENANT:

_____________________________         _____________________________

_____________________________         _____________________________

By:__________________________         By:__________________________

Title:_______________________         Title:_______________________

By:__________________________         By:__________________________

Title:_______________________         Title:_______________________

Dated:_______________________         Dated:_______________________

     If Tenant is a CORPORATION, the authorized officers must sign on behalf of
the corporation and indicate the capacity in which they are signing.  This Lease
must be executed by the chairman of the board, president or vice president, and
the secretary, assistant secretary, the chief financial officer or assistant
treasurer, unless the bylaws or a resolution of the board of directors shall
otherwise provide, in which event a certified copy of the bylaws or a certified
copy of the resolution, as the case may be, must be attached to this Lease.

                                      40
<PAGE>

                            FIRST ADDENDUM TO LEASE
                                   Renco 36

THIS FIRST ADDENDUM TO LEASE ("Addendum") is dated for reference purposes as of
____________, and is made between RENCO INVESTMENT COMPANY, California general
partnership ("Landlord") and LEXAR MICROSYSTEMS, INC., a California corporation
("Tenant") to be a part of that certain Industrial Space Lease of even date
herewith between Landlord and Tenant (herein the "Lease Form"), with respect to
the building (the "Building") commonly known as Renco 36 , located at 47421
Bayside Parkway, Fremont, California. Such property, together with the Building
and all improvements located thereon during the term, including any extended
term, are referred to collectively herein as the "Property." Terms defined in
the Lease Form shall have the same meaning when used herein unless specifically
defined otherwise herein. Landlord and Tenant agree that the Lease Form is
hereby modified and supplemented as follows:

     1.1    S. Base Monthly Rent: Intentionally omitted.

     2.1    Demise of Leased Premises. Notwithstanding anything to the
            -------------------------
contrary in Section 2.1 of the Lease Form, Tenant's compliance with Laws
concerning hazardous materials, whether governing the use of the Leased Premises
or the Property or not, shall be governed solely and exclusively by Paragraph 16
of this Addendum.

     2.5    Acceptance of Possession: Notwithstanding anything to the
            ------------------------
contrary in Section 2.5 of the Lease Form: Landlord warrants that the
construction of the Tenant Improvements will be performed substantially in
accordance with the Construction Drawings (as defined in Exhibit C) and; in
compliance with all laws, codes, ordinances, rules and regulations, in a good
and workmanlike manner, and that all materials and equipment furnished will
substantially conform to said drawings and will be new and otherwise of good
quality. This warranty does not extend to, and Landlord shall not be liable for,
any defect in construction or equipment which is discovered more than one year
after the recordation of a notice of completion for the Building. Tenant shall
promptly notify Landlord in writing of any defect in construction or equipment
covered within such one-year period, and promptly thereafter Landlord shall
commence the cure of each such defect and complete such cure with diligence at
Landlord's cost and expense, not to be passed through to Tenant.

     With respect to defects discovered after the expiration of such one-year
period, Landlord and Tenant acknowledge that they intend that Tenant shall have
the benefit of any express or implied construction or equipment warranties
existing in favor of Landlord which would assist Tenant in correcting such
defects and in discharging its obligations regarding the repair and maintenance
of the Leased Premises. Upon request by Tenant following the expiration of such
one-year period, Landlord shall inform Tenant of all written construction and
equipment warranties existing in favor of Landlord which affect the Building or
equipment. Landlord shall cooperate with Tenant in enforcing such warranties and
in bringing any suit that maybe necessary to enforce liability with regard to
any defective construction or equipment which is discovered or of which Landlord
receives notice after the expiration of said one-year warranty
<PAGE>

First Addendum to Lease
Renco 36
Page 2

period, so long as Tenant pays all costs reasonably incurred by Landlord in
connection therewith. This warranty applies only to construction performed by
Landlord for Tenant after the date of this Lease.

     2.6    Surrender of Possession: Notwithstanding anything to the contrary
            -----------------------
in Sections  2.6 and 6.2 of the Lease Form: Tenant shall have the right to
remove all trade fixtures and any leasehold improvements installed at Tenant's
expense (together the "Tenant's Property") so long as it repairs all damage
caused by the installation thereof and returns the Leased Premises to
substantially the condition existing prior to the installation of such Tenant's
Property. At the expiration or sooner termination of the Lease Term, all
Tenant's Property which Tenant does not elect to remove shall be surrendered to
Landlord as a part of the Leased Premises and shall then become Landlord's
property, and Landlord shall have no obligation to reimburse Tenant for all or
any portion of the value or cost thereof. If Landlord so requires, at the
expiration or earlier termination of the Lease Term, Tenant shall remove any
Tenant's Property designated for removal by Landlord and shall restore the
Leased Premises to the condition existing prior to the installation of such
Tenant's Property.

     2.6    Surrender of Possession: In consideration of the short term of
this Lease, Tenant agrees to return the Leased Premises in the same condition as
received by Tenant. Tenant shall paint all walls that require paint to appear in
the same condition as initially delivered to Tenant. Tenant shall clean, repair,
or replace the carpet and other floor covering to restore same to the condition
as initially delivered to Tenant. It is understood that Tenant shall return the
Leased Premises to a condition so that it may be leased to a third party with no
additional work or expense to Landlord as if Landlord had leased the Leased
Premises to the third party as of the commencement date of this Lease.

     3.2    Additional Rent:  Notwithstanding anything to the contrary in
            ---------------
Section 3.2 of the Lease Form, Tenant shall pay Real Property Taxes (as defined
in Article 13 of the Lease form) no later than ten (10) days before Real
   ----------
Property Taxes become delinquent, and Tenant shall not be required to pay Real
Property Taxes prior to such date.

     3.3    Year End Adjustments: Notwithstanding anything to the contrary in
            --------------------
Section 3.3 of the Lease Form:

     A.     Tenant shall have the right, at its expense, exercisable upon
reasonable prior written notice to Landlord, to audit Landlord's books and
records for Property Operating Expenses provided such audit is conducted during
normal business hours and within six (6) months following the Lease year subject
to audit.

     B.     Landlord shall pay the cost of such audit if it is determined that
Tenant has been overcharged for Property Operating Expenses by more than five
percent (5%) and shall promptly refund the amount of such overpayment to Tenant.
<PAGE>

First Addendum to Lease
Renco 36
Page 3

     3.4    Late Charge and Interest on Rent in Default: Notwithstanding
anything to the contrary in Section 3.4 of the Lease Form:

     A.     No late charge shall become due and payable until Tenant has
received written notice that a payment of Base Monthly Rent or Additional Rent
is delinquent and Tenant fails to pay such delinquent amount within six (6) days
after receipt of Landlord's written notice, provided that, after Landlord
provides Tenant with one (1) such delinquency notice in any one calendar year,
for the remainder of such calendar year, late charges shall be due and payable
after the applicable six (6)-day grace period described in Section 3.4 of the
Lease Form without the requirement that Landlord first deliver a delinquency
notice to Tenant.

     B.     Interest on delinquent rent payments shall not commence until ten
(10) days after Tenant's receipt of Landlord's written notice that rent has not
been paid.

     4.1    Permitted Use:  Notwithstanding anything to the contrary in
            -------------
Section 4.1 of the Lease Form, Tenant shall not be required to continuously and
without interruption occupy or use the Leased Premises, and Tenant may vacate
the Leased Premises so long as it provides notice to Landlord and safeguards the
Leased Premises in a manner reasonably satisfactory to Landlord and Landlord's
insurance carrier.

     4.7    Compliance with Laws and Private Restrictions:  Notwithstanding
            ---------------------------------------------
anything to the contrary in Section 4.7 of the Lease Form:

     A.     Landlord, at its sole cost and expense, shall remain liable for
the correction of any violations of law or private restrictions for Landlord's
work which existed as of the Lease Commencement Date and was performed after the
date of this Lease.

     B.     Tenant's compliance with Laws governing the use and/or disposal of
hazardous materials and Tenant's obligation to defend Landlord with competent
counsel, indemnify and hold Landlord harmless from any claims, damages or
liabilities resulting from Tenant's failure to do so shall be governed solely
and exclusively pursuant to Paragraph 16 of this Addendum.

     4.8    Compliance with Insurance Requirements: Notwithstanding anything
            --------------------------------------
to the contrary in Section 4.8 of the Lease Form, Tenant shall be permitted to
conduct any activities or keep, store or use any item or thing within the Leased
Premises, the Building, the Outside Areas or the Property which is reasonably
necessary to Tenant's business even if it causes an increase in the rates
charged for coverage afforded under any insurance policies required or permitted
to be carried by Landlord, so long as Tenant is willing to pay any increase in
insurance rates so caused, and such activities do not constitute an unreasonable
danger to the Leased Premises or any part thereof or otherwise materially
interfere with Landlord's ability to obtain insurance for the Leased Premises
and Landlord's other buildings. If Tenant's activities cause an increase in
insurance rates for Landlord's other buildings, Tenant shall pay the entire
amount of such increase to the extent caused solely by Tenant's activities.
<PAGE>

First Addendum to Lease
Renco 36
Page 4

     4.9    Landlord's Right to Enter: Notwithstanding anything to the
            -------------------------
contrary in Section 4.9 of the Lease Form, Landlord shall enter the Leased
Premises only in a manner which will not unreasonably interfere with Tenant's
use of the Leased Premises.

     4.12   Environmental Protection:  Notwithstanding anything to the
            ------------------------
contrary in Section 4.12 of the Lease Form, Landlord may voluntarily cooperate
in reducing actual or potential environmental damage so long as such cooperation
is required by law or does not unreasonably interfere with Tenant's use of the
Leased Premises or increase Tenant's costs.

     5.1    Repair and Maintenance:  Notwithstanding anything to the contrary
            ----------------------
in Section B of Section 5.1 of the Lease Form, with respect to all repairs or
maintenance undertaken by Landlord, the cost of which is a Property Operating
Expense which is to be charged back to Tenant, Landlord shall use reasonable
efforts to obtain services and materials at fair market value.

     5.4    Energy and Resource Consumption:  Notwithstanding anything to the
            -------------------------------
contrary in Section 5.4 of the Lease Form, Landlord shall not reduce energy or
other resource consumption in a manner which unreasonably interferes with
Tenant's use of the Leased Premises, and Tenant shall not be required to
cooperate in any reduction of energy which unreasonably interferes with Tenant's
use of the Leased Premises or increases Tenant's costs unless such cooperation
is required by law.

     5.5    Limitation of Landlord's Liability:  Notwithstanding anything to
            ----------------------------------
the contrary in Section 5.5 of the Lease Form, Landlord shall be liable for any
loss or liability incurred by Tenant as a result of the negligence or misconduct
of Landlord, its agents, employees, or contractors.

     6.1    By Tenant:  Notwithstanding anything to the contrary in Section
            ---------
4.2 or Section 6.1 of the Lease Form:

     A.     Tenant shall have the right to make interior alterations which cost,
in the aggregate, less that $15,000 per Lease year without Landlord's prior
consent provided that such alterations do not affect the structural parts of the
Building or involve the demolition of Landlord's property. Tenant shall,
however, deliver to Landlord a copy of any plans and specifications for any
leasehold improvement made by Tenant to the Leased Premises.

     B.     The threshold amount of $15,000 described in subparagraph A
immediately above will be increased $1,000 per Lease year for the initial Lease
Term and any extended term.

     C.     Tenant shall have the right to make modifications, alterations or
improvements to the Outside Areas, the exterior of the Building and structural
components of the Building only with Landlord's prior written consent, which
shall not be unreasonably withheld.
<PAGE>

First Addendum to Lease
Renco 36
Page 5

     6.2    Ownership of Improvements:  Notwithstanding anything to the
            -------------------------
contrary in Section 6.2 of the Lease Form, with respect to Tenant's Property (as
defined in Paragraph 2.6 above), Landlord shall, upon Tenant's request, execute
a lien waiver in a form reasonably acceptable to Tenant's lender or equipment
lessor, so long as such waiver does not alter the terms of the Lease.

     7.1    By Tenant: Notwithstanding anything to the contrary in Section
            ---------
7.1 of the Lease Form, Landlord shall not unreasonably withhold its consent to
any assignment or sublease.

     7.2    Merger or Reorganization:  Notwithstanding anything to the
            ------------------------
contrary in Section 7.2 of the Lease Form:

     A.     If Tenant is a publicly traded corporation, or Tenant is not a
publicly traded corporation but the Lease does not represent substantially all
of the assets of Tenant, then Landlord's consent shall not be required for any
assignment or sublease (i) made in connection with a merger, consolidation, or
other reorganization of Tenant, (ii) made in connection with a sale of
substantially all of the assets of Tenant, or (iii) involving any corporation
which controls, is controlled by, or is under common control with Tenant. For
the purpose of the Lease if Tenant is a corporation, the sale, or other transfer
of Tenant's capital stock shall not be deemed an assignment, subletting, or any
other transfer of the Lease or the Lease Premises. Notwithstanding any provision
to the contrary in Article 7 of the Lease Form, in the case of any of the above
described transfers, Tenant shall not be obligated to pay any assignment
consideration or excess rentals to Landlord.

     B.     If Tenant or Landlord assigns the Lease as security for a loan,
Landlord and Tenant agree to execute such documents as are reasonably requested
by the lender and to provide reasonable provisions in the Lease protecting such
lender's security interest which are customarily required by institutional
lenders making loans secured by a deed of trust or a leasehold mortgage, so long
as such provisions do not alter the benefits of Landlord or Tenant or the
obligations of Tenant or Landlord under the Lease.

     7.4    Conditions to Landlord's Consent: Notwithstanding anything to the
            --------------------------------
contrary in Section 7.4 of the Lease Form, if Tenant is in the process of curing
a default under the Lease, the sublease or assignment may become effective
following the completion of the cure of such default; provided, however, that it
the default cannot be cured and the default is not material and Landlord does
not terminate the Lease or commence termination proceedings because of such
default, the sublease or assignment may become effective notwithstanding such
uncured non-material default.

     7.5    Assignment Consideration and Excess Rentals Defined:
Notwithstanding anything to the contrary in Section 7.5 of the Lease Form:
<PAGE>

First Addendum to Lease
Renco 36
Page 6

     A.     Tenant may sublease up to seventeen percent (17%) of the Leased
Premises without the obligation to pay excess rentals to Landlord.

     B.     The following costs shall be deducted from (a) all consideration
received by Tenant with respect to an assignment and (b) all consideration in
excess of rent due to Landlord under the Lease for the same period with respect
to subletting, to determine the meaning of the terms "assignment consideration"
or "excess rentals": (i) any commissions paid by Tenant to a licensed real
estate broker for arranging such sublease or assignment (not to exceed then
standard rates); (ii) any costs of retro-fit or restoration necessary for a
subtenant or assignee; (iii) any other reasonable expense of Tenant attributable
to locating and preparing the Leased Premises for the use and occupancy of such
subtenant or assignee; and (iv) a deduction for vacancy costs calculated from
the time that the space is vacant of Tenant's employees and has been offered for
lease with a licensed real estate broker.

     8.1    Limitation on Landlord's Liability and Release: Notwithstanding
anything to the contrary in Section 8.1 of the Lease Form, Tenant shall not
release Landlord, and Landlord shall remain liable to Tenant for the following:

            (i)    Landlord's liability to repair code violations in Landlord's
work existing as of the Lease Commencement Date;

            (ii)   Loss resulting from the negligence (whether active or
passive) or misconduct of Landlord, its agents, employees, or contractors,
provided, however, that Landlord shall not be liable to Tenant unless Tenant
shall have first provided Landlord with written notice of any known or suspected
code violation or negligence and given Landlord reasonable time to correct said
defect or negligence; and

            (iii)  Liability for hazardous materials other than liability
assumed by Tenant pursuant to Paragraph 16 of this Addendum.

     9.2    Landlord's Insurance:  Notwithstanding anything to the contrary
            --------------------
in Section 9.2 of the Lease Form:

     A.     Tenant's obligation to pay for the cost of any earthquake and/or
flood insurance premiums is limited to the obligation to pay an amount which is
equal to or less than five (5) times the cost of fire insurance premiums for the
Leased Premises.

     B.     Uninsured losses and earthquake and/or flood insurance deductibles
shall be handled in the following manner:

            (i)    Tenant shall pay for the uninsured loss or earthquake and/or
flood insurance deductible up to an amount equal to one dollar ($1.00) per
square foot of Rentable Area.
<PAGE>

First Addendum to Lease
Renco 36
Page 7

     (ii)   If Tenant's contribution of an amount equal to one dollar ($1.00)
per square foot of Rentable Area is not sufficient to cover an uninsured loss or
earthquake and/or flood insurance deductible, Landlord shall pay the balance up
to an amount equal to ten percent (10%) of the replacement cost of the Building.
If an uninsured loss or earthquake and/or flood insurance deductible exceeds ten
percent (10%) of the Building replacement cost, Landlord may terminate the Lease
unless Tenant agrees to pay the entire amount which is in excess of ten percent
(10%) of the Building replacement cost.

     (iii)  If Landlord contributes to payment for an uninsured loss or
earthquake and/or flood insurance deductible, such amount shall be repaid and
amortized by Tenant over the remaining term of the Lease together with interest
at Wells Prime Plus Two, and Tenant shall pay same as Additional Rent. However,
Tenant shall in no event be required to pay an amount in excess the product of
six and one-half cents ($0.065) times the Rentable Area of the Building in
square feet per month (the "Ceiling Amount"). All amortization will terminate on
the expiration of Tenant's occupancy of the Building.

     (iv)   If the Ceiling Amount is not adequate to amortize Landlord's
contribution to an uninsured loss or earthquake and/or flood insurance
deductible over the initial Lease Term, and Tenant exercises an option to renew
the Lease or otherwise remains in possession of the Premises, Tenant's payment
shall continue at the Ceiling Amount during any period of Tenant's occupancy of
the Premises until Landlord's contribution is amortized with interest as
provided above.

     10.3   Landlord's Right to Terminate: Notwithstanding anything to the
            -----------------------------
contrary in Section 10.3 of the Lease Form:

     A.     If more than three (3) years remain of the Lease Term then in
effect, Landlord will rebuild the Leased Premises provided that the casualty was
caused by either a loss which Landlord was required to insure against under the
Lease or a loss which Landlord actually insured against, even if such insurance
was not required (an "Insured Loss").

     B.     If fewer than three (3) years remain of the Lease term then in
effect, Landlord's obligation to rebuild after an Insured Loss shall be governed
by the following: (i) if 36-24 months remain of such Lease term, Landlord will
rebuild provided that the cost of rebuilding does not exceed an amount equal to
50% of the replacement cost of the Building; (ii) if 23-7 months remain of such
Lease term, Landlord will rebuild provided that the cost of rebuilding does not
exceed an amount equal to 30% of the replacement cost of the Building: and (iii)
if fewer than six (6) months remain of such Lease term, Landlord will rebuild
provided that the cost of rebuilding does not exceed an amount equal to 10% of
the replacement cost of the Building.

     C.     Notwithstanding the above, in the event of an Insured Loss at a
time when fewer than three (3) years remain of the Lease term then in effect,
Landlord must rebuild following an
<PAGE>

First Addendum to Lease
Renco 36
Page 8

Insured Loss if Tenant exercises an option to renew within fifteen (15) days
after the date of damage.

     11.6   Abatement of Rent:  Intentionally Omitted.
            -----------------

     12.1   Events of Tenant's Default:  Notwithstanding anything to the
            --------------------------
contrary in Section 12.1 of the Lease Form, Tenant shall not be in default for
any of the reasons specified in Sections (B) and (C) of Section 12.1 unless
Tenant has failed to cure a default within thirty (30) days after written notice
from Landlord (or such longer period of time if reasonably necessary to cure the
default so long as Tenant begins the cure within such thirty (30)-day period and
prosecutes it with due diligence and best faith efforts to completion).

     13.6   Estoppel Certificates:  Notwithstanding anything to the contrary
            ---------------------
in Section 13.6 of the Lease Form, Landlord shall, upon the same terms and
conditions applicable to Tenant, give an estoppel certificate to Tenant for the
benefit of any lender taking a security interest in the Lease or for the benefit
of a purchaser of Tenant's assets.

     13.12  Definitions: Notwithstanding anything to the contrary in
            -----------
SubSection C of Section 13.12 of the Lease Form:

     A.     The term "Property Maintenance Costs" shall not include any of the
following:

            (i)    The cost to correct code violations in work constructed by
Landlord existing as of the Lease Commencement Date;

            (ii)   The cost to correct defects in design or construction of
structural components of the Building;

            (iii)  The cost to correct defects in design or construction of non
structural components of the Building or structural and non structural
components of other improvements located on the Property, if such defect is (i)
discovered within two (2) years of the Lease Commencement Date or (ii)
discovered more than two (2) years after the Lease Commencement Date if such
defect is material and could not reasonably have been discovered by Tenant
within two (2) years of the Lease Commencement Date;

            (iv)   The cost of repairs necessitated by the active negligence or
misconduct of Landlord, its agents, employees or contractors;

            (v)    The cost of repairs which are covered by insurance or
required to be covered by insurance under the Lease; and

            (vi)   Any cost or expense related to or incurred in connection with
hazardous materials unless Landlord incurs such cost or expense as a result of
Tenant's failure to comply with its obligations under Paragraph 16 of this
Addendum.
<PAGE>

First Addendum to Lease
Renco 36
Page 9

     B.     Any single item of Property Maintenance Cost under Subparagraph
(C) which exceeds $25,000, is incurred with respect to an item with a useful
life not less than five (5) years and would be defined as a capital expenditure
under generally accepted accounting principles, shall be amortized over the
useful life of the improvement, and Tenant shall pay such amortization on a
monthly basis together with interest at Wells Prime Plus Two.

     C.     In calculating the scheduled gross rental income for purposes of
the "professional management fees" in SubSection C, amortization of improvements
required by law pursuant to Section 6.3 shall be excluded.

     13.12  C. Landlord has agreed to use this form at Tenant's request.
This form was drafted for use with a single tenant building. The. Leased
Premises is a part of a multi tenant building. Landlord and Tenant agree to
prorate Property Maintenance Costs based on the relative size of the space
occupied by Tenant when compared to the total floor area of the Building, Tenant
shall not be required to pay for services provided to another tenant in the
Building as a result of that tenant's disproportionate use of services, In
addition, Tenant agrees to use no more than its prorata share of any service or
facility existing or provided to the Building, specifically including parking
and loading facilities. Landlord agrees not to permit any other tenant in the
Building to use a disproportionate share of any service or facility existing or
provided to the Building.

     13.14   Miscellaneous: Notwithstanding anything to the contrary in
             -------------
Section 13.14 of the Lease Form:

     Whenever the Lease requires an approval, consent, designation,
determination or Judgment by either Landlord or Tenant, such approval, consent,
designation, determination or judgment shall not be unreasonably withheld or
delayed and in exercising any remedy or right hereunder, each party shall at all
times act reasonably and in good faith.

     15.    Cross Default: Landlord and Tenant have previously entered into
            -------------
the Building 59 Lease. The lease provides for Tenant's occupancy of a building
identified as Renco 59, 47341 Bayside parkway, Fremont, California. A default by
Tenant (as defined in the Article entitled "Default and Remedies") under such
lease or under this Lease shall be considered to be a default under the Renco 59
lease as well as this Lease. In the event of a default by Tenant under the Renco
59 lease or this Lease, Landlord may pursue the remedies permitted by law or
pursuant to the terms of any, either or all of such leases, as if Tenant had
defaulted under any one or all of such leases. If Tenant and Landlord enter into
any other Leases, the immediately preceding cross default provisions shall apply
to all such leases.

     16.    Hazardous Materials: Notwithstanding anything to the contrary in
            -------------------
the Lease:

     A.     Landlord represents that, to the best of its knowledge, any
handling, transportation, storage, treatment or use of Hazardous Materials (as
defined below) that has occurred on the property prior to the date of the Lease
has been done in compliance with all laws
<PAGE>

First Addendum to Lease
Renco 36
Page 10

and that the property is, to the best of Landlord's knowledge, presently in
compliance with all laws which relate to Hazardous Materials.

     B.     Tenant, at its sole cost, shall comply with all Laws relating to
the storage, use and disposal of hazardous, toxic or radioactive matter
including those materials identified in Section 66630 through 66685 of Title 22
of the California Administrative Code, Division 4, Chapter 30 ("Title 22") as
they may be amended from time to time (collectively "Hazardous Materials");
provided, however, that Tenant shall not be responsible for contamination of the
Leased Premises by Hazardous Materials existing as of the Lease/Commencement
Date (unless caused by Tenant) or by any release of Hazardous Materials
occurring off-site on adjacent or neighboring property (but not caused by
Tenant) which migrates onto the Leased Premises. If Tenant does store, use or
dispose of any Hazardous Materials, Tenant shall notify Landlord in writing at
least ten (10) days prior to their first appearance on the Leased Premises.
Tenant shall be solely responsible for and shall defend, indemnify, and hold
Landlord and its agents harmless form and against all claims, costs and
liabilities, including attorneys' fees and costs, arising out of or in
connection with Tenant's storage, use and/or disposal of Hazardous Materials. If
the presence of Hazardous Materials on the Leased Premises caused or permitted
by Tenant results in contamination or deterioration of water or soil resulting
in a level of contamination greater than the levels established by any
governmental agency having jurisdiction over such contamination, then Tenant
shall Promptly take any and all action necessary to clean up such contamination
if required by Law or as a condition to the issuance or continuing effectiveness
of any governmental approval which relates to the use of the Leased Premises. At
any time prior to the expiration of the Lease Term, Tenant shall have the right
to conduct appropriate tests of water and soil and to deliver to Landlord the
results of such tests to demonstrate that no contamination in excess of
permitted levels has occurred as a result of Tenant's use of the Leased
Premises. Tenant shall further be solely responsible for, and shall defend,
indemnify, and hold Landlord and its agents harmless from and against all
claims, costs and liabilities, including attorneys' fees and costs, arising out
of or in connection with any removal, cleanup and restoration work and materials
required hereunder to return the Leased Premises and any other property of
whatever nature to their condition existing prior to the appearance of the
Hazardous Materials. Notwithstanding the preceding sentence, Tenant shall only
be required to clean up the deterioration or contamination of water or soil to a
level of contamination less, than or equal to the levels established by any
governmental agency having jurisdiction over such contamination. Tenant's
obligation hereunder shall survive the termination of the Lease.

     17.    Limitations on Liability.  Intentionally Omitted.
            ------------------------
<PAGE>

First Addendum to Lease
Renco 36
Page 11

     20.    General.  In the event of any inconsistency between this First
            -------
Addendum and the Lease Form, the terms of this First Addendum shall prevail. As
used herein, the term "Lease" shall mean the Lease Form, this Addendum and all
riders, Exhibit s, rules, regulations, covenants, conditions and restrictions
referred to in the Lease Form or this Addendum.

LANDLORD:                                TENANT:
RENCO INVESTMENT COMPANY                 LEXAR MICROSYSTEMS, INC.
a California General Partnership         a California Corporation

By:_____________________________         By:_________________________
        General Partner
                                         Title:______________________
By:_____________________________
        General Partner
                                         By:_________________________

By:_____________________________         Title:______________________
        General Partner

Dated:__________________________         Dated:______________________

<PAGE>

                                   EXHIBIT A
<PAGE>

                                   EXHIBIT B
<PAGE>

                           FIRST AMENDMENT OF LEASE

This First Amendment of Lease ("Amendment") is made and entered into this the
15th day of July, 1998 by and between RENCO INVESTMENT COMPANY, a California
Partnership ("Landlord") and LEXAR MEDIA, INC., a California Corporation
("Tenant").

                                    RECITALS

          A.  Landlord and Tenant entered into a Lease dated October 25, 1996
("Lease"), for the lease of approximately 22,788 gross square feet of space in
the building located at 47421 Bayside Parkway, Fremont, Alameda County,
California ("Premises").

          B.  Landlord and Tenant now desire to extend the lease term by five
years, such that the lease termination date would be December 31, 2003.

          NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt of which is hereby acknowledged, Landlord
and Tenant agree as follows:

          1.  Unless otherwise expressly provided herein, all terms which are
given a special definition by the Lease, that are used herein, are intended to
be used with the definition given to them in the Lease. The provisions of the
Lease shall remain in full force and effect except as specifically amended
hereby. In the event of any inconsistency between the Lease and this Amendment,
the terms of this Amendment shall prevail.

          2.  Paragraph 1.1.G. is hereby amended to extend the Lease term by
five (5) years and to provide for a lease termination date of December 31, 2003
("First Extended Term").

          3.  Paragraph 1.1.K. is hereby amended to increase tenant's Security
Deposit from $25,668.00 to the sum of $37,322.23. Payment of the additional sum,
in the amount of $11,654.23, shall be made upon execution of this Amendment, and
shall be held by Landlord as security under the terms of the Lease.

          4.  Paragraph 1. 1. S. is amended as follows:

              Commencing on January 1, 1999, and continuing through the month of
              December, 1999, the Base Monthly Rent shall be $31,903.20.

              Commencing on January 1, 2000, and continuing through the month of
              December, 2000, the Base Monthly Rent shall be $33,179.33.

              Commencing on January 1, 2001, and continuing through the month of
              December, 2001, the Base Monthly Rent shall be $34,506.50.

              Commencing on January 1, 2002 and continuing through the month of
              December, 2002, the Base Monthly Rent shall be $35,886.76.
<PAGE>

Lexar Micro Systems, Inc.
First Amendment of Lease
Page 2

              Commencing on January 1, 2003, and continuing through the month of
              December, 2003, the Base Monthly Rent shall be $37,322.23.

          5.  Throughout the First Extended Term of the Lease, Tenant shall
continue to pay all sums of Additional Rent, as set forth in the Lease.

          6.  Tenant agrees, as of the date of the execution of this Amendment,
to lease the Premises, in its "as is" condition.

          7.  Landlord and Tenant each agree to pay their own broker for
services provided. Neither Landlord nor Tenant shall be obligated to pay the
other party's real estate brokerage fees. Landlord and Tenant each agree to
indemnify, defend and hold the other party harmless from and against any and all
liability, damages and costs (including attorneys' fees) incurred by the other
as a result of a claim made by the other party's real estate broker.

          8.  For and in consideration of Tenant entering into the Amendment,
and other valuable consideration, Landlord hereby grants Tenant one option
("Option") to renew the Lease for an additional term of five (5) years ("Renewal
Term"), with the Option commencing on January 1, 2004 (the "First Renewal
Commencement Date") and ending five (5) years thereafter (the "First Renewal
Expiration Date").

          The lease of the Premises for the Renewal Term shall be on the same
terms and conditions as set forth in the Lease and Amendment, except:

              a. That the rental for the Premises during the Renewal Term shall
be as set forth below.

              b. The Security Deposit shall be increased such that it shall not
be less than the rental amount determined below (the "Increased Security Deposit
Amount").

              c. Provided that Tenant is not in default (following the passage
of the notice and cure periods described in Article 12) as of the exercise of
the Option, Tenant shall notify Landlord of Tenant's exercise of its right to
renew the Lease for the Renewal Term only by giving to Landlord written notice
not later than December 31, 2002. Time is expressly of the essence to Landlord.
Any attempted exercise of this Option made other than within the time period set
forth above or in the manner stated, shall be void and of no force or effect.

              d. If Tenant shall have properly and timely exercised its right to
extend the term of the Lease, provided that Tenant is not in default (following
the passage of notice and cure periods described in Article 12), as of the first
renewal commencement date, the term of the Lease shall be so extended for such
renewal term on the same terms and conditions contained in the Lease; provided,
however, the Base Monthly Rent for each month of the Renewal Term shall be
calculated as follows:
<PAGE>

Lexar Micro Systems, Inc.
First Amendment of Lease
Page 3

          The new Base Monthly Rent for each month of the Renewal Term shall be
the greater of:

               (i)  the Base Monthly Rent being paid by Tenant to Landlord
during the final full month of the final year of the initial lease term, or

               (ii) the Then Market Rental Rate for the Premises.

          e.   The term "Then Market Rental Rate" shall mean the Base Monthly
Rent that a ready and willing nonrenewal, new, prospective tenant would pay, as
of the applicable date, to a ready and willing landlord for property comparable
to the Premises in the Bayside Technology Park, Fremont, California, if such
property were exposed for lease on the open market, for a term of five (5)
years.

          f.   The Then Market Rental Rate shall be determined by mutual
agreement between Landlord and Tenant or, in the event such agreement cannot be
made within ten (10) days from the date Tenant shall have exercised this Option,
Landlord and Tenant shall each appoint a real estate appraiser with at least
five (5) years full time commercial/industrial experience in Santa Clara or
Alameda county, to appraise and determine the Then Market Rental Rate for the
Premises. If either party does not appoint an appraiser within ten (10) days
after the other party has given notice of the name of its appraiser, the other
party can then apply to the President of the Santa Clara County Real Estate
Board or presiding judge of the Superior Court of Alameda County for the
selection of a second appraiser that meets the qualifications stated above. The
failing party shall bear the cost of appointing the second appraiser and paying
the second.

          g.   appraiser's fee. Two appraisers shall attempt to establish the
Then Market Rental Rate for the Premises. If the two appraisers are unable to
agree on the Then Market Rental Rate for the Premises within ten (10) days after
the second appraiser has been selected or appointed, then the two appraisers
shall attempt to select a third appraiser meeting the qualifications stated
above. If they fail to agree on a third appraiser, either party can follow the
above procedure for having an appraiser appointed by the Real Estate Board or a
judiciary. Each of the parties shall bear one half (1/2) the cost of appointing
the third appraiser and of paying the third appraiser's fee. Unless the three
appraisers are able to agree on the Then Market Rental Rate for the Premises
within ten (10) days after the selection or appointment of the third appraiser,
the two appraisals being calculated most closely together, after having
discarded the appraisal amount which most greatly varies from the other two
appraisal amounts, shall be added together, then divided by two (2). The
resulting rental amount shall be defined as the Then Market Rental Rate for the
Premises.

          h.   In no event, however, shall the resulting Then Market Rental Rate
for the Renewal Term be less than the Base Monthly Rent paid during the full
final month of the initial Lease term.
<PAGE>

Lexar Micro Systems, Inc.
First Amendment of Lease
Page 4

          9.  Except as herein modified or amended, the Lease shall remain in
full force and effect.

          IN WITNESS WHEREOF, the parties have signed this First Amendment of
Lease, which, for reference purposes shall be deemed to have been dated as of
July 15, 1998.

LANDLORD:                                    TENANT
RENCO INVESTMENT COMPANY                     LEXAR MEDIA, INC.
A California Partnership                     A California Corporation

By:_____________________________             By:__________________________
Title: General Partner
                                             Title:_______________________

By:_____________________________
Title: General Partner
                                             By:__________________________

By:_____________________________             Title:_______________________
Title: General Partner

<PAGE>

                           SECOND AMENDMENT OF LEASE

     This Second Amendment of Lease ("Amendment") is made and entered into this
the 13th day of September, 1999 by and between RENCO INVESTMENT COMPANY, a
California General Partnership ("Landlord") and LEXAR MEDIA, INC., a California
Corporation ("Tenant").

                                R E C I T A L S

     A.  Landlord and Tenant entered into a Lease dated October 25, 1996
("Lease"), for the lease of approximately 22,788 gross square feet of space in
the building located at 47421 Bayside Parkway, Fremont, Alameda County,
California ("Premises").

     B.  Landlord and Tenant entered into a First Amendment of Lease dated July
15, 1998 wherein the Lease term was extended to December 31, 2003.  The Lease
and First Amendment shall here after be referred to herein as the "Lease"
herein.

     C.  Landlord and Tenant agree to amend the Lease to extend the lease term
and to allow Tenant to lease additional space within the building, such that
Tenant shall occupy and lease 34,396 gross square feet of space.

     NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt of which is hereby acknowledged, Landlord
and Tenant agree as follows:

     1.  Unless otherwise expressly provided herein, all terms which are given a
special definition by the Lease, that are used herein, are intended to be used
with the definition given to them in the Lease.  The provisions of the Lease
shall remain in full force and effect except as specifically amended hereby.  In
the event of any inconsistency between the Lease and this Amendment, the terms
of this Amendment shall prevail.

     2.  The Lease expiration date of December 31, 2003, shall be extended to a
date that is five (5) years after the Effective Date, as defined in Paragraph 3
below.

     3.  Tenant hereby agrees to lease and hire from Landlord an additional
11,608 gross square feet of space located at 47361 Bayside Parkway, Fremont,
Alameda County, California ("Additional Space"), such that the total space
leased by Tenant shall total 34,396 gross square feet of space.  Possession of
the Additional Space shall be tendered to Tenant, and Tenant's obligation to pay
Rent shall commence on the "Effective Date", which shall be the later of: (i)
January 1, 2000; or (ii) the date that the Additional Space becomes available
for Tenant's occupancy.

     4.  Paragraph 1.1.K. is hereby amended to increase Tenant's Security
Deposit from $37,322.23 to the sum of $55,789.77.  Payment of the additional
sum, in the amount of $18,467.54 shall be made upon execution of this Amendment,
and shall be held by Landlord as security under the terms of the Lease.

                                       1
<PAGE>

     5.  Paragraph 1.1.P. is amended as follows:

         Commencing on January 1, 2000, and continuing through the month of
         December 2000, the Base Monthly Rent shall be $47,689.33.

         Commencing on January 1, 2001, and continuing through the month of
         December, 2001, the Base Monthly Rent shall be $49,596.90.

         Commencing on January 1, 2002, and continuing through the month of
         December, 2002, the Base Monthly Rent shall be $51,580.78.

         Commencing on January 1, 2003, and continuing through the month of
         December, 2003, the Base Monthly Rent shall be $53,644.01.

         Commencing on January 1, 2004, and continuing through the month of
         December, 2004, the Base Monthly Rent shall be $55,789.77.

     6.  Tenant agrees to lease the Additional Space, in its "as is" condition.

     7.  Landlord and Tenant each agree to pay their own broker for services
provided. Neither Landlord nor Tenant shall be obligated to pay the other
party's real estate brokerage fees. Landlord and Tenant each agree to indemnify,
defend and hold the other party harmless from and against any and all liability,
damages and costs (including attorneys' fees) incurred by the other as a result
of a claim made by the other party's real estate broker.

     8.  Commencing on the Effective Date and continuing though December 31,
2004, Tenant shall have a right of first refusal as to the 11,180 gross square
foot space located at 47381 Bayside Parkway, Fremont, California. Tenant's right
of first refusal shall be the right to lease all of the space upon the terms and
conditions then being proposed by any other prospective tenant. Landlord shall
notify Tenant, in writing, of the availability of the space and the proposed
terms offered by a prospective tenant. Tenant shall then have 3 business days
within which to elect to lease all of the space on the terms and conditions
otherwise proposed by the prospective tenant. If Tenant fails to make a timely
election to lease the space, then this right of first refusal shall terminate.
In the event Tenant elects to exercise this right of first refusal, then an
amendment to this Lease shall be executed by Landlord and Tenant incorporating
the new space into the terms of this Lease. Tenant's failure to execute the
amendment within 3 business days of receipt of the amendment, shall void this
right of first refusal and Landlord shall have the right to lease the space to
any prospective tenant that it shall elect.

     9.  Tenant's election to exercise the Option in Paragraph 8 of the First
Amendment shall be the election to extend the term of the Lease as to the entire
34,396 square feet of the Premises. Tenant my not exercise the Option as to a
portion of the Premises.

                                       2
<PAGE>

     10.  Except as herein modified or amended, the Lease shall remain in full
force and effect.

     IN WITNESS WHEREOF, the parties have signed this Amendment, which, for
reference purposes shall be deemed to have been dated as of September 13, 1999.

LANDLORD:                                  TENANT:
RENCO INVESTMENT COMPANY                   LEXAR MEDIA INC.
A California General Partnership           A California Corporation

By: _______________________________        By: ____________________________
Title: General Partner
                                           Title: _________________________

By: _______________________________
Title: General Partner                     By: ____________________________

                                           Title: _________________________
By: _______________________________
Title: General Partner

                                       3EXHIBIT 4.13

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

                          SECURITIES PURCHASE AGREEMENT

                                  BY AND AMONG

                                  VIATEL, INC.

                                       AND

                   THE PURCHASERS LISTED ON SCHEDULE I HERETO

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

                                   DATED AS OF

                                FEBRUARY 1, 2000

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

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

<PAGE>
                               TABLE OF CONTENTS

                                                                          PAGE

Article I      DEFINITIONS...................................................1

      Section 1.1. Definitions...............................................1

Article II     SALE AND PURCHASE.............................................6

      Section 2.1. Authorization of Securities...............................6
      Section 2.2. Agreement to Sell and to Purchase; Purchase Price.........6
      Section 2.3. Closing...................................................6

Article III    REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................8

      Section 3.1. Organization and Standing of the Company..................8
      Section 3.2. Organization and Standing of Subsidiaries.................8
      Section 3.3. Capital Stock.............................................8
      Section 3.4. Authorization; Enforceability............................10
      Section 3.5. No Violation; Consents...................................10
      Section 3.6. Commission Filings; Financial Statements.................11
      Section 3.7. Private Offering.........................................11
      Section 3.8. Provided Information.....................................11
      Section 3.9. Material Adverse Change..................................12
      Section 3.10. Litigation..............................................12
      Section 3.11. Permits and Licenses....................................12
      Section 3.12. Intellectual Property, etc..............................12
      Section 3.13. Brokers' and Other Fees.................................13
      Section 3.14. Compliance..............................................13
      Section 3.15. Certain Contracts.......................................13
      Section 3.16. State Takeover Statutes.................................13
      Section 3.17. Rights Agreement........................................13
      Section 3.18. Title to Properties.....................................14
      Section 3.19. Side Agreements.........................................14

Article IV     REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.............14

      Section 4.1. Organization; Authorization; Enforceability..............14
      Section 4.2. Private Placement........................................15
      Section 4.3. No Violation; Consents...................................15
      Section 4.4. No Litigation............................................16

                                       -i-
<PAGE>

                                TABLE OF CONTENTS
                                   (continued)

                                                                          PAGE

      Section 4.5. Affiliates...............................................16

Article V      COVENANTS OF THE COMPANY.....................................16

      Section 5.1. Operation of Business....................................16
      Section 5.2. HMTF Director............................................17
      Section 5.3. Access to Books and Records..............................17
      Section 5.4. Agreement to Take Necessary and Desirable Actions........18
      Section 5.5. Compliance with Conditions; Commercially
                   Reasonable Efforts.......................................18
      Section 5.6. HSR Act Notification.....................................18
      Section 5.7. Consents and Approvals...................................18
      Section 5.8. Reservation of Shares....................................19
      Section 5.9. Use of Proceeds..........................................19
      Section 5.10. Filing of Certificate of Designation....................19
      Section 5.11. Listing of Shares.......................................19
      Section 5.12. Periodic Information....................................19
      Section 5.13. Legends.................................................19

Article VI     COVENANTS OF THE PURCHASERS..................................20

      Section 6.1. Agreement to Take Necessary and Desirable Actions........20
      Section 6.2. Compliance with Conditions; Commercially
                   Reasonable Efforts.......................................20
      Section 6.3. HSR Act Notification.....................................20
      Section 6.4. Consents and Approvals...................................20
      Section 6.5. Restrictions on Transfer.................................21

Article VII    CONDITIONS PRECEDENT TO CLOSING..............................21

      Section 7.1. Conditions to the Company's Obligations..................21
      Section 7.2. Conditions to Each Purchaser's Obligations...............21

Article VIII   MISCELLANEOUS................................................23

      Section 8.1. Indemnification..........................................23
      Section 8.2. Notices..................................................24
      Section 8.3. Governing Law............................................26
      Section 8.4. Termination..............................................26
      Section 8.5. Entire Agreement.........................................27
      Section 8.6. Modifications and Amendments.............................27
      Section 8.7. Waivers and Extensions...................................27

                                      -ii-
<PAGE>

                                TABLE OF CONTENTS
                                   (continued)

                                                                          PAGE

      Section 8.8. Titles and Headings......................................28
      Section 8.9. Exhibits and Schedules...................................28
      Section 8.10. Expenses................................................28
      Section 8.11. Press Releases and Public Announcements.................28
      Section 8.12. Assignment; No Third-Party Beneficiaries................28
      Section 8.13. Severability............................................28
      Section 8.14. Counterparts............................................29
      Section 8.15. Further Assurances......................................29
      Section 8.16. Remedies Cumulative.....................................29
      Section 8.17. Several Liability of the Purchasers.....................29
      Section 8.18. No Duty to Other Purchasers.............................29
      Section 8.19. Specific Performance....................................29
      Section 8.20. No Purchaser Affiliate Liability........................29

                                       -iii-

<PAGE>

            This SECURITIES  PURCHASE  AGREEMENT is dated as of February 1, 2000
(this  "Agreement"),  by and among  Viatel,  Inc., a Delaware  corporation  (the
"Company"),   and  each  of  the   purchasers   listed  on   SCHEDULE  I  hereto
(individually, a "Purchaser" and collectively, the "Purchasers").

            WHEREAS,  the Company proposes,  subject to the terms and conditions
set forth  herein,  to issue and sell to the  several  Purchasers  Shares of its
Series B Preferred Stock and Warrants (each as hereinafter defined); and

            WHEREAS, the Purchasers desire,  subject to the terms and conditions
set forth  herein,  to  purchase  such  Preferred  Stock and  Warrants  from the
Company;

            NOW, THEREFORE,  the parties hereto,  intending to be legally bound,
hereby agree as follows.

                                   ARTICLE I

                                   DEFINITIONS

     SECTION 1.1.  DEFINITIONS.  (a) As used in this  Agreement,  the  following
terms shall have the following meanings:

            "Affiliate"  means,  with  respect to any Person,  any other  Person
directly or indirectly  controlling,  controlled by, or under direct or indirect
common control with,  such Person.  For the purposes of this  definition and the
definition of "HMTF  Purchaser",  "control" when used with respect to any Person
means the power to direct the management  and policies of such Person,  directly
or indirectly,  whether through the ownership of voting securities,  by contract
or  otherwise;  and the  terms  "controlling"  and  "controlled"  have  meanings
correlative to the  foregoing.  Without  limiting the  foregoing,  each of Chase
Capital  Partners,  The Chase Manhattan  Corporation,  each of their  respective
affiliates (the "Chase Entities") and any other person,  fund or entity for whom
any  of the  Chase  Entities  acts  as a  fiduciary  or  provides  discretionary
management  with  respect  to any  investments  or any such  direct or  indirect
interests therein shall be deemed to be affiliates of each other.

            "Amendment  to Rights  Agreement"  means that  certain  Amendment to
Rights  Agreement dated as of the date hereof  amending the Rights  Agreement of
the Company dated as of December 6, 1999.

            "Applicable Law" means (a) any United States federal,  state,  local
or foreign law, statute,  rule, regulation,  order, writ, injunction,  judgment,
decree or  permit  of any  Governmental  Authority  and (b) any rule or  listing
requirement of any applicable  national stock exchange or listing requirement of
any national  stock  exchange or Commission  recognized  trading market on which
securities  issued  by the  Company  or any of the  Subsidiaries  are  listed or
quoted.

            "Business Day" means any day other than a Saturday,  a Sunday,  or a
day when banks in The City of New York are  authorized by  Applicable  Law to be
closed.

<PAGE>

            "Capital  Stock"  means (i) with  respect  to any  Person  that is a
corporation,  any and all  shares,  interests,  participations,  rights or other
equivalents (however designated) of corporate stock and (ii) with respect to any
other Person, any and all partnership or other equity interests of such Person.

            "Certificates of Designation" means the collective  reference to the
Series  B-1  Certificate  of   Designations,   the  Series  B-2  Certificate  of
Designations and the Series C Certificate of Designations.

            "Chase Purchaser" means Chase Equity Associates,  LLC and any of its
Affiliates  who acquire the  Shares,  the  Warrants,  the  Conversion  Shares or
Warrant Shares.

            "Commission"   means  the  United  States  Securities  and  Exchange
Commission.

            "Commission Filings" means all reports,  registration statements and
other filings filed by the Company with the Commission (and all notes,  exhibits
and schedules thereto and documents incorporated by reference therein).

            "Contract"  means any contract,  lease,  loan  agreement,  mortgage,
security  agreement,  trust indenture,  note, bond, or other agreement  (whether
written or oral) or instrument.

            "Conversion  Shares"  means the  shares of Common  Stock or Series C
Preferred  Stock issuable upon the conversion of the Series B Preferred Stock or
the Series C Preferred  Stock in accordance  with the terms of their  respective
Certificates of Designation.

            "DGCL" means the Delaware General Corporation Law.

            "Equity  Documents"  means this  Agreement,  the Amendment to Rights
Agreement,  the Registration Rights Agreement,  the Certificates of Designation,
the Warrants, the Management Rights Agreements and the Regulation Y Agreement.

            "Exchange  Act"  means  the  Securities  Exchange  Act of  1934,  as
amended, and the rules and regulations of the Commission promulgated thereunder.

            "GAAP" means United States generally accepted accounting principles,
consistently applied.

            "Governmental  Authority" means (i) any foreign,  Federal,  state or
local  court  or  governmental  or  regulatory  agency  or  authority,  (ii) any
arbitration board, tribunal or mediator and (iii) any national stock exchange or
Commission  recognized  trading market on which securities issued by the Company
or any of the Subsidiaries are listed or quoted.

            "HMTF"  means  Hicks,  Muse,  Tate &  Furst  Incorporated,  a  Texas
corporation.

            "HMTF Funds" means HMTF Bridge Partners,  L.P., Hicks,  Muse, Tate &
Furst Europe Fund, L.P., and Hicks, Muse, Tate & Furst Private Europe Fund, L.P.

                                       -2-
<PAGE>

            "HMTF  Group"  means HMTF and its  Affiliates  and their  respective
officers, directors,  partners, members, stockholders and employees (and members
of their  respective  families and trusts for the primary benefit of such family
members), and HMTF Purchaser and its Affiliates.

            "HMTF Issued Series B Preferred Shares" means the shares of Series B
Preferred Stock issued to members of the HMTF Group on the Closing Date.

            "HMTF Purchaser" means any one or more of the following: HMTF Europe
Acquisition Corp., HMTF Bridge Viatel,  LLC, HMEU Viatel I-EQ Coinvestors,  LLC,
HMEU  Viatel  I-SBS  Coinvestors,  LLC,  HM Viatel PG Europe,  LLC,  HMEU Viatel
Qualified Fund, LLC, and HMEU Viatel Private Fund, LLC.

            "HMTF Shares"  means the HMTF Issued Series B Preferred  Shares held
by members of the HMTF Group plus the shares of Common  Stock issued to and held
by  members  of the HMTF  Group  upon  conversion  of the HMTF  Issued  Series B
Preferred Shares.

            "HSR Act" means the Hart-Scott-Rodino  Antitrust Improvements Act of
1976, as amended, and applicable rules and regulations.

            "Lien" means any mortgage,  pledge, lien, security interest,  claim,
restriction, charge or encumbrance of any kind.

            "Material Adverse Effect" means (a) a material adverse effect on the
condition (financial or otherwise), business, assets or results of operations of
the Company  and its  Subsidiaries,  taken as a whole or (b) a material  adverse
effect on the ability of the Company to consummate the Transactions.

            "Permitted   Transferee"   means,  (a)  with  respect  to  any  HMTF
Purchaser, or any Permitted Transferee of any HMTF Purchaser,  (i) any Purchaser
Affiliate  of such HMTF  Purchaser  that is not a holder of Common  Stock on the
date hereof or an Affiliate of such holder; and (ii) any person that is a member
of the HMTF Group and any person  investing,  directly or  indirectly,  in or in
parallel  with any  member of the HMTF  Group and (b) with  respect to any Chase
Purchaser, any Purchaser Affiliate of such Chase Purchaser;  PROVIDED,  HOWEVER,
that,  in the case of (a) and  (b),  each  Permitted  Transferee  must  agree in
writing  pursuant to a Permitted  Transferee  Agreement,  in accordance with the
provisions  of  Section  6.5,  to be  bound by the  terms,  and  subject  to the
conditions, of this Agreement to the same extent, and in the same manner, as the
transferring Purchaser prior to the transfer of any Securities to such Permitted
Transferee;  and provided,  further,  that the transfer of Securities  from such
Purchaser to such  Permitted  Transferee  is in compliance  with all  applicable
securities laws.

            "Person" means any  individual,  partnership,  corporation,  limited
liability  company,  joint venture,  association,  joint-stock  company,  trust,
unincorporated  organization,  government  or  agency or  political  subdivision
thereof, or other entity.

            "Purchaser Affiliate" means (a) any direct or indirect holder of any
equity  interests or  securities in any  Purchaser  (whether  limited or general
partners,  members,  stockholders  or  otherwise),  (b)  any  Affiliate  of  any

                                       -3-
<PAGE>

Purchaser or (c) any director, officer, employee, representative or agent of (i)
such  Purchaser,  (ii) any  Affiliate  of such  Purchaser or (iii) any holder of
equity interests or securities referred to in clause (a) above.

            "Registration   Rights  Agreement"  means  the  Registration  Rights
Agreement,  to be dated as of the Closing  Date, to be entered into by and among
the Company and the Purchasers, in the form attached hereto as EXHIBIT A.

            "Securities  Act" means the Securities Act of 1933, as amended,  and
the rules and regulations of the Commission promulgated thereunder.

            "Series B-1  Certificate of  Designations"  means the Certificate of
Designations,   Preferences  and  Rights  of  the  Series  B-1  Preferred  Stock
substantially in the form attached as EXHIBIT B.

            "Series B-2  Certificate  of  Designations"  means a Certificate  of
Designations,   Preferences  and  Rights  of  the  Series  B-2  Preferred  Stock
containing   substantially   the  terms  of  the  Series  B-1   Certificate   of
Designations,  except  for the  substantive  differences  set forth in EXHIBIT C
hereto,  in a form  reasonably  acceptable  to the Company,  Chase and the other
Purchasers.

            "Series B-1 Preferred  Stock" means the Company's  7.50%  Cumulative
Convertible Preferred Stock, Series B-1, par value $0.01 per share.

            "Series B-2 Preferred  Stock" means the Company's  7.50%  Cumulative
Convertible Preferred Stock, Series B-2, par value $0.01 per share.

            "Series B Preferred  Stock"  means the  collective  reference to the
Series B-1 Preferred Stock and the Series B-2 Preferred Stock.

            "Series C Preferred  Stock"  means the  Company's  Preferred  Stock,
Series C, par value $0.01 per share.

            "Series  C  Certificate  of  Designations"  means a  Certificate  of
Designations,  Preferences and Rights of the Series C Preferred Stock containing
substantially  the  terms set forth in  EXHIBIT D hereto,  in a form  reasonably
acceptable to the Company, Chase and the other Purchasers.

            "Shares"  means the shares of Series B-1 Preferred  Stock and Series
B-2  Preferred  Stock to be issued  and sold by the  Company  to the  Purchasers
pursuant to Section 2.2 hereof.

            "Subsidiary"  means,  with respect to any Person (i) a corporation a
majority of whose capital stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person,
by a subsidiary of such Person,  or by such Person and one or more  subsidiaries
of such Person,  (ii) a partnership in which such Person or a subsidiary of such
Person is, at the date of  determination,  a general partner of such partnership

                                       -4-
<PAGE>

and has the power to direct the policies and  management of such  partnership or
(iii) any other  Person  (other  than a  corporation)  in which such  Person,  a
subsidiary  of such Person or such Person and one or more  subsidiaries  of such
Person, directly or indirectly, at the date of determination thereof, has (A) at
least a  majority  ownership  interest  or (B) the power to elect or direct  the
election  of the  directors  or other  governing  body of such Person or (C) the
power to  direct  the  management  and  policies  of such  Person,  directly  or
indirectly, whether by Contract or otherwise.

            "Transactions" means the transactions contemplated by this Agreement
and the other Equity Documents.

          (b) As used in this  Agreement,  the  following  terms  shall have the
meanings given thereto in the Sections set forth opposite such terms:

<TABLE>
<CAPTION>
                  TERM                                       SECTION
<S>               <C>                                        <C>
                  A-1 Warrants                               2.1
                  A-2 Warrants                               2.1
                  Agreement                                  Preamble
                  B-1 Warrants                               2.1
                  B-2 Warrants                               2.1
                  Closing                                    2.3
                  Closing Date                               2.3
                  Common Stock                               2.1
                  Company                                    Preamble
                  Indemnified Party                          8.1(c)
                  Indemnified person                         8.1(b)
                  Indemnifying Party                         8.1(c)
                  Information                                3.8
                  Issuance                                   2.2
                  Losses                                     8.1(b)
                  Management Rights Agreements               2.3(d)
                  Notices                                    8.2
                  Permitted Transferee Agreement             6.5
                  Projections                                3.8
                  Purchaser; Purchasers                      Preamble
                  Preferred Stock                            3.3
                  Rights Agreement                           3.17
                  Regulation Y Agreement                     2.3(d)
                  Purchase Price                             2.2
                  Securities                                 2.1
                  Securities Transfer                        6.5
                  Viatel Subsidiary                          3.2
                  Warrants                                   2.1
                  Warrant Shares                             2.1
</TABLE>

                                       5
<PAGE>

                                   ARTICLE II

                                SALE AND PURCHASE

     SECTION 2.1.  AUTHORIZATION  OF SECURITIES.  The Company has authorized (or
prior to the Closing  shall have  authorized)  (i) the issue and sale of 162,500
shares of its Series  B-1  Preferred  Stock;  (ii) the issue and sale of 162,500
shares of its Series B-2 Preferred Stock;  (iii) the issue and sale of five-year
warrants (the "A-1  Warrants"),  to purchase from the Company  376,558 shares of
the Company's  common stock, par value $0.01 per share (the "Common Stock") at a
purchase  price of  $75.00  per  share;  (iv) the  issue  and sale of  five-year
warrants (the "A-2 Warrants"),  to purchase from the Company 3,766 shares of the
Company's  Series C Preferred Stock at a purchase price of $75.00 per share; (v)
the issue and sale of seven-and-one-half year warrants (the "B-1 Warrants"),  to
purchase  from the Company  376,558  shares of the  Company's  Common Stock at a
purchase   price  of   $100.00   per   share;   (vi)  the   issue  and  sale  of
seven-and-one-half  year  warrants  (the "B-2  Warrants"),  to purchase from the
Company  3,766 shares of the  Company's  Series C Preferred  Stock at a purchase
price of $100.00  per share;  and (vii) the  issuance  of its Series C Preferred
Stock in accordance  with the Series B-2  Certificate  of  Designations  and the
Series C Certificate of  Designations.  The Series B-1 Preferred Stock will have
the  rights,  preferences  and  privileges  set forth in the form of Series  B-1
Certificate  of  Designations.  The  Series  B-2  Preferred  Stock will have the
rights,  preferences  and privileges set forth in the Series B-2  Certificate of
Designations. The Series C Preferred Stock will have the rights, preferences and
privileges  set  forth in the  Series C  Certificate  of  Designations.  The A-1
Warrants, A-2 Warrants and the B-1 Warrants and B-2 Warrants (collectively,  the
"Warrants")  will have the  respective  rights,  preferences  and privileges set
forth in the forms of Warrants attached hereto as EXHIBIT E, except with respect
to the A-2 Warrants and the B-2 Warrants  for the  substantive  differences  set
forth in EXHIBIT F. The Common  Stock and Series C  Preferred  Stock that may be
purchased  upon exercise of the Warrants is sometimes  referred to herein as the
"Warrant  Shares",  and the Shares and the  Warrants are  sometimes  referred to
herein collectively as the "Securities".

     SECTION  2.2.  AGREEMENT TO SELL AND TO PURCHASE;  PURCHASE  PRICE.  On the
Closing Date, and upon the terms and subject to the conditions set forth in this
Agreement,  the  Company  shall  issue  and  sell to each  Purchaser,  and  each
Purchaser,  severally  and not  jointly,  shall  purchase  and  accept  from the
Company,  such  number of Shares  and  Warrants  as is set forth  opposite  such
Purchaser's  name on SCHEDULE I hereto (the  "Issuance"),  for a purchase price,
payable by wire  transfer of  immediately  available  funds to a bank account or
bank accounts designated by the Company described in Section 2.3(a)(i), equal to
$1,000  per Share (the  "Purchase  Price").  The  Company  shall  deliver to the
Purchasers the transaction fees payable pursuant to Section 2.3(c) hereof.

     SECTION 2.3.  CLOSING.  The closing of the Issuance (the  "Closing")  shall
take place on a date to be  specified by the Company and the  Purchasers,  which
shall be no later than the later of (A) the 2nd  Business  Day after the date as
of which all of the  conditions  set forth in Article VII hereof shall have been
satisfied as to the  purchase by the  Purchasers  (or, to the extent  permitted,
waived by the party or  parties  entitled  to the  benefit  thereof)  and (B) 20
Business  Days  after  the date  hereof  or at such  other  time and date as the
parties hereto shall agree in writing (such date and time, the "Closing  Date"),

                                       -6-
<PAGE>

at the  offices of Kelley  Drye & Warren LLP,  located at 101 Park  Avenue,  New
York, New York 10178 or at such other place as the parties hereto shall agree in
writing.

          At the Closing:

          (a) Each Purchaser shall deliver:

          (i) against delivery of (A) a certificate or certificates representing
     the Shares and (B) the applicable Warrants, in each case being purchased by
     such  Purchaser  pursuant to Section  2.2, an amount  equal to the Purchase
     Price of such  Securities via wire transfer of immediately  available funds
     to such bank  account as the  Company  shall  designate  not later than two
     Business Days prior to the Closing Date; and

          (ii) a copy of the  Registration  Rights  Agreement  executed  by such
     Purchaser.

          (b) The Company shall deliver to each Purchaser:

          (i) against payment of the Purchase Price  therefor,  a certificate or
     certificates  representing the Shares and (B) the applicable Warrants being
     purchased  by such  Purchaser  pursuant to Section  2.2,  which shall be in
     definitive form and registered in the name of such Purchaser or its nominee
     or designee in such denominations as such Purchaser shall request not later
     than two Business Days prior to the Closing Date;

          (ii) an opinion of Kelley Drye & Warren LLP,  counsel to the  Company,
     dated the Closing Date, covering such matters as are customarily covered by
     such  opinions,   in  form  and  substance  reasonably  acceptable  to  the
     Purchasers;

          (iii) an  officer's  certificate  of the  Company as  contemplated  by
     Section 7.2(f);

          (iv) a  certificate  of the  secretary  of the Company  covering  such
     matters  as are  customarily  covered  by such  certificates,  in form  and
     substance reasonably acceptable to the Purchasers;

          (v) a long-form good standing certificate of the Company issued by the
     Secretary of State of the State of Delaware;

          (vi) a copy  of the  Registration  Rights  Agreement  executed  by the
     Company; and

          (vii) a copy of the Amendment to Rights Plan,  executed by the Company
     and the Rights Agent.

          (c) The Company  shall  deliver to each  Purchaser (or its designee) a
transaction fee equal to 3% of the Purchase Price of the Securities purchased by
such  Purchaser,  in immediately  available funds by wire transfer to an account
designated  by such  Purchaser at least two  Business  Days prior to the Closing
Date.

                                       -7-
<PAGE>

          (d) The Company shall deliver to each of the HMTF Funds letters in the
form  attached  hereto as EXHIBIT G and EXHIBIT H,  executed by the Company (the
"Management  Rights  Agreements") and shall deliver to Chase Equity  Associates,
LLC a letter in the form  attached  hereto as EXHIBIT I, executed by the Company
(the "Regulation Y Agreement").

                                  ARTICLE III

                               REPRESENTATIONS AND
                            WARRANTIES OF THE COMPANY

            The Company hereby  represents and warrants to each Purchaser on the
date hereof and on and as of the Closing Date as follows:

     SECTION 3.1. ORGANIZATION AND STANDING OF THE COMPANY. The Company has been
duly  incorporated  and is validly  existing as a  corporation  in good standing
under the laws of the State of Delaware with full corporate  power and corporate
authority  to own its  properties  and to  conduct  its  business  as now  being
conducted and is duly  qualified to transact  business as a foreign  corporation
and is in good  standing  in each  jurisdiction  in  which  the  conduct  of its
business or its ownership or leasing of property  requires  such  qualification,
except to the extent that the failure to be so qualified or be in good  standing
would not, individually or in the aggregate, have a Material Adverse Effect. The
Company has  delivered to Purchaser  true and complete  copies of the  Company's
Certificate of Incorporation,  as amended to date, and By-laws,  as in effect on
the date hereof.

     SECTION 3.2. ORGANIZATION AND STANDING OF SUBSIDIARIES.  Each Subsidiary of
the  Company  is listed on  EXHIBIT F hereto  (each a "Viatel  Subsidiary"  and,
collectively,  the "Viatel  Subsidiaries")  and, if  applicable to such country,
each  of the  Viatel  Subsidiaries  operating  in such  country  has  been  duly
incorporated or otherwise organized,  is validly existing in good standing under
the laws of the jurisdiction of its  incorporation  or  organization,  with full
corporate power and corporate authority to own its properties and to conduct its
business as now being  conducted and is duly qualified to transact  business and
is in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification,  except to the
extent that the failure to be so qualified or be in good standing would not have
a Material  Adverse Effect.  All of the  outstanding  shares of Capital Stock of
each such  Viatel  Subsidiary  have been  validly  issued and are fully paid and
non-assessable  and,  except as provided on SCHEDULE  3.2(a)  hereof,  are owned
directly or  indirectly by the Company,  free and clear of all pledges,  claims,
liens,  charges,  encumbrances,  and  security  interests  of any kind or nature
whatsoever.  The Company  does not own any equity  interest in any  corporation,
partnership, limited liability company, joint venture, or other entity except as
provided on SCHEDULE 3.2(b) hereof.

     SECTION  3.3.  CAPITAL  STOCK.  (a) As of the date of this  Agreement,  the
authorized  Capital  Stock of the  Company  consists  solely of (i)  150,000,000
shares of Common Stock, of which  47,814,701  shares were issued and outstanding
as of the close of business on January  31,  2000 and (ii)  2,000,000  shares of
preferred  stock, par value $0.01 per share (the "Preferred  Stock"),  of which,
prior to the issuance of the Shares on the Closing Date as  contemplated by this
Agreement,   (a)  1,000  shares  have  been   designated   as  Series  A  Junior

                                       -8-
<PAGE>

Participating Preferred Stock of which no shares are issued and outstanding, (b)
325,000 shares which have been reserved for the Series B-1 Preferred  Stock,  no
shares of which are issued or  outstanding,  (c) 162,500  shares which have been
reserved for the Series B-2  Preferred  Stock,  no shares of which are issued or
outstanding  and (d) 162,500  shares  which have been  reserved for the Series C
Preferred  Stock, no shares of which are issued or  outstanding.  On the Closing
Date, the Series B-1 Preferred  Stock will represent 5.71% (giving effect to the
Warrants) of the Company's Common Stock, on a fully-diluted basis, respectively.
On the Closing Date, the Series B-2 Preferred Stock will represent 5.71% (giving
effect to the Warrants) of the Company's Common Stock, on a fully-diluted basis,
respectively. Each share of Capital Stock of the Company that will be issued and
outstanding immediately following the Closing,  including without limitation the
Shares,  will  be  duly  authorized  and  validly  issued  and  fully  paid  and
nonassessable,  and the  issuance  thereof  will not have  been  subject  to any
preemptive rights or made in violation of any Applicable Law.

          (b)  Except  as set  forth  on  SCHEDULE  3.3,  as of the date of this
Agreement,  there  are  (i)  no  outstanding  options,   warrants,   agreements,
conversion rights,  exchange rights,  preemptive rights or other rights (whether
contingent or not) to subscribe for,  purchase or acquire any issued or unissued
shares  of  Capital  Stock of the  Company  or any  Viatel  Subsidiary,  (ii) no
authorized  or   outstanding   stock   appreciation,   phantom   stock,   profit
participation,  or similar  rights  with  respect  to the  Company or any Viatel
Subsidiary, (iii) no rights, contracts,  commitments or arrangements (contingent
or  otherwise)  obligating  the Company or any Viatel  Subsidiary  to either (A)
redeem,  purchase  or  otherwise  acquire,  or offer  to  purchase,  redeem,  or
otherwise  acquire,  any outstanding  shares of, or any outstanding  warrants or
rights of any kind to acquire any shares of, or any outstanding  securities that
are  convertible  into or  exchangeable  for any shares of, Capital Stock of the
Company,  or (B) pay any  dividend  or make any  distribution  in respect of any
shares of, or any  outstanding  securities  that are convertible or exchangeable
for  any  shares  of,  Capital  Stock  of the  Company,  (iv) no  agreements  or
arrangements  under which the Company or any Viatel  Subsidiary  is obligated to
register the sale of any of its  securities  under the Securities Act (except as
provided  hereunder)  and  except as set forth in  SCHEDULE  3.3(a),  and (v) no
restrictions  upon, or Contracts or  understandings of the Company or any Viatel
Subsidiary,  or, to the knowledge of the Company, Contracts or understandings of
any other  Person,  with  respect  to, the voting or  transfer  of any shares of
Capital Stock of the Company or any Viatel Subsidiary.  SCHEDULE 3.3(a) includes
complete  and  accurate  copies of all stock  option  or stock  purchase  plans,
including, without limitation, a list specifying the total number of outstanding
options,  warrants or other  rights to acquire  shares of the  Company's  Common
Stock  and a  general  description  of the  material  terms of such  outstanding
options, warrants or other rights. Except as set forth on SCHEDULE 3.3(a), there
are no securities or instruments  containing  antidilution or similar provisions
that will be  triggered by the  consummation  of the  transactions  contemplated
hereby in  accordance  with the terms of this  Agreement,  the  Certificates  of
Designation or the Warrants.  Except as set forth on SCHEDULE  3.3(a),  no party
has any right of first refusal,  right of first offer, right of co-sale or other
similar  right  regarding  the  Company's  securities.  Except  as set  forth on
SCHEDULE 3.3(a),  there are no provisions of the Certificate of Incorporation or
the By-laws of the Company, no agreements to which the Company is a party and no
agreements by which the Company or any Viatel  Subsidiary are bound,  that would
(a)  adversely  affect  the  Company's  or the  Purchasers'  right or ability to
execute this Agreement or consummate the  Transactions,  (b) require the vote of
the holders of more than a majority of the shares of the Company's

                                       -9-
<PAGE>

issued and outstanding Common Stock,  voting together as a single class, to take
or prevent any corporate action, other than those matters requiring a class vote
under the DGCL,  or (c) entitle  any party to nominate or elect any  director of
the Company or require any of the  Company's  stockholders  to vote for any such
nominee or other person as a director of the Company.

          (c) The  Conversion  Shares have been duly  authorized  and adequately
reserved in  contemplation  of the conversion of the Series B-1 Preferred Stock,
Series B-2  Preferred  Stock and Series C Preferred  Stock and,  when issued and
delivered  in  accordance  with the  terms of their  respective  Certificate  of
Designations,  as  applicable,  will have been validly  issued and will be fully
paid and  nonassessable,  and the issuance thereof will not have been subject to
any preemptive rights or made in violation of any Applicable Law.

          (d) The Warrant  Shares  have been duly  authorized  and a  sufficient
number of shares of authorized but unissued  Common Stock and Series C Preferred
Stock  have been  adequately  reserved  for  issuance  in  contemplation  of the
exercise of the Warrants, and upon such issuance in accordance with the terms of
the Warrants,  all such Warrant Shares will have been validly issued and will be
fully  paid and  non-assessable,  and the  issuance  thereof  will not have been
subject to any preemptive rights or made in violation of Applicable Law.

     SECTION 3.4. AUTHORIZATION;  ENFORCEABILITY.  The Company has the power and
authority  to execute,  deliver and  perform its  obligations  under each of the
Equity Documents, and has taken all action necessary to authorize the execution,
delivery  and  performance  by it of  each  of  such  Equity  Documents  and  to
consummate the Transactions. No other corporate or stockholder proceeding on the
part of the Company is necessary for such authorization, execution, delivery and
consummation. The Company has duly executed and delivered this Agreement and, at
the Closing, the Company will have duly executed and delivered each of the other
Equity  Documents  to be executed  and  delivered  at or prior to Closing.  This
Agreement constitutes, and each of the other Equity Documents, when executed and
delivered by the Company, will constitute, a legal, valid and binding obligation
of the Company.

     SECTION  3.5. NO  VIOLATION;  CONSENTS.  (a) The  execution,  delivery  and
performance by the Company of each of the Equity  Documents and the consummation
by the Company of the Transactions do not and will not contravene any Applicable
Law, except for any such  contravention  that would not,  individually or in the
aggregate,  reasonably be expected to have a Material Adverse Effect.  Except as
set forth on SCHEDULE  3.5(a),  the execution,  delivery and  performance by the
Company of each of the Equity Documents and the consummation of the Transactions
(i) will not (A) violate,  result in a breach of or constitute  (with or without
due  notice  or lapse of time or both) a  default  (or give rise to any right of
termination,  cancellation  or  acceleration)  under any  Contract  to which the
Company  or any  Viatel  Subsidiary  is a party or by which the  Company  or any
Viatel  Subsidiary  is bound or to which any of its  assets is  subject,  or (B)
result in the creation or  imposition  of any Lien upon any of the assets of the
Company, except for any such violations,  breaches, defaults or Liens that would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse  Effect and (ii) will not conflict  with or violate any provision of the
Certificate of Incorporation or By-laws of the Company currently in effect or in
effect as of the Closing.

                                      -10-
<PAGE>

          (b)  Except  for  (i)  the  filings  by the  Company  and  the  Viatel
Subsidiaries,  if any, required by the HSR Act, (ii) applicable filings, if any,
required by applicable federal and state securities laws and (iii) filing of the
Certificates  of  Designation  with  the  Secretary  of  State  of the  State of
Delaware,  in each case, which shall be made (or are not required to be made) on
or prior to the Closing Date, no consent,  authorization  or order of, or filing
or registration with, any Governmental  Authority or other Person is required to
be obtained or made by the Company or any Viatel  Subsidiary  for the execution,
delivery and performance of this Agreement or the consummation by the Company or
any Viatel  Subsidiary  of the  Issuance,  or for the  execution,  delivery  and
performance  by the  Company of the other  Equity  Documents,  except  where the
failure to obtain such consents,  authorizations or orders, or make such filings
or  registrations,  would not,  individually or in the aggregate,  reasonably be
expected to have a Material  Adverse Effect or a material  adverse effect on the
ability  of  the  Company  and  the  Viatel   Subsidiaries   to  consummate  the
Transactions.

     SECTION 3.6. COMMISSION FILINGS;  FINANCIAL STATEMENTS. (a) The Company has
filed all reports,  registration statements and other filings, together with any
amendments or supplements required to be made with respect thereto,  that it has
been  required  to file with the  Commission  under the  Securities  Act and the
Exchange Act. As of the  respective  dates of their filing with the  Commission,
the  Commission  Filings  complied as to form in all material  respects with the
applicable  provisions  of the  Securities  Act and the Exchange Act and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements  made therein,
in the light of the circumstances under which they were made, not misleading.

          (b) Each of the historical  consolidated  financial  statements of the
Company  (including  any related notes or schedules)  included in the Commission
Filings  was  prepared  in  accordance  with GAAP  (except  as may be  disclosed
therein),  and complied in all material  respects with the rules and regulations
of the Commission.  Such financial  statements  fairly present the  consolidated
financial  position of the Company and the Viatel  Subsidiaries  as of the dates
thereof and the  consolidated  results of operations,  cash flows and changes in
stockholders'  equity for the periods  then ended  (subject,  in the case of the
unaudited  interim financial  statements,  to normal,  recurring  year-end audit
adjustments).  Except as set forth or reflected in the Commission  Filings filed
prior to the date hereof or as set forth on SCHEDULE  3.6(b),  the Company  does
not  have  any  liabilities  or  obligations  of any  nature  (whether  accrued,
absolute,  contingent,  unasserted or  otherwise)  that  individually  or in the
aggregate would be expected to have a Material Adverse Effect.

     SECTION  3.7.  PRIVATE  OFFERING.   Based,  in  part,  on  the  Purchasers'
representations  in Section 4.2, the offer and sale of the  Securities is exempt
from the  registration  and prospectus  delivery  requirements of the Securities
Act. Neither the Company, nor anyone acting on behalf of it, has offered or sold
or will offer or sell any securities, or has taken or will take any other action
(including,  without  limitation,  any offering of any securities of the Company
under  circumstances  that  would  require,  under  the  Securities  Act  or any
applicable blue-sky laws, the integration of such offering with the offering and
sale of the  Securities),  which would subject the Issuance to the  registration
provisions of the Securities Act.

                                      -11-
<PAGE>

     SECTION 3.8.  PROVIDED  INFORMATION.  To the knowledge of the Company,  all
written  information  (excluding  information of a general  economic  nature and
financial  projections)   concerning  the  Company  and  the  Transactions  (the
"Information")  that has been or will be prepared by or on behalf of the Company
or any of the  Company's  authorized  representatives  and that has been made or
will  be  made  available  to  the   Purchasers  or  any  of  their   authorized
representatives  in connection with the Issuance,  when taken as a whole, was or
will be, at the time made  available,  correct in all material  respects and did
not or will not, at the time made available,  contain any untrue  statement of a
material  fact or omit to state a material  fact  necessary in order to make the
statements  contained therein not misleading in light of the circumstances under
which such statements are made. All financial projections concerning the Company
and the Issuance (the  "Projections") that have been prepared by or on behalf of
the Company or any of the  Company's  authorized  representatives  and that have
been or will be made  available  to the  Purchasers  or any of their  authorized
representatives  in connection with the Issuance have been, and at the time made
available will be, reasonably  prepared on a basis reflecting the best currently
available  estimates and judgments of the Company's  management as to the future
financial  performance  of the  Company  and the  individual  business  segments
thereof.

     SECTION 3.9. MATERIAL ADVERSE CHANGE. Except as disclosed in the Commission
Filings,  since September 30, 1999, there has not been any event,  occurrence or
development  of a state of  circumstances  or facts that has had,  or could have
reasonably  been  expected  to have,  (i) a  Material  Adverse  Effect or (ii) a
material adverse effect on the ability of the Company to perform its obligations
under this Agreement.

     SECTION  3.10.  LITIGATION.  There  are not any (a)  outstanding  judgments
against  or  affecting  the  Company  or  any of the  Viatel  Subsidiaries,  (b)
proceedings  pending or, to the knowledge of the Company,  threatened against or
affecting the Company or any of the Viatel Subsidiaries or (c) investigations by
any Governmental Authority that are to the knowledge of the Company,  pending or
threatened that (i) in any manner challenge or seek to prevent, enjoin, alter or
materially  delay the  Issuance or (ii) if resolved  adversely to the Company or
any Viatel Subsidiary,  would have, individually or in the aggregate, a Material
Adverse Effect.

     SECTION 3.11. PERMITS AND LICENSES. The Company and the Viatel Subsidiaries
have all necessary permits, licenses, franchises and authorizations required for
the Company and the Viatel  Subsidiaries to conduct their respective  businesses
as  currently  conducted,  except for those of which the failure to obtain would
not have a Material Adverse Effect.

     SECTION 3.12.  INTELLECTUAL  PROPERTY,  ETC Except as disclosed in SCHEDULE
3.12 or in any  Commission  Filings filed prior to the date hereof,  the Company
and the Viatel  Subsidiaries  have all right,  title and interest in, or a valid
and  binding  license to use,  all  Company  Intellectual  Property  (as defined
below).  Except as disclosed in SCHEDULE 3.12 or in any Commission Filings filed
prior to the date hereof,  the Company and the Viatel  Subsidiaries (i) have not
defaulted  in  any  material  respect  under  any  license  to use  any  Company

                                      -12-
<PAGE>

Intellectual Property,  (ii) are not the subject of any proceeding or litigation
for  infringement  of any  third  party  intellectual  property,  (iii)  have no
knowledge of circumstances that would be reasonably expected to give rise to any
such proceeding or litigation and (iv) have no knowledge of  circumstances  that
are causing or would be  reasonably  expected to cause the loss or impairment of
any Company Intellectual Property, other than a default, proceeding, litigation,
loss or  impairment  that is not having or would not be  reasonably  expected to
have, individually or in the aggregate, a Material Adverse Effect.

            For  purposes of this  Agreement,  "Company  Intellectual  Property"
means patents and patent rights,  trademarks and trademark  rights,  trade names
and trade name rights,  service  marks and service mark rights,  copyrights  and
copyright rights,  trade secret and trade secret rights,  and other intellectual
property rights,  and all pending  applications for and  registrations of any of
the foregoing that are individually or in the aggregate  material to the conduct
of the business of the Company and the Viatel Subsidiaries, taken as a whole.

     SECTION  3.13.  BROKERS'  AND OTHER FEES.  Except as  disclosed on SCHEDULE
3.13,  neither  the  Company  nor any Viatel  Subsidiary  has any  liability  or
obligation to pay any fees or commissions to any broker,  finder,  or agent with
respect to the transactions contemplated by this Agreement.

     SECTION 3.14. COMPLIANCE. Except as disclosed on SCHEDULE 3.14, the Company
and the Viatel  Subsidiaries  are in  compliance  with all  applicable  foreign,
federal,  state, and local laws, rules, and regulations  except where failure to
be in material  compliance  would not  reasonably be expected to have a Material
Adverse Effect.

     SECTION 3.15. CERTAIN CONTRACTS.  Except as disclosed in SCHEDULE 3.15, all
material  contracts to which the Company or any Viatel  Subsidiary is a party or
may be bound that are required by Item  610(b)(10) of Regulation S-K to be filed
as exhibits to, or  incorporated by reference in, the Company's Form 10-K or the
Company's  Form  10-Q,  have been so filed or  incorporated  by  reference.  All
material  contracts to which the Company or any of the Viatel  Subsidiaries is a
party or may be bound that have been entered into as of the date hereof and will
be required by Item  610(b)(10) of Regulation S-K to be filed or incorporated by
reference  into the  Company's  Annual Report on Form 10-K for the period ending
December 31, 1999, or Quarterly  Report on Form 10-Q for the period ending March
31, 2000, but that have not previously  been filed or  incorporated by reference
into any  Company  reports,  are set  forth on  SCHEDULE  3.15.  All  contracts,
licenses,  consents,  royalty,  or other  agreements  that are  material  to the
Company and the Viatel  Subsidiaries,  taken as a whole, to which the Company or
any of the Viatel Subsidiaries is a party are valid and in full force and effect
on the date  hereof  except  to the  extent  they  have  previously  expired  in
accordance  with  their  terms  or,  to the  extent  such  invalidity  would not
reasonably be expected to have a Material  Adverse  Effect and, to the Company's
knowledge,  neither the Company nor any of the Viatel  Subsidiaries has violated
any  provision  of, or  committed  or failed to  perform  any act that,  with or
without  notice,  lapse or time, or both,  would  constitute a default under the
provisions of any contract, except for defaults that would not, individually and
in the aggregate, reasonably be expected to result in a Material Adverse Effect.

     SECTION  3.16.  STATE  TAKEOVER  STATUTES.  The Board of  Directors  of the
Company has approved the terms of this Agreement and the  Transactions  and such
approval   constitutes   approval  of  this   Agreement  and  the   Transactions

                                      -13-
<PAGE>

contemplated  under the provisions of Section 203(a)(1) of the DGCL. To the best
of the Company's  knowledge,  no other state takeover statute or similar statute
or  regulation  applies or  purports  to apply to this  Agreement  or any of the
Transactions.

     SECTION 3.17. RIGHTS AGREEMENT. The Rights Agreement,  dated as of December
6, 1999,  between  the Company  and The Bank of New York,  as Rights  Agent (the
"Rights  Agreement"),  will be amended  as of the date  hereof (i) to render the
Rights Agreement inapplicable to the Equity Documents and the Transactions,  and
(ii) to ensure  that (y) neither the HMTF  Purchasers  nor the Chase  Purchasers
will  become an  Acquiring  Person  (as each such term is  defined in the Rights
Agreement) and (z) a Distribution  Date, a Shares Acquisition Date, or a Flip-In
Event (as each such term is defined in the Rights Agreement) shall not occur, in
the case of clause (y) or clause (z),  solely by reason of the  execution of the
Equity  Documents or the consummation of the  Transactions  (including,  but not
limited  to, the  issuance  of  Conversion  Shares and the  issuance  of Warrant
Shares).

     SECTION  3.18.  TITLE TO  PROPERTIES.  The  Company  and any of the  Viatel
Subsidiaries  have good and marketable  title in fee simple to all real property
and good and  marketable  title to all personal  property owned by them which is
material to the  business  of the  Company  and any of the Viatel  Subsidiaries,
taken as a whole,  in each case free and clear of all  liens,  encumbrances  and
defects except (i) such as are reflected in the Company's  financial  statements
or are described in SCHEDULE  3.18;  (ii) such as do not  materially  affect the
value of such property and do not interfere with the use made and proposed to be
made of such property by the Company and the Viatel Subsidiaries;  or (iii) such
as do not  have  a  Material  Adverse  Effect  on the  Company  and  the  Viatel
Subsidiaries,  taken as a whole;  and any real property and buildings held under
lease by the Company and Subsidiaries are held by them under valid,  binding and
enforceable  leases  with  such  exceptions  as  are  not  material  and  do not
materially  interfere with the use made and proposed to be made of such property
and buildings by the Company and the Viatel Subsidiaries, in each case except as
described in or contemplated by SCHEDULE 3.18.

     SECTION 3.19.  SIDE  AGREEMENTS.  As between the Company and each Purchaser
and Purchaser Affiliate, no contracts,  agreements or understandings exist prior
to the  Closing  Date to which  each  Purchaser  is not a party  that  grant any
Purchaser any right other than the rights specifically granted to such Purchaser
by  this  Agreement  and  the  other  Equity   Documents  with  respect  to  the
Transactions.

                                   ARTICLE IV

                               REPRESENTATIONS AND
                          WARRANTIES OF THE PURCHASERS

            Each Purchaser severally as to itself only, and not jointly,  hereby
represents  and  warrants  to the  Company  as of the date  hereof and as of the
Closing Date as follows:

     SECTION 4.1. ORGANIZATION; AUTHORIZATION; ENFORCEABILITY. Such Purchaser is
duly  incorporated  or organized  and is validly  existing and in good  standing
under the laws of the  jurisdiction  of its  organization  and has all requisite

                                      -14-
<PAGE>

power and authority to own its  properties  and to conduct its business as it is
now being  conducted and as currently  proposed to be conducted.  Such Purchaser
has the power and  authority  to execute,  deliver  and perform its  obligations
under  each of the  Equity  Documents  to which it is a party  and has taken all
action  necessary to authorize the execution,  delivery and performance by it of
such Equity  Documents and to consummate the Issuance.  No other  proceedings on
the part of such  Purchaser  are necessary  for such  authorization,  execution,
delivery and  consummation.  Such Purchaser has duly executed and delivered this
Agreement  and, at the  Closing,  such  Purchaser  will have duly  executed  and
delivered  each of the other Equity  Documents  to be executed and  delivered by
such Purchaser at or prior to Closing. This Agreement  constitutes,  and each of
the other Equity Documents to which such Purchaser is a party, when executed and
delivered  by such  Purchaser,  will  constitute,  a legal,  valid  and  binding
obligation of such Purchaser.

     SECTION 4.2. PRIVATE PLACEMENT. (a) Such Purchaser understands that (i) the
offering and sale of the Securities  have not been registered by the Company and
are intended to be exempt from registration under the Securities Act pursuant to
Section  4(2)  thereof and (ii) there is no existing  public or other market for
the Securities.

          (b) Such  Purchaser  (either  alone or together with its advisors) has
sufficient  knowledge and experience in financial and business  matters so as to
be  capable  of  evaluating  the  merits  and  risks  of its  investment  in the
Securities and is capable of bearing the economic risks of such investment.

          (c) Except as otherwise set forth herein,  such Purchaser is acquiring
the Securities to be acquired  hereunder (and will acquire the Conversion Shares
and Warrant Shares) for its own account (or for accounts over which it exercises
investment  authority),  for investment and not with a view to the public resale
or distribution thereof in violation of any securities law.

          (d) Such Purchaser understands that the Securities will be issued in a
transaction  exempt from the registration or  qualification  requirements of the
Securities Act and applicable  state  securities  laws, and that such securities
must be held indefinitely unless a subsequent  disposition thereof is registered
or  qualified  under the  Securities  Act and such  laws or is exempt  from such
registration or qualification.

          (e) Such  Purchaser (A) has been furnished with or has had full access
to all of the information that it considers  necessary or appropriate to make an
informed  investment  decision  with respect to the  Securities  and that it has
requested  from  the  Company,  (B)  has  had an  opportunity  to  discuss  with
management  of the Company the intended  business and  financial  affairs of the
Company  and to obtain  information  (to the extent the Company  possessed  such
information  or  could  acquire  it  without  unreasonable  effort  or  expense)
necessary to verify any  information  furnished to it or to which it had access,
(C)  can  bear  the  economic  risk  of (x)  an  investment  in  the  Securities
indefinitely  and (y) a total loss in respect  of such  investment,  and (D) has
such knowledge and experience in business and financial  matters so as to enable
it to understand and evaluate the risks of and form an investment  decision with
respect to its  investment in the  Securities and to protect its own interest in
connection with such investment.

     SECTION  4.3. NO  VIOLATION;  CONSENTS.  (a) The  execution,  delivery  and
performance by such  Purchaser of each of the Equity  Documents to which it is a
party and the  consummation  of the  Transactions do not and will not contravene
any Applicable Law, except for such contraventions as would not, individually or

                                      -15-
<PAGE>

in the  aggregate,  reasonably be expected to have a material  adverse effect on
the  ability of such  Purchaser  to timely  perform its  obligations  under this
Agreement. The execution,  delivery and performance by such Purchaser of each of
the  Equity  Documents  to  which  it is a  party  and the  consummation  of the
Transactions  contemplated therein (i) will not (A) violate,  result in a breach
of or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination,  cancellation or acceleration)  under
any  Contract to which such  Purchaser  is party or by which such  Purchaser  is
bound or to which any of its assets is subject, or (B) result in the creation or
imposition of any Lien upon any of the assets of such Purchaser,  except for any
such violations,  breaches, defaults or Liens that would not, individually or in
the aggregate,  reasonably be expected to have a material  adverse effect on the
ability  of  such  Purchaser  to  timely  perform  its  obligations  under  this
Agreement,  and (ii) will not  conflict  with or violate  any  provision  of the
certificate  of  incorporation  or bylaws or other  governing  documents of such
Purchaser.

          (b) Except for (i) the filings by the Purchaser,  if any,  required by
the HSR Act, and (ii) applicable  filings,  if any, with the Commission pursuant
to the Exchange  Act, in each case,  which shall be made (or are not required to
be made) on or prior to the Closing Date, no consent, authorization or order of,
or filing or registration  with, any  Governmental  Authority or other Person is
required to be obtained or made by such  Purchaser for the  execution,  delivery
and  performance  of any of the Equity  Documents  to which it is a party or the
consummation of any of the transactions  contemplated therein,  except where the
failure to obtain such consents,  authorizations or orders, or make such filings
or  registrations,  would not,  individually or in the aggregate,  reasonably be
expected to have a material  adverse  effect on the ability of such Purchaser to
timely perform its obligations under this Agreement.

     SECTION 4.4. NO  LITIGATION.  There are not any (a)  outstanding  judgments
against or affecting the Purchaser or any of its  subsidiaries,  (b) proceedings
pending or, to the knowledge of the Purchaser,  threatened  against or affecting
the  Purchaser  or  any  of  its  subsidiaries  or  (c)  investigations  by  any
Governmental  Authority that are, to the knowledge of the Purchaser,  pending or
threatened  against or affecting the Purchaser or any of its subsidiaries  that,
in any case,  individually or in the aggregate,  would reasonably be expected to
have a  material  adverse  effect on the  ability  of such  Purchaser  to timely
perform its obligations under this Agreement.

     SECTION 4.5. AFFILIATES. Chase Equity Associates, LLC hereby represents and
warrants  to the Company  that each of its  Affiliates  to whom any  Security is
transferred  has agreed or will have agreed prior to such transfer in writing to
be bound by each Equity  Document  automatically  and without any further action
(effective  upon the  transfer  of any such  Security)  to the extent  that such
agreement  to be bound is  required  by the terms of any  Equity  Document.  The
Company  acknowledges  that such agreement  satisfies in full any requirement to
provide notice of such transfer or obtain a Permitted  Transferee Agreement with
respect thereto.

                                   ARTICLE V

                            COVENANTS OF THE COMPANY

     SECTION 5.1. OPERATION OF BUSINESS.  From the date hereof until the Closing
Date, the Company shall, and shall cause each of the Viatel Subsidiaries to:

                                      -16-
<PAGE>

          (i) operate  its  business in all  material  respects in the  ordinary
     course and in compliance with Applicable Laws;

          (ii) not adopt any  amendment to its charter or by-laws or  comparable
     organizational document (except with respect to the Viatel Subsidiaries, as
     may be required to facilitate the integration of any Subsidiaries of Destia
     Communications Inc., a wholly-owned subsidiary of the Company);

          (iii) not split,  combine or  reclassify  any shares of the  Company's
     Capital Stock;

          (iv) not declare or pay any dividend or distribution (whether in cash,
     stock or property)  in respect of its Capital  Stock or increase the number
     of shares of Common Stock  subject to the  Company's  stock  incentive  and
     option plan;

          (v) not take any action,  or knowingly  omit to take any action,  that
     would,  or that would  reasonably  be expected to, result in (A) any of the
     representations  and  warranties  of the  Company  set forth in Article III
     becoming  untrue  or (B)  any  of the  conditions  to  the  obligations  of
     Purchaser  set  forth  in  Section  7.2  not  being  satisfied  or (C)  the
     triggering  of  any  of  the  anti-dilution  adjustments  contained  in the
     respective  Certificate of Designation for the Series B Preferred Shares or
     the  Warrants  (had such  Certificate  of  Designation  or Warrant  been in
     effect); or

          (vi)  enter  into  any  agreement  or  commitment  to do  any  of  the
     foregoing.

     SECTION 5.2.  HMTF  DIRECTOR.  The Company shall cause to be elected to the
Company's Board of Directors one person  designated by the holders of a majority
of the then  outstanding  HMTF  Shares  (the  "HMTF  Director"),  for so long as
members of the HMTF Group own any  combination of HMTF Issued Series B Preferred
Shares and Common Stock issued upon conversion of HMTF Issued Series B Preferred
Shares  that,  taken  together,  would  represent,  if all HMTF Issued  Series B
Preferred  Shares were converted,  an amount of Common Stock equal to the number
of shares of Common Stock issuable upon  conversion of 50% or more of the shares
of HMTF Issued Series B Preferred Shares;  provided,  however, that the right to
designate  the HMTF  Director  under this  Section 5.2 shall be suspended at any
time  that  members  of the HMTF  Group  have the right to elect a person to the
Board of Directors  under the terms of the Series B-1 Preferred  Stock set forth
in the Series B-1  Certificate  of  Designation.  In the event the  holders of a
majority of the then-outstanding HMTF Shares are entitled under this Section 5.2
to designate the HMTF Director for election to the Company's  Board of Directors
and elect to have the Board of Directors  appoint the HMTF Director,  they shall
so notify the Company in writing and the Company  shall (a) increase the size of
the Board of Directors by one and fill the vacancy  created  thereby by electing
the HMTF Director and (b) in connection  with the meeting of stockholders of the
Company next following  such election,  nominate such HMTF Director for election
as director by the stockholders and use its commercially  reasonable  efforts to
cause the HMTF  Director to be so  elected.  If the holders of a majority of the
then  outstanding  HMTF Shares are entitled  under this Section 5.2 to designate
the HMTF Director for election to the Company's Board of Directors and a vacancy

                                      -17-
<PAGE>

shall exist in the office of a HMTF  Director,  the holders of a majority of the
then-outstanding  HMTF Shares shall be entitled to designate a successor and the
Board of  Directors  shall  elect such  successor  and, in  connection  with the
meeting of  stockholders  of the Company next following such election,  nominate
such  successor  for  election  as  director  by the  stockholders  and  use its
commercially reasonable efforts to cause the successor to be elected.

     SECTION 5.3. ACCESS TO BOOKS AND RECORDS.  The Company shall afford to each
of the Purchasers and the Purchasers'  accountants,  counsel and representatives
full access  during normal  business  hours  throughout  the period prior to the
Closing Date (or the earlier  termination of this Agreement  pursuant to Section
8.4)  to  all  its  properties,   books,  Contracts,   commitments  and  records
(including,  but not limited to, tax returns)  and,  during such period,  shall,
upon  request,  furnish  promptly to each of the  Purchasers  (i) a copy of each
report, schedule and other document filed or received by any of them pursuant to
the  requirements  of  Federal  or state  securities  laws  and  (ii) all  other
information concerning its business,  properties and personnel as the Purchasers
may reasonably request, provided that no investigation or receipt of information
pursuant to this Section 5.3 shall affect any  representation or warranty of the
Company or the  conditions to the  obligations  of the  Purchasers.  The Company
shall  supplement the Information  and  Projections  from time to time until the
Closing Date so that the  representations  and  warranties  in Section 3.8 shall
remain  correct,  but no such  supplement  shall be given effect for purposes of
determining  whether the Company has breached any  representations or warranties
for purposes of Section 7.2 and Section 8.1.

     SECTION 5.4. AGREEMENT TO TAKE NECESSARY AND DESIRABLE ACTIONS. The Company
shall (a) subject to the  satisfaction  of the  conditions  set forth in Section
7.1,  execute  and  deliver  the  Equity  Documents  and such  other  documents,
certificates,  agreements and other writings and (b) take such other actions, in
each case, as may be necessary or reasonably  requested by any of the Purchasers
in order to consummate or implement the Issuance in accordance with the terms of
this Agreement.

     SECTION 5.5. COMPLIANCE WITH CONDITIONS;  COMMERCIALLY  REASONABLE EFFORTS.
The  Company  shall  use  all  commercially  reasonable  efforts  to  cause  all
conditions  precedent to the obligations of the Company and the Purchasers to be
satisfied.  Upon the terms and subject to the conditions of this Agreement,  the
Company will use all  commercially  reasonable  efforts to take,  or cause to be
taken, all action, and to do, or cause to be done, all things necessary,  proper
or advisable  consistent with Applicable Law to consummate and make effective in
the most  expeditious  manner  practicable  the Issuance in accordance  with the
terms of this Agreement.

     SECTION 5.6. HSR ACT  NOTIFICATION.  To the extent required by the HSR Act,
the  Company  shall,  to the  extent  it has not  already  done so,  (a) use all
commercially  reasonable  efforts to file or cause to be filed,  as  promptly as
practicable after the execution and delivery of this Agreement,  with the United
States Federal Trade Commission and the Antitrust  Division of the United States
Department of Justice,  all reports and other documents  required to be filed by
it under the HSR Act concerning the transactions contemplated hereby and (b) use
all  commercially  reasonable  efforts to  promptly  comply  with or cause to be
complied with any requests by the United States Federal Trade  Commission or the
Antitrust  Division of the United States  Department  of Justice for  additional
information  concerning  such  transactions,  in each  case so that the  waiting
period  applicable to this Agreement and the  transactions  contemplated  hereby

                                      -18-
<PAGE>

under the HSR Act shall expire as soon as  practicable  after the  execution and
delivery of this Agreement. The Company agrees to request, and to cooperate with
the Purchasers in requesting, early termination of any applicable waiting period
under the HSR Act.

     SECTION  5.7.  CONSENTS  AND  APPROVALS.  The  Company  (a)  shall  use all
commercially  reasonable  efforts to obtain  all  necessary  consents,  waivers,
authorizations  and approvals of all  Governmental  Authorities and of all other
Persons  required in connection with the execution,  delivery and performance of
the  Equity  Documents  or  the  consummation  of the  Issuance  and  (b)  shall
diligently  assist and cooperate with the Purchasers in preparing and filing all
documents  required  to be  submitted  by the  Purchasers  to  any  Governmental
Authority in connection  with the Issuance  (which  assistance  and  cooperation
shall  include,  without  limitation,  timely  furnishing to the  Purchasers all
information  concerning  the Company and the  Subsidiaries  that  counsel to the
Purchasers reasonably determines is required to be included in such documents or
would be helpful in obtaining any such required consent,  waiver,  authorization
or approval).

     SECTION 5.8.  RESERVATION OF SHARES.  For so long as any shares of Series B
Preferred  Stock or any shares of Series C Preferred  Stock or any  Warrants are
outstanding, the Company shall keep reserved for issuance a sufficient number of
Conversion  Shares  and  shares  of  Series B  Preferred  Stock to  satisfy  its
conversion obligations under the Certificates of Designations and enough Warrant
Shares to satisfy its obligations  upon exercise of the Warrants.  If any shares
of  Common  Stock,  shares  of  Series B  Preferred  Stock or shares of Series C
Preferred  Stock  reserved for the purpose of issuance  upon  conversion  of the
Shares or upon exercise of the Warrants require registration with or approval of
any  Governmental  Authority  under any Applicable Law before such shares may be
validly issued or delivered,  then the Company shall secure such registration or
approval,  as the case may be, and  maintain  such  registration  or approval in
effect for so long as so required.

     SECTION 5.9. USE OF PROCEEDS.  The Company  shall use the proceeds from the
Issuance to buildout its  telecommunications  network,  fund new initiatives and
for general corporate purposes.

     SECTION 5.10. FILING OF CERTIFICATE OF DESIGNATION.  Prior to the Issuance,
the Company shall file the  Certificates  of  Designation  with the Secretary of
State of the State of Delaware pursuant to Section 151(g) of the DGCL.

     SECTION 5.11.  LISTING OF SHARES.  The Company  shall use all  commercially
reasonable  efforts to cause the Conversion  Shares and the Warrant Shares to be
listed or otherwise eligible for trading on the Nasdaq National Market System or
other national securities exchange.

     SECTION  5.12.  PERIODIC  INFORMATION.  For  so  long  as the  Shares,  any
Conversion Shares or any Warrant Shares are outstanding,  the Company shall file
all reports required to be filed by the Company under Section 13 or 15(d) of the
Exchange Act and shall provide the holders of the Shares,  the Conversion Shares
and the  Warrant  Shares and  prospective  purchasers  of such  shares  with the
information specified in Rule 144A(d) under the Securities Act.

     SECTION 5.13. LEGENDS. So long as applicable, each certificate representing
any portion of the Shares,  Conversion Shares or Warrant Shares shall be stamped
or otherwise  imprinted  with a legend in the following form (in addition to any
legend required under applicable state securities laws):

                                      -19-
<PAGE>

          "THE SHARES  REPRESENTED BY THIS  CERTIFICATE HAVE
          NOT BEEN  REGISTERED  UNDER THE  SECURITIES ACT OF
          1933,  AS AMENDED  (THE  "SECURITIES  ACT") OR THE
          SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
          SUCH SHARES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
          PLEDGED,  HYPOTHECATED OR OTHERWISE DISPOSED OF IN
          THE  ABSENCE  OF  SUCH  REGISTRATION   OTHER  THAN
          PURSUANT TO AN  EXEMPTION  FROM SUCH  REGISTRATION
          REQUIREMENTS."

After the above  requirement  for a legend is no longer  applicable  because the
Shares,  Conversion Shares or Warrant Shares are freely  transferable  under the
Securities  Act, the Company shall remove such legend upon request from a holder
of such shares,  if outside counsel for such holder  reasonably  determines that
the transfer of such shares is no longer  restricted by the  Securities  Act and
outside counsel for the Company reasonably concurs in such determination.

                                   ARTICLE VI

                           COVENANTS OF THE PURCHASERS

SECTION 6.1. AGREEMENT TO TAKE NECESSARY AND DESIRABLE  ACTIONS.  Each Purchaser
shall (a) subject to the  satisfaction  of the  conditions  set forth in Section
7.2, execute and deliver each of the Equity Documents to which it is a party and
such other documents,  certificates,  agreements and other writings and (b) take
such other actions as may be reasonably necessary, desirable or requested by the
Company in order to consummate  or implement  the Issuance to such  Purchaser in
accordance with the terms of this Agreement.

     SECTION 6.2. COMPLIANCE WITH CONDITIONS;  COMMERCIALLY  REASONABLE EFFORTS.
Each Purchaser will use all commercially  reasonable efforts to cause all of the
obligations  imposed upon it in this  Agreement to be duly complied with, and to
cause  all  conditions  precedent  to the  obligations  of the  Company  and the
Purchasers to be satisfied. Upon the terms and subject to the conditions of this
Agreement,  each Purchaser will use all commercially reasonable efforts to take,
or cause to be taken,  all  action,  and to do, or cause to be done,  all things
necessary,  proper or advisable consistent with applicable law to consummate and
make effective in the most expeditious  manner  practicable the Issuance to such
Purchaser in accordance with the terms of this Agreement.

     SECTION 6.3. HSR ACT  NOTIFICATION.  To the extent required by the HSR Act,
each Purchaser  shall,  if it has not already done so, (a) use all  commercially
reasonable  efforts to file or cause to be filed,  as  promptly  as  practicable
after the  execution  and  delivery of this  Agreement,  with the United  States
Federal  Trade  Commission  and the  Antitrust  Division  of the  United  States
Department of Justice,  all reports and other documents  required to be filed by

                                      -20-
<PAGE>

it under the HSR Act concerning the transactions contemplated hereby and (b) use
all  commercially  reasonable  efforts to  promptly  comply  with or cause to be
complied with any requests by the United States Federal Trade  Commission or the
Antitrust  Division of the United States  Department  of Justice for  additional
information concerning such transactions in each case so that the waiting period
applicable to this Agreement and the transactions  contemplated hereby under the
HSR Act shall expire as soon as practicable  after the execution and delivery of
this Agreement.  Purchaser agrees to request,  and to cooperate with the Company
in requesting,  early termination of any applicable waiting period under the HSR
Act.

     SECTION  6.4.  CONSENTS AND  APPROVALS.  Each  Purchaser  (a) shall use all
commercially  reasonable  efforts to obtain  all  necessary  consents,  waivers,
authorizations  and  approvals  of all  Governmental  Authorities  other than as
expressly  set forth in  Section  6.3  regarding  the HSR Act,  and of all other
Persons  required in connection with the execution,  delivery and performance of
this  Agreement or the  consummation  of the Issuance to such  Purchaser and (b)
shall  diligently  assist and cooperate with the Company in preparing and filing
all  documents  required  to be  submitted  by the  Company to any  Governmental
Authority in connection with such Transactions (which assistance and cooperation
shall  include,  without  limitation,  timely  furnishing  to  the  Company  all
information  concerning  such Purchaser  that counsel to the Company  reasonably
determines  is required to be included in such  documents or would be helpful in
obtaining any such required consent, waiver, authorization or approval).

     SECTION 6.5.  RESTRICTIONS ON TRANSFER.  No Purchaser  shall sell,  assign,
transfer, pledge, hypothecate, deposit in a voting trust or otherwise dispose of
any portion of the Securities (any such disposition,  a "Securities  Transfer"),
other than (a) to a Permitted  Transferee of such  Purchaser  that has agreed in
writing (each, a "Permitted Transferee  Agreement") to be bound by the terms and
provisions  of  this  Section  6.5 to the  same  extent  that  the  transferring
Purchaser would be bound if it beneficially owned the Securities  transferred to
such Permitted  Transferee or (b)(i) in any  transaction in compliance with Rule
144 under the  Securities  Act or any successor  rule or  regulation,  (ii) in a
transaction  exempt from the registration  requirements of the Securities Act or
(iii) pursuant to a registration statement. Each Purchaser shall promptly notify
the  Company  of any  Securities  Transfer  to a  Permitted  Transferee  of such
Purchaser,  which  notification shall include a Permitted  Transferee  Agreement
executed by each  Permitted  Transferee of such Purchaser to whom any Securities
have been transferred.

                                  ARTICLE VII

                         CONDITIONS PRECEDENT TO CLOSING

     SECTION 7.1.  CONDITIONS TO THE COMPANY'S  OBLIGATIONS.  The obligations of
the Company  with respect to a Purchaser  hereunder  required to be performed on
the Closing Date shall be subject to the satisfaction or waiver,  at or prior to
the Closing, of the following conditions:

          (a) The  representations and warranties of such Purchaser contained in
this  Agreement (i) shall have been true and correct when made and (ii) shall be
(A) in the case of representations and warranties that are qualified as to

                                      -21-
<PAGE>

materiality or Material  Adverse  Effect,  true and correct and (B) in all other
cases,  true and correct in all material respects in the case of clauses (A) and
(B),  as of the Closing  Date with the same force and effect,  as though made on
and as of the Closing Date.

          (b) Such Purchaser  shall have performed in all material  respects all
obligations  and  agreements,  and  complied in all material  respects  with all
covenants  contained in this Agreement to be performed and complied with by such
Purchaser at or prior to the Closing Date.

          (c) Any  applicable  waiting  period under the HSR Act with respect to
the purchase by such Purchaser shall have expired or been terminated.

     SECTION 7.2. CONDITIONS TO EACH PURCHASER'S OBLIGATIONS. The obligations of
a Purchaser  hereunder  required to be  performed  on the Closing  Date shall be
subject  to the  satisfaction  or  waiver,  at or prior to the  Closing,  of the
following conditions:

          (a) The  representations  and  warranties of the Company  contained in
this  Agreement (i) shall have been true and correct when made and (ii) shall be
(A) in the case of  representations  and  warranties  that are  qualified  as to
materiality or Material  Adverse  Effect,  true and correct and (B) in all other
cases, true and correct in all material respects, in the case of clauses (A) and
(B), as of the Closing Date with the same force and effect as though made on and
as of the Closing Date.

          (b) The Company shall have  performed in all material  respects all of
its  obligations,  agreements  and covenants  contained in this  Agreement to be
performed and complied with at or prior to the Closing Date.

          (c) The  Company  shall  have  entered  into the  Registration  Rights
Agreement.

          (d)  The  Company  shall  have  filed  each  of  the  Certificates  of
Designations with the Secretary of State of the State of Delaware.

          (e) Any  applicable  waiting  period under the HSR Act with respect to
the purchase by such Purchaser shall have expired or been terminated.

          (f) The Company shall have  delivered to such  Purchaser a certificate
executed by it or on its behalf by a duly authorized  representative,  dated the
Closing Date, to the effect that each of the  conditions  specified in paragraph
(a) through (e) of this Section 7.2 has been satisfied.

          (g) No provision of any Applicable Law, injunction, order or decree of
any  Governmental  Entity  shall be in effect which has the effect of making the
Transactions illegal or shall otherwise restrain or prohibit the consummation of
the Transactions.

          (h) Such  Purchaser  shall have  received  an opinion of Kelley Drye &
Warren LLP,  counsel to the Company,  dated the Closing  Date,  and addressed to
such  Purchaser,  in  the  form  and  substance  reasonably  acceptable  to  the
Purchaser.

                                      -22-
<PAGE>

          (i) Such Purchaser shall have received  certificates  representing the
Securities  purchased by such Purchaser  concurrently with the Company's receipt
of the Purchase Price for such Securities.

          (j) With  respect  to the  HMTF  Purchaser,  the  Company  shall  have
delivered to the HMTF Purchaser the Management Rights Agreements executed by the
Company  and  addressed  to the HMTF  Funds;  and with  respect to Chase  Equity
Associates,  LLC  only,  the  Company  shall  have  delivered  to  Chase  Equity
Associates, LLC the Regulation Y Agreement.

          (k)  there  shall  not  have  occurred  (i) any  event,  circumstance,
condition,  fact,  effect or other matter which has had or could  reasonably  be
expected  to  have a  material  adverse  effect  (x) on  the  business,  assets,
financial condition,  prospects, or results of operations of the Company and the
Viatel  Subsidiaries  taken as a whole or (y) on the  ability of the Company and
the Viatel  Subsidiaries  to perform on a timely basis any  material  obligation
under the Equity Documents or to consummate the Issuance contemplated hereby; or
(ii) any material disruption of or material adverse change in financial, banking
or capital  market  conditions  that would  reasonably be expected to materially
impair the Company's ability to obtain financing on reasonable terms.

          (l) the  Amendment  to  Rights  Agreement  shall be in full  force and
effect.

          (m)  Each  other  Purchaser   shall  have   consummated  or  shall  be
simultaneously  consummating  the purchase of the  Securities set forth opposite
such Purchaser's name on Schedule I.

                                  ARTICLE VIII

                                  MISCELLANEOUS

     SECTION  8.1.   INDEMNIFICATION.   (a)  All  representations,   warranties,
covenants and agreements  contained in this Agreement  shall survive the Closing
for 18 months  (except (i)  covenants  and  agreements  that are  required to be
performed  after the Closing  Date and (ii) the last  sentence of Sections  3.1,
3.2, 3.3, 3.4, 3.5 and 4.1, which shall survive  indefinitely).  Notwithstanding
the  foregoing,  with  respect to claims  asserted  pursuant to this Section 8.1
before the expiration of the applicable  representation,  warranty,  covenant or
agreement, such claims shall survive until the date they are finally adjudicated
or otherwise  resolved.  Nothing  contained  herein shall preclude any breach of
contract claim by any Purchaser with respect to any  misrepresentation or breach
of warranty,  covenant or agreement,  and this Section 8.1 shall not provide the
exclusive remedy with respect thereto.

          (b) The Company  agrees to indemnify and hold harmless each  Purchaser
and each Purchaser  Affiliate (each an "indemnified  person"),  from and against
(and to reimburse each indemnified  person as the same are incurred) any and all
losses, damages,  liabilities,  costs and expenses  (collectively,  "Losses") to
which any indemnified  person may become subject or which any indemnified person
may incur based upon,  arising out of, or in connection with (i) a breach of any
representation, warranty or covenant of this Agreement by the Company or (ii)

                                      -23-
<PAGE>

any claim,  litigation,  investigation or proceeding  brought by or on behalf of
any Person  other than the Company  relating to the  Issuance,  and to reimburse
each indemnified person upon demand for any reasonable legal or other reasonable
out of pocket expenses  incurred in connection with  investigating  or defending
any  of the  foregoing,  provided  the  maximum  amount  indemnifiable  to  each
Purchaser  (and its successors or assigns) under clause (i) shall not exceed the
purchase price of the Securities purchased by such Purchaser.

          (c) If a Person  entitled  to  indemnity  hereunder  (an  "Indemnified
Party") asserts that the Company (the "Indemnifying Party") has become obligated
to the  Indemnified  Party pursuant to Section 8.1(b),  or if any suit,  action,
investigation,  claim or proceeding is begun,  made or instituted as a result of
which the  Indemnifying  Party may become  obligated  to the  Indemnified  Party
hereunder,  the Indemnified  Party shall notify the Indemnifying  Party promptly
and shall cooperate with the  Indemnifying  Party, at the  Indemnifying  Party's
expense, to the extent reasonably  necessary for the resolution of such claim or
in the defense of such suit,  action or proceedings,  including making available
any  information,  documents  and things in the  possession  of the  Indemnified
Party.   Notwithstanding  the  foregoing  notice   requirement,   the  right  to
indemnification hereunder shall not be affected by any failure to give, or delay
in giving,  notice unless,  and only to the extent that, the rights and remedies
of the Indemnifying  Party shall have been materially  prejudiced as a result of
such failure or delay.

          (d) In fulfilling  its  obligations  under this Section 8.1, after the
Indemnifying  Party has provided each Indemnified Party with a written notice of
its acceptance of liability under this Section 8.1, as between such  Indemnified
Party and the Indemnifying Party, the Indemnifying Party shall have the right to
investigate, defend, settle or otherwise handle, with the aforesaid cooperation,
any claim, suit, action or proceeding brought by a third party in such manner as
the Indemnifying  Party may in its sole discretion  reasonably deem appropriate;
provided,  that (i) counsel  retained by the  Indemnifying  Party is  reasonably
satisfactory to the Indemnified  Party and (ii) the Indemnifying  Party will not
consent to any settlement or entry of judgment  imposing any  obligations on any
other party hereto other than financial obligations for which such party will be
indemnified  hereunder,  unless  such  party has  consented  in  writing to such
settlement  or  judgment  (which  consent  may be given or  withheld in its sole
discretion) and (iii) the Indemnifying  Party will not consent to any settlement
or entry of judgment unless,  in connection  therewith,  the Indemnifying  Party
obtains a full and  unconditional  release  of the  Indemnified  Party  from all
liability with respect to such suit, action,  investigation claim or proceeding.
Notwithstanding  the  Indemnifying  Party's  election  to assume the  defense or
investigation of such claim,  action or proceeding,  the Indemnified Party shall
have the right to employ  separate  counsel and to participate in the defense or
investigation of such claim, action or proceeding,  which participation shall be
at the expense of the Indemnifying Party, if (i) on the advice of counsel to the
Indemnified  Party use of  counsel  of the  Indemnifying  Party's  choice  could
reasonably be expected to give rise to a material conflict of interest, (ii) the
Indemnifying  Party shall not have employed counsel  reasonably  satisfactory to
the  Indemnified  Party to represent the  Indemnified  Party within a reasonable
time after notice of the assertion of any such claim or  institution of any such
action or  proceeding,  (iii) if the  Indemnifying  Party  shall  authorize  the
Indemnified Party to employ separate counsel at the Indemnifying Party's expense
or (iv) such action shall seek relief other than  monetary  damages  against the
Indemnified Party.

                                      -24-
<PAGE>

          (e) The  Company and the  Purchasers  agree that any payment of Losses
made  hereunder  will be  treated  by the  parties  on their tax  returns  as an
adjustment to the Purchase  Price.  If,  notwithstanding  such  treatment by the
parties, a final determination (which shall include the form 870-AD or successor
form) with respect to the Indemnified  Party or any of its affiliates causes any
such  payment not to be treated as an  adjustment  to Purchase  Price,  then the
Indemnifying  Party shall indemnify the Indemnified  Party for any taxes payable
by the  Indemnified  Party or any  subsidiary  by reason of the  receipt of such
payment  (including  any payments  under this 8.1(e)),  determined at an assumed
marginal  tax rate  equal to the  highest  marginal  tax rate then in effect for
corporate taxpayers in the relevant jurisdiction.

     SECTION 8.2. NOTICES. All notices, demands, requests,  consents,  approvals
or other  communications  (collectively,  "Notices") required or permitted to be
given  hereunder or which are given with respect to this  Agreement  shall be in
writing and shall be  personally  served,  delivered  by  reputable  air courier
service with charges prepaid, or transmitted by hand delivery,  telegram,  telex
or  facsimile,  addressed as set forth below,  or to such other  address as such
party shall have  specified  most  recently by written  notice.  Notice shall be
deemed  given on the date of service or  transmission  if  personally  served or
transmitted by telegram,  telex or facsimile.  Notice otherwise sent as provided
herein shall be deemed given on the next business day following delivery of such
notice to a reputable air courier service.

            To the Company:

                  Viatel, Inc.
                  685 Third Avenue
                  24th Floor
                  New York, NY  10017
                  Attn: James P. Prenetta, Jr.
                        Vice President and General Counsel
                  Telephone:  (212) 350-9200
                  Fax:  (212) 350-9245

            with a copy to:

                  Kelley Drye & Warren LLP
                  101 Park Avenue
                  New York, New York 10178
                  Attn:  Salvatore J. Vitiello, Esq.
                  Telephone:  (212) 808-7800
                  Fax:  (212) 808-7897

            To the Purchasers:

            (as to matters relating to the HMTF Purchasers)

                                      -25-
<PAGE>

            To the appropriate member of the HMTF Group

                  c/o Hicks, Muse, Tate & Furst Limited
                  Queensberry House
                  9-9 Old Burlington Street
                  London, UK  W1X lLA
                  Attention:  Lyndon Lea
                  Telephone:  44 20 7494 8300
                  Fax:  44 20 7494 8383

            with a copy to:

                  Hicks, Muse, Tate & Furst Incorporated
                  200 Crescent Court, Suite 1600
                  Dallas, Texas  75201
                  Attn:  Lawrence D. Stuart
                  Telephone:  (214) 740-7300
                  Fax:  (214) 720-7888

            and to:

                  Vinson & Elkins, L.L.P.
                  1325 Avenue of the Americas, 17th Floor
                  New York, NY 10019
                  Attn:  Eric S. Shube, Esq.
                  Telephone:  (917) 206-8005
                  Fax:  (917) 206-8100

            (as to matters relating to the Chase Purchasers)

                  Chase Capital Partners
                  125 London Wall
                  Level 13
                  London, England  EC 2Y 5AJ
                  Attn.: Jonathan Meggs
                         Thomas Corrin
                  Telephone:  44-171-777-3364
                  Fax:  44-171-777-4731

            with a copy to:

                  Chase Capital Partners
                  380 Madison Avenue
                  New York, NY  10017
                  Attn:  Jeff Logan
                  Telephone:  (212) 622-3722
                  Fax:  (212) 622-3950

                                      -26-
<PAGE>

            with a copy to:

                  O'Sullivan, Graev & Karabell, LLP
                  30 Rockefeller Plaza
                  New York, New York  10112
                  Attn:  William B. Kuesel, Esq.
                  Telephone:  (212) 408-2440
                  Fax:  (212) 408-2420

     SECTION  8.3.   GOVERNING  LAW.  This  Agreement   shall  be  governed  by,
interpreted under, and construed in accordance with the laws of the State of New
York,  regardless  of the laws that  might  otherwise  govern  under  applicable
principles of conflicts of law thereof.

     SECTION 8.4.  TERMINATION.  (a) This Agreement may be terminated as between
the  Company  and any  Purchaser  (i) at any time prior to the  Closing  Date by
mutual written agreement of the Company and such Purchaser,  (ii) if the Closing
shall not have  occurred on or prior to March 31, 2000, by either the Company or
such  Purchaser,  at any time after March 31, 2000,  provided  that the right to
terminate this Agreement under this Section 8.4(a)(ii) shall not be available to
any party whose failure to fulfill any  obligation  under this Agreement was the
cause of or  resulted  in the  failure of the Closing to occur on or before such
date,  (iii) if any  Governmental  Authority  shall have issued a  nonappealable
final  order,  decree or ruling or taken any other  action  having the effect of
permanently  restraining,  enjoining or otherwise  prohibiting the  transactions
contemplated by this Agreement, by either the Company or such Purchaser, (iv) if
either the Company or such  Purchaser  shall have  breached  any of its material
obligations  under this  Agreement,  by the  non-breaching  party,  or (v) if an
event,  circumstance,  condition,  fact,  effect or other  matter  described  in
Section 7.2(k) shall have  occurred,  by such  Purchaser.  Any party desiring to
terminate  this Agreement  pursuant to clauses  8.4(a)(ii),  (iii),  (iv) or (v)
shall promptly give notice of such termination to the other party.

          (b) If this  Agreement  is  terminated  as between  the  Company and a
Purchaser,  as permitted by Section 8.4(a),  such  termination  shall be without
liability  of  any  party  (or  any  stockholder,  director,  officer,  partner,
employee,  agent, consultant or representative of such party) to any other party
to this  Agreement;  provided  that if such  termination  shall  result from the
willful (i) failure of any party to fulfill a condition  to the  performance  of
the  obligations of the other party,  (ii) failure to perform a covenant of this
Agreement or (iii) breach by any party hereto of any  representation or warranty
contained herein,  such failing or breaching party shall be fully liable for any
and all losses  (excluding  consequential  damages)  incurred or suffered by the
other party as a result of such failure or breach.  The  provisions  of Sections
8.2, 8.3, this Section 8.4,  Sections 8.5, 8.8, 8.10,  8.11,  8.12,  8.13, 8.14,
8.16,  8.17,  8.18 and 8.20 shall  survive any  termination  hereof  pursuant to
Section 8.4(a).

     SECTION 8.5.  ENTIRE  AGREEMENT.  As between the Company and each Purchaser
this Agreement and the Equity Documents  (including all agreements  entered into
pursuant  hereto and  thereto and all  certificates  and  instruments  delivered
pursuant hereto and thereto) constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements,  representations,   understandings,   negotiations  and  discussions
between the parties, whether oral or written, with respect to the subject matter
hereof.

                                      -27-
<PAGE>

     SECTION 8.6.  MODIFICATIONS AND AMENDMENTS.  No amendment,  modification or
termination  of this  Agreement as between the Company and a Purchaser  shall be
binding unless  executed in writing by the Company and such Purchaser  intending
to be bound  thereby.  With  respect to any  amendment or  modification  of this
Agreement prior to Closing,  consent of all signatories hereto shall be required
in order to amend or modify this Agreement.

     SECTION 8.7. WAIVERS AND EXTENSIONS.  Any party to this Agreement may waive
any condition,  right, breach or default that such party has the right to waive,
provided that such waiver will not be effective against the waiving party unless
it is in  writing,  is signed by such  party,  and  specifically  refers to this
Agreement.  Waivers may be made in advance or after the right  waived has arisen
or the breach or default waived has occurred. Any waiver may be conditional.  No
waiver of any breach of any  agreement or provision  herein  contained  shall be
deemed a waiver of any preceding or succeeding  breach  thereof nor of any other
agreement  or  provision  herein  contained.  No waiver or extension of time for
performance of any  obligations or acts shall be deemed a waiver or extension of
the time for performance of any other obligations or acts.

     SECTION 8.8.  TITLES AND HEADINGS.  Titles and headings of sections of this
Agreement are for convenience  only and shall not affect the construction of any
provision of this Agreement.

     SECTION 8.9.  EXHIBITS AND  SCHEDULES.  Each of the exhibits and  schedules
referred to herein and attached hereto is an integral part of this Agreement and
is incorporated herein by reference.

     SECTION 8.10. EXPENSES.  All costs and expenses incurred in connection with
this  Agreement  shall be paid by the  party  incurring  such  cost or  expense;
PROVIDED,  HOWEVER,  that (a) the Company  shall pay the filing fees  payable in
respect of any HSR filing,  and (b) if this Agreement is terminated with respect
to any Purchaser for any reason other than a breach by the Purchaser  that would
permit the Company to terminate  this Agreement  pursuant to Section  8.4(a)(iv)
and other than a failure to be satisfied of the  condition  set forth in Section
7.2(k)(ii), then (without limiting any party's right to recover damages pursuant
to  Section  8.4(b))  the  Company  shall  reimburse  such  Purchaser  for  such
Purchaser's  reasonable  out-of-pocket costs and expenses incurred in connection
with this Agreement.

     SECTION  8.11.  PRESS  RELEASES  AND  PUBLIC   ANNOUNCEMENTS.   All  public
announcements or disclosures relating to the Issuance or this Agreement shall be
made only if mutually agreed upon by the Company and the  Purchasers,  except to
the extent such  disclosure is, based on the advice of counsel,  required by law
or by  regulation  of any  applicable  national  stock  exchange  or  Commission
recognized trading market;  provided that (a) any such required disclosure shall
only be made, to the extent consistent with Applicable Law and regulation of any
applicable  national stock  exchange or Commission  recognized  trading  market,
after  consultation  with  each  Purchaser  and  (b)  no  such  announcement  or
disclosure  (except  as  required  by law  or by  regulation  of any  applicable
national stock exchange or Commission  recognized trading market) shall identify
any Purchaser without such Purchaser's prior consent.

     SECTION 8.12. ASSIGNMENT; NO THIRD-PARTY BENEFICIARIES.  This Agreement and
the rights, duties and obligations hereunder may not be assigned or delegated by
the Company  without the prior written  consent of the  Purchasers,  and may not

                                      -28-
<PAGE>

assigned or delegated  by any  Purchaser  without the  Company's  prior  written
consent  except  that each  Purchaser  may  assign  any or all of its rights and
obligations  under  this  Agreement  to any one or more of its  Affiliates.  Any
assignment or delegation of rights,  duties or obligations hereunder made by the
Company without the prior written  consent of the Purchasers,  shall be void and
of no effect. This Agreement and the provisions hereof shall be binding upon and
shall  inure  to the  benefit  of  each  of the  parties  and  their  respective
successors and permitted  assigns.  This Agreement is not intended to confer any
rights or  benefits  on any Persons  other than the  parties  hereto,  except as
expressly  set forth in Section 5.2,  Section 8.1,  this Section 8.12 or Section
8.20.

     SECTION 8.13.  SEVERABILITY.  This Agreement shall be deemed severable, and
the  invalidity or  unenforceability  of any term or provision  hereof shall not
affect the validity or  enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision,  the parties  hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or  unenforceable
provision as may be possible and be valid and enforceable.

     SECTION 8.14. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.

     SECTION 8.15. FURTHER  ASSURANCES.  As between the Company and a Purchaser,
each party hereto, upon the request of any other party hereto, shall do all such
further acts and execute,  acknowledge and deliver all such further  instruments
and  documents as may be  necessary  or desirable to carry out the  transactions
contemplated  by this  Agreement,  including,  in the case of the Company,  such
acts,  instruments  and documents as may be necessary or desirable to convey and
transfer to each Purchaser the Securities to be purchased by it hereunder.

     SECTION 8.16.  REMEDIES  CUMULATIVE.  The remedies provided herein shall be
cumulative and shall not preclude the assertion by any party hereto of any other
rights or the seeking of any remedies against the other party hereto.

     SECTION  8.17.  SEVERAL  LIABILITY  OF  THE  PURCHASERS.  Nothing  in  this
Agreement  (including,  without  limitation,  Article VI) shall be  construed to
impose on any  Purchaser  any  liability for any action or failure to act of any
other  Purchaser,  including  any  breach of this  Agreement  by any such  other
Purchaser.

     SECTION 8.18. NO DUTY TO OTHER  PURCHASERS.  Each  Purchaser  confirms with
each other  Purchaser that such Purchaser has conducted its own due diligence in
connection  with its investment in the  Securities and the other  Purchasers may
therefore have  information  different  from, or additional to, the  information
possessed by such Purchaser.  Nothing in this Section 8.18 is meant to limit any
duty,  obligation or liability the Company may have to any Purchaser  under this
Agreement or otherwise.

     SECTION  8.19.  SPECIFIC  PERFORMANCE.  The parties  hereto  agree that the
remedy at law for any breach of this  Agreement may be  inadequate,  and that as
between  the  Company  and a  Purchaser  any  party by whom  this  Agreement  is

                                      -29-
<PAGE>

enforceable  shall be entitled to specific  performance in addition to any other
appropriate relief or remedy. Such party may, in its sole discretion, apply to a
court of competent  jurisdiction for specific  performance or injunctive or such
other  relief as such court may deem just and  proper in order to  enforce  this
Agreement  as between  the  Company and a  Purchaser,  or prevent any  violation
hereof,  and, to the extent permitted by applicable as between the Company and a
Purchaser law, each party waives any objection to the imposition of such relief.

     SECTION  8.20. NO PURCHASER  AFFILIATE  LIABILITY.  No Purchaser  Affiliate
shall have any liability or  obligation  of any nature  whatsoever in connection
with or under this Agreement or the transactions  contemplated  hereby,  and the
Company  hereby  waives  and  releases  all  claims  of any such  liability  and
obligation,  it being  understood  that no such  Person  or entity  (other  than
Purchaser)  shall  be  liable  for or in  respect  of this  Agreement  with  the
transactions contemplated hereby.

            [The remainder of this page is intentionally left blank.]

                                      -30-
<PAGE>

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

                                  VIATEL, INC.

                                       By   /s/ Michael J. Mahoney
                                         ---------------------------------------
                                          Name:  Michael J. Mahoney
                                          Title: Chairman and Chief
                                                 Executive Officer

HMTF EUROPE ACQUISITION CORP.

By:  /s/ David W. Knickel
   -----------------------------
   Name:  David W. Knickel
   Title: Vice President

CHASE EQUITY ASSOCIATES, LLC,

BY:   CHASE CAPITAL PARTNERS,
      as Manager

By:  /s/ Arnold Chavkin
   -----------------------------
   Name: Arnold Chavkin
   Title: General Partner

                [Signature Page to Securities Purchase Agreement]

                                      -31-
<PAGE>

                                   SCHEDULE I
<TABLE>
<CAPTION>

                    Number of      Number of
                    Shares         Shares
                    of Series B-1  of Series B-2  Number of  Number of  Number of  Number of
                    Preferred      Preferred      A-1        A-2        B-1        B-2
PURCHASER           Stock          Stock          Warrants   Warrants   Warrants   Warrants
---------           -------------  -------------  --------   --------   ---------  ---------
<S>                   <C>           <C>           <C>        <C>        <C>        <C>
HMTF Europe
Acquisition Corp.     162,500              0      376,558          0    376,558          0

Chase Equity
Associates, LLC             0        162,500            0      3,766          0      3,766

</TABLE>

                                      I-1

<PAGE>

                                                                       EXHIBIT A

                      FORM OF REGISTRATION RIGHTS AGREEMENT

            This REGISTRATION RIGHTS AGREEMENT (the "Agreement"),  is made as of
_____________  ___, 2000 by and among Viatel,  Inc. a Delaware  corporation (the
"Company"), and the security holders listed on Schedule I to this Agreement.

            WHEREAS, the Company and the Initial Holders (as herein defined) (or
certain  Affiliates of the Initial Holders)  entered into a Securities  Purchase
Agreement dated _____________ ___, 2000 (the "Securities Purchase Agreement");

            WHEREAS,  it  is  a  condition  precedent  to  the  closing  of  the
transactions  contemplated in the Securities Purchase Agreement that the parties
hereto execute and deliver this Agreement;

            NOW THEREFORE, in consideration of the premises, mutual promises and
covenants  contained in this  Agreement and intending to be legally  bound,  the
parties hereto hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

     SECTION  1.1.  DEFINITIONS.   Terms  defined  in  the  Securities  Purchase
Agreement are used herein as therein defined. In addition,  the following terms,
as used herein, have the following meanings:

            "Chase  Holders"  means the Initial  Chase Holders and any direct or
indirect  transferee  of any  Registrable  Securities  held by the Initial Chase
Holders.

            "Commission" means the Securities and Exchange Commission.

            "Demand  Registration" means a registration under the Securities Act
requested in accordance with Section 2.01.

            "HMTF  Holders"  means the  Initial  HMTF  Holders and any direct or
indirect  transferee  of any  Registrable  Securities  held by the Initial  HMTF
Holders.

            "Holders" means the collective reference to the HMTF Holders and the
Chase Holders.

            "Initial  Chase  Holders"  means  Chase  Equity  Associates,  LLC, a
limited liability company organized under the laws of the State of Delaware,  or
any of its Affiliates.

            "Initial HMTF Holders"  means HMTF Bridge  Viatel,  LLC, HMEU Viatel
I-EQ Coinvestors,  LLC, HMEU Viatel I-SBS Coinvestors, LLC, HM Viatel PG Europe,
LLC, HMEU Viatel Qualified Fund, LLC, and HMEU Viatel Private Fund, LLC.

<PAGE>

            "Initial  Holders"  means the Initial  HMTF  Holders and the Initial
Chase Holders.

            "Piggyback Registration" has the meaning set forth in Section 2.02.

            "Registrable  Common  Stock" means the shares of Common Stock issued
upon conversion of the Registrable Series B-1 Preferred Stock or the Registrable
Series C Preferred  Stock or upon exercise of the Warrants,  plus any additional
shares of Common Stock issued in respect  thereof in  connection  with any stock
split, stock dividend or similar event with respect to the Common Stock.

            "Registrable   Securities"  means  (a)  the  Registrable   Series  B
Preferred  Stock,  (b)  the  Registrable  Series  C  Preferred  Stock,  (c)  the
Registrable  Common Stock and (d) any securities of the Company or any successor
entity into which Registrable Common Stock, Registrable Series B Preferred Stock
or Registrable  Series C Preferred  Stock may hereafter be converted or changed.
As to any particular Registrable  Securities,  such securities shall cease to be
Registrable  Securities  when (i) a  registration  statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of under such  registration  statement,
(ii) such  securities  shall have been  transferred  pursuant to Rule 144, (iii)
such  securities  shall have been otherwise  transferred or disposed of, and new
certificates  therefor not bearing a legend  restricting  further transfer shall
have been delivered by the Company,  and  subsequent  transfer or disposition of
them shall not require their registration or qualification  under the Securities
Act or any similar state law then in force, or (iv) such  securities  shall have
ceased to be outstanding.

            "Registrable   Series  B  Preferred   Stock"  means  the  collective
reference to the Registrable  Series B-1 Preferred Stock and Registrable  Series
B-2 Preferred Stock.

            "Registrable  Series  B-1  Preferred  Stock"  means the  Series  B-1
Preferred Stock issued pursuant to the Securities Purchase  Agreement,  plus any
additional  shares of Series  B-1  Preferred  Stock,  if any,  issued in respect
thereof in connection with any stock split, stock dividend or similar event with
respect to the Series B-1  Preferred  Stock or the  conversion  of any shares of
Series B-2 Preferred Stock.

            "Registrable  Series  B-2  Preferred  Stock"  means the  Series  B-2
Preferred Stock issued pursuant to the Securities Purchase  Agreement,  plus any
additional  shares of Series  B-2  Preferred  Stock,  if any,  issued in respect
thereof in connection with any stock split, stock dividend or similar event with
respect to the Series B-2  Preferred  Stock or the  conversion  of any shares of
Series B-1 Preferred Stock.

            "Registrable  Series C Preferred Stock" means the shares of Series C
Preferred  Stock, if any,  issued upon conversion of the Registrable  Series B-2
Preferred  Stock or  exercise of the  Warrants,  plus any  additional  shares of
Series C Preferred  Stock,  if any, issued in respect thereof in connection with
any stock split,  stock  dividend or similar  event with respect to the Series C
Preferred  Stock or the conversion of any shares of Series B Preferred  Stock or
Common Stock.

            "Registration Expenses" has the meaning set forth in Section 3.02.

            "Requesting   Holders"   means  the  Holders   requesting  a  Demand
Registration,  and shall include parties deemed "Requesting Holders" pursuant to
Section 2.01(a)(iv) or Section 2.01(a)(v), as applicable.

            "Rule 144" means Rule 144 (or any successor rule of similar  effect)
promulgated under the Securities Act.

<PAGE>

            "Rule 415" means Rule 415 (or any successor rule of similar  effect)
promulgated under the Securities Act.

            "Selling  Holder"  means  any  Holder  who  is  selling  Registrable
Securities pursuant to a public offering registered hereunder.

            "Series B Preferred  Stock" means the Series B-1 Preferred Stock and
the Series B-2 Preferred Stock, par value $0.01 per share.

            "Series B-1 Preferred  Stock" means the Company's  7.50%  Cumulative
Convertible Preferred Stock, Series B-1, par value $0.01 per share.

            "Series B-2 Preferred  Stock" means the Company's  7.50%  Cumulative
Convertible Preferred Stock, Series B-2, par value $0.01 per share.

            "Series C Preferred  Stock" means the  Company's  Series C Preferred
Stock, par value $0.01 per share.

            "Shelf Registration" has the meaning set forth in Section 2.03(a).

            "Underwriter"   means  a  securities   dealer  who   purchases   any
Registrable   Securities   as  principal  and  not  as  part  of  such  dealer's
market-making activities.

            "Warrants"  means  the  A-1  Warrants,  the  A-2  Warrants,  the B-1
Warrants  and the B-2  Warrants  (each as  defined  in the  Securities  Purchase
Agreement) to purchase Common Stock.

     SECTION 1.2. INTERNAL  REFERENCES.  Unless the context indicates otherwise,
references to Articles, Sections and paragraphs shall refer to the corresponding
articles,  sections and  paragraphs  in this  Agreement,  and  references to the
parties shall mean the parties to the Securities Purchase Agreement.

<PAGE>

                                   ARTICLE II

                               REGISTRATION RIGHTS

     SECTION 2.1. DEMAND  REGISTRATION.  II.1.1(a)  Holders of a majority of the
Registrable  Securities  held by the HMTF  Holders  may  make up to two  written
requests  for a  Demand  Registration  of  all or any  part  of the  Registrable
Securities  held by such  HMTF  Holders;  PROVIDED,  that (A) each  such  Demand
Registration  by the HMTF Holders must be in respect of  Registrable  Securities
with a fair market value of at least $50,000,000, and (B) the HMTF Holders shall
not be entitled to a Demand  Registration if, during the 120 days preceding such
request,  either the HMTF Holders had  requested a Demand  Registration  (unless
such Demand Registration was preempted pursuant to Section 2.01(e)), or the HMTF
Holders were given the opportunity to participate in a Piggyback Registration in
accordance  with  Section  2.02 and either (1) failed to notify the Company of a
desire to participate in such Piggyback Registration or (2) notified the Company
of a desire to participate in such Piggyback  Registration and were able to sell
in such  Piggyback  Registration  at  least  80% of the  Registrable  Securities
requested by the HMTF Holders to be included in such Piggyback Registration.

            (ii) Holders of a majority of the Registrable Securities held by the
Chase Holders may make up to two written  requests for a Demand  Registration of
all or any  part of the  Registrable  Securities  held by  such  Chase  Holders;
PROVIDED, that (A) each such Demand Registration by the Chase Holders must be in
respect  of  Registrable  Securities  with  a  fair  market  value  of at  least
$50,000,000,  and (B) the  Chase  Holders  shall  not be  entitled  to a  Demand
Registration  if, during the 120 days preceding  such request,  either the Chase
Holders had requested a Demand Registration (unless such Demand Registration was
preempted  pursuant to Section  2.01(e)),  or the Chase  Holders  were given the
opportunity  to  participate  in a Piggyback  Registration  in  accordance  with
Section  2.02 and  either  (1)  failed  to  notify  the  Company  of a desire to
participate  in such  Piggyback  Registration  or (2)  notified the Company of a
desire to participate in such  Piggyback  Registration  and were able to sell in
such Piggyback Registration at least 80% of the Registrable Securities requested
by the Chase Holders to be included in such Piggyback Registration.

            (iii)  Any  request  for a  Demand  Registration  will  specify  the
aggregate number of shares of Registrable  Securities proposed to be sold by the
Requesting  Holders and will also  specify the  intended  method of  disposition
thereof.  A registration  will not count as a Demand  Registration  until it has
become effective.  Should a Demand  Registration not become effective due to the
failure of a Requesting  Holder to perform its obligations  under this Agreement
or the  inability  of  the  Requesting  Holders  to  reach  agreement  with  the
Underwriters  for the proposed sale on price or other  customary  terms for such
transaction,  or in the event the Requesting  Holders  withdraw or do not pursue
the  request  for the  Demand  Registration  (in  each of the  foregoing  cases,
PROVIDED that at such time the Company is in compliance in all material respects
with its obligations  under this Agreement),  then,  subject to Section 2.01(b),
such Demand Registration shall be deemed to have been effected  (PROVIDED,  that
(i) if, the Demand  Registration  does not become  effective  because a material
adverse change has occurred,  or is reasonably likely to occur, in the condition
(financial  or  otherwise),  business,  assets or results of  operations  of the
Company  and its  subsidiaries  taken as a whole  subsequent  to the date of the
written request made by the Requesting  Holders,  (ii) if the Company  withdraws
the  Demand  Registration  for  any  reason,  or  (iii)  if,  after  the  Demand
Registration  has  become  effective,  an  offering  of  Registrable  Securities
pursuant to a registration is interfered with by any stop order, injunction,  or
other order or  requirement of the  Commission or other  governmental  agency or
court,  then the Demand  Registration  shall not be deemed to have been effected
and will not count as a Demand Registration).

<PAGE>

            (iv)  Upon  receipt  of any  request  for a Demand  Registration  by
holders of a majority of the  Registrable  Securities  held by the HMTF Holders,
the Company shall  promptly (but in any event within ten (10) days) give written
notice of such proposed Demand  Registration to all other HMTF Holders,  and all
such HMTF Holders  shall have the right,  exercisable  by written  notice to the
Company  within fifteen (15) days of their receipt of the Company's  notice,  to
elect to include in such Demand  Registration  such portion of their Registrable
Securities as they may request.  All such HMTF Holders  requesting to have their
Registrable  Securities included in a Demand Registration in accordance with the
preceding  sentence shall be deemed to be  "Requesting  Holders" for purposes of
this Section 2.01.

            (v) Upon receipt of any request for a Demand Registration by holders
of a majority  of the  Registrable  Securities  held by the Chase  Holders,  the
Company  shall  promptly  (but in any event  within ten (10) days) give  written
notice of such proposed  Demand  Registration to all other Chase Holders and all
such Holders shall have the right,  exercisable by written notice to the Company
within fifteen (15) days of their receipt of the Company's  notice,  to elect to
include in such Demand Registration such portion of their Registrable Securities
as they may  request.  All such  Holders  requesting  to have their  Registrable
Securities  included in a Demand  Registration  in accordance with the preceding
sentence shall be deemed to be "Requesting Holders" for purposes of this Section
2.01.

            (b) In the event  that the  Requesting  Holders  withdraw  or do not
pursue a request for a Demand  Registration  and,  pursuant  to Section  2.01(a)
hereof,  such  Demand  Registration  is deemed to have been  effected,  the HMTF
Holders or the Chase  Holders,  as the case may be, may  reacquire  such  Demand
Registration  (such that the  withdrawal or failure to pursue a request will not
count as a Demand  Registration  hereunder) if the Selling Holders reimburse the
Company  for  any and all  Registration  Expenses  incurred  by the  Company  in
connection with such request for a Demand Registration.

            (c) If the  Requesting  Holders  so  elect,  the  offering  of  such
Registrable Securities pursuant to such Demand Registration shall be in the form
of a "firm  commitment"  underwritten  offering.  A majority  in interest of the
Requesting Holders shall have the right to select the managing  Underwriters and
any additional investment bankers and managers to be used in connection with any
offering  under this Section  2.01,  subject to the  Company's  approval,  which
approval shall not be unreasonably withheld.

            (d) The  Requesting  Holders will inform the Company of the time and
manner of any disposition of Registrable  Common Stock,  and agree to reasonably
cooperate  with the Company in  effecting  the  disposition  of the  Registrable
Common Stock in a manner that does not  unreasonably  disrupt the public trading
market for the Common Stock; PROVIDED,  HOWEVER, that the Holders' only right to
a shelf registration statement shall be pursuant to Section 2.03.

            (e)  The  Company   will  have  the  right  to  preempt  any  Demand
Registration  with a primary  registration by delivering  written notice (within
seven  business  days after the Company  has  received a request for such Demand
Registration)  of such  intention  to the  Selling  Holder  indicating  that the
Company has identified a specific  business need and use for the proceeds of the
sale of such  securities  and the  Company  shall  use  commercially  reasonable
efforts to effect a primary  registration  within 60 days of such notice. In the
ensuing primary registration,  the Holders will have such piggyback registration
rights as are set forth in Section 2.02 hereof. Upon the Company's preemption of
a requested Demand Registration,  such requested  registration will not count as
the Holders' Demand Registration.  The Company may exercise the right to preempt
a Demand  Registration only twice in any 360-day period;  PROVIDED,  that during
any 360-day period the Company shall use its reasonable best efforts to permit a

<PAGE>

period of at least 120  consecutive  days during  which the Selling  Holders may
effect a Demand Registration.

            (f)  No  securities  to be  sold  for  the  account  of  any  Person
(including  the Company)  other than a Requesting  Holder shall be included in a
Demand Registration unless the managing Underwriter or Underwriters shall advise
the Company and the  Requesting  Holders in writing  that the  inclusion of such
securities will not materially and adversely affect the price of the offering (a
"Material Adverse Effect").  Furthermore,  in the event the managing Underwriter
or  Underwriters  shall advise the Company or the  Requesting  Holders that even
after  exclusion of all  securities  of other  Persons  (including  the Company)
pursuant  to the  immediately  preceding  sentence,  the  amount of  Registrable
Securities  proposed to be included in such Demand  Registration  by  Requesting
Holders  is  sufficiently   large  to  cause  a  Material  Adverse  Effect,  the
Registrable  Securities of the Requesting  Holders to be included in such Demand
Registration  shall  equal  the  number  of shares  which  the  Company  and the
Requesting  Holders  are so  advised  can be  sold in such  offering  without  a
Material  Adverse  Effect and such shares shall be allocated  pro rata among the
Requesting  Holders  on  the  basis  of the  number  of  Registrable  Securities
requested to be included in such  registration  by each such  Requesting  Holder
(assuming that all convertible  securities shall have been converted directly or
indirectly into Common Stock and such  registration  statement relates solely to
the  Common  Stock);  PROVIDED,  HOWEVER,  that  if any  Registrable  Securities
requested to be registered  pursuant to a Demand Registration under Section 2.01
are excluded  from  registration  hereunder,  then the  Holder(s)  having shares
excluded ("Excluded Holders") shall have the right to withdraw all, or any part,
of their shares from such requested registration. If any Requesting Holder shall
have  withdrawn  all  of its  shares  from  such  requested  registration,  such
requested registration shall not count as a Demand Registration.

     SECTION 2.2. PIGGYBACK REGISTRATION.  (a) If the Company proposes to file a
registration  statement  under the Securities Act with respect to an offering of
any  securities  for its own account or for the account of another Person (other
than a registration  statement on Form S-4 or S-8, or, except as provided for in
Section  2.03,   pursuant  to  Rule  415  (or  any  substitute   form  or  rule,
respectively,  that may be adopted by the  Commission)),  the Company shall give
written  notice of such proposed  filing to the Holders at the address set forth
in the share register of the Company as soon as reasonably  practicable  (but in
no event less than fifteen days before the anticipated filing date), undertaking
to  provide  each  Holder  the  opportunity  to  register  on the same terms and
conditions  such number of Registrable  Securities as such Holder may request (a
"Piggyback  Registration").  Each  Holder  will have seven  business  days after
receipt  of any such  notice to notify  the  Company  as to whether it wishes to
participate in a Piggyback  Registration (which notice shall not be deemed to be
a request  for a Demand  Registration);  PROVIDED,  that should a Holder fail to
provide  timely  notice to the  Company,  such Holder will forfeit any rights to
participate in the Piggyback Registration with respect to such proposed offering
other  than as  described  in Section  2.01(a)(iv)  or  Section  2.01(a)(v),  as
applicable. In the event that the registration statement is filed on behalf of a
Person other than the Company, the Company will use its best efforts to have the
Registrable   Securities   that  the  Holders  wish  to  sell  included  in  the
registration  statement.  If the  Company or the Person for whose  account  such
offering is being made shall determine in its sole discretion not to register or
to delay the  proposed  offering,  the  Company  may, at its  election,  provide
written  notice of such  determination  to the  Holders and (i) in the case of a
determination not to effect the proposed  offering,  shall thereupon be relieved
of  the  obligation  to  register  such  Registrable  Securities  in  connection
therewith, and (ii) in the case of a determination to delay a proposed offering,
shall thereupon be permitted to delay  registering such  Registrable  Securities
for the same period as the delay in respect of the proposed offering. As between
the Company and the Selling Holders, the Company shall be entitled to select the
Underwriters in connection with any Piggyback Registration.

<PAGE>

            (b) If the  Registrable  Securities  requested to be included in the
Piggyback Registration by any Holder differ from the type of securities proposed
to be registered by the Company and the managing Underwriter advises the Company
that due to such differences the inclusion of such Registrable  Securities would
cause  a  Material  Adverse  Effect,  then  (i)  the  number  of  such  Holders'
Registrable  Securities  to be included in the Piggyback  Registration  shall be
reduced to an amount which,  in the opinion of the managing  Underwriter,  would
eliminate such Material  Adverse Effect or (ii) if no such reduction  would,  in
the opinion of the managing Underwriter, eliminate such Material Adverse Effect,
then the Company shall have the right to exclude all such Registrable Securities
from such Piggyback  Registration,  PROVIDED,  that no other  securities of such
type are  included  and  offered  for the  account  of any other  Person in such
Piggyback   Registration.   Any  partial  reduction  in  number  of  Registrable
Securities of any Holder to be included in the Piggyback  Registration  pursuant
to clause (i) of the immediately  preceding  sentence shall be effected pro rata
based on the ratio (and calculated on an as converted basis) which such Holder's
requested shares bears to the total number of shares requested to be included in
such Piggyback  Registration  by all Persons other than the Company who have the
contractual  right to request that their shares be included in such registration
statement and who have  requested  that their shares be included  (assuming that
all convertible securities shall have been converted directly or indirectly into
Common  Stock and such  registration  statement  relates  solely  to the  Common
Stock). If the Registrable  Securities requested to be included in the Piggyback
Registration are of the same type as the securities being registered (which, for
this purpose,  the Series C Preferred  Stock shall be treated the same as Common
Stock) by the Company and the managing  Underwriter advises the Company that the
inclusion of such Registrable  Securities would cause a Material Adverse Effect,
the  Company  will be  obligated  to  include in such  registration,  as to each
Holder,  only a portion of the shares such Holder has  requested  be  registered
equal to the ratio (and calculated on an as converted basis) which such Holder's
requested shares bears to the total number of shares requested to be included in
such  registration  statement  by all Persons  (other than the Person or Persons
initiating such registration  request) who have the contractual right to request
that  their  shares be  included  in such  registration  statement  and who have
requested  their shares be included  (assuming that all  convertible  securities
shall have been  converted  directly or  indirectly  into Common  Stock and such
registration  statement  relates  solely to the Common  Stock).  If the  Company
initiated the  registration,  then the Company may include all of its securities
in such  registration  statement  before any such Holder's  requested shares are
included.  If another  security  holder  initiated  the  registration,  then the
Company may not include any of its  securities  in such  registration  statement
unless all Registrable  Securities  requested to be included in the registration
statement by all Holders are included in such  registration  statement.  If as a
result  of the  provisions  of this  Section  2.02(b)  any  Holder  shall not be
entitled to include  all  Registrable  Securities  in a  registration  that such
Holder has  requested to be so included,  such Holder may withdraw such Holder's
request to include Registrable  Securities in such registration  statement prior
to its effectiveness.

     SECTION 2.3. SHELF  REGISTRATION.  Holders of a majority of the Registrable
Securities  may at any time,  make a written  request that the Company  effect a
shelf  registration  of a portion  of the  Registrable  Securities  held by such
Holders  (the  "Shelf  Registration")  pursuant to Rule 415.  Upon  receipt of a
request for the Shelf Registration, the Company shall promptly (but in any event
within ten (10) days) give written notice of the proposed Shelf  Registration to
all other  Holders,  and each such other Holders shall have the right to include
for offer and sale in the Shelf Registration: (i) prior to the first anniversary
of  the  Closing  Date  (the  "First  Anniversary"),  no  more  than  25% of the
Registrable  Securities  held by such  Holder  immediately  after  the  Closing,
(assuming  the  conversion  of all  Series B  Preferred  Stock and all  Series C
Preferred  Stock)  (directly or indirectly in accordance  with their terms) (ii)
from and after the First Anniversary and prior to the second  anniversary of the
Closing Date (the  "Second  Anniversary"),  no more than 50% of the  Registrable
Securities  held by such Holder  immediately  after the Closing,  (assuming  the
conversion  of all Series B Preferred  Stock and all Series C  Preferred  Stock)
(directly or indirectly in accordance with their terms) (iii) from and after the
Second  Anniversary and prior to the third  anniversary of the Closing Date (the
"Third  Anniversary"),  no more than 75% of the  Registrable  Securities held by
such Holder immediately after the Closing (assuming the conversion of all Series

<PAGE>

B Preferred Stock and all Series C Preferred  Stock)  (directly or indirectly in
accordance with their terms), and (iv) from and after the Third Anniversary, all
Registrable  Securities  held by  such  Holder  immediately  after  the  Closing
(assuming  the  conversion  of all  Series B  Preferred  Stock and all  Series C
Preferred  Stock)  (directly or indirectly in accordance with their terms).  Any
reference to the number of shares held by any Holder shall be  determined  so as
to adjust for any stock splits, dividends or similar transactions.

                                  ARTICLE III

                             REGISTRATION PROCEDURES

     SECTION 3.1. FILINGS;  INFORMATION.  In connection with the registration of
Registrable  Securities  pursuant to Section 2.01, Section 2.02 and Section 2.03
hereof,  the  Company  will  use its  reasonable  best  efforts  to  effect  the
registration  of  such  Registrable  Securities  as  promptly  as is  reasonably
practicable, and in connection with any such request:

            (a) The  Company  will  expeditiously  prepare  and  file  with  the
Commission  a  registration  statement  on any form for which the  Company  then
qualifies and which counsel for the Company shall deem appropriate and available
for the  sale of the  Registrable  Securities  to be  registered  thereunder  in
accordance  with  the  intended  method  of  distribution  thereof,  and use its
reasonable best efforts to cause such filed registration statement to become and
remain  effective  (i) with  respect to any  Demand  Registration  or  Piggyback
Registration,  for such  period,  not to  exceed 60 days,  as may be  reasonably
necessary to effect the sale of such securities,  (ii) with respect to the Shelf
Registration, until the sale of all Registrable Securities thereunder; PROVIDED,
that if the Company shall furnish to the Selling Holder a certificate  signed by
the Company's Chairman,  Chief Executive Officer,  President or any Executive or
Senior  Vice-President  stating  that  the  Company's  Board  of  Directors  has
determined   in  good  faith  that  it  would  be   detrimental   or   otherwise
disadvantageous  to the  Company  or its  stockholders  for such a  registration
statement  to be  filed  as  expeditiously  as  possible  because  the  sale  of
Registrable  Securities covered by such Registration Statement or the disclosure
of  information  in  any  related  prospectus  or  prospectus  supplement  would
materially interfere with any acquisition,  financing or other material event or
transaction which is then intended or the public disclosure of which at the time
would be  materially  prejudicial  to the Company,  the Company may postpone the
filing or  effectiveness  of a  registration  statement for a period of not more
than 120 days;  PROVIDED,  that during any 365-day  period the Company shall use
its reasonable best efforts to permit a period of at least 120 consecutive  days
during which the Company will make a registration statement available under this
Agreement;  and  PROVIDED,  FURTHER,  that  if (i)  the  effective  date  of any
registration  statement filed pursuant to a Demand  Registration would otherwise
be at least 45 calendar days, but fewer than 90 calendar days,  after the end of
the Company's  fiscal year,  and (ii) the Securities Act requires the Company to
include  audited  financials as of the end of such fiscal year,  the Company may
delay the  effectiveness  of such  registration  statement for such period as is
reasonably  necessary to include  therein its audited  financial  statements for
such fiscal year.

            (b) Anything in this Agreement to the contrary  notwithstanding,  it
is  understood  and agreed  that the  Company  shall not be required to keep any
shelf registration  effective or useable for offers and sales of the Registrable
Securities, file a post effective amendment to a shelf registration statement or
prospectus supplement or to supplement or amend any registration  statement,  if

<PAGE>

the Company is then involved in discussions concerning, or otherwise engaged in,
any material financing or investment,  acquisition or divestiture transaction or
other material business purpose if the Company determines in good faith that the
making of such a filing,  supplement  or amendment at such time would  interfere
with such transaction or purpose. The Company shall promptly give the Holders of
Registrable Securities written notice of such postponement  containing a general
statement  of the  reasons for such  postponement  and an  approximation  of the
anticipated  delay,  which delay shall last no longer than 90 days, no more than
once  during  any  365-day  period.  Upon  receipt  by a Holder  of  Registrable
Securities of notice of an event of the kind described in this Section  3.01(b),
such Holder shall forthwith discontinue such Holder's disposition of Registrable
Securities  until such  Holder's  receipt of notice from the  Company  that such
disposition may continue and of any supplemented or amended prospectus indicated
in such  notice.  The Company  shall use its  reasonable  best efforts to permit
sales of  Registrable  Securities  on such shelf  registration  statement for at
least 120 days during any 365-day period.

            (c)  The  Company  will,   if   requested,   prior  to  filing  such
registration  statement or any amendment or supplement  thereto,  furnish to the
Selling  Holders,  and each  applicable  managing  Underwriter,  if any,  copies
thereof,   and  thereafter   furnish  to  the  Selling  Holders  and  each  such
Underwriter,  if any,  such  number of copies  of such  registration  statement,
amendment and supplement  thereto (in each case  including all exhibits  thereto
and documents  incorporated by reference therein) and the prospectus included in
such  registration  statement  (including  each  preliminary  prospectus) as the
Selling  Holders or each such  Underwriter  may  reasonably  request in order to
facilitate the sale of the Registrable Securities by the Selling Holders.

            (d) After the filing of the registration statement, the Company will
promptly  notify  the  Selling  Holders  of any stop  order  issued  or,  to the
Company's  knowledge,  threatened  to be issued by the  Commission  and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered.

            (e) The  Company  will use its  commercially  reasonable  efforts to
qualify  the  Registrable  Securities  for  offer  and  sale  under  such  other
securities  or blue sky laws of such  jurisdictions  in the United States as the
Selling Holders reasonably request; keep each such registration or qualification
(or exemption  therefrom) effective during the period in which such registration
statement  is required to be kept  effective;  and do any and all other acts and
things  which may be  reasonably  necessary  or advisable to enable each Selling
Holder to consummate the disposition of the Registrable Securities owned by such
Selling  Holder in such  jurisdictions;  PROVIDED,  that the Company will not be
required to (i) qualify  generally to do business in any  jurisdiction  where it
would not otherwise be required to qualify but for this paragraph 3.01(e),  (ii)
subject itself to taxation in any such  jurisdiction or (iii) consent to general
service of process in any such jurisdiction.

            (f) The  Company  will as  promptly  as is  practicable  notify  the
Selling  Holders,  at any time  when a  prospectus  relating  to the sale of the
Registrable  Securities  is required by law to be delivered in  connection  with
sales by an Underwriter or dealer,  of the occurrence of any event requiring the
preparation  of a  supplement  or  amendment  to such  prospectus  so  that,  as
thereafter  delivered to the  purchasers of such  Registrable  Securities,  such
prospectus  will not contain an untrue  statement of a material  fact or omit to
state any material fact  required to be stated  therein or necessary to make the
statements  therein,  in the light of the  circumstances  under  which they were
made, not  misleading and promptly make available to the Selling  Holders and to
the Underwriters any such supplement or amendment. Upon receipt of any notice of
the  occurrence of any event of the kind  described in the  preceding  sentence,
Selling  Holders will  forthwith  discontinue  the offer and sale of Registrable
Securities  pursuant to the  registration  statement  covering such  Registrable
Securities  until  receipt by the Selling  Holders and the  Underwriters  of the
copies of such  supplemented  or amended  prospectus  and, if so directed by the

<PAGE>

Company,  the Selling Holders will deliver to the Company all copies, other than
permanent  file copies then in the  possession of Selling  Holders,  of the most
recent prospectus covering such Registrable Securities at the time of receipt of
such notice. In the event the Company shall give such notice,  the Company shall
extend the period during which such  registration  statement shall be maintained
effective as provided in Section 3.01(a) hereof by the number of days during the
period from and including the date of the giving of such notice to the date when
the Company shall make  available to the Selling  Holders such  supplemented  or
amended prospectus.

            (g) The Company will enter into customary  agreements  (including an
underwriting  agreement  in customary  form) and take such other  actions as are
required  in order  to  expedite  or  facilitate  the  sale of such  Registrable
Securities.

            (h) At the request of any managing Underwriter in connection with an
underwritten  offering  the  Company  will  furnish  (i) an opinion of  counsel,
addressed to the  Underwriters,  covering such customary matters as the managing
Underwriter may reasonably  request and (ii) a comfort letter or comfort letters
from the  Company's  independent  public  accountants  covering  such  customary
matters as the managing Underwriter may reasonably request.

            (i) If requested by the managing  Underwriter or any Selling Holder,
the Company  shall  promptly  incorporate  in a  prospectus  supplement  or post
effective amendment such information as the managing  Underwriter or any Selling
Holder reasonably requests to be included therein, including without limitation,
with respect to the  Registrable  Securities  being sold by such Selling Holder,
the purchase price being paid therefor by the  Underwriters  and with respect to
any other terms of the underwritten offering of the Registrable Securities to be
sold in such offering, and promptly make all required filings of such prospectus
supplement or post effective amendment.

            (j) The Company shall  promptly make available for inspection by any
Selling Holder or Underwriter  participating in any disposition  pursuant to any
registration  statement,  and  any  attorney,   accountant  or  other  agent  or
representative retained by any such Selling Holder or Underwriter (collectively,
the  "Inspectors"),   all  financial  and  other  records,  pertinent  corporate
documents and properties of the Company (collectively,  the "Records"), as shall
be  reasonably  necessary  to  enable  them  to  exercise  their  due  diligence
responsibility,  and cause the  Company's  officers,  directors and employees to
supply all  information  requested by any such Inspector in connection with such
registration  statement;  PROVIDED,  HOWEVER, that unless the disclosure of such
Records is  necessary  to avoid or correct a  misstatement  or  omission  in the
registration  statement or the release of such Records is ordered  pursuant to a
subpoena  or other  order from a court of  competent  jurisdiction,  the Company
shall not be required to provide any information  under this subparagraph (j) if
(A) the Company believes,  after consultation with counsel for the Company, that
to do so would cause the Company to forfeit an  attorney-client  privilege  that
was  applicable  to  such  information  or (B) if  either  (1) the  Company  has
requested and been granted from the  Commission  confidential  treatment of such
information  contained in any filing with the  Commission or documents  provided
supplementally  or otherwise or (2) the Company  reasonably  determines  in good
faith that such  Records are  confidential  and so notifies  the  Inspectors  in
writing unless prior to furnishing any such  information  with respect to (A) or
(B) such Holder of Registrable  Securities requesting such information agrees to
enter  into a  confidentiality  agreement  in  customary  form  and  subject  to
customary  exceptions;   PROVIDED,   FURTHER,   however,  that  each  Holder  of
Registrable  Securities  agrees that it will,  upon learning that  disclosure of
such Records is sought in a court of competent jurisdiction,  give notice to the
Company and allow the Company, at its expense,  to undertake  appropriate action
and to prevent disclosure of the Records deemed confidential.

<PAGE>

            (k) The Company shall cause the Registrable  Securities  included in
any registration statement to be (A) listed on each securities exchange, if any,
on which  similar  securities  issued by the  Company  are then  listed,  or (B)
authorized to be quoted and/or listed (to the extent  applicable)  on the Nasdaq
National Market if the Registrable Securities so qualify.

            (l) The Company  shall  provide a CUSIP  number for the  Registrable
Securities  included in any registration  statement not later than the effective
date of such registration statement.

            (m) The Company shall  cooperate  with each Selling  Holder and each
Underwriter  participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc.

            (n) The  Company  shall  during the period  when the  prospectus  is
required to be delivered under the Securities  Act,  promptly file all documents
required to be filed with the Commission  pursuant to Sections 13(a),  13(c), 14
or 15(d) of the Exchange Act.

            (o) The  Company  will  make  generally  available  to its  security
holders,  as soon as reasonably  practicable,  an earnings  statement covering a
period of 12 months,  beginning  within three months after the effective date of
the  registration   statement,   which  earnings  statement  shall  satisfy  the
provisions of Section 11(a) of the Securities Act and the rules and  regulations
of the Commission thereunder.

            (p) The  Company  will use its  commercially  reasonable  efforts to
cause all such  Registrable  Common Stock and, in the event of a public offering
of Series B Preferred Stock, the Series B Preferred Stock (subject to applicable
listing requirements) to be listed on each securities exchange or quoted on each
inter-dealer  quotation  system  on which  the  Common  Stock is then  listed or
quoted.

            The  Company  may  require  Selling  Holders  promptly to furnish in
writing to the Company such information regarding such Selling Holders, the plan
of  distribution  of the  Registrable  Securities  and other  information as the
Company may from time to time reasonably  request or as may be legally  required
in connection with such registration.

     SECTION 3.2.  REGISTRATION  EXPENSES.  In connection with any  Registration
effected  hereunder,  the Company shall pay the following  expenses  incurred in
connection  with  such   registration   (the   "Registration   Expenses"):   (i)
registration and filing fees with the Commission and the National Association of
Securities  Dealers,  Inc., (ii) fees and expenses of compliance with securities
or blue sky laws  (including  reasonable  fees and  disbursements  of counsel in
connection with blue sky  qualifications of the Registrable  Securities),  (iii)
printing  expenses,  (iv) fees and  expenses  incurred  in  connection  with the
listing or quotation  of the  Registrable  Securities,  (v) fees and expenses of
counsel to the  Company and the  reasonable  fees and  expenses  of  independent
certified  public  accountants  for the  Company  (including  fees and  expenses
associated with the special audits or the delivery of comfort letters), (vi) the
reasonable fees and expenses of any additional  experts  retained by the Company
in connection with such registration,  (vii) all roadshow costs and expenses not
paid by the  Underwriters  and (viii) the  reasonable  fees and  expenses of one
counsel to Selling Holders.

<PAGE>

                                   ARTICLE IV

                        INDEMNIFICATION AND CONTRIBUTION

     SECTION  4.1.  INDEMNIFICATION  BY  THE  COMPANY.  The  Company  agrees  to
indemnify  and hold harmless each Selling  Holder and its  Affiliates  and their
respective officers,  directors,  partners,  stockholders,  members,  employees,
agents and  representatives  and each  Person (if any) which  controls a Selling
Holder within the meaning of either  Section 15 of the Securities Act or Section
20 of the Exchange  Act, from and against any and all losses,  claims,  damages,
liabilities,  costs and expenses (including  reasonable  attorneys' fees) caused
by, arising out of, resulting from or related to any untrue statement or alleged
untrue statement of a material fact contained in any  registration  statement or
prospectus relating to the Registrable Securities (as amended or supplemented if
the Company shall have furnished any  amendments or supplements  thereto) or any
preliminary  prospectus,  or caused by any omission or alleged omission to state
therein a material fact  required to be stated  therein or necessary to make the
statements  therein  not  misleading,  except  insofar as such  losses,  claims,
damages or liabilities are caused by or based upon any information  furnished in
writing to the Company by or on behalf of such Selling Holder  expressly for use
therein or by the Selling Holder's failure to deliver a copy of the registration
statement or  prospectus  or any  amendments  or  supplements  thereto after the
Company  has  furnished  the Selling  Holder with copies of the same;  PROVIDED,
HOWEVER,  that the Company  shall have no  obligation  to  indemnify  under this
sentence to the extent any such losses, claims, damages or liabilities have been
finally and  non-appealably  determined  by a court to have  resulted  from such
Selling Holder's willful misconduct or gross negligence. The Company also agrees
to indemnify any Underwriters of the Registrable Securities,  their officers and
directors and each person who controls such  Underwriters on  substantially  the
same basis as that of the  indemnification  of the Selling  Holders  provided in
this Section 4.01, except insofar as such losses, claims, damages or liabilities
are caused by or based upon any information  furnished in writing to the Company
by or on  behalf  of  such  Underwriter  expressly  for  use  therein  or by the
Underwriter's  failure  to  deliver  a copy  of the  registration  statement  or
prospectus  or any  amendments  or  supplements  thereto  after the  Company has
furnished the Underwriter with copies of the same; PROVIDED,  HOWEVER,  that the
Company shall have no obligation to indemnify  under this sentence to the extent
any  such  losses,   claims,  damages  or  liabilities  have  been  finally  and
non-appealably   determined   by  a  court  to  have   resulted  from  any  such
Underwriter's willful misconduct or gross negligence.

     SECTION 4.2. INDEMNIFICATION BY SELLING HOLDERS. Each Selling Holder agrees
to indemnify and hold harmless the Company, its officers and directors, and each
Person,  if any, which controls the Company within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing  indemnity from the Company to each Selling Holder,  but only with
reference  to  information  furnished in writing by or on behalf of such Selling
Holder expressly for use in any registration statement or prospectus relating to
the  Registrable  Securities,  or any  amendment or supplement  thereto,  or any
preliminary  prospectus.  Each Selling  Holder also agrees to indemnify and hold
harmless any  Underwriters  of the  Registrable  Securities,  their officers and
directors and each person who controls such  Underwriters on  substantially  the
same  basis  as that of the  indemnification  of the  Company  provided  in this
Section 4.02, but only with reference to information  furnished in writing by or
on behalf of such Selling Holder expressly for use in any registration statement
or  prospectus  relating to the  Registrable  Securities,  or any  amendment  or
supplement  thereto, or any preliminary  prospectus.  Each such Selling Holder's
liability under this Section 4.02 shall be limited to an amount equal to the net
proceeds (after  deducting the underwriting  discount and expenses)  received by
such Selling Holder from the sale of such Registrable Securities by such Selling
Holder. The obligation of such Selling Holder to indemnify shall be several, not
joint and several.

<PAGE>

     SECTION 4.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding
(including any  governmental  investigation)  shall be instituted  involving any
Person in respect of which  indemnity may be sought  pursuant to Section 4.01 or
Section 4.02,  such Person (the  "Indemnified  Party") shall promptly notify the
Person against whom such indemnity may be sought (the  "Indemnifying  Party") in
writing and the Indemnifying  Party, upon the request of the Indemnified  Party,
shall  retain  counsel  reasonably  satisfactory  to such  Indemnified  Party to
represent  such  Indemnified  Party and any  others the  Indemnifying  Party may
designate in such proceeding and shall pay the reasonable fees and disbursements
of such  counsel  related  to  such  proceeding.  In any  such  proceeding,  any
Indemnified  Party shall have the right to retain its own counsel,  but the fees
and expenses of such counsel shall be at the expense of such  Indemnified  Party
unless (i) the Indemnifying  Party and the Indemnified Party shall have mutually
agreed to the  retention of such  counsel or (ii) the named  parties to any such
proceeding  (including any impleaded parties) include both the Indemnified Party
and the  Indemnifying  Party and,  in the  written  opinion  of counsel  for the
Indemnified  Party,  representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood  that the  Indemnifying  Party  shall  not,  in  connection  with any
proceeding or related  proceedings in the same  jurisdiction,  be liable for the
fees and  expenses of more than one separate  firm of attorneys  (in addition to
any local counsel) at any time for all such  Indemnified  Parties,  and that all
such fees and expenses shall be reimbursed as they are incurred.  In the case of
any  such  separate  firm  for the  Indemnified  Parties,  such  firm  shall  be
designated in writing by the Indemnified  Parties.  The Indemnifying Party shall
not be liable for any settlement of any proceeding  effected without its written
consent, but if settled with such consent (not to be unreasonably  withheld), or
if there be a final judgment for the  plaintiff,  the  Indemnifying  Party shall
indemnify and hold harmless such  Indemnified  Parties from and against any loss
or  liability  (to the  extent  stated  above) by reason of such  settlement  or
judgment.

     SECTION  4.4.  CONTRIBUTION.  If the  indemnification  provided for in this
Article IV is  unavailable  to an  Indemnified  Party in respect of any  losses,
claims,  damages or liabilities in respect of which  indemnity is to be provided
hereunder,  then each such  Indemnifying  Party,  in lieu of  indemnifying  such
Indemnified  Party,  shall to the fullest extent  permitted by law contribute to
the amount paid or payable by such Indemnified Party as a result of such losses,
claims,  damages or liabilities in such  proportion as is appropriate to reflect
the relative fault of such party in connection  with the statements or omissions
that resulted in such losses,  claims,  damages or  liabilities,  as well as any
other relevant  equitable  considerations.  The relative fault of the Company, a
Selling Holder and the  Underwriters  shall be determined by reference to, among
other things,  whether the untrue or alleged untrue statement of a material fact
or the  omission  or  alleged  omission  to state a  material  fact  relates  to
information supplied by such party and the parties' relative intent,  knowledge,
access to  information  and  opportunity to correct or prevent such statement or
omission.

            The Company and each Selling Holder agrees that it would not be just
and equitable if  contribution  pursuant to this Section 4.04 were determined by
pro rata  allocation  (even if the  Underwriters  were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount  paid or payable by an  Indemnified  Party as a result of the losses,
claims,  damages  or  liabilities  referred  to  in  the  immediately  preceding
paragraph  shall be deemed to  include,  subject  to the  limitations  set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in  connection  with  investigating  or  defending  any such  action  or  claim.
Notwithstanding  the  provisions  of this  Article IV, no  Underwriter  shall be
required  to  contribute  any  amount in excess of the amount by which the total
price at which the securities  underwritten  by it and distributed to the public
were  offered  to the  public  exceeds  the  amount of any  damages  which  such
Underwriter  has  otherwise  been  required  to pay by reason of such  untrue or
alleged  untrue  statement  or omission or alleged  omission,  and each  Selling
Holder shall not be required to contribute any amount in excess of the amount by

<PAGE>

which the net proceeds of the offering (before deducting  expenses)  received by
such Selling  Holder exceeds the amount of any damages which such Selling Holder
has otherwise  been  required to pay by reason of such untrue or alleged  untrue
statement  or  omission  or alleged  omission.  No person  guilty of  fraudulent
misrepresentation  (within the meaning of Section 11(f) of the  Securities  Act)
shall be  entitled  to  contribution  from any Person who was not guilty of such
fraudulent misrepresentation.

                                    ARTICLE V

                                  MISCELLANEOUS

     SECTION 5.1.  PARTICIPATION  IN UNDERWRITTEN  REGISTRATIONS.  No Person may
participate  in any  underwritten  registered  offering  contemplated  hereunder
unless such Person (a) agrees to sell its  securities  on the basis  provided in
any  underwriting  arrangements  approved by the Persons  entitled  hereunder to
approve such arrangements, (b) completes and executes all questionnaires, powers
of attorney,  custody  arrangements,  indemnities,  underwriting  agreements and
other  documents  reasonably  required  under  the  terms  of such  underwriting
arrangements and this Agreement and (c) furnishes in writing to the Company such
information  regarding such Person,  the plan of distribution of the Registrable
Securities and other information as the Company may from time to time request or
as may be legally  required  in  connection  with such  registration;  PROVIDED,
HOWEVER,  that no such Person shall be required to make any  representations  or
warranties in connection with any such registration  other than  representations
and  warranties  as to (i) such  Person's  ownership  of his or its  Registrable
Securities  to be sold or  transferred  free and clear of all liens,  claims and
encumbrances, (ii) such Person's power and authority to effect such transfer and
(iii) such matters  pertaining  to  compliance  with  securities  laws as may be
reasonably  requested;  PROVIDED FURTHER,  however,  that the obligation of such
Person  to  indemnify  pursuant  to any such  underwriting  agreements  shall be
several,  not  joint  and  several,   among  such  Persons  selling  Registrable
Securities,  and the liability of each such Person will be in proportion to, and
PROVIDED FURTHER that such liability will be limited to, the net amount received
by such Person from the sale of such Person's Registrable Securities pursuant to
such registration.

     SECTION 5.2. RULE 144. The Company  covenants that it will file any reports
required to be filed by it under the  Securities  Act and the  Exchange  Act and
that it will take such further action as the Holders may  reasonably  request to
the extent required from time to time to enable the Holders to sell  Registrable
Securities  without  registration under the Securities Act within the limitation
of the exemptions  provided by Rule 144 under the  Securities  Act, as such Rule
may be amended from time to time,  or any similar rule or  regulation  hereafter
adopted by the  Commission.  Upon the  request of any Holder,  the Company  will
deliver to such Holder a written  statement as to whether it has  complied  with
such reporting requirements.

     SECTION 5.3.  HOLDBACK  AGREEMENTS.  Each Holder agrees, in the event of an
underwritten  offering by the Company (whether for the account of the Company or
otherwise)  not to offer,  sell,  contract to sell or  otherwise  dispose of any
Registrable  Securities,  or any securities  convertible into or exchangeable or
exercisable for such  securities,  including any sale pursuant to Rule 144 under
the Securities Act (except as part of such underwritten offering), during the 14
days prior to, and during the 90-day  period (or such lesser  period as the lead
or managing  underwriters  may require)  beginning on, the effective date of the
registration  statement  for such  underwritten  offering (or, in the case of an
offering pursuant to an effective shelf registration  statement pursuant to Rule
415, the pricing date for such underwritten offering).

     SECTION  5.4.  TERMINATION.  The  registration  rights  granted  under this
Agreement will terminate on ___________  __, 2015, or such earlier time as there

<PAGE>

shall no longer be any Registrable  Securities;  PROVIDED,  HOWEVER, that if all
shares of Series B Preferred Stock  outstanding on such date shall not have been
redeemed  in  full  in  accordance   with  Section  10  of  the  Certificate  of
Designations,  this Agreement shall remain in full force and effect with respect
to such shares (and the shares of Common Stock  issuable upon the  conversion of
such shares) until such time as such shares have been so redeemed in full.

     SECTION 5.5. AMENDMENTS,  WAIVERS,  ETC. This Agreement may not be amended,
waived or otherwise  modified or  terminated  except by an instrument in writing
signed  by the  Company  and (i)  Holders  of at  least  50% of the  Registrable
Securities  (calculated on an as-converted basis) then held by all HMTF Holders,
if the amendment is to be effective against the HMTF Holders, (ii) Holders of at
least 50% of the Registrable  Securities  (calculated on an as-converted  basis)
then held by all Chase Holders,  if the amendment is to be effective against the
Chase Holders.

     SECTION 5.6.  COUNTERPARTS.  This  Agreement may be executed in one or more
counterparts,  all of which shall be considered one and the same agreement. Each
party need not sign the same counterpart.

     SECTION  5.7.  ENTIRE  AGREEMENT.  This  Agreement  constitutes  the entire
agreement and supersedes all prior agreements and  understandings,  both written
and oral, among the parties with respect to the subject matter hereof.

     SECTION  5.8.  GOVERNING  LAW.  This  Agreement  shall be governed  by, and
construed in accordance  with,  the laws of the State of New York  regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law thereof.

     SECTION  5.9.  ASSIGNMENT  OF  REGISTRATION  RIGHTS.  Each  Holder  of  the
Registrable  Securities  may  assign  all or any part of its  rights  under this
Agreement  to any person to whom such Holder  sells,  transfers  or assigns such
Registrable  Securities.  In the event that the Holder  shall  assign its rights
pursuant to this Agreement in connection  with the transfer of less than all its
Registrable Securities,  the Holder shall also retain his rights with respect to
its remaining Registrable Securities.

<PAGE>

            IN WITNESS  WHEREOF,  the Company and each Initial Holder has caused
this  Agreement  to be  signed  on its  behalf  by its  officer  thereunto  duly
authorized as of the date first written above.

                                  VIATEL, INC.,

                                  By:
                                     ---------------------------------
                                     Name:  Michael J. Mahoney
                                     Title: Chairman and
                                            Chief Executive Officer

HMTF EUROPE ACQUISITION CORP.,

By:
   ------------------------------
   Name:
   Title:

CHASE EQUITY ASSOCIATES, LLC

By: Chase Capital Partners
    as Manager

By:
   -------------------------------
    Name:
    Title:

<PAGE>

                                   SCHEDULE I

                                                           Purchase Price
          Purchasers                Number Of Shares       Of The Shares
          ----------                ----------------       -------------

<PAGE>

                                                                       EXHIBIT B

                                  VIATEL, INC.

                  CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
                           RIGHTS OF 7.50% CUMULATIVE
                 CONVERTIBLE PREFERRED STOCK SERIES B-1 DUE 2015

<PAGE>

                           CERTIFICATE OF DESIGNATION

        Viatel,  Inc.,  a company  organized  and  existing  under  the  General
Corporation  Law of the  State  of  Delaware  (the  "Company"),  certifies  that
pursuant to the authority  contained in its  Certificate of  Incorporation  (the
"Certificate  of  Incorporation")  and  its  By-laws  (the  "By-laws"),  and  in
accordance  with  Section  151 of the  General  Corporation  Law of the State of
Delaware,  the board of directors of the Company (the "Board of Directors") at a
meeting duly called and held on January  31st,  2000,  duly approved and adopted
the following  resolution,  which resolution remains in full force and effect on
the date hereof:

        RESOLVED,  that  pursuant  to  the  authority  vested  in the  Board  of
Directors  by the  Certificate  of  Incorporation  and  By-laws,  the  Board  of
Directors does hereby create, authorize and provide for the issue of a series of
Preferred Stock having the following designation, voting powers, preferences and
relative, participating, optional and other special rights:

        Certain capitalized terms used herein are defined in Section 16.

     1. NUMBER AND  DESIGNATION.  The Company  shall have a series of  Preferred
Stock, which shall be designated as its 7.50% Series B-1 Cumulative  Convertible
Preferred Stock due 2015 (the "Series B-1 Preferred Stock"), par value $0.01 per
share,  with 325,000 shares initially  authorized.  Unless otherwise  specified,
references herein to any "Section" refer to the Section number specified in this
Certificate of Designation.

     2. ISSUANCE.  The  Company  may issue up to  325,000  shares of Series B-1
Preferred Stock in accordance with the Purchase Agreement.

     3. REGISTERED FORM;  LIQUIDATION  PREFERENCE;  REGISTRAR.  Certificates for
shares of Series B Preferred Stock shall be issuable only in registered form and
only with an initial  liquidation  preference  of $1,072 per share.  The Company
shall serve as initial  Registrar and Transfer Agent (the  "Registrar")  for the
Series B Preferred Stock.

     4. REGISTRATION;  TRANSFER. Shares of the Series B Preferred Stock have not
been  registered  under the Securities Act of 1933, as amended (the  "Securities
Act") and may not be resold,  pledged or otherwise transferred prior to the date
when they may be resold pursuant to Rule 144 under the Securities Act other than
(i) to the Company,  (ii) pursuant to an exemption from  registration  under the
Securities Act or (iii) pursuant to an effective  registration  statement  under
the Securities  Act, in each case in accordance  with any applicable  securities
laws of any  state of the  United  States.  Until  such  time as it is no longer
required  pursuant to the Securities Act,  certificates  evidencing the Series B
Preferred Stock shall contain a legend (the "Restrictive Legend") evidencing the
foregoing restrictions in substantially the form attached hereto as Exhibit A.

     5. PAYING AGENT AND  CONVERSION  AGENT.  Section  5.10.  The Company  shall
maintain (i) an office or agency where shares of Series B Preferred Stock may be
presented  for payment  (the  "Paying  Agent"),  (ii) an office or agency  where
shares  of  Series B  Preferred  Stock  may be  presented  for  conversion  (the
"Conversion  Agent"),  and  (iii) a  Registrar,  which  shall be an office or an
agency where shares of Series B Preferred  Stock may be presented  for transfer.
The Company may appoint the Registrar, the Paying Agent and the Conversion Agent

<PAGE>

and may appoint one or more additional  paying agents and one or more additional
conversion  agents  in such  other  locations  as it shall  determine.  The term
"Paying Agent" includes any additional  paying agent,  and the term  "Conversion
Agent"  includes any  additional  conversion  agent.  The Company may change any
Paying Agent or Conversion Agent without prior notice to any holder. The Company
shall  notify the  Registrar  of the name and  address  of any  Paying  Agent or
Conversion  Agent  appointed by the Company.  If the Company fails to appoint or
maintain another entity as Paying Agent or Conversion Agent, the Registrar shall
act as such. Notwithstanding the foregoing, the Company or any of its Affiliates
may act as Paying Agent, Registrar, coregistrar or Conversion Agent.

     (a) Neither the Company nor the  Registrar  shall be required (A) to issue,
countersign  or  register  the  transfer  of or  exchange  any share of Series B
Preferred  Stock  during a period  beginning  at the opening of business 15 days
before any  Redemption  Date (as defined under Section  10(d)) and ending at the
close of business on such  Redemption Date or (B) to register the transfer of or
exchange any share of Series B Preferred Stock so selected for redemption.

     (b) If shares of Series B  Preferred  Stock are issued  upon the  transfer,
exchange  or  replacement  of shares of Series B  Preferred  Stock  bearing  the
Restrictive Legend, or if a request is made to remove such Restrictive Legend on
shares of Series B Preferred  Stock,  the shares of Series B Preferred  Stock so
issued shall bear the Restrictive Legend, or the Restrictive Legend shall not be
removed,  as the case may be,  unless the holders of such shares  shall  request
such  legend  be  removed,  and  outside  counsel  for such  holders  reasonably
determines  that the  transfer  of such  shares is no longer  restricted  by the
Securities Act and outside  counsel for the Company  reasonably  concurs in such
determination.

     (c) Each holder of a share of Series B Preferred  Stock agrees to indemnify
the Company and the  Registrar  against any  liability  that may result from the
transfer, exchange or assignment by such holder of such holder's share of Series
B  Preferred  Stock  in  violation  of any  provision  of  this  Certificate  of
Designation  and/or  applicable  Federal  or  state  securities  law;  provided,
however,  that such indemnity  shall not apply to acts of willful  misconduct or
gross  negligence on the part of the Company or the  Registrar,  as the case may
be.

     (d) Payments due on the shares of Series B Preferred Stock shall be payable
at the office or agency of the Company  maintained  for such purpose in The City
of New York and at any other office or agency maintained by the Company for such
purpose.  If any such payment is in cash,  it shall be payable by United  States
wire transfer (provided that appropriate wire instructions have been received by
the  Registrar  at least 15 days prior to the  applicable  date of payment) to a
United  States dollar  account  maintained by the holder with, a bank located in
New York City;  PROVIDED that at the option of the Company  payment of dividends
in cash  may be made by check  mailed  to the  address  of the  person  entitled
thereto as such address shall appear in the Series B Preferred Share Register.

     6. DIVIDEND RIGHTS.

     (a) The  Company  shall  pay,  and the  holders  of the  shares of Series B
Preferred Stock shall be entitled to receive, cumulative dividends from the date
of initial  issuance  of such  shares of Series B  Preferred  Stock at a rate of

                                        2
<PAGE>

7.50% per annum on the amount of the  then-effective  Liquidation  Preference of
the shares of Series B Preferred Stock.  Dividends will be computed on the basis
of a 360-day year of twelve 30-day months and will be payable in accordance with
Section 11 hereof.  Dividends  will be payable  quarterly  in arrears on May 31,
August 31,  November 30 and  February 28 of each year (each a "Dividend  Payment
Date"),  commencing  (subject to the next sentence) on May 31, 2000, for so long
as any shares of Series B Preferred Stock are  outstanding;  PROVIDED,  HOWEVER,
that if such date is not a Business Day, then the Dividend Payment Date shall be
the next Business Day. The Company may elect not to declare dividend payments on
any Dividend Payment Date and shall not declare  dividend  payments prior to May
31, 2005; PROVIDED,  HOWEVER, that dividends on shares of the Series B Preferred
Stock will  accrue  (including,  without  limitation,  for the  period  from the
issuance of the Series B Preferred  Stock through May 31, 2005,  notwithstanding
the  prohibitions  set forth  above)  whether or not the Company has earnings or
profits,  whether or not there are funds  legally  available  for the payment of
such  dividends and whether or not dividends  are declared.  Dividends,  whether
declared or undeclared,  will  accumulate to the extent they are not paid on the
Dividend Payment Date for the period to which they relate. The Company will take
all actions required or permitted under the General Corporation Law of the State
of  Delaware  to permit the  payment or  accrual of  dividends  on the shares of
Series B Preferred Stock.  Arrearages of unpaid  dividends,  whether declared or
undeclared ("Accumulated Dividends"), will not themselves bear interest but will
be added to the  Liquidation  Preference  of the  Series  B  Preferred  Stock in
accordance with the following sentence,  and dividends will accrue thereafter on
the full amount of the Liquidation  Preference as so increased.  If any dividend
payable on any  Dividend  Payment  Date is not declared and paid in full on such
Dividend  Payment Date, the amount so payable,  to the extent not paid, shall be
added to the then  effective  Liquidation  Preference on such  Dividend  Payment
Date.

     (b) In addition to all dividends payable pursuant to Section 6(a), whenever
the Company shall declare or pay any dividend on any Junior Shares,  the Holders
of the Series B Preferred Stock shall be entitled to receive such dividends on a
ratable  as-converted  basis  (calculated as if all shares of Series B Preferred
Stock had been converted  directly or indirectly into Common Stock and/or Series
C Preferred  Stock).  Dividends  payable pursuant to this Section 6(b) shall not
reduce any dividends payable pursuant to Section 6(a).

     7. PAYMENT OF DIVIDENDS;  MECHANICS OF PAYMENT;  DIVIDEND RIGHTS PRESERVED.
(a) Dividends on any share of Series B Preferred Stock that are payable, and are
punctually paid or duly provided for, on any Dividend Payment Date shall be paid
in arrears to the  person in whose name such share of Series B  Preferred  Stock
(or one or more predecessor shares of Series B Preferred Stock) is registered at
the close of business on the next  preceding May 15, August 15,  November 15 and
February 15 (each,  together with any record date established for the payment of
Accumulated Dividends, a "Dividend Record Date").

     (b) Unless full cumulative  dividends on all outstanding shares of Series B
Preferred Stock for all past dividend periods shall have been declared and paid,
or declared and a sufficient sum for the payment thereof set apart, then:

            (i) no  dividend  (other than (A) with  respect to Junior  Shares or
      Parity  Shares,  a dividend  payable solely in any Junior Shares or Parity

                                        3
<PAGE>

      Shares,  respectively,  or (B) with  respect to Parity  Shares,  a partial
      dividend  paid PRO RATA on such  Parity  Shares and the shares of Series B
      Preferred  Stock) shall be declared or paid upon, or any sum set apart for
      the  payment  of  dividends  upon,  any  Junior  Shares or Parity  Shares,
      respectively;

            (ii) no other  distribution  shall be declared or made upon,  or any
      sum set apart for the payment of any distribution  upon, any Junior Shares
      or Parity Shares,  other than a distribution  consisting  solely of Junior
      Shares or Parity Shares, respectively;

            (iii) no Junior  Shares or Parity  Shares or any  warrants,  rights,
      calls or options (other than any cashless exercises of options or buybacks
      of options or restricted stock from present or former employees, directors
      or consultants)  exercisable  for or convertible  into any Parity Share or
      Junior Share shall be  purchased,  redeemed or otherwise  acquired  (other
      than in exchange for other Junior  Shares or Parity  Shares,  respectively
      and other than  conversion of (A) Series B-1  Preferred  Stock into Series
      B-2 Preferred  Stock,  and vice versa, (B) Series B-2 Preferred Stock into
      Series C Preferred Stock, and vice versa, and (C) Series C Preferred Stock
      into Common Stock) by the Company or any of its subsidiaries; and

            (iv) no monies shall be paid into or set apart or made available for
      a  sinking  or other  like  fund  for the  purchase,  redemption  or other
      acquisition of any Junior Shares or Parity Shares or any warrants, rights,
      calls or options  exercisable for or convertible into any Parity Shares or
      Junior  Shares by the Company or any of its  subsidiaries  (other than any
      cashless exercises of options or option buybacks).

            Except  as  provided  in  Section  13  hereof,  holders  of Series B
Preferred Stock will not be entitled to any dividends,  whether payable in cash,
property  or  stock,  in  excess  of the full  cumulative  dividends  as  herein
described.

     (c) The Company will notify the Registrar and make a public announcement no
later than the close of business on the tenth  Business  Day prior to the Record
Date for each  dividend as to whether it will pay such  dividend and, if so, the
form of consideration it will use to make such payment.

     (d) Any Accumulated  Dividends on any share of Series B Preferred Stock may
be paid, subject to Section 11, by the Company in any lawful manner (which shall
include  the  establishment  of a record date not more than 45 days prior to the
payment  thereof) not  inconsistent  with the requirements of any national stock
exchange or Commission recognized trading market on which the shares of Series B
Preferred  Stock may be listed or  admitted  to  trading,  and upon such  notice
(which shall  precede the record date by at least ten  Business  Days) as may be
required by such  exchange or trading  market,  if,  after  notice  given by the
Company to the  Registrar of the proposed  payment  pursuant to this clause (d),
such manner of payment shall be deemed practicable by the Registrar.

     (e) Subject to the  foregoing  provisions  of this Section 7, each share of
Series B Preferred Stock delivered  under this  Certificate of Designation  upon
registration  of transfer of or in exchange for or in lieu of any other share of

                                        4
<PAGE>

Series B Preferred  Stock shall carry the rights to  dividends  accumulated  and
unpaid,  and to  accrue,  that were  carried  by such  other  shares of Series B
Preferred Stock.

     (f) The  holder of record  of a share of  Series B  Preferred  Stock at the
close of  business  on a Dividend  Record  Date with  respect to the  payment of
dividends on the shares of Series B Preferred  Stock will be entitled to receive
such  dividends  with  respect to such share of Series B Preferred  Stock on the
corresponding  Dividend  Payment Date,  notwithstanding  the  conversion of such
share after such Dividend Record Date and prior to such Dividend Payment Date.

     8. VOTING RIGHTS. (a) The holders of record of shares of Series B Preferred
Stock shall not be entitled to any voting rights except as hereinafter  provided
in this Section 8 or as otherwise provided by law.

     (b) The holders of record of shares of Series B-1 Preferred  Stock shall be
entitled to vote on all matters that the holders of the  Company's  Common Stock
are entitled to vote upon.

     (c) In addition to the voting  rights set forth above,  the approval of the
holders  of at least a  majority  of the then  Outstanding  shares  of  Series B
Preferred Stock voting or consenting,  as the case may be, as one class, will be
required for the Company to:

            (i) amend the  Certificate  of  Incorporation,  this  Certificate of
      Designation  or the  By-Laws so as to (A)  affect  adversely  the  rights,
      preferences  (including,  without  limitation,   liquidation  preferences,
      conversion  price,  dividend  rate and  Optional  Redemption  provisions),
      privileges or voting rights of holders of the shares of Series B Preferred
      Stock,  or (B)  increase or decrease  the number of  authorized  shares of
      Series B Preferred Stock;

            (ii) in a single  transaction  or  series of  related  transactions,
      consolidate  or merge  with or into,  or sell,  assign,  transfer,  lease,
      convey or otherwise  dispose of all or substantially all of its assets to,
      any person or adopt a plan of liquidation, except as expressly provided in
      Section 14 hereof;

            (iii) enter into, or permit any of its  subsidiaries  to enter into,
      any agreement  that would impose  material  restrictions  on the Company's
      ability to honor the exercise of any rights of the holders of the Series B
      Preferred Stock;

            (iv)  authorize  or  create,  modify  the  terms of or  increase  or
      decrease the authorized amount of any Senior Shares or Parity Shares;

            (v) issue any  shares of Series B  Preferred  Stock  other  than (a)
      pursuant  to the  terms of the  Purchase  Agreement  as in  effect  on the
      Closing  Date,  or (b) shares of the Series B-1  Preferred  Stock upon the
      conversion of shares of the Series B-2 Preferred Stock and vice versa; or

            (vi)  After  ___________,   2005  (the  "Fifth  Anniversary  Date"),
      commence or effect any tender or exchange offer made by the Company or any
      Subsidiary for all or any portion of the Common Stock.

                                        5
<PAGE>

In addition to the voting rights set forth above, the approval of the holders of
at least a  majority  of the then  Outstanding  shares of Series  B-1  Preferred
Stock, other than the Relinquishing Holders,  voting or consenting,  as the case
may be, as one class,  will be  required  for the Company to, on or prior to the
Fifth Anniversary Date,  commence or effect any tender or exchange offer made by
the Company or any Subsidiary for all or any portion of the Common Stock.

     (d) For so long as  members of the HMTF  Group own any  combination  of the
shares of Series B  Preferred  Stock  issued to members of the HMTF Group on the
Closing Date under the Purchase  Agreement  (the "HMTF Issued Series B Preferred
Shares") and shares of Common Stock issued upon conversion of HMTF Issued Series
B Preferred  Shares that,  taken  together,  would represent (if all HMTF Issued
Series B Preferred  Shares were  converted)  an amount of Common Stock  issuable
upon conversion of 50% or more of the HMTF Issued Series B Preferred Shares, the
HMTF Holders,  voting as a single class, shall be entitled to elect one director
to serve on the Board of  Directors  at any annual  meeting of  stockholders  or
special  meeting  held in place  thereof,  or at a special  meeting  of the HMTF
Holders called as hereinafter  provided. At any time after voting power to elect
such  director  shall have become  vested and be  continuing in the HMTF Holders
pursuant  to this  paragraph,  or if a vacancy  shall  exist in the  office of a
director  elected  by the HMTF  Holders  at a time  when the  HMTF  Holders  are
entitled to elect a director pursuant to this paragraph, a proper officer of the
Company may,  and upon the written  request of the holders of record of at least
twenty-five  percent (25%) of the HMTF Issued Series B Preferred  Shares held by
the HMTF Holders  then  outstanding  addressed  to the  Secretary of the Company
shall,  call a special  meeting of the HMTF  Holders for the purpose of electing
the director that such holders are entitled to elect.  If such meeting shall not
be called by a proper  officer  of the  Company  within  twenty  (20) days after
personal  service of said written request upon the Secretary of the Company,  or
within  twenty  (20) days after  mailing  the same  within the United  States by
certified  mail,  addressed  to the  Secretary  of the Company at its  principal
executive offices, then the holders of at least twenty-five percent (25%) of the
HMTF Issued Series B Preferred  Shares held by the HMTF Holders may designate in
writing one of their  number to call such meeting at the expense of the Company,
and such  meeting  may be called by the  person so  designated  upon the  notice
required for the annual meeting of stockholders of the Company and shall be held
at the place for holding the annual  meetings of  stockholders.  As used herein,
(i)  "HMTF  Group"  means  Hicks,  Muse,  Tate &  Furst  Incorporated,  a  Texas
corporation,  and its  Affiliates  and  their  respective  officers,  directors,
partners,  members,  stockholders and employees (and members of their respective
families  and trusts for the primary  benefit of such family  members)  and HMTF
Bridge  Viatel,  LLC,  HMEU  Viatel I-EQ  Coinvestors,  LLC,  HMEU Viatel  I-SBS
Coinvestors,  LLC, HM Viatel PG Europe,  LLC, HMEU Viatel  Qualified  Fund, LLC,
HMEU Viatel Private Fund,  LLC, and their  respective  Affiliates and (ii) "HMTF
Holders"  means  members  of the HMTF  Group  that are the  holders  of all or a
portion of the HMTF Issued  Series B Preferred  Shares or the Common  Stock into
which such HMTF  Issued  Series B  Preferred  Shares are  converted.  Any action
permitted or required to be taken by the HMTF  Holders  pursuant to this Section
8(d) may be taken (1) at any annual or special  meeting of  stockholders or at a
special  meeting of the HMTF  Holders,  or (2) without a meeting,  without prior
notice,  and without a vote if a consent or consents in writing,  setting  forth
the action so taken,  shall be signed by the HMTF  Holders  having not less than
the minimum  number of votes that would be  necessary  to authorize or take such
action at a meeting at which all shares  held by the HMTF  Holders  entitled  to

                                        6
<PAGE>

vote  thereon  were  present and voted and shall be  delivered to the Company by
delivery to its address listed in Section 8.2 of the Purchase Agreement.

     (e) At any time after  voting  power to elect  directors  shall have become
vested and be  continuing  in the HMTF Holders  pursuant to Section  8(d),  if a
vacancy shall exist in the office of a director elected by the HMTF Holders at a
time when the HMTF Holders are entitled to elect one or more directors  pursuant
to Section  8(d),  a proper  officer of the  Company  may,  and upon the written
request of the holders of record of at least  twenty-five  percent  (25%) of the
HMTF Issued Series B Preferred  Shares held by the HMTF Holders then outstanding
addressed to the Secretary of the Company shall,  call a special  meeting of the
HMTF Holders for the purpose of electing the  director(s)  that such holders are
entitled to elect.  If such meeting  shall not be called by a proper  officer of
the Company  within  twenty  (20) days after  personal  service of said  written
request  upon the  Secretary of the  Company,  or within  twenty (20) days after
mailing the same within the United  States by certified  mail,  addressed to the
Secretary of the Company at its principal executive offices, then the holders of
at least twenty-five  percent (25%) of the HMTF Issued Series B Preferred Shares
held by the HMTF  Holders may  designate  in writing one of their number to call
such  meeting at the expense of the  Company,  and such meeting may be called by
the person so  designated  upon the notice  required  for the annual  meeting of
stockholders  of the  Company  and shall be held at the place  for  holding  the
annual meetings of stockholders.

     (f) In exercising  the voting rights set forth in Section 8(b),  each share
of Series B Preferred Stock shall be entitled to vote on an  as-converted  basis
with the holders of the Company's  Common Stock. In exercising the voting rights
set forth in Section 8 (d), each HMTF Issued  Series B Preferred  Share shall be
entitled to vote on an  as-converted  basis with the other HMTF Issued  Series B
Preferred  Shares and shares of Common  Stock held by the HMTF  Holders and into
which HMTF Issued  Series B Preferred  Shares have been  converted,  voting as a
single class.  In exercising the other voting rights set forth in this Section 8
each share of Series B Preferred  Stock entitled to vote shall have one vote per
share, except that when any other series of preferred stock shall have the right
to vote with the Series B Preferred Stock as a single class on any matter,  then
the Series B Preferred Stock and such other series of preferred stock shall have
with  respect to such matters one vote per $1,000 of the  aggregate  liquidation
preference  of all  shares of Series B  Preferred  Stock and all  shares of such
other series of preferred stock.  Except as otherwise required by applicable law
or as set forth  herein,  the shares of Series B Preferred  Stock shall not have
any relative, participating,  optional or other special voting rights and powers
and the consent of the holders  thereof  shall not be required for the taking of
any corporate action.

     (g) Chase Capital  Partners and its Affiliates that are holders of all or a
portion of the  Series B  Preferred  Stock  issued to any such  entities  on the
Closing  Date shall have the right to  designate  an observer who shall have the
right to attend  meetings of the Company's  Board of Directors and such observer
shall be  entitled  to receive  notice of each such  meeting at the same time as
such directors. In addition, to the extent that the Company's Board of Directors
is to take action by unanimous  written consent,  the observer shall be entitled
to  receive  a copy of any such  written  consent  when it is  forwarded  to the
directors for their execution.

                                        7
<PAGE>

     9. RANKING.  (a) The shares of Series B Preferred  Stock will, with respect
to dividend rights and rights on liquidation,  winding-up and dissolution,  rank
(i)  senior  to all  shares  of  Common  Stock  (whether  issued  in one or more
classes),  the Series A Junior Participating  Preferred Stock of the Company and
to each  other  class of  capital  stock or  series  of  Preferred  Stock of the
Company,  the terms of which do not expressly provide that it ranks senior to or
on a parity  with the shares of Series B Preferred  Stock as to dividend  rights
and  rights  on   liquidation,   winding-up  and   dissolution  of  the  Company
(collectively  referred to,  together  with all shares of Common Stock  (whether
issued in one or more classes) of the Company,  as "Junior  Shares");  (ii) on a
parity with additional  shares of Series B Preferred Stock issued by the Company
and each  other  class of  capital  stock or  series of  Preferred  Stock of the
Company issued by the Company in compliance with Section 8 hereof,  the terms of
which expressly provide that such class or series will rank on a parity with the
shares  of  Series B  Preferred  Stock  as to  dividend  rights  and  rights  on
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Parity  Shares");  and (iii) junior to each class of capital stock or series
of  Preferred  Stock of the  Company  issued by the Company in  compliance  with
Section 8 hereof, the terms of which expressly provide that such class or series
will rank senior to the shares of Series B Preferred Stock as to dividend rights
and  rights  upon  liquidation,   winding-up  and  dissolution  of  the  Company
(collectively referred to as "Senior Shares").

     (b) No dividend  whatsoever  shall be declared or paid upon, or any sum set
apart for the payment of  dividends  upon,  any  outstanding  shares of Series B
Preferred Stock with respect to any dividend period unless all dividends for all
preceding  dividend  periods  have been  declared  and paid,  or declared  and a
sufficient sum set apart for the payment of such dividends, upon all outstanding
Senior Shares.

     (c) In the  event of any  liquidation,  dissolution  or  winding-up  of the
Company, whether voluntary or involuntary, the holders of the shares of Series B
Preferred  Stock then  Outstanding  shall be entitled  to receive,  prior and in
preference  to any  distribution  of any of the  assets  of the  Company  to the
holders of shares of Common Stock or Junior Shares by reason of their  ownership
thereof,  an amount equal to the greater of (i) the then  effective  Liquidation
Preference,  plus an amount equal to all  dividends  accrued and unpaid  thereon
from  the  last  Dividend  Payment  Date  to the  date  fixed  for  liquidation,
dissolution  or winding-up or (ii) the amount such holders would receive if such
holders converted,  directly or indirectly in accordance with their terms, their
shares of Series B Preferred  Stock into Common Stock and/or  Series C Preferred
Stock immediately prior to such liquidation, dissolution or winding up.

     (d) If upon the occurrence of such event the assets of the Company shall be
insufficient  to permit  the  payment to such  holders of the full  preferential
amount and all liquidating  payments on all Parity Shares,  the entire assets of
the Company legally  available for distribution  shall be distributed  among the
holders of the shares of Series B Preferred  Stock and the holders of all Parity
Shares ratably in accordance  with the respective  amounts that would be payable
on such  shares of Series B Preferred  Stock and any such  Parity  Shares if all
amounts  payable  thereon  were  paid  in  full.   After  payment  of  the  full
preferential amount (and, if applicable,  an amount equal to a pro rata dividend
to the holders of Outstanding shares of Series B Preferred Stock),  such holders
shall not be entitled to any further participation in any distribution of assets
of the Company.

                                        8
<PAGE>

     10.  REDEMPTION. (a) THE shares of Series B Preferred Stock may be redeemed
at any time commencing on or after the Fifth  Anniversary  Date (or earlier,  in
accordance  with the  provisions  of Section  13(d) if a Change of Control  Date
shall  have  occurred,  but only as to shares of Series B  Preferred  Stock with
respect to which the Remarketing Option has been elected), in whole or from time
to time in part, at the election of the Company (an "Optional Redemption"), at a
redemption price (the  "Redemption  Price") payable in cash equal to 100% of the
then  effective  Liquidation  Preference  (after  giving  effect to the  Special
Payment, if applicable), plus accrued and unpaid dividends thereon from the last
Dividend  Payment  Date to the  date of  redemption  (the  "Optional  Redemption
Date").

     (b)  Shares  of  Series B  Preferred  Stock  (if not  earlier  redeemed  or
converted)  shall be  mandatorily  redeemed by the Company on February  28, 2015
(the "Mandatory Redemption Date"; PROVIDED,  HOWEVER, that if such date is not a
Business  Day,  then the  Mandatory  Redemption  Date shall be the next Business
Day),  at a  Redemption  Price  per  share in cash  equal to the then  effective
Liquidation   Preference  (after  giving  effect  to  the  Special  Payment,  if
applicable),  plus accrued and unpaid  dividends  thereon from the last Dividend
Payment Date to the Mandatory Redemption Date.

     (c) In the event of a redemption or repurchase of fewer than all the shares
of Series B  Preferred  Stock,  the shares of Series B  Preferred  Stock will be
chosen for redemption by the Registrar from the  Outstanding  shares of Series B
Preferred  Stock not  previously  called for  redemption,  pro rata based on the
number of shares of Series B Preferred Stock held by each holder; PROVIDED, that
the Company may redeem (an  --------  "Odd-lot  Redemption")  all shares held by
holders of fewer than 100 shares of Series B Preferred Stock (or by holders that
would  hold fewer than 100 shares of Series B  Preferred  Stock  following  such
redemption) prior to its redemption of other shares of Series B Preferred Stock;
PROVIDED, FURTHER, that the Company may not redeem a -------- ------- portion of
any share without  redeeming  the entire share.  If fewer than all the shares of
Series B  Preferred  Stock  represented  by any share  certificate  are so to be
redeemed,  (i) the  Company  shall  issue a new  certificate  for the shares not
redeemed  and  (ii) if any  shares  represented  thereby  are  converted  before
termination of the conversion right with respect to such shares,  such converted
shares shall be deemed (so far as may be) to be the shares  represented  by such
share certificate that was selected for redemption. Shares of Series B Preferred
Stock  that  have  been  converted  during a  selection  of  shares  of Series B
Preferred  Stock to be redeemed shall be treated by the Registrar as outstanding
for the purpose of such  selection but not for the purpose of the payment of the
Redemption Price.

     (d) In the event the Company elects to effect an Optional  Redemption,  the
Company shall (i) make a public  announcement  of the redemption and (ii) give a
redemption  notice  (the  "Redemption  Notice") to the holders not fewer than 30
days nor more than 60 days before the redemption date (the  "Redemption  Date").
Whenever a Redemption  Notice is required to be  delivered to the holders,  such
notice shall provide the information set forth below and be given by first class
mail, postage prepaid to each holder of shares of Series B Preferred Stock to be
redeemed,  at such holder's  address  appearing in the Series B Preferred  Share
Register. All Redemption Notices shall identify the shares of Series B Preferred
Stock to be redeemed (including CUSIP number) and shall state:

            (i)   the Redemption Date;

                                        9
<PAGE>

            (ii)  the applicable Redemption Price;

            (iii) if fewer than all the outstanding shares of Series B Preferred
      Stock are to be redeemed,  the identification (and, in the case of partial
      redemption, the certificate number, the total number of shares represented
      thereby and the number of such  shares  being  redeemed on the  Redemption
      Date) of the particular shares of Series B Preferred Stock to be redeemed;

            (iv) that on the Redemption  Date, the  Redemption  Price,  together
      with all accrued and unpaid  dividends from the last Dividend Payment Date
      to the Redemption  Date,  will become due and payable upon each such share
      of Series B Preferred Stock to be redeemed and that dividends thereon will
      cease to accrue on and after said date;

            (v) the  conversion  price,  the date on which the right to  convert
      shares of Series B Preferred  Stock to be redeemed will  terminate and the
      place or places  where  such  shares of  Series B  Preferred  Stock may be
      surrendered for conversion; and

            (vi) the place or places  where  such  shares of Series B  Preferred
      Stock are to be surrendered  for payment of the  Redemption  Price and the
      other amounts which are then payable.

            The  Redemption  Notice  shall be given by the  Company  or,  at the
Company's  request,  by the  Registrar  in the  name and at the  expense  of the
Company;  PROVIDED  that if the  Company  so  requests,  it  shall  provide  the
Registrar adequate time, as reasonably  determined by the Registrar,  to deliver
such notices in a timely fashion.

     (e) Prior to any  Redemption  Date,  the  Company  shall  deposit  with the
Registrar or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust) an amount of consideration sufficient to pay
the Redemption  Price of all the shares of Series B Preferred  Stock that are to
be redeemed on that date plus all accrued and unpaid dividends  thereon from the
last  Dividend  Payment Date to the  Redemption  Date.  If any share of Series B
Preferred Stock called for redemption is converted,  any consideration deposited
with the Registrar or with any Paying Agent or so  segregated  and held in trust
for the  redemption  of such share of Series B Preferred  Stock shall be paid or
delivered  to the Company  upon  Company  Order or, if then held by the Company,
shall be discharged from such trust.

     (f) Notice of  redemption  having  been given as  aforesaid,  the shares of
Series B Preferred Stock so to be redeemed shall, on the Redemption Date, become
due and payable at the Redemption  Price therein  specified plus all accrued and
unpaid  dividends  thereon from the last Dividend Payment Date to the Redemption
Date,  and from and after such date  (unless  the Company  shall  default in the
payment of the Redemption Price and accrued but unpaid  dividends)  dividends on
such  shares of Series B  Preferred  Stock shall cease to accrue and such shares
shall cease to be convertible into shares of Common Stock. Upon surrender of any
such shares of Series B Preferred  Stock for redemption in accordance  with said
notice, such shares of Series B Preferred Stock shall be redeemed by the Company
at the  applicable  Redemption  Price,  together  with all  accrued  and  unpaid
dividends thereon from the last Dividend Payment Date to the Redemption Date. If
any share of Series B Preferred Stock called for redemption shall not be so paid

                                       10
<PAGE>

upon surrender  thereof for redemption,  the Redemption  Price thereof,  and all
accrued and unpaid dividends  thereon from the last Dividend Payment Date to the
Redemption  Date,  shall,  until paid, bear interest from the Redemption Date at
the dividend rate payable on the shares of Series B Preferred Stock.

     (g) Any  certificate  that  represents  more  than one  share  of  Series B
Preferred  Stock and is to be redeemed only in part shall be  surrendered at any
office  or agency of the  Company  designated  for that  purpose  (with,  if the
Company  or  the  Registrar  so  requires,  due  endorsement  by,  or a  written
instrument  of transfer in form  satisfactory  to the Company and the  Registrar
duly  executed  by,  the holder  thereof  or his  attorney  duly  authorized  in
writing), and the Company shall execute, and the Registrar shall countersign and
deliver to the holder of such share of Series B Preferred  Stock without service
charge, a new Series B Preferred Stock certificate or certificates, representing
any number of shares of Series B Preferred Stock as requested by such holder, in
aggregate  amount equal to and in exchange for the number of shares not redeemed
and represented by the Series B Preferred Stock certificate so surrendered.

     (h) If a share of Series B  Preferred  Stock is  redeemed  subsequent  to a
Dividend  Record Date with respect to any Dividend  Payment Date and on or prior
to such Dividend  Payment Date, then any  Accumulated  Dividends will be paid to
the person in whose name such share of Series B Preferred Stock is registered at
the close of business on such Dividend Record Date.

     11. METHOD OF PAYMENTS.  The Company may make any dividend payments in cash
with respect to any period after the Fifth  Anniversary  Date. Any dividends not
paid in cash on a current  basis on the  applicable  Dividend  Payment Date with
respect to all periods after the Fifth  Anniversary Date, and all dividends with
respect to the periods prior to the Fifth Anniversary Date, shall not be paid in
cash but rather shall constitute Accumulated  Dividends.  No payment may be made
in respect of Accumulated  Dividends.  Rather,  Accumulated  Dividends  shall be
added to the  Liquidation  Preference.  Dividends may not be paid by delivery of
shares of Series B Preferred Stock.

     12.  CONVERSION.  (a) Subject to and upon compliance with the provisions of
this Certificate of Designation,  at the option of the holder thereof, any share
of Series  B-1  Preferred  Stock may be  converted  at any time into a number of
fully  paid and  nonassessable  shares of Common  Stock  (calculated  as to each
conversion  to the  nearest  1/100  of a  share)  equal  to the  then  effective
Liquidation  Preference thereof plus accrued and unpaid dividends to the date of
conversion  divided by the Conversion Price in effect at the time of conversion.
Such conversion  right shall expire at the close of business on the Business Day
next preceding the Mandatory  Redemption Date unless the Company defaults on the
payment  due on  redemption.  In case a share of Series B-1  Preferred  Stock is
called for redemption,  such conversion  right in respect of the share so called
shall  expire at the close of business on the Business  Day next  preceding  the
Redemption  Date,  unless the  Company  defaults  in making the payment due upon
redemption.

            The Conversion  Price shall be initially  $46.25 per share of Common
Stock. The Conversion  Price shall be adjusted in certain  instances as provided
in Section 12(d) and Section 12(e) hereof.

                                       11
<PAGE>

     (b) In order to exercise the conversion privilege,  the holder of any share
of Series B-1 Preferred  Stock to be converted  shall  surrender the certificate
for such share,  duly  endorsed  or assigned to the Company or in blank,  at any
office or agency of the Company  maintained  for that  purpose,  accompanied  by
written notice to the Company at such office or agency that the holder elects to
convert  such share or, if fewer  than all the  shares of Series  B-1  Preferred
Stock represented by a single share certificate are to be converted,  the number
of shares represented thereby to be converted.

            Shares of Series B-1  Preferred  Stock  shall be deemed to have been
converted  immediately prior to the close of business on the day of surrender of
such shares for conversion in accordance with the foregoing  provisions,  and at
such time the rights of the holders of such shares as holders  shall cease,  and
the person or persons  entitled to receive the shares of Common  Stock  issuable
upon  conversion  shall be treated  for all  purposes  as the  record  holder or
holders of such shares of Common Stock at such time. As promptly as  practicable
on or after the  conversion  date,  the Company shall issue and shall deliver at
such  office or agency a  certificate  or  certificates  for the  number of full
shares of Common Stock issuable upon  conversion,  together with payment in lieu
of any fraction of a share, as provided in Section 12(c).

            In the case of any conversion of fewer than all the shares of Series
B-1 Preferred Stock evidenced by a certificate, upon such conversion the Company
shall  execute and the  Registrar  shall  countersign  and deliver to the holder
thereof,  at the  expense of the  Company,  a new  certificate  or  certificates
representing the number of unconverted shares of Series B-1 Preferred Stock.

     (c) No  fractional  shares  of  Common  Stock  shall  be  issued  upon  the
conversion of a share of Series B-1 Preferred  Stock.  If more than one share of
Series B-1 Preferred  Stock shall be  surrendered  for conversion at one time by
the same  holder,  the  number of full  shares of Common  Stock  which  shall be
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Series B-1 Preferred  Stock so  surrendered.  Instead of any
fractional  shares of Common  Stock  which  would  otherwise  be  issuable  upon
conversion of any share of Series B-1 Preferred  Stock,  the Company shall pay a
cash  adjustment  in respect  of such  fraction  in an amount  equal to the same
fraction of the closing price (as defined in Section 12(d)(vi)) per Common Share
at the close of business on the Business Day prior to the day of conversion.

     (d) For  purposes of this Section  12(d),  all  references  to Common Stock
shall be  deemed to  include  Series C  Preferred  Stock of the  Company  (on an
as-converted basis). The Conversion Price shall be adjusted from time to time by
the Company as follows:

            (i)  If  the  Company  shall  hereafter  pay a  dividend  or  make a
      distribution to all holders of the  outstanding  shares of Common Stock in
      shares of Common Stock,  the Conversion  Price in effect at the opening of
      business on the date  following  the date fixed for the  determination  of
      shareholders entitled to receive such dividend or other distribution shall
      be reduced by multiplying  such Conversion Price by a fraction of that the
      numerator shall be the number of shares of Common Stock outstanding at the
      close of business on the Common  Stock  Record Date (as defined in Section
      12(d)(vi)) fixed for such  determination  and the denominator shall be the
      sum of such number of shares and the total  number of shares  constituting

                                       12
<PAGE>

      such dividend or other  distribution,  such reduction to become  effective
      immediately  after the opening of business on the day following the Common
      Stock Record Date. If any dividend or  distribution  of the type described
      in this  Section  12(d)(i)  is  declared  but not so  paid  or  made,  the
      Conversion  Price shall again be  adjusted to the  Conversion  Price which
      would  then be in effect if such  dividend  or  distribution  had not been
      declared.

            (ii) (a) In case the Company  shall  issue or sell any Common  Stock
      (other than Common Stock issued (A) pursuant to the Company's  existing or
      future  stock  option  plans or pursuant  to any other  existing or future
      Common Stock-related director or employee compensation plan of the Company
      approved  by the  Board of  Directors,  (B)  other  than  pursuant  to the
      Company's existing or future stock purchase plans approved by the Board of
      Directors which permit Company employees to purchase Common Stock at a 15%
      discount,  (C) as  consideration  for the  acquisition of a business or of
      assets, (D) in a firm commitment  underwritten public offering when either
      (i) the underwriting  discount is less than 5%, or (ii) the offering price
      per share is greater than the Conversion Price, (E) to the Company's joint
      venture  partners in exchange for interests in the relevant joint venture,
      or (F) upon  exercise or  conversion of any security the issuance of which
      caused an  adjustment  hereunder  or the issuance of which did not require
      adjustment  hereunder)  without  consideration or for a consideration  per
      share less than the Current Market Price on the date of such issuance,  or
      shall issue  securities  convertible into Common Stock having a conversion
      price per share less than the Current Market Price at the date of issuance
      of such convertible  security,  the Conversion Price to be in effect after
      such issuance or sale shall be determined by  multiplying  the  Conversion
      Price in effect  immediately prior to such issuance or sale by a fraction,
      (1) the numerator of which shall be the sum of (x) the number of shares of
      Common Stock  outstanding  immediately  prior to such issuance or sale and
      (y) the number of shares of Common Stock which the aggregate consideration
      receivable  by the Company for the total  number of  additional  shares of
      Common Stock so issued or sold (or issuable on conversion)  would purchase
      at the Current Market Price in effect  immediately  prior to such issuance
      or sale and (2) the denominator of which shall be the sum of the number of
      shares of Common Stock  outstanding  immediately prior to such issuance or
      sale and the number of  additional  shares of Common Stock to be issued or
      sold (or, in the case of convertible securities, issued on conversion). In
      case any portion of the  consideration to be received by the Company shall
      be in a form  other  than  cash,  the fair  market  value of such  noncash
      consideration  shall be utilized in the foregoing  computation.  Such fair
      market value shall be determined in good faith by the Board of Directors.

            (b) If the Company shall offer or issue options,  rights or warrants
      to all holders of its outstanding shares of Common Stock entitling them to
      subscribe for or purchase shares of Common Stock at a price per share less
      than the Current  Market  Price (as defined in Section  12(d)(vi))  on the
      Common  Stock  Record  Date fixed for the  determination  of  shareholders
      entitled to receive such rights or warrants, the Conversion Price shall be
      adjusted so that the same shall equal the price  determined by multiplying
      the  Conversion  Price in effect at the  opening of  business  on the date
      after such Common Stock  Record Date by a fraction of which the  numerator

                                       13
<PAGE>

      shall be the number of shares of Common Stock  outstanding at the close of
      business  on the  Common  Stock  Record  Date plus the number of shares of
      Common  Stock which the  aggregate  offering  price of the total number of
      shares of Common Stock subject to such options,  rights or warrants  would
      purchase at such Current Market Price and of which the  denominator  shall
      be the  number  of  shares of  Common  Stock  outstanding  at the close of
      business  on the  Common  Stock  Record  Date  plus the  total  number  of
      additional  shares of Common  Stock  subject  to such  options,  rights or
      warrants  for  subscription  or  purchase.  Such  adjustment  shall become
      effective  immediately  after the opening of business on the day following
      the Common  Stock  Record  Date fixed for  determination  of  shareholders
      entitled to purchase or receive such options,  rights or warrants.  To the
      extent  that  shares of Common  Stock are not  delivered  pursuant to such
      options,  rights or warrants,  upon the  expiration or termination of such
      options,  rights or warrants the Conversion  Price shall again be adjusted
      to be  the  Conversion  Price  which  would  then  be in  effect  had  the
      adjustments  made upon the  issuance of such  options,  rights or warrants
      been made on the basis of  delivery of only the number of shares of Common
      Stock actually delivered.  If such options,  rights or warrants are not so
      issued,  the Conversion Price shall again be adjusted to be the Conversion
      Price  which  would  then  be  in  effect  if  such  date  fixed  for  the
      determination of shareholders entitled to receive such options,  rights or
      warrants had not been fixed. In determining whether any options, rights or
      warrants entitle the holders to subscribe for or purchase shares of Common
      Stock at less than such  Current  Market  Price,  and in  determining  the
      aggregate  offering  price of such shares of Common Stock,  there shall be
      taken into account (x) any consideration received for such options, rights
      or warrants,  with the value of such  consideration and the amount of such
      exercise or  subscription  price,  if other than cash, to be determined by
      the  Board  of  Directors  and (y) the  amount  of any  exercise  price or
      subscription  price  required to be paid upon  exercise  of such  options,
      warrants or rights.

            (iii) If the outstanding  shares of Common Stock shall be subdivided
      into a greater number of shares of Common Stock,  the Conversion  Price in
      effect at the opening of business on the day  following the day upon which
      such subdivision becomes effective shall be proportionately  reduced, and,
      conversely,  if the  outstanding  shares of Common Stock shall be combined
      into a smaller number of shares of Common Stock,  the Conversion  Price in
      effect at the opening of business on the day  following the day upon which
      such combination  becomes  effective shall be  proportionately  increased,
      such  reduction  or  increase,  as the case may be,  to  become  effective
      immediately  after the opening of business  on the day  following  the day
      upon which such subdivision or combination becomes effective.

            (iv) If the Company shall,  by dividend or otherwise,  distribute to
      all  holders of its shares of Common  Stock any class of capital  stock of
      the Company  (other than any dividends or  distributions  to which Section
      12(d)(i) applies) or evidences of its  indebtedness,  cash or other assets
      (including  securities,  but  excluding  any rights or  warrants of a type
      referred to in Section  12(d)(ii)(b) and dividends and distributions  paid
      exclusively  in  cash  and  excluding  any  capital  stock,  evidences  of
      indebtedness, cash or assets distributed upon a merger or consolidation to
      which Section 12(e)  applies) (the  foregoing  hereinafter in this Section
      12(d)(iv) called the "Distributed  Securities"),  then, in each such case,
      the  Conversion  Price shall be reduced so that the same shall be equal to

                                       14
<PAGE>

      the  price  determined  by  multiplying  the  Conversion  Price in  effect
      immediately prior to the close of business on the Common Stock Record Date
      (as defined in Section  12(d)(vi)) with respect to such  distribution by a
      fraction  of  which  the  numerator  shall  be the  Current  Market  Price
      (determined  as provided in Section  12(d)(vi)) on such date less the fair
      market value (as  determined by the Board of  Directors,  whose good faith
      determination  shall be  conclusive  and  described in a resolution of the
      Board  of  Directors)  on such  date  of the  portion  of the  Distributed
      Securities so distributed  applicable to one share of Common Stock and the
      denominator  shall be such Current Market Price,  such reduction to become
      effective  immediately  prior  to the  opening  of  business  on  the  day
      following the Common Stock Record Date;  PROVIDED,  HOWEVER,  that, in the
      event the then fair market value (as so  determined) of the portion of the
      Distributed  Securities so  distributed  applicable to one share of Common
      Stock is equal to or greater  than the Current  Market Price on the Common
      Stock Record Date, in lieu of the foregoing adjustment, adequate provision
      shall be made so that each  holder of shares of Series B  Preferred  Stock
      shall have the right to  receive  upon  conversion  of a share of Series B
      Preferred  Stock  (or any  portion  thereof)  the  amount  of  Distributed
      Securities such holder would have received had such holder  converted such
      share of Series B Preferred Stock (or portion thereof)  immediately  prior
      to such Common Stock Record Date. If such dividend or  distribution is not
      so paid or made,  the  Conversion  Price shall again be adjusted to be the
      Conversion  Price  which  would  then be in  effect  if such  dividend  or
      distribution had not been declared.  If the Board of Directors  determines
      the fair market  value of any  distribution  for  purposes of this Section
      12(d)(iv) by reference to the actual or when issued trading market for any
      securities constituting all or part of such distribution, it must in doing
      so  consider  the  prices  in such  market  over the same  period  used in
      computing the Current  Market Price  pursuant to Section  12(d)(vi) to the
      extent possible.

            Options,  rights  or  warrants  distributed  by the  Company  to all
      holders  of  shares of Common  Stock  entitling  the  holders  thereof  to
      subscribe for or purchase  shares of the  Company's  capital stock (either
      initially  or under  certain  circumstances),  which  options,  rights  or
      warrants,  until the occurrence of a specified event or events  ("Dilution
      Trigger  Event"):  (A) are deemed to be  transferred  with such  shares of
      Common Stock; (B) are not exercisable;  and (C) are also issued in respect
      of future issuances of shares of Common Stock, shall be deemed not to have
      been distributed for purposes of this Section 12(d)(iv) (and no adjustment
      to the Conversion  Price under this Section  12(d)(iv)  shall be required)
      until the occurrence of the earliest  Dilution  Trigger  Event,  whereupon
      such options, rights and warrants shall be deemed to have been distributed
      and an appropriate  adjustment to the Conversion  Price under this Section
      12(d)(iv)  shall  be  made.  If any  such  options,  rights  or  warrants,
      including any such existing options,  rights or warrants distributed prior
      to the first issuance of shares of Series B-1 Preferred Stock, are subject
      to subsequent  events,  upon the occurrence of each of which such options,
      rights  or  warrants  shall  become   exercisable  to  purchase  different
      securities, evidences of indebtedness or other assets, then the occurrence
      of each such event shall be deemed to be such date of issuance  and record
      date with respect to new options, rights or warrants (and a termination or
      expiration of the existing options,  rights or warrants,  without exercise
      by the holder thereof).  In addition, in the event of any distribution (or
      deemed  distribution)  of options,  rights or  warrants,  or any  Dilution
      Trigger  Event with  respect  thereto,  that was counted  for  purposes of
      calculating  a  distribution   amount  for  which  an  adjustment  to  the
      Conversion Price under this Section 12(d) was made, (1) in the case of any
      such  options,  rights or warrants  which shall all have been  redeemed or
      repurchased without exercise by any holders thereof,  the Conversion Price
      shall be  readjusted  upon such final  redemption  or  repurchase  to give

                                       15
<PAGE>

      effect to such distribution or Dilution Trigger Event, as the case may be,
      as though it were a cash  distribution,  equal to the per share redemption
      or  repurchase  price  received by a holder or holders of shares of Common
      Stock with  respect to such  options,  rights or warrants  (assuming  such
      holder had retained such options, rights or warrants), made to all holders
      of shares of Common Stock as of the date of such redemption or repurchase,
      and (2) in the case of such options,  rights or warrants  which shall have
      expired or been terminated  without exercise by any holders  thereof,  the
      Conversion  Price  shall be  readjusted  as if such  options,  rights  and
      warrants had not been issued.

            Notwithstanding any other provision of this Section 12(d)(iv) to the
      contrary,  options,  rights,  warrants,  evidences of indebtedness,  other
      securities,  cash or other  assets  (including,  without  limitation,  any
      rights  distributed  pursuant  to any  shareholder  rights  plan) shall be
      deemed not to have been distributed for purposes of this Section 12(d)(iv)
      if the Company  makes  proper  provision  so that each holder of shares of
      Series B-1  Preferred  Stock who converts a share of Series B-1  Preferred
      Stock (or any portion  thereof) after the date fixed for  determination of
      shareholders  entitled to receive such  distribution  shall be entitled to
      receive  upon such  conversion,  in addition to the shares of Common Stock
      issuable upon such conversion,  the amount and kind of such  distributions
      that such holder  would have been  entitled to receive if such holder had,
      immediately  prior to such  determination  date,  converted  such share of
      Series B-1 Preferred Stock into a share of Common Stock.

            For purposes of this  Section  12(d)(iv)  and Sections  12(d)(i) and
      (ii),  any dividend or  distribution  to which this  Section  12(d)(iv) is
      applicable that also includes  shares of Common Stock, or options,  rights
      or warrants to subscribe  for or purchase  shares of Common Stock to which
      Section 12(d)(ii)  applies (or both),  shall be deemed instead to be (A) a
      dividend or distribution of the evidences of indebtedness,  assets, shares
      of capital  stock,  rights or  warrants  other than such  shares of Common
      Stock or options,  rights or warrants to which Section  12(d)(ii)  applies
      (and any Conversion  Price  reduction  required by this Section  12(d)(iv)
      with  respect  to such  dividend  or  distribution  shall  then  be  made)
      immediately  followed by (B) a dividend or  distribution of such shares of
      Common  Stock  or such  options,  rights  or  warrants  (and  any  further
      Conversion Price reduction required by Sections 12(d)(i) or 12(d)(ii) with
      respect to such dividend or distribution shall then be made),  except that
      (1) the Common Stock Record Date of such dividend or distribution shall be
      substituted  as "the date  fixed  for the  determination  of  stockholders
      entitled  to receive  such  dividend or other  distribution",  "the Common
      Stock  Record Date fixed for such  determination"  and "the  Common  Stock
      Record Date" within the meaning of Section 12(d)(i) and as "the date fixed
      for the  determination of shareholders  entitled to receive such rights or
      warrants",  "the Common Stock Record Date fixed for the  determination  of
      the share  holders  entitled to receive such rights or warrants" and "such
      Common Stock Record Date" for purposes of Section  12(d)(ii),  and (2) any
      shares of Common Stock included in such dividend or distribution shall not
      be deemed "outstanding at the close of business on the date fixed for such
      determination" for the purposes of Section 12(d)(i).

                                       16
<PAGE>

            (v) If a tender offer made by the Company or any of its subsidiaries
      for all or any portion of the Common  Stock  expires and such tender offer
      (as  amended  upon  the  expiration   thereof)  requires  the  payment  to
      shareholders  (based on the acceptance (up to any maximum specified in the
      terms  of  the  tender  offer)  of  Purchased   Shares)  of  an  aggregate
      consideration  having a fair market value (as  determined  by the Board of
      Directors,   whose  good  faith  determination  shall  be  conclusive  and
      described  in a  resolution  of the  Board of  Directors)  that,  combined
      together with (A) the aggregate of the cash plus the fair market value (as
      determined by the Board of Directors, whose good faith determination shall
      be conclusive and described in a resolution of the Board of Directors), as
      of the  expiration  of such  tender  offer,  of  consideration  payable in
      respect  of  any  other  tender  offers,  by  the  Company  or  any of its
      subsidiaries for all or any portion of the shares of Common Stock expiring
      within the 12 months  preceding the expiration of such tender offer and in
      respect of which no adjustment  pursuant to this Section 12(d)(v) has been
      made  exceeds 5% of the income of the  Company  reported  for the 12 month
      period  ending  with  the  fiscal  quarter  next  preceding  such  payment
      (determined as of the last time (the "Expiration Time") tenders could have
      been made pursuant to such tender offer (as it may be amended))  times the
      number of  shares of Common  Stock  outstanding  (including  any  tendered
      shares) at the Expiration Time,  then, and in each such case,  immediately
      prior  to the  opening  of  business  on the  day  after  the  date of the
      Expiration  Time, the Conversion  Price shall be adjusted so that the same
      shall equal the price  determined by multiplying  the Conversion  Price in
      effect  immediately  prior  to the  close of  business  on the date of the
      Expiration  Time by a fraction of which the numerator  shall be the number
      of shares of Common Stock  outstanding  (including any tendered shares) at
      the Expiration  Time  multiplied by the Current Market Price of the shares
      of Common Stock on the trading day next succeeding the Expiration Time and
      the denominator  shall be the sum of (x) the fair market value (determined
      as aforesaid) of the aggregate consideration payable to shareholders based
      on the acceptance (up to any maximum  specified in the terms of the tender
      offer)  of  all  shares  validly  tendered  and  not  withdrawn  as of the
      Expiration  Time (the shares  deemed so accepted,  up to any such maximum,
      being  referred to as the  "Purchased  Shares") and (y) the product of the
      number of shares of Common Stock  outstanding  (less any Purchased Shares)
      at the  Expiration  Time and the  Current  Market  Price of the  shares of
      Common Stock on the trading day next succeeding the Expiration  Time, such
      reduction (if any) to become effective immediately prior to the opening of
      business  on the day  following  the  Expiration  Time.  If the Company is
      obligated to purchase  shares  pursuant to any such tender offer,  but the
      Company is permanently prevented by applicable law from effecting any such
      purchases or all such purchases are rescinded,  the Conversion Price shall
      again be adjusted to be the Conversion Price which would then be in effect
      if such tender offer had not been made. If the application of this Section
      12(d)(v) to any tender offer would result in an increase in the Conversion
      Price,  no  adjustment  shall be made for such  tender  offer  under  this
      Section 12(d)(v).

            (vi) For purposes of this Section 12(d),  the following  terms shall
      have the meaning indicated:

            "CLOSING  PRICE" with respect to any securities on any day means the
closing  price as of 4:00 p.m.  Eastern  Time on such day or any  earlier  final
closing on such day or, if no such sale takes place on such day,  the average of

                                       17
<PAGE>

the  reported  high and low  prices  on such  day,  in each  case on the  Nasdaq
National  Market,  or the New York Stock  Exchange,  as applicable,  or, if such
security  is not  listed or  admitted  to  trading  on such  national  market or
exchange, on the national stock exchange or Commission recognized trading market
in the United  States on which such  security is quoted or listed or admitted to
trading,  or, if not quoted or listed or  admitted  to  trading on any  national
stock exchange or Commission recognized trading market in the United States, the
average  of the high and low  prices of such  security  on the  over-the-counter
market on the day in  question  as reported  by the  National  Quotation  Bureau
Incorporated or a similar  generally  accepted  reporting  service in the United
States,  or, if not so  available,  in such manner as  furnished by any New York
Stock Exchange  member firm selected from time to time by the Board of Directors
for that purpose, or a price determined in good faith by the Board of Directors,
whose  determination  shall be  conclusive  and described in a resolution of the
Board of Directors.

            "COMMON  STOCK  RECORD DATE"  means,  with respect to any  dividend,
distribution or other  transaction or event in which the holders of Common Stock
have the right to receive any cash, securities or other property or in which the
Common Stock (or other  applicable  security) is exchanged for or converted into
any  combination  of cash,  securities  or other  property,  the date  fixed for
determination of shareholders entitled to receive such cash, securities or other
property  (whether  such date is fixed by the Board of  Directors or by statute,
contract or otherwise).

            "CURRENT MARKET PRICE" means the average of the daily closing prices
per share of Common Stock for the 10 consecutive  trading days immediately prior
to the date in  question;  PROVIDED,  HOWEVER,  that  (A) if the  "ex"  date (as
hereinafter  defined)  for any event  (other than the  issuance or  distribution
requiring such  computation) that requires an adjustment to the Conversion Price
pursuant to Section 12(d)(i),  (ii), (iii),  (iv), and (v) occurs during such 10
consecutive  trading  days,  the closing price for each trading day prior to the
"ex" date for such other event shall be adjusted  by  multiplying  such  closing
price by the same  fraction by which the  Conversion  Price is so required to be
adjusted  as a result of such  other  event,  (B) if the "ex" date for any event
(other than the  issuance  or  distribution  requiring  such  computation)  that
requires an adjustment to the  Conversion  Price  pursuant to Section  12(d)(i),
(ii),  (iii),  (iv), or (v) occurs on or after the "ex" date for the issuance or
distribution  requiring such  computation and prior to the day in question,  the
closing  price for each  trading  day on and after the "ex" date for such  other
event shall be adjusted by  multiplying  such closing price by the reciprocal of
the  fraction by which the  Conversion  Price is so required to be adjusted as a
result  of such  other  event  and (C) if the  "ex"  date  for the  issuance  or
distribution  requiring such computation is prior to the day in question,  after
taking into  account any  adjustment  required  pursuant to clause (A) or (B) of
this proviso,  the closing price for each trading day on or after such "ex" date
shall be adjusted  by adding  thereto the amount of any cash and the fair market
value (as determined by the Board of Directors in a manner  consistent  with any
good faith determination of such value for purposes of Section 12(d)(iv) or (v),
whose good faith determination shall be conclusive and described in a resolution
of the Board of Directors) of the evidences of  indebtedness,  shares of capital
stock or assets being distributed  applicable to one share of Common Stock as of
the close of  business  on the day before  such "ex" date.  For  purposes of any
computation under Section  12(d)(v),  the Current Market Price on any date shall
be deemed to be the  average  of the daily  closing  prices  per share of Common
Stock for such day and the next two succeeding trading days; PROVIDED,  HOWEVER,
that, if the "ex" date for any event (other than the tender offer requiring such
computation)  that requires an adjustment to the  Conversion  Price  pursuant to
Section 12(d)(i),  (ii),  (iii),  (iv), or (v) occurs on or after the Expiration

                                       18
<PAGE>

Time for the tender or exchange offer  requiring such  computation  and prior to
the day in  question,  the closing  price for each  trading day on and after the
"ex" date for such other event shall be adjusted  by  multiplying  such  closing
price by the  reciprocal  of the  fraction by which the  Conversion  Price is so
required to be adjusted as a result of such other  event.  For  purposes of this
paragraph,  the term "ex" date (1) when used with  respect  to any  issuance  or
distribution,  means the first  date on which the shares of Common  Stock  trade
regular way on the relevant  exchange or in the  relevant  market from which the
closing  price was  obtained  without  the right to  receive  such  issuance  or
distribution,  (2) when used with respect to any  subdivision  or combination of
shares of Common Stock, means the first date on which the shares of Common Stock
trade  regular way on such  exchange  or in such market  after the time at which
such subdivision or combination becomes effective and (3) when used with respect
to any  tender or  exchange  offer  means the first  date on which the shares of
Common  Stock  trade  regular way on such  exchange or in such market  after the
Expiration  Time  of  such  offer.   Notwithstanding  the  foregoing,   whenever
successive  adjustments to the Conversion  Price are called for pursuant to this
Section 12(d), such adjustments shall be made to the Current Market Price as may
be necessary or  appropriate  to effectuate the intent of this Section 12(d) and
to avoid unjust or inequitable results, as determined in good faith by the Board
of Directors.

            "FAIR MARKET VALUE" means the amount which a willing buyer would pay
a willing seller in an arm's-length transaction.

            (vii) No adjustment in the Conversion Price shall be required unless
      such  adjustment  would  require an increase or decrease of at least 1% in
      such price;  provided,  however,  that any adjustments  which by reason of
      this  Section  12(d)(viii)  are not  required  to be made shall be carried
      forward  and  taken  into  account  in  any  subsequent  adjustment.   All
      calculations  under this Section 12 shall be made by the Company and shall
      be made to the nearest cent.  No  adjustment  need be made for a change in
      the par value or no par value of the Common Stock.

            (viii) Whenever the Conversion Price is adjusted as herein provided,
      the  Company   shall   promptly  file  with  the  Registrar  an  Officers'
      Certificate  setting forth the Conversion  Price after such adjustment and
      setting forth a brief  statement of the facts  requiring such  adjustment.
      Promptly after delivery of such  certificate,  the Company shall prepare a
      notice  of such  adjustment  of the  Conversion  Price  setting  forth the
      adjusted  Conversion  Price and the date on which each adjustment  becomes
      effective and shall mail such notice of such  adjustment of the Conversion
      Price to each  holder  of shares of  Series  B-1  Preferred  Stock at such
      holder's last address appearing on the register of holders  maintained for
      that  purpose  within 20 days of the  effective  date of such  adjustment.
      Failure to deliver  such notice  shall not affect the legality or validity
      of any such adjustment.

            (ix) In any  case in  which  this  Section  12(d)  provides  that an
      adjustment shall become effective  immediately after a Common Stock Record
      Date for an event,  the  Company may defer  until the  occurrence  of such
      event  issuing to the holder of any share of Series  B-1  Preferred  Stock

                                       19
<PAGE>

      converted after such Common Stock Record Date and before the occurrence of
      such  event  the  additional  shares of Common  Stock  issuable  upon such
      conversion  by reason of the  adjustment  required  by such event over and
      above the shares of Common  Stock  issuable  upon such  conversion  before
      giving effect to such adjustment.

            (x) For  purposes  of this  Section  12(d),  the number of shares of
      Common Stock at any time outstanding  shall not include shares held in the
      treasury of the  Company.  The Company  shall not pay any dividend or make
      any  distribution  on shares of Common  Stock held in the  treasury of the
      Company.

            (e) Subject to Section 13 hereof,  in case of any  consolidation  of
the Company with, or merger of the Company into,  any other  corporation,  or in
case of any merger of another  corporation into the Company (other than a merger
that  does  not  result  in  any  reclassification,   conversion,   exchange  or
cancellation of outstanding  shares of Common Stock of the Company),  or in case
of any sale,  conveyance or transfer of all or  substantially  all the assets of
the Company,  the holder of each share of Series B-1 Preferred  Stock shall have
the right thereafter, during the period such share of Series B-1 Preferred Stock
shall be  convertible  as specified in Section  12(a),  to convert such share of
Series B-1  Preferred  Stock into the kind and  amount of  securities,  cash and
other  property  receivable  upon  such  consolidation,  merger,  conveyance  or
transfer  by a holder of the  number of shares of shares of Common  Stock of the
Company  into which such share of Series  B-1  Preferred  Stock  might have been
converted  immediately  prior  to  such  consolidation,  merger,  conveyance  or
transfer,  assuming such holder of shares of Common Stock of the Company  failed
to  exercise  his  rights  of  election,  if any,  as to the kind or  amount  of
securities, cash and other property receivable upon such consolidation,  merger,
conveyance or transfer (PROVIDED that, if the kind or amount of securities, cash
and other property  receivable upon such  consolidation,  merger,  conveyance or
transfer  is not the same  for each  share of  Common  Stock of the  Company  in
respect  of  which  such  rights  of  election  shall  not have  been  exercised
("nonelecting  share"),  then for the  purpose  of this  Section 12 the kind and
amount  of   securities,   cash  and  other   property   receivable   upon  such
consolidation, merger, conveyance or transfer by each nonelecting share shall be
deemed to be the kind and amount so  receivable  per share by a plurality of the
nonelecting  shares).  Such securities shall provide for adjustments  which, for
events  subsequent to the effective  date of the triggering  event,  shall be as
nearly equivalent as may be practicable to the adjustments  provided for in this
Section 12. The above  provisions  of this Section 12 shall  similarly  apply to
successive consolidations, mergers, conveyances or transfers.

            (f) In case:

            (i) the Company shall declare a dividend (or any other distribution)
      on its  Common  Stock  payable  otherwise  than in cash out of its  earned
      surplus; or

            (ii) the Company shall  authorize the granting to all holders of its
      shares of Common Stock of rights or warrants to subscribe  for or purchase
      any shares of capital stock of any class or of any other rights; or

            (iii) of any  reclassification  of the Common  Stock  (other  than a
      subdivision or combination of the Company's  outstanding  shares of Common
      Stock),  or of any consolidation or merger to which the Company is a party

                                       20
<PAGE>

      and for which approval of any shareholders of the Company is required,  or
      the sale, conveyance or transfer of all or substantially all the assets of
      the Company; or

            (iv) of the voluntary or  involuntary  dissolution,  liquidation  or
      winding-up of the Company;

then the Company  shall cause to be filed with the  Registrar and at each office
or agency  maintained  for the  purpose  of  conversion  of shares of Series B-1
Preferred  Stock,  and shall  cause to be mailed to all  holders  at their  last
addresses  as they  shall  appear in the shares of Series  B-1  Preferred  Stock
Register,  at least 20 Business Days (or 10 Business Days in any case  specified
in clause (i) or (ii) above) prior to the applicable date hereinafter specified,
a notice  stating  (x) the date on which a record is to be taken for the purpose
of such dividend, distribution, rights or warrants, or, if a record is not to be
taken,  the date as of which the holders of shares of Common  Stock of record to
be  entitled  to such  dividend,  distribution,  rights  or  warrants  are to be
determined  or (y)  the  date on  which  such  reclassification,  consolidation,
merger,  sale, transfer,  dissolution,  liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of shares
of Common Stock of record  shall be entitled to exchange  their shares of Common
Stock  for   securities,   cash  or  other   property   deliverable   upon  such
reclassification,    consolidation,   merger,   sale,   transfer,   dissolution,
liquidation or winding-up.  Failure to give the notice  required by this Section
12(f) or any defect  therein  shall not affect the  legality  or validity of any
dividend, distribution, right, warrant, reclassification, consolidation, merger,
sale,  transfer,  dissolution,  liquidation or winding-up,  or the vote upon any
such action.

            (g) The Company shall at all times reserve and keep available,  free
from  preemptive  rights,  out of its authorized  but unissued  shares of Common
Stock,  for the  purpose of  effecting  the  conversion  of shares of Series B-1
Preferred  Stock,  the full number of shares of Common Stock then  issuable upon
the conversion of all outstanding shares of Series B-1 Preferred Stock.

            (h) The  Company  will pay any and all taxes  that may be payable in
respect of the issue or  delivery  of shares of Common  Stock on  conversion  of
shares of Series B-1 Preferred  Stock  pursuant  hereto.  The Company shall not,
however,  be  required  to pay any tax which may be  payable  in  respect of any
transfer  involved in the issue and delivery of shares of Common Stock in a name
other  than that of the  holder of the share of Series  B-1  Preferred  Stock or
shares of Series  B-1  Preferred  Stock to be  converted,  and no such  issue or
delivery  shall be made  unless and until the Person  requesting  such issue has
paid to the  Company  the  amount of any such  tax,  or has  established  to the
satisfaction of the Company that such tax has been paid or is not payable.

            (i) Conversion to Other Series B Preferred Stock.

            (i)  CONVERSION OF SERIES B-1 PREFERRED  STOCK.  Subject to and upon
      compliance  with the  provisions of this Section  12(i)(i),  any Regulated
      Stockholder  (defined below) shall be entitled to convert, at any time and
      from time to time, any or all of the shares of Series B-1 Preferred  Stock
      held by such  stockholder  into the same  number of  shares of Series  B-2
      Preferred Stock.

                                       21
<PAGE>

            (ii) CONVERSION OF SERIES B-2 PREFERRED  STOCK.  Subject to and upon
      compliance  with the  provisions  of this Section  12(i)(ii),  each record
      holder of Series B-2  Preferred  Stock  shall be  entitled at any time and
      from time to time in such  holder's sole  discretion  and at such holder's
      option,  to convert any or all of the shares of such  holder's  Series B-2
      Preferred  Stock into the same  number of shares of Series  B-1  Preferred
      Stock;  PROVIDED,  HOWEVER,  that Series B-2 Preferred Stock  constituting
      Restricted  Stock (defined  below) with respect to a particular  Regulated
      Stockholder  may not be converted  into Series B-1 Preferred  Stock to the
      extent that immediately prior thereto,  or as a result of such conversion,
      the number of shares of Series B-1 Preferred  Stock which  constitute such
      Restricted  Stock held by all holders  thereof  would exceed the number of
      shares of Series B-1  Preferred  Stock  which such  Regulated  Stockholder
      reasonably  determines it and its Affiliates may own,  control or have the
      power to vote under any law, regulation,  rule or other requirement of any
      governmental   authority  at  the  time   applicable  to  such   Regulated
      Stockholder or its Affiliates; and, PROVIDED, FURTHER, that each holder of
      Series  B-2  Preferred  Stock may  convert  such  shares  into  Series B-1
      Preferred  Stock if such holder  reasonably  believes that such  converted
      shares  will  be  transferred  within  fifteen  (15)  days  pursuant  to a
      Conversion  Event  (defined  below) and such holder agrees not to vote any
      such shares of Series B-1 Preferred Stock prior to such  Conversion  Event
      and  undertakes  to  promptly  convert  such  shares  back into Series B-2
      Preferred  Stock  if  such  shares  are  not  transferred  pursuant  to  a
      Conversion  Event.  Each  Regulated  Stockholder  may  provide for further
      restrictions  upon the  conversion  of any shares of  Restricted  Stock by
      providing the Company with signed,  written  instructions  specifying such
      additional  restrictions  and legending such shares as to the existence of
      such restrictions.

            (iii)  CONVERSION  PROCEDURE.  Each conversion of shares of Series B
      Preferred  Stock of the Company  into shares of another  class of Series B
      Preferred  Stock of the Company  shall be effected by the surrender of the
      certificate or certificates  representing  the shares to be converted (the
      "Converting Shares") at the principal office of the Company (or such other
      office or agency of the Company as the Company  may  designate  by written
      notice to the holders of Series B Preferred  Stock) at any time during its
      usual business  hours,  together with written notice by the holder of such
      Converting  Shares,  stating  that such  holder  desires  to  convert  the
      Converting  Shares,  or a stated number of the shares  represented by such
      certificate or  certificates,  into an equal number of shares of the class
      into which such shares may be converted  (the  "Converted  Shares").  Such
      notice  shall  also  state  the  name  or  names  (with   addresses)   and
      denominations  in which the  certificate  or  certificates  for  Converted
      Shares are to be issued and shall  include  instructions  for the delivery
      thereof.  The Company shall promptly notify each Regulated  Stockholder of
      its receipt of such notice.  Promptly after such surrender and the receipt
      of such written  notice,  the Company will issue and deliver in accordance
      with  the   surrendering   holder's   instructions   the   certificate  or
      certificates   evidencing   the  Converted   Shares   issuable  upon  such
      conversion,  and the  Company  will  deliver  to the  converting  holder a
      certificate  (which  shall  contain  such legends as were set forth on the
      surrendered  certificate or  certificates)  representing  any shares which
      were represented by the certificate or certificates that were delivered to
      the  Company  in  connection  with such  conversion,  but  which  were not
      converted.  Such  conversion,  to the extent  permitted  by law,  shall be
      deemed to have been  effected  as of the close of  business on the date on
      which such  certificate or  certificates  shall have been  surrendered and
      such notice shall have been received by the Company,  and at such time the

                                       22
<PAGE>

      rights of the holder of the  Converting  Shares as such holder shall cease
      and the  person  or  persons  in whose  name or names the  certificate  or
      certificates  for  the  Converted  Shares  are  to  be  issued  upon  such
      conversion  shall be deemed to have become the holder or holders of record
      of the Converted  Shares.  Upon issuance of shares in accordance with this
      Section  12(i)(iv),  such  Converted  Shares  shall be  deemed  to be duly
      authorized,  validly issued,  fully paid and  non-assessable.  The Company
      shall take all such  actions as may be  necessary  to assure that all such
      shares of Series B Preferred  Stock may be so issued without  violation of
      any applicable law or governmental  regulation or any  requirements of any
      domestic securities exchange upon which shares of Series B Preferred Stock
      may be listed  (except  for  official  notice of  issuance  which  will be
      immediately  transmitted by the Company upon issuance).  The Company shall
      not close its books  against the  transfer of shares of Series B Preferred
      Stock in any manner which would  interfere  with the timely  conversion of
      any shares of Series B Preferred Stock.

      Notwithstanding any provision of this Section 12(i) to the contrary,  each
      holder of Series B-2 Preferred  Stock shall be entitled to convert  shares
      of Series B-2 Preferred Stock in connection  with any Conversion  Event if
      such  holder  reasonably  believes  that  such  Conversion  Event  will be
      consummated,  and a written  request  for  conversion  from any  holder of
      Series B-2 Preferred Stock to the Company stating such holder's reasonable
      belief that a Conversion  Event shall occur shall be conclusive  and shall
      obligate the Company to effect such conversion in a timely manner so as to
      enable each such  holder to  participate  in such  Conversion  Event.  The
      Company  will not  cancel  the  shares of Series  B-2  Preferred  Stock so
      converted  before the 15th day following  such  Conversion  Event and will
      reserve such shares until such 15th day for reissuance in compliance  with
      the next  sentence.  If any  shares  of  Series  B-2  Preferred  Stock are
      converted into shares of Series B-1 Preferred  Stock in connection  with a
      Conversion  Event and such  shares of Series B-1  Preferred  Stock are not
      actually  distributed,  disposed of or sold  pursuant  to such  Conversion
      Event,  such  shares of  Series  B-1  Preferred  Stock  shall be  promptly
      converted  back into the same  number of  shares of Series  B-2  Preferred
      Stock.

            (iv)  NOTICE OF  CONVERSION  TO OTHER  REGULATED  STOCKHOLDERS.  The
      Company  shall not convert or directly or indirectly  redeem,  purchase or
      otherwise  acquire  any  shares of Series B  Preferred  Stock or any other
      class of capital  stock of the Company or take any other action  affecting
      the  voting  rights of such  shares,  if such  action  will  increase  the
      percentage  of  any  class  of  outstanding  voting  securities  owned  or
      controlled by any Regulated  Stockholder  (other than any such stockholder
      which  requested  that the Company  take such action,  or which  otherwise
      waives in writing its rights  under this  Section  12(i)(iv)),  unless the
      Company  simultaneously  with taking such action gives written notice that
      it is taking such action to each  Regulated  Stockholder.  Upon  complying
      with the procedures  hereinabove set forth in this Section 12(i)(iv),  the
      Company  may so convert or  directly  or  indirectly  redeem,  purchase or
      otherwise  acquire  any  shares of Series B  Preferred  Stock or any other
      class of capital  stock of the Company or take any other action  affecting
      the voting rights of such shares.

                                       23
<PAGE>

     (j) Miscellaneous.

            (i) STOCK  SPLITS;  ADJUSTMENTS.  If the Company shall in any manner
      subdivide  (by stock split,  stock  dividend or  otherwise) or combine (by
      reverse stock split or otherwise) the outstanding shares of the Series B-1
      Preferred  Stock or the Series B-2 Preferred  Stock,  then the outstanding
      shares  of each  other  series of Series B Stock  shall be  subdivided  or
      combined,  as the case may be, to the same extent,  share and share alike,
      and effective provision shall be made for the protection of the conversion
      rights hereunder.

            (ii) In case the  Company  shall  issue or sell any Common  Stock or
      Junior  Shares  (other  than  Common  Stock  issued  (A)  pursuant  to the
      Company's  existing or future  stock option plans or pursuant to any other
      existing or future Common Stock-related  director or employee compensation
      plan of the  Company  approved by the Board of  Directors,  (B) other than
      pursuant to the Company's existing future stock purchase plans approved by
      the Board of Directors  which permit the  Company's  employees to purchase
      Common Stock at a 15% discount,  (C) as consideration  for the acquisition
      of a business or of assets, (D) in a firm commitment  underwritten  public
      offering  when  either (i) the  underwriting  discount is less than 5%, or
      (ii) the offering  price per share is greater than the  Conversion  Price,
      (E) to the Company's  unaffiliated  joint venture partners in exchange for
      interests  in  the  relevant  joint  venture,  or  (F)  upon  exercise  or
      conversion  of any  security,  the issuance of which caused an  adjustment
      hereunder or the issuance of which did not require  adjustment  hereunder)
      for a  consideration  per share  less than the  Conversion  Price  then in
      effect but equal to or greater  than the Current  Market Price at the date
      of issuance of such  Common  Stock,  the holders of the Series B Preferred
      Stock shall be  entitled  if they so elect to purchase  such number of the
      shares of the Common Stock or  convertible  Junior  Shares being issued as
      will permit such holders to maintain their proportional ownership interest
      in the Company after giving effect to such issuance.

            The  Company  shall give  twenty  days prior  written  notice to the
      holders of the Series B Preferred  Stock of its intention to issue or sell
      any Common  Stock or Junior  Shares  that  would  give rise to  preemptive
      rights pursuant to this Section  12(j)(ii).  Within ten days after receipt
      of such notice,  the holders of the Series B Preferred  Stock shall notify
      the Company  whether or not they intend  (without  commitment) to purchase
      such shares.

            (iii) NO CHARGE.  The  issuance  of  certificates  for shares of any
      class of Series B Preferred Stock (upon  conversion of shares of any other
      series of Series B Preferred  Stock or  otherwise)  shall be made  without
      charge to the  holders  of such  shares  for any  issuance  tax in respect
      thereof or other cost  incurred  by the  Company in  connection  with such
      conversion  and/or the  issuance  of shares of Series B  Preferred  Stock;
      PROVIDED,  HOWEVER,  that the Company shall not be required to pay any tax
      which may be payable in respect of any  transfer  involved in the issuance
      and delivery of any certificate in a name other than that of the holder of
      the Series B Preferred Stock converted.

     13. CHANGE OF CONTROL.  (a) If a Change of Control shall have occurred (the
time and date of such occurrence being a "Change of Control Date"),  the Company
shall  cause to be  filed  with  the  Registrar  and at each  office  or  agency
maintained for the purpose of conversion of shares of Series B Preferred  Stock,

                                       24
<PAGE>

and shall  cause to be mailed to all  holders  at their last  addresses  as they
shall  appear in the Series B Preferred  Stock  Register,  in any case within 10
days  after the  Change of  Control  Date,  a notice  stating  (1) the Change of
Control  Date,  (2) the fact that (if the Change of Control Date is prior to the
Fifth  Anniversary Date) the holders are entitled to receive the Special Payment
(as  defined  below) as a result of such  Change of  Control,  (3) the fact that
holders  shall have the right to either  (a)  continue  to hold their  shares of
Series B Preferred  Stock (or the shares of  preferred  stock  issued in respect
thereof pursuant to Section 14) (the "Hold Option") or (b) in the case of shares
of Series B-1 Preferred Stock, convert such shares (including shares received as
a Special  Payment) in accordance  with Section 12 or (c) elect the  Remarketing
Option (as defined below),  (3) the relevant  circumstances  and facts regarding
such Change of Control and (4) the instructions  that such holder must follow in
order to exercise the rights  identified above. As of the Change of Control Date
(if the Change of Control Date occurs prior to the Fifth Anniversary  Date), the
holders of the Series B  Preferred  Stock shall  receive  the  Special  Payment,
pursuant to which the Liquidation Preference of each share of Series B Preferred
Stock  shall be  deemed  to have  been  increased  by an  amount  (the  "Special
Payment")  equal to the  product of (x) the Share  Factor  with  respect to such
share of Series B Preferred Stock and (y) the Aggregate  Special Payment Amount.
Such  Special  Payment  shall  accrue as of the Change of  Control  Date (if the
Change of Control Date is prior to the Fifth  Anniversary  Date)  whether or not
the Company has  earnings  or  profits,  whether or not there are funds  legally
available  for the payment of such  dividend and whether or not such dividend is
declared and shall be in all respects  identical to any other dividend  declared
or accrued on the Series B Preferred  Stock  (except as set forth above) and all
provisions of this  Certificate  of  Designation  applicable to dividends  shall
apply to such Special  Payment  (except as set forth above).  The holders of the
Series B Preferred  Stock shall receive the Special  Payment  whether they elect
the Hold Option or the Remarketing Option or whether they elect to convert their
shares in accordance with Section 12.

     (b)  Subject to the last  sentence of Section  13(e),  within 30 days after
delivery by the Company of the notice described in Section 13(a), each holder of
shares of Series B Preferred  Stock (or the shares of preferred  stock issued in
respect thereof  pursuant to Section 14) who wishes to exercise the Hold Option,
or the Remarketing  Option must submit written notice (a "COC Response  Notice")
to the Company  setting  forth the option such holder wishes to elect (and if no
option is selected within such 30 day period such holder shall be deemed to have
selected the Hold Option).

     (c) If the Hold  Option is  selected  with  respect  to a share of Series B
Preferred  Stock, or if no notice from a holder is received by the date referred
to in the preceding  paragraph,  such share of Series B Preferred  Stock (or the
shares of  preferred  stock  issued in respect  thereof  pursuant to Section 14)
shall  remain  outstanding  in  accordance  with its current  terms after giving
effect to the Special Payment (if applicable).

     (d) If the Remarketing Option is selected with respect to a share of Series
B Preferred  Stock,  the holder of such share shall be deemed to have elected to
waive such holder's  right during the  Remarketing  Period to convert such share
pursuant  to Section  12 during the  Remarketing  Period and the  Company  shall
thereafter  have the option (the  "Remarketing  Option") to either (a) have such
share redeemed in accordance with the optional  redemption  procedures set forth
in Section 10 (except  that such  procedures  shall apply only to the holders so

                                       25
<PAGE>

electing the  Remarketing  Option) or (b) remarket such share for the account of
such holder and, if the net proceeds to such holder of such remarketing are less
than an amount in cash equal to 100% of the Liquidation Preference (after giving
effect to the Special  Payment (if  applicable))  of such share plus accrued and
unpaid dividends thereon from the last Dividend Payment Date to the date payment
in full is received  by such  holder in respect of such share (the  "Remarketing
Price"),  the  Company  shall issue to and sell for the account of such holder a
sufficient  number of shares of Common  Stock to make up such  shortfall;  I.E.,
such that the holder receives a net amount in cash in ---- respect of such share
of Series B Preferred Stock as to which the Remarketing Option has been selected
which, when taken together with the net proceeds received by such holder in such
remarketing is equal to the Remarketing Price. Written notice of the election by
the Company to either  redeem or  remarket  such share shall be provided to such
holder  within 75 days after  receipt of a COC Response  Notice  specifying  the
Remarketing Option.

     (e) In order to  accomplish  the  remarketing,  the Company  shall take all
actions that may be  necessary,  including  without  limitation,  preparing  and
filing a  registration  statement  under the  Securities  Act, and shall pay all
expenses (including without limitation,  underwriting discounts) associated with
the remarketing and issuance and shall provide customary indemnification for the
benefit  of  the  holder  against   securities  law  liabilities  in  connection
therewith.  If the Remarketing  Option has been selected and the Company has not
elected to redeem such share,  payment of the full Remarketing  Price in respect
of the remarketed share shall be made at a single  settlement  against surrender
of  the  share.   Such  settlement  shall  take  place  as  soon  as  reasonably
practicable.  If such  settlement  does not take place within 180 days after the
date of the  Company's  written  notice  pursuant  to  paragraph  (d) above (the
"Remarketing Period"), the Company shall give written notice to the holders that
have  elected  the  Remarketing  Option that such 180 day period has elapsed and
such holders shall have the option,  for a period of 10 Business Days  following
the giving of such notice, of electing to terminate the remarketing process with
respect to such holders' shares and to elect (i) to convert such holder's shares
in accordance with Section 12 or (ii) the Hold Option (and in the case of (i) or
(ii) to receive the Special  Payment (if the Change of Control  Date is prior to
the Fifth Anniversary Date) as of the Change of Control Date).

     (f) The Company shall have the right to institute reasonable  procedures in
order to implement  this Section 13 and, to the extent  reasonably  practicable,
will make proper  provision  prior to the Change of Control  Date to ensure that
the  holders of shares of Series B  Preferred  Stock will be entitled to receive
the benefits intended to be afforded by this Section 13. Nothing in this Section
13 shall affect the rights of the holders of Series B Preferred  Stock set forth
in Section 14 hereof.

     14.  CONSOLIDATION,  MERGER,  CONVEYANCE  OR TRANSFER.  Without the vote or
consent of the holders of a majority of the then Outstanding  shares of Series B
Preferred Stock, the Company may not consolidate OR merge with or into, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its  assets to, any Person  unless  (i) if the  Company is the  surviving  or
continuing Person, the Series B Preferred Stock shall remain outstanding without
any amendment that would adversely affect the  preferences,  rights or powers of
the  Series B  Preferred  Stock,  (ii) if the  Company is not the  surviving  or
continuing  Person,  (a) the entity formed by such consolidation or merger or to
which such sale, assignment,  transfer,  lease,  conveyance or other disposition
shall have been made (in any such case, the "resulting entity") is a corporation
organized and existing under the laws of Bermuda, the United States or any State

                                       26
<PAGE>

thereof or the  District of  Columbia;  and (b) the shares of Series B Preferred
Stock are converted  into or exchanged  for and become shares of such  resulting
entity,  having in respect of such resulting entity the same (or more favorable)
powers,  preferences  and  relative,  participating,  optional or other  special
rights that the shares of Series B Preferred Stock had immediately prior to such
transaction;  and (iii) the Company  shall have  delivered  to the  Registrar an
Officers' Certificate and an opinion of counsel, reasonably satisfactory in form
and  content,  each  stating  that such  consolidation,  merger,  conveyance  or
transfer complies with this Section 14 and that all conditions  precedent herein
provided for relating to such transaction have been complied with.

     15.  SEC  REPORTS;  REPORTS BY  COMPANY.  So long as any shares of Series B
Preferred Stock are outstanding, the Company SHALL file with the SEC and, within
15 days after it files them with the SEC, with the Registrar  and, if requested,
furnish  to each  holder of shares of Series B  Preferred  Stock all  annual and
quarterly  reports and the  information,  documents,  and other reports that the
Company is required to file with the SEC  pursuant to Section  13(a) or 15(d) of
the  Exchange Act ("SEC  Reports").  In the event the Company is not required or
shall cease to be required to file SEC Reports,  pursuant to the  Exchange  Act,
the Company  will  nevertheless  file such  reports with the SEC (unless the SEC
will not accept such a filing).  Whether or not  required by the Exchange Act to
file SEC Reports with the SEC, so long as any shares of Series B Preferred Stock
are Outstanding, the Company will furnish or cause to be furnished copies of the
SEC Reports to the holders of shares of Series B Preferred Stock at the time the
Company is required to make such  information  available to the Registrar and to
prospective investors who request it in writing.

     16.  DEFINITIONS.  For purposes of this  Certificate  of  Designation,  the
following terms shall have the meaning set FORTH below  (capitalized  terms used
but not defined  herein shall have the  meanings  ascribed to them in the Series
B-2 Certificate of Designations):

            "ACCUMULATED DIVIDENDS" has the meaning set forth in Section 6.

            "AFFILIATE"  means,  with  respect to any Person,  any other  Person
directly or indirectly  controlling,  controlled by, or under direct or indirect
common control with,  such Person.  For the purposes of this  definition and the
definition of "HMTF Group", "control" when used with respect to any Person means
the power to direct the  management  and  policies of such  Person,  directly or
indirectly,  whether through the ownership of voting securities,  by contract or
otherwise;   and  the  terms   "controlling"   and  "controlled"  have  meanings
correlative to the  foregoing.  Without  limiting the  foregoing,  each of Chase
Capital  Partners,  The Chase Manhattan  Corporation,  each of their  respective
affiliates (the "Chase Entities") and any other person,  fund or entity for whom
any  of the  Chase  Entities  acts  as a  fiduciary  or  provides  discretionary
management  with  respect  to any  investments  or any such  direct or  indirect
interests therein shall be deemed to be affiliates of each other.

            "AGGREGATE  CHANGE OF CONTROL DATE ACCRETED VALUE" means the product
obtained by multiplying (x) the Change of Control Date Accreted Value by (y) the
number of shares of Series B Preferred Stock  Outstanding  immediately  prior to
the Change of Control Date.

                                       27
<PAGE>

            "AGGREGATE FIVE YEAR ACCRETED  VALUE" means the product  obtained by
multiplying  (x) the Five  Year  Accreted  Value by (y) the  number of shares of
Series B Preferred Stock Outstanding immediately prior to the Change of Control.

            "AGGREGATE  SPECIAL  PAYMENT  AMOUNT" means the difference  between
(x) the  Aggregate  Five Year  Accreted  Value and (y) the  Aggregate  Change of
Control Date Accreted Value.

            "AVERAGE  MARKET  VALUE" of the Common  Stock  means the  arithmetic
average of the Current  Market  Value of the shares of Common  Stock for the ten
(10) trading  days ending on the fifth  Business Day prior to (i) in the case of
the payment of any  dividend,  the Record Date for such dividend and (ii) in the
case of any other payment, the date of such payment.

            "BOARD OF DIRECTORS" has the meaning set forth in the Recitals.

            "BUSINESS DAY" means each Monday, Tuesday,  Wednesday,  Thursday and
Friday which is not a day on which banking  institutions in The City of New York
are authorized or obligated by law or executive order to be closed.

            "BY-LAWS" has the meaning set forth in the Recitals.

            "COC RESPONSE NOTICE" has the meaning set forth in Section 13(b).

            "CAPITAL  STOCK"  means,  with  respect to any  person,  any and all
shares,  interests,  participations,  rights in, or other  equivalents  (however
designated and whether voting and/or non-voting) of such person's capital stock,
whether  outstanding  on the Closing Date or issued after the Closing Date,  and
any and all rights  (other  than any  evidence  of  indebtedness),  warrants  or
options exchangeable for or convertible into such capital stock.

          "CERTIFICATE OF INCORPORATION" has the meaning set forth in the
recitals.

            "CHANGE OF CONTROL"  means the  occurrence  of any of the  following
events:  (a) any  "person" or "group" (as such terms are used in Sections  13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial  owner" (as defined
in Rule 13d-3 and 13d-5 under the  Exchange  Act,  except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire,  whether such right is  exercisable  immediately or only after
the  passage of time),  directly  or  indirectly,  of more than 50% of the total
Voting Capital Stock of the Company;  or (b) the Company  consolidates  with, or
merges  with or into,  another  person or sells,  assigns,  conveys,  transfers,
leases or otherwise  disposes of all or  substantially  all of its assets to any
person, or any person  consolidates with, or merges with or into the Company, in
any such event  pursuant to a transaction in which either (A) the holders of the
outstanding  Voting  Capital Stock of the Company is converted into or exchanged
for cash,  securities or other property,  other than any such transaction  where
immediately  after such  transaction  any "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act) (other than any such group
if each member of such group,  together with its Affiliates,  owns less than 50%
of the total Voting Capital Stock of the Company) is the "beneficial  owner" (as
defined in Rules 13d-3 and 13d-5 under the  Exchange  Act,  except that a person
shall be deemed  to have  "beneficial  ownership"  of all  securities  that such
person has the right to acquire,  whether such right is exercisable  immediately
or only after the passage of time), directly or indirectly,  of more than 50% of

                                       28
<PAGE>

the total Voting  Capital  Stock of the  surviving or  transferee  or its parent
company  or (B) the  holders  of the  outstanding  Voting  Capital  Stock of the
Company  immediately  prior  to  such  transaction  hold  less  than  50% of the
outstanding  Voting Capital Stock of the surviving or transferee  corporation or
its  parent  corporation  immediately  after the  transaction  or (C) during any
consecutive  two-year  period,  individuals  who at the beginning of such period
constituted  the  Board of  Directors  (together  with any new  directors  whose
election  by the Board of  Directors  or whose  nomination  for  election by the
stockholders  of the  Company  was  approved  by a  vote  of a  majority  of the
directors  then still in office who were either  directors  at the  beginning of
such period or whose  election or  nomination  for  election was  previously  so
approved)  cease  for any  reason  to  constitute  a  majority  of the  Board of
Directors then in office.

            "CHANGE OF CONTROL DATE" has the meaning set forth in Section 13(a).

            "CHANGE OF CONTROL DATE  ACCRETED  VALUE" means with respect to each
$1,072 of original Liquidation  Preference,  the value that $1,072 would accrete
to between the Closing Date and the Change of Control Date, compounded quarterly
at an annual rate of 7.50%.

            "CLOSING DATE" means any Closing Date under the Purchase Agreement.

            "CLOSING PRICE" has the meaning set forth in Section 12(d)(vi).

            "COMMON  STOCK  RECORD  DATE" has the  meaning  set forth in Section
12(d)(vi).

            "COMMON  STOCK"  means the common  stock of the  Company,  par value
$0.01 per share.

            "COMPANY" has the meaning set forth in the Recitals.

            "COMPANY  ORDER" means a written request or order signed in the name
of the Company by its Chairman of the Board,  its Chief Executive  Officer,  its
President or any Executive or Senior Vice  President and by its Chief  Financial
Officer,  Treasurer,  an  Assistant  Treasurer,  its  Secretary  or an Assistant
Secretary.

            "CONVERSION AGENT" has the meaning set forth in Section 5(a).

            "CONVERSION EVENT" shall mean (a) any public offering or public sale
of securities of the Corporation  (including a public offering  registered under
the  Securities  Act, and a public sale  pursuant to Rule 144  thereunder or any
similar  rule then in force),  (b) any sale of  securities  of the  Company to a
person or group of persons  (within the meaning of the  Exchange  Act) if, after
such sale, such person or group of persons in the aggregate would own or control
securities  which possess in the aggregate the ordinary  voting power to elect a
majority of the Company's  directors  (provided that such sale has been approved
by the  Company's  Board of Directors or a committee  thereof),  (c) any sale of
securities of the Company to a person or group of persons (within the meaning of
the Exchange  Act) if,  after such sale,  such person or group of persons in the
aggregate would own or control  securities of the Company  (excluding any Series
B-2 Preferred  Stock being  converted  and disposed of in  connection  with such
Conversion  Event) which possess in the  aggregate the ordinary  voting power to
elect a majority of the Company's  directors,  (d) any sale of securities of the

                                       29
<PAGE>

Company to a person or group of persons (within the meaning of the Exchange Act)
if,  after  such  sale,  such  person  or group of  persons  would  not,  in the
aggregate,  own, control or have the right to acquire more than two percent (2%)
of the outstanding  securities of any class of voting securities of the Company,
and (e) a merger, consolidation or similar transaction involving the Company if,
after such transaction,  a person or group of persons (within the meaning of the
Exchange Act) in the aggregate would own or control  securities which possess in
the  aggregate  the ordinary  voting power to elect a majority of the  surviving
corporation's  directors (provided that the transaction has been approved by the
Company's  Board of  Directors  or a  committee  thereof)  and (f) any change in
applicable law, regulation,  rule or requirement of any applicable  governmental
authority which would permit a Regulated Stockholder (or its transferee) to own,
control  or have the  power to vote  shares of Series  B-1  Preferred  Stock and
Common  Stock  under  applicable  law,  regulation,   rule  and  requirement  of
applicable governmental authority.

            "CONVERSION  PRICE"  means the price at which shares of Common Stock
shall be delivered upon conversion.

            "CURRENT  MARKET VALUE" of the Common Stock means the average of the
high and low sale prices of the shares of Common Stock as reported on the Nasdaq
National Market or any national stock exchange or Commission  recognized trading
market in the  United  States  upon  which the  shares of Common  Stock are then
listed or admitted to trading, for the trading day in question.

            "CURRENT  MARKET  PRICE"  has  the  meaning  set  forth  in  Section
12(d)(vi).

            "DILUTION  TRIGGER  EVENT"  has the  meaning  set  forth in  Section
12(d)(iv).

            "DISTRIBUTED  SECURITIES"  has the  meaning  set  forth  in  Section
12(d)(iv).

            "DIVIDEND PAYMENT DATE" has the meaning set forth in Section 6.

            "DIVIDEND RECORD DATE" has the meaning set forth in Section 7(a).

            "EXCHANGE  ACT"  means  the  Securities  Exchange  Act of  1934,  as
amended.

            "EXPIRATION TIME" has the meaning set forth in Section 12(d)(v).

            "FAIR MARKET VALUE" has the meaning set forth in Section 12(d)(vi).

            "FIVE YEAR  ACCRETED  VALUE"  means with  respect to each  $1,072 of
original Liquidation  Preference,  $1,554.34 (subject to appropriate  adjustment
with respect to the dilution adjustments set forth in Section 12).

            "HMTF  GROUP"  means HMTF and its  Affiliates  and their  respective
officers, directors,  partners, members, stockholders and employees (and members
of their  respective  families and trusts for the primary benefit of such family
members), and HMTF Purchase and its Affiliates.

                                       30
<PAGE>

            "HMTF  HOLDERS" means members of the HMTF Group that are the holders
of all or a portion of the Series B  Preferred  Shares  issued to members of the
HMTF Group on the Closing Date.

            "HOLD OPTION" has the meaning set forth in Section 13(a).

            "JUNIOR SHARES" has the meaning set forth in Section 9(a).

            "LIQUIDATION  PREFERENCE"  means an amount equal to $1,000 per share
plus an amount equal to the Share Option Adjustment Amount per share of Series B
Preferred  Stock,  subject to change in accordance with Section 6, Section 7 and
Section 13 hereof, including, without limitation, Accumulated Dividends.

            "MANDATORY  REDEMPTION  DATE" has the  meaning  set forth in Section
10(b);  provided,  HOWEVER,  that if such date shall not be a Business Day, then
such date shall be the next Business Day.

            "NONELECTING SHARE" has the meaning set forth in Section 12(e).

            "ODD-LOT REDEMPTION" has the meaning set forth in Section 10(c).

            "OFFICERS' CERTIFICATE" means a certificate of the Company signed in
the name of the  Company  by its  Chairman  of the  Board,  its Chief  Executive
Officer, its President or an Executive or Senior Vice President and by its Chief
Financial  Officer,  Treasurer,  an  Assistant  Treasurer,  its  Secretary or an
Assistant Secretary.

            "OPTIONAL REDEMPTION" has the meaning set forth in Section 10(a).

            "OPTIONAL  REDEMPTION  DATE" has the  meaning  set forth in  Section
10(a).

            "OUTSTANDING" means (i) when used with respect to shares of Series B
Preferred  Stock,  as of the  date of  determination,  all  shares  of  Series B
Preferred Stock  theretofore  authenticated and delivered under this Certificate
of  Designation,  except  (a)  shares of Series B  Preferred  Stock  theretofore
converted  into shares of Common Stock in accordance  with Section 12 and shares
of Series B Preferred Stock  theretofore  canceled by the Registrar or delivered
to the Registrar for  cancellation;  (b) shares of Series B Preferred  Stock for
whose payment or redemption  money in the necessary  amount has been theretofore
deposited  with the  Registrar  or any Paying  Agent (other than the Company) in
trust or set aside and  segregated in trust by the Company (if the Company shall
act as its own  Paying  Agent)  for the  holders  of such  shares  of  Series  B
Preferred  Stock;  PROVIDED that, if such shares of Series B Preferred Stock are
to be redeemed,  notice of such  redemption has been duly given pursuant to this
Certificate of Designation or provision  therefor  satisfactory to the Registrar
has  been  made;  and (c)  shares  of  Series  B  Preferred  Stock  (x) that are
mutilated, destroyed, lost or stolen which the Company has decided to pay or (y)
in  exchange  for or in lieu of which other  shares of Series B Preferred  Stock
have  been   authenticated  and  delivered   pursuant  to  this  Certificate  of
Designation;  PROVIDED, HOWEVER, that, in determining whether the holders of the

                                       31
<PAGE>

shares  of  Series  B   Preferred   Stock  have  given  any   request,   demand,
authorization,  direction,  notice,  consent or waiver or taken any other action
hereunder,  shares of Series B Preferred Stock owned by the Company or any other
obligor  upon the shares of Series B  Preferred  Stock or any  Affiliate  of the
Company  (other  than any  Initial  Holder)  or of such other  obligor  shall be
disregarded  and deemed  not to be  Outstanding,  except  that,  in  determining
whether the  Registrar  shall be  protected  in relying  upon any such  request,
demand, authorization,  direction, notice, consent, waiver or other action, only
shares of Series B Preferred  Stock which the Registrar has actual  knowledge of
being so owned shall be so  disregarded.  Shares of Series B Preferred  Stock so
owned which have been  pledged in good faith may be regarded as  Outstanding  if
the pledgee establishes to the satisfaction of the Registrar the pledgee's right
so to act with  respect to such shares of Series B Preferred  Stock and that the
pledgee  is not the  Company  or any other  obligor  upon the shares of Series B
Preferred  Stock or any  Affiliate  of the Company or of such other  obligor and
(ii) when used with respect to shares of Series B-2  Preferred  Stock,  the same
definition of  "Outstanding"  shall apply thereto with  references to Series B-2
being substituted for references to Series B-1 therein.

            "PARITY SHARES" has the meaning set forth in Section 9(a).

            "PAYING AGENT" has the meaning set forth in Section 5(a).

            "PERSON"  means an  individual,  partnership,  corporation,  limited
liability company,  business trust, joint stock company,  trust,  unincorporated
association,  joint venture,  governmental authority or other entity of whatever
nature.

            "PREFERRED  STOCK"  means,  with respect to any person,  any and all
shares,  interests,  participations  or other equivalents  (however  designated,
whether voting or non-voting)  of such person's  preferred or preference  stock,
whether now  outstanding  or issued after the date hereof,  including all series
and classes of such preferred or preference stock.

            "PURCHASE AGREEMENT" means the Securities Purchase Agreement,  dated
as of February 1, 2000, among the Company and the Purchasers  named therein,  as
it may be amended from time to time.

            "PURCHASED SHARES" has the meaning set forth in Section 12(d)(v).

            "REDEMPTION DATE" has the meaning set forth in Section 10(d).

            "REDEMPTION NOTICE" has the meaning set forth in Section 10(d).

            "REDEMPTION PRICE" has the meaning set forth in Section 10(a).

            "REGISTRAR" has the meaning set forth in Section 3.

            "REGISTRATION   RIGHTS  AGREEMENT"  means  the  Registration  Rights
Agreement,  dated  as of  ________________,  2000,  among  the  Company  and the
Purchasers.

            "REGULATED  STOCKHOLDER" shall mean Chase Equity Associates,  LLC or
any other  stockholder  that (i) is subject to the  provisions  of Regulation Y,
(ii) holds shares of Common  Stock or  Preferred  Stock of the Company and (iii)
has  provided  written  notice to the  Company  of its  status  as a  "Regulated
Stockholder" hereunder.

                                       32
<PAGE>

            "REGULATION Y" shall mean  Regulation Y of the Board of Governors of
the  Federal  Reserve  System,  12  C.F.R.  Part 225 (or any  successor  to such
Regulation).

            "REGULATORY   PROBLEM"   means,   with  respect  to  any   Regulated
Stockholder,  that such Regulated  Stockholder  would own more than 4.99% of any
class of  voting  securities  of any  Person  (other  than any  class of  voting
securities which is (or, in the case of any redemption, purchase, acquisition or
other action, is made prior to consummation thereof) convertible into a class of
non-voting securities which are otherwise identical to the voting securities and
convertible into such voting  securities on terms reasonably  acceptable to such
Regulated Stockholder) or more than 24.99% of the total equity of such Person or
more than 24.99% of the total value of all capital stock and  subordinated  debt
of such Person (in each case  determined by assuming such Regulated  Holder (but
no other  holder) has  exercised,  converted  or  exchanged  all of its options,
warrants and other convertible or exchangeable securities.)

            "RELINQUISHING   HOLDER"  means  Chase  Capital   Partners  and  its
Affiliates and their  respective  transferees and any other Holder of a share of
Series B-1 Preferred  Stock that delivers a written notice to the Corporation to
the effect  that such Holder  elects not to be entitled to vote with  respect to
any matter referred to in Section 8(d).

            "REMARKETING OPTION" has the meaning set forth in Section 13(d).

            "RESTRICTIVE LEGEND" has the meaning set forth in Section 4.

            "RESTRICTED STOCK" means, with respect to any Regulated Stockholder,
any outstanding shares of Series B-1 Preferred Stock and/or Series B-2 Preferred
Stock  ever held of  record by such  Regulated  Stockholder  or its  Affiliates,
excluding treasury shares;  provided,  however, that any such shares shall cease
to be  Restricted  Stock with respect to such  Regulated  Stockholder  when such
shares are  transferred  in a  transaction  which is a  Conversion  Event or are
acquired by the Company or any subsidiary of the Company; and PROVIDED, FURTHER,
that the  Company  shall have no  responsibility  for  determining  whether  any
outstanding  shares  of Series  B-1 Stock  and/or  Series  B-2 Stock  constitute
Restricted Stock with respect to any particular Regulated Stockholder, but shall
instead be entitled to receive,  and rely  exclusively  upon,  a written  notice
provided by such  Regulated  Stockholder  designating  such shares as Restricted
Stock.

            "RESULTING ENTITY" has the meaning set forth in Section 14.

            "SEC" means the Securities and Exchange Commission,  as from time to
time constituted,  created under the Securities  Exchange Act of 1934, or, if at
any time after the adoption of this  Certificate of Designation  such commission
is not  existing  and  performing  the duties now  assigned to it, then the body
performing such duties at such time.

            "SEC REPORTS" has the meaning set forth in Section 15.

            "SECURITIES ACT" has the meaning set forth in Section 4.

            "SENIOR SHARES" has the meaning set forth in Section 9(a).

                                       33
<PAGE>

            "SERIES B PREFERRED  STOCK" means the Series B-1 Preferred Stock and
the Series B-2 Preferred Stock.

            "SERIES B-1 PREFERRED STOCK" has the meaning set forth in Section 1.

            "SERIES B-2  CERTIFICATE OF  DESIGNATIONS"  means the Certificate of
Designations,   Preferences  and  Rights  of  the  Company's  7.50%   Cumulative
Convertible Preferred Stock, Series B-2, due 2015.

            "SERIES B-2 PREFERRED  STOCK" means the Company's  7.50%  Cumulative
Convertible Preferred Stock, Series B-2, due 2015, par value $0.01 per share, to
be issued pursuant to the Series B-2 Certificate of Designations.

            "SERIES C CERTIFICATE  OF  DESIGNATIONS"  means the  Certificate  of
Designations, Preferences and Rights of the Series C Preferred Stock.

            "SERIES C PREFERRED STOCK" means the Company's Convertible Preferred
Stock,  Series C, par value $0.01 per share, to be issued pursuant to the Series
C Certificate of Designations.

            "SHARE  FACTOR"  means  with  respect  to each  share  of  Series  B
Preferred  Stock,  a  fraction,  the  numerator  of  which  is  the  Liquidation
Preference of such share as of the Change of Control Date, without giving effect
to  the  Special  Payment,  and  the  denominator  of  which  is  the  aggregate
Liquidation  Preference of all outstanding shares of Series B Preferred Stock as
of the Change of Control Date, without giving effect to the Special Payment.

            "SHARE OPTION ADJUSTMENT AMOUNT" means an amount equal to $72.00.

            "SPECIAL PAYMENT" has the meaning set forth in Section 13.

            "VOTING CAPITAL STOCK" means with respect to any Person,  securities
of any class or classes of Capital Stock in such Person ordinarily entitling the
holders thereof (whether at all times or at the times that such class of Capital
Stock has voting power by reason of the happening of any contingency) to vote in
the election of members of the board of directors or comparable  governing  body
of such Person.

                                       34
<PAGE>

            IN WITNESS  WHEREOF,  the  Company has caused  this  Certificate  of
Designation to be duly executed by Michael J. Mahoney,  Chief Executive  Officer
of the Company, this [____] day of _____________, 2000.

                                          VIATEL, INC.,

                                          By:
                                             -----------------------------------
                                             Name:    Michael J. Mahoney
                                             Title:   Chief Executive Officer

                                       35
<PAGE>

                                    EXHIBIT A

          "THE SHARES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN
          REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
          "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE
          UNITED  STATES.  SUCH  SHARES  MAY  NOT  BE  OFFERED,  SOLD,
          TRANSFERRED,  PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
          IN THE ABSENCE OF SUCH  REGISTRATION  OTHER THAN PURSUANT TO
          AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS."

<PAGE>

                                                                       EXHIBIT C

                       TERMS OF SERIES B-2 PREFERRED STOCK

The Series B-2 Preferred  Stock shall have identical  rights and  preferences as
the Series B-1 Preferred  Stock,  except that each share of Series B-2 Preferred
Stock (i) shall be  convertible  at the option of the holder thereof into shares
of Series C Preferred Stock (rather than Common Stock of the Company) at (A) the
same ratio as Series B-1  Preferred  Stock is  convertible  at the option of the
holder  thereof to Common  Stock of the Company  DIVIDED BY (B) 100  (subject to
"organic change" anti-dilution and similar equitable adjustments), (ii) shall be
convertible  into one share of Series B-1 Preferred  Stock (except to the extent
the holder thereof is not permitted to do so pursuant to applicable  law), (iii)
shall not vote,  except  with  respect to adverse  amendments  to the Series B-2
Certificate  of  Designations  and the like and as to matters which the Series B
Preferred  Stock  shall  vote  as a  class  (as  described  in  the  Series  B-1
Certificate of Designations) and (iv) shall maintain a 1:1 ratio with each share
of Series B-1 Preferred Stock (i.e., "organic change"  anti-dilution  protection
and similar equitable adjustments). The Series B-2 Preferred Stock shall contain
terms  that do not  adversely  affect in any way the  holders  of the Series B-1
Preferred  Stock and that permit the holders of the Series B-2  Preferred  Stock
thereof to comply with  Regulation  Y of the Board of  Governors  of the Federal
Reserve System, 12 C.F.R. Part 225 (or any successor regulation thereto).

<PAGE>

                                                                       EXHIBIT D

                        TERMS OF SERIES C PREFERRED STOCK

The Series C Preferred Stock shall have the identical  rights and preferences as
the Common Stock of the Company except that each share of the Series C Preferred
Stock (i) shall have a liquidation  preference of $.01 per share over the Common
Stock of the  Company,  (ii)  shall be  convertible  at the option of the holder
thereof into 100 shares of Common Stock of the Company (except to the extent the
holder  thereof is not  permitted to do so pursuant to  applicable  law),  (iii)
shall not vote,  except  with  respect  to  adverse  amendments  to the Series C
Certificate of Designations and the like, (iv) shall maintain a 1:100 ratio with
each share of Common Stock (i.e., "organic change" anti-dilution  protection and
similar  equitable  adjustments)  and (v) shall not be  entitled  to receive any
dividends  except that the holders thereof shall be entitled to participate on a
pro-rata  basis with respect to dividends  paid on shares of Common Stock of the
Company.  The Series C Preferred Stock shall contain terms that do not adversely
affect in any way the holders of the Series B-1 Preferred  Stock and that permit
the holders of the Series C Preferred  Stock thereof to comply with Regulation Y
of the Board of Governors of the Federal Reserve System, 12 C.F.R.
Part 225 (or any successor regulation thereto).

<PAGE>

                                                                       EXHIBIT E

                                 FORM OF WARRANT

THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES  ACT") OR THE SECURITIES
LAWS OF ANY STATE OF THE UNITED  STATES.  SUCH  SECURITIES  MAY NOT BE  OFFERED,
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF SUCH REGISTRATION  OTHER THAN PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.

                                  [HOLDER NAME]

                              COMMON STOCK WARRANT

                          Void after ___________, 2005

Warrant No. A-1

This certifies that, for value received,  or its permitted  assigns is entitled,
subject to the terms and  conditions  set forth herein  (including  the exercise
conditions  of Section 2), to purchase  from Viatel,  Inc.  (the  "Company"),  a
Delaware corporation,  up to _______________ fully paid and nonassessable shares
(the  "Shares")  of Common Stock (as defined  herein) at the  exercise  price of
$75.00 per share (the "Exercise Price"). The Exercise Price and number of Shares
is subject to adjustment as provided in this Warrant. The term "Warrant" as used
herein shall include this Warrant and any warrants  delivered in substitution or
exchange therefor as provided herein.

     1. DEFINITIONS.  As used in this Warrant,  the following terms,  unless the
context otherwise requires, have the following meanings:

            (a) "COMMON STOCK" means shares of the Company's  common stock,  par
value $0.01 per share.

            (b)  "COMPANY"  includes any  corporation  that shall  succeed to or
assume the obligations of the Company under this Warrant.

            (c) "PERSON" means any individual, partnership, corporation, limited
liability  company,  joint venture,  association,  joint-stock  company,  trust,
unincorporated  organization,  government  or  agency or  political  subdivision
thereof, or other entity.

            (d) "PUBLIC OFFERING" shall mean a public offering by the Company of
its Common Stock registered under the Securities Act of 1933, as amended.

<PAGE>

            (e) "WARRANTHOLDER", "Holder of Warrant", "Holder", or similar terms
refers to the holder of this Warrant.

      2.    EXERCISE PROVISIONS.

            (a)  EXERCISABILITY.  The Holder of this  Warrant may exercise it in
whole or in part, by surrender of this Warrant,  accompanied  by a duly executed
Subscription  Form (attached hereto as Annex A), to the Company at its principal
office (or to the office of the Warrant Agent as  contemplated  in Section 6(b),
if applicable), accompanied by payment, in lawful money of the United States, of
the amount  obtained by multiplying the Exercise Price (as adjusted from time to
time  pursuant  to the terms of this  Warrant) by the number of shares of Common
Stock  designated in such  completed  Subscription  Form.  This Warrant shall be
deemed to have been exercised  immediately prior to the close of business on the
day of surrender of such Warrant,  and the person or persons entitled to receive
shares of Common Stock  issuable  upon exercise of this Warrant shall be treated
for all purposes as the record  holder or holders of such shares of Common Stock
at such time.

            (b) PAYMENT OF EXERCISE PRICE.  Payment may be made by check payable
to the Company. The holders of this Warrant may, in lieu of any exercise payment
as set forth above,  pay the Exercise Price by (a)  delivering  shares of Common
Stock having a fair market value equal to the  aggregate  Exercise  Price or (b)
any combination of the methods of payment set forth herein.

            (c) NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary,  if the fair market  value (as  defined  below) of one share of Common
Stock is greater  than the  Exercise  Price (at the date of  calculation  as set
forth  below),  in lieu of  exercising  this Warrant in exchange  for cash,  the
Holder  hereof  may  elect to  exercise  all or a  portion  of this  Warrant  by
canceling all or a portion of this Warrant and  receiving in exchange  therefore
shares of Common Stock equal to the value (as determined below) of this Warrant,
or the portion  thereof  being  canceled,  by  surrender  of this Warrant at the
principal office of the Company (or the office of the Warrant Agent contemplated
by Section 6(b), if applicable) together with a duly executed Subscription Form,
in which  event the  Company  shall  issue to such  Holder a number of shares of
Common Stock computed using the following formula:

                               X=Y(A-B)
                                 ------
                                  A

            Where           X=               the  number  of  shares  of Common
                                             Stock to be issued to the Holder

                            Y=               the  number  of  shares  of Common
                                             Stock    purchasable   under   the
                                             Warrant  or, if only a portion  of
                                             the  Warrant  is being  exercised,
                                             under the  portion of the  Warrant
                                             being  exercised  (at the  date of
                                             such calculation)

                            A=               the  fair  market   value  of  one
                                             share  of  the  Common  Stock  (at
                                             the date of such calculation)

                                       2
<PAGE>

                            B=               The  Exercise  Price (as  adjusted
                                             at the date of such calculation)

      For  purposes of the above  calculation  and Section  2(b),  "fair  market
value" of one share of Common Stock shall be determined  by the Company's  Board
of Directors in good faith; PROVIDED,  HOWEVER, where a public market exists for
the Common  Stock at the time of such  exercise,  the "fair market  value",  per
share  shall be the  product  of (x) the  average of the  closing  bid and asked
prices of the Common Stock quoted in the Over-The-Counter  Market Summary or the
last  reported sale price of the Common Stock or the closing price quoted on the
Nasdaq  National Market System or any exchange on which the Common Stock is then
listed, whichever is applicable, as published in The Wall Street Journal for the
five  trading  days prior to the date of exercise of this Warrant or any portion
thereof and (y) the number of shares of Common  Stock for which this  Warrant is
exercisable at the time of such exercise.

            (d)  RESTRICTIONS  ON EXERCISE.  This Warrant is  exercisable at any
time and from time to time from the date hereof,  provided  this Warrant has not
terminated pursuant to Section 10.

      3.  DELIVERY  OF STOCK  CERTIFICATES.  As soon as  possible  after full or
partial  exercise of this  Warrant  and in any event  within ten days after such
exercise,  the Company,  at its expense,  will cause to be issued in the name of
and delivered to the Holder of this Warrant,  a certificate or certificates  for
the number of fully paid and nonassessable  shares of Common Stock to which that
Holder shall be entitled upon such exercise,  together with any other securities
and property to which that Holder is entitled upon such exercise under the terms
of this  Warrant.  In the event that this  Warrant  is  exercised  in part,  the
Company at its  expense  will  execute  and  deliver a new Warrant of like tenor
exercisable  for the  number  of  Shares  for  which  this  Warrant  may then be
exercised. No fractional shares or script representing fractional shares will be
issued upon  exercise of this  Warrant.  If upon any  exercise of this Warrant a
fraction  of a Share  results,  the  Company  will  pay the  cash  value of that
fractional  Share,  calculated  on the basis of the fair market  value as of the
date of exercise.

      4.    ADJUSTMENT PROVISIONS.

            For purposes of this Section 4, all references to Common Stock shall
be deemed to include Series C Preferred Stock of the Company (on an as-converted
basis). The Exercise Price shall be adjusted from time to time by the Company as
follows:

            (a)  If  the  Company  shall  hereafter  pay a  dividend  or  make a
distribution to all holders of the outstanding  shares of Common Stock in shares
of Common Stock,  the Exercise Price in effect at the opening of business on the
date following the date fixed for the determination of shareholders  entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Exercise  Price by a  fraction  the  numerator  of which  shall be the number of
shares of Common Stock  outstanding at the close of business on the Common Stock
Record Date (as defined in Section  4(h)(ii)) fixed for such  determination  and
the  denominator  of which shall be the sum of (x) such number of shares and (y)
the total number of shares  constituting  such  dividend or other  distribution,
such reduction to become effective  immediately after the opening of business on
the day following the Common Stock Record Date. If any dividend or  distribution
of the type  described in this Section 4(a) is declared but not so paid or made,
the  Exercise  Price shall again be adjusted to the  Exercise  Price which would
then be in effect if such dividend or distribution had not been declared.

                                       3
<PAGE>

            (b) In case the Company  shall issue or sell any Common Stock (other
than Common Stock issued (i) pursuant to the Company's  existing or future stock
option plans or pursuant to any other  existing or future  Common  Stock-related
director or employee  compensation  plan of the Company approved by the Board of
Directors,  (ii)  pursuant to the  Company's  existing or future stock  purchase
plans which permit Company employees to purchase Common Stock at a 15% discount,
(iii) as consideration for the acquisition of a business or of assets, (iv) in a
firm commitment  underwritten  public offering when either (A) the  underwriting
discount is less than 5%, or (B) the  offering  price per share is greater  than
the Exercise Price,  (v) to the Company's joint venture partners in exchange for
interests in the relevant joint venture,  or (vi) upon exercise or conversion of
any  security  the  issuance  of which  caused an  adjustment  hereunder  or the
issuance of which did not require adjustment hereunder) without consideration or
for a consideration  per share less than the Current Market Price (as defined in
Section  4(h)(iii))  on the date of such  issuance,  or shall  issue  securities
convertible  into Common Stock having a conversion price per share less than the
Current Market Price at the date of issuance of such convertible  security,  the
Exercise  Price to be in effect after such  issuance or sale shall be determined
by multiplying the Exercise Price in effect  immediately  prior to such issuance
or sale by a fraction, the numerator of which shall be the sum of (x) the number
of shares of Common Stock outstanding immediately prior to such issuance or sale
and (y) the number of shares of Common Stock which the  aggregate  consideration
receivable  by the Company for the total number of  additional  shares of Common
Stock so issued or sold (or, in the case of convertible securities,  issuable on
conversion)  would  purchase at the Current  Market Price in effect  immediately
prior to such issuance or sale and the  denominator of which shall be the sum of
the  number  of shares of Common  Stock  outstanding  immediately  prior to such
issuance  or sale and the  number of  additional  shares  of Common  Stock to be
issued  or  sold  (or,  in the  case  of  convertible  securities,  issuable  on
conversion).  In case any  portion of the  consideration  to be  received by the
Company  shall be in a form  other than cash,  the "fair  market  value" of such
noncash consideration shall be utilized in the foregoing computation.  Such fair
market value shall be determined in good faith by the Board of Directors.

            (c) If the Company shall offer or issue options,  rights or warrants
to all  holders of its  outstanding  shares of Common  Stock  entitling  them to
subscribe for or purchase  shares of Common Stock at a price per share less than
the  Current  Market  Price  on the  Common  Stock  Record  Date  fixed  for the
determination  of  shareholders  entitled  to receive  such  options,  rights or
warrants,  the Exercise Price shall be adjusted so that the same shall equal the
price  determined by multiplying  the Exercise Price in effect at the opening of
business  on the date after such  Common  Stock  Record  Date by a fraction  the
numerator  of which shall be the sum of (x) the number of shares of Common Stock
outstanding at the close of business on the Common Stock Record Date and (y) the
number of shares of Common Stock which the aggregate offering price of the total
number of shares of Common  Stock  subject to such  options,  rights or warrants
would purchase at such Current  Market Price and the  denominator of which shall
be the sum of (x) the number of shares of Common Stock  outstanding at the close
of  business  on the  Common  Stock  Record  Date and (y) the  total  number  of
additional  shares of Common Stock subject to such  options,  rights or warrants
for subscription or purchase. Such adjustment shall become effective immediately
after the opening of business on the day  following the Common Stock Record Date
fixed for  determination  of  shareholders  entitled to purchase or receive such
options,  rights or warrants.  To the extent that shares of Common Stock are not
delivered pursuant to such options,  rights or warrants,  upon the expiration or
termination of such options,  rights or warrants the Exercise Price (as adjusted
pursuant to this Section 4(c)) shall again be adjusted to be the Exercise  Price
which would then be in effect had the adjustments made upon the issuance of such
options,  rights or  warrants  been made on the  basis of  delivery  of only the
number of shares of Common Stock actually delivered.  If such options, rights or
warrants  are not so issued,  the Exercise  Price (as adjusted  pursuant to this
Section 4(c)) shall again be adjusted to be the Exercise  Price which would then
be in effect if such date fixed for the  determination of shareholders  entitled

                                       4
<PAGE>

to receive such options,  rights or warrants had not been fixed.  In determining
whether any options,  rights or warrants entitle the holders to subscribe for or
purchase  shares of Common Stock at less than such Current Market Price,  and in
determining the aggregate  offering price of such shares of Common Stock,  there
shall be taken into account (1) any  consideration  received  for such  options,
rights or warrants,  with the value of such consideration and the amount of such
exercise or  subscription  price,  if other than cash,  to be determined in good
faith by the Board of  Directors  and (2) the  amount of any  exercise  price or
subscription  price required to be paid upon exercise of such options,  warrants
or rights.

            (d) If the  outstanding  shares of Common Stock shall be  subdivided
into a greater number of shares of Common Stock, the Exercise Price in effect at
the opening of business on the day following the day upon which such subdivision
becomes effective shall be  proportionately  reduced,  and,  conversely,  if the
outstanding  shares of Common Stock shall be combined  into a smaller  number of
shares of Common Stock,  the Exercise Price in effect at the opening of business
on the day following the day upon which such combination becomes effective shall
be proportionately increased; such reduction or increase, as the case may be, to
become effective  immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.

            (e) (i) If the Company shall,  by dividend or otherwise,  distribute
to all holders of its shares of Common  Stock any class of capital  stock of the
Company  (other  than any  dividends  or  distributions  to which  Section  4(a)
applies) or  evidences  of its  indebtedness,  cash or other  assets  (including
securities, but excluding any options, rights, or warrants of a type referred to
in Section 4(c), and dividends and  distributions  paid  exclusively in cash and
excluding  any  capital  stock,  evidences  of  indebtedness,   cash  or  assets
distributed  upon a merger or  consolidation to which Section 4(m) applies) (the
foregoing hereinafter in this Section 4(e) called the "Distributed Securities"),
then,  in each such case,  the Exercise  Price shall be reduced so that the same
shall be equal to the price  determined  by  multiplying  the Exercise  Price in
effect  immediately  prior to the close of business on the Common  Stock  Record
Date with  respect to such  distribution  by a fraction  the  numerator of which
shall be the  difference  between (x) the Current Market Price on such date over
(y) the fair market value (as  determined by the Board of Directors,  whose good
faith  determination  shall be  conclusive  and described in a resolution of the
Board of  Directors) on such date of the portion of the  Distributed  Securities
applicable  to one share of Common Stock and the  denominator  of which shall be
such Current Market Price, such reduction to become effective  immediately prior
to the opening of business on the day  following  the Common  Stock Record Date;
PROVIDED,  HOWEVER,  that,  in the  event  the then  fair  market  value  (as so
determined) of the portion of the Distributed Securities applicable to one share
of Common  Stock is equal to or greater  than the  Current  Market  Price on the
Common  Stock  Record  Date,  in  lieu  of the  foregoing  adjustment,  adequate
provision  shall be made so that each  Holder  shall have the right to  receive,
upon  exercise  of  such  Warrant  (or  any  portion  thereof),  the  amount  of
Distributed Securities such Holder would have received had such Holder exercised
such Warrant (or portion thereof)  immediately prior to such Common Stock Record
Date.  If such  dividend or  distribution  is not so paid or made,  the Exercise
Price (as adjusted  pursuant to this Section 4(e)(i)) shall again be adjusted to
be the  Exercise  Price  which  would  then be in  effect  if such  dividend  or
distribution  had not been  declared.  If the Board of Directors  determines the
fair market  value of any  distribution  for  purposes of this  Section  4(e) by
reference  to the  actual  or when  issued  trading  market  for any  securities
constituting all or part of such  distribution,  the Board of Directors must, in
doing so,  consider  the price of the Common  Stock in such market over the same
period used in computing the Current Market Price pursuant to Section 4(h)(iii),
to the extent possible.

                  (ii) Options, rights or warrants distributed by the Company to
all holders of shares of Common Stock entitling the holders thereof to subscribe
for or purchase shares of the Company's capital stock (either initially or under

                                       5
<PAGE>

certain circumstances),  which options, rights or warrants, until the occurrence
of a specified event or events ("Dilution Trigger Event"):  (A) are deemed to be
transferred with such shares of Common Stock;  (B) are not exercisable;  and (C)
are also issued in respect of future issuances of shares of Common Stock,  shall
be deemed not to have been  distributed  for purposes of this  Section  4(e)(ii)
(and no adjustment to the Exercise  Price under this Section  4(e)(ii)  shall be
required) until the occurrence of the earliest Dilution Trigger Event, whereupon
such options,  rights and warrants shall be deemed to have been  distributed and
an  appropriate  adjustment  to the Exercise  Price under this Section  4(e)(ii)
shall be made.  If any such  options,  rights or  warrants,  including  any such
existing options,  rights or warrants distributed prior to the first issuance of
the Warrants,  are subject to subsequent  events,  upon the  occurrence of which
such options,  rights or warrants shall become exercisable to purchase different
securities,  evidences of indebtedness  or other assets,  then the occurrence of
each such event shall be deemed to be such date of issuance and record date with
respect to new options,  rights or warrants (and a termination  or expiration of
the  existing  options,  rights or  warrants,  without  exercise  by the  holder
thereof). In addition, in the event of any distribution (or deemed distribution)
of options,  rights or  warrants,  or any  Dilution  Trigger  Event with respect
thereto,  that was counted for purposes of calculating a distribution amount for
which an adjustment to the Exercise Price under this Section  4(e)(ii) was made,
(1) in the case of any such options,  rights or warrants all of which shall have
been  redeemed or  repurchased  without  exercise by any  holders  thereof,  the
Exercise  Price  (as  adjusted  pursuant  to this  Section  4(e)(ii))  shall  be
readjusted  upon such final  redemption  or  repurchase  to give  effect to such
distribution or Dilution  Trigger Event, as the case may be, as though it were a
cash distribution equal to the per share redemption or repurchase price received
by a holder or holders of shares of Common Stock with  respect to such  options,
rights or warrants  (assuming  such holder had retained such options,  rights or
warrants),  made to all holders of shares of Common Stock as of the date of such
redemption  or  repurchase,  and  (2) in the  case of such  options,  rights  or
warrants  which shall have expired or been  terminated  without  exercise by any
holders  thereof,  the  Exercise  Price (as  adjusted  pursuant to this  Section
4(e)(ii))  shall be readjusted  to be the Exercise  Price which would then be in
effect if such options, rights or warrants had not been issued.

                  (iii) Notwithstanding any other provision of this Section 4(e)
to the contrary,  options,  rights, warrants,  evidences of indebtedness,  other
securities,  cash or other assets  (including,  without  limitation,  any rights
distributed pursuant to any shareholder rights plan) shall be deemed not to have
been  distributed  for purposes of this Section 4(e) if the Company makes proper
provision  so that each Holder who  exercises  such  Holder's  Warrants  (or any
portion thereof) after the date fixed for determination of shareholders entitled
to receive any such options, rights, warrants, evidences of indebtedness,  other
securities,  cash or other assets  (including,  without  limitation,  any rights
distributed  pursuant  to any  shareholder  rights  plan)  shall be  entitled to
receive upon such  exercise,  in addition to the shares of Common Stock issuable
upon such exercise, the amount and kind of any such options,  rights,  warrants,
evidences of indebtedness,  other securities,  cash or other assets  (including,
without  limitation,  any rights distributed  pursuant to any shareholder rights
plan) that such Holder  would have been  entitled to receive if such Holder had,
immediately prior to such determination date, exercised such Warrants.

                  (iv) For purposes of Section 4(e) and Sections  4(a) and 4(c),
any dividend or  distribution to which this Section 4(e) is applicable that also
includes shares of Common Stock, or options, rights or warrants to subscribe for
or purchase  shares of Common  Stock to which 4(c)  applies (or both),  shall be
deemed  instead  to be  (A) a  dividend  or  distribution  of the  evidences  of
indebtedness,  assets,  shares of capital  stock,  rights or warrants other than
such shares of Common Stock or options,  rights or warrants to subscribe  for or
purchase shares of Common Stock, to which Section 4(c) applies (and any Exercise
Price  reduction  required by this Section 4(e) with respect to such dividend or
distribution  shall then be made),  immediately  followed  by (B) a dividend  or

                                       6
<PAGE>

distribution of such shares of Common Stock or such options,  rights or warrants
to subscribe for or purchase shares of Common Stock,  (and any further  Exercise
Price reduction  required by Sections 4(a) or 4(c) with respect to such dividend
or  distribution  shall then be made),  except that (1) the Common  Stock Record
Date of such dividend or  distribution  shall be  substituted as "the date fixed
for the determination of stockholders entitled to receive such dividend or other
distribution",  "the Common Stock Record Date fixed for such  determination" and
"the Common  Stock  Record  Date" within the meaning of Section 4(a) and as "the
Common  Stock  Record  Date  fixed for the  determination  of the share  holders
entitled to receive such  options,  rights or  warrants"  and "such Common Stock
Record  Date" for purposes of Section  4(c),  and (2) any shares of Common Stock
included in such dividend or  distribution  shall not be deemed  "outstanding at
the close of business on the date fixed for such determination" for the purposes
of Section 4(a).

            (f) If the Company  shall,  by dividend or otherwise,  distribute to
all  holders of its  shares of Common  Stock  cash  (excluding  any cash that is
distributed  upon a merger or  consolidation to which Section 4(m) applies or as
part of a distribution referred to in Sections 4(e)(i)-4(e)(iv)) in an aggregate
amount that,  combined  together with (i) the aggregate amount of any other such
distributions  to all holders of its shares of Common Stock made  exclusively in
cash within the 12 months  preceding  the date of payment of such  distribution,
and in respect of which no  adjustment  pursuant to this  Section  4(f) has been
made,  and (ii) the  aggregate  of any  cash,  plus the fair  market  value  (as
determined by the Board of Directors,  whose good faith  determination  shall be
conclusive  and  described  in a  resolution  of  the  Board  of  Directors)  of
consideration  payable in respect of any tender  offer by the Company for all or
any  portion  of the  shares  of Common  Stock  concluded  within  the 12 months
preceding the date of payment of such  distribution,  and in respect of which no
adjustment  pursuant to Section 4(g) has been made,  then, and in each such case
immediately  after the close of business on such date,  the Exercise Price shall
be reduced so that the same shall equal the price  determined by multiplying the
Exercise  Price in effect  immediately  prior to the close of  business  on such
Common Stock Record Date by a fraction the  numerator of which shall be equal to
the Current Market Price on the Common Stock Record Date less an amount equal to
the quotient of (x) such combined  amount and (y) the number of shares of Common
Stock  outstanding on the Common Stock Record Date and the  denominator of which
shall be equal to the Current  Market  Price on such Common  Stock  Record Date;
PROVIDED, HOWEVER, that, if the portion of the cash so distributed applicable to
one share of Common Stock is equal to or greater  than the Current  Market Price
of the Common Stock on the Common Stock  Record Date,  in lieu of the  foregoing
adjustment,  adequate provision shall be made so that each Holder shall have the
right to receive  upon  exercise of such  Warrant (or any portion  thereof)  the
amount of cash such Holder would have  received had such Holder  exercised  such
Warrant (or portion thereof) immediately prior to such Common Stock Record Date.
If such dividend or  distribution is not so paid or made, the Exercise Price (as
adjusted  pursuant  to this  Section  4(f))  shall  again be  adjusted to be the
Exercise  Price which would then be in effect if such  dividend or  distribution
had not been declared.

            (g) If a tender offer made by the Company or any of its subsidiaries
for all or any portion of the Common  Stock  expires  and such tender  offer (as
amended upon the expiration thereof) requires the payment to shareholders (based
on the acceptance (up to any maximum specified in the terms of the tender offer)
of Purchased  Shares) of an aggregate  consideration  having a fair market value
(as determined by the Board of Directors,  whose good faith  determination shall
be conclusive  and  described in a resolution  of the Board of Directors)  that,

                                       7
<PAGE>

combined  together with (A) the aggregate of the cash plus the fair market value
(as determined by the Board of Directors,  whose good faith  determination shall
be conclusive  and described in a resolution of the Board of  Directors),  as of
the expiration of such tender offer, of consideration  payable in respect of any
other tender offers,  by the Company or any of its  subsidiaries  for all or any
portion of the shares of Common Stock  expiring  within the 12 months  preceding
the  expiration  of such  tender  offer and in  respect  of which no  adjustment
pursuant to this Section 4(g) has been made and (B) the aggregate  amount of any
distributions to all holders of the Common Stock made exclusively in cash within
12 months  preceding the expiration of such tender offer and in respect of which
no adjustment  pursuant to Section 4(f) has been made,  exceeds 5% of the income
of the Company  reported for the 12 month period ending with the fiscal  quarter
next  preceding such payment  (determined  as of the last time (the  "Expiration
Time")  tenders could have been made pursuant to such tender offer (as it may be
amended)) times the number of shares of Common Stock outstanding  (including any
tendered  shares)  at  the  Expiration  Time,  then,  and  in  each  such  case,
immediately  prior to the  opening of  business on the day after the date of the
Expiration  Time,  the  Exercise  Price shall be adjusted so that the same shall
equal  the  price  determined  by  multiplying  the  Exercise  Price  in  effect
immediately prior to the close of business on the date of the Expiration Time by
a fraction  the  numerator of which shall be the product of the number of shares
of Common Stock  outstanding  (including any tendered  shares) at the Expiration
Time  multiplied by the Current  Market Price of the Common Stock on the trading
day next  succeeding the Expiration  Time and the  denominator of which shall be
the sum of (x) the fair market value  (determined as aforesaid) of the aggregate
consideration payable to shareholders based on the acceptance (up to any maximum
specified in the terms of the tender offer) of all shares  validly  tendered and
not withdrawn as of the  Expiration  Time (the shares deemed so accepted,  up to
any such  maximum,  being  referred to as the  "Purchased  Shares")  and (y) the
product of the number of shares of Common Stock  outstanding (less any Purchased
Shares) at the  Expiration  Time and the Current  Market  Price of the shares of
Common  Stock on the trading  day next  succeeding  the  Expiration  Time,  such
reduction  (if any) to become  effective  immediately  prior to the  opening  of
business on the day following the  Expiration  Time. If the Company is obligated
to  purchase  shares  pursuant  to any such  tender  offer,  but the  Company is
permanently prevented by applicable law from effecting any such purchases or all
such purchases are rescinded,  the Exercise Price (as adjusted  pursuant to this
Section 4(g)) shall again be adjusted to be the Exercise  Price which would then
be in effect if such tender offer had not been made. If the  application of this
Section  4(g) to any tender  offer would  result in an increase in the  Exercise
Price,  no  adjustment  shall be made for such tender  offer under this  Section
4(g).

            (h) For  purposes of Section 4, the  following  terms shall have the
meaning indicated:

            (i) "CLOSING  PRICE" with respect to any securities on any day means
the closing price as of 4:00 p.m.  Eastern Time on such day or any earlier final
closing on such day or, if no such sale takes place on such day,  the average of
the  reported  high and low  prices  on such  day,  in each  case on the  Nasdaq
National  Market,  or the New York Stock  Exchange,  as applicable,  or, if such
security  is not  listed or  admitted  to  trading  on such  national  market or
exchange, on the national stock exchange or nationally recognized trading market
in the United  States on which such  security is quoted or listed or admitted to
trading,  or, if not quoted or listed or  admitted  to  trading on any  national
stock exchange or nationally recognized trading market in the United States, the
average  of the high and low  prices of such  security  on the  over-the-counter
market on the day in  question as reported  by the  National  Quotation  Bureau,
Incorporated or a similar  generally  accepted  reporting  service in the United
States,  or, if not so  available,  in such manner as  furnished by any New York
Stock Exchange  member firm selected from time to time by the Board of Directors
for that purpose, or a price determined in good faith by the Board of Directors,

                                       8
<PAGE>

whose  determination  shall be  conclusive  and described in a resolution of the
Board of Directors.

            (ii) "COMMON STOCK RECORD DATE" means, with respect to any dividend,
distribution or other  transaction or event in which the holders of Common Stock
have the right to receive any cash,  securities or other property or pursuant to
which the  Common  Stock (or other  applicable  security)  is  exchanged  for or
converted into any combination of cash,  securities or other property,  the date
fixed  for  determination  of  shareholders   entitled  to  receive  such  cash,
securities  or other  property  (whether  such  date is  fixed  by the  Board of
Directors or by statute, contract or otherwise).

            (iii) "CURRENT  MARKET PRICE" means the average of the daily closing
prices  per  share  of  Common  Stock  for  the  ten  consecutive  trading  days
immediately prior to the date in question;  PROVIDED,  HOWEVER,  that (A) if the
"ex" date (as  hereinafter  defined)  for any event  (other than the issuance or
distribution  requiring  such  computation)  that  requires an adjustment to the
Exercise Price pursuant to Section 4(a),  4(b),  4(c),  4(d), 4(e), 4(f) or 4(g)
occurs  during such ten  consecutive  trading  days,  the closing price for each
trading  day prior to the "ex" date for such other  event  shall be  adjusted by
multiplying  such closing price by the same fraction by which the Exercise Price
is so required to be adjusted as a result of such other  event,  (B) if the "ex"
date for any event  (other than the  issuance  or  distribution  requiring  such
computation)  that  requires an  adjustment  to the Exercise  Price  pursuant to
Section 4(a),  4(b),  4(c), 4(d), 4(e), 4(f) or 4(g) occurs on or after the "ex"
date for the issuance or  distribution  requiring such  computation and prior to
the day in  question,  the closing  price for each  trading day on and after the
"ex" date for such other event shall be adjusted  by  multiplying  such  closing
price by the  reciprocal  of the  fraction  by which  the  Exercise  Price is so
required to be adjusted as a result of such other event and (C) if the "ex" date
for the issuance or distribution  requiring such computation is prior to the day
in  question,  after  taking into account any  adjustment  required  pursuant to
clause (A) or (B) of this proviso,  the closing price for each trading day on or
after such "ex" date shall be adjusted by adding  thereto the amount of any cash
and the fair market value (as  determined  by the Board of Directors in a manner
consistent  with any good  faith  determination  of such value for  purposes  of
Section 4(e) or 4(f),  whose good faith  determination  shall be conclusive  and
described  in a  resolution  of the  Board of  Directors)  of the  evidences  of
indebtedness,  shares of capital stock or assets being distributed applicable to
one share of Common  Stock as of the close of  business  on the day before  such
"ex" date.  For purposes of any  computation  under  Section  4(f),  the Current
Market Price on any date shall be deemed to be the average of the daily  closing
prices  per  share of  Common  Stock  for  such day and the next two  succeeding
trading  days;  PROVIDED,  HOWEVER,  that, if the "ex" date for any event (other
than the tender offer requiring such computation) that requires an adjustment to
the Exercise Price pursuant to Section 4(a),  4(b),  4(c),  4(d),  4(e), or 4(g)
occurs  on or  after  the  Expiration  Time for the  tender  or  exchange  offer
requiring such  computation and prior to the day in question,  the closing price
for each  trading  day on and after the "ex" date for such other  event shall be
adjusted by multiplying  such closing price by the reciprocal of the fraction by
which the Exercise Price is so required to be adjusted as a result of such other
event.  For  purposes of this  paragraph,  the term "ex" date (1) when used with
respect  to any  issuance  or  distribution,  means the first  date on which the
shares of Common  Stock  trade  regular way on the  relevant  exchange or in the
relevant  market from which the closing price was obtained  without the right to
receive  such  issuance  or  distribution,  (2) when  used with  respect  to any
subdivision or  combination  of shares of Common Stock,  means the first date on
which the shares of Common Stock trade  regular way on such  exchange or in such
market after the time at which such subdivision or combination becomes effective

                                       9
<PAGE>

and (3) when used with  respect to any tender or exchange  offer means the first
date on which the shares of Common Stock trade  regular way on such  exchange or
in such market  after the  Expiration  Time of such offer.  Notwithstanding  the
foregoing,  whenever successive adjustments to the Exercise Price are called for
pursuant to this Section 4, such adjustments shall be made to the Current Market
Price as may be  necessary  or  appropriate  to  effectuate  the  intent of this
Section 4 and to avoid unjust or  inequitable  results,  as  determined  in good
faith by the Board of Directors.

            (iv) "FAIR  MARKET  VALUE"  means the amount  which a willing  buyer
would pay a willing seller in an arm's-length transaction.

            (i) No  adjustment  in the Exercise  Price shall be required  unless
such  adjustment  would  require an  increase or decrease of at least 1% in such
price;  provided,  however, that any adjustments which by reason of this Section
4(i) are not required to be made shall be carried forward and taken into account
in any subsequent  adjustment.  All  calculations  under this Section 4 shall be
made by the Company and shall be made to the nearest cent. No adjustment need be
made for a change in the par value or no par value of the Common Stock.

            (j) Whenever the Exercise Price is adjusted as herein provided,  the
Company shall promptly file with the Registrar an Officers'  Certificate setting
forth the  Exercise  Price  after  such  adjustment  and  setting  forth a brief
statement of the facts  requiring  such  adjustment.  Promptly after delivery of
such  certificate,  the Company shall prepare a notice of such adjustment of the
Exercise  Price setting forth the adjusted  Exercise Price and the date on which
each adjustment  becomes effective and shall mail such notice of such adjustment
of the  Exercise  Price to each  holder of Series  B-1  Preferred  Stock at such
holder's last address  appearing on the register of holders  maintained for that
purpose  within 20 days of the  effective  date of such  adjustment.  Failure to
deliver  such  notice  shall not affect the  legality  or  validity  of any such
adjustment.

            (k) In any case in which this Section 4 provides  that an adjustment
shall  become  effective  immediately  after a Common  Stock  Record Date for an
event, the Company may defer, until the occurrence of such event, issuing to the
holder of any Series B-1  Preferred  Stock  converted  after such  Common  Stock
Record Date and before the occurrence of such event,  the  additional  shares of
Common Stock issuable upon such conversion by reason of the adjustment  required
by such  event  over and above the  shares of Common  Stock  issuable  upon such
conversion before giving effect to such adjustment.

            (l) For  purposes of this  Section 4, the number of shares of Common
Stock at any time  outstanding  shall not include shares of Common Stock held in
the treasury of the Company.  The Company shall not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the Company.

                                       10
<PAGE>

            (m) In case of any  consolidation  of the Company with, or merger of
the Company  into,  any other  corporation,  or in case of any merger of another
corporation  into the  Company  (other than a merger that does not result in any
reclassification,  conversion,  exchange or cancelation of outstanding shares of
Common  Stock),  or in  case  of any  sale,  conveyance  or  transfer  of all or
substantially  all the assets of the Company,  the Holders  shall have the right
thereafter,  during the period such Warrant shall be exercisable as specified in
Section 2(a), to exercise such Warrants into the kind and amount of  securities,
cash and other property receivable upon such consolidation,  merger,  conveyance
or  transfer  by a holder of the number of shares of Common  Stock for which the
Warrants  might have been  exercised  immediately  prior to such  consolidation,
merger,  conveyance or transfer,  assuming such holder of shares of Common Stock
failed to exercise his rights of  election,  if any, as to the kind or amount of
securities, cash and other property receivable upon such consolidation,  merger,
conveyance or transfer (PROVIDED that, if the kind or amount of securities, cash
and other property  receivable upon such  consolidation,  merger,  conveyance or
transfer is not the same for each share of Common Stock in respect of which such
rights of election shall not have been exercised ("nonelecting share"), then for
the purpose of this  Section  4(m) the kind and amount of  securities,  cash and
other  property  receivable  upon  such  consolidation,  merger,  conveyance  or
transfer by each nonelecting  share shall be deemed to be the kind and amount so
receivable per share by a plurality of the nonelecting shares).  Such securities
shall provide for adjustments which, for events subsequent to the effective date
of the triggering event,  shall be as nearly equivalent as may be practicable to
the adjustments  provided for in this Section 4(m). The above provisions of this
Section  4(m)  shall  similarly  apply to  successive  consolidations,  mergers,
conveyances or transfers.

            (n) Upon each  adjustment  of the Exercise  Price as a result of the
operation  this Section 4, this Warrant shall  thereafter  evidence the right to
purchase,  at the adjusted Exercise Price, that number of shares of Common Stock
obtained by multiplying the number of shares covered by this Warrant immediately
prior to this  adjustment by the Exercise Price in effect  immediately  prior to
such  adjustment  and dividing the product so obtained by the Exercise  Price in
effect immediately after such adjustment of the Exercise Price.

      5. NOTICE OF CERTAIN  EVENTS.  If at any time prior to the  termination or
full exercise of this Warrant:

            (a) the Company shall  declare any dividend  payable in stock of any
class upon its Common Stock,  make any distribution to the holders of its Common
Stock or offer  for  subscription  pro  rata to  holders  of  Common  Stock  any
additional shares of stock of any class or other rights;

            (b) there shall be any  reclassification  of the Common Stock of the
Company;

            (c) there shall be any  consolidation  or merger of the Company with
or  into,  or  sale  of all or  substantially  all of  its  assets  to,  another
corporation;

            (d)  there  shall  be  a  voluntary  or   involuntary   dissolution,
liquidation or winding up of the Company; or

            (e)   there shall be a Public Offering;

then,  in any one or more of such cases,  the  Company  shall give the Holder at
least 10 days'  prior  written  notice  of the  date on which  the  books of the
Company shall close or a record shall be taken for such  dividend,  distribution

                                       11
<PAGE>

or subscription  rights or for determining rights to vote in respect to any such
reclassification,  consolidation,  merger,  sale,  dissolution,  liquidation  or
winding  up or of the date of a filing  of a  registration  statement  under the
Securities  Act for a  Public  Offering.  Such  notice  in  accordance  with the
foregoing  clause  shall  also  specify,  in  the  case  of any  such  dividend,
distribution  or  subscription  rights,  the date on which the Holders  shall be
entitled thereto,  and such notice in accordance with the foregoing clause shall
also specify the date on which the Holders  shall be entitled to exchange  their
Common  Stock  for   securities  or  other   property   deliverable   upon  such
reclassification,  consolidation,  merger,  sale,  dissolution,  liquidation  or
winding  up, as the case may be.  Each  such  written  notice  shall be given by
first-class mail,  postage  prepared,  addressed to the Holder at the address of
such holder as shown on the books of the Company.

      6.    TRANSFER OF WARRANTS.

      (a) WARRANT REGISTER.  The Company shall maintain a register (the "Warrant
Register")  containing  the  names,  addresses  and  facsimile  numbers  of  the
Holder(s).  Any Holder of this  Warrant or any  portion  thereof  may change its
address  as shown on the  Warrant  Register  by  written  notice to the  Company
requesting  such a change.  Until this  Warrant is  transferred  on the  Warrant
Register,  the Company may treat the Holder as shown on the Warrant  Register as
the absolute owner of this Warrant for all purposes,  notwithstanding any notice
to the contrary.

      (b)  WARRANT  AGENT.  The Company  may,  by written  notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section  6(a) above,  issuing any other  securities  then  issuable  upon the
exercise of this Warrant, exchanging this Warrant, replacing this Warrant or any
or all  of  the  foregoing.  Thereafter,  any  such  registration,  issuance  or
replacement, as the case may be, shall be made at the office of such agent.

      (c)  TRANSFERABILITY  AND NEGOTIABILITY OF WARRANT.  Title to this Warrant
may be  transferred by endorsement  (by a Holder  executing the Assignment  Form
attached  hereto  as Annex B) and  delivery  in the same  manner  as  negotiable
instruments transferable by endorsement and delivery.

      (d) EXCHANGE OF WARRANT UPON A TRANSFER.  On surrender of this Warrant for
exchange, properly endorsed on the Assignment Form and subject to the provisions
of this Warrant with respect to compliance  with the Securities Act, the Company
at its  expense  shall  issue to or on the order of the Holder a new  Warrant or
Warrants of like tenor,  in the name of the Holder or as such Holder (on payment
by such Holder of any applicable transfer taxes) may direct, exercisable for the
number of Shares issuable upon the exercise hereof.

      7.  REGISTRATION  RIGHTS. If the Holder of this Warrant is a party to that
certain  Registration Rights Agreement,  dated , 2000 (the "Registration  Rights
Agreement"), such Holder shall be entitled to include any shares of Common Stock
or other  securities  received  upon  exercise of the Warrant with such Holder's
Registrable  Securities  (as such term is  defined  in the  Registration  Rights
Agreement),  on the terms and conditions as set forth in the Registration Rights
Agreement.  The  Holder of this  Warrant  shall be  entitled  to  condition  any
exercise of this Warrant upon the consummation of any transaction  including any
merger, public or private offering, sale of assets or similar transaction.

      8.  AMENDMENT AND WAIVERS.  No amendment,  modification  or termination of
this Warrant shall be binding unless  executed in writing by the Company and the
Warrantholder intending to be bound thereby.

                                       12
<PAGE>

      9. WAIVERS AND  EXTENSIONS.  Any provision of this Warrant may be amended,
waived or modified only if such amendment, waiver or modification is in writing,
is signed by the party intending to be bound,  and  specifically  refers to this
Warrant.  Waivers may be made in advance or after the right waived has arisen or
the breach or default  waived has occurred.  Any waiver may be  conditional.  No
waiver of any breach of any  agreement or provision  herein  contained  shall be
deemed a waiver of any preceding or succeeding  breach  thereof nor of any other
agreement  or  provision  herein  contained.  No waiver or extension of time for
performance of any  obligations or acts shall be deemed a waiver or extension of
the time for performance of any other obligations or acts.

      10. TERMINATION. The right to exercise this Warrant shall expire and shall
be void at 5:00 p.m. New York city time on ___________, 2005.

      11.  RESERVATION OF STOCK. The Company covenants that it will at all times
reserve and keep  available,  solely for issuance upon exercise of this Warrant,
all shares of Common Stock or other  securities  from time to time issuable upon
exercise of this Warrant and, subject to any existing  contractual  limitations,
from time to time,  will take all steps  necessary to amend its  Certificate  of
Incorporation to provide sufficient  reserves of shares of Common Stock or other
securities issuable upon exercise of this Warrant. The Company further covenants
that all shares that may be issued upon the  exercise of rights  represented  by
this Warrant and payment of the Exercise  Price,  as set forth  herein,  will be
fully  paid and  non-assessable  and free from all taxes,  liens and  charges in
respect of the issue thereof.  The Company also agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of  executing  stock  certificates  to  execute  and  issue  the  necessary
certificates for shares of Common Stock upon exercise of this Warrant.

      12.  REPLACEMENT.  On receipt of evidence  reasonably  satisfactory to the
Company of the loss, theft,  destruction,  or mutilation of this Warrant and, in
the case of loss, theft, or destruction,  on delivery of any indemnity agreement
or bond  reasonably  satisfactory  in form and amount to the  Company or, in the
case of mutilation,  on surrender and cancellation of this Warrant,  the Company
at its expense will execute and deliver,  in lieu of this Warrant, a new Warrant
of like tenor.

      13. NO RIGHTS AS  STOCKHOLDER.  Except as  provided  in Section  2(a),  no
Holder of this Warrant,  as such, shall be entitled to vote or receive dividends
or be  considered  a  stockholder  of the  Company  for any  purpose,  nor shall
anything in this Warrant be construed to confer on any Holder of this Warrant as
such, any rights of a stockholder  of the Company or any right to vote,  give or
withhold  consent  to any  corporate  action,  to  receive  notice of meeting of
stockholders, to receive dividends or subscription rights or otherwise.

      14.   MISCELLANEOUS PROVISIONS.

            (a) GOVERNING  LAW.  This Warrant shall be governed by,  interpreted
under,  and  construed  in  accordance  with the laws of the  State of New York,
regardless of the laws that might otherwise govern under  applicable  principles
of conflicts of laws thereof.

            (b) NOTICES. All notices, demands, requests,  consents, approvals or
other communications (collectively, "Notices") required or permitted to be given
hereunder or which are given with  respect to this  Warrant  shall be in writing
and shall be personally served,  delivered by reputable air courier service with
charges prepaid, or transmitted by hand delivery,  telegram, telex or facsimile,
to such address as such Holder  hereof  shall have  specified  most  recently by
written  notice.  Notice  shall  be  deemed  given  on the  date of  service  or

                                       13
<PAGE>

transmission  if  personally  served  or  transmitted  by  telegram,   telex  or
facsimile. Notice otherwise sent as provided herein shall be deemed given on the
next business day  following  delivery of such notice to a reputable air courier
service.

            (c) BINDING EFFECT.  The provisions of this Warrant shall be binding
upon the Company and its successors and assigns.

            (d) REMEDIES.  In the event of a breach of this Warrant,  the Holder
hereof  shall be  --------------  entitled  to  injunctive  relief and  specific
performance  of its rights under this Warrant,  in addition to all of its rights
granted by law, including, without limitation,  recovery of damages. The Company
agrees that  monetary  damages would not be adequate  compensation  for any loss
incurred by reason of a breach of this Warrant by the Company and hereby  waives
any defense in any action for injunctive  relief or specific  performance that a
remedy at law would be adequate.

            (e)  HEADINGS.  Titles and  headings of sections of this Warrant are
for convenience  only and shall not affect the  construction of any provision of
this Warrant.

Dated:        , 2000
                                  VIATEL, INC.

                                  By:
                                     -------------------------------------------
                                     Name:
                                     Title:

                                       14
<PAGE>

                                     ANNEX A

                                SUBSCRIPTION FORM
                  (To be signed only upon exercise of Warrant)

To:         VIATEL, INC.

Attention:  Secretary

      (1)  The  undersigned,   the  holder  of  the  attached  Warrant,   hereby
irrevocably  elects to [exercise the purchase right  represented by that Warrant
for, and to purchase under that Warrant,  ___________1 shares of Common Stock of
VIATEL, INC. and herewith tenders any necessary payment of the Exercise Price in
such number of shares in full].  [to exercise  [all][a  portion] of the purchase
right  represented  by that  Warrant by  canceling  the Warrant  with respect to
___________  shares of Common Stock of VIATEL,  INC. in exchange for a number of
shares  of  Common  Stock  equal to the value  [as  determined  pursuant  to the
Warrant] as the [portion of the] Warrant [being canceled].

      (2) In  exercising  the  Warrant,  the  undersigned  hereby  confirms  and
acknowledges  that the shares of Common Stock or other  securities  to be issued
upon  exercise  thereof  are  being  acquired  solely  for  the  account  of the
undersigned  and not as a nominee for any other party,  and that the undersigned
will not sell, offer for sale,  pledge,  hypothecate or otherwise dispose of any
shares of Common  Stock,  except under  circumstances  that will not result in a
violation of the  Securities Act of 1933, as amended,  or any  applicable  state
securities laws.

      (3) Please issue a certificate(s) representing said shares of Common Stock
in the name of the undersigned or in the name of the transferee specified below.

      (4) Please issue a new Warrant for the unexercised  portion in the name of
the undersigned or in the name of the permitted transferee specified below.

      (5) Please deliver any certificate(s) or Warrant to the following address.

            Name:       ___________________________

            Address:    ___________________________

            Attention:  ___________________________

Dated:

                                 By
                                   -------------------------------
                                   Name:

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

      1       Insert  here the  number of shares  called  for on the face of the
Warrant  (or,  in the case of  partial  exercise,  the  portion  as to which the
Warrant is being exercised), without making any adjustment for additional shares
of Common Stock or any other securities or property which,  under the adjustment
provisions of the Warrant, may be deliverable upon exercise.

<PAGE>

                                     ANNEX B

                                 ASSIGNMENT FORM

      FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells,  assigns and transfers unto the assignee named below all of the rights of
the  undersigned  under this  Warrant,  with  respect to the number of shares of
Common Stock set forth below:

                                          No. of Shares of
Name and Address of Assignee              Common Stock
----------------------------              ----------------

and does  hereby  irrevocably  constitute  and  appoint  _______________________
attorney-in-fact  to  register  such  transfer  onto the books of  Viatel,  Inc.
maintained for the purpose, with full power of substitution in the premises.

Date:                                  Print Name:
     ----------------------                       ------------------------------

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

                                       Witness:
                                               ---------------------------------

NOTICE:     The signature on this  assignment  must  correspond with the name as
            written  upon the face of the within  Warrant  in every  particular,
            without alteration or enlargement or any change whatsoever.

                                       2
<PAGE>

                                                                       EXHIBIT F

                                TERMS OF WARRANTS
                                -----------------

A-2 WARRANTS
------------

SHARES ISSUABLE       To the  Chase  Purchaser,  shares  of Series C
UPON EXERCISE         Preferred Stock  representing 10% of number of
                      shares   issuable  to  Chase   Purchaser  upon
                      conversion  of the  Series B  Preferred  Stock
                      into shares of Series C Preferred Stock

B-2 WARRANTS
------------

SHARES ISSUABLE       To the  Chase  Purchaser,  shares  of Series C
UPON EXERCISE         Preferred Stock  representing 10% of number of
                      shares   issuable  to  Chase   Purchaser  upon
                      conversion  of the  Series B  Preferred  Stock
                      into shares of Series C Preferred Stock

A-2 & B-2 WARRANTS
------------------

ANTIDILUTION          Substantially  similar to protection  provided
ADJUSTMENTS           under  Series B  Preferred  Stock,  including,
                      without    limitation,    market   price   and
                      structural  anti-dilution  protection (and the
                      corresponding  adjustment  to  the  number  of
                      warrant shares issuable upon exercise)

MISCELLANEOUS         Customary   provisions,   including   cashless
                      exercise   and    conditional    exercise   on
                      sale/exercise of registration rights.  Warrant
                      will  contain  terms  that  permit  the holder
                      thereof  to comply  with  Regulation  Y of the
                      Board  of  Governors  of the  Federal  Reserve
                      System,  12 C.F.R.  Part 225 (or any successor
                      regulation thereto)

<PAGE>

                                                             EXHIBIT G

                           MANAGEMENT RIGHTS AGREEMENT

Viatel,  Inc. (the  "COMPANY")  hereby  acknowledges  and agrees the HMTF Bridge
Partners,  L.P., the indirect owner of an equity interest in the Company, or, in
the event that any other affiliate of Hicks,  Muse,  Tate & Furst,  Incorporated
becomes the indirect owner of such equity interest in the Company (collectively,
the  "Fund"),  directly  has the right to exercise on its behalf the  management
rights  associated with such equity interest so long as it is the indirect owner
of such equity  interest in the  Company.  The Company also agrees that the Fund
has the  following  additional  management  rights so long as it is the indirect
owner of such equity interest in the Company:

(a)   the right to receive  the same  information  as provided to members of the
      board of  directors of the Company;  PROVIDED,  HOWEVER,  that the Company
      reserves the right to exclude any information that a majority of the board
      of  directors   determine  in  good  faith  could  adversely   affect  the
      attorney-client   privilege  between  the  Company  and  its  counsel,  or
      otherwise have a detrimental effect on the Company.

(b)   upon a  reasonable  request  of the Fund and at  reasonable  times  during
      normal  business  hours,  to receive income  statements,  balance  sheets,
      budgets,  business plans and other  financial  information  and to inspect
      books and records of the Company; and

(c)   upon a reasonable  request and at reasonable  times during normal business
      hours, to meet and consult with management with respect to the business of
      the Company.

The above-mentioned rights are intended to satisfy the requirement of management
rights for purposes of qualifying the Fund's  indirect  ownership of an interest
in the Company as a venture capital investment for purposes of the Department of
Labor "plan asset" regulations,  29 C.F.R. ss. 2510.3-101, and in the event such
rights are not  satisfactory  for such  purpose,  the Company and the Fund shall
reasonably  cooperate  in  good  faith  to  agree  upon  mutually   satisfactory
management   rights  which  satisfy  such   regulations.   The  Company   hereby
acknowledges and agrees that the foregoing  management  rights have been and are
effective as of the date of the Fund's indirect investment in the Company.

DATED: _____________, 2000

                                  VIATEL, Inc.

                                  By:
                                     -------------------------------------------
                                     Name:
                                     Title:

<PAGE>

                                                                       EXHIBIT H

                           MANAGEMENT RIGHTS AGREEMENT

Viatel, Inc. (the "COMPANY") hereby acknowledges and agrees the Hicks Muse, Tate
& Furst Private Europe Fund,  L.P., the indirect owner of an equity  interest in
the Company,  or, in the event that any other  affiliate of Hicks,  Muse, Tate &
Furst,  Incorporated  becomes the indirect owner of such equity  interest in the
Company  (collectively,  the "Fund"),  directly has the right to exercise on its
behalf the management  rights associated with such equity interest so long as it
is the indirect owner of such equity  interest in the Company.  The Company also
agrees that the Fund has the following  additional  management rights so long as
it is the indirect owner of such equity interest in the Company:

(a)   the right to receive  the same  information  as provided to members of the
      board of  directors of the Company;  PROVIDED,  HOWEVER,  that the Company
      reserves the right to exclude any information that a majority of the board
      of  directors   determine  in  good  faith  could  adversely   affect  the
      attorney-client   privilege  between  the  Company  and  its  counsel,  or
      otherwise have a detrimental effect on the Company.

(b)   upon a  reasonable  request  of the Fund and at  reasonable  times  during
      normal  business  hours,  to receive income  statements,  balance  sheets,
      budgets,  business plans and other  financial  information  and to inspect
      books and records of the Company; and

(c)   upon a reasonable  request and at reasonable  times during normal business
      hours, to meet and consult with management with respect to the business of
      the Company.

The above-mentioned rights are intended to satisfy the requirement of management
rights for purposes of qualifying the Fund's  indirect  ownership of an interest
in the Company as a venture capital investment for purposes of the Department of
Labor "plan asset" regulations,  29 C.F.R. ss. 2510.3-101, and in the event such
rights are not  satisfactory  for such  purpose,  the Company and the Fund shall
reasonably  cooperate  in  good  faith  to  agree  upon  mutually   satisfactory
management   rights  which  satisfy  such   regulations.   The  Company   hereby
acknowledges and agrees that the foregoing  management  rights have been and are
effective as of the date of the Fund's indirect investment in the Company.

DATED:______________, 2000

                                  VIATEL, Inc.

                                  By:
                                     ---------------------------
                                     Name:
                                     Title:

<PAGE>

                                                                       EXHIBIT I

                                          _____________ ___, 2000

VIATEL, INC.
685 Third Avenue
New York, NY 10017

Ladies and Gentlemen:

              Reference is made to that certain  Securities  Purchase  Agreement
dated as of February 1, 2000 (the "PURCHASE AGREEMENT"), among Viatel, Inc. (the
"Company"),  Chase  Equity  Associates,  LLC  ("CEA"),  and the  other  Investor
signatory  thereto  pursuant to which CEA is purchasing  shares of the Company's
Series B Preferred Stock (the "SHARES").

              For purposes  hereof,  the following terms shall have the meanings
ascribed  to them  (capitalized  terms  used  but not  defined  herein  have the
meanings ascribed to them in the Purchase Agreement.):

            (a)  "BOARD"  means  The Board of  Governors  of the  United  States
Federal Reserve System.

            (b)  "REGULATORY  PROBLEM"  means  any set of facts or  circumstance
wherein  it has  been  asserted  by any  governmental  regulatory  agency  (or a
Regulated Stockholder (as defined in the Series B-1 Certificate of Designations)
reasonably  believes that there is a risk of such assertion) that such Regulated
Stockholder  is not entitled to acquire,  own, hold or control,  or exercise any
significant  right (including the right to vote) with respect to, any securities
of the Company or any Viatel Subsidiary.

              If a Regulated  Stockholder  determines  that it has a  Regulatory
Problem, the Company agrees to take all such actions, subject to Applicable Law,
as are reasonably requested by such Regulated  Stockholder (1) to effectuate and
facilitate any transfer by such  Regulated  Stockholder of any securities of the
Company then held by such Regulated Stockholder to any Person designated by such
Regulated  Stockholder,  (2)  to  permit  such  Regulated  Stockholder  (or  any
Affiliate of such Regulated  Stockholder)  to exchange all or any portion of the
voting securities then held by such Person on a share-for-share basis for shares
of a class of nonvoting  securities of the Company,  which nonvoting  securities
shall be identical in all respects to such voting  securities,  except that such
new  securities  shall  be  nonvoting  and  shall  be  convertible  into  voting
securities on such terms as are requested by such Regulated Stockholder in light
of regulatory  considerations then prevailing,  and (3) to continue and preserve
the  respective  allocation of the voting  interests with respect to the Company
with respect to such Regulated  Stockholder's  ownership of the Company's voting
securities.  Such actions may include,  without limitation,  (x) with respect to
any  securities  held  by  CEA or any of  its  Affiliates,  entering  into  such
additional  agreements as are reasonably  requested by CEA to permit CEA or such
Affiliate  to exercise  any voting  power which is  relinquished  by CEA or such
Affiliate upon any exchange of voting securities for nonvoting securities of the
Company,  and (y)  entering  into  such  additional  agreements,  adopting  such
amendments  to the charter  documents of the Company and taking such  additional
actions as are reasonably  requested by such  Regulated  Stockholder in order to
effectuate the intent of the foregoing.

<PAGE>

              If a Regulated Stockholder has the right or opportunity to acquire
any of the Company's securities from the Company, any stockholder of the Company
or any other  Person (as the  result of a  preemptive  offer,  PRO RATA offer or
otherwise),  at such Regulated  Stockholder's  request the Company will offer to
sell (or if the Company is not the seller, to cooperate with the seller and such
Regulated  Stockholder to permit such seller to sell) such non-voting securities
on the same terms as would have existed had such Regulated  Stockholder acquired
the  securities  so  offered  and  immediately   requested  their  exchange  for
non-voting securities pursuant to clause (2) above.

              The  Company  agrees  not to amend or waive  the  voting  or other
provisions of its charter  documents if such amendment or waiver would cause any
Regulated  Stockholder  to have a  Regulatory  Problem,  PROVIDED  that any such
Regulated  Stockholder  notifies  the  Company  that it would have a  Regulatory
Problem promptly after it has notice of such amendment or waiver.

                                         * * * * *

              Please  indicate  your  acceptance  of the  terms  of this  letter
agreement by returning a signed copy to the undersigned.

                                       CHASE EQUITY ASSOCIATES, LLC,
                                       By: Chase Capital Partners,
                                           as Manager

                                       By:
                                          --------------------------------
                                          Name:
                                          Title:

Agreed as of the date
first set forth above:

VIATEL, INC.

By:
   ------------------------
   Name:
   Title:

                                       2

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