METROMEDIA FIBER NETWORK INC, 424B3, 1997-10-29

METROMEDIA FIBER NETWORK INC
424B3, 1997-10-29
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>
As filed Pursuant to Rule 424(b)(3)
Registration No. 333-33653

[LOGO]
PROSPECTUS
7,920,000 SHARES
METROMEDIA FIBER NETWORK, INC.

CLASS A COMMON STOCK
($.01 PAR VALUE)

All of the shares of Class A Common Stock, par value $.01 per share (the "Class
A Common Stock") offered hereby are being sold by Metromedia Fiber Network, Inc.
("MFN" or the "Company"). Of the 7,920,000 shares of Class A Common Stock
offered hereby, 6,730,000 shares of Class A Common Stock are being offered by
the U.S. Underwriters (as defined herein) in the United States and Canada (the
"U.S. Offering") and 1,190,000 shares of Class A Common Stock are being offered
by the International Underwriters (as defined herein) in a concurrent
international offering outside the United States and Canada (the "International
Offering" and, together with the U.S. Offering, the "Offerings"), subject to
transfers between the U.S. Underwriters and the International Underwriters
(collectively, the "Underwriters"). The initial public offering price and the
aggregate underwriting discount per share will be identical for the Offerings.
See "Underwriting." The closing of the U.S. Offering and the International
Offering are conditioned upon each other. Each share of Class A Common Stock
entitles its holder to one vote, whereas each share of the Company's Class B
Common Stock, par value $.01 per share (the "Class B Common Stock"), entitles
its holder to ten votes per share. In addition, holders of the Class B Common
Stock vote as a separate class to elect at least 75% of the members of the
Company's Board of Directors. Metromedia Company and its partners beneficially
own all of the outstanding shares of Class B Common Stock.

Prior to the Offerings, there has been no public market for the Class A Common
Stock. See "Underwriting" for information relating to the factors considered in
determining the initial public offering price. The Class A Common Stock has been
approved for quotation and trading on the Nasdaq National Market under the
symbol "MFNX".

SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
Per Share...................... $16.00 $1.12 $14.88
<S> <C> <C> <C>
Total(2).......................... $126,720,000 $8,870,400 $117,849,600
</TABLE>

(1) Before deducting offering expenses payable by the Company, estimated at
$1,000,000.

(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 1,188,000 additional shares of Class A Common Stock at
the Price to Public, less the Underwriting Discount, solely to cover
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $145,728,000, $10,200,960 and $135,527,040, respectively. See
"Underwriting."

The shares of Class A Common Stock are offered subject to receipt and acceptance
by the Underwriters, to prior sale and to the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the shares of Class A Common Stock
offered hereby will be made at the office of Salomon Brothers Inc, Seven World
Trade Center, New York, New York, or through the facilities of The Depository
Trust Company, on or about November 3, 1997.

SALOMON BROTHERS INC

DONALDSON, LUFKIN & JENRETTE
SECURITIES
CORPORATION

DEUTSCHE MORGAN GRENFELL

The date of this Prospectus is October 28, 1997.
<PAGE>
[MAP OF NEW YORK & NEW JERSEY NETWORK]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF CLASS A COMMON
STOCK FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION
IN THE CLASS A COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING OR STABILIZING THE
PRICE OF THE CLASS A COMMON STOCK, PASSIVE MARKET MAKING AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

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[METROMEDIA FIBER NETWORK'S]

<PAGE>
[NETWORK'S INTRA-CITY NETWORKS]
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY AND SHOULD BE READ IN
CONJUNCTION WITH THE MORE DETAILED INFORMATION, INCLUDING THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO, AND OTHER FINANCIAL DATA APPEARING
ELSEWHERE IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT
REQUIRES OTHERWISE, THE TERMS "COMPANY" AND "MFN" REFER TO METROMEDIA FIBER
NETWORK, INC. AND ITS SUBSIDIARIES. UNLESS OTHERWISE INDICATED, ALL INFORMATION
INCLUDED IN THIS PROSPECTUS (I) ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION
WILL NOT BE EXERCISED, (II) HAS BEEN ADJUSTED TO REFLECT THE RECLASSIFICATION OF
THE COMPANY'S COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "OLD COMMON STOCK"),
PURSUANT TO WHICH EACH SHARE OF OLD COMMON STOCK WILL BECOME ONE SHARE OF CLASS
A COMMON STOCK (THE "COMMON STOCK RECLASSIFICATION"), (III) HAS BEEN ADJUSTED TO
REFLECT THE RECLASSIFICATION AND EXCHANGE OF EACH SHARE OF THE COMPANY'S SERIES
B CONVERTIBLE PREFERRED STOCK, PAR VALUE $.01 PER SHARE (THE "SERIES B PREFERRED
STOCK") FOR 507 SHARES OF CLASS B COMMON STOCK (THE "SERIES B RECLASSIFICATION"
AND TOGETHER WITH THE COMMON STOCK RECLASSIFICATION, THE "RECLASSIFICATIONS")
AND (IV) HAS BEEN ADJUSTED TO GIVE EFFECT TO A REVERSE STOCK SPLIT OF THE
COMPANY'S OLD COMMON STOCK, PURSUANT TO WHICH EACH SHARE OF OLD COMMON STOCK
BECAME .507 SHARES OF OLD COMMON STOCK (THE "REVERSE STOCK SPLIT"). THE CLASS A
COMMON STOCK AND THE CLASS B COMMON STOCK ARE COLLECTIVELY REFERRED TO AS THE
"COMMON STOCK." SEE THE "GLOSSARY" APPEARING ELSEWHERE HEREIN FOR DEFINITIONS OF
CERTAIN TECHNICAL TERMS USED IN THIS PROSPECTUS.

THE COMPANY

GENERAL

The Company is a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure to carrier and
corporate/government customers. The Company is expanding its existing network to
encompass approximately 229,000 fiber miles or 643 route miles, concentrated in
the northeastern United States, a market which the Company believes is
characterized by significant demand for and limited supply of fiber optic
capacity. The fiber infrastructure leased by MFN to its customers provides
high-bandwidth capacity for customers that seek to establish secure
communications networks for the transmission of large amounts of voice, data and
video. For example, a pair of MFN fiber optic strands can transmit up to 8.6
gigabits of data per second or the equivalent of approximately 129,000
simultaneous voice conversations.

The Company tailors the amount of fiber capacity leased to the needs of its
customers. Certain customers that lease fiber optic capacity from the Company
connect their own transmission equipment to the leased fiber, thereby obtaining
a fixed-cost, secure communications alternative to the metered communications
services offered by traditional providers. Other customers that require lesser
amounts of transmission capacity will have the option to lease such broadband
capacity on the Company's network, whereby the Company effectively divides a
single strand of fiber into multiple smaller communications channels. The
Company believes that it will have installation, operating and maintenance cost
advantages per fiber mile relative to its competitors because MFN installs as
many as 432 fibers per route mile as compared to a generally lower number of
fibers in existing competitive networks.

The Company was formed in 1993 and currently operates a 54 route mile fiber
optic communications network in the New York/New Jersey metropolitan area (the
"NY Network"), consisting of 7,188 fiber miles, approximately two-thirds of
which are currently available for lease. Within the next two years the Company
plans to complete an expansion of the NY Network to increase its coverage within
the New York/New Jersey metropolitan area. In addition, the Company intends to
construct intra-city fiber networks in Washington, D.C., Chicago and
Philadelphia and an inter-city fiber optic route between New York City and
Washington, D.C. The Company currently intends to expand its network in order to
connect the NY Network with other major domestic metropolitan areas, in part
through the exchange of fiber capacity with other carriers, and to extend its
network to link the NY Network to London, England, thereby providing a valuable
connection between two of the world's most important financial centers. See
"Business -- Build-out of Networks," and "Risk Factors -- Risks Associated with
Growth Strategy; Management of Expansion." The Company's NY Network supports a
self-healing SONET architecture that minimizes the risk of downtime in the event
of a fiber cut and provides MFN's customers with high

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security and reliability. It is expected that the Company's other intra-city
networks will also support a self-healing SONET architecture. Most of the
Company's fiber is installed inside high density polyethylene conduit to protect
the cable and, where practicable, MFN installs additional unused conduits to
accommodate future network expansion.

MFN is focused on providing its broadband communications infrastructure to
two main customer groups: communications carriers and corporate/government
customers located in selected Tier I markets. Carrier customers targeted by the
Company include a broad range of communications companies such as incumbent
local exchange carriers ("ILECs"), competitive local exchange carriers
("CLECs"), long distance companies/interexchange carriers ("IXCs"), paging,
cellular and PCS companies, cable companies, and Internet service providers
("ISPs"). These carrier customers typically would lease fiber optic capacity
with which they would develop their own communications networks as a low-cost
alternative to building their own infrastructure or purchasing metered services
from ILECs or CLECs. The Company's corporate and government customers would
typically lease fiber optic infrastructure and other broadband services on a
point-to-point basis for high-bandwidth, secure voice and data networks. The
Company believes that it will be well-positioned to penetrate the corporate and
government markets since it plans to continue to install most of its fiber in
Tier I markets. See "Business -- Customers."

MFN intends to capitalize on the increasing demand for high-bandwidth
communications services and the limited supply of transmission capacity. Based
on management experience and industry reports, the Company believes that demand
for the broadband communications infrastructure afforded by its network will
continue to increase as a result of the following factors: (i) the rapid growth
of communications traffic, such as data traffic which industry research
indicates is growing by 35% annually; (ii) the large number of new carriers
which will require significant transmission capabilities in all sectors of the
communications industry, due in large part to industry deregulation facilitated
by the Telecommunications Act of 1996 (the "1996 Act"); (iii) the fact that the
RBOCs will likely need to upgrade to fiber optic networks with infrastructure
similar to the Company's; and (iv) the advent of new communications services
requiring large amounts of transmission capacity, such as intranet and video
services. According to an industry report, the total 1995 market for
communications services in the United States was approximately $183 billion and
is expected to grow to approximately $291 billion by the year 2001. In addition,
the Company believes there will be increased demand for its infrastructure due
to its ability to offer fixed-cost pricing which is generally more economical
for high volume users than traditional usage-based pricing.

On April 30, 1997, Metromedia Company, a partnership owned and controlled by
John W. Kluge and Stuart Subotnick ("Metromedia"), and certain of its affiliates
made a substantial equity investment in the Company (the "Metromedia
Investment"). Metromedia and its partners own all of the outstanding shares of
Class B Common Stock which is entitled to 10 votes per share and to vote
separately to elect at least 75% of the members of the Company's Board of
Directors (the "Board"). As a result, Metromedia and its partners own and
control approximately 26% of the common equity of the Company (on a fully
diluted basis, without giving effect to the Offerings) and approximately 76% of
the outstanding voting power (on a fully diluted basis, without giving effect to
the Offerings). Metromedia and its predecessor have successfully invested in and
operated numerous businesses in the communications industry, including cellular,
paging, long distance and media companies. In connection with the Metromedia
Investment, John W. Kluge and Stuart Subotnick, who bring considerable
management and corporate governance experience to the Company, joined MFN's
Board of Directors. See "Certain Relationships and Related Transactions." In
addition, David Rockefeller has agreed to join the Board shortly after
consummation of the Offerings. Mr. Rockefeller will bring considerable
management and investing experience to the Company.

BUSINESS STRATEGY

The Company's objective is to become the preferred facilities-based provider
of broadband communications infrastructure to communications carriers,
corporations and government agencies, primarily in the northeastern United
States. The following are the key elements of MFN's strategy to achieve this
objective:

4
<PAGE>
ESTABLISH THE COMPANY AS THE PREFERRED CARRIERS' CARRIER OF BROADBAND
COMMUNICATIONS INFRASTRUCTURE.

MFN leases broadband communications infrastructure on a fixed-cost basis to
various communications carriers, thus enabling them to compete in markets which
were previously difficult to penetrate due to limited and/or costly access to
high-bandwidth communications infrastructure. Specifically, the Company plans to
lease local transmission capacity within its target Tier I markets thereby
enabling its carrier customers to bypass the ILECs and CLECs. The Company
believes that it is currently the only provider of local transmission
infrastructure on a fixed-cost basis. Additionally, the Company plans to lease
capacity on its high-bandwidth, long-haul Inter-City Network (as defined herein)
to provide seamless connectivity between its various Intra-City Networks (as
defined herein). The Company's fixed-cost, long-term contracts allow its carrier
customers to access certain Tier I markets without incurring the high capital
expenditures and long lead times usually associated with building their own
networks. Carriers may be more likely to lease capacity from MFN rather than
from a competitor since MFN currently has no plans to offer communications
infrastructure services on a metered basis, choosing instead to position itself
as a non-competing provider of infrastructure alternatives for IXCs, ILECs,
CLECs, etc. See "Business -- Customers."

POSITION THE COMPANY AS THE PREFERRED PROVIDER OF BROADBAND COMMUNICATIONS
INFRASTRUCTURE TO CORPORATE AND GOVERNMENT CUSTOMERS.

The Company's fiber optic network is expected to serve Tier I markets in
which there are a large number of corporations and government agencies that the
Company believes have significant demand for communications capacity which has
not been satisfied. These customers typically lease broadband communications
infrastructure from the Company on a point-to-point basis, creating secure
networks for voice, video or data communications. Customers with significant
transmission needs or who require a high degree of security are potential
candidates for leasing MFN's fiber. Customers seeking lesser amounts of
broadband transmission capacity will have the option of leasing smaller amounts
of capacity from the Company. By providing leased capacity on a fixed-cost
rather than a metered basis, MFN's network, as currently planned, will be more
economical for MFN's corporate and government customers, while also providing
enhanced reliability and security. See "Business -- Customers."

STRENGTHEN MFN'S COMPETITIVE POSITION BY EXPANDING THE MFN NETWORK.

The Company seeks to enhance its attractiveness as a communications provider
by enlarging its network according to a three-part plan: (i) expanding the NY
Network to increase coverage of the New York/New Jersey metropolitan area to
approximately 61,000 fiber miles covering 179 route miles, (ii) constructing
fiber optic intra-city telecommunications networks in Washington, D.C., Chicago
and Philadelphia (the "Intra-City Networks") and (iii) constructing a fiber
optic backbone between New York City and Washington, D.C. (the "Inter-City
Network") to link certain of its Intra-City Networks. Once completed, MFN's
domestic fiber optic network infrastructure, as currently planned, will consist
of approximately 229,000 fiber miles covering 643 route miles (the "MFN
Network").

UTILIZE STRATEGIC RELATIONSHIPS TO EXPAND THE REACH OF THE MFN NETWORK.

Another part of MFN's strategy is to enter into agreements with other
communications companies to expand the reach of the MFN Network. In October
1997, the Company entered into an agreement with a subsidiary of Racal
Electronics Plc ("Racal"), a United Kingdom manufacturer of electronics and
other equipment and provider of telecommunications services in the UK, to
establish a 50/50 joint venture (the "MFN/Racal Joint Venture"). The MFN/Racal
Joint Venture would link the Company's network to London by acquiring
transatlantic fiber optic cable rights linking points of presence in the US and
the UK. The MFN/Racal Joint Venture would enable the Company to offer its
customers seamless broadband connectivity between New York and London. The
foregoing remains subject to the timely completion and execution of long-form
definitive documentation and of various ancillary agreements between the Company
and certain affiliates of Racal for the provision of services and facilities to
the MFN/Racal Joint Venture. No assurance can be made that the Company will
complete the documentation or agreements on satisfactory terms or at all. The
Company believes that its presence in Tier I markets will continue to

5
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provide similar partnering opportunities. The Company will continue to evaluate
opportunities, including potential fiber swaps, along specific additional routes
in order to speed the build-out of the MFN Network and reduce costs.

CREATE A LOW COST POSITION.

The Company believes it will be able to establish a low cost position
relative to its competitors primarily for the following reasons: (i) the Company
currently installs trunks of up to 432 fibers per route mile, which the Company
believes is substantially more fiber than many of its competitors install,
thereby reducing the per fiber mile cost to construct and operate the MFN
Network, (ii) the Company owns a newly-constructed network with advanced fiber
optic technology which offers operating and maintenance cost advantages, (iii)
the Company believes that certain of its rights-of-way and franchises are
valuable assets that will be costly and difficult for others to procure in the
future and (iv) MFN, where practicable, installs spare conduit which will allow
for expanded fiber optic capacity at a cost significantly below the cost of new
construction. The Company's low cost position will allow it to remain price
competitive with other providers of fiber optic infrastructure and to lease its
fiber infrastructure at a price which customers will find more attractive than
the cost of constructing their own networks.

INSTALL A TECHNOLOGICALLY ADVANCED NETWORK.

The Company believes that the advanced technical characteristics of its
network will allow it to provide high levels of reliability, security and
capacity that its target customers typically demand. The NY Network is, and
future extensions of the Intra-City Networks will be, capable of supporting a
SONET ring architecture, which prevents interruption in service to its clients
by instantaneously rerouting traffic in the event of a fiber cut. The Company
will also continuously monitor and maintain high quality control of its network
on a 24-hour basis through its network operations center. The Company's network
is capable of using the highest commercially available capacity transmission
(OC-192) and thereby can support advanced, capacity-intensive data applications
such as Frame Relay, ATM, multimedia and Internet-related applications.

BUILD ON MANAGEMENT EXPERIENCE AND METROMEDIA RELATIONSHIP.

The Company's management team and Board of Directors include individuals
with communications industry expertise and extensive experience in network
design, construction, operations and sales. MFN's Chief Executive Officer and
founder, Stephen A. Garofalo, has approximately 25 years of experience in the
cable installation business, having managed the installation of over one half
billion dollars in electrical and communications cable in New York City. In
April 1997, the Company hired Howard Finkelstein as President and Chief
Operating Officer. From 1984 to 1993, Mr. Finkelstein served as President of
Metromedia Communications Corporation, Metromedia's long distance telephone
enterprise, until its merger with WorldCom, Inc. in 1993. In his most recent
position, Mr. Finkelstein was the Chief Operating Officer and an Executive Vice
President of Metromedia International Telecommunications, Inc., an international
telecommunications and media company. He has also served in various capacities
at Metromedia and its affiliated companies over a period of 16 years. The
Company also expects to benefit from the communications industry expertise and
corporate governance experience of John W. Kluge, Stuart Subotnick and David
Rockefeller. As the owner of all of the Class B Common Stock, Metromedia and its
general partners will control the Board and all stockholder decisions and, in
general, determine the outcome of any corporate transaction or other matter
submitted to the stockholders for approval. See "Risk Factors--Control by and
Reliance Upon Metromedia Company" and "Certain Relationships and Related
Transactions."

MFN is a Delaware corporation and the principal executive offices of the
Company are located at 110 East 42nd Street, Suite 1502, New York, New York
10017. The Company's telephone number at such address is (212) 687-9177.

6
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<TABLE>
<CAPTION>
THE OFFERINGS

<S> <C>
Common Stock offered hereby:

U.S. Offering...................... 6,730,000 shares of Class A Common Stock

International Offering............. 1,190,000 shares of Class A Common Stock
---------------------------------------------------

7,920,000 shares of Class A Common Stock
Total (1)........................

Common Stock outstanding after the
Offerings (1)(2)

21,807,593 shares
Class A Common Stock...............

4,221,159 shares
Class B Common Stock...............

26,028,752 shares of Common Stock
Total............................

The net proceeds of the Offerings, estimated to be
Use of Proceeds........................ approximately $116.8 million (approximately $134.5
million if the Underwriters' over-allotment option
is exercised in full), will be used by the Company
for capital expenditures associated with the
build-out of the Company's network, the development
and introduction of new services and general
corporate and working capital purposes. See "Use of
Proceeds."

The holders of Class A Common Stock generally have
Voting Rights.......................... rights identical to holders of Class B Common
Stock, except that holders of Class A Common Stock
are entitled to one vote per share and holders of
Class B Common Stock are entitled to ten votes per
share on all matters submitted to a vote of the
Company's stockholders. Holders of Class A Common
Stock and Class B Common Stock will vote as a
single class on most matters except that holders of
Class B Common Stock will vote as a separate class
to elect at least 75% of the members of the Board
of Directors.

MFNX
Nasdaq National Market symbol..........
</TABLE>

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

(1) Does not include up to an aggregate of 1,188,000 shares of Class A Common
Stock subject to an over-allotment option granted to the Underwriters. See
"Underwriting."

(2) Based on the number of shares outstanding as of October 28, 1997 after
giving effect to (i) the Reverse Stock Split, (ii) the Reclassifications and
(iii) the assumed exercise of all outstanding options and warrants to
acquire 4,283,326 shares of Class A Common Stock at a weighted average
exercise price of $3.10. Excludes options to acquire shares of Class A
Common Stock to be granted under the 1997 Incentive Stock Plan (as defined
herein).

RISK FACTORS

See "Risk Factors" beginning on page 9 for a discussion of certain factors
that should be considered by potential investors.

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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The summary consolidated financial data presented below as of and for the
periods ended December 31, 1994, 1995 and 1996 have been derived from the
Consolidated Financial Statements of the Company, and the notes related thereto,
included elsewhere in this Prospectus. The Financial Statements of the Company
for the year ended December 31, 1994 have been audited by Richard A. Eisner &
Company, LLP, independent auditors, the Consolidated Financial Statements of the
Company for the year ended December 31, 1995 have been audited by M.R. Weiser &
Co. LLP, Certified Public Accountants, and the Consolidated Financial Statements
of the Company as of and for the year ended December 31, 1996 have been audited
by Ernst & Young LLP, independent auditors. The summary financial data for the
period ended December 31, 1993, have been derived from the unaudited financial
statements of the Company which, in the opinion of management, include all
adjustments necessary for a fair presentation of the financial condition and
results of operations for the Company for such period. The summary consolidated
financial data and balance sheet data as of and for the six months ended June
30, 1997 and the summary consolidated financial data as of and for the six
months ended June 30, 1996 have been derived from the unaudited Consolidated
Financial Statements of the Company, and the notes related thereto, included
elsewhere in this Prospectus, which, in the opinion of management, include all
adjustments necessary for a fair presentation of the financial condition and
results of operations of the Company for such periods. The results of operations
for interim periods are not necessarily indicative of a full year's operations.
The following information should be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and the Consolidated Financial Statements of the Company
and the notes related thereto, and the other financial data appearing elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 8, 1993
(DATE OF YEAR ENDED SIX MONTHS
INCEPTION) TO DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ------------------------------------- ------------------------
1993 1994 1995 1996 1996 1997
-------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.............................. $ -- $ -- $ 56,149 $ 236,082 $ 82,035 $ 541,886
Expenses:
Cost of sales...................... -- -- -- 698,793 265,029 1,081,677
Selling, general and
administrative................... 188,000 874,000 3,886,568 2,070,345 1,276,853 2,186,291
Depreciation and amortization...... -- -- 161,576 612,530 292,319 372,935
Consulting and employment
incentives(a).................... -- -- -- 3,652,101 3,651,442 13,419,900
-------------- ----------- ----------- ----------- ----------- -----------
Loss from operations................. 188,000 874,000 3,991,995 6,797,687 5,403,608 16,518,917
Interest expense, net................ -- -- 327,106 3,561,010 1,807,956 475,252
-------------- ----------- ----------- ----------- ----------- -----------
Net loss............................. $ 188,000 $ 874,000 $ 4,319,101 $10,358,697 $ 7,211,564 $16,994,169
-------------- ----------- ----------- ----------- ----------- -----------
-------------- ----------- ----------- ----------- ----------- -----------
Net loss applicable to common
stockholders per share............. $ 0.04 $ 0.10 $ 0.47 $ 0.87 $ 0.65 $ 1.35
-------------- ----------- ----------- ----------- ----------- -----------
-------------- ----------- ----------- ----------- ----------- -----------
Number of shares of Common Stock
assumed outstanding(b)............. 4,444,368 8,757,341 9,130,603 11,887,931 11,030,121 12,635,426
-------------- ----------- ----------- ----------- ----------- -----------
-------------- ----------- ----------- ----------- ----------- -----------
</TABLE>

<TABLE>
<CAPTION>
AS OF
JULY 31, 1997
--------------------
<S> <C>
OPERATING DATA:
Route miles of fiber installed................................................................ 54
Fiber miles of fiber installed................................................................ 7,188
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(C)
----------- ----------------
BALANCE SHEET DATA:
Current assets.................................................................... $23,509,306 $ 140,358,906
Working capital................................................................... 21,027,781 137,877,381
Property and equipment, net....................................................... 7,354,768 7,354,768
Total assets...................................................................... 31,651,111 148,500,711
Long-term debt.................................................................... -- --
Total liabilities................................................................. 12,608,260 12,608,260
Stockholders' equity.............................................................. 19,042,851 135,892,451
</TABLE>

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(a) Represents value of common stock, warrants and options issued to consultants
and officers to provide services to the Company.

(b) Based upon the weighted average shares outstanding; see Note 1 to "Notes to
Consolidated Financial Statements."

(c) Adjusted to give effect to the Offerings and the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus includes forward-looking statements (as such term is defined
in the Private Securities Litigation Reform Act of 1995 (the "Reform Act")),
including statements regarding, among other items, (i) the Company's growth
strategy, (ii) the Company's intention to expand its fiber optic network to
other markets and (iii) the Company's intention to market its network to new
customers. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, certain of
which are beyond the Company's control. Actual results could differ materially
from these forward-looking statements as a result of the facts described in
"Prospectus Summary," "Risk Factors" and "Business" including, among others, (i)
changes in the competitive marketplace, including the introduction of new
technologies or strategic and/or pricing changes by the Company's competitors
and (ii) changes in the economy. Other factors which may materially affect
actual results include, among others, the following: general economic and
business conditions; industry capacity; uncertainty regarding changes in
customer preferences; demographic changes; competition; changes in methods of
marketing and technology; changes in political, social and economic conditions;
and regulatory factors and various other factors beyond the Company's control.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Prospectus will
in fact transpire. The "safe-harbor" protections of the Reform Act are not
available to initial public offerings, including the Offerings.

RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION AND FINANCIAL DATA SET FORTH ELSEWHERE
IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SHARES OF CLASS A
COMMON STOCK OFFERED HEREBY.

LIMITED HISTORY OF OPERATIONS; NET LOSSES AND NEGATIVE CASH FLOW FROM
OPERATIONS; EXPECTED FUTURE NET LOSSES AND NEGATIVE CASH FLOW FROM OPERATIONS

The Company was formed in April 1993 and has a limited operating history,
with a limited number of customers as of June 30, 1997. Accordingly, prospective
investors have limited historical financial information upon which to base an
evaluation of the Company's performance and an investment in shares of Class A
Common Stock. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development.

Since inception, the Company has not generated significant revenue, has
incurred substantial net losses and has never generated positive cash flow from
operations. The Company had net losses of $10.4 million, $4.3 million, $0.9
million, and $0.2 million for the periods ended December 31, 1996, 1995, 1994,
and 1993 and a net loss of $17.0 million for the six months ended June 30, 1997.
There can be no assurance that the Company will be able to achieve or sustain
profitability or positive cash flow in the future.

The Company believes that losses will continue while the Company
concentrates on the development and construction of additional fiber optic
networks and until its networks have established a sufficient revenue-generating
customer base. Accordingly, the Company expects to continue experiencing net
operating losses and negative cash flows for the foreseeable future. The Company
will also incur losses during the initial start-up phases of the services that
it may provide. There can be no assurance that an adequate revenue base will be
established or that these services will generate profitability or positive cash
flow. Continued losses and negative cash flow may prevent the Company from
pursuing its strategies for growth.

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RISKS ASSOCIATED WITH GROWTH STRATEGY; MANAGEMENT OF EXPANSION

The future of the Company depends, to a large extent, on its ability to
implement its business strategy and proposed expansion, without which the
Company would be unable to create the new business and revenue opportunities
described in this Prospectus. The proposed expansion (including the development
of the Intra-City Networks, the Inter-City Network and the proposed expansion to
additional areas including the United Kingdom) requires that the Company obtain
access to markets, design fiber network backbone routes, install facilities,
acquire rights-of-way and building access, obtain required governmental
authorizations and permits and continue to implement and improve its
operational, financial and accounting systems, all in a timely manner at
reasonable costs and on conditions acceptable to the Company. Successful
implementation will depend on numerous factors beyond the Company's control,
including economic, competitive and other conditions and uncertainties, the
ability to obtain licenses, franchises and rights-of-way on reasonable terms and
conditions and hire and retain qualified management personnel. In addition,
construction of future networks entails significant risks, including
management's ability to effectively control and manage such projects, shortages
of materials or skilled labor, unforeseen engineering, environmental or
geological problems, work stoppages, weather interference, floods and
unanticipated cost increases. No assurance can be given that the budgeted costs
of the Company's current and future projects will not be exceeded or that any
such projects will commence operations within the contemplated schedules, if at
all. The failure to obtain necessary licenses, permits and authorizations could
prevent or delay the completion of construction of all or part of such networks
or increase completion costs. Moreover, no assurance can be given that the
Company will be successful in implementing its business strategy and in managing
expansion effectively, on time or at all.

The Company will need to expand its marketing efforts and staff to handle
future marketing and sales requirements. Failure to obtain significant,
widespread commercial and public acceptance of its networks and access to
sufficient buildings in a market could jeopardize the Company's viability in
that market. There can be no assurance that the Company will be able to secure
customers for the commercial use of its proposed networks or access to such
buildings in each market.

The Company's ability to implement its business plan is, to a significant
degree, dependent upon the Company's ability to secure a market for its leased
fiber capacity and obtain and maintain contractual and other relationships with
communications carriers and corporate and government customers. The practice of
leasing dark fiber is not widespread and there can be no assurance that such a
market will develop or that the Company will be able to enter into contracts,
comply with the terms of such contracts or maintain relationships with
communications carriers and corporate and government customers, that any such
contracts or relationships will be on economically favorable terms or that such
communications carriers and corporate and government customers will not choose
to compete against, rather than cooperate with, the Company. The Company's
inability to enter into contracts, comply with the terms of such contracts or
maintain relationships with these constituencies would materially and adversely
affect the Company's business, financial condition and results of operations.

The Company cannot predict whether providing services to governments will
evolve into a significant market. Existing rights-of-way are typically
controlled by governments and are often used to create leverage in "shared
resources projects" whereby the government obtains communications capacity in
exchange for providing a private communications carrier access to government
controlled rights-of-way for fiber installation. In addition, governments often
build their own communications infrastructure because they already control the
necessary rights-of-way. Accordingly, there can be no assurance that the market
for government customers will develop to any significant extent.

A number of the Company's current contracts to supply leased fiber capacity
permit the lessee to terminate such contracts and/or provide for liquidated
damages if the Company does not supply such fiber capacity by a specified time.
Certain of these contracts are currently terminable on this basis. The

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termination of any such contracts could adversely affect the Company's business,
financial condition and results of operations.

The Company may expand the range of services that it offers. Such plans may
include assisting customers with the integration of their leased dark fiber with
appropriate electronic and optronic equipment by facilitating the involvement of
third party suppliers, vendors and contractors. There can be no assurance that a
market will develop for new services offered by the Company, that the Company's
implementation of the services will be technically or economically feasible,
that the Company will be able to successfully develop or market them or that the
Company will be able to operate and maintain its new services profitably.

NEED FOR ADDITIONAL FINANCING

The net proceeds from the Offerings will not be sufficient to enable the
Company to complete the build-out of its planned fiber optic network and meet
its long-term business strategies. The completion of the Company's planned fiber
optic communications networks will require substantial capital investment. The
Company's ability to arrange financing and the cost of such financing are
dependent upon numerous factors, including general economic and capital market
conditions, conditions in the communications market, regulatory developments,
credit availability from banks or other lenders, investor confidence in the
industry and the Company, the success of the Company's fiber optic
communications networks, and provisions of tax and securities laws that are
conducive to raising capital. There can be no assurance that financing for the
expansion of the Company's fiber optic communications networks will be available
to the Company on acceptable terms in the future or that, if the form of any
such future financing is through the issuance and sale of equity securities,
investors in the Offerings will not be diluted.

COMPETITIVE INDUSTRY

The Company faces substantial competition from ILECs, which currently
dominate their local telecommunications markets, and CLECs, most of which have
greater financial, research and development and other resources than the
Company. In addition to ILECs and CLECs, potential competitors capable of
offering services similar to those offered by the Company include IXCs, other
facilities-based communications service providers, cable television companies,
electric utilities, microwave carriers, satellite carriers, wireless telephone
system operators and large end-users with private networks. There can be no
assurance that such entities will not compete with the Company. See "Business--
Competition."

Various communications carriers already own fiber optic cables as part of
their telecommunications networks. Accordingly, any of these carriers, some of
which already have franchise agreements with the City of New York and
substantially greater resources and more experience than the Company, could
compete directly with the Company in the market for leasing fiber capacity,
provided that these competitors are willing to offer this capacity to all their
customers. The Company's franchise agreement with the City of New York is not
exclusive. Potential competitors with greater resources and more experience than
the Company could enter into franchise agreements with the City of New York and
compete directly with the Company. The Company's Inter-City Network will also
face competition from other communications companies, including Qwest
Communications International Inc. ("Qwest"), that are in the process of
constructing extensive inter-city networks.

In addition, some communications carriers and local cable companies have
extensive networks in place that could be upgraded to fiber optic cable, as well
as numerous personnel and substantial resources to undertake the requisite
construction to so equip their networks. To the extent that communications
carriers and local cable companies decide to equip their networks with fiber
optic cable, they are potential significant competitors of the Company.

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There is no reason to believe that other companies will not choose to
compete with the Company in any market, inside or outside of New York City, by
leasing fiber capacity (including dark fiber) to the Company's targeted
customers. Any such additional competition could materially adversely affect the
Company's business, financial condition and results of operations.

EXTENSIVE REGULATION

Existing and future governmental regulations will greatly influence the
viability of the Company. However, the Company cannot predict the future
regulatory status of its business.

FEDERAL

Federal telecommunications law directly shapes the market in which the
Company competes. Consequently, undesirable regulatory changes could adversely
affect the Company's business, financial conditions and results of operations.

Federal telecommunications law imposes special legal requirements on "common
carriers" who engage in "interstate or foreign communication by wire or radio."
The Company believes that the leasing of dark fiber facilities does not
constitute engaging in "communication by wire or radio" and therefore is not
subject to these legal requirements. In any event, the Company does not intend
to offer its dark fiber facilities as a common carrier. Common carriers are
those who offer services directly to the public, or to all potential users on an
indiscriminate basis subject to standardized rates, terms or conditions. The
Company does not intend to offer its dark fiber services in this manner, but
instead intends to enter into individualized negotiations on a selective basis
with prospective lessees of its dark fiber facilities to determine whether and
on what terms to serve each potential lessee. The Company therefore does not
believe that its dark fiber offerings are subject to the common carrier
provisions of the Federal Communications Commission ("FCC") or to the common
carrier provisions of the Communications Act of 1934, as amended (the
"Communications Act").

Federal telecommunications law also imposes special legal requirements on
"telecommunications carriers." The law essentially defines "telecommunications
carriers" as those offering certain telecommunication services "directly to the
public" or to all potential users. The Company therefore believes that a Company
has to be a common carrier in order to be considered a telecommunications
carrier. For the reasons stated above, the Company believes that it is neither a
common carrier nor a telecommunications carrier with respect to its dark fiber
service. Nevertheless, the law is not entirely clear as to, and the FCC has not
definitively addressed whether, the term "telecommunications carriers" is meant
to encompass only common carriers, and therefore whether a provider of dark
fiber facilities on an individualized basis, like the Company, is a
"telecommunications carrier." The FCC has been petitioned by certain railroad,
power and telecommunications associations, none of which are affiliated with the
Company, to clarify the status of dark fiber providers in this respect, and if
the agency decides that such companies are telecommunications carriers, then the
Company would be subject to certain additional regulatory requirements. These
requirements may have a material adverse effect on the Company.

If the Company's offering of dark fiber facilities were deemed to constitute
a "telecommunications service," then its revenues from such leases to end users
(but not to other telecommunication carriers) would become subject to assessment
for the FCC's Universal Service Fund, a fund that was established by the FCC
pursuant to the Communications Act to assist in ensuring the universal
availability of basic telecommunications services at affordable prices. Such
assessments could create a liability equal to a percentage of these gross
revenues (the Company anticipates that the rate of assessment will be
approximately 4.5% of gross interstate end-user revenues for the year 1998, and
may be higher in subsequent years).

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With respect to its offering of telecommunications transmission services,
however, the Company will likely operate as a common carrier and therefore will
be subject to the regulatory requirements applicable to common carriers and to
telecommunications carriers. For example, the Company will be required, with
respect to its transmission services, to (1) provide such services
indiscriminately upon any reasonable request; (2) charge rates and adopt
practices, classifications and regulations that are just and reasonable; and (3)
avoid unreasonable discrimination in charges, practices, regulations, facilities
and services. The Company may also be required to file tariffs setting forth the
rates for its services. Under current FCC policies, these regulatory
requirements should not impose any substantial burdens on the Company. The FCC
has recently determined, for example, that providers of "access" services (that
is, intracity transmission services used to originate and/or terminate
interstate and foreign communications) need not file tariffs and may offer such
services to customers on a private, contractual basis. Although the FCC's
policies may be subject to change in the future due to regulatory, judicial, or
legislative actions, and such changes could have a material adverse effect on
the Company, the Company does not believe that regulation of its services at the
federal level will have any detrimental effect on its competitiveness.

ILECs, CLECs and IXCs are subject to various federal telecommunications
laws. Accordingly, federal telecommunications law may affect the Company's
business by virtue of the inter-relationships that exist among the Company and
many of these regulated telecommunications entities. For example, the FCC
recently issued an order requiring, among other things, that common line access
fees charged to IXCs, which previously amounted to more than what was necessary
to recover the costs of providing access, shift from being usage driven to a
fixed flat cost-based structure. While it is not possible to predict the precise
effect the access charge changes will have on the Company's business or
financial condition, the reforms will reduce access charges paid by IXCs, likely
eliminating one of the principal disincentives for use of ILEC facilities by
IXCs, which could have a material adverse effect on the use of the Company's
fiber optic telecommunications networks by IXCs.

The FCC has responsibility under the 1996 Act's interconnection provisions
to determine what elements of an ILEC's network must be provided to competitors
on an unbundled basis. The FCC has decided not to declare dark fiber an
unbundled network element under these provisions. This decision is currently
subject to petitions for reconsideration before the FCC. An FCC decision to
alter this decision on reconsideration could decrease the demand for dark fiber
provided by the Company. In addition, the FCC has announced that state
commissions may decide to add network elements to the FCC's list of elements
that are required to be unbundled by all carriers throughout the country.

STATE

In arbitrating interconnection agreements under the 1996 Act between ILECs
and their potential competitors, some state commissions have considered whether
dark fiber should be considered an unbundled network element. For example, the
New York Public Service Commission determined that it would not require NYNEX
Corporation ("NYNEX") to provide dark fiber as an unbundled network element.
State commissions, including those in Florida, Maryland, North Carolina, and
Virginia, also have either refused to require the ILECs to offer dark fiber to
competitors, or have stated that the issue would be addressed at a later time.
On the other hand, state commissions in Illinois, Massachusetts, Arizona,
Georgia, Minnesota, Ohio, Oregon and Tennessee have found dark fiber to be a
network element and required the ILECs to offer it on an unbundled basis to
CLECs. There can be no assurance that these requirements, and the associated
pricing methodologies, where applicable, will not reduce the demand for dark
fiber provided by the Company.

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New York, Pennsylvania, or the District of Columbia. However, the Company's
offering of transmission services (as distinct from dark fiber capacity) likely
will be subject to regulation in each of these jurisdictions to the extent that
these services are offered for intrastate use. Even though many of the Company's
facilities will be physically intrastate, the Company anticipates that most
customers will use its facilities and services for the purpose of originating
and/or terminating interstate and foreign communications. Under current FCC
policies, any dedicated transmission service or facility that is used more than
10% of the time for the purpose of interstate or foreign communication is
subject to FCC jurisdiction to the exclusion of any state regulation.

Regulation of the telecommunications industry is changing rapidly, and the
regulatory environment varies substantially from state to state. At present, the
Company does not anticipate that the regulatory requirements to which it will be
subject in Illinois, New York, Pennsylvania, and the District of Columbia will
have any material adverse effect on its operations, although the Company will
incur certain costs to comply with regulatory requirements such as the filing of
tariffs, submission of periodic financial and operational reports to regulators,
and payment of regulatory fees and assessments. In some jurisdictions, the
Company's pricing flexibility for intrastate services may be limited because of
regulation, although the Company's direct competitors will be subject to similar
restrictions. However, there can be no assurance that future regulatory,
judicial, or legislative action will not have a material adverse effect on the
Company.

LOCAL

In addition to federal and state laws, local governments exercise legal
authority that may impact the Company's business. For example, local
governments, such as the City of New York, typically retain the ability to
license public rights-of-way, subject to the limitation that local governments
may not prohibit persons from providing telecommunications services. Local
authorities affect the timing and costs associated with the Company's use of
public rights-of-way. These regulations may have an adverse effect on the
Company's business.

INTERNATIONAL

Various regulatory requirements and limitations also will influence the
Company's business as it attempts to enter international markets.

Although the Company has not fully determined its international business
strategy, the Company is currently negotiating an agreement with a foreign firm
that contemplates jointly acquiring and selling international, facilities-based
telecommunications capacity between the U.S. and the United Kingdom. Depending
on the Company's specific business plan in this arrangement, it is possible that
the Company will become a U.S. international common carrier subject to U.S.
regulation under Title II of the Communications Act. Under current FCC rules,
international carriers that do not exercise market power and that are not
affiliated with dominant foreign carriers are subject to relatively relaxed U.S.
regulation as nondominant international carriers. As a common carrier, the
Company would be subject to, among other policies, the common carrier
obligations of nondiscrimination. In addition, FCC rules prohibit U.S. carriers
from bargaining for special concessions from foreign partners. The Company would
also be required, under Sections 214 and 203 of the Communications Act,
respectively, to obtain authority and file an international service tariff
containing rates, terms and conditions prior to initiating service. As a
nondominant carrier, the Company would be eligible to seek "global" authority to
operate as facilities-based and/or resale carrier in an application subject to
the FCC's streamlined processing rules. International carriers are also subject
to certain annual fees and filing requirements including the requirement to file
contracts with other carriers including foreign carrier agreements, and reports
setting forth international circuit, traffic and revenue data service. Failure
to obtain an appropriate U.S. license for international service or the
revocation of a license could have a material adverse effect on the future
operations of the Company.

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If the Company operates as an international common carrier, it will also be
required to comply with FCC's rules regarding the International Settlements
Policy (the "ISP") which defines the permissible boundaries for U.S. carriers
and their foreign correspondents to settle the cost of terminating each other's
traffic over their respective networks. The ISP is designed to eliminate a
foreign carrier's opportunity to discriminate among different U.S. carriers by
bargaining for accounting rates or other terms that benefit the foreign carrier
but is inconsistent with the U.S. public interest. The ISP generally provides
that U.S. carriers may only enter into foreign carrier agreements for the
exchange of traffic that contain the same accounting rate and settlement rate
(typically one-half of the accounting rate) offered to all other U.S. carriers.
The ISP also requries U.S. carriers to adhere to the principle of proportionate
return so that competing U.S. carriers have comparable opportunities to receive
the return traffic that reduces the marginal cost of providing international
service.

The FCC continues to refine its international service rules to promote
competition, reflect and encourage liberalization in foreign countries, and
reduce accounting rates toward cost. Indeed, the FCC recently established
reduced "benchmark" rates for the amounts U.S. carriers will be allowed to pay
to foreign carriers for terminating U.S.-originated traffic. Effective January
1, 1998, U.S. carriers will have one year to ensure that the rate paid to
terminate traffic, e.g., in the U.K., does not exceed $0.15/minute. Different
rates would apply in different countries depending on the countries' wealth.

In addition, in connection with the proposed transaction between MCI
Communications and British Telecom and in other decisions, the FCC has
recognized the advent of competition in the U.K. market by designating the U.K.
as a country that offers "equivalent opportunities" for the resale of
international private line services and "effectively competitive opportunities."
Those decisions have relaxed or eliminated regulatory limitations on certain
U.S. carrier services between the U.S. and the U.K. and permitted U.K. carriers
to enter the U.S. market through affiliations with U.S. carriers. In addition,
the FCC has determined that it would permit U.S. carriers to enter into
"flexible" international termination arrangements where such arrangements
promote competition and has proposed to amend its rules to reflect the U.S.
participation in the World Trade Organization ("WTO") Agreement on Basic
Telecommunications Services in which 69 countries agreed to eliminate barriers
to competition in their markets for basic telecommunications service. Under the
proposed amendments, the FCC would, among other things, relax or eliminate
current rules that restrict or impose more stringent regulation on U.S. carriers
with affiliations with carriers from WTO-member countries.

Regulation of the international telecommunications industry is changing
rapidly. The Company is unable to predict how the FCC will resolve the various
pending international policy issues and the effect of such resolutions on the
Company.

The Company's international services would also be subject to regulation in
the United Kingdom. U.K. regulation, as well as policies and regulations on the
European Union level, would impose separate licensing, service and other
conditions on the Company's international service operations, and these
requirements may have a material adverse impact on the Company.

RISK OF CANCELLATION OR NON-RENEWAL OF FRANCHISES, LICENSES OR PERMITS

The Company operates its NY Network based on a franchise agreement entered
into between the Company and the City of New York on December 20, 1993 (the "NYC
Franchise Agreement"). Both the City of New York and the Company have the right,
at any time after December 2000, upon six months notice, to renegotiate certain
terms of the NYC Franchise Agreement, including the annual franchise fee payable
by the Company, based on changes in technological, regulatory or market
conditions which may occur after the effective date of the NYC Franchise
Agreement. In the event either party calls for renegotiation, both the City of
New York and the Company are required to negotiate any such changes in good
faith. In the event an agreement cannot be reached upon any such renegotiation,
the NYC Franchise Agreement will be subject to early termination on a date which
would be one half of the

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number of days between the date of the notice to renegotiate and January 1,
2009. Termination of the NYC Franchise Agreement would have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business--Franchise, License and Related Agreements--New York City
Franchise Agreement." The Company will also need to obtain additional
franchises, licenses and permits for its planned Intra-City Networks and
Inter-City Network. There can be no assurance that the Company will be able to
maintain its existing franchises, licenses or permits or to obtain and maintain
the other franchises, licenses or permits needed to implement its strategy on
acceptable terms.

NEED TO OBTAIN AND MAINTAIN RIGHTS-OF-WAY

The Company must obtain additional rights-of-way and other permits from
railroads, utilities, state highway authorities, local governments and transit
authorities to install underground conduit for the expansion of the NY Network
and the Company's planned Intra-City Networks and Inter-City Network. There can
be no assurance that the Company will be successful in obtaining and maintaining
such right-of-way agreements or obtaining such agreements on acceptable terms.
Some of these agreements may be short-term or revocable at will, and there can
be no assurance that the Company will have continued access to existing
rights-of-way after their expiration or termination. If any of these agreements
were terminated or could not be renewed and the Company were forced to remove
its fiber optic cable from under the streets or abandon its networks, such
termination would have a material adverse effect on the Company's business,
results of operations and financial condition.

More specifically, the Company's NY Network relies upon, and its planned
expansions into Long Island and Westchester County will rely upon, right-of-way
agreements between the Company and NYNEX and its subsidiary, Empire City Subway
Company (Ltd.) ("ECS"). The current agreements are subject to termination at any
time without cause upon three months' notice. In case of termination, the
Company may be required to remove its fiber optic cable from the conduits or
poles of NYNEX. Such termination would have a material adverse effect on the
Company's business, financial condition and results of operations.

RAPID TECHNOLOGICAL CHANGE

The communications industry is subject to rapid and significant changes in
technology that could materially affect the continued use of fiber optic cable.
The effect of technological changes on the business of the Company cannot be
predicted, and there can be no assurance that technological changes in the
communications industry will not have a material adverse effect on the Company's
business, results of operations and financial condition.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

There are certain risks inherent in doing business on an international
level, including regulatory limitations restricting or prohibiting the provision
of the Company's services, unexpected changes in regulatory requirements,
tariffs, customs, duties and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, problems in collecting
accounts receivable, political risks, fluctuations in currency exchange rates,
technology export and import restrictions or prohibitions, delays from customs
brokers or government agencies, and potentially adverse tax consequences
resulting from operating in multiple jurisdictions with different tax laws.
Furthermore, international rates charged to customers are likely to decrease in
the future for a variety of reasons, including increased competition between
existing carriers, new entrants into geographic markets in which the Company
operates or intends to operate and additional strategic alliances or joint
ventures among large international carriers that facilitate targeted pricing and
cost reductions. See "--Extensive Regulation-- International" and
"Business--Regulation."

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RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES

The Company may, in the future, acquire or engage in efforts to acquire
customer bases and businesses from, make investments in, or enter into strategic
alliances with, companies which have customer bases, switching capabilities or
existing networks in the Company's current markets or in areas into which the
Company intends to expand the MFN Network. Although the Company is currently
evaluating several potential strategic opportunities, it does not have any
present definitive commitment or agreement with respect to any material
acquisition, investment, strategic alliance or related effort. Any future
acquisitions, investments, strategic alliances or related efforts will be
accompanied by the risks such as the difficulty of identifying appropriate
acquisition candidates, the difficulty of assimilating the operations of the
respective entities, the potential disruption of the Company's ongoing business,
the inability of management to capitalize on the opportunities presented by
acquisitions, investments, strategic alliances or related efforts, the failure
to successfully incorporate licensed or acquired technology and rights into the
Company's services, the inability to maintain uniform standards, controls,
procedures and policies and the impairment of relationships with employees and
customers as a result of changes in management. There can be no assurance that
the Company would be successful in overcoming these risks or any other problems
encountered with such acquisitions, investments, strategic alliances or related
efforts. See "--Risks Associated with Growth Strategy; Management of Expansion"
and "Business--Business Strategy--Utilize Strategic Relationships to Expand the
Reach of the MFN Network."

PRICING PRESSURES AND INDUSTRY CAPACITY

The long distance transmission industry has generally been characterized as
having overcapacity and declining prices since shortly after the AT&T
divestiture in 1984. Although the Company believes that, in the last several
years, increasing demand has resulted in a shortage of capacity and slowed the
decline in prices, the Company anticipates that prices for its services
specifically, and long distance services in general, will continue to decline
over the next several years due primarily to (i) price competition as various
network providers continue to install networks that might compete with the MFN
Network, (ii) recent technological advances that permit substantial increases in
the transmission capacity of both new and existing fiber and (iii) strategic
alliances or similar transactions, such as long distance capacity purchasing
alliances among certain RBOCs, that increase the parties' purchasing power. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

RELIANCE ON KEY PERSONNEL; CONCENTRATION OF VOTING POWER BY PRINCIPAL
STOCKHOLDERS; ANTI-TAKEOVER EFFECTS OF TWO CLASSES OF STOCK

The Company's business is managed by a small number of key management and
operating personnel, the loss of certain of whom could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company believes that its future success will depend in large part on its
ability to attract and retain highly skilled and qualified personnel and to
expand, train and manage its employee base. None of the Company's key
executives, other than Stephen A. Garofalo, Chief Executive Officer, Secretary
and Chairman of the Board, and Howard Finkelstein, President and Chief Operating
Officer, is presently a party to an employment or non-competition agreement with
the Company. See "Management--Employment Agreements."

The holders of Class A Common Stock are entitled to one vote per share.
Holders of Class B Common Stock are entitled to ten votes per share and vote as
a separate class to elect at least 75% of the members of the Board of Directors.
Each share of Class B Common Stock is convertible at any time into one share of
Class A Common Stock, and with limited exceptions converts automatically upon
any transfer thereof. Stephen A. Garofalo currently controls approximately 57%
of the outstanding shares of Class A Common Stock. Metromedia and certain of its
affiliates currently own 100% of the Class B

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Common Stock, and represent approximately 76% of the Company's total voting
power (on a fully diluted basis, without giving effect to the Offerings).
Accordingly, Metromedia will be able to control the Board of Directors and all
shareholders decisions and, in general, to determine (without the consent of the
Company's other stockholders) the outcome of any corporate transaction or other
matter submitted to the stockholders for approval, including mergers,
consolidations and the sale of all or substantially all of the Company's assets.
In addition, Metromedia has the power to prevent or cause a change in control of
the Company. See "Description of Capital Stock," "Principal Shareholders" and
"Certain Relationships and Related Transactions."

CONTROL BY AND RELIANCE UPON METROMEDIA COMPANY

Metromedia and its general partners currently own all of the Class B Common
Stock, each entitled to 10 votes per share, representing approximately 76% of
the Company's total voting power (on a fully diluted basis, without giving
effect to the Offerings). In addition, since holders of Class B Common Stock are
entitled to vote as a separate class to elect at least 75% of the members of the
Board, Metromedia will be able to control the Board and all stockholder
decisions and, in general, to determine (without the consent of the Company's
other stockholders) the outcome of any corporate transaction or other matter
submitted to the stockholders for approval, including mergers, consolidations
and the sale of all or substantially all of the Company's assets. Metromedia
also has the power to prevent or cause a change in control of the Company. In
addition, over the past year, Metromedia has made available to the Company
approximately $8.0 million in debt financing and has consummated the Metromedia
Investment. There can be no assurance that Metromedia will provide any
additional financing to the Company. See "--Reliance on Key Personnel;
Concentration of Voting Power by Principal Stockholders; Anti-takeover Effects
of Two Classes of Stock," "Description of Capital Stock," "Principal
Shareholders" and "Certain Relationships and Related Transactions."

ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE

Prior to the Offerings, there has been no public market for the Class A
Common Stock. The initial public offering price of the Class A Common Stock will
be determined by negotiations among the Company and the Representatives of the
Underwriters (each as defined herein), and may bear no relationship to the price
at which the Class A Common Stock will trade after completion of the Offerings.
The Class A Common Stock has been approved for listing, subject to notice of
issuance, on the Nasdaq National Market; however, there can be no assurance that
an active trading market will develop or be maintained for the Class A Common
Stock following the Offerings or that the Class A Common Stock will trade in the
public market at or above the initial public offering price. For factors
considered in determining the initial public offering price, see "Underwriting."
After completion of the Offerings, the market price of the Class A Common Stock
will be subject to fluctuations in response to various factors and events,
including the liquidity of the market for the Class A Common Stock, variations
in the Company's quarterly operating results, regulatory or other changes, both
domestic and international, affecting the communications industry generally or
the Company specifically, announcements of business developments by the Company
or its competitors, changes in operating results and changes in general market
conditions. See "--Limited History of Operations; Negative Losses and Negative
Cash Flow from Operations; Expected Future Net Losses and Negative Cash Flow
from Operations", "--Extensive Regulation", "--Risk of Cancellation or
Non-Renewal of Franchises, Licenses or Permits" and "-- Competitive Industry."

SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL ADVERSE EFFECT ON STOCK PRICE;
REGISTRATION RIGHTS

Sales of a substantial number of shares of Class A Common Stock in the
public market, or the perception that such sales may occur could adversely
effect prevailing market prices for the Class A Common Stock and the ability of
the Company to raise capital in the future. Upon completion of the

18
<PAGE>
Offerings, the Company will have outstanding 17,524,267 shares of Class A Common
Stock and 4,221,159 shares of Class B Common Stock (which are convertible into
Class A Common Stock on a one-for-one basis). Of such shares, the 7,920,000
shares of Class A Common Stock being sold in the Offerings (together with any
shares sold upon exercise of the Underwriters' over-allotment option) will be
immediately eligible for sale in the public market without restriction, except
for shares purchased by or issued to any affiliate (an "Affiliate") of the
Company (within the meaning of the Securities Act of 1933, as amended (the
"Securities Act")). For so long as any stockholder remains an Affiliate of the
Company, any shares of Class A Common Stock held by such person will only be
available for public sale if such shares are registered under the Securities Act
or sold in accordance with an applicable exemption from registration, such as
Rule 144 ("Rule 144") of the Securities Act, and any sales by an Affiliate under
Rule 144 would be subject to the volume and other limitations under such rule.
1,781,444 shares of Class A Common Stock which are "restricted securities", as
that term is defined in Rule 144, owned by persons who are neither Affiliates of
the Company nor subject to lock-up agreements with the Underwriters are
currently eligible for sale under Rule 144. All of the shares of Class B Common
Stock are currently owned by persons who are affiliates of the Company and, in
addition, are subject to lock-up agreements with the Underwriters. Shares of
Class A Common Stock converted from shares of Class B Common Stock will be
eligible for sale under Rule 144 beginning on April 30, 1998 (subject to certain
volume limitations and other restrictions prescribed by Rule 144). Upon the
expiration or waiver of certain lock-up agreements with the Underwriters,
approximately 5,306,689 additional shares of Class A Common Stock will be
immediately eligible for sale in the public market pursuant to Rule 144 (subject
to certain volume limitations and other restrictions prescribed by Rule 144).
Pursuant to lock-up agreements with the Underwriters, the Company and executive
officers and directors of the Company have agreed not to offer, sell, contract
to sell or otherwise dispose of, directly or indirectly, any shares of Class A
Common Stock or any securities of the Company that are substantially similar to
the Class A Common Stock, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Class A Common Stock or any such substantially similar securities (other than
pursuant to employee or director stock or stock option plans existing on the
date of this Prospectus) for a period of 180 days after the date of this
Prospectus without the prior written consent of Salomon Brothers Inc, except for
the shares of Class A Common Stock offered in connection with the Offerings.
4,283,326 shares of Class A Common Stock are issuable upon the exercise of
outstanding options and warrants. In addition, the Company has entered into
various registration rights agreements which grant certain stockholders "demand"
and "piggyback" registration rights which may result in the Company being
obligated to cause (as early as 90 days after consummation of the Offerings) the
registration of up to 1,703,520 shares of Class A Common Stock and up to 322,452
shares of Class A Common Stock underlying currently outstanding warrants. One
party that is entitled to demand registration rights for 264,870 shares of Class
A Common Stock has indicated to the Company they intend to immediately exercise
such rights upon consummation of the Offerings. See "Certain Relationships and
Related Transactions," "Description of Capital Stock" and "Shares Eligible for
Future Sale." No prediction can be made as to the effect, if any, that sales of
shares of Class A Common Stock or the availability of such shares for sale will
have on the market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of Class A Common Stock (including those
shares into which the Class B Common Stock is convertible) may be sold in the
public market may adversely affect prevailing market prices for the Class A
Common Stock and impair the company's ability to raise equity capital in the
future.

LITIGATIONS AGAINST THE COMPANY

The Company, Stephen A. Garofalo, Metromedia, Peter Sahagen, Peter
Silverman, and Silverman, Collura, Chernis & Balzano, P.C. are currently
defendants in an action brought by Howard Katz, Realprop Capital Corp. and
Evelyn Katz in the United States District Court for the Southern District of New
York (the "Katz Litigation"). On May 28, 1997, the plaintiffs filed an amended
complaint and on September 15,

19
<PAGE>
1997, the plaintiffs filed a second amended complaint. The complaint, as
amended, alleges causes of action for, among other things, common law fraud,
violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder, breach of fiduciary duty and negligent
misrepresentation for alleged misrepresentations and omissions made in
connection with the repurchase of the Katz Securities (as defined below under
"Certain Relationships and Related Transactions"). The complaint, as amended,
also contains allegations of corporate waste against the Company and Mr.
Garofalo. Plaintiffs seek, among other things, compensatory damages of not less
than $12 million, punitive damages in the amount of $100 million and, in the
alternative, rescission of the purchase by the Company of 264,631 shares of
Class A Common Stock and 207,883 warrants to acquire shares of Class A Common
Stock. The defendants have until October 31, 1997 to answer, move to dismiss or
otherwise respond to the amended complaint. While the Company currently intends
to vigorously defend itself against these allegations based on its belief that
MFN acted appropriately in connection with the matters at issue in this
litigation, no assurance can be made that the Company will not determine that
the advantages of entering into a settlement outweigh the risks and expense of
protracted litigation or that ultimately the Company will be successful in its
defense of the allegations. If the Company is unsuccessful in its defense of the
allegations, an award of the magnitude being sought by the plaintiffs in the
Katz Litigation could have a material adverse effect on the Company's financial
condition or results of operations. See "Business--Legal Proceedings."

On or about October 20, 1997, Vento & Company of New York, LLC ("VCNY")
commenced an action against the Company, Stephen A. Garofalo, Peter Silverman,
the law firm of Silverman, Collura, Chernis & Balzano, P.C., Peter Sahagen,
Sahagen Consulting Group of Florida (collectively, the "Sahagen Defendants") and
Robert Kramer, Birdie Capital Corp, Lawrence Black, Sterling Capital LLC,
Penrush Limited, Needham Capital Group, Arthur Asch, Michael Asch and Ronald
Kuzon (the "Kramer Defendants"), in the United States Disctrict Court for the
Southern District of New York (No. 97 CIV 7751) (the "VCNY Litigation"). The
complaint alleges causes of action for, among other things, violation of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder, fraud and fraudulent concealment, breach of fiduciary duty and
negligent misrepresentation and omission made in connection with respect to the
sale by VCNY of 1,368,900 shares of Class A Common Stock to Peter Sahagen and
the Kramer Defendants on January 13, 1997 (the "VCNY Sale"). See "Certain
Relationships and Related Transactions" and "Description of Capital
Stock--Registration Rights." The complaint also alleges a cause of action for
declaratory judgment asserting that certain "piggyback" registration rights are
applicable to shares of the Company's Class A Common Stock which VCNY owns (or
which may be rescinded to VCNY pursuant to its requested remedies). The
complaint further requests a declaratory judgment that a stockholders agreement
between the Company, Stephen Garofalo and VCNY be declared operative, which
agreement indirectly required VCNY, through designated directors, to approve
significant transactions, and, accordingly, the Metromedia Loan and the
Metromedia Investment should be rescinded and Mr. Vento should be reappointed as
Chief Executive Officer of the Company. The Company believes, among other
things, that the stockholders agreement to which Mr. Vento was a party had
terminated and as a result Mr. Vento had no such rights to approve the
Metromedia Investment or the Metromedia Loan or to remain as Chief Executive
Officer of the Company. Plaintiff seeks, among other things, (i) rescission of
the VCNY Sale, or alternatively, damages in an amount not presently
ascertainable, but believed to be in the excess of $36 million, together with
interest thereon, (ii) punitive damages in the amount of $50 million, and (iii)
the declaratory judgments discussed above. The Company intends to vigorously
defend itself against these allegations based on its belief that MFN acted
appropriately in connection with the matters at issue in this litigation. No
assurance can be made, though, that the Company will not determine that the
advantages of entering into a settlement outweigh the risk and expense of
protracted litigation or that ultimately the Company will be successful in its
defense of the allegations. If the Company is unsuccessful in its defense of the
allegations, an award of the magnitude being sought by the plaintiffs in the
VCNY Litigation would have a material adverse

20
<PAGE>
effect on the Company's financial condition or results of operation. See
"Business--Legal Proceedings."

LIMITED NATURE OF COMPANY'S CURRENT SERVICES

The Company is a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure, and it is not
currently engaged in the transmission of voice, data or video services and does
not provide switched voice and data services. Accordingly, at the present time,
the Company, unlike other telecommunications companies, receives no revenues
from providing such services, and instead derives substantially all of its
revenues from the leasing of fiber optic capacity to its customers, many of whom
transmit voice, data and/or video information or provide switched voice and data
services. While the Company may in the future decide to provide such services,
the limited nature of the Company's current services could limit potential
revenues and result in the Company having lower revenues than competitors which
provide a wider array of services. See "Business--Customers" and
"Business--Competition."

ABSENCE OF DIVIDENDS

The Company anticipates that all of its earnings in the foreseeable future
will be retained to finance the continued growth and expansion of its business
and has no current intention to pay cash dividends on its Class A Common Stock.
See "Dividend Policy."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of Class A Common Stock in the Offerings will experience
immediate and substantial dilution of $9.75 per share in the net tangible book
value per share of outstanding Class A Common Stock. See "Dilution."

21
<PAGE>
USE OF PROCEEDS

The net proceeds from the Offerings are estimated to be approximately $116.8
million (approximately $134.5 million if the Underwriters' over-allotment option
is exercised in full) after deducting estimated expenses of the Offerings
payable by the Company. Such net proceeds will be used primarily for capital
expenditures associated with the build-out of the MFN Network, the development
and introduction of new services and for general corporate and working capital
purposes. See "Business."

There can be no assurance that the Company's actual application of the
proceeds will not vary substantially from the Company's current plans. Moreover,
the Company will need additional capital to (i) finance the completion of its
planned network, (ii) fund working capital needs and future debt service
obligations, (iii) take advantage of unanticipated opportunities, including more
rapid international expansion, acquisitions of businesses, investments in, or
strategic alliances with, companies that are complementary to the Company's
current operations, (iv) develop or expand into new services or (v) otherwise
respond to unanticipated competitive pressures. See "Risk Factors--Competitive
Industry," "--Risks Associated with Acquisitions, Investments and Strategic
Alliances" and "Business--Business Strategy."

Pending application of the net proceeds of the Offerings, the Company
expects that it will place such net proceeds in interest-bearing bank accounts
or invest such proceeds in United States government securities or other
short-term, interest bearing, investment grade securities. The Company is not
currently, and does not expect as a result of the Offerings to become, subject
to the registration requirements of the Investment Company Act of 1940.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Class A
Common Stock and does not expect to do so in the foreseeable future. The Company
anticipates that all future earnings, if any, generated from operations will be
retained to finance the expansion and continued development of its business. Any
future determination with respect to the payment of dividends will be within the
sole discretion of the Company's Board and will depend upon, among other things,
the Company's earnings, capital requirements, the terms of then existing
indebtedness, applicable requirements of the Delaware General Corporation Law
(the "DGCL"), general economic conditions and such other factors considered
relevant by the Company's Board. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

22
<PAGE>
DILUTION

As of June 30, 1997, the net tangible book value of the Company was
approximately $19 million, or $1.38 per share of outstanding Common Stock
(taking into account the Reverse Stock Split and the Reclassifications). Net
tangible book value per share of Common Stock represents the total amount of
tangible assets of the Company, less the total amount of liabilities of the
Company, divided by the number of shares of Common Stock outstanding. After
giving effect to Reverse Stock Split, Reclassifications and the sale by the
Company of the 7,920,000 shares of Class A Common Stock offered hereby at the
initial offering price of $16.00 per share and assuming no exercise of the
Underwriters' over-allotment option and the application of the net proceeds
therefrom (after deducting estimated offering expenses payable by the Company
and underwriting discounts and commissions), the pro forma net tangible book
value of the Company as of June 30, 1997 would have been approximately $136
million, or $6.25 per share of Common Stock, representing an immediate increase
in net tangible book value of approximately $4.87 per share of Common Stock to
existing stockholders and an immediate dilution in net tangible book value of
approximately $9.75 per share to new investors purchasing shares of Class A
Common Stock in the Offerings. The following table illustrates this per share
dilution to the new investors:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)............. $ 16.00
Net tangible book value per share of Common Stock at June 30,
1997 (adjusted for the Reverse Stock Split and the
Reclassifications but excluding the Offerings)............... 1.38
Increase in net tangible book value per share of Common Stock
attributable to net proceeds of the Offerings................ 4.87
Pro forma net tangible book value per share of Common Stock
after giving effect to the Offerings......................... 6.25
-------------
Dilution per share to new investors of Class A Common Stock in
the Offerings................................................ $ 9.75
-------------
-------------
</TABLE>

- ------------------------
(1) Before deduction of underwriting discounts and offering expenses.

The following table sets forth, on a pro forma basis as of June 30, 1997,
and after giving effect to the Reclassifications and the Reverse Stock Split,
the number of shares of Class A Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share of
Common Stock paid by existing stockholders and to be paid by new investors
before deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company:

<TABLE>
<CAPTION>
AVERAGE
PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
------------------------ --------------------------- -----------
<S> <C> <C> <C> <C> <C>
NUMBER PERCENT AMOUNT PERCENT
------------- --------- ---------------- ---------
Existing Stockholders......................... 13,825,426 63.6% $ 38,781,023 23.4% $ 2.80
New Investors................................. 7,920,000 36.4 126,720,000 76.6 $ 16.00
------------- --------- ---------------- ---------
Total....................................... 21,745,426 100.0% $ 165,501,023 100.0%
------------- --------- ---------------- ---------
------------- --------- ---------------- ---------
</TABLE>

The above tables assume no exercise of any outstanding options or warrants.
As of the date hereof, options and warrants to purchase 4,283,326 shares of
Class A Common Stock, exercisable at prices ranging from $1.97 to $9.00 per
share, have been issued and are outstanding. To the extent options and warrants
are exercised, there will be further dilution to new investors. See
"Management--Executive Compensation" and "Capitalization."

23
<PAGE>
CAPITALIZATION

The following table sets forth: (i) the Company's actual capitalization as
of June 30, 1997 after giving effect, retroactively, to the Reverse Stock Split
and (ii) the capitalization of the Company at such date, as adjusted, after
giving effect to the Reclassifications, the Reverse Stock Split and the issuance
of shares of Class A Common Stock offered hereby. This table should be read in
conjunction with the Consolidated Financial Statements of the Company, including
the notes thereto, and the other financial data included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
--------------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
-------------- ----------------
Cash and cash equivalents....................................................... $ 22,893,466 $ 139,743,066
-------------- ----------------
-------------- ----------------
Stockholders' equity (deficit):
Class A Common Stock, par value $.01 per share; 180,000,000 shares authorized;
no shares issued and outstanding actual; 17,524,267 as adjusted............. $ -- $ 175,243
Class B Common Stock, par value $.01 per share; 20,000,000 shares authorized;
no shares issued and outstanding actual; 4,221,159 as adjusted.............. -- 42,212
Preferred Stock, par value $.01 per share, 2,000,000 shares authorized;
8,403.325 shares of Series B Preferred Stock issued and outstanding actual;
none as adjusted............................................................ 84 --
Common Stock, par value $.01 per share; 60,000,000 shares authorized;
9,564,940 shares of Old Common Stock issued and outstanding actual; none as
adjusted.................................................................... 95,649 --
Additional paid-in capital.................................................... 52,904,837 169,632,715
Accumulated deficit........................................................... (33,957,719) (33,957,719)
-------------- ----------------
Total stockholders' equity................................................ 19,042,851 135,892,451
-------------- ----------------
Total capitalization.................................................... $ 19,042,851 $ 135,892,451
-------------- ----------------
-------------- ----------------
</TABLE>

24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The selected consolidated financial data presented below as of and for the
years ended December 31, 1994, 1995 and 1996 have been derived from the
Consolidated Financial Statements of the Company and the notes related thereto
included elsewhere in this Prospectus. The Financial Statements of the Company
for the year ended December 31, 1994 have been audited by Richard A. Eisner &
Company, LLP, independent auditors, the Consolidated Financial Statements of the
Company as of and for the year ended December 31, 1995 have been audited by M.R.
Weiser & Co. LLP, Certified Public Accountants, and the Consolidated Financial
Statements of the Company as of and for the year ended December 31, 1996 have
been audited by Ernst & Young LLP, independent auditors. The selected financial
data as of and for the period ended December 31, 1993, have been derived from
the unaudited financial statements of the Company which, in the opinion of
management, include all adjustments necessary for a fair presentation of the
financial condition and results of operations for the Company for such period.
The selected consolidated financial data and balance sheet data as of and for
the six months ended June 30, 1997 and the summary consolidated financial data
as of and for the six months ended June 30, 1996 have been derived from the
unaudited Consolidated Financial Statements of the Company, and the notes
related thereto, included elsewhere in this Prospectus, which, in the opinion of
management, include all adjustments necessary for a fair presentation of the
financial condition and results of operations of the Company for such periods.
The results of operations for interim periods are not necessarily indicative of
a full year's operations. The following information should be read in
conjunction with "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and the Consolidated
Financial Statements of the Company and the notes thereto, and other financial
data appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 8, 1993 SIX MONTHS
(DATE OF YEAR ENDED DECEMBER 31, ENDED JUNE 30,
INCEPTION) TO --------------------------------------- -------------------------
DECEMBER 31, 1993 1994 1995 1996 1996 1997
------------------ --------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue.................... $ -- $ -- $ 56,149 $ 236,082 $ 82,035 $ 541,886
Expenses:
Cost of sales............ -- -- -- 698,793 265,029 1,081,677
Selling, general and
administrative......... 188,000 874,000 3,886,568 2,070,345 1,276,853 2,186,291
Depreciation and
amortization........... -- -- 161,576 612,530 292,319 372,935
Consulting and employment
incentives(a).......... -- -- -- 3,652,101 3,651,442 13,419,900
---------- --------- -------------- ------------ ----------- ------------
Loss from operations....... 188,000 874,000 3,991,995 6,797,687 5,403,608 16,518,917
Interest expense, net...... -- -- 327,106 3,561,010 1,807,956 475,252
---------- --------- -------------- ------------ ----------- ------------
Net loss................... $ 188,000 $ 874,000 $ 4,319,101 $ 10,358,697 $ 7,211,564 $ 16,994,169
---------- --------- -------------- ------------ ----------- ------------
---------- --------- -------------- ------------ ----------- ------------
Net loss applicable to
common stockholders per
share.................... $ 0.04 $ 0.10 $ 0.47 $ 0.87 $ 0.65 $ 1.35
---------- --------- -------------- ------------ ----------- ------------
---------- --------- -------------- ------------ ----------- ------------
Number of shares of common
stock assumed
outstanding(b)........... 4,444,368 8,757,341 9,130,603 11,887,931 11,030,121 12,635,426
---------- --------- -------------- ------------ ----------- ------------
---------- --------- -------------- ------------ ----------- ------------
</TABLE>

<TABLE>
<CAPTION>
AS OF
JULY 31, 1997
---------------------
<S> <C>
OPERATING DATA:
Route miles of fiber installed............................................................... 54
Fiber miles of fiber installed............................................................... 7,188
</TABLE>

25
<PAGE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(C)
----------- ---------------
BALANCE SHEET DATA:
Current assets..................................................................... $23,509,306 $ 140,358,906
Working capital.................................................................... 21,027,781 137,877,381
Property and equipment, net........................................................ 7,354,768 7,354,768
Total assets....................................................................... 31,651,111 148,500,711
Long-term debt..................................................................... -- --
Total liabilities.................................................................. 12,608,260 12,608,260
Stockholders' equity............................................................... 19,042,851 135,892,451
</TABLE>

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

(a) Represents value of common stock, warrants and options issued to consultants
and officers to provide services to the Company.

(b) Based upon the weighted average shares outstanding; see Note 1 to "Notes to
Consolidated Financial Statements."

(c) Adjusted to give effect to the Offerings and the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."

26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH "SELECTED
CONSOLIDATED FINANCIAL AND OTHER DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE COMPANY, INCLUDING THE NOTES RELATED THERETO, AND THE OTHER FINANCIAL
DATA APPEARING ELSEWHERE IN THIS PROSPECTUS.

STATEMENT ON FORWARD-LOOKING INFORMATION

CERTAIN INFORMATION INCLUDED HEREIN CONTAINS STATEMENTS THAT CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE REFORM ACT. SUCH FORWARD
LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE
COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH
FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: GENERAL ECONOMIC AND BUSINESS
CONDITIONS; INDUSTRY CAPACITY; UNCERTAINTY REGARDING AND CHANGES IN CUSTOMER
PREFERENCES; DEMOGRAPHIC CHANGES; COMPETITION; CHANGES IN METHODS OF MARKETING
AND TECHNOLOGY; CHANGES IN POLITICAL, SOCIAL AND ECONOMIC CONDITIONS AND
REGULATORY FACTORS AND VARIOUS OTHER FACTORS BEYOND THE COMPANY'S CONTROL. THE
"SAFE-HARBOR" PROTECTIONS OF THE REFORM ACT ARE NOT AVAILABLE TO INITIAL PUBLIC
OFFERINGS, INCLUDING THE OFFERINGS.

GENERAL

The Company is a facilities-based provider of technologically advanced,
high-bandwidth fiber optic communications infrastructure to carrier and
corporate/government customers, primarily in the form of leased fiber optic
cables and circuits. The Company currently derives all of its revenues in
connection with leasing dark fiber on the NY Network. Fees paid to the Company
by communications carriers and corporate and government customers are on an
unmetered basis. The costs associated with the initial development and
construction of the NY Network include engineering, installation, conduit, fiber
cable and easement costs. A substantial portion of these costs are incurred
before the realization of revenues and result in negative cash flow. The
Company's other operating expenses consist of selling, general and
administrative expenses ("SG&A"), as well as depreciation and amortization. The
franchise fees were included in Cost of Sales for the year ended December 31,
1996, while for the years ended December 31, 1994 and 1995 such fees were
classified as SG&A. The franchise fee payable to the City of New York is
currently 6% of Gross Revenues, and for 1998 and thereafter for the remainder of
the term of the franchise, the fee will be 5% of Gross Revenues. See
"Business--Franchise, License and Related Agreements--New York City Franchise
Agreement". "Gross Revenues" is defined in the NYC Franchise Agreement as all
revenues received directly or indirectly by the Company or any affiliate of the
Company from or in connection with telecommunications services which originate
in, terminate in, or transit New York City. Revenues that are generated from
transmissions which transit New York City, but also include transmission through
other areas, are to be pro-rated. The minimum franchise fee payable to the City
of New York is $200,000 per annum.

The Company's proposed business strategy includes the expansion of the NY
Network, construction of intra-city networks in Washington, D.C., Chicago and
Philadelphia and construction of an inter-city network between New York City and
Washington, D.C. Revenues will continue to be derived from fixed unmetered
charges for the provision of fiber optic capacity. If the Company does not
complete certain construction by a specified time, some of these contracts may
be terminated. There can be no assurance that the Company will complete the
expansion of the NY Network in a timely manner or that certain contracts will
not be terminated. The Company anticipates that as its expansion progresses
revenues derived from carrier customers as opposed to corporate and government
customers will constitute an increasing percentage of the Company's revenue base
due to the larger volume of capacity typically required by carriers. The
expansion of the NY Network and the construction of additional networks will
require additional expenditures. Expenses for the planned expansion consist of
engineering, installation, conduit, fiber cable and easement costs. These
expenses will result in negative cash flow until an adequate customer base is
established. Once its networks are completed and such a

27
<PAGE>
customer base is established, the Company expects that incremental revenues can
be added with relatively low additional expense, due to the predominantly fixed
nature of the Company's costs.

To date, the Company has signed certain of its customers to long term leases
which require an upfront payment rather than recurring monthly payments over the
term of a lease. The Company intends to continue this practice in the future to
the extent that it is economically practical. If the Company continues to sign
up new leases on these terms, the incoming cash flows from such upfront payments
in the early years, when the use of capital is greatest, may be greater than the
revenue recognized on an accrual basis. The Company also intends to attempt to
have customers fund a portion of the Company's construction expenses. To the
extent this occurs in future leases, incoming cash flows in the early years may
be greater than the revenue recognized on an accrual basis and the opposite will
be true in the later years of such leases.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

REVENUES. Total revenues increased to $541,886 for the six months ended
June 30, 1997 from $82,035 for the six months ended June 30, 1996, representing
an increase of $459,851. Approximately one half of this increase was derived
from lease revenue recognition with the remainder resulting from one-time
non-lease revenues. The increase in lease revenues resulted from an increase in
the customer base.

COST OF SALES. Cost of sales increased to $1,081,677 for the six months
ended June 30, 1997 from $265,029 for the six months ended June 30, 1996,
representing an increase of $816,648. The increase was primarily due to costs
associated with one time non-lease revenue recognition during the period.

SELLING, GENERAL AND ADMINISTRATIVE. SG&A increased to $2,186,291 for the
six months ended June 30, 1997 from $1,276,853 for the six months ended June 30,
1996, an increase of $909,438. This increase is primarily a result of increased
headcount due to the staffing of the organization to accomodate the anticipated
growth of the Company. Legal expenses also increased as a result of the
increased business activity within the organization.

CONSULTING AND EMPLOYMENT INCENTIVES. Consulting and employment incentives
increased to $13,419,900 for the six months ended June 30, 1997 from $3,651,442
for the six months ended June 30, 1996, reflecting an increase of $9,768,458.
This increase is due to the increase in issuance of equity instruments to key
employees of the Company during the period.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$372,935 for the six months ended June 30, 1997 from $292,319 for the six months
ended June 30, 1996, representing an increase of $80,616. The increase in
depreciation and amortization relates to the increased size of the Company's
fiber optic network versus the prior year.

INTEREST INCOME. Interest income of $204,175 was recorded for the six
months ended June 30, 1997. Interest income in 1997 was derived from the
short-term investment of the Company's excess cash. In 1996, there was no excess
cash available for investing and no interest income.

INTEREST EXPENSE (INCLUDING FINANCING COSTS). Interest expense (including
financing costs) decreased to $679,427 for the six months ended June 30, 1997
from $1,807,956 for the six months ended June 30, 1996, representing a decrease
of $1,128,529. The decrease was primarily due to the repayment of debt from the
proceeds of the Metromedia Investment in April 1997. The Company incurred higher
financing costs for the six months ended June 30, 1996 due to efforts to fund
the expanded operations of the Company.

NET LOSS. Net loss increased to $16,994,169 for the six months ended June
30, 1997 from $7,211,564 for the six months ended June 30, 1996, representing an
increase of $9,782,605. The increase in the loss is the result of the factors
discussed above, primarily the increase in consulting and employment incentives.

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YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

The Company was in its early development stage and did not generate its
first revenues until the last three months of 1995 when customers began using
the Company's facilities.

REVENUES. Total revenues increased to $236,082 for the year ended December
31, 1996 from $56,149 for the year ended December 31, 1995, representing an
increase of $179,933. The increase in revenue is due primarily to an increase in
the number of customers.

COST OF SALES. Cost of sales was $698,793 for the year ended December 31,
1996. There were no cost of sales recorded for the year ended December 31, 1995.
The increase was primarily attributable to the inclusion of franchise and
easement fees in cost of sales.

SELLING, GENERAL AND ADMINISTRATIVE. SG&A decreased to $2,070,345 for the
year ended December 31, 1996 from $3,886,568 for the year ended December 31,
1995, representing a decrease of $1,816,223.

CONSULTING AND EMPLOYMENT INCENTIVES. Consulting and employment incentives
were $3,652,101 for the year ended December 31, 1996 versus none in 1995,
reflecting the Company's issuance of equity instruments for consulting services.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$612,530 for the year ended December 31, 1996 from $161,576 for the year ended
December 31, 1995, representing an increase of $450,954. Certain components of
depreciation and amortization are recognized by the Company upon commencement of
service to customers, which did not occur until late 1995. As a result,
depreciation and amortization in 1996 was larger than it was in 1995 due to the
inclusion of a full year of depreciation and amortization.

INTEREST EXPENSE (INCLUDING FINANCING COSTS). Interest Expense (including
financing costs) increased to $3,561,010 for the year ended December 31, 1996
from $327,106 for the year ended December 31, 1995, representing an increase of
$3,233,904. This increase was a result of additional debt incurred in 1996 to
finance construction of the NY Network and to fund the operations of the
Company.

NET LOSS. Net Loss increased to $10,358,697 for the year ended December 31,
1996 from $4,319,101 for the year ended December 31, 1995, representing an
increase of $6,039,596. The increase in net loss is attributable to the factors
discussed above.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

REVENUES. Total revenues were $56,149 for the year ended December 31, 1995.
The Company did not recognize any revenues for the year ended December 31, 1994.

COST OF SALES. There were no costs of sales incurred for the years ended
December 31, 1995 and December 31, 1994. Any franchise fees and easement costs
were recognized in SG&A during these periods.

SELLING, GENERAL AND ADMINISTRATIVE. SG&A increased to $3,886,568 for the
year ended December 31, 1995 from $874,000 for the year ended December 31, 1994,
representing an increase of $3,012,568. This increase is primarily the result of
increased sales, marketing and administrative expenses associated with the
Company's start up phase.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $161,576
for the year ended December 31, 1995 and began to be recognized upon
commencement of service to customers in late 1995.

INTEREST EXPENSE. Interest Expense was $327,106 for the year ended December
31, 1995 primarily due to debt incurred to finance the construction of the NY
Network.

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<PAGE>
NET LOSS. Net Loss increased to $4,319,101 for the year ended December 31,
1995 from $874,000 for the year ended December 31, 1994, representing an
increase of $3,445,101. The increase in net loss is attributable to the factors
discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Since its organization in 1993, the Company has funded capital expenditures,
debt service and cash used in operations through a combination of private
placements of debt and equity securities and stockholder advances. The Company's
operations generated insufficient cash flows in 1993 through 1996 to enable it
to meet its capital expenditures, debt service and other cash needs. At December
31, 1996 and 1995, the Company had working capital deficits of approximately
$12.9 million and $11.5 million respectively. The working capital deficiencies
occurred because, prior to the financings by Metromedia, the Company had
insufficient permanent financing to fund its capital expenditures and losses
during its start-up phase.

Cash provided by operating activities was $833,019 during the six months
ended June 30, 1997 and cash used in operating activities was $3,848,863 during
the six months ended June 30, 1996. The increase in cash flow from operating
activities resulted primarily from advanced payments of $8,868,768 from
customers. Cash used in operating activities during the year ended December 31,
1996 was $2,745,590 as compared to $1,290,817 for the year ended December 31,
1995. Capital expenditures for fiber optic transmission network and related
equipment and other property amounted to $1,069,463, $135,883 and $813,377 for
the year ended December 31, 1996 and the six months ended June 30, 1996 and
1997, respectively. Net cash provided by financing activities was $4,273,464,
$3,984,851 and $22,409,500 for the year ended December 31, 1996 and the six
months ended June 30, 1996 and 1997, respectively. These amounts represent the
proceeds from the sale of securities of the Company net of the repayment of
certain of the Company's indebtedness.

On April 30, 1997, the Company issued and sold to Metromedia and certain of
its affiliates equity interests, substantially all of which will be reclassified
as Class B Common Stock, for a gross sale price of $32.5 million, the proceeds
of which were used to repay indebtedness and repurchase certain equity
securities. See "Capitalization" and "Certain Relationships and Related
Transactions--Recent Transactions."

The Company anticipates that it will continue to incur net operating losses
as it expands the NY Network, constructs additional networks and markets its
services to an expanding customer base. Cash provided by operations will not be
sufficient to fund the expansion and development of networks as currently
planned and as a result the Company intends to use cash on hand and the net
proceeds of the Offerings to fund this expansion and development. Accordingly,
the Company expects to continue experiencing net operating losses and negative
cash flows for the foreseeable future.

The build-out of the NY Network, the construction of additional networks and
the marketing of the Company's services will require substantial capital. Such
capital expenditures for years ended, 1994, 1995 and 1996 were $1,829,000,
$3,709,928 and $974,107 respectively. The Company currently estimates that, in
building out the MFN Network, its capital expenditure requirements for the
period from June 30, 1997 through the end of 1998 are expected to be
approximately $140.0 million and it estimates the total cost to complete the
construction of the MFN Network to be approximately $220.0 million. Management
believes that cash on hand together with the net proceeds from the Offerings
contemplated hereby and internally generated funds, will be sufficient to fund
the Company's capital requirements over the next 15 months. In addition,
management intends to use such sources to finance the completion of the MFN
Network, as currently planned. The Company may also consider from time-to-time
the private or public sale of additional equity or debt securities of the
Company depending upon market conditions. There can be no assurance that the
Company will be able to successfully consummate any such financing on acceptable
terms.

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<PAGE>
BUSINESS

THE COMPANY

GENERAL

The Company is a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure to carrier and
corporate/government customers. The Company is expanding its existing network to
encompass approximately 229,000 fiber miles, or 643 route miles, concentrated in
the northeastern United States, a market which the Company believes is
characterized by significant demand for and limited supply of fiber optic
capacity. The fiber infrastructure leased by MFN to its customers provides
high-bandwidth capacity for customers that seek to establish secure
communications networks for the transmission of large amounts of voice, data and
video. For example, a pair of MFN fiber optic strands can transmit up to 8.6
gigabits of data per second or the equivalent of approximately 129,000
simultaneous voice conversations.

The Company tailors the amounts of capacity leased to the needs of its
customers. Certain customers that lease fiber optic capacity from the Company
connect their own transmission equipment to the leased fiber, thereby obtaining
a fixed-cost, secure telecommunications alternative to the metered
communications services offered by traditional providers. Other customers that
require lesser amounts of transmission capacity will have the option to lease
such broadband capacity on the Company's network, whereby the Company
effectively divides a single strand of fiber into multiple smaller
communications channels. The Company believes that it will have installation,
operating, and maintenance cost advantages per fiber mile relative to its
competitors because MFN installs its network with as many as 432 fibers per
route mile as compared to a generally lower number of fibers in existing
competitive networks.

The Company was formed in 1993 and currently operates a 54 route mile fiber
optic communications network in the New York/New Jersey metropolitan area (the
"NY Network"), consisting of 7,188 fiber miles, approximately two-thirds of
which are currently available for lease. Within the next two years the Company
plans to complete an expansion of the NY Network to increase its coverage within
the New York/New Jersey metropolitan area. In addition, the Company intends to
construct intra-city fiber optic networks in Washington, D.C., Chicago and
Philadelphia and an inter-city fiber optic route between New York City and
Washington, D.C. The Company currently intends to expand its network in order to
connect the NY Network with other major domestic metropolitan areas, in part
through the exchange of fiber capacity with other carriers, and to extend its
network to link the NY Network to London, England, thereby providing a valuable
connection between two of the world's most important financial centers. See
"Build-out of Networks," and "Risk Factors -- Risks Associated with Growth
Strategy." The Company's NY Network supports a self-healing SONET architecture
that minimizes the risk of downtime in the event of a fiber cut and provides
MFN's customers with high security and reliability. It is expected that the
Company's other Intra-City Networks will also support a self-healing SONET
architecture. Most of the Company's fiber is installed inside high density
polyethylene conduit to protect the cable and, where practicable, MFN installs
additional unused conduits to accommodate future network expansion.

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<PAGE>
The Company believes that it will be well-positioned to penetrate the corporate
and government markets since it plans to continue to install most of its fiber
in Tier I markets. See "Business -- Customers."

On April 30, 1997, Metromedia and certain of its affiliates made a
substantial equity investment in the Company. Metromedia and its partners own
all of the outstanding shares of Class B Common Stock which is entitled to 10
votes per share and to vote separately to elect at least 75% of the members of
the Board. As a result, Metromedia and its partners own and control
approximately 26% of the common equity of the Company (on a fully diluted basis
without giving effect to the Offerings) and approximately 76% of the outstanding
voting power (on a fully diluted basis without giving effect to the Offerings).
Metromedia and its predecessor have successfully invested in and operated
numerous businesses in the communications industry, including cellular, paging,
long distance and media companies. In connection with the Metromedia Investment,
John W. Kluge and Stuart Subotnick who bring considerable management and
corporate governance experience to the Company, joined MFN's Board. See "Certain
Relationships and Related Transactions." In addition, David Rockefeller has
agreed to serve on the Board shortly after consummation of the Offerings. Mr.
Rockefeller brings considerable management and investment experience to the
Company.

INCREASING DEMAND FOR HIGH-BANDWIDTH CAPACITY

- RAPID GROWTH OF COMMUNICATIONS TRAFFIC. Industry research indicates that
data traffic is growing by 35% annually with demand for data services
outpacing that for voice by 20 times. The Internet, for example, has been
growing at a compound annual rate of more than 100% per year for the past
decade and it is anticipated to reach 20 million host computers connected
to the Internet by the end of 1997. Business connectivity, in particular,
is expected to grow at a rate of 65% annually to reach almost $6.4 billion
by the end of 2000. With an advanced fiber optic network, the Company
believes that it is well-positioned to take advantage of this rapid
growth.

- CAPACITY REQUIRED BY NEW ENTRANTS. Competition and deregulation are
bringing new entrants into the telecommunications market. The 1996 Act
allows the RBOCs to enter the long distance business and enables other
entities, including entities affiliated with power utilities and ventures
between ILECs and cable television companies, to provide an expanded range
of telecommunications services. The Company believes that the opening of
various telecommunications markets will lead to an increase in demand for
fiber optic cable and circuits as more communications carriers elect to
compete. As a carriers' carrier, MFN believes that carrier customers
typically would lease fiber optic capacity with which they would develop
their own communications networks as a low-cost alternative to building
their own infrastructure or purchasing metered services from ILECs or
CLECs. The Company believes that its fiber optic communications network
will provide a cost effective alternative for market entrants in a number
of communications industry segments, including ILECs, CLECs, IXCs,
wireless companies and ISPs.

- EXPECTED UPGRADES TO OLDER COMMUNICATIONS NETWORKS. Approximately 92% of
the RBOCs' networks currently are comprised of copper cable. The RBOCs
will likely need to replace or upgrade their networks to remain
competitive and satisfy their customers' increasing demand for
high-bandwidth capacity in the coming years. The Company believes that the
RBOCs will seek cost-effective and expedient solutions when faced with the
decision to buy or build fiber optic capacity which could result in
increased demand for the Company's infrastructure.

- ACCOMMODATION OF OTHER NEW APPLICATIONS. The Company believes that
additional network transmission capacity and faster response times will be
required to accommodate the needs of

32
<PAGE>
multimedia (voice, data and video) and other potential high-bandwidth
applications, including the deployment of corporate intranets and the use
of telecommunications infrastructure for providing cable television and
other entertainment services. Because applications such as intranet and
Frame Relay can use as much as OC-48 to OC-192 each, the Company believes
that there will be significant demand for its high-bandwidth
communications infrastructure.

According to an industry report, the total 1995 market for communications
services in the United States was approximately $183 billion and is expected to
grow to approximately $291 billion by the year 2001. In addition, the Company
believes there will be increased demand for its infrastructure due to its
ability to offer fixed-cost pricing which is generally more economical for high
volume users than traditional usage-based pricing.

BUSINESS STRATEGY

The Company's objective is to become the preferred facilities-based provider of
broadband communications infrastructure to communications carriers, corporations
and government agencies, primarily in the northeastern United States. The
following are the key elements of MFN's strategy to achieve this objective:

ESTABLISH THE COMPANY AS THE PREFERRED CARRIERS' CARRIER OF BROADBAND
COMMUNICATIONS INFRASTRUCTURE.

MFN leases broadband communications infrastructure on a fixed-cost basis to
various communications carriers, thus enabling them to compete in markets which
were previously difficult to penetrate due to limited and/or costly access to
high-bandwidth communications infrastructure. Specifically, the Company plans to
lease local transmission capacity within its target Tier I markets thereby
enabling its carrier customers to bypass the ILECs and CLECs. The Company
believes that it is currently the only provider providing local transmission
infrastructure on a fixed-cost basis. Additionally, the Company plans to lease
capacity on its high-bandwidth, long-haul Inter-City Network to provide seamless
connectivity between its various Intra-City Networks. The Company's fixed-cost,
long-term contracts allow its carrier customers to access certain Tier I markets
without incurring the high capital expenditures and long lead times usually
associated with building their own networks. Carriers may be more likely to
lease capacity from MFN rather than from a competitor since MFN currently has no
plans to offer communications infrastructure services on a metered basis,
choosing instead to position itself as a non-competing provider of
infrastructure alternatives for IXCs, ILECs, CLECs, etc. See "Customers."

POSITION THE COMPANY AS THE PREFERRED PROVIDER OF BROADBAND COMMUNICATIONS
INFRASTRUCTURE TO CORPORATE AND GOVERNMENT CUSTOMERS.

STRENGTHEN MFN'S COMPETITIVE POSITION BY EXPANDING THE MFN NETWORK.

33
<PAGE>
(ii) constructing fiber optic intra-city telecommunications networks in
Washington, D.C., Chicago and Philadelphia and (iii) constructing a fiber optic
backbone between New York City and Washington, D.C. to link certain of its
Intra-city Networks. Once completed, MFN's domestic fiber optic network
infrastructure, as currently planned, will consist of approximately 229,000
fiber miles covering 643 route miles.

UTILIZE STRATEGIC RELATIONSHIPS TO EXPAND THE REACH OF THE MFN NETWORK.

Another part of MFN's strategy is to enter into agreements with other
communications companies to expand the reach of the MFN Network. In October
1997, the Company entered into an agreement with a subsidiary of Racal to
establish the MFN/Racal Joint Venture. The MFN/Racal Joint Venture would link
the Company's network to London by acquiring transatlantic fiber optic cable
rights linking points of presence in the US and UK. The MFN/Racal Joint Venture
would enable the Company to offer its customers seamless broadband connectivity
between New York and London. The foregoing remains subject to the timely
completion and execution of long-form definitive documentation and of various
ancillary agreements between the Company and certain affiliates of Racal for the
provision of services and facilities to the MFN/Racal Joint Venture. No
assurance can be made that the Company will complete the documentation or
agreements on satisfactory terms or at all. The Company believes that its
presence in Tier I markets will continue to provide similar partnering
opportunities. The Company will continue to evaluate opportunities, including
potential fiber swaps, along specific additional routes in order to speed the
build-out of the MFN Network and reduce costs.

CREATE A LOW COST POSITION.

The Company believes it will be able to establish a low cost position
relative to its competitors primarily for the following reasons: (i) the Company
currently installs trunks of up to 432 fibers per route mile, which the Company
believes is significantly more fiber than many of its competitors install,
thereby reducing the per fiber mile cost to construct and operate the MFN
Network, (ii) the Company owns a newly-constructed network with advanced fiber
optic technology which offers operating and maintenance cost advantages, (iii)
the Company believes that certain of its rights-of-way and franchises are
valuable assets that will be costly and difficult for others to procure in the
future and (iv) MFN, where practicable, installs spare conduit which will allow
for expanded fiber optic capacity at a cost significantly below the cost of new
construction. The Company's low cost position will allow it to remain price
competitive with other providers of fiber optic infrastructure and to lease its
fiber infrastructure at a price which customers will find more attractive than
the cost of constructing their own networks.

INSTALL A TECHNOLOGICALLY ADVANCED NETWORK.

The Company believes that the advanced technical characteristics of its
network will allow it to provide high levels of reliability, security and
capacity that its target customers typically demand. The NY Network is, and
future extensions of the Intra-City Networks will be, capable of supporting a
SONET ring architecture, which prevents interruption in service to its clients
by instantaneously rerouting traffic in the event of a fiber cut. The Company
will also continuously monitor and maintain high quality control of its network
on a 24-hour basis through its network operations center. The Company's network
is capable of using the highest commercially available capacity transmission
(OC-192) and thereby can handle advanced, capacity-intensive data applications
such as Frame Relay, ATM, multimedia and Internet-related applications.

BUILD ON MANAGEMENT EXPERIENCE AND METROMEDIA RELATIONSHIP.

The Company's management team and Board include individuals with
communications industry expertise and extensive experience in network design,
construction, operations and sales. MFN's Chief Executive Officer, Stephen A.
Garofalo, has approximately 25 years of experience in the cable installation
business, having managed the installation of over one half billion dollars in
electrical and communications cable in New York City. In April 1997, the Company
hired Howard Finkelstein as President and Chief

34
<PAGE>
Operating Officer. From 1984 to 1993, Mr. Finkelstein served as President of
Metromedia Communications Corporation, Metromedia's long distance telephone
enterprise, until its merger with WorldCom, Inc. in 1993. In his most recent
position, Mr. Finkelstein was the Chief Operating Officer and an Executive Vice
President of Metromedia International Telecommunications, Inc. He has also
served in various capacities at Metromedia and its affiliated companies over a
period of 16 years. The Company also expects to benefit from the communications
industry expertise and corporate governance experience of John W. Kluge, Stuart
Subotnick and David Rockefeller.

As the owner of all of the Class B Common Stock, Metromedia and its general
partners will control the Board and all stockholder decisions and, in general,
determine the outcome of any corporate transaction or other matter submitted to
the stockholders for approval. See "Risk Factors--Control by and Reliance Upon
Metromedia Company" and "Certain Relationships and Related Transactions."

BUILD-OUT OF NETWORKS

Since its founding in 1993 the Company has concentrated solely on developing
and constructing its NY Network. The Company has developed a plan for the
expansion of the NY Network and the construction of new fiber optic Intra-City
Networks and an Inter-City Network and is pursuing the acquisition of necessary
licenses, franchises and rights-of-way. See "Risk Factors--Risks Associated with
Growth Strategy; Management of Expansion." In constructing its fiber optic
networks, the Company seeks to create strategic alliances with the engineering
and construction management firms that have been engaged to develop routes,
easements and manage deployment plans. All firms with whom the Company is allied
in this regard have deployed local loop network infrastructure for RBOCs as well
as for CLECs. Though much of the actual construction will be outsourced to
various construction firms, the Company maintains strict oversight of the design
and implementation of its fiber optic communications networks. The Company
utilizes only advanced commercially available fiber. Although the Company has
ordered a substantial portion of its fiber optic cable from Lucent Technologies,
Inc., it believes that it could obtain advanced fiber from other suppliers on
acceptable terms.

NY NETWORK. The NY Network currently consists of a 54 route mile fiber
optic communications network in the New York/New Jersey metropolitan area
consisting of 7,188 fiber miles, approximately two-thirds of which are currently
available for lease. As currently planned, the expansion of the NY Network will
add 125 route miles with each additional route-mile consisting of up to 432
fibers for an additional 54,000 fiber miles. Upon its completion, the entire NY
Network will utilize a SONET capable fiber ring focused in Manhattan and
extending east to Brookhaven, Long Island, north to White Plains, Westchester
County, west to Jersey City, New Jersey, and south to Brooklyn, New York. The
expanded NY Network is expected to pass more than 800 buildings in New York City
and to pass through 31 RBOC central offices, which are believed to connect to
over 15 million people and over 400,000 businesses. On September 19, 1997, the
Company entered into a twenty-year fiber swap arrangement with an engineering
and telecommunications infrastructure construction company which provides the
Company with access to approximately 7,760 fiber miles (or 38.8 route miles) in
the New York/New Jersey metropolitan area in return for the Company providing
access to 21.92 route miles on its NY Network. The agreement also gives the
Company the right to acquire a twenty-year indefeasible right to use an
additional 7,756 fiber miles and duct for MFN to place its own fibers in the New
York/New Jersey metropolitan area in return for certain monthly payments.

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<PAGE>
INTRA-CITY NETWORKS. Subject to the receipt of the necessary franchises,
licenses and rights-of-way, the Company plans to construct additional fiber
optic communications networks in Washington, D.C., Chicago, and Philadelphia. No
assurance can be given that the necessary franchises, licenses and rights-of-way
will be obtained or consummated or will provide all of the rights needed to
implement the Company's strategy on acceptable terms. The following table sets
forth the Company's estimates of route miles and fiber miles for each of the
proposed Intra-City Networks. The Company anticipates it will use existing cash
balances and the proceeds from the Offerings, amounts received from long-term
lease arrangements from customers and additional debt or equity financings to
finance the construction of these proposed networks.

<TABLE>
<CAPTION>
PROPOSED PROPOSED
CURRENTLY PROPOSED CITIES ROUTE MILES MINIMUM FIBER MILES
- ---------------------------------------------------------- ------------- ---------------------
<S> <C> <C>
</TABLE>

<TABLE>
<S> <C> <C>
Chicago........................................ 50 21,600
Washington, D.C................................ 120 25,920
Philadelphia................................... 30 6,480
--- -------
Total.......................................... 200 54,000
</TABLE>

INTER-CITY NETWORK. Subject to the receipt of the necessary franchises,
licenses and rights-of-way, the Company plans to construct and operate its
Inter-City Network between New York City and Washington, D.C., covering
approximately 114,000 fiber miles (or 264 route miles). The Company has
completed or is in the process of negotiating for the acquisition of
rights-of-way with respect to existing conduit alternatives, as well as
construction easements with major rail and civil authorities along the route. No
assurance can be given that the necessary franchises, licenses and rights-of-way
needed to implement the Company's strategy on acceptable terms will be obtained.

RIGHTS-OF-WAY. When the Company decides to build a fiber optic
communications network, its corporate development staff seeks to obtain the
necessary city authorizations. In some cities, a construction permit is all that
is required. In other cities, a license agreement or franchise is also required.
Such licenses and franchises are generally for a term of limited duration. Where
possible, rights-of-way are leased under multi-year agreements with renewal
options and are generally non-exclusive. The Company strives to obtain
rights-of-way that afford it the opportunity to expand its communications
networks as business develops. See "Risk Factors--Need to Obtain and Maintain
Rights-of-Way."

The Company plans to lease underground conduit and pole space and other
rights-of-way from entities such as ILECs, utilities, railroads, IXCs, state
highway authorities, local governments and transit authorities.

The following is a summary of the status of MFN's efforts to secure
rights-of-way:

- NEW YORK CITY: The NYC Franchise Agreement grants MFN the right, until
December 2008, to install, operate, repair, maintain, remove and replace
cable, wire, fiber or other transmission media that may be used in lieu of
cable, wire or fiber on, over and under the inalienable property of New
York City in order to provide telecommunications services which originate
and/or terminate in or transit New York City. The Conduit Occupancy
Agreement (as defined herein) between the Company and NYNEX, together with
easements granted to the Company by ECS, authorize the installation of the
Company's fiber optic communications network in NYNEX's conduit system and
the conduit system associated with the ECS, respectively. See "Franchise,
License and Related Agreements--New York City Franchise Agreement,"
"--Conduit Occupancy Agreement", "Risk Factors--Risk of Cancellation or
Non-Renewal of Franchises, Licenses or Permits," and "--Need to Obtain and
Maintain Rights-of-Way."

- CHICAGO: MFN is negotiating easements and rights-of-way for Chicago with
two entities. MFN is also investigating procuring the required franchises,
licenses, permits and other agreements

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needed to complete its Chicago network. No assurance can be given that
these agreements will be consummated or will provide all of the
rights-of-way needed by MFN in Chicago.

- WASHINGTON, D.C.: The Company has obtained rights-of-way for a portion of
the Washington, D.C. Intra-City Network and is investigating obtaining the
necessary licenses and permits for this network.

- PHILADELPHIA: MFN has negotiated with the City of Philadelphia for
permission, subject to certain conditions, to construct, maintain and
operate, replace and remove a telecommunications system in, under and
across the public rights-of-way and city streets and/or to place such
telecommunications system within the existing facilities owned by Bell
Atlantic Corporation, PECO Energy Company, Southeastern Pennsylvania
Transportation Authority, Consolidated Rail Corporation or any other
entity holding a grant pursuant to City ordinances. An appropriate
ordinance was passed by the Philadelphia city council in June 1997 and the
Company expects to enter into formal licenses and other agreements
shortly.

In developing the Inter-City Network, MFN is negotiating with certain rail
transportation providers, public utilities, RBOCs and others to accomplish the
Company's goal of providing its customers with a flexible network architecture.
No assurance can be given that these agreements will be consummated or that the
rights-of-way needed by MFN will be obtained throughout the intended route of
the Inter-City Network.

ADVANCED TECHNOLOGY

The MFN Network consists of fiber optic communication paths which allow for
high speed, high quality transmission of voice, data and video communications.
Fiber optic systems use laser-generated light to transmit voice, data and video
in digital formats through ultra-thin strands of glass. Fiber optic systems are
generally characterized by large circuit capacity, good sound quality,
resistance to external signal interference and direct interface to digital
switching equipment or digital microwave systems. The Company plans to install
backbone fiber optic cables containing up to 432 fiber optic strands, which have
significantly greater bandwidth than traditional analog copper cables. Using
current electronic transmitting devices, a single pair of glass fibers used by
the Company's network can transmit up to 8.6 gigabits of data per second or the
equivalent of approximately 129,000 simultaneous voice conversations, which is
substantially more than traditional analog copper cable installed in many
current communications networks. The Company believes that continuing
developments in compression technology and multiplexing equipment will increase
the capacity of each fiber optic strand, thereby providing more bandwidth
carrying capacity at relatively low incremental costs. See "Risk Factors--Rapid
Technological Change."

The Company offers end-to-end fiber optic capacity utilizing SONET capable
ring architecture, which has the ability to route customer traffic in either
direction around its ring design thereby assuring that fiber cuts do not
interrupt service to customers on the NY Network and its planned Intra-City
Networks. Currently, a state-of-the-art network operating system continuously
monitors and maintains quality control of the NY Network on a 24-hour basis and
alerts the Company of any degradation or loss of fiber capacity, pinpoints the
location of such degradation and enables the Company to repair or replace
impaired fiber without any loss of service. In addition, the monitoring system
automatically reroutes traffic in the event of a catastrophic break in the
system, enabling the Company to ensure that its customers obtain continuous
service.

FRANCHISE, LICENSE AND RELATED AGREEMENTS

NEW YORK CITY FRANCHISE AGREEMENT. The Company has entered into a 15 year
non-exclusive franchise agreement with New York City, which expires in December
2008, to install, operate, repair, maintain, remove and replace cable, wire,
fiber or other transmission medium that may be used in lieu of

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cable, wire or fiber on, over and under the inalienable property of New York
City in order to provide telecommunications services which originate and/or
terminate in or transit New York City. The NYC Franchise Agreement provides that
the Company may submit a written petition to New York City to renew the term of
the franchise at least 12 months (but not more than 18 months) before the
expiration of the 15 year term. However, New York City has no obligation to
renew the NYC Franchise Agreement. The City of New York has granted only seven
franchises to date. However, the Company is not aware of any limit on the number
of franchises that the City of New York may grant and believes that the City of
New York has begun the process that will result in the awarding of additional
licenses. See "Risk Factors -- Risk of Cancellation or Non-Renewal of
Franchises, Licenses or Permits."

The NYC Franchise Agreement requires the Company to provide New York City
with certain telecommunications infrastructure and to complete construction of
its initial network as described in the NYC Franchise Agreement by November
1997. The Company believes it is on schedule to complete such construction.

Both New York City and the Company have the right, at any time after
December 20, 2000, upon six months notice, to renegotiate certain terms of the
NYC Franchise Agreement, including the annual compensation payable by the
Company to New York City, based on changes in technological, regulatory or
market conditions which may occur after the effective date of the NYC Franchise
Agreement. In the event either party calls for renegotiation, both New York City
and the Company are required to negotiate any such changes in good faith. In the
event an agreement cannot be reached upon any such renegotiation, the NYC
Franchise Agreement will be subject to early termination on a date which would
be one half of the number of days between the date of the notice to renegotiate
and January 1, 2009.

The Company was required to pay the City of New York an annual franchise fee
at a rate of 10% of Gross Revenues per year for 1995 and 1996, currently pays 6%
of Gross Revenues in 1997 and will pay 5% of Gross Revenues for each remaining
year of the franchise. "Gross Revenues" is defined in the NYC Franchise
Agreement as all revenues received directly or indirectly by the Company or any
affiliate of the Company from or in connection with telecommunications services
which originate in, terminate in, or transit New York City. Revenues that are
generated from transmissions which transit New York City, but also include
transmission through other areas, are to be pro-rated. The minimum franchise fee
payable to the City of New York is $200,000 per annum.

The NYC Franchise Agreement requires that the consent of the City of New
York be obtained in connection with the acquisition of 5% or more of the shares
of the Company by any person other than Mr. Garofalo, Metromedia, Mr.
Finkelstein or Peter Sahagen or any other 5% stockholder on the date of the
consummation of the Offerings. Accordingly, following consummation of the
Offerings, the City of New York would need to consent to the acquisition by any
person of more than 5% of the Class A Common Stock.

CONDUIT OCCUPANCY AGREEMENT. The Company entered into a non-exclusive
conduit occupancy agreement (the "Conduit Occupancy Agreement") with NYNEX in
May 1993, authorizing the Company to install its cable facilities in NYNEX's
conduit system in New York. The Company is required to pay NYNEX certain rates
and charges pursuant to the terms of the agreement.

The Conduit Occupancy Agreement, which had an initial term of 12 months but
was to continue indefinitely if not affirmatively terminated by either party, is
terminable without cause by either party upon three months' written notice.
Under certain circumstances, a petition may be brought to the Public Services
Commission requesting that it decide a dispute arising over termination prior to
the termination of the Conduit Occupancy Agreement.

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SERVICES

Market research contained in an industry report estimates today's worldwide
internetworking market at approximately $27 billion. Recognizing the significant
growth in this area as a result of the ongoing expansion of corporate enterprise
networks and the proliferation of the Internet, MFN plans to use its fiber optic
infrastructure as a platform to expand into the business of providing SONET-
based and ATM-based broadband communications services aimed at the carrier
market and high end corporate/ government users.

MFN has reserved sufficient dark fiber capacity to provide the
infrastructure which will allow the Company to offer the following services at
competitive rates:

- OC-3 through OC-192 resilient SONET networks

- High capacity ATM-based intranet services

- ATM-based Frame Relay transmission capacities

SALES AND MARKETING

The Company's sales and marketing strategy includes (i) positioning itself
as the communications carriers' carrier of choice, (ii) focusing on high dollar
volume corporate and government customers and (iii) emphasizing the cost
advantages which will allow the Company to lease its fiber optic infrastructure
at fixed prices which represent potentially significant savings for its large
volume carrier and corporate customers relative to their present build or buy
alternatives. The Company also believes that communications carriers and
corporate and government customers will be attracted to the Company's dark fiber
product and its unmetered pricing structure. The Company intends to focus its
sales and marketing efforts on carrier customers. However, the Company is
currently in the process of hiring additional sales professionals to focus on
both customer groups. As MFN constructs fiber optic networks in new cities,
local sales professionals are expected to be hired to target regional corporate
and government customers, while New York City based sales professionals will
seek out the Company's carrier customers.

CUSTOMERS

The Company currently has contracts with approximately 14 customers.

CARRIERS. The Company expects that communications carriers will account for
a majority of its business. The Company currently targets the major carriers,
such as resellers, data services, RBOCs, IXCs, CLECs, ISPs, wireless providers,
and major information service providers. The Company believes it can compete
effectively with other providers due to its rapid deployment, pricing,
reliability, customer service and capacity of the MFN Network. The Company
traditionally leases dark fiber to communications carriers, providing them with
point-to-point and IXC POP-to-end user non-switched access which connects their
customers to the Company's network, enabling IXCs to eliminate or reduce costly
access charges.

The Company has entered into contracts with several communications carriers,
including providers of wireless and cellular services and a CLEC, as described
below. In addition, the Company is currently in the process of negotiating
agreements with certain other major communications carriers and will continue to
target such carriers in the future. However, there can be no assurance that such
agreements will be consummated or will be on terms as favorable to the Company
as are the existing agreements.

On June 3, 1997, the Company entered into an agreement with NextLink New
York, L.L.C., a CLEC that provides certain exclusive long-term rights to the NY
Network. The agreement calls for MFN to provide the customer with capacity over
a significant portion of MFN's network at specified locations for twenty years
(the "Term"), with an additional ten year option exercisable by the customer. In
addition, the agreement permits the carrier to use additional fiber miles for
additional charges and requires, under

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certain circumstances, the Company to construct and maintain extensions of up to
two miles from the then-existing network. As compensation through the Term, the
Company is to receive $11.0 million ($5.0 million of which has been received by
the Company) in scheduled upfront payments, a monthly recurring charge per
terminated fiber strand terminating at certain additional locations, and an
additional fiber charge per mile of additional fiber made available for the
customer. Charges for the term of the option period are to be determined at
market rates.

In April 1996, the Company entered into an agreement with U.S. One
Communications ("U.S. One"), an IXC, pursuant to which it leases portions of its
fiber optic network to U.S. One for an initial term lasting until December 20,
2008. U.S. One has the option to renew the agreement for an additional term of
up to 13 years. Lease payments consisted of prepayments of $3.6 million. Lease
payments for the additional term are payable only if U.S. One elects to renew
the agreement, either monthly at a rate per fiber mile equal to the lowest lease
rate charged by the Company to any lessee or in a lump sum payment equal to the
present value of the lease payments, up to a maximum of $8.8 million plus a
certain percentage based upon the consumer price index. The lump sum payment to
be made by U.S. One is subject to adjustment if the Company has not completed
the build-out of a portion of its network. U.S. One is currently a
debtor-in-possession under the U.S. Bankruptcy Code and accordingly no assurance
can be given that U.S. One, or its bankruptcy trustee, will assume the agreement
with the Company, utilize the Company's network or make any additional payments
to the Company.

CORPORATE/GOVERNMENT CUSTOMERS. The Company expects that its corporate and
government customers, including members of the international financial and
commercial community, will primarily be entities with multiple locations and
high volume communications requirements. The Company expects to provide these
customers with dedicated point-to-point communications that have the capacity to
carry a wide range of communications services (E.G., high speed intranet
access). The Company offers its high-bandwidth services to such customers at
prices that are lower than those currently offered by regulated CLECs and ILECs.
However, the Company's customers currently provide their own transmission or
switching equipment.

The Company believes it can effectively compete for corporate and government
customers based upon price, non-metered usage, reliability and solutions
tailored to the customers' needs. In addition, the Company's NY Network
utilizes, and the Intra-City Networks will utilize, SONET technology and offer
reliability which the Company believes is generally superior to that provided by
the ILECs.

The Company currently has dark fiber infrastructure leasing arrangements
with a variety of financial services firms, including investment and commercial
banks, securities and accounting firms and a financial exchange, although
installation of the dark fiber to be leased pursuant to certain of the contracts
has not yet been completed by the Company. Accordingly, some of such contracts
are currently terminable and the terms of certain contracts will not commence
until the relevant dark fiber has been installed by the Company and accepted by
the relevant customers. There can be no assurance that the Company will complete
the installation in a timely manner. See "Risk Factors--Risks Associated with
Growth Strategy; Management of Expansion."

COMPETITION

Fiber optic systems are currently under construction both locally and
nationally. In New York City, for example, seven franchisees have been granted
the right to install and operate a telecommunications network within the city.
Development of fiber optic networks is also continuing on a national scale; for
example, one provider of fiber is currently in the midst of constructing a
cross-continental long distance fiber optic network from Los Angeles to New York
and another, Qwest, is constructing a fiber-based national backbone network
which will connect 115 metropolitan areas and span approximately 16,000 miles.

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The construction of these networks enables their owners to lease access to
their networks to other communications carriers or large corporate or government
customers seeking high bandwidth capacity, without these customers having to
incur costly expenditures associated with building networks of their own.
Alternatively, some network owners may choose to use their infrastructure to
provide switched voice and data services, competing directly with ILECs and
IXCs. Currently, MFN does not provide such services or plan to provide such
services. See "Risk Factors--Limited Nature of Company's Current Services."

In New York City and the cities where MFN plans to deploy fiber optic
communications networks, the Company faces significant competition from the
ILECs, which currently dominate their local communications markets. The Company
also faces competition from CLECs and other potential competitors in New York
City and will face competition in the cities in which the Company plans to build
its networks. Many of the Company's competitors have financial, management and
other resources substantially greater than those of the Company, as well as
other competitive advantages over the Company, including established reputations
in the communications market.

Various communications carriers already own fiber optic cables as part of
their communications networks. Accordingly, each of these carriers could, and
some do, compete directly with the Company in the market for leasing fiber
capacity. In addition, although CLECs generally provide a wider array of
services to their customers than the Company presently provides to its
customers, CLECs nevertheless represent an alternative means by which a
potential customer of the Company could obtain direct access to an IXC POP or
other site of the customer's choosing. Thus, CLECs could compete with the
Company.

Some communications carriers and local cable companies have extensive
networks in place that could be upgraded to fiber optic cable, as well as
numerous personnel and substantial resources to undertake the requisite
construction to so equip their networks. To the extent that communications
carriers and local cable companies decide to equip their networks with fiber
optic cable, they are potential direct competitors of the Company provided that
these competitors are willing to offer this capacity to all of their customers.
See "Risk Factors--Competitive Industry."

The Company believes that as competition in the local exchange market
develops, a fundamental division between the needs of corporate, governmental
and institutional end users and residential end users will drive the creation of
differentiated communications services and service providers. The Company
believes that the IXCs, ISPs, wireless carriers and corporate and government
customers on which it focuses will have distinct requirements, including maximum
reliability, consistent high quality transmissions, capacity for high-speed data
transmissions, diverse routing and responsive customer service. The Company
believes that it will be able to satisfy the needs of such customers.

PROPERTIES

The NY Network and its component assets are the principal properties
currently owned by the Company. The Company owns substantially all of the
communications equipment required for its business. The Company's installed
fiber optic cable is laid under the various rights-of-way held by the Company.
See "--Build-out of Networks--Rights-of-Way". Other fixed assets are located at
various leased locations in geographic areas served by the Company.

The Company's executive, administrative and sales offices are located at its
principal office in New York, New York. MFN leases this space (6,446 square
feet) at 110 East 42nd Street under two agreements that expire in April and June
1998, respectively. The Company leases additional space at 60 Hudson Street, New
York, New York from Hudson Telegraph Associates. See "Certain Relationships and
Related Transactions."

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REGULATION

On February 8, 1996, the 1996 Act, the most comprehensive reform of the
nation's telecommunications laws since the Communications Act, was enacted. The
1996 Act has resulted in substantial changes in the marketplace for
communications services that should be largely favorable to the Company.

FEDERAL

The 1996 Act imposes a number of access and interconnection requirements on
all local exchange providers, including CLECs, with additional requirements
imposed on ILECs. The 1996 Act provides a detailed list of items which are
subject to these interconnection requirements, as well as a detailed set of
duties for all affected carriers. All LECs, including CLECs, have a duty to (i)
not unreasonably limit the resale of their services, (ii) provide number
portability if technically feasible, (iii) provide dialing parity to competing
providers, and nondiscriminatory access to telephone numbers, directory
assistance, operator services and directory listings, (iv) provide access to
poles, ducts, conduits and rights-of-way and (v) establish reciprocal
compensation arrangements for the transport and termination of
telecommunications. In addition to those general duties of all LECs, ILECs have
additional duties to (i) interconnect at any technically feasible point and
provide service equal in quality to that provided to their customers or the ILEC
itself, (ii) provide unbundled access to network elements at any technically
feasible point at just, reasonable and nondiscriminatory rates, terms and
conditions, (iii) offer retail services at wholesale prices for the use of
telecommunication carriers, (iv) provide reasonable public notice of changes in
the network or the information necessary to use the network or which affect
interoperability and (v) provide for physical collocation. "Physical
collocation" is an offering by an ILEC that enables another telecommunications
carrier to enter the ILEC's premises to install, maintain and repair its own
equipment that is necessary for interconnection or access to the ILEC's network
elements. An ILEC must allocate reasonable amounts of space to carriers on a
first-come first-served basis. If space limitations or practical or technical
reasons prohibit physical collocation, an ILEC must offer "virtual collocation,"
by which the other carrier may specify ILEC equipment to be dedicated to its use
and electronically monitor and control communications terminating in such
equipment.

The FCC adopted pricing and other guidelines to implement the
interconnection provisions of the 1996 Act, but the 8th Circuit Court of Appeals
recently vacated most of the FCC's guidelines. The responsibility for setting
pricing and other guidelines with respect to interconnection has thus been left
up to the individual state public service commissions. It is expected that
varying pricing and guidelines will emerge from state to state, and some of
these guidelines may eventually have an indirect adverse effect on the Company's
business.

Federal telecommunications law imposes special legal requirements on "common
carriers" who engage in "interstate or foreign communication by wire or radio."
The Company believes that the leasing of dark fiber facilities does not
constitute engaging in "communication by wire or radio" and therefore is not
subject to these legal requirements. In any event, the Company does not intend
to offer its dark fiber facilities as a common carrier. Common carriers are
those who offer services directly to the public, or to all potential users on an
indiscriminate basis subject to standardized rates, terms or conditions. The
Company does not intend to offer its dark fiber services in this manner, but
instead intends to enter into individualized negotiations on a selective basis
with prospective lessees of its dark fiber facilities to determine whether and
on what terms to serve each potential lessee. The Company therefore does not
believe that its dark fiber offerings are subject to the common carrier
provisions of the FCC or to the common carrier provisions of the Communications
Act.

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Federal telecommunications law also imposes special legal requirements on
"telecommunications carriers." The law essentially defines "telecommunications
carriers" as those offering certain telecommunication services "directly to the
public" or to all potential users. The Company therefore believes that a company
has to be a common carrier in order to be considered a telecommunications
carrier. For the reasons stated above, the Company believes that it is neither a
common carrier nor a telecommunications carrier with respect to its dark fiber
service. Nevertheless, the law is not entirely clear as to, and the FCC has not
definitively addressed whether, the term "telecommunications carriers" is meant
to encompass only common carriers, and therefore whether a provider of dark
fiber facilities on an individualized basis, like the Company, is a
"telecommunications carrier." The FCC has been petitioned by certain railroad,
power and telecommunications associations, none of which are affiliated with the
Company, to clarify the status of dark fiber providers in this respect, and if
the agency decides that such companies are telecommunications carriers, then the
Company would be subject to certain additional regulatory requirements. These
requirements may have a material adverse effect on the Company.

If the Company's offering of dark fiber facilities were deemed to constitute
a "telecommunications service," then its revenues from such leases to end users
(but not to other telecommunication carriers) would become subject to assessment
for the FCC's Universal Service Fund, a fund that was established by the FCC
pursuant to the Telecom Act to assist in ensuring the universal availability of
basic telecommunications services at affordable prices. Such assessments could
create a liability equal to a percentage of these gross revenues although the
FCC has not announced what the assessment will be (the Company anticipates that
the rate of assessment will be approximately 4.5% of gross interstate end-user
revenues for the year 1998, and may be higher in subsequent years). The Company
also may be liable for assessments by state commissions for state universal
service programs.

With respect to its offering of telecommunications transmission services,
however, the Company will likely operate as a common carrier and therefore will
be subject to the regulatory requirements applicable to common carriers and to
telecommunications carriers. For example, the Company will be required, with
respect to its transmission services, to (1) provide such services
indiscriminately upon any reasonable request; (2) charge rates and adopt
practices, classifications and regulations that are just and reasonable; and (3)
avoid unreasonable discrimination in charges, practices, regulations, facilities
and services. The Company may also be required to file tariffs setting forth the
rates for its services. Under current FCC policies, these regulatory
requirements should not impose any substantial burdens on the Company. The FCC
has recently determined, for example, that providers of "access" services
(intracity transmission services used to originate and/or terminate interstate
and foreign communications) need not file tariffs and may offer such services to
customers on a private, contractual basis. Although the FCC's policies may be
subject to change in the future due to regulatory, judicial, or legislative
actions, and such changes could have a material adverse effect on the Company,
the Company does not believe that regulation of its services at the federal
level will have any detrimental effect on its competitiveness. The Company's
revenues from transmission services will be subject to FCC Universal Service
Fund assessments as described above, to the extent that these services are
purchased by end users; since the revenues of the Company's competitors will be
subject to comparable assessments; however, this should not reduce the Company's
competitiveness.

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disincentives for use of ILEC facilities by IXCs, which could have a material
adverse effect on the use of the Company's fiber optic telecommunications
networks by IXCs.

STATE

The 1996 Act prohibits state and local governments from enforcing any law,
rule or legal requirement that prohibits or has the effect of prohibiting any
person from providing any interstate or intrastate telecommunications service.
Notwithstanding the prohibition contained in the 1996 Act, states regulate
telecommunications services, including through certification of providers of
intrastate services, regulation of intrastate rates and service offerings, and
other regulations. Nonetheless, this provision of the 1996 Act should enable the
Company and customers of the Company to provide telecommunications services in
states that previously prohibited competitive entry.

States retain jurisdiction under the 1996 Act to adopt regulations necessary
to preserve universal service, protect public safety and welfare, ensure the
continued quality of communications services and safeguard the rights of
consumers. States are also responsible for mediating and arbitrating CLEC-ILEC
interconnection arrangements if voluntary agreements are not reached.
Accordingly, the degree of state involvement in local telecommunications
services may be substantial.

In arbitrating interconnection agreements under the 1996 Act between ILECs
and their potential competitors, some state commissions have considered whether
dark fiber should be considered an unbundled network element. For example, the
New York Public Service Commission determined that it would not require NYNEX to
provide dark fiber as an unbundled network element. State commissions, including
those in Florida, Maryland, North Carolina, and Virginia, also have either
refused to require the ILECs to offer dark fiber to competitors, or have stated
that the issue would be addressed at a later time. On the other hand, state
commissions in Illinois, Massachusetts, Arizona, Georgia, Minnesota, Ohio,
Oregon and Tennessee have found dark fiber to be a network element and required
the ILECs to offer it on an unbundled basis to CLECs. There can be no assurance
that these requirements, and the associated pricing methodologies, where
applicable, will not reduce the demand for dark fiber provided by the Company.

Each state (and the District of Columbia, which is treated as a state for
the purpose of regulation of telecommunications services) has its own statutory
scheme for regulating providers of certain telecommunications-related services
as "common carriers," as "public utilities," or under similar rubrics. The
Company believes that the offering of dark fiber facilities is not subject to
this type of regulation in Illinois, New York, Pennsylvania, or the District of
Columbia. However, the Company's offering of transmission services (as distinct
from dark fiber capacity) likely will be subject to regulation in each of these
jurisdictions to the extent that these services are offered for intra-state use.
Even though many of the Company's facilities will be physically intra-state, the
Company anticipates that most customers will use its facilities and services for
the purpose of originating and/or terminating inter-state and foreign
communications. Under current FCC policies, any dedicated transmission service
or facility that is used more than 10% of the time for the purpose of
inter-state or foreign communication is subject to FCC jurisdiction to the
exclusion of any state regulation.

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requirements to which it will be subject in Illinois, New York, Pennsylvania,
and the District of Columbia will have any material adverse effect on its
operations, although the Company will incur certain costs to comply with
regulatory requirements such as the filing of tariffs, submission of periodic
financial and operational reports to regulators, and payment of regulatory fees
and assessments. In some jurisdictions, the Company's pricing flexibility for
intra-state services may be limited because of regulation, although the
Company's direct competitors will be subject to similar restrictions. However,
there can be no assurance that future regulatory, judicial, or legislative
action will not have a material adverse effect on the Company.

In response to the 1996 Act, NYNEX "unbundled" its local loop in October
1996. As a result, carriers such as the Company will be permitted to access
NYNEX's existing wiring infrastructure in buildings on an economical basis,
which the Company believes enhances the strategic value of the NY Network to
potential customers. By virtue of the unbundling, NYNEX must make a significant
portion of its in-house apartment wiring available for $2 per month per
apartment. The availability of an unbundled local loop will enable new carriers
to enter the residential voice market on a competitive basis with NYNEX.

LOCAL

INTERNATIONAL

Various regulatory requirements and limitations also will influence the
Company's business as it attempts to enter international markets.

Although the Company has not fully determined its international business
strategy, the Company is currently negotiating an agreement with a foreign firm
that contemplates jointly acquiring and selling international, facilities-based
telecommunications capacity between the U.S. and the United Kingdom. Depending
on the Company's specific business plan in this arrangement, it is possible that
the Company will become a U.S. international common carrier subject to U.S.
regulation under Title II of the Communications Act. Under current FCC rules,
international carriers that do not exercise market power and that are not
affiliated with dominant foreign carriers are subject to relatively relaxed U.S.
regulation as nondominant international carriers. As a common carrier, the
Company would be subject to among other policies, the common carrier obligations
of nondiscrimination. In addition, FCC rules prohibit U.S. carriers from
bargaining for special concessions from foreign partners. The Company would also
be required, under Sections 214 and 203 of the Communications Act, respectively,
to obtain authority and file an international service tariff containing rates,
terms and conditions prior to initiating service. As a nondominant carrier, the
Company would be eligible to seek "global" authority to operate as facilities-
based and/or resale carrier in an application subject to the FCC's streamlined
processing rules. International carriers are also subject to certain annual fees
and filing requirements, including the requirement to file contracts with other
carriers including foreign carrier agreements, and reports setting forth
international circuit, traffic and revenue data service. Failure to obtain an
appropriate U.S. license for international service or the revocation of a
license could have a material adverse effect on the future operations of the
Company.

If the Company operates as an international common carrier, it will also be
required to comply with FCC's rules regarding the ISP which defines the
permissible boundaries for U.S. carriers and their

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foreign correspondents to settle the cost of terminating each other's traffic
over their respective networks. The ISP is designed to eliminate a foreign
carrier's opportunity to discriminate among different U.S. carriers by
bargaining for accounting rates or other terms that benefit the foreign carrier
but is inconsistent with the U.S. public interest. The ISP generally provides
that U.S. carriers may only enter into foreign carrier agreements for the
exchange of traffic that contain the same accounting rate and settlement rate
(typically one-half of the accounting rate) offered to all other U.S. carriers.
The ISP also requires U.S. carriers to adhere to the principle of proportionate
return so that competing U.S. carriers have comparable opportunities to receive
the return traffic that reduces the marginal cost of providing international
service.

In addition, in connection with the proposed transaction between MCI
Communications and British Telecom and in other decisions, the FCC has
recognized the advent of competition in the U.K. market by designating the U.K.
as a country that offers "equivalent opportunities" for the resale of
international private line services and "effectively competitive opportunities."
Those decisions have relaxed or eliminated regulatory limitations on certain
U.S. carrier services between the U.S. and the U.K. and permitted U.K. carriers
to enter the U.S. market through affiliations with U.S. carriers. In addition,
the FCC has determined that it would permit U.S. carriers to enter into
"flexible" international termination arrangements where such arrangements
promote competition and has proposed to amend its rules to reflect the U.S.
participation in the WTO Agreement on Basic Telecommunications Services in which
69 countries agreed to eliminate barriers to competition in their markets for
basic telecommunications service. Under the proposed amendments, the FCC would,
among other things, relax or eliminate current rules that restrict or impose
more stringent regulation on U.S. carriers with affiliations with carriers from
WTO-member countries.

EMPLOYEES

As of September 30, 1997, the Company employed 31 people. The Company's
employees are not represented by any labor union. The Company considers its
relationship with employees to be good.

LEGAL PROCEEDINGS

On or about April 18, 1997, Howard Katz, Realprop Capital Corp. and Evelyn
Katz commenced an action against the Company, Stephen A. Garofalo, Peter Sahagen
and Peter Silverman in the United States District Court for the Southern
District of New York captioned KATZ, ET AL. v. NATIONAL FIBER NETWORK, INC., ET
AL., No. 97 Civ. 2764 (JGK). (National Fiber Network, Inc. is the former name of
the Company). On May 28, 1997, the plaintiffs filed an amended complaint and on
September 15, 1997, the plaintiffs filed a second amended complaint, which,
among other things, added Metromedia and Silverman, Collura, Chernis & Balzano,
P.C. as defendants. The amended complaint alleges causes of action for, among
other things, common law fraud, violations of Section 10(b) of the Securities
Exchange Act of 1934 and

46
<PAGE>
Rule 10b-5 promulgated thereunder, breach of fiduciary duty and negligent
misrepresentation for alleged misrepresentations and omissions made in
connection with the repurchase of the Katz Securities (as defined below under
"Certain Relationships and Related Transactions"). The amended complaint also
contains allegations of corporate waste against the Company and Mr. Garofalo.
Plaintiffs seek, among other things, compensatory damages of not less than $12
million, punitive damages in the amount of $100 million and, in the alternative,
rescission of the purchase by the Company of 264,631 shares of Class A Common
Stock and 207,883 warrants to acquire shares of Class A Common Stock. The
defendants have until October 31, 1997 to answer the amended complaint or to
move to dismiss the amended complaint. The Company intends to vigorously defend
itself against these allegations based on its belief that MFN acted
appropriately in connection with the matters at issue in this litigation. No
assurance can be made though, that the Company will not determine that the
advantages of entering into a settlement outweigh the risks and expense of
protracted litigation or that ultimately the Company will be successful in its
defense of the allegations. If the Company is unsuccessful in its defense of the
allegations, an award of the magnitude being sought by the plaintiffs in the
Katz Litigation would have a material adverse effect on the Company's financial
condition or results of operations. See "Risk Factors--Litigation Against the
Company."

On or about October 20, 1997, VCNY commenced an action against the Company,
Stephen A. Garofalo, Peter Silverman, the law firm of Silverman, Collura,
Chernis & Balzano, P.C., the Sahagen Defendants and the Kramer Defendants in the
United States District Court for the Southern District of New York (No. 97 CIV
7751) (the "VCNY Litigation"). The complaint alleges causes of action for, among
other things, violation of Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated thereunder, fraud and fraudulent concealment, breach
of fiduciary duty and negligent misrepresentation and omission made in
connection with respect to the VCNY Sales. See "Certain Relationships and
Related Transactions" and "Description of Capital Stock--Registration Rights."
The complaint also alleges a cause of action for declaratory judgment asserting
that certain "piggyback" registration rights are applicable to shares of the
Company's Class A Common Stock which VCNY owns (or which may be rescinded to
VCNY pursuant to its requested remedies). The complaint further requests a
declaratory judgment that a stockholders agreement between the Company, Stephen
Garofalo and VCNY be declared operative, which agreement indirectly required
VCNY, through designated directors, to approve significant transactions, and,
accordingly, the Metromedia Loan and the Metromedia Investment should be
rescinded and Mr. Vento should be reappointed as Chief Executive Officer of the
Company. The Company believes, among other things, that the stockholders
agreement to which Mr. Vento was a party had terminated and as a result Mr.
Vento had no such rights to approve the Metromedia Investment or the Metromedia
Loan or to remain as Chief Executive Officer of the Company. Plaintiff seeks,
among other things, (i) rescission of the VCNY Sale, or alternatively, damages
in an amount not presently ascertainable, but believed to be in the excess of
$36 million, together with interest thereon, (ii) punitive damages in the amount
of $50 million, and (iii) the declaratory judgments discussed above. The Company
intends to vigorously defend itself against these allegations based on its
belief that MFN acted appropriately in connection with the matters at issue in
this litigation. No assurance can be made, though, that the Company will not
determine that the advantages of entering into a settlement outweigh the risk
and expense of protracted litigation or that ultimately the Company will be
successful in its defense of the allegations. If the Company is unsuccessful in
its defense of the allegations, an award of the magnitude being sought by the
plaintiffs in the VCNY Litigation would have a material adverse effect on the
Company's financial condition or results of operations. See "Risk
Factors--Litigation Against the Company."

In addition, the Company is subject to various claims and proceedings in the
ordinary course of business. Based on information currently available, the
Company believes that none of such current claims, or proceedings, individually
or in the aggregate, including the Katz Litigation and the VCNY Litigation, will
have a material adverse effect on the Company's financial condition or results
of operations, although there can be no assurances in this regard.

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<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the directors
and executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE OFFICE OR POSITION HELD
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Stephen A. Garofalo.................................. 46 Chairman of the Board and Chief Executive Officer
Howard M. Finkelstein................................ 44 President, Chief Operating Officer and Director
Stephen W. Ellis..................................... 47 Chief Financial Officer
Vincent A. Galluccio................................. 51 Senior Vice President--Business Development and
Director
Louis J. Gambino..................................... 45 Vice President--Network Operations
John S. Mahon........................................ 51 Vice President--Network Engineering
John McLeod.......................................... 39 Vice President--Marketing
Nicholas M. Tanzi.................................... 38 Vice President--Sales
James Urbelis........................................ 45 Vice President--Easements and Construction
Silvia Kessel........................................ 47 Director
John W. Kluge........................................ 83 Director
David Rockefeller.................................... 82 Director (Nominee)
Stuart Subotnick..................................... 55 Director
Arnold L. Wadler..................................... 54 Secretary and Director
Leonard White........................................ 58 Director (Nominee)
</TABLE>

Each director is elected to serve until a successor is elected and qualified
or, if earlier, until the director's death, resignation or removal. Officers,
subject to the terms of their respective employment agreements, serve at the
pleasure of the Board. See "Management--Employment Agreements."

Set forth below is the background of each of the Company's executive
officers and directors.

STEPHEN A. GAROFALO founded the Company in April 1993, and has been serving
as Chairman of the Board since the Company's inception and as Chief Executive
Officer since October 1996 and served as President from 1993 to 1996 and as
Secretary from 1993 to 1997. From 1979 to 1993 Mr. Garofalo served as president
and chief executive officer of F. Garofalo Electric Co., Inc. See "Certain
Relationships and Related Transactions."

HOWARD M. FINKELSTEIN has been President, Chief Operating Officer and a
Director of the Company since April 1997. Prior to joining the Company, Mr.
Finkelstein was employed by various affiliates of Metromedia for 16 years. His
most recent position was as Executive Vice President and Chief Operating Officer
of Metromedia International Telecommunications, Inc. From 1984 to 1993, Mr.
Finkelstein served as President of Metromedia Communications Corporation, a
national long distance telecommunications carrier. In addition, Mr. Finkelstein
served as Executive Vice President and Chief Operating Officer of Metromedia
Restaurant Group from 1993 to 1995. Mr. Finkelstein is a Director of Multimedia
Medical Systems, Incorporated, a privately held company.

STEPHEN W. ELLIS has been Chief Financial Officer since June, 1997. From
1992 until joining the Company, Mr. Ellis served as an executive officer of Data
Broadcasting Corporation, a financial market data distributor, first through
1995 as Chief Financial Officer followed by President through 1997 of its broker
dealer subsidiary DBC Securities, Inc. From 1988 to 1992, Mr. Ellis served as
Vice President-- Operations at Citibank and its then-subsidiary, Quotron
Systems, Inc., also a market data vendor. Prior to

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<PAGE>
joining Citibank, Mr. Ellis, who is a certified public accountant, was Vice
President--Operations at Merrill Lynch & Company and Vice President--Controller
for First Interstate Bank, Ltd.

VINCENT A. GALLUCCIO has been a Director of the Company since February 1997
and has served as a Senior Vice President since December 1995. From January 1992
to October 1994, Mr. Galluccio was employed by British Telecommunications Plc.
as a global sales manager for network outsourcing operations. Prior to joining
British Telecommunications plc, Mr. Galluccio spent 25 years with International
Business Machines Corporation in various sales, marketing and business
development positions and was involved in both domestic and world trade
assignments.

LOUIS J. GAMBINO has been Vice President--Network Operations since November,
1996. From 1995 to 1996 he was Vice President-Domestic Operations at
International Exchange Networks, Ltd., a an international private line and
switched voice carrier. From 1990 to 1995, Mr. Gambino served as Vice
President-Operations of Metropolitan Fiber Systems of New York, a CLEC.

JOHN S. MAHON has been the Company's Vice President--Network Engineering
since 1994. Prior to joining the Company, Mr. Mahon was employed by NYNEX
(formerly known as New York Telephone Company) from 1965 to 1994 as staff
director for engineering design, construction and maintenance of all
telecommunications infrastructure in New York City.

JOHN MCLEOD has been Vice President--Marketing since June 1997. From October
1995 to June 1997, he served as Vice President--Venture Support at Metromedia
International Telecommunications, Inc. From January 1994 to October 1995, Mr.
McLeod was Vice President--Field Support at Metromedia Restaurant Group. From
September 1986 to January 1994, he was employed at Metromedia Communications
Corporation where his last position was Vice President and General
Manager--National Customer Service Center.

NICHOLAS M. TANZI has been Vice President--Sales since August 1997. From
March 1995 to July 1997, he served as Vice President, Enterprise Networks
Division at Fujitsu Business Communications Systems. From April 1993 to February
1995, Mr. Tanzi was Director of Sales, Eastern Region at Asante Technologies
Inc. Mr. Tanzi was employed in various capacities from November 1979 through
October 1993 at Digital Equipment Corporation.

JAMES URBELIS has been Vice President--Easements and Construction since
1994. Mr. Urbelis was formerly employed by F. Garofalo Electric Co., Inc. as
construction manager from 1968 to 1994. Prior to that time he was a civilian
employee of the Army Corps of Engineers engaged in civil works projects.

SILVIA KESSEL has served as a Director of the Company since July 1997. Ms.
Kessel has served as Chief Financial Officer and Treasurer of MIG since 1995 and
Executive Vice President of MIG since 1996. In addition, Ms. Kessel served as
Executive Vice President of Orion Pictures Corporation ("Orion") from January
1993 through July 1997, Senior Vice President of Metromedia since 1994 and
President of Kluge & Company since January 1994. Prior to that time, Ms. Kessel
served as Senior Vice President and a Director of Orion from June 1991 to
November 1992 and Managing Director of Kluge & Company from April 1990 to
January 1994. Ms. Kessel is a member of the Board of Directors of RDM Sports
Group Inc., a diversified sporting goods company ("RDM") and of MIG.

JOHN W. KLUGE has been a Director of the Company since July 1997. Mr. Kluge
has been the President and Chairman of Metromedia and its
predecessor-in-interest, Metromedia, Inc. ("Ml") for over five years. Mr. Kluge
has been the Chairman of the Board of Metromedia International Group, Inc.
("MIG") since 1995. In addition, Mr. Kluge has been Chairman of the Board and a
Director of Orion Pictures Corporation from 1992 until July 1997. He also serves
as a Director of Conair Corporation and Occidental Petroleum Corporation.

DAVID ROCKEFELLER is, as of the effective date of this Prospectus, a nominee
to be a Director of the Company. He currently serves as Chairman of The Chase
Manhattan Bank's International Advisory

49
<PAGE>
Committee, as Chairman of Rockefeller Center Properties, Inc. (since 1995) and
as a Director of Rockefeller & Co., Inc. (since 1994), a privately owned
investment management firm. From 1961 to 1981, Mr. Rockefeller served as
Chairman of The Chase Manhattan Corporation and The Chase Manhattan Bank, N.A.
From 1981 to 1995, he served as Chairman of Rockefeller Group, Inc.

STUART SUBOTNICK has been a Director of the Company since July 1997. Mr.
Subotnick has been the Vice Chairman of the Board of MIG since 1995 and
President and Chief Executive Officer of MIG since December 1996. In addition,
Mr. Subotnick served as Vice Chairman of the Board of Orion from 1992 until July
1997. Mr. Subotnick has served as Executive Vice President of Metromedia and MIG
for over five years. Mr. Subotnick is also a Director of Carnival Cruise Lines,
Inc. and RDM.

ARNOLD L. WADLER is, as of the effective date of this Prospectus, Secretary
of the Company and has served as a Director of the Company since July 1997. Mr.
Wadler has served as Executive Vice President, General Counsel and Secretary of
MIG since August 29, 1996 and, from November 1, 1995 until that date, as Senior
Vice President, General Counsel and Secretary of MIG. In addition, Mr. Wadler
serves as a director of MIG and has served as a Director of Orion from 1991
until July 1997 and as Senior Vice President, Secretary and General Counsel of
Metromedia for over five years.

LEONARD WHITE is, as of the effective date of this Prospectus, a nominee to
be a Director of the Company. Mr. White served as President and Chief Executive
Officer of Orion Pictures Corporation from 1992 until 1997 and as President and
Chief Executive Officer of Orion Home Entertainment Corporation from 1987 to
1992. Mr. White is also a Director of MIG. Mr. White serves as a director of MIG
and American Film Technologies, Inc.

BOARD; ELECTION OF DIRECTORS; AGREEMENTS REGARDING BOARD POSITIONS

Approximately twenty-five percent (25%) of the members of the Board of
Directors of the Company are elected by a majority of the votes cast by holders
of Class A Common Stock, voting as a separate class, at the annual meeting of
shareholders and hold office until their successors have been duly elected and
qualified or until their death, resignation or removal. Holders of Class B
Common Stock will vote as a separate class to elect at least seventy-five
percent (75%) of the Board. Directors may be removed, with or without cause,
only by the holders of the class of Common Stock or series of Preferred Stock
that, as of the date such removal is effected, would be entitled to elect such
director at the next annual meeting of stockholders. Vacancies in a directorship
may be filled only by (a) the remaining directors elected by holders of each
class of Common Stock or series of Preferred Stock that (x) elected such
director and (y) as of the date such vacancy is filled, would be entitled to
elect such director at the next annual meeting of the stockholders or (b) if
there are no such remaining directors, then by the vote of the holders of the
class or classes of Common Stock or series of Preferred Stock, that, as of the
date such vacancy is filled, would be entitled to elect such director at the
next annual meeting of stockholders, voting as a separate class at a meeting,
special or otherwise, of the holders of Common Stock of such class or series of
Preferred Stock. In addition, within 90 days of the consummation of the
Offerings, the Board will elect Mr. Rockefeller and Mr. White, two outside
directors, to its Board.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company did not have a Compensation Committee or an Audit Committee
during 1996. Mr. Garofalo determined officers' compensation during 1996.

COMMITTEES OF THE BOARD

Within 90 days of the consummation of the Offerings, the Board will
establish a Compensation Committee and an Audit Committee. The Compensation
Committee will make recommendations concerning the salaries and incentive
compensation of employees of and consultants to the Company. The

50
<PAGE>
Audit Committee will be responsible for reviewing the results and scope of
audits and other services provided by the Company's independent auditors.

Concurrent with the Offerings, the Board will establish two additional
committees, the Class A Nominating Committee and the Class B Nominating
Committee. The Class A Nominating Committee will make recommendations as to
individuals to serve as directors who are to be elected by the Class A Common
Stock stockholders. The Class B Nominating Committee will make recommendations
as to individuals to serve as directors who are to be elected by the Class B
Common Stock stockholders. The Class A Nominating Committee will be comprised of
members of the Board who have been elected by the Class A Common Stock
stockholders and the Class B Nominating Committee will be comprised of members
of the Board who have been elected by the Class B Common Stock stockholders.

EXECUTIVE COMPENSATION

The following table sets forth in summary form all compensation for all
services rendered in all capacities to the Company for the year ended December
31, 1996 of the Chief Executive Officer of the Company and the other four most
highly compensated executive officers of the Company (collectively with the
Chief Executive Officer, the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
-------------------------------------- COMPENSATION
SALARY --------------------- ALL OTHER
NAME/PRINCIPAL POSITION YEAR $ BONUS OPTIONS/SARS COMPENSATION
- --------------------------------------------------- --------- ---------- ------- --------------------- --------------
<S> <C> <C> <C> <C> <C>
Stephen A. Garofalo
Chairman, Chief Executive Officer and
Secretary........................................ 1996 225,960 -- -- --
Vincent A. Galluccio
Senior Vice President............................ 1996 127,087 -- -- --
James Urbelis
Vice President-Easements and
Construction..................................... 1996 111,030 -- -- --
Gerald Vento
Former Chief Executive Officer................... 1996 14,243 -- -- 112,500(a)
Peter Sahagen(b)
Former Acting Vice
Chairman--Finance................................ 1996 29,800 -- -- 94,349
</TABLE>

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

(a) This payment represents the amount of a settlement agreement between Mr.
Vento and the Company. See "Certain Relationships and Related Transactions."

(b) Mr. Sahagen joined the Company during 1996 and amounts disclosed for Mr.
Sahagen represent compensation paid after that date. The amount of $94,349
represents consulting fees paid by the Company to Sahagen Consulting Group.
In addition, Mr. Sahagen received $250,000 in April 1997 for services
rendered in connection with the Metromedia Investment. See "Certain
Relationships and Related Transactions."

Subsequent to the year ended December 31, 1996, the Company granted to
Messrs. Galluccio, Mahon and Urbelis options to purchase up to 197,730, 136,890
and 136,890 shares of Class A Common Stock, respectively. All the options have
an exercise price of $1.97 per share, are exercisable immediately and have a
term of up to 10 years subject to certain conditions. In addition, pursuant to
Mr. Garofalo's employment agreement he was granted options to purchase 380,250
shares of Class A

51
<PAGE>
Common Stock at an exercise price of $1.97 per share, which options are
immediately exercisable and expire 10 years from the grant of the stock option.
The Company is required to register the shares of Class A Common Stock
underlying the options under the Securities Act on Form S-8 upon the
consummation of the Offerings. In addition, pursuant to Mr. Finkelstein's
employment agreement, as amended, he was granted options to purchase 1,521,000
shares of Class A Common Stock at an exercise price of $1.97 per share, which
options are immediately exercisable and expire 10 years from their grant. The
Company is required to register such shares of Class A Common Stock on Form S-8
under the Securities Act upon the consummation of the Offerings.

COMPENSATION OF DIRECTORS

Directors who are officers, employees or affiliates of the Company receive
no compensation for their services as directors. Each director of the Company
who is not also an officer, employee or affiliate of the Company (an "outside
director") will be entitled to receive annual directors' fees of $20,000, plus
$1,200 for each Board meeting attended ($500 if attended telephonically) and
$500 for each committee meeting. Outside directors are eligible to participate
in the 1997 Incentive Stock Plan (as defined below) pursuant to which options to
purchase 5,000 shares of Class A Common Stock will be granted to each outside
director immediately upon such director's initial election and qualification for
the Board. Options to purchase 5,000 of Class A Common Stock will be granted
annually on the day of each annual shareholder meeting. Each outside director
will be eligible to receive options to purchase a maximum of 50,000 shares of
Class A Common Stock pursuant to the 1997 Incentive Stock Plan. Each option will
have an exercise price equal to the fair market value of a share of Class A
Common Stock on the date of grant. All such options granted to outside directors
will be immediately exercisable. See "--1997 Stock Incentive Plan."

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Messrs. Garofalo and
Finkelstein.

GAROFALO EMPLOYMENT AGREEMENT. Mr. Garofalo's employment agreement, dated
as of February 26, 1997, has a five year term and provides for a base salary of
$295,000 for the first year, $335,000 for the second year, $375,000 for the
third year, $415,000 for the fourth year and $455,000 for the fifth year. Mr.
Garofalo is also entitled to receive an annual incentive bonus to be determined
by the Compensation Committee. The incentive bonus will not be less than
$100,000 per year. Mr. Garofalo's employment agreement also provides for other
employee benefits such as life insurance and health care, in addition to certain
disability and death benefits. In addition, pursuant to Mr. Garofalo's
employment agreement he was granted options to purchase 380,250 shares of Class
A Common Stock at an exercise price of $1.97 per share, which options are
immediately exercisable and expire 10 years from their grant. The Company is
required to register the shares of Class A Common Stock underlying the options
under the Securities Act upon the consummation of the Offerings. Except in the
case of disability, the Company may terminate Mr. Garofalo's employment only for
cause upon which termination Mr. Garofalo shall have no right to receive any
compensation or benefit from the Company. If the agreement is terminated without
cause, or if Mr. Garofalo terminates employment for good reason, the Company is
obligated to pay Mr. Garofalo an amount equal to the greater of (i) his monthly
base salary as then in effect multiplied by the number of months remaining in
term of his employment as of such termination date and (ii) $1,000,000. "Good
reason" includes (i) a reduction in the nature or scope of Mr. Garofalo's
titles, authorities, powers, duties or responsibilities; (ii) a change in the
method or formula for determining the bonus which results in a decrease in the
amount of bonus payable to Mr. Garofalo; (iii) removal of Mr. Garofalo as a
member of the Board of the Company, unless such removal occurs after termination
of Mr. Garofalo's employment for cause; (iv) a sale of all or substantially all
of the ownership interests or assets of the Company or a merger or consolidation
of the Company with any other corporation; (v) a change in control of the
Company defined as any person or entity becoming a

52
<PAGE>
beneficial owner as defined in Rule 13d-3 of the Securities Exchange Act of 1934
(the "Exchange Act") directly or indirectly of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities; or (vi) the Company's materially breaching its
affirmative or negative covenants or undertakings in the employment agreement
and failing to remedy within 15 days. Pursuant to the agreement, Mr. Garofalo
has agreed not to compete with the Company for a period of one year following
termination of the agreement. During such non-compete period, Mr. Garofalo shall
be entitled to receive an amount equal to his base salary as in effect on the
date of termination provided that the agreement was not terminated prior to the
expiration of the term by either party.

FINKELSTEIN EMPLOYMENT AGREEMENT. Mr. Finkelstein's employment agreement,
dated as of April 30, 1997, has a three year term and provides for a base salary
of $295,000 for the first year, $335,000 for the second year and $375,000 for
the third year. Mr. Finkelstein is also entitled to receive an annual incentive
bonus to be determined by the Compensation Committee. The incentive bonus will
not be less than $100,000 for each year. Mr. Finkelstein's employment agreement
also provides for other employee benefits such as life insurance and health
care, in addition to certain disability and death benefits. In addition,
pursuant to Mr. Finkelstein's employment agreement, as amended, he was granted
options to purchase 1,521,000 shares of Class A Common Stock at an exercise
price of $1.97 per share, which options are immediately exercisable and expire
10 years from their grant. The Company is required to register such shares of
Class A Common Stock under the Securities Act on Form S-8 upon the consummation
of the Offerings. Except in the case of disability, the Company may terminate
Mr. Finkelstein's employment only for cause upon which termination Mr.
Finkelstein shall have no right to receive any compensation or benefit from the
Company. If the agreement is terminated without cause or if Mr. Finkelstein
terminates employment for good reason, the Company is obligated to pay to Mr.
Finkelstein his base salary, bonus and benefits that are accrued and unpaid as
of the date of termination as well as an amount equal to one and a half times
his base salary as then in effect. "Good reason" includes (i) a reduction in the
nature or scope of Mr. Finkelstein's titles, authorities, powers, duties or
responsibilities; (ii) a change in the method or formula for determining the
bonus which results in a decrease in the amount of bonus payable to Mr.
Finkelstein; (iii) removal of Mr. Finkelstein as a member of the Board of the
Company, unless such removal occurs after termination of Mr. Finkelstein's
employment for cause; (iv) a sale of all or substantially all of the ownership
interests or assets of the Company or a merger or consolidation of the Company
with any other corporation; (v) a change in control of the Company defined as
any person or entity (other than Stephen Garofalo) becoming a beneficial owner
as defined in Rule 13d-3 of the Exchange Act directly or indirectly of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities; or (vi) the Company's materially
breaching its affirmative or negative covenants or undertakings in the
employment agreement and failing to remedy within 15 days. Pursuant to the
agreement, Mr. Finkelstein has agreed not to compete with the Company for a
period of one year following termination of the agreement. During such
non-compete period, Mr. Finkelstein shall be entitled to receive an amount equal
to his base salary as in effect on the date of termination provided that the
agreement was not terminated prior to the expiration of the term by either
party.

1997 STOCK INCENTIVE PLAN

In connection with the consummation of the Offerings the Company intends to
adopt the Metromedia Fiber Network, Inc. 1997 Incentive Stock Plan (the "1997
Incentive Stock Plan"). The following is a summary of the material features of
the 1997 Incentive Stock Plan.

The purpose of the 1997 Incentive Stock Plan is to give MFN a significant
advantage in retaining key employees, officers and directors, and to provide an
incentive to selected key employees, officers and directors of MFN who have
substantial responsibility in the direction of MFN, and others whom the
Committee (as defined below) determines provide substantial and important
services to MFN, to acquire

53
<PAGE>
a proprietary interest in MFN, to continue as employees, officers and directors
or in their other capacities, and to increase their efforts on behalf of MFN.

TYPES OF AWARDS

The types of awards that may be granted pursuant to the 1997 Incentive Stock
Plan include (i) incentive stock options ("ISOs") and (ii) non-qualified stock
options ("NQSOs" and together with ISOs, "Stock Options" and "Awards"). ISOs are
intended to be treated as incentive stock options within the meaning of Section
422 of the Code. NQSOs are, in general, options which do not have the special
income tax advantages associated with ISOs. Stock Option grants will consist of
the maximum number of ISOs that may be granted to a particular grantee under
applicable law with the balance of the Stock Options being NQSOs.

ADMINISTRATION OF THE PLAN

The 1997 Incentive Stock Plan will be administered by the Compensation
Committee of the Board (the "Committee"). The Committee will consist of two or
more members of the Board each of whom shall be an "outside director" as defined
under Section 162(m) of the Code, and the regulations and interpretations
thereunder. Members of the Committee will be eligible to receive certain Awards
(other than ISOs) under the 1997 Incentive Stock Plan.

Subject to the terms and conditions of the 1997 Incentive Stock Plan and the
formula awards for Independent Directors (as defined below), the Committee is
authorized to grant Awards, to determine which employees, officers, directors or
other individuals may be granted Awards, to determine the type and number of
Awards to be granted, to determine the term of such Awards, to determine the
exercise price of any Award, to determine the terms of any agreement pursuant to
which Awards are granted, to interpret and construe the 1997 Incentive Stock
Plan, and to determine any other matters delegated to it under the 1997
Incentive Stock Plan or necessary for the proper administration of the 1997
Incentive Stock Plan.

SHARES OF CLASS A COMMON STOCK SUBJECT TO THE 1997 INCENTIVE STOCK PLAN

Subject to certain exceptions set forth in the 1997 Incentive Stock Plan,
the aggregate number of shares of the Class A Common Stock that may be the
subject of Awards under the 1997 Incentive Stock Plan is 1,000,000. The maximum
number of shares of Class A Common Stock available with respect to Awards
granted to any one grantee shall not exceed, in the aggregate, 100,000. Shares
of Class A Common Stock granted under the 1997 Incentive Stock Plan may either
be authorized but unissued shares of Class A Common Stock not reserved for any
other purpose or shares of Class A Common Stock held in or acquired for the
treasury of MFN.

Shares of Class A Common Stock subject to an Award which terminates
unexercised may again be the subject to an Award under the 1997 Incentive Stock
Plan. In addition, shares of Class A Common Stock surrendered to MFN in payment
of the exercise price or applicable taxes upon exercise or settlement of an
Award may also be used thereafter for additional Awards.

ELIGIBILITY

Any key employee, officer and director, including a director who is not an
employee and a director who serves on the Committee, of MFN and its subsidiaries
who has substantial responsibility in the direction of MFN and its subsidiaries
and anyone else whom the Committee determines provides substantial and important
services to MFN is eligible to receive Awards.

Any Independent Director who first serves on the Board subsequent to the
date the 1997 Incentive Stock Plan was adopted shall be entitled to receive
Awards under the 1997 Incentive Stock Plan with

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<PAGE>
respect to 5,000 shares of Common Stock, each having an exercise price equal to
the fair market value of a share of Class A Common Stock on the date of grant.
For purposes hereof, "Independent Directors" shall mean any member of the Board
who during his entire term as a director was not employed by MFN and its
subsidiaries, within the meaning of Section 424(f) of the Internal Revenue Code
of 1986, as amended (the "Code"), and who also satisfies the criteria for
"outside director" under Section 162(m) of the Code.

TERMS AND CONDITIONS OF STOCK OPTIONS

The exercise price of all ISOs granted under the 1997 Incentive Stock Plan
is the fair market value of the Class A Common Stock on the date of grant. The
exercise price of all NQSOs granted under the 1997 Incentive Stock Option Plan
will be determined by the Committee, although the initial awards will be made at
fair market value of the Class A Common Stock on the date of grant. The term of
each Stock Option granted under the 1997 Incentive Stock Plan will be determined
by the Committee but will in no event be greater than ten years from the date of
grant.

With respect to ISOs granted to a grantee who owns stock possessing more
than 10% of the voting rights of MFN's outstanding capital stock on the date of
grant, the exercise price of the ISO shall be equal to 110% of the fair market
value of the Class A Common Stock subject to the ISO on the date of grant and
the ISO may not be exercisable more than five years after the date of grant.

Stock Options shall vest and become exercisable over a period of years as
determined by the Committee.

Subject to the following sentence, upon the exercise of a Stock Option, the
grantee must pay the exercise price in cash. At the discretion of the Committee,
the exercise price may be paid with shares of Class A Common Stock already owned
by, and in possession of, the grantee or in a combination of cash or shares of
Class A Common Stock.

The aggregate fair market value of the Class A Common Stock (determined on
the date of grant) for which ISOs granted under the 1997 Incentive Stock Plan
and any other plan of MFN or a subsidiary may be exercisable for the first time
by any grantee during any calendar year cannot exceed $100,000 or such other
amount as may be prescribed under the Code or applicable regulations and rulings
from time to time.

ACCELERATION OF VESTING AND EXERCISABILITY

If a grantee's employment with MFN is terminated because of the grantee's
death, the grantee's retirement on or after attaining age sixty-five or a Change
in Control prior to the date of the Stock Option is by its terms exercisable,
the Stock Option shall be immediately exercisable (and the restrictions thereof,
if any, shall lapse) as of the date of the termination of the grantee's
employment, subject to the other terms of the 1997 Incentive Stock Plan.

Upon a Change in Control of MFN, (i) each holder of a Stock Option shall
have the right to exercise the Stock Option in full without regard to any
waiting period, installment period or other limitation or restriction thereon
and (ii) each holder of a Stock Option shall have the right, exercisable by
written notice to MFN within sixty days after the Change in Control, to receive,
in exchange for the surrender of the Stock Option or any portion thereof to the
extent the Stock Option is then exercisable in accordance with clause (i), an
amount of cash equal to the difference between the fair market value of the
Class A Common Stock on the date of exercise and the exercise price of the Stock
Option.

In general, under the 1997 Incentive Stock Plan, a "Change in Control" of
MFN shall be deemed to have occurred as of the first day any one or more of the
following four conditions have been satisfied: (i) any event whereby a Person
(other than (a) MFN or an affiliate, as defined in the Exchange Act or (b) any
employee benefit plan or trust sponsored or maintained by MFN or an affiliate,
as defined in the

55
<PAGE>
Exchange Act) (x) acquires 35% or more of MFN's outstanding voting securities,
(y) acquires securities of MFN bearing a majority of voting power with respect
to election of directors of MFN or (z) acquires all or substantially all of
MFN's assets, whether by sale, lease, exchange or other transfer (in one
transaction or in a series of related transactions); (ii) a change in the
composition of the Board such that at any time a majority of the Board shall not
have been members of the Board for twenty-four months; provided, however, that
directors who were appointed or nominated for election by at least two-thirds of
the directors who were directors at the beginning of such twenty-four month
period (or deemed to be such directors under this clause (ii)) shall be deemed
to be directors at the beginning of such twenty-four month period for the
purposes of this clause (ii); (iii) the stockholders of MFN approve any plan or
proposal for the liquidation or dissolution of MFN; or (iv) any consolidation or
merger of MFN, other than a merger or consolidation of MFN in which the voting
securities of MFN outstanding immediately prior thereto continue to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least 50% of the combined voting power of the voting
securities of MFN or such surviving entity outstanding immediately after such
merger or consolidation. "Person" shall have the same meaning as ascribed to
such term in Section 3(a)(9) of the Exchange Act and used in Section 13(d)
thereof.

ADJUSTMENT PROVISIONS

The total number and character of shares of Class A Common Stock subject to
Awards and the number and character of shares of Class A Common Stock subject to
outstanding Awards and/or the exercise price of such shares will be
appropriately adjusted by the Committee if the shares of Class A Common Stock
are changed into or exchanged for a different number or kind of shares of stock
or other securities of MFN or of another corporation (whether by reason of
merger, consolidation, recapitalization, reclassification, split, reverse split,
combination of shares, or otherwise). The Committee may also make appropriate
adjustments in the event of a merger, consolidation or other transaction or
event having a similar event.

AMENDMENT AND TERMINATION OF THE 1997 INCENTIVE STOCK PLAN

Unless terminated earlier by action of the Board of MFN, the 1997 Incentive
Stock Plan will terminate on the tenth anniversary of its adoption, and no
additional grants under the 1997 Incentive Stock Plan will be made after that
date.

The Board may amend or terminate the 1997 Incentive Stock Plan at any time,
but may not, without the written consent of the grantee, make any such
alteration which would impair the rights of a holder of an outstanding Award.
Furthermore, the 1997 Incentive Stock Plan may not be amended without the
approval of the holders of a majority of the outstanding stock of MFN (i) to
decrease the minimum exercise price for ISOs; (ii) to extend the term of the
1997 Incentive Stock Plan beyond ten years, (iii) to extend the maximum terms of
the Awards granted beyond ten years, (iv) to withdraw the administration of the
1997 Incentive Stock Plan from the Committee, (v) to change the class of
eligible employees, officers, directors and other grantees, (vi) to increase the
aggregate number of shares of Class A Common Stock authorized to be issued, and
(vii) to otherwise require stockholder approval to comply with Rule 16b-3 or any
other applicable law, regulation, or listing requirement or to qualify for an
exemption or characterization that is deemed desirable by the Board. No
amendment or terminations of the 1997 Incentive Stock Plan shall, without
written consent of the grantee, alter the terms of Awards already granted and
such Stock Options shall remain in full force and effect as if the 1997
Incentive Stock Plan had not been terminated.

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<PAGE>
MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS

The Committee may, within the limitations of the Incentive Stock Plan,
modify, extend or renew outstanding Awards granted under the 1997 Incentive
Stock Plan, or accept the surrender of outstanding Awards and authorize the
granting of new Awards in substitution therefor. No modification may, without
the consent of the grantee, alter or impair any rights or obligations under any
Award theretofore granted to the grantee nor shall any modification adversely
affect the status of an ISO under Section 422 of the Code.

TRANSFERABILITY OF AWARDS AND OTHER PROVISIONS

The rights of a grantee with respect to the Awards granted pursuant to the
1997 Incentive Stock Plan are not transferable other than by will or the laws of
descent and distribution and are exercisable, during the lifetime of the
grantee, only by the grantee or by the guardian or legal representative of the
grantee acting in a fiduciary capacity on behalf of the grantee under state law
or court supervision. An Award is not subject, in whole or in part, to
attachment, execution or levy of any kind.

RIGHTS UPON TERMINATION OF EMPLOYMENT

If the grantee dies while an employee or when no longer an employee but
while he or she still has the right to exercise an Award, the grantee's estate
shall have the right for a period of one year following the date of death to
exercise the Award to the extent such Award is exercisable and to the extend
such Award has not yet expired.

Upon a grantee's retirement from MFN or a subsidiary on or after attaining
age sixty-five the grantee shall have the right for a period of three months
following the date of retirement to exercise an Award to the extent such Award
is exercisable and to the extent such Award has not yet expired.

Upon a grantee's termination of employment from MFN on account of
disability, the grantee or the legal representative of the grantee, shall have
the right for a period of one year following the date of such termination to
exercise an Award to the extent such award is exercisable and to the extent such
Award has not yet expired.

In the event the grantee's employment with MFN or a subsidiary is terminated
for any reason other than disability, death or retirement on or after attaining
age sixty-five, the grantee may exercise an Award within three months after his
or her termination of employment.

RIGHTS AS STOCKHOLDER

No grantee of any Stock Option has any rights as a stockholder with respect
to any shares of Common Stock subject to his or her Stock Option prior to the
date on which he or she is recorded as the holder of such shares of Class A
Common Stock on the records of MFN.

RIGHT TO CONTINUED EMPLOYMENT

The 1997 Incentive Stock Plan is not a contract of employment, and the terms
of employment of any grantee shall not be affected in any way by the 1997
Incentive Stock Plan or related instruments except as specifically provided
therein. The establishment of the 1997 Incentive Stock Plan shall not be
construed as conferring any legal rights upon any grantee for a continuation of
employment, nor shall it interfere with the right of MFN or any subsidiary to
discharge any grantee and to treat him or her without regard to the effect which
such treatment might have upon him or her as a grantee.

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PRINCIPAL STOCKHOLDERS

The following table sets forth, as of October 28, 1997, certain information
regarding the beneficial ownership of the Company's voting stock by (i) each of
the Company's directors, (ii) each person believed by the Company to own
beneficially more than 5% of its outstanding voting stock, (iii) each of the
Named Executive Officers and (iv) all executive officers and directors of the
Company as a group. The information set forth below assumes consummation of the
Reverse Stock Split and the Reclassifications and excludes any shares that may
be acquired pursuant to stock options that may be granted under the 1997
Incentive Stock Plan. Except as otherwise indicated, each stockholder listed
below has sole voting and investment power with respect to shares beneficially
owned by such person.

<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK(A)
------------------------ ------------------------
<S> <C> <C> <C> <C> <C>
NUMBER PERCENT NUMBER PERCENT PERCENT OF
OF SHARES OF CLASS OF SHARES OF CLASS TOTAL VOTING POWER
----------- ----------- ----------- ----------- ---------------------
Stephen A. Garofalo................................ 5,686,939(b) 57.0% -- -- 10.9%
110 East 42nd Street
Suite 1502
New York, NY 10017
Metromedia Company................................. -- -- 3,932,756 93.2% 75.9%
One Meadowlands Plaza
East Rutherford, NJ 07073
Howard M. Finkelstein.............................. 1,521,000(c) 13.7% -- -- 2.9%
110 East 42nd Street
Suite 1502
New York, NY 10017
Peter Sahagen...................................... 1,104,030(d) 11.5% -- -- 2.1%
3590 South Ocean Blvd.
South Palm Beach, FL 33480
Stephen Ellis...................................... 15,210(l) * -- -- *
Vincent A. Galluccio............................... 197,730(e) 2.0% -- -- *
James Urbelis...................................... 136,890(f) 1.4% -- -- *
John S. Mahon...................................... 136,890(f) 1.4% -- -- *
Louis J. Gambino................................... 15,210(g) * -- -- *
Silvia Kessel...................................... 63,809(h) * -- -- *
John W. Kluge...................................... 253,500(i) 2.6% 3,932,756(j) 93.2% 76.0%
215 East 67th Street
New York, NY 10021
David Rockefeller.................................. 348,638(k) 3.6% -- -- *
Stuart Subotnick................................... 253,500(i) 2.6% 4,221,159(j) 100.0% 81.6%
215 East 67th Street
New York, NY 10021
Arnold L. Wadler................................... 76,918(h) * -- -- *
Leonard White...................................... -- -- -- -- *
Gerald Vento....................................... -- -- -- -- *
All Directors and Executive Officers as a group.... 9,840,685 77.8% 4,221,159 100.0% 94.9%
</TABLE>

- ------------------------
* less than 1.0%
(a) The shares of Class B Common Stock are convertible into shares of Class A
Common Stock at the rate of one share of Class A Common Stock for each share
of Class B Common Stock and the holders of shares of Class B Common Stock
are entitled to 10 votes per share.
(b) Includes presently exercisable options to purchase 380,250 shares of Class A
Common Stock at an exercise price of $1.97 per share.
(c) Represents presently exercisable options to purchase 1,521,000 shares of
Class A Common Stock at an exercise price of $1.97 per share.
(d) All of such shares are owned by an entity controlled by Mr. Sahagen.
(e) Represents presently exercisable options to purchase 197,730 shares of Class
A Common Stock at an exercise price of $1.97 per share.
(f) Represents presently exercisable options to purchase 136,890 shares of
Class A Common Stock at an exercise price of $1.97 per share.
(g) Represents presently exercisable options to purchase 15,210 shares of Class
A Common Stock at an exercise price of $1.97 per share.
(h) Includes 50,700 presently exercisable options to acquire shares of Class A
Common Stock at an exercise price of $1.97 held by each of Ms. Kessel and
Mr. Wadler. Does not include shares owned by Metromedia. Ms. Kessel and Mr.
Wadler are employed by Metromedia and disclaim beneficial ownership of the
shares owned by Metromedia.
(i) Consists of 253,500 presently exercisable options to acquire shares of
Class A Common Stock at an exercise price of $1.97 held by each of Mr. Kluge
and Mr. Subotnick.
(j) Includes 3,932,756 shares owned by Metromedia. Messrs. Kluge and Subotnick,
Directors of the Company, are general partners of Metromedia.
(k) Represents 348,638 shares owned by DR & Descendents Partnership, of which
Mr. Rockefeller is a partner and for which he exercises voting and
investment power.
(l) Represents options to purchase 15,210 shares of Class A Common Stock at an
exercise price of $7.63.

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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

HISTORICAL TRANSACTIONS

Stephen A. Garofalo, the Company's Chairman of the Board, Chief Executive
Officer and a principal stockholder, served as chief executive officer and
principal stockholder of F. Garofalo Electric Co., Inc. ("Garofalo Electric").
Garofalo Electric provided the Company with electrical contracting services in
connection with the installation of the Company's fiber optic network. As of
December 31, 1995, the Company owed Garofalo Electric $692,887 for such
services. The Company believes that the terms pursuant to which such services
were rendered to the Company by Garofalo Electric were fair to the Company and
comparable to those which could have been obtained in arm's-length negotiations
with unaffiliated parties. On July 24, 1995, Garofalo Electric assigned to the
Company its interest in an agreement between Garofalo Electric and Oppenheimer
Capital for the provision of dark fiber. In May 1996, the Company, Garofalo
Electric and Frank Garofalo, the assignee of Garofalo Electric's receivable from
the Company and the father of Stephen A. Garofalo, entered into an agreement
whereby the full amount was satisfied by the issuance of 456,300 shares of Class
A Common Stock to Frank Garofalo. Garofalo Electric is currently in the process
of winding up its business and affairs.

Stephen A. Garofalo has made various loans to the Company. At December 31,
1994, such loans totaled $1,967,109. In April 1995 Mr Garofalo agreed to
contribute to the Company's capital $1.7 million of amounts due him. By
agreement between the Company and Mr. Garofalo in May 1996 the transaction was
rescinded. During 1995, the Company made repayments (net of additional advances)
of $1,070,130. The loans from Mr. Garofalo totaled approximately $896,979 at
December 31, 1995. On May 21, 1996, the Company issued to Mr. Garofalo 152,100
shares of Class A Common Stock in satisfaction of $600,000 of the outstanding
balance. All outstanding amounts have been repaid to Mr. Garofalo.

As of December 31, 1996, the Company had outstanding approximately $4.9
million of indebtedness due to US ONE Communications of New York, Inc. ("US
ONE"), a lessee of the Company's dark fiber, which was personally guaranteed by
Stephen A. Garofalo. On April 30, 1997, upon consummation of the Metromedia
Investment, $1,370,000 of the indebtedness was paid off in cash from proceeds of
the Metromedia Investment while the remainder was converted into a prepaid lease
payment to the Company. Therefore, there is no such indebtedness currently
outstanding.

On March 16, 1995, the Company entered into a loan agreement (the "Rubin
Loan Agreement") with Robert Rubin, at the time a Director of the Company,
pursuant to which the Company borrowed $500,000 at an interest rate of 10% per
annum and issued to Mr. Rubin 155,994 shares of Class A Common Stock as an
inducement for entering into the agreement. The Rubin Loan Agreement had a term
of one year and the obligations of the Company were (i) guaranteed by Stephen A.
Garofalo and (ii) collateralized by shares of Common Stock owned by Mr.
Garofalo. The Rubin Loan Agreement, including all accrued interest, was fully
repaid in March 1996.

On January 12, 1996, the Company entered into an agreement with its then
legal counsel, Silverman, Collura, Chernis & Balzano, P.C. ("SCCB"), pursuant to
which the Company agreed to issue shares of Class A Common Stock as additional
consideration for legal services provided to the Company. Pursuant to this
agreement, and a subsequent amendment dated April 16, 1996, the Company issued
to SCCB 491,105 shares of Class A Common Stock during March and April of 1996.
At the time of the April 16 amendment, Peter Silverman, a partner of SCCB, was a
Director of the Company. On June 15, 1996, the Company granted SCCB a warrant to
purchase an aggregate of 152,100 shares of Class A Common Stock at an exercise
price of $.07 per share as additional consideration for legal services provided
to the Company. In January 1997, SCCB exercised this warrant and purchased
152,100 shares of Class A Common Stock.

In February, 1996, the Company entered into a settlement agreement (the
"Katz Settlement Agreement") with Howard Katz, the Company's former Chief
Financial Officer, and Realprop Capital Corp. ("Realprop"), an affiliate of Mr.
Katz, in connection with the termination of Mr. Katz's employment with the

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Company. Pursuant to the Katz Settlement Agreement, the Company agreed to pay
Mr. Katz approximately $940,000 over a period of five years, including $90,000
per year pursuant to a consulting agreement (the "Consulting Agreement"). Under
the Consulting Agreement, Realprop was to provide consulting services relating
to Katz's knowledge and understanding of transactions and the conduct of
business in which the Company engaged and to such other areas of consultation as
Katz and the Company mutually agreed upon. On November 12, 1996, Howard Katz,
Lauren Katz, Stephen Katz and Realprop (collectively, the "Katz Group") entered
into an agreement (the "Katz Purchase Agreement") with Peter Sahagen, at the
time Acting Vice Chairman--Finance of the Company, pursuant to which Mr. Sahagen
was granted the right to purchase an aggregate of 264,631 shares of Class A
Common Stock and an option to purchase warrants for the purchase of 207,883
shares of Class A Common Stock (collectively, the "Katz Securities") for an
aggregate purchase price of $640,000. In conjunction with the Katz Purchase
Agreement, in a letter agreement dated December 10, 1996, Howard Katz and
Realprop Capital Corp. agreed to release the Company from all liabilities and
obligations arising out of the Katz Settlement Agreement, and to reduce the term
of the $90,000 per year Consulting Agreement from five years to three years. On
February 11, 1997, Mr. Sahagen entered into a letter agreement with the Company
acknowledging that he was acting as nominee for the Company with respect to the
Katz Purchase Agreement and assigned to the Company all of his rights, title and
interest in and to the Katz Purchase Agreement. The Company agreed to reimburse
Mr. Sahagen for $25,000 in payments made to Mr. Katz for extending Mr. Sahagen's
right to purchase the Katz Securities. On February 11, 1997, the Company entered
into an agreement with the Katz Group, pursuant to which the Company purchased
the Katz Securities for $640,000 and confirmed that the Consulting Agreement may
be terminated by the Company after three years of its term had concluded. The
purchase price was funded with a portion of the proceeds of the Metromedia Loan
(as described below). The foregoing transaction is the subject of a pending
lawsuit. See "Business--Legal Proceedings."

On April 15, 1996, the Company entered into an employment agreement with
Gerald Vento pursuant to which Mr. Vento would serve as Chief Executive Officer
of the Company. On the same day, the Company entered into a stock purchase
agreement and a consulting agreement with Vento & Company of New York, LLC
("VCNY"). Pursuant to the stock purchase agreement, the Company issued 1,521,000
shares of Class A Common Stock to VCNY as consideration for prior services
provided by VCNY. On October 9, 1996, the Company entered into a settlement
agreement with Mr. Vento and VCNY. Pursuant to such settlement agreement, (i)
the Company and Mr. Vento agreed to terminate Mr. Vento's employment agreement,
(ii) VCNY agreed to sell to Stephen A. Garofalo 1,368,900 shares of Class A
Common Stock (the "Vento Shares") and (iii) the Company agreed to pay $112,500
to VCNY on behalf of Mr. Vento. On January 3, 1997, Mr. Garofalo assigned his
right to purchase the Vento Shares to Mr. Sahagen, who together with other
parties on January 13, 1997 purchased the Vento Shares for $425,000.

On October 28, 1996, the Knobel 1995 Childrens' Investment Trust (the
"Knobel Trust") granted to Stephen A. Garofalo an option to purchase 399,889
shares of Class A Common Stock of the Company for an aggregate purchase price of
$500,000. By letter dated December 3, 1996, the option was amended to reduce the
number of option shares to 323,839. The option was thereafter assigned by Mr.
Garofalo to the Company. On February 11, 1997, the Company exercised the option
by payment of the sum of $500,000 to the Knobel Trust. Payment of such amount
was funded with a portion of the proceeds of the Metromedia Loan.

On February 11, 1997, the Company entered into an agreement (the "Sahagen
Agreement") with Mr. Sahagen. Pursuant to the Sahagen Agreement, (i) the Company
agreed to pay Mr. Sahagen a fee of $250,000 upon an equity investment in the
Company of at least $10 million, in full and complete payment for all services
rendered by Mr. Sahagen in his capacity as Acting Vice Chairman--Finance of the
Company and in facilitating the Metromedia Investment and for any fees or
compensation due to Mr. Sahagen pursuant to any prior agreements with the
Company, (ii) Mr. Sahagen agreed to release the Company from any claims against
the Company, subject to payments required by the Sahagen Agreement, (iii) the
Company agreed to designate Mr. Sahagen or a suitable designee selected by

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<PAGE>
Mr. Sahagen as a Director of the Company for a term of six months and (iv) the
Company granted Mr. Sahagen certain "piggyback" registration rights. In
connection with the Metromedia Investment, the Company paid the $250,000 fee to
Mr. Sahagen.

On December 13, 1996, the Company issued and sold to Penny Lane Partners,
L.P. ("Penny Lane"), for aggregate cash consideration of $2,025,000, (i) 150,000
shares of 10% cumulative convertible
preferred stock (the "Series A Preferred Stock") bearing dividends at a rate of
$1.35 per share per annum, (ii) warrants to purchase 114,075 shares of Class A
Common Stock at an exercise price of $4.93 per share (the "Penny Lane Warrants")
and (iii) a contingent stock subscription warrant to purchase a number of shares
of Class A Common Stock (such number to be determined based on certain future
events) at an exercise price of $0.02 per share (the "Contingent Warrants"). In
connection with the Metromedia Investment, Penny Lane agreed to permit the
Series A Preferred Stock and the Contingent Warrants to be redeemed at an
aggregate redemption price of $2,115,000 (which includes accrued but unpaid
dividends on the Series A Preferred Stock) and in connection therewith the
number of shares underlying the Penny Lane Warrants was increased from 114,075
to 228,150.

In 1994 the Company engaged Richard A. Eisner & Company, LLP ("Eisner") to
serve as its independent auditors. During 1995, Gerald Vento began his
affiliation with the Company and requested that the Company engage M.R. Weiser &
Co. LLP, Certified Public Accountants ("Weiser"), to serve as the Company's
independent auditors. Stephen A. Garofalo, majority stockholder and Chairman of
the Board, approved the dismissal of Eisner and the engagement of Weiser. In
September 1996, the Company decided to engage a "big six" accounting firm and
engaged Ernst & Young LLP ("Ernst & Young") to serve as its independent
auditors. Stephen A. Garofalo, majority stockholder, approved the dismissal of
Weiser and the engagement of Ernst & Young. At no time during the periods in
which Eisner and Weiser served as the Company's independent auditors were there
any disagreements between the Company and Eisner or Weiser regarding any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedures. Both Eisner and Weiser included in their opinions
on the Company's financial statements a separate paragraph stating that there
was substantial doubt about the Company's ability to continue as a going
concern. Ernst & Young's report on the Company's consolidated financial
statements for the year ended December 31, 1996 does not contain a similar
statement.

RECENT TRANSACTIONS

METROMEDIA INVESTMENT. On February 10, 1997, Metromedia agreed to loan
$2,000,000 to the Company. See "Principal Stockholders." Pursuant to an
agreement dated March 6, 1997, Metromedia agreed to loan to the Company up to an
additional $6,000,000, subject to certain conditions (together with the loan on
February 10, the "Metromedia Loan"). On April 30, 1997, the Metromedia Loan was
repaid with a portion of the proceeds from the Metromedia Investment. The
Metromedia Loan was funded in two installments: (i) $1,140,000 on February 10,
1997 and (ii) $860,000 on February 14, 1997, and provided for a revolving loan
of up to an additional $6,000,000. The Metromedia Loan was scheduled to mature
on August 31, 1997 and bore interest at the prime rate announced by The Chase
Manhattan Bank. The proceeds from the first installment of the Metromedia Loan
were used to fund an escrow account which repurchased on behalf of the Company
588,470 shares of Class A Common Stock and warrants to purchase 207,883 shares
of Class A Common Stock (the "Repurchased Securities"). Pursuant to an escrow
arrangement, the Repurchased Securities were pledged to Metromedia as security
for the Metromedia Loan. The proceeds from the other installments of the
Metromedia Loan were used for working capital. On April 30, 1997, the Company
entered into the Metromedia Agreement, pursuant to which the Company sold to
Metromedia, Mr. Subotnick, Mr. Wadler and Ms. Kessel shares of the Series B
Preferred Stock (which constituted 100% of such series) for $32,500,000. The
shares of the Series B Preferred Stock were exchanged for 4,221,159 shares of
Class B Common Stock pursuant to the Series B Reclassification. The proceeds
from this transaction were used to redeem the Series A Preferred Stock and
Contingent Warrants ($2,115,000), to repay the Metromedia Loan and accrued
interest thereon ($4,058,126), to repay indebtedness to US ONE ($1,370,000), to
repay indebtedness to

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Sterling Capital LLC ("Sterling") ($555,000), and the balance for working
capital. Upon repayment of the Metromedia Loan, the Repurchased Shares were
released from escrow and delivered to the Company.

METROMEDIA LEASE. In March 1997, the Company entered into an agreement to
lease approximately 5,300 square feet of office space in Manhattan from an
affiliate of Metromedia. The lease commenced on April 1, 1997. Aggregate monthly
rent payments are approximately $127,800 for the one year term of the lease. In
June 1997, the Company entered into another agreement with the same affiliate of
Metromedia to lease approximately 1,146 additional square feet of office space
in the same building. The lease commenced on June 20, 1997. Aggregate monthly
rent payments are approximately $27,504 for the one year term of the lease. The
Company believes that the terms of the leases are fair to the Company and
comparable to those which have been obtained in arm's-length negotiations with
unaffiliated third parties. In September 1997, the Metromedia affiliate disposed
of its interest in this office building.

TRADEMARK LICENSE AGREEMENT. MFN is a party to a license agreement with
Metromedia (the "Metromedia License Agreement"), pursuant to which Metromedia
has granted a non-exclusive, non-transferable, non-assignable right and license,
without the right to grant sublicenses, to use the trade name, trademark and
corporate name "Metromedia" in the United States and worldwide, royalty-free for
a term of 10 years. The Metromedia License Agreement can be terminated by
Metromedia upon one month's prior written notice in the event that (i)
Metromedia or its affiliates own less than 20% of the Common Stock; (ii) a
Change in Control of MFN (as defined below) occurs; or (iii) any of the stock or
all or substantially all of the assets of any of the subsidiaries of MFN are
sold or transferred, in which case, the Metromedia License Agreement shall
terminate with respect to such subsidiary. A Change in Control of MFN is defined
as (a) a transaction in which a person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) not in existence at the time of the execution of
the Metromedia License Agreement becomes the beneficial owner of stock entitling
such person or group to exercise 50% or more of the combined voting power of all
classes of stock of MFN; (b) a change in the composition of MFN's Board of
Directors whereby a majority of the members thereof are not directors serving on
the Board at the time of the Metromedia License Agreement or any person
succeeding such director who was recommended or elected by such directors; (c) a
reorganization, merger or consolidation where following consummation thereof,
Metromedia would hold less than 20% of the combined voting power of all classes
of MFN stock; (d) a sale or other disposition of all or substantially all of the
assets of MFN; or (e) any transaction the result of which would be that the
Common Stock would not be required to be registered under the Exchange Act and
the holders of Common Stock would not receive common stock of the survivor to
the transaction which is required to be registered under the Exchange Act.

In addition, Metromedia has reserved the right to terminate the Metromedia
License Agreement in its entirety immediately upon written notice to MFN if, in
Metromedia's sole judgment, MFN's continued use of "Metromedia" as a trade name
would jeopardize or be detrimental to the good will and reputation of
Metromedia.

Pursuant to the Metromedia License Agreement, MFN has agreed to indemnify
and hold harmless Metromedia against any and all losses, claims, suits, actions,
proceedings, investigations, judgments, deficiencies, damages, settlements,
liabilities and reasonable legal expenses (and other expenses related thereto)
arising in connection with the Metromedia License Agreement.

TRANSACTIONS ENTERED INTO IN CONNECTION WITH THE OFFERINGS

RECLASSIFICATIONS. In connection with the Offerings, the Company intends to
effect the Reclassifications. Pursuant to the Series B Reclassification, each
share of Series B Preferred Stock will be converted into and exchanged for 507
shares of Class B Common Stock. Pursuant to the Common Stock Reclassification,
the Old Common Stock will be reclassified as Class A Common Stock, with all of
the rights and preferences currently found in the Old Common Stock. See
"Description of Capital Stock--Common Stock" for a description of the relative
rights of holders of Class A Common Stock and Class B Common Stock.

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DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 200,000,000 shares
of Common Stock, par value $0.01 per share (the "Common Stock"), of which
180,000,000 shares have been designated Class A Common Stock and 20,000,000
shares have been designated as Class B Common Stock, and 20,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"). Effective
upon completion of the Offerings, 17,524,267 shares of Class A Common Stock will
be issued and outstanding, 4,221,159 shares of Class B Common Stock will be
issued and outstanding and no shares of Preferred Stock will be issued and
outstanding. In addition, 4,283,326 shares of Class A Common Stock will be
reserved for issuance under outstanding options and warrants and 4,221,159
shares of Class A Common Stock will be reserved for issuance upon conversion of
the Class B Common Stock. As of October 28, 1997, there were 79 holders of
record of Old Common Stock and four holders of record of Series B Preferred
Stock.

The following summary of certain provisions of the Common Stock and
Preferred Stock, outstanding warrants and related registration rights does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the Company's Amended and Restated Certificate of Incorporation
and Bylaws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.

COMMON STOCK

The shares of Class A Common Stock and Class B Common Stock are identical in
all respects, except for voting rights and certain conversion rights and
transfer restrictions in respect of the shares of the Class B Common Stock. The
number of authorized shares of any class or classes of capital stock of the
Company may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a majority
of the voting power of the Common Stock of the Company entitled to vote
generally in the election of directors irrespective of the provisions of Section
242(b)(2) of the DGCL or any corresponding provisions hereinafter enacted.

VOTING RIGHTS. The holders of Class A Common Stock are entitled to one vote
per share. Holders of Class B Common Stock are entitled to ten votes per share.
Holders of all classes of Common Stock entitled to vote will vote together as a
single class on all matters presented to the stockholders for their vote or
approval except for the election and the removal of directors as described below
and as otherwise required by applicable law. In addition, with respect to the
election of directors, the Company's Amended and Restated Certificate of
Incorporation provides that holders of Class B Common Stock will vote as a
separate class to elect at least 75% of the members of the Company's Board.

Directors may be removed, with or without cause, only by the holders of the
class of Common Stock or series of Preferred Stock that, as of the date such
removal is effected, would be entitled to elect such director at the next annual
meeting of stockholders. Vacancies in a directorship may be filled only by (a)
the remaining directors elected by holders of each class of Common Stock or
series of Preferred Stock that (x) elected such director and (y) as of the date
such vacancy is filled, would be entitled to elect such director at the next
annual meeting of the stockholders or (b) if there are no such remaining
directors, then by the vote of the holders of the class or classes of Common
Stock or series of Preferred Stock, that, as of the date such vacancy is filled,
would be entitled to elect such director at the next annual meeting of
stockholders, voting as a separate class at a meeting, special or otherwise, of
the holders of Common Stock of such class or series of Preferred Stock.

DIVIDENDS. Holders of Class A Common Stock and the Class B Common Stock are
entitled to receive dividends at the same rate if, as and when such dividends
are declared by the Board out of assets legally available therefor after payment
of dividends required to be paid on shares of Preferred Stock, if any. The
Company may not make any dividend or distribution to any holder of any class of
Common Stock unless simultaneously with such dividend or distribution the
Company makes the same

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dividend or distribution with respect to each outstanding share of Common Stock
regardless of class. In the case of a dividend or other distribution payable in
shares of a class of Common Stock, including distributions pursuant to Stock
splits or divisions of Common Stock, only shares of Class A Common Stock may be
distributed with respect to Class A Common Stock and only shares of Class B
Common Stock may be distributed with respect to Class B Common Stock. Whenever a
dividend or distribution, including distributions pursuant to stock splits or
divisions of the Common Stock, is payable in shares of a class of Common Stock,
the number of shares of each class of Common Stock payable per share of such
class of Common Stock shall be equal in number. In the case of dividends or
other distributions consisting of other voting securities of the Company or of
voting securities of any corporation which is a wholly-owned subsidiary of the
Company, the Company shall declare and pay such dividends in two separate
classes of such voting securities, identical in all respects except that (i) the
voting rights of each such security issued to the holders of Class A Common
Stock shall be one-tenth of the voting rights of each such security issued to
holders of Class B Common Stock, (ii) such security issued to holders of Class B
Common Stock shall convert into the security issued to the holders of Class A
Common Stock upon the same terms and conditions applicable to the conversion of
Class B Common Stock into Class A Common Stock and shall have the same
restrictions on transfer and ownership applicable to the transfer and ownership
of the Class B Common Stock, and (iii) with respect only to dividends or other
distributions of voting securities of any corporation which is a wholly owned
subsidiary of the Company, the respective voting rights of each such security
issued to holders of the Class A Common Stock and Class B Common Stock with
respect to election of directors shall otherwise be as comparable as is
practicable to those of the Class A Common Stock and Class B Common Stock. In
the case of dividends or other distributions consisting of securities
convertible into, or exchangeable for, voting securities of the Company or of
voting securities of any corporation which is a wholly owned subsidiary of the
Company, the Company shall provide that such convertible or exchangeable
securities and the underlying securities be identical in all respects
(including, without limitation, the conversion or exchange rate) except that the
underlying securities may have the same differences as they would have if the
Company issued voting securities of the Company or of a wholly owned subsidiary
rather than issuing securities convertible into, or exchangeable for, such
securities. The Company does not anticipate paying cash dividends in the
foreseeable future. See "Dividend Policy."

RESTRICTIONS ON ADDITIONAL ISSUANCES AND TRANSFER. The Company may not
issue or sell any shares of Class B Common Stock or any securities (including,
without limitation, any rights, options, warrants or other securities)
convertible into, or exchangeable or exercisable for, shares of Class B Common
Stock to any person or entity other than to Metromedia, Messrs. Kluge and
Subotnick, their affiliates, relatives and certain other entities (the
"Permitted Holders"). Additionally, shares of Class B Common Stock may not be
transferred, whether by sale, assignment, gift, bequest, appointment or
otherwise, to a person other than to a Permitted Holder. Notwithstanding the
foregoing (i) any Permitted Holder may pledge his, her or its shares of Class B
Common Stock to a financial institution pursuant to a bona fide pledge of such
shares as collateral security for indebtedness due to the pledgee provided that
such shares remain subject to the transfer restrictions and that, in the event
of foreclosure or other similar action by the pledgee, such pledged shares of
Class B Common Stock may only be transferred to a Permitted Holder or converted
into shares of Class A Common Stock, as the pledgee may elect and (ii) the
foregoing transfer restrictions shall not apply in the case of a merger,
consolidation or business combination of the Company with or into another
corporation in which all of the outstanding shares of Common Stock and Preferred
Stock of the Company regardless of class are purchased by the acquiror.

CONVERSION. Class A Common Stock has no conversion rights. Shares of Class
B Common Stock are convertible into Class A Common Stock, in whole or in part,
at any time and from time to time at the option of the holder, on the basis of
one share of Class A Common Stock for each share of Class B Common Stock
converted. Additionally, at such time as a person ceases to be a (i) Permitted
Holder, any share of Class B Common Stock held by such person at such time shall
convert into a share of Class A Common Stock. The Company covenants that (i) it
will at all times reserve and keep available out of its

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authorized but unissued shares of Class A Common Stock, such number of shares of
Class A Common Stock issuable upon the conversion of all outstanding shares of
Class B Common Stock, (ii) it will cause any shares of Class A Common Stock
issuable upon conversion of a share of Class B Common Stock that require
registration with or approval of any governmental authority under federal or
state law before such shares may be issued upon conversion to be so registered
or approved and (iii) it will use its best efforts to list the shares of Class A
Common Stock required to be delivered upon conversion prior to such delivery
upon such national securities exchange upon which the outstanding Class A Common
Stock is listed at the time of such delivery.

RECLASSIFICATION AND MERGER. In the event of a reclassification or other
similar transaction as a result of which the shares of Class A Common Stock are
converted into another security, then a holder of Class B Common Stock will be
entitled to receive upon conversion the amount of such other security that the
holder would have received if the conversion occurred immediately prior to the
record date of such reclassification or other similar transaction. No
adjustments in respect of dividends will be made upon the conversion of any
share of Class B Common Stock; except if a share is converted subsequent to the
record date for the payment of a dividend or other distribution on shares of
Class B Common Stock but prior to such payment, then the registered holder of
such share at the close of business on such record date will be entitled to
receive the dividend or other distribution payable on such date regardless of
the conversion thereof or the Company's default in payment of the dividend due
on such date.

In the event the Company enters into any consolidation, merger, combination
or other transaction in which shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/ or any other property, then,
and in such event, the shares of each class of Common Stock will be exchanged
for or changed into either (1) the same amount of stock, securities, cash and/or
any other property, as the case may be, into which or for which each share of
any other class of Common Stock is exchanged for or changed into shares of
capital stock, such shares so exchanged for or changed into may differ to the
extent and only to the extent that the Class A Common Stock and the Class B
Common Stock differ as provided in the Company's Amended and Restated
Certificate of Incorporation or (2) if holders of each class of Common Stock are
to receive different distributions of stock, securities, cash and/or any other
property, an amount of Stock, securities, cash and/or property per share having
a value, as determined by an independent investment banking firm of national
reputation selected by the Board of Directors, equal to the value per share into
which or for which each share of any other class of Common Stock is exchanged or
changed.

LIQUIDATION. In the event of a liquidation of the Company, after payment of
the debts and other liabilities of the Company and after making provision for
the holders of Preferred Stock, if any, the remaining assets of the Company will
be distributable ratably among the holders of the Class A Common Stock and Class
B Common Stock treated as a single class.

OTHER PROVISIONS. Except as described below, the holders of the Class A
Common Stock and Class B Common Stock are not entitled to preemptive rights.
None of the Class A Common Stock or Class B Common Stock may be subdivided or
combined in any manner unless the other classes are subdivided or combined in
the same proportion. The Company may not make any offering of options, rights or
warrants to subscribe for shares of Class B Common Stock. If the Company makes
an offering of options, rights or warrants to subscribe for shares of any other
class or classes of capital stock (other than Class B Common Stock) to all
holders of a class of Common Stock, then the Company is required to
simultaneously make an identical offering to all holders of the other classes of
Common Stock other than to any class the holders of which, voting as a separate
class, agrees that such offering need not be made to such class. All such
options, rights or warrants offerings shall offer the respective holders of
Class A Common Stock and Class B Common Stock the right to subscribe at the same
rate per share. All outstanding shares of Common Stock are, and all shares of
Common Stock offered hereby when issued will be, upon payment therefor, validly
issued, fully paid and nonassessable.

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Special meetings of stockholders for any purpose may be called at any time
by the Chairman, Vice Chairman or the Board of Directors, by the President or by
the holders of at least thirty-three percent (33%) of the voting power of the
outstanding shares of Common Stock.

Delaware law does not require stockholder approval for any issuance of
authorized shares of Common Stock. Such authorized and unissued shares may be
used for a variety of corporate purposes, including future public offerings to
raise additional capital or to facilitate corporate acquisitions. One of the
effects of the existence of unissued and unreserved Common Stock may be to
enable the Board to issue shares to persons friendly to current management,
which issuance could render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy consent or
otherwise, and thereby protect the continuity of the Company's current
management and possibly deprive the stockholders of opportunities to sell their
shares of Common Stock at prices higher than prevailing market prices.

At present there is no established trading market for the Class A Common
Stock.

The Class A Common Stock has been approved for quotation and trading on the
Nasdaq National Market under the symbol "MFNX".

PREFERRED STOCK

The Board has the authority, without any further action by the stockholders
of the Company, to issue from time to time shares of Preferred Stock in one or
more series and to fix the designations, preferences, rights, qualifications,
limitations and restrictions thereof, including voting rights, dividend rights,
dividend rates, conversion rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series. The
issuance of Preferred Stock with voting rights could have an adverse effect on
the voting power of holders of Common Stock by increasing the number of
outstanding shares having voting rights. In addition, if the Board authorizes
Preferred Stock with conversion rights, the number of shares of Common Stock
outstanding could potentially be increased up to the authorized amount. The
issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to holders of Common Stock. Any such issuance could
also have the effect of delaying, deterring or preventing a change in control of
the Company and may adversely affect the rights of holders of Common Stock. The
Board does not presently intend to issue any additional shares of Preferred
Stock.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

As a Delaware corporation, the Company is subject to the DGCL, including
Section 203. Section 203 of the DGCL prohibits certain transactions between a
Delaware corporation and an "interested stockholder," which is defined as a
person who, together with any affiliates or associates of such person,
beneficially owns, directly or indirectly, 15% or more of the outstanding voting
shares of a Delaware corporation. This provision prohibits certain business
combinations (defined broadly to include mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation) between an interested stockholder and a corporation for a period of
three years after the date the interested stockholder becomes an interested
stockholder, unless (i) prior to the date the interested stockholder becomes an
interested stockholder, the business combination or the transaction by which the
stockholder becomes an interested stockholder is approved by the corporation's
board of directors, (ii) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, such stockholder held at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (other than stock held by directors who are also officers
or by certain employee stock plans) or (iii) the business combination is
approved by a majority of the board of directors, and at an annual or special
meeting of

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stockholders, and not by written consent, by the affirmative vote of 66 2/3% of
the outstanding voting stock that is not owned by the interested stockholder.
Mr. Garofalo and Metromedia are interested stockholders under the DGCL. However
since their acquisition of the Company's securities was approved in advance by
the Company's Board of Directors, they would not be prohibited from engaging in
a business combination with the Company.

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The By-laws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or special meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 70 days nor more than 90 days prior to the meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 20 days or delayed by more than 70 days from such
anniversary date, notice by the stockholder to be timely must be received no
earlier than the close of business on the ninetieth day prior to such annual
meeting and not later than the close of business on the later of the seventieth
day prior to such annual meeting or the tenth day following the day on which
public announcement of the date of such meeting is first made. The By-laws also
specify certain requirements for a stockholder's notice to be in proper written
form. These provisions may preclude some stockholders from bringing matters
before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.

The Company's Amended and Restated Certificate of Incorporation provides
that to the fullest extent permitted by the DGCL, no director of the Company
shall be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director. Under current Delaware law, liability of
a director may not be limited (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) in respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of the provision of the Charter is to
eliminate the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against a
director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. This provision does not
limit or eliminate the rights of the Company or any stockholder to seek
nonmonetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care. In addition, the Charter provides that the Company
shall indemnify its directors, officers, employees and agents to the extent not
prohibited by Delaware law.

In addition, prior to the completion of the Offerings, the Company intends
to enter into agreements (the "Indemnification Agreements") with each of the
directors of the Company pursuant to which the Company will agree to indemnify
each such director against claims, liabilities, damages, expenses, losses,
costs, penalties or amounts paid in settlement (collectively, "Losses") incurred
by such director and arising out of his capacity as a director, executive
officer, employee and/or agent of the Company to the maximum extent permitted by
applicable law. In addition, such director or officer shall be entitled to an
advance of expenses to the maximum extent authorized or permitted by law to meet
the obligations indemnified against. The Indemnification Agreements will also
obligate the Company to purchase and maintain insurance for the benefit and on
behalf of its directors insuring against all liabilities that may be incurred by
such director in or arising out of his capacity as a director, officer, employee
and/or agent of the Company.

To the extent that the Board or the stockholders of the Company may in the
future wish to limit or repeal the ability of the Company to indemnify
directors, such repeal or limitation may not be effective as to directors who
are currently parties to the Indemnification Agreements, because their rights to
full protection will be contractually assured by the Indemnification Agreements.
It is anticipated that similar

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contracts may be entered into, from time to time, with future directors and with
executive officers of the Company.

WARRANTS

In February, 1997, the Company issued to a customer (in replacement for an
existing warrant) a warrant to purchase 456,300 shares of Class A Common Stock
at an exercise price of $4.85 per share. The new warrant expires on February 13,
2000. The warrants are subject to provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon exercise of the warrants
under certain circumstances, including stock dividends, stock splits and
reclassifications.

On June 14, 1996, the Company issued 38,025 Class A Common Stock purchase
warrants to two investors. The warrants are exercisable at $2.62 per share for a
period of 4 years (the "Exercise Period"), provided that in the event of an
initial public offering of the Company's Common Stock during the Exercise
Period, the exercise price will be reduced to the lesser of $2.62 or one half of
the initial public offering price per share. The warrants are subject to
provisions for the adjustment of the exercise price and the aggregate number of
shares issuable upon exercise of the warrants under certain circumstances,
including stock dividends, stock splits and reclassifications.

On September 24, 1996, the Company issued an aggregate of 94,302 Common
Stock purchase warrants to various bridge lenders (the "Bridge Warrants"). The
exercise price of the warrants is the lesser of (i) $5.92 per share; (ii) the
price at which the Company issues its securities in the future if less than
$5.92; and (iii) 50% of the price at which the Class A Common Stock of the
Company is offered in an initial public offering. The exercise price is subject
to further reduction to a price such that the difference between the exercise
price and the market price of a share would yield an aggregate gross profit upon
exercise of all of the warrants equal to at least $550,000. The warrants are
exercisable until the later of September 24, 1999 or twelve months after the
Company has completed an initial public offering and the shares issuable
pursuant to the exercise of the warrants have been covered by an effective
registration statement which has remained in effect for 90 days. The warrants
are subject to provisions for the adjustment of the exercise price and the
aggregate number of shares issuable upon exercise of the warrants under certain
circumstances, including stock dividends, stock splits and reclassifications.

In October 1995, concurrent with the issuance of notes in a private
offering, warrants were issued by the Company to certain noteholders which are
exercisable at a rate of 15,210 shares of common stock per $100,000 of note
principal. Such warrants, entitling the holders to purchase an aggregate of
130,502 shares, are exercisable at a price equal to 50% of the per share price
of an initial public offering of common stock over a three-year period beginning
on the effective date of such initial public offering. The warrants are subject
to provisions for the adjustment of the exercise price and the aggregate number
of shares issuable upon exercise of the warrants under certain circumstances,
including stock dividends, stock splits and reclassifications.

In December 1996, the Company offered certain private placement noteholders
warrants to purchase 107,078 shares of its Class A Common Stock exercisable at
50% of the price for which shares are sold in an initial public offering for a
period of three years following such offering in exchange for the extension of
the due dates of the notes. All of the noteholders accepted this offer. The
warrants are subject to provisions for the adjustment of the exercise price and
the aggregate number of shares issuable upon exercise of the warrants under
certain circumstances, including stock dividends, stock splits and
reclassifications.

In March 1997, the Company issued warrants to private placement noteholders
to purchase 57,682 shares of Class A Common Stock exercisable at 50% of the
price for which shares are sold in an initial public offering for a period of
three years following such offering in exchange for the extension of the due
dates of the notes. The warrants are subject to provisions for the adjustment of
the exercise price and the

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aggregate number of shares issuable upon exercise of the warrants under certain
circumstances, including stock dividends, stock splits and reclassifications.

On December 13, 1996, the Company issued and sold to an investor warrants to
purchase 114,075 shares of Class A Common Stock at an exercise price of $4.93
per share (the "Investor Warrants") and a contingent stock subscription warrant
to purchase a number of shares of Class A Common Stock (such number to be
determined based upon certain future events) at an exercise price of $0.02 per
share (the "Contingent Warrants"). On April 30, 1997, the Contingent Warrants,
along with a series of preferred stock the investor had acquired, were redeemed
at an aggregate redemption price of $2,115,000. In connection therewith, the
number of Investor Warrants was increased from 114,075 to 228,150. The Investor
Warrants are exercisable on or prior to December 31, 2001. The Investor Warrants
contain provisions for the adjustment of the exercise price and the aggregate
number of shares issuable upon the exercise of a warrant under certain
circumstances including the issuance of Class A Common Stock, options to
purchase Class A Common Stock or securities convertible into Class A Common
Stock at a price less than the exercise price, stock dividends, stock splits,
combinations, capital reorganizations and reclassifications.

Another of the Company's customers, subject to the satisfaction of certain
conditions set forth in an agreement with the Company, may acquire warrants to
purchase a minimum of 76,050 and, subject to the approval of the Company, a
maximum of 456,300 Class A Common Stock purchase warrants exercisable at $0.02
per share (the "Customer Warrants"). The purchase price for the warrants shall
be either (i) $1.47 per warrant, or (ii) in the event that the Company sells
Class A Common Stock in a private placement for an aggregate purchase price of
$7,500,000 or more, the sales price per warrant shall be the same as the price
per share of Class A Common Stock in such placement less $0.01; PROVIDED THAT,
in no event shall the aggregate purchase price exceed $1.25 million. The
warrants are exercisable on or prior to March 20, 2009. The warrants have
provisions for adjustment of the number of shares issuable upon exercise of the
warrants under certain circumstances including stock dividends, stock splits,
combinations, issuances of additional shares of Class A Common Stock at a price
less than the current market value of the Class A Common Stock, and issuances of
warrants, options, convertible securities or indebtedness or other rights,
exercisable for or convertible into Class A Common Stock at an exercise price
less than the current market value of the Class A Common Stock.

REGISTRATION RIGHTS

After the Company's initial public offering, each time that the Company
proposes to register any of its securities (other than on a registration
statement on Form S-8 or Form S-4) under the Securities Act, holders of the
Customer Warrants have the right to have their shares of Class A Common Stock of
the Company, whether owned as of the date of the grant of the warrant or issued
pursuant to the exercise of the warrant (the "Registrable Shares"), included in
such registration. If the managing underwriter advises the Company in writing
that the number of shares requested to be included in such registration exceeds
the number of shares which can be sold in such offering, the Company will be
obligated to include in such registration only (i) first, any and all shares of
Class A Common Stock for sale by the Company, and (ii) second, pro rata among
the Registrable Shares and any other shares of Class A Common Stock requested to
be included in the registration pursuant to any other registration rights. The
Company is required to use all reasonable efforts to effect the registration and
the sale of the Registrable Shares.

Pursuant to a letter agreement dated February 11, 1996 between Mr. Sahagen
and the Company, Mr. Sahagen was granted the same "piggyback" registration
rights as those granted to the holders of the Customer Warrants with respect to
shares of Class A Common Stock owned by him.

For five years after the issuance of the Bridge Warrants, at any time the
Company proposes to file a registration statement for the public sale of
securities (other than in connection with a merger or pursuant

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to Form S-4, Form S-8 or a comparable registration statement), holders of these
warrants have the right to include the shares underlying the warrants registered
under such registration statement. If the managing underwriter advises the
Company in writing that the number of shares requested to be included in such
registration exceeds the number of shares which can be sold in such offering,
the Company will be obligated to include in such registration only (i) first,
any and all shares of Class A Common Stock for sale by the Company, and (ii)
second, pro rata among the shares underlying the warrants and any other shares
of Class A Common Stock requested to be included in the registration pursuant to
any other registration rights.

On March 20, 1996, an individual entered into a consulting and stock sale
agreement with the Company under which such individual received 182,520 shares
of Class A Common Stock and certain registration rights. After the Company's
initial public offering, at any time the Company proposes to register its
securities (other than pursuant to a Form S-4 or Form S-8 or in connection with
a merger), such individual has the right to include his shares in such
registration. If the managing underwriter in such offering advises the Company
that it declines to include a portion or all of the shares requested by such
individual to be included in the registration statement, then such portion or
all of such shares shall be excluded from the registration statement, with a
portion of the excluded shares allocated to such individual in proportion to the
respective numbers of shares requested to be registered by such individual.

On April 15, 1996, VCNY entered into a stock purchase agreement with the
Company for the purchase of 1,521,000 shares of Class A Common Stock. Under that
agreement, certain piggyback rights were granted to VCNY. In the event the
Company proposes to register any of its securities (other than in connection
with an initial public offering, a merger or pursuant to Form S-4 or Form S-8),
the Company is required, at VCNY's request, to include the shares sold to VCNY
in such registration. If the managing underwriter in such offering advises the
Company that it declines to include a portion or all of the shares requested by
VCNY to be included in the registration statement, then such portion or all of
such shares shall be excluded from the registration statement, with the excluded
shares being allocated among all shareholders requesting registration in
proportion to the respective numbers of shares requested to be registered by
each such shareholder. On October 9, 1996, VCNY and MFN entered into a
settlement agreement which provided for the termination of Mr. Vento's
employment with the Company. On January 13, 1997, VCNY sold 1,368,900 of the
shares of Class A Common Stock to certain investors. On January 15, 1997, the
Company entered into a registration rights agreement with some of these
investors who had purchased 264,870 shares of Class A Common Stock ("Vento
Investors"). Pursuant to this registration rights agreement, at any time
following the effective date of an initial public offering of Class A Common
Stock, holders of a majority of shares of Class A Common Stock held by the Vento
Investors may request a demand registration of such shares. This demand
registration may be exercised up to three separate times, but the Company shall
not be required to file any such demand registration within 90 days of the
effectiveness of another registration statement (other than pursuant to a Form
S-8) and may delay a filing for up to 90 days from a demand request under
certain circumstances. The Vento Investors have indicated that they intend to
exercise their demand registration rights immediately upon consummation of the
Offerings. If such investors exercise their rights, the Company may be compelled
to register such shares and other investors' shares that are entitled to
piggyback registration rights as described in this Prospectus. See "Risk
Factors--Shares Eligible for Future Sale; Potential Adverse Effect on Stock
Price; Registration Rights." The Vento Investors also have certain piggyback
registration rights. The registration rights granted to the Vento Investors are
subject to customary cut-back provisions. In addition, at such time as (i) the
Company is qualified to use Form S-3 and (ii) at least one year has passed since
an initial public offering of the Class A Common Stock, the Vento Investors
having at least 10 of the shares purchased from VCNY have the unlimited right to
request the Company register such shares on Form S-3 (or a successor form),
provided that each such registration has an anticipated offering price of at
least $250,000. The remaining 1,104,030 shares of Class A Common Stock owned by
VCNY that were sold on January 13, 1997 were sold to Mr. Sahagen, who was
granted piggyback registration rights pursuant to a February 11, 1997 letter
agreement with the

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Company, as discussed above. The 152,100 shares of Class A Common Stock owned by
VCNY not sold to the Vento Investors or to Mr. Sahagen were transferred to
another entity. The Company believes that the entity assumed the registration
rights connected with such shares as described above pursuant to the April 15,
1996 stock purchase agreement between VCNY and the Company.

Pursuant to a registration rights agreement dated December 13, 1996, as
amended on April 30, 1997, at any time the Company proposes to register its
shares (other than pursuant to a Form S-4, Form S-8, or in connection with an
initial public offering of shares without inclusion of shares held by other
stockholders of the Company), a certain investor (the"Investor") has the right
to have its shares included in such registration. If the managing underwriter
advises the Company that the number of shares requested to be included in the
registration exceeds the number of shares which can be sold in such offering,
the Company will be obligated to include in such registration (i) first, any and
all shares of Class A Common Stock for sale by the Company and (ii) second, such
shares requested to be included by the Investor in such registration pro rata
among the other shares requested to be included in such registration. For the
purpose of any holdback, lock-up or other similar restriction on the sale of
Class A Common Stock before or after any underwritten registration, the Investor
will be subject to no restriction greater than the least restrictive holdback,
lock-up or other restriction then applicable to any other shareholder of the
Company.

Pursuant to employment agreements and stock option agreements with the
Company, certain officers of the Company have rights with respect to the
registration of the shares underlying their stock options. Stephen A. Garofalo
was granted options to purchase 380,250 shares of Class A Common Stock, and
Howard Finkelstein was granted options to purchase 1,521,000 shares of Class A
Common Stock. John Mahon and Jim Urbelis were both granted options to purchase
136,890 shares of Class A Common Stock, and Vincent Galluccio has been granted
options to purchase 197,730 shares of Class A Common Stock. Upon the
consummation of an initial public offering, the Company is required to register
the shares underlying the stock options of Mr. Garofalo and Mr. Finkelstein on
Form S-8. At any time the Company proposes to file a registration statement on
Form S-8, and if permissible under such form, the Company is required to include
on such statement the shares underlying the stock options of Messrs. Mahon,
Urbelis and Galluccio.

Under the Metromedia Agreement, as amended, Metromedia, Stuart Subotnick,
Arnold Wadler and Silvia Kessel (the "Buyers") and Stephen A. Garofalo, were
granted certain demand and piggyback registration rights. Under his employment
agreement, Mr. Finkelstein was granted certain demand and piggyback registration
rights. At any time, Mr. Garofalo, Mr. Finkelstein or the holders of a majority
of the Class A Common Stock owned by the Buyers or issuable upon conversion of
the Class B Common Stock ("Majority Holders") may demand that the Company
register their shares of Class A Common Stock (assuming holders of Class B
Common Stock have converted their shares of Class B Common Stock into shares of
Class A Common Stock), and upon such demand, the Company is required to use its
best efforts to effect such registration. With certain exceptions, unless Mr.
Garofalo, Mr. Finkelstein or the Majority Holders consent to such inclusion, no
such registration may include any other securities. For each of Mr. Garofalo,
Mr. Finkelstein and the Majority Holders, the Company is not required to effect
(i) more than three such registrations in the aggregate; (ii) more than two such
registrations within any six month period; (iii) any such registration within
six months after the effectiveness of a registration by the Company offering its
Class A Common Stock (other than a registration on Form S-8 with respect to an
employee benefit plan), unless the Company has completed the sale of at least
80% of the offering pursuant to such registration; or (iv) any such registration
valued at less than $5,000,000 based upon the then current market price or fair
market value as estimated by the Company's underwriters.

Each time the Company proposes to file a registration statement to register
its securities (except for registration on Form S-4 or Form S-8), the Company
will use its best efforts to effect the registration of shares requested to be
registered by Mr. Garofalo, Mr. Finkelstein or the Buyers. In the case of any
such piggyback registration in connection with a demand registration initiated
by Metromedia, Mr. Subotnick,

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Ms. Kessel, or Mr. Wadler, the amount of shares to be included in such piggyback
registration may not, without the prior written consent of the person initiating
the demand registration, exceed 10% of Mr. Garofalo's or Mr. Finkelstein's total
equity interest in the Company. In the case of a piggyback registration in
connection with a demand registration initiated by Mr. Garofalo or Mr.
Finkelstein, the amount of shares to be included in such piggyback registration
may not, without the prior written consent of the person initiating the demand
registration, exceed 10% of the Buyers' total equity interest in the Company. In
the case of any such piggyback registration in connection with an underwritten
primary registration on behalf of the Company, if the Company's underwriters
advise the Company in writing that the number of shares to be included in such
registration exceeds the number of shares which, in the estimation of such
underwriters, can be reasonably expected to be sold in such offering, then the
Company shall include in such registration (i) first, the Class A Common Stock
for sale by the Company and (ii) second, if additional shares of Class A Common
Stock can be included in such registration in the estimation of the Company's
underwriters, the shares requested by Mr. Garofalo, Mr. Finkelstein or the
Buyers, on a pro rata basis with each other eligible person.

In addition, certain holders of warrants to acquire approximately 160,000
shares of Class A Common Stock have asserted that they are entitled to certain
unspecified registration rights arising out of their acquisition of such
warrants. The Company is currently investigating these claims and, if it is
determined that these warrant holders were granted registration rights, the
Company may be required to provide registration rights to such holders entitling
them to demand or piggyback registration rights of their shares of Class A
Common Stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Class A Common Stock is ChaseMellon
Shareholder Services, L.L.C.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offerings, there has been no market for the shares of the Class
A Common Stock. Sales of a substantial amount of Class A Common Stock in the
public market, or the perception that such sales may occur, could adversely
affect the market price of the Class A Common Stock prevailing from time to time
in the public market and could impair the Company's ability to raise additional
capital through the sale of its equity securities in the future.

In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted securities from the
Company or any "affiliate" of the Company, as that term is defined under the
Securities Act, the holder is entitled to sell within any three-month period a
number of shares of Class A Common Stock that does not exceed the greater of 1%
of the then-outstanding shares of the Class A Common Stock or the average weekly
trading volume of shares of Class A Common Stock on all exchanges and reported
through the automated quotation system of a registered security association
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Commission. Sales under Rule 144 are also subject to certain
restrictions on the manner of sales, notices, requirements and the availability
of current public information about the Company. If two years have elapsed since
the date of acquisition of restricted shares from the Company or from any
"affiliate" of the Company, and the holder thereof is deemed not to have been an
affiliate of the Company at any time during the 90 days preceding a sale, such
person would be entitled to sell such Class A Common Stock in the public market
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.

Upon completion of the Offerings, the Company will have approximately
17,524,267 shares of Class A Common Stock outstanding (18,712,267 if the
Underwriters' overallotment option is exercised in full), including 7,920,000
shares of Class A Common Stock sold in the Offerings (9,108,000 if the

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Underwriters' overallotment option is exercised in full) and 9,604,267
"restricted" shares of Common Stock. Of the restricted shares held by persons
other than "affiliates" of the Company within the meaning of Rule 144, 1,781,444
shares of Class A Common Stock are currently eligible for sale under Rule 144,
as currently in effect, and an additional 1,029,381 shares of Class A Common
Stock may become eligible for sale under Rule 144, as currently in effect,
through March 31, 1998. Upon completion of the Offerings, the Company will have
4,221,159 shares of Class B Common Stock outstanding, which shares are
convertible into shares of Class A Common Stock on a one-for-one basis. All of
the shares of Class B Common Stock are currently owned by persons who are
Affiliates of the Company and, in addition, are subject to lock-up agreements
with the Underwriters. Shares of Class A Common Stock converted from shares of
Class B Common Stock will be eligible for sale under Rule 144 beginning on April
30, 1998 (subject to certain volume limitations and other restrictions
prescribed by Rule 144).

The shares of Class A Common Stock offered in the Offerings will be freely
tradeable without restriction or further registration under the Securities Act
by persons other than "affiliates" of the Company within the meaning of Rule
144. The holders of restricted shares generally will be entitled to sell these
shares in the public securities market without registration under the Securities
Act to the extent permitted by Rule 144 or any exemption under the Securities
Act.

The Company and each of its executive officers and directors and certain
other stockholders have entered into lock-up agreements with the Underwriters,
providing that, subject to certain exceptions, they will not, for a period of
180 days from the date of this Prospectus, offer, sell or contract to sell or
otherwise dispose, directly or indirectly, or announce an offering of, any
shares of Class A Common Stock or any securities convertible into, or
exchangeable for, shares of Class A Common Stock without prior written consent
of Salomon Brothers Inc, subject to certain exceptions. See "Underwriting."

Promptly after completion of the Offerings, the Company intends to file with
the Commission a Registration Statement on Form S-8, covering the shares of
Common Stock issuable upon exercise of certain officer's options and the shares
of Class A Common Stock underlying options granted under the 1997 Incentive
Stock Plan. This registration statement will become effective immediately upon
filing with the Commission. As a result, the shares of Class A Common Stock so
registered and acquired pursuant to the 1997 Incentive Stock Plan will be
available for sale by non-affiliates in the public securities market without
limitation and by affiliates, subject to the volume limitations of Rule 144.

Certain persons have registration rights agreements with the Company and/or
warrant agreements with the Company to purchase shares of Class A Common Stock.
Such registration rights may require the Company to register under the
Securities Act shares of Class A Common Stock as early as 90 days after
consummation of the Offerings and may require the Company to register up to
1,703,520 shares of Class A Common Stock and up to 322,452 shares of Class A
Common Stock underlying currently outstanding warrants. One party (the Vento
Investors) that is entitled to demand registration rights for 264,870 shares of
Class A Common Stock has indicated to the Company that it intends to immediately
exercise such rights upon consummation of the Offerings. As a result, the number
of shares eligible for future sale and the availability of such shares in the
public securities market may be effected by the exercise of these registration
rights and warrants and by additional shares of Class A Common Stock that are
entitled to "piggyback" registration rights and may be included in any such
registration. See "Risk Factors--Shares Eligible for Future Sale; Potential
Adverse Effect on Stock Price; Registration Rights," and "Description of Capital
Stock--Registration Rights" and "Description of Capital Stock-- Warrants".

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UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
among the Company and the U.S. Underwriters (the "U.S. Underwriting Agreement"),
the Company has agreed to sell to each of the U.S. Underwriters named below (the
"U.S. Underwriters"), and each of the U.S. Underwriters, for whom Salomon
Brothers Inc, Donaldson, Lufkin & Jenrette Securities Corporation and Deutsche
Morgan Grenfell Inc. are acting as the U.S. representatives (the "U.S.
Representatives"), has severally agreed to purchase from the Company the number
of shares of Class A Common Stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
- ------------------------------------------------------------------------------ -------------
<S> <C>
Salomon Brothers Inc.......................................................... 1,494,000
Donaldson, Lufkin & Jenrette Securities Corporation........................... 1,493,000
Deutsche Morgan Grenfell Inc.................................................. 1,493,000
Bear, Stearns & Co. Inc....................................................... 180,000
Credit Lyonnais Securities (USA) Inc.......................................... 180,000
Furman Selz LLC............................................................... 180,000
Lazard Freres & Co. LLC....................................................... 180,000
Lehman Brothers Inc........................................................... 180,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated............................ 180,000
Morgan Stanley & Co. Incorporated............................................. 180,000
Smith Barney Inc.............................................................. 180,000
Everen Securities, Inc........................................................ 150,000
Soundview Financial Group, Inc................................................ 150,000
Tucker Anthony Incorporated................................................... 150,000
George K. Baum & Company...................................................... 120,000
Gruntal & Co., L.L.C.......................................................... 120,000
Janney Montgomery Scott Inc................................................... 120,000
-------------
Total....................................................................... 6,730,000
-------------
-------------
</TABLE>

The Company has been advised by the U.S. Representatives that the several
U.S. Underwriters initially propose to offer such shares of Class A Common Stock
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $.67 per share of Class A Common Stock. The U.S. Underwriters may allow, and
such dealers may re-allow, a concession not in excess of $.10 per share of Class
A Common Stock to other dealers. After the Offerings, the public offering price
and such concessions may be changed.

The Company has granted to the U.S. Underwriters an option, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to
1,188,000 additional shares of Class A Common Stock from the Company at the
price to public less the underwriting discount, solely to cover over-allotments.
To the extent that the U.S. Underwriters exercise such option, each of the U.S.
Underwriters, as the case may be, will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such U.S.
Underwriter's initial commitment.

The Company has entered into an International Underwriting Agreement with
the international underwriters named therein (the "International Underwriters"
and, collectively with the U.S. Underwriters, the "Underwriters"), for whom
Salomon Brothers International Limited, Donaldson, Lufkin & Jenrette Securities
Corporation and Morgan Grenfell & Co. Limited are acting as the representatives
(the "International Representatives" and, together with the U.S.
Representatives, the "Representatives"), providing for the concurrent offer and
sale of 1,190,000 shares of Class A Common Stock outside the United States and
Canada. Both the U.S. Underwriting Agreement and the International Underwriting

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Agreement provide that the obligations of the U.S. Underwriters and the
International Underwriters are such that if any of the shares of Class A Common
Stock are purchased by the U.S. Underwriters pursuant to the U.S. Underwriting
Agreement, or by the International Underwriters pursuant to the International
Underwriting Agreement, all the shares of Class A Common Stock agreed to be
purchased by either the U.S. Underwriters or the International Underwriters, as
the case may be, pursuant to their respective agreements must be so purchased.
The price to public and underwriting discount per share of Class A Common Stock
for the U.S. Offering and the International Offering will be identical. The
closing of the International Offering is a condition to the closing of the U.S.
Offering and the closing of the U.S. Offering is a condition to the closing of
the International Offering.

Each U.S. Underwriter has severally agreed that, as part of the distribution
of the 6,730,000 shares of Class A Common Stock offered by the U.S.
Underwriters, (i) it is not purchasing any shares of Class A Common Stock for
the account of anyone other than a United States or Canadian Person and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
shares of Class A Common Stock or distribute this Prospectus to any person
outside of the United States or Canada or to anyone other than a United States
or Canadian Person. Each International Underwriter has severally agreed that, as
part of the distribution of the 1,190,000 shares of Class A Common Stock offered
by the International Underwriters, (i) it is not purchasing any shares of Class
A Common Stock for the account of any United States or Canadian Person and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any shares of Class A Common Stock or distribute any Prospectus relating to the
International Offering to any person in the United States or Canada or to any
United States or Canadian Person.

The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and International Underwriters. "United States or Canadian Person" means any
person who is a national or resident of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or of any political subdivision thereof, and
any estate or trust the income of which is subject to United States or Canadian
federal income taxation, regardless of the source of its income (other than the
foreign branch of any United States or Canadian Person), and includes any United
States or Canadian branch of a person other than a United States or Canadian
Person.

Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of shares of Class A Common Stock as
may be mutually agreed. The price of any shares of Class A Common Stock so sold
shall be the public offering price, less an amount not greater than the
concession to securities dealers. To the extent that there are sales between the
U.S. Underwriters and the International Underwriters pursuant to the Agreement
Between U.S. Underwriters and International Underwriters, the number of shares
of Class A Common Stock initially available for sale by the U.S. Underwriters or
by the International Underwriters may be more or less than the amount specified
on the cover page of this Prospectus.

Any offer of the shares of Class A Common Stock in Canada will be made only
pursuant to an exemption from the registration and qualification requirements in
any jurisdiction in Canada in which such offer is made.

The U.S. Underwriting Agreement and the International Underwriting Agreement
provide that the Company will indemnify the U.S. Underwriters and the
International Underwriters against certain liabilities and expenses, including
liabilities under the Securities Act, or contribute to payments the U.S.
Underwriters and the International Underwriters may be required to make in
respect thereof.

The Company, and each of its directors and officers and certain other
stockholders have agreed not to offer, sell, contract to sell or otherwise
dispose of, directly or indirectly, or announce the offering of any shares of
Class A Common Stock, including any such shares beneficially or indirectly owned
or controlled by the Company, or any securities convertible into, or
exchangeable or exercisable for, shares of Class A Common Stock, for 180 days
from the date of this Prospectus, without the prior written

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consent of Salomon Brothers Inc, except for (i) shares issued in connection with
any employee benefit or incentive plans of the Company existing on the date of
this Prospectus, (ii) shares issued in respect of obligations existing before
the date of this Prospectus and (iii) shares in connection with the Offerings.

At the Company's request, the Underwriters have reserved up to 330,000
shares of Class A Common Stock (the "Directed Shares") for sale at the public
offering price to persons who are directors, officers or employees of, or
otherwise associated with, the Company and its affiliates and who have advised
the Company of their desire to purchase such shares of Class A Common Stock. The
number of shares of Class A Common Stock available for sale to the general
public will be reduced to the extent of sales of Directed Shares to any of the
persons for whom they have been reserved. Any shares of Class A Common Stock not
so purchased will be offered by the Underwriters on the same basis as all other
shares of Class A Common Stock offered hereby.

Certain persons engaged in the distribution of the shares of Class A Common
Stock may engage in stabilizing transactions, syndicate covering transactions
and penalty bids in accordance with Rule 104 under the Exchange Act. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of shares of Class A Common Stock in the open
market after the distributions has been completed in order to cover syndicate
short positions. Penalty bids permit an underwriter to reclaim a selling
concession from a syndicate member when the shares of Class A Common Stock
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Underwriters and prospective
underwriters intend to engage in passive market making in accordance with Rule
103 under the Exchange Act, which, in general, permits entities which are Nasdaq
market makers to continue to maintain bids for the shares of Class A Common
Stock so long as certain price and daily quantity limits are observed. Such
stabilizing transactions, syndicate covering transactions, penalty bids and
passive market making may cause the price of the Class A Common Stock to be
higher than it would otherwise be in the absence of such transactions.

Prior to the Offerings, there has been no public market for the Class A
Common Stock. The initial public offering price was determined by negotiations
between the Company and the Representatives. Among the factors considered in
determining the initial public offering price were the information set forth in
this Prospectus and otherwise available to the Representatives, the history of
and future prospects for the industry in which the Company competes, the ability
of the Company's management, the general conditions of the securities market at
the time of the Offerings and the market prices of securities and certain
financial and operating information of companies engaged in activities similar
to those of the Company. There can be no assurance that the price at which the
shares of Class A Common Stock will sell in the public market after the
Offerings will not be lower than the price at which they are sold in the
Offerings by the Underwriters.

The U.S. Underwriters and the International Underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.

The Class A Common Stock has been approved for quotation and trading on the
Nasdaq National Market under the symbol "MFNX".

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CERTAIN FEDERAL TAX CONSEQUENCES

The following is a general discussion of certain U.S. Federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
"Non-United States Holder" and of the issuance of the Class A Common Stock by
the Company. A "Non-United States Holder" is a person or entity that, for U.S.
Federal income tax purposes, is (i) a non-resident alien individual, (ii) a
foreign corporation or partnership, (iii) an estate, other than an estate the
income of which is includible in gross income for United States Federal income
tax purposes regardless of its source, or (iv) a trust that is not subject
either to the primary supervision of a court within the United States or the
control of a United States fiduciary.

This discussion is based on the Code and administrative interpretations as
of the date hereof, all of which may be changed either retroactively or
prospectively. This discussion does not address all aspects of U.S. Federal
income and estate taxation that may be relevant to Non-United States Holders in
light of their particular circumstances and does not address any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.

Prospective holders should consult their tax advisors with respect to the
United States Federal, state, local and non-United States income and other tax
consequences to them of holding and disposing of Class A Common Stock.

CONSEQUENCES TO NON-UNITED STATES HOLDERS OF COMMON STOCK

DIVIDENDS

Subject to the discussion below, dividends paid to a Non-United States
Holder of Class A Common Stock generally will be subject to withholding tax at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty unless the dividend is effectively connected with the conduct of a trade
or business within the United States, or, if an income tax treaty applies, is
attributable to a United States permanent establishment of the Non-United States
Holder and, in either case, the Non-United States Holder provides the payor with
proper documentation (Form 4224), in which event the dividend will be taxable
under the rules discussed below. In order to claim the benefit of an applicable
tax treaty rate, a Non-United States Holder may have to file with the Company or
its dividend paying agent an exemption or reduced treaty rate certificate or
letter in accordance with the terms of such treaty.

Under current United States Treasury regulations, for purposes of
determining whether tax is to be withheld at a 30% rate or at a reduced rate as
specified by an income tax treaty, the Company ordinarily will presume that
dividends paid to a stockholder at an address in a foreign country are paid to a
resident of such country absent knowledge that such presumption is not
warranted. However, under proposed United States Treasury regulations which have
not yet been put into effect, additional certification requirements would apply
after December 1, 1997. See "--Information Reporting Requirements and Backup
Withholding Tax."

In the case of dividends that are effectively connected with the Non-United
States Holder's conduct of a trade or business within the United States or, if
an income tax treaty applies, are attributable to a United States permanent
establishment of the Non-United States Holder, the Non-United States Holder will
generally be subject to regular U.S. income tax in the same manner as if the
Non-United States Holder were a United States resident. A Non-United States
corporation receiving effectively connected dividends also may be subject to an
additional "branch profits tax" which is imposed, under certain circumstances,
at a rate of 30% (or such lower rate as may be specified by an applicable
treaty) of the Non-United States corporation's "effectively connected earnings
and profits," subject to certain adjustments.

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GAIN ON DISPOSITION OF CLASS A COMMON STOCK

A Non-United States Holder generally will not be subject to U.S. Federal
income tax with respect to gain realized on a sale or other disposition of Class
A Common Stock unless (i) the gain is effectively connected with a trade or
business of such Non-United States Holder in the U.S., (ii) in the case of
certain Non-United States Holders who are non-resident alien individuals and
hold the Common Stock as a capital asset, such individuals are present in the
U.S. for 183 or more days in the taxable year of the disposition and either (a)
such individuals have a "tax home" (as defined for United States Federal income
tax purposes) in the U.S., or (b) the gain is attributable to an office or other
fixed place of business maintained by such individuals in the U.S., (iii) the
Non-United States Holder is subject to tax, pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates, or (iv) the Company is or has
been a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code at any time within the shorter of the five-year
period preceding such disposition or such Non-United States holding period.

The Company believes that it is not currently, but may become, a United
States real property holding corporation. If the Company were to become a United
States real property holding corporation, any gain recognized by a Non-United
States Holder would be subject to United States Federal income tax if the Common
Stock were regularly traded on an established securities market for tax purposes
and the Non-United States Holder held, directly or indirectly, at any time
within the five-year period preceding such disposition more than 5% of the
outstanding Class A Common Stock.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

Under United States Treasury regulations, the Company must report annually
to the Internal Revenue Service and to each Non-United States Holder the amount
of dividends paid to such holder and any tax withheld with respect to such
dividends. These information reporting requirements apply regardless of whether
withholding is required. Copies of the information returns reporting such
dividends and withholding may also be made available to the tax authorities in
the country in which the Non-United States Holder is a resident under the
provisions of an applicable income tax treaty or agreement.

United States backup withholding (which generally is withholding tax imposed
at the rate of 31% on certain payments to persons that fail to furnish certain
information under the United States information reporting requirements)
generally will not apply to (i) dividends paid to Non-United States Holders that
are subject to the 30% withholding discussed above (or that are not so subject
because a tax treaty applies that reduces or eliminates such 30% withholding) or
(ii) under current law, dividends paid to a Non-United States Holder at an
address outside of the United States. However, under proposed United States
Treasury regulations, in the case of dividends paid after December 31, 1997
(December 31, 1999 in the case of dividends paid to accounts in existence on or
before the date that is 60 days after the proposed United States Treasury
regulations are published as final regulations), a Non-United States Holder
generally would be subject to backup withholding at a rate of 31% unless certain
procedures or documentary evidence procedures, as applicable, are complied with,
directly or through an intermediary.

Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of Common Stock
to beneficial owners that are not "exempt recipients" and that fail to provide
in the manner required certain identifying information.

The payment of the proceeds of the disposition of Class A Common Stock to or
through the U.S. office of a broker is subject to information reporting unless
the disposing holder, under penalty of perjury, certifies its Non-United States
status or otherwise establishes an exemption. Generally, U.S. information
reporting and backup withholding will not apply to a payment of disposition
proceeds if the payment is made outside the U.S. through a Non-United States
office of a Non-United States broker. However, information reporting
requirements (but not backup withholding) will apply to a payment of disposition

78
<PAGE>
proceeds outside the U.S. if (a) the payment is made through an office outside
the U.S. of a broker that is either (i) a U.S. person, (ii) a foreign person
which derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the U.S., or (iii) a "controlled foreign
corporation" for U.S. Federal Income tax purposes and (b) the broker fails to
maintain documentary evidence that the holder is a Non-United States Holder and
that certain conditions are met, or that the holder otherwise is entitled to an
exemption.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.

FEDERAL ESTATE TAXES

An individual Non-United States Holder who is treated as the owner of or has
made certain lifetime transfers of an interest in the Class A Common Stock will
be required to include the value thereof in his gross estate for U.S. Federal
estate tax purposes, and may be subject to U.S. Federal estate tax unless an
applicable estate tax treaty provides otherwise.

CONSEQUENCES TO THE COMPANY

LIMITATION ON USE OF NET OPERATING LOSSES

Under Section 382 of the Code, if the percentage of stock (by value) of a
corporation (the "Loss Corporation") that is owned by one or more "five-percent
shareholders" has increased by more than 50 percentage points over the lowest
percentage of stock owned by the same shareholders during a three year testing
period (an "ownership change"), the use of pre-ownership change net operating
losses of the Loss Corporation following such Ownership Change will be limited
based on the value of the Loss Corporation on the date the Ownership Change
occurs (a "Section 382 Limitation"). As of the end of its most recent taxable
year, the Company had net operating losses that are currently subject to Section
382 Limitations. Although the Company believes that the issuance of the Common
Stock should not result in an Ownership Change, future equity issuances or
transactions among shareholders may trigger an Ownership Change. If such an
Ownership Change occurs, the Company's use of its net operating losses will be
subject to a Section 382 Limitation based on the value of the Company on the
date of such an Ownership Change.

The financial statements of the Company do not reflect a provision for
Federal income taxes for the year ended December 31, 1996. A full valuation
allowance has been recorded in the financial statements against the net deferred
tax asset as its realization is uncertain.

THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS TAX ADVISOR WITH
RESPECT TO THE UNITED STATES FEDERAL INCOME TAX AND FEDERAL ESTATE TAX
CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF CLASS A COMMON STOCK, INCLUDING
THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN, OR OTHER
TAXING JURISDICTION.

LEGAL MATTERS

The validity of the Class A Common Stock and certain other legal matters in
connection with the Class A Common Stock offered hereby will be passed upon for
the Company by Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the
Americas, New York, NY 10019-6064. Certain legal matters in connection with the
Offerings will be passed upon for the Underwriters by Cravath, Swaine & Moore,
Worldwide Plaza, 825 Eighth Avenue, New York, New York.

79
<PAGE>
EXPERTS

The consolidated financial statements of Metromedia Fiber Network, Inc.
(formerly National Fiber Network, Inc.) at December 31, 1996 and for the year
then ended, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing. The consolidated balance sheet of the Company as of December 31, 1995
and the related consolidated statements of operations, stockholders' deficiency
and cash flows for the twelve months then ended have been audited by M.R. Weiser
& Co. LLP, Certified Public Accountants, as stated on their report, which is
included herein upon the authority of such firm as experts in accounting and
auditing. Their report contains an explanatory paragraph regarding an
uncertainty as to the Company's ability to continue as a going concern. The
statements of operations, changes in stockholders' (deficiency) equity and cash
flows for the year ended December 31, 1994 were audited by Richard A. Eisner &
Company, LLP, independent auditors, as stated in their report dated June 5,
1995, which is included herein and in the Registration Statement, in reliance
upon such report given upon the authority of said firm as experts in accounting
and auditing.

ADDITIONAL INFORMATION

The Company is not currently subject to the information requirements of the
Exchange Act. As a result of the Offerings, the Company will be required to file
reports and other information with the Commission pursuant to the informational
requirements of the Exchange Act. The Company intends to furnish its
stockholders with annual reports containing consolidated financial statements
audited by independent certified public accountants and such other unaudited
quarterly or other interim reports as it deems appropriate.

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the securities offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus, which
is a part of the Registration Statement, omits certain information, exhibits,
schedules and undertakings set forth in the Registration Statement. For further
information pertaining to the Company and the securities offered hereby,
reference is made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents or
provisions of any documents referred to herein are not necessarily complete, and
in each instance, reference is made to the copy of the document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.

The Registration Statement may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the
Registration Statement may be obtained from the Commission at prescribed rates
from the Public Reference Section of the Commission at such address and at the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048, and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are publicly
available through the Commission's site on the Internet's World Wide Web,
located at http://www.sec.gov.

80
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Reports of Independent Auditors....................................................... F-2

Consolidated Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997 (Unaudited)....................................................... F-5

Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and the six months ended
June 30, 1996 and 1997 (Unaudited).................................................. F-6

Consolidated Statements of Changes in Stockholders' (Deficiency) Equity for the
years ended December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1997 (Unaudited)..................................................... F-7

Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (Unaudited)............................................ F-8

Notes to Consolidated Financial Statements............................................ F-9
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
Metromedia Fiber Network, Inc.

We have audited the accompanying consolidated balance sheet of Metromedia
Fiber Network, Inc. (formerly National Fiber Network, Inc.) and Subsidiary (the
"Company") as of December 31, 1996, and the related consolidated statements of
operations, stockholders' deficiency and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Metromedia Fiber Network, Inc. (formerly National Fiber Network, Inc.) and
Subsidiary as of December 31, 1996, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Ernst & Young LLP
New York, New York
April 30, 1997

F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
Metromedia Fiber Network, Inc.

We have audited the accompanying consolidated balance sheet of Metromedia
Fiber Network, Inc. (formerly National Fiber Network, Inc.) (a Delaware
corporation) and Subsidiary (the "Company") as of December 31, 1995, and the
related consolidated statements of operations, stockholders' deficiency and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Metromedia Fiber Network, Inc. (formerly National Fiber Network, Inc.) and
Subsidiary as of December 31, 1995, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company's significant recurring
losses, operating history and significant working capital deficiency, including
significant amounts of past due payables, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 1. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might result from the outcome of this uncertainty.

M.R. Weiser & Co. LLP

New York, New York
June 26, 1996

F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
Metromedia Fiber Network, Inc. (formerly National Fiber Network, Inc.)

We have audited the accompanying statements of operations, changes in
stockholders' (deficiency) equity and cash flows of Metromedia Fiber Network,
Inc. (formerly National Fiber Network, Inc.) for the year ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements enumerated above present fairly, in
all material respects, the results of operations of Metromedia Fiber Network,
Inc. (formerly National Fiber Network, Inc.) and its cash flows for the year
ended December 31, 1994 in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company had incurred net losses and significant
construction costs and will require additional financing. These issues raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note 1.

Richard A. Eisner & Company, LLP

New York, New York
June 5, 1995

F-4
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
<S> <C> <C> <C>
1995 1996 1997
------------- -------------- --------------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................ $ 5,913 $ 464,324 $ 22,893,466
Accounts receivable............................................. 182,718 180,790 354,792
Prepaid expenses................................................ 65,425 -- 261,048
------------- -------------- --------------
Total current assets.............................................. 254,056 645,114 23,509,306

Fiber optic transmission network and related equipment, net....... 5,884,679 6,368,653 6,708,854
Property and equipment, net....................................... 467,631 525,268 645,914
Franchise costs, net.............................................. 324,937 299,941 287,442
Deferred charges and other assets................................. 145,717 138,530 499,595
------------- -------------- --------------
$ 7,077,020 $ 7,977,506 $ 31,651,111
------------- -------------- --------------
------------- -------------- --------------

LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:
Notes payable................................................... $ 3,850,036 $ 5,950,000 $ 500,000
Current portion of settlement agreement......................... 549,282 115,000 90,000
Accounts payable................................................ 3,364,728 5,256,929 1,151,231
Accrued expenses................................................ 1,058,705 683,227 727,794
Due to related parties.......................................... 1,589,866 119,299 --
Notes payable--private placements............................... 1,383,000 1,408,000 12,500
------------- -------------- --------------
Total current liabilities......................................... 11,795,617 13,532,455 2,481,525

Settlement agreement, net of current portion...................... 326,864 180,000 135,000
Deferred revenue.................................................. 275,034 1,107,724 9,976,492
Other............................................................. 15,243 15,243 15,243

Commitments and contingencies

Shareholders' (deficiency) equity:
Preferred stock, $.10 par value, authorized 2,000,000 shares,
150,000 shares issued and outstanding......................... -- 15,000 --
Series B convertible preferred stock $.01 par value 8,403 shares
authorized, issued and outstanding............................ -- -- 84
Common stock, $.01 par value; authorized 60,000,000 shares,
6,239,994, 10,001,310 and 9,564,940 shares issued and
outstanding, respectively..................................... 62,400 100,013 95,649
Additional paid-in capital...................................... (17,400) 8,766,506 52,904,837
Accumulated deficit............................................. (5,380,738) (15,739,435) (33,957,719)
------------- -------------- --------------
(5,335,738) (6,857,916) 19,042,851
------------- -------------- --------------
$ 7,077,020 $ 7,977,506 $ 31,651,111
------------- -------------- --------------
------------- -------------- --------------
</TABLE>

See accompanying notes.

F-5
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

Expenses:
Cost of sales............... -- -- 698,793 265,029 1,081,677
Selling, general and
administrative............ 874,000 3,886,568 2,070,345 1,276,853 2,186,291
Consulting and employment
incentives................ -- -- 3,652,101 3,651,442 13,419,900
Depreciation and
amortization.............. -- 161,576 612,530 292,319 372,935
-------------- -------------- --------------- -------------- ---------------
Loss from operations.......... (874,000) (3,991,995) (6,797,687) (5,403,608) (16,518,917)
Interest income -- -- -- -- 204,175
Interest expense (including
financing costs)............ -- (327,106) (3,561,010) (1,807,956) (679,427)
-------------- -------------- --------------- -------------- ---------------
Net loss...................... $ (874,000) $ (4,319,101) $ (10,358,697) $ (7,211,564) $ (16,994,169)
-------------- -------------- --------------- -------------- ---------------
-------------- -------------- --------------- -------------- ---------------
Net loss per share............ $ (0.10) $ (0.47) $ (0.87) $ (0.65) $ (1.35)
-------------- -------------- --------------- -------------- ---------------
-------------- -------------- --------------- -------------- ---------------
Weighted average number of
shares outstanding.......... 8,757,341 9,130,603 11,887,931 11,030,121 12,635,426
-------------- -------------- --------------- -------------- ---------------
-------------- -------------- --------------- -------------- ---------------
</TABLE>

See accompanying notes.

F-6
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIENCY) EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
--------------------- -------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- --------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993................... 1,521,000 $ 15,210 $ (5,210) $ (187,637)
Sale of common stock......................... 4,563,000 45,630 (15,630) --
Net loss for the year........................ -- -- -- (874,000)
---------- --------- --------- --------- ----------- -------------
Balance at December 31, 1994................... 6,084,000 60,840 (20,840) (1,061,637)
Issuance of common stock as an inducement for
entering into a loan agreement............. 155,994 1,560 3,440 --
Net loss for the year........................ -- -- -- (4,319,101)
---------- --------- --------- --------- ----------- -------------
Balance at December 31, 1995................... 6,239,994 62,400 (17,400) (5,380,738)
Issuance of common stock in 1996 for legal
services rendered.......................... 491,105 4,911 902,390 --
Issuance of common stock and warrants in
conjunction with sale of Senior
Subordinated Notes in 1996................. 381,087 3,811 685,202 --
Issuance of shares to holder of Senior
Subordinated Notes in exchange for
warrants................................... 228,150 2,282 (2,282) --
Issuance of common stock in April 1996 to
extend maturity of private placement
subordinated notes......................... 59,359 594 106,728 --
Issuance of common stock in exchange for
management services........................ 1,521,000 15,210 2,744,790 --
Issuance of additional common stock to the
holder of the Senior subordinated notes in
connection with antidilution provisions.... 38,025 380 (380) --
Issuance of common stock in April 1996 and
July 1996 in connection with the exercise
of Warrants................................ 190,543 1,905 (1,905) --
Issuance of common stock to related
electrical contractor in May 1996 as
payment for services....................... 456,300 4,563 688,324 --
Issuance of common stock to majority
shareholder in May 1996 in exchange for
debt....................................... 152,100 1,521 598,479 --
Sale of common stock and warrants in June
1996....................................... 38,025 380 99,620 --
Issuance of common stock in July 1996 in
exchange for services rendered............. 12,168 122 21,078 --
Issuance of common stock for services
rendered................................... 182,520 1,825 332,975 --
Sale of common stock in September 1996....... 10,934 109 23,391 --
Issuance of warrants for legal services
rendered (to purchase 152,100 shares at
$.06 per share)............................ -- -- 200,000 --
Issuance of warrants in connection with debt
issuance (to purchase 94,302 shares at
$5.92 per share)........................... -- -- 13,640 --
Issuance of warrants in connection with debt
issuance (to purchase 190,543 shares at
$.006 per share)........................... -- -- 250,550 --
Issuance of warrants in connection with debt
issuance (to purchase 107,078 shares)...... 111,306
Sale of preferred stock with warrants in
December 1996.............................. 150,000 $ 15,000 2,010,000
Net loss for the year........................ -- -- -- (10,358,697)
---------- --------- --------- --------- ----------- -------------
Balance at December 31, 1996................... 10,001,310 100,013 150,000 15,000 8,766,506 (15,739,435)
Issuance of common stock in connection with the
exercise of warrants (unaudited)............. 152,100 1,521 8,479
Issuance of options to employees (to purchase
2,372,760 shares) (unaudited)................ 13,419,900
Issuance of warrants in connection with debt
extension (to purchase 57,682 shares)
(unaudited).................................. 220,036
Dividends (unaudited).......................... (76,562)
Repurchase and retirement of Series A preferred
stock and warrants (unaudited)............... (150,000) (15,000) (2,010,000) (13,438)
Repurchase and retirement of common stock and
warrants (unaudited)......................... (588,470) (5,885) (1,134,115)
Sale of Series B preferred stock (unaudited)... 8,403 84 32,499,916
Net loss for the period (unaudited)............ (16,994,169)
---------- --------- --------- --------- ----------- -------------
Balance at June 30, 1997 (unaudited)........... 9,564,940 $ 95,649 8,403 $ 84 $52,904,837 $(33,957,719)
---------- --------- --------- --------- ----------- -------------
---------- --------- --------- --------- ----------- -------------

TOTAL
------------
<S> <C>
Balance at December 31, 1993................... $ (177,637)
Sale of common stock......................... 30,000
Net loss for the year........................ (874,000)
------------
Balance at December 31, 1994................... (1,021,637)
Issuance of common stock as an inducement for
entering into a loan agreement............. 5,000
Net loss for the year........................ (4,319,101)
------------
Balance at December 31, 1995................... (5,335,738)
Issuance of common stock in 1996 for legal
services rendered.......................... 907,301
Issuance of common stock and warrants in
conjunction with sale of Senior
Subordinated Notes in 1996................. 689,013
Issuance of shares to holder of Senior
Subordinated Notes in exchange for
warrants................................... --
Issuance of common stock in April 1996 to
extend maturity of private placement
subordinated notes......................... 107,322
Issuance of common stock in exchange for
management services........................ 2,760,000
Issuance of additional common stock to the
holder of the Senior subordinated notes in
connection with antidilution provisions.... --
Issuance of common stock in April 1996 and
July 1996 in connection with the exercise
of Warrants................................ --
Issuance of common stock to related
electrical contractor in May 1996 as
payment for services....................... 692,887
Issuance of common stock to majority
shareholder in May 1996 in exchange for
debt....................................... 600,000
Sale of common stock and warrants in June
1996....................................... 100,000
Issuance of common stock in July 1996 in
exchange for services rendered............. 21,200
Issuance of common stock for services
rendered................................... 334,800
Sale of common stock in September 1996....... 23,500
Issuance of warrants for legal services
rendered (to purchase 152,100 shares at
$.06 per share)............................ 200,000
Issuance of warrants in connection with debt
issuance (to purchase 94,302 shares at
$5.92 per share)........................... 13,640
Issuance of warrants in connection with debt
issuance (to purchase 190,543 shares at
$.006 per share)........................... 250,550
Issuance of warrants in connection with debt
issuance (to purchase 107,078 shares)...... 111,306
Sale of preferred stock with warrants in
December 1996.............................. 2,025,000
Net loss for the year........................ (10,358,697)
------------
Balance at December 31, 1996................... (6,857,916)
Issuance of common stock in connection with the
exercise of warrants (unaudited)............. 10,000
Issuance of options to employees (to purchase
2,372,760 shares) (unaudited)................ 13,419,900
Issuance of warrants in connection with debt
extension (to purchase 57,682 shares)
(unaudited).................................. 220,036
Dividends (unaudited).......................... (76,562)
Repurchase and retirement of Series A preferred
stock and warrants (unaudited)............... (2,038,438)
Repurchase and retirement of common stock and
warrants (unaudited)......................... (1,140,000)
Sale of Series B preferred stock (unaudited)... 32,500,000
Net loss for the period (unaudited)............ (16,994,169)
------------
Balance at June 30, 1997 (unaudited)........... $ 19,042,851
------------
------------
</TABLE>

See accompanying notes.

F-7
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
---------- ----------- ------------ ----------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................... $ (874,000) $(4,319,101) $(10,358,697) $(7,211,564) $ (16,994,169)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization............. -- 161,576 612,530 292,319 372,935
Common stock issued for services.......... -- -- 5,395,132 5,248,986 13,639,936
Changes in operating assets and
liabilities:
Accounts receivable..................... -- (182,718) 1,928 7,817 (174,002)
Prepaid expenses........................ (73,000) (44,674) 65,425 2,336 (261,048)
Deferred charges and other assets....... -- (111,869) (52,495) 36,157 (255,170)
Accounts payable and accrued expenses... -- 2,417,155 1,516,723 (653,938) (4,174,932)
Due to related parties.................. 475,000 (377,243) (177,680) (1,370,632) (119,299)
Settlement agreement.................... -- 876,146 (581,146) (300,344) (70,000)
Advance payments received from
customers............................. -- 275,034 832,690 100,000 8,868,768
Other................................... (10,000) 14,877 -- -- --
---------- ----------- ------------ ----------- -------------
Net cash used in operating activities....... (482,000) (1,290,817) (2,745,590) (3,848,863) 833,019
---------- ----------- ------------ ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures on fiber optic
transmission network and related
equipment................................. (548,000) (3,709,928) (974,107) (86,456) (662,722)
Capital expenditures on property and
equipment................................. -- (476,378) (95,356) (49,427) (150,655)
Other....................................... (76,000) -- --
---------- ----------- ------------ ----------- -------------
Net cash used in investing activities....... (624,000) (4,186,306) (1,069,463) (135,883) (813,377)
---------- ----------- ------------ ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred stock
and warrants.............................. -- -- 2,025,000 -- 32,500,000
Proceeds from issuance of common stock...... 30,000 -- 123,500 1,409,887 10,000
Repayment of note payable................... (3,350,036) (2,850,036) (5,450,000)
Proceeds from note payable.................. -- 3,850,036 5,450,000 5,400,000
Proceeds from stockholder's note............ 1,326,000 -- -- -- --
Dividend.................................... -- -- -- -- (76,562)
Net Proceeds from notes payable--private
placements................................ -- 1,383,000 25,000 25,000 (1,395,500)
Purchase of common stock.................... -- -- -- -- (1,140,000)
Purchase of preferred stock................. -- -- -- -- (2,038,438)
---------- ----------- ------------ ----------- -------------
Net cash provided by financing activities... 1,356,000 5,233,036 4,273,464 3,984,851 22,409,500
---------- ----------- ------------ ----------- -------------
Net increase (decrease) in cash 250,000 (244,087) 458,411 105 22,429,142
Cash--beginning of period -- 250,000 5,913 5,913 464,324
---------- ----------- ------------ ----------- -------------
Cash--end of period......................... $ 250,000 $ 5,913 $ 464,324 $ 6,018 $ 22,893,466
---------- ----------- ------------ ----------- -------------
---------- ----------- ------------ ----------- -------------
</TABLE>

See accompanying notes.

F-8
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS OPERATIONS AND LINE OF BUSINESS

Metromedia Fiber Network, Inc. (formerly National Fiber Network, Inc.) and
its subsidiary, National Fiber Network of New Jersey, Inc. (the "Company"), was
a development stage company for the period from inception (April 8, 1993)
through October 1995. Effective December 20, 1993, the Company was granted a
nonexclusive right from the City of New York to provide telecommunication
services and construct a fiber optic network for the purpose of providing these
services. In October 1995, the basic backbone of the Fiber Optic Cable Network
was completed and the Company began servicing its customers.

The Company incurred significant costs in connection with the construction
of the initial backbone of the fiber optic network and expects to continue to
incur more costs when the Company extends its network construction.

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company.
All material intercompany balances and transactions have been eliminated in
consolidation.

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Since inception,
the Company has suffered significant recurring losses and, as of December 31,
1996, the Company had a working capital deficiency of approximately $12,887,000
and a stockholders' deficiency of approximately $6,858,000. Further, at December
31, 1996, substantially all of its trade payables and certain current
liabilities were past due. In addition, the Company was not in compliance with
certain debt and settlement agreements. These factors, raised substantial doubt
about the Company's ability to continue as a going concern. On April 30, 1997
the Company sold 8,403.325 shares of Series B preferred shares in exchange for
$32,500,000 in cash. A portion of the cash was used to satisfy the
aforementioned obligations. Management believes that these funds are sufficient
to meet the Company's obligations for at least the next year.

ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

RECOGNITION OF REVENUE

The Company recognizes revenue on telecommunications services ratably over
the term of the applicable agreements with customers.

F-9
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED REVENUE

Deferred revenue represents prepayments received from customers for future
use of the Company's fiber optic network.

ORGANIZATION COSTS

Costs incurred in connection with the organization of the Company were
capitalized and are being amortized over five years on a straight-line basis.

CONSULTING AND EMPLOYMENT INCENTIVES

The amounts represent the value of common stock, warrants and options issued
to consultants and officers of the Company as incentive for the consultants and
officers to provide services to the Company.

The 1997 amounts represent the value of options to purchase 2,372,760 shares
of the Company's common stock issued in 1997 to executive officers of the
Company. The options have been valued in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees" at the difference between the
exercise price of the options and the fair market value of the Company's common
stock.

STOCK-BASED COMPENSATION

The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". The Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees", and related interpretations in
accounting for its stock options.

FIBER OPTIC TRANSMISSION NETWORK AND RELATED EQUIPMENT

The fiber optic transmission network and related equipment are stated at
cost. Various costs are capitalized during the installation and expansion of the
network. Depreciation is computed using the straight-line method through the
expiration date of the franchise agreement, December 20, 2008.

LONG LIVED ASSETS

In fiscal 1996, the Company adopted SFAS No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. No such impairment
indicators have been identified by the Company.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using
the straight-line and accelerated cost recovery methods over the shorter of the
estimated useful lives of the assets or the term of the lease.

ACCRUED EXPENSES

Accrued expenses includes accrued interest of approximately $124,000,
$683,000 and $262,900 as of June 30, 1997, December 31, 1996 and 1995
respectively.

The Company incurred accrued capital expenditures on fiber optic
transmission network and related equipment of $1,281,000 during 1994.

F-10
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FRANCHISE COSTS

Amortization of franchise costs began upon commencement of service to
customers and is computed on the straight-line method through December 20, 2008
(159 months), the expiration date of the franchise agreement.

INCOME TAXES

The Company recognizes deferred tax liabilities and assets, if any, for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Valuation
allowances are provided when the expected realization of tax assets does not
meet a more likely than not criterion.

CASH AND CASH EQUIVALENTS

For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments with an original maturity of three
months or less when purchased to be cash equivalents.

RECAPITALIZATION

In April 1997, the Company increased its authorized common stock of $.01 par
value to 60,000,000 shares; in addition, authorized preferred stock with a par
value of $.01 was increased to 2,000,000 shares.

On February 17, 1995, the Company effected a 4,000 for one stock split of
its outstanding shares of common stock. The financial statements give
retroactive effect to this stock split.

On April 29, 1997, the Company effected a 3 for one stock split of its
outstanding shares of common stock. The financial statements give retroactive
effect to this stock split.

In September 1997, the Company effected a .507 for 1 reverse stock split.
The financial statements give retroactive effect to this stock split.

EARNINGS PER SHARE

Net loss per share computations are based upon net loss divided by the
weighted average number of shares of common stock outstanding during the
respective periods. The weighted average number of common shares outstanding
have been calculated in accordance with Staff Accounting Bulletin 83 ("SAB 83")
of the Securities and Exchange Commission. SAB 83 requires that shares of common
stock and options issued one-year prior to the initial filing of a registration
statement relating to an initial public offering at amounts below the public
offering price be considered outstanding for all periods presented in the
Company's registration statement. In computing the effect of stock options,
using the treasury stock method, the Company assumed that the market value of
the stock was $16.00 per share.

UNAUDITED INFORMATION

The unaudited financial statements at June 30, 1997 and for the six months
ended June 30, 1996 and 1997 reflect adjustments, all of which are of a normal
recurring nature, which are, in the opinion of

F-11
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
management, necessary to a fair presentation. The results for the interim
periods presented are not necessarily indicative of full year results.

2. FIBER OPTIC TRANSMISSION NETWORK AND RELATED EQUIPMENT

Fiber optic transmission network and related equipment consist of the
following:

<TABLE>
<CAPTION>
1995 1996 JUNE 30, 1997
------------- ------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Engineering and layout costs....................................... $ 3,058,917 $ 3,243,448 $ 3,297,683
Material--fiber optic cable........................................ 975,815 1,219,067 985,740
Electrical installation costs...................................... 407,642 407,642 407,642
Headends........................................................... 363,343 363,343 363,343
Fiber optic cable installation costs............................... 802,886 1,230,041 1,637,151
Other.............................................................. 389,243 508,412 945,475
------------- ------------- --------------
5,997,846 6,971,953 7,637,034
Less accumulated depreciation...................................... (113,167) (603,300) (928,180)
------------- ------------- --------------
$ 5,884,679 $ 6,368,653 $ 6,708,854
------------- ------------- --------------
------------- ------------- --------------
</TABLE>

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
JUNE 30
1995 1996 1997 USEFUL LIFE
----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Furniture and equipment.................................. $ 6,452 $ 42,776 $ 190,165 5 years
Leasehold improvements................................... 469,926 528,958 532,225 174 months
----------- ----------- ------------
476,378 571,734 722,390
Less accumulated depreciation and amortization........... (8,747) (46,466) (76,476)
----------- ----------- ------------
$ 467,631 $ 525,268 $ 645,914
----------- ----------- ------------
----------- ----------- ------------
</TABLE>

4. RELATED PARTY TRANSACTIONS

In connection with the installation of the Company's fiber optic network,
the Company engaged the services of an electrical contractor controlled by the
Company's majority shareholder. During 1995 the Company incurred charges for
labor and materials of $692,887. As of December 31, 1995, $692,887 was owed to
this related company. In May 1996, the Company and the assignee of this related
party entered into an agreement whereby the full amount of this indebtedness was
satisfied by the issuance of 456,300 shares of the Company's common stock. The
value of the stock was based upon the invoices rendered for services performed
based upon negotiations between the Company and the electrical contractor.

The Company's majority shareholder made loans to the Company which at
December 31, 1994 totaled $1,967,109. In April 1995 the majority shareholder of
the Company agreed to contribute to the Company's capital $1.7 million of
amounts due to him. By agreement between the Company and the

F-12
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

4. RELATED PARTY TRANSACTIONS (CONTINUED)
majority shareholder in May 1996 the transaction was rescinded. During 1995, the
Company made repayments (net of additional advances) of $1,070,130. As of
December 31, 1995, the Company owed the majority shareholder $896,979. Pursuant
to an agreement dated May 21, 1996, the Company issued 152,100 shares of its
common stock to the majority shareholder in consideration for the cancellation
of $600,000 of the outstanding balance. In May 1997, the remaining balance of
the note was repaid in full.

In March and June 1997, the Company entered into two one year leases for
office space with an affiliate. Rent expense charged to operations under such
leases was approximately $33,000 for the period ending June 30, 1997.

5. NOTES PAYABLE

Notes payable-other consists of the following:

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Tomen America, Inc............................................................... a) $ 2,850,036 $ --
Stockholder note................................................................. b) 500,000 --
AT&T Wireless.................................................................... c) 500,000 500,000
U.S. One Communications.......................................................... d) -- 4,900,000
Sterling Capital Bridge Loan..................................................... e) -- 550,000
------------- -------------
$ 3,850,036 $ 5,950,000
------------- -------------
------------- -------------
</TABLE>

a) On April 27, 1995, the Company entered into a bridge financing agreement
with Tomen America, Inc. ("Tomen"). The agreement provided for maximum
aggregate borrowings of $2,500,000 consisting of the following: (i) working
capital advances of $1,500,000, and (ii) equipment and materials procurement
of $1,000,000. A supplemental agreement executed on July 11, 1995 increased
these limits to $1,800,000 and $1,050,000, respectively, for an aggregate
line of credit of $2,850,000. As of December 31, 1995, the Company had
outstanding borrowings aggregating $2,850,036.

All amounts advanced under this agreement were scheduled to mature on April
26, 1996 and bore interest at a rate equal to Tomen's base lending rate plus
1.75%. The outstanding balance was collateralized as follows: (i) a security
interest in the assets of the Company, (ii) a pledge of shares of common
stock of the Company personally owned by the Company's president, and (iii)
the personal guaranty of the Company's president.

The agreement also provided for the Company to reimburse Tomen for certain
transaction expenses. As of December 31, 1995, a total of $152,604 of such
costs was included in accrued expenses.

On April 16, 1996, the Company repaid the entire principal balance, all
accrued and unpaid interest, and all expenses concurrent with the execution
of the refinancing agreement with U.S. One Communications.

b) On March 16, 1995, the Company entered into a loan agreement with one of the
Company's directors for $500,000 bearing interest at 10% per annum, due on
March 16, 1996. As an inducement for entering into this loan agreement, the
Company issued 155,994 shares of common stock. This share issuance was
recorded at an amount equal to the value of the discounted interest rate

F-13
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

5. NOTES PAYABLE (CONTINUED)
that the note bears over the term of the loan, or $5,000. This loan was
collateralized by 38 shares of the Company's common stock owned by the
Company's president, and was personally guaranteed by the president. This
loan and all accrued interest was fully repaid in March 1996.

c) On April 18, 1995, the Company entered into a loan agreement with AT&T
Wireless for $500,000 bearing interest at 11% per annum, originally due 120
days from the date of this loan. Pursuant to a supplemental agreement dated
January 12, 1996, the parties agreed to extend the maturity date of this
loan to November 18, 1996. Pursuant to a second supplemental agreement dated
March, 1997 the parties agreed to extend the maturity date to June 30, 1997.
In July 1997 the note was repaid in full.

On February 16, 1995, the Company issued to this party a warrant entitling
the holder to purchase a total of 669,167 shares of the Company's common
stock. This warrant, was canceled and replaced by a new warrant issued on
February 13, 1997 for 456,300 of non assessable shares of common stock at a
purchase price of $4.85 per share. The new warrant expires on February 13,
2000.

d) On April 16, 1996, the Company entered into an agreement with U.S. One
Communications ("U.S. One") for the exclusive usage rights for 8 to 12
fibers on the Company's fiber optic transmission network. The initial term
of the agreement was for a period beginning April 1996 and expiring December
2008. The agreement was renewable, at the option of U.S. One, for an
extended term of 13 years expiring December 2021. Concurrent with the
execution of the original agreement, the Company and U.S. One entered into a
bridge financing agreement. This was done for the purpose of refinancing the
Company's existing indebtedness to Tomen America and to obtain additional
funding until the construction borrowing arrangement was secured. In
connection with this agreement, the Company borrowed $4,900,000 from U.S.
One, of which $3,227,867 was immediately used to repay all amounts owed to
Tomen America as of April 16, 1996.

On April 30, 1997 the Company amended this agreement which allows U.S. One
to have the exclusive right to use 888 fiber miles of the network.
Additionally, pursuant to the amended agreement, U. S. One received an
option to acquire from the Company up to 1,620 additional fiber miles upon
payment of a predetermined amount. In accordance with the amended agreement
the following occurred: (i) all interest accrued from the inception of the
bridge loan to the closing date of the agreement was waived by U.S. One, and
(ii) the $4,900,000 principal balance of the loan was offset against the
$3,530,000 scheduled payment due from U.S. One to the Company under the
amended lease agreement. (iii) the Company paid to U.S. One the difference
of $1,370,000 on April 30, 1997 with proceeds from the Metromedia
transaction.

F-14
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

5. NOTES PAYABLE (CONTINUED)

In connection with the execution of the aforementioned lease and bridge
financing agreements, the Company entered into a letter agreement with U.S.
One providing for the sale of a warrant to purchase common stock of the
Company. Under this arrangement, the warrant is exercisable for a number of
shares to be determined at the Company's discretion subject to a minimum
number of 76,050 shares and a maximum number of 456,300 shares. The per
share exercise price is to be determined pursuant to a formula, but in no
event shall the aggregate purchase price exceed $1,250,000.

e) On September 24, 1996, the Company entered into a loan agreement with
Sterling Capital ("Sterling") for $550,000. The loan bears interest at 10%
per annum and matures on March 1, 1997. The loan was secured by all of NFN's
assets and was subordinated to the aforementioned U.S. One loan. As an
incentive for the loan, NFN issued to Sterling warrants to purchase 94,302
shares of common stock at an exercise price of $5.92. The warrants can be
exercised on the later of (i) the third anniversary or (ii) twelve months
after the Company has completed a public offering. On May 1, 1997 the
Company repaid the loan in full and all accrued interest with proceeds from
the sale of convertible preferred stock to Metromedia.

6. SENIOR SUBORDINATED NOTES

On February 13, 1996, the Company entered into an investment agreement with
an individual (the "Investor") pursuant to which the Company borrowed $1,000,000
in consideration for the issuance of 12% senior subordinated promissory notes
maturing on November 1, 1996. The notes are guaranteed personally by the
Company's president. The notes are convertible at a price of $2.62 per unit for
each $1,000 of principal outstanding. Each unit consists of the following: (i)
one share of stock, and (ii) one warrant to purchase one share of stock at $5.27
per share. As an inducement for entering into the investment agreement, the
Company issued to the investor the following: (i) 381,087 fully paid shares of
common stock, and (ii) a warrant to purchase 381,087 shares of common stock at
$5.27 per share, exercisable for a five year period beginning August 15, 1997
and expiring August 15, 2002. The Company recorded non-cash charges of $689,013
for such issuances.

On March 19, 1996, a supplemental investment agreement was executed with the
same investor providing for an additional advance of $500,000 with the same
maturity date, interest rate, conversion rights, and guaranty features as the
initial $1,000,000 investment. This advance was subsequently repaid, along with
interest on April 16, 1996. In connection with this supplemental agreement, the
Company issued a warrant to purchase 190,543 shares of common stock at $5.27 per
share, exercisable for a five year period beginning August 15, 1997 and expiring
August 15, 2002. The Company also issued a warrant to purchase an additional
190,543 shares at $0.006 per share (the "Penny Warrants"), exercisable for a
period beginning August 15, 1997 and expiring August 15, 2002. The Company
recorded a noncash charge of $250,550 for such issuance.

On April 11, 1996, a memorandum of understanding was entered into between
the parties pursuant to which the warrants issued on February 13, 1996 to
purchase 381,087 shares at $5.27 per share and the warrants issued on March 19,
1996 to purchase 190,543 shares at $5.27 per share were surrendered

F-15
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. SENIOR SUBORDINATED NOTES (CONTINUED)
by the investor to the Company in consideration for the issuance of 228,150
shares of the Company's common stock.

In April and July 1996, the investor purchased 152,100 and 38,443 shares of
common stock, respectively, at $.006 per share in connection with an exercise of
the Penny Warrants. The Company granted the investor the right to exercise prior
to the stated exercise period.

Further, in accordance with the investment agreement an additional 38,025
shares of common stock was issued to the investor in compliance with the
anti-dillutive requirements in the agreement.

7. NOTES PAYABLE--PRIVATE PLACEMENTS

a. In August 1995, the Company initiated a $600,000 private offering of
subordinated notes. These notes were scheduled to mature in March 1996 and
bear interest at an annual rate of 15%, payable quarterly in arrears.
Concurrent with the issuance of these notes, warrants were issued by the
Company to the noteholders which were exercisable for common shares of the
Company in an amount equal to 0.7% of the outstanding shares of common stock
immediately following an initial public offering of the Company's common
stock, at an exercise price equal to 60% of the initial public offering
price. These warrants are exercisable over a three-year period beginning on
the effective date of such initial public offering.

In April 1996, the Company offered the warrantholders fully paid shares of
common stock equal to 0.7% of the common stock then issued and outstanding,
in exchange for the surrender and cancellation of the outstanding warrants,
and in consideration for the extension of the maturity date of the notes
through June 30, 1996. In 1996 the Company repaid $50,000 of the private
placement debt. All of the warrantholders accepted this offer and,
accordingly, the Company issued a total of 59,359 shares of the Company's
common stock. The Company recorded a noncash charge of $107,322 in
connection with such issuance.

b. In October 1995, the Company initiated a private offering of $858,000 of
convertible subordinated notes. Through December 31, 1995, $783,000 of
convertible notes were sold pursuant to this offering, and an additional
$75,000 of notes were sold during January and February of 1996. These notes
were scheduled to mature during the period October 1996 through February
1997 and bear interest at an annual rate of 15%, payable at maturity. The
notes are convertible, at the Company's option, at any time into shares of
common stock at a rate of 1.52 shares of common stock per $1,000 of note
principal, at a conversion price equal to 60% of the per share price of an
initial public offering of the Company's common stock. Concurrent with the
issuance of these notes, warrants were issued by the Company to the
noteholders which are exercisable at a rate of 15,210 shares of common stock
per $100,000 of note principal. Such warrants, entitling the holders to
purchase an aggregate of 130,502 shares, are exercisable at a price equal to
50% of the per share price of an initial public offering of common stock
over a three-year period beginning on the effective date of such initial
public offering.

c. In December 1996, the Company offered the Private Placement Noteholders
Common Stock Purchase Warrants to purchase 107,078 shares of its common
stock exercisable at one half of the price for which shares are sold in an
initial public offering for a period of three years following such

F-16
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

7. NOTES PAYABLE--PRIVATE PLACEMENTS (CONTINUED)
offering; in exchange for the extension of the due dates of the notes. All
of the noteholders accepted this offer and accordingly, the Company recorded
a non cash charge of $111,306.

8. SETTLEMENT AGREEMENTS

In February 1996, the Company entered into a settlement agreement with the
Company's former chief financial officer regarding the termination of such
officer's services. This agreement provided for the Company to make payments to
the officer totaling $1,003,000, including interest. The former officer's
services effectively terminated prior to December 31, 1995. Accordingly, as of
December 31, 1995, the Company recorded $876,146 as a liability in accordance
with the terms of the settlement agreement.

The settlement agreement also reaffirmed the option previously issued to
this former officer on May 1, 1995, which entitles the holder to purchase
207,883 shares of the Company's common stock at $.006 per share through February
1, 1999. In 1997 the Company repurchased and retired the warrant.

On November 14, 1996, the Company amended the above referenced settlement
agreement with the former officer, whereby a consultant to the Company agreed to
purchase common stock of the Company from the former officer and certain of his
affiliates in exchange for $640,000 and the complete satisfaction of the
aforementioned liability.

On February 11, 1997, the Company entered into an agreement (the
"Agreement") with a consultant/director. Pursuant to the Agreement the Company
agreed to pay the consultant/director a fee of $250,000 in full and complete
payment for all services provided to the Company by the consultant/ director and
for any fees or compensation due to the consultant/director resulting from any
prior agreements with the Company, and the consultant/director agreed to release
the Company from any claims against the Company.

9. STOCK ISSUED TO LEGAL COUNSEL

On January 12, 1996, the Company entered into an agreement with its legal
counsel which calls for the issuance by the Company of common stock as
additional consideration for legal services provided. Pursuant to this
agreement, and the subsequent amendment dated April 16, 1996, the Company issued
a total of 491,105 shares during March and April of 1996. Management has
estimated that the value of the 491,105 shares issued is equal to $907,301 and
has recorded a noncash charge in connection with such issuance.

10. STOCK TRANSACTIONS

COMMON STOCK

In June 1996, the Company sold a total of 38,025 shares of common stock to
two individuals for total proceeds of $100,000. Concurrent with the issuance of
these shares, warrants were issued by the Company to these shareholders
entitling the holders to purchase a total of 38,025 shares at $2.62 per share
for a three year period. In the event of an initial public offering of the
Company's common stock during the exercise period, the exercise price will be
reduced to the lesser of $2.62 or 50% of the per share price of the initial
public offering.

F-17
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

10. STOCK TRANSACTIONS (CONTINUED)
In July 1996, the Company issued 12,168 shares of common stock as
consideration for consulting services. The Company recorded a noncash charge of
$21,200 for such issuance. In addition, the Company issued 150,579 shares to
three employees for services rendered. The transaction was later rescinded and
the shares were returned to the Company.

In August 1996, the Company issued 182,520 shares of common stock for
consulting services. The Company has recorded a noncash charge of $334,800 for
such issuance.

In September 1996, the Company sold 10,934 shares of common stock to three
individuals for total proceeds of $23,500.

On April 15, 1996, the Company entered into a stock purchase agreement with
Vento & Company of New York, LLC ("VCNY"). Pursuant to this agreement, the
Company issued 1,521,000 shares of common stock to VCNY as consideration for
services provided by VCNY. The Company estimated the value of the stock issued
approximated $2,760,000.

Concurrent with the execution of the aforementioned stock purchase
agreement, the parties entered into a consulting agreement. The term of the
agreement was from April 15, 1996 to April 15, 2001. Under the terms of the
agreement, VCNY was to provide guidance and advice with respect to the
management of the day-to-day operations of the Company's fiber optic
transmission network. In consideration for such services, the Company reimbursed
VCNY for all reasonable personnel and travel costs incurred by VCNY with respect
to the performance of these services.

On October 9, 1996 (the "execution date") the Company entered into a
settlement agreement with the Company's former chief executive officer and VCNY
regarding the termination of such officer's employment and services provided by
VCNY. The agreement provided for VCNY to deliver a total of 1,521,000 shares of
common stock in exchange for payments made by the Company. The payments were not
made and the sale of the shares and the Company's obligation to buy the shares,
was deemed null and void.

On October 28, 1996, a shareholder granted to the Company's Chairman of the
Board an option to purchase 399,889 shares of Common Stock of the Company for an
aggregate exercise price of $500,000. By letter dated December 3, 1996, the
option was amended to reduce the number of option shares to 323,839 shares. The
option was thereafter assigned by the Chairman to the Company. On February 11,
1997, the Company exercised the option by payment of the sum of $500,000 to the
shareholder.

STOCK WARRANTS

In June 1996, the Company granted 152,100 common stock purchase warrants to
the Company's legal counsel exercisable at $.07 per share for a period of four
years as additional consideration for legal services provided. The Company has
recorded a noncash charge of $200,000 for such issuance.

In September 1996, the Company granted 94,302 common stock purchase warrants
to Sterling at an exercise price of the lesser of $5.92 per share, the price at
which the Company shall issue its securities in the future less $5.92, or one
half the price at which the common stock of the Company is offered in an initial
public offering exercisable on the later date of September 24, 1999 or twelve
months

F-18
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

10. STOCK TRANSACTIONS (CONTINUED)
and 90 days after the date the warrant shares have been covered by a
registration statement. The Company has recorded a noncash charge of $13,640 for
such issuance.
In December 1996, the Company offered the private placement noteholders
Common Stock purchase warrants to purchase 107,078 shares of common stock
exercisable at one half of the price for which shares are sold in an initial
public offering for a period of three years following such offering, in exchange
for the extension of the due dates of the notes. All of the noteholders accepted
this offer and accordingly, the Company recorded a noncash charge of $111,306.

In March 1997 the Company issued purchase warrants to private placement
noteholders to purchase 57,682 shares of common stock exercisable at one half of
the price for which shares are sold in an initial public offering for a period
of three years following such offering in exchange for the extension of the due
dates of the notes. The Company has recorded a noncash charge of $220,036 for
such issuance.

As of December 31, 1996 the Company has reserved approximately 2,129,400
shares of its common stock for exercise of warrants, contingent warrants and
conversion of debt.

On December 13, 1996, the Company issued and sold to Penny Lane Partners,
L.P. ("Penny Lane"), for aggregate cash consideration of $2,025,000, (i) 150,000
shares of 10% cumulative convertible preferred stock (the "Series A Preferred
Stock") bearing dividends at a rate of $1.35 per share per annum, (ii) warrants
to purchase 114,075 shares of Common Stock at an exercise price of $4.93 per
share (the "Penny Lane Warrants") and (iii) a contingent stock subscription
warrant to purchase a number of shares of Common Stock (such number to be
determined based on certain future events) at an exercise price of $0.02 per
share (the "Contingent Warrants"). In March 1997, Penny Lane agreed to permit
the Series A Preferred Stock and the contingent Warrants to be redeemed at an
aggregate redemption price of $2,115,000 (which includes accrued but unpaid
dividends on the Series A Preferred Stock) and in connection therewith the
number of Penny Lane Warrants was increased from 114,075 to 228,150.

STOCK OPTIONS

In February and April 1997, the Company granted to certain executives
options to purchase up to 2,372,760, shares of its Common Stock. The options
have an exercise price of $1.97 per share and expire on April 2007. The Company
has recorded a noncash charge of $13,419,900 for such issuance.

11. INCOME TAXES

There was no provision for federal or state income taxes for the years ended
December 31, 1994, 1995 and 1996. At December 31, 1996, the Company has
approximately $10,000,000 of net operating loss carryforwards, expiring in the
years 2009 through 2011. The Company has recorded a full valuation allowance
against the deferred tax asset as its realization is uncertain.

F-19
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

12. COMMITMENTS AND CONTINGENCIES

a. The Company entered into a franchise agreement with the City of New York on
December 20, 1993, whereby the Company was granted a nonexclusive franchise
to install, operate, repair, maintain and replace cable, wire, fiber or
other transmission medium and the related equipment and facilities on, over
and under the property of the City of New York. In exchange, the Company is
obligated to pay franchise fees commencing on the completion date of the
initial backbone of the fiber optic cable network through December 20, 2008.
In connection with the agreement, among other requirements, the Company
maintains a performance bond in the amount of approximately $1,750,000 and
has provided the City with a $500,000 letter of credit as a security fund.

Franchise fees are based on a percentage of the Company's gross sales: 10%
for the first and second years, 6% for the third year and 5% for the fourth
and each year thereafter. However, during each year of the term, the
franchise fee shall be no less than $200,000.

Franchise fees charged to operations in connection with this agreement
amounted to $200,000 in both 1996 and 1995 ($100,000 for the six months
ending June 30, 1996 and 1997).

b. The Company entered into a license agreement with Jersey City, New Jersey on
July 10, 1995, whereby the Company was granted a license to construct a
fiber-optic system within Jersey City. The term of this agreement continues
until written notice of termination is given by either party.

c. The Company entered into a conduit occupancy agreement with New York
Telephone Company in May 1993, whereby the Company was granted a right to
place and maintain cable facilities in the conduit system of New York
Telephone Company. The term of this agreement is for one year from the date
of the agreement and thereafter until three months after written notice of
termination is given by either party.

The Company also has the right to place and maintain cable facilities in the
conduit system of Empire City Subway Company, Ltd., by virtue of the
franchise agreement with the city of New York.

Occupancy fees charged to operations in connection with this agreement were
approximately $152,000 for the year ending December 31, 1996.

d. The Company leases its office facility under an operating lease expiring on
March 31, 2010.

Rent expense charged to operations was approximately $158,000 and $148,000
for the years ending December 31, 1996 and 1995.

e. On June 1, 1995, the Company entered into two lease agreements with the Port
Authority of New York and New Jersey, whereby the Company was granted a
nonexclusive right to lease two ducts in the North and South tubes of the
Holland Tunnel to install, maintain, operate and provide telecommunications
equipment for its customers. The term of these agreements is for ten years
through June 1, 2005.

Lease expense charged to operations in connection with these leases was
approximately $107,000 and $63,000 for the years ending December 31, 1996
and 1995.

f. On August 11, 1995, the Company entered into a service agreement with an
unrelated party, for the maintenance of the Company's telecommunication
equipment located in Jersey City. The term of

F-20
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
this agreement is for one year with an option to renew this agreement
annually for up to five consecutive one year renewal terms.

g. Approximate minimum annual franchise, license, lease and service fees and
conduit payments under the aforementioned agreements are as follows:

<TABLE>
<S> <C>
For the year ended December 31:
1997................................. $ 644,500
1998................................. 644,500
1999................................. 644,500
2000................................. 635,500
2001................................. 464,500
Thereafter........................... 3,352,500
-----------
$ 6,386,000
-----------
-----------
</TABLE>

h. A former investment advisor to the Company has made a claim in the amount of
$305,731 pursuant to an agreement made on June 27, 1995, for the payment of
certain fees and expenses. The Company has rejected the claim based on the
failure of the investment advisor to properly perform its services and
fiduciary duties. Accordingly, the Company has not made provision in the
consolidated financial statements for this claim.

i. On or about April 18, 1997, Howard Katz, Realprop Capital Corp. and Evelyn
Katz commenced an action against, among others, the Company, Stephen A.
Garofalo, Peter Sahagen and Peter Silverman in the United States District
Court for the Southern District Court of New York captioned KATZ, ET AL. v.
NATIONAL FIBER NETWORK, INC., ET AL., No. 97 Civ. 2764 (JGK) (the "Katz
Litigation"). (National Fiber Network, Inc. is the former name of the
Company). On May 28, 1997, the plaintiffs filed an amended complaint and on
September 15, 1997 the plaintiffs filed a second amended complaint. The
amended complaint alleges causes of action for, among other things, common
law fraud, violations of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder, breach of fiduciary duty and
negligent misrepresentation for alleged misrepresentations and omissions
made in connection with the repurchase of the Katz Securities (as defined
below under "Certain Relationships and Related Transactions"). The amended
complaint also contains allegations of corporate waste against the Company
and Mr. Garofalo. Plaintiffs seek, among other things, compensatory damages
of not less than $12 million, punitive damages in the amount of $100 million
and, in the alternative, rescission of the purchase by the Company of the
Common Stock and Warrants. On June 11, 1997, various defendants, including
the Company and Stephen A. Garofalo moved to dismiss the amended complaint.
The Company intends to vigorously defend itself against these allegations
based on its belief that MFN acted appropriately in connection with the
matters at issue in this litigation. No assurance can be made, though, that
the Company will not determine that the advantages of entering into a
settlement outweigh the risks and expense of protracted litigation or that
ultimately the Company will be successful in its defense of the allegations.
If the Company is unsuccessful in its defense of the allegations, an award
of the magnitude being sought by the plaintiffs in the Katz litigation would
have a material adverse effect on the Company's financial condition or
results of operations.

F-21
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition, the Company is subject to various claims and proceedings in the
ordinary course of business. Based on information currently available, the
Company believes that none of such current claims, or proceedings,
individually or in the aggregate, including the Katz Litigation, will have a
material adverse effect on the Company's financial condition or results of
operations, although there can be no assurances in this regard.

13. METROMEDIA TRANSACTIONS

Through April 30, 1997, Metromedia loaned the Company an aggregate of
$4,000,000. On April 30, 1997, the Metromedia Loan was repaid with a portion of
the proceeds from the Metromedia Investment. The Metromedia Loan bore interest
at the prime rate announced by The Chase Manhattan Bank and was convertible into
Common Stock based on a formula if the principle and interest was not repaid in
full by August 31, 1997.

A portion of the proceeds from the Metromedia Loan were used to fund an
escrow account which repurchased on behalf of the Company, 588,470 shares of
Common Stock and warrants to purchase 207,883 shares of Common Stock. Pursuant
to an escrow arrangement, such securities were pledged to Metromedia as security
for the Loan.

On April 30, 1997, the Company sold an aggregate of 8,403.325 shares of
series B convertible preferred stock to Metromedia and affiliates, for an
aggregate purchase price of $32.5 million, (the "Metromedia Investment").

The proceeds from the Metromedia Investment were used to redeem the Series A
Preferred Stock and Contingent Warrants ($2,115,000), repay the Metromedia Loan
and accrued interest thereon ($4,058,127), and repay other short-term
indebtedness ($3,485,000). Upon repayment of the Metromedia Loan, the
repurchased shares were released from escrow and delivered to the Company.

14. SUBSEQUENT EVENT

F-22
<PAGE>
METROMEDIA FIBER NETWORK, INC. (FORMERLY NATIONAL FIBER NETWORK, INC.) AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND EACH OF THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

14. SUBSEQUENT EVENT (CONTINUED)
declared operative, which agreement indirectly required VCNY, through designated
directors, to approve significant transactions, and, accordingly, the Metromedia
Loan and the Metromedia Investment should be rescinded and Mr. Vento should be
reappointed as Chief Executive Officer of the Company. The Company believes,
among other things, that the stockholders agreement to which Mr. Vento was a
party had terminated and as a result Mr. Vento had no such rights to approve the
Metromedia Investment or the Metromedia Loan or to remain as Chief Executive
Officer of the Company. Plaintiff seeks, among other things, (i) rescission of
the VCNY Sale, or alternatively, damages in an amount not presently
ascertainable, but believed to be in the excess of $36 million, together with
interest thereon, (ii) punitive damages in the amount of $50 million, and (iii)
the declaratory judgments discussed above. The Company intends to vigorously
defend itself against these allegations based on its belief that MFN acted
appropriately in connection with the matters at issue in this litigation. No
assurance can be made, though, that the Company will not determine that the
advantages of entering into a settlement outweigh the risk and expense of
protracted litigation or that ultimately the Company will be successful in its
defense of the allegations. If the Company is unsuccessful in its defense of the
allegations, an award of the magnitude being sought by the plaintiffs in the
VCNY Litigation would have a material adverse effect on the Company's financial
condition or results of operation.

F-23
<PAGE>
GLOSSARY

<TABLE>
<S> <C>
Access Charge:............................... The fees paid by long distance carriers to
LECs for originating and terminating long
distance calls on the LECs' local networks.

Analog Transmission:......................... A way of sending voice, video and data
signals electronically in which the
transmitted signal is analogous to the
original signal.

ATM (Asynchronous Transfer Mode):............ An information transfer standard that is one
of a general class of packet technologies
that relay traffic by way of an address
contained within the first five bytes of a
standard fifty-three-byte-long packet or
cell. The ATM format can be used by many
different information systems, including
local area networks to deliver traffic at
varying rates, permitting a mix of voice,
data and video (multimedia).

Backbone:.................................... The backbone is the part of the
telecommunications network which carries the
most traffic. It is the through-portion of a
transmission network, as opposed to spurs
which branch off the though-potions.

Bandwidth:................................... The range of analog frequencies or digital
signals that can be passed through a
transmission medium, such as fiber optic
cable. The greater the bandwidth, the greater
the information carrying capacity. Bandwidth
is measured in Hertz (analog) or Bits Per
Second (digital).

Bit:......................................... A contraction of the term Binary Digit, it is
the basic unit in data communications. Bits
are typically represented by ones or zeros.

Capacity:.................................... The information carrying ability of a
telecommunications facility.

Central Office:.............................. Telephone company facility where subscribers'
lines are joined to switching equipment for
connecting other subscribers to each other,
locally and long distance.

Channel:..................................... A path of communication either electrical or
electromagnetic, between two or more points.
Also called a circuit, facility, line, link,
or path.
</TABLE>

G-1
<PAGE>

<TABLE>
<S> <C>
CLEC (Competitive Local Exchange Carrier):... A company that competes with local exchange
carriers in the local services market.

Coaxial Cable:............................... A cable composed of an insulated central
conducting wire wrapped in another
cylindrical conducting wire. It is typically
used to carry high-speed data.

Collocation:................................. Collocation refers to the physical location
of a telecommunication carrier's switch in
the ILECs premises to facilitate the
interconnection of their respective switching
equipment.

Common Carrier:.............................. A government defined group of private
companies offering telecommunications
services or facilities to the general public
on a non-discriminatory basis.

Conduit:..................................... A pipe, usually made of metal, ceramic or
plastic, that protects buried cables.

Dark Fiber:.................................. Fiber optic cable without any of the
electronic or optronic equipment necessary to
use the fiber for transmission.

Digital:..................................... Describes a method of storing, processing and
transmitting information through the use of
distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital
transmission/switching technologies employ a
sequence of discrete, distinct pulses to
represent information, as opposed to the
continuously variable analog signal.

DS-3:........................................ DS is the standard telecommunications
industry designation of a hierarchy of
digital signal speeds used to classify
capacities of lines and trunks. DS-3 service
has a bit rate of approximately 45 megabits
per second and can transmit roughly 672
simultaneous voice conversations.

FCC (Federal Communications Regulatory body established pursuant to the
Commission):............................... Communications Act of 1934; it has the
authority to regulate all interstate
communications originating in the United
States.

Fiber Miles.................................. The number of strands of fiber in a length of
fiber optic cable multiplied by the length of
the cable in miles.
</TABLE>

G-2
<PAGE>
<TABLE>
<S> <C>
Fiber Optics:................................ A technology in which light is used to
transport information from one point to
another. Fiber optic cables are thin
filaments of glass through which light beams
are transmitted over long distances carrying
enormous amounts of data. Modulating light on
thin strands of glass produces major benefits
in high-bandwidth, relatively low cost, low
power consumption, small space needs, total
insensitivity to electromagnetic interference
and great insensitivity to being bugged.

Frame Relay.................................. A high-speed, data-packet switching service
used to transmit data between computers.
Frame Relay supports data units of variable
lengths at access speeds ranging from 56
kilobits per second to 1.5 megabits per
second. This service is well-suited for
connecting local area networks, but is not
presently well-suited for voice and video
applications due to the variable delays which
can occur. Frame Relay was designed to
operate at high speeds on modern fiber optic
networks.

ILEC (Incumbent Local Exchange Carrier):..... A company historically providing local
telephone service. Often refers to one of the
Regional Bell Operating Companies (RBOCs).
Often referred to as "LEC" (Local Exchange
Carrier).

ISP (Internet Service Provider):............. A vendor who provides direct access to the
Internet. The ISP also usually provides a
core group of Internet utilities and services
like E-mail and News Group Readers.

IXC (Interexchange Carrier):................. Literally, a company providing services which
cross local exchange boundaries. Refers to
long distance providers.

LAN (Local Area Network):.................... A short distance data communications network
(typically within a building or campus) used
to link together computers and peripheral
devices (such as printers) under some form of
standard control.

Lit Fiber:................................... Fiber activated or equipped with the
requisite electronic and optronic equipment
necessary to use the fiber for transmission.

Metered Telecommunications Service:.......... Service provided by phone companies where
charges are levied based on use, as opposed
to unmetered service, where charges are
levied according to a flat, fixed rate.
</TABLE>

G-3
<PAGE>
<TABLE>
<S> <C>
OC-3, OC-12, OC-48 and OC-192:............... OC, or Optical Carrier, is a measure of a
SONET transmission optical carrier level. The
number following the OC designation is equal
to the corresponding number of DS-3s. (e.g.
OC-192 is equal to 192 DS-3s).

POP (Point of Presence):..................... The place where an IXC terminates an end
user's long distance lines just before those
lines are connected to the end user's local
phone company's lines or the end-user's own
direct hookup.

Private Line:................................ A direct channel specifically dedicated to a
customer's use between specified points.

RBOCs (Regional Bell Operating Companies):... The seven local telephone companies (formerly
part of AT&T) established as a result of the
AT&T Divestiture Decree.

Regeneration/Amplifier:...................... Devices which automatically re-transmit or
boost signals on an out-bound circuit.

Route Miles.................................. The number of miles spanned by fiber optic
cable calculated without including physically
overlapping segments of cable.

SONET (Synchronous Optical Network):......... An electronics and network architecture for
variable bandwidth products which enables
transmission of voice, data and video
(multimedia) at very high speeds. SONET ring
architecture provides for virtually
instantaneous restoration of service in the
event of a fiber cut by automatically
rerouting traffic in the opposite direction
around the ring.

Switch:...................................... A device which opens or closes circuits,
completes or breaks an electrical path, or
selects paths or circuits. Switching is the
process of interconnecting circuits to form a
transmission path between users. It also
captures information for billing purposes.

Tier I....................................... The top 15 cities in the United States based
on population.

Unbundled.................................... Services, programs, software and training
sold separately from the hardware.

Video Services............................... The provision of video over a channel. Akin
to voice dial tone.

Wireless..................................... A communications system that operates without
wires. Cellular service is an example.
</TABLE>

G-4
<PAGE>
[METROMEDIA FIBER NETWORK'S INTER-CITY NETWORKS]

<PAGE>
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 9
Use of Proceeds............................... 22
Dividend Policy............................... 22
Dilution...................................... 23
Capitalization................................ 24
Selected Consolidated Financial and Operating
Data........................................ 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 27
Business...................................... 31
Management.................................... 48
Principal Stockholders........................ 58
Certain Relationships and Related
Transactions................................ 59
Description of Capital Stock.................. 63
Shares Eligible for Future Sale............... 72
Underwriting.................................. 74
Certain Federal Tax Consequences.............. 77
Legal Matters................................. 79
Experts....................................... 80
Additional Information........................ 80
Index to Consolidated Financial Statements.... F-1
Glossary...................................... G-1
</TABLE>

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

UNTIL NOVEMBER 24, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS OR WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

7,920,000 SHARES

METROMEDIA FIBER
NETWORK, INC.

CLASS A COMMON STOCK
($.01 PAR VALUE)

[LOGO]

SALOMON BROTHERS INC

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

DEUTSCHE MORGAN GRENFELL

PROSPECTUS

DATED OCTOBER 28, 1997