ZIPLINK INC, 10-K, 2000-03-30

ZIPLINK INC
10-K, 2000-03-30
BUSINESS SERVICES, NEC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR

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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM________________ TO ________________

COMMISSION FILE NUMBER 000-26147

ZIPLINK, INC.
(Exact name of registrant as specified in its charter)

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DELAWARE 04-3457219
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

900 CHELMSFORD STREET, 01851
TOWER 1, FIFTH FLOOR (Zip Code)
LOWELL, MASSACHUSETTS
(Address of Principal Executive Offices)
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Registrant's telephone number, including area code): (978) 551-8100
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK $0.001 PAR VALUE
(Title of Class)

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

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

The aggregate market value of the voting stock (Common Stock, $.001 par
value) held by non-affiliates of the registrant as of March 23, 2000 was
$56,109,190 (based on the closing sales price of the Common Stock as quoted by
the Nasdaq National Market on such date).

The number of shares of the registrant's Common Stock, $.001 par value,
outstanding as of March 23, 2000 was 12,939,987.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement to be used in
connection with its Annual Meeting of Stockholders to be held on May 3, 2000,
are incorporated by reference into Part III of this Report.

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ZIPLINK, INC.
FORM 10-K
TABLE OF CONTENTS

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PART I

Item 1. Business.................................................... 3
Item 2. Properties.................................................. 23
Item 3. Legal Proceedings........................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......... 24

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 26
Item 6. Selected Financial Data..................................... 26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 27
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 32
Item 8. Financial Statements and Supplementary Data................. 32
Item 9. Disagreements on Accounting and Financial Disclosure........ 58

PART III

Item 10. Directors and Executive Officers of Registrant.............. 58
Item 11. Executive Compensation...................................... 63
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 63
Item 13. Certain Relationships and Related Transactions.............. 63

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 63

SIGNATURES............................................................ 64
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STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K CONCERNING ZIPLINK'S BUSINESS
OUTLOOK OR FUTURE ECONOMIC PERFORMANCE; ANTICIPATED PROFITABILITY, REVENUES,
EXPENSES OR OTHER FINANCIAL ITEMS, INTRODUCTIONS AND GROWTH IN NETWORK OR
SERVICE OFFERINGS; AND STRATEGIES, PLANS AND OBJECTIVES, TOGETHER WITH OTHER
STATEMENTS THAT ARE NOT HISTORICAL FACTS, ARE FORWARD-LOOKING STATEMENTS" AS
THAT TERM IS DEFINED UNDER THE FEDERAL SECURITIES LAWS. ALL OF THESE FORWARD
LOOKING STATEMENTS ARE BASED ON INFORMATION AVAILABLE TO US ON THE DATE HEREOF,
AND WE ASSUME NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS INVOLVED A NUMBER OF RISKS, UNCERTAINTIES AND OTHER
FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED
IN SUCH STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS ANNUAL REPORT ON
FORM 10-K, PARTICULARLY IN THE SECTIONS ENTITLED "ITEM 1--BUSINESS--RISK
FACTORS" AND "ITEM--7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." ZIPLINK DOES NOT UNDERTAKE ANY OBLIGATION
TO RELEASE PUBLICLY ANY REVISIONS TO SUCH FORWARD-LOOKING STATEMENTS TO REFLECT
EVENTS OR UNCERTAINTIES AFTER THE DATE HEREOF OR REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.

PART I

ITEM 1. BUSINESS

ZipLink is a provider of wholesale Internet connectivity services in the
United States and Canada to Internet service providers and developers and
vendors of Internet appliances.

ZipLink provides wholesale Internet access services under the name ZipDial
to Internet service providers, or ISPs, in the United States and Canada which,
in turn, offer Internet access to their subscribers using ZipLink's network
infrastructure. These ISPs consist of traditional local, regional, and national
providers that generally collect a monthly fee from their subscribers in
addition to emerging model providers, such as free access providers and PC
manufacturers and distributors. ZipLink also offers a range of Internet
connectivity services for Internet appliances, including Internet access and
subscriber authentication.

In January 2000, the Company acquired the assets of Interhop Network
Services, Inc. of Toronto, Ontario, an ISP providing Internet connectivity
services throughout Canada.

INDUSTRY OVERVIEW

The emergence of the Internet and the widespread adoption of Internet
protocol as a data transmission standard in the 1990s, combined with the
deregulation of the telecommunications industry and advances in
telecommunications technology have significantly increased the attractiveness of
providing data communication applications and services over the Internet. At the
same time, growth in client/server computing, multimedia personal computers and
online computing services and the proliferation of networking technologies have
resulted in a large and growing number of people who are accustomed to using
networked computers for a variety of purposes, including e-mail, electronic file
transfers, online computing and electronic financial transactions. The
convergence of these trends has significantly accelerated the already rapid
expansion of Internet usage. According to International Data Corporation, or
IDC, Internet services market revenues in the United States grew 67% in 1999 to
more than $17 billion.

The rapid development and growth of the Internet has resulted in a highly
fragmented industry of over 7,000 local, regional and national ISPs in the
United States. These companies provide Internet access to their subscribers
either by developing a proprietary network infrastructure or by purchasing
Internet access from a wholesale provider such as ZipLink, or through a
combination of both. By outsourcing their network connectivity to ZipLink, we
believe ISPs can offer their subscribers a far wider array of access options
than their resources would otherwise permit without the need to invest in costly
infrastructure.

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Recently, there has been a significant increase in the number of providers
offering free or subsidized Internet access. These providers rely on advertising
or e-commerce revenues to offset their Internet access and other operating
costs. These providers are not generally constructing their own infrastructure
networks but instead are relying on companies such as ZipLink to provide the
network.

We believe that as Internet usage grows, it will expand rapidly beyond
today's paradigm of PC-based web browsing and e-mail. We believe that the
ubiquitous nature and relatively low cost of the Internet, together with rapid
advances in software, hardware and computer chip technology is ushering in a new
generation of electronic devices--Internet appliances. Internet appliances are
electronic devices, other than personal computers, which connect users to the
Internet. These comparatively inexpensive consumer and business electronics
products will make more focused use of the Internet than personal computers,
employing connectivity and network computing to accomplish limited but
nonetheless valuable tasks. Internet appliances are expected to come in a wide
variety of forms, some of which will resemble familiar consumer electronics
products. There are a number of examples of Internet appliances currently in
use, including devices known as TV set-top boxes, which enable browsing and
e-mail from a television, and simple e-mail only devices which are designed to
only receive and send e-mails in a low cost form factor. IDC forecasts the
market for consumer information appliances will exceed 89 million units and
$17.8 billion by 2004. IDC predicts that US unit shipments of consumer
information appliances will outnumber those of consumer PCs by 2002.

OUR BUSINESS STRATEGY

Our objective is to become the leading wholesale provider of Internet
connectivity services for ISPs and developers and vendors of Internet appliances
in the United States and Canada. We intend to achieve this goal by implementing
the following key strategies:

- EXPAND AND ENHANCE OUR NETWORK. We intend to continue to expand, enhance
and maintain a reliable network infrastructure with high-quality
performance.

- SOLIDIFY ZIPDIAL AS A LEADING WHOLESALE CONNECTIVITY SOLUTION. We intend
to capitalize on our network infrastructure and expertise to make our
ZipDial service the leading high-quality, cost-effective wholesale access
solution for ISPs. ZipDial is designed to allow ISPs to respond to
increasing price competition and service demands by quickly expanding
their capacity, coverage and product offerings without costly
infrastructure investments.

- BUILD AND STRENGTHEN OUR RELATIONSHIPS WITH EMERGING MODEL COMPANIES. We
intend to continue to build and strengthen our relationships with leading
and emerging providers of free and subsidized access services. Our current
customers in this area include 1stUp.Com, NetZero, Inc. and Spin
Media.Com, provider of access to Kmart's Bluelight.Com and NBCi. These
providers depend primarily on advertising or e-commerce revenues instead
of monthly subscriber fees. We plan to focus resources in expanding our
ZipDial customer base in this area as we anticipate that these providers
could have a significant impact on our revenue growth in 2000.

- LEVERAGE KEY INTERNET APPLIANCE RELATIONSHIPS. We actively seek to
identify, develop and sustain relationships with key innovators and early
marketers of Internet appliances to increase our market visibility. We
intend to capitalize on our relationship with WebTV by continuing to
expand our network where it is likely to be supported by WebTV traffic and
by using this relationship to boost our marketing efforts with developers
and vendors of other Internet appliances.

- OFFER ADDITIONAL SERVICES. We continue to explore additional wholesale
products and services to offer our growing customer base. We expect to
introduce our DSL services in the second half of 2000 and have initiated
wireless trials in our Canadian subsidiary to experiment with alternative
methods of delivering the last mile broadband connectivity.

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- ESTABLISH CLOSE RELATIONSHIPS WITH KEY CUSTOMERS AND SUPPLIERS. We seek to
establish and sustain close relationships with key customers and suppliers
to create and exploit early access to new markets and new technologies.

THE ZIPLINK NETWORK

As of December 31, 1999 the ZipLink network was comprised of 28 super points
of presence, or SuperPoPs, covering approximately 80% of the population of the
top 50 metropolitan areas in the United States.

A SuperPoP is created by using products provided by competitive local
exchange carriers which aggregate local telephone calls from a broad geographic
area and deliver them to a single network access point. This allows equipment
installed at this single network point of presence to cover a larger calling
area than would be possible with conventional point of presence configurations,
significantly reducing the number of points of presence required to cover a
given geographical area and the corresponding investment required to expand the
network. The SuperPoP architecture also enhances economies of scale from larger
equipment installations, lowers maintenance costs and allows for easier, more
efficient capacity upgrades since equipment is located centrally within a given
region. We believe the resulting cost savings and efficiencies contribute to our
ability to offer ZipDial customers and Internet appliance low-priced Internet
connectivity.

Subscriber traffic is routed using primarily Nortel Networks, Cisco Systems,
and Alcatel equipment through the network to the desired Internet location via
our network backbone which is currently provided to ZipLink by Williams
Communications Group and MCI WorldCom. Our network backbone operates at a speed
of 45 megabits per second using Asynchronous Transfer Mode, an information
transfer standard that, among other things, allows for a transmission of data,
voice, and video. Users connect to the network at a variety of speeds using a
range of access methods. Our network is engineered to provide superior quality
of service, including high connection success rates, low latency (response
time), fast download times and reliability.

During the year ended December 31, 1999, we increased the number of our
SuperPoPs from 18 to 28 SuperPoPs and the number of ports installed from under
10,000 to more than 38,000. Subsequent to the year-end, we increased our network
backbone lines from DS-3s to OC-3s.

The integrity of our network is monitored by on-line software and hardware
tools at ZipLink's network operations center located at our call center in
Lowell, Massachusetts. Anomalies in the function of the various network elements
are displayed on computer screens and the pertinent information sent to text
pagers carried by members of the engineering staff. The network operations
center is staffed 24 hours per day, 7 days per week, which enable us to mount a
rapid response in the event of a telecommunications outage or an equipment
failure. All elements of the network, wherever located, can be configured
remotely from our network operations center and our SuperPoP equipment is
accessible remotely via a modem connection. Each of our SuperPoPs is connected
to our network backbone by two independent circuits. This use of back-up, or
"redundant" circuits allows for automatic and rapid re-routing of traffic in the
event of a problem in either path and provides us with flexibility in routing
traffic through the network to optimize efficiency and reduce congestion. Our
network operations center is also supported by redundant connections to the
network.

SERVICES

ZipLink provides wholesale Internet connectivity services to local, regional
and national ISPs, including free and subsidized access providers, and to
developers and vendors of Internet appliances using our network. We also provide
Internet service to a limited number of direct subscribers, although we devote
minimal resources to this market segment.

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ZIPDIAL WHOLESALE SERVICES FOR ISPS

We provide an array of wholesale Internet access services under the name
ZipDial to ISPs which, in turn, offer Internet access to their subscribers using
ZipLink's network. The use of this service is wholly transparent to the
subscriber, preserving the Internet service provider's own brand identity as the
service provider. The ZipDial program is specifically designed to afford ISPs a
high quality, cost-effective means of quickly expanding their existing network
capacity, geographic reach and product offerings without investing in a costly
network infrastructure. Our ZipDial program was launched in November 1998. As of
December 31,1999, we had enrolled 506 ISPs into our ZipDial program.

ZipLink's current service offerings through its ZipDial program include
local dial-up access in any area covered by our network. ZipLink also offers its
ZipDial customers a variety of enhanced services through various strategic
alliances and partnerships. These services include e-mail, web hosting,
authentication, news and customer support options.

One Internet access service option we offer which we believe will be
significant to our ZipDial customers is digital subscriber line, or DSL service.
DSL technology allows users to achieve data transmission speeds over ordinary
telephone lines up to 7.1 megabits per second (or 125 times greater than the
fastest dial-up modem currently available) at a reasonable cost. However, in
order to support DSL technology within a given local dialing area, an ISP must
generally incur significant up-front costs to acquire the necessary equipment
and infrastructure. By outsourcing their Internet access services to ZipLink,
ISPs will be able to offer DSL access to their subscribers without incurring
these substantial up-front investments. We expect that our ability to offer DSL
access as a part of our ZipDial program will be based on the relationships with
three significant providers of DSL services: Covad Communications, Inc.,
Northpoint Communications, Inc. and Rhythms, Inc. Our ability to offer these
services is, however, contingent on successfully installing the necessary back
office systems. We are in the process of installing these systems and expect to
be in a position to actively market these services in the second half of 2000.

INTERNET APPLIANCE SERVICES

We believe that we are one of the only national Internet access providers to
actively focus on Internet appliances as a distinct market. We believe that the
dial-up focus of our network configuration and our understanding of, and
experience with, providing Internet connectivity to WebTV and other electronic
devices have provided us with a valuable platform for serving this rapidly
emerging area of Internet usage. We have developed the network, systems
configuration and know-how to provide Internet connectivity, subscriber
authentication, and other specially developed services to link a diverse array
of electronic devices to the Internet. While our service offerings for Internet
appliances are typically tailored to the needs of specific devices, the
solutions we offer are generally applicable to a number of categories of
appliances. We believe that our ability to provide these services will allow us
to offer developers and vendors of Internet appliances an opportunity to reduce
their time to market and to avoid the necessity of developing the required
network and service capabilities in-house or with other less experienced
providers.

We are a national provider of Internet connectivity to Microsoft's WebTV
Network. The WebTV set-top box provides the leading Internet-enabling solution
for televisions in the United States. We entered into an agreement with WebTV in
October, 1996 to provide dial-up connectivity between WebTV subscribers and
WebTV's own Internet access facility over the ZipLink network. We receive a
fixed price per subscriber per month if WebTV uses ZipLink as its first choice
provider of connectivity for a WebTV subscriber. If we are not designated as the
first choice provider by WebTV, we receive an hourly rate to the extent that a
WebTV subscriber actually obtains connectivity through our network. WebTV has
complete discretion in determining whether we are designated as a first choice
provider

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and, accordingly, controls whether we receive revenue based on fixed or hourly
pricing. Revenues from WebTV comprised 69%,68% and 48% of our total revenues in
1999, 1998 and 1997, respectively.

DIRECT INTERNET ACCESS SERVICES

ZipLink provides direct Internet access under the ZipLink name to a limited
number of retail users. Service offerings in this area include all of the
services which are made available to wholesale customers. ZipLink regards the
direct provision of Internet access as outside of our core business focus and
devotes minimal resources marketing to this segment.

CUSTOMER SERVICE AND TECHNICAL SUPPORT

We provide technical support services to our ZipDial customers from our call
center in Lowell, Massachusetts as a part of the ZipDial program. These services
assist our customers in technical aspects of using the ZipDial service. We also
provide customer support to our direct subscribers and possess the
infrastructure to provide customer or subscriber support to Internet appliance
customers and ZipDial customers with limited additional capital expenditures.
Additionally, we have agreements with third party suppliers of customer service
and technical support and have used those agreements to make support services
available to our ZipDial customers.

SALES AND MARKETING

We market ZipDial through our internal sales force, which was comprised of
14 sales representatives as of December 31, 1999. Our internal sales force
operates out of our Lowell offices. This sales force is dedicated to generating
leads, executing direct mail and proactive telemarketing campaigns, and handling
inquiries prompted by any of our sales channels. Our marketing efforts for the
ZipDial program also includes joint marketing, advertising, direct mail
campaigns, and attendance at trade shows.

The market for Internet appliances is at an early stage of development.
Accordingly, most of our marketing efforts in this area are targeted toward
identifying and establishing relationships with developers and early marketers
of Internet appliances and toward raising the visibility and profile of ZipLink
as a provider of Internet access services to this market. Our methods for
identifying prospective relationships and increasing ZipLink's visibility
include attendance, presentations and joint exhibitions with existing customers
at trade shows and joint marketing efforts with these customers.

COMPETITION

We face intense competition. There are no substantial barriers to entry in
the market for our services, and we expect that competition will further
intensify in the future. We believe that our ability to compete successfully
depends upon a number of factors, including:

- our ability to create and market wholesale Internet access solutions that
are attractive to ISPs in terms of price, quality and breadth of service
offerings;

- the capacity, reliability and security of our network infrastructure;

- market presence and our success at developing relationships with
innovators and early marketers of Internet appliances;

- technical expertise and functionality, performance and quality of services
and our ability to anticipate and meet the changing service needs of the
marketplace;

- our ability to establish and maintain successful relationships with key
customers and suppliers and to gain early access to new markets and new
technologies; and

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- our ability to support industry standards.

Our competitors may be divided into two groups: those with whom we presently
compete and those who may, in the future, compete with us. Our present
competitors with respect to the WebTV relationship consist of the other current
providers to WebTV: PSINet Inc., UUNet Technologies,Inc.(an MCI WorldCom
company), Concentric Network Corporation, and a number of other, smaller ISPs.
Our present competitors with respect to ZipDial consist of a variety of
companies who are, in some form or another, offering wholesale Internet access
services. This group includes ISPs such as GTE Internetworking, Concentric,
PSINet, UUNet, Splitrock Services, Inc. and Navinet, a CMGI Company, as well as
competitive local or interexchange exchange carriers, such as Intermedia
Communications, Inc., ICG Communications, Inc. and Level 3 Communications, Inc.
Our potential future competitors include all of our present competitors as well
as telecommunications companies, such as Williams, AT&T Corporation, Qwest
Communications International, Inc. and other ISPs.

KEY SUPPLIER RELATIONSHIPS

We intend to identify, establish and maintain close relationships with
important customers and suppliers to create and exploit early access to new
markets and new technologies. Consistent with this strategy, in 1997 ZipLink
entered into a series of agreements with Bay Networks, Inc., now a subsidiary of
Northern Telecom Limited, or Nortel Networks, a major manufacturer of
telecommunications equipment. As a part of these agreements, Nortel Networks has
provided ZipLink with $7.5 million of convertible debt financing and made a
$2.5 million equity investment in ZipLink. Concurrently with the closing of
ZipLink's initial public offering, the outstanding $7.5 million convertible debt
to Nortel Networks was converted into shares of our common stock. Through
December 31, 1999, ZipLink had purchased approximately $7.2 million of
telecommunications equipment and related services from Nortel Networks to
facilitate our network buildout.

ZipLink also has a relationship with Williams Communications Group, a major
telecommunications carrier. As a part of this supplier relationship, ZipLink
committed to purchase $5.4 million of network services from Williams through
2002 and pay for these services, in part, by using our common stock. We believe
that our relationship with Williams will, among other things, help assure us of
access to backbone capacity in the future, an important consideration for ISPs.

PROPRIETARY RIGHTS

Although we believe our success is more dependent upon our technological
expertise then on our proprietary rights, our success and ability to compete is
dependent in part on our technology and know how. We rely upon a combination of
copyright, trademark and trade secret laws and contractual restrictions to
protect our proprietary technology and expertise. It is and has been our policy
to require all employees and consultants to execute confidentiality agreements
upon commencement of their relationships with ZipLink. These agreements
generally provide that confidential information developed or made known during
the course of a relationship with us is to be kept confidential and not
disclosed except in specific circumstances.

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EMPLOYEES

As of December 31, 1999, we had 82 full-time and three part-time employees.
Our employees are not covered by a collective bargaining agreement. With our
acquisition of Interhop Network Services, Inc. following year-end, we added 16
employees. We have never experienced an employment-related work stoppage and
consider our employee relations to be good.

MORE ABOUT ZIPLINK

ZipLink was originally organized in November, 1995 as a Connecticut limited
liability company (the "Connecticut LLC") under the name ZipLink, LLC. In March,
1999, in order to facilitate the ultimate conversion to a Delaware corporation,
the Connecticut LLC was merged with and into a newly-formed Delaware limited
liability company retaining the name ZipLink, LLC. On May 25, 1999, just prior
to our initial public offering, ZipLink, LLC was merged with and into
ZipLink, Inc., a Delaware corporation. Our executive offices are located at 900
Chelmsford Street, Tower 1, Lowell, Massachusetts 01851 and our telephone number
is (978)551-8100. The Company's website is www.ziplink.com

RISK FACTORS

Please remember to be cautious in reading forward-looking statements.

Important Factors Regarding Forward-Looking Statements.

IN ADDITION TO OTHER INFORMATION IN THIS ANNUAL REPORT ON FORM 10-K AND IN
THE DOCUMENTS WE ARE INCORPORATING BY REFERENCE, THE FOLLOWING RISK FACTORS
SHOULD BE CAREFULLY CONSIDERED IN EVALUATING ZIPLINK AND OUR BUSINESS BECAUSE
SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT IMPACT OR MAY HAVE A SIGNIFICANT
IMPACT ON OUR BUSINESS, OPERATING RESULTS OR FINANCIAL CONDITION. THIS ANNUAL
REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE
PURSUANT TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW AND
ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.

WE ARE DEPENDENT ON WEBTV

We have in the past derived, and we expect in the future to continue to
derive, a significant portion of our revenues from WebTV. Revenues from WebTV
accounted for $2.5 million, or 48%, of our revenues for the year ended
December 31, 1997, $4.8 million, or 68%, of our revenues for the year ended
December 31, 1998 and $8.8 million, or 69%, of our revenues for the year ended
December 31, 1999. Our revenues from WebTV are dependent on the number of WebTV
subscribers who make use of our network for connectivity to WebTV. Our ability
to maintain and grow our revenues from WebTV depends upon a variety of factors,
many of which are beyond our control. Those factors include the following:

- WebTV could quickly and significantly reduce the amount of monthly
revenues we receive from WebTV. The minimum monthly revenue amount that
must be paid to us by WebTV under our agreement is significantly below the
actual monthly revenues we have received from WebTV since July 1998. The
amount of revenues we have received per month from WebTV for 1999 has
exceeded the minimum monthly amount WebTV is required to pay us under our
agreement by an average of 51% per month. If WebTV were to reduce the
amount of monthly revenues we receive to the minimum amount specified in
our agreement, we may be unable to execute our business plan and our
business, financial condition and results of operations could be
materially adversely affected.

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- Our agreement with WebTV, which was amended in October 1999, expires in
December 2002, subject to earlier termination by either party at will with
a pro-rata monthly reduction of subscriber traffic over time.

- We do not control or influence WebTV's ability to succeed in the
marketplace or its ability to obtain or retain subscribers.

- Our agreement with WebTV is not exclusive. WebTV obtains services such as
those we provide from a number of our competitors, including PSINet, UUNet
and Concentric. Many of such competitors are substantially larger than we
are and have more extensive networks and other resources.

- WebTV reallocates its subscriber traffic to us monthly based in part on
our quality of service. In late 1997 and the first half of 1998, during
the course of a network upgrade, WebTV subscribers experienced difficulty
in establishing a connection to our network. As a result, WebTV reduced
the amount of subscriber traffic on our network. If we experience service
quality problems of this or any nature in the future, WebTV may reduce our
allocation of subscriber traffic.

- Our business concentrates on delivering Internet connectivity primarily
using dial-up access over telephone lines. WebTV set-top boxes currently
rely upon this method of connectivity; however, these devices may, in the
future, be configured to use a cable modem as an alternative to dial-up
access. As the Internet becomes more readily accessible over the cable
network, we may experience an erosion in WebTV subscriber traffic. See
"--We face risks from new access technologies such as cable modems."

Because of these and other factors, we cannot assure you that revenues from
WebTV will continue or that such revenues will reach or exceed historical levels
in any future period.

The loss or significant reduction of WebTV's business would have a material
adverse effect on our business, financial condition and results of operations.

WE CANNOT PREDICT OUR SUCCESS BECAUSE WE HAVE A LIMITED OPERATING HISTORY

We commenced revenue generating operations from the provision of direct
Internet access to retail users in June 1996 and from WebTV in December 1996.
Our ZipDial service has only been offered since November 1998 and our revenues
for the year ended December 31, 1999 were $2.1 million for this service. As a
result, we have a limited operating history upon which to base an evaluation of
the future success of our business, particularly our ZipDial program. In
addition, because of our limited operating history we cannot predict the rates
at which our ZipDial subscribers will renew their agreements with ZipLink. Our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in new and rapidly evolving markets. We
cannot assure you that we will be successful in addressing the risks we face.
The failure to do so would have a material adverse effect on our business,
financial condition and results of operations.

WE EXPECT OUR LOSSES AND NEGATIVE CASH FLOW TO CONTINUE

Since our inception, we have incurred net losses and experienced negative
cash flow from operations. We incurred a net loss of $9.3 million during the
year ended December 31,1999 and our accumulated deficit as of December 31, 1999
was $33.3 million. We expect to continue to operate at a net loss and experience
negative cash flow for the foreseeable future given the level of planned
operating and capital expenditures. Our ability to achieve profitability and
positive cash flow from operations is dependent upon our ability to
substantially grow our revenue base through expansion of our ZipDial program and
an increase in sales of access services for Internet appliances and to achieve
operating efficiencies. We plan to make significant capital expenditures to
expand our network and to increase our operating expenses relating principally
to telecommunications costs related to our network

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infrastructure, based in large part on our estimates of potential future
revenues. If our future revenues fall short of our estimates or if our operating
expenses exceed our expectations, then we may never obtain or sustain
profitability.

WE WILL NEED SIGNIFICANT ADDITIONAL CAPITAL, WHICH WE MAY BE UNABLE TO OBTAIN

We will require significant capital to build out our network and fund our
growth and operating losses. Since our inception, our capital needs have
primarily been satisfied by the IPO, and equity investments by, and loans from
or guaranteed by, significant stockholders, and by vendor lease financings. We
continue to seek additional vendor lease financings to be used for capital
expenditures purposes. In addition, we are currently evaluating additional forms
of financings for working capital and other general corporate purposes,
including investments in strategic partnerships and further acquisitions.

We cannot assure you that we will be able to raise any additional capital on
terms favorable to us, or at all. If adequate capital is not available or is not
available on acceptable terms, we may not be able to expand, enhance and
maintain our network infrastructure according to our current business plan,
develop new products or services, or otherwise respond to unanticipated
competitive pressures and we may be prevented from taking advantage of
unanticipated opportunities. In such case, our business, financial condition and
results of operations could be materially adversely affected.

OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE AND
MAY FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS

Our annual and quarterly operating results have fluctuated in the past and
may fluctuate significantly in the future. A large percentage of our
expenditures are for equipment and telecommunications services and are generally
incurred in advance of revenues from use of these network components. The timing
and amount of purchases of network equipment and telecommunications services is
influenced by, among other things, the availability of such network components
at attractive prices. Our quarterly operating results could fluctuate due to a
number of factors, including the timing and amount of network equipment
purchases or purchases of telecommunications services and the relative timing
and amount of revenues from customers using these or other network components.

As a result of these or other factors, our operating results may, in some
future period, fall below the expectations of securities analysts and investors.
In such event, the market price of our securities will likely fall. Moreover,
fluctuations in our operating results may also result in volatility in the
market price of our securities.

WE MUST EXPAND AND ADAPT OUR NETWORK

The execution of our business plan requires us to rapidly expand our network
infrastructure to extend and increase our service offerings, to grow our network
capacity and to modify its capabilities to match increases in the number of
users and the amount and type of information users wish to transfer. We will
also be required to respond to changes in customer requirements. For example,
WebTV may shift its subscriber traffic from one area of our network to another,
requiring a reallocation of our network capacity. Such a shift could occur
rapidly and without advance notice. In 1998, WebTV significantly reduced its
allocation of subscriber traffic to one area of our network for reasons
unrelated to our service quality. At the same time, WebTV increased subscriber
traffic to other areas of our network. While WebTV subscriber traffic on our
network as a whole remained constant after such reallocation, the increased
traffic in the affected portions of our network significantly reduced our

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excess capacity in those areas. If such added traffic had exceeded the capacity
of our network in the affected areas, we would have experienced capacity
constraints that could have reduced our service quality. We currently project
our network utilization and customer requirements will necessitate a rapid
expansion of our network capacity to avoid capacity constraints that would
adversely affect system performance. We also plan to increase our area of
service coverage to, among other things, broaden the reach of our ZipDial
program. The expansion and adaptation of our network infrastructure will require
substantial financial, operational and management resources in 2000 and future
periods. We cannot assure you that we will be able to expand or adapt our
network infrastructure to facilitate our business plan or to meet additional
demand or our customers' changing requirements on a timely basis, at a
commercially reasonable cost, or at all. In addition, if demand for network
usage were to increase faster than projected by us or were to exceed our current
forecasts, the network could experience capacity constraints, which would
adversely affect the performance of the system. Our business, financial
condition and results of operations could be materially adversely affected if,
for any reason, we fail to:

- expand our network infrastructure both in capacity and in geographic terms
on a timely basis; or

- adapt our network infrastructure to changing customer requirements or
evolving industry trends

We cannot assure you that we will be able to expand our network
infrastructure or adapt our infrastructure sufficiently, or at all.

OUR GROWTH AND EXPANSION MAY STRAIN OUR RESOURCES

Our business has grown rapidly since our inception and is expected to
continue to grow. This growth and expansion have required, and are expected to
require a great deal of management time and significant financial resources. To
manage our growth, we must, among other things, hire, train and retain qualified
personnel, especially technical personnel, and continue to implement and improve
our operational, financial and management information systems, including our
billing, accounts receivable and payable tracking, fixed assets and other
financial management systems.

We cannot assure you that we will be able to hire, train or retain
sufficient numbers of qualified personnel to meet our requirements or that we
will be able to implement information management systems to meet the
requirements created by our future growth.

RISK OF FOCUS ON FREE ACCESS OR SUBSIDIZED PROVIDERS

We intend to focus a portion of our business efforts and resources on
emerging model companies, such as free access or subsidized providers. These
service providers provide Internet access to their customers free of charge or
at amounts less than their cost for access as they expect revenues from
advertising or e-commerce to be sufficient to offset their Internet access and
other operating costs. We have agreements to provide access with many of these
providers and plan to continue to focus resources in expanding our customer base
in this area. These companies are relatively new and the access revenues that we
currently anticipate from such providers may fail to materialize if these
business models generate insufficient revenues to cover their costs or fail to
gain market acceptance.

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WE DEPEND ON THE GROWTH OF THE INTERNET

Demand for all our services will depend, in large part, on growth in the use
of the Internet. The growth of the Internet is highly uncertain and the Internet
may fail to grow due to a variety of factors, including:

- actual or perceived lack of security of information, such as credit card
numbers;

- traffic congestion or other usage delays on the Internet;

- high cost or lack of access availability; and

- governmental regulation

In addition, broad adoption of the Internet for most business applications
will require the acceptance of a new medium of conducting business and
exchanging information. If the Internet fails to grow, or fails to grow as
quickly as we have anticipated, our business, financial condition and results of
operations would be materially adversely affected.

WE ARE DEPENDENT ON OUR ZIPDIAL CUSTOMERS

We earn revenue from our ZipDial customers largely on the basis of the
number of their subscribers who use our network. Our agreements with these ISP
customers do not require them to outsource any or all of their Internet access
needs to us. The extent to which an ISP chooses to outsource these services to
us for some or all of its subscribers is wholly within the discretion of the
ISP. Traffic allocation decisions may be made by ISPs on a
subscriber-by-subscriber or on an aggregate basis at any time, or from time to
time.

Our business, financial condition and results of operations could be
materially adversely affected if, for any reason:

- our ZipDial customers do not expend efforts to enroll large numbers of
subscribers or otherwise succeed in growing their subscriber base; or

- our ZipDial customers do not allocate large numbers of subscribers to our
network.

Because we initiated the ZipDial program in November 1998, it is difficult
to predict whether, or under what terms, large numbers of ISPs will join our
ZipDial program, at what rate, if at all, they will acquire subscribers, or the
extent to which they will cause their subscribers to use our network. Nor can we
assure you as to the levels of resources or effort, if any, that will be devoted
by ZipDial customers to marketing Internet access using our network services, or
the extent to which these customers will outsource Internet access services to
us.

WE DEPEND UPON THE GROWTH AND ACCEPTANCE OF INTERNET APPLIANCES

We provide wholesale Internet access services to the Internet appliance
market. This market is in the early stages of development and is rapidly
evolving. It is difficult to predict the rate at which the Internet appliance
market will develop and grow and whether demand for our services in this market
can be sustained.

We believe that the market for providing wholesale Internet access services
for Internet appliances is subject to the following specific risks and
uncertainties:

- Internet appliances which make use of our Internet access services may not
be developed or, if developed, may not gain market acceptance as quickly
as we anticipate, if at all; and

- We could fail to correctly identify and successfully form relationships
with developers and vendors of Internet appliances whose products enjoy
commercial success and acceptance. The

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growth of the Internet appliance market and the acceptance of Internet
appliances could fail to occur, even as the Internet access market grows
because Internet users may not adopt Internet appliances as a means of
connecting to the Internet, electing instead to rely on access via a
personal computer. In the event that the Internet appliance market fails
to develop as quickly as we have anticipated, our business, financial
condition and results of operations would be materially adversely
affected.

OUR NEW OR ENHANCED SERVICES MAY HAVE ERRORS OR DEFECTS

Our services may contain undetected errors or defects when first introduced
or upgraded. We cannot assure you that, despite testing by us or our customers
and suppliers, errors will not be found in new services or enhancements after
commencement of commercial deployment. Such errors could result in:

- additional development costs;

- loss of, or delays in, market acceptance;

- diversion of technical and other resources from our other development
efforts; or

- the loss of customers and users (for example, subscribers of a ZipDial
customer)

Any of these consequences could have a material adverse effect on our
business, financial condition and results of operations.

WE DEPEND UPON OUR SUPPLIERS AND HAVE LIMITED SOURCES OF SUPPLY FOR KEY PRODUCTS
AND SERVICES

We rely on other companies to supply us with telecommunications facilities,
computer hardware and software, networking equipment and related services which
are critical to the maintenance and operation of our network. We primarily buy
these products and services from MCI WorldCom, Williams Communications Inc.,
local exchange carriers, competitive local exchange carriers, Nortel Networks,
Alcatel, and Cisco Systems, Inc.

These products and services are available in the quantity and of the quality
required by us only from limited sources. We do not carry significant
inventories of many of these products and have no guaranteed supply arrangements
for any such limited source products. We cannot assure you that we will be able
to obtain the products and services that we need on a timely basis, in
sufficient quantities or at an affordable cost. We have experienced
interruptions in some telecommunications services and delays in purchasing
products and other services from time to time in the past and may experience
similar interruptions and delays in the future. We do not currently have, and do
not expect in the future to have, a means of replacing these products or
services on a timely and cost-effective basis. Further, all of our suppliers
sell products and services to our competitors and, in the case of
telecommunications services in particular, some of our suppliers are or may
become competitors themselves. Our suppliers may enter into exclusive
relationships with our competitors or stop selling products and services to us
at commercially reasonable prices. If we are unable to obtain critical services
or products in the quantities required by us and on a timely basis, our
business, financial condition and results of operations may be materially
adversely affected.

We also depend on our suppliers' ability to provide necessary products that
comply with various Internet and telecommunications standards. These products
must also function efficiently with products and components from other vendors.
Any failure of our suppliers to provide products or components that comply with
Internet standards or that function efficiently with other products or
components used by us in our network infrastructure could have a material
adverse effect on our business, financial condition and results of operations.

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OUR SUCCESS DEPENDS ON MAINTAINING RELATIONSHIPS WITH OTHER INTERNET ACCESS
PROVIDERS

The Internet includes a number of Internet access providers (including ISPs)
that operate their own networks and connect with each other at various locations
around the United States under informal arrangements known as "peering" (where
providers connect without charge) and under written arrangements known as
"transit" agreements (where there are charges imposed). It is more costly and
less efficient to operate a network without peering or transit arrangements.
Consequently, we must maintain our peering and transit relationships to maintain
high performance levels at a reasonable cost. These arrangements are not subject
to regulation and the terms, conditions and costs can be changed by the provider
at any time. Currently, we have peering relationships with 61 Internet access
providers and transit agreements with two Internet access providers. If we fail
to maintain these relationships on a cost-effective basis, the costs of
operating our network could increase and our business, financial condition and
results of operations could be materially adversely affected.

WE DEPEND UPON OUR NETWORK INFRASTRUCTURE FUNCTIONING WITHOUT INTERRUPTION

Our success depends upon the reliability and security of our network
infrastructure. While we have taken precautions against system failure,
interruptions could result from natural disasters, as well as power loss,
telecommunications failure and similar events and interruptions have occurred in
the past. For example, in December 1998, an MCI WorldCom telecommunications
cable was accidentally cut, resulting in an interruption in the functioning of
our Washington, D.C. SuperPoP and a temporary suspension of our ability to
provide service to that geographic area.

A significant portion of our computer equipment is located in Lowell,
Massachusetts, as well as at individual SuperPoPs. Although we maintain
insurance to cover loss or damage to equipment, we do not maintain any business
interruption insurance or have a formal disaster recovery plan or alternative
providers of network infrastructure. Any damage or failure that causes
interruptions in our operations could have a material adverse effect on our
business, financial condition and results of operations.

OUR MARKET IS EXTREMELY COMPETITIVE AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY

We face intense competition. There are no substantial barriers to entry in
the market for our services, and we expect that competition will further
intensify in the future. In particular, because our agreements with our ZipDial
customers are not exclusive and these ISPs are free to outsource any or all of
their Internet access services to other providers, our ZipDial program is
vulnerable to competitive pressures. We believe that our ability to compete
successfully in the market for Internet access service generally depends upon a
number of factors, including:

- our ability to create and market wholesale Internet access services that
are attractive to ISPs in terms of price, quality and breadth of service
offerings;

- the capacity, reliability and security of our network infrastructure;

- market presence and, with respect to Internet appliances, our success at
developing relationships with innovators and early marketers of such
devices;

- technical expertise and functionality, performance and quality of services
and our ability to anticipate and meet the changing service needs of the
marketplace;

- our ability to establish and maintain successful strategic relationships
with key customers and suppliers and to gain early access to new markets
and new technologies; and

- our ability to support industry standards.

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Our competitors may be divided into two groups: those with whom we presently
compete and those who may, in the future, compete with us. Our present
competitors with respect to the WebTV relationship consist of the other current
providers to WebTV: PSINet, UUNet, Concentric, and a number of other, smaller
ISPs. Our present competitors with respect to ZipDial consist of a variety of
companies who are, in some form or another, offering wholesale Internet access
services. This group includes ISPs such as GTE Internetworking, Concentric,
PSINet, UUNet, IDT Corp., Splitrock Services and Navinet, a CMGI Company, as
well as competitive local and interexchange carriers in selected markets, such
as Intermedia Communications, Inc., ICG Communications, Inc., Level 3
Communications. Our potential future competitors include all of our present
competitors as well as telecommunications companies, such as Williams, AT&T,
Qwest Communications International, and other ISPs. Many of our present and
potential competitors have greater market presence, engineering and marketing
capabilities, and larger financial, technological and personnel resources than
those available to us. They may also enjoy certain price advantages with respect
to the purchase of bandwidth from telecommunications carriers if, for example,
they are a carrier themselves, or if they are affiliated with a carrier, or if
their usage enables them to secure volume discounts. As a result, these present
and future competitors may be able to develop and expand their communications
and network infrastructures more quickly, adapt more swiftly to new or emerging
technologies and changes in customer requirements, take advantage of acquisition
and other opportunities more readily, and devote greater resources to the
marketing and sale of their products and services than we can.

In addition to possessing greater financial, technological and personnel
resources, a number of our present and future competitors have the ability to
bundle other services and products with Internet access services which could
place us at a competitive disadvantage. Certain companies are also exploring the
possibility of providing or are currently providing Internet access services
using alternative delivery methods, such as over the cable television
infrastructure, through direct broadcast satellites and over wireless cable. See
"--We face risks from new access technologies such as cable modems." We also
anticipate increasing vertical and horizontal integration in our industry. As a
result of increased competition and this integration in the industry, we could
encounter significant pricing pressure both from our Internet appliance and our
ZipDial customers. This pricing pressure could result in significant reductions
in the average selling price of our services. For example, telecommunications
companies that compete with us may be able to provide customers with reduced
communications costs in connection with their Internet access services, reducing
the overall cost of their solutions and significantly increasing price pressures
on us. We cannot assure you that we will be able to offset the effects of any
such price reductions with an increase in the number of our customers, higher
revenue from enhanced services, cost reductions or otherwise.

INDUSTRY CONSOLIDATION COULD ADVERSELY AFFECT US

The Internet access industry is experiencing consolidation and we believe
the pace of this consolidation will increase in the near future. We cannot
predict with any certainty how such consolidation will affect us or our
competitors. Consolidation among Internet access providers could result in
increased price and other competition in the market for wholesale Internet
access services and we cannot assure you that we will be able to compete
successfully in an increasingly consolidated industry. Any heightened
competitive pressures may have a material adverse effect on our business,
financial condition and results of operations. In addition, consolidation in the
ISP market could result in a reduced number of actual and potential customers
for our ZipDial service as local and regional ISPs are absorbed by larger,
national providers or as ISPs combine into entities with greater resources and
purchasing power. A reduction in our potential customer base for ZipDial service
could have a material adverse effect on our business, financial condition and
results of operations.

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WE MUST KEEP UP WITH RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS

The markets for our services are characterized by rapidly changing
technology and evolving industry standards. Our future success will depend, in
part, on our ability to:

- effectively identify and implement leading technologies;

- develop our technical expertise;

- enhance our current Internet access services; and

- influence and respond to emerging industry standards and other
technological changes.

All this must be accomplished in a timely and cost-effective manner. We
cannot assure you that we will be successful in effectively identifying or
implementing new technologies, identifying or developing new services or
enhancing our existing services on a timely basis, if at all. We cannot assure
you that those technologies or enhancements we do identify and develop will
achieve market acceptance. Our pursuit of necessary technological advances may
require substantial time and expense. We cannot assure you that we will succeed
in adapting our Internet access services business to alternate technologies as
they emerge. If we fail to identify and implement new technologies or services,
our business, financial condition and results of operations could be materially
adversely affected.

Our success is also dependent upon the continued compatibility of our
services with products and architectures offered by various vendors. Although we
intend to support emerging standards in the market for Internet access products,
we cannot assure you that industry standards will be established. If industry
standards are established, we cannot assure you that we will be able to conform
to these new standards in a timely fashion and maintain a competitive position
in the market. Specifically, our services rely on the continued widespread
commercial use of a group of network standards, or protocols, known in our
industry as "TCP/IP." Alternative standards have been or are being developed. If
any of these alternative protocols become widely adopted, there may be a
reduction in the use of TCP/IP, which could render our services obsolete,
unmarketable or subject to substantial modification and upgrades. In addition,
we cannot assure you that services or technologies developed by others will not
render our services or technology uncompetitive or obsolete.

An integral part of our strategy is to design our network to meet the
requirements of emerging standards. However, we have, from time to time in the
past, experienced difficulties in adapting to new standards and will likely
experience similar difficulties in the future. Difficulties experienced while
adapting to new standards may have a material adverse effect on our business,
financial condition and results of operations.

If we fail, for technological or other reasons, to implement emerging
standards or to develop and introduce other new or enhanced services that are
compatible with industry standards, then our business, financial condition and
results of operations would be materially adversely affected.

WE FACE RISKS FROM NEW ACCESS TECHNOLOGIES SUCH AS CABLE MODEMS

We face the risk of fundamental changes in the way Internet access is
delivered. Internet services are currently accessed primarily over telephone
lines by computers and substantially all of our business concentrates on
providing connectivity to the Internet over telephone lines, particularly
dial-up connectivity. Several companies are providing Internet access on a
limited basis via cable modems, wireless cable modems, satellite modems and
other access devices that do not use telephone lines. In addition, some Internet
appliances are presently configured to make use of these and other new access
technologies if and when they become available. As the Internet becomes
accessible through alternative access devices, we may experience an erosion in
our customer base and in the number of subscribers making use of our system as
our customers allocate subscriber traffic away from our network to the

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newer, faster technologies. For example, if WebTV set-top boxes were configured
to use cable modems and if Internet access using the cable network becomes
widely available to WebTV subscribers, the number of WebTV subscribers using our
network through a dial-up connection could fall significantly. In such event, we
will be required to identify and develop alternative markets that can use the
dial-up capabilities of our network or to embrace and incorporate such new
access technologies. If we fail to either identify and successfully develop
alternative services or otherwise to adapt to new access methods or other new
technologies, our business, financial condition and results of operations would
be materially adversely affected.

OUR SYSTEM MAY EXPERIENCE SECURITY BREACHES

Despite the implementation of network security and user authentication
measures, the core of our network infrastructure is vulnerable to computer
viruses, break-ins and similar disruptive problems caused by our customers,
Internet users, our current or former employees or others. Computer viruses,
break-ins or other problems caused by third parties could lead to significant
interruptions or delays in service to our customers and their subscribers.
Furthermore, inappropriate use of the network by third parties could also
potentially jeopardize the security of confidential information stored in our
computer systems and our customers' computer systems. We may face liability and
may lose potential customers or our customers may lose subscribers as a result.
We have no insurance covering such liabilities. Although we intend to continue
to implement industry-standard security and authentication measures, our
protective measures have been circumvented in the past. Moreover, we have in the
past and expect in the future to experience security threats which we believe
are typical to the business of providing Internet access. We cannot assure you
that our security measures will prevent security breaches. The costs and
resources required to eliminate computer viruses and alleviate other security
problems could be prohibitively expensive and efforts to address such problems
may result in interruptions, delays or cessation of service to our customers
that could have a material adverse effect on our business, financial condition
and results of operations.

WE DEPEND UPON KEY PERSONNEL AND MAY BE UNABLE TO HIRE AND RETAIN SUFFICIENT
NUMBERS OF QUALIFIED PERSONNEL

Our success depends to a significant degree upon the continued contributions
of Henry Zachs, our Co-Chairman and Chief Executive Officer, Christopher
Jenkins, our President, and Michael Clover, our Chief Operating Officer.
Mr. Zachs devotes approximately 50% of his time to our business. The loss of the
services of any of these employees could have a material adverse effect on us.
We have an employment agreement with Mr. Jenkins, which expires in
December 2001, but do not have any employment agreements with Messrs. Zachs or
Clover or any other employee. Further, we do not carry key man life insurance on
the life of any employee. Our success will also depend upon the continued
service of the other members of our senior management team and our technical and
marketing personnel. Competition in our industry for qualified employees,
especially technical personnel, is intense. Our employees may voluntarily
terminate their employment with us at any time. Our success also depends upon
our ability to attract and retain additional highly qualified management,
technical and marketing personnel. Locating personnel with the combination of
skills and attributes required to carry out our strategy is often a lengthy
process. The loss of key personnel, or the inability to attract additional,
qualified personnel, could have a material adverse effect upon our results of
operations, service development efforts and ability to complete the expansion of
our network infrastructure.

GOVERNMENT REGULATION COULD NEGATIVELY IMPACT OUR BUSINESS

Regulation of the telecommunications industry is in a state of rapid and
uncertain change. We cannot predict the direction or scope of these regulatory
changes or the impact such changes may have

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on our business, financial condition or results of operations. Government
regulation could negatively impact our business in a number of ways:

- we may become subject to direct government regulation;

- regulatory regimes governing our actual and future competitors could
change in ways which enhance their ability to compete with us; and

- our suppliers may be subject to regulation which has the effect of
increasing our cost of doing business.

Our activities are not presently subject to direct government regulation.
The Federal Communications Commission, or FCC, currently does not regulate
either value-added network software or computer equipment related services that
transport data or voice messages based on Internet protocol over
telecommunication facilities as telecommunications services. We provide
value-added Internet protocol-based network services, in part, through data
transmissions over public telephone lines. Operators of these types of
value-added networks that provide access to regulated transmission facilities
only as part of a data services package are classified for regulatory purposes
as providers of "information services" and are currently excluded from
regulations that apply to "telecommunications carriers." As such, we are not
currently subject to direct regulation by the FCC or any other governmental
agency, other than regulations applicable to businesses generally. However,
future changes in law or regulation could result in some aspects of our current
operations becoming subject to regulation by the FCC or another regulatory
agency.

State public utility commissions generally have declined to regulate
enhanced or information services. Some states, however, have continued to
regulate particular aspects of enhanced services in limited circumstances, such
as where they are provided by incumbent local exchange carriers that operate
telecommunications networks. Moreover, the public service commissions of some
states continue to review potential regulation of such services. We cannot
assure you that regulatory authorities of states where we provide Internet
access services will not seek to regulate aspects of this activity as
telecommunications services.

If we become subject to direct government regulation, our business,
financial condition and results of operations could be adversely affected.

Our actual and potential future competitors include incumbent local exchange
carriers, such as Southern New England Telecommunications Corporation, or SNET
(a subsidiary of SBC Communications Inc.), and Bell Atlantic Corporation, which
are presently subject to extensive government regulation. Changes in the
regulations affecting these competitors could have the effect of enhancing their
ability to compete with us, which could, in turn, have a material adverse effect
on our business, financial condition and results of operations.

In addition, we purchase significant services from entities which are
subject to government regulation, including competitive local exchange carriers
which provide key enabling components of our super points of presence.
Competitive local exchange carriers are subject to extensive regulation by the
FCC. This includes rules governing so-called "reciprocal compensation," the
compensation of competitive local exchange carriers by incumbent local exchange
carriers for telephone calls from incumbent local exchange carrier customers
which are terminated on the competitive local exchange carrier's system. This
regulation applies to dial-up calls to ZipLink's network which originate on an
incumbent local exchange carrier's telephone line and pass through competitive
local exchange carrier facilities used in our super points of presence. The FCC
has recently considered the issue of reciprocal compensation and may, in the
future, alter existing reciprocal compensation rules in ways which negatively
affect competitive local exchange carriers. We cannot predict any future changes
in reciprocal compensation or other rules governing competitive local exchange
carriers or the impact any such regulatory changes may have on their businesses.
If competitive local exchange carriers are adversely

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affected by regulatory changes, they may raise the price or otherwise modify the
terms applicable to services they provide to ZipLink which are important to our
super point of presence architecture. Such modifications could increase our cost
of doing business and, as a result, negatively affect our ability to compete,
reduce our gross margin on some services or otherwise have a material adverse
effect on our business, financial condition and results of operations.

We cannot predict the impact, if any, that future regulation or regulatory
changes may have on our business and we cannot assure you that future regulation
or regulatory changes will not have a material adverse effect on our business,
financial condition and results of operations.

WE DEPEND ON OUR PROPRIETARY TECHNOLOGY AND TECHNOLOGICAL EXPERTISE

Although we believe our success is more dependent upon our technological
expertise than on our proprietary rights, our success and ability to compete is
dependent in part on our technology and know-how. We rely upon a combination of
copyright, trademark and trade secret laws and contractual restrictions to
protect our proprietary technology and know-how. We cannot assure you that such
measures have been, or will be, adequate to prevent misappropriation of our
proprietary technology or know-how. Our competitors may also independently
develop technologies that are substantially equivalent or superior to our
technology.

THIRD PARTIES MAY CLAIM WE INFRINGE THEIR PROPRIETARY RIGHTS

We have applied for or received certain trademarks for use in the United
States. None of our technology is patented by us. We use certain "open source"
and "shareware" software in our business, such as Linux and MRTG. We believe
that such software is in the public domain and that its use by ZipLink and
others is not subject to any charge or licensing fee, although we may, on a
voluntary basis, make contributions to developers or, in some cases, incur
charges for support materials or services relating to such software. However, we
have not investigated our use of any open source or shareware software to
determine whether it constitutes infringement of any third party proprietary
rights. Although we do not believe our trademarks or use of technology infringe
the proprietary rights of any third parties, we cannot assure you that third
parties will not assert such claims against us in the future or that such claims
will not be successful. We could incur substantial costs and diversion of
management resources to defend any claims relating to proprietary rights, which
could have a material adverse effect on our business, financial condition and
results of operations. Furthermore, parties making such claims could secure a
judgment awarding substantial damages, as well as injunctive or other equitable
relief that could effectively block our ability to use such trademarks or
technology. Such a judgment would have a material adverse effect on our
business, financial condition and results of operations. If someone asserts a
claim relating to proprietary technology or information against us, we may seek
licenses to such intellectual property. We cannot assure you, however, that we
could obtain licenses on commercially reasonable terms, if at all. The failure
to obtain the necessary licenses or other rights could have a material adverse
effect on our business, financial condition and results of operations.

WE ARE AT RISK FROM INAPPROPRIATE USE OF OUR NETWORK

We could face liability for the use of our network to carry or disseminate
inappropriate information. The law relating to the liability of online service
providers, private network operators and ISPs for information carried on or
disseminated through the facilities of their networks is continuing to evolve
and remains unsettled. Several private lawsuits seeking to impose such liability
are currently pending. In the past, at least one court has ruled that ISPs could
be found liable for copyright infringement as a result of information
disseminated through their networks. Although no such claim has been asserted
against us to date, we cannot assure you that such claims will not be asserted
in the future. Further, while we have attempted to limit our liability in this
respect through various

20
<PAGE>
contractual means, we cannot assure you that our liability will be so limited in
the event of any litigation or other claim against us. We do not have any
insurance covering liabilities or claims relating to the use of our network or
to materials disseminated using our network. Federal laws have been enacted,
however, which, under certain circumstances, may provide ISPs with immunity from
liability for information that is disseminated through their networks when they
are acting as mere conduits of information. A Federal Court of Appeals has
recently held that the Telecommunications Act of 1996 creates immunity from
liability for ISPs for libel claims arising out of information disseminated over
their services by third party content providers. In addition, the Digital
Millennium Copyright Act of 1998, creates a safe harbor from copyright
infringement liability for ISPs that meet certain requirements. We have complied
with these requirements by instituting certain technical measures and by
registering with the Copyright Office. We cannot assure you, however, that the
Digital Millennium Copyright Act or any other legislation will protect us from
copyright infringement liability.

The Child Online Protection Act of 1998 prohibits and imposes criminal
penalties and civil liability on anyone engaged in the business of selling or
transferring, by means of the World Wide Web, material that is harmful to minors
without restricting access to such material by persons under seventeen years of
age. Numerous states have adopted or are currently considering similar types of
legislation. The imposition upon us as an Internet access provider of potential
liability for such materials carried on or disseminated through our system could
require us to implement measures to reduce our exposure to such liability. Such
measures may require the expenditure of substantial resources or the
discontinuation of certain service offerings. Further, the costs of defending
against any such claims and potential adverse outcomes of such claims could have
a material adverse effect on our business, financial condition and results of
operations. The Child Online Protection Act of 1998 has been challenged by civil
rights organizations in part on the grounds that it violates the First
Amendment. A similar statute was held unconstitutional by the United States
Supreme Court in 1997. A United States District Court has temporarily enjoined
enforcement of the law pending final resolution of the case. We do not carry any
insurance against any claims related to the use of our network by third parties.

Our network operations, like those of all ISPs and on-line services, are at
risk from inappropriate uses by third parties known as "spamming." Spamming
occurs when a user, which could be a subscriber of a ZipDial customer, employs
our network to rapidly distribute a large number of unsolicited e-mails to users
of other networks. The volume of unsolicited e-mails can cause congestion on the
originating network, in this case ZipLink's, or on the networks of other
providers who serve addressees of the e-mails. These addressees may also
register complaints with their host ISPs. As a result, many ISPs react to
spamming of their users by temporarily blocking the flow of traffic from the
originating network until that network blocks access by the offending user and
terminates the flow of unwanted e-mails. Because these blockages are not
specific to the offending user, they affect all traffic emanating from the
originating network and can result in the temporary interruption of service to
all users of that network. If ZipLink's network is used by a spammer, service to
our users could be interrupted and our business, financial condition and results
of operations could be materially adversely affected. Although ZipLink attempts
to prevent use of its network for spamming through contractual means and through
industry standard network monitoring, spamming has occurred on our network in
the past and we cannot assure you that spamming will not occur in the future.

UNFORESEEN YEAR 2000 PROBLEMS MAY HAVE ADVERSE EFFECTS ON OUR BUSINESS AND
RESULTS OF OPERATIONS

While we have not experienced any significant Year 2000 problems to date,
and while we are not aware of any significant Year 2000 problems experienced by
our suppliers, such problems could arise in the future. In that event, our
operations could be affected in several adverse ways. Known or unknown errors or
defects that affect the operation of our products, services or systems could
result in delay or

21
<PAGE>
loss of revenue, interruption of network services, cancellation of customer
contracts, diversion of development of expansion resources, damage to our
reputation, or litigation costs.

OUR CO-CHAIRMEN AND OUR CHIEF EXECUTIVE OFFICER, IN THE AGGREGATE, BENEFICIALLY
OWN 53.44% OF OUR COMMON STOCK AND, AS A RESULT, CAN EXERCISE SIGNIFICANT
INFLUENCE OVER OUR COMPANY

Henry Zachs, our Co-Chairman and Chief Executive Officer, and Eric Zachs,
our Co-Chairman, in the aggregate, beneficially own approximately 53.44% of our
common stock. These stockholders will be able to control most matters requiring
approval by our stockholders, including the election of directors and approval
of significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control of ZipLink, which
in turn could have a material adverse effect on the market price of our common
stock or prevent our stockholders from realizing a premium over the market price
for their shares of common stock.

WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS WHICH COULD NEGATIVELY IMPACT OUR
STOCKHOLDERS

We are subject to Delaware laws that could have the effect of delaying,
deterring or preventing a change in control of ZipLink. One of these laws
prohibits us from engaging in a business combination with any interested
stockholder for a period of three years from the date the person became an
interested stockholder, unless some conditions are met. In addition, provisions
in our Amended and Restated Certificate of Incorporation and By-Laws, and the
significant proportion of our stock held by our executive officers, directors
and affiliates, could have the effect of discouraging potential takeover
attempts or making it more difficult for stockholders to change management. One
such provision is the ability of our Board of Directors to authorize the
issuance of preferred stock with rights and privileges that might be senior to
our common stock without stockholder approval. Our Amended and Restated
Certificate of Incorporation and By-Laws also provide that stockholders may not
take action by written consent and that special meetings of the stockholders may
only be called by our Board of Directors. Our Amended and Restated Certificate
of Incorporation and By-Laws further require a supermajority vote of the
stockholders to amend certain provisions of our Amended and Restated Certificate
of Incorporation or the By-Laws.

OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE

The trading price of our common stock has been and is likely to be highly
volatile. Our stock price could be subject to wide fluctuations in response to a
variety of factors, including the following:

- actual or anticipated variations in quarterly operating results;

- announcements of technological innovations;

- new products or services offered by us or our competitors;

- changes in financial statements by securities analysts;

- conditions or trends in the network services market;

- our announcement of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;

- additions or departures of key personnel;

- sales of common stock; and

- other events or factors that may be beyond our control.

22
<PAGE>
In addition, the stock markets in general, and the Nasdaq National Market
and the market for network services and technology companies in particular, have
experienced extreme price and volume fluctuations recently. These fluctuations
often have been unrelated or disproportionate to the operating performance of
these companies. The trading prices of many technology companies' stocks are at
or near historical highs, and these trading prices and multiples may not be
sustained. These broad market and industry factors may materially adversely
affect the market price of our common stock, regardless of our actual operating
performance. In the past, following periods of volatility in the market price of
a company's securities, securities class action litigation often has been
instituted against that company. Litigation like this, if instituted, could
result in substantial costs and a diversion of management's attention and
resources.

RISKS ASSOCIATED WITH ACQUISITIONS

In January, 2000, we completed the asset acquisition of Interhop Network
Services, Inc. based in Toronto, Ontario. We have and will continue to expend
resources integrating this new business and the personnel hired in connection
with such acquisition. Our future growth depends, in part, on the additional
acquisitions of complementary businesses. In the event of further acquisitions,
we may have difficulty assimilating our target's technology, personnel and
operations. In addition, key personnel of the acquired company may decide not to
work for us. These difficulties could disrupt our ongoing business, act as a
distraction to management and employees and increase our expenses. In addition,
future acquisitions may result in the incurrence of additional debt, large
one-time write-offs and the creation of goodwill or other intangible assets that
could result in amortization expenses.

ITEM 2. PROPERTIES

ZipLink's headquarters are located in Lowell, Massachusetts, where we
currently lease an approximately 50,000 square foot facility and a 1,000 square
foot data center. The Lowell facility contains our call center, data center,
network operations center, marketing department and most administrative
personnel.

We lease a significant portion of our Lowell facility from iGuide, Inc.
under a sublease which expires on May 14, 2010. We had sublet 25,000 square feet
of previously unused space to a third party under a sublease which expired on
December 31, 1999.

We intend to use a substantial portion of the formerly subleased space for a
new data center and network operations. We intend to sublease any excess space
not used for our own network expansion. We also have collocation agreements for
our installed networking equipment for each of our SuperPoPs in the United
States. These collocation agreements generally have a term ranging from one to
three years with a size typically less than 500 square feet. As of
February 2000, we leased space through collocation agreements in approximately
40 major cities in the United States.

We also lease approximately 3,500 square feet of office and collocation
space in Hartford, Connecticut from Henry Zachs, our Co-Chairman and Chief
Executive Officer, under a lease that expires in December, 2000.

ITEM 3. LEGAL PROCEEDINGS

On June 1, 1999, ZipLink commenced a legal proceeding in Hartford,
Connecticut against a former employee seeking a ruling that such employee has
forfeited an approximately 0.8% membership interest in ZipLink, LLC, a
Connecticut limited liability company (which would have been converted into
74,845 shares of common stock of ZipLink in connection with ZipLink's initial
public offering) due to the violation of a restrictive covenant under the
Operating Agreement of ZipLink, LLC. The basis for such claim is a written
agreement between such employee and ZipLink which provided that the employee's
membership interest would be forfeited in the event he violated a restrictive
covenant. Our

23
<PAGE>
outstanding capital stock excludes this employee's forfeited membership interest
and the 74,845 shares which would have been received in exchange therefor upon
consummation of the merger of ZipLink, LLC with and into ZipLink, Inc. There can
be no assurance that we will prevail and an adverse outcome may result in
dilution to our stockholders.

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

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

The name, age, present position and business experience of our executive
officers at December 31, 1999 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- - ---- -------- ------------------------------------------
<S> <C> <C>
Henry M. Zachs............................ 65 Chief Executive Officer; Co-Chairman of
the Board of Directors
Eric M. Zachs............................. 40 Co-Chairman of the Board of Directors
Christopher W. Jenkins.................... 40 President
Michael T. Clover......................... 53 Chief Operating Officer
Gary P. Strickland........................ 36 Chief Financial Officer
Ronald C. Lipof........................... 36 Chief Marketing and Strategic Officer
</TABLE>

HENRY M. ZACHS has served as Co-Chairman since November, 1995 and is
Co-Chairman of our Board of Directors. Mr. Zachs has served as our Chief
Executive Officer since June, 1997. Since consummation of our initial public
offering on June 1, 1999, Mr. Zachs has devoted approximately 50% of his time to
our business. Prior to our inception, Mr. Zachs was for 34 years the Chief
Executive Officer of Message Center USA, Inc. ("MCUSA"), a paging company he
founded which had approximately 349,000 subscribers when it was sold to AirTouch
Communications, Inc. in December, 1995. Mr. Zachs also serves on the advisory
board of Axiom Venture Partners, L.P., a venture capital firm, as President of
the Greater Hartford Jewish Federation and as a Trustee of Trinity College in
Hartford, Connecticut and the Williston Northampton School. Mr. Zachs received a
B.A. from Trinity College and an M.B.A. from the Wharton School of the
University of Pennsylvania.

ERIC M. ZACHS co-founded ZipLink in November, 1995, has served as
Co-Chairman since that time and is Co-Chairman of our Board of Directors.
Mr. Zachs served as our President and Chief Executive Officer from November,
1995 until June, 1997. Prior to November, 1995, Mr. Zachs served as President
and Chief Operating Officer at MCUSA from 1993 until the sale of MCUSA in
December, 1995. Previously, Mr. Zachs was Executive Vice President of MCUSA from
1989 to 1993. Mr. Zachs serves as general partner of Bantry Bay Ventures, a
venture capital firm, and as a director of NetActive Internet (Pty.) Ltd., a
South African Internet service provider. Mr. Zachs received a B.A. from Tufts
University and a J.D from Columbia University School of Law.

CHRISTOPHER W. JENKINS has served as our President since June, 1997 and is a
director. Previously, Mr. Jenkins served as our Chief Financial Officer from
November, 1995 until June, 1997. From June, 1993 until December, 1995,
Mr. Jenkins served as Vice President of Operations at MCUSA. Mr. Jenkins also
served as acting Chief Financial Officer of MCUSA from June, 1995 to December,
1995. From December, 1987 to June, 1993, Mr. Jenkins was President of Worcester
Communications, a regional paging company. Mr. Jenkins also served as a Vice
President at Arch Communications and an Experienced Senior at Arthur Andersen,
LLP. Mr. Jenkins received a B.S. from Indiana University and an M.S. from the
Sloan School of Management at the Massachusetts Institute of Technology.

MICHAEL J. CLOVER has been our Chief Operating Officer since October, 1999.
Prior to joining ZipLink, Mr. Clover served for fifteen years in various
positions at Sprint Corporation, most recently as

24
<PAGE>
Vice President, Network Planning Engineering & Construction. Previously, he
served at two Sprint Corporation subsidiaries as Vice President of Operations
with Carolina Telephone, and Director of Information Systems for United
Telephone's Midwest Group. Mr. Clover received a B.S. from Northern Michigan
University and a M.S.M. from Oakland University.

GARY P. STRICKLAND has been our Chief Financial Officer since April, 1999.
Prior to joining ZipLink, Mr. Strickland was Vice President, Finance and
Administration and Chief Financial Officer of GammaGraphX, Inc., a technology
company in the digital printing industry, from 1993 to 1999. From 1991 to 1993,
Mr. Strickland was Controller of Autographix, Inc. Previously, Mr. Strickland
was Director of Financial Reporting of M/A-Com, Inc. and Audit Manager at
Ernst & Young, LLP. Mr. Strickland received a B.B.A. from the University of
Notre Dame and was licensed as a C.P.A. in 1988.

RONALD C. LIPOF had been our Chief Marketing and Strategic Officer since
October, 1997. From 1993 to 1997, Mr. Lipof was the President of Arch Nationwide
Paging, a division of Arch Communications Group, Inc. Prior to joining Arch,
Mr. Lipof was the founder and managing director of RC Consultants, a
telecommunications consulting and brokerage firm. Previously, Mr. Lipof was an
asset-based and communications lender at Fleet Credit Corporation, a subsidiary
of Fleet Bank, N.A. Mr. Lipof filed for personal bankruptcy in August, 1995.
Mr. Lipof received a B.S. from Boston University. Mr. Lipof ceased to be an
employee of ZipLink effective as of March 3, 2000.

25
<PAGE>
PART II

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

Our common stock has been trading on the Nasdaq National Market under the
symbol ZIPL since our initial public offering on May 26, 1999. Our common stock
was initially offered to the public at a price of $14.00 per share. The
following table sets forth the high and low closing sales prices per share of
our Common Stock for the last three quarters of 1999.

<TABLE>
<CAPTION>
1999
-------------------
HIGH LOW
-------- --------
<S> <C> <C>
Second Quarter.............................................. $14.00 $9.75
Third Quarter............................................... $16.75 $8.25
Fourth Quarter.............................................. $23.88 $9.00
</TABLE>

Information with respect to this item is contained in the "Quarterly
Financial Information (Unaudited)", Note (14) to the Financial Notes on
pages 39 to 52 of this Annual Report on Form 10-K.

As of December 31, 1999, there were approximately 24 holders of record of
the Company's common stock, which did not include beneficial owners of shares
registered in nominee or street name.

We have never declared or paid any dividends on our common stock. We
currently intend to retain all of our earnings, if any, for use in its business
and do not anticipate paying any cash dividends in the foreseeable future. Any
future determination relating to dividend policy will be made at the discretion
of our Board of Directors and will depend on a number of factors, including our
future earnings, capital requirements, financial condition and future prospects
and such other factors as the Board of Directors may deem relevant. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

RECENT SALES OF UNREGISTERED SECURITIES

On January 18, 2000 we issued 153,997 shares of our common stock in partial
consideration for our acquisition of substantially all the assets of Interhop
Network Services, Inc. of Toronto, Ontario, an ISP providing Internet
connectivity services throughout Canada. The shares of common stock issued in
this transaction were issued without registration under the Securities Act of
1933, as amended, in reliance on the exemption afforded by Section 4(2) of said
Act.

ITEM 6. SELECTED FINANCIAL DATA

The following selected balance sheet data as of December 31, 1998 and 1999
and the selected statement of operations data for each of the years ended
December 31, 1999, 1998 and 1997 have been derived from the Company's Financial
Statements, which have been audited by Arthur Andersen LLP, independent public
accountants, and are included elsewhere in this Form 10-K. The selected balance
sheet data as of December 31, 1997 and 1996 and the selected statement of
operations data for the years ended December 31, 1997 and 1996 have been derived
from the Company's Financial Statements, which also have been audited by Arthur
Andersen LLP but are not included in this Form 10-K. The balance sheet data as
of December 31, 1995 and for the period then ended are unaudited. The net loss
per share provided in 1998, 1997, 1996 and 1995 assumes the conversion of the
Membership units into common stock at the beginning of each respective period.
The following selected financial data are qualified by reference to the more
detailed Financial Statements of the Company and the Notes thereto included
elsewhere in this Form 10-K and should be read in conjunction with such
Financial

26
<PAGE>
Statements and Notes and the discussion under "Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $12,717 $ 7,088 $ 5,236 $ 756 $ --
Cost of revenues.............................. 9,760 6,271 3,187 1,782 --
Selling, general and administrative........... 8,214 5,174 6,507 7,373 25
Depreciation and amortization................. 4,006 2,637 1,084 384 1
------- ------- ------- ------- ------
Total costs and expenses...................... 21,980 14,082 10,779 9,539 26
Loss from operations.......................... (9,263) (6,994) (5,543) (8,783) (26)
Interest and other expenses, net.............. 73 1,452 1,167 19 --
------- ------- ------- ------- ------
Net Loss...................................... $(9,336) $(8,446) $(6,709) $(8,802) $ (26)
======= ======= ======= ======= ======
Basic and diluted net loss per common share... $ (.86) $ (1.03) $ (0.90) $ (1.16) $(0.00)
Basic and diluted weighted average shares..... 10,911 8,193 7,418 7,590 7,590
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $17,384 $ 512 $ 1,082 $ 301 $2,074
Working capital (deficit).................... 13,778 (3,062) (5,317) (6,841) (78)
Total assets................................. 38,605 11,174 12,984 4,569 2,185
Long-term debt, net of current portion....... -- 17,939 15,803 -- --
Convertible debentures, net of current
portion.................................... -- 7,000 -- -- --
Members' deficit/stockholders' equity........ $27,309 $(18,089) $(9,748) $(3,024) $ 1
</TABLE>

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

OVERVIEW

ZipLink is a provider of wholesale Internet connectivity services in the
United States and Canada to Internet service providers and developers and
vendors of Internet appliances.

In January 2000, the Company acquired the assets of Interhop Network
Services, Inc. of Toronto, Ontario, an ISP providing Internet connectivity
services throughout Canada.

We derive a significant portion of our revenues from the provision of
wholesale Internet access services for Internet appliances, including Internet
connectivity, subscriber authentication and other specially developed services.
One customer, WebTV, accounts for substantially all of our revenues from
Internet appliance services. Revenues from the provision of wholesale Internet
access to WebTV are recognized monthly as services are performed. We receive a
fixed price per WebTV subscriber per month if WebTV uses us as its first choice
provider of connectivity to WebTV. If we are not designated

27
<PAGE>
as the first choice provider by WebTV, we receive an hourly rate to the extent
that a WebTV subscriber actually obtains connectivity through our network.

We also provide wholesale national dial-up Internet access and enhanced
services, under the name ZipDial, to 506 ISPs as of December 31, 1999. Our
services enable ISPs to quickly and inexpensively expand their existing
geographic coverage and offer national dial-up Internet access, without
investing in costly infrastructure. Revenues from our ZipDial program are
recognized monthly as services are provided.

We also provide direct Internet access under the ZipLink name to a limited
number of retail users, although we devote minimal resources to marketing in
this area. Revenues from these users are derived from service subscriptions and
are recognized monthly.

Since our inception, we have incurred net losses and experienced negative
cash flow from operations. For the year ended December 31,1999, we incurred a
loss of $9.3 million and our accumulated deficit as of December 31, 1999 was
$33.3 million. We expect to continue to operate at a net loss and experience
negative cash flow for the foreseeable future given our level of planned
operating and capital expenditures. Our ability to achieve profitability and
positive cash flow from operations is dependent upon our ability to
substantially grow our revenue base through expansion of our ZipDial program and
an increase in sales of access services for Internet appliances and to achieve
operating efficiencies. We plan to make significant capital expenditures to
expand our network and to increase our operating expenses based in large part on
our estimate of potential future revenues. If our future revenues fall short of
our estimates or if our operating expenses exceed our expectations, then we may
never obtain or sustain profitability.

RESULTS OF OPERATIONS

The following table sets forth certain operating data as a percentage of
revenues for the periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... 100% 100% 100%
Cost of revenues............................................ 77 89 61
Selling, general and administrative......................... 65 73 124
Depreciation and amortization............................... 31 37 21
--- ---- ----
Total operating expenses.................................... 173 199 206
--- ---- ----
Loss from operations........................................ (73) (99) (106)
Interest and other expense, net............................. -- (20) (22)
--- ---- ----
Net loss before income taxes................................ (73)% (119)% (128)%
</TABLE>

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

REVENUES. Revenues increased 78.9% from $7.1 million for the year ended
December 31, 1998 to $12.7 million for the year ended December 31, 1999. This
increase was primarily attributable to increased revenues from WebTV which
increased from $4.8 million for the year ended December 31, 1998 to
$8.8 million for the year ended December 31, 1999, and ZipDial revenues which
increased from $32,000 for the year ended December 31, 1988 to $2.1 million for
the year ended December 31, 1999. During this period, revenues from direct
retail users decreased from $1.9 million for the year ended December 31, 1998 to
$1.6 million for the year ended December 31, 1999. As in prior years, this
decrease reflects our decision to shift our business and marketing strategy from
the provision of direct retail service to wholesale service for Internet service
providers.

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<PAGE>
COST OF REVENUES. Cost of revenues increased 55.6% from $6.3 million for
the year ended December 31, 1998 to $9.8 million for the year ended
December 31, 1999. Substantially all of this increase was due to
telecommunications costs reflecting the expansion of our network infrastructure
during 1999. Costs for collocation for SuperPoPs increased in 1999 as the number
of SuperPoPs increased from 18 at December 31, 1998 to 28 at December 31, 1999.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 57.7% from $5.2 million for the year ended December 31, 1998
to $8.2 million for the year ended December 31, 1999. This increase was
primarily due to an increase in salary, recruitment fees and related payroll
costs which represented 63.9% of the total increase for the year. Additionally,
marketing expenses increased as a result of an effort to create brand awareness
and market perception. This increase represented 29.2% of the total increase in
overall selling, general and administrative costs.

DEPRECIATION AND AMORTIZATION. Depreciation expense increased from
$2.6 million for the year ended December 31, 1998 to $4.0 million for the year
ended December 31, 1999. This increase was principally due to the effect of a
full year of depreciation on capital expenditures acquired in 1998 totaling
$6.8 million in support of the network expansion and the improvement of the
network operations.

INTEREST EXPENSE. Interest expense decreased from $1.3 million for the year
ended December 31, 1998 to $0.7 million for the year ended December 31, 1999.
Substantially all of this decrease was due to the repayment of $20.0 million in
debt outstanding under our line of credit with the proceeds from the IPO and
conversion of the convertible debentures held by Nortel Networks to common
stock.

INTEREST INCOME. Interest income increased from $40,000 for the year ended
December 31, 1998 to $670,000 for the year ended December 31, 1999. The increase
was primarily due to the investment of the net proceeds from our IPO in the form
of commercial paper and repurchase agreements backed by U.S. Treasury
securities.

INCOME TAXES. Upon the consummation of our reorganization (May 25, 1999),
we began accounting for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
Had we applied the provisions of SFAS No. 109 for the period from inception
(November 21, 1995) through December 31, 1999, the deferred tax asset generated,
primarily from net operating loss carryforwards, would have been offset by a
full valuation allowance.

Prior to our reorganization there was no benefit for federal and state
income taxes reported in the financial statements as ZipLink had been taxed as a
partnership since inception. Therefore, for the periods through the date of the
reorganization, the federal and state tax effects of the tax losses were
recorded by the members of the limited liability company in their respective
income tax returns.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

REVENUES

Revenues increased 36.5% from $5.2 million for the year ended December 31,
1997 to $7.1 million for the year ended December 31, 1998. Substantially all of
this increase resulted from WebTV revenues which increased from $2.5 million for
the year ended December 31, 1997 to $4.8 million for the year ended
December 31, 1998. During this period, revenues from direct retail users
decreased from $2.1 million for the year ended December 31, 1997 to
$1.9 million for the year ended December 31, 1998. This decrease reflects our
decision to shift our business and marketing strategy from the

29
<PAGE>
provision of direct retail service to wholesale service for ISPs. We launched
our ZipDial program in November 1998. Revenues from ZipDial services for the
year ended December 31, 1998 were $32,000.

COST OF REVENUES

Cost of revenues increased 96.9% from $3.2 million for the year ended
December 31, 1997 to $6.3 million for the year ended December 31, 1998.
Substantially all of this increase was due to telecommunications costs
reflecting the expansion of our network infrastructure during 1998. Costs for
collocation for SuperPoPs increased in 1998 as the number of SuperPoPs increased
from 10 at December 31, 1997 to 18 at December 31, 1998.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses decreased 20.0% from
$6.5 million for the year ended December 31, 1997 to $5.2 million for the year
ended December 31, 1998. This decrease was principally due to a substantial
reduction in employees during 1997, most of the cost savings of which was not
realized until 1998. This reduction in employees resulted from the termination
of customer support provided by ZipLink under an agreement with Delphi Internet
Services, Inc. related to the acquisition of the Delphi assets and our shift in
focus from the direct retail market to the wholesale Internet access market.

DEPRECIATION AND AMORTIZATION

Depreciation expense increased from $1.1 million for the year ended
December 31, 1997 to $2.6 million for the year ended December 31, 1998. This
increase was principally due to additional capital expenditures incurred in 1998
for network infrastructure and the effect of a full year of depreciation on
assets acquired during 1997.

INTEREST EXPENSE

Interest expense increased from $1.1 million for the year ended
December 31, 1997 to $1.3 million for the year ended December 31, 1998.
Substantially all of this increase was due to interest on convertible debt
funded by Nortel Networks during 1998 and increased borrowing in 1998 on our
line of credit.

LIQUIDITY AND CAPITAL RESOURCES

We completed our IPO in June 1999, raising net proceeds of $44.2 million. We
used a portion of the net proceeds to repay $20.0 million of indebtedness under
our line of credit with Fleet Bank. Until our IPO, we had financed our
operations primarily from investments and advances from Henry and Eric Zachs and
their affiliates, loans from commercial banks, including Fleet Bank, supported
by Henry Zachs and/or Eric Zachs' personal guarantee and investments of equity
and debt from Nortel Networks. Since our inception the principal uses of cash
have been to fund working capital requirements and capital expenditure programs.
We had cash and cash equivalents of $17.4 million and working capital of
$13.8 million at December 31, 1999.

Net cash used in operating activities was $4.8 million, $8.9 million and
$3.4 million for the years ended December 31, 1999, 1998, and 1997,
respectively. Net cash used in operating activities for the year ended
December 31,1999 was primarily attributable to our net loss, increases in
accounts receivable and prepaid expenses and decreases in amounts due to
affiliates partially offset by depreciation and amortization and the increases
in accounts payable and deferred revenue. Net cash used in operating activities
for the year ended December 31, 1998 was primarily attributable to our net loss
and decreases in accounts payable, partially offset by depreciation and
amortization, compensation expenses associated with the granting of unit options
and a warrant and the increases in accrued

30
<PAGE>
expenses. Net cash used in operating activities for the year ended December 31,
1997, was primarily attributable to our net loss and decreases in amounts due to
affiliates, partially offset by depreciation and amortization and the increases
in accounts payable.

Net cash used in investing activities was $3.9 million, $1.3 million and
$7.0 million for the years ended December 31, 1999, 1998, and 1997,
respectively, and consisted primarily of capital expenditures in each year.
Additionally, we acquired $6.5 million of equipment under capital leases.

Net cash provided by financing activities was $25.5 million, $9.7 million
and $11.1 million for the years ended December 31, 1999, 1998, and 1997,
respectively. In 1999, net cash from financing activities included net proceeds
from our IPO totaling $44.2 million, $2.4 million from our line of credit, and
repayment of our line of credit of $20 million. During 1998, net cash provided
by financing activities included $7.5 million of convertible debt from Nortel
Networks and $2.6 million from our line of credit. Net cash provided by
financing activities includes approximately $2.5 million of net distributions to
Henry and Eric Zachs and their affiliates in 1997, as well as loans from
commercial banks, such loans being supported by Henry Zachs and/or Eric Zachs'
personal guarantee. We had a Fleet Bank line of credit which was increased to
$20.0 million in October 1998 and to $25.0 million in April 1999. All
outstanding borrowings were repaid from the proceeds of the IPO and the facility
was terminated.

As of December 31, 1999, we had capital equipment lease obligations of
$6.1 million and noncancellable operating lease commitments of $4.0 million.
Capital expenditures in 2000 are expected to be approximately $23.0 to
$30.0 million for the expansion of our network at new and existing SuperPoPS,
and network systems infrastructure improvements, including billing and circuit
provisioning systems. In November 1999, the Company secured $10.5 million of
capital lease financing, of which $6.5 million was used for network equipment
purchases during 1999. We currently anticipate that we will utilize capital
lease financing for most of our network equipment purchases in the year 2000.

We believe that funds provided from operations and our existing cash and
cash equivalent balances should be sufficient to execute our operating plan
through 2000. We are currently seeking a public or private debt or equity
financing. The proceeds from such a financing would be used to further expand
our network, for working capital and other general corporate purposes, including
investments in strategic partnerships and further acquisitions. There can be no
assurance that we will be able to obtain such financing on reasonable terms, if
at all.

OTHER POSSIBLE STRATEGIC RELATIONSHIPS AND ACQUISITIONS

ZipLink anticipates that it will continue to seek to develop relationships
with strategic partners, both domestically and internationally, and to acquire
assets, including, without limitation, additional telecommunications bandwidth,
and businesses and make investments (including venture capital investments)
principally relating to or complementary to our existing business. Certain of
these strategic relationships may involve other telecommunications or Internet
companies that desire to enter into joint marketing and services arrangements
with us pursuant to which we would provide Internet and Internet-related
services to such companies. Such transactions, if deemed appropriate by ZipLink,
may also be effected in conjunction with an equity or debt investment by such
companies in ZipLink. Such relationships and acquisitions may require additional
financing. There can be no assurance that we will be able to obtain such
financing on reasonable terms, if at all.

RECENT ACCOUNTING PRONOUNCEMENT

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition." This bulletin established
guidelines for revenue recognition and is effective for the second quarter of
2000. We do not expect that the adoption of this guidance to have a material
impact on our financial condition or results of operations.

31
<PAGE>
In June 1998, the Financial Standards Board issued Statement of Financial
Accounting Standards, No. 133 "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. SFAS No. 123, as amended by SFAS
No. 137, will be effective for our financial reporting beginning in the first
quarter of 2001. SFAS No. 133 will require us to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The accounting for gains and losses from
changes in the fair value of a particular derivative will depend on the intended
use of the derivative. We do not expect the adoption of SFAS No. 133 to have a
material impact on our results of operations or financial position.

IMPACT OF THE YEAR 2000

The Company implemented a comprehensive Year 2000 Compliance Project during
1999 that was completed during the last quarter of 1999. As of March 2000, we
have not experienced any significant adverse effects relating to the year 2000
computer issue. All major initiatives of the compliance project were completed
during the year including the following:

- Independent assessment of Year 2000 Compliance Project was completed by a
national consulting firm

- Testing of all network hardware and software was completed

- Required upgrades or replacements of network hardware equipment and
software

- All significant suppliers and customers were contacted to ascertain their
Year 2000 status

- Internal IT and system administration hardware equipment and software were
tested with non-compliant items successfully upgraded or replaced

- Network traffic redundancy plan was developed and implemented in the event
sites failed due to compliance issues

- Contingency plans established for each function to remedy any potential
disruption of operations

As of December 31, 1999, we had spent approximately $105,000 correcting
incidents of non-compliance, exclusive of internal costs. However, there can be
no assurance that currently unidentified Year 2000 issues, if any, will not
arise, especially in areas outside ZipLink; that these or other factors relating
to Year 2000 compliance issues will not have a material adverse effect on our
business, financial condition or results of operations; or that additional
resources needed to address these issues will not be material.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our investment portfolio is generally comprised of commercial paper. We
place investments in instruments that meet high credit quality standards. These
securities are subject to interest rate risk, and could decline in value if
interest rates fluctuate. Due to the short duration and conservative nature of
our investment portfolio, we do not expect any material loss with respect to our
investment portfolio. A 10% move in interest rates as of December 31, 1999 would
have an immaterial effect on our net loss and the carrying value of its
investments over the next fiscal year.

For 1999 all of our sales, cost of sales and operating expenses are
transacted in U.S. dollars. Accordingly, our results of operations are not
subject to foreign exchange rate fluctuations. Gains and losses from such
fluctuations have not been incurred by us to date.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

32
<PAGE>
ZIPLINK, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................... 34

BALANCE SHEETS.............................................. 35

STATEMENT OF OPERATIONS..................................... 36

STATEMENTS OF CHANGES IN MEMBERS' DEFICIT/STOCKHOLDERS'
EQUITY.................................................... 37

STATEMENTS OF CASH FLOWS.................................... 38

NOTES TO FINANCIAL STATEMENTS............................... 39
</TABLE>

33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ZipLink, Inc:

We have audited the accompanying balance sheets of ZipLink, Inc. (a Delaware
corporation) as of December 31, 1999 and 1998, and the related statements of
operations, members' deficit/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 financial statements referred to above present fairly,
in all material respects, the financial position of ZipLink, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its 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.

/s/ Arthur Andersen LLP

Boston, Massachusetts
February 21, 2000

34
<PAGE>
ZIPLINK, INC.

BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $17,384 $ 512
Accounts receivable, net of allowance for doubtful
accounts of approximately $35 and $68 in 1999 and 1998,
respectively............................................ 1,491 679
Prepaid expenses and other current assets................. 2,256 71
------- --------
Total current assets.................................. 21,131 1,262
Property and Equipment, net............................... 15,917 9,803
Other Long-term Assets.................................... 1,557 109
------- --------
Total assets.......................................... $38,605 $ 11,174
======= ========
LIABILITIES AND MEMBERS' DEFICIT/STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of convertible debentures................. $ -- $ 500
Current portion of capital lease obligation............... 2,197 465
Accounts payable.......................................... 3,511 1,077
Accrued expenses.......................................... 1,550 1,686
Deferred revenue.......................................... 95 120
Amounts due to affiliates, net............................ -- 476
------- --------
Total current liabilities................................. 7,353 4,324
Note Payable to Bank...................................... -- 17,600
Capital Lease Obligation, less current portion............ 3,943 339
Convertible Debentures.................................... -- 7,000
------- --------
Total liabilities..................................... 11,296 29,263

Commitments and Contingencies (Note 11)

Common Stock ($0.001 par value)
Authorized--50,000 shares
Issued and outstanding--12,770 and 0 shares at December 31,
1999 and 1998, respectively............................... 13 --
Additional paid-in capital.................................. 60,690 --
Accumulated deficit......................................... (33,320) --
Deferred stock-based compensation........................... (74) --
Members' deficit............................................ -- (18,089)
------- --------
Total members' deficit/stockholders' equity................. 27,309 (18,089)
------- --------
Total liabilities and members' deficit/stockholders'
equity.................................................... $38,605 $ 11,174
======= ========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

35
<PAGE>
ZIPLINK, INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues $12,717 $ 7,088 $ 5,236
------- ------- -------
Costs and Expenses:
Cost of revenues.......................................... 9,760 6,271 3,187
Selling, general and administrative....................... 8,214 5,174 6,508
Depreciation and amortization............................. 4,006 2,637 1,084
------- ------- -------
Total costs and expenses.............................. 21,980 14,082 10,779
------- ------- -------
Loss from operations.................................. (9,263) (6,994) (5,543)
------- ------- -------
Other Expenses:
Interest expense.......................................... (704) (1,344) (1,097)
Interest income........................................... 669 37 --
Other expense............................................. (38) (145) (69)
------- ------- -------
Total other expenses.................................. (73) (1,452) (1,166)
------- ------- -------
Net loss.............................................. $(9,336) $(8,446) $(6,709)
======= ======= =======
Net Loss per Share/Unit:
Net loss per share/unit--basic and diluted............ $ (0.86) $ (0.85) $ (0.75)
======= ======= =======
Weighted average shares/units--basic and diluted...... 10,911 9,899 8,964
======= ======= =======
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

36
<PAGE>
ZIPLINK, INC.
STATEMENTS OF MEMBERS' DEFICIT AND STOCKHOLDERS' EQUITY
FOR THE YEARS ENDING DECEMBER 31, 1997, 1998, AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK ADD'L TOTAL
TOTAL -------------------- PAID- ACCUMU- STOCK-
CAPITAL SENIOR MEMBERS' PAR IN- LATED STOCK-BASED HOLDERS'
MEMBERS MEMBERS DEFICIT SHARES ($.001) CAPITAL DEFICIT COMPENSATION EQUITY
-------- -------- -------- -------- --------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MEMBERS' DEFICIT
December 31, 1996..... $(3,024) $ -- $(3,024) $ -- $ -- $ -- $ -- $ -- $ --
Net loss.............. (6,694) (15) (6,709) -- -- -- -- -- --
Members' contribution,
net of
distributions....... (2,515) 2,500 (15) -- -- -- -- -- --
------- ------ ------- ------ --------- ------- -------- ------ --------
Members' Deficit,
December 31, 1997... (12,233) 2,485 (9,748) -- -- -- -- -- --
Net loss.............. (7,601) (845) (8,446) -- -- -- -- -- --
Compensation
associated with the
issuance of unit
options and
warrants............ 94 11 105 -- -- -- -- -- --
------- ------ ------- ------ --------- ------- -------- ------ --------
Members' Deficit,
December 31, 1998... (19,740) 1,651 (18,089) -- -- -- -- -- --
Members'
contributions....... 180 -- 180 -- -- -- -- -- --
Reorganization and
conversion of
membership units to
common stock........ 19,560 (1,651) 17,909 8,193 8 6,069 (23,984) (2) (17,909)
Compensation
associated with the
issuance of unit
options............. -- -- -- -- -- -- -- 54 54
Issuance of common
stock, net of
issuance costs of
$4,832.............. -- -- -- 3,500 4 44,164 -- -- 44,168
Conversion of
convertible
debentures to common
stock............... -- -- -- 807 1 7,499 -- -- 7,500
Issuance of common
stock for
telecommunication
services............ -- -- -- 217 -- 2,700 -- -- 2,700
Deferred stock
compensation........ -- -- -- 126 -- (126) --
Issuance of common
stock through stock
option exercise..... -- -- -- 53 -- 132 -- -- 132
Net loss.............. -- -- -- -- -- -- (9,336) -- (9,336)
------- ------ ------- ------ --------- ------- -------- ------ --------
Stockholders' equity
as of December 31,
1999................ $ -- $ -- $ -- 12,770 $ 13 $60,690 $(33,320) $ (74) $ 27,309
======= ====== ======= ====== ========= ======= ======== ====== ========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

37
<PAGE>
ZIPLINK, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998 1997
------------ -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (9,336) $(8,446) $(6,709)
Adjustments to reconcile net loss to net cash used in
operating activities--
Noncash telecommunications expense...................... 42 -- --
Depreciation and amortization........................... 4,006 2,637 1,084
Loss on disposal of property and equipment.............. 38 144 53
Compensation expense associated with the granting of
options and warrants.................................. 54 105 --
Changes in operating assets and liabilities--
Accounts receivable, net.............................. (812) (204) (315)
Prepaid expenses and other current assets............. (761) (15) 57
Accounts payable...................................... 2,434 (3,959) 3,477
Accrued expenses...................................... 44 912 (473)
Deferred revenue...................................... (25) (109) 52
Due to affiliates, net................................ (476) (3) (579)
------------ ------- -------
Net cash used in operating activities............... (4,792) (8,938) (3,353)
------------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (3,692) (1,313) (6,970)
Proceeds from sale of property and equipment.............. 49 -- 21
Increase in other assets.................................. (214) (8) (20)
------------ ------- -------
Net cash used in investing activities............... (3,857) (1,321) (6,969)
------------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible debentures...................... -- 7,500 --
Net proceeds from sale of common stock.................... 44,168 -- --
Proceeds from exercise of stock options................... 132 -- --
Net proceeds from borrowings under notes payable.......... 2,400 2,600 11,450
Payments on notes payable................................. (20,000) -- --
Payments of principal made on capital lease obligations... (1,179) (410) (333)
Members' contributions.................................... -- -- 2,500
Members' distributions.................................... -- -- (2,515)
------------ ------- -------
Net cash provided by financing activities........... 25,521 9,690 11,102
------------ ------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 16,872 (569) 780
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 512 1,081 301
------------ ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 17,384 $ 512 $ 1,081
============ ======= =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 788 $ 1,242 $ 1,034
============ ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING
ACTIVITIES:
Forgiveness of accrued compensation by Capital Member..... $ 180 $ -- $ --
============ ======= =======
Conversion of debentures to common stock.................. $ 7,500 $ -- $ --
============ ======= =======
Issuance of common stock for telecommunication services... $ 2,700 $ -- $ --
============ ======= =======
Acquisition of equipment pursuant to capital lease
obligation.............................................. $ 6,515 $ -- $ 1,546
============ ======= =======
Conversion of membership units to common stock............ $ 17,909 $ -- $ --
============ ======= =======
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

38
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS

(1) ORGANIZATION AND NATURE OF OPERATIONS

ZipLink, Inc. (the Company) is a provider of wholesale Internet connectivity
services in the United States and Canada to Internet service providers and
developers and vendors of Internet appliances. The Company operates in a single
operating industry segment.

The Company was formed as a wholly-owned subsidiary of ZipLink, LLC on
March 9, 1999. ZipLink, LLC was organized as a Delaware LLC from a Connecticut
LLC on March 9, 1999. On May 25, 1999, ZipLink, LLC was reorganized from a
limited liability company to a corporation. In connection with this
reorganization all of the membership units in ZipLink, LLC were transferred to
and merged with and into the Company, and as a result of which, all of the
assets and liabilities of ZipLink, LLC were transferred to the Company. As these
entities are under common control, the merger transaction has been accounted for
as a reorganization of entities under common control similar to a pooling of
interest.

(2) SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements reflect the application of certain
significant accounting policies as described in this note and elsewhere in the
accompanying notes to financial statements.

(A) USE OF ESTIMATES

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

(B) CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are stated at cost, which approximates market, and include
investments in commercial paper and repurchase agreements backed by U.S.
Treasury securities. The Company's cash equivalents are invested in financial
instruments with high credit ratings. The estimated fair value of these
financial instruments approximate their carrying value.

The Company recognizes revenue over the period in which the services are
performed. Deferred revenue represents advanced service billings to customers
and was $94,959 and $119,672 at December 31, 1999 and 1998, respectively.

(D) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable, amounts due to affiliates, notes payable, and
convertible debentures approximate their fair value at December 31, 1999 and
1998.

39
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) CONCENTRATION OF CREDIT RISK

Statement of Financial Accounting Standards (SFAS) No. 105, DISCLOSURE OF
INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, AND
FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT RISK requires disclosure of
any significant off-balance-sheet and credit risk concentrations. The financial
instruments that potentially subject the Company to concentrations of credit
risk are principally accounts receivable. Concentrations of credit risk with
respect to accounts receivable is limited to certain customers to whom the
Company makes substantial sales. To control credit risk, the Company performs
credit evaluations of its customers and has recorded allowances for estimated
losses.

One customer accounted for approximately 52% and 85% of the Company's
accounts receivable at December 31, 1999 and 1998, respectively.

(F) DEPRECIATION AND AMORTIZATION

The Company provides for depreciation and amortization by charges to
operations in amounts estimated to allocate the cost of property over the
estimated useful lives of the assets on a straightline basis as follows:

<TABLE>
<CAPTION>
DESCRIPTION ESTIMATED USEFUL LIVES
- - ----------- ----------------------
<S> <C>
Network equipment........................................... 3-5 years
Computer equipment and software............................. 3-5 years
Leasehold improvements...................................... Life of the lease
Furniture, fixtures and equipment........................... 5 years
</TABLE>

Expenditures for major renewals and betterments are capitalized.
Expenditures for maintenance and repairs that do not improve or extend the life
of the respective assets are expensed as incurred.

(G) TRANSACTIONS WITH AFFILIATES

The Company collected and disbursed funds on behalf of other entities owned
by certain former Capital members of the Company while organized as ZipLink,
LLC. The amount of non-interest bearing advances due these entities is $0 and
$476,140 at December 31, 1999 and 1998, respectively. All amounts were paid in
March 1999.

(H) LONG-LIVED ASSETS

The Company assesses the realizability of its assets in accordance with SFAS
No. 121, ACCOUNTING FOR LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF. SFAS No. 121 requires, among other things, that long-lived assets
and certain related intangible assets be reviewed for impairment by comparing
the fair value of the assets with their carrying amount. Any write-downs are to
be treated as permanent reductions in the carrying amount of the assets.
Accordingly, the Company assesses the realizability of long-lived assets in
accordance with SFAS No. 121. The Company does not believe that any impairment
currently exists.

40
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) STOCK-BASED COMPENSATION

The Company has adopted SFAS No. 123 ACCOUNTING FOR STOCK-BASED
COMPENSATION. SFAS No. 123 defines a fair-value-based method of accounting for
employee stock options and other stock-based compensation. The compensation
expense arising from this method of accounting can be reflected in the financial
statements or alternatively for employee stock options, pro forma net income and
earnings per share effect of the fair-value-based accounting can be disclosed in
the financial footnotes. The Company has adopted the disclosure-only alternative
for employee stock options.

(J) NET LOSS PER UNIT AND NET LOSS PER SHARE

The Company has adopted SFAS No. 128, EARNINGS PER SHARE. In accordance with
SFAS No.128, basic net loss per common share/unit is computed using the weighted
average number of shares of common share/units outstanding during the period.
Diluted net loss per common share/unit is the same as basic net loss per common
share/unit since the effects of the Company's potential common share/ unit
equivalents are antidilutive. In accordance with Staff Accounting Bulletin
No. 98, the Company has determined that there were no nominal issuances of
common share/units or potential common share/ units in the period prior to the
Company's initial public offering.

The calculation of basic and diluted net loss per share is as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Basic and diluted net loss per share:
Net loss.................................................... $(9,336) $ -- $ --
======= ======= =======
Weighted average shares outstanding......................... 10,911 -- --
Effect of dilutive securities............................... -- -- --
------- ------- -------
Shares used in computing basic and diluted net loss per
share..................................................... 10,911 -- --
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Basic and diluted net loss per unit:
Net loss.................................................... $ -- $(8,446) $(6,709)
======= ======= =======
Weighted average units outstanding.......................... -- 9,899 8,964
Effect of dilutive securities............................... -- -- --
------- ------- -------
Units used in computing basic and diluted net loss per
unit...................................................... -- 9,899 8,964
======= ======= =======
</TABLE>

Antidilutive securities that are not included in earnings per share/unit are
836,457 shares, 574,459 units and 9,170 units at December 31, 1999, 1998 and
1997, respectively.

(K) COMPREHENSIVE LOSS

The Company has adopted SFAS No. 130, REPORTING COMPREHENSIVE LOSS which
requires disclosure of all components of comprehensive loss on an annual and
interim basis. Comprehensive loss is defined as the change in equity of a
business enterprise during a period from transactions and other events and

41
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
circumstances from nonowner sources. Comprehensive loss is equal to net loss for
all periods presented.

(L) RECLASSIFICATIONS

Certain amounts in the prior years financial statements have been
reclassified to conform to the current year's presentation.

(M) RECENT ACCOUNTING PRONOUNCEMENT

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition." This bulletin established
guidelines for revenue recognition and is effective for the second quarter of
2000. We do not expect that the adoption of this methodology to have a material
impact on our financial condition or results of operations.

In June 1998, the Financial Standards Board issued Statement of Financial
Accounting Standards, No. 133 "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. SFAS No. 123, as amended by SFAS
No. 137, will be effective for our financial reporting beginning in the first
quarter of fiscal 2001. SFAS No. 133 will require us to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for gains
and losses from changes in the fair value of a particular derivative will depend
on the intended use of the derivative. We do not expect the adoption of SFAS
No. 133 to have a material impact on our results of operations or financial
position.

(3) SIGNIFICANT CUSTOMER

In October 1996, the Company entered into a wholesale network services
agreement with WebTV Networks (WebTV). Under the terms of this agreement, the
Company provides dial-up connectivity between WebTV subscribers and WebTV's own
Internet access facility over the ZipLink network. In October 1999, this
agreement was amended to expand the existing relationship to permit connectivity
for additional Microsoft entities over the term of the contract, which has been
extended through December 2002.

During the three years ended December 31, 1999, 1998 and 1997, WebTV
represented approximately 69%, 68% and 48%, respectively, of the Company's
revenues.

(4) SIGNIFICANT VENDORS

The Company relies on several companies to supply certain key components of
its network infrastructure. Six companies provide the backbone data
communications facilities and capacity for the Company. The Company is also
dependent upon local exchange carriers to provide telecommunications services to
the Company and its customers. These components include critical
telecommunications services and networking equipment, which are available from
sole or limited sources. Two companies are the sole suppliers of the servers
primarily used in the Company's network infrastructure.

42
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(5) DETAIL OF FINANCIAL STATEMENT COMPONENTS

Property and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Network equipment......................................... $22,341 $12,659
Computer equipment and software........................... 579 357
Leasehold improvements.................................... 784 757
Furniture, fixtures and equipment......................... 209 128
------- -------
23,913 13,901
Accumulated depreciation and amortization................. (7,996) (4,098)
------- -------
$15,917 $ 9,803
======= =======
</TABLE>

Accrued expenses consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Accrued payroll and related................................. $ 631 $ 408
Accrued installation costs.................................. -- 566
Accrued professional fees................................... 97 228
Accrued other............................................... 822 484
------ ------
$1,550 $1,686
====== ======
</TABLE>

(6) INCOME TAXES

Prior to its reorganization to a corporation in May 1999, the Company was
organized as an LLC where taxation did not occur at the Company level, but was
shared individually by the Members. Accordingly, no provision for federal or
state income taxes was required in the accompanying statements of operations for
the period from January 1, 1999 through May 26, 1999 and for the years ended
December 31, 1998 and 1997.

Since the reorganization to a corporation in May 1999, the Company is
subject to federal and state income tax based upon the taxable income generated
after the date of the reorganization and hereby accounts for income taxes in
accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires
recognition of future tax effects attributable to certain deductible temporary
differences between the financial statements and income tax bases of assets and
liabilities.

At December 31, 1999, the Company had a net operating loss (NOL)
carryforward for income tax purposes of approximately $5,904,000 which expires
in 2019. The Internal Revenue Code contains provisions that may limit the
Company's utilization of NOL carryforwards available to be used in any given
year in the event of significant changes in the ownership interest of the
Company, as defined.

The Company has recorded a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the timing of the realization of these
tax benefits. Realization of these tax benefits is dependent on generating
sufficient taxable income.

43
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(6) INCOME TAXES (CONTINUED)

The components of the deferred tax asset are as follows (in thousands):

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net operating loss carryforwards............................ $2,338 $ --
Allowance for doubtful accounts............................. 14 27
Accrued liabilities......................................... 269 226
Depreciation................................................ (62) (61)
------ ----
Total deferred tax asset.................................. 2,559 192
Valuation allowance......................................... (2,559) (192)
------ ----
Net deferred tax asset.................................... $ -- $ --
====== ====
</TABLE>

The reconciliation of the difference between the statutory rate to the
effective rate is as follows:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate..................................... 34 % 0% 0%
State taxes, net of federal benefit........................ 6 % 0% 0%
Change in valuation allowance.............................. (40)% -- --
--- -- --
Effective tax rate......................................... -- % --% --%
=== == ==
</TABLE>

(7) NOTE PAYABLE

On March 31, 1998, the Company entered into a revolving credit agreement, as
amended on October 15, 1998 (the Financing Agreement) that provides for
borrowings up to $20,000,000 and matures on April 1, 2001. Borrowings under the
Financing Agreement were for working capital purposes and were secured by a
pledge of certain collateral owned by a Capital Member of the Company and
substantially all the assets of the Company.

In March 1999, the Capital Member agreed to personally guarantee an
additional $10,000,000 of borrowings from an institutional lender (Additional
Guarantee). The Additional Guarantee expired upon the closing of the IPO. In
June 1999, the Company used the proceeds from its IPO to repay the outstanding
balances under the Financing Agreement totaling $20,000,000. This facility was
terminated upon the closing of the IPO.

(8) CONVERTIBLE DEBENTURES

In 1997, the Company entered into two unsecured convertible debenture
agreements (the Debenture Agreements) with a Senior Member (Nortel Networks) for
$2.5 million and $5.0 million, Debenture One and Debenture Two, respectively. In
1998, the Company received proceeds of $7.5 million under these Debenture
Agreements.

On June 1, 1999, concurrent with the closing of the IPO, the Company issued
to Nortel Networks, 450,000 unregistered shares of common stock upon the
conversion of Debenture One at a conversion price of $5.56 per share and 357,143
unregistered shares of common stock upon the conversion of Debenture Two at a
conversion price of $14.00 per share.

44
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(9) MEMBERS' EQUITY

At December 31, 1998, the Company's membership was comprised of the three
Capital Members--85.4% (all Zachs family members and/or partnerships), one
Senior Member--10% (Nortel Networks) and one Service Member--4.6% (the Company's
President).

The Capital Members contributed an aggregate of $9,500 for their initial
interests, Nortel Networks contributed $2,500,000 for its interest and the
Service Member received his interest for no consideration. The estimated fair
market value of the Service Member's interest was not material at the date of
grant.

Losses of the Company were allocated first, to Senior Members based on their
percentage interest, second, until the cumulative amount of losses equals the
cumulative amount of income previously allocated to the Members in the same
proportions in which such income was allocated and the balance, if any, to all
Capital Members in proportion to their percentage interests. No allocation was
made to the Service Member.

On January 1, 1998, the Company effected a ten-for-one unit split. The
accompanying financial statements have been retroactively restated to reflect
this unit split.

In December 1997, the Company entered into a securities purchase agreement
(the Securities Agreement) with Nortel Networks for the purchase of a 10%
interest in the Company for an aggregate investment of $2.5 million. In
connection with the Securities Agreement, the Company also entered into two
unsecured convertible debentures (see Note 8).

(10) STOCKHOLDERS' EQUITY

REORGANIZATION

In March 1999, prior to the closing of the IPO, all of the membership units
in the Delaware LLC were transferred to ZipLink, Inc. Following such transfer of
membership units the ZipLink LLC was merged with and into ZipLink, Inc. as a
result of which all of the assets and liabilities of ZipLink LLC were
transferred to ZipLink, Inc. In connection with such transfer of membership
units and merger, each membership unit in ZipLink LLC (other than membership
units held by Nortel Networks and the Zachs Family Limited Partnership Number
One) was exchanged into approximately 0.8 shares of common stock of
ZipLink, Inc., each option and warrant to acquire a membership unit in the
ZipLink LLC was exchanged for an option or warrant, as the case may be, to
purchase approximately 0.8 common shares of ZipLink, Inc., each membership unit
held by Nortel Networks was exchanged into approximately 0.8 shares of common
stock, and each membership unit in the Delaware LLC held by The Zachs Family
Limited Partnership Number One was exchanged into approximately 0.8 shares of
common stock. As these entities are under common control, the merger transaction
has been accounted for as a reorganization of entities under common control
similar to a pooling of interest.

COMMON STOCK

The authorized common stock consists of 50,000,000 shares of common stock,
par value $0.001 per share, of which 1,500,000 shares are reserved for the
issuance of stock options. The holders of common stock are entitled to one vote
for each share held of record on all matters submitted to a vote of the
stockholders. There are no preemptive rights and no right to convert into any
other securities.

45
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(10) STOCKHOLDERS' EQUITY (CONTINUED)
On May 26, 1999, the Company sold 3,500,000 shares of its common stock at
$14.00 per share in an IPO resulting in net proceeds of $44,168,000 (after
underwriting discounts of $3,430,000 and other expenses of approximately
$1,402,000).

PREFERRED STOCK

The Board of Directors is authorized to issue Preferred Stock up to
1,000,000 shares in one or more series and may determine the number of shares in
each series and may fix designations and preferences, including voting and
dividend rights for each of these series. There were no issued or outstanding
shares of Preferred Stock at December 31, 1999.

WARRANTS

In 1997, the Company issued warrants to purchase 58,521 shares of common
stock at an exercise price of $1.71 per share which are fully vested and
unexercised as of December 31, 1999. The Company valued these warrants using the
Black-Scholes option pricing model and has recorded an expense of approximately
$97,000 during the year ended December 31, 1998.

STOCK-BASED COMPENSATION

During 1999, the Company granted options to purchase 30,000 shares of common
stock to employees that resulted in stock-based compensation of $84,000. The
stock-based compensation is being amortized over the vesting period of five
years, and the Company recognized $9,800 of compensation expense related to
these options during 1999.

In 1998, the Company granted 28,500 unit options to non-employees. The
Company has valued these options at $53,295, as of December 31, 1999, using the
Black-Scholes option pricing model as prescribed in SFAS No. 123. The Company is
amortizing the expense associated with these options over the vesting period of
the options. During 1999 and 1998, the Company recognized $44,506 and $8,789,
respectively, of compensation expense associated with these options.

STOCK OPTION PLAN

In April 1999, the Company adopted as the ZipLink, Inc. 1999 Stock Option
Plan (the Stock Option Plan). All outstanding options and warrants to purchase
membership interests in ZipLink, LLC were assumed by ZipLink, Inc. and were
converted into stock options and warrants to purchase shares of common stock.

Under the ZipLink, LLC Unit Option Plan (the Unit Plan), options generally
vest over a five year period, except that 50% of the unvested portion of any
option became vested concurrent with the consummation of the IPO. The
outstanding unit options to purchase membership units in ZipLink, LLC totaled
446,704 and were converted into common stock options to purchase 364,470 shares
at an average exercise price of $2.67 per share. Each unit option was converted
into a common stock option based upon a ratio of approximately .82 shares of
common stock for each option.

The Stock Option Plan provides for a maximum grant of 1,500,000 shares of
common stock to eligible employees, consultants, directors and its affiliates.
Options may be exercisable at varying dates vesting over a five-year period. The
options expire 10 years from the dates of grant and the Stock

46
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(10) STOCKHOLDERS' EQUITY (CONTINUED)
Option Plan terminates ten years from the date of adoption. Under the terms of
the Stock Option Plan, incentive stock options may not be granted at a price
less than fair market value at the date of grant, as determined by the Board of
Directors. Nonqualified options may be granted at a minimum option price not
less than the par value of the common stock.

The following table summarizes the option activity as follows:

<TABLE>
<CAPTION>
1997 1998 1999
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of fiscal
year...................................... 55,044 $0.22 9,170 $1.46 450,864 $ 2.20
Conversion of membership units to
options................................. -- -- -- -- (82,234) $ 2.18
Granted................................... 82,566 $1.46 452,369 $2.18 570,100 $12.86
Exercised................................. -- -- -- -- (52,759) $ 2.50
Canceled.................................. (128,440) $0.93 (10,675) $1.61 (108,035) $ 7.88
-- -- -- -- -- --
-------- ----- ------- ----- -------- ------
Options outstanding at end of year.......... 9,170 $1.46 450,864 $2.20 777,936 $ 9.43
======== ===== ======= ===== ======== ======
</TABLE>

The following table summarizes information about the Company's stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE OPTIONS
REMAINING WEIGHTED EXERCISABLE WEIGHTED
OPTIONS CONTRACTUAL AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING LIFE EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/99 (YEARS) PRICE AT 12/31/99 PRICE
- - --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.79-$3.06............................... 261,086 8.81 $ 2.76 140,526 $2.75
$10.50-$11.20............................. 186,500 9.70 $10.67 -- --
$14.00.................................... 330,350 9.40 $14.00 -- --
------- ---- ------ ------- -----
777,936 9.27 $ 9.43 140,526 $2.75
</TABLE>

As of December 31, 1999, there are 669,305 stock options available in the
1999 Employee Stock Option plan. The weighted average grant date value of
options granted in 1999, 1998 and 1997 are $8.83, $1.72 and $1.08, respectively.

The Company has computed the pro forma disclosures required under SFAS
No. 123 for employee stock options granted using the Black-Scholes option
pricing model prescribed by SFAS No. 123. The weighted average assumptions used
are as follows:

<TABLE>
<CAPTION>
1999 1998 1997
------------- -------- --------
<S> <C> <C> <C>
Expected dividend yield..................................... -- -- --
Expected volatility......................................... 80% 65% 65%
4.54% to
Risk-free interest rate..................................... 6.03% 4.62% 5.71%
Expected term............................................... 5 years 5 years 5 years
</TABLE>

47
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(10) STOCKHOLDERS' EQUITY (CONTINUED)
Had compensation expense for the Company's stock option plan been determined
based on the fair value at the grant dates of awards under the Stock Option Plan
been consistent with the method of SFAS No. 123, net loss would have been as
follows:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss as reported...................................... $ (9,336) $(8,446) $(6,709)
Net loss pro forma........................................ $(10,330) $(8,474) $(6,711)
Loss per share as reported................................ $ (0.86) $ (0.85) $ (0.75)
Loss per share pro forma.................................. $ (0.95) $ (0.86) $ (0.75)
</TABLE>

(11) COMMITMENTS AND CONTINGENCIES

(a) Operating Leases

The Company has various leasing arrangements for its facilities and
equipment. In most cases, the Company expects that in the normal course of
business, leases will be renewed or replaced by other leases. As of
December 31, 1999, future minimum lease payments required under operating leases
that have initial or remaining noncancellable lease terms in excess of one year,
net of any subleases, are as follows (in thousands):

<TABLE>
<S> <C>
2000........................................................ $ 549
2001........................................................ 553
2002........................................................ 531
2003........................................................ 327
2004........................................................ 323
Thereafter.................................................. 1,736
------
Total................................................... $4,019
======
</TABLE>

Net rental expense relating to these operating leases was approximately
$133,000, $198,000 and $425,000 for the years ending December 31, 1999, 1998 and
1997, respectively.

(b) Capital Leases

In November 1999, the Company entered into a capital lease for network
equipment related to the operation of the network infrastructure. The term is
payable in 36 monthly installments of $186,000 with interest rates approximating
10%. In June 1997, the Company entered into a capital lease for network
equipment with monthly payments of approximately $44,000 and interest of
approximately 11% which expires in September 2000.

48
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(11) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Repayments required under these capital lease agreements are as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR AMOUNT
- - ---- --------
<S> <C>
2000........................................................ $2,500
2001........................................................ 2,230
2002........................................................ 2,176
2003........................................................ 137
------
$7,043
Less--Amount representing interest.......................... (903)
------
Present value of future minimum payments.................... 6,140
Less--Current portion....................................... 2,197
------
$3,943
======
</TABLE>

The Company has an employment agreement with an employee, which provides for
an aggregate base salary of approximately $180,000 per annum through 2001.

(12) PROFIT SHARING PLAN

The Company adopted a defined contribution plan intended to qualify under
Section 401 of the Internal Revenue Code to be designated the ZipLink, Inc.
Employees' 401(k) Profit Sharing Plan (The 401(k) Plan). This 401(k) Plan is
intended to be the successor to The 401(k) Plan adopted by ZipLink, LLC.
Substantially all full-time employees of the Company who have met certain age
and service requirements are eligible to participate and are entitled to make
pre tax contributions to The 401(k) Plan of up to 15% of their eligible
earnings. The Company is required to make matching contributions equal to 25% of
the participant's contribution, and may make discretionary contributions in
proportion to such participant's earnings. Each participant will be fully vested
in their contributions and the investment earnings thereon after five years of
service. The Company's expense for matching contributions was approximately
$10,000, $17,000 and $8,000 for the years ended December 31, 1999, 1998 and
1997, respectively.

(13) RELATED PARTY TRANSACTIONS

In May 1999, the Company entered into a relationship with Williams
Communications, Inc., a major telecommunications carrier, for a commitment to
purchase $5,400,000 of telecommunication services through November 2002. Payment
for 50% of these services was paid through the issuance of 216,964 unregistered
shares of common stock and the remaining 50% will be paid in cash as services
are provided. The value of the services has been recorded at the fair market
value of the issued common stock, and is included in prepaid expenses at
December 31, 1999 and is being amortized over the life of the contract as
services are provided. There are prepaid services totaling $1,422,000 and
$1,233,000 in current and long term prepaid expenses, respectively, as of
December 31, 1999. There was $42,000 charged to expense during 1999. During
1999, the Company purchased approximately $88,000 in services from Williams
Communication.

49
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(13) RELATED PARTY TRANSACTIONS (CONTINUED)
On June 1, 1999, concurrent with the closing of the IPO, the Company issued
to Nortel Networks, 450,000 unregistered shares of common stock upon the
conversion of a $2,500,000 convertible debenture at a conversion price of $5.56
per share. Additionally, the Company issued to Nortel Networks 357,143
unregistered shares of common stock upon conversion of a $5,000,000 convertible
debenture at a conversion price of $14.00 per share. Nortel Networks, a holder
of more than 5% of the Company's common stock, acquired $2,500,000 of equity and
$7,500,000 of debt convertible into additional equity.

In December 1997, the Company entered into a purchase and license agreement
with Nortel. Pursuant to this agreement, the Company purchased certain network
equipment and services in the aggregate amounts of $410,000 in 1999, $500,000 in
1998 and $6,100,000 in 1997. In addition, Nortel has agreed to provide certain
services to the Company.

The Company rents office space from a related party. Rent expense related to
this office space was approximately $39,000, $39,000 and $45,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.

The Company was engaged in the resale of long distance telephone services
pursuant to the terms of a Reseller Agreement dated February 15, 1996 with
ZipCall Long Distance, Inc., a company controlled by two of the major
shareholders (and former Capital Members) of the Company. The Company paid
ZipCall Long Distance its long distance carrier cost plus 5%. The accompanying
statements of operations reflects $7,300, $83,000 and $233,000 of expense paid
to ZipCall Long Distance for the years ended December 31, 1999, 1998 and 1997,
respectively.

At December 31, 1999 and 1998, the Company had $0 and $255,000 respectively
of accrued compensation payable to the former Capital and Service Members
included in the accompanying balance sheet. In addition, there is $305,000,
$25,000 and $192,000 of compensation expense included in the statement of
operations for the years ended December 31, 1999, 1998 and 1997, respectively.
In 1999, the Capital Member agreed to forgive $180,000 of the accrued
compensation and therefore this amount has been recorded as a capital
contribution during the year ended December 31, 1999.

50
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summary quarterly financial information for the years ended December 31,
1999 and 1998 is as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1999:
Revenues......................................... $ 2,745 $ 3,048 $ 3,403 $ 3,520
Cost of revenues................................. 1,758 1,950 2,615 3,467
Selling, general and administrative.............. 1,385 1,530 2,250 3,019
Depreciation and amortization.................... 950 828 1,003 1,224
------- ------- ------- -------
Total cost and expenses........................ 4,093 4,308 5,868 7,710
------- ------- ------- -------
Loss from operations............................. (1,348) (1,260) (2,465) (4,190)
Interest and other expenses, net............... (389) (148) 272 192
------- ------- ------- -------
Net Loss......................................... $(1,737) $(1,408) $(2,193) $(3,998)
======= ======= ======= =======
Pro forma net loss per common share-basic and
diluted........................................ $ (0.20) $ (0.14) $ (0.17) $ (0.31)
======= ======= ======= =======

1998:
Revenues......................................... $ 1,678 $ 1,604 $ 1,767 $ 2,039
Cost of revenues................................. 1,286 1,619 1,676 1,690
Selling, general and administrative.............. 1,247 1,322 1,356 1,249
Depreciation and amortization.................... 488 545 677 927
------- ------- ------- -------
Total cost and expenses........................ 3,021 3,486 3,709 3,866
------- ------- ------- -------
Loss from operations............................. (1,342) (1,882) (1,942) (1,827)
Interest and other expenses, net............. (267) (282) (519) (385)
------- ------- ------- -------
Net Loss......................................... $(1,075) $(2,164) $(2,461) $(2,212)
======= ======= ======= =======
Pro forma net loss per common share-basic and
diluted........................................ $ (0.20) $ (0.22) $ (0.25) $ (0.27)
======= ======= ======= =======
</TABLE>

(15) OTHER EVENTS

In January 2000 the Company acquired the assets of Interhop Network
Services, Inc. of Toronto, Ontario, an Internet service provider providing
Internet connectivity services throughout Canada. The acquisition will be
accounted for as a purchase and was paid with $1,150,000 in cash, 153,997 shares
of common stock valued at $2,350,000 and the assumption of liabilities of
approximately $900,000. Goodwill and other intangibles is amortized over
15 years. The pro-forma financial information has not been included as the
acquisition is not considered material.

51
<PAGE>
ZIPLINK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(15) OTHER EVENTS (CONTINUED)
The Company has allocated the purchase price, including transaction costs of
approximately $152,000, to the fair value of the assets acquired and liabilities
assumed as follows:

<TABLE>
<S> <C>
Current assets.............................................. $ 75,000
Property and equipment...................................... 334,000
Goodwill and other intangible assets........................ 4,907,000
Total liabilities assumed................................... (907,000)
-----------
$ 4,409,000
===========
</TABLE>

52
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The Company had no disagreement with its Independent Public Accountants,
Arthur Andersen, LLP, on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure in connection
with the audits of the Company's financial statements for the fiscal years ended
December 31, 1999, 1998 and 1997.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information with respect to our directors and compliance by our
directors and officers with certain reporting requirements pursuant to
Section 16(a) of the Securities and Exchange Act of 1934 required by this item
is incorporated by reference from the information under the captions "Proposal
No. 1--Election of Directors" and in "Compliance with Section 16(a) of the
Securities Exchange Act of 1934 Beneficial Ownership Reporting Compliance" in
our proxy statement. Additional information regarding our executive officers
required by this item is included in Part I hereof, under the caption "Executive
Officers of the Registrant."

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" in our proxy statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference from the
information under the caption "Beneficial Ownership of Common Stock by Certain
Stockholders and Management" in our proxy statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
and "Compensation Committee Interlocks and Insider Participation" in our proxy
statement.

PART IV

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

(a) (1) Financial Statements The financial statements required by this item are
included in Item 8 hereof beginning on page 34 of this Annual Report on Form
10-K.

(a) (2) Financial Statement Schedules

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

All other schedules are omitted because of the absence of conditions under
which they are required or because the required information is included in the
financial statements or notes thereto.

(a) (3) Exhibits

Certain exhibits presented below contain information that has been granted
or is subject to a request for confidential treatment. Such information has been
omitted from the exhibit. Exhibit Nos. 10.5, 10.8, 10.10, 10.12, 10.13 and 10.14
are management contracts, compensatory plans or arrangements.

53
<PAGE>
EXHIBIT INDEX
DESCRIPTION OF EXHIBIT

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- - --------------------- -------
<C> <S>
2.1* Plan of Merger between ZipLink, LLC, a Connecticut limited
liability company, and ZipLink, LLC, a Delaware limited
liability company.
2.2 Agreement and Plan of Merger between the Registrant and
ZipLink, LLC, a Delaware limited liability company.
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Amended and Restated Bylaws of the Registrant.
4.1* Form of Specimen Stock Certificate for the Registrant's
Common Stock.
4.2* Registration Rights Agreement dated as of December 23, 1997
between ZipLink, LLC and Henry M. Zachs, Eric M. Zachs,
Zachs Family Limited Partnership Number One and Christopher
Jenkins.
4.3* Registration Rights Agreement dated as of May 6, 1999
between ZipLink, LLC and Williams Communications, Inc.
10.1* Securities Purchase Agreement made as of December 23, 1997
between ZipLink, LLC and Bay Networks, Inc.
10.2* Convertible Debenture dated December 23, 1997 made by
ZipLink, LLC in favor of Bay Networks, Inc. in the amount of
$5,000,000.
10.3* Convertible Debenture dated December 23, 1997 made by
ZipLink, LLC in favor of Bay Networks, Inc. in the amount of
$2,500,000.
10.4+* Agreement for Purchase and License of Bay Networks Products
and Services effective as of December 10, 1997 between
ZipLink, LLC and Bay Networks, USA, Inc., as amended by
Amendment No. 1 to Agreement for Purchase and License of Bay
Networks Products and Services dated as of June 25, 1998.
10.5* Form of Indemnification Agreement between the Registrant and
its Directors and Officers.
10.6+* ZipLink-WebTV Network Services Agreement made and entered
into on October 23, 1996 between ZipLink, LLC and WebTV
Networks, Inc. as amended by Amendment No. 1 thereto
effective as of May 13, 1997, Amendment No. 2 thereto
effective as of February 1, 1998 and Amendment No. 3 thereto
effective as of March 9, 1999.
10.7* WorldCom Data Services (Revenue Plan) Agreement dated
January 1, 1997 between ZipLink, LLC and WorldCom, Inc., as
amended by an Amendment thereto dated March 6, 1997.
10.8* Lease dated as of January 1, 1999 between ZipLink, LLC and
Henry M. Zachs
10.9* Agreement of Sublease and License Agreement made and entered
into as of July 1, 1996 between ZipLink, LLC and iGuide,
Inc.
10.10* ZipLink, Inc. 1999 Stock Option Plan.
10.11* Revolving Loan Agreement dated March 31, 1998 between the
Registrant and Fleet National Bank, as amended by a
modification agreement dated October 15, 1998 and a Second
Modification to Loan Agreement dated April 16, 1999.
10.12* Employment Agreement dated as of March 4, 1999 between the
Registrant and Christopher Jenkins.
10.13* License Agreement dated as of March 11, 1999 between the
Registrant and Henry M. Zachs.
10.14* Letter of Henry M. Zachs dated March 10, 1999 to the
Registrant respecting Guarantee.
10.15* Securities Purchase Agreement dated as of May 6, 1999
between ZipLink, LLC and Williams Communications, Inc.
</TABLE>

54
<PAGE>
EXHIBIT INDEX
DESCRIPTION OF EXHIBIT

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- - --------------------- -------
<C> <S>
10.16++** Amendment No. 4 entered into as of October 1, 1999 to
ZipLink-WebTV Network Services Agreement made and entered
into on October 23, 1996 between ZipLink, LLC and WebTV
Networks, Inc., as amended by Amendment No. 1 thereto
effective as of May 13, 1997, Amendment No. 2 thereto
effective as of February 1, 1998 and Amendment No. 3 thereto
effective as of March 9, 1999.
10.17++ Product Purchase and Services Agreement, dated as of
July 29, 1999 between the Registrant and Alcatel
Internetworking, Inc.
10.18 Equipment Lease, dated as of December 10, 1999 between the
Registrant and Alcatel USA Financing, Inc.
10.19 Assignment of Purchase Order and Security Interest, dated as
of December 10, 1999 between the Registrant and Alcatel USA
Financing, Inc.
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
</TABLE>

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

+ Confidential treatment has been granted with respect to certain portions of
this Exhibit pursuant to Rule 406 promulgated under the Securities Act.

++ Confidential treatment has been requested with respect to certain portions of
this Exhibit pursuant to Rule 406 promulgated under the Securities Act.

* Incorporated by reference from Registration Statement on Form S-1, File
No. 333-74273.

** Incorporated by reference from the Registrant's Form 10-Q for the three
months ended September 30, 1999.

(b) Reports on Form 8-K:

None

See (a)(3) above.

(d) Financial Statement Schedules
Schedule II--Valuation Qualifying Accounts

55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To ZipLink Inc.:

We have audited, in accordance with generally accepted auditing standards,
the financial statements of ZipLink, Inc. and have issued our report thereon
dated February 21, 2000. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in Item 14(a) is the responsibility of the Company's management and is presented
for purposes of complying with Securities and Exchange Commission's rules and is
not a part of the basic financial statements and, in our opinion, fairly states,
in all material respects, the financial data required to be set forth therein,
in relation to the basic financial statements taken as a whole.

/s/ Arthur Andersen LLP

Boston, Massachusetts
February 21, 2000

56
<PAGE>
ZIPLINK, INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF BALANCE AT END OF
PERIOD ADDITIONS DEDUCTIONS PERIOD
------------ --------- ---------- -----------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
1997................................... $ 20,000 $133,390 -- $153,390
1998................................... $153,390 $ 66,320 $151,973 $ 67,737
1999................................... $ 67,737 $ 67,554 $100,066 $ 35,225
</TABLE>

57
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lowell, State of Massachusetts, on March 30, 2000.

<TABLE>
<S> <C> <C>
ZIPLINK, INC.

BY: /S/ HENRY M. ZACHS
-----------------------------------------
Henry M. Zachs
CHIEF EXECUTIVE OFFICER AND CO-CHAIRMAN
</TABLE>

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chief Executive Officer and
/s/ HENRY M. ZACHS Co-Chairman of the Board
------------------------------------------- (Principal Executive March 30, 2000
Henry M. Zachs Officer)

/s/ GARY P. STRICKLAND Chief Financial Officer
------------------------------------------- (Principal Financial and March 30, 2000
Gary P. Strickland Accounting Officer)

/s/ ERIC M. ZACHS
------------------------------------------- Co-Chairman of the Board March 30, 2000
Eric M. Zachs

/s/ CHRISTOPHER W. JENKINS
------------------------------------------- President and Director March 30, 2000
Christopher W. Jenkins

/s/ RUSSEL S. BERNARD
------------------------------------------- Director March 30, 2000
Russel S. Bernard

/s/ JAI P. BHAGAT
------------------------------------------- Director March 30, 2000
Jai P. Bhagat

/s/ WAYNE A. MARTINO
------------------------------------------- Director March 30, 2000
Wayne A. Martino

/s/ ALAN M. MENDELSON
------------------------------------------- Director March 30, 2000
Alan M. Mendelson
</TABLE>

<PAGE>

Exhibit 2.2

AGREEMENT AND PLAN OF MERGER
OF
ZIPLINK, LLC
(a Delaware limited liability company)
AND
ZIPLINK, INC.
(a Delaware corporation)

AGREEMENT AND PLAN OF MERGER (the "Agreement") approved on May 25, 1999
pursuant to Section 18-209 of the Delaware Limited Liability Company Act by
ZipLink, LLC, a limited liability company of the State of Delaware, and in
accordance with its Operating Agreement on said date, and approved on May 25,
1999 pursuant to Section 264 of the General Corporation Law of the State of
Delaware by ZipLink, Inc., a business corporation of the State of Delaware, and
by resolution adopted by its Board of Directors on said date.

WHEREAS, ZipLink, Inc. is a business corporation of the State of
Delaware with its registered office therein located at 1013 Centre Road, City of
Wilmington, County of Dover; and

WHEREAS, the total number of shares of stock which ZipLink, Inc. has
authority to issue is 51,000,000, of which 50,000,000 are designated Common
Stock, par value $.001 and 1,000,000 are designated Preferred Stock, par value
$.001; and

WHEREAS, ZipLink, LLC and ZipLink, Inc. and the appropriate managers of
ZipLink, LLC and the Board of Directors of ZipLink, Inc. declare it advisable
and to the advantage, welfare and best interests of said limited liability
company and said corporation and their respective members and stockholders to
merge ZipLink, LLC with and into ZipLink, Inc. pursuant to the provisions of the
Delaware Limited Liability Company Act and pursuant to the provisions of the
General Corporation Law of the State of Delaware upon the terms and conditions
hereinafter set forth:

NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, being thereunto duly approved by the
appropriate managers of ZipLink, LLC and duly approved by a resolution adopted
by the Board of Directors of ZipLink, Inc., the Agreement and the terms and
conditions thereof and the mode of carrying the same into effect, together with
any provisions required or permitted to be set forth herein, are hereby
determined and agreed upon as hereinafter in the Agreement set forth.

1. Each of the members shall, prior to the consummation of the merger
described in Paragraph 2 below, transfer such member's interest in ZipLink, LLC
to ZipLink, Inc. The transfers describe in this Paragraph are intended to effect
an incorporation of ZipLink, LLC as described in Situation 3 of Revenue Ruling
84-111. In

<PAGE>

exchange for the foregoing transfers, ZipLink, Inc. shall issue shares of Common
Stock as further described in EXHIBIT A attached hereto.

2. Following the transfers provided for in Paragraph 1 above, ZipLink,
LLC and ZipLink, Inc. shall, pursuant to the provisions of the Delaware Limited
Liability Company Act and pursuant to the provisions of the General Corporation
Law of the State of Delaware, be merged with and into a single corporation, to
wit, ZipLink, Inc., which shall be the surviving company from and after the
effective time of the merger, and which is sometimes hereinafter referred to as
the "Surviving Corporation", and which shall continue to exist as said Surviving
Corporation under its present name pursuant to the provisions of the General
Corporation Law of the State of Delaware.

The separate existence of ZipLink, LLC, which is hereinafter sometimes referred
to as the `Terminating Company", shall cease at the said effective time in
accordance with the provisions of the Delaware Limited Liability Company Act.

3. The Certificate of Incorporation of Surviving Corporation, as now in
force and effect, shall continue to be the Certificate of Incorporation of
said Surviving Corporation and said Certificate of Incorporation shall
continue in full force and effect until amended and changed in the manner
prescribed by the provisions of the General Corporation Law of the State of
Delaware.

4. The present By-laws of Surviving Corporation will be the By-laws of
Surviving Corporation and will continue in full force and effect until
changed, altered, or amended as therein provided and in the manner prescribed
by the provisions of the General Corporation Law of the State of Delaware.

5. The directors and officers in office of Surviving Corporation at the
effective time of the merger shall be the members of the first Board of
Directors and the first officers of Surviving Corporation, all of whom shall
hold their directorships and offices until the election and qualification of
their respective successors or until their tenure is otherwise terminated in
accordance with the By-laws of Surviving Corporation.

6. All membership interests shall be deemed exchanged for shares of
Common Stock of Surviving Corporation, as more particularly described on EXHIBIT
A attached hereto. Debenture #1 and Debenture #2 (as defined in the Securities
Purchase Agreement entered into during December 1997 between Bay Networks USA,
Inc. and ZipLink, LLC) shall, from and after the effective time of the merger,
be converted into shares of Common Stock of Surviving Corporation, as more
particularly described on EXHIBIT A attached hereto. All options and warrants to
acquire membership interests, including, without limitation, any options and/or
warrants issued pursuant to the ZipLink, LLC Unit Option Plan, shall, from and
after the effective time of the merger, be

<PAGE>

converted into options and warrants to acquire shares of Common Stock of
Surviving Corporation, as more particularly described on EXHIBIT A attached
hereto.

7. In the event that the Agreement shall have been fully approved and
adopted upon behalf of Terminating Company in accordance with the provisions of
the Delaware Limited Liability Company Act and upon behalf of Surviving
Corporation in accordance with the provisions of the General Corporation Law of
the State of Delaware, Surviving Corporation and Terminating Company agree that
they will cause to be executed and filed and recorded any document or documents
prescribed by the laws of the State of Delaware, and that they will cause to be
performed all necessary acts within the State of Delaware and elsewhere to
effectuate the merger herein provided for.

8. The managers and members of Terminating Company and the Board of
Directors and the proper officers of Surviving Corporation are hereby
authorized, empowered, and directed to do any and all acts and things, and to
make, execute, deliver, file, and record any and all instruments, papers, and
documents which shall be or become necessary, proper, or convenient to carry out
or put into effect any of the provisions of the Agreement or of the merger
herein provided for.

IN WITNESS WHEREOF, this Agreement is hereby signed upon behalf of each
of the parties thereto.

Dated: May 25, 1999 ZipLink, LLC

By: /S/ HENRY M. ZACHS
------------------------------
Henry M. Zachs
Manager

Dated: May 25, 1999 ZipLink, Inc.

By: /S/ HENRY M. ZACHS
------------------------------
Henry M. Zachs
Co-Chairman of the Board

<PAGE>

EXHIBIT A

Shares of Common Stock of Surviving Corporation issued with respect to
membership interests in ZipLink, LLC are issued by Surviving Corporation in
exchange for those membership interests. Shares of Common Stock of Surviving
Corporation issued with respect to Debenture #1 and Debenture #2, and options
and warrants to acquire shares of Common Stock of Surviving Corporation issued
with respect options and warrants to acquire membership interests in ZipLink,
LLC, are issued by Surviving Corporation in conversion thereof.

(1) Any shares of Common Stock of Surviving Corporation owned by ZipLink, LLC
shall be canceled.

(2) The total number of shares of Common Stock of Surviving Corporation to be
issued with respect to existing Membership Interests (including for this purpose
the shares issuable with respect to Debenture #1 and Debenture #2) shall be
9,000,000 shares.

(3) The number of shares of Common Stock of Surviving Corporation to be issued
with respect to Debenture #1 shall be 450,000 shares.

(4) The number of shares of Common Stock of Surviving Corporation to be issued
with respect to Debenture #2 shall be equal to the outstanding principal amount
of Debenture #2 divided by the initial public offering price for shares of
Common Stock of Surviving Corporation.

(5) The number of shares of Common Stock of Surviving Corporation to be issued
with respect to Senior Units shall be equal to: (i) the number of Senior Units
outstanding immediately prior to the transfer of Membership Interests to
Surviving Corporation, divided by the total number of Units and Senior Units
outstanding at such time, multiplied by (ii) the number of shares described in
Paragraph (2) above reduced by the number of shares issued pursuant to
Paragraphs (3) and (4) above. The shares of Common Stock of Surviving
Corporation to be issued with respect to Senior Units shall be allocated among
the holders thereof in proportion to the number of senior Units owned by each
such holder.

(6) The number of shares of Common Stock of Surviving Corporation to be issued
with respect to Units shall be equal to: (i) the number of Units outstanding
immediately prior to the transfer of Membership Interests to Surviving
Corporation, divided by the total number of Units and Senior Units outstanding
at such time, multiplied by (ii) the number of shares described in Paragraph (2)
above reduced by the number of shares issued pursuant to Paragraphs (3) and (4)
above, and shall be allocated among the holders of Units as follows:

(a) Those holders of Units who have provided Preferred Capital shall be
issued a number of shares of Common Stock of Surviving Corporation, with
respect to the Preferred Capital, equal to the amount of Preferred Capital
provided divided by $14.00.

<PAGE>

(b) Each holder of Units (other than Zachs Family Limited Partnership
Number One) shall be issued a number of shares of Common Stock of Surviving
Corporation equal to the number of Units owned multiplied by 0.815842 (the
"Unit Conversion Factor").

(c) The remaining shares of Common Stock of Surviving Corporation to be
issued with respect to Units shall be issued to Zachs Family Limited
Partnership Number One.

(7) Options to acquire Membership Interests issued pursuant to the ZipLink, LLC
Unit Option shall be converted to options to acquire shares of Common Stock of
Surviving Corporation as follows:

(a) The number of shares of Common Stock of Surviving Corporation covered
by any such option shall be equal to the number of Units covered by such
option multiplied by the Unit Conversion Factor (and, if the result is not
a whole number, rounded up to the next whole number).

(b) The purchase price for each share of Common Stock of Surviving
Corporation covered by any such option shall be equal to the purchase price
for each Unit covered by such option divided by the Unit Conversion Factor
(rounded to the nearest whole cent).

(8) Warrants to acquire membership interests shall be converted to warrants to
acquire shares of Common Stock of Surviving Corporation as follows:

(a) The number of shares of Common Stock of Surviving Corporation covered
by any such warrant shall be equal to the number of Units covered by such
warrant multiplied by 0.827638 (and, if the result is not a whole number,
rounded up to the next whole number).

(b) The purchase price for each share of Common Stock of Surviving
Corporation covered by any such warrant shall be equal to the purchase
price for each Unit covered by such warrant divided by 0.827638 (rounded to
the nearest whole cent).

<PAGE>
Exhibit 10.17

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF
THIS EXHIBIT. THE CONFIDENTIAL PORTIONS HAVE BEEN REDACTED AND ARE
DENOTED BY [*]. THE CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.

PRODUCT PURCHASE AND SERVICES AGREEMENT

This Product Purchase and Services Agreement ("Agreement") is made
effective as of July 29, 1999 (the "Effective Date") by and between Alcatel
Internetworking, Inc., a California corporation ("AII") and Ziplink, Inc., a
Delaware corporation ("Ziplink" or "You").

RECITALS

1. AII is engaged in the business of manufacturing and selling the products
described in the attached Exhibit A (the "Products") and providing certain
services as further described herein ("Services").

2. Ziplink desires to purchase from AII, on the terms and conditions set forth
herein, certain Products listed in Exhibit A and certain Services as described
herein.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth below, the parties agree as follows:

1. PURCHASE ORDERS AND PRODUCT LEAD TIMES

1.1 PLACEMENT OF ORDERS: Ziplink shall order Products or obtain
services from AII by submitting written purchase orders. Each
purchase order shall specify: (a) the Products by part number(s)
and the quantities ordered; (b) the date or dates requested for
delivery which date shall be at least twenty-one (21) days after
AII's receipt of such Purchase Order; and (c) the name, address
and telephone number of any carrier or freight forwarder
specifically requested by Ziplink or in the case of services: the
services to be provided including, the Product to which the
services are related, if applicable, the scope of the services to
be provided and the date the services are to be provided (a
"Purchase Order"). Purchase Orders will be effective upon issuance
of written confirmation by AII or shipment of Products ordered;
provided, that partial shipment shall not constitute acceptance of
the entire order. AII shall not be bound by the terms and
provisions of Ziplink's purchase order form to the extent such
terms or provision are not consistent with or conflict with this
Agreement. AII will make commercially reasonable efforts to accept
or reject all Purchase Orders within ten (10) days after AII's
receipt of such Purchase Order. The terms and conditions of this
Agreement, AII's invoice and/or confirmation, and AII's General
Terms and Conditions of Sale (to the extent they do not conflict
with this Agreement), the applicable Service description shall
govern the sale of Products and rendering of Services under this
Agreement. The terms and conditions of this Agreement shall
supercede any conflicting provision of any document provided by
either Ziplink or AII

--
<PAGE>

and not signed by both Ziplink and AII which conflict with the
terms and conditions of this Agreement.

1.2 PRODUCT LEAD TIMES: Ziplink shall, at least monthly, provide (or
more often as reasonably requested by AII within ten (10) business
days after Ziplink receives such request from AII) AII with a
forecast of its anticipated product needs for the next nine (9)
months. Such forecast is subject to reasonable change by Ziplink.
Attached hereto as EXHIBIT A-1 is the initial forecast. AII shall
use its commercially reasonable efforts to meet such forecast as
it shall change from time to time.

1.3 ENGINEERING ENHANCEMENTS: AII shall provide the Engineering
Enhancements as set forth in Exhibit B.

1.4 EVALUATION ORDERS AND DEMONSTRATION EQUIPMENT: By virtue of
execution of this Agreement, Ziplink acknowledges and agrees that
all Evaluation Orders and Demonstration Equipment provided under
the purchase orders set forth in Schedule 1 attached hereto (which
purchase orders identify Ziplink, Ziplink LLC or Ziplink Internet
as the purchaser) shall, upon execution of this Agreement, be
deemed consummated purchases of Products made exclusively by
Ziplink from AII. The warranty period for all such Products shall
have begun on the date such Products were shipped to Ziplink.
Payment shall be due as set forth in Section 3.4; however, no
default shall exist with respect to any amounts owed that would be
due on or before the date hereof in accordance with Section 3.4,
if such amounts are paid or acceptable financing arrangements with
AII are made within thirty (30) days following the date hereof.

2. DELIVERY AND TERMS OF SHIPMENT

2.1 DELIVERY: AII shall make commercially reasonable efforts to effect
shipment on or before the scheduled shipping date(s) reflected on
AII's acknowledgment and/or invoice, but such schedule may vary
due to, among other things, conditions beyond AII's reasonable
control, including, but not limited to, AII's receipt of all
materials and information to be supplied, where applicable, by
Ziplink. If no shipping date is specified, shipment will be made
on date(s) selected by AII. Delivery may be made within a time
period reasonably in advance of any scheduled delivery date but
which shall in no event exceed ten (10) days. Shipment shall be
F.O.B. the location of AII's shipping facility, unless otherwise
indicated on AII's acknowledgment and/or invoice.

2.2 PACKING: Unless otherwise noted on AII's acknowledgment and/or
invoice or as requested by Ziplink, all items will be packed for
shipment in accordance with AII's

--
<PAGE>

standard practice and shipped by the most appropriate method.
Unless specifically requested by Ziplink in writing or as agreed
between the parties, AII's standard practice shall be generally
consistent with standard industry practice. AII shall use
reasonable efforts to comply with AII's reasonable requests for
special shipping requirements; however, Ziplink may be responsible
for additional charges related to such special shipping
requirements. AII shall not assume any liability in connection
with such packing or shipment. If requested by Ziplink,
transportation charges will be prepaid and will be added to AII's
invoice as a separate item.

2.3 RISK OF LOSS: All risk of loss or damage to Products shall be
assumed by Ziplink upon AII's delivery of such products to the
carrier for shipment to Ziplink. Any and all claims by Ziplink for
damage, loss or delays in transit shall be made by Ziplink against
the carrier (with notice thereof to AII), and AII shall have no
responsibility or obligations with respect to any such damage,
loss or delay except to the extent permitted under relevant
provisions of this Agreement respecting the return of defective
products. Notwithstanding the foregoing, Ziplink shall maintain
public liability, property damage and casualty insurance covering
each Product in form and amount and with companies approved by AII
and shall name AII as loss payee and/or additional insured, as
their interests may appear from the time of AII's delivery of such
Products to the carrier until AII receives payment for the
Products as set forth herein. Ziplink shall pay the premiums
therefor, at its sole cost and expense, and shall deliver to AII
at any time upon request evidence of such policies satisfactory to
AII. Each insurer shall agree, by endorsement on the policy issued
by it or by independent instrument furnished to AII, that such
insurer will give AII thirty (30) day's prior written notice
before the policy in question shall be altered, canceled or
terminated without renewal. Ziplink hereby appoints AII as
Ziplink's attorney in fact to make claim for, receive payment of,
and execute and endorse all documents, checks or drafts for loss
or damage under any said insurance policy. At AII's request,
Ziplink shall furnish AII with evidence reasonably satisfactory to
AII that the insurance coverage required hereby is in effect. Each
insurance policy shall require payment thereunder notwithstanding
any breach or violation by Ziplink of any warranties, declarations
or conditions thereof.

2.4 DELAYS: AII will notify Ziplink immediately if the delivery of
Products cannot be completed by the agreed delivery date, and will
provide in such notice the expected date when delivery will take
place. In no event shall AII be liable for any damages or
penalties for delay in delivery or for failure to give notice of
delay.

2.5 SHIPMENT DEFERRAL: Ziplink may, by written notice to AII, defer
shipment of not more than one (1) order per calendar quarter of
all or part of a shipment of Products that is on order at the time
of deferral, by giving AII notice at least twenty-one (21)

--
<PAGE>

days prior to the originally requested delivery date. Ziplink
shall limit its deferral to a maximum deferral of sixty (60) days
from the original ship date on the Purchase Order. Purchase Orders
may not be deferred more than once.

2.6 ZIPLINK'S DUTY OF INSPECTION: Ziplink shall carefully inspect all
deliveries of products as they are received by Ziplink and report
to AII promptly (but in no event more than ten (10) business days
after receipt of shipment) any alleged error, shortage, defect or
nonconformity of such products which was reasonably discoverable.
Any failure by Ziplink to so inspect and report shall constitute a
waiver by Ziplink of any claim or right of Ziplink against AII
arising with respect to any such error, shortage defect or
nonconformity which was reasonably discoverable by such an
inspection.

2.7 RETURNS: Authorization to return products purchased from AII must
be obtained from AII prior to any such return. All returned
products must be shipped within ten (10) days of AII's
authorization, in the unopened in the original packaging and
container, and shall conspicuously bear the return merchandise
account number Ziplink obtains from AII prior to return. However,
except as set forth in Section 4.2, in no event shall AII be
entitled to return any products more than sixty (60) days after
shipment of such products to AII and Buyer shall not be entitled
to return merchandise which is not presently offered for sale by
AII to other customers. Except as set forth in Section 4.2,
Ziplink shall have no right to return more than twenty percent
(20%) of the Products ordered during any sixty (60) day period. In
AII's sole discretion, credit may be granted with respect to
returned products, less a restocking charge of no greater than ten
percent (10%), provided that any returned products must be shipped
appropriately packed under the circumstances to AII, freight
prepaid, at Ziplink's risk. AII shall notify Ziplink at least
fourteen (14)_days before shipment of Products which are no longer
offered for sale by AII to other customers. Ziplink then shall be
provided a reasonable opportunity which must be exercised at least
five (5) days before shipment to upgrade its purchase order to
reflect the changes in AII's product offering. In the event that
Ziplink after having received notice of the planned discontinuance
of a Product does not upgrade its purchase order, Ziplink
understands that it will not be entitled to return such Product
under Section 4.2.

2.9 CANCELLATIONS: Products canceled by Ziplink within seven (7) days
of the confirmed shipment date are subject to a cancellation
charge of ten percent (10%) of the net value of the canceled
portion of the order. Products canceled by Ziplink within eight
(8) to twenty-five (25) days of the confirmed shipment date, shall
be subject to a cancellation charge of five percent (5%) of the
net value of the canceled portion of the order. The parties agree
that the cancellation charge is not imposed as a penalty, but as
liquidated damages. Orders of non-standard products or special
product configurations and deferred shipments are not cancelable.

--
<PAGE>

3. PRICING

3.1 PRODUCT PRICES: Unless otherwise expressly indicated in writing by
AII, the purchase prices for Products shall be as set forth in
Exhibit A at the time the purchase order is received. Exhibit A
may be modified by AII at its sole discretion, and unless
otherwise agreed in writing between the parties, AII reserves the
right to change prices and discount rate(s) for any Products at
any time. Any price increase shall become effective upon thirty
(30) days notice to Ziplink, but shall not apply to purchase
orders which have been accepted by AII prior to thirty (30) days
after the date on which AII transmits the price increase notice to
Ziplink. Any price decrease shall become effective upon written
notice to Ziplink, and shall apply to any purchase orders which
are accepted but unfilled on the date on which AII transmits the
price decrease notice to Ziplink.

3.2 ADDITIONAL COSTS: Unless otherwise expressly indicated in writing
by AII, Ziplink shall pay, and be exclusively liable for, all
costs including, but not limited to, shipping, delivery and
insurance after AII has effected delivery of the products to the
carrier.

3.3 TAXES: Prices do not include any tax or other governmental charge
or assessment on the sale, shipment, production or use of any
products sold or services rendered to Ziplink hereunder. Such
taxes and charges, when applicable, may appear as separate
additional charges on AII's invoice. Ziplink shall be solely
responsible for, and shall pay to AII upon demand, any such tax,
charge or assessment, unless Ziplink has furnished to AII a valid
certificate issued by or acceptable to the tax authority in
question.

3.4 PAYMENT: Unless otherwise stated on AII's acknowledgment and/or
invoice, Ziplink shall pay all amounts due for Products purchased
or Services rendered hereunder in cash, wire transfer or check or
upon mutually agreeable financing terms with Alcatel USA within
sixty (60) days from shipment) from the later of Ziplink's receipt
of AII's invoice or Ziplink's receipt of the Product or Service,
provided that if AII deems Ziplink's financial status
unsatisfactory or Ziplink is in default of any material obligation
of Ziplink to AII, AII (without prejudice to any other rights or
remedies it may have) may require payment in full of all amounts
payable to AII by Ziplink under AII's invoice or otherwise prior
to shipment of any Products or the rendering of Services
thereunder. In the event any payment is not made within sixty (60)
days after the later of Ziplink's receipt of AII's invoice or
Ziplink's receipt of the Product or Service, Ziplink shall pay as
additional interest or service charge the amount indicated on
AII's then current applicable price list or, if none is so
indicated, in an amount equal to one percent (1%) of the unpaid
balance per month (or portion

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<PAGE>

thereof), or if less, at the highest interest rate permitted to be
owed by AII to Ziplink for any reason whatsoever. Any amount which
Ziplink reasonably disputes based on objective evidence provided
to AII prior to such payment's due date shall not be subject to
the interest or service charge set forth above to the extent that
AII is later determined to have not owed such disputed amount.

3.5 EXPORT LAWS AND REGULATIONS: Any obligation of AII to provide
products shall be subject in all respects to all United States
laws and regulations governing the license and delivery of
technology and products abroad by persons subject to the
jurisdiction of the United States. Ziplink shall not export,
directly or indirectly, any products or related information
without first obtaining all required licenses and approvals from
the appropriate government agencies.

3.6 ZIPLINK'S MATERIALS: If applicable, Ziplink represents and
warrants that any and all materials or other items furnished by or
on behalf of Ziplink to AII for use in connection with production
of AII's products will be Ziplink's exclusive property, free and
clear of all liens, claims and encumbrances whatsoever. Unless
otherwise indicated on AII's acknowledgment and/or invoice,
Ziplink shall bear all costs of delivering such materials and
items to AII's production facility. AII shall be liable for any
loss, destruction or damage of any such materials or items while
in AII's procession to the extent (but only to be extent) caused
solely by AII's negligence, subject to the limitation on AII's
liability described in Section 4.7 below.

3.7. SOFTWARE LICENSE: Upon acceptance of and payment for any software
and/or documentation shipped by AII to Ziplink, and subject to the
terms and conditions of this Agreement, Ziplink shall have a
worldwide, nonexclusive, nonsublicensable, nontransferable license
to use such software and/or documentation. Ziplink may make one
(1) copy of the software for back-up and disaster recovery
purposes only. The licenses set forth herein shall terminate
immediately upon Ziplink's discontinuance of the use of the
equipment on which the software is installed. Ziplink understands
and agrees that title to, and all rights of ownership in, any such
software and/or documentation shall at all times remain with AII
and relevant third parties.

4. WARRANTIES OF AII

4.1 WARRANTIES: AII warrants to Ziplink that the Products other than
software including software media shall be free from material
manufacturing and materials defects under conditions of normal use
for a period of twelve (12) months from shipment by AII to
Ziplink. Products which do not comply with the above warranty and
are returned by Ziplink to AII during the warranty period (as
shown by appropriate documentation) will be repaired or replaced
at AII's option, at no cost to Ziplink.

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<PAGE>

4.2 RETURN OF AII PRODUCTS: Ziplink will bear the cost of freight and
insurance of returned AII's Products, and AII shall bear the cost
of freight and insurance of repaired AII's Products. All returned
products must be in the original, or substantially similar,
packaging and container and shall conspicuously bear the RMA
number Ziplink obtains from AII prior to return. If AII cannot, or
determines that it is not practical to, repair or replace the
returned Product, the price therefor paid by Ziplink will be
credited and applied to future orders. AII will make available to
Ziplink spare parts for purchase at prices set forth in AII's then
current price list. Upon return of such repaired Products, the
warranty with respect to such products will continue for the
remaining unexpired warranty or sixty (60) days, whichever is
longer.

4.3 SOFTWARE PROBLEM RESOLUTIONS: AII will use commercially reasonable
efforts to provide Ziplink with corrective solutions or upgrades
for software defects, glitches, "bugs" or problems with respect to
the Product of which Ziplink has notified AII during the first
ninety (90) days after the Product is purchased from AII. During
this ninety (90) day period, AII may offer maintenance releases on
new software releases ("Software Releases"), at its sole
discretion, to Ziplink for software fixes. Outside of the period
set forth herein, software fixes shall only be available through
Software Releases.

4.4 WARRANTY OF WORKMANSHIP: AII warrants to Ziplink that Services
will be performed in a professional and workmanlike manner.

4.5 GUARANTY OF PERFORMANCE: AII shall, in conjunction with Ziplink,
work with Ziplink to establish and maintain at least a ninety
(90%) average monthly utilization rate during the one (1) year
period following the date hereof for the Web TV Application as
currently in use (the "Baseline Rate"). The Baseline Rate shall
not include any cause of interruption not attributable to AII
such as busy signals, "no carrier" status, user authentication
failures, changes in or to Ziplink's software or hardware not
approved by AII, or network connectivity failures. Ziplink shall
keep AII continuously updated as to the Rate. In the event of any
ongoing performance deficiency below such Rate, AII shall use its
commercially reasonable efforts to remedy such deficiency as soon
as possible. Within ten (10) business days following written
notice by Ziplink detailing any significant performance
deficiency in the Rate, AII shall deliver an initial draft of an
action plan to Ziplink and use all commercially reasonable
efforts to initiate a resolution of the problem within thirty
(30) days. Ziplink will use all commercially reasonable efforts
cooperate fully with AII in resolving such problems.

In addition, AII is responsible for ensuring that the Products
when purchased (unless otherwise disclosed to Ziplink) are
substantially interoperable in all material

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<PAGE>

functionality with the then-commercially available open (i)
switching systems and routers of the two largest recognized
providers (for shipments within the United States) of such
hardware, and (ii) Cisco/American Internet and AII service
management center software. If any Product purchased by Ziplink
fails to meet such interoperability standard, Ziplink shall
provide AII with written notice specifically detailing the
relevant deficiencies. Should AII not cure such deficiencies
within ninety (90) days following receipt of notice thereof, AII
shall either repurchase the non-interoperable hardware at its
purchase price or obtain other hardware or software for Ziplink
that will address the interoperability problems. This obligation
shall continue with respect to any unit purchased for a period of
two (2) years from its date of purchase, and Ziplink's notice must
be received by such time; the notice and AII's obligations shall
be applicable only to those units (of the same Product) purchased
no more than two (2) years prior to the date of the notice.
Finally, in the event AII fails to comply with the terms of this
paragraph, Ziplink shall be permitted to terminate this Agreement.

4.6 SPECIFICATIONS: It is the sole and exclusive responsibility of
Ziplink to determine the suitability of any and all products of
AII for Ziplink's intended purposes and uses. AII warrants that
the products sold hereunder conform to AII's applicable
specifications for such products (subject to AII's standard
tolerances for variations) as in effect at the time of shipment by
AII, or, if applicable, specifications provided by Ziplink and
expressly accepted by AII in writing provided that AII shall not
have any liability whatsoever for any damage to or defect in
products resulting directly or indirectly from events occurring
after the shipment of such products by AII unless directly caused
by AII.

THE WARRANTIES SPECIFIED IN THIS AGREEMENT ARE THE SOLE AND EXCLUSIVE WARRANTIES
GIVEN BY AII WITH RESPECT TO PRODUCTS AND SERVICES SOLD OR PROVIDED BY AII. AII
GIVES AND MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESSED OR IMPLIED,
OTHER THAN THAT EXPRESSLY SET FORTH HEREIN. NO REPRESENTATIVE OF AII IS
AUTHORIZED TO GIVE OR MAKE ANY OTHER REPRESENTATION OR WARRANTY OR MODIFY THIS
WARRANTY IN ANY WAY. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, NO
IMPLIED WARRANTY OF MERCHANTABILITY, NO IMPLIED WARRANTY OF FITNESS FOR ANY
PARTICULAR PURPOSE AND NO IMPLIED WARRANTY ARISING BY USAGE OF TRADE, COURSE OF
PERFORMANCE IS GIVEN OR MADE BY AII OR SHALL ARISE BY OR IN CONNECTION WITH ANY
SALE OR PROVISION OF PRODUCTS OR SERVICES BY AII, OR ZIPLINK'S USE OF ANY
PRODUCTS OR SERVICES OR AII'S AND/OR ZIPLINK'S CONDUCT IN RELATION THERETO OR TO
EACH OTHER AND IN NO EVENT SHALL AII HAVE ANY LIABILITY OR OBLIGATION

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<PAGE>

WHATSOEVER UNDER OR IN CONNECTION WITH ANY SUCH WARRANTY WITH RESPECT TO ANY
PRODUCTS OR SERVICES.

4.7 LIMITATION ON AII'S LIABILITY: Ziplink acknowledges that it does
not rely on, and waives any claim relating to, any recommendation
or instruction given to Ziplink by AII or any of its
representatives regarding the specification, storage, handling or
use of products purchased and sold hereunder, which recommendation
or instruction shall be followed by or acted upon Ziplink entirely
at Ziplink's own risk.

IN NO EVENT SHALL AII BE LIABLE TO THE ZIPLINK FOR ANY INDIRECT, PUNITIVE,
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH OR RELATED TO
THIS AGREEMENT OR THE PRODUCTS OR SERVICES PROVIDED IN CONNECTION HEREWITH
(INCLUDING LOSS OF PROFITS, USE, DATA, OR OTHER ECONOMIC ADVANTAGE), HOWEVER
ARISING, WHETHER FOR BREACH OF THIS AGREEMENT, INCLUDING BREACH OF WARRANTY OR
IN TORT, EVEN IF THAT PARTY HAS BEEN PREVIOUSLY ADVISED OF THE POSSIBILITY OF
SUCH DAMAGE. SUBJECT TO SECTION 7.2 BELOW, AII SHALL BE LIABILE TO THE ZIPLINK
FOR THE ZIPLINK'S PROVEN DIRECT DAMAGES TO THE EXTENT CAUSED, AS DETERMINED BY A
COURT OF COMPETENT JURISDICTION, BY AII, ARISING OUT OF, OR IN CONNECTION WITH,
THE SALE OR USE OF THE PRODUCTS OR SERVICES SOLD HEREUNDER, THE TRANSACTIONS
CONTEMPLATED HEREBY, OR AII OR ZIPLINK'S CONDUCT OR ACTIONS IN RELATION TO ANY
OF THE SAME OR TO EACH OTHER ("CLAIMS") IN AN AMOUNT NOT TO EXCEED TWICE THE
AMOUNT(S) ACTUALLY RECEIVED BY AII FROM ZIPLINK AS PURCHASE PRICE FOR THE
SPECIFIC PRODUCT(S) OR SERVICE(S) WHICH GIVE RISE TO AII'S LIABILITY.

4.8 MAINTENANCE, SUPPORT, TRAINING: Any maintenance, support or
training services other than those set forth in this Agreement
that may be requested by Ziplink may also be subject to a separate
AII term sheet and AII may require Ziplink to enter into a
separate agreement therefor, which services would then be provided
at an additional charge.

5. SERVICES

5.1 SERVICES: AII shall provide Ziplink's employees with training
related to the Product. EXHIBIT C attached hereto details the
training options available. AII shall provide Ziplink with a two
thousand dollars ($2,000.00) credit against the costs of training
for every one hundred thousand dollars ($100,000.00) of Product
purchased by Ziplink. Such one hundred thousand dollars ($100,000)
shall be based upon the net

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<PAGE>

price of Product paid by Ziplink to AII.

5.2 SERVICE AND SUPPORT: EXHIBIT D sets forth the other service and
support agreements of the parties. Failure to provide support and
service pursuant to the terms of Exhibit D of this Agreement
within thirty (30) days after receipt by AII of notice of such
failure shall constitute a material breach of the Agreement.
Pricing for support shall be set forth in Exhibit D. Ziplink will
notify AII within thirty (30) days after shipment of each Product
that it does not desire support for such Product.

5.3 GUARANTY OF SERVICE: There shall be no restocking charges for
Product returned because of defect or where Service has not been
provided as required by this Agreement. In addition, provided that
Ziplink is not in material breach of this Agreement at the time it
obtains or renews such Service, for three (3) years from the date
of shipment of the applicable Product, AII shall have a continuing
obligation to Ziplink to offer maintenance and service support for
Product subject to Exhibit D notwithstanding Ziplink's continuing
purchase of Product or the termination of other provisions of this
Agreement.

5.4 General Terms Related to Service

5.4.1 Ziplink's order for Service will be according to the terms of
AII's then current Service description.

5.4.2 To be eligible for Services, Products to be serviced must be in
good operating condition at current specified revision levels. AII
may charge its standard rates in effect on the date of Ziplink's
Service order is place to make Products eligible for Services.

5.4.3 Relocation of Products is Ziplink's sole responsibility and may
result in adjustments to Service charges and changes to Service
response times. If Products are relocated outside the continental
United States, their continued Service will also be subject to the
reasonable availability of a AII authorized service provider.

5.4.4 Ziplink is responsible for the security of its proprietary and
confidential information and for maintaining a procedure external
to the Products to reconstruct lost or altered Ziplink files, data
or programs. Ziplink agrees to have its representative present
when AII provides Service. Ziplink agrees to notify AII if
Products are being used in an environment which poses a potential
health hazard to AII's employees or subcontractors.

5.4.5 Services may be furnished by AII, or for AII by AII's
subcontractor, or a AII authorized Service provider.

5.4.6 All replaced parts will become the property of AII on an exchange
basis.

5.4.7 Diagnostics, documentation, spare parts, tools, test equipment and
other material
<PAGE>

used in the performance of installation, warranty, maintenance or
professional services ("Services") may be furnished by AII, or
with Products, or stored at Ziplink's facility. AII grants no
title or license to such material and it remains the exclusive
property of AII. Ziplink agrees to promptly return all such
material to AII upon AII's written request.

6. TERM AND TERMINATION

6.1 TERM: The initial term of this Agreement is one (1) year.
Thereafter this Agreement will automatically renew for one (1) one
(1) year term, unless it is earlier terminated by written notice
thirty (30) days prior to the end of the initial term.

6.2 TERMINATION UPON DEFAULT: If either party defaults in the
performance of any of its material obligations hereunder or
defaults under any agreement with any Affiliate of the other party
and if such default is not corrected within thirty (30) days after
written notice thereof by the other party, then the non-defaulting
party, at its option, may, in addition to any other remedies it
may have, terminate this Agreement by giving written notice of
termination to the defaulting party.

6.3 TERMINATION FOR CONVENIENCE: Subject to the applicable provisions
set forth herein, either party may terminate this Agreement after
providing ninety (90) days prior written notice to the other
party.

6.4 TERMINATION FOR CAUSE: This Agreement may be terminated by either
party, on written notice, (i) if the other party becomes
insolvent, (ii) upon the institution by the other party of
insolvency, receivership or bankruptcy proceedings or any other
proceedings for the settlement of its debts, (iii) upon the
institution of such proceedings against the other party, which are
not dismissed or otherwise resolved in such other party's favor
within sixty (60) days thereafter, (iv) upon the other party's
making a general assignment for the benefit of creditors, or (v)
upon the other party's dissolution or ceasing to conduct business
in the normal course.

6.5 EFFECT OF TERMINATION OR EXPIRATION: Termination or expiration of
this Agreement shall not relieve Ziplink's payment obligations
incurred during the term of this Agreement. In addition, Sections
3.5, 3.7, 4.1, 4.3, 4.4, 4.5, 4.6, 4.7, 6.5, 7, 8, 9, 10 and 11
shall survive expiration or termination and remain in effect
thereafter. Provided Ziplink is not in material breach of this
Agreement, AII shall complete all work in progress commenced
against uncanceled purchase orders and shall deliver the Product
specified in such uncanceled purchase orders.

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<PAGE>

7. INDEMNITIES

7.1 ZIPLINK'S INDEMNITY: Subject to Section 7.2 below, Ziplink agrees
to indemnify, hold harmless and defend AII (and its employees,
subsidiaries, affiliates, successors, assigns and agents) from and
against any and all judgments, liabilities, damages, losses,
expenses and costs (including, but not limited to, court costs and
attorneys' fees) incurred or suffered by AII, which directly
relate to or arise out of (i) Ziplink's use, handling, sale or
distribution of the products sold hereunder, (ii) Ziplink's breach
of any representation, warranty or obligation hereunder, and/or
(iii) the infringement or violation of any third party's
intellectual property or other rights arising out of or in
connection with AII's use of specifications, materials or other
items provided to AII by Ziplink.

7.2 AII'S INDEMNITY: AII will defend any action brought against
Ziplink to the extent based on a claim that a product supplied by
AII, when used for any of the purposes contemplated by AII,
directly infringes a third party United States patent or United
States copyright. AII will pay any award against Ziplink, or
settlement entered into on Ziplink's behalf, based on such
infringement only if Ziplink notifies AII promptly in writing of
the claim, provides reasonable assistance in connection with the
defense and/or settlement thereof, at AII's expense, and permits
AII to control the defense and/or settlement thereof. AII shall
have no liability if the alleged infringement is caused by (i) use
of other than the then-most-recent version of such product
provided by AII to Ziplink hereunder, (ii) use of a product for
which AII has provided Ziplink with modifications or substitute
products pursuant to Section 7.3 below, if use of such
modifications or substitute products would have prevented the
claim, or (iii) any combination of AII's product with Ziplink's
product or other non-AII equipment, programs or data, where AII's
product alone would not have given rise to the claim.

7.3 MODIFICATIONS/SUBSTITUTIONS: In the event of an infringement
action against Ziplink with respect to a Product supplied by AII,
or in the event AII believes such a claim is likely, AII shall be
entitled, at its option but without obligation or additional cost
to Ziplink or its customers, to (i) appropriately modify such
Products, or substitute other products which, in AII's opinion, do
not infringe any third party intellectual property rights;
provided, that such modifications or substitutions shall not
materially affect the fit or function of such Products; (ii)
obtain a license with respect to the applicable third party
intellectual property rights; or (iii) if neither (i) nor (ii) is
commercially practicable, terminate Ziplink's licenses hereunder.

7.4 AII'S ENTIRE LIABILITY: Notwithstanding anything contained herein,
this Section 7 states AII's entire liability for actual or alleged
infringement of intellectual property rights.

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<PAGE>

8. CONFIDENTIALITY

8.1 DESIGNATION: As used in this Agreement, the term "Confidential
Information" shall mean any information disclosed by one party to
the other pursuant to this Agreement which is in written, graphic,
machine readable or other tangible form and is marked
"Confidential", "Proprietary", or in some other manner to indicate
its confidential nature. Confidential Information may also include
oral information disclosed by one party to the other pursuant to
this Agreement, provided that such information is designated as
confidential at the time of disclosure and is reduced to writing
by the disclosing party within a reasonable time (not to exceed
thirty (30) days) after its oral disclosure, and such writing is
marked in a manner to indicate its confidential nature and
delivered to the receiving party. Notwithstanding any failure to
so identify it, however, all Software source code shall be AII
Confidential Information.

8.2 EFFECT OF DESIGNATION: Each party shall treat as confidential all
Confidential Information of the other party, shall not use such
Confidential Information except as set forth herein, and shall use
reasonable efforts not to disclose such Confidential Information
to any third party. Without limiting the foregoing, each of the
parties shall use at least the same degree of care which it uses
to prevent the disclosure of its own confidential information of
like importance to prevent the disclosure of Confidential
Information disclosed to it by the other party under this
Agreement. Each party shall promptly notify the other party of any
actual or suspected misuse or unauthorized disclosure of the other
party's Confidential Information.

8.3 EXCEPTIONS: Notwithstanding the above, neither party shall have
liability to the other with regard to any Confidential Information
of the other which the receiving party can prove:

i) was in the public domain at the time it was disclosed or has
entered the public domain through no fault of the receiving
party;
ii) was known to the receiving party, without restriction, at the
time of disclosure, as demonstrated by files in existence at
the time of disclosure;
iii) is disclosed with the prior written approval of the
disclosing party;
iv) was independently developed by the receiving party without any
use of the Confidential Information, as demonstrated by files
created at the time of such independent development;
v) became known to the receiving party, without restriction,
from a source other than the disclosing party without breach
of this Agreement by the receiving party and otherwise not in
violation of the disclosing party's rights;
vi) is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body; provided,
however, that the receiving party shall provide prompt notice
thereof to the disclosing party to enable the disclosing
party to seek a protective order or otherwise prevent or
restrict such disclosure.

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<PAGE>

8.4 RETURN OF MATERIALS: Upon expiration or termination of this
Agreement, each party shall return all Confidential Information
received from the other party.

8.5 PRESS RELEASES: Except as to its Affiliates, as part of a
governmental inquiry, pursuant to a court order or where such
disclosure is limited to the existence of a relationship between
the parties, neither party shall disclose by press release or
other marketing/sales material the basis of the relationship
between them or this Agreement without the written authorization
of the other party which will not be unreasonably withheld,
conditioned or delayed. However, written authorization once given
will apply to additional substantially similar uses until such
authorization is revoked, i.e. written authorization to disclose
the relationship in a marketing proposal will allow disclosure in
other marketing proposals until such authorization is revoked.

9. TITLE

9.1 TITLE: Subject to Section 3.7 herein, title to all Products sold
by AII to Ziplink shall pass from AII to Ziplink when Ziplink has
paid in full for such Products. However, if Ziplink should fail to
pay when due any amount Ziplink owes to AII on account of such
Products, AII shall have, in addition to any other rights of AII,
the right (without liability of AII) to repossess such Products or
to require Ziplink to effect (at Ziplink's expense) return
delivery of such products to AII. In addition, until Ziplink has
paid to AII the entire amount due to AII for such Products,
Ziplink agrees that each Product is, and shall at all times be and
remain, the sole and exclusive property of AII. Ziplink shall have
no right, title or interest therein, except as expressly set forth
herein. Ziplink will execute and deliver to AII all such
instruments and documentation reasonably requested by AII
confirming AII's ownership interest in such Product(s). To the
extent that Ziplink is deemed to receive any interest in the
Product(s) that this Agreement shall constitute a financing under
applicable law, then Ziplink hereby grants to the AII a security
interest in and to the Product(s). Ziplink agrees to execute and
file Uniform Commercial Code financing statements and to take
whatsoever action as is requested by AII necessary or beneficial
to protect or perfect AII's interest in any or all of the
Product(s) or the payments due hereunder. AII may file a copy of
this Agreement, as well as any Order, as a financing statement. To
facilitate the foregoing, Ziplink covenants that it will not move
any Product(s) from the site of its delivery (any such removal
also requiring the written consent of the AII), change its
principal place of business or chief executive office from its
address as set forth in this Agreement or change its name (or do
business in any other name) in each case without providing to AII
at least thirty (30) days' prior written notice.

<PAGE>

10. INTELLECTUAL PROPERTY RIGHTS

10.1 OWNERSHIP: No ownership interest in intellectual property rights
shall pass from AII to Ziplink under this Agreement. AII shall
have and retain all intellectual property rights in the results of
development work relating to Products or Services. AII may
incorporate the results of any developmental work into Products or
other Services for use, license, lease or other disposition.

10.2 SOFTWARE. Any software delivered to Ziplink under this Agreement
shall be subject to the terms of the non-exclusive license in
Section 3.7. Ziplink shall obtain no proprietary rights to such
software. Ziplink shall not and shall not attempt to change,
modify, deface, alter, reproduce or disclose the programming
content of any software without AII's express written consent.
Ziplink's failure to abide by any of these restrictions shall
constitute a material breach of this Agreement giving AII cause to
immediately terminate this Agreement.

11. YEAR 2000 MATTERS

11.1 YEAR 2000 MATTERS: AII warrants to Ziplink that the Products
manufactured by AII and sold hereunder, to the extent used in
accordance with user documentation supplied by AII, will not improperly
generate, record, interpret, exchange or display dates within calendar
year 2000, provided no product communicating with AII's Products
improperly generates, records, interprets, exchanges or displays such
dates. AII's sole liability and Ziplink's exclusive remedy for breach
of the above warranty is for AII, at its sole option, and provided
Ziplink has notified AII promptly after discovery of a non-conformity
(but in no event later than December 31, 2000), to repair or replace
non-conforming hardware, or to provide a maintenance release, patch or
workaround for non-conforming software.

12. GENERAL TERMS

12.1 GOVERNING LAW/ATTORNEYS' FEES: This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of Texas without regard to its conflicts of law rules. In
the event it becomes necessary for either party to employ an
attorney in order to enforce the terms hereof, or to protect the
rights of either party hereunder, and such party is successful in
any action in connection therewith, the other party agrees to pay
such prevailing party the reasonable attorneys' fees and legal
costs incurred.

12.2 WAIVER/SEVERABILITY/AMENDMENTS: No failure or delay by a party
hereto in exercising any right, power or remedy under this
Agreement, and no course of dealing between the parties hereto,
shall operate as a waiver of any such right, power or

<PAGE>

remedy. The terms and provisions of this Agreement may be waived,
or consent for the departure therefrom granted, only by written
document executed by the party entitled to the benefits of such
terms and provisions. No such waiver or consent shall be deemed to
be or shall constitute a waiver or consent with respect to any
other term or provision of this Agreement, whether or not similar.
Each such waiver or consent shall be effective only in the
specific instance and for the purpose for which it was given, and
shall not constitute a continuing waiver or consent. The
invalidity or unenforceability, in whole or in part, of any
provision, term or condition hereof shall not affect the validity
and enforceability of the remainder of such provision, term and
condition or any other provision, term or condition. This
Agreement may not be amended except by written agreement of AII
and Ziplink expressly referring herein.

12.3 RELATIONSHIP OF THE PARTIES: The parties hereto are independent
contractors. Nothing contained herein or done in pursuance of this
Agreement shall constitute either party the agent of the other
party for any purpose or in any sense whatsoever, or constitute
the parties as partners or joint venturers.

12.4 ASSIGNMENT: This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. Neither party may assign any of its rights, obligations
or privileges (by operation of law or otherwise) hereunder without
the prior written consent of the other party, which shall not be
unreasonably withheld; provided, that AII shall have the right to
assign its rights, obligations and privileges hereunder to an
acquirer of all or substantially all of its business or assets
without obtaining any consent from Ziplink to such assignment.

12.5 NOTICES: Any notice required or permitted to be given by either
party under this Agreement shall be in writing and shall be
personally delivered or sent by certified or registered letter, or
by telecopy confirmed by registered or certified letter, to the
other party at its address set forth below, or such new address as
may from time to time be supplied by the parties hereto in
accordance with the procedures set forth in this Section 12.5 If
mailed, notices will be deemed effective three (3) working days
after deposit, postage prepaid, in the mail.

If to Ziplink: Ziplink, Inc.
900 Chelmsford Street
Tower One, Fifth Floor
Lowell, MA 01851
Attn.: Chief Financial Officer

<PAGE>

If to AII: Alcatel Internetworking, Inc.
26801 West Agoura Road
Calabasas, CA 91301
Attn.: Legal Department

12.6 FORCE MAJEURE. Notwithstanding anything else in this Agreement,
and except for the obligation to pay money, no default, delay or
failure to perform on the part of either party shall be considered
a breach of this Agreement if such default, delay or failure to
perform is shown to be due to causes beyond the reasonable control
of the party charged with a default, including, but not limited
to, causes such as strikes, lockouts or other labor disputes,
riots, civil disturbances, actions or inactions of governmental
authorities, epidemics, war, embargoes, severe weather, fire,
earthquakes, acts of God or the public enemy, nuclear disasters,
or default of a common carrier; provided, that for the duration of
such force majeure the party charged with such default must
continue to use all reasonable efforts to overcome such force
majeure.

12.7 ENTIRE AGREEMENT. The terms and conditions herein contained
constitute the entire agreement between the parties and supersede
all previous agreements and understandings, whether oral or
written, between the parties hereto with respect to the subject
matter hereof.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by duly authorized officers or representatives as of the date first above
written.

ALCATEL INTERNETWORKING, INC. ZIPLINK, INC.
("AII") ("ZIPLINK" or "YOU")

<TABLE>
<S> <C>
Print Name: /s/ Thomas Burns Print Name: /s/ Gary P. Strickland
----------------------- -----------------------
Title: CHIEF FINANCIAL OFFICER Title: CHIEF FINANCIAL OFFICER
</TABLE>

<PAGE>

EXHIBIT A

PRODUCTS AND PRICES

AII agrees to provide Ziplink a discount of * (the "Discount") from AII's then
current list price for all access concentration hardware. The Discount shall be
in effect for twelve (12) months after the Effective Date of this Agreement;
prior to the expiration of such twelve (12) month period, the parties will meet
to agree upon future prices.

*Any "SCM-90" with channelized T3 port "modules purchased prior to
general availability of "SCM-120 with channelized T3port" module will
be upgraded by AII to SCM-120 for the cost differential taking into
account the agreed discount rate.

** Any "Hybrid Access Server 336 channels" module without stac
compression which is purchased prior to general availability of 336
channel module with stac compression will be upgraded by AII to support
stac compression at no charge to Ziplink.

*** AII shall provide a qualified engineer to Ziplink at no cost to
Ziplink at Ziplink's office to assure that the purchased SMC software
is operational upon installation.

PERFORMANCE MATTERS

1. AII's equipment is designed to work substantially in accordance
with AII's specifications indicated in the supplied product and
technical documentation.

2. Joint AII/Ziplink meetings will be held on a regular,
pre-determined basis at Ziplink's Lowell facility to track
deployment, installation, and project progress throughout the
course of the implementation. AII's account team, in addition to
AII's support engineers, will participate through either on-site
presence or via teleconference. In this manner, the parties should
be able to track issues, coordinate critical events, provide
technical assistance, etc.

3. AII will work with Ziplink's team to identify a performance index
that can be routinely monitored as an assessment of network health
availability. Ziplink will monitor and track this parameter and,
in the event that the index falls below an agreed upon level, AII
will initiate a support escalation process as indicated in Exhibit
D.

4. AII will work with the Ziplink's team to derive a mutually
acceptable set of network error conditions to assist in the
diagnosis, trouble-shooting, and escalation for the AII support
team to meet these performance guarantees.

<PAGE>

EXHIBIT B

ENGINEERING ENHANCEMENTS

1. AII will have available to Ziplink the following Enhancements:

User interface DS-0 activity display with DS-0 global counter.

Domain-based forwarding enhancements - option to strip or not strip
domain name with same call policy but different DBR entries & option to
overwrite existing domain name using separate call policy.

RADIUS secret separate for authentication and accounting server.

2. AII will have available the following Product Enhancements by December
31, 1999:

Provide command line PPP user name lookup query to find specific
session information.

Provide command line global lookup of all detected connections showing
DNIS, CallerID, and connected ports including all connections prior to
successful PPP negotiation.

Provide capability to view PPP session information and associated modem
port diagnostics/statistics together.

Provide ability to query system for NASID and Class RADIUS attributes
with SNMP.

Provide ISDN dial-out backup services.

3. AII will make reasonable efforts to make available Product Enhancements
To Implement by June 30, 2000.

Provide unique session ID with each syslog message so that all related
connection records from beginning of DS-0 activity to call completion
can be readily greped from syslog file.

<PAGE>

EXHIBIT C

TRAINING

AII shall conduct on a one-time basis a 3-day training session at Ziplink's
Lowell facility for ten (10) of Ziplink's engineers. The options and elements of
this program are detailed below.

1. AII will offer a Multiservice Access Concentrator Technical
Training Course in Milpitas.

2. On site training at a cost of thirty-five hundred dollars ($3500)
per day.

The training session will be substantially as follows:

OVERVIEW:

This course provides a complete overview in the use and configuration of AAT
multiservice access concentrator family. Topics include both narrowband dial and
broadband remote access server configurations.

PREREQUISITES:

An understanding of telephonic transmission schemes, basic networking knowledge,
including Ethernet, Frame Relay, and ATM, as well as IP and IPX routing
principles.

WHAT YOU WILL LEARN:

Typical business models and configurations for AAT products

Hardware and software overview, including installation concepts

Configuration for both narrowband and broadband RAS applications, including
analog and ISDN dial, dedicated Frame Relay aggregation and concentration,
PPP over ATM, and PPP over Ethernet

Troubleshooting techniques

Using the Command Line Interpreter and the AssuredVision graphical user
interface

IN THE LABORATORY SESSION, YOU WILL:

Install various hardware components into the chassis
Log onto an Assured Access technology switch

Create IP addresses and IP pools

Create Call Policy databases and determine RADIUS capabilities

Configure packet and call routing based on different service models
Identify typical problems and their solutions

<PAGE>

EXHIBIT D
SUPPORT

The Service described below ("Support") is included with each Product for the
first year following shipment. The cost for each additional year of Support
for years two and three is * of the list price for the
applicable Product at the time of sale, less the * discount off the
list price. Support may only purchased in Year 3 for Products for which
Support was purchased in Year 2. Support for years 2 and 3 must be ordered in
writing prior to the first day of the applicable twelve month period, i.e.
Year 2 and 3. Additional service requirements will be subject to mutual
agreement of the parties. However, pricing for Support shall be subject to
change at any time twenty-four (24) months after the Effective Date of this
Agreement. Support will only be performed in the United States. Payment for
Support shall be due quarterly in advance. AII may suspend all Support at any
time that payment for any Support is more than thirty (30) days overdue.
Subject to Section 12.6, AII agrees after it determines that a hardware
failure in the United States which is covered by Support exists, it will
provide on site support within eight (8) hours of such determination.

ADVANCE REPLACEMENTS

The principal period of maintenance for the parts delivery of this service
description is Monday through Friday from 7am to 5pm EST, excluding AII
holidays. AII will ship, at its expense, a replacement hardware component to the
site location designated by Ziplink for arrival on the business day following
completion of AII diagnosis, provided that diagnosis is completed prior to 5pm
EST. If diagnosis is completed after 5pm EST, then AII shall ship the
replacement hardware component for arrival on the second business day. AII will
incur the shipping expenses for returning the failed component to complete the
replacement process. The failed component becomes the property of AII. If AII
does not receive the failed component within thirty (30) days of its failure,
then AII shall invoice and Ziplink shall pay the full purchase price of the
replaced component.

7 X 24 TECHNICAL RESPONSE CENTER (TRC)

AII provides SUPPORTPLUS customers with access to our technical response centers
seven (7) days a week, twenty-four (24) hours a day for product-related
questions or problems. SUPPORTPLUS customers shall have priority over callers
requesting technical support under standard warranty. Total hold time before
speaking directly to an AII support engineer averages less than one (1) minute.
AII has technical response centers in Boston, Los Angeles, Amsterdam and
Singapore.

7 X 24 REMOTE DIAGNOSTICS

SUPPORTPLUS customers will receive TELNET and dial-in assistance from certified
AII support engineers. Remote access allows our technical experts to perform
"in-box" diagnostics seven (7) days a week, twenty-four (24) hours a day.
Real-time access to

<PAGE>

configuration parameters, hardware and software revision levels, and port
statistics will allow AII to quickly resolve technical issues.

WEB SERVICES

Your organization's contract number and password(s) will allow you to access the
AII customer service web page. Web services include: access to your support
cases, return material authorizations, on-line problem escalation, known problem
reports, release notes, troubleshooting guides and training registration.

SOFTWARE UPDATES

SUPPORTPLUS customers will receive software notifications via electronic mail
(e-mail). This program provides software updates that include AII monthly
maintenance releases, patch releases, and enhancements. This does not include
Internet Protocol Firewall (IPF), Network Management Software (NMS) or OmniMSS
Software.

If AII is unable to complete its diagnosis via telephone, AII may, at its sole
discretion, dispatch a service engineer to the Ziplink's site in order to
facilitate an AII diagnosis. There shall be no additional charge to Ziplink for
such dispatch unless AII has dispatched the technician at the request of the
Ziplink in order to verify or confirm a diagnosis by AII that the reported
problem is caused by third party equipment.

Ziplink is responsible for ensuring that the Products are used and maintained in
accordance with the applicable Product documentation. The Products may not be
altered or modified unless performed or authorized by AII. AII shall have no
liability or obligations hereunder for failure of the Products to conform to
published specifications resulting from the combination of the Products with any
third party hardware or software not authorized in AII published documentation
or when caused by Ziplink's inability to use the products if they are operating
substantially in accordance with published specifications.

At any site where Ziplink is purchasing this Service for a particular Product,
Ziplink MUST cover all "like" Products at such site under this Service. (By way
of example, all Omni products are "like" Products. Therefore, an Ethernet Omni
is a "like" Product to a Token Ring Omni, but not a "like" Product to an
Ethernet Omni Stack.) Ziplink may not split the coverage of a Systems of "like"
Products at any one site between this Service Description and Service
Descriptions of lesser coverage or no coverage at all.

<PAGE>

SUPPORTTOTAL SERVICE DESCRIPTION

The cost for this service is * of the list price for the equipment at the
time of sale, less the * discount for the first year (warranty delta)
and * of the list price for the Product at the time of sale, less
the * discount off list price for each of year 2 and 3. Service may only
be purchase in Year 3 for Products for which service was purchased in Year 2.
Additional service requirements will be subject to mutual agreement of the
parties.

Advance Replacements

AII'S SUPPORTTOTAL service is an annual maintenance program in which AII will
dispatch a certified service technician to arrive on site, with the hardware
replacement, within four (4) hours of diagnosis. The principal period of
maintenance for the parts delivery of this service description is seven (7) days
a week, twenty-four (24) hours a day. The site must be within sixty (60) miles
from the nearest parts depot of AII or any of its authorized representatives.
AII's certified service technician will de-install the failed hardware and
install the replacement hardware. The certified service technician will return
the failed hardware, which becomes the property of AII, to complete the
replacement process.

7 X 24 TECHNICAL RESPONSE CENTER (TRC)

AII provides SUPPORTTOTAL customers with access to our technical response
centers for product-related questions or problems. SUPPORTTOTAL customers shall
have priority over callers requesting technical support under standard warranty.
Total hold time before speaking directly to an AII support engineer typically
averages less than one (1) minute. AII has technical response centers in Boston,
Los Angeles, Amsterdam and Singapore.

7 X 24 REMOTE DIAGNOSTICS

SUPPORTTOTAL customers will receive TELNET and dial-in assistance from certified
AII support engineers. Remote access allows one of our technical experts to
perform "in-box" diagnostics seven (7) days a week, twenty-four (24) hours a
day. Real-time access to configuration parameters, hardware and software
revision levels, and port statistics will allow AII to quickly resolve technical
issues.

Web Services

--
<PAGE>

Software Updates

SUPPORTTOTAL customers will receive software notifications via electronic mail
(e-mail). This program provides software updates that include AII monthly
maintenance releases, patch releases, and enhancements. This does not include
Internet Protocol Firewall (IPF), Network Management Software (NMS) or OmniMSS
Software.

At any site where Ziplink is purchasing this Service for a particular Product,
Ziplink must cover all "like" Products at such site under this Service. (By way
of example, all Omni products are "like" Products. Therefore, an Ethernet Omni
is a "like" Product to a Token Ring Omni, but not a "like" Product to an
Ethernet Omni Stack.) Ziplink may not split the coverage of a Systems of "like"
Products at any one site between this Service Description and Service
Descriptions of lesser coverage.

--
<PAGE>

SERVICE CALL ESCALATION GUIDELINES

PROBLEM PRIORITIES DEFINITIONS:

Priority One

Company (Ziplink's) production network is down causing critical impact to
business operations if service is not restored quickly. No work around is
available. Company and Ziplink are willing to commit available resources around
the clock to resolve the situation.

Priority Two

Company (Ziplink's) production network is severely degraded impacting
significant aspects of business operations. No work around is available. Company
and Ziplink are willing to commit available resources during business hours to
resolve the problem.

Priority Three

Company (Ziplink's) Network performance is degraded. Network functionality is
noticeably impaired but most business operations continue.

Priority Four

Company (Ziplink's) requires information or assistance on Product capabilities,
installation, or configuration.

Technical Action Plan "Ownership" Escalation Guidelines

<TABLE>
<CAPTION>
ELAPSED TIME PRIORITY ONE PRIORITY TWO PRIORITY THREE PRIORITY FOUR
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Hour Customer Service Customer Service Customer Service Customer Service

4 Hours Customer Service
Manager

8 Hours Engineering Customer Service
Reviews Manager

12 Hours Engineering Engineering
"Owns" Reviews

24 Hours Engineering Engineering Customer Service
Management "Owns" Manager

48 Hours Engineering
Management
</TABLE>

<PAGE>

Exhibit 10.18

EQUIPMENT LEASE

EQUIPMENT LEASE (together with any Schedules (as defined below) delivered
by the parties with respect hereto, this "LEASE"), made as of the 10th day of
December, 1999 by and between ALCATEL USA FINANCING, INC., a Delaware
corporation, with offices at 1000 Coit Road, Plano, Collin County, Texas 75075
(the "LESSOR") and ZIPLINK, INC., a Delaware corporation with a principal place
of business at 900 Chelmsford St., Lowell, MA 01851 (the "LESSEE"). In
consideration of the mutual promises herein contained, the parties hereto agree
as follows:

ARTICLE 1 - LEASE

1.01 The Lessor hereby leases to the Lessee and the Lessee hereby leases
from the Lessor, property (collectively, the "EQUIPMENT" and, individually, an
"ITEM OF EQUIPMENT") described in the Schedules now or hereafter executed and
delivered by the parties, which Schedules shall be made a part hereof
(collectively, the "SCHEDULES" and, individually, a "SCHEDULE"). In the event of
any conflict between any provision of this Lease and any provision of any
Schedule, the terms of such Schedule shall control.

ARTICLE 2 - TERM

2.01 The lease term for each Item of Equipment ("LEASE TERM") shall
commence (the "LEASE COMMENCEMENT DATE") upon the earlier to occur of (i) the
date that the Lessor becomes liable for payment of the purchase price of such
Item of Equipment under the applicable purchase order (the "PURCHASE ORDER")
from the manufacturer or other seller (the "VENDOR") and related Assignment of
Purchase Order and Security Interest with respect to such Item of Equipment,
(ii) the date the Lessee executes and delivers a Certificate of Acceptance of
Equipment (a "CERTIFICATE OF ACCEPTANCE") in the form attached to the applicable
Schedule and made a part hereof with respect to such Item of Equipment and such
Certificate of Acceptance is accepted by Lessor or (iii) the date of delivery of
such Item of Equipment pursuant to the Product Purchase and Services Agreement
("Purchase Agreement") therefor executed by the Lessee and the Vendor and
assigned to the Lessor and shall expire on the Lease Expiration Date as set
forth in the applicable Schedule unless earlier terminated, renewed or extended
and such Items of Equipment are returned, all according to the terms of this
Lease and the applicable Schedule (in which case such other termination or
expiration date shall be the "LEASE EXPIRATION DATE"). Notwithstanding the
foregoing, the rent for any Item of Equipment shall commence on the First
Periodic Rent Payment Date as set forth in the applicable Schedule. The Lessee
will signify its receipt of the applicable Item of Equipment by the execution
and delivery to the Lessor of a Certificate of Acceptance; provided that
Lessee's failure to execute and deliver a Certificate of Acceptance with respect
to an Item of Equipment shall not release the Lessee from its obligations
hereunder or with respect to any Item of Equipment. The Lessee's execution and
delivery to the Lessor of the Certificate of Acceptance with respect to each
Item of Equipment shall conclusively establish as between the Lessor and the
Lessee that such Item of Equipment has been shipped to and accepted by the
Lessee for all purposes of this Lease, notwithstanding any defect with respect
to design, manufacture or condition or in any other respect.

ARTICLE 3 - RENT

3.01 AMOUNT. The rent of any and every Item of Equipment shall be the
amount designated in the applicable Schedule. The Lessee shall pay said rent
monthly, in the amounts and at the times set forth in the

<PAGE>

Equipment Lease
Page 2 of 12

applicable Schedule, to the Lessor at the address indicated above, or to such
other person or at such other place as the Lessor may from time to time
designate.

3.02 DEFAULT. A default shall occur if:

(a) the Lessee with regard to any Item or Items of Equipment fails to pay
any rent or other amount herein provided within five (5) days after the same is
due and payable;

(b) any execution or any other writ of process shall be overtly threatened
or issued in any action or proceeding against the Lessee whereby any Item of
Equipment may be seized, taken or restrained;

(c) a proceeding in bankruptcy, receivership or insolvency shall be
instituted by or against the Lessee, any guarantor of any of the Lessee's
obligations hereunder (each such guarantor referred to as a "GUARANTOR") or the
respective property of the Lessee or any Guarantor and, if any such proceeding
is commenced against the Lessee or any Guarantor, such proceedings shall not
have been dismissed within sixty (60) days of such commencement;

(d) the Lessee or any Guarantor shall enter into any arrangement or
composition with their respective creditors;

(e) the Lessee, with regard to any Item or Items of Equipment, fails to
observe, keep or perform any term, covenant or agreement contained in SECTIONS
6.01, 8.02 or 11.02, or any representation or warranty made by the Lessee or a
Guarantor herein, in any Guaranty (defined below) or in any certificate or other
document delivered in connection with this Lease shall be incorrect in any
material respect on the date made;

(f) the Lessee, with regard to any Item or Items of Equipment, fails to
observe, keep or perform any other provision of this Lease required to be
observed, kept or performed by the Lessee and such failure continues uncured for
ten (10) days after notice thereof from the Lessor to the Lessee;

(g) a Guarantor, if any, with regard to any Item or Items of Equipment,
fails to observe, keep or perform any provision of the guaranty agreement with
respect to the obligations of the Lessee hereunder entered into by such
Guarantor (such guaranty agreement, as amended, supplemented or otherwise
modified from time to time, is referred to as a "Guaranty") required to be
observed, kept or performed by said Guarantor and such failure continues uncured
for such period of time, if any, as set forth in such Guaranty;

(h) for any reason a Guaranty, if any, with regard to any Item or Items of
Equipment, ceases to be in full force and effect; any Guarantor or any other
person shall institute an action seeking a determination that a Guaranty shall
not be in full force and effect; any action shall be taken to discontinue a
Guaranty or to assert the invalidity of a Guaranty; or any Guarantor that is a
natural person shall die;

(i) the Lessee or any Guarantor shall default under any material credit
facility, conditional sales agreement or lease after the expiration of grace or
cure periods, if any, related thereto; or

(j) the Lessor shall cease to be the owner, or have a first priority
perfected security interest in, the Equipment or any portion thereof, except
where such cessation results from the Lessee's valid exercise of its purchase
option pursuant to Article 13.01 below.

<PAGE>

Equipment Lease
Page 3 of 12

Upon the occurrence of a default, the Lessor shall have the right to
exercise any one or more of the following remedies:

(1) To declare the entire amount of monthly rent (up to the Stipulated
Loss Value determined as of the date of default) and any other amounts
hereunder immediately due and payable as to any or all Items of
Equipment shipped to and received by Lessee, without presentment,
demand or notice to the Lessee of any kind, all of which are hereby
expressly waived by the Lessee;

(2) To sue for and recover all rents and other payments then accrued or
thereafter accruing, with respect to any or all Items of Equipment,
and all damages for the breach of this Lease;

(3) To demand that the Lessee deliver any or all Items of Equipment
immediately to the Lessor at the Lessee's expense to such location in
the continental United States as the Lessor shall specify, or to take
possession of any or all Items of Equipment, after notice to Lessee if
so required by law, wherever the same may be located, without any
court order or other process of law. After having taken possession of
any such Item of Equipment, the Lessor, at its option and in its
discretion, shall have the right to, and may retain, keep idle, sell,
lease or otherwise dispose of any such Item of Equipment. The Lessee
hereby waives any and all reasonable damages occasioned by such taking
of possession or other actions or inactions which the Lessor is
allowed hereunder. Any said taking of possession shall not constitute
a termination of this Lease as to any or all Items of Equipment unless
the Lessor expressly so notifies the Lessee in writing;

(4) To terminate this Lease as to any or all Items of Equipment; or

(5) To pursue any other remedy at law or in equity.

Notwithstanding any such repossession, or any other action that the Lessor
may take, the Lessee shall be and remain liable for the full performance of all
obligations to be performed by the Lessee under this Lease, including, without
limitation, paying to the Lessor all rents and other payments then accrued with
respect to any or all Items of Equipment plus liquidated damages for loss of the
bargain and not as a penalty equal to the Stipulated Loss Value for each Item of
Equipment as set forth in the applicable Schedule hereto as of the date of
default.

All such remedies are cumulative, and may be exercised concurrently or
separately and the election of one remedy will not be deemed to be an election
of remedies to preclude the exercise of any other remedy.

3.03 INTEREST. If the Lessee fails to pay any part of the rent herein
reserved or any other amount required by the Lessee to be paid to the Lessor
within five (5) days after the due date thereof, the Lessee shall pay to the
Lessor interest on such delinquent payment from the due date thereof until paid
at the rate of eighteen percent (18%) per annum or the highest rate allowed by
applicable law, whichever is less.

3.04 OFFSET. This Lease is a net lease. The Lessee's obligations to pay
rent and all other amounts payable by it hereunder, as well as its obligations
to perform or observe, as the case may be, its other agreements hereunder are
absolute and unconditional and are not and shall not be subject to any
abatement, reduction, offset, setoff, counterclaim, recoupment, defense,
deferment or interruption for any reason whatsoever. Except as expressly
provided herein, this Lease shall not terminate, nor shall the Lessee's
obligations hereunder be affected, by reason of any defect in, damage to or loss
of any Item of Equipment, the

<PAGE>

Equipment Lease
Page 4 of 12

failure of the Vendor of any Item of Equipment to perform on its warranties or
any one of them, the prohibition of or interference with the Lessee's use
thereof by any person, corporation or governmental authority, the invalidity or
unenforceability or lack of due authorization of this Lease or any other
occurrence or circumstance whatsoever, whether similar or dissimilar to the
foregoing, it being the express intention of the Lessor and the Lessee that all
rent and other amounts payable, and all obligations hereunder to be performed,
by the Lessee shall be, and shall continue to be, payable or performed as the
case may be, in all events unless the obligation to pay or perform the same
shall be terminated pursuant to the express provisions of this Lease.

ARTICLE 4 - USE

4.01 MANNER OF USE. The Lessee shall at all times use the Equipment in a
careful and proper manner in conformity with the manufacturer's specifications
thereof and shall comply with all laws, ordinances and regulations and all
conditions of insurance required hereby which relate in any way to the
possession, use or maintenance of the Equipment. Nothing herein contained shall
be construed to deny the fact that the Equipment is, and shall at all times be
and remain, the sole and exclusive property of the Lessor as agreed in Article
11.01 hereof.

4.02 MARKINGS. If at any time during the term of this Lease, the Lessor
supplies the Lessee with labels, plates or other markings stating that the
Equipment is owned by the Lessor, the Lessee shall affix and keep the same in a
prominent place on the Equipment.

ARTICLE 5 - INSPECTION

5.01 The Lessor shall, at any and all times during business hours, have the
right to enter into and on the premises where any Item of Equipment may be
located for the purpose of inspecting the same; observing its use or for any
other purpose, including, without limitation, the enforcement of Lessor's rights
hereunder in the event of a default by Lessee or by any Guarantor under any
Guaranty. The Lessee shall give the Lessor immediate notice of any attachment or
other judicial process affecting any Item of Equipment and of any other default
hereunder and shall, whenever requested by the Lessor, advise the Lessor of the
exact location of each Item of Equipment. Notwithstanding the foregoing, Lessee
shall not remove any Item of Equipment from its original installation site
without the prior written consent of Lessor, which may be withheld or granted by
Lessor in its sole and absolute discretion. In addition, upon request the Lessee
shall provide Lessor with any records related to the maintenance of the
Equipment and the financial condition, operations and prospects of the Lessee or
any Guarantor, in each case as maintained by the Lessee or such Guarantor or
otherwise reasonably available to each entity or person.

ARTICLE 6 - ALTERATIONS AND REPAIRS

6.01 ALTERATIONS. Except as expressly required by law or Vendor warranty
directive, without the prior written consent of the Lessor, the Lessee shall not
make any alterations, additions or improvements to the Equipment. All additions
and improvements of whatsoever kind or nature made to any Item of Equipment
shall belong to and become the property of the Lessor on the termination of this
Lease or repossession with respect to such Item of Equipment.

6.02 REPAIRS. Lessee, at its own cost and expense, shall keep each Item of
Equipment in good repair, condition and working order and shall furnish any and
all parts, mechanisms and devices and services required

<PAGE>

Equipment Lease
Page 5 of 12

to keep each such Item of Equipment in good repair, condition and working order
and to maintain any manufacturer warranties.

ARTICLE 7 - LOSS AND DAMAGE

7.01 RISK OF LOSS AND DAMAGE. The Lessee hereby assumes and shall bear the
entire risk of loss, damage and destruction to each Item of Equipment from any
and every cause from and after the Lease Commencement Date and thereafter until
such Item of Equipment has been returned to Lessor, as herein provided. No loss,
damage or destruction to any Item of Equipment or any part thereof shall impair
any obligation of the Lessee under this Lease, which shall continue in full
force and effect, including, but not limited to, the obligation to pay the rent
and all other amounts with respect to such Item of Equipment hereunder.

7.02 DUTIES OF LESSEE. In the event of loss, damage or destruction of any
kind (but not beyond economical repair) to any Item of Equipment during the
Lease Term with respect thereto and thereafter until such Item of Equipment has
been returned to Lessor, as herein provided, the Lessee, at the option of the
Lessor but at the sole cost and expense of Lessee, shall place the same in good
repair, condition and working order and in the condition required by this Lease.

7.03 STIPULATED LOSS VALUE. If any Item of Equipment is lost, stolen,
destroyed, requisitioned by any governmental authority or damaged beyond
economical repair, the Lessee shall pay the Lessor therefor in cash the
Stipulated Loss Value for such Item of Equipment as set forth in the applicable
Schedule hereto. On such payment, this Lease shall terminate with respect to
such Item of Equipment so paid for and the Lessee thereupon shall receive title
to such Item of Equipment "as-is," "where-is" and "with all faults" without
warranty, express or implied, with respect to any matter whatsoever. Prior to
such payment, no such loss, theft, destruction, requisition by any governmental
authority or damage beyond economical repair of any Item of Equipment shall
impair any obligation of Lessee under this Lease, all of which shall continue in
full force and effect including, but not limited to, the obligation to pay the
rent and all other amounts hereunder.

ARTICLE 8 - INSURANCE AND TAXES

8.01 INSURANCE. In respect of this Lease and the Equipment, the Lessee
shall maintain public liability, property damage and casualty insurance covering
each Item of Equipment in form and amount and with companies approved by the
Lessor and shall name Lessor, Lessee and Lessor's assignees as loss payees
and/or additional insureds, as their interests may appear. The Lessee shall pay
the premiums therefor, at its sole cost and expense, and shall deliver to the
Lessor at any time upon request evidence of such policies satisfactory to the
Lessor. Each insurer shall agree, by endorsement on the policy issued by it or
by independent instrument furnished to the Lessor, that such insurer will give
the Lessor thirty (30) day's prior written notice before the policy in question
shall be altered, canceled or terminated without renewal. Each insurance policy
shall require payment thereunder notwithstanding any breach or violation by the
Lessee of any warranties, declarations or conditions thereof. The proceeds of
any casualty insurance with respect to any Item of Equipment, at the option of
the Lessor, shall be applied:

(a) toward the restoration or repair of such Item of Equipment; or

(b) toward payment of the Lessee's obligations hereunder.

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The Lessee hereby appoints the Lessor as the Lessee's attorney in fact to
make claim for, receive payment of, and execute and endorse all documents,
checks or drafts for loss or damage under any said insurance policy. At the
Lessor's request, the Lessee shall furnish the Lessor with evidence reasonably
satisfactory to the Lessor that the insurance coverage required hereby is in
effect.

8.02 TAXES. The Lessee shall keep the Equipment free and clear of all
levies, liens and encumbrances of any nature whatsoever, and shall pay and shall
indemnify and hold harmless the Lessor from, all license fees, registration
fees, assessments, withholding charges and taxes (including without limitation,
property taxes, value-added taxes, sales and use taxes) (all such items, being
collectively, "CHARGES") which may now or hereafter be imposed on the ownership,
delivery, return, leasing, renting, sale, possession or use of the Equipment or
otherwise arising out of this Lease, excluding, however, all taxes on or
measured by the Lessor's net income. In addition, Lessee shall timely make all
filings, reports and returns required in connection with any Charges, and, in
the event that the Lessor shall be required to execute any filing, report or
return, such document shall be completed and delivered to the Lessor with
instructions for execution within a reasonable period prior to the due date
thereof. When requested by Lessor, Lessee shall provide to Lessor evidence of
any payment or filing required to be made by Lessee hereunder.

8.03 LESSOR'S PAYMENT. In case of failure of the Lessee to procure or
maintain any such insurance, to pay any such Charges or to perform any other
covenant or obligation of the Lessee hereunder, as herein before specified, the
Lessor shall have the right, but shall not be obligated, to effect such
insurance, pay such Charges or perform such other covenant or obligation, as the
case may be. In any such event, any payment made or expense incurred by the
Lessor in connection therewith shall be repaid by the Lessee to the Lessor
within ten (10) days of notice, and failure of the Lessee to timely repay the
same shall carry with it the same consequences, including, without limitation,
interest at eighteen percent (18%) per annum (or the highest rate allowed by
applicable law, whichever is less), as failure to pay any installment of rent.

ARTICLE 9 - WARRANTIES

9.01 LESSOR SHALL HAVE NO LIABILITY TO LESSEE FOR ANY CLAIM, LOSS, OR
DAMAGE (INCLUDING, BUT NOT LIMITED TO, LOST REVENUES OR LOST PROFITS) CAUSED OR
ALLEGED TO BE CAUSED DIRECTLY, INDIRECTLY, INCIDENTALLY OR CONSEQUENTLY BY THE
EQUIPMENT OR ANY ITEM OF EQUIPMENT, BY ANY INADEQUACY THEREOF OR DEFICIENCY OR
DEFECT THEREIN OR BY ANY INCIDENT WHATSOEVER IN CONNECTION THEREWITH, ARISING IN
STRICT LIABILITY, NEGLIGENCE OR OTHERWISE, OR IN ANY WAY RELATED TO OR ARISING
OUT OF THIS LEASE. THE LESSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES OF ANY
KIND, INCLUDING THOSE OF MERCHANTABILITY, DURABILITY, CONDITION OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE EQUIPMENT OR ANY ITEM OF EQUIPMENT
AND EXPRESSLY DISCLAIMS THE SAME. FURTHER, THE LESSEE CONFIRMS THAT IT DECIDED
TO LEASE THE EQUIPMENT ON THE BASIS OF ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS
RELIANCE UPON ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY THE LESSOR,
AND THE LESSEE ACKNOWLEDGES THAT THE LESSOR IS NOT A MANUFACTURER OR VENDOR OF
ANY PART OF THE EQUIPMENT. As to each Item of Equipment and so long as no
default shall exist hereunder, Lessor hereby assigns to Lessee, without
recourse, during the Lease Term with respect to any such Item of Equipment, all
applicable manufacturer's warranties which by their terms are so assignable;
provided upon the occurrence of a default hereunder, all warranties shall,
without further action, revert to the Lessor and the Lessor shall be entitled to
administer the same and receive all proceeds therefrom. The Lessee shall take
all

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reasonable action to enforce such warranties to the extent so assigned. All
claims or actions on any warranty so assigned shall be made and prosecuted by
the Lessee at its sole cost and expense, and the Lessor shall have no obligation
to claim any warranty. The Lessee shall keep the Lessor informed of any such
claim or action by the Lessee, and any recovery under such warranty shall be
payable jointly to the Lessor and the Lessee, as their interests may appear. All
proceeds of such recovery shall be used, in the Lessor's discretion, to repair
the Item of Equipment to which such warranty relates or pay amounts due
herewith.

ARTICLE 10 - PERSONAL PROPERTY

10.01 The Equipment is, and shall at all times be and remain, personal
property, notwithstanding that the Equipment or any part thereof may be, or
hereafter become, in any manner affixed or attached to, or embedded in, or
permanently resting on, real property or any building thereon, or attached in
any manner to that which is permanent as by means of cement, plaster, nails,
screws or otherwise. If requested by the Lessor, the Lessee shall obtain, prior
to or after the delivery of any Item of Equipment, a certificate in form
satisfactory to the Lessor from each party having an interest in the real
property where any Item of Equipment may be located, waiving any claim with
respect to such Item of Equipment.

ARTICLE 11 - OWNERSHIP AND ASSIGNMENT

11.01 OWNERSHIP. The Equipment is, and shall at all times be and remain,
the sole and exclusive property of the Lessor. The Lessee shall have no right,
title or interest therein, except as expressly set forth in this Lease. Lessee
will execute and deliver to Lessor all such instruments and documentation
reasonably requested by Lessor confirming Lessor's ownership interest in the
Equipment. To the extent that the Lessee is deemed to receive any interest in
the Equipment or related warranties or that this Lease shall constitute a
financing under applicable law, then Lessee hereby grants to the Lessor a
security interest in and to the Equipment, all warranties related thereto and
the proceeds from the foregoing. Lessee agrees to execute and file Uniform
Commercial Code financing statements and to take whatsoever action as is
requested by the Lessor necessary or beneficial to protect or perfect the
Lessor's interest in any or all of this Lease, any Schedule, the payments due
hereunder, the Equipment and the proceeds of the foregoing. Lessor may file a
copy of this Lease, as well as any Schedule, as a financing statement. To
facilitate the foregoing, the Lessee covenants that it will not move any
Equipment from the site of its delivery (any such removal also requiring the
written consent of the Lessor), change its principal place of business or chief
executive office from its address as set forth in the heading of this Lease or
change its name (or do business in any other name) in each case without
providing to the Lessor at least thirty (30) days' prior written notice.

11.02 ASSIGNMENT. Without the prior written consent of the Lessor, the
Lessee shall not:

(a) assign, transfer, pledge or hypothecate this Lease, the Equipment, any
Item of Equipment or any interest in such Equipment; or

(b) sublet or lend the Equipment or any Item of Equipment, or permit the
Equipment or any Item of Equipment to be used by anyone other than the
Lessee or the Lessee's employees.

11.03 LESSOR'S ASSIGNMENT. All rights of the Lessor under this Lease and in
the Equipment (or any portion thereof) may be sold, assigned, pledged,
mortgaged, transferred or otherwise disposed of, either in whole or in part. If
the Lessor assigns or otherwise transfers this Lease or its interest in the
Equipment (or any portion thereof), or the rentals due or to become due
hereunder or any other interest herein, whether as

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Equipment Lease
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security for any of its indebtedness or otherwise, no breach or default by the
Lessor hereunder or pursuant to any other agreement between the Lessor or
Lessee, shall excuse performance by the Lessee of any provision hereunder. No
such assignee shall be obligated to perform any duty, covenant or condition
required to be performed by the Lessor under the terms of this Lease; provided,
however, that no such assignment shall impair or diminish Lessor's obligations
hereunder. The Lessee hereby agrees to acknowledge and consent to any such
documentation as the Lessor or any such assignee may require and agrees to
furnish to any such assignee copies of any notices given by the Lessee under
this Lease or any Schedule.

ARTICLE 12 - INDEMNITY

12.01 The Lessee shall indemnify the Lessor against, and shall hold the
Lessor harmless from, any and all claims, actions, suits, proceedings, costs,
expenses, damages and liabilities, including attorney's fees, arising out of,
connected with, or resulting from the Equipment, any Item of Equipment or this
Lease, including without limitation, the selection, delivery, possession, use,
operation or return of the Equipment and any Item of Equipment. The indemnities,
assumptions of liability and obligations for costs and expenses contained in
this Lease, in any Schedule or in any other document or agreement delivered by
the Lessee in connection herewith, including without limitation this Article 12,
shall continue in full force and effect notwithstanding the termination of this
Lease or any Schedule, whether by expiration of time, by operation of law or
otherwise. If Lessor advises Lessee in good faith that an important general
interest of Lessor is involved in any claim, Lessor may control any defense or
settlement with counsel selected by Lessor and reasonably acceptable to the
Lessee without diminution of Lessee's obligations hereunder.

ARTICLE 13 - PURCHASE OPTION

13.01 On the Lease Expiration Date as to each and every Item of Equipment,
if all rents theretofore due and payable have been paid in full and Lessee has
performed all of its other obligations hereunder, the Lessee shall have the
option to purchase (which purchase with respect to any license to use software
comprising a portion of the Equipment shall include only such rights to use any
software as were conveyed to Lessor by Vendor and shall not include any
ownership interest in any such software) such Item of the Equipment on an
"AS-IS," "WHERE-IS" and "WITH ALL FAULTS" basis without warranty, express or
implied, with respect to any matter whatsoever, by Lessor, for ONE DOLLAR
($1.00). In connection with any sale of any such Item of Equipment Lessee shall
convey such rights in the Equipment as it received from the Vendor and the bill
of sale corresponding thereto shall expressly state, that such Item of Equipment
is sold "as-is," "where-is" and "with all faults," and Lessor shall disclaim any
express or implied warranties of any kind, including those of merchantability,
durability, condition and fitness for a particular purpose or use. Upon any such
purchase, the Lessor will duly execute and deliver to the Lessee a bill of sale
to effect transfer of ownership of such Item of Equipment to the Lessee, free
and clear of all encumbrances, security interests and liens arising as a result
of actions of the Lessor (other than encumbrances, security interests or liens
suffered or permitted by the Lessee to become effective thereon or otherwise the
responsibility of the Lessee hereunder), upon payment by the Lessee of the
purchase price and thereupon this Lease shall terminate as to such Item of
Equipment, and no further rents shall become due in respect to such Item of
Equipment so purchased by Lessee.

ARTICLE 14 - RETURN OF EQUIPMENT

14.01 Upon termination of this Lease with respect to any Item of Equipment,
the Lessee shall return such Item of Equipment to such location in the
continental United States as the Lessor shall specify, unless the Lessee shall
have purchased such Item of Equipment and shall have paid all amounts due in
connection

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Equipment Lease
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therewith as provided herein. Upon such return, such Item of Equipment shall be
in good working order and condition, ordinary wear and tear excepted, shall be
certified for manufacturer's maintenance and shall be free and clear of all
encumbrances, security interests and liens. Notwithstanding any other provision
contained herein, until such Item of Equipment shall have been returned to the
Lessor as required above, all of the provisions of this Lease with respect
thereto shall continue in full force and effect. The Lessee shall pay all costs
and expenses in connection with or incidental to the return of each Item of
Equipment, including, without limitation, the cost of removing, assembling,
packing, insuring and transporting the same.

ARTICLE 15 - LESSEE'S REPRESENTATIONS AND WARRANTIES

15.01 The Lessee represents and warrants to and agrees with Lessor that:
(1) the Lessee is and (except as expressly permitted hereinbelow) shall continue
to be a corporation duly organized and validly existing in good standing under
the laws of the state of its incorporation, is duly qualified and in good
standing in all other jurisdictions in which Equipment may be located and is not
exempt from United States income taxation; (2) the Lessee's execution, delivery
and performance of this Lease, each Schedule and the other documents herein
contemplated have been (or if the same should be not yet executed and delivered,
at the time of such execution and delivery, will have been) duly authorized by
all necessary corporation action, will not result in any breach, default or
violation of or under the Lessee's certificate of incorporation or bylaws or any
agreement, order or law by which the Lessee is or may be bound or its property
is or may be affected; (3) this Lease as well as each Schedule and the other
documents executed and delivered by the Lessee in connection herewith constitute
(or if the same should be not yet executed and delivered, at the time of such
execution and delivery, will constitute) the legal, valid and binding
obligations of the Lessee enforceable against the Lessee in accordance with
their respective terms; (4) all financial statements and other information
heretofore furnished by the Lessee or any Guarantor, as the case may be, to the
Lessor were when so furnished (or if the same shall be furnished hereafter, when
so furnished shall be) true and complete; and (5) upon any consolidation or
merger of the Lessee with or into any other corporation(s) or upon any sale or
conveyance of all or substantially all of the property of the Lessee to any
other person or entity, the Lessee will cause the due and punctual performance
and observance of all covenants and obligations of the Lessee hereunder to be
assumed by the surviving corporation or by the person or entity which shall have
acquired such property; provided that any such assumption shall not release the
Lessee from its obligations hereunder in the case of any sale or conveyance of
all or substantially all of its property or where it survives any consolidation
or merger. The foregoing representations, warranties and agreements shall remain
in effect throughout the term of this Lease.

ARTICLE 16 - GENERAL PROVISIONS

16.01 COSTS AND EXPENSES. The Lessee shall pay or reimburse the Lessor
within five (5) days of demand therefor for all costs and expenses incurred by
the Lessor in connection with the preparation, delivery and execution of this
Lease or any document or instrument in connection with this Lease, the
consummation of the transactions contemplated by this Lease and the enforcement
or attempted enforcement of any rights or remedies under this Lease or any
document or instrument in connection with this Lease (including in connection
with any restructuring or "workout" related to an Item of Equipment, including
in any bankruptcy or insolvency proceeding).

16.02 INFORMATION. Lessee agrees to furnish to the Lessor: (i) copies of
annual and quarterly financial statements, including a copy of the balance sheet
and profit and loss statement of the Lessee certified to by an authorized
financial officer of the Lessee; and (ii) such additional information as the
Lessor or any assignee

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may reasonably request concerning this Lease in order to enable the Lessor or
assignee to determine whether the covenants, terms and provisions of this Lease
have been complied with by the Lessee.

16.03 CONCURRENT REMEDIES. No right or remedy herein conferred on or
reserved to the Lessor is exclusive of any right or remedy herein or by law or
equity provided or permitted; but each shall be cumulative of every other right
or remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise and may be enforced concurrently therewith or from time to
time.

16.04 NONWAIVER. No covenant or condition of this Lease may be waived
except by the written consent of the Lessor. Forbearance or indulgence by the
Lessor in any regard whatsoever shall not constitute a waiver of the covenant or
condition to be performed by the Lessee to which the same may apply, and, until
complete performance by the Lessee of any covenant or condition, the Lessor
shall be entitled to invoke any remedy available to the Lessor under this Lease
or by law or in equity despite any forbearance or indulgence. No waiver by the
Lessor of any default or noncompliance with this Lease shall operate as a waiver
of any other default or noncompliance or the same default or noncompliance on a
future occasion.

16.05 ENTIRE AGREEMENT. This Lease constitutes the entire agreement between
the Lessor and the Lessee and supersedes any prior understanding or written or
oral agreements between the parties with respect to the subject matter hereof,
and this Lease shall not be amended, altered or changed except by a written
agreement signed by the parties hereto.

16.06 NOTICES. Service of all notices under this Lease shall be sufficient
if given personally or mailed, sent by facsimile transmission or delivered by
overnight courier to the party involved at its respective address hereinabove
set forth, or at such address as such party may provide in writing from time to
time. Any such notice mailed to such address shall be effective when deposited
in the United States mail, duly addressed and with postage prepaid. Any such
notice sent by facsimile transmission shall be deemed received on the next
business day following the transmission; and any notice sent by national
recognized overnight courier shall be deemed received on the following business
day.

16.07 TIME. Time is of the essence with reference to payment in this Lease,
and in each and all of its provisions.

16.08 PARTIES BOUND. This Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns where permitted by
this Lease. As used herein, the term "LESSOR" shall include all assignees of the
Lessor.

16.09 SUCCESSORS AND ASSIGNS. If any one or more of the provisions
contained in this Lease shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect or in any jurisdiction, such invalidity, illegality
or unenforceability shall not affect any other provision hereof or of such
provision in any other jurisdiction, and this Lease shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein.

16.10 GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS CONFLICTS
OF LAWS RULES.

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16.11 CONSENT TO JURISDICTION AND SERVICE OF PROCESS; WAIVER OF JURY TRIAL.

(a) The Lessee hereby irrevocably agrees that any suit, action, proceeding
or claim against the Lessee arising out of, or relating to, this Lease or any
judgment entered by any court in respect thereof may be brought and enforced in
any court located in the State of Texas and the Lessee hereby irrevocably
submits to the nonexclusive jurisdiction of such courts for the purpose of any
such suit, action, proceeding or claim. The Lessee hereby irrevocably waives, to
the fullest extent permitted by law, any objection that it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Lease brought in any court located in the State of Texas and
hereby further irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
The Lessee further irrevocably consents to the service of process out of any of
the aforementioned courts in any suit, action, proceeding or claim by the
mailing of copies thereof by certified mail, return receipt requested, postage
prepaid, to its address set forth herein or in any other manner in accordance
with the provisions of the laws of the State of Texas. Nothing herein shall
affect the right of the Lessor to commence legal proceedings or otherwise
proceed against the Lessee in any jurisdiction or to serve process in any manner
permitted by applicable law.

(b) THE LESSOR AND THE LESSEE HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH,
THIS LEASE OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN), OR ACTIONS OF THE LESSOR OR THE LESSEE.

16.12 POWER OF ATTORNEY. The Lessee hereby irrevocably constitutes and
appoints Lessor and any officer or agent thereof, with full power of
substitution and resubstitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of the Lessee and in
the name of Lessee or in its own name, from time to time in the Lessor's
discretion, for the purpose of carrying out the terms of this Lease, to take any
and all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this Lease.
The powers conferred on the Lessor under this Section are solely to protect the
Lessor's interest in the Equipment or any Item of Equipment and shall not impose
any duty upon Lessor to exercise any such powers. The Lessor shall be
accountable only for its gross negligence or willful misconduct and for amounts
that it actually receives as a result of the exercise of such powers and neither
it nor any of its officers, directors, employees or agents shall be responsible
to the Lessee for any act or failure to act.

16.13 FURTHER ASSURANCES; CERTAIN EXPENSES. The Lessee will, at its own
cost and expense, promptly and duly execute and deliver to the Lessor such
further documents and assurances and take such further action as the Lessor may
from time to time request in order to more effectively carry out the intents and
purposes of this Lease and to establish and protect the rights, interests and
remedies created or intended to be created in favor of the Lessor hereunder.
Lessee shall pay or reimburse Lessor for any costs and expenses incurred by
Lessee in connection with any title or lien searches related to the Lessee or
the Equipment, stamp, documentary charges or financing statement filing fees
with respect to the Lease, administration expenses arising from the Lease and
any similar out-of-pocket costs and expenses. In addition, if the Lessor incurs
any breakage, make-whole or similar cost or expense to any third party as a
result of the prepayment by the Lessee of any of its obligations hereunder
(including, without limitation, where Lessor has sold, assigned or transferred
any of its rights hereunder), then the Lessee shall, upon request by the Lessor,
promptly reimburse the Lessor therefor; provided, however, that such
reimbursement: (I) shall be limited to reasonable expenses

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incurred by Lessor as a result of Lessee's prepayment; and (ii) shall not exceed
five percent (5%) of the total amount of the principal prepayment by Lessee that
resulted in the expense to Lessor. This provision shall survive the earlier
termination of this Lease or any Schedule.

16.14 COUNTERPARTS. This Lease and any amendments, waivers, consents or
supplements may be executed in counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument.

16.15 HEADINGS. Article and Section headings in this Lease are included
herein for convenience of reference only and shall not constitute a part of this
Lease for any other purpose or be given any substantive effect.

IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and
year first above written.

LESSEE: LESSOR:

ZIPLINK, INC. ALCATEL USA FINANCING, INC.

By: /s/ Gary P. Strickland By: /s/ Ronald R. Fuqua
------------------------------ -----------------------------

Its: Chief Financial Officer Its: Treasurer and Senior Director

<PAGE>
Exhibit 10.19

ASSIGNMENT OF PURCHASE ORDER

AND SECURITY INTEREST

This ASSIGNMENT AGREEMENT is made and entered into as of the 10th day of
December, 1999, between Ziplink, Inc. ("Customer") and Alcatel USA Financing,
Inc. ("Assignee".

WITNESSETH:

WHEREAS, Customer has entered into a Product Purchase and Services
Agreement dated the 29th day of July, 1999 (hereafter referred to as the
"Purchase Agreement"), with Alcatel Internetworking, Inc. (hereafter referred
to as the "Vendor"), whereby the Customer and Vendor have agreed to, among
other things, the terms and conditions upon which the Customer is allowed to
place orders to purchase certain telecommunications hardware and/or license
certain telecommunications software from Vendor; and,

WHEREAS, pursuant to the terms and conditions of the Purchase
Agreement, the Customer has placed or will from time to time place with
Vendor orders under such Purchase Agreement which may be attached to this
Agreement as Exhibits and which (whether or not attached to this Agreement as
Exhibits) are hereby incorporated by reference (collectively, the "Order").
The hardware and license of software so described in the Order shall
hereinafter be collectively referred to as the "Equipment"); and,

WHEREAS, Assignee and Customer have entered into or propose to enter
into an Equipment Lease (the "Lease"), pursuant to which Assignee proposes,
subject to the terms and conditions hereof and of the Lease, to acquire the
Equipment and lease and/or license it to Customer; and as a condition to
entering into the Lease and in order to enable Assignee to acquire the Equipment
(and in the case of any software constituting a portion of the Equipment, the
license to use such software), it is necessary that this Assignment be executed;

NOW THEREFORE, in consideration of the foregoing, Customer hereby
sells, assigns and transfers to Assignee all of Customer's right, title and
interest in and to the Order (but not its obligations thereunder except to pay
the purchase price therefor upon delivery by the Vendor to the Customer and
acceptance by Assignee of a Certificate of Acceptance (defined below) executed
by Customer under the Lease with respect to the Equipment), including, without
limitation, the right to take title to the Equipment and to be named as
purchaser in any bills of sale or invoices to be delivered by Vendor, this
Assignment being subject, however, to the following conditions:

1. This Assignment shall not become effective with respect to any
Equipment prior to the date upon which Customer executes and delivers to
Assignee and Assignee accepts a Certificate of Acceptance of Equipment (a
"Certificate of Acceptance") relating to such Equipment in form satisfactory to
Assignee.

2. By accepting delivery of a signed copy of this Assignment, Assignee
agrees that, notwithstanding this Assignment, at all times prior to the
acceptance by Assignee of a Certificate of Acceptance executed by Customer
relating to any Equipment that has not become subject to the Lease, Customer may
continue to exercise, with respect to any Equipment covered by an Order, all
rights of the buyer under the Purchase Agreement, and Vendor may continue to
deal, with respect to such Order and related Equipment, solely with Customer for
all of the purposes of the Purchase Agreement in all respects as if this
Assignment had not been executed.

<PAGE>

3. Except as otherwise expressly provided, the rights and obligations
of Vendor and Customer under the Purchase Agreement, shall remain in effect.
Without limiting the generality of the foregoing, Vendor's warranty and support
obligations under the Purchase Agreement shall continue in full force and effect
and Customer, as lessee of the Equipment, shall enforce such obligations
directly against Vendor all in accordance with the provisions of the Purchase
Agreement and the Lease so long as no default shall have occurred under the
Lease (in which case such warranties, upon notice by Assignee to the Vendor,
shall revert to the Assignee). Customer agrees that Assignee has not and does
not by virtue of this Assignment assume any of Customer's obligations or
liabilities (other than to pay the purchase price of the Equipment to Vendor as
expressly provided herein), and that Assignee shall not have any obligation or
liability under the Purchase Agreement (or with respect to the Equipment) or be
obligated to perform any of the obligations or duties of Customer thereunder or
related thereto, whether arising prior to or on or after the date of this
Assignment, and Customer shall at all times remain obligated and liable to
Vendor under the Purchase Agreement as if this Assignment had not been executed.

4. Customer agrees that at any time and from time to time, upon the
written request of Assignee, Customer shall promptly and duly execute and
deliver any and all such further instruments and documents, and take such
further action as Assignee may request in order to obtain the full benefits of
this Assignment.

5. Customer represents and warrants that the Purchase Agreement is in
full force and effect and is enforceable in accordance with its terms, and that
Customer is not in default thereunder. Customer further represents, warrants and
covenants that it will not assign or pledge, so long as this Assignment remains
in effect, the whole or any part of the rights hereby assigned, to anyone other
than Assignee.

6. Notwithstanding the foregoing, it is understood and agreed, that
until a default shall have occurred under the Lease, all rights and claims under
any guaranty or warranty, express or implied, with respect to the Equipment or
any item of Equipment, shall be enforced by Customer, subject to the terms of
the Lease, at its sole cost and expense either in its own name or in the name of
Assignee; provided, however, that no action shall be brought in Assignee's name
without Assignee's written consent, and in any event Customer agrees to
indemnify Assignee against and save it harmless from all costs and expenses
arising out of any action or proceedings which Customer may bring against
Vendor. This indemnity shall survive the earlier termination of this Assignment
and the Lease. Customer agrees to preserve and protect the Assignee's rights
under any warranty, covenant or representation made by the Vendor with respect
to the Equipment, and Customer warrants that Customer will not take any action
which will impair such rights of Assignee, and covenants to act solely in
compliance with any restrictions and requirements prerequisite to the continued
existence, enforcement, validity and maintenance of any warranty, covenant or
representation.

7. Customer agrees that it will not modify or amend the Purchase
Agreement or permit any waiver with respect thereto without the prior written
consent of Assignee.

8. The execution of this Assignment by Customer and the acceptance
thereof by Assignee shall not constitute a commitment by Assignee to enter into
the Lease or to lease any Equipment to Customer unless and until a duly
authorized officer of Assignee shall have executed and accepted the Lease and
returned an executed copy thereof to Customer. Assignee's obligation to lease
any Equipment to Customer is subject to the further conditions (the "CONDITIONS
PRECEDENT") that Customer shall not be in default under any of the terms of
conditions of the Lease; that the Certificate of Acceptance with respect to such
Equipment shall have been executed and delivered to Assignee by Customer and
accepted by Assignee; that there shall have been no

<PAGE>

material adverse change in the business or financial condition of Customer; and
that all matters incident to the transactions contemplated by the Lease and any
Schedule thereto are satisfactory to Assignee and Assignee's counsel.
Notwithstanding any execution and acceptance of the Lease by Assignee, Assignee
shall not be responsible for Vendor's failure to honor this Assignment, to
perform under the Purchase Agreement or to deliver any Equipment in accordance
with the terms thereof.

9. Nothing contained herein shall: (a) subject the Vendor to any
liability to which it would not otherwise be subject under the Purchase
Agreement; or (b) modify in any respect the contract rights of the Vendor under
the Purchase Agreement, except as provided in the Consent Agreement hereto.

10. Assignee hereby accepts the assignment herein contained. Assignee
agrees, solely for the benefit of Customer, so long as the Conditions Precedent
set forth in Section 8 above for the lease of the Equipment have been satisfied,
to purchase the Equipment from the Vendor and to take such title to the
Equipment as is conveyed to it; provided, however, that Assignee shall not be
obligated to pay for any Equipment until the Conditions Precedent set forth in
Section 8 for the lease of such Equipment have been satisfied (including without
limitation that Assignee has accepted a Certificate of Acceptance executed and
delivered by Customer with respect to such Equipment, as provided for herein),
and Customer shall remain fully liable therefor.

11. Vendor hereby assigns, transfers and conveys to Assignee the
security interest in the Equipment granted to Vendor pursuant to the Purchase
Agreement. Vendor, Assignee and Customer agree to take all reasonable actions
necessary to effect, protect and perfect such assignment, transfer or conveyance
as reasonably requested by any of them. All fees, charges or taxes required to
be paid by Assignee to record the security interest assigned herein shall be
paid by Customer upon invoice.

12. THIS ASSIGNMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
TEXAS, and may be modified only by a written amendment signed by all parties.
Any action or claim to enforce the provisions of this Assignment may be brought
in the appropriate state or federal district court in the State of Texas. The
Lessee irrevocably consents to service of process in accordance with the
provisions of the laws of the State of Texas and waives any right to object to
the laying of venue in any state or federal court in the State of Texas.

ASSIGNEE: CUSTOMER:

ALCATEL USA FINANCING, INC. ZIPLINK, INC.

By: /S/ RONALD R. FUQUA By: /S/ GARY P. STRICKLAND

Title: TREASURER AND SENIOR DIRECTOR Title: CHIEF FINANCIAL OFFICER

Attachment -- Consent and Agreement of Alcatel Internetworking, Inc.

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 10-K into the Company's previously
filed Registration Statement File No. 333-91731.

/s/ Arthur Andersen LLP

Boston, Massachusetts
March 30, 2000

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
INCLUDED IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,384
<SECURITIES> 0
<RECEIVABLES> 1,526
<ALLOWANCES> 35
<INVENTORY> 0
<CURRENT-ASSETS> 21,131
<PP&E> 23,913
<DEPRECIATION> 7,996
<TOTAL-ASSETS> 38,605
<CURRENT-LIABILITIES> 7,353
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 27,296
<TOTAL-LIABILITY-AND-EQUITY> 38,605
<SALES> 12,717
<TOTAL-REVENUES> 12,717
<CGS> 9,760
<TOTAL-COSTS> 21,980
<OTHER-EXPENSES> 38
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 704
<INCOME-PRETAX> (9,336)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,336)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,336)
<EPS-BASIC> (.86)
<EPS-DILUTED> (.86)

</TABLE>