NORTHEAST OPTIC NETWORK INC, S-3, 2000-04-06

NORTHEAST OPTIC NETWORK INC
S-3, 2000-04-06
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>
As filed with the Securities and Exchange Commission on April 6, 2000

Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-3

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
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NORTHEAST OPTIC NETWORK, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 04-3056279
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
</TABLE>

2200 West Park Drive
Westborough, MA 01581
(508) 616-7800

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

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

VINCENT C. BISCEGLIA
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
NORTHEAST OPTIC NETWORK, INC.
2200 West Park Drive
Westborough, MA 01581
(508) 616-7800

(Name, address, including zip code, and telephone
number, including area code, of agent for service)

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

Copies to:

<TABLE>
<S> <C>
JEFFREY A. STEIN, ESQ. BRUCE R. KRAUS, ESQ.
Hale and Dorr LLP Willkie Farr & Gallagher
60 State Street 787 Seventh Avenue
Boston, MA 02109 New York, NY 10019
Tel: (617) 526-6000 Tel: (212) 728-8000
Fax: (617) 526-5000 Fax: (212) 728-8111
</TABLE>

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

Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Amount to be Offering Price Aggregate
Title of Each Class of Securities to be Registered Registered Per Share(1) Offering Price(1)
<S> <C> <C> <C>
Common Stock, $.01 par value per share... 3,450,000 $62.5625 $215,840,625

Amount of
Title of Each Class of Securities to be Registered Registration Fee
<S> <C>
Common Stock, $.01 par value per share... $56,982
</TABLE>

(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.

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<PAGE>
PRELIMINARY PROSPECTUS_________________Subject to Completion_______April 6, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED WITHOUT
NOTICE. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
3,000,000 Shares

[LOGO]

NorthEast Optic Network, Inc.

Common Stock

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

The selling stockholder identified in this prospectus is offering all of the
shares to be sold in this offering. NorthEast Optic Network, Inc. will not be
selling shares or receiving proceeds from the offering.

Our common stock is quoted on the Nasdaq National Market under the symbol
"NOPT." The last reported sale price of our common stock on April 5, 2000 was
$71.00 per share.

Investing in our common stock involves a high degree of risk. See "Risk Factors"
beginning on page 6.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
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Public offering price $ $
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Underwriting discounts and commissions $ $
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Proceeds, before expenses, to selling stockholder $ $
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</TABLE>

The selling stockholder has granted the underwriters a 30-day option to purchase
up to an additional 450,000 shares at the initial price to public less the
underwriting discount to cover over-allotments.

The underwriters expect to deliver the shares against payment in New York, New
York on , 2000.

Warburg Dillon Read LLC Credit Suisse First Boston
<PAGE>
[Map depicting our current and planned fiber optic network which extends from
Portland, Maine to Washington, D.C.]
<PAGE>
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You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information different from that contained or incorporated by reference in this
prospectus. The selling stockholder is offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.

TABLE OF CONTENTS
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<TABLE>
<S> <C>
Prospectus summary.................... 1

Risk factors.......................... 7

Special note regarding forward-looking
information......................... 15

Use of proceeds....................... 16

Price range of common stock........... 16

Dividend policy....................... 16

Capitalization........................ 18

Selected consolidated financial and
operating data...................... 19

Management's discussion and analysis
of financial condition and results
of operations....................... 21

Business.............................. 26

Management............................ 43

Principal and selling stockholders.... 45

Underwriting.......................... 48

Legal matters......................... 50

Experts............................... 50

Where you can find more information... 50

Incorporation of certain documents by
reference........................... 50

Index to consolidated financial
statements.......................... F-1
</TABLE>

Our executive offices are located at 2200 West Park Drive, Westborough, MA
01581, our telephone number is (508) 616-7800 and our Internet address is
www.neoninc.com. The information on our website is not incorporated by reference
in this prospectus. Unless the context otherwise requires, references in this
prospectus to "we," "us," and "our" refer to "NorthEast Optic Network, Inc." and
its subsidiaries.

This prospectus includes trademarks of NorthEast Optic Network, Inc., and
trademarks and service marks of other companies.
<PAGE>
Prospectus summary

THIS SUMMARY HIGHLIGHTS IMPORTANT FEATURES OF THIS OFFERING AND THE INFORMATION
INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. THIS SUMMARY DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR
COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE
RISKS OF INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS" AND OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE FINANCIAL STATEMENTS.

We own and operate a technologically advanced, high-bandwidth fiber optic
network providing capacity on a wholesale basis to telecommunications service
providers, including local, long distance and wireless telephone companies and
Internet service providers. Our network currently extends from Portland, Maine
to New York City and agreements currently in place would, subject to regulatory
approval, extend our network to Philadelphia, Baltimore and Washington, D.C. and
expand the reach of our network in and around New York City. Our customers can
connect directly to our network at multiple locations in the larger cities we
serve and also in the smaller communities along our network's route.

Our network follows a different route than those used by most competing networks
in the regions we serve, since it is built primarily over electric utility
rights-of-way. Because some of our customers seek to ensure uninterrupted
service by acquiring redundant capacity on routes which differ from the routes
followed by their existing networks, we believe this gives us a significant
competitive advantage in marketing our services to customers. Although most of
our customers own and operate networks of their own, we believe that our
technologically advanced network and the high capacity of the fiber, diverse
paths and efficient cost structure of our network make it an attractive resource
that enables them to serve additional locations, offer service quickly and
improve their networks' reliability.

As of March 31, 2000, our network extended more than 1,100 miles, and, since it
consists of an average of 57 fibers per mile, included approximately 65,000
fiber miles. We have built connections to 43 points in 28 cities and towns where
customers can connect directly to our network, and we are building or preparing
to build an additional 56 connections in New England, New York and the Mid-
Atlantic region. Our planned network expansion into and within New York City and
the Mid-Atlantic region associated with our agreements with Consolidated Edison
Communications and Exelon Corporation, described below, would add 441 miles,
9,072 fiber miles and 75 additional connection points to our network. We believe
that the density of our interconnection points makes our service more attractive
to our customers.

We currently provide our customers with the following services:

- - LIT FIBER SERVICES. We lease bandwidth capacity on a wholesale basis to
customers on one to five year lease terms through our point-to-point
connections over fibers illuminated by communications equipment, known as
optronics, that we own and operate. These connections are designed to
continue to function despite fiber cuts or other interruptions because we
use a self-healing ring architecture known as a synchronous optical network,
or SONET.

- - DARK FIBER LEASES. We also lease dark fiber, that is, fiber that the
customer must illuminate using its own optronics, including amplifiers and
repeaters along the route served. Dark fiber leases are for terms of 10 to
20 years. We lease dark fiber to our customers to provide more complete
network control to carriers wishing to develop their own transport solutions
and to more quickly recoup a portion of our network construction costs using
fibers not required to execute our lit fiber business plan.

- - COLLOCATION. We lease space to our customers in the specially designed,
protected and configured facilities we build along our network's paths where
they can house their electronic and optronic equipment in direct proximity
to our network and to the equipment of our other customers.

1
<PAGE>
- - ANCILLARY NETWORK SERVICES. In addition to the core services described
above, we provide ancillary services such as the engineering, design and
construction of network segments connecting our customers to our network.

Because our network consists of elements embodying the most advanced optical
technologies available, we are able to offer much higher capacity service over a
single filament of optical fiber as compared to the older, legacy networks of
some of our competitors. This should result in lower costs of providing service,
enabling us to price our services competitively.

The advanced technology deployed on our network will increase its capacity and
will permit us to offer, at relatively low expense, the latest optical services
that we believe will be attractive to our customers. For example, we expect to
introduce optical wavelength services later this year, which will enable us to
offer customers the same effective capacity as an entire strand of dark fiber
configured with older technologies, but at a fraction of the cost and without
customer-built amplifiers and repeaters along the route. With existing
technologies, we are able to offer 16 channels of wavelength services on each
fiber strand. We expect that future technological advances in optronics will
increase this capacity significantly without requiring us to make substantial
additional capital investments. In addition, we believe that new technology
enables us to provide customers with capacity they order much faster and more
flexibly than is currently the case. This would allow customers to order
capacity on a short-term basis and thereby to pay only for what they need when
they need it, and leave us with additional capacity to sell to others.

Our objective is to be a leading provider of technologically-advanced fiber
optic transmission capacity to voice and data communications companies in the
Northeast and Mid-Atlantic regions. To achieve our objective, we are
implementing the following strategies:

- - Focusing on the Northeast and Mid-Atlantic markets, where telecommunications
demand is concentrated and rising;

- - Leasing wholesale services to incumbent and competitive local telephone
companies, long distance companies, Internet service providers and wireless
telephone companies;

- - Deploying technologically advanced fiber and optronics so that our network
will have high capacity, increased service offerings, low embedded costs per
unit of capacity and high reliability;

- - Building extensive physical connections from our network to customers'
interconnection points and to other collection points for high-volumes of
traffic;

- - Introducing innovative services such as optical wavelengths, which we
believe will be the cornerstones of future all-optical networks;

- - Providing services to smaller markets along our routes to obtain the benefit
of early market entry; and

- - Capitalizing on relationships with our utility sponsors to attract customers
and to forge additional alliances with other utilities.

2
<PAGE>
RECENT DEVELOPMENTS

In November 1999, we entered into agreements with Consolidated Edison
Communications, Inc., a wholly-owned subsidiary of Consolidated Edison, Inc.,
and with Exelon Corporation, a wholly-owned subsidiary of PECO Energy, Inc.
Consolidated Edison Communications and Exelon Corporation have agreed to provide
us with fiber optic filaments and interconnections, which, once received, will
enable us to operate our network through significant portions of their coverage
areas, including New York City and Philadelphia, and enter into cooperative
marketing arrangements with us.

Consolidated Edison Communications has agreed to provide us with a
telecommunications facility to house our equipment and the equipment of our
customers in Manhattan and to provide high-capacity connections to 26 carrier
buildings in key areas of Manhattan. These buildings include major long distance
telephone company facilities, large collocation facilities, telephone company
local offices and other high traffic buildings.

Exelon Corporation has agreed to provide us with a new telecommunications
facility for our use in Philadelphia and provide connections to 40 carrier sites
in metropolitan Philadelphia and to one site in each of Baltimore and
Washington, D.C.

Under these agreements, we have agreed to issue 2,448,240 shares of our common
stock to Consolidated Edison Communications and 2,106,625 shares of our common
stock to Exelon Corporation, which would result in Consolidated Edison
Communications and Exelon Corporation owning approximately 10.75% and 9.25% of
our outstanding common stock, respectively. Each of these companies also would
receive the right to nominate one member to our board of directors. In an
unrelated transaction, Consolidated Edison, Inc., the parent holding company of
Consolidated Edison Communications, has previously announced that it has entered
into an agreement to acquire Northeast Utilities, a holder of approximately 29%
of our common stock.

Our agreements with Consolidated Edison Communications and Exelon Corporation
are each subject to numerous conditions beyond our control, including the need
to obtain regulatory approvals from applicable regulatory agencies and relevant
municipalities. In addition, we may be required to obtain stockholder approval
prior to closing these transactions. New England Business Trust and Northeast
Utilities, two of our principal stockholders, have agreed to vote in favor of
the issuance of the shares to Consolidated Edison Communications and Exelon
Corporation in connection with these transactions in the event such approval is
required. Under each agreement, either party to the agreement may terminate that
agreement if the closing conditions of that agreement have not been satisfied by
June 9, 2000. We are seeking an extension of this termination date. These
agreements are not contingent on each other and either may close without the
other.

3
<PAGE>
The offering

<TABLE>
<S> <C>
Common Stock offered by selling 3,000,000 shares
stockholder................................

Underwriters' over-allotment option.......... 450,000 shares

Use of proceeds.............................. We will not receive any proceeds from the
sale of shares in this offering

Nasdaq National Market symbol................ "NOPT"
</TABLE>

4
<PAGE>
Summary historical consolidated financial data

We have summarized below our historical consolidated financial data as of
December 31, 1999 and for each of the three years in the period ended
December 31, 1999, derived from our consolidated financial statements audited by
Arthur Andersen LLP, independent public accountants. When you read the
information below, you should refer to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the notes to those consolidated financial statements included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
Year ended December 31,
Statement of operations data
1997 1998(1) 1999
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Revenues............................................. $ 394,704 $ 863,672 $ 5,665,276
Operating expenses................................... 2,693,037 9,175,280 19,895,829
----------- ------------ ------------
Loss from operations................................. (2,298,333) (8,311,608) (14,230,553)
Interest expense, net................................ (2,893) (4,464,583) (13,299,215)
Minority interest(2)................................. 1,080,200 1,108,933 --
Benefit from income taxes............................ (261,000) (315,000) --
----------- ------------ ------------
Loss before extraordinary item....................... (960,026) (11,352,258) (27,529,768)
Extraordinary item(3)................................ -- (1,363,155) --
----------- ------------ ------------
Net loss............................................. $ (960,026) $(12,715,413) $(27,529,768)
=========== ============ ============
Basic and diluted loss per share before extraordinary
item............................................... $ (3.37) $ (1.70) $ (1.70)
=========== ============ ============
Basic and diluted loss per share..................... $ (3.37) $ (1.90) $ (1.70)
=========== ============ ============
Basic and diluted weighted average shares
outstanding........................................ 284,828 6,675,717 16,172,026
=========== ============ ============
</TABLE>

<TABLE>
<CAPTION>
December 31,
Balance sheet data
1997 1998 1999
<S> <C> <C> <C>
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Cash and cash equivalents............................ $ 1,098,452 $ 57,737,792 $ 4,768,389
Short-term investments............................... -- 48,581,949 66,803,311
Restricted investments............................... 819,923 79,923,257 54,212,154
Property, plant and equipment........................ 16,534,703 52,922,677 94,924,843
Working capital...................................... (3,463,011) 112,995,534 68,928,133
Total assets(4)...................................... 23,461,000 291,912,234 280,633,376
Long-term account payable--Communications Network.... -- -- 4,682,858
Long-term debt, including current maturities......... 2,118,905 180,127,619 180,000,000
Stockholders' equity................................. 9,314,224 93,034,684 67,466,790
</TABLE>

<TABLE>
<CAPTION>
Year ended December 31,
Statement of cash flow data
1997 1998 1999
<S> <C> <C> <C>
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Cash provided by (used in) operating activities...... $ (813,704) $ 2,954,322 $(17,970,325)
Cash used in investing activities.................... (8,798,251) (93,772,328) (68,323,061)
Cash provided by financing activities................ 5,845,482 147,457,346 33,323,983
</TABLE>

<TABLE>
<CAPTION>
Year ended December 31,
Other financial data
1997 1998 1999
<S> <C> <C> <C>
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EBITDA(5)............................................ $ (665,271) $ (6,767,536) $ (8,080,833)
Depreciation and amortization........................ 552,862 1,798,294 6,149,720
Capital expenditures................................. 5,609,459 38,947,267 48,583,642
Ratio of deficiency to fixed charges(6).............. (10.11)x (.45)x (.23)x
</TABLE>

5
<PAGE>

<TABLE>
<CAPTION>
December 31,
Other operating data
1997 1998 1999
<S> <C> <C> <C>
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Route miles................................................. 187 600 980
Fiber miles................................................. 14,000 49,000 63,800
Points of presence.......................................... 3 4 34
Collocation facilities...................................... 0 3 9
</TABLE>

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

(1) IF OUR REORGANIZATION INTO A DELAWARE CORPORATION HAD OCCURRED ON
JANUARY 1, 1998, THE PRO FORMA BASIC AND DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING AND THE LOSS PER SHARE FOR THE YEAR ENDED DECEMBER 31, 1998
WOULD HAVE AMOUNTED TO 16,065,285 AND $0.79, RESPECTIVELY.

(2) MINORITY INTEREST CONSISTED OF THE INTERESTS OF MEMBERS OTHER THAN CENTRAL
MAINE POWER COMPANY IN OUR FORMER SUBSIDIARIES, FIVECOM LLC, NECOM LLC AND
FIVECOM OF MAINE LLC. IN JULY 1998, THESE SUBSIDIARIES WERE MERGED INTO
FIVECOM, INC. AND FIVECOM, INC. WAS REINCORPORATED IN DELAWARE UNDER THE
NAME "NORTHEAST OPTIC NETWORK, INC." CHANGES IN MINORITY INTEREST REFLECTED
MEMBERS' CAPITAL ADJUSTED BY THEIR PORTION OF THE NET LOSS.

(3) EXTRAORDINARY ITEM REFLECTS THE WRITE-OFF OF DEFERRED FINANCING COST OF
$1,363,155 RELATED TO THE EXTINGUISHMENT OF DEBT WITH A PORTION OF THE
PROCEEDS OF OUR CONCURRENT PUBLIC OFFERINGS OF DEBT AND EQUITY IN
JULY 1998.

(4) IN CONNECTION WITH OUR REORGANIZATION IN 1998, WE RECORDED AN INTANGIBLE
ASSET OF $47,871,068 TO REFLECT OUR ACQUISITION OF NORTHEAST UTILITIES'
MINORITY INTEREST IN A SUBSIDIARY, NECOM LLC, IN ACCORDANCE WITH AICPA
ACCOUNTING INTERPRETATION 39 TO APB OPINION NO. 16, BUSINESS COMBINATIONS
(AIN-39).

(5) EBITDA IS DEFINED AS NET LOSS BEFORE INTEREST EXPENSE, NET; LOAN COMMITMENT
FEES; BENEFIT FROM INCOME TAXES; AND DEPRECIATION AND AMORTIZATION. EBITDA
IS PRESENTED BECAUSE IT IS COMMONLY USED BY CERTAIN INVESTORS AND ANALYSTS
TO ANALYZE AND COMPARE A COMPANY'S OPERATING PERFORMANCE AND TO DETERMINE A
COMPANY'S ABILITY TO INCUR AND SERVICE DEBT. EBITDA SHOULD NOT BE CONSIDERED
IN ISOLATION FROM, OR AS A SUBSTITUTE FOR, NET INCOME, CASH FLOW FROM
OPERATING ACTIVITIES, OR OTHER CONSOLIDATED INCOME OR CASH FLOW STATEMENT
DATA PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES,
OR AS A MEASURE OF PROFITABILITY OR LIQUIDITY. EBITDA IS NOT NECESSARILY
COMPARABLE TO SIMILARLY TITLED MEASURES FOR OTHER COMPANIES AND DOES NOT
NECESSARILY REPRESENT THE AMOUNT OF FUNDS AVAILABLE FOR MANAGEMENT'S USE.

(6) FOR PURPOSES OF CALCULATING THE RATIO OF DEFICIENCY TO FIXED CHARGES:
EARNINGS CONSIST OF LOSS BEFORE INCOME TAX BENEFIT, PLUS FIXED CHARGES,
EXCLUDING CAPITALIZED INTEREST, AND FIXED CHARGES CONSIST OF INTEREST
EXPENSES AND CAPITALIZED INTEREST, PLUS AMORTIZATION OF DEFERRED FINANCING
COSTS. FOR THE PERIODS ENDED DECEMBER 31, 1997, 1998 AND 1999, OUR EARNINGS
WERE INSUFFICIENT TO COVER FIXED CHARGES BY APPROXIMATELY $3,124,000,
$4,795,000 AND $5,721,000, RESPECTIVELY.

6
<PAGE>
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Risk factors

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISKS AND THE OTHER INFORMATION INCLUDED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED. THIS COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DECLINE, AND YOU COULD LOSE ALL OR PART OF
YOUR INVESTMENT.

RISKS RELATING TO OUR BUSINESS STRATEGY

We have had significant net losses and our operating results have varied and
will continue to vary significantly.

Our current business has a very limited history. We have incurred net losses
since our inception. Our future operating results will fluctuate annually and
quarterly due to several factors, some of which are outside our control. These
factors include pricing strategies for our services, changes in
telecommunications technology, changes in the regulatory environment, cost and
timely availability of equipment, cost of construction and changes in general
and local economic conditions.

Our business strategy depends upon anticipated customer demand for our services,
and our failure to obtain customers for our services at profitable rates would
adversely affect our business results.

Our ability to become profitable depends upon our ability to secure a market for
our services and obtain service contracts with our communications customers.
Many of our targeted customers may also be our potential competitors. If our
services are not satisfactory or cost competitive, our targeted customers may
utilize other providers where available, or construct their own networks, which
would reduce their need for our services and create future sources of
competition for us.

Intense competition in the telecommunications industry from a broad range of
competitors may prevent us from obtaining customers and require us to cut
prices.

The telecommunications industry is highly competitive. We face substantial
competition from companies with significantly greater financial and other
resources whose capacity is interchangeable with the capacity we offer,
including incumbent local telephone companies, competitive local telephone
companies and major long distance companies. In addition, potential competitors
capable of offering services similar to those offered by us include other
communications service providers that own and operate their own networks and
equipment, including cable television companies, electric utilities, microwave
carriers, satellite carriers, wireless communication system operators and
end-users with private communications networks. Two of our principal
stockholders, Northeast Utilities and CMP Group, Inc., an affiliate of the
selling stockholder, each own or have rights to fibers in the cable that
includes a portion of our network, which permits each of them to compete
directly with us in the future if they use these fibers for purposes other than
their corporate requirements. Our rights-of-way are non-exclusive so that other
service providers (including the utilities themselves) could install competing
networks using the same rights-of-way.

- --------------------------------------------------------------------------------
7
<PAGE>
Risk factors
- --------------------------------------------------------------------------------

Because we offer a relatively narrow range of services in comparison to some of
our competitors, we cannot achieve revenues comparable to companies offering a
broader array of services and may be at a competitive disadvantage with respect
to the services we offer.

Unlike more diversified telecommunications companies, we derive and expect to
continue to derive substantially all of our revenues from the leasing of fiber
optic capacity on a wholesale basis to our customers, most of whom are
telecommunications companies and Internet service providers serving end-users.
The limited nature of our current services could limit our potential revenues
and result in our having lower revenues than competitors which provide a wider
array of services.

Due to rapidly evolving technologies in our industry and the uncertainty of
future government regulation, our current business plan may become obsolete and
we may be unable to maintain a competitive position if we are unable to
successfully adjust our products, services and business strategies as required.

In the future, we may become subject to more intense competition due to the
development of new technologies, an increased supply of domestic and
international transmission capacity, the consolidation in the industry among
local and long distance service providers and the effects of deregulation
resulting from the Telecommunications Act of 1996. The introduction of new
services and products or the emergence of new technologies may change the cost
or increase the supply of services and products similar to those which we
provide. We cannot predict which of many possible future product and service
offerings will be crucial to maintain our competitive position or what
expenditures will be required to develop profitably and provide such products
and services. Prices for our services to carriers specifically, and interstate
services in general, may decline over the next several years due primarily to
price competition to the extent that network providers continue to install
networks that compete with our network. We also believe that there will be
technological advances that will permit substantial increases in the
transmission capacity of both new and existing fiber.

A limited number of customers has accounted for a significant percentage of our
revenues.

Historically, a limited number of customers has accounted for a significant
percentage of our revenues. In 1998, three customers accounted for 50%, 19% and
12% of revenues, respectively. In 1999, three customers accounted for 18%, 16%
and 13% of revenues, respectively. We anticipate that our results of operations
in any given period will continue to depend to a significant extent upon
revenues of a small number of customers.

RISKS RELATING TO THE EXPANSION AND OPERATION OF OUR FIBER OPTIC NETWORK

The expansion of our network in New York City requires regulatory approval,
which has encountered delays.

Our network's connection to New York City currently uses fibers leased from a
third party. Our application for a municipal franchise to operate our own fiber
as a telecommunications carrier in New York City as well as a separate
application by Consolidated Edison Communications for the same type of
non-exclusive municipal franchise have both encountered delays resulting, we
believe, from our

- --------------------------------------------------------------------------------
8
<PAGE>
Risk factors
- --------------------------------------------------------------------------------

intention, in either case, to use the facilities of Consolidated Edison Company
of New York, Inc., the principal electric utility providing service in New York
City and an affiliate of Consolidated Edison Communications.

The grant by New York City of a franchise under either or both of these
applications will be, we believe, delayed until the resolution of open issues
between Consolidated Edison Company of New York, Inc. and the City of New York.
We have no control over the resolution of these issues, and cannot assure you
when, if ever, they will be resolved. If we are not permitted to own and operate
our own facilities in New York City, our ability to serve this important market
will be impaired.

Consolidated Edison Company of New York, Inc. has agreed to acquire Northeast
Utilities, which owns approximately 29% of our common stock and would acquire a
significant additional interest in us under our agreement with Consolidated
Edison Communications. Since in either event, Consolidated Edison, Inc. would
become the owner of more than 10% of our common stock, the New York City
Franchise and Concessions Review Committee, which must approve our application,
views us as being, or about to be, under the control of Consolidated Edison,
Inc.

The expenditures necessary to sufficiently expand our fiber optic network and
develop our services in order to satisfy the current and forecasted demands of
our customers may surpass our available cash, and we may be unable to obtain
additional capital to develop our services on a timely basis and on acceptable
terms.

Although we have expended significant resources in building our network from
Portland, Maine to New York City and the development of our customer base, we
will require significant additional cash in order to expand our geographic
coverage and the range of services which we can offer throughout our service
area in order to be competitive in our market. These expenditures for expansion
and for more services, together with associated operating expenses, will reduce
our cash flow and profitability until we establish an adequate customer base
throughout all of our coverage areas. To date, we have expended substantial
amounts on construction of our network from the proceeds of our financing
activities and, accordingly, we have generated negative cash flow. We may need
to obtain additional capital to expand our services and increase our service
territory, and cannot guarantee that additional financing will be available to
us or, if available, that we can obtain it on a timely basis and on acceptable
terms.

The successful, timely and cost-effective expansion of our fiber optic network
within the Northeast and into the Mid-Atlantic region is crucial to our business
plan, and depends upon numerous factors beyond our control.

Our ability to achieve our strategic objectives depends in large part upon the
successful, timely and cost-effective expansion of our fiber optic network
within the Northeast and into the Mid-Atlantic region. Among the major factors
that could affect our success are:

- - the inability to consummate, or a delay in consummating, our agreement with
Consolidated Edison Communications, which remains subject to substantial
regulatory conditions which have already resulted in delays; and

- - the failure of both affiliated and third-party suppliers or contractors to
meet their obligations to construct and maintain significant portions of our
fiber optic network in a timely and cost-effective manner.

- --------------------------------------------------------------------------------
9
<PAGE>
Risk factors
- --------------------------------------------------------------------------------

Either of these factors, or other factors, over which we have little control,
could significantly hinder our ability to complete our network and execute our
business plan.

Each of our agreements with Consolidated Edison Communications and Exelon
Corporation are subject to possible termination if the closing under that
agreement does not occur by June 9, 2000.

Each of our agreements with Consolidated Edison Communications and Exelon
Corporation are subject to termination by either party if the closing conditions
under that agreement have not been satisfied by June 9, 2000. Both of these
agreements are subject to substantial closing conditions that may not be
satisfied by June 9, 2000. We are seeking an extension of these termination
dates, but if we are not able to obtain them and one or both of these agreements
is terminated, our business plan will be adversely affected.

We obtain some of the key components used in our fiber optic network from a
single source or a limited group of suppliers, and the partial or complete loss
of one of these suppliers could disrupt our operations and result in a
substantial loss of revenue.

We depend upon a small group of suppliers for some of the key components and
parts used in our network. In particular, we purchase cable from Lucent-Fitel
and from Corning, and we purchase fiber optic equipment from Northern Telecom
Ltd., Cerent Corporation and Sycamore Networks. Any delay or extended
interruption in the supply of any of the key components, changes in the pricing
arrangements with our suppliers and manufacturers or delay in transitioning a
replacement supplier's product into our network could disrupt our operations.

Our fiber optic network, which is our sole source of revenue, is vulnerable to
physical damage, catastrophic outages, power loss and other disruptions beyond
our control, and the occurrence of any of these failures could result in
immediate loss of revenue, payment of outage credits to our customers and, more
importantly, the loss of our customers' confidence and our business reputation.

Our success in marketing our services to our customers requires that we provide
high reliability, high bandwidth and a secure network. Our network and the
infrastructure upon which it depends are subject to physical damage, power loss,
capacity limitations, software defects, breaches of security and other
disruptions beyond our control that may cause interruptions in service or
reduced capacity for customers. Our agreements with our customers typically
provide for the payment of outage related credits (a predetermined reduction or
offset against our lease rate when a customer's leased facility is
non-operational or otherwise does not meet certain operating parameters) or
damages in the event of a disruption in service. These credits or damages could
be substantial and could significantly decrease our net revenue. Significant or
lengthy outages would also undermine our customers' confidence in our fiber
optic network and injure our business reputation.

- --------------------------------------------------------------------------------
10
<PAGE>
Risk factors
- --------------------------------------------------------------------------------

RISKS RELATING TO OUR RIGHTS-OF-WAY

We could lose the contract rights upon which we rely to operate and maintain our
network in the event of bankruptcy proceedings relating to one or more of the
third parties that have granted to us the right to build and operate our network
using their rights-of-way.

The construction and operation of significant portions of our fiber optic
network depend upon contract rights known as indefeasible rights-of-use.
Indefeasible rights-of-use are commonly used in the telecommunications industry,
but remain a relatively new concept in property law. Although indefeasible
rights-of-use give the holder a number of rights to control the relevant
rights-of-way or fiber optic filaments, legal title remains with the grantor of
the rights. Therefore, the legal status of indefeasible rights-of-use remains
uncertain, and our indefeasible rights-of-use might be voidable in the event of
bankruptcy of the grantor. If we were to lose an indefeasible right-of-use in a
key portion of our network, our ability to service our customers could become
seriously impaired and we could be required to incur significant expense to
resume the operation of our fiber optic network in the affected areas.

Despite our existing rights-of-way, we may be forced to make substantial
additional payments to the affected landowners or remove our network from their
property, which would significantly harm our business and our results of
operations.

Our indefeasible rights-of-use depend on the grantor's interest in the property
on which our network is located. To the extent that a grantor of an indefeasible
right-of-use has a limited easement in the underlying property and not full
legal title, the adequacy of our indefeasible rights-of-use could be challenged
in court. For example, in May 1999, AT&T entered into a costly settlement of a
class action suit brought by landowners who asserted that the railroad-based
rights-of-way upon which AT&T had relied to build portions of its fiber optic
network were insufficient to permit AT&T to use these rights-of-way for
telecommunications purposes.

We believe that it is likely that a number of landowners may make similar claims
against us based on our use of utility rights-of-way for our telecommunications
purposes. In fact, some landowners have already asserted claims against us on
this basis, and, to date, in two cases, rather than electing to contest the
landowners' interpretation of the scope of the easement, we have made a payment
to such landowners to acquire rights-of-way meeting our requirements. We believe
that the easements granted by a substantial number of landowners to grantors of
our indefeasible rights-of-use are similar in scope to those with respect to
which claims have been asserted, and we cannot guarantee that additional claims
will not be made in the future.

Because significant portions of our fiber optic network are constructed upon
rights-of-way controlled by electric utility companies which generally place the
operation of their electrical facilities ahead of the operation of our fiber
optic network, we may be unable to construct and operate our fiber optic network
in the affected areas without periodic interruptions and delays caused by the
day-to-day operations of these utility companies.

Our rights-of-way agreements with Northeast Utilities and Central Maine Power
Company contain provisions which acknowledge the right of Northeast Utilities
and Central Maine Power, respectively, to make the provision of electrical
services to their own customers their top priority. Northeast Utilities

- --------------------------------------------------------------------------------
11
<PAGE>
Risk factors
- --------------------------------------------------------------------------------

and Central Maine Power are required only to exercise "reasonable care" with
respect to our facilities and are otherwise free to take whatever actions they
deem appropriate with respect to ensuring or restoring service to their
electricity customers, any of which actions could impair operation of our
network. In addition, some of our ongoing operational efforts are constrained by
the limited ability of the utilities to de-energize segments of their
transmission and distribution facilities in order to permit construction crews
to work safely. We have experienced construction delays in the past as a result
of such inability to timely de-energize certain segments and we may experience
such delays in the future.

RISKS RELATING TO GOVERNMENT REGULATION

Federal regulation of the telecommunications industry is changing rapidly and we
could become subject to unfavorable new rules and requirements which could
impose substantial financial and administrative burdens on us and interfere with
our ability to successfully execute our business strategies.

Regulation of the telecommunications industry is changing rapidly. Existing and
future federal, state, and local governmental regulations will greatly influence
our viability. Consequently, undesirable regulatory changes could adversely
affect our business, financial condition and results of operations.

Revenues from lit services to Internet service providers, which represent a
portion of our revenues, are subject to contributions to the FCC's Universal
Service Fund.

While we generally do not deal directly with end-users of telecommunications
services and are therefore generally exempt from contributing to the FCC's
Universal Service Fund, the FCC treats Internet service providers purchasing lit
services as end-users for these purposes. Our revenues from providing these
services, which represent a portion of our revenues, are therefore subject to an
assessment of 5.8% of gross interstate revenue for the fourth quarter of 1999,
and this assessment could increase.

If we become subject to regulation as a common carrier in the future, we would
be subject to additional regulatory requirements.

We do not believe that we are currently a "common carrier," but that status
could change based on differing interpretations of current regulations,
regulatory changes and changes in the way we conduct our business. If we become
regulated as a common carrier, we would have to file tariffs for our services
with the FCC and submit other reports, and would be required to contribute to
federal funds including, but not limited to, those established for
Telecommunications Relay Services and for the management of the North American
Numbering Plan. These regulatory requirements could impose substantial burdens
on us.

A recent FCC decision requiring incumbent local telephone companies to provide
their dark fiber to third parties may increase competition among providers of
dark fiber services.

The Communications Act of 1934 requires incumbent local telephone companies to
provide elements of their networks to competitors on an unbundled basis. In a
recent decision, the FCC determined that dark fiber is a network element that
incumbent local telephone companies must provide to others. The availability of
this alternative source of supply could decrease the demand for our dark fiber.

- --------------------------------------------------------------------------------
12
<PAGE>
Risk factors
- --------------------------------------------------------------------------------

Regulatory changes could affect relationships between us, our competitors and
customers in unforseeable ways that could reduce our business opportunities.

Our relationships with the telecommunications companies with whom we deal are
all affected by our respective positions in the FCC's regulatory scheme.
Accordingly, changes in federal telecommunications law may affect our business
by virtue of the interrelationships that exist among us and many of these
regulated telecommunications entities. It is difficult for us to forecast at
this time how these changes will affect us in light of the complex
interrelationships that exist in the industry and the different levels of
regulation.

State regulation of companies providing telecommunications services varies
substantially from state to state and we may become subject to burdensome and
restrictive state regulations as we expand our fiber optic network into a
broader geographic area, which could interfere with our operations and our
ability to meet our strategic objectives.

We may be subject to state regulation, which can vary substantially from state
to state. Our subsidiaries in New York and Connecticut have obtained authority
to provide intrastate telecommunications services on a competitive common
carrier basis, although to date they have not provided these services.
Therefore, these subsidiaries are subject to the obligations that applicable law
places on all similarly certificated common carriers including the filing of
tariffs, state regulation of certain service offerings, pricing, payment of
regulatory fees and reporting requirements. The costs of compliance with these
regulatory obligations, or any of the regulatory requirements of other states to
which we might become subject, could have a material adverse effect on our
operations.

Municipal regulation of our access to public rights-of-way is subject to change
and could impose administrative burdens that would adversely affect our
business.

Local governments typically retain the ability to license public rights-of-way,
subject to the federal requirement that local governments may not prohibit the
provision of telecommunications services. Changes in local government regulation
could impose additional costs on our business and limit our operations. Local
authorities affect the timing and costs associated with our use of public
rights-of-way.

RISKS RELATING TO OUR CAPITALIZATION AND THIS OFFERING

Because we have a large amount of debt, we will be required to devote a
significant portion of our cash flow to pay interest and we may not have
sufficient remaining cash flow to meet our other obligations and execute our
business strategies.

We are highly leveraged. Our high degree of debt, including our $180 million
12 3/4% Senior Notes Due 2008, could have adverse consequences to the holders of
our equity securities. Commencing on August 15, 2002, a substantial portion of
our cash flow will be dedicated to the payment of the $22,950,000 per annum of
interest expense associated with our debt and such cash flow may be insufficient
to meet our payment obligations on our debt in addition to paying our other
obligations as they become due. In addition, due to our leverage ratio, our
ability to obtain any necessary financing in the future for completion of our
network or other purposes may be impaired. Also, certain of our future
borrowings may be at variable rates of interest that could cause us to be
vulnerable to increases

- --------------------------------------------------------------------------------
13
<PAGE>
Risk factors
- --------------------------------------------------------------------------------

in interest rates. Because we are highly leveraged, we may be at a competitive
disadvantage to our competitors and may be especially vulnerable to a downturn
in our business or the economy generally, or to delays in or increases in the
costs of operating and constructing our network.

In connection with our substantial public debt, we have agreed to significant
restrictions on our operations that limit our ability to enter into major
corporate transactions, and as a result we may be unable to pursue potential
corporate opportunities which would benefit us and our stockholders.

The indenture under which our debt was issued imposes significant operating and
financing restrictions on us and our present and future subsidiaries. These
restrictions affect, and in certain cases significantly limit or prohibit, among
other things, our ability to incur indebtedness, pay dividends and make other
restricted payments, create liens, issue and sell capital stock of subsidiaries,
guarantee indebtedness, sell assets or consolidate, merge or transfer all or
substantially all of our assets. These limitations could prevent us from
exploiting corporate opportunities as they arise, which could be detrimental to
the interests of our stockholders.

The interests of our directors, executive officers and principal stockholders
could conflict with the interests of other stockholders, including the
purchasers in this offering.

Following completion of this offering, our principal stockholders, together with
our directors and officers, will hold or control approximately 50% of our
outstanding common stock. Accordingly, these stockholders will control the
outcome of stockholder votes, including votes concerning the election of
directors, amendments to our by-laws and charter, and the approval of
significant corporate transactions such as a merger or a sale of our assets.
This influence could discourage others from initiating a potential merger,
takeover or other change of control, including a potential transaction at a
premium over market price that a stockholder might consider to be in its best
interest. For more information, see "Principal and Selling Stockholders."

Purchasers of our common stock will experience immediate and significant
dilution upon purchasing shares in this offering because the public offering
price of those shares will exceed their book value.

Purchasers of our common stock in this offering will pay a price per share which
is substantially higher than the net tangible book value per share of our
currently outstanding common stock. Consequently, purchasers of common stock in
this offering will suffer dilution of $ per share from their investment.
See "Dilution."

- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------

Special note regarding forward-looking information

This prospectus includes and incorporates forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included or incorporated in this prospectus regarding our
strategy, future operations, financial position, future revenues, projected
costs, prospects, plans and objectives of management are forward-looking
statements. The words "anticipates," "believes," "estimates," "expects,"
"intends," "may," "plans," "projects," "will," "would" and similar expressions
are intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. In particular, but
without limiting the foregoing, our statements about our agreements with
Consolidated Edison Communications and Exelon Corporation, the satisfaction of
the conditions under those agreements and the extent of our network following
the consummation of the closing under each of those agreements constitute
forward-looking statements. We cannot guarantee that we actually will achieve
the plans, intentions or expectations disclosed in our forward-looking
statements and you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially from the plans,
intentions and expectations disclosed in the forward-looking statements we make.
We have included important factors in the cautionary statements included or
incorporated in this prospectus, particularly under the heading "Risk Factors,"
that we believe could cause actual results or events to differ materially from
the forward-looking statements that we make. Our forward-looking statements do
not reflect the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or investments we may make. We do not assume any
obligation to update any forward-looking statements.

- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------

Use of proceeds

We will not receive any proceeds from the sale of shares by the selling
stockholder.

Price range of common stock

Our common stock began trading on the Nasdaq National Market under the symbol
"NOPT" on July 31, 1998. The following table sets forth the high and low closing
sales prices for our common stock as reported on the Nasdaq National Market for
the periods indicated.

<TABLE>
<CAPTION>
High Low
<S> <C> <C>
- ----------------------------------------------------------------------------------
1998
Third Quarter (beginning July 31, 1998)..................... $ 10.500 $ 6.000
Fourth Quarter.............................................. 11.250 5.250

1999
First Quarter............................................... 17.625 9.125
Second Quarter.............................................. 18.875 13.625
Third Quarter............................................... 45.000 15.250
Fourth Quarter.............................................. 76.500 31.250

2000
First Quarter............................................... $149.875 $61.438
Second Quarter (through April 5, 2000)...................... $ 71.00 $62.563
</TABLE>

On April 5, 2000, the last reported sale price for our common stock was $71.00
per share. As of March 27, 2000, there were approximately 87 holders of record
of our common stock and approximately 11,719 beneficial holders.

Dividend policy

We have never paid or declared any cash dividends on our common stock or other
securities and do not anticipate paying cash dividends in the foreseeable
future. We currently intend to retain all future earnings, if any, for use in
the operation of our business. Furthermore, the indenture governing our $180
million 12 3/4% Senior Notes Due 2008 restricts our ability to pay dividends on
our common stock.

- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------

Dilution

The net tangible book value of our common stock as of December 31, 1999 was
approximately $9,895,000, or approximately $0.60 per share. "Net tangible book
value" per share represents the amount of our total tangible assets less total
liabilities, divided by 16,393,534 shares of common stock outstanding as of
December 31, 1999. Your investment in this offering will result in an immediate
dilution in net tangible book value of $ per share to new investors. The
following table illustrates the per share dilution:

<TABLE>
<S> <C>
Public offering price per share............................. $
Net tangible book value per share........................... $ 0.60
--------
Dilution per share to new investors......................... $
========
</TABLE>

The table above assumes no exercise of outstanding options. As of December 31,
1999, there were 1,896,580 shares of common stock subject to outstanding options
at a weighted exercise price of approximately $12.75 per share, and 376,923
shares were reserved for issuance under our stock plans as of December 31, 1999.
To the extent outstanding options are exercised, there will be further dilution
to new investors.

- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------

Capitalization

The following table sets forth our capitalization as of December 31, 1999. The
outstanding share information excludes:

- - 1,896,580 shares of common stock issuable on exercise of outstanding options
as of December 31, 1999 with a weighted average exercise price of $12.75, of
which options to purchase 584,420 shares were then exercisable;

- - 376,923 shares of common stock reserved for future issuance under our stock
plans; and

- - 4,554,865 shares issuable to Consolidated Edison Communications and Exelon
Corporation under the terms of our November 1999 agreements with each of
them, assuming that we complete the transactions. Consolidated Edison
Communications and Exelon Corporation may purchase additional shares in
order to maintain their proportionate interests in the event of certain
dilutive issuances occurring prior to the consummation of the transactions
contemplated by the agreements.

<TABLE>
<CAPTION>
December 31, 1999
<S> <C>
- -------------------------------------------------------------------------------
Long-term debt, less current portion........................ $180,000,000

Preferred stock, $.01 par value; 2,000,000 shares
authorized, no shares issued and outstanding.............. --

Common stock, $.01 par value; 30,000,000 shares authorized,
16,393,534 shares issued and outstanding.................. 163,935

Additional paid-in capital.................................. 110,072,881

Accumulated deficit......................................... (42,770,026)

Total stockholders' equity................................ 67,466,790
------------

Total capitalization.................................... $247,466,790
============
</TABLE>

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18
<PAGE>
- --------------------------------------------------------------------------------

Selected consolidated financial and operating data

The following selected consolidated financial and operating data presented below
as of December 31, 1997, 1998 and 1999 and for each of the three years in the
period ended December 31, 1999 have been derived from our consolidated financial
statements, which have been audited by Arthur Andersen LLP, our independent
public accountants. When you read the information below, you should refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and our consolidated financial statements and notes to those
consolidated financial statements included elsewhere in this prospectus.

<TABLE>
<CAPTION>
Year ended December 31,
Statement of operations data
1997 1998(1) 1999
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Revenues.............................................. $ 394,704 $ 863,672 $ 5,665,276
Operating expenses.................................... 2,693,037 9,175,280 19,895,829
----------- ------------- ------------
Loss from operations.................................. (2,298,333) (8,311,608) (14,230,553)
Interest expense, net................................. (2,893) (4,464,583) (13,299,215)
Minority interest(2).................................. 1,080,200 1,108,933 --
Benefit from income taxes............................. (261,000) (315,000) --
----------- ------------- ------------
Loss before extraordinary item........................ (960,026) (11,352,258) (27,529,768)
Extraordinary item(3)................................. -- (1,363,155) --
----------- ------------- ------------
Net loss.............................................. $ (960,026) $ (12,715,413) $(27,529,768)
=========== ============= ============
Basic and diluted loss per share before extraordinary
item................................................ $ (3.37) $ (1.70) $ (1.70)
=========== ============= ============
Basic and diluted loss per share...................... $ (3.37) $ (1.90) $ (1.70)
=========== ============= ============
Basic and diluted weighted average shares
outstanding......................................... 284,828 6,675,717 16,172,026
=========== ============= ============
</TABLE>

<TABLE>
<CAPTION>
December 31,
Balance sheet data
1997 1998 1999
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents............................. $ 1,098,452 $ 57,737,792 $ 4,768,389
Short-term investments................................ -- 48,581,949 66,803,311
Restricted investments................................ 819,923 79,923,257 54,212,154
Property, plant and equipment, net.................... 16,534,703 52,922,677 94,924,843
Working capital....................................... (3,463,011) 112,995,534 68,928,133
Total assets(4)....................................... 23,461,000 291,912,234 280,633,376
Long-term account payable--Communications Network..... -- -- 4,682,858
Long-term debt, including current maturities.......... 2,118,905 180,127,619 180,000,000
Stockholders' equity.................................. 9,314,224 93,034,684 67,466,790
</TABLE>

<TABLE>
<CAPTION>
Year ended December 31,
Statement of cash flows data
1997 1998 1999
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities....... $ (813,704) $ 2,954,322 $(17,970,325)
Cash used in investing activities..................... (8,798,251) (93,772,328) (68,323,061)
Cash provided by financing activities................. 5,845,482 147,457,346 33,323,983
</TABLE>

- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year ended December 31,
Other financial data
1997 1998 1999
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
EBITDA(5)............................................. (665,271) (6,767,536) (8,080,833)
Depreciation and amortization......................... 552,862 1,798,294 6,149,720
Capital expenditures.................................. 5,609,459 38,947,267 48,583,642
Ratio of deficiency to fixed charges(6)............... (10.11)x (.45)x (.23)x
</TABLE>

<TABLE>
<CAPTION>
December 31,
Other operating data
1997 1998 1999
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Route miles............................................ 187 600 980
Fiber miles............................................ 14,000 49,000 63,800
Points of presence..................................... 3 4 34
Collocation facilities................................. 0 3 9
</TABLE>

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

(5) EBITDA IS DEFINED AS NET LOSS BEFORE INTEREST EXPENSE, NET; LOAN COMMITMENT
FEES; BENEFIT FROM INCOME TAXES; AND DEPRECIATION AND AMORTIZATION. EBITDA
IS PRESENTED BECAUSE IT IS COMMONLY USED BY CERTAIN INVESTORS AND ANALYSTS
TO ANALYZE AND COMPARE A COMPANY'S OPERATING PERFORMANCE AND TO DETERMINE A
COMPANY'S ABILITY TO INCUR AND SERVICE DEBT. EBITDA SHOULD NOT BE CONSIDERED
IN ISOLATION FROM, OR A SUBSTITUTE FOR, NET INCOME, CASH FLOW FROM OPERATING
ACTIVITIES, OR OTHER CONSOLIDATED INCOME OR CASH FLOW STATEMENT DATA
PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, OR AS
A MEASURE OF PROFITABILITY OR LIQUIDITY. EBITDA IS NOT NECESSARILY
COMPARABLE TO SIMILARLY TITLED MEASURES FOR OTHER COMPANIES AND DOES NOT
NECESSARILY REPRESENT THE AMOUNT OF FUNDS AVAILABLE FOR MANAGEMENT'S USE.

- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------

Management's discussion and analysis
of financial condition and results of operations

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS TOGETHER WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO OUR CONSOLIDATED FINANCIAL
STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH FORWARD-LOOKING STATEMENTS.

Overview

To date we have experienced net losses and negative cash flow from operating
activities. From our inception to the present, our principal activities included
building our network, developing our business plans, hiring management and other
key personnel and negotiating and executing customer contracts. In the third
quarter of 1999, we commenced the roll-out of our lit services into New York
City. We expect to continue to generate net losses and negative cash flow as we
expand our operations. Whether or when we will generate positive cash flow from
operating activities will depend on a number of financial, competitive,
regulatory, technical and other factors. See "--Liquidity and Capital
Resources."

Our network service revenues include long-term leases of dark fiber and
shorter-term leases of lit fiber at fixed-cost pricing over multi-year terms. We
also provide collocation services at our facilities. Other service revenues
include nonrecurring design, engineering and construction services. We generally
receive fixed monthly payments from our customers for the leasing of capacity on
our network and recognize revenues ratably over the term of the applicable
customer agreement. Other service revenues are non-refundable and are generally
recognized as services are performed.

In 1999, approximately 44% of our revenues consisted of other service revenues.
We anticipate that as we proceed with the deployment of our network, the
percentage of revenues which we receive from network services will increase as a
percentage of revenues.

Our costs consist primarily of cost of sales, selling, general and
administrative expenses, depreciation and amortization and interest expense.
Cost of sales relates to lease payments for fiber optic facilities, network
surveillance, operations and maintenance costs and property taxes. Selling,
general and administrative expenses relate to expenses in connection with sales
and marketing infrastructure, including personnel, advertising costs and
promotional activities and management and information technology. Depreciation
and amortization expense is associated with the buildout of our network, as well
as goodwill from our reorganization on July 8, 1998. Interest expense relates to
interest on our $180 million 12 3/4% Senior Notes Due 2008.

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21
<PAGE>
Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

RESULTS OF OPERATIONS

Year ended December 31, 1999 compared to the year ended December 31, 1998

Revenues increased by $4,801,604 or 556% to $5,665,276 in the year ended
December 31, 1999 from $863,672 in the year ended December 31, 1998. Revenues in
1999 were generated by recurring lease services of $3,152,348 and other service
revenue of $2,512,928 which consists of collocation revenues and nonrecurring
revenues related to design, engineering, and construction.

Total cost of sales for the year ended December 31, 1999 was $6,365,758, an
increase of 193% over the $2,176,266 recorded in the year ended December 31,
1998. This increase was primarily due to lease payments for fiber optic
facilities, network surveillance cost, operations and maintenance costs and
property taxes resulting from network expansion in our service territory.

Selling, general and administrative expenses increased 42% to $7,380,351 for the
year ended December 31, 1999 from $5,200,720 in the year ended December 31,
1998, reflecting an investment in the sales and marketing infrastructure,
including personnel, advertising costs and promotional activities and an
increase in management and information technology.

Depreciation and amortization expense increased 242% to $6,149,720 for the year
ended December 31, 1999, compared to $1,798,294 for the year ended December 31,
1998. This increase resulted from higher depreciation expense associated with
additional segments of our system being placed in service and completion of our
points of presence and the amortization of goodwill as a result of the
reorganization on July 8, 1998.

Interest income increased 85% to $7,712,259 for the year ended December 31, 1999
from $4,179,880 for the year ended December 31, 1998. This increase was due
primarily to higher cash and investment balances for the entire year 1999
compared to only five months of interest in 1998 resulting from the timing of
the closing of our equity and debt public offerings in August 1998.

Interest expense increased 143% to $21,011,474 for the year ended December 31,
1999 from $8,644,463 for the year ended December 31, 1998. The increase resulted
primarily from interest accrued on our $180 million 12 3/4% Senior Notes Due
2008 for the full year 1999 as compared to only five months in the year 1998.

For the year ended December 31, 1999, we recorded a net loss of $27,529,768
compared to $11,352,258 before extraordinary item for the year ended
December 31, 1998. The increase in net loss is primarily attributable to the
factors discussed above. The extraordinary item for the year ended December 31,
1998 amounted to $1,363,155, representing the write off of deferred financing
costs associated with two construction loans repaid in the third quarter with
the proceeds from our debt and equity public offerings.

Year ended December 31, 1998 compared to the year ended December 31, 1997

Our December 31, 1998 revenues increased by $468,968, or 119%, to $863,672 in
the year ended December 31, 1998 from $394,704 in the year ended December 31,
1997. Revenues in 1998 were generated by recurring lease services to existing
customers, which came on line primarily during the second half of 1997, and to
new customers.

Total cost of sales for the year ended December 31, 1998 were $2,176,266, an
increase of 91% over the $1,137,943 recorded in the year ended December 31,
1997. The increase was primarily due to rights-of-way fees and property taxes
resulting from network expansion in our service territory.

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22
<PAGE>
Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

Selling, general and administrative expenses increased to $5,200,720 for the
year ended December 31, 1998 from $1,002,232 in the year ended December 31,
1997, reflecting an increase in personnel, a one time bonus payment, and the
cost of developing management, sales and infrastructure resources.

Depreciation and amortization expense was $1,798,294 for the year ended
December 31, 1998, compared to $552,862 for the year ended December 31, 1997.
The increase resulted from higher depreciation expense, due to the placement of
additional portions of our system into service and the amortization of goodwill
as a result of our reorganization on July 8, 1998.

Interest income increased to $4,179,880 for the year ended December 31, 1998
from $138,918 for the year ended December 31, 1997. The increase was due
primarily to higher cash and investment balances resulting from our equity and
debt public offerings.

Interest expense increased to $8,644,463 for the year ended December 31, 1998
from $141,811 for the year ended December 31, 1997. The increase resulted
primarily from interest accrued on the 12 3/4% Senior Notes Due 2008.

Minority interest for the year ended December 31, 1998 amounted to $1,108,933
compared to $1,080,200 in 1997. The increase is due to an increase in the
proportionate share of the net losses of our subsidiaries. The elimination of
the minority interest in the third quarter of 1998 was in connection with the
reorganization.

Benefit from income taxes increased slightly in the year ended December 31, 1998
to $315,000 from $261,000 for the comparable period of 1997. The benefit is
related to refundable income taxes resulting from our tax sharing arrangement
with Central Maine Power, which terminated upon the closing of the public
offerings on August 5, 1998.

For the year ended December 31, 1998, we recorded a net loss before
extraordinary item of $11,352,258, compared to $960,026 for the year ended
December 31, 1997. The increase in net loss before extraordinary item is
primarily attributable to the factors discussed above.

The extraordinary item for the year ended December 31, 1998 amounted to
$1,363,155, representing the write off of deferred financing costs associated
with two construction loans repaid in the third quarter with the proceeds from
our public offerings.

A net loss after extraordinary item recorded for the year ended December 31,
1998, amounted to $12,715,413, compared to $960,026 for the year ended
December 31, 1997. The increase in net loss after extraordinary item is
primarily attributable to the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Our operations have required substantial capital investment for the design,
construction and development of our network and the purchase of
telecommunications equipment. Capital expenditures were approximately
$5,600,000, $38,900,000 and $48,600,000 for the years ending December 31, 1997,
1998 and 1999, respectively. We expect to continue to have substantial capital
requirements in connection with the following:

- - expansion and improvement of our network;

- - connection of additional buildings and customers to our network;

- - purchase of additional telecommunications equipment;

- - purchase and development of our operating support systems; and

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23
<PAGE>
Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

- - additional expenses required to operate and maintain existing facilities.

We have funded a substantial portion of these expenditures through our completed
public offerings on August 5, 1998, resulting in net proceeds to us of
approximately $218 million (after deducting expenses and before deducting $72.0
million in escrowed funds to cover the first seven semi-annual interest payments
on our $180 million 12 3/4% Senior Notes due 2008).

The substantial capital investment required to build our network has resulted in
negative cash flow after investing activities over the last three years. This
negative cash flow after investing activities is a result of the requirement to
build a substantial portion of our network before connecting revenue-generating
customers. We expect to continue to produce negative cash flow after investing
activities for the current year due to the continuous expansion and development
of our network. Our ability to continue this expansion will be limited by our
current capital resources until sufficient cash flow after investing activities
is generated unless we seek and obtain additional capital.

Net cash (used in) provided by operating activities was $(813,704), $2,954,322
and $(17,970,325) for the years ended December 31, 1997, 1998 and 1999,
respectively. Net cash used in operating activities for the year ended
December 31, 1999 was due primarily to the operating loss partially offset by
improved working capital and non-cash items.

Cash flow from financing activities was, $5,845,482, $147,457,346 and
$33,323,983 in the years ended December 31, 1997, 1998 and 1999, respectively.
Cash flow from financing activities in 1999 was generated from the restricted
cash placed in escrow as described above in connection with the initial public
offering of our $180 million 12 3/4% Senior Notes Due 2008. In 1998, $19,450,772
of the proceeds our public offerings in August 1998 were used to repay long-term
construction loans from Central Maine Power and Peoples Heritage Bank, and
$72,887,041 of the proceeds was used to establish an escrow account to secure
the payment of the first seven scheduled interest and principal payments on the
notes, of which the first payment was made on February 15, 1999.

Cash used in investing activities totaled $8,798,251 and $93,772,328 and
$68,323,061 in the years ended December 31, 1997, 1998 and 1999, respectively.
Cash requirements consisted primarily of the cost of construction and deployment
of telecommunications equipment to build our network and purchases of short-term
investments.

We anticipate that we will continue to experience negative cash flow as we
expand our network, construct additional networks, deploy telecommunications
electronic equipment and market our services to an expanding customer base. Cash
provided by operations will not be sufficient to fund the development of our
system in the Northeast and its planned expansion to the Mid-Atlantic region. As
a result, we intend to use our cash on hand, the remaining net proceeds of the
1998 public offerings and we may attempt to raise additional financing through
some combination of commercial bank borrowings, leasing, vendor financing and
the sale of equity and/or debt securities.

Our capital requirements may vary based upon the timing and the success of
implementation of our business plan and as a result of regulatory, technological
and competitive developments or if:

- - demand for our services or cash flow from operations is less than or more
than expected;

- - our plans or projections change or prove to be inaccurate;

- - we make acquisitions; or

- - we accelerate deployment of our network or otherwise alter the schedule or
targets of our business plan implementation.

The expectations of required future capital expenditures are based on our
current estimates.

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24
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Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. SFAS
No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. This new standard is not anticipated
to have a significant impact on our consolidated financial statements based on
the current structure and operations.

The Securities and Exchange Commission issued SAB No. 101, REVENUE RECOGNITION,
in December 1999. We are required to adopt this new accounting guidance, as
amended by SAB No. 101A, through a cumulative charge to retained earnings in
accordance with Accounting Principles Board (APB) Opinion No. 20, ACCOUNTING
CHANGES, no later than the second quarter of fiscal 2000. We are currently
evaluating the effects that this guidance is expected to have on our financial
statements.

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25
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Business

GENERAL

We own and operate a technologically advanced, high-bandwidth fiber optic
network. We lease wholesale services to local telephone companies, long distance
companies, Internet service providers and wireless telephone companies. Our
network connects the principal markets in our region, which currently extends
from Portland, Maine to New York City and as of April 1, 2000 extended for more
than 1,100 route miles and approximately 65,000 fiber miles. Under our
agreements with Consolidated Edison Communications and Exelon Corporation, we
expect, subject to regulatory approval, to extend our network to Philadelphia,
Baltimore and Washington, D.C. and expand the reach of our network in and around
New York City. We believe our network is an attractive resource to our customers
because it enables them to extend their existing networks quickly and reliably.

We currently provide our customers with the following services:

- - LIT FIBER SERVICES. Fixed, high-bandwidth amounts of point-to-point
capacity offered across our network at fixed-cost pricing;

- - DARK FIBER LEASES. Fiber strands contained within a fiber optic cable which
has been laid but which does not include optical transmission equipment;

- - COLLOCATION. Rental space in specially designed, protected and configured
facilities we build along our network's path where customers connect to our
network and house their optronic equipment; and

- - ANCILLARY NETWORK SERVICES. Ancillary services include nonrecurring
engineering, design and construction of network segments connecting our
customers to our network.

We also intend to offer optical wavelength services to our customers later this
year, which will multiply the effective capacity of our fibers and enable us to
offer customers a cost-effective alternative to leasing an entire strand of dark
fiber.

MARKET OPPORTUNITY

We believe that there is a significant and growing demand for high-bandwidth
communications services in the Northeast and Mid-Atlantic regions and a limited
supply of technologically advanced dark and lit optical bandwidth and capacity
to meet this demand. We also believe that the needs of our customers for
advanced, high-bandwidth voice, data and video transmission capacity will
increase over the next several years for several reasons including:

Rapid growth of communications traffic

The North American telecommunications industry, including the "carrier's
carrier" market, has demonstrated growing demand for additional capacity, and we
expect this growth to continue. According to an industry survey by the Yankee
Group, the carrier's telecommunications services market is expected to grow from
approximately $6.7 billion in 1999 to $41.4 billion in 2006.

Several key developments are expected to drive this growth, including:

- - Broadband "last-mile" connectivity to long-haul fiber backbones is expected
to become more widely adopted and will enable businesses and consumers to
access the Internet at speeds up to 300 times faster than the Internet is
typically accessed today;

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BUSINESS
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- - As broadband connectivity becomes common, new data-intensive uses of this
capacity, such as business-to-business and Internet commerce applications,
are expected to develop, further increasing long-haul data traffic;

- - Other developing technologies, such as wireless access to data, are expected
to provide people with access to data wherever they are; and

- - International Internet traffic, which largely originates or terminates in
the U.S., is likely to increase.

Attractive demographic characteristics of the Northeast and Mid-Atlantic regions

We believe that the favorable demographic characteristics of the Northeast and
Mid-Atlantic regions, including high population density, income and education
levels and number of phone lines per household, will enhance the demand and
growth of communications traffic within these regions. With our advanced fiber
optic transmission capacity, we believe that we will be well-positioned to take
advantage of this demand and growth.

Increased demand for capacity

Deregulation has attracted many new carriers into the telecommunications market,
increasing the number of potential customers for our carrier-focused services.
The Telecommunications Act of 1996 opened local telephone services markets that
had previously been the virtual monopolies of the regional bell operating
companies, sometimes called "Baby Bells," and other incumbent local telephone
companies to new competition. In addition, the Act promised to lift prior
prohibitions on the Baby Bells offering long distance telephone services if they
opened their networks to the new competitors and met other conditions, a process
which has already begun. As a result, both incumbent and competitive local
carriers have required services such as ours to complete the end-to-end network
services they seek to offer their customers. In addition, long distance
providers, Internet service providers, mobile and fixed wireless telephone
companies and cable companies have increased demands for capacity in the regions
we serve.

We believe that this combination of increased end-user demand and increased
competition among carriers will continue to create the need for high-capacity
transport services, and that advanced fiber optic networks such as ours will be
positioned to provide the highest-quality service at the lowest cost. As a
result, we believe that many carriers will choose to lease fiber optic capacity
from wholesale providers like us to enhance or create their own communications
networks as a lower-cost alternative to constructing their own infrastructure.

Need for redundant routing and geographic diversity of rights-of-way

Telecommunications companies typically seek to acquire more than one path to
significant service destinations to provide reliability in the event of an
equipment failure, breakage in fiber lines or other outage. In order to ensure
the required redundancy, telecommunications companies often seek to build, swap
or lease capacity along two or more fiber routes between each location they
serve so that the alternative routes do not share common points of potential
failure. There are relatively few preassembled rights-of-way available to
support new telecommunications infrastructure in the regions we serve, where
many of the telecommunications companies' routes currently run within the same
rights-of-way. As a result, in the event the cables in a common right-of-way
were damaged or cut, the resulting disruption of service would be severe for the
carriers and their customers. The lack of geographic diversity of most fiber
optic routes in the Northeast and Mid-Atlantic regions has created a

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market opportunity for networks offering alternative rights-of-way. We believe
that carriers utilizing older, single-path networks will need to improve or
rebuild their networks to acquire the redundant network architecture and also
add additional high capacity fiber optic transmission lines to remain
competitive in the future.

Need to modernize older communications networks

Many existing fiber optic networks were constructed using older, less reliable
system architectures and earlier generations of fiber that will not readily
support recent advances in optronic equipment, such as dense wave division
multiplexing, or DWDM. DWDM allows for the transmission of multiple wavelengths
of light over a single fiber optic filament, thereby increasing a network's
capacity and enabling significant unit cost reductions for transmission
capacity. We believe that telecommunications companies using dated systems will
need to improve or replace parts of their networks to complete the redundant
network architecture and also add more high capacity fiber optic transmission
lines to remain competitive in the future. As a result, we believe that the
owners of these older, more limited networks will seek cost-effective and
efficient solutions when leasing, buying or building upgraded fiber optic
capacity.

Accommodation of multimedia and other new applications

We believe that additional transmission capacity and faster response times will
be required to accommodate the needs of multimedia, including voice, data and
video, and other potential high-bandwidth applications, such as corporate
intranets and wide-area networks, and the use of telecommunications
infrastructure for providing cable television and other entertainment services.
We believe that these capacity-intensive requirements will create significant
demand for high quality, high-bandwidth fiber optic capacity.

Rapid growth of collocation services

With the increase in the number of communication providers and the geographic
expansion of their networks, we believe that there will be significant demand
for collocation space in which carriers can house their electronic optical
transmission equipment, known as optronics, in a secure, carefully-controlled
environment. International Data Corporation predicts that the U.S. market for
collocation services will grow from an estimated $710 million in 2000 to
$4.2 billion in 2003. We believe that rising demand for telecommunications
services and Internet-based data services to support electronic commerce will
cause providers of these services to seek additional collocation space on
high-capacity networks like ours.

BUSINESS STRATEGY

Focus on high demand for communications services in the Northeast and
Mid-Atlantic regions

Our network covers the Northeast and Mid-Atlantic regions, which are among the
most densely-populated regions of the U.S. with some of the highest
concentrations of businesses, universities, phone

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lines, personal computers and television sets in the country. As a result, these
regions are experiencing high and growing demand for data and telephone
services. We believe that there is and will continue to be significant demand in
the Northeast and Mid-Atlantic regions for the fiber optic capacity, route
diversity and redundancy provided by our network.

Target telecommunications companies

We target telecommunications companies, rather than end-users of
telecommunications services, as our customers. We believe our target customers
prefer an independent supplier of wholesale services like ourselves to a
supplier with which they compete directly for end-user customers. We also
believe that we can generate revenues more quickly from communications
companies, who sell their services to end-users, than by selling directly to
end-users, because these companies:

- - make large purchases of fiber optic capacity;

- - make long-term capital commitments; and

- - are generally more creditworthy than end-users.

In addition, our customers are easily identifiable, which allows us to deploy a
concentrated, highly-skilled sales, marketing and customer service team and to
avoid the significant expense, risk and price competition often associated with
retail marketing efforts. As of April 1, 2000, we had 28 customers. In addition
to customers such as MCI WorldCom, Sprint, GTE and AT&T Local, we derive a
significant portion of our revenues from Internet infrastructure companies such
as Level 3 Communications, Williams Communications and Global Crossing, among
others.

Develop and operate a technologically advanced, low cost and reliable network

We are implementing advanced, proven fiber and optronic technologies throughout
our high-speed fiber optic network in order to meet our customers' demands for
reliability and high capacity. We have constructed our network utilizing a
self-healing, SONET ring architecture, which enables us to offer and guarantee
very high levels of protected service reliability. We are also deploying the
latest optical network technology, including DWDM, which allows the transmission
of multiple wavelengths of light over a single fiber optic filament, thereby
increasing our network's capacity and decreasing the incremental investment to
do so. We use both TrueWave-TM- and AllWave-TM- fiber manufactured by Lucent
Technologies Inc., both of which support DWDM technology and which we believe to
be the highest quality fiber optic cable available. We have generally deployed
TrueWave-TM- fiber on our metro-optical systems and AllWave-TM- fiber on our
long-haul intra-city routes. We also deploy fiber manufactured by Corning.

Our network can also accommodate advanced communications protocols such as frame
relay, asynchronous transfer mode and Internet protocol. Each of these protocols
divides streams of data into discrete packets that can be separately addressed
and sent across networks, thereby conserving network resources. Because we are
building an entirely new network, we are not hampered by outdated legacy
equipment, enabling us to provide our customers with a high degree of
reliability, survivability and quality of service. In addition, because we
utilize the same fiber and optronic technologies throughout our network, we
provide a consistent interface for interconnections to our customers' disparate
networks. We are also evaluating leading automated back office systems, also
known as operating support systems or OSS, to expedite provisioning of our
services and the expansion of our service offerings.

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Develop robust network infrastructure with deep geographic penetration and
direct connectivity to our customers

We are focused on developing a robust network infrastructure to provide optical
transport services to and from our customers' facilities. We have complemented
our optical long-haul network with regional and metro-optical fiber rings which
extend our network's penetration both deeper into our service region and beyond
the geographic boundaries of our previous coverage areas. To serve our
customers' needs, we are deploying all-optical optronics that will enable us to:

- - expand the capacity of our existing network;

- - increase the flexibility and scaleability of our network, thereby enabling
us to utilize future advances in transport technology; and

- - provide capacity more rapidly to our customers.

Moreover, the regional and metro optical rings, in conjunction with our
utility-granted rights-of-way, facilitate access directly to our customers'
numerous geographic locations and enable us to offer broadband services directly
to our customers.

Continue to expand products and services

While providing conventional bandwidth services and products, we intend to
develop and introduce innovative, new transport products. We intend to be among
the first carriers to lease optical wavelength services, which we believe will
interest potential customers that wish to lease large amounts of capacity at
lower costs than dark fiber while retaining the network control advantages of
dark fiber. These services will provide a customer with the exclusive long-term
use of a portion of the transmission capacity of a fiber optic filament, a
single wavelength of light, rather than the entire filament. Using this
technology, we are able to multiply the saleable capacity of our network.
Because of the high quality and carrying capacity of the fibers we have
deployed, as new optronic technology becomes available, we believe we will be
able to increase the available number of wavelengths in a single fiber for a
relatively small additional investment and thereby further increase the
aggregate capacity of our network. Like a purchaser of dark fiber, a purchaser
of wavelength services would typically install its own electrical interface,
switching and routing equipment but would not be required to purchase and
install amplifiers and repeaters along the route.

Capitalize on diverse routes provided by electric utility rights-of-way

Our network connects the principal markets in our region following a different
route than those used by most competing networks in the region we serve, since
ours is built primarily over electric utility rights-of-way. Because our
customers seek route diversity to ensure uninterrupted service, we believe this
gives us a significant competitive advantage in marketing our services to
customers. Although most of our customers own and operate networks of their own,
we believe that the high capacity, diverse routing and efficient cost structure
of our network makes it a more attractive resource enabling them to serve
additional locations, offer service quickly and improve their networks'
reliability.

Provide access to underserved, smaller markets

While our recent agreements with Consolidated Edison Communications and Exelon
Corporation and our other recent expansion efforts have targeted large
metropolitan areas with populations exceeding 1,000,000, our network also
extends to underserved, smaller markets. In these markets, we are one of

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the few providers of high-bandwidth communications services and believe that we
have a first-to-market advantage through our established customer base and
infrastructure, which will position us to become a leading wholesale carrier in
these markets.

Leverage relationships with utility sponsors

We intend to continue to leverage our relationships with electric utilities,
including our long-standing relationships with Northeast Utilities and Central
Maine Power, as well as our newly established alliances with Consolidated Edison
Communications and Exelon Corporation, to build our network and customer base.
We believe that these relationships are beneficial because:

- - they enhance our credibility with large customers and facilitate new
customer contracts;

- - they allow us to leverage our resources and improve our ability to respond
to emergency repair needs; and

- - they create opportunities to establish relationships with other electric
utility companies.

OUR ADVANCED FIBER OPTIC NETWORK

The following table lists:

- - the length of our network in the states we serve, under the heading "Route
Miles;"

- - the length of our network multiplied by the average number of fibers in the
route, under the heading "Fiber Miles;"

- - the estimated number of facilities of potential wholesale customers within
one mile of our existing network (based on U.S. government statistics),
under the heading "Number of Points of Presence Passed;" and

- - the largest metropolitan areas our network serves, under the heading "Major
Service Areas."

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<TABLE>
<CAPTION>
Number of
Points of
Route Fiber Presence Major Service
State Miles Miles Passed Areas
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Connecticut.................. 349 21,334 58 Hartford
Stamford
New London
New Haven
Bridgeport
Greenwich

Maine........................ 81 4,831 8 Portland

Massachusetts................ 307 13,559 112 Springfield
Boston
Amherst
Framingham
Lawrence
Cambridge
Lowell

New Hampshire................ 258 15,722 34 Nashua
Manchester
Dover
Portsmouth
Keene

New York..................... 80 9,290 95 White Plains
New York City

Rhode Island................. 65 764 16 Providence
----- ------- ------ Green Hill
Pawtucket

Total...................... 1,140 65,500 323
===================== ======================== =====================
</TABLE>

We use leading edge technology throughout our fiber optic network. Our network
consists of fiber optic cable paths, which permit high-speed, high-quality
transmission of voice, data and video communications. Fiber optic networks use
laser-generated light waves to transmit voice, data and video in digital form by
way of ultra-thin filaments of glass. Fiber optic networks are generally
characterized by large bandwidth capacity, are resistant to external signal
interference and connect directly to digital switching equipment or digital
microwave systems.

Unlike older network infrastructures, which utilize a combination of older,
copper-cable-based transmission technologies, early-stage fiber optic hardware
and more modern equipment, our network is almost completely optical and
incorporates advanced fiber optic technology. Because we began construction of
our network in the mid-1990s, our facilities benefit from technological advances
not previously available, such as Lucent's AllWave-TM- and TrueWave-TM- fiber,
and we believe we are well-positioned to support future advances in optronics
and compression technology as they become available, which will allow us to
offer more bandwidth carrying capacity at decreasing incremental costs.

Since our inception, we have been committed to utilizing advanced fiber optic
technologies throughout our network. While the potential capacity and
performance of these technologies may sometimes

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surpass our customers' current needs, we believe that the additional expense
which we have incurred and will continue to incur through our deployment of
these technologies will provide us with a competitive advantage over time and
minimize the need for costly infrastructure updates.

We use the latest Lucent fiber and Nortel DWDM optronics to ensure the highest
capacity transmission and data integrity level. The advanced technical operating
characteristics of our network enable us to provide highly reliable services to
our customers at a lower cost by permitting higher capacity transmission over
longer distances between regeneration and amplifier facilities than can be
provided by less advanced systems.

We offer fiber optic capacity utilizing bi-directional SONET ring architecture,
which has the ability to route customer traffic in two directions around a ring
design. This architecture protects against service interruptions due to fiber
cuts and other network failures. In addition, we intend to implement Internet
protocol technology in 2001 to further increase the effective capacity of our
network and orient it toward the growing demand for Internet-based data
transmission services. We continuously monitor our network to maintain quality
control on a 24-hour basis and to alert us of any degradation of signal or loss
of fiber capacity, and to pinpoint the location of such difficulty and enable us
to repair or replace impaired fiber quickly.

While we currently offer only dark fiber and lit fiber leases, our use of
Lucent's AllWave-TM- and TrueWave-TM- fiber technology will support our
anticipated introduction of optical wave services. Our optical wave services
will allow customers to enter into exclusive long-term leases for a portion of
the capacity of a fiber rather than an entire fiber. Customers leasing optical
wave services will be able to acquire dedicated, unprotected capacity at a
substantial savings over conventional dark fiber leases.

NEON SERVICES

We currently provide the following services:

- - LIT FIBER SERVICES. We provide fixed, high-bandwidth amounts of
point-to-point capacity across our network at fixed-cost pricing over
multi-year terms. These lit services are the focus of our service strategy
because we are able to earn more revenue per fiber through the provision of
lit fiber services than we can with any of our other service offerings. We
offer our customers a self-healing ring architecture which enables us to
offer and guarantee very high levels of protected service reliability. This
synchronous optical network, or SONET, technology is not offered with any of
our other services. Our lit fiber lease agreements generally have an initial
term of one to five years and provide for fixed monthly payments throughout
the term of the lease;

- - DARK FIBER LEASES. We lease rights for dark fiber and related services to
some of our facilities-based customers that are able to furnish the optronic
equipment needed to utilize dark fiber. Dark fiber consists of fiber strands
contained within a fiber optic cable which has been laid but does not
include optical transmission equipment. Our dark fiber lease agreements
generally have terms of 10 to 20 years and provide for fixed monthly
payments throughout the term of the lease;

- - COLLOCATION. We have constructed, and continue to construct, specially
designed, configured and equipped facilities adjacent to our network through
which carriers are able to connect to our optical network. Our collocation
customers collocate with us, or rent space, in our facilities and thereby
bond themselves electronically to our network. We have invested substantial
resources into our collocation facilities to insure that they provide the
carrier-class operating environment that

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our customers require, including appropriate power supplies, back-up
generators, heating, ventilation and air conditioning systems and security
and dry fire suppression systems designed to operate without damaging the
optronic equipment which they protect; and

- - ANCILLARY NETWORK SERVICES. In additional to the core services described
above, we provide ancillary services such as nonrecurring engineering,
design and construction of network segments connecting our customers to our
network.

Our lit and dark fiber contracts typically provide for outage related credits, a
pre-determined reduction or offset against the customer's lease rate when a
customer's leased facility is non-operational or does not meet the customer's
operating parameters, and also typically require us to maintain adequate
insurance coverages, including product liability coverage.

OPTICAL WAVELENGTH SERVICES. We also intend to offer optical wavelength
services to our customers beginning later this year. These services will
leverage our technologically-advanced network, including DWDM technology, to
provide a customer with the exclusive long-term use of a portion of the
transmission capacity of a fiber optic strand rather than the entire fiber
strand. While we expect that a portion of our established dark fiber customers
will lease capacity from us in this manner, we anticipate that our new services
will generate new customers as well.

SALES AND MARKETING

Our sales and marketing strategy includes positioning ourself as the wholesale
carrier of choice, emphasizing our capacity, reliability, rapid deployment,
customer service, access and cost advantages that will allow us to lease our
fiber optic infrastructure at competitive prices. Our sales and marketing
activities were conducted through a dedicated sales force which numbered 14
sales persons as of April 1, 2000.

CUSTOMERS

As of April 1, 2000, we had 28 customers. Our customers include, among others,
long distance companies such as AT&T Local, MCI WorldCom and Sprint, and
competitive local telephone companies such as RCN, CTC Communications and
Network Plus. We derived more than 10% of our revenue in 1999 from each of
Sprint, CTC Communications and Network Plus.

Our targeted carrier customer base includes the following classes of carriers:

- - INCUMBENT LOCAL TELEPHONE COMPANIES. Incumbent local telephone companies
typically require some interstate paths for internal communications, signal
control and operator services. Incumbent local telephone companies also
require intrastate capacity to connect central offices to one another. We
expect incumbent telephone companies to require significant long-haul
capacity as they become eligible to offer long distance services to
customers in their region.

- - LONG DISTANCE COMPANIES. Long distance companies typically require regional
short-haul connectivity from their national backbone facilities to originate
and terminate traffic deeper into the customer base, redundant routing to
ensure reliability in their networks and additional capacity.

- - COMPETITIVE LOCAL TELEPHONE COMPANIES. Competitive local telephone
companies typically require long distance services and interconnection among
their local networks. In addition, competitive

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local telephone companies focused on providing data services through digital
subscriber line, or DSL, technology typically require high-speed fiber
connections from incumbent telephone company central offices to their own
facilities and from there to the Internet backbone.

- - INTERNET SERVICE PROVIDERS. Internet service providers typically require
connections from their facilities to the facilities of long distance
companies and local telephone companies and interconnection to other
Internet service providers.

- - WIRELESS COMMUNICATION COMPANIES. Wireless companies typically require
land-based back-hauling of traffic from towers to their switches and also
capacity between their switches and the facilities of local and long
distance telephone companies.

SUPPLY RELATIONSHIPS

We have entered into agreements and arrangements for the supply of equipment and
services relating to the construction of our network. In choosing our suppliers,
we use such criteria as the quality and performance of the product for the
intended purpose, pricing, and the ability of the supplier to meet our delivery
schedule and technical support requirements. We purchase optronic equipment from
Northern Telecom Ltd., Cerent Corporation and Sycamore Networks, network
services from Northern Telecom Ltd., and cable from Lucent-Fitel and Corning.
The cable purchased from Lucent-Fitel includes Lucent's TrueWave-TM- and
AllWave-TM- fibers, which we believe have favorable performance characteristics
that reduce our investment in signal enhancing network equipment. We believe
that there are alternative suppliers or alternative components for all of the
components contained in our network. Any delay or extended interruption in the
supply of any of the key components, changes in the pricing arrangements with
our suppliers or delay in transitioning a replacement supplier's product into
our network could disrupt our operation.

RIGHTS-OF-WAY AGREEMENTS

We acquire our rights-of-way principally from electric utilities in the
territory covered by our network. We believe that these rights-of-way are
superior to alternative rights-of-way because electric utility rights-of-way
provide near-ubiquitous urban and intercity coverage at lower cost and because
the frequent need to depart from or work around gaps in other rights-of-way
often entail significant expenditures and a lengthy and expensive
community-by-community approval process. Furthermore, installing cable in
electric utility rights-of-way is often safer, easier and faster because the
cable is placed in existing underground conduits and ducts, or installed on
existing towers and poles.

Northeast Utilities agreements

In 1994 and 1995, we entered into a series of agreements with the three
principal operating subsidiaries of Northeast Utilities concerning the provision
of rights-of-way along electric utility towers and inside urban electric utility
ducts. Pursuant to these agreements, we have acquired indefeasible rights-of-use
in fiber optic filaments along a designated route in Northeast Utilities'
service territory and pay to Northeast Utilities mileage-based annual fees and a
percentage of the gross revenues that we generate on the portion of our network
located on Northeast Utilities' rights-of-way.

A portion of the system, comprised of 12 fibers within the cable, is owned by
and has been set aside for Northeast Utilities' use. Northeast Utilities may
lease these fibers to third parties, provided that

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prior to September 2001, Northeast Utilities is not permitted to assign any
fibers or resell capacity on these 12 fibers to specified carriers except for
limited purposes. After September 2001, Northeast Utilities will be free to use
these fibers to compete with us.

Our agreements with Northeast Utilities have an initial term of 30 years and
expire in September 2024. Thereafter they automatically renew for five-year
terms, unless one of the parties has given a one-year advance notice of
termination. In the event that Northeast Utilities gives such a notice and
terminates the agreements, it must either, at its option, pay to us an amount
equal to the fair market value of the system built on Northeast Utilities'
rights-of-way less the 12 fibers set aside for Northeast Utilities' use, or
allow us to retain our indefeasible rights-of-way and receive from us an annual
payment equal to 10% of our gross revenue from the fiber optic system on
Northeast Utilities' rights-of-way, which payment would be in addition to the
other annual payments under our agreements with Northeast Utilities.

Central Maine Power Company agreement

In January 1997, we entered into an agreement with Central Maine Power, an
affiliate of the selling stockholder, in which Central Maine Power granted to us
a right-of-use in fiber optic filaments within a cable along a designated route
in Central Maine Power's service territory. In exchange for the rights-of-use,
we agreed to pay to Central Maine Power an annual fee beginning, with regard to
any particular route segment, in the first calendar year following the
installation date for such route segment.

Our rights-of-use do not apply to six fibers that have been set aside for
Central Maine Power's use. Central Maine Power may use these fibers for its own
business purpose, but may not lease them to third parties prior to the seventh
anniversary of any given installation date. After such seven-year period, to the
extent that Central Maine Power has excess capacity on these six fibers, Central
Maine Power is required to negotiate in good faith with us to provide such
excess capacity to us before making it available to third parties. If we do not
enter into an agreement with Central Maine Power with respect to such excess
capacity, Central Maine Power will be able to use such capacity to compete with
us.

Our agreement with Central Maine Power has an initial term of 30 years and
expires in January 2027. Thereafter it is renewable at our option for an
additional ten-year term. In the event that we elect to renew our agreement with
Central Maine Power, we must pay to Central Maine Power an annual payment equal
to 10% of our gross annual revenue from our fiber optic network constructed
along Central Maine Power's rights-of-way, which payment would be in addition to
the other annual payments under our agreement with Central Maine Power.

Payments under rights-of-way agreements

The aggregate amounts accrued by us under our agreements that provide for the
rights-of-way used in our network were $785,535, $1,084,325 and $886,322 for the
years ended December 31, 1997, 1998 and 1999, respectively.

CONSOLIDATED EDISON COMMUNICATIONS AGREEMENT AND EXELON CORPORATION AGREEMENT

In November 1999, we entered into agreements with the communications
subsidiaries of Consolidated Edison, Inc., and PECO Energy, Inc. Under these
agreements, Exelon Corporation, PECO's

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communications subsidiary, and Consolidated Edison Communications have agreed to
provide us with fiber optic filaments and interconnections which, once received,
will enable us to operate our network through significant portions of their
coverage areas, including New York and Philadelphia, and enter into cooperative
marketing arrangements with us.

Under the agreements, we have agreed to provide network transport and carrier
services among the service areas of Consolidated Edison Communications and
Exelon Corporation, provided that each of these companies would provide
connectivity from our network to their respective local loops, and each would
manage distribution into its respective end-users' locations. The communications
network would operate under our brand name and we would jointly develop, operate
and market the combined telecommunications infrastructure that would be created
through the consummation of the two transactions.

For an initial period of seven years, the agreements provide us with the
exclusive right and obligation to provide communications services to
Consolidated Edison Communications and Exelon Corporation and their certificated
carrier customers to any point covered by our network, so long as we are able to
provide such services in a timely manner and at market competitive prices.
Consolidated Edison Communications and Exelon Corporation have reciprocal
exclusive rights and obligations under the agreements to provide communications
services to us and our customers to any point covered by their networks, subject
to the same timing and pricing conditions.

Consolidated Edison Communications has agreed to provide a connection facility
for us in Manhattan and provide connectivity to 26 carrier buildings in key
areas of Manhattan. These buildings include major long distance company
facilities, large collocation facilities, local serving offices and other
high-traffic building sites. Exelon Corporation has agreed to provide a new
facility for our use in Philadelphia, convey a right-of-use to approximately
4,000 fiber miles in a corridor from New York City to Philadelphia and from
Philadelphia to Baltimore and Washington, D.C., and provide connectivity to 40
carrier sites in metropolitan Philadelphia and to one site in each of Baltimore
and Washington, D.C.

Under the agreements, we have agreed to issue 2,448,240 shares of our common
stock to Consolidated Edison Communications and 2,106,625 shares of our common
stock to Exelon Corporation, which would result in Consolidated Edison
Communications and Exelon Corporation owning approximately 10.75% and 9.25% of
our outstanding common stock, respectively. Under the agreements, each of these
companies also would receive the right to nominate one member to our board of
directors.

Prior to the closing of the transactions contemplated by these agreements, we
may be required to reorganize into a two-tiered corporate structure. If this
contemplated reorganization is consummated after this offering, then all
outstanding shares of our common stock would be exchanged for shares of the
newly created parent company.

The consummation of the transactions contemplated by these agreements remains
subject to the satisfaction of numerous closing conditions, including the
successful securing of all regulatory approvals. In addition, we may be required
to obtain stockholder approval of these transactions. New England Business Trust
and Northeast Utilities, two of our principal stockholders, have agreed to vote
in favor of the issuance of the shares to Consolidated Edison Communications and
Exelon Corporation in connection with these transactions in the event such
approval is required. Under each agreement, either party to the agreement may
terminate that agreement if the closing conditions of that agreement have not
been satisfied by June 9, 2000. We are seeking an extension of this termination
date.

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COMPETITION

The telecommunications industry is highly competitive, and we face substantial
competition. Many of our existing and potential competitors have financial,
management and other resources that are substantially greater than ours, as well
as other competitive advantages, including established reputations in the
communications market. New competitors may enter the market because of increased
consolidation and strategic alliances resulting from the Telecommunications Act,
as well as technological advances and further deregulation. We have only
recently begun to offer some of our services and, as a result, we may have fewer
and less well-established customer relationships than some of our competitors.

Communications carriers that own or lease fiber optic networks in New England
include AT&T, MCI WorldCom, Sprint and Bell Atlantic and other carriers with
networks which employ advanced technology comparable to that of our network,
including Broadwing, Qwest Communications International, Metromedia Fiber
Network, Level 3 Communications, NEXTLINK Communications and RCN. A significant
portion of our revenues are derived from our customer relationships with these
competitors.

In the cities connected by our network, we also face significant competition
from the incumbent local telephone companies, which currently dominate their
respective local markets. In addition, we face competition from competitive
local telephone companies and wireless competitors in the cities in which we
plan to build our networks.

Most communications carriers already own fiber optic cables as part of their
communications networks, and each of these carriers could, and some do, compete
directly with us in the market for leasing fiber capacity. Some local cable
television companies have extensive coaxial cable networks in places that have
been, or could be, further upgraded to fiber optic cable. To the extent that
local cable television companies decide to equip their networks with fiber optic
cable, they are our potential direct competitors. We also face potential
competition from the utilities which have granted us rights-of-way in certain
portions of our network. See "--Rights-of-Way Agreements."

GOVERNMENTAL REGULATION

While we believe that we are not directly subject to common carrier regulation
(except to the extent we have been certified to provide common carrier services
through our subsidiaries in Connecticut and New York), we are part of an
industry that is highly regulated by federal, state and local governments whose
regulatory actions are often subject to judicial modification. We believe that
our provision of lit fiber is subject to private carrier regulation. However, in
light of the changes that are occurring in the regulation of telecommunications,
we cannot forecast whether or not we will be subject to additional regulation in
the future.

Separate and apart from our provision of fiber capacity, we are subject to
common carrier regulation to the extent that our Connecticut and New York
subsidiaries provide telecommunications services. Currently, these subsidiaries
are not providing common carrier service. By virtue of their status as common
carriers, these subsidiaries are subject to certain laws and regulations at the
federal, state and local levels.

Federal regulation

Federal regulation has the greatest impact on the telecommunications industry
and has undergone major changes in the last four years as the result of the
adoption by Congress of the

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Telecommunications Act of 1996 on February 8, 1996. The Telecommunications Act
is the most comprehensive reform of the nation's telecommunications laws since
the Communications Act of 1934, as amended, was enacted. The Telecommunications
Act imposes a number of access and interconnection requirements on
telecommunications carriers and on all local exchange providers, including
competitive local exchange carriers, with additional requirements imposed on
incumbent local exchange carriers. The Telecommunications 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
telecommunications carriers must interconnect with the facilities of other
carriers and not install features that will interfere with the interoperability
of networks.

After lengthy legal proceedings, the FCC adopted revised guidelines implementing
the interconnection and local competition provisions of the Telecommunications
Act. In order to foster competition in the local exchange market, the FCC
required local incumbent exchange carriers to offer unbundled access to their
telecommunications networks to competitive local exchange carriers at cost-based
rates, including access to dark fiber. This could decrease the demand for fiber
provided by us. However, the long and short term effects of the FCC's guidelines
have yet to be ascertained.

Aside from the impact of the Telecommunications Act, we believe that federal
regulation does not affect us directly because we are not currently regulated as
a common carrier under federal law. Federal law imposes certain legal
requirements on common carriers who engage in interstate or foreign
communication by wire or radio. These legal requirements apply to
telecommunications carriers to the extent they engage in the provision of
telecommunications services. Telecommunications carriers and common carriers are
essentially the same. Each provides communications services directly to the
public or to all potential users on a nondiscriminatory basis subject to
standardized rates, terms and conditions. We do not believe that we currently
offer our fiber capacity in this manner, because we enter into individual
agreements on a selective basis with prospective lessees of our fiber
facilities. We therefore do not believe that our provision of dark or lit fiber
capacity constitutes telecommunications service or common carriage as defined by
the FCC or under the common carrier provisions of the Communications Act.

We believe that where we provide lit fiber capacity we do so as a "provider of
telecommunications" or as a "private carrier." Providers of telecommunications
and private carriers are essentially the same. Each makes individualized
decisions as to whom and on what rates, terms and conditions it provides
transmission capacity. Providers of telecommunications and private carriers are
not extensively regulated but are subject to the jurisdiction of the FCC and to
Federal Universal Service Fund obligations. There are no assurances, however,
that the leasing of lit or dark fiber will not be subject to further regulation
under the Communications Act of 1934, as amended.

Accordingly, it is conceivable that the FCC would subject our provision of both
lit and dark fiber capacity to common carrier regulation. In 1994, the U.S.
Court of Appeals for the District of Columbia Circuit remanded to the FCC the
question of the FCC's authority to regulate dark fiber. To date, the FCC has not
indicated an intention to rule on this remand. In addition, the FCC has been
petitioned by certain railroad, power and telecommunications associations, none
of which is affiliated with us, to clarify the regulatory status of fiber
capacity providers.

As indicated above, our two subsidiaries that have authority to provide
telecommunications services on a common carrier basis in New York and
Connecticut are subject to regulation under the Communications Act. Neither one
is currently offering common carrier services.

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If, and to the extent that, we were deemed to be a common carrier we would be
required to comply with several regulatory requirements, including but not
limited to the duty to:

- - provide such services indiscriminately upon any reasonable request;

- - charge rates and adopt practices, classifications and regulations that are
just and reasonable;

- - avoid unreasonable discrimination in charges, practices, regulations,
facilities and services;

- - pay into federal funds such as those for Telecommunications Relay Services
and for the management of the North American Numbering Plan;

- - limit our use of Customer Proprietary Network Information to provisioning of
the services in connection with which the Customer Proprietary Network was
obtained;

- - be subject to the complaint process at the FCC; and

- - comply with various reporting, regulatory fee payment and other
requirements.

We might also be required to file tariffs setting forth the rates for our
services. These regulatory requirements could impose substantial burdens on us.

As a provider of telecommunications or a private carrier in our provision of
leased lit fiber capacity, our revenues from such leases are subject to
contributions to the FCC's Universal Service Fund, but only insofar as leases to
end-users are concerned. Because Internet service providers are deemed to be
end-users for Universal Service purposes, our revenues received pursuant to
fiber leases to these entities are subject to contributions to the FCC's
Universal Service Fund. If we were deemed to be a provider of telecommunications
or a private carrier with respect to our provision of leased dark fiber
capacity, those revenues would be subject to the same assessments. The
assessment rate is calculated quarterly and was set at 5.8% of gross interstate
end-user revenues for the fourth quarter of 1999. The assessment rate may be
higher in subsequent years. Most of our revenues are from telecommunications
carriers that are not end-users and, as a general matter, revenues received from
telecommunications carriers are not subject to contribution to the Universal
Service Fund. However, our revenues from telecommunications carriers that
themselves are exempt from contributing to the Fund because their contribution
would be less than $10,000 would be subject to such contribution if the carrier
notifies us that it is not contributing directly, in which case the carrier is
considered to be an end-user. In addition, if a carrier purchasing our capacity
uses it for its own purposes, then we would be subject to such contribution for
the revenue generated from that carrier because it too would be considered an
end-user.

Federal telecommunications law may also affect our business by virtue of the
interrelationships that exist among us and incumbent local telephone companies
and long distance companies. For example, the FCC issued an order requiring,
among other things, that common line access fees charged to long distance
telephone companies, 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. Further access charge reform is pending before
the FCC. While it is not possible to predict the precise effect the access
charge changes will have on our business or financial condition, the reforms
will reduce access charges paid by long distance companies, likely eliminating
one of the principal disincentives for use of incumbent local telephone company
facilities by long distance telephone companies, which could have a material
adverse effect on the use of our fiber optic telecommunications networks by long
distance telephone companies.

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State regulation

The Telecommunications 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. In addition, 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. Notwithstanding these
prohibitions and limitations, states regulate telecommunications services,
including through certification of providers of intrastate services, regulation
of intrastate rates and service offerings, and other regulations and retain
jurisdiction under the Telecommunications 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. Accordingly, the degree of state involvement in local
telecommunications services may be substantial.

The state regulatory environment varies substantially from state to state. At
present, we do not anticipate that the regulatory requirements to which we will
be subject in Connecticut, Maine, Massachusetts, New Hampshire, New York,
Vermont and Rhode Island will have any material adverse effect on our
operations. In some jurisdictions, our pricing flexibility for intrastate
services may be limited because of regulation, although our 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 us.

We have determined that there are advantages to having certain of our
subsidiaries subject to state regulation in Connecticut and New York. As a
regulated carrier in those two jurisdictions, these subsidiaries have access to
poles and rights-of-way for our fiber lines that would not be available to us as
an unregulated lessor of fiber. Our two subsidiaries have obtained authority to
provide telecommunications services in these two states. As a result, these
subsidiaries 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
Connecticut and New York.

Local government regulation

In addition to federal and state laws, local governments exercise legal
authority that may impact our business. For example, local governments 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 our use of public rights-of-way. These regulations may have an
adverse effect on our business.

EMPLOYEES

As of April 1, 2000, we employed 64 people. Our employees are not represented by
any labor union and we consider our relationship with employees to be
satisfactory. We have contracted to third parties substantially all of the
engineering, routine maintenance, construction supervision activities and
network surveillance associated with the construction of our fiber optic
network. We have also contracted to various third party contractors the
construction of some parts of our fiber optic network.

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Management

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth our executive officers and directors and their
ages as of April 1, 2000:

<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Vincent C. Bisceglia....... 45 Chairman of the Board of Directors and Chief Executive
Officer
Victor Colantonio.......... 52 Vice Chairman of the Board of Directors and President
William F. Fennell......... 55 Chief Financial Officer, Treasurer and Vice President,
Finance
Roger M. Barzun............ 58 Secretary and General Counsel
Ronald B. Steele........... 48 Vice President, Engineering and Chief Technology Officer
Michael C. Musen........... 51 Vice President, Operations
Arthur W. Adelberg......... 48 Director
Katherine Dietze Courage... 41 Director (1)(2)
John H. Forsgren........... 53 Director (1)
F. Michael McClain......... 50 Director (1)(2)
Gary D. Simon.............. 51 Director (2)
</TABLE>

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

(1) MEMBER OF COMPENSATION COMMITTEE

(2) MEMBER OF AUDIT COMMITTEE

VINCENT C. BISCEGLIA, our chairman and chief executive officer, has served in
his current position since November 1998. From December 1997 to November 1998
Mr. Bisceglia served as an independent consultant. From February 1994 to
December 1997 Mr. Bisceglia served as president and chief executive officer and
a director of Technology Service Group, Inc., a manufacturer of advanced
technology pay telephones. Prior to 1994, he served Technology Service
Group, Inc. in various management positions. From 1982 to 1986, Mr. Bisceglia
was executive vice president and chief operating officer of Transaction
Management, Inc., a manufacturer of point-of-sale systems, and from 1978 to
1982, he held senior marketing positions with National Semiconductor-DTS and
Siemens-Nixdorf Computer Corporation.

VICTOR COLANTONIO, our founder, vice chairman of the board of directors and
president, has been a member of our board of directors since 1989. From 1987 to
1991 Mr. Colantonio was president of International Communications Services Corp.
He served as president of Ireland-based Murray International from 1986 to 1987,
where he sold network services. From 1983 to 1986, Mr. Colantonio served as
director of marketing for Tele-Engineering Corp., an advanced WAN/LAN developer
and video switch and ad-insertion manufacturer.

WILLIAM F. FENNELL joined us in August 1996 and became our chief financial
officer and treasurer in May 1997 and our vice president finance in May 1998.
From October 1986 to January 1996, Mr. Fennell was chief financial officer of
Philips Electronics Group of North America, a manufacturer and distributor of
electronic and electrical products. From 1970 to 1986, Mr. Fennell served in
various positions at GTE Corporation, including director of operations for the
Communications Products Group.

ROGER M. BARZUN has served as our secretary and general counsel on a part-time
basis since January 1999. Mr Barzun has been a self-employed attorney in private
practice since 1995 and also serves as general counsel to other companies on a
part-time basis.

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RONALD B. STEELE has served as our vice president, engineering and chief
technology officer since joining the company in May 1998. From June 1995 to
May 1998 Mr. Steele was self-employed as a consultant. From January 1993 to
June 1995, Mr. Steele, served as a director of engineering for SNET.

MICHAEL A. MUSEN has served as one of our officers since 1992, and became vice
president, operations in 1996.

ARTHUR W. ADELBERG has served as one of our directors since May 1999.
Mr. Adelberg has served as executive vice president and chief financial officer
of CMP Group, Inc. since December 1999. From September 1998 through
November 1999, Mr. Adelberg served as executive vice president of CMP Group,
Inc. and from March 1994 through August 1998 served as vice president law and
power supply of Central Maine Power Company and served in a number of senior
management roles at Central Maine Power Company from 1985 through March 1994.
Mr. Adelberg is a member of the Executive Committee of the New England Power
Pool.

KATHERINE DIETZE COURAGE has served as a member of our board of directors since
August 1998. Ms. Courage has served since 1996 as a managing director in the
Global Media and Telecommunications Group in the Investment Banking Department
of Credit Suisse First Boston, one of the underwriters of this offering and our
initial public offering. Prior to joining Credit Suisse First Boston in
September 1996, Ms. Courage worked at Salomon Brothers, Inc. for ten years where
she was a managing director with responsibility for the Global
Telecommunications Group. Ms. Courage also worked at Merrill Lynch & Co. in the
corporate finance department.

JOHN H. FORSGREN has served as a member of our board of directors since
May 1998. Mr. Forsgren has served as executive vice president and chief
financial officer of Northeast Utilities and certain of its affiliates since
February 1996. From September 1996 to the present, he has served as a director
of Connecticut Yankee Atomic Power Company. From January 1990 to July 1994, he
served as senior vice president-chief financial officer of Euro Disney (a
division of the Walt Disney Company), and from December 1994 to January 1996, he
was a managing director of Chase Manhattan Bank.

F. MICHAEL MCCLAIN has served as a member of our board of directors since
May 1998. Mr. McClain has served as vice president, corporate development of CMP
Group, Inc. since September 1998. He held the same position at Central Maine
Power Company from February 1998 to August 1998. From 1979 to December 1996 he
was group vice president-petroleum for Dead River Company, a petroleum and real
estate company.

GARY D. SIMON has served as a member of our board of directors since May 1998.
Mr. Simon has served as senior vice president-strategy and development for the
Northeast Utilities System since April 1998. From 1989 to April 1998, he was
senior director, Electric Power of Cambridge Energy Research Associates. From
1984 to 1989, Mr. Simon was director of California Affairs and then vice
president of marketing for El Paso Natural Gas Company. From 1981 to 1984, he
served as president of Sigma Group, an economics consulting and project
development company which he founded in 1981.

- --------------------------------------------------------------------------------
43
<PAGE>
- --------------------------------------------------------------------------------

Principal and Selling Stockholders

The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 31, 2000 by (1) each person who owns
beneficially more than 5% of the outstanding shares of our common stock, which
includes the selling stockholder, (2) each of our directors, (3) our chief
executive officer and the four other most highly compensated executive officers
and (4) all of our directors and executive officers as a group.

The number of shares of common stock deemed outstanding includes:

- - 16,624,380 shares of our common stock outstanding as of March 31, 2000; and

- - shares issuable pursuant to options held by each person included in this
table which may be exercised within 60 days after March 31, 2000, as set
forth below.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment power
with respect to shares. Unless otherwise indicated below, to our knowledge, all
persons named in the table have sole voting and investment power with respect to
their shares of common stock, except to the extent authority is shared by
spouses under applicable law. The inclusion of any shares in this table does not
constitute an admission of beneficial ownership for the person named below.

<TABLE>
<CAPTION>
Shares of Common Stock Shares of Common Stock
Beneficially Owned Number of Shares to be Beneficially Owned
Prior to Offering of Common Stock After Offering
Name of Beneficial Owner Number Percentage Being Offered Number Percentage
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
CMP Group, Inc. (1).......... 6,180,801 37.2% 3,000,000 3,180,801 19.1%
41 Anthony Avenue
Augusta, Maine 04330
Northeast Utilities (2)...... 4,774,038 28.7 -- 4,774,038 28.7
107 Selden Street
Berlin, Connecticut 06037
Vincent C. Bisceglia (3)..... 74,607 * -- 74,607 *
Victor Colantonio (4)........ 215,029 1.3 -- 215,029 1.3
William F. Fennell (5)....... 21,604 * -- 21,604 *
Michael C. Musen (6)......... 31,501 * -- 31,501 *
Ronald B. Steele............. 4,399 * -- 4,399 *
Katherine Dietze Courage
(7)........................ 17,462 * -- 17,462 *
Arthur W. Adelberg (8)....... 8,542 * -- 8,542 *
F. Michael McClain (9)....... 17,462 * -- 17,462 *
Gary D. Simon (10)........... 5,462 * -- 5,462 *
John H. Forsgren (11)........ 5,462 * -- 5,462 *
All directors and executive
officers as a group
(11 persons) (12).......... 401,530 2.4 -- 401,530 2.4
</TABLE>

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

* REPRESENTS LESS THAN 1% OF THE OUTSTANDING SHARES OF COMMON STOCK.

(1) ALL 6,180,801 SHARES OF COMMON STOCK ARE HELD BY NEW ENGLAND BUSINESS TRUST.
NEW ENGLAND BUSINESS TRUST IS OWNED BY NEW ENGLAND INVESTMENT CORP., A
WHOLLY-OWNED SUBSIDIARY OF MAINECOM SERVICES WHICH IS A WHOLLY-OWNED
SUBSIDIARY OF CMP GROUP, INC. THE TRUSTEES OF NEW ENGLAND BUSINESS TRUST ARE
NEW ENGLAND INVESTMENT CORP. AND JOSEPH D. FAY. ALL ACTIONS OF NEW ENGLAND
BUSINESS TRUST REQUIRE THE SIGNATURE OF BOTH TRUSTEES. JOSEPH D. FAY IS
GENERAL COUNSEL, SECRETARY AND CLERK OF MAINECOM SERVICES AND A DIRECTOR OF
NEW ENGLAND INVESTMENT CORP. MR. MCCLAIN, ONE OF OUR DIRECTORS, IS

- --------------------------------------------------------------------------------
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
- --------------------------------------------------------------------------------

VICE PRESIDENT, CORPORATE DEVELOPMENT OF CMP GROUP, INC. MR. ADELBERG, ONE
OF OUR DIRECTORS, IS EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF
CMP GROUP, INC. EACH OF MR. ADELBERG AND MR. MCCLAIN DISCLAIM BENEFICIAL
OWNERSHIP OF THE SHARES HELD BY CMP GROUP, INC., EXCEPT TO THE EXTENT OF HIS
PECUNIARY INTEREST, IF ANY.

(2) ALL SHARES BENEFICIALLY OWNED BY NORTHEAST UTILITIES ARE HELD BY MODE 1
COMMUNICATIONS, INC., A WHOLLY-OWNED SUBSIDIARY OF NORTHEAST UTILITIES
ENTERPRISES, INC., IN TURN, A WHOLLY-OWNED SUBSIDIARY OF NORTHEAST
UTILITIES. MR. FORSGREN, ONE OF OUR DIRECTORS, IS THE EXECUTIVE VICE
PRESIDENT AND CHIEF FINANCIAL OFFICER OF NORTHEAST UTILITIES AND CERTAIN OF
ITS AFFILIATES. MR. SIMON, ONE OF OUR DIRECTORS, IS THE SENIOR VICE
PRESIDENT, STRATEGY AND DEVELOPMENT FOR NORTHEAST UTILITIES SERVICE COMPANY,
A SUBSIDIARY OF NORTHEAST UTILITIES. EACH OF MESSRS. FORSGREN AND SIMON
DISCLAIMS BENEFICIAL OWNERSHIP OF THE SHARES HELD BY MODE 1 EXCEPT TO THE
EXTENT OF HIS PECUNIARY INTEREST, IF ANY.

(3) INCLUDES 58,180 SHARES ISSUABLE PURSUANT TO OPTIONS.

(4) INCLUDES 213,729 SHARES ISSUABLE PURSUANT TO OPTIONS AND 300 SHARES HELD OF
RECORD BY MR. COLANTONIO'S MINOR CHILD, AS TO WHICH SHARES MR. COLANTONIO
DISCLAIMS BENEFICIAL OWNERSHIP EXCEPT AS TO THE EXTENT OF HIS PECUNIARY
INTEREST, IF ANY.

(5) REPRESENTS 21,204 SHARES ISSUABLE PURSUANT TO OPTIONS AND 400 SHARES HELD OF
RECORD BY MR. FENNELL'S MINOR CHILDREN, AS TO WHICH SHARES MR. FENNELL
DISCLAIMS BENEFICIAL OWNERSHIP EXCEPT TO THE EXTENT OF HIS PECUNIARY
INTEREST, IF ANY.

(6) INCLUDES 300 SHARES HELD OF RECORD BY MR. MUSEN'S MINOR CHILD AS TO WHICH
SHARES MR. MUSEN DISCLAIMS BENEFICIAL OWNERSHIP EXCEPT TO THE EXTENT OF HIS
PECUNIARY INTEREST, IF ANY.

(7) REPRESENTS 17,462 SHARES ISSUABLE PURSUANT TO OPTIONS.

(8) INCLUDES 8,042 SHARES ISSUABLE PURSUANT TO OPTIONS.

(9) REPRESENTS 17,462 SHARES ISSUABLE PURSUANT TO OPTIONS.

(10) REPRESENTS 5,462 SHARES ISSUABLE PURSUANT TO OPTIONS.

(11) REPRESENTS 5,462 SHARES ISSUABLE PURSUANT TO OPTIONS.

(12) REPRESENTS 347,003 SHARES ISSUABLE PURSUANT TO OPTIONS.

- --------------------------------------------------------------------------------
45
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
- --------------------------------------------------------------------------------

Agreement with Principal Stockholders

In March 2000, we entered into a memorandum of understanding with CMP Group,
Inc., MaineCom Services, New England Business Trust and Northeast Utilities.
Under the memorandum of understanding, we agreed to file a registration
statement to register certain shares of common stock held by New England
Business Trust in response to the exercise of a demand registration request by
New England Business Trust under a 1995 agreement. The registration statement of
which this prospectus forms a part is in response to that request. New England
Business Trust also agreed to reimburse us for some of the expenses that we
incur in connection with this offering, which amount shall not exceed $575,000.
Pursuant to the 1995 agreement, we agreed to indemnify New England Business
Trust against certain liabilities, including liabilities under the Securities
Act.

Under the memorandum of understanding, Northeast Utilities and New England
Business Trust also agreed to amend the existing stockholders agreement between
them to provide that each of them may sell shares of common stock pursuant to
Rule 144 of the Securities Act without regard to the right of first offer
provision contained in the stockholders agreement between them and that each of
them would agree to vote for two directors nominated to our board of directors
by the other. Northeast Utilities and New England Business Trust also agreed
that in the event Northeast Utilities holds less than 2,060,953 shares, New
England Business Trust would only be obligated to vote for one director
nominated by Northeast Utilities and that the voting obligation would be
eliminated if Northeast Utilities holds less than 772,917 shares. Likewise, in
the event that New England Business Trust holds less than 2,701,629 shares,
Northeast Utilities would only be obligated to vote for one director nominated
by New England Business Trust and the voting obligation would be eliminated if
New England Business Trust holds less than 1,000,672 shares.

New England Business Trust, Northeast Utilities and we also agreed under the
memorandum of understanding to use commercially reasonable efforts to cause the
form of stockholders agreement which is to be executed in connection with the
closing of the Consolidated Edison Communications and Exelon Corporation
agreements to be amended to add New England Business Trust as a party and to
provide for amendments similar to those to be made to the existing stockholders
agreement between New England Business Trust and Northeast Utilities, which are
described above.

In addition, New England Business Trust and Northeast Utilities agreed under the
memorandum of understanding to vote in favor of the issuance of shares to
Consolidated Edison Communications and Exelon Corporation in connection with our
agreements with each of them in the event stockholder approval is required.

- --------------------------------------------------------------------------------
46
<PAGE>
- --------------------------------------------------------------------------------

Underwriting

The selling stockholder and NorthEast Optic Network, Inc. have entered into an
underwriting agreement with the underwriters named below. The underwriting
agreement provides for the purchase of a specific number of shares of common
stock by each of the underwriters. The underwriters' obligations are several,
which means that each underwriter is required to purchase a specified number of
shares, but is not responsible for the commitment of any other underwriter to
purchase shares. Subject to the terms and conditions of the underwriting
agreement, each underwriter has severally agreed to purchase the number of
shares of common stock set forth opposite its name below.

<TABLE>
<CAPTION>
Number
Name of Shares
<S> <C>
- -----------------------------------------------------------------------
Warburg Dillon Read LLC.....................................
Credit Suisse First Boston Corporation......................
---------
Total..................................................... 3,000,000
=========
</TABLE>

This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus, other than
those covered by the over-allotment option described below, if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.

The underwriters have advised the selling stockholder that the underwriters
propose to offer the shares directly to the public at the public offering price
that appears on the cover page of this prospectus. In addition, the underwriters
may offer some of the shares to certain securities dealers at such price less a
concession of $ per share to certain other dealers. The underwriters may
also allow to dealers, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. After the shares are released for
sale to the public, the underwriters may change the offering price and other
selling terms at various times.

The selling stockholder has granted the underwriters an over-allotment option.
This option, which is exercisable for up to 30 days after the date of this
prospectus, permits the underwriters to purchase a maximum of 450,000 additional
shares of the selling stockholder's common stock to cover over-allotments. If
the underwriters exercise all or part of this option, they will purchase shares
covered by the option at the public offering price that appears on the cover
page of this prospectus, less the underwriting discount. To the extent that the
underwriters exercise the over-allotment option in part and not in full, the
underwriters will purchase shares from the selling stockholder on a pro rata
basis. If this option is exercised in full, the total price to the public will
be $ and the total proceeds to the selling stockholder before offering
expenses will be approximately $ , at an offering price of $ per
share. The underwriters have severally agreed that, to the extent the
over-allotment option is exercised, each of the underwriters will purchase a
number of additional shares proportionate to its initial amount reflected in the
above table.

- --------------------------------------------------------------------------------
47
<PAGE>
Underwriting
- --------------------------------------------------------------------------------

The following table provides information regarding the amount of the discount to
be paid to the underwriters by us:

<TABLE>
<CAPTION>
No exercise of Full Exercise of
Over-Allotment Option Over-Allotment Option
<S> <C> <C>
- -----------------------------------------------------------------------------------
Per Share........................... $ $
Total............................... $ $
</TABLE>

We estimate that the total expenses of this offering, excluding the underwriting
discount, will be approximately $ . These expenses will be borne by us and
the selling stockholder.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.

NorthEast Optic Network, Inc. and our directors, executive officers, certain
stockholders and the selling stockholder have agreed pursuant to certain
"lock-up" agreements with the underwriters that, subject to certain exceptions,
they will not offer, sell, contract to sell, pledge, grant any option to sell,
or otherwise dispose of, directly or indirectly, any shares of common stock or
securities convertible into or exercisable or exchangeable for our common stock
for a period of 90 days after the date of this prospectus without the prior
written consent of Warburg Dillon Read LLC. Warburg Dillon Read LLC, in its sole
discretion, may release the shares subject to the lock-up agreements in whole or
in part at any time with or without notice. However, Warburg Dillon Read LLC has
no current plan to do so. This lock-up will not prevent the issuance of shares
to Consolidated Edison Communications and Exelon Corporation pursuant to our
agreements described above.

Rules of the SEC may limit the ability of the underwriters to bid for or
purchase shares before the distribution of the shares is completed. However, the
underwriters may engage in the following activities in accordance with the
rules:

- - STABILIZING TRANSACTIONS. The underwriters may make bids for or purchases
of the shares for the purpose of pegging, fixing or maintaining the price of
the shares, so long as stabilizing bids do not exceed a specified maximum.

- - OVER-ALLOTMENTS AND SYNDICATE COVERING TRANSACTION. The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with this offering, the underwriters may engage in syndicate
covering transactions by purchasing shares in the open market. The
underwriters may also elect to reduce any short position by exercising all
or part of the over-allotment option.

- - PENALTY BIDS. If the underwriters purchase shares in the open market in a
stabilizing transaction or syndicate covering transaction, they may reclaim
a selling concession from the underwriters and selling group members who
sold those shares as part of this offering.

Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of these transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if its discourages resales of the shares.

Neither we nor the underwriters make any representations or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If these transactions are commenced, they may be discontinued without notice at
any time.

- --------------------------------------------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------

Legal matters

The validity of the shares offered by this prospectus has been passed upon by
Hale and Dorr LLP. Certain legal matters in connection with this offering will
be passed upon for the underwriters by Willkie Farr & Gallagher.

Experts

Our consolidated financial statements as of December 31, 1999 and for each of
the three years in the period ended December 31, 1999, included in this
prospectus and elsewhere in the registration statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.

Where you can find more information

We file reports, proxy statements and other documents with the Securities and
Exchange Commission. You may read and copy any document we file at the SEC's
public reference room at Judiciary Plaza Building, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549. You should call 1-800-SEC-0330 for more
information on the public reference room. Our SEC filings are also available to
you on the SEC's web site at: www.sec.gov.

This prospectus is part of a registration statement that we filed with the SEC.
The registration statement contains more information than this prospectus about
us and our common stock, including certain exhibits and schedules. You can
obtain a copy of the registration statement from the SEC at the address listed
above or from the SEC's web site.

Incorporation of certain documents by reference

The SEC allows us to "incorporate" into this prospectus information that we file
with the SEC in other documents. This means that we can disclose important
information to you by referring to other documents that contain that
information. The information incorporated by reference is considered to be part
of this prospectus. Information contained in this prospectus and information
that we file with the SEC in the future and incorporate by reference in this
prospectus automatically updates and supersedes previously filed information. We
incorporate by reference the documents listed below and any future filings we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, prior to the sale of all the shares covered by this
prospectus.

(1) Our Annual Report on Form 10-K for the year ended December 31, 1999;

(2) All of our filings pursuant to the Exchange Act after the date of filing
the initial registration statement and prior to effectiveness of the
registration statement; and

(3) The description of our common stock contained in our Registration
Statement on Form 8-A dated July 21, 1998.

You may request a copy of these documents, which will be provided to you at no
cost, by contacting:

NorthEast Optic Network, Inc.
2200 West Park Drive
Westborough, MA 01581
Attention: Frederick Cocher
Telephone: (508) 616-7800

- --------------------------------------------------------------------------------
49
<PAGE>
NorthEast Optic Network, Inc.
- --------------------------------------------------------------------------------

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
<S> <C>
- ----------------------------------------------------------------------
Report of Independent Public Accountants.................... F-1

Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-2

Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-3

Consolidated Statements of Stockholders' Equity for the
Years Ended
December 31, 1997, 1998 and 1999.......................... F-4

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-5

Notes to Consolidated Financial Statements.................. F-6
</TABLE>

- --------------------------------------------------------------------------------
F-1
<PAGE>
- --------------------------------------------------------------------------------

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To NorthEast Optic Network, Inc.:

We have audited the accompanying consolidated balance sheets of NorthEast Optic
Network, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1999 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1999. 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NorthEast Optic
Network, Inc. and subsidiaries as of December 31, 1998 and 1999 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.

Boston, Massachusetts
January 18, 2000

- --------------------------------------------------------------------------------
F-2
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
1998 1999
<S> <C> <C>
- -------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents................................. $ 57,737,792 $ 4,768,389
Short-term restricted investments (Note 7(a))............. 23,149,975 22,518,611
Short-term investments.................................... 48,581,949 66,803,311
Accounts receivable, net of allowance of approximately
$224,000 and $117,000 in 1998 and 1999, respectively.... 111,915 1,858,201
Refundable taxes from related party....................... 755,838 --
Prepaid expenses and other current assets................. 506,947 494,323
------------ ------------
Total current assets.................................. 130,844,416 96,442,835
------------ ------------
Property and Equipment, net................................. 52,922,677 94,924,843
------------ ------------
Restricted Investments (Note 7(a)).......................... 51,371,859 31,693,543
Intangible Assets, net (Note 6)............................. 56,773,282 57,572,155
------------ ------------
$291,912,234 $280,633,376
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term obligations............... $ 127,619 $ --
Accounts payable.......................................... 322,285 3,783,354
Accounts payable--Communications network.................. 2,647,719 9,438,350
Accrued expenses.......................................... 13,526,702 13,348,296
Accrued right-of-way fees, related party.................. 1,084,325 886,322
Current portion of deferred revenue....................... 140,232 58,380
------------ ------------
Total current liabilities............................. 17,848,882 27,514,702
------------ ------------
Deferred Revenue, net of Current Portion.................... 1,028,668 969,026
------------ ------------
Long-term Accounts Payable--Communications Network.......... -- 4,682,858
------------ ------------
Long-term Obligations, less current maturities.............. 180,000,000 180,000,000
------------ ------------
Commitments and Contingencies (Note 13)
Stockholders' Equity:
Common stock, $0.01 par value--
Authorized--30,000,000 shares
Issued and outstanding--16,066,333 and 16,393,534 shares
at December 31, 1998 and 1999, respectively........... 160,663 163,935
Warrants.................................................... 8,595 --
Additional paid-in capital.................................. 108,105,684 110,072,881
Accumulated deficit......................................... (15,240,258) (42,770,026)
------------ ------------
Total stockholders' equity.................................. 93,034,684 67,466,790
------------ ------------
$291,912,234 $280,633,376
============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

- --------------------------------------------------------------------------------
F-3
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year ended December 31,
1997 1998 1999
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Revenues:
Network Service............................... $ 347,718 $ 820,059 $ 3,152,348
Other service................................. 46,986 43,613 2,512,928
----------- ------------ ------------
Total revenues.............................. 394,704 863,672 5,665,276
----------- ------------ ------------

Expenses:
Cost of revenues (includes right-of-way fees
of approximately $108,000, $591,000 and
$589,000 in 1997, 1998 and 1999,
respectively, paid to related parties)...... 1,137,943 2,176,266 6,365,758
Selling, general and administrative........... 1,002,232 5,200,720 7,380,351
Depreciation and amortization................. 552,862 1,798,294 6,149,720
----------- ------------ ------------
Total expenses.............................. 2,693,037 9,175,280 19,895,829
----------- ------------ ------------

Loss from operations........................ (2,298,333) (8,311,608) (14,230,553)
----------- ------------ ------------

Other Income (Expense):
Interest income and other, net................ 138,918 4,179,880 7,712,259
Interest expense.............................. (141,811) (8,644,463) (21,011,474)
----------- ------------ ------------
Total other expense......................... (2,893) (4,464,583) (13,299,215)
----------- ------------ ------------

Loss before minority interest in
subsidiaries' earnings and benefit from
income taxes.............................. (2,301,226) (12,776,191) (27,529,768)

Minority Interest............................... 1,080,200 1,108,933 --

Benefit From Income Taxes....................... (261,000) (315,000) --
----------- ------------ ------------

Loss Before Extraordinary Item.................. (960,026) (11,352,258) (27,529,768)
----------- ------------ ------------

Extraordinary Item (Note 1)..................... -- (1,363,155) --
----------- ------------ ------------

Net Loss........................................ $ (960,026) $(12,715,413) $(27,529,768)
=========== ============ ============

Basic and Diluted Loss per Share Before
Extraordinary Item............................ $ (3.37) $ (1.70) $ (1.70)
=========== ============ ============

Basic and Diluted Loss per Share................ $ (3.37) $ (1.90) $ (1.70)
=========== ============ ============

Basic and Diluted Weighted Average Shares
Outstanding................................... 284,828 6,675,717 16,172,026
=========== ============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

- --------------------------------------------------------------------------------
F-4
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible
Preferred Stock Preferred Stock Common Stock
Number of $0.01 Par Number of $0.01 Par Number of $0.01 Par
Shares Value Shares Value Shares Value Warrants
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1996........... 21,180 $ 212 962,734 $ 9,627 284,828 $ 2,848 $ 8,595

Issuance of ownership interest..... -- -- -- -- -- -- --

Issuance of Series A convertible
preferred stock.................. 57,144 571 -- -- -- -- --

Net loss......................... -- -- -- -- -- -- --
-------- ------- ---------- -------- ---------- -------- -------
Balance, December 31, 1997........... 78,324 783 962,734 9,627 284,828 2,848 8,595

Exercise of common stock options... -- -- -- -- 3,600 36 --

Reorganization (Note 1)............ 199,636 1,996 3,470,470 34,705 -- -- --

Conversion of Series A and B
convertible preferred stock...... (277,960) (2,779) (4,433,204) (44,332) 11,777,905 117,779 --

Proceeds from initial public
offering, net of issuance costs
of $4,230,011.................... -- -- -- -- 4,000,000 40,000 --

Net loss......................... -- -- -- -- -- -- --
-------- ------- ---------- -------- ---------- -------- -------
Balance, December 31, 1998........... -- -- -- -- 16,066,333 160,663 8,595

Exercise of common stock options... -- -- -- -- 163,002 1,630 --

Exercise of warrants............... -- -- -- -- 164,199 1,642 (8,595)

Compensation expense related to the
issuance of stock options to
nonemployees..................... -- -- -- -- -- -- --

Net loss......................... -- -- -- -- -- -- --
-------- ------- ---------- -------- ---------- -------- -------
Balance, December 31, 1999........... -- $ -- -- $ -- 16,393,534 $163,935 $ --
======== ======= ========== ======== ========== ======== =======

Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>

Balance, December 31, 1996........... $ 9,267,683 $ (1,564,819) $ 7,724,146
Issuance of ownership interest..... 1,750,088 -- 1,750,088
Issuance of Series A convertible
preferred stock.................. 799,445 -- 800,016
Net loss......................... -- (960,026) (960,026)
------------ ------------ ------------
Balance, December 31, 1997........... 11,817,216 (2,524,845) 9,314,224
Exercise of common stock options... 32,040 -- 32,076
Reorganization (Note 1)............ 52,597,107 -- 52,633,808
Conversion of Series A and B
convertible preferred stock...... (70,668) -- --
Proceeds from initial public
offering, net of issuance costs
of $4,230,011.................... 43,729,989 -- 43,769,989
Net loss......................... -- (12,715,413) (12,715,413)
------------ ------------ ------------
Balance, December 31, 1998........... 108,105,684 (15,240,258) 93,034,684
Exercise of common stock options... 1,666,116 -- 1,667,746
Exercise of warrants............... 7,640 -- 687
Compensation expense related to the
issuance of stock options to
nonemployees..................... 293,441 -- 293,441
Net loss......................... -- (27,529,768) (27,529,768)
------------ ------------ ------------
Balance, December 31, 1999........... $110,072,881 $(42,770,026) $ 67,466,790
============ ============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

- --------------------------------------------------------------------------------
F-5
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended December 31,
1997 1998 1999
<S> <C> <C> <C>

-------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss.................................................. $ (960,026) $(12,715,413) $ (27,529,768)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities--
Extraordinary item-write-off of deferred financing
costs................................................. -- 1,363,155 --
Minority interest in subsidiaries' earnings............. (1,080,200) (1,108,933) --
Loss on disposal of property and equipment.............. -- 6,699 --
Accretion of long-term obligations...................... 26,642 62,165 --
Compensation expense related to the issuance of common
stock options to nonemployees......................... -- -- 293,441
Amortization of deferred financing and interest costs... -- 261,102 1,150,940
Depreciation and amortization........................... 552,862 1,798,294 6,149,720
Changes in assets and liabilities--
Accounts receivable................................... (908,851) 922,476 (1,746,286)
Refundable taxes from related party................... (368,734) (387,104) 755,838
Prepaid expenses and other current assets............. (8,719) (493,375) 12,624
Accounts payable...................................... (21,219) 27,527 3,461,069
Accrued expenses...................................... 974,371 13,253,999 (376,409)
Deferred revenue...................................... 919,170 24,730 (141,494)
Deferred tax liability................................ 61,000 (61,000) --
----------- ------------ -------------
Net cash (used in) provided by operating
activities........................................ (813,704) 2,954,322 (17,970,325)
----------- ------------ -------------
Cash Flows from Investing Activities:
Purchases of short-term investments....................... -- (48,581,949) (140,221,362)
Sales of short-term investments........................... -- -- 122,000,000
Proceeds from sale of property and equipment.............. -- 9,500 --
Purchases of property and equipment....................... (5,609,459) (38,947,267) (48,583,642)
Increase in intangible assets............................. (3,188,792) (6,252,612) (1,518,057)
----------- ------------ -------------
Net cash used in investing activities............... (8,798,251) (93,772,328) (68,323,061)
----------- ------------ -------------
Cash Flows from Financing Activities:
Increase in accounts payable--Network..................... 716,985 1,448,426 11,473,489
Proceeds from issuance of long-term obligations........... 1,600,000 180,000,000 --
Proceeds from note payable to related party............... 2,100,000 15,775,000 --
Payments on long-term obligations......................... (408,116) (1,991,286) (127,619)
Payments on note payable to related party................. -- (17,875,000) --
(Increase) decrease in restricted cash and investments.... (819,923) (73,701,911) 20,309,680
Proceeds from issuance of ownership interest.............. 1,750,088 -- --
Proceeds from exercise of common stock options and
warrants................................................ -- 32,128 1,668,433
Increase in minority interest in subsidiary............... 106,432 -- --
Proceeds from initial public offering, net................ -- 43,769,989 --
Proceeds from sale of preferred stock, net................ 800,016 -- --
----------- ------------ -------------
Net cash provided by financing activities........... 5,845,482 147,457,346 33,323,983
----------- ------------ -------------
Net (Decrease) Increase in Cash and Cash Equivalents........ (3,766,473) 56,639,340 (52,969,403)
Cash and Cash Equivalents, beginning of year................ 4,864,925 1,098,452 57,737,792
----------- ------------ -------------
Cash and Cash Equivalents, end of year...................... $ 1,098,452 $ 57,737,792 $ 4,768,389
=========== ============ =============
Supplemental Disclosure of Cash Flow information:
Cash paid during the year for--
Interest................................................ $ 165,446 $ 660,300 $ 23,594,000
=========== ============ =============
Taxes................................................... $ 45,261 $ 16,875 $ 189,250
=========== ============ =============
Supplemental Disclosure of Noncash Investing and Financing
Activities:
Goodwill recorded in connection with the Reorganization... $ -- $ 47,871,068 $ --
=========== ============ =============
Issuance of warrants in connection with sale of preferred
stock and note payable to related party................. $ 532,836 $ -- $ --
=========== ============ =============
Conversion of minority interest into Series A convertible
preferred stock in connection with the Reorganization... $ -- $ 4,229,853 $ --
=========== ============ =============
Exercise of CMP warrant................................... $ -- $ 532,836 $ --
=========== ============ =============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

- --------------------------------------------------------------------------------
F-6
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999

(1) Operations and reorganization

NorthEast Optic Network, Inc. (the Company, or NEON) (formerly FiveCom, Inc.)
and its subsidiaries are engaged in the ownership, management, operation and
construction of fiber optic telecommunication networks in the Northeast,
consisting of New England and New York.

The Company was incorporated in Massachusetts in July 1989. In May 1996, FiveCom
LLC, an operating subsidiary majority-owned by the Company, was organized in
Massachusetts. Also in May 1996, FiveCom LLC and Mode 1 Communications, Inc.
(Mode 1), an affiliate of Northeast Utilities Services Company (NU), organized
NECOM LLC in Massachusetts, with FiveCom LLC owning 60%, and Mode 1 owning 40%
of the membership interest in NECOM LLC. In December 1996, FiveCom LLC and
Central Maine Power Company (CMP) organized FiveCom of Maine LLC in
Massachusetts, with CMP owning 66.7% and FiveCom LLC owning 33.3% of the
membership interests in FiveCom of Maine LLC. In addition, CMP purchased a 90.9%
interest in the Company, giving it a controlling interest. FiveCom LLC, NECOM
LLC and FiveCom of Maine LLC commenced operations upon their respective dates of
organization. Prior to the Reorganization, completed on July 8, 1998, the
Company had a controlling interest in all entities except FiveCom of Maine LLC
(FiveCom of Maine LLC and the Company were commonly controlled by CMP). After
the Reorganization, FiveCom of Maine LLC became a wholly owned subsidiary of the
Company. As a result, the accompanying consolidated financial statements have
been restated to give retroactive effect to the merger of FiveCom of Maine LLC
with and into a subsidiary of the Company as a reorganization of entities under
common control in a manner similar to a pooling of interests.

In order to simplify the corporate structure and in contemplation of the initial
public offering, the Company's major stockholders decided to reorganize the
Company (the Reorganization). In April 1998, prior to the Reorganization, CMP
exercised its warrants to purchase 5,876 membership interests in FiveCom LLC for
an aggregate exercise price of $58.76 and on July 8, 1998, (i) each of the
minority members in FiveCom LLC (and each of Mode 1 and MaineCom Services, a
wholly owned subsidiary of CMP) exchanged their membership interests in FiveCom
LLC, NECOM LLC and FiveCom of Maine LLC, respectively, for 3,470,470 shares of
the Series B Convertible Preferred Stock of the Company; (ii) FiveCom LLC and
NECOM LLC were each merged with and into the Company; (iii) FiveCom of Maine LLC
was merged into FiveCom of Maine, Inc., a wholly owned subsidiary of the Company
and (iv) the Company was reincorporated in Delaware as NorthEast Optic
Network, Inc. and the Company's Certificate of Incorporation was amended and
restated. In December 1998, FiveCom of Maine, Inc. was merged with and into
NorthEast Optic Network, Inc.

As a result of the Reorganization, (i) MaineCom Services' ownership of the
Company was reduced to 52.82%, with Mode 1 gaining an ownership interest of
40.84% in the Company, (ii) FiveCom LLC and NECOM LLC were merged with and into
the Company and (iii) FiveCom of Maine LLC became a wholly owned subsidiary of
the Company, which was converted from a Massachusetts limited liability company
into a Delaware corporation.

On July 8, 1998, the Company entered into a Restructuring and Contribution
Agreement with CMP, MaineCom Services and Mode 1 relating to the restructuring
of the Company. Pursuant to this Agreement, each of MaineCom Services and
Mode 1 exchanged membership interests in subsidiaries of the Company for shares
of the Series B Convertible Preferred Stock of the Company. In addition,
pursuant to the Restructuring and Contribution Agreement, the Company's
president and the

- --------------------------------------------------------------------------------
F-7
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

Company's vice president of operating vice president of Operations, exchanged
their membership interests in FiveCom LLC, a subsidiary of the Company, for
shares of the Series B Convertible Preferred Stock of the Company.

Prior to the reorganization, FiveCom, Inc., NU and other minority interests
owned 82.7%, 9.9% and 7.4%, respectively, of FiveCom LLC membership interests.
CMP, through its ownership in FiveCom, Inc. owned a 75.1% interest in FiveCom
LLC. In connection with the Reorganization, the Company recorded an intangible
asset of $47,871,068 to reflect the Company's exchange of membership interest
(acquisition) related to NU's minority interest in NECOM LLC in accordance with
AICPA Accounting Interpretation 39 to APB Opinion No. 16, Business Combinations
(AIN-39). The intangible asset will be amortized over 30 years, reflecting
assignment of value to goodwill and to the rights-of-ways, which have 30-year
terms.

On August 5, 1998, the Company completed an initial public offering (IPO) of
4,500,000 shares of its common stock at $12.00 per share (see Note 9(b)) and
sold $180 million of 12 3/4% Senior Notes due in 2008 (the Senior Notes) to the
public in a debt offering (see Note 7(a)). Upon successful completion of the
offerings, the Company retired substantially all of its outstanding notes
payable and recorded an extraordinary charge of $1,363,155 in the consolidated
statement of operations for the year ended December 31, 1998 to write off the
remaining balance of the deferred financing costs related to the notes.

On November 24, 1999, the Company entered into preliminary agreements with
Consolidated Edison Communications, Inc. (CEC) and Exelon. The Company will
provide network transport and carrier services in the service areas of the
Company, CEC and Exelon. At the same time, each of the parties will provide
connectivity from the Company's backbone system to their respective local loops
and each will manage their local distributions into New York, Philadelphia,
Baltimore and Washington, DC. The communications network will operate under the
NEON brand. The term of the CEC agreement is for no less than 25 years and the
term of the Exelon agreement is for 20 years with five-year extension periods.
Under these agreements, we have agreed to issue 2,448,240 shares of our common
stock to Consolidated Edison Communications and 2,106,625 shares of our common
stock to Exelon Corporation, which would result in Consolidated Edison
Communications and Exelon Corporation owning approximately 10.75% and 9.25% of
our outstanding common stock, respectively. Each of these companies also would
receive the right to nominate one member to our board of directors. The Company
expects that a substantial portion of the value of the stock paid to CEC and
Exelon under these agreements will be recorded as an intangible and will result
in significant amortizaton expense and an increase in the Company's net loss per
share over the terms of the related agreements. CEC and Exelon have also agreed
to contribute to the Company $3,500,000 and $1,950,000, respectively, for the
build-out of local points of presence (POP) and the related optronics. Also, CEC
and Exelon have agreed to pay the Company $7,900,000 and $6,000,000,
respectively, over four years for the cost of POP rental, POP operating
expenses, optronics maintenance and sales and marketing expenses. These
agreements are subject to termination by either party if the respective closings
thereunder have not occurred by June 9, 2000, and are subject to substantial
closing conditions that may not be satisfied by that date. The Company is
seeking an extension of this termination date. The CEC transaction has
encountered regulatory delays, and the Company cannot predict when this
transaction will close.

To date, the Company has recorded revenues principally from contract and other
services and has incurred cumulative operating losses of approximately
$43,000,000. The market for fiber optic telecommunications in which the Company
operates is changing rapidly due to technological

- --------------------------------------------------------------------------------
F-8
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

advancements, the introduction of new products and services and the increasing
demands placed on equipment in worldwide telecommunications networks. The
Company is dependent upon a single or limited source of suppliers for a number
of components and parts. Shortages resulting from a change in arrangements with
these suppliers and manufacturers could cause significant delays in the
expansion of the NEON systems and could have a material adverse effect on the
Company.

(2) Significant accounting policies

The accompanying consolidated financial statements reflect the application of
certain accounting policies as described below and elsewhere in these notes to
consolidated financial statements.

(a) Principles of consolidation

The accompanying consolidated financial statements include the results of
operations of NorthEast Optic Network, Inc. and its wholly owned subsidiaries.
All significant intercompany transactions and balances have been eliminated in
consolidation.

(b) Minority interest

Minority interest in consolidated subsidiaries of the Company at December 31,
1997 and 1998 consists of other members' interests in the LLCs identified in
Note 1. Changes in minority interest reflect other members' capital adjusted by
their portion of the net loss.

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 amounts could differ from those estimates.

(d) Revenue recognition

The services the Company provides include long-term leases of dark fiber (fiber
optic transmission lines leased without optronics equipment installed by the
Company) and shorter-term leases of lit fiber (fixed amounts of capacity on
fiber optic transmission lines that use optronics equipment) at fixed-cost
pricing over multi-year terms. Revenues on telecommunications network services
are recognized ratably over the term of the applicable lease agreements with
customers, which range from 1 to 20 years. Amounts billed in advance of the
service provided are recorded as deferred revenue (see Note 2(g)). The Company
also leases space at its facilities (collocation services). Other service
revenues includes these collocation service revenues as well as revenues from
nonrecurring design, engineering and construction services. Revenues for these
nonrecurring services are generally recognized as services are performed as the
Company has no further obligations.

The Company has contracts with customers that provide service level commitments,
which may obligate the Company to provide credits against billings if service is
interrupted or does not meet the customer's operating parameters. These amounts
are accounted for in cost of sales. To date, credits issued under these
arrangements have not been material.

(e) Income taxes

Through July 8, 1998, the Company was majority-owned by CMP and under a
tax-sharing agreement was included in the consolidated federal tax return of CMP
(see Notes 3 and 11). Tax provisions

- --------------------------------------------------------------------------------
F-9
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

through that date were calculated on a separate return basis. The Company
accounts for income taxes under Statement of Financial Accounting Standards
(SFAS) No. 109, ACCOUNTING FOR INCOME TAXES, the objective of which is to
recognize the amount of current and deferred income taxes payable or refundable
at the date of the financial statements as a result of all events that have been
recognized in the accompanying consolidated financial statements, as measured by
enacted tax laws.

(f) Cash and cash equivalents and short-term investments

The Company accounts for investments under SFAS No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. Under SFAS No. 115, investments for
which the Company has the positive intent and ability to hold to maturity,
consisting of cash equivalents, are reported at amortized cost, which
approximates fair market value. Cash equivalents are highly liquid investments
with original maturities of three months or less. As of December 31, 1999, all
of the Company's short-term investments are classified as held-to-maturity and
reported at amortized cost, which approximates fair market value. Cash and cash
equivalents and short-term investments consist of the following:

<TABLE>
<CAPTION>
December 31,
1998 1999
<S> <C> <C>
- ------------------------------------------------------------------------------
Cash and cash equivalents--
Cash........................................... $ 3,238 $ 169,167
Money markets.................................. 2,981,789 4,599,222
Commercial paper............................... 54,752,765 --
----------- -----------
Total cash and cash equivalents.............. $57,737,792 $ 4,768,389
=========== ===========
Short-term investments--
U.S. treasury notes............................ $48,581,949 $43,230,651
Commercial paper............................... -- 23,572,660
----------- -----------
Total short-term investments................. $48,581,949 $66,803,311
=========== ===========
</TABLE>

(g) Deferred revenue

Deferred revenue represents prepayments on dark fiber optic cable leases. Lease
payments are structured as either prepayments or monthly recurring charges.
Prepayments are accounted for as deferred revenue and recognized over the term
of the respective customer fiber optic lease agreement. At December 31, 1998 and
1999, the Company has prepaid lease payments totaling approximately, $1,169,000
and $1,027,000, respectively.

(h) Depreciation and amortization

The Company provides for depreciation using the straight-line method to allocate
the cost of property and equipment over their estimated useful lives, as
follows:

<TABLE>
<S> <C>
Communications network...................................... 20 years
Machinery and equipment..................................... 5-7 years
Leasehold improvements...................................... Life of lease
Network buildings........................................... 15 years
Furniture and fixtures...................................... 7 years
</TABLE>

- --------------------------------------------------------------------------------
F-10
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

(i) Long-lived assets

The Company applies SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 requires the
Company to continually evaluate whether events or circumstances have occurred
that indicate that the estimated remaining useful life of long-lived assets and
certain identifiable intangibles and goodwill may warrant revision or that the
carrying value of these assets may be impaired. To compute whether assets have
been impaired, the estimated gross cash flows for the estimated remaining useful
life of the assets are compared to the carrying value. To the extent that the
gross cash flows are less than the carrying value, the assets are written down
to the estimated fair value of the asset. The Company does not believe that its
long-lived assets have been impaired.

(j) Concentrations of credit risk and significant customers

Financial instruments that subject the Company to significant concentrations of
credit risk consist primarily of cash and cash equivalents, investments and
accounts receivable. The Company's cash equivalents and investments are invested
in financial instruments with high credit ratings. To control credit risk, the
Company performs regular credit evaluations of its customers' financial
condition and maintains allowances for potential credit losses. Concentration of
credit risk with respect to accounts receivable is limited to customers to whom
the Company makes significant sales.

Significant accounts receivable balances as a percentage of the Company's total
accounts receivable are as follows:
<TABLE>
<CAPTION>
Year Ended Significant Percentage of Total Accounts Receivable
December 31, Customers A B C D
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
1998................. 3 --% 64% *% 10%
1999................. 3 -- * -- *

<CAPTION>
Year Ended Percentage of Total Accounts Receivable
December 31, E F G H
<S> <C> <C> <C> <C>

1998................. 16% --% --% --%
1999................. -- 13 32 11
</TABLE>

The Company recorded revenues greater than 10% of total revenues from the
following customers:
<TABLE>
<CAPTION>
Year Ended Significant Percentage of Total Revenues
December 31, Customers A B C D E
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
1997................. 2 10% 69% --% --% --%
1998................. 3 * 50 19 12 *
1999................. 3 * * 18 * *

<CAPTION>
Year Ended Percentage of Total Revenues
December 31, F G H
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
1997................. --% --% --%
1998................. -- -- --
1999................. 16 13 *
</TABLE>

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

* REPRESENTS LESS THAN 10%

(k) Fair value of financial instruments

SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
disclosure about fair value of financial instruments. Financial instruments
consist of cash and cash equivalents, investments, accounts receivable, accounts
payable and notes payable. The estimated fair value of these financial
instruments approximates their carrying value.

(l) Comprehensive income (loss)

SFAS No. 130, REPORTING COMPREHENSIVE INCOME, requires disclosure of all
components of comprehensive income (loss) on an annual and interim basis.
Comprehensive income (loss) is defined

- --------------------------------------------------------------------------------
F-11
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources.
Comprehensive net loss is the same as reported net loss for all periods
presented.

(m) Loss per share

SFAS No. 128, EARNINGS PER SHARE, establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. In accordance with Securities and Exchange
Commission (SEC) Staff Accounting Bulletin (SAB) No. 98, the Company has
determined that there were no nominal issuances of common stock or potential
common stock in the period prior to the Company's planned initial public
offering. Basic and diluted loss per share was determined by dividing net loss
by the weighted average common shares outstanding during the period. Common
equivalent shares include convertible preferred stock and common stock options
and warrants to the extent their effect is dilutive, based on the as-converted
and Treasury stock method, respectively. The following potential common shares
were excluded from the calculation of dilutive weighted average shares
outstanding as their effect would be antidilutive:

<TABLE>
<CAPTION>
Year ended December 31, 1997 1998 1999
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Convertible preferred stock........... $1,041,058 $ -- $ --
Common stock options and warrants..... 11,450 1,712,118 1,896,580
---------- ---------- ----------
Total............................. $1,052,508 $1,712,118 $1,896,580
========== ========== ==========
</TABLE>

(n) Reclassifications

Certain prior-period amounts have been reclassified to conform with current
period presentation.

(o) New accounting standards

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133, as amended by SFAS
No. 137, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. This new standard is not anticipated to have a significant impact
on the Company's consolidated financial statements based on the current
structure and operations.

The SEC issued SAB No. 101, REVENUE RECOGNITION, in December 1999. The Company
is required to adopt this new accounting guidance, as amended by SAB No. 101A
through a cumulative charge to retained earnings in accordance with Accounting
Principles Board (APB) Opinion No. 20, ACCOUNTING CHANGES, no later than the
first quarter of fiscal 2000. Management is currently evaluating the effects
that this guidance is expected to have on the Company's financial statements.

(3) Related party transactions

Applied Telecommunication Technologies, Inc. (ATTI), a stockholder of the
Company had provided the Company with $1,594,433 of lease financing to date. As
of December 31, 1999, all obligations have been paid in full.

During the years ended December 31, 1997, 1998 and 1999, the Company reimbursed
CMP and/or its subsidiary, MaineCom Services, for costs related to the
activities of the Company. The amount paid to

- --------------------------------------------------------------------------------
F-12
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

CMP totaled approximately $725,000, $1,200,000 and $241,000 for the years ended
December 31, 1997, 1998 and 1999, respectively. The Company believes that these
costs approximated the actual costs incurred by CMP and/or MaineCom Services
related to such personnel and does not believe that such costs would have been
materially different had CMP and/or MaineCom Services not been affiliates of the
Company.

The Company paid approximately $163,000 and $132,000 in right-of-way fees to CMP
for the years ended December 31, 1998 and 1999, respectively.

In addition, CMP included the Company in its consolidated federal income tax
return through July 8, 1998. At December 31, 1998, the amounts due under the
tax-sharing agreement to the Company from CMP are included in refundable taxes
from related party and amounted to approximately $755,800 for current and
deferred income tax benefits related to CMP's utilization of the Company's loss
carryforwards (see Note 11).

The Company paid NU approximately $1,907,000 in 1998 and $1,159,000 in 1999 for
materials, labor and other contractor charges. Approximately $359,000 and
$486,000 was included in accounts payable communications network at
December 31, 1998 and 1999, respectively.

In 1994, the Company entered into an agreement with NU whereby NU waived
right-of-way fees for 10 years in return for the Company's guarantee to build
the fiber optic network to certain NU facilities and allow NU the use of 12
fibers on designated route segments in the NU service territory.

The Company's agreement with NU provides for payments on a per-mile basis for
certain right-of-way extensions. Such payments are recognized ratably over the
30-year term of the contract. Approximately $1,084,000 and $886,000 was included
in accrued right-of-way fees--related party at December 31, 1998 and 1999,
respectively.

The Company believes that the right-of-way fees payable under the NU and CMP
agreements are reasonable and are comparable to those which would have been
negotiated on an arm's-length basis with an unaffiliated third party.

The Company has employment contracts with four of its officers. The contracts
are for three-year terms expiring at varying dates through July 2001, with an
annual compensation commitment of $647,000 in the aggregate. In addition, the
Company recorded a one-time bonus for a payment to one individual totaling
$500,000 upon the successful completion of the Company's IPO in 1998.

- --------------------------------------------------------------------------------
F-13
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

(4) Property and equipment

Property and equipment are stated at cost and consist of the following at
December 31:

<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
- ------------------------------------------------------------------------------
Communications network........................... $27,775,788 $48,084,658
Communications network
construction-in-progress....................... 23,574,533 20,094,360
Machinery and equipment.......................... 2,472,259 19,999,571
Leasehold improvements........................... 360,930 9,501,428
Network buildings................................ -- 1,563,258
Furniture and fixtures........................... 26,758 1,371,019
----------- -----------
54,210,268 100,614,294
Less--Accumulated depreciation and
amortization................................... 1,287,591 5,689,451
----------- -----------
$52,922,677 $94,924,843
=========== ===========
</TABLE>

(5) Communications network construction-in-progress

The Company is constructing a communications network in the Northeast. Costs
directly related to the construction of the network are being capitalized and
will be depreciated over the 20-year estimated useful life of the fiber optic
transmission plant as individual segments of the system are placed in service.
During 1998 and 1999, approximately 130 and 400 miles, respectively, were placed
in service. Approximately $142,000, $1,500,000 and $3,095,000 of interest has
been capitalized to communications network construction-in-progress in each of
the three years ended December 31, 1997, 1998 and 1999. Interest capitalized was
calculated using the weighted average borrowing rate in each period and was
8.86%, 12.64% and 12.75%, respectively, in the years ended December 31, 1997,
1998 and 1999.

(6) Intangible assets

Intangible assets subject to amortization have been capitalized and are
amortized on the straight-line basis as follows:

<TABLE>
<S> <C>
Goodwill............................. 30 years (estimated useful life)
Deferred interest and financing 2-10 years (term of the debt)
costs..............................
Prepaid right-of-way fees, related 10 years (term of the agreement)
party..............................
</TABLE>

Intangible assets consist of the following at December 31, 1998 and 1999:

<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
- ------------------------------------------------------------------------------
Goodwill......................................... $47,871,068 $47,871,068
Deferred interest and financing costs............ 6,266,447 6,848,803
Prepaid right-of-way fees, related party......... 4,072,148 6,099,817
Other............................................ 23,810 1,029,184
----------- -----------
58,233,473 61,848,872
Less--Accumulated amortization................... 1,460,191 4,276,717
----------- -----------
$56,773,282 $57,572,155
=========== ===========
</TABLE>

- --------------------------------------------------------------------------------
F-14
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

(7) Long-term obligations and note payable to related party

<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
- -----------------------------------------------------------------------------
12 3/4% Senior Notes $180,000,000 $180,000,000
ATTI notes payable (related party)............ 127,619 --
------------ ------------
180,127,619 180,000,000
Less--Current portion......................... 127,619 --
------------ ------------
$180,000,000 $180,000,000
============ ============
</TABLE>

(a) 12 3/4% senior notes

In August 1998, the Company sold $180,000,000 of 12 3/4% Senior Notes due 2008
to the public in the debt offering. The Senior Notes are due on August 15, 2008
and scheduled interest payments are due on February 15 and August 15 of each
year, commencing February 15, 1999. Upon closing of the offering of the Senior
Notes, the Company purchased approximately $72,000,000 in U.S. Government
obligations with an average maturity of 645 days to provide for payment in full
of the first seven scheduled interest payments on the Senior Notes. Such
securities are pledged as security for the benefit of the holders of the Senior
Notes, are classified as held-to-maturity and reported at amortized cost and are
included as restricted investments in the accompanying consolidated balance
sheets. The Senior Notes are redeemable in whole or in part at the option of the
Company at any time on or after August 15, 2003 at the following redemption
prices expressed as a percentage of principal plus accrued interest through the
date of redemption:

<TABLE>
<CAPTION>
Redemption
Period Price
<S> <C>
- ----------------------------------------------------------------------------
2003........................................................ 106.375%
2004........................................................ 104.250
2005........................................................ 102.125
Thereafter.................................................. 100.000
</TABLE>

In the event of a change in control, as defined, each holder of the notes will
be entitled to require the Company to purchase all or a portion of such holder's
Senior Notes at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase. The Senior
Notes are unsecured obligations and rank PARI PASSU in right of payment with all
existing and future indebtedness of the Company that is not by its terms
subordinated in right of payment and priority to the Senior Notes and is senior
in right-of-payment to all future subordinated indebtedness of the Company.

In connection with this financing, the Company incurred approximately $6,300,000
of issuance costs. These costs have been classified as deferred financing costs
in the accompanying consolidated balance sheet as of December 31, 1999 and are
being amortized, as additional interest expense, over the term of the Notes.

- --------------------------------------------------------------------------------
F-15
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

(b) ATTI notes payable

From August 1994 through October 1995, the Company entered into five notes
payable with ATTI. The notes bear interest at 13% and are payable in monthly
principal and interest installments ranging from $1,194 to $13,270 through
August 1999. In addition, the Company issued common stock warrants in
conjunction with the notes (see Notes 3 and 10(d)). All amounts were repaid in
1999.

(8) CMP warrant

During October 1997 and in connection with the CMP construction loan agreement,
the Company issued a warrant to purchase 5,876 shares of membership interest in
FiveCom LLC to CMP at an exercise price of $0.01 per share. The warrant expires
on October 7, 2002. At the time of issuance, the warrant was recorded as a
discount on the loan agreement as deferred financing costs and as a separate
component in the mezzanine to stockholders' equity at $532,836, the fair market
value of the warrant, as calculated using the Black-Scholes option pricing
model. The discount was amortized as interest expense over the term of the debt.
In April 1998, CMP exercised the warrant.

(9) Stockholders' equity

(a) Preferred stock

The Restated Certificate of Incorporation authorizes the issuance of up to
2,000,000 shares of preferred stock, $0.01 par value per share. Under the terms
of the Certificate of Incorporation, the Board of Directors is authorized,
subject to any limitations prescribed by law, without further stockholder
approval, to issue such shares of preferred stock in one or more series. Each
series of preferred stock shall have rights, preferences, privileges and
restrictions, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by the
Board of Directors. At December 31, 1999, no such shares are issued and
outstanding.

(b) Initial public offering

On August 5, 1998, the Company completed an IPO of 4,500,000 shares of its
common stock at a price of $12.00 per share. Of the aggregate shares of common
stock sold, 4,000,000 were sold for the account of the Company generating net
proceeds to the Company of approximately $43,800,000 and 500,000 shares were
sold for the account of certain stockholders of the Company. Upon the closing of
the IPO, all shares of the Company's Series A and B convertible preferred stock
automatically converted into 11,777,905 shares of the Company's common stock.

(10) Stock-based compensation

(a) Stock option plans

The Company's 1998 Stock Incentive Plan (the 1998 Plan) was adopted by the Board
of Directors in May 1998. The Plans provide for the grant of incentive stock
options, nonstatutory stock options, restricted stock awards and other
stock-based awards, including the grant of shares based on certain conditions,
the grant of securities convertible into common stock and the grant of stock
appreciation rights (collectively, the Awards). Options may be granted at an
exercise price that may be less than, equal to or greater than the fair market
value of the common stock on the date of grant. Incentive stock options and
options intended to qualify as performance-based compensation may not be granted
at an exercise price less than the fair market value of the common stock on the
date of grant (or less than 110% of the fair market value in the case of
incentive stock options granted to optionees holding more than 10% of the voting
power of the Company). Restricted stock awards entitle recipients to

- --------------------------------------------------------------------------------
F-16
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

acquire shares of common stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable Award are not satisfied prior to the end
of the applicable restriction period established for such Award. Under the 1998
Plan, the Board of Directors has the right to grant other Awards based on the
common stock having such terms and conditions as the Board of Directors may
determine, including the grant of shares based on certain conditions, the grant
of securities convertible into common stock and the grant of stock appreciation
rights. Officers, employees, directors, consultant and advisers of the Company
and its subsidiaries are eligible to be granted Awards under the 1998 Plan.

As of December 31, 1999, a total of 376,923 shares were available for grant
under the 1998 Plan.

(b) Stock option activity

Stock option activity under the 1998 Plan for the three years in the period
ended December 31, 1999 is as follows:

<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
<S> <C> <C>
- -----------------------------------------------------------------------------
Outstanding, December 31, 1996......................... 3,750 $ .10
Canceled............................................. (3,750) .10
--------- ------
Outstanding, December 31, 1997......................... -- --
Granted.............................................. 2,190,978 10.98
Exercised............................................ (3,600) .10
Canceled............................................. (649,628) 12.00
--------- ------
Outstanding, December 31, 1998......................... 1,537,750 10.57
Granted.............................................. 710,165 16.67
Exercised............................................ (162,602) 10.31
Canceled............................................. (188,733) 11.91
--------- ------
Outstanding, December 31, 1999......................... 1,896,580 $12.75
========= ======
Exercisable, December 31, 1999......................... 584,420 $11.10
========= ======
Exercisable, December 31, 1998......................... 352,134 $11.95
========= ======
</TABLE>

- --------------------------------------------------------------------------------
F-17
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

<TABLE>
<CAPTION>
Outstanding Exercisable
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Exercise as of Remaining Average as of Average
Price/Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1999 Life Price 1999 Price
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
$6.09--$ 9.75 324,675 8.86 $ 6.37 120,117 $ 6.36
$12.00--$12.00 1,175,523 8.56 12.00 437,395 12.00
$15.25--$15.93 251,006 9.45 15.69 20,250 15.29
$16.12--$16.12 28,126 9.14 16.12 2,308 16.12
$29.37--$29.37 81,750 9.63 29.37 4,350 29.37
$33.87--$33.87 35,500 9.81 33.87 -- --
--------- ------ -------
$ 6.09--$33.87 1,896,580 8.81 $12.75 584,420 $11.10
========= ====== =======
</TABLE>

In October 1995, the FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. SFAS No. 123 requires the measurement of the fair value of stock
options to be included in the statements of income or disclosed in the notes to
financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under APB Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and elect the disclosure-only
alternative under SFAS No. 123.

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants during the applicable period:

<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
Risk-free interest rate............................ N/A 4.39-5.52% 5.5%
Expected dividend yield............................ N/A None None
Expected lives..................................... N/A 2-5 years 3 years
Volatility......................................... N/A 35.5% 200%
Weighted average fair value of options granted
during the period................................ N/A $4.31 $14.63
</TABLE>

Had compensation cost for the Company's stock option plans been determined
consistent with SFAS No. 123, the Company's net loss available to common
stockholders and basic and diluted net loss per common share would have been the
following pro forma amounts:

<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
Net loss available to common
stockholders:
As reported....................... $(960,026) $(12,715,413) $(27,529,768)
========= ============ ============
Pro forma......................... $(960,026) $(13,360,167) $(30,437,989)
========= ============ ============
Basic and diluted net loss per
common share:
As reported....................... $ (3.37) $ (1.90) $ (1.70)
========= ============ ============
Pro forma......................... $ (3.37) (2.00) $ (1.88)
========= ============ ============
</TABLE>

- --------------------------------------------------------------------------------
F-18
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

(d) Warrants

From August 1994 to October 1995, the Company issued stock purchase warrants to
ATTI (see Note 3) for the purchase of 11,450 shares of the Company's common
stock at an exercise price of $0.06 per share. The warrants expire five years
from the date of grant. At the time of issuance, the Company recorded a charge
of $178, representing the fair market value of the warrants as determined by the
Board of Directors. These warrants were exercised in 1999.

During July 1996, the Company issued a warrant to one of its advisers for the
purchase of 2,656 shares of membership interest in FiveCom LLC at an exercise
price of $125.84 per share. The warrant expires on April 30, 2001. At the time
of issuance, the Company recorded a charge of $8,595, representing the fair
market value of the warrant, as calculated using the Black-Scholes option
pricing model. Upon closing of the IPO, the warrant converted into a warrant to
purchase 162,918 shares of common stock at an exercise price of $2.052 per
share. These warrants were exercised in 1999.

(11) Income taxes

As discussed in Note 3, the Company was included in CMP's consolidated federal
income tax return through July 8, 1998. Under the tax sharing agreement, the
Company recognized a benefit from amounts utilized by CMP from the Company's net
operating losses.

The income tax benefit for the years ended December 31, 1997, 1998 and 1999
consists of the following:

<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
Current--
Federal.............................. $(291,000) $ (230,000) $ --
State................................ (31,000) (24,000) --
--------- ---------- -----------
(322,000) (254,000) --
Deferred--
Federal.............................. 47,000 (4,063,000) (9,893,000)
State................................ 14,000 (214,000) (399,000)
--------- ---------- -----------
61,000 (4,277,000) (10,292,000)
Less--Valuation allowance.............. -- 4,216,000 10,292,000
--------- ---------- -----------
Total.............................. $(261,000) $ (315,000) $ --
========= ========== ===========
</TABLE>

The benefit from income taxes for the year ended December 31, 1997 represents
refundable income taxes from CMP as a result of its tax-sharing agreement. The
benefit from income taxes for the year ended December 31, 1998 represents
refundable income taxes from CMP as a result of its tax sharing agreement offset
by a provision for net worth taxes.

- --------------------------------------------------------------------------------
F-19
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

The components of the deferred taxes are approximately as follows:

<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
- ----------------------------------------------------------------------------
Net operating losses............................ $ 4,324,000 $ 14,259,000
Depreciation.................................... (164,000) (427,000)
Reserves and accruals, not currently
deductible.................................... 139,000 676,000
Prepaid expenses................................ (83,000) --
----------- ------------
4,216,000 14,508,000
Valuation allowance............................. (4,216,000) (14,508,000)
----------- ------------
Deferred tax liability.......................... $ -- $ --
=========== ============
</TABLE>

As of December 31, 1999, the Company had federal and state net operating loss
carryforwards for the period subsequent to the reorganization available to
offset future taxable income, if any, of approximately $36,000,000. These
carryforwards expire through 2019 and are subject to the review and possible
adjustment by the Internal Revenue Service. In addition, the occurrence of
certain events, including significant changes in ownership interests, may limit
the amount of net operating loss carryforwards available to be used in any given
year. A full valuation allowance has been recorded in the accompanying
consolidated financial statements to offset this carryforward because its future
realizability is uncertain.

(12) Network construction and NU and CMP contracts

In 1994, the Company contracted for the rights to use NU property over an
initial 30 year term for the purpose of owning and operating the fiber optic
network facilities. At the end of the initial 30-year term, NU will have the
option to purchase the network on NU rights-of-way from the Company at the
appraised value or to extend the agreement for an additional 30-year term with
an added payment incentive of 10% of revenues generated from the network built
on NU rights-of-way. Contractually, the Company is required to build 310 fiber
route miles in NU's service territory by September 27, 1999. This requirement of
the agreement was extended and the required buildout was completed in the first
quarter of 2000.

Pursuant to the Company's agreement with NU, the right-of-way fees for specified
route segments have been waived for 10 years in return for the Company's
guarantee to build the fiber optic network to certain NU facilities and allow NU
the use of 12 fibers on designated route segments in the NU service territory.
Costs of approximately $6,100,000 associated with the construction of the
12 fibers are included in prepaid right-of-way fees--related party in the
accompanying consolidated balance sheet and are being recognized as a
cost-of-service ratably over 10 years.

The Company's agreement with NU also provides for payments on a per-mile basis
for certain right-of-way extensions. Such payments are being recognized ratably
over the 30-year term of the contract.

In 1996, the Company contracted for the rights to use CMP's property over an
initial 30-year term for the purpose of owning and operating fiber optic network
facilities. At the end of the initial 30-year term, CMP will have the option to
purchase the network on CMP rights-of-way from the Company at the appraised
value or to extend the agreement for an additional 10-year term with an added
payment incentive of 10% of revenues generated from the network built on CMP
rights-of-way.

- --------------------------------------------------------------------------------
F-20
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

The Company's agreement with CMP provides for payments on a per-mile basis. Such
payments are payable annually by January 31 of each year and are recognized
ratably over the 30-year term of the contract. The Company paid approximately
$111,000 and $132,000 in right-of-way payments for the years ended December 31,
1998 and 1999, respectively.

(13) Commitments and contingencies

(a) Lease commitments

The Company leases certain motor vehicles, equipment and collocation and
office facilities under noncancelable operating leases which expire at various
dates through September 2019. Future minimum lease payments required under these
leases at December 31, 1999 are approximately as follows:

<TABLE>
<S> <C>
Year ending December 31,
2000...................................................... $ 1,680,000
2001...................................................... 1,704,000
2002...................................................... 1,637,000
2003...................................................... 1,651,000
2004...................................................... 1,647,000
Thereafter................................................ 9,257,000
-----------
$17,576,000
===========
</TABLE>

Rent expense charged to operations was approximately $34,000, $163,000 and
$2,877,000 in the years ended December 31, 1997, 1998 and 1999, respectively.

The Company leases fibers from certain electric utility companies on its segment
from Hudson, New Hampshire, to Boston and Cambridge, Massachusetts, under
operating leases that expire through November 2019. Future minimum lease
payments required under these fiber optic leases at December 31, 1999 are
approximately as follows:

<TABLE>
<S> <C>
Year ending December 31,
2000...................................................... $ 2,457,000
2001...................................................... 2,457,000
2002...................................................... 2,457,000
2003...................................................... 2,457,000
2004...................................................... 2,457,000
Thereafter................................................ 36,790,000
-----------
$49,075,000
===========
</TABLE>

In addition, the Company is required to pay to the electric utility companies a
portion of the quarterly gross revenue derived by the Company from the sale, use
or lease of the leased fibers, as defined in the lease agreement.

Rent expense charged to operations was approximately $2,077,000 in the year
ended December 31, 1999.

- --------------------------------------------------------------------------------
F-21
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

(b) Purchase commitments

In December 1998, the Company entered into a three-year agreement with a vendor
to purchase equipment, software and services having a total value of
$20,000,000. Through December 31, 1999, the Company has purchased approximately
$15,000,000 of equipment under this agreement.

In July 1998, the Company entered into an agreement with Qwest Communications
Corporation (Qwest) in which Qwest granted the Company an indefeasible
right-of-use in certain fibers along a route segment to between Boston and New
York City. The term of the agreement is for 20 years, but may be terminated at
any time upon the occurrence of certain incurred defaults by the Company or the
loss of certain underlying rights held by Qwest or other parties upon whom Qwest
depends for its rights in the fiber.

(d) Litigation

Certain claims arising in the ordinary course of business are pending against
the Company. In the opinion of management, these claims are without merit and
are not expected to have a material effect on operations.

(14) 401(k) Plan

The Company maintains the NorthEast Optic Network, Inc. 401(k) Plan (the Plan)
under Section 401(k) of the IRC covering all eligible employees. Under the Plan,
a participant may elect to defer receipt of a stated percentage of his or her
compensation, subject to limitation under the IRC, which would otherwise be
payable to the participant for any plan year. The Company matches participant
contributions equal to 60% of employee contributions up to a maximum of 5% of an
employee's salary. There were no matching contributions made during the year
ended December 31, 1997. During the years ended December 31, 1998 and 1999, the
Company made matching contributions of approximately $27,000 and $46,000,
respectively.

(15) Accrued expenses

Accrued expenses at December 31, 1998 and 1999 consist of the following:

<TABLE>
<CAPTION>
December 31,
1998 1999
<S> <C> <C>
- -------------------------------------------------------------------------------
Accrued interest.................................. $ 9,244,250 $ 8,606,250
Accrued construction in progress.................. 2,051,000 1,106,337
Accrued property and other taxes.................. 889,000 1,597,772
Accrued professional fees......................... 245,000 380,000
Accrued payable to related party.................. 346,166 316,535
Accrued payroll and benefits...................... 271,345 521,254
Accrued commissions............................... 100,000 155,117
Accrued other..................................... 379,941 665,031
----------- -----------
$13,526,702 $13,348,296
=========== ===========
</TABLE>

(16) Segment disclosure

SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION requires certain financial and supplementary information to be
disclosed on an annual and interim basis for each

- --------------------------------------------------------------------------------
F-22
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

reportable operating segment of an enterprise. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision-maker, or
decision-making group, in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision-maker is the Chief Executive
Officer of the Company.

The Company analyzes segment reporting based on dark fiber, lit fiber,
collocation and other services. Dark fiber, lit fiber, collocation and ancillary
network services are reported as revenue only. Cost of revenues, and property
and equipment is primarily the operating costs and the communications network
and equipment that supports each segment, which is not allocated between the
segments for management reporting, or accordingly segment reporting purposes.
Similarly, selling, general and administrative expenses are not allocated to the
segments for management or segment reporting purposes.

Management utilizes several measurements to evaluate its operations and allocate
resources. However, the principal measurements are consistent with the Company's
financial statements. The accounting policies of the segments are the same as
those described in Note 2.

Financial information for the Company's segments is as follows:

<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Revenues
Dark fiber................................. $ 347,718 $ 680,859 $ 1,925,196
Lit fiber.................................. -- 139,200 1,227,153
Collocation................................ -- -- 316,278
Ancillary network services(1).............. 46,986 43,613 2,196,649
------------ ------------ ------------
Total revenues............................. 394,704 863,672 5,665,276
Cost of Revenues................................. 1,137,943 2,176,266 6,365,758
Selling, general and administrative.............. 1,002,232 5,200,720 7,380,351
Depreciation and amortization.................... 552,862 1,798,294 6,149,720
------------ ------------ ------------
Operating Loss................................... $ (2,298,333) $ (8,311,608) $(14,230,553)
============ ============ ============
Net property and equipment....................... $ 16,534,703 $ 52,922,677 $ 94,924,843
============ ============ ============
Capital Expenditures............................. $ 5,609,459 $ 38,947,267 $ 48,583,642
============ ============ ============
</TABLE>

- ---------

(1) INCLUDES NONRECURRING REVENUES ASSOCIATED WITH DESIGN, ENGINEERING AND
CONSTRUCTION SERVICES.

(17) Selected quarterly operating results (unaudited)

The following table sets forth certain unaudited quarterly results of operations
for each of the four quarters ended December 31, 1998 and 1999. In management's
opinion, this unaudited information has been prepared on the same basis as the
annual financial statements and includes all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information

- --------------------------------------------------------------------------------
F-23
<PAGE>
Northeast Optic Network, Inc.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1999

for the quarters presented, when read in conjunction with the financial
statements and notes thereto included elsewhere in this document. The operating
results for any quarter are not necessarily indicative of results for any
subsequent quarter.
<TABLE>
<CAPTION>
Quarter Ended
March 31, June 30, September 30, December 31, March 31, June 30,
1998 1998 1998 1998 1999 1999
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
REVENUES:
Network service.... $ 146,257 $ 179,661 $ 155,766 $ 338,375 $ 421,481 $ 737,461
Other service...... 5,106 2,752 16,395 19,360 99,475 305,384
--------- ----------- ----------- ----------- ----------- -----------
Total revenues... 151,363 182,413 172,161 357,735 520,956 1,042,845
--------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Cost of revenues... 247,386 810,892 546,504 571,484 928,988 1,448,543
Selling, general
and
administrative... 225,122 867,637 2,272,808 1,835,153 1,321,373 2,111,799
Depreciation and
amortization..... 302,013 313,645 491,633 691,003 794,978 1,205,873
--------- ----------- ----------- ----------- ----------- -----------
Total expenses... 774,521 1,992,174 3,310,945 3,097,640 3,045,339 4,766,215
--------- ----------- ----------- ----------- ----------- -----------
Loss from
operations..... (623,158) (1,809,761) (3,138,784) (2,739,905) (2,524,383) (3,723,370)
--------- ----------- ----------- ----------- ----------- -----------
OTHER INCOME
(EXPENSE):
Interest income and
other, net....... 30,322 56,550 1,615,895 2,477,113 2,240,764 2,001,901
Interest expense... (91,816) (365,223) (3,275,400) (4,912,024) (4,979,661) (5,189,609)
--------- ----------- ----------- ----------- ----------- -----------
Total other
expense........ (61,494) (308,673) (1,659,505) (2,434,911) (2,738,897) (3,187,708)
--------- ----------- ----------- ----------- ----------- -----------
Loss before
minority
interest in
subsidiaries'
earnings and
provision for
income taxes... (684,652) (2,118,434) (4,798,289) (5,174,816) (5,263,280) (6,911,078)
MINORITY INTEREST.... 314,498 794,435 -- -- -- --
(BENEFIT FROM)
PROVISION FOR
INCOME TAXES....... (77,000) (487,480) -- 249,480 -- --
--------- ----------- ----------- ----------- ----------- -----------
LOSS BEFORE
EXTRAORDINARY
ITEM............... (293,154) (836,519) (4,798,289) (5,424,296) (5,263,280) (6,911,078)
EXTRAORDINARY ITEM... -- -- (1,335,004) (28,151) -- --
--------- ----------- ----------- ----------- ----------- -----------
NET LOSS............. $(293,154) $ (836,519) $(6,133,293) $(5,452,447) $(5,263,280) $(6,911,078)
========= =========== =========== =========== =========== ===========
BASIC AND DILUTED
LOSS PER SHARE..... $ (1.03) $ (2.91) $ (0.61) $ (0.34) $ (0.33) $ (0.43)
========= =========== =========== =========== =========== ===========

<CAPTION>
Quarter Ended
September 30, December 31,
1999 1999
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
REVENUES:
Network service.... $ 1,023,977 $ 972,412
Other service...... 595,440 1,509,646
----------- -----------
Total revenues... 1,619,417 2,482,058
----------- -----------
EXPENSES:
Cost of revenues... 1,843,655 2,144,572
Selling, general
and
administrative... 1,614,575 2,332,604
Depreciation and
amortization..... 1,904,083 2,244,786
----------- -----------
Total expenses... 5,362,313 6,721,962
----------- -----------
Loss from
operations..... (3,742,896) (4,239,904)
----------- -----------
OTHER INCOME
(EXPENSE):
Interest income and
other, net....... 1,816,213 1,653,381
Interest expense... (5,356,351) (5,485,853)
----------- -----------
Total other
expense........ (3,540,138) (3,832,472)
----------- -----------
Loss before
minority
interest in
subsidiaries'
earnings and
provision for
income taxes... (7,283,034) (8,072,376)
MINORITY INTEREST.... -- --
(BENEFIT FROM)
PROVISION FOR
INCOME TAXES....... -- --
----------- -----------
LOSS BEFORE
EXTRAORDINARY
ITEM............... (7,283,034) (8,072,376)
EXTRAORDINARY ITEM... -- --
----------- -----------
NET LOSS............. $(7,283,034) $(8,072,376)
=========== ===========
BASIC AND DILUTED
LOSS PER SHARE..... $ (0.45) $ (0.49)
=========== ===========
</TABLE>

- --------------------------------------------------------------------------------
F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

3,000,000 SHARES

[LOGO]

COMMON STOCK

WARBURG DILLON READ LLC
CREDIT SUISSE FIRST BOSTON

Part II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution

The following table sets forth the various estimated expenses to be incurred in
connection with the sale and distribution of the securities being registered
hereby, all of which will be borne by NorthEast Optic Network, Inc. and the
selling stockholder pursuant to a negotiated sharing arrangement.

<TABLE>
<S> <C>
Filing fee--Securities and Exchange Commission.............. $ 56,982
Filing fee--National Association of Securities Dealers,
Inc....................................................... $ 22,084
Legal fees and expenses..................................... $ *
Printing fees and expenses.................................. $ *
Accounting fees and expenses................................ $ *
Miscellaneous expenses...................................... $ *
------------
Total Expenses.......................................... $ *
============
</TABLE>

- ----------

* to be completed by amendment

Item 15. Indemnification of Directors and Officers

Section 102 of the Delaware General Corporation Law allows a corporation to
eliminate the personal liability of directors of a corporation to the
corporation or its stockholders for monetary damages for a breach of fiduciary
duty as a director, except where the director breached his duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or knowingly
violated a law, authorized the payment of a dividend or approved a stock
repurchase in violation of Delaware corporate law or obtained an improper
personal benefit. We have included such a provision in our Certificate of
Incorporation.

Section 145 of the General Corporation Law of Delaware provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he or she is, or is threatened
to be made a party by reason of such position, if such person shall have acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful; provided
that, in the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.

Our Second Amended and Restated Certificate of Incorporation provides that we
will, to the fullest extent permitted by Delaware law, indemnify each person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he or she is or was, or has agreed
to become, a director or officer of our company, or is or was serving, or has
agreed to serve, at our request, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by or on behalf of a person seeking indemnification in connection with such
action, suit or proceeding and any appeal therefrom.

- --------------------------------------------------------------------------------
II-1
<PAGE>
Part II
- --------------------------------------------------------------------------------

As a prerequisite to indemnification under our Second Amended and Restated
Certificate of Incorporation, the person seeking indemnification must notify us
in writing as soon as practicable of any action, suit, proceeding or
investigation involving him or her for which indemnification will or could be
sought. With respect to any action, suit, proceeding or investigation of which
we are so notified, we will be entitled to participate therein at our own
expense and/or to assume the defense of the action at our own expense, with
legal counsel reasonably acceptable to the person seeking indemnification.

If we do not choose to assume the defense of an action for which we have
received notice, we generally will pay in advance of the final disposition of
such matter any expenses (including attorneys' fees) incurred by a party seeking
indemnification in defending a civil or criminal action, suit, proceeding or
investigation or any appeal therefrom; provided, however, that the payment of
such expenses incurred before the final disposition of such matter shall be made
only upon receipt of an undertaking by the person seeking indemnification to
repay all amounts so advanced in the event that it shall ultimately be
determined that the person seeking indemnification is not entitled to be
indemnified by us under our Second Amended and Restated Certificate of
Incorporation.

Our Second Amended and Restated Certificate of Incorporation does not require us
to indemnify any person seeking indemnification in connection with a proceeding
initiated by such person unless such initiation was approved by our Board of
Directors. In addition, we will not indemnify any person to the extent such
person is reimbursed from the proceeds of an insurance reimbursement. We have
purchased directors' and officers' liability insurance which would indemnify our
directors and officers against damages arising out of certain kinds of claims
which might be made against them based on their negligent acts or omissions
while acting in their capacity as officers or directors, as the case may be.

Item 16. Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
- ------------------------------------------------------------------------------------
*1.1 Form of Underwriting Agreement.
4.1 Specimen certificate for the Registrant's Common Stock
(incorporated by reference to Exhibit 4.1 of our
Registration Statement on Form S-1, Registration No.
333-53441).
*5.1 Opinion of Hale and Dorr LLP.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Hale and Dorr LLP, included in Exhibit 5.1 filed
herewith.
24.1 Power of Attorney (See page II-5 of this Registration
Statement).
27 Financial Data Schedule
</TABLE>

- ---------

* To be filed by amendment.

Item 17. Undertakings

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");

- --------------------------------------------------------------------------------
II-2
<PAGE>
Part II
- --------------------------------------------------------------------------------

(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;

PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included is a post-effective amendment by those
paragraphs is contained in periodic reports filed by us pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that are incorporated by reference in this Registration
Statement.

(2) That, for the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial BONA FIDE offering thereof.

(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.

We hereby undertake that, for purposes of determining any liability under the
Securities Act, each filing of our annual report pursuant to Section 13(a) or
15(d) of the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in this Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein and
the offering of such securities at the time shall be deemed to be the initial
BONA FIDE offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling persons pursuant to the
indemnification provisions described herein, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person of our company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

- --------------------------------------------------------------------------------
II-3
<PAGE>
- --------------------------------------------------------------------------------

Signatures

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Westborough, Commonwealth of Massachusetts, on
April 5, 2000.

<TABLE>
<S> <C> <C>
NORTHEAST OPTIC NETWORK, INC.

By: /s/ VINCENT C. BISCEGLIA
-----------------------------------------
Vincent C. Bisceglia
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>

- --------------------------------------------------------------------------------
II-4
<PAGE>
- --------------------------------------------------------------------------------

Signatures and power of attorney

We, the undersigned officers, directors and authorized representatives of
NorthEast Optic Network, Inc., hereby severally constitute and appoint Vincent
C. Bisceglia, Victor Colantonio and Jeffrey A. Stein, and each of them singly,
our true and lawful attorneys with full power to them, and each of them singly,
with full powers of substitution and resubstitution, to sign for us and in our
names in the capacities indicated below, the Registration Statement on Form S-3
filed herewith and any and all pre-effective and post-effective amendments to
said Registration Statement, and any subsequent Registration Statement for the
same offering which may be filed under Rule 462(b), and generally to do all such
things in our names and on our behalf in our capacities as officers and
directors to enable NorthEast Optic Network, Inc. to comply with the provisions
of the Securities Act of 1933, as amended, and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, or their
substitute or substitutes, to said Registration Statement and any and all
amendments thereto or to any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b).

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated as of April 5, 2000.

<TABLE>
<CAPTION>
Signature Title
<C> <S>
- -----------------------------------------------------------------------------------------------------

/s/ VINCENT C. BISCEGLIA
------------------------------------------------ Chairman of the Board and Chief Executive
Vincent C. Bisceglia Officer (principal executive officer)

/s/ WILLIAM F. FENNELL Chief Financial Officer, Treasurer and Vice
------------------------------------------------ President, Finance (principal financial and
William F. Fennell accounting officer)

------------------------------------------------ Vice Chairman of the Board and President
Victor Colantonio

/s/ ARTHUR W. ADELBERG
------------------------------------------------ Director
Arthur W. Adelberg

------------------------------------------------ Director
Katherine Dietze Courage

/s/ JOHN H. FORSGREN
------------------------------------------------ Director
John H. Forsgren

/s/ F. MICHAEL MCCLAIN
------------------------------------------------ Director
F. Michael McClain

/s/ GARY D. SIMON
------------------------------------------------ Director
Gary D. Simon
</TABLE>

- --------------------------------------------------------------------------------
II-5
<PAGE>
- --------------------------------------------------------------------------------

Exhibit index

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>

-------------------------------------------------------------------------------------
*1.1 Form of Underwriting Agreement

4.1 Specimen certificate for the Registrant's Common Stock
(incorporated by reference to Exhibit 4.1 of our
Registration Statement on Form S-1, Registration No.
333-53441).

*5.1 Opinion of Hale and Dorr LLP.

23.1 Consent of Arthur Andersen LLP.

23.2 Consent of Hale and Dorr LLP, included in Exhibit 5.1 filed
herewith.

24.1 Power of Attorney (See page II-5 of this Registration
Statement).

27 Financial Data Schedule
</TABLE>

- ---------

* To be filed by amendment

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
included in this registration statement and to the incorporation by reference
in this registration statement of our report dated January 18, 2000 included
in NorthEast Optic Network, Inc.'s Form 10-K for the year ended December 31,
1999 and to all references to our Firm included in this registration
statement.

/s/ Arthur Andersen LLP

ARTHUR ANDERSEN LLP

Boston, Massachusetts
April 3, 2000

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED STAEMENTS OF OPERATIONS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,768,389
<SECURITIES> 89,321,922
<RECEIVABLES> 1,975,201
<ALLOWANCES> (117,000)
<INVENTORY> 0
<CURRENT-ASSETS> 96,442,835
<PP&E> 100,614,294
<DEPRECIATION> (5,689,451)
<TOTAL-ASSETS> 280,633,376
<CURRENT-LIABILITIES> 27,514,702
<BONDS> 180,000,000
0
0
<COMMON> 163,935
<OTHER-SE> 67,302,855
<TOTAL-LIABILITY-AND-EQUITY> 280,633,376
<SALES> 5,665,276
<TOTAL-REVENUES> 5,655,276
<CGS> 6,365,758
<TOTAL-COSTS> 6,365,758
<OTHER-EXPENSES> 13,530,071
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,011,474
<INCOME-PRETAX> (27,529,768)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,529,768)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,529,768)
<EPS-BASIC> (1.70)
<EPS-DILUTED> (1.70)

</TABLE>