NETWORK ACCESS SOLUTIONS CORP, S-1/A, 1999-04-30

NETWORK ACCESS SOLUTIONS CORP
S-1/A, 1999-04-30
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>

As filed with the Securities and Exchange Commission on April 30, 1999
Registration No. 333--74679
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
NETWORK ACCESS SOLUTIONS CORPORATION
(Exact name of registrant as specified in its charter)

100 Carpenter Drive
Sterling, Virginia 20164
(703) 742-7700
(Address of principal executive offices)

Delaware 4813 54-1738938
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or classification code number) identification
organization) number)

-------------------
Jonathan P. Aust
President and Chief Executive Officer
Network Access Solutions Corporation
100 Carpenter Drive
Sterling, Virginia 20164
(703) 742-7700
(Name, address, including zip code and telephone number, including area code
of agent for service)

-------------------
Copies to:

Edwin M. Martin, Jr., Esquire Scott M. Wornow, Esquire
Nancy A. Spangler, Esquire Paul, Hastings, Janofsky & Walker LLP
Piper & Marbury L.L.P. 399 Park Avenue, 31st Floor
1200 19th Street, N.W. New York, New York 10022
Washington, D.C. 20036 (212) 318-6000
(202) 861-3900

Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of Each Class of Securities To Proposed Maximum Aggregate Amount of
Be Registered Offering Price (1) Registration Fee (2)
- --------------------------------------------------------------------------------------
<S> <C> <C>
Shares of Common Stock, par value
$.001................................ $100,000,000 $ 0
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act.
(2) A registration fee of $27,800 was paid at the time of the initial filing
of this registration statement.

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

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the SEC relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION--April 30, 1999

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Shares

[Network Access Solutions Logo Appears Here]

Common Stock

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Network Access Solutions is offering shares of its common stock. We are
selling all of the shares offered under this prospectus.

This is our initial public offering. No public market currently exists for our
shares. We anticipate that the initial public offering price for our shares
will be between $ and $ per share.

We have applied to have our common stock quoted on the Nasdaq National Market
under the symbol "NASC."

Donaldson, Lufkin & Jenrette expects to deliver the shares of common stock to
purchasers on , 1999.

See "Risk Factors" beginning on page 7 to read about risks that you should
consider before purchasing any shares of our common stock.

-------------------------------------------
<TABLE>
<CAPTION>
Per
Share Total
----------------------------------------------------
<S> <C> <C>
Public offering price (estimated): $ $
Underwriting fees:
Proceeds to Company (after expenses):
----------------------------------------------------
</TABLE>

We have granted the underwriters the right to purchase an additional shares
of common stock from us at the initial public offering price, less underwriting
fees, to cover over-allotments.

- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------

Donaldson, Lufkin & Jenrette
Bear, Stearns & Co. Inc.
J.P. Morgan & Co.

The undersigned is facilitating Internet distribution.

DLJdirect Inc.
<PAGE>

[Graphic: Map of Bell Atlantic region showing network coverage]

[Graphic: Diagram of network]

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 7
Use of Proceeds..................... 17
Dividend Policy..................... 17
Capitalization...................... 18
Dilution............................ 19
Selected Financial and Other Data... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................ 33
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Management........................ 54
Related Transactions.............. 60
Principal Stockholders............ 62
Description of our Capital Stock.. 63
Shares Eligible for Future Sale... 66
Underwriting...................... 69
Validity of the Shares............ 71
Experts........................... 71
Available Information............. 71
Index to Financial Statements..... F-1
</TABLE>

We use market data and industry forecasts throughout this prospectus, which
we have obtained from internal surveys, market research, publicly available
information and industry publications. Industry publications generally state
that the information they provide has been obtained from sources believed to be
reliable, but that the accuracy and completeness of this information is not
guaranteed. Similarly, we believe that the surveys and market research we or
others have performed is reliable, but we have not independently verified this
information. Neither we nor any of the underwriters represents that any such
information is accurate.

We own applications for federal registration and claim rights in the
following trademarks: COPPERNET(TM), CU COPPERNET(TM) and CUNET(TM).

This prospectus also refers to trade names and trademarks of other
companies.
<PAGE>

PROSPECTUS SUMMARY

This summary highlights certain important information regarding our business
and this offering. You should read this entire prospectus, including the "Risk
Factors" and the financial statements and all related notes before deciding to
purchase our common stock. All share information reflects a two for one
exchange of our common stock effective March 18, 1999. Except as otherwise
indicated, the information in this prospectus assumes that:

. our common stock will be sold at $ per share, which is the mid-point of
the range shown on the cover page of this prospectus;

. the underwriters will not exercise their over-allotment option;

. $5.0 million of our preferred stock will be converted into shares of
our common stock at the public offering price with the remaining shares
and all accrued dividends cancelled without additional payment to the
holders of those shares;

. a $5.0 million note payable will be converted into shares of our
common stock at the public offering price;

. two of our stockholders will purchase shares of our common stock at
the public offering price for $5.0 million; and

. we will complete a for one exchange of our common stock before this
offering.

Network Access Solutions

Our Business

We are a leading provider of digital subscriber line, or DSL, technology and
networking solutions to businesses. Through our CuNet, pronounced "CopperNet",
branded service, we offer customers high speed "always on" connections to
local, metropolitan and wide area telecommunications networks. CuNet allows our
customers to transmit data over standard copper telephone lines at speeds
substantially higher than common dial-up modems still used in most computers.
Our prices for CuNet are typically 30% to 70% of the costs our customers would
incur if they were to use traditional technologies that offer data transport
speeds comparable to DSL. As a complement to our CuNet service, we also offer
network integration, which includes design and installation, network
management, network security and professional services. We seek to combine, or
bundle, our CuNet service and networking solutions to allow us to be the single
provider for many of the data communications solutions that we believe
businesses require.

Our high-capacity network has been designed to support our customers' ever
changing needs. Our network supports both the traditional voice-based, or
channelized, technologies that carry most of today's telephone conversations,
as well as the newer data, or packet, -based technologies. These newer, packet-
based technologies transport packets of information from multiple users over
common lines, allowing for a more efficient use of a network. The DSL
technology used in our CuNet service offers businesses and their telecommuters
cost effective solutions for accessing the Internet and emerging applications,
such as video and audio conferencing, multimedia and electronic commerce.

We currently are targeting the Bell Atlantic region for our CuNet service.
We believe that we have formed a closer day-to-day working relationship with
Bell Atlantic than our competitors, which will allow us to provide more
responsive, consistent and higher quality service in our target markets. In
April 1997, we entered into our first interconnection agreement with Bell
Atlantic, which allowed

1
<PAGE>

us to use their copper telephone lines and to place, or collocate, our
equipment in their central offices. These offices serve as the central
connection point for all copper telephone lines in a local area.

We began CuNet service trials in November 1997 and currently offer CuNet
service in Boston, New York, Philadelphia, Baltimore, Washington, D.C. and
Richmond. We have formed networks in each of these cities and connect each of
them to our own private high speed fiber optic network, or backbone. This
network design enables us to provide our customers seamless connections to
remote offices or employees in other locations or cities, forming virtual
private networks, or VPNs, that have the capacity, speed, reliability and level
of service that our customers require. We expect to extend our network coverage
to include Norfolk, Pittsburgh and Wilmington, Delaware by the end of 1999. So
far, we have collocated our equipment in 51 central offices and we expect to
raise the number of central offices in which we have collocated equipment to
360 by the end of this year. As opportunities present themselves, we may expand
our network beyond our initial target markets and into adjacent regions. We
have recently entered into an interconnection agreement with Bell South.

We began our company in 1995 by providing data communications products and
services for corporate networks, serving as a premier partner for Paradyne
Corporation, Ascend Communications, Inc. and Cisco Systems, Inc. Shortly
thereafter, we began offering our customers further services for their networks
such as network management, network security and professional services. We have
built a significant presence in the Bell Atlantic region and currently have
over 400 networking solutions customers.

To reach our customers, we employ a direct sales force, which we expect to
grow to more than 140 people by the end of 1999. We also market our services
through sales partners in multiple channels including Internet service
providers, local and long distance carriers and other networking services
companies.

Our Business Strategy

Our goal is to become the premier provider of data communications and
networking solutions in our target markets. We plan to:

. rapidly provide depth of coverage in our markets;

. capitalize on our core competency in direct sales and engineering support
to businesses;

. quickly design and deliver, or provision, reliable services by building
relationships with service providers;

. provide superior customer care;

. deliver our products and services through partners in multiple sales
channels;

. enhance and expand our network to meet the broadest array of business
requirements; and

. capitalize on the economics of DSL, which uses the existing copper
telephone network and does not require substantial outlays in advance of
connecting new customers.

2
<PAGE>

Our Management

Our senior management has extensive experience in network integration,
management and security and in providing professional services. Our Chief
Executive Officer, Jonathan P. Aust, was one of the principal architects of the
data network AT&T created to handle monetary transfers for the Federal Reserve
System. Other members of our senior management team have worked for well-known
telecommunications companies, including Level 3 Communications Inc. MCI
WorldCom Inc., AT&T and Cable and Wireless, USA.

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

We are a Delaware corporation. We are located at 100 Carpenter Drive,
Sterling, Virginia 20164. Our telephone number is (703) 742-7700. We have
established a Web site at www.nas-corp.com. The information on our Web site is
not part of this prospectus.

3
<PAGE>

The Offering

We present below a summary of this offering. of the shares being offered
have been reserved for purchase by our directors, officers and employees and
their business associates and related persons. After this offering, we will
also have outstanding options to purchase shares of our common stock,
including options to purchase shares that will be exercisable immediately
after this offering.

<TABLE>
<S> <C>
Stock offered................................ shares of common stock.
Stock to be outstanding after this offering.. shares of common stock, or
shares of common stock,
assuming the underwriters
exercise their over-allotment
option in full.
Use of proceeds.............................. We expect to use the proceeds
from this offering (after
expenses) to finance capital
expenditures, to finance
operating losses that we
expect to incur as we expand
our customer base and network
and for general corporate
purposes. See "Use of
Proceeds."
Dividend policy.............................. We do not anticipate declaring
or paying dividends for the
foreseeable future. Instead,
for the foreseeable future, we
will retain our earnings, if
any, for the future operation
and expansion of our business.
Proposed Nasdaq National Market symbol....... NASC
</TABLE>

4
<PAGE>

Summary Financial And Other Data

We were incorporated on December 19, 1994, but did not begin operations
until after January 1, 1995. We present below summary financial and other data
for our company. The summary historical balance sheet data as of December 31,
1998 and the summary historical statement of operations and other data for each
of the three years ended December 31, 1998 have been derived from our audited
financial statements that are included elsewhere in this prospectus.
PricewaterhouseCoopers LLP has audited the financial statements as of and for
each of the three years in the period ended December 31, 1998. The summary
historical balance sheet data as of March 31, 1999 and the summary historical
statement of operations and other data for each of the three months ended March
31, 1998 and 1999 have been derived from our unaudited financial statements
that are included elsewhere in this prospectus. The summary financial data for
the year ended December 31, 1995 have been derived from our unaudited financial
statements that are not included in this prospectus. The unaudited financial
statements include, in the opinion of our management, all adjustments,
consisting of normal, recurring adjustments, necessary for a fair presentation
of the information set forth. You should refer to "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the more
complete financial information included elsewhere in this prospectus. The
results of the three months ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the full year.

<TABLE>
<CAPTION>
Three Months
Ended March
Year Ended December 31, 31,
-------------------------------------- ---------------
1995 1996 1997 1998 1998 1999
(unaudited) (unaudited)
(in thousands, except per share
data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Product sales...................................... $1,891 $14,368 $ 8,150 $ 9,900 $2,194 $ 3,955
Consulting services................................ 36 114 791 1,428 317 702
Network services................................... -- -- 4 311 41 119
------ ------- ------- -------- ------ -------
Total revenue.................................... 1,927 14,482 8,945 11,639 2,552 4,776
------ ------- ------- -------- ------ -------
Cost of revenue:
Product sales...................................... 1,475 11,975 7,180 8,639 1,858 3,535
Consulting services................................ 15 91 231 761 160 299
Network services................................... -- -- 2 41 1 171
------ ------- ------- -------- ------ -------
Total cost of revenue............................ 1,490 12,066 7,413 9,441 2,019 4,005
------ ------- ------- -------- ------ -------
Operating expenses:
Selling, general and administrative................ 299 2,255 1,437 4,017 538 2,533
Amortization of deferred compensation.............. -- -- -- 219 -- 438
Depreciation and amortization...................... 9 7 12 130 4 187
------ ------- ------- -------- ------ -------
Total operating expenses......................... 308 2,262 1,449 4,366 542 3,158
------ ------- ------- -------- ------ -------
Income (loss) from operations........................ 129 154 83 (2,168) (9) (2,387)
Interest income (expense), net....................... -- (1) (5) 64 (12) (9)
------ ------- ------- -------- ------ -------
Income (loss) before income taxes.................... 129 153 78 (2,104) (21) (2,396)
Provision (benefit) for income taxes................. 39 63 36 (28) (8) --
------ ------- ------- -------- ------ -------
Net income (loss).................................... $ 90 $ 90 $ 42 $ (2,076) $ (13) $(2,396)
====== ======= ======= ======== ====== =======
Net income (loss) per common share (basic and
diluted)............................................ $ 0.01 $ 0.01 $ 0.00 $ (0.22) $(0.00) $ (0.12)
====== ======= ======= ======== ====== =======
Weighted average common shares outstanding (basic and
diluted)............................................ 9,740 9,740 9,740 12,134 9,740 19,800
====== ======= ======= ======== ====== =======
Pro forma net income (loss) per common share (basic
and diluted) (1)....................................
Pro forma weighted average common shares outstanding
(basic and diluted) (1).............................
Other Data:
EBITDA (2)........................................... $ 138 $ 161 $ 95 $ (1,819) $ (5) $(2,200)
Capital expenditures................................. 18 30 122 1,156 1 4,966
Net cash provided by (used in) operating activities.. 3 (27) 805 (2,810) (273) 136
Net cash used in investing activities................ 18 30 122 1,341 1 4,966
Net cash provided by (used in) financing activities.. 42 55 9 8,956 54 (70)
</TABLE>

5
<PAGE>

<TABLE>
<CAPTION>
As of March 31, 1999
---------------------------------------
Pro Forma
Actual Pro Forma(1) as Adjusted(3)
(unaudited) (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 618 $ 10,618 $
Property and equipment,
net.................... 10,094 10,094
Total assets............ 14,631 14,631
Total debt (including
capital lease
obligations)........... 2,618 2,618
Mandatorily redeemable
preferred stock........ 5,988 --
Total stockholders'
equity (deficit) ...... (1,372) 14,616
</TABLE>
- --------------------

(1) The "pro forma" summary balance sheet data as of March 31, 1999 reflects
the following events as if such events had occurred as of such date; (i)
the conversion of $5.0 million of our mandatorily redeemable preferred
stock into shares of our common stock at the public offering price and
the cancellation without consideration of the remaining shares of our
preferred stock and all accrued dividends, (ii) the conversion of a $5.0
million 8% convertible note issued on March 31, 1999 into shares of our
common stock at the public offering price and (iii) the additional
investment of $5.0 million to purchase shares of our common stock at
the public offering price pursuant to a note purchase agreement entered
into on March 31, 1999. See "Related Transactions and Relationships."
(2) EBITDA consists of net income (loss) excluding net interest, taxes,
depreciation and amortization (including amortization of deferred
compensation). EBITDA is provided because it is a measure of financial
performance commonly used in the telecommunications industry. We have
presented EBITDA to enhance your understanding of our operating results.
You should not construe it as an alternative to operating income as an
indicator of our operating performance or as an alternative to cash flows
from operating activities as a measure of liquidity determined in
accordance with GAAP. We may calculate EBITDA differently than other
companies. For further information, see our financial statements and
related notes elsewhere in this prospectus.

(3) The "pro forma as adjusted" summary balance sheet data as of March 31, 1999
reflects the events described in note 1 and the issuance of our common
stock in this offering and the application of the net offering proceeds as
described in "Use of Proceeds."

6
<PAGE>

RISK FACTORS

You should consider carefully the following risks, together with all other
information included in this prospectus before you decide to buy our common
stock. The risks and uncertainties described below are not the only ones we
face. Please keep these risks in mind when reading any forward- looking
statements appearing elsewhere in this prospectus. If any of the following
risks actually occur, our business, financial condition or results of
operations would likely suffer. The trading price of our common stock may
decline, and you could lose all or part of the money you paid to buy our common
stock.

Because the focus of our company is changing to a high speed digital
communications service, our business is difficult to evaluate

We have refocused our company, through our CuNet services, on the provision
of DSL-based high speed digital communications services, which is a change from
our historical activities. We began in 1995 by helping our customers integrate
their network equipment and by providing them with related network services.
Because our business focus has now changed, and we expect to dedicate most of
our resources to develop our nascent CuNet services, it is difficult to
evaluate our business.

Our financial results now and in the future are not, and will not be,
directly comparable to our prior financial results. Substantially all of our
revenue in 1995, 1996, 1997, 1998 and the first three months of 1999 was
derived from data communications products and services and networking
solutions. Although in the short term we expect to continue to derive the
majority of our revenue from our networking solutions activities, we expect
that over time CuNet will constitute the more significant portion of our total
revenue. Revenue from CuNet, which we began offering in January 1999, has been
minimal. As a result, not only have we changed the focus of our company, you
also have very limited historical financial information upon which to base your
evaluation of our performance and an investment in our common stock. To achieve
the growth that we expect, we are depending on the success of our CuNet
services. If our business does not evolve as we expect, we will likely grow at
a significantly slower pace than would be the case if our CuNet services are
successful. If that situation arises, it is possible that the price of our
common stock may reflect the slower growth associated with a company that does
not offer DSL-based services. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

We have not tested our CuNet strategy so it is difficult to assess whether we
will be successful in this new and evolving market

The market for CuNet is in the early stages of development and we have not
tested our CuNet strategy. The combination of our unproven business strategy
and the highly competitive and quickly changing market in which we compete
makes it difficult for us to predict the extent to which CuNet will achieve
market acceptance. Various providers of high speed digital communication
services are testing products from various suppliers for various applications,
and suppliers have not broadly adopted an industry standard. Critical issues
concerning commercial use of DSL for Internet and local area network access,
including security, reliability, ease and cost of access and quality of
service, remain unresolved and may impact the growth of this market. If the
market for CuNet fails to develop, grows more slowly than anticipated or
becomes saturated with competitors our business will not produce the level of
profitability we hope to achieve.

7
<PAGE>

To be successful, we must develop and market services that are widely
accepted by businesses at profitable prices. We may never be able to deploy our
network as planned or achieve significant market acceptance, favorable
operating results or profitability. Due to the so far limited deployment of
CuNet, we cannot guarantee that our network will be able to connect and manage
a substantial number of end users at high transmission speeds. We may be unable
to scale our network to service a substantial number of end users while
achieving high performance.

We are an early stage company in a new and rapidly evolving market, subject to
greater risks than many of our competitors

You should consider the risks, expenses and difficulties we may encounter,
including those frequently encountered by early stage companies in new and
rapidly evolving markets. To overcome these risks, we must, among other things:

. rapidly expand the coverage of CuNet within our regions;

. attract and retain customers;

. increase awareness of CuNet;

. respond to competitive developments;

. continue to attract, retain and motivate qualified persons;

. continue to upgrade our technologies;

. introduce and develop new technology for our network services; and

. effectively manage our expanding operations.

Our failure to manage future growth will strain our resources and could impair
the expansion of our business

We plan a significant expansion of our CuNet operations. This rapid growth
will place a significant strain on our management, financial controls,
operations systems, personnel and other resources. If we fail to manage this
growth effectively, the expansion of our business could be impaired. We may be
unable to meet our customers' need for services and technical support or
provide the customer service they expect. To manage our growth effectively, we
must:

. improve existing and implement new operational, financial and management
information controls, reporting systems and procedures;

. hire, train and manage sufficient additional qualified personnel;

. expand and upgrade our technologies; and

.manage multiple relationships with our customers, vendors and other third
parties.

If we fail to manage our growth effectively, it could adversely affect the
expansion of our customer base and service offerings and could result in a
lower level of profitability than we hope to achieve.

8
<PAGE>

Bell Atlantic's conduct could adversely affect our business

Bell Atlantic is both an essential supplier of facilities and services for
CuNet and potentially a significant DSL competitor. This conflict poses a
significant risk to the success of our business. Bell Atlantic has existing
metropolitan area networks and local telephone networks and its own Internet
service provider businesses, and has started residential sales of DSL-based
access services. We believe that Bell Atlantic could, if it chose, deploy DSL
services to businesses on a widespread basis. To date, Bell Atlantic has not
pursued this opportunity.

Bell Atlantic may be reluctant to cooperate with us in supplying the copper
telephone lines, collocation space and operational support services we need in
order to provide CuNet. For example, Bell Atlantic may reject our collocation
applications or delay providing us with the collocation space we need in their
central offices. We already have experienced rejections of some of our
applications to place equipment inside of Bell Atlantic central offices, and in
other cases we have experienced lengthy delays between the time we apply for
collocation space and the time that Bell Atlantic actually permits us to place
our equipment in this space. While to date we have been able to place our
equipment in 51 Bell Atlantic central offices, our plan calls for us to locate
our equipment in 360 central offices by the end of 1999. Bell Atlantic's
position as both a DSL competitor and a supplier of numerous essential inputs
to our DSL offerings also gives Bell Atlantic an incentive to subsidize its own
DSL offerings by failing to fully allocate to its DSL service the costs it
incurs in providing that service.

We depend on other carriers to provide fiber optic transmission facilities to
connect our equipment, which is critical to our CuNet services

We depend on the availability of fiber optic transmission facilities from
Bell Atlantic and other third parties to connect our equipment within and
between metropolitan areas. If these facilities are unavailable we may not have
alternative means of connecting our DSL equipment in different locations. These
fiber optic carriers include long distance carriers, incumbent carriers and
other competitive carriers. Many of these entities are, or may become, our DSL
competitors. We have not established a history of obtaining transmission
facilities in large volumes which we expect will be necessary for the
deployment of our network. We may be unable to negotiate or renew favorable
supply agreements. We depend on the timeliness of fiber optic carriers to
process our orders for customers who seek to use our services. We have in the
past experienced supply problems with some of our fiber optic suppliers, and
they may not be able to meet our needs on a timely basis in the future.

We depend on third parties to provide the equipment, installation and field
service, which is critical to our CuNet services

We plan to purchase our equipment from many vendors, including Ascend and
Paradyne. At peak demand times we intend to outsource some of the installation
and field service of our network to third parties. Because we depend on third
parties, we do not have guaranteed capacity or control over delivery schedules,
quality assurance, production yields and costs. If any of our vendors reduces
or interrupts its supply, or if any significant installer or field service
provider interrupts its service to us or fails to perform to required
specifications, this reduction or interruption could disrupt our business. Our
suppliers may be unable to manufacture and deliver the amount or quality of
equipment we order, or the available supply may be insufficient to meet our
demand. Currently, the

9
<PAGE>

DSL modem and other equipment used for a single connection over a copper
telephone line must come from the same vendor since there are no existing
interoperability standards for the equipment used in our higher speed services.
If our suppliers or licensors enter into competition with us, or if our
competitors enter into exclusive or restrictive arrangements with our suppliers
or licensors, then these events may materially and adversely affect the
availability and pricing of the equipment we purchase and the technology we
license.

Because two of our networking solutions customers account for a high percentage
of our revenue, the loss of a significant customer could harm our business

To date, our largest customers have been AT&T and Zeneca Pharmaceuticals, a
division of Zeneca, Inc. AT&T and Zeneca accounted for 50.4% and 9.6%,
respectively, of our revenue in 1998 and 55.5% and 9.0%, respectively, of our
revenue in the three months ended March 31, 1999. The loss of either customer
could adversely affect our business.

Our operating results are likely to fluctuate significantly, causing our stock
price to be volatile or to decline

Our operating results, and therefore our stock price, are likely to
fluctuate because of a number of factors. Our annual and quarterly operating
results may fluctuate significantly in the future due to:

.the rate at which we are able to attract and retain customers

.the prices our customers are willing to pay;

. the amount and timing of expenditures relating to the expansion of our
services and infrastructure, including the potentially lengthy sales
cycle for our CuNet services, which may last six months or longer;

. the timing and availability on reasonable terms of Bell Atlantic copper
telephone lines and central office collocation space;

. the timing and availability on reasonable terms of Bell Atlantic
operations support and management of telephone line usage, known as
spectrum management;

. the timing and availability on reasonable terms of transport facilities;

. the ability of our equipment and service suppliers to meet our needs;

. our ability to deploy our network on a timely basis;

. the success of our relationships with our partners and distributors;

. the introduction of new services or technologies by our competitors;

. regulatory developments governing our industry, including potential new
or changed laws or regulations and interpretations of the 1996
Telecommunications, or Telecom, Act; and

. technical difficulties or network downtime.

Many of these factors are beyond our control. As a result, our operating
results in one or more future periods could fail to meet or exceed the
expectations of securities analysts or investors. If this happens, the trading
price of our common stock would likely decline.

10
<PAGE>

We expect our stock price to be volatile

The price at which our common stock will trade will depend upon many
factors, including our historical and anticipated quarterly and annual
operating results, variations between our actual results and analyst and
investor expectations, announcements by us or others and developments affecting
our business, investor perceptions of our company and comparable public
companies, changes in our industry and general market and economic conditions.
Some of these factors are beyond our control. You should be aware that the
stock market has from time to time experienced extreme price and volume
fluctuations.

The market in which we operate is highly competitive and we may not be able to
compete effectively against established industry competitors with significantly
greater financial resources

We will face competition in the DSL market from many competitors with
significantly greater financial resources, well-established brand names and
large, existing installed customer bases. We expect the level of competition to
intensify in the future, including through consolidation of our industry. Many
of our competitors are offering, or may soon offer, technologies and services
that will directly compete with some or all of our service offerings. Our
competitors use technologies for local access connections that include
integrated services digital network, or ISDN, DSL, wireless data and cable
modems. Some of our competitors or potential competitors may have the financial
resources to withstand substantial price competition. Moreover, our competitors
may be able to negotiate contracts with suppliers of telecommunications
services which are more favorable than contracts negotiated by us.

. Many of the leading traditional long distance carriers, including AT&T,
MCI WorldCom and Sprint Corporation, are expanding their capabilities to
support high speed networking services.

. The newer long distance carriers, including The Williams Companies,
Inc., Qwest Communications International Inc. and Level 3
Communications, are building and managing high bandwidth, nationwide
packet-based networks and partnering with Internet service providers to
offer services directly to the public.

. Cable modem service providers, like At Home Corporation, are offering or
preparing to offer high speed Internet access over cable and fiber
networks to consumers and have positioned themselves to do the same for
businesses.

. Several new companies are emerging as wireless or satellite-based data
service providers.

. Some Internet service providers with significant and even nationwide
presences provide DSL-based Internet access to residential and business
customers.

. Other competitive carriers like us, including Covad Communications
Group, Inc., Rhythms NetConnections Inc. and NorthPoint Communications
Holdings, Inc., have begun offering DSL-based access services, and have
attracted marketing allies and product development partners. Others are
likely to do the same in the future.

We need significant additional funds to expand our business, which we may be
unable to obtain on acceptable terms.

We believe that the net proceeds from this offering, our existing cash and
cash equivalents, existing and anticipated equipment lease financings and
future revenue generated from operations,

11
<PAGE>

will be sufficient to fund our operating losses, capital expenditures, lease
payments and working capital requirements through the end of 2000. If we have
not completed our network rollout within that period it is likely that we would
need additional capital to continue funding operating losses. In addition, we
expect that we will require significant additional capital to expand our
network beyond our initial target markets and into adjacent regions. Our actual
funding requirements may differ materially if the assumptions underlying our
estimate turn out to be incorrect or change as our business evolves. Therefore,
you should consider that our funding requirements may increase, perhaps
substantially, if we are unable to generate revenue in the amount and within
the time frame we expect or if we have unexpected cost increases. We may be
unable to obtain the future equity or debt financing that we require on
acceptable terms or at all.

If we borrow significant amounts in the future, it could limit our flexibility

If we decide to borrow significant amounts in the future to fund our
business, the terms of those borrowings would likely contain restrictive
covenants that limit our ability to incur additional indebtedness and pay
dividends. These instruments could also require us to pledge assets as security
for the borrowings. If we were to leverage our business by incurring
significant debt, we may be required to devote a substantial portion of our
cash flow to service that indebtedness. This could require us to modify our
business plan, for example, by delaying the capital expenditures necessary to
complete our network. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

Our services are subject to uncertain government regulation and changes in laws
or regulations could restrict the way we operate our business

Because many of the facilities and services we need in order to provide
CuNet are subject to regulation at the federal, state and/or local levels,
changes in applicable laws or regulations could have an adverse impact on our
business. For example, FCC and state telecommunications regulators help
determine the terms under which collocation space is provided to us. They also
oversee the terms under which we gain access to an incumbent carrier's copper
telephone lines and transport facilities that we need in order to provide
CuNet. Regulatory policies likewise may affect the terms under which Bell
Atlantic provides us with back office support services -- such as operations
support services and spectrum management -- that are crucial to the success of
CuNet. Future federal or state regulations and legislation may be less
favorable to us than current regulations and legislation and therefor have an
adverse impact on our business. In addition, we may choose to expend
significant resources to participate in regulatory proceedings at the federal
or state level without achieving favorable results. We expect incumbent
carriers like Bell Atlantic to pursue litigation in courts, institute
administrative proceedings with the FCC and state telecommunications regulators
and lobby the U.S. Congress in an effort to affect the applicable laws and
regulations in a manner that would be more favorable to them and against our
interests. Any changes in our regulatory environment could create greater
competitive advantages for all or some of our competitors or could make it
easier for additional parties to provide DSL services. For more details about
regulatory policies that affect our business, see "Business--Government
Regulation."

Uncertain federal and state tax and surcharges on our services may increase our
payment obligations

Telecommunications providers pay a variety of surcharges and fees on their
gross revenue from interstate and intrastate services. The surcharges and fees
we currently are required to pay may increase due to periodic revisions of the
applicable surcharges by federal and state regulators.

12
<PAGE>

A recent U.S. Supreme Court decision has raised questions about our ability to
obtain essential facilities from Bell Atlantic, which may hurt our business

A January 1999 decision by the U.S. Supreme Court could adversely affect our
business because it has raised questions about whether we will be able to
obtain certain facilities from Bell Atlantic that we need in order to provide
CuNet in the future. In that decision, the Supreme Court invalidated an FCC
rule which defines the particular parts of an incumbent carrier network that
must be provided to competitors like us, and it sent the matter back to the FCC
with instructions to consider further the question of which parts of incumbent
carrier networks must be provided to competitors. The FCC recently initiated a
proceeding to establish which network elements are required to be provided by
incumbent carriers to competitors. The FCC has stated that it plans to issue a
new decision on this matter in the summer of 1999. Until then, Bell Atlantic
and other incumbent carriers have committed to regulators in writing that they
will continue to provide competitors with the network elements that they were
required to provide under the FCC rule that the Supreme Court invalidated. We
would be adversely affected if the FCC were to exempt incumbent carriers from
the duty to provide any of the facilities we need in order to provide CuNet.

The data communications industry is undergoing rapid technological change and
new technologies may be superior to the technology we use

Our industry is subject to rapid and significant technological changes. DSL
technology does not presently have widely accepted standards and continues to
develop. Alternative technologies for providing high speed data communications
are available and may be superior to the technology we use. As a consequence:

. we will continue to rely on third parties, including some of our
competitors and potential competitors, to develop and provide us with
access to communications and networking technology;

. our success will depend on our ability to anticipate or adapt to new
technology on a timely basis; and

. we expect that new products and technologies will emerge that may be
superior to, or may not be compatible with, our current products and
technologies.

If we fail to adapt successfully to technological changes or obsolescence or
fail to obtain access to important technologies, our business, prospects,
financial condition and results of operations could be materially adversely
affected.

If we are unable to retain our key personnel, our business will suffer

Given our stage of development, we depend on our ability to retain and
motivate high quality personnel, especially our management. Our success depends
on Jonathan P. Aust, our Chief Executive Officer, and our other executive
officers and key employees. Members of our senior management team have worked
together for only a short period of time. We do not have "key person" life
insurance policies on any of our employees. Generally, members of our senior
management team can terminate their employment agreements with us on thirty
days notice. Any of our other employees may terminate his or her employment
with us at any time. Our future success depends on our continuing ability to
identify, hire, train and retain highly qualified technical, sales, marketing
and customer service personnel. The industry in which we compete has a high
level of employee mobility and aggressive recruiting of skilled personnel. In
particular, we face intense

13
<PAGE>

competition for qualified personnel, particularly in software development,
network engineering and product management. We may be unable to continue to
employ our key personnel or to attract and retain qualified personnel in the
future. See "Business--Employees" and "Management."

A system failure could cause delays or interruptions of service to our
customers

The reliability of our services would be impaired by a natural disaster or
other unanticipated interruption of service at our owned or leased facilities.
If an incumbent carrier, competitive carrier or other service provider fails to
provide the communications capacity we require, as a result of a natural
disaster, operational disruption or any other reason, then this failure could
interrupt our services and have a material adverse effect on our business.

A breach of our network security could cause delays or interruptions of service
to our customers

Our network may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Unauthorized access could also potentially
jeopardize the security of confidential information stored in the computer
systems of our customers, which might cause us to be liable to our customers,
and might deter potential customers. Eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to our customers and our customers' end users. Any of
these factors relating to network security could have a material adverse effect
on our business.

Our intellectual property protection may be inadequate to protect our
proprietary rights and we may be subject to infringement claims

The steps we have taken may be inadequate to protect our technology or other
intellectual property. We currently have no patents or patent applications
pending. We also rely on unpatented trade secrets and know-how to maintain our
competitive position. We seek to protect this information by confidentiality
agreements with employees, consultants and others. These agreements may be
breached or terminated, leaving us with inadequate remedies. Our competitors
may learn or discover our trade secrets. Our competitors may independently
develop technologies that are substantially equivalent or superior to ours.
Third parties, including our competitors, may assert infringement claims
against us and, in the event of an unfavorable ruling on any claim, we may be
unable to obtain a license or similar agreement to use technology we need to
conduct our business. Our management personnel were previously employees of
other telecommunications companies. In many cases, these individuals are
conducting activities for us in areas similar to those in which they were
involved prior to joining us. As a result, we or our employees could be subject
to allegations of violation of trade secrets and other similar claims.

Our principal stockholders and management own a significant percentage of our
company and will be able to exercise significant influence over our company

Our executive officers, directors and principal stockholders together will
beneficially own % of our common stock after this offering, or % if the
underwriters exercise their over-allotment option in full. These stockholders
will be able to determine the composition of our board of directors, will
retain the voting power to approve all matters requiring stockholder approval,
including any merger, and will continue to have significant influence over our
affairs. This concentration of

14
<PAGE>

ownership could have the effect of delaying or preventing a change in our
control or otherwise discouraging a potential acquirer from attempting to
obtain control of us, which in turn could have a material and adverse effect on
the market price of our common stock or prevent you from realizing a premium
over the market price for your shares of common stock. See "Principal
Stockholders" for information about the ownership of common stock by our
executive officers, directors and principal stockholders.

Our failure and the failure of third parties to be Year 2000 compliant could
negatively impact our business

Many computer programs have been written using two digits rather than four
to define the applicable year. This poses a problem at the end of the century
because these computer programs may recognize a date using "00" as the year
1900 rather than the year 2000. This, in turn, could result in major system
failures or miscalculations, and is generally referred to as the "Year 2000
issue." The Year 2000 issue could result in system failures or miscalculations,
causing disruptions in our operations.

To the extent that Bell Atlantic or other third parties experience Year 2000
problems, our network and services could be adversely affected. We have not
been able to verify Bell Atlantic's Year 2000 compliance. We believe that our
customers and other vendors will not experience Year 2000 problems that would
materially and adversely affect our business, but we do not have any way of
verifying the information they have provided. Furthermore, the purchasing
patterns of our customers may be affected by Year 2000 issues as they expend
significant resources to correct their current systems for Year 2000
compliance. These expenditures may result in reduced funds available to
purchase our services. Any of these developments could have a material and
adverse effect on our business, operating results and financial condition. We
have not fully determined the risks associated with the reasonably worst-case
scenario and have not yet formulated a contingency plan to address Year 2000
issues. We do not expect to have a specific worst-case scenario contingency
plan in place in the future.

Our common stock has not been traded in the public market before this offering

Our common stock has not been traded in the public market before this
offering. We have applied to the Nasdaq National Market to list our common
stock, but we do not know whether active trading in our common stock will
develop or continue after this offering. We will determine the price you will
pay for our common stock through negotiations with the underwriters. You may
not be able to resell your shares at or above the price you will pay for our
common stock. For a description of the factors that will be taken into account
to determine the offering price, see "Underwriting--Pricing of this Offering."

You will incur immediate and substantial dilution of approximately $
per share.

The initial public offering price is substantially higher than the net
tangible book value of our outstanding common stock immediately after this
offering. Accordingly, if you purchase common stock in this offering, you will
incur immediate and substantial dilution of $ in the net tangible book
value per share of the common stock you purchase in this offering.

15
<PAGE>

Future sales of our common stock in the public market could depress our stock
price

Sales of substantial amounts of common stock in the public market following
this offering, or the appearance that a large number of shares is available for
sale, could adversely affect the market price for our common stock. The number
of shares of common stock available for sale in the public market will be
limited by lock-up agreements under which the holders of all of our outstanding
shares of common stock and options to purchase common stock will agree not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of this prospectus without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation. However, Donaldson, Lufkin & Jenrette
Securities Corporation may, in its sole discretion and at any time without
notice, release all or any portion of the shares subject to lock-up agreements.
In addition to the adverse effect a price decline could have on holders of
common stock, that decline would likely impede our ability to raise capital
through the issuance of additional shares of common stock or other equity
securities.

After this offering, the holders of shares of common stock will
have the right to require us to register the sale of their shares, subject to
limitations and to the lock-up agreements with the underwriters. These holders
and one of our directors also have the right to require us to include their
shares in any future public offerings of our equity securities. Within
approximately 180 days after this offering, we intend to file a registration
statement under the Securities Act to register 5,000,000 shares of common stock
subject to outstanding stock options or reserved for issuance under our stock
incentive plan. See "Shares Eligible for Future Sale."

Our certificate of incorporation and bylaws contain provisions that could delay
or prevent a change in control and therefore could hurt our stockholders

Provisions of our certificate of incorporation and bylaws could make it more
difficult for a third party to acquire control of our company, even if a change
in control would be beneficial to stockholders. Our certificate of
incorporation will provide for a classified board of directors and will allow
our board to issue, without stockholder approval, preferred stock with terms
set by the board. The preferred stock could be issued quickly with terms that
delay or prevent the change in control of our company or make removal of
management more difficult. Also, the issuance of preferred stock may cause the
market price of our common stock to decrease. See "Description of our Capital
Stock" for more information.

This prospectus contains forward-looking statements which may not prove to be
accurate

This prospectus contains forward-looking statements and information relating
to our company. We generally identify forward-looking statements in this
prospectus using words like "believe," "intend," "expect," "may," "should,"
"plan," "project," "contemplate," "anticipate" or similar statements. These
statements are based on our beliefs as well as assumptions we made using
information currently available to us. Because these statements reflect our
current views concerning future events, these statements involve risks,
uncertainties and assumptions. Actual results may differ significantly from the
results discussed in these forward-looking statements.

16
<PAGE>

USE OF PROCEEDS

We estimate that we will receive approximately $ million in net proceeds
from this offering based upon an assumed initial public offering price of $
per share. This amount reflects deductions from the gross proceeds of the
offering of:

. approximately $ million, which will be retained by the underwriters
as discounts and commissions; and

. approximately $ million, representing our estimated expenses for this
offering.

We expect to use approximately $40 million of the net proceeds from this
offering to finance capital expenditures.We expect to use the remaining net
proceeds to finance operating losses that we expect to incur as we expand our
customer base and network and for general corporate purposes. The actual amount
of net proceeds we spend on a particular use will depend on many factors,
including:

. our future revenue growth, if any;

. our future capital expenditures; and

. the amount of cash generated by our operations.

Many of these factors are beyond our control. Therefore, we will retain
broad discretion in the use of the net proceeds.

This use of proceeds does not reflect the underwriters' exercise of their
over-allotment option. We estimate that we will receive $ million in
additional net proceeds if the underwriters exercise their over-allotment
option in full.

Until we use the net proceeds of this offering, we intend to invest the net
proceeds in short-term investment-grade securities.

DIVIDEND POLICY

We have never declared or paid dividends. We do not anticipate declaring or
paying dividends for the foreseeable future. Instead, for the foreseeable
future, we will retain our earnings, if any, for the future operation and
expansion of our business.

17
<PAGE>

CAPITALIZATION

The following table shows our capitalization at March 31, 1999 on an actual
basis (unaudited), a pro forma basis and pro forma as adjusted to give effect
to this offering and the application of the estimated net proceeds we will
receive in this offering. See "Use of Proceeds." You should also refer to our
financial statements and the related notes included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------
(in thousands)
Pro Forma
Actual Pro Forma(1) as Adjusted(2)
<S> <C> <C> <C>
Cash and cash equivalents.................. $ 618 $ $
======
Long-term obligations:
Capital lease obligations (including
current portion)........................ 1,618
Note payable............................. 1,000
Deferred compensation (including current
portion)................................ 500
------
Total long-term obligations (including
current portion)...................... 3,118
------
Mandatorily redeemable preferred stock,
$0.001 par value, 10,000,000 shares autho-
rized, issued and outstanding (liquidation
preference $10,519,452) (actual); no
shares issued and
outstanding (pro forma); no shares issued
and outstanding
(pro forma as adjusted)................... 5,988
------
Stockholders' equity (deficit):
Common stock, $0.001 par value,
50,000,000 shares authorized, 19,800,000
shares issued (actual), shares is-
sued (pro forma); shares issued (pro
forma as
adjusted)............................... 20
Additional paid-in capital............... 14,740
Deferred compensation.................... (9,996)
Deficit.................................. (4,236)
Less treasury stock, at cost, 3,800,000
shares.................................. (1,900)
------
Total stockholders' equity (deficit)... (1,372)
------
Total capitalization................. $7,734
======
</TABLE>
- ---------------------

(1) Reflects: (i) conversion of $5.0 million of our mandatorily redeemable
preferred stock into shares of our common stock at the public offering
price and the cancellation without consideration of the remaining shares of
our preferred stock and all accrued dividends as if such conversion and
cancellation had occurred as of March 31, 1999, (ii) conversion of a
$5.0 million 8% convertible note issued on March 31, 1999 into shares
of our common stock at the public offering price and (iii) the investment
of $5.0 million to purchase shares of our common stock at the public
offering price pursuant to a note purchase agreement entered into on March
31, 1999.
(2) Reflects the events described in note 1 and the issuance of our common
stock in this offering and the application of the net offering proceeds as
described in "Use of Proceeds."

18
<PAGE>

DILUTION

As of March 31, 1999 our pro forma net tangible book value was $ , or $
per common share, after giving effect to the conversion of $5.0 million of
redeemable preferred stock and our $5.0 million 8% convertible note (the
"Conversions"). Assuming no changes in our net tangible book value, other than
to give effect to the sale of the common stock offered by this prospectus and
the application of the net offering proceeds as described under "Use of
Proceeds," our pro forma net tangible book value at March 31, 1999 would have
been $ , or $ per common share. Net tangible book value is the amount of
total tangible assets less total liabilities. Net tangible book value per
common share is net tangible book value divided by the number of shares of
common stock outstanding.

This represents an immediate increase in pro forma net tangible book value
of $ per common share to existing stockholders, and an immediate dilution in
pro forma net tangible book value of $ per common share to new investors
purchasing our common stock in this offering. The following table illustrates
this per share dilution.

<TABLE>
<S> <C> <C>
Assumed initial public offering price per common share.............. $
Pro forma net tangible book value per common share at March 31,
1999 after giving effect to the Conversions...................... $
Increase per share attributable to new investors..................
Pro forma net tangible book value per common share after this
offering after giving effect to the Conversions....................
----
Dilution per common share to new investors.......................... $
====
</TABLE>

The following table summarizes at March 31, 1999:

. the number of shares of our common stock purchased by existing
stockholders, the total consideration and the average price per share
paid to us for these shares, valuing these shares at the initial public
offering price;

. the number of shares of our common stock purchased by new investors, the
total consideration and the price per share paid by them for these
shares; and

. the percentage of shares of our common stock purchased by the existing
stockholders and new investors and the percentage of consideration paid
to us for these shares.

This table assumes that none of the stock options outstanding upon the
closing of this offering will be exercised. As of March 31, 1999, 3,993,500
shares of common stock were issuable upon exercise of outstanding stock options
at a weighted average exercise price of $.20 per share. To the extent these
stock options are exercised, new investors will experience further dilution.

<TABLE>
<CAPTION>
Shares Total Average
Purchased Consideration Price Per
-------------- -------------- Common Share
Number Percent Amount Percent ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ % $ % $
New Investors........................
Total.............................. 100.0% $ 100.0% $
</TABLE>

19
<PAGE>

SELECTED FINANCIAL AND OTHER DATA

<TABLE>
<CAPTION>
Three Months
Ended March
Year Ended December 31, 31,
-------------------------------------- ---------------
1995 1996 1997 1998 1998 1999
(unaudited) (unaudited)
(in thousands, except per share
data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Product sales......... $1,891 $14,368 $ 8,150 $ 9,900 $2,194 $ 3,955
Consulting services... 36 114 791 1,428 317 702
Network services...... -- -- 4 311 41 119
------ ------- ------- -------- ------ -------
Total revenue....... 1,927 14,482 8,945 11,639 2,552 4,776
------ ------- ------- -------- ------ -------
Cost of revenue:
Product sales......... 1,475 11,975 7,180 8,639 1,858 3,535
Consulting services... 15 91 231 761 160 299
Network services...... -- -- 2 41 1 171
------ ------- ------- -------- ------ -------
Total cost of
revenue............ 1,490 12,066 7,413 9,441 2,019 4,005
------ ------- ------- -------- ------ -------
Operating expenses:
Selling, general and
administrative....... 299 2,255 1,437 4,017 538 2,533
Amortization of
deferred
compensation......... -- -- -- 219 -- 438
Depreciation and
amortization......... 9 7 12 130 4 187
------ ------- ------- -------- ------ -------
Total operating
expenses........... 308 2,262 1,449 4,366 542 3,158
------ ------- ------- -------- ------ -------
Income (loss) from
operations............. 129 154 83 (2,168) (9) (2,387)
Interest income
(expense), net......... -- (1) (5) 64 (12) (9)
------ ------- ------- -------- ------ -------
Income (loss) before
income taxes........... 129 153 78 (2,104) (21) (2,396)
Provision (benefit) for
income taxes........... 39 63 36 (28) (8) --
------ ------- ------- -------- ------ -------
Net income (loss)....... $ 90 $ 90 $ 42 $ (2,076) $ (13) $(2,396)
====== ======= ======= ======== ====== =======
Net income (loss) per
common share (basic and
diluted)............... $ 0.01 $ 0.01 $ 0.00 $ (0.22) $(0.00) $ (0.12)
====== ======= ======= ======== ====== =======
Weighted average common
shares outstanding
(basic and diluted).... 9,740 9,740 9,740 12,134 9,740 19,800
====== ======= ======= ======== ====== =======
Pro forma net income
(loss) per common share
(basic and
diluted) (1)...........
Pro forma weighted
average common shares
outstanding (basic and
diluted) (1)...........
Other Data:
EBITDA (2).............. $ 138 $ 161 $ 95 $ (1,819) $ (5) $(2,200)
Capital expenditures.... 18 30 122 1,156 1 4,966
Net cash provided by
(used in) operating
activities............. 3 (27) 805 (2,810) (273) 136
Net cash used in
investing activities... 18 30 122 1,341 1 4,966
Net cash provided by
(used in) financing
activities............. 42 55 9 8,956 54 (70)
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
As of December 31, As of March 31,
--------------------------------- ------------------------------------------------------
1999
---------------------------------------
Pro Forma
1995 1996 1997 1998 1998 Actual Pro Forma(1) as Adjusted(3)
(unaudited) (unaudited) (unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 24 $ 22 $ 713 $ 5,518 494 $ 618 $10,618 $
Property and equipment,
net.................... 8 31 140 5,031 137 10,094 10,094
Total assets............ 458 5,352 1,865 12,928 2,493 14,631 14,631
Total debt (including
capital lease
obligations)........... 30 84 93 2,513 148 2,618 2,618
Mandatorily redeemable
preferred stock........ -- -- -- 5,641 -- 5,988 --
Total stockholders'
equity (deficit)....... 118 208 250 932 237 (1,372) 14,616
</TABLE>

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

(1) The "pro forma" selected balance sheet data as of March 31, 1999 reflects
the following events as if such events had occurred as of that date:
(i) the conversion of $5.0 million of our mandatorily redeemable preferred
stock into shares of our common stock at the public offering
price and the cancellation without consideration of the remaining shares of
our preferred stock and all accrued dividends, (ii) the conversion of a
$5.0 million 8% convertible note issued on March 31, 1999 into shares
of our common stock at the public offering price and (iii) the investment
of $5.0 million to purchase shares of our common stock at the public
offering price pursuant to a note purchase agreement entered into on March
31, 1999.
(2) EBITDA consists of net income (loss) excluding net interest, taxes,
depreciation and amortization (including amortization of deferred
compensation). EBITDA is provided because it is a measure of financial
performance commonly used in the telecommunications industry. We have
presented EBITDA to enhance your understanding of our operating results.
You should not construe it as an alternative to operating income as an
indicator of our operating performance or as an alternative to cash flows
from operating activities as a measure of liquidity determined in
accordance with GAAP. We may calculate EBITDA differently than other
companies. For further information, see our financial statements and
related notes elsewhere in this prospectus.

(3) The "pro forma as adjusted" selected balance sheet data as of March 31,
1999 reflects the events described in note 1 and the issuance of our common
stock in this offering and the application of the net offering proceeds as
described in "Use of Proceeds."

21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overview

In 1995, we began operations by providing data communications products and
services for wide area networks, serving as a premier partner for Paradyne,
Ascend and Cisco. Shortly thereafter, we began offering a complete suite of
networking solutions to businesses, including network integration, network
management, network security and professional services. From 1995 through 1998,
our revenue was derived primarily from the sale of data communications
products, technical consulting and network services. During this period, our
revenues fluctuated, our primary source of revenue was data communications
product sales, and AT&T accounted for 68.8%, 38.2% and 50.4% of our revenue in
1996, 1997 and 1998, respectively.

In February 1997, we began developing technical standards for delivery of
DSL-based services within our target markets through a joint effort with Bell
Atlantic. In April 1997, we entered into our first interconnection agreement
with Bell Atlantic. We began CuNet service trials in November 1997 and began
offering CuNet, commercially in Philadelphia and Washington D.C. in January
1999. We currently offer CuNet in Boston, New York, Philadelphia, Baltimore,
Washington, D.C. and Richmond. We expect to extend our network coverage to
include Norfolk, Pittsburgh and Wilmington, Delaware by the end of 1999. We
have collocated our equipment in 51 Bell Atlantic central offices. We expect to
raise the number of central offices in which we have collocated our equipment
to 360 by the end of 1999. As opportunities present themselves, we may decide
to expand our network beyond our initial target markets and into adjacent
regions. We have recently entered into an interconnection agreement with Bell
South.

Since February 1997, we have invested increasing amounts in the development
and deployment of CuNet. The proceeds of our preferred and common stock
financing in August 1998 have been used to fund the deployment of our CuNet
services. We intend to substantially increase our operating expenses and
capital expenditures in an effort to expand rapidly our infrastructure and DSL-
based network services. We expect to incur substantial operating losses, net
losses and negative cash flow during the build-out of our network and our
initial penetration of each new market we enter. These losses are expected to
continue for at least the next two to three years. Although in the short term
we expect to derive the majority of our revenue from our networking solutions,
we expect that over time revenue from CuNet based services will constitute the
more significant portion of our total revenue.

As we develop our CuNet services, our annual and quarterly operating results
may fluctuate significantly. Some of the factors which may cause those
fluctuations and create uncertainty include the timing and availability of Bell
Atlantic copper telephone lines, central office collocation space, operations
support services and spectrum management service. In addition, our future
growth and results of operations will be affected by our ability to obtain on
reasonable terms fiber optic transport facilities, by changes in laws or
regulations and by the length of the CuNet sales cycle. For a discussion of
these factors, see "Risk Factors."

Revenue

Revenue consists of:

. Product sales. We sell, install and configure selected equipment from our
manufacturing partners. Our engineers select the right manufacturer's
product solution based upon customized dependable network designs to
improve our customers' operations and network efficiencies.

22
<PAGE>

. Consulting services. We bill customers for nonrecurring service
activation and installation charges. We also bill our customers for
network integration, on site network management, network security and
professional services based on time and materials for contracted
services. In addition, we derive revenue from the maintenance and
installation of equipment. Some of these services may be provided through
third party providers under contract to us.

. Network services. We charge monthly service fees for access to our CuNet
local, metropolitan and wide area networks. We also provide a wide
variety of network services to customers, including remote network
management and monitoring, network security, virtual private networks,
Internet access, electronic commerce and other data applications. Some of
these services are delivered to customers using resources from third
party providers under contract to us.

Cost of Revenue

Product sales. We purchase equipment from various vendors whose technology and
hardware solutions we recommend to our customers. We do not manufacture any of
this equipment.

Consulting services. Consulting services cost of revenue consists of charges
for hardware maintenance, installation and certain contract services which we
purchase from third parties.

Network services. Our network service costs generally comprise non-employee-
based charges such as:

. CuNet service fees. We pay a monthly service fee for each copper line and
for each collocation arrangement, as well as usage fees, for the back
office services we obtain from the incumbent carriers we work with in
order to serve our CuNet customers. Sometimes, we must pay these
incumbent carriers to perform special work, such as line conditioning,
when such work is required in order to serve a particular client.

. Other access costs and levied line expense. We pay installation charges
and monthly fees to competitive carriers or incumbent carriers for other
types of access, other than through our CuNet network, which we provide
to customers as part of our network services.

. Backbone connectivity charges. We incur charges for our metropolitan area
network backbone, typically from a competitive carrier or an incumbent
carrier, and for wide area network backbone from a long distance carrier.
We pay these carriers a one-time installation and activation fee and a
monthly service fee for these leased network connections.

. Network operations expenses. We incur various recurring costs at our
network operations center. These costs include data connections,
engineering supplies and certain utility costs.

. Equipment operating lease expenses. In the future, we may decide to enter
into operating leases for some or all of the equipment we use in our
network, including DSL equipment switches and equipment installed on the
customer's premises. Currently, we generally use capital leases to
finance the acquisition of substantially all of this equipment, which we
depreciate over a range of two to five years.

23
<PAGE>

Operating Expenses

Selling, general and administrative expenses

Our selling, general and administrative expenses include all employee-based
charges, including field technicians, engineering support, customer service and
technical support, information systems, billing and collections, general
management and overhead and administrative functions. Headcount in functional
areas, such as sales, customer service and operations will increase
significantly as we expand our network and as the number of customers
increases.

. Sales and marketing expenses. We distribute our products and services
through direct sales, sales partners in multiple channels, agents and
telemarketing. Our sales and marketing efforts focus on attracting and
retaining small, medium and large business customers in our target
markets. We enter into partnerships with other sales partners, including
Internet service providers, long distance and local carriers and other
networking services companies. These expenses have increased, and will
continue to increase, as we develop our CuNet services.

. General and administrative expenses. As we expand our network, we expect
the number of employees located in specific markets to grow. Certain
functions, such as customer service, network operations, finance, billing
and administrative services, are likely to remain centralized in order to
achieve economies of scale. We pay licensing fees for standard systems to
support our business processes such as operating support systems, or OSS,
and billing systems.

Amortization of deferred compensation

As of December 31, 1998 and March 31, 1999, we had outstanding a total of
3,151,500 and 3,993,500, respectively, incentive stock options at an exercise
price of $.20 per share. At March 31, 1999, all of these options were
exercisable into restricted shares of our common stock which generally vest
over a three to four year period. We estimate that the fair value of the
underlying common stock on the date of grant was in excess of the exercise
price of the options. As a result, we recorded deferred compensation of $3.7
million and $7.0 million for the year ended December 31, 1998 and the three
months ended March 31, 1999, respectively. We recorded this amount as a
reduction to stockholders' equity which will be amortized as a charge to
operations over the vesting periods. For the year ended December 31, 1998 and
the three months ended March 31, 1999, we recognized $219,000 and $438,000,
respectively, of stock compensation expense related to these options.

Depreciation and amortization

Depreciation expense arising from our network and customer premise equipment
purchases will be significant and will increase as we deploy our network.
Collocation fees, build-out costs, including one-time installation and
activation fees, and other DSL-based equipment costs are capitalized and
amortized over a range of two to five years.

Interest Income (Expense), Net

Interest income (expense), net, primarily consists of interest income from
our cash and short-term investments less interest expense associated with our
debt and capital leases. As our capital expenditures increase, we anticipate
that our interest expense associated with our capital leases will increase.

24
<PAGE>

Results of Operations

The following table presents our results of operations data and the
components of net income (loss) as a percentage of our revenue:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
------------------------ ---------------
1996 1997 1998 1998 1999
(unaudited)
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Product sales................ $14,368 $8,150 $9,900 $2,194 $ 3,955
Consulting services.......... 114 791 1,428 317 702
Network services............. -- 4 311 41 119
------- ------ ------- ------ -------
Total revenue.............. 14,482 8,945 11,639 2,552 4,776
------- ------ ------- ------ -------
Cost of revenue:
Product sales................ 11,975 7,180 8,639 1,858 3,535
Consulting services.......... 91 231 761 160 299
Network services............. -- 2 41 1 171
------- ------ ------- ------ -------
Total cost of revenue.......... 12,066 7,413 9,441 2,019 4,005
------- ------ ------- ------ -------
Gross profit................... 2,416 1,532 2,198 533 771
------- ------ ------- ------ -------
Operating expenses:
Selling, general and
administrative.............. 2,255 1,437 4,017 538 2,533
Amortization of deferred
compensation................ -- -- 219 -- 438
Depreciation and
amortization................ 7 12 130 4 187
------- ------ ------- ------ -------
Total operating expenses... 2,262 1,449 4,366 542 3,158
------- ------ ------- ------ -------
Income (loss) from operations.. 154 83 (2,168) (9) (2,387)
Interest income (expense),
net........................... (1) (5) 64 (12) (9)
Provision (benefit) for income
taxes......................... 63 36 (28) (8) -
------- ------ ------- ------ -------
Net income (loss).............. $ 90 $ 42 $(2,076) $ (13) $(2,396)
======= ====== ======= ====== =======
<CAPTION>
Three Months
Year Ended Ended March
December 31, 31,
------------------------ ---------------
1996 1997 1998 1998 1999
(unaudited)
(percent of revenue)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Product sales................ 99.2% 91.1% 85.1% 86.0% 82.8%
Consulting services.......... 0.8 8.8 12.3 12.4 14.7
Network services............. -- 0.1 2.6 1.6 2.5
------- ------ ------- ------ -------
Total revenue.............. 100.0% 100.0% 100.0% 100.0% 100.0%
------- ------ ------- ------ ------- ---
Cost of revenue:
Product sales................ 82.7 80.3 74.2 72.8 74.0
Consulting services.......... 0.6 2.6 6.5 6.3 6.3
Network services............. -- 0 0.4 0 3.6
------- ------ ------- ------ -------
Total cost of revenue.......... 83.3 82.9 81.1 79.1 83.9
------- ------ ------- ------ -------
Gross profit................... 16.7 17.1 18.9 20.9 16.1
------- ------ ------- ------ -------
Operating expenses:
Selling, general and
administrative.............. 15.6 16.1 34.5 21.1 53.0
Amortization of deferred
compensation................ -- -- 1.9 -- 9.2
Depreciation and
amortization................ 0.0 0.1 1.1 .2 3.9
------- ------ ------- ------ -------
Total operating expenses... 15.6 16.2 37.5 21.3 66.1
------- ------ ------- ------ -------
Income (loss) from operations.. 1.1 0.9 (18.6) (.4) (50.0)
Interest income (expense),
net........................... 0 0 0.6 (.5) .2
Provision (benefit) for income
taxes......................... 0.4 0.4 (0.2) (.3) --
------- ------ ------- ------ -------
Net income (loss).............. 0.7% 0.5% (17.8)% (.6)% (50.2)%
======= ====== ======= ====== =======
</TABLE>

25
<PAGE>

Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998

Revenue. We recognized $4.8 million in revenue for the three months ended
March 31, 1999, as compared to $2.6 million for the three months ended March
31, 1998, an increase of $2.2 million, or 84.6%. Revenue increased as a result
of a $1.8 million increase in Product sales, primarily from one of our largest
customers, AT&T, from an increase in Consulting services of $0.4 million
attributable to increases in maintenance and consulting contracts, and from
growth in Network services revenue of $78,000 arising from the introduction of
broader network service offerings in late 1998.

Cost of revenue. Cost of revenue was $4.0 million for the three months ended
March 31, 1999, as compared to $2.0 million for the three months ended March
31, 1998, an increase of $2.0 million, or 100.0%. The increase was attributable
to growth in cost related to an increase in Product sales of $1.7 million,
growth in cost related to additional Consulting services of $119,000 and from
growth in cost of Network services of $171,000 attributable to expenses
incurred to develop and operate our CuNet and other networking services.

Gross profit. Gross profit was $0.8 million and 16.1% of revenue for the
three months ended March 31, 1999, as compared to $0.5 million and 20.9% of
revenue for the three months ended March 31, 1998, an increase of $0.3 million.
Gross profit as a percentage of total revenue decreased for the three months
ended March 31, 1999 when compared to the three months ended March 31, 1998.
This decrease primarily resulted from a decrease in gross profit on Network
services caused by the recurring expense of operating our network prior to
increasing our customer base.

Selling, general and administrative expenses. Selling, general and
administrative expenses were $2.5 million and 53.0% of revenue for the three
months ended March 31, 1999, as compared to $0.5 million and 21.1% of revenue
for the three months ended March 31, 1998, an increase of $2.0 million, or
400.0%. This increase as a percentage of revenue was primarily due to increased
staffing and other expenses incurred to develop our CuNet network and other
networking solutions.

Amortization of deferred compensation. Amortization of deferred compensation
was $438,000 for the three months ended March 31, 1999. We had no amortization
of deferred compensation for the three months ended March 31, 1998.

Depreciation and amortization expense. Depreciation and amortization expense
was $187,000 and 3.9% of revenue for the three months ended March 31, 1999, as
compared to $4,000 and less than 0.2% of revenue for the three months ended
March 31, 1998, an increase of $183,000. This increase was primarily due to
investments in our CuNet network, computer equipment and software, office
furnishings and leasehold improvements.

Income (loss) from operations. Our loss from operations was $2.4 million for
the three months ended March 31, 1999, as compared to loss from operations of
$9,000 for the three months ended March 31, 1998. The loss for the three months
ended March 31, 1999 was primarily due to increased staffing and other
operating expenses we incurred in support of our CuNet network and other
networking solutions.

Interest income (expense), net. For the three months ended March 31, 1999,
we recorded net interest expense of $9,000, consisting of interest income of
$54,000 which was primarily attributable to interest income earned from the
proceeds of our issuance of $10.0 million of preferred and

26
<PAGE>

common stock in August 1998, offset by $63,000 in interest expense, compared to
$12,000 of interest expense for the three months ended March 31, 1998. The
increase in interest expense is primarily due to interest on deferred
compensation liabilities and notes payable.

Provision (benefit) for income taxes. We had no benefit or provision for
income taxes for the three months ended March 31, 1999. We had a benefit for
income taxes of $8,000 for the three months ended March 31, 1998.

Net income (loss). For the foregoing reasons, our net loss was $2.4 million
for the three months ended March 31, 1999, as compared to net loss of $13,000
for the three months ended March 31, 1998.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Revenue. We recognized $11.6 million in revenue for the year ended December
31, 1998, as compared to $8.9 million for the year ended December 31, 1997, an
increase of $2.7 million, or 30.3%. Revenue increased as a result of a $1.8
million increase in Product sales, primarily from one of our largest customers,
AT&T, from an increase in Consulting services of $0.6 million attributable to
increases in maintenance and consulting contracts, and from growth in Network
services revenue of $0.3 million arising from the introduction of broader
network service offerings in late 1997.

Cost of revenue. Cost of revenue was $9.4 million for the year ended
December 31, 1998, as compared to $7.4 million for the year ended December 31,
1997, an increase of $2.0 million, or 27.0%. The increase was attributable to
growth in cost related to an increase in Product sales of $1.5 million, growth
in cost related to additional Consulting services of $0.5 million and from
growth in the cost of Network services of $39,000 attributable to expenses
incurred to develop and operate our CuNet and other networking services.

Gross profit. Gross profit was $2.2 million and 18.9% of revenue for the
year ended December 31, 1998, as compared to $1.5 million and 17.1% of revenue
for the year ended December 31, 1997, an increase of $0.7 million. The increase
in gross profit was attributable to higher product sales, increased revenue
from consulting services and the introduction of broader network service offer-
ings in late 1997.

Selling, general and administrative expenses. Selling, general and
administrative expenses were $4.0 million and 34.5% of revenue for the year
ended December 31, 1998, as compared to $1.4 million and 16.1% of revenue for
the year ended December 31, 1997, an increase of $2.6 million, or 186%. This
increase was primarily due to increased staffing and other expenses incurred to
develop our CuNet network and other networking solutions.

Amortization of deferred compensation. Amortization of deferred compensation
was $219,000 for the year ended December 31, 1998. We had no amortization of
deferred compensation for the year ended December 31, 1997.

Depreciation and amortization expense. Depreciation and amortization expense
was $130,000 and 1.1% of revenue for the year ended December 31, 1998, as
compared to $12,000 and less than 1% of revenue for the year ended December 31,
1997, an increase of $118,000. This increase was primarily due to investments
in computer equipment and software, office furnishings and leasehold
improvements.

27
<PAGE>

Income (loss) from operations. Our loss from operations was $2.2 million for
the year ended December 31, 1998, as compared to income from operations of
$83,000 for the year ended December 31, 1997. The loss in 1998 was primarily
due to increased staffing and other operating expenses we incurred in support
of our CuNet network and other networking solutions.

Interest income (expense), net. For the year ended December 31, 1998, we
recorded net interest income of $64,000, consisting of interest income of
$145,000 which was primarily attributable to interest income earned from the
proceeds of our issuance of $10.0 million of preferred and common stock in
August 1998, offset by $81,000 in interest expense, compared to $5,000 of
interest expense in 1997. The increase in interest expense is primarily due to
interest on deferred compensation liabilities and notes payable.

Provision (benefit) for income taxes. We had a benefit for income taxes of
$28,000 for the year ended December 31, 1998, as compared to a provision for
income taxes of $36,000 for the year ended December 31, 1997. At December 31,
1998, our remaining tax effected net operating loss carryforward was $444,000.

Net income (loss). For the foregoing reasons, our net loss was $2.1 million
for the year ended December 31, 1998, as compared to net income of $42,000 for
the year ended December 31, 1997.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Revenue. We recognized $8.9 million in revenue for the year ended December
31, 1997, as compared to $14.5 million for the year ended December 31, 1996, a
decrease of $5.5 million, or 38.6%. This decrease in revenue was primarily due
to a decrease in Product sales of $6.2 million to one of our largest customers,
AT&T, which had purchased a significant amount of equipment from us in the last
half of 1996, offset by an increase in Consulting services of $0.7 million
attributable to new maintenance and consulting service offerings.

Cost of revenue. Cost of revenue was $7.4 million for the year ended
December 31, 1997, as compared to $12.1 million for the year ended December 31,
1996, a decrease of $4.7 million, or 38.8%, resulting from the decline in
product sales, and offset by the increase in Consulting services.

Gross profit. Gross profit was $1.5 million and 17.1% of revenue for the
year ended December 31, 1997, as compared to $2.4 million and 16.7% of revenue
for the year ended December 31, 1996, a decrease of $0.9 million, or 37.5%, as
a result of the decrease in product sales and the increase in Consulting
services.

Selling, general and administrative expenses. Selling, general and
administrative expenses were $1.4 million and 16.1% of revenue for the year
ended December 31, 1997, as compared to $2.3 million and 15.6% of revenue for
the year ended December 31, 1996, a decrease of $0.9 million, or 39.1%. This
decrease was primarily due to decreased bonus and commissions compensation in
1997 attributable to lower revenue.

Depreciation and amortization expense. Depreciation and amortization expense
was $12,000 and less than 1% of revenue for the year ended December 31, 1997,
as compared to $7,000 and less than 1% of revenue for the year ended December
31, 1996, an increase of $5,000, or 71.4%. This increase was primarily due to
investments in computer equipment and software, office furnishings and
leasehold improvements.

28
<PAGE>

Income (loss) from operations. Our income from operations was $83,000 for
the year ended December 31, 1997, as compared to an income from operations of
$154,000 for the year ended December 31, 1996, a decrease of $71,000, or 46.1%.
This decrease was primarily due to the decline in products sales from 1996 to
1997, offset in part by lower bonus and commission payments in 1997.

Interest income (expense), net. For the year ended December 31, 1997, we
recorded net interest expense of $5,000 as compared to $1,000 for the year
ended December 31, 1996. The increase in interest expense was substantially due
to a higher average balance on a bank line of credit during 1997. We terminated
this bank line of credit in 1998.

Provision (benefit) for income taxes. We had a provision for income taxes of
$36,000 for the year ended December 31, 1997, as compared to $63,000 for the
year ended December 31, 1996, a decrease of $27,000, or 42.8%, giving us an
effective tax rate above the aggregate statutory federal and state income tax
rates due to certain non-deductible business expenses such as business meals
and entertainment.

Net income (loss). For the foregoing reasons, our net income was $42,000 for
the year ended December 31, 1997, as compared to net income of $90,000 for the
year ended December 31, 1996, a decrease of $48,000, or 53.3%.

Liquidity and Capital Resources

While our networking solutions activities do not require significant capital
expenditures, the development and expansion of our CuNet network does require
significant capital expenditures. The principal capital expenditures which we
expect to incur during our CuNet rollout include the procurement, design and
construction of our collocation spaces and the deployment of DSL-based
equipment in Bell Atlantic central offices and connection sites. Capital
expenditures were $4.7 million for 1998 and $5.2 million for the three months
ended March 31, 1999. At this time, our only material purchase commitment is a
commitment to purchase software and services for approximately $1.0 million. We
expect our capital expenditures to be substantially higher for the rest of 1999
and for future periods, primarily due to continued collocation construction and
the purchase of telecommunications equipment for expansion of our network. Our
capital expenditures will depend in part upon obtaining adequate volume
commitments or demand from our CuNet customers. Based on our present plans we
anticipate capital expenditures during the balance of 1999 of between
$40 million and $55 million for the expansion of our network to approximately
360 central offices, a portion of which will be financed in the form of capital
leases.

We have financed our operations to date primarily through a private
placement of preferred and common stock totaling $10.0 million, the use of
capital equipment leases totaling $1.7 million, borrowings of $1.0 million from
Ascend Communications and the receipt of $5.0 million on April 1, 1999 as
payment for convertible notes issued on March 31, 1999. As of March 31, 1999,
we had an accumulated deficit of $4.2 million, and cash and cash equivalents of
$1.6 million.

Net cash used in operating activities was $27,000 in 1996 and $2.8 million
in 1998. Net cash provided by operations was $806,000 in 1997 and $136,000 for
the three months ended March 31, 1999. The change in operating cash flow from
1997 to 1998 was primarily the result of operating losses attributable to the
expansion of our historic business and the development of our CuNet services,
but also the result of an increase in accounts receivable accompanied by a
decrease in accounts payable. The net cash provided from operations during the
three months ended March 31, 1999, was primarily the result of an increase in
accounts payable exceeding the net loss for the period.

29
<PAGE>

The net cash used in investing activities was $30,000 in 1996, $122,000 in
1997, $1.3 million in 1998 and $5.0 million for the three months ended March
31, 1999. The increase in 1998 and for the three months ended March 31, 1999,
was primarily due to the deployment of equipment for our CuNet services. Net
cash provided by financing activities was $54,000 in 1996, $9,000 in 1997 and
$9.0 million in 1998, of which $8.0 million was the net result of the preferred
and common stock financing and the repurchase of common stock from existing
stockholders. Net cash used in financing activities was $70,000 in the three
months ended March 31, 1999 resulting from principal payments on capital
leases.

Ascend has provided us with a $30 million capital lease facility to fund
acquisitions of certain Ascend equipment, under which $1.2 million was
outstanding as of March 31, 1999 and a $10 million line of credit, under which
$1.0 million was outstanding as of March 31, 1999. We can draw on the $10
million line of credit in $1.0 million increments up to a maximum of
$5.0 million. We may draw down the remaining $5.0 million, also in $1.0 million
increments, upon (1) completing the drawdown under the capital lease facility
of in excess of $15.0 million for acquisitions of equipment from Ascend, and
(2) demonstrating that at least 70% of this equipment is being used by us to
generate revenue. We are required to make interest only payments at an annual
rate of 8.25% on the amounts advanced for the first nine months from the date
of the advance. For the next thirty-three months we are required to make
principal and interest payments in accordance with a sixty month amortization
schedule using an interest rate of 8.25% for the first eighteen months and a
rate equal to the prevailing high yield bond index for the next fifteen months.
The remaining unpaid interest is due forty-two months after the related
advance. In addition, we have an arrangement with Paradyne Corporation to lease
up to $4.0 million of equipment, subject to vender approval.

We believe that the net proceeds from this offering, our existing cash and
cash equivalents, existing and anticipated equipment lease financings and
future revenue generated from operations, will be sufficient to fund our
operating losses, capital expenditures, lease payments and working capital
requirements through the end of 2000. We expect our operating losses and
capital expenditures to increase substantially primarily due to our network
expansion. We expect that additional financing would be required in the future
if we were to expand beyond our initial target markets. We may attempt to
finance such an expansion of our operations through a combination of commercial
bank borrowings, leasing, vendor financing or the private or public sale of
equity or debt securities. While we would probably not have sufficient capital
to complete our CuNet rollout if we do not complete this offering, we would be
able to continue to offer networking solutions over other forms of access.

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

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

. our development plans or projections change or prove to be inaccurate;

. we engage in any acquisitions; or

. we accelerate deployment of our network or otherwise alter the schedule
or targets of our CuNet rollout plan.

Equity or debt financing may not be available to us on favorable terms or at
all. See "Risk Factors--We may need significant additional funds to expand our
business which we may be unable to obtain."

30
<PAGE>

Impact of the Year 2000 Issue

Our Year 2000 plan applies to two areas: internal business systems and
compliance by external providers. We have completed our Year 2000 compliance
testing for all of our internal systems and believe that our internal business
systems are Year 2000 compliant. Because we are a young company, we believe we
have been able to build or acquire our business systems with the Year 2000
issue in mind in a more effective manner than many older companies. Therefore,
there have been few Year 2000 changes required to our existing systems and
applications.

We have substantially completed a compliance check of our significant
external providers, except for Bell Atlantic. Based on responses from these
third parties other than Bell Atlantic, we believe that they will not
experience Year 2000 problems that would materially adversely affect our
business. We have not been able to conduct a compliance check of Bell Atlantic
nor assess its Year 2000 compliance. To the extent that Bell Atlantic or other
third parties experience Year 2000 problems, our network and services could be
adversely affected. Furthermore, the purchasing patterns of our customers may
be affected by Year 2000 issues as companies expend significant resources to
correct their current systems for Year 2000 compliance. These expenditures may
result in reduced funds available for our services. Any of these developments
could have a material and adverse effect on our business, prospects, operating
results and financial condition.

Except for our uncertainties regarding Bell Atlantic's Year 2000 compliance,
we do not believe the risks from Year 2000 are significant. We expect to have
contingency plans in place to deal with potential Year 2000 disruptions by July
1999, but we have not formulated a contingency plan to address the worst-case
Year 2000 scenario.

Financial Information

The preceding discussion and analysis is based on our financial statements
and the related notes and should be read in conjunction with the financial
statements and the related notes included in this prospectus.

Forward-looking Statements

This prospectus includes forward-looking statements. These forward-looking
statements address, among other things:

. our CuNet deployment plans and strategies;

. development and management of our business;

. our ability to attract, retain and motivate qualified personnel;

. our ability to attract and retain customers;

. the extent of acceptance of our services;

. the market opportunity and trends in the markets for our services;

. our ability to upgrade our technologies;

. prices of telecommunication services;

. the nature of regulatory requirements that apply to us;

. our ability to obtain and maintain any required governmental
authorizations;

. our future capital expenditures and needs;

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<PAGE>

. our ability to obtain and maintain financing on commercially reasonable
terms;

. our ability to implement a Year 2000 readiness program; and

. the extent and nature of competition.

These statements may be found in this section, in the sections of this
prospectus entitled "Summary," "Risk Factors," "Use of Proceeds" and "Business"
and in this prospectus generally.

We have based these forward-looking statements on our current expectations
and projections about future events. However, our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of risks facing us, including risks stated in "Risk Factors," or faulty
assumptions on our part. For example, assumptions that could cause actual
results to vary materially from future results include, but are not limited to:

. our ability to successfully market our services to current and new
customers;

. our ability to generate customer demand for our services in our target
markets;

. market pricing for our services and for competing services;

. the extent of increasing competition;

. our ability to acquire funds to expand our network;

. the ability of our equipment and service suppliers to meet our needs;

. trends in regulatory, legislative and judicial developments; and

. our ability to manage growth of our operations.

We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.

32
<PAGE>

BUSINESS

We are a leading provider of DSL technology and networking solutions to
businesses. We formed Network Access Solutions in 1995 and began providing data
communications products and services for corporate networks. We served as a
premier partner for Paradyne, Ascend and Cisco, helping to sell and integrate
their equipment into our customers' networks. We recognized that businesses
were finding it extremely expensive and time consuming to manage and secure the
complex elements of their networks. To exploit this opportunity, we began
offering our customers further services for their networks such as network
integration, network management, network security and professional services.

In early 1996, we recognized the opportunity presented by the convergence of
three factors:

.the accelerating growth in the data communications requirements of
businesses;

.deregulation of the local telephone network by the 1996 Telecom Act;
and

.the compelling capabilities and economics of DSL technology.

To exploit this opportunity, we began developing technical standards and
processes for delivery of DSL-based services to our customers. In April 1997,
we entered into our first interconnection agreement with Bell Atlantic. In
November 1997, we began CuNet service trials. Although in the short term we
expect to continue to derive the majority of our revenue from our networking
solutions activities, we expect that over time CuNet will constitute the more
significant portion of our total revenue. We currently offer CuNet in Boston,
New York, Philadelphia, Baltimore, Washington, D.C. and Richmond. We expect to
extend our network coverage to include Norfolk, Pittsburgh, and Wilmington,
Delaware by the end of 1999. We have over 400 customers for our networking
solutions, including business customers and network service providers. We seek
to bundle CuNet and our networking solutions to provide a comprehensive
solution to our customers.

Industry Overview

We believe that a substantial business opportunity has been created by the
concurrence of several factors: the growing demand for high speed data
communications and networking solutions; the increasing network congestion; the
commercial availability of low cost DSL technology; and the passage of the 1996
Telecom Act.

Growing demand for high speed data communications and enterprise
solutions. Businesses and other organizations are finding it extremely
expensive and time-consuming to manage the complex elements of their networks.
Businesses are implementing internal networks using Internet technology, called
intranets, and remote local area networks to enable employees to work from
remote locations and home, and to create private networks that connect
corporate networks in multiple locations. Gartner Group, a leading industry
analyst, estimates that the U.S. market for packet-based, virtual private
network and Internet data services will grow from $3.4 billion in 1997 to $18.5
billion in 2002, a compounded annual growth rate of 40.3%. Business demand for
Internet access, e-mail, video and audio services, Web hosting and electronic
commerce, is also increasing.

This demand in turn drives the need for high speed, high capacity
communications to support these applications. As businesses grow to take
advantage of the extended power presented by their networks and the Internet,
they will need extensive network management and security solutions designed to
protect their internal data. International Data Corporation, or IDC, estimates
that the U.S. market for network operations outsourcing services will more than
double from $4.0 billion in 1997 to $9.1 billion in 2002, a compounded annual
growth rate of 17.6%.

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<PAGE>

High speed data communications have become important to businesses in part
due to the dramatic increase in Internet usage. According to IDC, the number of
Internet users worldwide reached approximately 69 million in 1997 and is
forecasted to grow to approximately 320 million by 2002. IDC also estimates
that the value of goods and services sold worldwide through the Internet will
increase from $12 billion in 1997 to over $400 billion in 2002. To remain
competitive, businesses increasingly need high speed connections to maintain
complex Web sites, access critical business information and communicate more
efficiently with employees, customers and business partners.

Data communications is the fastest growing segment of the telecommunications
industry. The Gartner Group forecasts data traffic to grow over five times
faster than voice traffic through 2002. Furthermore, the Gartner Group projects
an increase in the number of DSL lines in use from 1,500, providing $360,000 in
revenue, in 1997, to over 3.1 million lines and $3.5 billion in revenue in
2002, representing a 361% compounded annual growth rate in the number of lines
and a 526% compounded annual growth rate in revenue.

Increasing network congestion. The growing use of capacity intensive
applications is creating a number of challenges for the existing copper lines
of the public telephone network, and for public data networks and private
networks. These challenges affect the structure of the existing network and
limit the ability of businesses to take full advantage of the benefits of new
information technologies. Networks are becoming increasingly congested due to
the rapid growth in data traffic and the imbalance in capacity between local
and wide area networks. While high speed local access technologies such as DSL
will be deployed to help solve the local access bottleneck, expertise and
networking solutions will be needed to remedy the other bottlenecks throughout
existing networks.

The "last mile" is defined as that part of the network that runs from an end
user's location to the first central office or nearest service entry point into
the network. Since the break-up of AT&T, substantially all data services have
been configured with a local carrier, typically a regional Bell operating
company like Bell Atlantic, providing the last mile local access, and a long
distance carrier like AT&T, MCI WorldCom or Sprint providing the long distance
portion. While competition in the long distance market has evolved quickly and
caused price reductions, the local access markets have not similarly developed.
As a result, the local access market remains technologically behind the long
distance market, with last mile access to major public networks like the
Internet and data networks remaining either very slow or very expensive.

Commercial availability of low cost DSL technology. The full potential of
Internet and remote local area network applications cannot be realized without
removing the performance bottlenecks of the local telephone networks. DSL
technology removes this performance bottleneck by increasing the data carrying
capacity of copper telephone lines from the 56 kilobits per second speeds
available with common dial-up modems and 128 kilobits per second speeds
available on integrated services digital network, or ISDN, lines to DSL speeds
of up to 7 megabits per second. Because DSL technology reuses existing copper
telephone lines, DSL requires a lower initial fixed investment than that needed
for existing alternative technologies, such as cable modems, fiber, wireless
and satellite communications systems. Subsequent investments in DSL technology
are directly related to the number of paying customers.

Impact of the 1996 Telecom Act. The 1996 Telecom Act allows competitive
carriers like us to take advantage of incumbent carriers' copper telephone line
networks rather than constructing a competing infrastructure at significant
cost. The 1996 Telecom Act requires incumbent carriers:

. to allow competitive carriers to lease copper lines on a line by line
basis;

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<PAGE>

. to permit competitive carriers to collocate their equipment, including
DSL equipment, in incumbent carriers' central offices, which enables
competitive carriers to access end users through existing telephone line
connections; and

. to provide competitive carriers with the operations support services
necessary for competitive carriers to provide competitive
telecommunications service.

The 1996 Telecom Act creates an incentive for some incumbent carriers,
including Bell Atlantic, to cooperate with competitive carriers because the
incumbent carriers cannot provide long distance service in the regions where
they provide local exchange service until the FCC determines that the incumbent
carrier has satisfied specific statutory criteria for opening its local markets
to competition.

The NAS Solution

We offer high speed channelized and packet-based data communications
services using a combination of DSL and data switching technologies, like Frame
Relay and Asynchronous Transfer Mode, or ATM, and a complete package of
networking solutions to businesses, including network integration, network
management and network security. Our services are offered either by themselves
or together with other services. We market our services both directly to
enterprises through our direct sales force and indirectly through network
service providers and sales partners. To date, our networking solutions have
generated almost all of our revenue.

High Speed, "Last Mile" Connectivity. CuNet solves the last mile challenge
using DSL technology to convert standard copper telephone lines into high speed
data connections. Our network is capable of delivering data at speeds ranging
incrementally from 128 kilobits per second to 2 megabits per second
symmetrically, where data travels at the same speed to and from the customer,
and up to 7 megabits per second asymmetrically, where data travels faster to
the customer than from the customer. The highest CuNet speeds allow our
customers to transfer data at rates faster than standard high speed data
connections, like T1 lines and Frame Relay circuits. We provide packet-based
connections like other DSL providers. Because many of today's existing networks
use a channelized architecture, we also provide channelized connections, which
we believe no other major DSL provider currently offers. Thus, CuNet addresses
both older channelized data network requirements, like traditional voice
telephone networks, and the packet-based communications better suited for
newer, more efficient technologies such as ATM, Frame Relay and Internet
Protocol, the set of standards that enable Internet communications.

Adaptable Network Architecture. Our architecture supports today's bandwidth-
intensive business requirements, such as corporate networks, virtual private
networks, office-to-office connectivity, telecommuting solutions, collaborative
computing of users in different areas, Internet/intranet access, traditional
voice, video conferencing and multimedia, e-mail, video and audio transmission,
web hosting and electronic commerce. We have designed our network so that we
can individually configure a customer's features and speeds from our network
operations center, eliminating the need for customers to upgrade their hardware
or for us to visit their premises in order to enhance or upgrade services.

Metropolitan Area Network Solutions. We recognize that businesses with city-
wide locations, as well as remote users who telecommute, need to communicate
and share confidential information. We are using our extensive metropolitan
area networks, or MANs, to provide high capacity, secure, direct connections
between these remote locations and to provide cost effective private network
solutions to our customers with the capacity, speed, reliability and level of
service that they require.

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<PAGE>

Wide Area Network Solutions. We recognize that many organizations have
offices and employees in multiple cities. We provide high capacity, secure and
reliable connections between these geographically dispersed locations through
our wide area network, or WAN. Because our wide area network customers, like
our metropolitan area network customers, are served end-to-end on our CuNet
infrastructure, we are able to deliver a wide area, private network to our
customers with the capacity, speed, reliability and level of service that they
require. For example, our wide area network enables our network service
provider customers to expand their geographic reach into areas where they lack
a physical point of presence through virtual points of presence, or VPOPs.

Single Source Networking Solutions. We provide comprehensive networking
solutions to businesses that are increasingly outsourcing their information
systems and network integration, network management and network security. Our
engineers consult with our customers to design, install and integrate all
aspects of their local, metropolitan and wide area networks. We provide remote
online control, monitoring and management. We also develop and implement
sophisticated network security solutions to protect our customers' networks and
vital data, including virtual private networks, encryption and access
authentication, risk assessment and audits, network security architecture
consulting, controlled penetrations and security incident analysis and
response. We maintain and manage our customers' networks and security systems
24 hours a day, seven days a week from our network operations center in
Sterling, Virginia.

The NAS Strategy

Our goal is to become the premier provider of data communications and
networking solutions in the markets in which we focus. We plan to:

. Rapidly provide depth of coverage in our markets. Because DSL is a
localized technology tied to the proximity of end users to central
offices, we must collocate our equipment in many central offices in order
to provide depth of coverage. Thus, we are pursuing a strategy of
providing services in a substantial majority of the central offices in
each target market that we enter. Our initial focus on the Bell Atlantic
region will enable us to deploy our network with speed and depth. When
deployed, we believe our pervasive coverage of these markets will enable
us to better serve our end user business customers and network service
providers which are increasingly seeking a single service provider in
multiple metropolitan areas. Our depth of service will enable us to
provide our customers with a total business solution by providing them
with access for substantially all of their end users within our target
markets. As opportunities present themselves, we may decide to expand our
network beyond our initial target markets and into adjacent regions. We
have recently entered into an interconnection agreement with Bell South.

. Capitalize on core competency in direct sales and engineering support to
businesses. Through our direct sales force, we have been marketing,
selling and supporting comprehensive networking solutions to businesses
since early 1995 and have provided networking solutions to over 475
customers. Our experienced direct sales force has been supported by
engineers who are trained, certified experts in all our vendor-partners'
products and technologies, including Ascend, Paradyne, Lucent
Technologies, Inc. and Cisco. We intend to market CuNet to our existing
base of network integration, network management and network security
customers and to market our network integration, network management,
network security services to new CuNet customers. In working with our
existing customer base, we have found that we can sell a customer an
initial product or service, and, based on
the insights gained and relationships built from the initial sale, expand
the relationship to

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<PAGE>

provide comprehensive solutions to the customer's networking needs,
thereby improving the likelihood that we will retain these customers.

. Quickly provision reliable services by building relationships with
service providers. Because we have developed strong operational
relationships with our service providers, including Bell Atlantic, Level
3 Communications and MCI WorldCom, we believe we can manage these service
providers to deliver the highest quality network provisioning to our
customers in the shortest possible time. In February 1997, we began a
joint operational relationship with Bell Atlantic and have developed
technical standards specifying the provisioning and telephone line
qualities necessary to deliver dependable, high quality DSL circuits
within the Bell Atlantic region. We believe we have gained a competitive
advantage through our close operational relationships with Bell Atlantic,
the dominant incumbent carrier in our initial target markets, and our
other service providers. We believe these relationships will enable us to
continue to enhance and maintain our network and provide high quality
solutions on a timely basis.

. Provide superior customer care. We emphasize a one-stop total service
solution for our customers by developing a complete project
implementation plan for each installation and for the on-going
maintenance of their service. This is to ensure that each customer
receives the service for which they have contracted according to our
service level commitments. We manage all aspects of our customers'
connections to our network, including the design and installation of the
end-user's connection, equipment configuration and network monitoring on
a 24 hour a day, seven days a week basis. By providing our customers
regular reports on the performance of their services, we are able to
demonstrate to our customers our performance relative to our commitments
and how customers may benefit by acquiring additional networking services
from us.

. Deliver our products and services through multiple sales channels. We
market our products and services directly and indirectly to small, medium
and large business customers using sales partners in multiple channels.
CuNet's adaptability enables us to deploy services for all market
segments, including end users and wholesale customers. We will continue
to take advantage of our existing customer base through our direct sales
force, which we expect to grow to more than 140 people by the end of
1999. We also sell our services indirectly through our sales partners,
including Internet service providers, long distance and local carriers
and other networking services companies.

. Enhance and expand our network to meet the broadest array of business
requirements. Our network architecture and technology is designed to
provide our customers with adaptable, hybrid networking solutions. Our
network supports a broad array of business requirements, such as
corporate networks, virtual private networks, office-to-office
connectivity, telecommuting solutions, collaborative computing of users
in different areas, Internet/intranet access, video conferencing and
multimedia, e-mail, video and audio transmission, Web hosting and
electronic commerce. Our network provides a robust solution that can be
adapted to meet the needs of our customers and integrate technological
innovations as they are developed.

. Capitalize on economics of DSL. DSL technology requires a lower initial
fixed investment than that needed for existing alternative technologies
because DSL uses existing copper telephone lines. Thus, we are able to
offer businesses services comparable to traditional wide area networking
technologies, like high speed T1 lines and Frame Relay circuits, at
approximately 30% to 70% of the cost of such services. Our subsequent
investments in DSL technology are directly related to the number of
paying customers, making a significant portion of our capital
expenditures success-based. We estimate that approximately two-thirds

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<PAGE>

of our cumulative capital expenditures over the next five years will be
for DSL equipment that is directly related to our end user subscription
rate.

Product and Service Offerings

We offer our customers CuNet services in our target markets and networking
solutions. These networking solutions include network management services --
which we have branded ROC, for remote online control, and SOC, for secure
online control -- network security services and professional services and
allow us to be the single provider of the networking solutions businesses
require. Historically, almost all of our revenue has been derived from our
networking solutions. Although in the short term we expect to continue to
derive the majority of our revenue from networking solutions, we expect that
over time CuNet based services will constitute the more significant portion of
our total revenue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

CuNet Services

CuNet. In January, 1999, we began commercially offering our CuNet services.
CuNet uses DSL technology to provide high speed "always on" channelized and
packet-based communications services. CuNet connects business users to our
metropolitan area networks and wide area network using ATM, Frame Relay and
DSL technologies over traditional copper telephone lines. CuNet customers are
able to connect to our regional wide area network either within a city or
between our cities, to obtain high capacity, secure and reliable connections
between geographically dispersed locations. Because our customers are served
end-to-end on our CuNet infrastructure, we are able to deliver a true wide area,
virtual private network with the capacity, speed, reliability and level of
service that they require.

The chart below shows the service, speed, retail price (which includes
customer premise equipment), range and performance of our CuNet services, as
of March 1999:

<TABLE>
<CAPTION>
Retail List Range from
Speed to Speed Retail List Price Central
End From End Price for for Monthly Office
Service user(2) user(2) Activation(1) Service(1) (feet) Market/Usage
- ---------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C>
Symmetrical:
CuNet 128 128 Kbps 128 Kbps $270 $129 18,000 ISDN replacement for telecommuters.
CuNet 256 256 Kbps 256 Kbps $270 $146 18,000 Small businesses with standard e-mail and web usage.
CuNet 384 384 Kbps 384 Kbps $270 $162 18,000 Higher bandwidth solution for small to medium sized
businesses running moderately-visited web sites.
CuNet 512 512 Kbps 512 Kbps $270 $185 18,000 Allows small and medium businesses to meet most
MAN/WAN/video and Internet needs.
CuNet 768 768 Kbps 768 Kbps $270 $217 18,000 Supports high bandwidth intensive applications such
as electronic commerce, video conferencing, Frame
Relay and voice over Frame Relay.
CuNet 1.0 1.0 Mbps 1.0 Mbps $270 $239 18,000 Close to full T1 for medium to large sized
businesses.
CuNet 1.5 1.5 Mbps 1.5 Mbps $270 $294 18,000 Standard for large organizations that require high
capacity connections. Applications include the
ability to integrate voice, data and Internet
services over a single connection.
CuNet 2.0 2.0 Mbps 2.0 Mbps $270 $348 18,000 Full motion video and multimedia applications for
large businesses.
<CAPTION>
Asymmetrical:
<S> <C> <C> <C> <C> <C> <C>
CuNet 1.5 1.5 Mbps 384 Kbps $270 $239 18,000 High speed web access, e-mail and file distribution.
CuNet 4.0 4.0 Mbps 1.0 Mbps $270 $429 18,000 Very high speed web access, e-mail and file
distribution.
CuNet 7.0 7.0 Mbps 2.0 Mbps $270 $729 18,000 Bandwidth and capacity sufficient to meet most
asymmetrical data communication requirements.
</TABLE>
- --------------------
(1) Wholesale and volume discount prices are available for network service
providers.
(2) "Kbps" means kilobits per second. "Mbps" means megabits per second.

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<PAGE>

CuNet Frame. CuNet Frame provides access to a seamless local and long
distance network using ATM and DSL technologies to deliver a flexible suite of
Frame Relay services. The benefit to CuNet Frame customers is the low cost and
simplicity of use when contrasted against traditional incumbent carrier or long
distance carrier Frame Relay services.

VPOP. Our virtual point of presence service provides network service
providers access to our entire CuNet network. With VPOP, a network service
provider can offer services throughout the entire CuNet network without
additional investment in network communications infrastructure. This service
offers wholesale customers the opportunity to sell DSL circuits in cities
outside of the local serving area in which they physically connect to the CuNet
network. Wholesale and volume discount prices are available for network service
providers.

Networking Solutions

We began our company in 1995 by providing products and services for
corporate networks. We served as a premier partner for Paradyne, Ascend and
Cisco, helping to sell and integrate their equipment into our customers'
networks. We recognized that businesses were finding it extremely expensive and
time consuming to manage and secure the complex elements of their networks. To
exploit this opportunity, we began offering our customers further services for
their networks such as network integration, network management, network
security and professional services. Since that time, we have offered a
comprehensive suite of networking solutions to over 400 customers.

Network Management Services.

We provide our customers the opportunity to outsource network management
services that are difficult or costly for them to manage internally. For
example, we provide a single point of contact for vendor
management/coordination, including customer premises equipment vendors, long
distance carriers and local exchange carriers, a help desk for network
administrators, monitoring and coordinated maintenance of network services,
network performance analysis and capacity planning, network monitoring and
enterprise network analysis.

We provide a wide variety of network management solutions customizable to
any requirement in order to meet our customers' unique management requirements
arising from their network configuration. We believe our strategy of providing
these services will allow us to address a larger market opportunity than that
represented by CuNet alone.

ROC Services. We offer remote online control, or ROC, services to meet our
customers' outsourced network requirements. From our network operations center
in Sterling, Virginia, we continuously monitor the integrity of our customers'
metropolitan and wide area networks, evaluate their network utilization,
implement problem resolution systems, provide network health and status
monitoring and other customized management offerings. We proactively monitor
the performance of our customers' network devices and perform trouble
resolution to address network problems, often before our customer's end users
become aware of them.

SOC Services. We offer secure online control, or SOC, services to meet our
customers' outsourced network security requirements. We provide proactive
network monitoring, intrusion detection and management of these network
security solutions on a 24 hour a day, seven days a week basis. We provide a
variety of security solutions including barriers, or firewalls, between
internal corporate networks and external networks like the Internet, virtual
private network service, encryption and access authentication solutions for
customers looking for the highest level of security on any network on which
data is transported.

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<PAGE>

Network Security Services.

We provide customers with network security services including:

. Risk assessments and audits. We work in conjunction with a customer's
engineering staff to determine if a network's critical components work
together, provide for overlapping network protection features and
adequate firewall security at the perimeter of a network. We also
determine whether an optimal "defense in-depth" strategy exists and if it
is adhered to. We assess the effectiveness of a customer's reporting and
response mechanisms and determine vulnerabilities and other critical
issues.

. Network security architecture consulting. We provide expertise in
designing, implementing, modifying and protecting data networks of all
sizes.

. Controlled penetrations. We will conduct organized attacks with original
software tools and techniques designed to expose information security
breaches. These controlled penetrations are tailored to customer
requirements. Following a penetration, our engineers will interpret the
outcome and present results to both senior executives and lead engineers.
We also take steps to ensure that knowledge gained from a controlled
penetration is not lost during subsequent implementation and maintenance
phases.

. Incident forensics and response. Our engineers have rigorous training in
investigating, analyzing and responding to security breaches after they
occur and are well versed in the rules of evidence necessary to present
their findings in judicial proceedings on behalf of our customers.

Professional Services.

We provide professional consulting and network integration services to
complement our CuNet, ROC, SOC and network security services. We provide
network design, network evaluation, project and program management, staging,
installation, maintenance and warranty services.

Customers

We have over 400 customers, including over 45 CuNet customers. Our largest
customers in 1998 were AT&T and Zeneca Pharmaceuticals, a division of Zeneca,
Inc. AT&T and Zeneca accounted for 50.4% and 9.6%, respectively, of our revenue
in 1998. For the three months ended March 31, 1999, AT&T and Zeneca accounted
for 55.5% and 9.0% of our revenue, respectively. The loss of either of these
customers would have a material adverse effect on our business. At the end of
1998, AT&T accounted for 47% of our accounts receivable. Some of our networking
solutions customers include the following:

<TABLE>
<S> <C>
American International
Group, Inc. Manugistics Group, Inc.
Ascend Communications, Inc. National Rural Telecommunications Cooperative
AT&T Corp. Network Solutions, Inc.
Cisco Systems, Inc. Paradyne Corporation
Lockheed Martin Corporation University of Virginia
Lucent Technologies Inc. Zeneca Pharmaceuticals
</TABLE>

Sales and Marketing

We market our products and services directly and indirectly to small, medium
and large business customers using multiple sales channels. We take advantage
of our existing customer base through our direct sales force. We also sell our
services indirectly through our sales partners, including Internet service
providers, long distance and local carriers and other networking services
companies.

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<PAGE>

Direct Sales. We market our full complement of products and services through
a direct sales force of 35 people which we expect to grow to over 140 people by
the end of 1999. Our direct sales force is supported by sales engineers who
also seek to sell our networking services. Our sales representatives focus on
selling connectivity to small and medium businesses while our account
executives focus on selling connectivity and networking solutions to medium and
large businesses. We target enterprises that have at least one of the following
requirements: Internet connectivity, remote local area network access,
traditional voice and data applications and metropolitan or wide area network
Frame Relay. We also generate lead referrals for our direct sales forces
through telemarketing efforts. Our sales force seeks to deal directly with the
chief information officer or telecommunications manager responsible for access
in the target account. Our sales force is located in each of our target
markets. We intend to increase the size of our sales and technical support
force to sell and support these services as we expand our business. We also
seek to coordinate our direct sales and marketing efforts with our vendor
partners, including Ascend, Paradyne and Cisco. Our direct sales process
generally ranges from 30 to 60 days for small and medium businesses, which
generally require simple connectivity and networking solutions. Larger
businesses with more complex networking requirements often require customized
solutions. The large business sales process may take up to six months and may
involve:

. A significant technical evaluation;

. An initial trial roll-out of our services; and

. A commitment of capital and other resources by the customer.

Indirect Sales. We sell our services through network service providers,
including Internet service providers, long distance and local carriers and
other networking services companies. These providers combine one or more of our
services with their own Internet, Frame Relay and voice services and resell
those bundled services to their existing and new customers. We address these
markets through sales and marketing personnel dedicated to this channel. We
intend to augment our CuNet sales through partnerships with other service
providers which offer complementary services and can offer CuNet as part of a
complete business solution. For example, we have recently entered into an
agreement with an Internet service provider to provide for the purchase,
marketing and resale of our network security services, primarily to the
Internet service provider's small business and enterprise customers. We also
leverage our equipment vendors' partnerships as sources for sales opportunities
by offering joint technology seminars, implementing marketing campaigns and
sharing cross-selling opportunities.

Customer Service

Network service providers and enterprise communications managers typically
have to assemble their digital communications networks using multiple vendors.
This leads to additional work and cost as well as complex coordination issues.
We work with each customer to develop a project implementation plan. This plan
includes qualifying the customer for our service offerings, placing orders for
connection facilities, coordinating the delivery of the connection, turn up and
final installation. We emphasize a one-stop total service solution for our
customers. We provide our service according to a predetermined service level
commitment with each customer. Our comprehensive solution includes:

. Customer Line Installation. We work with each customer to establish all
connection and configuration requirements to connect the customer's main
location to our network. We order the circuit for our customer, manage
the installation process, test the circuit once installed, assist the
customer in configuring the router or switch that terminates the circuit,
and monitor the circuit from our network operations center.

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. End User Line Installation. We order all end user connections from the
incumbent carriers according to pre-determined technical line
specifications. We manage the incumbent carrier's performance, test the
installed line, and monitor the end user line from our network operations
center.

. End User Premises Wiring and Modem Configuration. We use both our own and
contracted installation crews to install any required inside wiring at
each end user site. We rely on contracted crews to meet customers'
demands at peak times. Our installation crews configure and install end
user equipment with information specific to each customer.

. Network Monitoring. We monitor our network from our network operations
center on a continuous end-to-end basis, which often enables us to
correct potential network problems before service to a customer or end
user is affected. We also provide direct monitoring access of end users
to our network service providers and enterprise customers.

. Customer Reporting. We communicate regularly with our customers about the
status of their service. We provide web-based tools to allow individual
network service providers and enterprise communications managers to
monitor their end users directly, to place orders for new end users, to
enter work orders on end user lines and to communicate with us on an
ongoing basis.

. Customer Service and Technical Support. We provide service and technical
support 24 hours a day, seven days a week to all our customers. The
network service provider and communications managers serve as the initial
contact for end users and we provide the second level of support. We have
developed and will continue to expand a database containing the questions
we have addressed and the answers we have provided in response to past
network issues. In this way, we are able to better respond to future
customer questions.

. Operating Support Systems. We have designed an integrated group of
customized applications around our current and planned business
processes. By customizing and integrating products from vendors such as
Daleen Technologies, Inc. for billing, Eftia OSS Solutions Inc. for
operating support systems and Hewlett-Packard Company for network
management, we have designed a system that will facilitate rapid service
responsiveness and reduce the cost of customer support. Our "NAS Total
System Solution" seamlessly integrates all of our business functions,
including sales, ordering, provisioning, customer support, maintenance
and repair, billing, accounting and decision support, ensuring that every
function has accurate, up-to-date information and the tools necessary to
efficiently complete their work.

Network Structure and Technology

Overview. We own and operate a series of metropolitan area networks
connected by our private high speed fiber optic backbone. Our network employs a
structure designed to deliver superior end-to-end capabilities, high speed
"last mile" connections and intelligent data traffic management. Our
technologically advanced network design has positioned us to deliver the high
level of data communications services, including Internet access, virtual
private networks, video conferencing and a broad array of multimedia services,
increasingly demanded by businesses. We have planned for growth by ensuring
that our network is scalable, intelligent and secure.

. Scalable. Our adaptable, hierarchical network architecture allows us to
provide both channelized and packet-based services reliably and
incrementally, which enables us to match investment with demand. As new
CuNet end users are added to our network, capacity is

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automatically added so that the same reliable performance is achieved for
all users as our network grows.

. Intelligent. From our network operations center, we are able to
constantly monitor our network, the network service providers' networks
and our customers' connections, as well as perform network diagnostics
and equipment surveillance, and initialize our end users' connections.
Because our network is centrally managed, we can identify and dynamically
enhance network quality, service and performance and address network
problems promptly, often without our end users becoming aware of the
repairs. This capability also allows us to control costs associated with
on-site network configuration and repair.

. Secure. With dedicated, direct access to our private network, our end
users and enterprises experience fewer network security risks than users
of common dial-up modems, ISDN lines or dedicated access to the Internet
because there is less risk of unauthorized access. Our network is
designed to provide enhanced security to ensure secure availability of
all internal applications and information for all end users, whether they
are within the corporate headquarters or telecommuting from remote
locations. Our network structure connects end users at fixed locations to
a single enterprise, which reduces the possibility of unauthorized access
and allows our customers to safely perform all of their required tasks.

Components. Our network has many components that are integrated into local,
metropolitan and wide area networks that combine speed and balanced capacity in
a manner designed to deliver a high performance networking experience for our
customers.

. Customer Endpoint. We currently offer channelized and packet-based DSL
connections in our network. We offer to provide the customer with a DSL
modem as part of our complete service offering. We configure and install
these modems with the end user's computer, local area network or
enterprise network equipment along with any required on site wiring
needed to connect the modem and the telephone line.

. Copper Telephone Lines. We lease copper telephone lines, known as
unbundled network elements, which run from our network access points in
central offices to the customer endpoint under terms specified in
telecommunications regulations and our interconnection agreements. We
have worked closely with Bell Atlantic to define specifications that
ensure the quality of the copper telephone lines we receive, thereby
ensuring the transmission speed of end user connections.

. Central Office Collocation Spaces. Through FCC and state
telecommunications regulatory policies as well as our interconnection
agreements with Bell Atlantic, we secure collocation space in central
offices from which we desire to offer CuNet. These collocation spaces are
designed to offer the same high reliability and availability standards as
Bell Atlantic's other central office space. At present, our collocation
spaces are either physical, virtual or SCOPE, which is secured
collocation in an open physical environment. With physical collocation,
we install and maintain our equipment in Bell Atlantic's central offices
and have complete access to the space. With SCOPE collocation, we install
and maintain our equipment in Bell Atlantic's central offices, but our
access to the space is non-exclusive. With virtual collocation, Bell
Atlantic installs and maintains the equipment on our behalf, but we have
no access to the space.

. Metropolitan Area Backbone. Our metropolitan area backbone is a fiber
optic network that connects our network access points in central offices
to our node sites and our node sites to our customer locations. To date,
we have leased fiber optic circuits capable of speeds of up to

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45 megabits per second from Bell Atlantic, MCI WorldCom and Level 3
Communications for metropolitan area backbone services, but we continue to
review alternative providers in an effort to reduce costs. We depend on
these providers to enable us to connect our DSL equipment in different
central offices.

. Node Sites. A node site is a physical location where we connect all of
our central offices within a particular metropolitan area network to
businesses and network service providers. The node site houses our
equipment to switch and interconnect customer traffic from central
offices within a region or across our entire network. Our node sites are
housed in a secured facility in each metropolitan area. We currently have
a node site in Boston, New York, Philadelphia, Baltimore, Washington,
D.C. and Richmond. We expect to establish node sites in Pittsburgh,
Norfolk and Wilmington, Delaware by the end of 1999.

. Wide Area Backbone. Our wide area backbone is a fiber optic network that
interconnects our node sites in various metropolitan areas. To date, we
have leased fiber optic circuits capable of speeds of up to 155 megabits
per second from Level 3 Communications, MCI WorldCom and Virginia
Electric and Power Company. We intend to upgrade our wide area backbone
to
higher capacities as necessary to deliver the quality of service that our
customers demand. We continue to evaluate alternative providers of
capacity in order to reduce costs. We depend on these providers to enable
us to connect our node sites in different cities.

. Network Operations Center. We manage our network from our network
operations center. We provide end-to-end network management to our
customers using advanced network management tools on a 24 hour a day,
seven days a week basis. This enhances our ability to address performance
or connectivity issues before they affect the end user experience. From
our network operations center, we can monitor our network, including the
equipment and circuits in our metropolitan area networks and central
offices, and our customers' networks, including individual end user lines
and DSL modems. Our network operations center is located in our corporate
headquarters in Sterling, Virginia. See "--Network Management Services."

CuNet Rollout. We currently offer CuNet in Boston, New York, Philadelphia,
Baltimore, Washington, D.C. and Richmond and have collocated our equipment in
51 central offices. We intend to build networks and offer services in
Pittsburgh, Norfolk and Wilmington, Delaware by the end of September 1999. We
plan to offer services in these nine target markets through 360 central
offices by the end of 1999. To the extent opportunities present themselves, we
may decide to expand our network beyond our initial target markets and into
adjacent regions We have recently entered into our first interconnection
agreement with Bell South.

Research and Development. We are also pursuing a program of ongoing network
development. Our engineering efforts focus on the design and development of
new technologies and services to increase the speed, efficiency, reliability
and security of our network and to facilitate the development of network
applications by third parties that will increase the use of our network.

Competition

We face competition from many companies with significantly greater
financial resources, well-established brand names and large, existing
installed customer bases. We expect the level of competition to intensify in
the future. Some of the competitive factors we face include:

. transmission speed;
. reliability of service;
. diversity of service offerings;

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. breadth of network coverage;
. price/performance;
. network security;
. ease of access and use;
. service bundling;
. sales relationships;
. customer support;
. strategic relationships; and
. operating experience.

We believe that each potential customer presents an opportunity for
competition and presents competitive challenges unique to that customer. The
significance of the different competitive factors we face will vary with each
customer depending on the needs of the particular customer and the particular
competitor we face. For example, if we are competing for a customer against an
incumbent carrier, we expect to compare favorably as to client support,
transmission speed and price/performance, but perhaps unfavorably as to brand
recognition, access to capital and operating experience. If we are competing
for a customer against another provider of DSL, we expect to compare favorably
as to diversity of service offerings, sales relationships and operating
experience, but perhaps unfavorably as to the geographic breadth of network
coverage. We expect to improve our competitive position relative to other DSL
providers by expanding the geographic breadth of our network through
opportunistic growth of our network and, in part, through strategic alliances.
We believe that our most direct competition will come from Bell Atlantic and
other incumbent carriers operating in our target markets and other major DSL
providers. However, we also anticipate competition from service providers using
other technologies.

Bell Atlantic and Other Incumbent Carriers. Bell Atlantic and the other
incumbent carriers present in our target markets are conducting technical
and/or market trials or have entered into commercial deployment of DSL-based
services. We recognize that each incumbent carrier has the potential to quickly
overcome many of the obstacles that we believe have delayed widespread
deployment of DSL services by incumbent carriers in the past. The incumbent
carriers currently represent and will in the future increasingly represent
strong competition in all of our target markets. The incumbent carriers have an
established brand name, a large number of existing customers and a reputation
for high quality in their service areas, possess sufficient capital to deploy
DSL equipment rapidly, have their own copper lines and can bundle digital data
services with their existing analog voice services to achieve economies of
scale in serving customers. In the absence of strong oversight by the FCC and
state telecommunications regulators, incumbent carriers also have an economic
incentive to benefit their own DSL retail operations by providing themselves
with the copper telephone lines, collocation, operational support services and
other essential DSL service inputs on more favorable terms than they provide
these facilities and services to their DSL competitors, like us. These factors
give the incumbent carriers a potential competitive advantage compared with us.
Accordingly, we may be unable to compete successfully against Bell Atlantic or
the other incumbent carriers, and any failure to do so would materially and
adversely affect our business, operating results and financial condition.

Other Major DSL Providers. Other competitive carriers plan to offer or have
begun offering DSL-based access services in our targeted markets, and others
are likely to do so in the future. Competitive carriers who provide DSL service
include Covad Communications, Rhythms NetConnections and NorthPoint
Communications.

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Other Service Providers. Many of our competitors are offering, or may soon
offer, technologies and services that will compete with some or all of our high
speed DSL offerings. These technologies include T1, ISDN, satellite, cable
modems and analog modems and could be provided by the following:

. Cable Modem Service Providers. Cable modem service providers, like
MediaOne Group, Inc., At Home, through its @Home service offering, and
their cable partners, are offering or preparing to offer high speed
Internet access over fiber and cable networks to consumers. At Home,
through its @Work service offering, has positioned itself to do the same
for businesses. Where deployed, these networks provide local access
services, in some cases at higher speeds than our CuNet. They typically
offer these services at lower prices than our services, in part by
sharing the capacity available on their cable networks among multiple end
users.

. Traditional Long Distance Carriers. Many of the leading traditional long
distance carriers, like AT&T, Sprint and MCI WorldCom, are expanding
their capabilities to support high speed, end-to-end networking services.
Increasingly, their services include high speed local access combined
with metropolitan and wide area networks, and a full range of Internet
services and applications. We expect them to offer combined data, voice
and video services over these networks. These carriers have deployed
large scale networks, have large numbers of existing business and
residential customers and enjoy strong brand recognition, and, as a
result, represent significant competition. For instance, they have
extensive fiber networks in many metropolitan areas that primarily
provide high speed data and voice communications to large companies. They
could deploy DSL services in combination with their current fiber
networks. They also have interconnection agreements with many of the
incumbent carriers and have secured collocation spaces from which they
could begin to offer competitive DSL services.

. New Long Distance Carriers. New long distance carriers, such as Williams,
Qwest Communications and Level 3 Communications, are building and
managing high bandwidth, nationwide packet-based technology networks for
the wide area network. These same providers are acquiring or partnering
with Internet service providers to offer services directly to business
customers. These companies could extend their existing networks to
include fiber optic networks within Metropolitan areas and high speed
services using DSL technology, either alone, or in partnership with
others.

. Internet Service Providers. Internet service providers provide Internet
access to business and residential customers. These companies generally
provide Internet access over the incumbent carrier's circuit switched
networks at ISDN speeds or below. Some Internet service providers have
begun offering DSL-based access using DSL services offered by the
incumbent carrier or other DSL-based competitive carriers. Some Internet
service providers such as Concentric Network Corporation, Mindspring
Enterprises, Inc., PSINet and Verio Inc. have significant and even
nationwide marketing presences and combine these with strategic or
commercial alliances with DSL-based competitive carriers.

. Wireless and Satellite Data Service Providers. Several new companies are
emerging as wireless and satellite-based data service providers over a
variety of frequency bands. Companies such as Teligent, Inc., Advanced
Radio Telecom Corp. and WinStar Communications, Inc., hold point-to-point
microwave licenses to provide fixed wireless services such as voice, data
and videoconferencing. We also may face competition from satellite-based
systems such as Motorola Satellite Systems, Inc., Hughes Space
Communications, Iridium World Communications, Ltd., Globalstar and others
which are

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planning or are in the process of building global satellite networks which
can be used to provide broadband voice and data services.

Relationship with Bell Atlantic

Our relationship with Bell Atlantic is critical to our business. We depend
on Bell Atlantic for collocation facilities, copper telephone lines, back-
office support services and some of the fiber optic transport that we use for
CuNet. Our interconnection agreements with Bell Atlantic govern much of this
critical relationship. We have signed interconnection agreements with Bell
Atlantic in each of the states covering our initial target markets. These
agreements cover a number of aspects including:

. the price and terms to lease access to Bell Atlantic's copper lines;

. the special conditioning Bell Atlantic provides to enable the
transmission of DSL signals on these lines;

. the price and terms for collocation of our equipment in Bell Atlantic's
central offices;

. the price and terms to access Bell Atlantic's transport facilities;

. the terms to access conduits and other rights of way Bell Atlantic has
constructed for its own network facilities;

. the operational support systems and interfaces that we use to place
orders and trouble reports and monitor Bell Atlantic's response to our
requests;

. the dispute resolution process we and Bell Atlantic use to resolve
disagreements on the terms of the interconnection agreement; and

. the term of the interconnection agreement, its transferability to
successors, its liability limits and other general aspects of our
relationship with Bell Atlantic.

Our interconnection agreements have an initial term that expires in March
2000, in the case of Baltimore, Philadelphia, Pittsburgh, Norfolk, Richmond,
Wilmington, Delaware and Washington, D.C., and January 2001 in the case of
Boston and New York. Thereafter, the agreements will continue until terminated
by either party upon ninety days prior notice. If an agreement is terminated,
our service arrangements will continue without interruption under:

. terms of a new agreement;

. terms imposed by a state commission;

. tariff terms generally applicable to competitive carriers and other
carriers; or

. if none of these are available, on a month-to-month basis under the
terms of the initial agreement.

Thus, we may be required to renegotiate our agreements in the future. Although
we expect to renew our interconnection agreements, there can be no assurance
that we can extend or renegotiate agreements on favorable terms.

Additionally, the FCC, state telecommunications regulators and the courts
have authority to interpret our interconnection agreements and to resolve
disputes in the event of a disagreement between us and Bell Atlantic. There can
be no assurance that these bodies will not interpret the terms or prices of our
interconnection agreements in ways that could adversely affect our business,
operating results and financial condition.

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If we expand into adjacent regions which are served by incumbent carriers
other than Bell Atlantic, we will need to enter into interconnection agreements
with those incumbent carriers. We have recently entered into an interconnection
agreement with Bell South. However, that agreement will become effective only
after it is approved by the state regulatory agencies where Bell South operates
as the incumbent carrier. While we anticipate such approval in the summer of
1999, we cannot assure you that it will be approved then, or ever.

Government Regulation

The following summary of regulatory developments and legislation describes
material telecommunications regulations and legislation directly affecting our
industry.

The facilities and services that we obtain from Bell Atlantic in order to
provide CuNet are regulated extensively by the FCC and state telecommunications
regulatory agencies. To a lesser extent, the FCC and state telecommunications
regulators exercise direct regulatory control over the terms under which we
provide CuNet to the public. Municipalities also regulate limited aspects of
our telecommunications business by imposing zoning requirements, permit or
right-of-way procedures or fees, among other regulations. The FCC and state
regulatory agencies generally have the authority to condition, modify, cancel,
terminate or revoke operating authority for failure to comply with applicable
laws, or rules, regulations or policies. Fines or other penalties also may be
imposed for such violations. We cannot assure you that regulators or third
parties would not raise issues regarding our compliance or non-compliance with
applicable laws and regulations. We believe that we operate our business in
compliance with applicable laws and regulations of the various jurisdictions in
which we operate and that we possess the approvals necessary to conduct our
current operations.

Federal Regulation. The 1996 Telecom Act substantially departs from prior
legislation in the telecommunications industry by establishing competition as a
national policy in all telecommunications markets. This Act removes many state
regulatory barriers to competition in telecommunications markets dominated by
incumbent carriers and preempts, after notice and an opportunity to comment,
laws restricting competition in those markets. Among other things, the Act also
greatly expands the interconnection requirements applicable to incumbent
carriers. It requires the incumbent carriers to:

. provide collocation, which allows competitive carriers to install and
maintain their own network termination equipment in incumbent carrier
central offices;

. unbundle and provide access to components of their service networks to
other providers of telecommunications services;

. establish "wholesale" rates for the services they offer at retail to
promote resale by competitive carriers; and

. provide nondiscriminatory access to telephone poles, ducts, conduits and
rights of way.

Incumbent carriers are required by the 1996 Telecom Act to negotiate an
interconnection agreement in good faith with carriers requesting any or all of
the above arrangements. If a requesting carrier cannot reach an agreement
within the prescribed time, either carrier may request binding arbitration by
the state telecommunications regulatory agency.

The FCC and state telecommunications regulators also are instructed by the
1996 Telecom Act to perform certain duties to implement the regulatory policy
changes prescribed by the 1996 Telecom

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Act. The outcome of various ongoing proceedings to carry out these
responsibilities, or judicial appeals of these proceedings, could materially
affect our business, operating results and financial condition.

In October 1996, the United States Court of Appeals for the Eighth Circuit
overruled some of the rules initially adopted by the FCC to implement the 1996
Telecom Act, including rules:

. providing the detailed standard that state telecommunication regulators
must use in prescribing the price that incumbent carriers charge for
collocation and for the copper telephone lines and other network elements
that competitive carriers must obtain from incumbent carriers in order to
provide service and

. giving competitive carriers the right to "pick-and-choose"
interconnection provisions by requiring that an incumbent carrier enter
into an interconnection agreement with the competitive carrier that
combines provisions from a variety of interconnection agreements between
that incumbent carrier and other competitive carriers.

The FCC and others appealed this decision to the U.S. Supreme Court. In
January 1999, the U.S. Supreme Court reversed much of the Eighth Circuit's
decision, finding that the FCC has broad authority to interpret the 1996
Telecom Act and issue rules for its implementation, including authority to
establish the methodology that state telecommunication regulators must use in
setting the price that incumbent carriers charge competitive carriers for
collocation, copper telephone lines and other network elements. The Supreme
Court also reversed the Eighth Circuit's holding invalidating the FCC's "pick-
and-choose" rule. However, the Supreme Court found that the FCC had violated
the 1996 Telecom Act in defining the individual network elements incumbent
carriers must make available to competitive carriers, and required the FCC to
reconsider its delineation of these elements.

The Supreme Court's order is potentially beneficial to us in several
important respects. For example, the Supreme Court's decision requiring that
the Eighth Circuit reinstate the FCC's "pick-and-choose" rule could help us
obtain the benefit of specific provisions from interconnection agreements
between Bell Atlantic and other competitive carriers who had more bargaining
leverage than we had at the time we negotiated our interconnection agreements.
However, the Eighth Circuit has not yet reinstated the FCC's "pick and choose"
rule, and we cannot predict when it will do so. The Supreme Court's
determination that the FCC rather than state telecommunications regulators has
jurisdiction to determine pricing methodology also could be beneficial to us
since the FCC has adopted a pricing standard that appears to be more beneficial
to competitive carriers in some respects than the pricing standards that some
state telecommunications regulators have employed. However, it remains unclear
whether the particular pricing methodology prescribed by the FCC will go into
effect because some parties have challenged the lawfulness of that methodology
in the U.S. Court of Appeals for the Eighth Circuit, and that litigation is
still pending.

Although the Supreme Court's decision is potentially beneficial to us in
several respects, it also has created uncertainty by mandating that the FCC
commence a new rulemaking proceeding to determine which network components the
incumbent carriers must make available to competitors. The FCC recently
commenced this proceeding. We are reasonably confident that the FCC will not
change, in a way that would be materially adverse to our business, the
requirement that incumbent carriers make available the specific components we
need in order to provide CuNet, but we cannot guarantee this outcome. A
decision by the FCC to exempt incumbent carriers from the obligation to provide
us with any of the facilities and services we need in order to provide CuNet
could materially harm us.

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In an order released March 31, 1999, the FCC adopted several new regulations
that potentially could have a positive impact on our business. In particular,
several new FCC rules require incumbent carriers to provide collocation
arrangements in a manner that potentially will be less costly than the manner
in which such arrangements are provided at present. Another new rule is
intended to reduce the number of situations in which incumbent carriers deny
collocation applications based on a claim that there is no space available.
Still another is intended to help ensure that the customers of companies who
provide services like CuNet do not receive harmful interference from other
users of the incumbent carrier network on which the service is provided. It
remains to be seen whether the FCC's new rules will accomplish their intended
objectives since they will not go into effect until late May 1999 at the
earliest. Nor can we predict whether any of these new rules will be appealed
and, if so, whether the appeals will be successful.

The FCC made another potentially favorable ruling for our industry in
another recent case. That case involved the question of whether a
telecommunications service like CuNet that provides high speed dedicated access
to the Internet is an interstate service or an intrastate service. An
interstate service must be provided subject to FCC regulatory controls, whereas
an intrastate service must be provided subject to regulatory controls of the
telecommunications regulatory agency of the state where the service is offered.
In its decision, the FCC held that such services are jurisdictionally
interstate and therefore must be provided on terms and conditions set by the
FCC. This ruling is potentially advantageous to us because it reduces the
number of telecommunications regulatory agencies that control the terms under
which we provide CuNet. It also is potentially advantageous because FCC
regulatory controls in many respects are less burdensome than state regulatory
controls. For example, the 1996 Telecom Act authorizes the FCC to forbear from
regulating the terms under which carriers classified as "non-dominant" provide
interstate telecommunications service. The FCC has exercised its forbearance
authority by issuing rulings that exempt non-dominant domestic carriers like us
from obtaining a certificate from the FCC prior to providing any interstate
service or from filing a tariff setting forth the terms under which they
provide any interstate access service. Because we believe that CuNet
constitutes interstate service, we believe that we do not need an FCC
certificate to provide CuNet. Moreover, since we believe CuNet is special
access, we provide the service to existing customers pursuant to contract
rather than tariff.

The FCC is considering whether to adopt some regulations that could
adversely affect us. In particular, we could be hurt by adoption of a proposal
that would exempt incumbent carriers from some existing FCC regulations
designed to help ensure that the price incumbent carriers charge for their own
retail DSL service offering recovers the actual costs they incur in providing
that service. We also could be hurt by adoption of a proposal to let incumbent
carriers provide DSL services through an affiliate of the incumbent carrier
unless the FCC requires that the incumbent carrier provide copper telephone
lines, collocation and back-office support services to its affiliates on terms
that are no more favorable than the terms available to competitive carriers
like us.

On May 8, 1997, in compliance with the requirements of the 1996 Telecom Act,
the FCC released an order establishing a new federal universal service support
fund, which provides subsidies to carriers that provide service to under-served
individuals and customers in high-cost or low-income areas, and to companies
that provide telecommunications services for schools and libraries and to rural
health care providers. We are required to contribute to the universal service
fund and are also may be required to contribute to state universal service
funds. The new universal service rules are administered jointly by the FCC, the
fund administrator, and state regulatory authorities, many of which are still
in the process of establishing their administrative rules. We cannot determine
the net revenue effect of these regulations at this time.

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State Regulation. While it is clear from the January 1999 Supreme Court
decision that the FCC has broad authority to implement provisions in the 1996
Telecom Act that are intended to open all telecommunications markets to
competition, state telecommunications regulators also have substantial
authority in this area. For example, although the Supreme Court's decision
validated the FCC's jurisdiction to prescribe the methodology incumbent
carriers must use in setting the price of local telephone wires and other
network elements, the FCC has exercised that jurisdiction by adopting a pricing
standard and has given state regulators substantial authority to apply that
standard in order to determine actual prices. Many states have set only
temporary prices for some network elements that are critical to the provision
of DSL services because they have not yet completed the regulatory proceedings
necessary to determine permanent prices. The results of these proceedings will
determine the price we pay for, and whether it is economically attractive for
us to use, these network elements and services.

The 1996 Telecom Act also gives state telecommunications regulators broad
authority to approve or reject interconnection agreements that competitive
carriers enter with incumbent carriers and broad authority to resolve disputes
that arise under these interconnection agreements. Under the 1996 Telecom Act,
if we request, incumbent carriers have a statutory duty to negotiate in good
faith with us for agreements for interconnection and access to unbundled
network elements. A separate agreement is signed for each of the states in
which we operate. During these negotiations either the incumbent carrier or we
may submit disputes to the state regulatory commissions for mediation and,
after the expiration of the statutory negotiation period provided in the 1996
Telecom Act, we may submit outstanding disputes to the states for arbitration.
The 1996 Telecom Act also allows state regulators to supplement FCC regulations
as long as the state regulations are not inconsistent with FCC requirements.

In addition, CuNet may, as to some future customers, be classified as
intrastate services subject to state regulation. All of the states where we
operate, or will operate, require some degree of state regulatory commission
approval to provide certain intrastate services. We have obtained state
authorizations to provide all types of intrastate services in seven of our
initial nine target markets, and our applications for certificates to provide
intrastate services in the remaining two markets are pending. In most states,
intrastate tariffs are also required for various intrastate services, although
non-dominant carriers like us are not typically subject to price or rate of
return regulation for tariffed intrastate services. Actions by state
telecommunications regulation agencies could cause us to incur substantial
legal and administrative expenses.

It is possible that laws and regulations could be adopted which address
other matters that affect our business. We are unable to predict what laws or
regulations may be adopted in the future, to what extent existing laws and
regulations may be found applicable to our business, or the impact such new or
existing laws or regulations may have on our business. In addition, laws or
regulations could be adopted in the future that may decrease the growth and
expansion of the Internet's use, thereby decreasing demand for our services.

Local Government Regulation. In certain instances, we may be required to
obtain various permits and authorizations from municipalities in which we
operate our own facilities. The extent to which such actions by local
governments such pose barriers to entry for competitive carriers that may be
preempted by the FCC is the subject of litigation. Although our network
consists primarily of unbundled network elements of the incumbent carriers, in
certain instances we may deploy our own facilities and therefore may need to
obtain certain municipal permits or other authorizations. The actions of
municipal governments in imposing conditions on the grant of permits or other

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authorizations or their failure to act in granting such permits or other
authorizations could have a material adverse effect on our business, operating
results and financial condition.

Intellectual Property

We regard our products, services and technology as proprietary and attempt
to protect it with copyrights, trademarks, trade secret laws, restrictions on
disclosure and other methods. There can be no assurance these methods will be
sufficient to protect our technology and intellectual property. We also
generally enter into confidentiality agreements with our employees and
consultants, and generally control access to and distribution of our
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use our
products, services or technology without authorization, or to develop similar
technology independently. Currently, we are the owner of three trademark
registration applications, but have not filed to register any copyrights. We
expect to seek registration of our copyrights in software and other
intellectual property to the extent possible. There is no assurance that we
will obtain any significant copyright protection for our systems which would
protect our intellectual property from competition. Currently, we have not
filed any patent applications. We intend to prepare applications and to seek
patent protection for our systems and services to the extent possible. There is
no assurance that we will obtain any patents or that any such patents would
protect our intellectual property from competition which could seek to design
around or invalidate such patents. In addition, effective patent, copyright,
trademark and trade secret protection may be unavailable or limited in certain
foreign countries, and the global nature of the Internet makes it virtually
impossible to control the ultimate destination of our proprietary information.
There can be no assurance that the steps we have taken will prevent
misappropriation or infringement of our technology. In addition, litigation may
be necessary in the future to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on our
business, operating results and financial condition. In addition, some of our
information, including our competitive carrier status in individual states and
our interconnection agreements, is a matter of public record and can be readily
obtained by our competitors and potential competitors, possibly to our
detriment.

Employees

As of April 15, 1999, we employed 106 individuals in engineering, sales,
marketing, customer support and related activities and general and
administrative functions. None of these employees is represented by a labor
union, and we consider our relations with our employees to be satisfactory. We
are not a party to any collective bargaining agreement. Our ability to achieve
our financial and operational objectives depends in large part upon the
continued service of our senior management and key technical, sales, marketing
and managerial personnel, and our continuing ability to attract and retain
highly qualified technical, sales, marketing and managerial personnel.
Competition for such qualified personnel is intense, particularly in software
development, network engineering and product management, and we may be unable
to identify, attract and retain such personnel in the future.

Properties

Our headquarters are in Sterling, Virginia in facilities consisting of
approximately 15,000 square feet under a lease that will expire in August 2001
and approximately 62,000 square feet under a lease that will expire in 2004. We
have established branch offices in Philadelphia and Richmond and plan

52
<PAGE>

to establish additional branch offices in Boston and New York to cover our nine
initial target markets.

We also lease collocation space in central offices from Bell Atlantic where
we operate or plan to operate under the terms of our interconnection agreements
with Bell Atlantic and regulations imposed by state public utility commissions
and the FCC. While the terms of these leases are perpetual, the productive use
of our collocation facilities is subject to the terms of our interconnection
agreements which have initial terms that expire in 2000 and 2001. See "--
Relationship with Bell Atlantic." We will increase our collocation space as we
expand our network.

Legal Proceedings

We are not currently involved in any legal proceedings that we believe could
have a material adverse effect on our business, financial position, results of
operations or cash flows. We are, however, subject to state public utility
commission, FCC and court decisions as they relate to the interpretation and
implementation of the 1996 Telecom Act, the Federal Communications Act of 1934,
as amended, various state telecommunications statutes and regulations, the
interpretation of competitive carrier interconnection agreements in general and
our interconnection agreements in particular. In some cases, we may be deemed
to be bound by the results of ongoing proceedings of these bodies or the legal
outcomes of other contested interconnection agreements that are similar to our
agreements. The results of any of these proceedings could have a material
adverse effect on our business, operating results and financial condition.

53
<PAGE>

MANAGEMENT

Our Directors and Executive Officers

The following table shows information about our directors and executive
officers:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jonathan P. Aust........... 41 President, Chief Executive Officer and Chairman
of the Board of Directors
Christopher J. Melnick..... 33 Chief Operating Officer and Director
Scott G. Yancey, Jr. ...... 46 Chief Financial Officer and Director
James A. Aust.............. 37 Vice President, Engineering
John J. Hackett............ 45 Vice President, Sales and Marketing
Brion B. Applegate......... 45 Director
Dennis R. Patrick.......... 47 Director
</TABLE>

Jonathan P. Aust has been our Chief Executive Officer since founding Network
Access Solutions, with his wife Longma, in December 1994. In August 1998, Mr.
Aust also became our President and Chairman of the Board of Directors. Mr. Aust
was the National Account Manager for AT&T Paradyne responsible for the Federal
Reserve System from October 1987 to December 1994. From June 1982 to October
1987, Mr. Aust held numerous engineer and sales positions at Paradyne
Corporation, a manufacturer of data communications equipment.

Christopher J. Melnick has been our Chief Operating Officer since joining us
in July 1998 and a Director since August 1998. Mr. Melnick was the Vice
President and General Manager for the Southeast Region of Level 3
Communications from March 1998 to July 1998. Mr. Melnick was the Vice President
of Telcom Access Sales for the Washington, Baltimore and Richmond markets of
WorldCom from December 1996 to March 1998. Mr. Melnick was the Vice President
of Sales for MFS Telcom from September 1995 to December 1996 and Sales Manager
for Washington, D.C. and Baltimore MFS Telcom from June 1994 to September 1995.
Mr. Melnick was a Senior Account Executive for MFS Telcom from April 1992 to
June 1994.

Scott G. Yancey, Jr. has been our Chief Financial Officer since joining us
in July 1998 and a Director since August 1998. Mr. Yancey was the Chief
Financial Officer and General Manager of the data division of Cable & Wireless
USA, a telecommunications service provider, from July 1982 to May 1998.

James A. Aust has been our Vice President of Engineering since joining us in
July 1995. Mr. Aust was a Consultant Systems Engineer for AT&T from May 1990 to
July 1994. In this role, Mr. Aust was responsible for network design and
implementation issues for key accounts and worked closely with hardware and
software developers at Bell Laboratories, defining products and feature sets to
fulfill customer networking requirements. Mr. Aust also served on the AT&T
Engineering Council which was responsible for formulating methods and
procedures for AT&T's System Engineering from August 1988 to May 1990.

John J. Hackett has been our Vice President, Sales and Marketing since
joining us in February 1999. Mr. Hackett was the Division President of MCI
WorldCom and MFS Telcom from September 1993 to February 1999 responsible for
Sales and Customer Support.

Brion B. Applegate has been a Director of Network Access Solutions since
August 1998. Mr. Applegate is a co-founder and has been a Managing General
Partner of Spectrum Equity Investors since March 1993. Mr. Applegate is a
director of Tut Systems, Inc.

54
<PAGE>

Dennis R. Patrick has been a Director of Network Access Solutions since
April 1999. Mr. Patrick is and has been the President and Chief Executive
Officer of Patrick Communications Inc. and Doeg Hill Ventures LLC since
November 1997. Patrick Communications provides analysis of investment
opportunities in the telecommunications and media industries to a select group
of clients. Doeg Hill Ventures is a closely held venture capital enterprise
focusing on early stage investments in the telecommunications industry. Mr.
Patrick was the founder and Chief Executive Officer of Milliwave LP, a local
exchange telephone company using digital radio frequencies to transmit data,
from June 1995 to January 1997. Milliwave was acquired by Winstar
Communications in January 1997 and Mr. Patrick served on the board of directors
of the combined entity until September 1997. From February 1990 to December
1995, Mr. Patrick served as Chief Executive Officer of Time Warner
Telecommunications, a division of Time Warner Entertainment. From November 1983
to August 1989, Mr. Patrick was a Commissioner and then Chairman of the FCC.

Jonathan P. Aust and James A. Aust are brothers.

Our board of directors is comprised of five directors and will be divided
into three classes, as nearly equal in number as possible. At each annual
meeting of stockholders, the successors to the class of directors whose term
expires at that meeting will be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year after their year of
election. Our executive officers are chosen by our board of directors and serve
at its discretion.

Board Committees

Our board of directors established a compensation committee in August 1998.
The compensation committee consists of Jonathan P. Aust, Mr. Applegate and Mr.
Patrick. Mr. Aust is our President, Chief Executive Officer and Chairman of the
Board of Directors. Mr. Applegate is a Managing General Partner of Spectrum
Equity Investors. The compensation committee determines the compensation of our
President and Chief Executive Officer and administers our stock plans and
generally reviews our compensation plans to ensure that they meet our
objectives. Our board of directors established an audit committee in April
1999. The audit committee consists of Messrs. Applegate and Patrick. The
responsibilities of the audit committee include:

. recommending to our board of directors the independent public
accountants to conduct the annual audit of our books and records;

. reviewing the proposed scope of the audit;

. approving the audit fees to be paid;

. reviewing accounting and financial controls with the independent public
accountants and our financial and accounting staff; and

. reviewing and approving transactions between us and our directors,
officers and affiliates.

Directors' Compensation

Our directors have received no compensation for serving as directors. We
reimburse our directors for reasonable expenses they incur to attend board and
committee meetings. Our non-employee directors are eligible to receive grants
of options to acquire our common stock under our stock incentive plan. In April
1999, we granted options to acquire 111,111 shares of our common stock
exercisable at a price of $15 per share to Mr. Patrick. After our initial
public offering Mr. Patrick will receive an option to purchase an additional
number of shares of common stock at an exercise price equal to 25% of the
public offering price, such that the aggregate difference between

55
<PAGE>

the public offering price and the exercise price of the initial options and
additional options granted to Mr. Patrick equals $5,000,000. Mr. Patrick's
options will vest immediately after our initial public offering. See "--1998
Stock Incentive Plan."

Executive Compensation

The following table summarizes the compensation paid to our chief executive
officer and executive officers whose total salary and bonus exceeded $100,000
during 1998, whom we identify as "named executive officers":

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Securities
----------------------- Underlying
Name and Principal Position Salary Bonus Other Options
<S> <C> <C> <C> <C>
Jonathan P. Aust.......................... $120,606 $135,000 -- --
President and Chief Executive Officer
Christopher J. Melnick.................... 101,308 -- -- 1,400,000
Chief Operating Officer
James A. Aust............................. 97,417 25,000 -- 130,000
Vice President, Engineering
</TABLE>

The salary paid to Mr. Melnick is from July 1998, the date of his
employment.

Options Grants in 1998

The following table shows information about our grants of options to
purchase our common stock made to the named executive officers during 1998:

<TABLE>
<CAPTION>
Potential Realizable
Value
at Assumed Annual
Rates
Of Stock Price
Appreciation for
Individual Grants Option Term (5)
------------------------------------------------------------- -------------------------------------
Number of Percent of Based on
Securities Total Options Market Price Initial
Underlying Granted to Exercise or at Grant Public
Options Employees Base Price Date Expiration Offering
Name Granted (1) in 1998 (2) ($/share) ($/share)(3) Date (4) 0% 5% 10% Price
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jonathan P. Aust... -- --% $ -- $-- -- $ -- $ -- $ -- $ --
Christopher J. Melnick.. 1,400,000 44.4 0.20 0.50 7/23/08 420,000 860,226 1,535,620
James A. Aust...... 130,000 4.1 0.20 4.70 11/1/08 585,000 969,255 1,558,777
</TABLE>
- ---------------------
(1) All options were granted under our 1998 stock incentive plan. All options
were incentive stock options which vest over time. Generally, these options
vest in quarterly installments over 36 to 42 months. All of these options
immediately vest in the event of a change in control of our company. If a
majority of our stockholders elect to sell all or part of our company, then
the option holder is required to sell an equivalent percentage of the
shares underlying the option.
(2) Based on options to purchase 3,151,500 shares of our common stock granted
to employees in 1998.
(3) We believe that these options were granted at an exercise price that
equaled the fair market value of the underlying common stock on the date of
grant. However, in preparing for this offering, we revisited the valuation
of these options and determined that they did have a compensatory element.
We now value these options on the basis of the price paid for our common
stock in August 1998, an independent valuation, a treasury stock
transaction with our founders, our general financial condition, discussions
with our underwriters and information relating to other companies in our
industry.

56
<PAGE>

(4) The options have ten year terms, subject to earlier termination upon death,
disability or termination of employment.
(5) We recommend caution in interpreting the financial significance of the
figures representing the potential realizable value of the stock options.
They are calculated by multiplying the number of options granted by the
difference between a future hypothetical stock price and the option
exercise price and are shown pursuant to rules of the SEC. They assume the
fair value of common stock appreciates 5% or 10% each year, compounded
annually, for ten years (the term of each option). They are not intended to
forecast possible future appreciation, if any, of our stock price or to
establish a present value of options. Also, if appreciation does occur at
the 5% or 10% per year rate, the amounts shown would not be realized by the
recipients until the year 2008. Depending on inflation rates, these amounts
may be worth significantly less in 2008, in real terms, than their value
today.

None of the executive officers named above exercised any stock options
during 1998.

Year-End Option Values

The following table shows information about unexercised options held by the
named executive officers at December 31, 1998:

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying in-the-Money
Unexercised Options at Options at
December 31, 1998 December 31, 1998(1)
---------------------------- ----------------------------
Exercisable Unexercisable(2) Exercisable Unexercisable(2)
<S> <C> <C> <C> <C>
Jonathan P. Aust........ -- -- -- --
Christopher J. Melnick.. 116,666 1,283,334
James A. Aust........... -- 130,000
</TABLE>
- ---------------------
(1) Calculated on the basis of $ per share, the initial public offering price
of our common stock, less the exercise price payable for those shares,
multiplied by the number of shares underlying the option.
(2) The options are exercisable in full into restricted stock which is subject
to vesting and forfeiture.

No compensation intended to serve as incentive for performance to occur over
a period longer than one year was paid pursuant to a long-term incentive plan
during the last year to any of the executive officers named above.

Employment Arrangements

We have entered into an employment agreement with each of our executive
officers. Each agreement has an initial term of four years, subject to earlier
termination upon 30 days prior notice. The term of each agreement is
automatically extended for additional one year terms unless we or the executive
elects to terminate the agreement within 30 days before the end of the current
term. Under these agreements, these executives receive an initial annual base
salary that will be increased by at least 5% each year, based upon performance
objectives set by our board of directors. These executives also receive an
annual bonus of up to 20% of the executive's then current salary. The bonus is
payable in cash, stock or a combination of both at the election of our board of
directors. The executives have received options to acquire shares of our common
stock which vest in quarterly installments over either three or four years from
the date of grant. The following table shows information about the compensation
arrangements we have with our executive officers:

57
<PAGE>

<TABLE>
<CAPTION>
Options Granted
Current Annual Base Salary Maximum Annual Bonus (Shares)
<S> <C> <C> <C>
Jonathan P. Aust........ $240,000 20% --
Christopher J. Melnick.. 200,000 20 1,400,000
Scott G. Yancey, Jr..... 200,000 20 1,000,000
John J. Hackett......... 175,000 20 600,000
James A. Aust........... 125,000 20 130,000
</TABLE>

If, during the term of one of these employment agreements, we terminate the
executive's employment without cause or the executive terminates his employment
for good reason, then the executive will be entitled to receive his base
salary, bonus and all employee benefits for a period of one year from the date
of the termination of employment.

Under the terms of these agreements, these executives have agreed to
preserve the confidentiality and the proprietary nature of all information
relating to our business during the term of the agreement and after the
agreement ends indefinitely. In addition, each of these executives has agreed
to non-competition and non-solicitation provisions that will be in effect
during the term of his agreement and for one year after the agreement ends.

We require all of our other employees to sign agreements which prohibit the
employee from directly or indirectly competing with us while they are employed
by us and generally for a period of one year. We require all of our employees
to sign agreements which prohibit the disclosure of our confidential or
proprietary information.

1998 Stock Incentive Plan

Our stock incentive plan authorizes the grant of:

. stock options;

. stock appreciation rights;

. stock awards;

. phantom stock; and

. performance awards.

The compensation committee of our board of directors administers our stock
incentive plan. The committee has sole power and authority, consistent with the
provisions of our stock incentive plan, to determine which eligible
participants will receive awards, the form of the awards and the number of
shares of our common stock covered by each award. The committee may impose
terms, limits, restrictions and conditions upon awards, and may modify, amend,
extend or renew awards, to accelerate or change the exercise timing of awards
or to waive any restrictions or conditions to an award.

The maximum number of shares available for issuance under our stock
incentive plan is 5,000,000. As of April 15, 1999, we had issued no shares of
our common stock in connection with awards granted, we had granted awards with
respect to 4,104,611 shares of our common stock and 895,389 shares remained
available for us to grant under our stock incentive plan.

Stock Options. Our stock incentive plan permits the granting of options to
purchase shares of our common stock intended to qualify as incentive stock
options under the Internal Revenue Code and stock options that do not qualify
as incentive options. The option exercise price of each option

58
<PAGE>

will be determined by the committee. The term of each option will be fixed by
the committee. The committee will determine at what time or times each option
may be exercised and, the period of time, if any, after retirement, death,
disability or termination of employment during which options may be exercised.

Stock Appreciation Rights. The committee may grant a right to receive a
number of shares or, in the discretion of the committee, an amount in cash or a
combination of shares and cash, based on the increase in the fair market value
of the shares underlying the right during a stated period specified by the
committee.

Stock Awards. The committee may award shares of our common stock to
participants at no cost or for a purchase price. These stock awards may be
subject to restrictions or may be free from any restrictions under our stock
incentive plan. The committee shall determine the applicable restrictions. The
purchase price the shares of our common stock will be determined by the
committee.

Phantom Stock. The committee may grant stock equivalent rights, or phantom
stock, which entitle the recipient to receive credits which are ultimately
payable in the form of cash, shares of our common stock or a combination of
both. Phantom stock does not entitle the holder to any rights as a stockholder.

Performance Awards. The committee may grant performance awards to
participants entitling the participants to receive cash, shares of our common
stock, or a combination of both, upon the achievement of performance goals and
other conditions determined by the committee. The performance goals may be
based on our operating income, or on one or more other business criteria
selected by the committee.

59
<PAGE>

RELATED TRANSACTIONS AND RELATIONSHIPS

In August 1998 we entered into a Series A Preferred Stock Purchase Agreement
with Spectrum Equity Investors II, L.P., FBR Technology Venture Partners, LLC
and other investors and issued a total of 10,000,000 shares of mandatorily
redeemable preferred stock and 9,800,000 shares of common stock in exchange for
$10,004,900. Pursuant to this agreement, we issued to Spectrum Equity Investors
II, L.P. and its affiliates 8,470,000 shares of our preferred stock and
8,300,600 shares of our common stock in exchange for an aggregate purchase
price of $8,474,150. Spectrum now beneficially owns 51.9% of our common stock.
Brion B. Applegate, a Managing General Partner of Spectrum, is a member of our
board of directors. We also issued to FBR Technology Venture Partners, LLC
1,500,000 shares of our Series A Preferred Stock and 1,470,000 shares of our
common stock in exchange for an aggregate purchase price of $1,500,735. FBR now
owns 9.2% of our common stock.

In March 1999, we amended our certificate of incorporation to modify the
terms of our outstanding preferred stock. The terms of our preferred stock now
provide that immediately after this offering:

. 50% of our preferred stock outstanding will be cancelled and cease to
exist without compensation or recourse;,
. the remaining shares of preferred stock will be automatically converted
into common stock based on the preferred stock aggregate per share stated
value of $5,000,000 divided by the per share public offering price; and
. no dividends on the preferred stock whether accrued or unaccrued through
the date of the offering will be payable.

On March 31, 1999, we entered into a Note Purchase Agreement with Spectrum
and FBR. Pursuant to this agreement, Spectrum purchased a convertible note in
the principal amount of $4,250,000 and FBR purchased a convertible note in the
principal amount of $750,000. The notes bear interest at a rate of 8% per
annum. If a third party investor purchases more than $10,000,000 of our capital
stock before our offering, the notes will convert into the same type of
security that we issue to that third party investor. If we do not receive an
investment from a third party before our offering, the notes will convert into
the number of shares of our common stock equal to the outstanding principal
amount of the note, plus accrued interest, divided by the per share public
offering price. Under certain circumstances, Spectrum has agreed to purchase an
additional number of shares of common stock equal to $4,250,000 divided by the
per share public offering price and FBR has agreed to purchase an additional
number of shares of common stock equal to $750,000 divided by the per share
public offering price.

These investors have registration rights for the shares of common stock they
hold but have agreed not to sell any shares of our common stock for 180 days
after this offering. See "Description of our Capital Stock--Registration
Rights" and "Shares Eligible for Future Sale--Lock-up Agreements."

Following the sale of our preferred stock in August 1998, we repurchased
some of the shares of our common stock held by James A. Aust, Jonathan P. Aust,
Longma M. and Stephen C. Aust, all of whom own more than 5% of our common
stock. We purchased 600,000 shares of our common stock for an aggregate
purchase price of $300,000 from James A. Aust. We purchased 868,422 shares of
our common stock for an aggregate purchase price of $434,211 from Jonathan P.
Aust. We purchased 1,771,578 shares of our common stock for an aggregate
purchase price of $885,789 from

60
<PAGE>

Longma M. Aust. We purchased 560,000 shares of our common stock for an
aggregate purchase price of $280,000 from Stephen C. Aust. Jonathan P. Aust and
Longma M. Aust are husband and wife. James A. Aust, Jonathan P. Aust and
Stephen C. Aust are brothers.

We have entered into employment agreements with each of our senior executive
officers. For details of these agreements, see "Management--Employment
Arrangements." We have granted options to acquire shares of our common stock to
some of our executive officers and directors. See "Management--Directors'
Compensation" and "Management--Executive Compensation."

We believe that the transactions discussed above were made on terms no less
favorable to us than would have been obtained from unaffiliated third parties.
We have adopted a policy that requires all future transactions between us and
our officers, directors and affiliates to be on terms no less favorable than
could be obtained from unrelated third parties. These transactions must be
approved by a majority of the disinterested members of our board of directors.

61
<PAGE>

PRINCIPAL STOCKHOLDERS

The following shows the number and percentage of outstanding shares of our
common stock that were owned as of April 30, 1999 and that will be owned after
this offering by:

. all persons known to us to beneficially own more that 5% of our common
stock;

. each director and named executive officer; and

. all directors and executive officers as a group.

The following assumes the conversion of our outstanding preferred stock
immediately after this offering. An asterisk indicates ownership of less than
1%.

As of April 30, 1999 there were 16,000,000 shares of our common stock
outstanding. After this offering, shares of our common stock will be
outstanding or shares if the underwriters exercise their over-allotment
option in full.

<TABLE>
<CAPTION>
Shares Percent Shares Percent
Beneficially Before Beneficially After
Owned (1) Offering Owned (1) Offering
Name of Beneficial Owner ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Jonathan P. Aust (2)............... 4,172,000 26.1% 4,172,000 %
Christopher J. Melnick (3)......... 350,000 2.1 350,000
James A. Aust (4).................. 816,250 5.1 816,250
Brion B. Applegate (5) ............ 8,300,600 51.9
245 Lytton Avenue
Palo Alto, California 94301
Dennis R. Patrick (6).............. 111,111 0.7
Spectrum Equity Investors II, L.P.
(5) .............................. 8,300,600 51.9
245 Lytton Avenue
Palo Alto, California 94301
FBR Technology Venture Partners, 1,470,000
LP................................ 9.2
1001 19th Street
Arlington, Virginia 22209
Stephen C. Aust ................... 868,000 5.4 868,000
All executive officers and direc-
tors as a
group (6 persons) (7)............. 13,999,961 83.7
</TABLE>
- ---------------------

(1) The number of shares beneficially owned includes outstanding shares of our
common stock held by that person and shares of our common stock issuable
upon exercise of stock options exercisable within 60 days of April 30,
1999. The address of Messrs. Jonathan P. Aust, James A. Aust, Stephen C.
Aust, Melnick and Patrick is 100 Carpenter Drive, Sterling, Virginia 20164.

(2) Includes 2,816,738 shares held by Longma M. Aust, Mr. Aust's wife.
(3) Includes 350,000 shares issuable upon exercise of options to acquire our
common stock.
(4) Includes 16,250 shares issuable upon exercise of options to acquire our
common stock.
(5) Spectrum Equity Investors II, L.P. is under common control with SEA 1998
II, L.P. and, therefore, beneficial ownership of the shares of our common
stock owned by SEA is attributed to Spectrum. Mr. Applegate is a Managing
General Partner of Spectrum and, therefore, beneficial ownership of the
shares of our common stock owned by Spectrum is attributed to
Mr. Applegate.
(6) Includes 111,111 shares issuable upon exercise of options to acquire our
common stock.
(7) Includes 727,361 shares issuable upon exercise of options to acquire our
common stock that are held by Messrs. James A. Aust, Melnick, Patrick and
Yancey.

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<PAGE>

DESCRIPTION OF OUR CAPITAL STOCK

Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $0.001 per share, and 10,000,000 shares of preferred stock, par value
$0.001 per share. As of April 30, 1999, there were 16,000,000 shares of our
common stock outstanding, held by 13 holders of record. As of April 30, 1999,
there were 10,000,000 shares of our preferred stock, stated value $1.00,
outstanding, held of record by four holders of record. After this offering, we
will not have any outstanding shares of preferred stock.

After this offering, we will have outstanding shares of common stock if
the underwriters do not exercise their over-allotment option, or shares of
common stock if the underwriters exercise their over-allotment option in full.

The following is a description of our capital stock.

Common Stock

We are authorized to issue 50,000,000 shares of common stock. Each
stockholder of record will be entitled to one vote for each outstanding share
of our common stock owned by that stockholder on every matter properly
submitted to the stockholders for their vote. After satisfaction of the
dividend rights of holders of preferred stock, holders of common stock are
entitled to any dividend declared by the board of directors out of funds
legally available for this purpose. After the payment of liquidation
preferences to holders of any outstanding preferred stock, holders of our
common stock are entitled to receive, on a pro rata basis, all our remaining
assets available for distribution to the stockholders in the event of our
liquidation, dissolution, or winding up. Holders of our common stock do not
have any preemptive right to become subscribers or purchasers of additional
shares of any class of our capital stock. Our counsel, Piper & Marbury L.L.P.,
has advised us that the outstanding shares of our common stock are, and the
shares of common stock offered in this offering will be, when issued and paid
for, fully paid and nonassessable. The rights, preferences and privileges of
holders of our common stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of preferred stock that we
may designate and issue in the future.

Preferred Stock

At April 30, 1999, we had outstanding 10,000,000 shares of our preferred
stock, stated value $1.00. The holders of our outstanding preferred stock are
entitled to receive dividends at a rate of 8% of the stated value per year.
Upon the closing of our public offering, $5.0 million of our preferred stock
will be converted into shares of our common stock at the public offering
price with the remaining shares of preferred stock and all accrued dividends
cancelled without additional payment to the holders of the preferred stock.

Our certificate of incorporation will allow us to issue without stockholder
approval preferred stock having rights senior to those of our common stock.
After this offering, no shares of preferred stock will be outstanding. Our
board of directors will be authorized, without further stockholder approval, to
issue up to 5,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption and
liquidation preferences, and to fix the number of shares constituting any
series and the designations of these series.

Our issuance of preferred stock may have the effect of delaying or
preventing a change in control. Our issuance of preferred stock could decrease
the amount of earnings and assets available

63
<PAGE>

for distribution to the holders of our common stock or could adversely affect
the rights and powers, including voting rights, of the holders of our common
stock. The issuance of preferred stock could have the effect of decreasing the
market price of our common stock.

Registration Rights

Holders of an aggregate of shares of our common stock can require us to
register the sale of their shares under the Securities Act. Subject to
limitations and the lock-up agreements with the underwriters, we must register
the sale of these shares if at any time after six months following this
offering, the holders of at least of these shares request registration. We
are not required to effect more than three of these requested registrations.
Subject to limitations, these holders may require us to file an unlimited
number of registration statements on Form S-3 when we are eligible to use Form
S-3, generally one year after this offering. If we propose to register our
securities under the Securities Act after this offering, these stockholders and
Mr. Patrick will be entitled to notice of the registration and to include their
shares in the registration provided that the underwriters for the proposed
offering will have the right to limit the number of shares included in the
registration. We must pay all expenses in connection with these registrations,
other than underwriters' discounts and commissions.

Limitation Of Liability

As permitted by the Delaware General Corporation Law, our certificate of
incorporation provides that our directors shall not be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:

. for any breach of the director's duty of loyalty to us or our
stockholders;

. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

. under Section 174 of the Delaware General Corporation Law, relating to
unlawful payment of dividends or unlawful stock purchase or redemption
of stock; or

. for any transaction from which the director derives an improper personal
benefit.

As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.

Our certificate of incorporation and bylaws provide for the indemnification
of our directors and officers to the fullest extent authorized by the Delaware
General Corporation Law, except that we will indemnify a director or officer in
connection with an action initiated by that person only if the action was
authorized by our board of directors. The indemnification provided under our
certificate of incorporation and bylaws includes the right to be paid expenses
in advance of any proceeding for which indemnification may be had, provided
that the payment of these expenses incurred by a director or officer in advance
of the final disposition of a proceeding may be made only upon delivery to us
of an undertaking by or on behalf of the director or officer to repay all
amounts so paid in advance if it is ultimately determined that the director or
officer is not entitled to be indemnified. If we do not pay a claim for
indemnification within 60 days after we have received a written claim, the
claimant may at any time thereafter bring an action to recover the unpaid
amount of the claim and, if successful the director or officer will be entitled
to be paid the expense of prosecuting the action to recover these unpaid
amounts.

64
<PAGE>

Under our bylaws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, or is or was serving at our request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against the person or incurred by the
person in any of these capacities, or arising out of the person's fulfilling
one of these capacities, and related expenses, whether or not we would have the
power to indemnify the person against the claim under the provisions of the
Delaware General Corporation Law. We intend to purchase director and officer
liability insurance on behalf of our directors and officers.

Possible Anti-Takeover Effects

Our certificate of incorporation and bylaws will contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies formulated by our
board of directors. In addition, provisions of Delaware law may hinder or delay
an attempted takeover of our company other than through negotiation with our
board of directors. These provisions could have the effect of discouraging
attempts to acquire us or remove incumbent management even if some or a
majority of our stockholders believe this action to be in their best interest,
including attempts that might result in the stockholders' receiving a premium
over the market price for the shares of our common stock held by the
stockholders.

Classified Board of Directors; Removal, Vacancies. Our certificate of
incorporation will provide that our board of directors will be divided into
three classes of directors serving staggered three-year terms. The
classification of directors has the effect of making it more difficult for
stockholders to change the composition of the board of directors in a
relatively short period of time. Our certificate of incorporation will provide
that directors may be removed only for cause. In addition, vacancies and newly
created directorships resulting from any increase in the size of our board of
directors may be filled only by the affirmative vote of a majority of the
directors then in office, a quorum, or by a sole remaining director. These
provisions would prevent stockholders from removing incumbent directors without
cause and filling the resulting vacancies with their own nominees.

Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. Our bylaws will establish an advance notice procedure
with regard to the nomination, other than by the board of directors, of
candidates for election to our board of directors and with regard to certain
matters to be brought before an annual meeting of our stockholders. For
nominations and other business to be brought properly before an annual meeting
by a stockholder, the stockholder must deliver notice to us not less than 60
days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting. Separate provisions based on public notice by us specify
how this advance notice requirement operates if the date of the annual meeting
is advanced by more than 30 days or delayed by more than 60 days from the
anniversary date. The stockholder's notice must set forth specified information
regarding the stockholder and its holdings, as well as certain background
information regarding any director nominee, together with the person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected, and a brief description of any business desired to be
brought before the meeting, the reasons for conducting the business at the
meeting and any material interest of the stockholder in the business proposed.
In the case of a special meeting of stockholders called for the purpose of
electing directors, nominations by a stockholder may be made only by delivery
to us, no later than 10 days after the day on which public announcement of the
special meeting is made, of a notice that complies with the above requirements.
Although our bylaws do not give our board of directors any power to approve or

65
<PAGE>

disapprove stockholder nominations for the election of directors or any other
business desired by stockholders to be conducted at an annual meeting, our
bylaws:

. may have the effect of precluding a nomination for the election of
directors or precluding the conduct of certain business at a particular
annual meeting if the proper procedures are not followed; or

. may discourage or deter a third party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to
obtain control of Network Access Solutions, even if the conduct of this
solicitation or such attempt might be beneficial to Network Access
Solutions and our stockholders.

Special Stockholders' Meetings. Our certificate of incorporation and bylaws
will provide that, special meetings of stockholders, unless otherwise
prescribed by statute, may be called only:

. by the board of directors or by our chairman or president; or

. by the holders of at least majority of our securities outstanding and
entitled to vote generally in the election of directors.

Section 203 of Delaware Law. In addition to these provisions of our
certificate of incorporation and bylaws, we are subject to the provisions of
Section 203 of the Delaware General Corporation Law. Section 203 prohibits
publicly held Delaware corporations from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of a corporation's voting stock. These
provisions could have the effect of delaying, deferring or preventing a change
in control of our company or reducing the price that certain investors might be
willing to pay in the future for shares of our common stock.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is .

SHARES ELIGIBLE FOR FUTURE SALE

After this offering, we will have shares of common stock outstanding.
If the underwriters exercise their over-allotment option in full, we will have
shares of common stock outstanding. All of the shares we sell in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, except that any shares purchased by our affiliates,
as that term is defined in Rule 144, may generally only be sold in compliance
with the limitations of Rule 144 described below.

The remaining shares of common stock outstanding after this offering will
not be freely tradeable under the terms of the Securities Act. Of the
outstanding shares that will not be freely tradeable after this offering,
transfer of shares will be further limited by lock-up agreements as
described below.

Before this offering, there has been no public market for our common stock,
and we cannot predict what effect, if any, that market sales of shares of our
common stock or the availability of shares of our common stock for sale will
have on the market price of our common stock prevailing from time to time.
Sales of substantial amounts of our common stock in the public market could

66
<PAGE>

adversely affect prevailing market prices and could impair our future ability
to raise capital through the sale of our equity securities.

Rule 144

In general, under Rule 144, a stockholder who owns restricted shares that
have been outstanding for at least one year is entitled to sell, within any
three-month period, a number of these restricted shares that does not exceed
the greater of:

. one percent of the then outstanding shares of our common stock, or
approximately shares immediately after this offering; or

. the average weekly trading volume in our common stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.

In addition, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement,
to sell shares of common stock which are not restricted securities.

Under Rule 144(k), a stockholder who is not currently, and who has not been
for at least three months before the sale, an affiliate of ours who owns
restricted shares that have been outstanding for at least two years may resell
these restricted shares without compliance with the above requirements. The
one- and two-year holding periods described above do not begin to run until the
full purchase price is paid by the person acquiring the restricted shares from
us or an affiliate of ours.

Registration Rights

We have entered into an investor rights agreement with some of our
stockholders, who will own an aggregate of shares of our common stock
after this offering. These stockholders and Mr. Patrick have certain
registration rights. See "Description of our Capital Stock--Registration
Rights."

Common Stock and Options Issuable under our Stock Incentive Plan

We intend to file one or more registration statements under the Securities
Act within 180 days after this offering to register up to 5,000,000 shares of
our common stock underlying outstanding stock options or reserved for issuance
under our 1998 stock incentive plan. We expect these registration statements
will become effective upon filing, and shares covered by these registration
statements will be eligible for sale in the public market immediately after the
effective dates of these registration statements, subject to the lock-up
agreements with the underwriters.

Lock-up Agreements

Our officers, directors and our other stockholders, who will hold an
aggregate of shares of common stock after this offering, have agreed that
they will not, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation, offer, sell, pledge or otherwise dispose of
any shares of our capital stock or any securities convertible into or
exercisable or exchangeable for, or any rights to acquire or purchase, any of
our capital stock or publicly announce an intention to effect any of these
transactions, for a period of 180 days after the date of the underwriting
agreement, other than shares of common stock transferred in connection with a
pledge agreement or disposed of as

67
<PAGE>

bona fide gifts approved by Donaldson, Lufkin & Jenrette Securities
Corporation. The stockholders who are parties to our investor rights agreement
are required by the terms of the investor rights agreement to enter into these
lock-up agreements. Donaldson, Lufkin & Jenrette Securities Corporation has
advised us that it has no current intention to consent to any disposition of
shares covered by these lock-up agreements, but will consider each request for
its consent at the time and under the circumstances of the request.

68
<PAGE>

UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement,
dated 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc.
and J.P. Morgan Securities Inc. have severally agreed to purchase the number of
shares of our common stock shown opposite their names below:

<TABLE>
<CAPTION>
Number of
Shares
<S> <C>
Underwriters:
Donaldson, Lufkin & Jenrette Securities Corporation...........
Bear, Stearns & Co. Inc. .....................................
J.P. Morgan Securities Inc. ..................................
---
Total.........................................................
===
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the effectiveness of the registration
statement, the continuing correctness of our representations, the receipt of a
"comfort letter" from our accountants, the listing of our common stock on the
Nasdaq National Market and no occurrence of an event that would have a material
adverse effect on us. The underwriters are obligated to purchase and accept
delivery of all the shares, other than those covered by the over-allotment
option described below, if they purchase any of our shares.

The underwriters propose to initially offer some of our shares directly to
the public at the initial public offering price shown on the cover page of this
prospectus and some of the shares to dealers at the initial public offering
price less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share on sales to other dealers. After the initial offering of the shares to
the public, the representatives of the underwriters may change the public
offering price and such concessions. The underwriters do not intend to confirm
sales to any accounts over which they exercise discretionary authority.

DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in the offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJdirect Inc. for sale to its
brokerage account holders.

The following table shows the underwriting fees we will pay to the
underwriters in connection with this offering. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares of our common stock.

<TABLE>
<CAPTION>
No Exercise Full Exercise
<S> <C> <C>
Per share....................................... $ $
Total........................................... $ $
</TABLE>

We will pay the offering expenses, estimated to be $ .

We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to additional shares at the initial
public offering price less the underwriting fees. The underwriters may exercise
their option solely to cover over-allotments, if any,

69
<PAGE>

made in connection with this offering. To the extent that the underwriters
exercise their option, each underwriter will become obligated, subject to
conditions, to purchase a number of additional shares approximately
proportionate to that underwriter's initial purchase commitment.

We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act or to contribute to
payments that the underwriters may be required to make in respect of those
liabilities.

Network Access Solutions, our executive officers, directors and stockholders
have agreed that, for a period of 180 days from the date of this prospectus, we
and they will not, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation do either of the following:

. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for our common stock; or

. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of our common
stock.

Either of the foregoing transaction restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of common stock
or such other securities, in cash or otherwise.

At our request, the underwriters have reserved up to percent of the
shares offered by this prospectus for sale at the initial public offering price
to our employees, officers, directors and other individuals associated with us
and members of their families. The number of shares of common stock available
for sale to the general public will be reduced to the extent these individuals
purchase or confirm for purchase, orally or in writing, such reserved shares.
Any reserved shares not purchased or confirmed for purchase will be offered by
the underwriters to the general public on the same basis as the other shares
offered by this prospectus.

Application has been made to list the common stock on the Nasdaq National
Market under the symbol "NASC." In order to meet the requirements for listing
the common stock on the Nasdaq National Market, the underwriters have
undertaken to sell lots of 100 or more shares to a minimum of 400 beneficial
owners.

Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisement in connection with the offer and sale of any such shares be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of such
jurisdiction. Persons who receive this prospectus are advised to inform
themselves about and to observe any restrictions relating to the offering of
the common stock and the distribution of this prospectus. This prospectus is
not an offer to sell or a solicitation of an offer to buy any shares of common
stock included in this offering in any jurisdiction where that would not be
permitted or legal.

Stabilization

In connection with this offering, any of the underwriters may decide to
engage in transactions that stabilize, maintain or otherwise affect the price
of our common stock. Specifically, the

70
<PAGE>

underwriters may overallot this offering, creating a syndicate short position.
In addition, the underwriters may bid for and purchase shares of our common
stock in the open market to cover syndicate short positions or to stabilize the
price of our common stock. These activities may stabilize or maintain the
market price of our common stock above independent market levels. The
underwriters are not required to engage in these activities and may end any of
these activities at any time.

Pricing of this Offering

Prior to this offering, there has been no established public market for our
common stock. The initial public offering price for the shares of our common
stock offered by this prospectus will be determined by negotiation between us
and the representatives of the underwriters. The factors to be considered in
determining the initial public offering price include:

. our history of and the prospects for the industry in which we compete;

. our past and present operations;

. our historical results of operations;

. our prospects for future earnings;

. the recent market prices of securities of generally comparable
companies; and

. the general conditions of the securities market at the time of the
offering.

VALIDITY OF THE SHARES

Piper & Marbury L.L.P., Washington, D.C., will pass upon the validity of the
shares of common stock on our behalf. Paul, Hastings, Janofsky & Walker LLP,
New York, New York, will pass upon legal matters for the underwriters.

EXPERTS

Our financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the SEC a registration statement, including exhibits,
schedules and amendments. This prospectus is a part of the registration
statement and includes all of the information which we believe is material to
an investor considering whether to make an investment in our common stock. We
refer you to the registration statement for additional information about
Network Access Solutions, our common stock and this offering, including the
full texts of the exhibits, some of which have been summarized in this
prospectus. After this offering, we will be subject to the informational
requirements of the Securities Exchange Act. We will be required to file annual
and quarterly reports, proxy statements and other information with the SEC.

71
<PAGE>

You can inspect and copy our registration statement, reports and other
information at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information about the operation of the
Public Reference Room by calling the SEC at 1-800-SEC- 0330. In addition, the
SEC maintains an Internet site that contains our registration statement,
reports and other information. The address of the SEC's Internet site is
"http://www.sec.gov."

We intend to furnish our stockholders annual reports containing financial
statements audited by our independent accountants. You may obtain copies of our
annual and quarterly reports and proxy statements from our Web site at www.nas-
corp.com.

72
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999
(unaudited)............................................................... F-3
Statements of Operations for the years ended December 31, 1996, 1997 and
1998 and for the three months ended March 31, 1998 (unaudited) and 1999
(unaudited)............................................................... F-4
Statements of Changes in Stockholders' Equity (Deficit) for the years ended
December 31, 1996, 1997 and 1998 and for the three months ended March 31,
1999 (unaudited) ......................................................... F-5
Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998 and for the three months ended March 31, 1998 (unaudited) and 1999
(unaudited) .............................................................. F-6
Notes to Financial Statements.............................................. F-7
</TABLE>

F-1
<PAGE>

Report of Independent Accountants
---------------------------------

To the Board of Directors and Stockholders
Network Access Solutions Corporation

In our opinion, the accompanying balance sheets and the related statements of
operations, changes in stockholders' equity (deficit) and cash flows present
fairly, in all material respects, the financial position of Network Access
Solutions Corporation (the Company) at December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998 in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion expressed above.

/s/ PricewaterhouseCoopers LLP

McLean, Virginia

March 18, 1999, except for the information in
Note 11 for which the date is April 1, 1999

F-2
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

BALANCE SHEETS

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

<TABLE>
<CAPTION>
As of As of
December 31, March 31,
---------------------- -----------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents................ $ 713,246 $ 5,518,117 $ 617,671
Accounts receivable, net of allowance
for doubtful accounts................... 765,325 1,806,791 2,715,741
Prepaid and other current assets......... -- 105,693 426,242
Inventory................................ 47,547 59,233 123,360
---------- ----------- -----------
Total current assets................... 1,526,118 7,489,834 3,883,014
Property and equipment, net............... 140,177 5,030,793 10,093,757
Deferred offering costs................... -- -- 246,314
Deposit................................... -- 185,000 185,000
Income tax receivable..................... -- 100,865 100,865
Deferred tax asset........................ 198,732 121,586 121,586
---------- ----------- -----------
Total assets........................... $1,865,027 $12,928,078 $14,630,536
========== =========== ===========
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................... $ 796,945 $ 2,525,102 $ 5,830,303
Accrued expenses......................... 92,502 750,308 858,460
Current portion of deferred compensation
liability............................... -- 333,333 333,333
Current portion of capital lease
obligations............................. -- 328,982 406,025
Note payable............................. 93,348 -- --
Income tax payable....................... 132,064 -- --
Other current liabilities................ -- 67,201 62,507
Deferred revenue......................... -- -- 146,029
---------- ----------- -----------
Total current liabilities.............. 1,114,859 4,004,926 7,636,657
Long term portion of capital lease
obligations............................. -- 1,184,156 1,212,133
Note payable............................. -- 1,000,000 1,000,000
Long term portion of deferred
compensation liability.................. 500,000 166,667 166,667
---------- ----------- -----------
Total liabilities...................... 1,614,859 6,355,749 10,015,456
---------- ----------- -----------
Commitments and contingencies
Series A mandatorily redeemable preferred
stock, $.001 par value, 10,000,000 shares
authorized, issued and outstanding
(liquidation preference $10,519,452 (un-
audited)),
as of December 31, 1998 and March 31,
1999 (unaudited)......................... -- 5,640,651 5,987,554
---------- ----------- -----------
Stockholders' equity (deficit):
Common stock, $.001 par value,
50,000,000 shares authorized,
9,740,000, 19,800,000 and 19,800,000
(unaudited) shares issued as of Decem-
ber 31, 1997, December 31, 1998 and
March 31, 1999, respectively............ 9,740 19,800 19,800
Additional paid-in capital............... 5,751 8,115,892 14,740,149
Deferred compensation.................... -- (3,462,753) (9,995,635)
Retained earnings (deficit).............. 234,677 (1,841,261) (4,236,788)
Less treasury stock, at cost, 3,800,000
shares as of December 31, 1998 and
March 31, 1999 (unaudited).............. -- (1,900,000) (1,900,000)
---------- ----------- -----------
Total stockholders' equity (deficit)... 250,168 931,678 (1,372,474)
---------- ----------- -----------
Total liabilities, mandatorily redeem-
able preferred stock and
stockholders' equity (deficit)........ $1,865,027 $12,928,078 $14,630,536
========== =========== ===========
</TABLE>

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

F-3
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION
STATEMENTS OF OPERATIONS

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

F-4
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

for the years ended December 31, 1996, 1997 and 1998 and the three months ended
March 31, 1999 (unaudited)

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

<TABLE>
<CAPTION>
Common Stock Additional Retained Treasury Stock
------------------ Paid- Deferred Earnings ---------------------
Shares Amount in Capital Compensation (Deficit) Shares Amount Total
---------- ------- ----------- ------------ ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996................... 9,740,000 $ 9,740 $ 5,751 $ -- $ 102,342 -- $ -- $ 117,833
Net income.............. -- -- -- -- 90,183 -- -- 90,183
---------- ------- ----------- ----------- ----------- --------- ----------- -----------
Balance, December 31,
1996................... 9,740,000 9,740 5,751 -- 192,525 -- -- 208,016
Net income.............. -- -- -- -- 42,152 -- -- 42,152
---------- ------- ----------- ----------- ----------- --------- ----------- -----------
Balance, December 31,
1997................... 9,740,000 9,740 5,751 -- 234,677 -- -- 250,168
Sale of common stock,
net of direct issuance
costs of $27,341....... 9,800,000 9,800 4,865,260 -- -- -- -- 4,875,060
Purchase of treasury
stock at cost.......... -- -- -- -- -- 3,800,000 (1,900,000) (1,900,000)
Shares issued to
employee for service... 260,000 260 129,740 -- -- -- -- 130,000
Accrual of preferred
stock dividends........ -- -- (322,192) -- -- -- -- (322,192)
Accretion of preferred
stock.................. -- -- (244,417) -- -- -- -- (244,417)
Deferred compensation... -- -- 3,681,750 (3,681,750) -- -- -- --
Amortization of deferred
compensation........... -- -- -- 218,997 -- -- -- 218,997
Net loss................ -- -- -- -- (2,075,938) -- -- (2,075,938)
---------- ------- ----------- ----------- ----------- --------- ----------- -----------
Balance, December 31,
1998................... 19,800,000 19,800 8,115,892 (3,462,753) (1,841,261) 3,800,000 (1,900,000) 931,678
Accrual of preferred
stock dividends
(unaudited)............ -- -- (197,260) -- -- -- -- (197,260)
Accretion of preferred
stock (unaudited)...... -- -- (149,643) -- -- -- -- (149,643)
Deferred compensation
(unaudited)............ -- -- 6,971,160 (6,971,160) -- -- -- --
Amortization of deferred
compensation
(unaudited)............ -- -- -- 438,278 -- -- -- 438,278
Net loss (unaudited).... -- -- -- -- (2,395,527) -- -- (2,395,527)
---------- ------- ----------- ----------- ----------- --------- ----------- -----------
Balance, March 31, 1999
(unaudited)............ 19,800,000 $19,800 $14,740,149 $(9,995,635) $(4,236,788) 3,800,000 $(1,900,000) $(1,372,474)
========== ======= =========== =========== =========== ========= =========== ===========
</TABLE>

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

F-5
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

STATEMENTS OF CASH FLOWS

---------------------
<TABLE>
<CAPTION>
For the Three Months
For the Years Ended December 31, Ended March 31,
------------------------------------- ----------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
(unaudited)
Cash flows from
operating activities:
Net income (loss)...... $ 90,183 $ 42,152 $(2,075,938) $ (12,795) $(2,395,527)
Adjustment to reconcile
net income (loss) to
net cash (used in)
provided by operating
activities:
Depreciation and
amortization
expense............. 7,256 12,298 130,004 4,290 186,710
Provision for
doubtful accounts
receivable.......... -- 23,826 28,133 -- 43,439
Benefit (provision)
for deferred income
taxes............... (62,337) (118,274) 77,146 -- --
Shares issued to
employee for
services............ -- -- 130,000 -- --
Amortization of
deferred
compensation........ -- -- 218,997 -- 438,278
Net changes in assets
and liabilities:
Accounts
receivable........ (4,435,883) 4,072,345 (1,069,599) (880,858) (952,389)
Inventory.......... (347,870) 300,678 (11,686) 36,046 (64,127)
Income tax
receivable........ -- -- (100,865) (6,073) --
Prepaid and other
current assets.... (10,000) 10,000 (105,693) -- (320,549)
Accounts payable... 4,138,912 (3,612,797) (139,113) 571,189 2,950,183
Accrued expenses... 241,254 (148,752) 173,795 147,419 108,152
Deferred
compensation
liability......... 208,333 291,667 -- -- --
Income tax
payable........... -- -- (132,064) (132,064) --
Deferred revenue... -- -- -- -- 146,029
Other current
liabilities....... 142,948 (68,195) 67,201 -- (4,694)
----------- ----------- ----------- --------- -----------
Net cash (used in)
provided by oper-
ating activi-
ties............. (27,204) 804,948 (2,809,682) (272,846) 135,505
----------- ----------- ----------- --------- -----------
Cash flows from
investing activities:
Expenditures for
network under
development........... -- -- (640,511) -- (4,291,325)
Purchases of property
and equipment......... (29,792) (121,915) (515,690) (1,103) (674,996)
Deposit for software
and services ......... -- -- (185,000) -- --
----------- ----------- ----------- --------- -----------
Net cash used in
investing
activities....... (29,792) (121,915) (1,341,201) (1,103) (4,966,321)
----------- ----------- ----------- --------- -----------
Cash flows from
financing activities:
Borrowings on notes
payable............... 1,500,000 1,500,000 2,406,652 281,143 --
Repayments of notes
payable............... (1,445,458) (1,491,291) (1,500,000) (226,739) --
Principal payments on
capital leases........ -- -- -- -- (69,630)
Issuance of common
stock................. -- -- 4,902,401 -- --
Issuance of redeemable
preferred stock....... -- -- 5,102,499 -- --
Issuance costs related
to preferred and
common stock
offering.............. -- -- (55,798) -- --
Deferred offering
costs................. -- -- -- -- --
Treasury stock
acquired.............. -- -- (1,900,000) -- --
----------- ----------- ----------- --------- -----------
Net cash provided
by (used in)
financing
activities....... 54,542 8,709 8,955,754 54,404 (69,630)
----------- ----------- ----------- --------- -----------
Net increase (decrease)
in cash and cash
equivalents............ (2,454) 691,742 4,804,871 (219,545) (4,900,446)
Cash and cash
equivalents at the
beginning of period.... 23,958 21,504 713,246 713,246 5,518,117
----------- ----------- ----------- --------- -----------
Cash and cash
equivalents at the end
of period.............. $ 21,504 $ 713,246 $ 5,518,117 $ 493,701 $ 617,671
=========== =========== =========== ========= ===========
Supplemental disclosure
of cash flow
information:
Cash paid during the
year for:
Interest............. $ 868 $ 5,142 $ 27,948 $ 12,688 $ 22,637
Income taxes......... -- 222,143 153,343 130,087 --
Non-cash investing and
financing activities:
Capital leases....... -- -- 1,513,138 -- 174,649
Preferred stock
dividends........... -- -- 322,192 -- 197,260
Preferred stock
accretion........... -- -- 244,417 -- 149,643
Shares issued to
employee for
service............. -- -- 130,000 -- --
Expenditures for
network under
development included
in accounts payable
and accrued
expenses............ -- -- 2,351,281 -- 108,704
Expenditures for
offering costs
included in accounts
payable............. -- -- -- -- 246,314
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

1. Business

The Company

Network Access Solutions Corporation (the Company), was originally
incorporated in the Commonwealth of Virginia on December 19, 1994. On August 3,
1998, the Company reincorporated in the State of Delaware. Prior to the
reincorporation, the Company had authorized 10,000 shares of common stock, of
which 7,803 shares were issued and outstanding. As of August 3, 1998, the
Company was recapitalized with authorized capital stock of 15,000,000 shares of
common stock, $.001 par value per share and 10,000,000 shares of preferred
stock, $.001 par value per share. On March 18, 1999, the Company increased the
authorized common stock to 50,000,000 shares with a par value of $.001 per
share. In conjunction with this reincorporation and recapitalization, the
Company changed from a July 31 year-end to a calendar year-end. On March 18,
1999, the Company and its Board of Directors declared a two for one stock
split, effected as a stock dividend, of its common stock. All share information
has been retroactively adjusted for all periods presented to reflect the new
capital structure and stock split.

The Company is a leading provider of high speed data communications and
networking solutions to businesses. Through its CuNet branded service, the
Company will offer its customers high speed connectivity in the Bell Atlantic
region using DSL technology. As a complement to the Company's CuNet service,
the Company also offers its customers a complete suite of networking solutions,
including network integration, network management, network security and
professional services. In 1999, the Company began offering CuNet in Boston, New
York, Philadelphia, Baltimore, Washington, D.C. and Richmond. The Company will
sell its services directly and indirectly to small, medium and large
businesses. The Company sells its services to its existing customer base
through a direct sales force. The Company also sells its services indirectly
through its sales partners, including Internet service providers, long distance
and local carriers and other networking services companies.

2. Summary of Significant Accounting Policies

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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The estimates involve judgments with
respect to, among other things, various future factors which are difficult to
predict and are beyond the control of the Company. Therefore, actual amounts
could differ from these estimates.

Unaudited Interim Financial Statements

The unaudited consolidated balance sheet as of March 31, 1999, the unaudited
statements of operations and cash flows for the three months ended March 31,
1998 and 1999 and the statement of changes in stockholders equity for the three
months ended March 31, 1999, have been prepared in accordance with generally
accepted accounting principles for interim financial information and

F-7
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

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

Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 1999 are not
necessarily indicative of results that may be expected for the year ending
December 31, 1999.

Revenue Recognition

The Company's revenue is derived from the sale of products, consulting
services and network services. The Company recognizes revenue on the sale of
its products when a valid purchase order is received, shipment occurs,
collection is probable and no significant obligations remain related to the
completion of installation and performance of support services.

The Company provides consulting services, including network planning,
design, and integration services, under time-and-material type contracts and
recognizes revenue as services are performed and as costs are incurred.

The Company provides network services under fixed rate service contracts
with an average contractual period of one year. Revenue on fixed rates service
contracts is recognized as costs are incurred over the related contract period.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are held in a money market account at a
national financial institution. The Company has not experienced any losses on
its cash and cash equivalents.

The Company grants uncollateralized credit in the form of accounts
receivable to its customers. As of December 31, 1998, AT&T, Corp. (AT&T)
comprised 47% of accounts receivable. The customers with concentrations of
revenue greater than 10% of total revenue are as follows:

<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
-------------------------------- -----------------------------
Customer 1996 1997 1998 1998 1999
- ------------------------ ---------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C>
(unaudited) (unaudited)
AT&T.................... $9,978,104 $3,421,878 $5,869,901 $1,342,016 $2,651,468
Zeneca, Inc............. -- 921,356 1,119,856 481,976 429,741
Network Monitoring and
Repair, Inc............ -- 1,301,440 -- -- --
---------- ---------- ---------- -------------- --------------
$9,978,104 $5,644,674 $6,989,757 $1,823,992 $3,081,209
========== ========== ========== ============== ==============
</TABLE>

Cash Equivalents

The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.

F-8
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

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

Inventory

Inventories are stated at the lower of cost or market. Cost is determined
using the weighted-average method. Inventories consist primarily of components,
subassemblies and finished products held for sale.

Property and Equipment

Property and equipment, consists of network costs associated with the
development and implementation of the DSL networks, office and computer
equipment, and furniture and fixtures. The costs associated with the DSL
network under development are comprised of collocation fees, equipment,
equipment held under capital leases, and equipment installation. These assets
are stated at cost. The Company leases certain of its equipment under capital
lease agreements. The capital lease assets are stated at the lower of the
present value of the net minimum lease payments or the fair value at the
inception of the lease, and are depreciated over the shorter of the estimated
useful life or the lease term. Depreciation of office and computer equipment
and furniture and fixtures is computed using the straight-line method,
generally over three to five years, based upon estimated useful lives,
commencing when the assets are placed in service. The depreciation of the DSL
network costs will commence as individual network components are placed in
service and will be depreciated over two to five years. Expenditures for
maintenance and repairs are expensed as incurred. When assets are retired or
disposed, the cost and related accumulated depreciation are removed from the
accounts, and any resulting gain or loss is recognized in operations for the
period.

Income Taxes

The Company accounts for income taxes by utilizing the liability method.
Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end, based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce net deferred tax assets to the amount
expected to be realized. The provision for income taxes consists of the
Company's current provision (benefit) for federal and state income taxes and
the change in net deferred tax assets and liabilities during the period.

Fair Value Information

The carrying amount of current assets and current liabilities approximates
fair value because of the short maturity of these instruments. The fair value
of redeemable preferred stock is estimated by discounting the remaining cash
flows at the current interest rates. As of December 31, 1998, the carrying
amount of these financial instruments approximates fair value.

Impairment of Long-Lived Assets

The Company periodically evaluates the recoverability of its long-lived
assets. This valuation consists of a comparison of the carrying value of the
assets with the assets' expected future cash flow undiscounted and without
interest costs. If the carrying value of an asset exceeds the expected future

F-9
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

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

cash flows, an impairment exists. An impairment loss is measured by the amount
by which the carrying value of the asset exceeds future discounted cash flows.
No impairment losses have been recognized to date.

Net Income (Loss) Per Share

The Company presents basic and diluted net income (loss) per share. Basic
net income (loss) per share is computed based on the weighted average number of
outstanding shares of common stock. Diluted net income (loss) per share adjusts
the weighted average for the potential dilution that could occur if stock
options, warrants or other convertible securities were exercised or converted
into common stock. Diluted loss per share for the year ended December 31, 1998,
is the same as basic loss per share because the effects of such items were
anti-dilutive.

Stock-Based Compensation

The Company measures compensation expense for its employee stock-based
compensation using the intrinsic value method and provides pro forma
disclosures of net loss as if the fair value method had been applied in
measuring compensation expense. Under the intrinsic value method of accounting
for stock-based compensation, when the exercise price of options granted to
employees is less than the estimated fair value of the underlying stock on the
date of grant, deferred compensation is recognized and is amortized to
compensation expense over the applicable vesting period.

Segment Reporting

In 1998, the Company adopted Statement of Financial Accounting Standards No.
131 (SFAS 131), Disclosures About Segments of an Enterprise and Related
Information. SFAS 131 requires companies to disclose information about their
segments. The Company has determined that its network product, service and
consulting business activities are not organized on the basis of differences in
related products and services and therefore, operates on an enterprise-wide or
single reportable segment. The Company provides its enterprise and carrier
customers a full selection of data networking solutions, including, in the
future, DSL technology. The Company's revenues for the year ended December 31,
1998, were principally derived from the sale of products and services to
customers in the Bell Atlantic region. The Company entered into its first
interconnection agreement with Bell Atlantic in April 1997 and began
constructing a high-speed data communications network and related services
using DSL technology. The Company expects to derive future revenues from the
operation of its network in the eastern United States.

Recent Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 is effective for fiscal years
beginning after June 15, 1999 (January 1, 2000 for the Company). SFAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current

F-10
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

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

earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. Currently the Company does not utilize derivative instruments,
therefore the adoption of SFAS 133 is not expected to have a significant effect
on the Company's results of operations or its financial position. The Company
will adopt SFAS 133 for the year ending December 31, 2000.

3. Property and Equipment

Property and equipment consists of the following:

<TABLE>
<CAPTION>
December 31, March 31,
-------------------- -----------
1997 1998 1999
-------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
DSL network development in process........... $ -- $4,657,975 $ 9,232,653
Office and computer equipment................ 133,419 355,962 1,109,402
Furniture and fixtures....................... 19,626 159,728 81,284
Less accumulated depreciation................ (12,868) (142,872) (329,582)
-------- ---------- -----------
Property and equipment, net.................. $140,177 $5,030,793 $10,093,757
======== ========== ===========
</TABLE>

The DSL network development in process includes the acquisition of equipment
under capital leases, equipment, installation, and collocation fees.
Collocation fees represent nonrecurring fees paid to obtain central office
space for location of certain Company equipment. As of December 31, 1998 and
March 31, 1999, the recorded cost of the network equipment under capital leases
was $1,513,138 and $1,687,787 (unaudited), respectively. Accumulated
amortization for this equipment under capital leases was $20,739 as of December
31, 1998.

For the years December 31, 1996, 1997 and 1998, depreciation expense charged
to operations amounted to $7,256, $12,298, and $130,004, respectively.

4. Notes Payable

On October 16, 1998, the Company entered into a $10,000,000 line of credit
agreement with Ascend Communications, Inc. (Ascend). Under the terms of the
line of credit, the Company can draw on the line of credit in $1,000,000
increments up to a maximum of $5,000,000. The Company may draw down the
remaining $5,000,000, also in $1,000,000 increments, upon (i) completing the
purchase or lease of equipment in excess of $15,000,000 from the supplier and
(ii) demonstrating that at least 70% of such equipment is being used by the
Company to generate revenue. The Company is required to make interest only
payments at an annual rate of 8.25% on the amounts advanced for the first nine
months from the date of the advance. For the next thirty-three months the
Company is required to make principal and interest payments in accordance with
a sixty month amortization schedule using an interest rate of 8.25% for the
first eighteen months and a rate equal to

F-11
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

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

the prevailing high yield bond index for the next fifteen months. The remaining
unpaid interest is due forty-two months after the related advance. The credit
agreement requires immediate repayment in the event of an initial public
offering or debt offering in excess of $40,000,000 or a change in control, as
defined. At December 31, 1998, $1,000,000 was outstanding under this agreement.

The Company had a $1,500,000 line of credit agreement with a bank which
matured on November 30, 1998, was repaid and not renewed. Interest on
outstanding borrowings accrued at the bank's prime rate of interest plus three-
quarters of a percent (9.25% during 1998). At December 31, 1997, there was
$93,348, of outstanding borrowings under this agreement.

5. Deferred Compensation

The Company has an unfunded deferred compensation plan for certain key
executives. Under the plan, executives deferred a portion of their compensation
by electing future payments in three equal installments in June 1999, December
1999 and June 2000. At December 31, 1997 and 1998, the deferred compensation
liability was $500,000, respectively. Interest accrues on deferred amounts on a
quarterly basis at a rate determined by management which is currently 6% based
on the rate of interest for 3-year Federal treasury notes. Accrued interest
related to these amounts was $17,500 and $47,500 at December 31, 1997 and 1998,
respectively.

6. Commitments and Contingencies

Leases

The Company leases and subleases office space in Virginia and Pennsylvania
and collocation space in central offices under the terms of the interconnection
agreements with Bell Atlantic and other vendors. Commitments for minimum rental
payments under noncancelable leases and subleases at December 31, 1998 are as
follows: $329,311 in 1999, and $331,382 in 2000, $255,853 in 2001, and $9,212
in 2002.

Rent expense for the years ended December 31, 1996, 1997 and 1998, was
$46,742, $80,103 and $113,600, respectively.

F-12
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

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

During 1998, the Company entered into capital leases related to the
acquisition of equipment for the development of the DSL network. The present
value of future minimum capital lease payments as of December 31, 1998, is as
follows:

<TABLE>
<CAPTION>
Year ending December 31, Amount
----------------------------------------------------------------- ----------
<S> <C>
1999............................................................. $ 461,370
2000............................................................. 501,064
2001............................................................. 500,521
2002............................................................. 330,892
2003............................................................. 21,875
----------
1,815,722
Less amounts representing interest............................... 302,584
----------
Present value of net minimum lease payments...................... 1,513,138
Less current portion of capital lease obligations................ 328,982
----------
Long term portion of capital lease obligations................... $1,184,156
==========
</TABLE>

The Company has entered into a master lease agreement with Ascend to finance
purchases of up to $30,000,000 through capital lease agreements. The Company
has an arrangement with Paradyne Corporation whereby the Company can finance
DSL equipment purchases of up to $4,000,000 subject to vendor approval.

Purchase commitments

On November 24, 1998 the Company entered into an agreement with a software
and service provider to support its DSL services. The Company's majority
shareholder is also a shareholder of this software and service provider. Under
the terms of the agreement, software licensing and service fees will
approximate $1,023,700 which are payable through a $185,000 deposit which was
made upon signing the agreement, $402,700 due upon project completion, and
$436,000 payable within twenty-four months of project completion. Amounts not
paid within 30 days of project completion accrue interest at a rate of 10%. The
agreement requires immediate payment if the Company obtains $40,000,000 in
funding and requires accelerated payment, based on a formula, if the Company
receives funding in excess of $10,000,000. The Company commenced implementing
the software and support service in 1999.

Employment agreements

The Company has entered into an employment agreement with each of its
executive officers. Each agreement has an initial term of four years, subject
to earlier termination upon 30 days prior notice. These agreements are
automatically extended for additional one year terms unless the Company or the
employee elects to terminate the agreement within 30 days before the end of the
current term. Under these agreements, these employees will receive an initial
annual base salary that

F-13
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

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

will be increased by at least 5% each year, based upon performance objectives
set by the Board of Directors. The employees will also receive an annual bonus
of up to 20% of the executives' then current salary. The bonus is payable in
cash, stock or a combination of both at the election of the board of directors.

Other Matter

The Company is not currently involved in any legal proceedings that it
believes could have a material adverse effect on its business, financial
position, results of operation or cash flows.

7. Income Taxes

The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Current tax (benefit) provision................. $142,918 $153,948 $(105,119)
Deferred tax provision (benefit)................ (80,458) (118,274) 77,146
-------- -------- ---------
Total (benefit) provision for income taxes...... $ 62,460 $ 35,674 $ (27,973)
======== ======== =========
</TABLE>

Deferred tax assets are comprised of the following:

<TABLE>
<CAPTION>
As of December 31,
------------------
1997 1998
-------- ---------
<S> <C> <C>
Deferred compensation...................................... $193,100 $ 349,956
Accrued interest........................................... 5,632 19,149
Bad debt expense........................................... -- 20,066
Depreciation expense....................................... -- (2,083)
Net operating loss......................................... -- 444,160
Valuation allowance........................................ -- (709,662)
-------- ---------
Net deferred tax asset..................................... $198,732 $ 121,586
======== =========
</TABLE>

As of December 31, 1998, a valuation allowance was established to reduce
total deferred tax assets to an amount that management believes will more
likely than not be realized, based on income taxes paid in the loss carryback
period net of refundable taxes.

F-14
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

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

A reconciliation between income taxes from operations computed using the
federal statutory income tax rate and the Company's effective tax rate is as
follows:

<TABLE>
<CAPTION>
Years Ended
December 31,
------------------
1996 1997 1998
----- ---- -----
<S> <C> <C> <C>
Federal statutory rate.................................... 34.0% 34.0% (34.0)%
State income taxes, net of federal provision (benefit).... 4.9 5.4 (2.7)
Increase to valuation allowance........................... -- -- 33.7
Business meals, entertainment, penalties and other........ 2.0 6.4 1.5
----- ---- -----
40.9% 45.8% (1.5)%
===== ==== =====
</TABLE>

8. Mandatorily Redeemable Preferred Stock and Stockholders' Equity

Mandatorily Redeemable Preferred Stock

On August 6, 1998, the Company issued 10,000,000 shares of Series A
mandatorily redeemable preferred stock (Preferred Stock) and 9,800,000 shares
of common stock for total proceeds of $10,004,900, excluding direct issuance
costs of $55,798. The Company has allocated $5,074,042 and $4,875,060 of the
net proceeds to the Preferred Stock and common stock, respectively, based on
the Company's estimate of fair value of the Preferred Stock and common stock.
The Preferred Stock has a par value of $.001 per share, a stated value of $1.00
per share (Stated Value) and a cumulative dividend of 8% of the Stated Value
per annum, compounded annually. The Company may not declare or pay any
distributions by dividend or otherwise, payable other than in common stock,
until the holders of the Preferred Stock first receive a distribution equal to
the cumulative dividend due for each outstanding share of Preferred Stock.
Dividends continue to accrue until redemption. The Preferred Stock is
redeemable, at the option of the holder, at the earlier of the closing of a
public offering or the sixth anniversary of the initial Preferred Stock
issuance at a redemption price equal to $1.00 per share plus any accrued and
unpaid dividends. For the year ended December 31, 1998, the Company has accrued
preferred stock dividends of $322,192 and increased the preferred stock
carrying value by $244,417 for accretion to the redemption price.

In the event of a liquidation, dissolution, or winding up of the Company,
the holders of the Preferred Stock are entitled to a liquidation preference
equal to $1.00 per share plus any accrued and unpaid dividends. No dividends
have been declared through December 31, 1998. The Preferred Stock does not
provide its holders with voting rights, however, the Company must receive
approval from the holders of two-thirds of Preferred Stock to (i) authorize,
create or issue, or increase the authorized or issued amount of any class of
equity which is senior or equal to the Preferred Stock, (ii) reclassify or
modify any class of equity such that it ranks senior or equal to the Preferred
Stock, or (iii) amend, alter or repeal any of the provisions applicable to the
Preferred Stock so as to adversely change the dividend, liquidation and
redemption terms.

F-15
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

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

On March 18, 1999, the Company's certificate of incorporation was amended
to modify the terms of the Preferred Stock. In the event of an initial public
offering in which the Company receives a market valuation in excess of
$200,000,000, the terms of the Preferred Stock provide that (i) 50% of the
Preferred Stock outstanding will be cancelled and cease to exist without
compensation or recourse, (ii) the remaining shares of Preferred Stock will be
automatically converted into common stock based on the Preferred Stock
aggregate per share stated value of $5,000,000 divided by the per share public
offering price and (iii) no dividends on the Preferred Stock whether accrued
or unaccrued through the date of the offering will be payable.

The Preferred Stock activity is summarized as follows:

<TABLE>
<CAPTION>
Shares Amount
---------- ----------
<S> <C> <C>
Balance, December 31, 1997............................ -- $ --
Issuance of shares.................................... 10,000,000 5,102,499
Issuance costs........................................ -- (28,457)
Accrued dividends..................................... -- 322,192
Accretion to redemption price......................... -- 244,417
---------- ----------
Balance, December 31, 1998............................ 10,000,000 5,640,651
Accrued dividends (unaudited)......................... -- 197,260
Accretion to redemption price (unaudited)............. -- 149,643
---------- ----------
Balance, March 31, 1999 (unaudited)................... 10,000,000 $5,987,554
========== ==========
</TABLE>

Stock Repurchase

On August 6, 1998, the Company repurchased 3,800,000 shares of common stock
for $1,900,000 from certain founders of the Company. This repurchase was
accounted for at cost.

9. Stock-Based Compensation

On July 23, 1998, the Company adopted the 1998 Incentive Stock Plan (the
Plan), under which incentive stock options, non-qualified stock options, stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance awards or any combination thereof may be granted to the Company's
employees and certain other persons in accordance with the Plan. The Board of
Directors, which administers the Plan, determines the number of options
granted, the vesting period and the exercise price. The Board of Directors may
terminate the Plan at any time. Options granted under the Plan are fully
exercisable into restricted shares of the Company's common stock upon award
and expire ten years after the date of grant. The restricted common stock
generally vests over a three or four year period. Subsequent to exercise,
unvested shares of restricted stock cannot be transferred while vested shares
are subject to a right of first refusal by the Company to repurchase the
shares at fair value. Upon voluntary termination unvested shares of restricted
stock can be repurchased at the lower of fair value or the exercise price. At
December 31, 1998, 4,000,000 shares were reserved for issuance under the Plan.
Effective March 18, 1999 and April 1, 1999, the Company increased the number
of shares of common stock reserved for issuance under the Plan to 4,500,000
and 5,000,000, respectively.

F-16
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

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

As of December 31, 1998, a total of 3,151,500 incentive stock options had
been granted at an exercise price of $.20 per share. All of the options issued
were exercisable at December 31, 1998. Stock option activity was as follows:

<TABLE>
<CAPTION>
Weighted
Incentive Average
Stock Exercise Exercise
Options Price Price
--------- -------- --------
<S> <C> <C> <C>
Options outstanding, December 31, 1997........ -- $-- $--
Options granted, July 1998.................... 2,400,000 .20 .20
Options granted, August 1998.................. 100,000 .20 .20
Options granted, November 1998................ 651,500 .20 .20
Options exercised............................. -- -- --
Options cancelled............................. -- -- --
--------- ---- ----
Options outstanding, December 31, 1998........ 3,151,500 .20 .20
Options granted, January 1999 (unaudited)..... 248,700 .20 .20
Options granted, March 1999 (unaudited)....... 600,000 .20 .20
Options exercised (unaudited)................. -- -- --
Options cancelled (unaudited)................. (6,700) .20 .20
--------- ---- ----
Options outstanding, March 31, 1999
(unaudited).................................. 3,993,500 $.20 $.20
========= ==== ====
</TABLE>

The Company has estimated the fair value of the underlying common stock on
the date of grant was in excess of the exercise price of the options. As a
result, the Company recorded deferred compensation of $3,681,750 and $6,971,160
(unaudited) for the year ended December 31, 1998 and for the three months ended
March 31, 1999, respectively. This amount was recorded as a reduction to
stockholders' equity (deficit) and is being amortized as a charge to operations
over the vesting periods of the underlying restricted common stock. For the
year ended December 31, 1998 and the three months ended March 31, 1999, the
Company recognized $218,997 and $438,278 (unaudited), respectively, of stock
compensation expense related to these options.

SFAS No. 123, Accounting for Stock-Based Compensation, encourages adoption
of a fair value-based method for valuing the cost of stock-based compensation.
However, it allows companies to continue to use the intrinsic value method for
options granted to employees and disclose pro forma net loss and loss per
share. Had compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS No. 123, the Company's net loss and loss
per share would have been as follows:

<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1998 March 31, 1999
----------------- ------------------
(unaudited)
<S> <C> <C>
Net loss as reported..................... $(2,075,938) $(2,395,527)
Pro forma net loss....................... (2,088,416) (2,432,536)
Net loss per share as reported, basic and
diluted................................. (0.17) (0.12)
Pro forma net loss per share, basic and
diluted................................. (0.17) (0.12)
</TABLE>

F-17
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

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

The weighted-average fair value of options granted during the year ended
December 31, 1998 was approximately $2.34 based on the Black-Scholes option
pricing model. Upon termination, unvested shares of restricted stock are
repurchased by the Company at the lower of the exercise price or fair market
value.

The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the year ended December 31, 1998: Dividend
yield of 0%; expected volatility of 0%; risk-free interest rate of 5.21%; and,
expected term of 5 years.

As of December 31, 1998, the weighted average remaining contractual life of
the options is 9.8 years.

10. Employee Benefit Plan

On September 16, 1998, the Company adopted the Network Access Solution, Inc.
401(k) Profit Sharing Plan and Trust (the Plan). As allowed under Section
401(k) of the Internal Revenue Code, the Plan provides tax-deferred salary
deductions for eligible employees. Participants must be at least 21 years of
age and may make voluntary contributions to the Plan of up to 15% of their
compensation not to exceed the federally determined maximum allowable
contribution. The Company is not obligated to make contributions or to match
participant contributions. Participants vest in Company contributions' until
after 3 years of employment. The Company did not make contributions to the Plan
during 1998.

11. Subsequent Events

The Company intends to file a Registration Statement with the Securities and
Exchange Commission for an initial public offering of its common stock.

On March 31, 1999, the Company entered into a financing agreement whereby
the majority holders of the Preferred Stock agreed to invest an additional
$10,000,000 in the Company. Under the agreement, the Company received
$5,000,000 on April 1, 1999, by issuing an 8% convertible note with a maturity
date of December 31, 1999 and will receive a remaining $5,000,000 as either
common or preferred stock depending upon the occurrence of a triggering event.
The principal and interest of the note will convert, and the remaining
investment of $5,000,000 will be received by the Company, upon earlier of the
following triggering events; (i) the Company completes a sale of capital stock
to private investors with proceeds of at least $10,000,000, (ii) the Company
completes an initial public offering with an aggregate offering price to the
public of not less than $25,000,000 based on a pre-money Company valuation of
at least $200,000,000, (iii) the Company takes possession of at least 125 Bell
Atlantic central offices for the purpose of installing the Company's digital
subscriber line access multiplexing equipment or (iv) on December 31, 1999. For
items (i) and (ii) above, the conversion rate is based on the price per share
of the equity instrument offered to the private or public investors. For items
(iii) or (iv), the conversion rate is equal to the fair value of the common
stock based on an independent appraisal.

F-18
<PAGE>

On April 1, 1999, the Company entered into a lease for additional office
space in Sterling, Virginia. The lease requires total payments of $2,478,223
over the lease term of five years.

On April 1, 1999, the Company granted a board member an option to purchase
111,111 shares of the Company's common stock at an exercise price of $15.00 per
share. The option vests over a three year period, except that in the event of
an initial public offering the option will vest immediately. The stock option
agreement stipulates that in the event of an initial public offering, the board
member will be issued an additional option, with no vesting period, to acquire
a number of shares of common stock at an exercise price per share to be
determined using a formula based on the public offering price.

[Graphic: Diagram of networking solutions]

F-19
<PAGE>

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

, 1999

[NETWORK ACCESS SOLUTIONS LOGO APPEARS HERE]

Shares of Common Stock

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

P R O S P E C T U S
-------------------

Donaldson, Lufkin & Jenrette

Bear, Stearns & Co. Inc.

J.P. Morgan & Co.

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

DLJdirect Inc.

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

We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the contained herein or the affairs of the Company have not
changed since the date hereof.
- -------------------------------------------------------------------------------

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

Until , 1999 (25 days after the date of this prospectus), all dealers
that effect transactions in these securities may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter in this offering and when selling
previously unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

13. Other Expenses of Issuance and Distribution

The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities
offered hereby, other than underwriting discounts and commissions. All of the
amounts shown are estimated except the Securities and Exchange Commission
registration fee, the National Association Securities Dealers, Inc. filing fee
and the Nasdaq National Market listing fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $27,800
National Association of Securities Dealers, Inc. filing fee...... 12,000
Nasdaq National Market listing fee............................... *
Transfer agent's and registrar's fees............................ *
Printing expenses................................................ *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Blue Sky filing fees and expenses................................ *
Miscellaneous expenses........................................... *
-------
Total.......................................................... *
=======
</TABLE>
- ---------------------
* To be filed by amendment.

14. Indemnification of Officers and Directors

Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations. The
Registrant's Bylaws include provisions to require the Registrant to indemnify
its directors and officers to the fullest extent permitted by Section 145,
including circumstances in which indemnification is otherwise discretionary.
Section 145 also empowers the Registrant to purchase and maintain insurance
that protects its officers, directors, employees and agents against any
liabilities incurred in connection with their service in such positions.

At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.

The form of Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its directors and officers, and by the Registrant of the Underwriters, for
certain liabilities arising under the Securities Act.

II-1
<PAGE>

15. Recent Sales of Unregistered Securities

The following information relates to securities issued or sold by the
Registrant within the last three years. During that time, the Registrant has
issued unregistered securities in the transactions described below. Securities
issued in such transactions were offered and sold in reliance upon the
exemption from registration under Section 4(2) of the Securities Act, relating
to sales by an issuer not involving any public offering, or under Rule 701
under the Securities Act. The sales of securities were made without the use of
an underwriter and the certificates evidencing the shares bear a restrictive
legend permitting the transfer thereof only upon registration of the shares or
an exemption under the Act.

(1) In August 1998 the Registrant issued 260,000 shares of Common Stock to an
employee at a price of $0.50 per share in exchange for services rendered.

(2) In August 1998 the Registrant issued 9,800,000 shares of Common Stock to a
group of four accredited investors at a purchase price of $0.0005 per share
for an aggregate price of $4,900.

(3) In August 1998 the Registrant issued 10,000,000 shares of Series A
Preferred Stock to a group of four accredited investors, at a purchase
price of $1.00 per share for an aggregate price of $10,000,000.

(4) Between July 1998 and April 1999, the Registrant issued options exercisable
for an aggregate of 4,000,200 shares of Common Stock at an exercise price
of $0.20 per share.

(5) In April 1999 the Registrant issued options to one of its directors
exercisable for an aggregate of 111,111 shares of Common Stock at an
exercise price of $15 per share, subject to adjustment.

16. Exhibits and Financial Statement Schedules

(a)Exhibits

II-2
<PAGE>

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.8* Employment Agreement dated as of August 16, 1998, by and between
the Company and
Jonathan P. Aust
10.9* Employment Agreement dated as of July 13, 1998, by and between the
Company and
Christopher J. Melnick
10.10* Employment Agreement dated as of July 13, 1998, by and between the
Company and Scott G. Yancey, Jr.
10.11* Employment Agreement dated as of August 18, 1998, by and between
the Company and James A. Aust
10.12* Employment Agreement dated as of March 1, 1999, by and between the
Company and John J. Hackett
10.13* 1998 Stock Incentive Plan, as amended
10.14* Incentive Stock Option Grant Agreement dated July 23, 1998, by and
between the Company and Scott G. Yancey, Jr., as amended
10.15* Incentive Stock Option Grant Agreement dated July 23, 1998, by and
between the Company and Christopher J. Melnick, as amended
10.16* Incentive Stock Option Grant Agreement dated November 1, 1998, by
and between the Company and James A. Aust
10.17* Incentive Stock Option Grant Agreement dated March 30, 1999, by
and between the Company and John J. Hackett
10.18* Deferred Compensation Agreement dated June 1, 1997, by and between
the Company and
Jonathan P. Aust
10.19* Deferred Compensation Agreement dated June 1, 1997, by and between
the Company and
James A. Aust
10.20* Repurchase Agreement dated August 6, 1998, by and between the
Company and Longma M. Aust, Jonathan P. Aust, James A. Aust and
Stephen L. Aust
10.21* Investor Rights Agreement dated August 6, 1998, by and between the
Company, Spectrum Equity Investors II, L.P., SEA 1998 II, L.P.,
FBR Technology Venture Partners L.P. and W2 Venture Partners, LLC,
as amended
10.22* Series A Preferred Stock Purchase Agreement dated August 6, 1998,
by and between the Company, Spectrum Equity Investors II, L.P.,
SEA 1998 II, L.P., FBR Technology Venture Partners L.P. and W2
Venture Partners, LLC
10.23* Note Purchase Agreement dated March 31, 1999, by and between the
Company, Spectrum Equity Investors II, L.P. and FBR Technology
Venture Partners L.P.
10.24* Convertible Note dated March 31, 1999, by and between the Company
and Spectrum Equity Investors II, L.P.
10.25* Convertible Note dated March 31, 1999, by and between the Company
and FBR Technology Venture Partners L.P.
10.26 Nonqualified Stock Option Grant Agreement dated April 1, 1999, by
and between the Company and Dennis R. Patrick
10.27 Deed of Lease dated April 8, 1999, by and between the Company and
TransDulles Center, Inc.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
11.1* Statement of computation of loss per share
23.1 Consent of PricewaterhouseCoopers, LLP
23.2 Consent of Piper & Marbury L.L.P. (included as part of Exhibit
5.1)
24.1* Power of Attorney
27* Financial Data Schedule
</TABLE>
- ---------------------
* Previously filed.
** To be filed by amendment.
+ Information has been omitted from this exhibit pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.

(b) Financial Statement Schedules:

Schedules have been omitted because the information required to be shown in
the schedules is not applicable or is included elsewhere in our financial
statements or the notes thereto.

17. Undertakings

The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

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

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the
information omitted form the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

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

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act, the Company has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sterling, Virginia, on
the 30th day of April, 1999.

NETWORK ACCESS SOLUTIONS CORPORATION

/s/ Jonathan P. Aust
By: _________________________________
Jonathan P. Aust
President, Chief Executive Officer
and Chairman of the Board of
Directors

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.

<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Jonathan P. Aust President, Chief
- ------------------------------------- Executive Officer April 30,
Jonathan P. Aust and Chairman of the 1999
Board of Directors
(Principal Executive
Officer)

* Chief Financial
- ------------------------------------- Officer and Director April 30,
Scott G. Yancey, Jr. (Principal 1999
Accounting and
Financial Officer)

* Chief Operating
- ------------------------------------- Officer and Director April 30,
Christopher J. Melnick 1999

* Director
- ------------------------------------- April 30,
Brion B. Applegate 1999

Director
- -------------------------------------
Dennis R. Patrick

*By: /s/ Jonathan P. Aust
- -------------------------------------
Jonathan P. Aust
Attorney-in-Fact
</TABLE>

II-5
<PAGE>

Exhibit Index

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the Company
3.2* Amended and Restated By-Laws of the Company
4.1* Specimen stock certificate for shares of Common Stock of the
Company
5.1 Form of opinion of Piper & Marbury L.L.P., regarding legality of
securities being registered
10.1+* Master Equipment Lease Agreement dated November 17, 1998, by and
between the Company and Paradyne Credit Corporation
10.2+* Purchase and Sale Agreement dated as of October 16, 1998, by and
between the Company and Ascend Communications, Inc.
10.3* Master Lease Agreement dated October 9, 1998, by and between the
Company and Ascend Credit Corporation
10.4* Promissory Note dated October 16, 1998, by and between the Company
and Ascend Communications, Inc.
10.5* Commercial Lease dated February 24, 1997, by and between the
Company, Sterling/Gunston Limited Partnership and Bernstein
Management Corporation
10.5.1* First Lease Amendment dated June 26, 1998, by and between the
Company and Sterling/Gunston LLC
10.5.2* Third Lease Amendment dated February 1, 1999, by and between the
Company and Sterling/Gunston LLC
10.6* Sublease dated August 31, 1998, by and between the Company and
U.S. Interactive, Inc.
10.7* Letter of Intent dated March 2, 1999 by and between the Company
and Trans Dulles Center, Inc.
10.8* Employment Agreement dated as of August 16, 1998, by and between
the Company and Jonathan P. Aust
10.9* Employment Agreement dated as of July 13, 1998, by and between the
Company and Christopher J. Melnick
10.10* Employment Agreement dated as of July 13, 1998, by and between the
Company and Scott G. Yancey, Jr.
10.11* Employment Agreement dated as of August 18, 1998, by and between
the Company and James A. Aust
10.12* Employment Agreement dated as of March 1, 1999, by and between the
Company and John J. Hackett
10.13* 1998 Stock Incentive Plan, as amended
10.14* Incentive Stock Option Grant Agreement dated July 23, 1998, by and
between the Company and Scott G. Yancey, Jr., as amended
10.15* Incentive Stock Option Grant Agreement dated July 23, 1998, by and
between the Company and Christopher J. Melnick, as amended
10.16* Incentive Stock Option Grant Agreement dated November 1, 1998, by
and between the Company and James A. Aust
10.17* Incentive Stock Option Grant Agreement dated March 30, 1999, by
and between the Company and John J. Hackett
10.18* Deferred Compensation Agreement dated June 1, 1997, by and between
the Company and Jonathan P. Aust
10.19* Deferred Compensation Agreement dated June 1, 1997, by and between
the Company and James A. Aust
</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.20* Repurchase Agreement dated August 6, 1998, by and between the
Company and Longma M. Aust, Jonathan P. Aust, James A. Aust and
Stephen C. Aust
10.21* Investor Rights Agreement dated August 6, 1998, by and between the
Company, Spectrum Equity Investors II, L.P., SEA 1998 II, L.P.,
FBR Technology Venture Partners L.P. and W2 Venture Partners, LLC,
as amended
10.22* Series A Preferred Stock Purchase Agreement dated August 6, 1998,
by and between the Company, Spectrum Equity Investors II, L.P.,
SEA 1998 II, L.P., FBR Technology Venture Partners L.P. and W2
Venture Partners, LLC
10.23* Note Purchase Agreement dated March 31, 1999, by and between the
Company, Spectrum Equity Investors II, L.P. and FBR Technology
Venture Partners L.P.
10.24* Convertible Note dated March 31, 1999, by and between the Company
and Spectrum Equity Investors II, L.P.
10.25* Convertible Note dated March 31, 1999, by and between the Company
and FBR Technology Venture Partners L.P.
10.26 Nonqualified Stock Option Grant Agreement dated April 1, 1999, by
and between the Company and Dennis R. Patrick
10.27 Deed of Lease dated April 8, 1999, by and between the Company and
TransDulles Center, Inc.
11.1* Statement of computation of loss per share
23.1 Consent of PricewaterhouseCoopers, LLP
23.2 Consent of Piper & Marbury L.L.P. (included as part of Exhibit 5.1
hereto)
24.1* Power of Attorney (included in signature pages)
27* Financial Data Schedule
</TABLE>
- ---------------------
* Previously filed.
** To be filed by amendment.

+ Information has been omitted from this exhibit pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.

II-7

<PAGE>

Exhibit 5.1

[PIPER & MARBURY L.L.P. LETTERHEAD]

[Form of Opinion]

[Date]

Network Access Solutions Corporation
100 Carpenter Drive
Suite 206
Sterling, Virginia 20164

Gentlemen:

We have assisted in the preparation and filing with the Securities and
Exchange Commission of a Registration Statement on Form S-1, file No. 333-74679
(the "Registration Statement"), relating to ______ shares of Common Stock
(including ______ shares to cover over-allotments, if any), $.001 par value per
share, of Network Access Solutions Corporation, a Delaware corporation (the
"Company"), to be offered to the public.

We have examined the Amended and Restated Certificate of Incorporation
and the Amended and Restated Bylaws of the Company, and all amendments thereto,
and have examined and relied upon the originals, or copies certified to our
satisfaction, of such records of meetings of the directors and stockholders of
the Company, documents and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinions expressed below.

In examining the foregoing documents, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified or photostatic copies, and the authenticity of the originals of
such latter documents.

Based on the foregoing, we are of the opinion that the shares of Common
Stock have been duly authorized for issuance and, after payment therefor in
advance and in accordance with the terms and provisions of the Underwriting
Agreement among the Company, Donaldson, Lufkin & Jenrette Securities
Corporation, Bear, Stearns & Co. Inc. and J.P. Morgan & Co. and issuance of the
certificates therefor by the Company, will be duly and validly issued, fully
paid and nonassessable.

We hereby consent to the use of our name in the Registration Statement
and under the captions "Description of our Capital Stock" and "Legal Matters" in
the related Prospectus and consent to the filing of this opinion as an exhibit
to the Registration Statement.
Very truly yours,

<PAGE>

Exhibit 10.26

NETWORK ACCESS SOLUTIONS, INC.
1998 STOCK INCENTIVE PLAN

NONQUALIFIED STOCK OPTION GRANT AGREEMENT

This Grant Agreement (the "Agreement") is entered into as of the 1st day of
April, 1999, by and between NETWORK ACCESS SOLUTIONS CORPORATION a Delaware
corporation (the "Corporation"), and Dennis Patrick ("Grantee"), effective as of
the Grant Date as defined in Article 1 hereof.

In consideration of the premises, mutual covenants and agreements herein,
the Corporation and the Grantee agree as follows:

ARTICLE 1
GRANT OF OPTION

Section 1.1 Grant of Option. The Corporation hereby grants to the
----------------------------
Grantee, pursuant to the provisions of the Network Access Solutions, Inc. 1998
Stock Incentive Plan (the "Plan"), a nonqualified stock option to purchase
shares of Common Stock, par value of $0.01 per share, of the Corporation
("Stock"), subject to the provisions of this Agreement (the "Option"). Unless
stated otherwise herein, capitalized terms in this Agreement shall have the same
meaning as defined in the Plan. Schedule A, attached hereto and incorporated
herein, sets forth the following terms of the Option:

(i) the date the Administrator approved the Option (the "Grant Date");

(ii) the number of shares of Stock which the Grantee may purchase under
the Option;

(iii) the exercise price per share (the "Exercise Price"); and

(iv) the date as of which the Option shall expire (the "Expiration Date"),
at 5:00 p.m. Eastern Time, unless terminated earlier pursuant to
other provisions of this Agreement.

In addition, upon an initial public offering of the Company's Common Stock,
the Company will grant to the Grantee and adjustment option (the "Adjustment
Option") to be determined in accordance with the formula (the "Formula") set
forth on Schedule A. It is expressly agreed that upon such offering, the
Schedule A initially attached hereto shall be replaced by a Schedule A that
reflects the actual number of shares subject to the Option and the Adjustment
Option and their respective Exercise Prices, the number of shares and Exercise
Price of the Adjustment Option to be determined by application of the Formula.
The Company will provide the replacement Schedule A within 7 days of the closing
of the initial public offering. Except as set forth above, for the purposes of
this Agreement the Adjustment Option shall be subject to terms of this Agreement
in the same manner as if it was the Option and shall be considered the "Option"
hereunder.
<PAGE>

ARTICLE 2
VESTING

Section 2.1 Vesting Schedule. Unless the Option has earlier terminated
-----------------------------
pursuant to the provisions of the Agreement, the Grantee shall become vested in
the shares of Stock subject to the Option over a three- (3-) year period as
follows: the Grantee shall become vested in 8.25% of the total shares of Stock
subject to the Option every third (3rd) month after the Grant Date, on the date
in each such month that corresponds with the Grant Date (each referred to as a
"Vesting Date"), during the thirty-six (36) month period immediately following
the Grant Date, so that the Grantee shall be vested in 100% of the shares of
Stock subject to the Option on the third (3rd) anniversary of the Grant Date;
provided, however, that the Grantee must be continuously a member of the
Corporation's Board of Directors at all times from the Grant Date through the
specified Vesting Date for such vesting to occur.

Section 2.2 Acceleration of Vesting. Following the Corporation's initial
------------------------------------
public offering of its common stock, unless the Option has earlier terminated
pursuant to the provisions of the Agreement, vesting of the Option shall be
accelerated so that all unvested shares of Stock subject to the Option shall
become one hundred percent (100%) vested in the Grantee upon a Change of
Control. For purposes of this Agreement, the term "Change of Control" shall
mean (i) the sale of all or substantially all of the assets of the Corporation,
(ii) the sale of more than fifty percent (50%) of the outstanding common stock
of the Corporation in a non-public sale, other than a sale of common stock to
professional investors in a private placement, (iii) the dissolution or
liquidation of the Corporation, or (iv) any merger, share exchange,
consolidation or other reorganization or business combination of the Corporation
if immediately after such transaction persons who hold a majority of the voting
capital stock of the surviving entity are not persons who held a majority of the
voting capital stock of the Corporation immediately prior to such transaction.

ARTICLE 3
EXERCISE OF OPTION

Section 3.1 Exercisability of Option. Pursuant to the terms of the
-------------------------------------
Agreement, the Option may be exercised at any time, and from time to time, with
respect to the number of shares subject to the Option.

Section 3.2 Stock Restriction Agreement. The Administrator in its sole
----------------------------------------
discretion may require as a condition precedent to the exercise of the Option
granted pursuant to Section 1.1, that the Grantee or such other person
exercising the Option be, or shall execute and become, a party to a Stock
Restriction Agreement in substantially the form attached to this Agreement as
Exhibit A.

Section 3.3 Manner of Exercise. The Option may be exercised, in whole or
------------------------------
in part, by delivering written notice to the Administrator in such form as the
Administrator may require from time to time; provided, however, that the Option
may not be exercised at any one time as to fewer than one hundred (100) shares
(or such number of shares as to

-2-
<PAGE>

which the Option is then exercisable if such number of shares then exercisable
is less than one hundred (100)). Such notice shall specify the number of shares
of Stock subject to the Option as to which the Option is being exercised, and
shall be accompanied by full payment of the Exercise Price for such shares.

Payment of the Exercise Price shall be made (a) in cash (or cash
equivalents acceptable to the Administrator in the Administrator's discretion);
(b) in the Administrator's discretion at the time of exercise, by tender to the
Corporation of shares of the Corporation's common stock owned by the Grantee,
having a Fair Market Value on the date of tender not less than the Exercise
Price, which either have been owned by the Grantee at least six (6) months or
were not acquired, directly or indirectly, from the Corporation; (c) in the
Administrator's discretion at the time of exercise, by the Grantee's full
recourse promissory note in a form approved by the Administrator; (d) by a
broker-assisted cashless exercise in accordance with Regulation T of the Board
of Governors of the Federal Reserve System and the provisions of the next
paragraph; or (e) by any combination of the foregoing. In the Administrator's
sole and absolute discretion, the Administrator may authorize payment of the
Exercise Price to be made, in whole or in part, by such other means as the
Administrator may prescribe. The Option may be exercised only in multiples of
whole shares and no fractional shares shall be issued.

If the Stock is registered under Section 12(b) of the Securities Exchange
Act of 1934, as amended, payment of the exercise price may be made, in whole or
in part, subject to such limitations as the Administrator may determine, by
delivery of a properly executed exercise notice, together with irrevocable
instructions: (i) to a brokerage firm approved by the Administrator to deliver
promptly to the Corporation the aggregate amount of sale or loan proceeds to pay
the exercise price and any withholding tax obligations that may arise in
connection with the exercise, and (ii) to the Corporation to deliver the
certificates for such purchased shares directly to such brokerage firm.

Section 3.4 Issuance of Shares and Payment of Cash upon Exercise. Upon
-----------------------------------------------------------------
exercise of the Option, in whole or in part, in accordance with the terms of the
Agreement and upon payment of the Exercise Price for the shares of Stock as to
which the Option is exercised and delivery of such executed Stock Restriction
Agreement as may be required by the Administrator pursuant to Section 3.2, the
Corporation shall issue to the Grantee or such other person exercising the
Option, as the case may be, the number of shares of Stock so paid for, in the
form of fully paid and nonassessable Stock and, except as otherwise provided in
the Stock Restriction Agreement, shall deliver certificates therefor as soon as
practicable thereafter. The stock certificates for any shares of Stock issued
hereunder shall, unless such shares are registered or an exemption from
registration is available under applicable federal and state law, bear a legend
restricting transferability of such shares and referencing the Stock Restriction
Agreement, if applicable.

-3-
<PAGE>

ARTICLE 4
TERMINATION OF OPTION

Section 4.1 Termination, In General. The Option granted hereby shall
------------------------------------
terminate and be of no force or effect after the Expiration Date set forth on
Schedule A, unless terminated prior to such time as provided below.

Section 4.2 Termination of Service as a Member of the Board of Directors.
-------------------------------------------------------------------------
Unless the Option has earlier terminated pursuant to the provisions of the
Agreement, the Option shall terminate in its entirety, regardless of whether the
Option is vested in whole or in part, thirty (30) days after the date the
Grantee is no longer serving as a member of the Corporation's Board of Directors
for any reason.

ARTICLE 5
DRAG-ALONG RIGHTS

Section 5.1 Drag-Along Rights. If at any time any stockholder of the
------------------------------
Corporation or group of stockholders owning a majority or more of the voting
capital stock of the Corporation proposes to enter into any transaction
involving (i) the sale of all or substantially all of the assets of the
Corporation; (ii) the sale of more than fifty percent (50%) of the outstanding
common stock of the Corporation in a non-public sale; (iii) any merger, share
exchange, consolidation or other reorganization or business combination of the
Corporation, if immediately after such transaction either (A) persons who were
directors of the Corporation immediately prior to such transaction do not
constitute at least a majority of the directors of the surviving entity, or (B)
persons who hold a majority of the voting capital stock of the surviving entity
are not persons who held a majority of the voting capital stock of the
Corporation immediately prior to such transaction; or (iv) the dissolution or
liquidation of the Corporation, the Corporation and/or the transferring
stockholders may require the Grantee to participate in such transaction by
giving the Grantee written notice thereof at least ten (10) days in advance of
the date of the transaction or the date that tender is required, as the case may
be. Upon receipt of such notice, the Grantee shall sell, assign, tender or
transfer the same percentage of shares subject to the Option as the percentage
of the shares of Stock proposed to be sold, assigned, tendered or transferred by
the transferring stockholders collectively, upon the same terms and conditions
applicable to the transferring stockholders and at a price equal to the
difference between the Exercise Price per share under the Option and the price
per share of Stock the transferring stockholders will receive pursuant to the
terms of the transaction. If the Grantee has options to purchase Stock of the
Corporation other than the Option hereunder, and such options are subject to
terms similar to those set forth in this Section 5.1, then the Grantee's options
shall be transferred in the order in which they were granted. The provisions of
this Section 5.1 shall apply in the event of the Grantee's death, to the
Grantee's executor, personal representative or the person(s) to whom the Option
shall have been transferred by will or the laws of descent and distribution, as
though such person is the Grantee.

-4-
<PAGE>

ARTICLE 6
ADJUSTMENTS; BUSINESS COMBINATIONS

Section 6.1 Adjustments for Events Affecting Common Stock. In the event
----------------------------------------------------------
of changes in the Common Stock of the Corporation by reason of any stock
dividend, split-up, recapitalization, merger, consolidation, business
combination or exchange of shares and the like, the Administrator shall, in its
discretion, make appropriate adjustments to the number, kind and price of shares
covered by this Option, and shall, in its discretion and without the consent of
the Grantee, make any other adjustments in this Option, including but not
limited to reducing the number of shares subject to the Option or providing or
mandating alternative settlement methods such as settlement of the Option in
cash or in shares of Common Stock or other securities of the Corporation or of
any other entity, or in any other matters which relate to the Option as the
Administrator shall, in its sole discretion, determine to be necessary or
appropriate.

Section 6.2 Pooling of Interests Transaction. No modifications to the
---------------------------------------------
Option shall be made in order to facilitate any business combination unless
agreed to in writing by the Grantee.

Section 6.3 Adjustments for Unusual Events. The Administrator is
-------------------------------------------
authorized to make, in its discretion and without the consent of the Grantee,
adjustments in the terms and conditions of, and the criteria included in, the
Option in recognition of unusual or nonrecurring events affecting the
Corporation, or the financial statements of the Corporation or any Subsidiary,
or of changes in applicable laws, regulations, or accounting principles,
whenever the Administrator determines that such adjustments are appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Option or the Plan.

Section 6.4 Binding Nature of Adjustments. Adjustments under this Article
------------------------------------------
6 will be made by the Administrator, whose determination as to what adjustments,
if any, will be made and the extent thereof will be final, binding and
conclusive. No fractional shares will be issued pursuant to this Option on
account of any such adjustments.

ARTICLE 7
MISCELLANEOUS

Section 7.1 No Rights of Stockholder. The Grantee shall not have any of
-------------------------------------
the rights of a stockholder with respect to the shares of Stock that may be
issued upon the exercise of the Option until such shares of Stock have been
issued to him upon the due exercise of the Option. No adjustment shall be made
for dividends or distributions or other rights for which the record date is
prior to the date such certificate or certificates are issued.

Section 7.2 Nonqualified Nature of Option. The Option is intended to be a
------------------------------------------
stock option that does not qualify as an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
this Agreement shall be so construed.

-5-
<PAGE>

Section 7.3 The Corporation's Rights. The existence of this Option shall
-------------------------------------
not affect in any way the right or power of the Corporation or its stockholders
to make or authorize any or all adjustments, recapitalizations, reorganizations
or other changes in the Corporation's capital structure or its business, or any
merger or consolidation of the Corporation, or any issue of bonds, debentures,
preferred or other stocks with preference ahead of or convertible into, or
otherwise affecting the Stock or the rights thereof, or the dissolution or
liquidation of the Corporation, or any sale or transfer of all or any part of
the Corporation's assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.

Section 7.4 Withholding of Taxes. The Corporation or any Affiliate shall
---------------------------------
have the right to deduct from any compensation or any other payment of any kind
(including withholding the issuance of shares of Stock) due the Grantee the
amount of any foreign, federal, state or local taxes required by law to be
withheld as the result of the exercise of the Option or the lapsing of any
restriction with respect to any shares of Stock acquired on exercise of the
Option; provided, however, that the value of the shares of Stock withheld may
not exceed the statutory minimum withholding amount required by law. In lieu of
such deduction, the Administrator may require the Grantee to make a cash payment
to the Corporation or an Affiliate equal to the amount required to be withheld.
If the Grantee does not make such payment when requested, the Corporation may
refuse to issue any Stock certificate under the Plan until arrangements
satisfactory to the Administrator for such payment have been made.

Section 7.5 Grantee. Whenever the word "Grantee" is used in any provision
--------------------
of this Agreement under circumstances where the provision should logically be
construed to apply to the estate, personal representative or beneficiary to whom
this Option may be transferred by will or by the laws of descent and
distribution, the word "Grantee" shall be deemed to include such person.

Section 7.6 Nontransferability of Option. The Option shall be
-----------------------------------------
nontransferable otherwise than by will or the laws of descent and distribution
and during the lifetime of the Grantee, the Option may be exercised only by the
Grantee or, during the period the Grantee is under a legal disability, by the
Grantee's guardian or legal representative. Except as provided in the preceding
sentence, the Option may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process.

Section 7.7 Notices. All notices and other communications made or given
--------------------
pursuant to the Agreement shall be in writing and shall be sufficiently made or
given if hand delivered or mailed by certified mail, addressed to the Grantee at
the address contained in the records of the Corporation, or addressed to the
Administrator, care of the Corporation for the attention of its Secretary at its
principal office or, if the receiving party consents in advance, transmitted and
received via telecopy or via such other electronic transmission mechanism as may
be available to the parties.

Section 7.8 Entire Agreement; Modification. The Agreement contains the
-------------------------------------------
entire agreement between the parties with respect to the subject matter
contained herein

-6-
<PAGE>

and may not be modified, except as provided in the Plan or in a written document
signed by each of the parties hereto. Any oral or written agreements,
representations, warranties, written inducements, or other communications made
prior to the execution of the Agreement shall be void and ineffective for all
purposes.

Section 7.9 Conformity with Plan. This Agreement is intended to conform
---------------------------------
in all respects with, and is subject to all applicable provisions of, the Plan,
which is incorporated herein by reference. Inconsistencies between this
Agreement and the Plan shall be resolved in accordance with the terms of the
Plan. In the event of any ambiguity in the Agreement or any matters as to which
the Agreement is silent, the Plan shall govern. A copy of the Plan is available
upon request to the Administrator.

Section 7.10 Governing Law. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the Commonwealth of Virginia, other
than the conflict of laws principles thereof.

Section 7.11 Headings. The headings in the Agreement are for reference
----------------------
purposes only and shall not affect the meaning or interpretation of the
Agreement.

{signatures on next page}

IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officer as of the date first above written.

ATTEST: NETWORK ACCESS SOLUTIONS
CORPORATION

/s/ Illegible By: /s/ Scott Yancey
__________________________ _______________________________

The undersigned hereby acknowledges that he/she has carefully read this
Agreement and the Plan and agrees to be bound by all of the provisions set forth
in such documents.

WITNESS: GRANTEE

/s/ Dennis R. Patrick
__________________________ ______________________________________

Date: 4/21/99
_______________________________

Enclosure: Network Access Solutions, Inc. 1998 Stock Incentive Plan

-7-
<PAGE>

SCHEDULE A

Stock Option Granted to: Dennis Patrick

Grant Date: April 1, 1999

Number of Shares: 333,333

Exercise Price Per Share: $5.00

Expiration Date: April 1, 2009

Adjustment Option:

Upon on initial public offering of the Corporation's Common Stock pursuant to an
effective registration statement (the "IPO"), the Grantee will be issued an
additional option (the "Adjustment Option") to purchase shares of the
Corporation's Common Stock. The number of shares subject to the Adjustment
Option and the Exercise Price of such option shall be calculated in accordance
with the formulas set forth below.

Number of Shares: The number of shares ("X") will be determinable at the time
of the Corporation's IPO as follows:

X = Adjustment Amount * 1.33333
---------------------------
Y

Where "Y" equals the Corporation's "initial price per share to the public" of
its Common Stock in the IPO as set forth on the cover page of the final
prospectus for the IPO (the "Price to the Public") and the "Adjustment Amount"
is to be calculated in accordance with the following formula:

Adjustment Amount = $5,000,000 - (333,333*(Y-$5.00))

Exercise Price Per Share: 25% of the IPO Price to the Public.

Except as set forth above, the Adjustment Option shall be identical in terms to
the Option.

-8-
<PAGE>

Administrator of 1998 Stock Incentive Plan
c/o Office of the Corporate Secretary
Network Access Solutions Corporation
100 Carpenter Drive, Suite 206
Sterling, VA 20164

Gentlemen:

I hereby exercise the Option granted to me on ____________________, ______,
by NETWORK ACCESS SOLUTIONS CORPORATION (the "Company"), subject to all the
terms and provisions thereof and of the NETWORK ACCESS SOLUTIONS, INC. 1998
STOCK INCENTIVE PLAN (the "Plan"), and notify you of my desire to purchase
____________ shares of Common Stock of the Company at a price of $___________
per share pursuant to the exercise of said Option. This will confirm my
understanding with respect to the shares to be issued to me by reason of this
exercise of the Option (the shares to be issued pursuant hereto shall be
collectively referred to hereinafter as the "Shares") as follows:

(a) I am acquiring the Shares for my own account for investment with
no present intention of dividing my interest with others or of reselling or
otherwise disposing of any of the Shares.

(b) The Shares are being issued without registration under the
Securities Act of 1933, as amended (the "Act"), in reliance upon one or more
exemptions contained in the Act, and such reliance is based in part on the above
representation.

"The securities represented by this stock certificate have not
been registered under the Securities Act of 1933 (the "Act") or applicable
state securities laws (the "State Acts"), and shall not be sold, pledged,
hypothecated, donated, or otherwise transferred (whether or not for
consideration) by the holder except upon the issuance to the Company of a
favorable opinion of its counsel and/or submission to the Company of such
other evidence as may be satisfactory to counsel for the Company, to the
effect that any such transfer shall not be in violation of the Act and the
State Acts.

The transfer of any interest in the securities represented by
this certificate is subject to a Stock Restriction Agreement, dated
_____________ [DATE OF STOCK RESTRICTION AGREEMENT], by and among NETWORK
-------------------------------------
ACCESS SOLUTIONS CORPORATION, a Virginia corporation and the holder of the
certificate, and no such transfer may be made without compliance with that
Agreement. A copy of that Agreement is available for inspection by any
shareholder of the Corporation at the office of the Corporation upon
appropriate request and without charge."

Appropriate stop transfer instructions will be issued by the issuer to its
transfer agent.

-9-
<PAGE>

(d) Since the Shares have not been registered under the Act, they must
be held indefinitely until an exemption from the registration requirements of
the Act is available or they are subsequently registered, in which event the
representation in Paragraph (a) hereof shall terminate. As a condition to any
transfer of the shares, I understand that the issuer will require an opinion of
counsel satisfactory to the issuer to the effect that such transfer does not
require registration under the Act or any state securities law.

(e) The issuer is not obligated to comply with the registration
requirements of the Act or with the requirements for an exemption under
Regulation A under the Act for my benefit.

(f) I am a party to a Stock Restriction Agreement with the Issuer,
pursuant to which I have agreed to certain restrictions on the transferability
of the Shares and other matters relating thereto.

Total Amount Enclosed: $__________

Date:___________________ ______________________________________
(Optionee)

Received by NETWORK ACCESS SOLUTIONS
CORPORATION on

___________________________, ______

By: ______________________________

-10-

<PAGE>

Exhibit 10.27

DEED OF LEASE
-------------

THIS DEED OF LEASE, (hereinafter referred to as "Lease"), is made this 8th
day of April, 1999, by and between TransDulles Center, Inc., a Virginia
corporation, or assigns (hereinafter referred to as "Landlord") and NETWORK
ACCESS SOLUTIONS, INC., a Delaware corporation, (hereinafter referred to as
"Tenant").

W I T N E S S E T H:

WHEREAS, Landlord and Tenant desire to create a leasehold estate in favor
of Tenant in the Premises (as hereinafter defined).

NOW, THEREFORE, in consideration of the premises, and of the covenants and
agreements herein contained, the parties hereto agree as follows:

1. PREMISES. Effective as of the Commencement Date, Landlord shall lease
unto Tenant and Tenant shall lease from Landlord approximately Sixty One
Thousand Five Hundred (61,500) rentable square feet as outlined in Exhibit A-1
(the "Premises"), consisting of the entire building at 22601 Davis Drive,
Sterling, Virginia, and known as TransDulles Centre Building 2, (the
"Building"), which Building is located on a parcel of land ("Property") as shown
on Exhibit A-1 within the office and warehouse park known as TransDulles Centre
show on Exhibit A-2 ("TransDulles Centre"), and that machinery and equipment
installed in and upon the Premises by Landlord, together with all additions and
accessions thereto, substitutions therefor and replacements thereof permitted by
this Lease (collectively, the "Equipment"). The exact square footage of the
Premises shall be determined by the project's architect in accordance with a
standard method of measurement for similar types of buildings approved by
Landlord. The Premises are leased to Tenant in "AS IS" condition as of the date
hereof; Landlord shall have no obligation whatsoever to may any alterations,
improvements, or repairs of any nature to the Premises.

2. COMMENCEMENT DATE AND LEASE TERM. The initial term of this Lease shall
be for a period of Five (5) years (hereafter referred to as "Term"), commencing
thirty one (31) days after execution of this Lease by Landlord (the
"Commencement Date"). Landlord agrees that following execution of this Lease,
but prior to the Commencement Date (the "Early Access Period"), it shall permit
Tenant to have access to the Premises (subject, however, to the rights of
Purnell Furniture Services, Inc., the current tenant of the Premises) for the
sole purpose of installing telecommunications equipment, specialty equipment,
and related items, without obligation for the payment of Rent. Tenant agrees
however, that (i) the provisions of Paragraph 20 pertaining to insurance and
indemnification shall apply to the Early Access Period and that before such
access is afforded during the Early Termination Agreement, Tenant shall provide
to Landlord an insurance certificate demonstrating that the required insurance
has been obtained; and (ii) that Tenant shall indemnify and hold Landlord
harmless of and from: (x) any and all claims for damage to persons or property
arising from the activities of Tenant (and its agents and contractors) on the
Premises during the Early Access Period, and (y) any and all claims of any
nature asserted by Purnell Furniture Services, Inc. arising from the activities
of Tenant (and its agents and contractors) on the Premises during the Early
Access Period. The initial twelve (12) month period after the Commencement Date
and each successive twelve (12) month period thereafter during the initial Term
and any renewal periods shall be hereinafter referred to as a "Lease Year." If
the Commencement Date is not the first day of a month, then the Term shall be
the period set forth above plus the partial month in which the Commencement Date
occurs. The Term shall also include any properly exercised renewal of the term
of this Lease as provided in Paragraph 6 below. If for any reason Landlord
cannot deliver possession of the Premises to Tenant on the Commencement Date:
(i) this Lease will not be void or voidable; (ii) Landlord will not be liable to
Tenant for any resultant loss or damage; (iii) Rent will be waived for the
period between the Commencement Date and the date on which Landlord delivers
possession of the Premises to Tenant; (iv) the Commencement Date will be
extended automatically, one day for each day after the Commencement Date and
before delivery of possession; and (v) Landlord and Tenant will execute a
certificate of the Commencement Date.

3. RENT. As rent for the Premises (all of which is hereinafter referred
to collectively as "Rent"), Tenant shall pay to Landlord all of the following:
<PAGE>

(a) Base Rent. Subject to escalation pursuant to Paragraph 3(c) below
Tenant shall pay, without offset, demand or counterclaim, as base rent
(hereafter referred to as the "Base Rent") for each Lease Year the sums
identified on the attached Exhibit B, Rent Schedule. The monthly installments
shall be payable in advance on the first day of each and every month during the
said term at the office of TransDulles Center, Inc., c/o The Mark Winkler
Company, 4900 Seminary Road, Suite 900, Alexandria, Virginia 22311, or at such
other place as Landlord may hereafter designate in writing. Rent checks are to
be made payable to TransDulles Center, Inc., or such other person, firm or
corporation as Landlord may hereafter designate in writing, except that the
first such installment, in the amount of Thirty Eight Thousand Eight Hundred
Ninety Eight Dollars and Seventy Five Cents ($38,898.75) shall be due
contemporaneously with the execution of this Lease.

(b) Intentionally Omitted.

(c) Rent Escalations. At the beginning of the second Lease Year and at
the beginning of each Lease Year thereafter, throughout the Term, the Base Rent
then in effect shall be increased by three per cent (3%) of the previous Lease
Year's Base Rent, it being the intent hereof that all increases set forth herein
shall be compounded.

(d) Intentionally Omitted.

(e) Tax on Lease. Tenant's pro rata share of any federal, state or
local tax (including gross receipts tax) assessment, levy or other charge (other
than any income tax or real property tax) (hereinafter collectively referred to
as "Tax") if now or hereafter directly or indirectly upon (a) Landlord with
respect to this Lease or the value thereof, (b) Tenant's use or occupancy of the
Premises, or (c) the Base Rent or any other sum payable under this Lease,
payment of such Tax shall be paid by Tenant as Additional Rent.

Landlord shall annually notify Tenant of the amount which Landlord
estimates will be the Tax for each tax year, and Tenant shall pay such amount in
equal monthly installments in advance on or before the first day of each of the
twelve (12) months after the date of such notice. Landlord shall annually
submit to Tenant a statement showing Tenant's pro rata share of the actual Tax
for the current tax year, the amount thereof theretofore paid by Tenant, and the
amount of the resulting balance due thereon or overpayment thereof. Such
balance due shall be paid by Tenant, without interest, within thirty (30) days
after the date of such statement. Official tax bills rendered by the taxing
authority shall be presumptive evidence of the actual amount of Tax. Tenant
shall have the right to audit Landlord's records pertaining to such Tax in
accordance with paragraph 11 below.

(f) Tenant does hereby take and hold the Premises at the Rent
hereinabove specifically reserved and payable as aforesaid, and upon and subject
to the terms and conditions herein contained.

(g) Late Payment. If Tenant fails to pay any installment of Rent on or
before the first (1st) day of the calendar month when such installment becomes
due and payable, Tenant shall pay to Landlord a late charge of five per cent
(5%) of the amount of such installment, and, in addition, any unpaid installment
shall bear interest at that rate per annum which is two per cent (2%) greater
than the "prime rate" then in effect at Morgan Guaranty Trust Company of New
York, New York, New York, from the date such installment became due and payable
to the date of payment by Tenant' provided, however, that nothing herein
contained shall be construed or implemented in such a manner as to allow
Landlord to charge or receive interest in excess of the maximum legal rate than
allowed by law. Such late charge and interest shall constitute Additional Rent
hereunder and shall be due and payable with the next monthly installment of
Rent. Nothing in this paragraph shall be deemed to be in derogation of
Landlord's rights under Paragraph 17.

(h) Additional Rent. With respect to this Lease, Additional Rent shall
mean any and all monetary obligations for which Tenant is responsible under the
terms, covenants and conditions of this Lease, including but not limited to,
Base Rent escalations, taxes, late fees, interest payments, Operating Costs, and
cost of change orders.

-2-
<PAGE>

(i) Tenant's Proportionate Share. Landlord and Tenant agree that
Tenant's "pro rata share" for purposes of Paragraphs 3(e) and 11 shall be One
Hundred percent (100%), the agreed upon ratio that the area of the Premises
bears to the total rentable area of the Building.

4. INTENTIONALLY OMITTED.

5. USE OF PREMISES.

(a) Tenant may occupy and use the Premises for general office and
warehousing purposes and for no other purpose without the consent of Landlord,
subject, however, to the terms and provisions of any covenants, easements,
conditions or restrictions which affect the use of the Premises. Tenant shall
not permit any unlawful occupation, business or trade to be conducted on any of
the Premises or any use to be made thereof contrary to applicable laws or
regulations. Tenant shall not use or occupy or permit any of the Premises to be
used or occupied, nor do or permit anything to be done in or on any of the
Premises, in a manner which would (i) violate any certificate of occupancy
affecting any of the Premises, (ii) make void or voidable any insurance then in
force with respect to any of the Premises, (iii) make it difficult or impossible
to obtain fire or other insurance which is required hereunder, or cause the cost
of maintaining such insurance to increase, (iv) cause structural damage to the
Building, or (v) constitute a public or private nuisance or waste.

(b) As part of its obligation to comply with laws and other
requirements under Paragraph 5(a) of this Lease, Tenant shall not (either with
or without negligence) generate, use, store, or cause or permit the escape,
disposal or release of any Hazardous Materials in or about the Building or the
Property or the Premises. Hazardous Materials shall mean (a) "hazardous wastes",
as defined by the Resource Conservation and Recovery Act of 1976, as amended
from time to time, (b) "hazardous substances", as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended from
time to time, (c) "toxic substances", as defined by the Toxic Substances Control
Act, as amended from time to time, (d) "hazardous materials", as defined by the
Hazardous Materials Transportation Act, as amended from time to time, (e) any
applicable state or local laws and the regulations adopted under these acts, as
amended from time to time, (f) oil or other petroleum products whether refined
or unrefined, (g) any highly combustible substance and (h) any substance whose
presence in Landlord's reasonable judgment could be detrimental to the Building
or the Property or the Premises or hazardous to health or the environment. If
any lender or governmental agency shall ever require testing to ascertain
whether or not there has been any release of Hazardous Materials, then the
reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand
as additional charges if such requirement applies to the Premises. In addition,
Tenant shall execute affidavits, representations and the like from time to time
at Landlord's request concerning Tenant's best knowledge and belief regarding
the presence of Hazardous Materials in the Premises. In all events, Tenant shall
indemnify and hold Landlord harmless of and from any and all costs and expenses
of any nature arising from the release of Hazardous Materials in the Premises
occurring while Tenant is in possession, or elsewhere on the Property and any
adjacent real estate owned by Landlord, if caused by Tenant or persons acting
under Tenant. The within covenants shall survive the expiration or earlier
termination of the Lease.

(c) If Tenant fails to comply with any applicable law or regulation or
if Landlord reasonably believes the violation of any law or regulation is
threatened, Landlord shall have the right (but not the obligation) following
thirty (30) days notice to Tenant unless Tenant commences to act during or prior
to such period, and diligently pursues the cure of such failure to comply
(unless such failure or threatened failure causes imminent threat to life or
property in which case no notice is required), to act in place of Tenant and to
take such action as it may deem necessary or desirable to ensure compliance or
to mitigate, abate or correct the violation or threatened violation. All costs
of any kind whatsoever incurred by Landlord in connection therewith, including
consultants' and reasonable attorneys' fees, shall be payable on demand, shall
bear interest at the default rate until paid, and shall constitute additional
rent.

(d) Tenant shall indemnify, defend and hold Landlord harmless from and
against any and all claims, losses, damages, liabilities, cost and expenses,
including attorneys' fees, arising from Tenant's failure to comply with all
applicable laws and regulations. The foregoing provisions shall survive the
expiration or earlier termination of this Lease.

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6. OPTION TO EXTEND TERM.

(a) Renewal Periods. Provided that (i) this Lease is in full force and
effect, (ii) no material adverse change in Tenant's financial condition has
occurred, and (iii) Tenant shall not have been in default during the term of the
Lease which has not been cured within any applicable cure period, and (iv) shall
not then be in default and shall not default in the performance of any of its
obligations under this Lease at any time between the date of issuance of the
notice contemplated by paragraph 6(b) below and the expiration of the then
current lease term, Tenant shall have the option to renew this Lease for a
single additional three (3) year term(s), with the Base Rent in such renewal
period, being equal to the greater of either (i) the then current market rent
for comparable space in the Sterling, Virginia market area as determined by
Landlord in the exercise of its sole and absolute discretion, or (ii) one
hundred three percent (103%) of the previous year's Base Rent. The option to
renew provided herein (i) may be exercised by Tenant solely as to the entirety
of the Premises, and not as to any portion thereof, and (ii) is personal to
Tenant; upon any assignment of this lease by Tenant, or the subletting of the
Premises by Tenant such that Tenant fails to occupy at least fifty percent (50%)
of the area of Premises for its own operations as of the date Tenant gives
notice of its intent to renew as required by Paragraph 6(b), and through the
expiration of the initial Term of this Lease, the rights afforded to Tenant
under this Paragraph 6 shall automatically terminate.

(b) Notice Required. Tenant shall give Landlord written notice of its
intent to exercise its option to extend the Lease Term at least Two Hundred
Seventy (270) days, but no more than Three Hundred Sixty Five (365) days, prior
to the end of the initial Term, being of the essence. Should Tenant fail to
notify Landlord of its intent to exercise such Renewal option within the
aforementioned notice period, time being of the essence, then Tenant's renewal
option shall expire without action by either party and Landlord shall not need
to advise Tenant in writing of Tenant's neglect in reference to the notice
period.

7. INTENTIONALLY OMITTED.

8. INTENTIONALLY OMITTED.

9. INTENTIONALLY OMITTED.

10. SECURITY DEPOSIT.

(a) Landlord acknowledges receipt of a check in the amount of Twenty
Five Thousand Dollars ($25,000.00), which, upon collection, shall become part of
a total Security Deposit (the "Security Deposit") in the amount of Thirty Eight
Thousand Eight Hundred Ninety Eight Dollars and Seventy Five Cents ($38,898.75).
Contemporaneously with the execution of this Lease, Tenant shall deliver to
Landlord the additional sum of Thirteen Thousand Eight Hundred Ninety Eight
Dollars and Seventy Five Cents ($13,898.75) to be part of the Security Deposit.
Such Security Deposit shall be security for the payment and performance by
Tenant of all Tenant's obligations, covenants, conditions and agreements under
this Lease. Such sum shall be either in cash, or in a letter of credit ("Letter
of Credit"). Upon the expiration of the Term hereof, or any extension or renewal
thereof, Landlord shall, if Tenant is not in default, return such Security
Deposit to Tenant, less such portion thereof as Landlord shall have appropriated
to make good any default by Tenant with respect to Tenant's obligations within
ninety (90) days of such expiration. If Tenant makes any default during the term
of this Lease or fails to take possession on the commencement date stated in
Paragraph 2, Landlord shall have the right, but not the obligation, to apply all
or any portion of the Security Deposit to remedy such default, in which event
Tenant shall promptly deposit with Landlord the amount necessary to restore the
Security Deposit to its original amount. The Security Deposit shall not be
deemed liquidated damages, and Landlord's application of said Security Deposit
to reduce its damages shall not preclude recovery from Tenant of any additional
damages incurred by Landlord. If the Landlord sells or transfers its interest in
the Building, Landlord shall transfer the Security Deposit to the purchaser or
transferee, and the Landlord shall be released from all liability to Tenant for
the return of such Security Deposit.

(b) At Tenant's option, Tenant may provide, and Landlord agrees to
accept a Letter of Credit as and for the Security Deposit, provided that such
Letter of Credit shall be (i) unconditional; (ii) irrevocable; (iii) issued by a
financial

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institution approved by Landlord in Landlord's reasonable discretion, which
financial institution must be a member bank of the Federal Reserve; (iv) in a
form permitting partial and multiple drawings; (v) for either multiple terms of
at least one (1) year each in duration, which are automatically renewed unless
notice is given to Landlord at least sixty (60) days prior to the expiration
thereof, extending until the date which is ninety (90) days after the expiration
of the Lease Term, as such Lease Term may be extended pursuant to the provisions
of the Lease, or at Tenant's option for a single term extending until the date
which is ninety (90) days after the expiration of the Lease Term, as such Lease
Term may be extended pursuant to the provisions of the Lease; and (vi) be in a
form and substance acceptable to the Landlord, in its sole discretion,
substantially in conformity with the provisions of Exhibit C hereto. If a
partial drawing occurs under the Letter of Credit, the Tenant shall, upon demand
but not more than five (5) business days after such partial drawing, cause the
financial institution to reissue the Letter of Credit in the amount then
currently required under the terms of this Lease. Notwithstanding the
foregoing, the Landlord shall be entitled to draw down the entire amount of the
Letter of Credit, without any notice, at any time on or after the earlier of (i)
the occurrence of an Event of Default by Tenant under this Lease; or (ii) at any
time after the sixtieth (60th) day preceding the expiration date of the Letter
of Credit in the event that the issuer of the Letter of Credit gives notice to
Landlord that it will not renew the Letter of Credit as contemplated hereby.

11. OPERATING COSTS. Tenant shall pay as Additional Rent its pro rata
share of Operating Costs of the Building and Property. The projected
preliminary estimated calendar year 1999 operating costs for the Premises are
$1.90 per rentable square foot of the Premises. This amount shall be adjusted
in accordance with the procedures outlined below.

(a) Definition. As used herein, the term "Operating Costs" means
(except as specifically excluded below) the actual costs incurred in owning,
operating and maintaining the Building and Property during each year of the
Lease Term. Such operation and maintenance costs shall include, by way of
example rather than of limitation, (i) real property, county, and other similar
taxes or assessments, including but not limited to any special assessments,
levied against any or all of the Building and Property; (ii) charges or fees
for, and taxes on, the furnishing of water, sewer service, gas, fuel,
electricity or other utility services to the Premises and common areas of the
Building and Property; (iii) costs of providing landscaping service, snow
removal service, and of maintaining grounds, common areas of the Building and
adjacent parking areas and mechanical systems of the Building; (iv) all other
reasonable costs of maintaining, repairing or replacing any or all of the
Building, except (a) costs for repairs, maintenance and replacements required
due to defective materials, installations or workmanship at the time of initial
construction of the Building and Property and expenses incurred in connection
with the enforcement of any warranty rights in connection therewith, or (b)
costs to repair the roof, foundation, interior load bearing partitions, exterior
walls and window systems, except to the extent any such structural repair is
required due to Tenant's negligence or willful misconduct; (v) charges or fees
for any necessary governmental permits; (vi) customary and reasonable management
fees under a management agreement, and related overhead and expenses; (vii)
premiums for hazard, liability, workmen's compensation or similar insurance upon
any or all of the Building and Property as maintained by Landlord under
Paragraph 20; (viii) costs arising under service contracts with independent
contractors for servicing, maintenance and repair of building equipment and
systems; and (ix) the cost of any other items which, under generally accepted
accounting principles consistently applied from year to year with respect to the
Building and Property, constitute operating or maintenance costs attributable to
any or all of the Premises. Landlord and its agents reserve the right to enter
onto the Premises at reasonable times upon reasonable notice from Landlord or
its agent and accompanied by a representative of Tenant, excepting emergency,
for the specific purpose of managing and maintaining the Premises. Landlord
agrees that it shall make no profit from its collection of Operating Costs.

(b) Notwithstanding anything to the contrary herein, Operating Costs
shall not include (i) any costs (including payments of principal and interest
under any mortgage and any ground rental payments) associated with the initial
construction of the Building, (ii) costs of development of the Property or the
Premises, (iii) costs of painting or decorating areas of the Building other than
common and public areas, and exterior elements (iv) brokerage commissions, legal
fees, construction costs and concessions or inducements to any tenant in
connection with leasing premises in the Building, and advertising expenses in
connection with the leasing of the Building, (v) legal fees relating to tenant
leases, financings of the Building, and zoning and land-use issues and
violations by Landlord under tenant leases, (vi) salaries and other compensation
paid to officers or executives of Landlord or any partner, principal or owner of
the entity comprising Landlord, (vii) fees or charges paid to any party
affiliated with Landlord on account of the provision by such entity of goods or
services constituting

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<PAGE>

Operating Costs of the Building to the extent such fees or charges exceed the
fees or charges that would have been incurred to an independent entity in an
arm's length transaction, (viii) any expenses reimbursable by any tenant of the
Building, insurance company or condemning authority, or actually reimbursed by
any other source, (ix) charges for heating and air conditioning service
furnished to other tenants of the Building during other than normal business
hours as determined by Landlord, (x) advertising and marketing costs, (xi)
Landlord's income taxes, (xii) repairs or other work occasioned by fire or other
casualty of an insurable nature, but only to the extent of any recovery actually
received by Landlord, and (xiii) costs arising from Landlord's civic activities
or charitable or political contributions, all of which costs are the
responsibility of the Landlord except where agreed to otherwise by the parties
in writing.

(c) In order to provide for current payments, a statement of Landlord's
estimate of expenses as initially set forth in Paragraph 11 (a) above, together
with the amount of Tenant's Additional Monthly Rent resulting therefrom, shall
be submitted by Landlord to Tenant prior to the beginning of each calendar year
or part thereof during the Term. Tenant shall pay monthly, one-twelfth (1/12th)
of Tenant's pro rata share of Landlord's estimate of Operating Costs. Further,
from time to time during any calendar year, Landlord may submit to Tenant a
revised statement of Landlord's estimate of Tenant's pro rata share of any
Operating Costs and within thirty (30) days after delivery of such statement
(including any statement delivered after the expiration or termination of this
Lease), Tenant shall pay to Landlord, as Additional Monthly Rent an amount equal
to one-twelfth (1/12th) of the revised amount so estimated. After the end of
each fiscal year, Landlord will, as soon as practical, submit to Tenant a
statement of the actual expenses, incurred for Operating Costs for the preceding
fiscal year. Such statement shall also indicate the amount of Tenant's excess
payment or underpayment based on the Landlord's estimate.

If Additional Rent paid by Tenant during the preceding calendar
year shall be in excess of, or less than its share of the actual expenses
incurred by Landlord for Operating Costs for that year, Landlord and Tenant
agree to make the appropriate adjustment following the submission of Landlord's
statement by Tenant paying any Additional Rent due with the installment of rent
due for the month following submission of Landlord's statement, or Tenant
deducting its excess payment from the installment of rent for such month.

During the final year of the Lease Term if Tenant overpays its
portion of Operating Costs, said over payment amount shall be treated as if it
were part of the Security Deposit, and applied to Tenant's obligations
hereunder, or returned by Landlord to Tenant in accordance with the provisions
of Paragraph 10(a).

Within thirty (30) days after the receipt of Landlord's statement
showing actual figures for the year, Tenant shall have the right to request
copies of a statement of "Operating Costs of the Building" prepared by the
Landlord which shall be supplied to the Tenant within a reasonable time after
Tenant's written request, but no such request shall extend the time for payment
as set forth in the preceding Paragraph. Unless Tenant asserts specific error(s)
within fifteen (15) business days after Landlord has complied with Tenant's
request, the statement submitted by Landlord shall be deemed to be correct.
Provided Tenant timely asserts such specific errors, and is current in its
obligations to Landlord for the payment of all sums due to Landlord as Rent
under this Lease, and is not otherwise in default in its obligations under this
Lease, Tenant shall have the right, exercisable no more than once per Lease
Year, to cause Landlord's books and records showing Taxes and Operating Expenses
for the prior Lease Year to be examined by a Certified Public Accountant engaged
by Tenant upon no less than thirty (30) days prior written notice and during
normal business hours at any time within one hundred and eighty (180) days
following the expiration of the prior Lease Year. No such Certified Public
Accountant may be engaged on a contingent fee basis. Such examination shall, at
Landlord's option, occur at the offices of the Landlord's management agent, and
shall not take more than thirty (30) days to complete. Any information obtained
by Tenant from such examination will be treated as confidential unless and until
such information has been publicly disclosed by Landlord; provided, however,
that nothing herein contained shall limit or impair the right or obligation of
Tenant to disclose such information when required to do so by law or to
appropriate regulatory authorities having jurisdiction over its affairs, or to
use the same in connection with the enforcement of the terms and conditions of
the Lease. As a condition of such examination, Landlord may require any party
reviewing or having access to Landlord's records to execute and deliver to
Landlord a confidentiality agreement substantially in the form attached hereto
as Exhibit D. In the event that Operating Expenses or Taxes for any Lease Year
have been overstated by ten percent (10%) or more, Landlord shall promptly

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reimburse or credit Tenant for the reasonable costs of such audit, in addition
to refunding all overpayments previously made by Tenant.

11.1 COSTS OF OPERATING THE PREMISES AND BUILDING. In addition to the
Rent and Additional Rent provided elsewhere herein, Tenant shall be responsible
for making direct payment of all costs incurred in operating the Premises and
Building to the parties providing service to the Premises and Building,
including without limitation, all utility costs, trash removal and janitorial
services. Tenant shall at all times maintain the Premises and Building,
including the loading areas, in a neat and clean manner, and shall place all
trash in its dumpster.

12. ASSIGNMENT AND SUBLETTING.

(a) Tenant shall not mortgage, pledge or encumber this Lease without
Landlord's prior written consent, which consent shall not be unreasonably
withheld or delayed.

(b) Tenant shall have the right to assign this Lease or sublet all or
any portion of the Premises throughout the Term, subject to Landlord's prior
written consent and approval, which shall not be unreasonably withheld,
conditioned, or delayed, provided, that Tenant remains fully liable for the
performance of all terms and conditions of this Lease including but not limited
to the payment of Base Rent and Additional Rent and that the assignee or
subtenant agrees to be bound by all terms, conditions, and provisions of this
Lease. If Tenant wants to assign, sublet or otherwise transfer all or part of
the Premises or this Lease, then Tenant shall give Landlord written notice
("Tenant's Request Notice") of the identity of the proposed assignee or
subtenant and its business, all terms of the proposed assignment or subletting,
the commencement date of the proposed assignment or subletting (the "Proposed
Sublease Commencement Date"), the area proposed to be assigned or sublet (the
"Proposed Sublet Space") and such other information as Landlord may reasonably
request, together with a processing fee of One Thousand Dollars ($1000.00)
payable to Landlord, which shall be earned by Landlord regardless of whether
Landlord's written consent and approval is given. Tenant shall also transmit
therewith the most recent financial statement or other evidence of financial
responsibility of such assignee or subtenant and a certification executed by
Tenant and such proposed assignee or subtenant stating whether any premium or
other consideration is being paid for the proposed assignment or sublease. Any
sublease, assignment or other transfer shall be effective on forms supplied or
approved by Landlord. In addition to the processing fee described above, Tenant
shall be solely responsible for the payment of reasonable attorneys fees
incurred by Landlord in preparing and/or reviewing documents implementing any
such assignment or subletting. Tenant assigns to Landlord any sum due to Tenant
from any assignee, subtenant or occupancy of Tenant as security for Tenant's
performance of its obligations pursuant to this Lease, provided, however, that
Tenant shall have the license to collect such rents provided prior to the
occurrence of an Event of Default. Following an Event of Default, Tenant
authorizes each such assignee, subtenant or occupant to pay such sum directly to
Landlord if such assignee, subtenant or occupant receives written notice from
Landlord specifying that such rent shall be paid directly to Landlord.
Landlord's collection of such rent shall not be construed as an acceptance of
such assignee, subtenant or occupant as a tenant nor a waiver of any default
hereunder by Tenant. Notwithstanding anything in this Paragraph 12 to the
contrary, provided no Event of Default exists under this Lease, or would exist
but for the pendency of any cure periods provided for under Paragraph 17, Tenant
may, without Landlord's consent, but after providing written notice to Landlord,
assign this Lease or sublet all or any portion of the Premises to any Related
Entity (as hereinafter defined) provided that (i) in the event of an assignment,
such Related Entity assumes in full all of Tenant's obligations under this
Lease; (ii) Landlord is provided with a counterpart of the fully executed
agreement of assignment or sublease, which shall be in a form reasonably
satisfactory to Landlord; (iii) to the extent Tenant remains in existence Tenant
remains liable under the terms of this Lease; (iv) such Related Entity is not a
governmental entity or agency; (v) such Related Entity's use requirement does
not materially differ from the Permitted Use described in Paragraph 5 hereof;
and (vi) such Related Entity does not require additional services other than
those agreed to be provided by Landlord under the terms of this Lease. "Related
Entity" shall be defined as (i)any parent company, subsidiary, or affiliate of
Tenant, which controls, is controlled by, or is under common control with
Tenant, and/or (ii) any entity into which Tenant shall be merged or
consolidated, or which purchases substantially all of the assets of Tenant and
assumes the liabilities of Tenant under this Lease and continues in the same
business as that of Tenant.

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<PAGE>

(c) Landlord acknowledges that Tenant proposes to sublet the a portion
of the Premises consisting of warehouse space to Purnell Furniture Services,
Inc. ("Purnell"). Landlord accepts Purnell as a subtenant, subject to review and
approval by Landlord of the documents by which the terms of such subletting are
established as provided in Paragraph 12(b) above.

(d) If Tenant proposes to assign this Lease other than to a Related
Entity, or to Purnell as contemplated by Paragraph 12(c) above, Landlord may, at
its option, upon written notice to Tenant given within ten (10) business days
after its receipt of Tenant's Request Notice, together with all other necessary
information, elect to recapture the Premises and terminate this Lease. If
Tenant proposes to sublease fifty percent (50%) or more of the area of the
Premises for the remainder of the Term, Landlord may, at its option upon written
notice to Tenant given within 10 business days after its receipt of Tenant's
Request Notice, together with all other necessary information, elect to
recapture such portion of the Premises as Tenant proposes to sublease and upon
such election by Landlord, this Lease shall terminate as to the portion of the
Premises recaptured. If a portion of the Premises is recaptured, the Rent
payable under this Lease shall be proportionately reduced based on the square
footage of the Rentable Square Feet retained by Tenant and the square footage of
the Rentable Square Feet leased by Tenant immediately prior to such recapture
and termination, and Landlord and Tenant shall thereupon execute an amendment to
this Lease in accordance therewith. Landlord may thereafter, without
limitation, lease the recaptured portion of the Premises to the proposed
assignee or subtenant without liability to Tenant. Upon any such termination,
Landlord and Tenant shall have no further obligations or liabilities to each
other under this Lease with respect to the recaptured portion of the Premises,
except with respect to obligations or liabilities which accrue or have accrued
hereunder as of the date of such termination (in the same manner as if the date
of such termination were the date originally fixed for the expiration of the
term hereof).

(e) If any sublease, assignment or other transfer (whether by
operation of law or otherwise) provides that the subtenant, assignee or other
transferee (or any affiliate thereof) is to pay any amount in excess of the rent
and other charges due under this Lease, then, whether such excess be in the form
of an increased rental, lump sum payment, payment for the sale or lease of
fixtures or other leasehold improvements or any other form (and if the
applicable space does not constitute the entire Premises, the amount and
existence of such excess shall be determined on a prorata basis), Tenant shall
pay to Landlord fifty percent (50%) of any such excess within ten (10) days,
provided, however, that such excess shall be reduced by the amount of brokerage
commissions and reasonable costs of improvements to the Premises actually paid
by Tenant in connection with such sublease, assignment or other transfer, but in
the event of a sublease, such amount shall be amortized on a straight line basis
over the term of the Sublease. Tenant shall in all events diligently pursue the
collection of all amounts owed by any subtenant, assignee or other transferee.
Tenant shall in all events diligently pursue the collection of all amounts owed
by any subtenant, assignee or other transferee. Landlord shall have the right to
inspect and audit Tenant's books and records relating to any sublease,
assignment or other transfer.

13. CASUALTY DAMAGE. In the event of damage or destruction of the
Premises by fire or any other casualty, this Lease shall not be terminated, but
the Premises shall be promptly and fully repaired or restored, as the case may
be, by Landlord at its own cost and expense in an amount not to exceed the
amount of insurance proceeds available. Due allowance, however, shall be given
for reasonable time required for adjustment and settlement of insurance claims,
and for such other delays as may result from government restrictions, and
controls on construction, if any, and for strikes, national emergencies and
other conditions beyond the control of Landlord. It is agreed that in any of
the aforesaid events, this Lease shall continue in full force and effect, but if
the condition is such so as to make the entire Premises untenantable for
practical use for Tenant's purposes, then the Rent which Tenant is obligated to
pay hereunder shall abate as of the date of the occurrence until the Premises
have been fully and completely restored by Landlord. Any unpaid or prepaid Rent
for the month in which said condition occurs shall be prorated. If the Premises
are partially damaged or destroyed but the Tenant can still make practical use
of the balance of the Premises; then during the period that Tenant is deprived
of the use of the damaged portion of said Premises, Tenant shall be required to
pay Rent covering only that part of the Premises that it is able to occupy,
based on that portion of total rent which the amount of square foot area
remaining that can be occupied bears to the total square foot area of all the
Premises covered by this Lease. In the event that twenty five per cent (25%) or
more of the Premises are damaged or destroyed by fire or other casualty so as to
be untenantable for practical use for Tenant's purposes and it shall require
more than one hundred eighty (180) days for Landlord to substantially complete
restoration of

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<PAGE>

same as reasonably concurred on by Tenant, then either party hereto upon written
notice delivered within thirty (30) days of the fire or other casualty to the
other party may terminate this Lease, in which case the Rent shall be
apportioned and paid to the date of said fire or other casualty. Subject to the
foregoing, no compensation, or claim, or diminution of Rent will be allowed or
paid, by Landlord, by reason of consequential damages, inconvenience, annoyance,
or injury to business, arising from the necessity of repairing the Premises or
any portion of the Building of which they are a part, however the necessity may
occur.

14. MAINTENANCE AND REPAIRS:

(a) Subject to Tenant's responsibilities set forth in Paragraph 14
(d), Landlord shall keep the Building and all machinery, equipment and fixtures
attached to, or used in connection with the operation of the Building, including
all electrical, heating, mechanical, sanitary, sprinkler, utility, power,
plumbing, cleaning, refrigeration, ventilating, air conditioning and elevator
systems and equipment (excluding, however, lines, improvements, systems and
machinery for water, gas, steam and electricity owned and maintained by any
public utility company or governmental agency or body and excluding also any of
Tenant's property) in good order and repair. Landlord reserves the right of
access to the Premises for the purposes of such operation, cleaning,
maintenance, safety, security and repairs, and agrees that it shall use
reasonable efforts (except in the case of emergency) to provide reasonable
advance notice to Tenant of its intent to enter the Premises for such purposes.
The cost for maintaining the Building and Premises in good order and repair as
contemplated by this paragraph 14 (a) shall be an Operating Cost for purposes of
paragraph 11 hereof. There shall be no abatement in rents due and payable
hereunder and no liability on the part of Landlord by reason of any
inconvenience, annoyance or disruption arising from Landlord's making reasonable
repairs, additions or improvements to the Building or Premises in accordance
with its obligations hereunder. Tenant will not do or permit anything to be done
in the Premises or the Building of which they form a part or bring or keep
anything therein which shall in any way increase the rate of fire or other
insurance for said Building, or on the property kept therein, or obstruct, or
interfere with the rights of other tenants, or in any way injure or annoy them,
or those having business with them, or conflict with them or conflict with the
fire laws or regulations, or with any insurance policy upon said Building or any
part thereof, or with any statutes, rules or regulations enacted or established
by the appropriate governmental authority. If any increase in the rate of fire
insurance or other insurance is stated by any insurance company or by any
insurance rate bureau due to any activity or equipment of Tenant, such statement
shall be conclusive evidence that the increase in such rate is caused by such
activity or equipment, and Tenant shall be liable for such increase and shall
reimburse Landlord therefor upon demand, and any such sum shall be considered
additional rent payable hereunder.

In the event Landlord elects to make substantial improvements or
additions to the Building, Property or Premises, such improvements or additions
shall not adversely affect Tenant's use of or access to the Premises unless
Landlord has obtained the prior written consent of Tenant, which consent shall
not be unreasonably withheld, to make such improvements or additions which
affect Tenant's Premises in an adverse manner, or which materially increase
Operating Expenses or Real Estate Taxes. Landlord shall be free to make
improvements or additions to the Building, Property or Premises which do not
have an adverse effect on Tenant's use of or access to the Premises.

(b) After execution of this Agreement, except as hereinafter expressly
set forth Tenant will not make any alterations, installments, changes,
replacements, additions or improvements, collectively "Alterations", in or to
the Premises or the Building, or any part thereof, without the prior written
consent of Landlord, not to be unreasonably withheld or delayed. In the event
Landlord elects to have the Alterations remain upon the Premises or be removed
following the expiration of the Term, said written consent shall include
Landlord's election, except in the case of the Generator or Racking System, as
provided below. It is expressly understood that all Alterations shall be
performed in a good and workmanlike manner and shall conform to all rules and
regulations established from time to time by any applicable underwriter's
association and conform to all requirements of local, state and federal
governments. All Alterations shall be made at Tenant's sole expense, by
contractors, or subcontractors reasonably approved by Landlord, and only after
(i) Tenant has submitted complete plans and specifications to Landlord with
respect to the Alterations and Landlord has approved them in writing, and (ii)
subsequent to receipt of Landlord's written consent to perform the Alterations,
Tenant has obtained all necessary permits from governmental authorities. If any
mechanic's lien is filed against the Premises or the Building for work or

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materials furnished to Tenant, the lien shall be discharged or bonded off by
Tenant, solely at Tenant's expense, within thirty (30) days after Tenant
receives notice thereof. Tenant shall indemnify and hold harmless Landlord from
any and all expenses (including reasonable attorney's fees), liens and claims or
damage to persons, property, or the Building which may arise from the making of
any Alterations. Tenant will deliver to Landlord a complete set of "as-built"
plans showing the approved Alterations.

It is also expressly understood that all Alterations upon the Premises
(whether with or without Landlord's consent), shall at the election of Landlord,
as provided in the written consent required herein above, remain upon the
Premises and be surrendered with the Premises at the expiration of this Lease
without disturbance, molestation or injury. Notwithstanding the foregoing,
provided (i) this Lease is in full force and effect, , and (ii) that Tenant
shall not have been in default beyond the expiration of any applicable cure
period more than twice during the term of this Lease and shall not then be in
default in the performance of any obligation under this Lease, Tenant shall have
the right to remove, prior to the expiration or termination of this Lease, all
movable furniture, fixtures or equipment installed in the Premises solely at
Tenant's expense, other than the Generator installed as provided in Paragraph 31
hereof, and the Racking System as described in Paragraph 33 hereof. Should
Landlord elect that Alterations, installments, changes, replacements, additions
to or improvements made by Tenant are not to remain on the Premises, Tenant
hereby agrees that within five (5) days following the expiration of the term of
this Lease, Landlord shall have the right to cause same to be removed at
Tenant's sole cost and expense. Tenant hereby agrees to reimburse Landlord for
the reasonable cost of such removal together with the cost of restoring the
Premises to its original condition, reasonable wear and tear excepted. Should
Landlord elect that the Racking System be removed from the Premises,
notwithstanding any other provision of this Lease, Tenant shall be responsible
for restoring the Premises to the condition in which it existed prior to the
installation of the Racking System, including but not limited to, removing all
hardware by which the Racking System was anchored to the floor and/or walls, and
restoring and refinishing the floor and walls--including filling all holes made
in connection with the installation and utilization of the Racking System.

(c) Tenant shall not install any other equipment of any kind or nature
whatsoever which will or may necessitate any changes, replacements or additions
to or require the use of the water system, air conditioning system or the
electrical system of the Premises without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld or delayed. In the
event that Tenant wishes to install machinery or mechanical equipment which may
cause noise or vibration to be transmitted to the structure of the Building or
any space therein, such machinery shall be installed and maintained by Tenant,
at Tenant's expense, on vibration eliminators or other devices sufficient to
eliminate such noise and vibration. Tenant may, at its expense, install and
remove additional equipment and machinery used or useful in Tenant's business,
which equipment and machinery shall remain the property of Tenant and shall not
become part of the real estate, provided that such installation shall not reduce
the value of the Premises or its usefulness. Any equipment of Tenant not
removed by Tenant within ten (10) days after the expiration or earlier
termination of this Lease shall be considered abandoned by Tenant and may be
appropriated, sold, destroyed or otherwise disposed of by Landlord without first
giving notice thereof and without obligation to account therefor.
Notwithstanding any other provision of this Lease, Tenant may not install any
equipment which emits electromagnetic, microwave, ultrasonic, laser, or other
radiation which Landlord reasonably determines causes a risk to persons or
property, or interferes with telecommunications transmissions or computer use.

(d) Subject to Landlord's obligations to maintain and repair the
Premises in accordance with this Paragraph 14, Tenant agrees that it will take
good care of the Premises and the fixtures therein and will, at the expiration
or other termination of the term hereof, surrender and deliver up the same in
like good order and conditions as the same now is or shall be at the
commencement of the Term hereof, ordinary wear and tear excepted. Without
limiting the generality of the foregoing, Tenant shall promptly make all repairs
to the Premises or to any part of the Building, to the extent such repairs are
not covered by insurance and if such repairs are necessitated by any act or
omission of Tenant, any subtenant, assignee or concessionaire of Tenant, any of
its respective agents or employees, or by the failure of Tenant to perform any
of its obligations under this Lease. Tenant shall not store items, materials, or
goods of any nature outside of the Premises or in the loading areas.

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15. PARKING AND LOADING AREAS.

(a) During the term of this Lease, and any renewal thereof, Tenant
shall have, without charge, the right to utilize ninety four (94) parking spaces
for passenger vehicles in the Building's parking facilities on a nonexclusive
basis with other tenants of the Building, upon such non-financial terms and
conditions as may from time to time be reasonably established by Landlord. The
location of such parking facilities is shown on Exhibit E. Parking is
specifically prohibited on the streets adjacent to the Building, including
Carpenter Drive, Sally Ride Drive, Glenn Drive and Davis Drive. Tenant shall be
responsible for monitoring and enforcing these restrictions with respect to the
vehicles used by its employees and contractors, and by parties visiting the
Premises. It is understood and agreed that Landlord assumes no responsibility,
and shall not be held liable for any damage or loss to any automobiles parked in
the parking facilities or to any personal property located therein, or for any
injury sustained by any person in or about the parking facilities.

(b) During the term of this Lease, and any renewal thereof, Tenant
shall have, without charge, the right to utilize the paved areas adjacent to the
Premises which have been designed and constructed for use as loading docks to
serve the Premises. Landlord shall not be liable to Tenant as a result of any
inability of Tenant to access such docks due to the parking of vehicles in the
vicinity of such loading docks and drive in area, or otherwise. Truck parking
shall be restricted to the area in the immediate vicinity of the loading docks
serving the Building, as shown on Exhibit E, and is specifically prohibited in
the parking areas reserved for automobiles, and on the streets adjacent to the
Building, including Carpenter Drive, Sally Ride Drive, Glenn Drive or Davis
Drive. Tenant shall be responsible for enforcing these restrictions with respect
to trucks making pickups and deliveries at the Premises, or otherwise serving
the Premises.

16. SIGNAGE. Tenant shall be entitled to install, at its sole expense,
one (1) building mounted exterior sign providing identification of Tenant on the
top portion of the Building facade, subject to Landlord's approval, in its sole,
absolute and unreviewable discretion, as to location, design, color, lighting,
and specifications, and to applicable Loudoun County regulations.

17. EVENT OF DEFAULT.

(a) Definition. As used in the provisions of this Lease, each of the
following events shall constitute, and is hereinafter referred to as, an "Event
of Default":

(i) If Tenant (1) fails to pay Rent, Additional Rent or any
other sum which Tenant is obligated to pay by any provision of this Lease, when
and as it is due and payable hereunder and without demand therefor, or (2) in
any material respect violates any of the terms, conditions or covenants set
forth in the provisions of this Lease; or

(ii) If Tenant (1) applies for or consents to the appointment of
a receiver, trustee or liquidator of Tenant or of all or a substantial part of
its assets, (2) files a voluntary petition in bankruptcy or admits in writing
its inability to pay its debts as they come due, (3) makes an assignment for the
benefit of its creditors, (4) files a petition or an answer seeking a
reorganization or an arrangement with creditors, or seeks to take advantage of
any insolvency law, (5) performs any other act of bankruptcy, or (6) files an
answer admitting the material allegations of a reorganization insolvency
proceeding.

(iii) If an order of relief or other order, judgement or decree is
entered by any court of competent jurisdiction adjudicating Tenant as insolvent,
or otherwise entitled to the protection of or subject to any bankruptcy statute,
approving a petition seeking such a reorganization, or appointing a receiver,
trustee or liquidator of Tenant or otherwise commence with respect to Tenant or
any of its assets any proceeding under any bankruptcy, reorganization,
arrangement, insolvency, readjustment, receivership or similar law, and if such
order, judgement, decree or proceeding continues unstayed for more than sixty
(60) consecutive days after the expiration of any stay thereof.

(b) Notice of Tenant, Grace Period. Anything contained in the
provisions of this Paragraph to the contrary notwithstanding, upon the
occurrence of an Event of Default Tenant shall not be deemed to be in default,
and

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Landlord shall not exercise any right or remedy which it holds under any
provision of this Lease or under applicable law unless and until;

(i) Landlord has given written notice ("Notice of Default")
thereof to Tenant, and

(ii) Tenant has failed, (1) if such Event of Default consists of
the failure to pay money, within five (5) calendar days after the date Landlord
presents notice to pay all of such money, together with interest thereon and any
late payment charge which may be due hereunder of five per cent (5%) levied on
all monies due to Landlord in accordance with Paragraph 3(g) as of the date of
issuance of the Notice of Default, or (2) if such Event of Default consists of
something other than the failure to pay money, within fifteen (15) business days
thereafter to commence actively, diligently and in good faith to proceed to cure
such Event of Default and to continue to do so until it is fully cured; provided
however, if Tenant commences to cure such Event of Default during such fifteen
(15) day period, and such Event of Default cannot be cured within such period
despite diligent effort, Tenant shall be afforded such additional time as may
reasonably required to affect a cure provided that Tenant continues to
diligently pursue such cure.

(iii) No such notice shall be required, and Tenant shall be
entitled to no such grace period, (1) more than once with respect to monetary
default during each twelve (12) month period of the Term, or (2) if Tenant has
substantially terminated or is in the process of substantially terminating its
continuous occupancy and use of the Premises for the purpose set forth in the
provisions of Paragraph 5, or (3) if any Event of Default enumerated in the
provisions of Paragraphs 17(a)(ii) or 17(a)(iii) has occurred.

(c) Landlord's Rights upon Event of Default. Upon the occurrence of an
Event of Default, subject to cure periods contained herein, Landlord, at its
option, may terminate this Lease, and with our without terminating this Lease,
may pursue any and all other remedies available to it under the laws of the
Commonwealth of Virginia, including, by way of example rather than of
limitation, the rights to:

(i) re-enter and repossess the Premises, with lawful force, and
any and all improvements thereon and additions thereto;

(ii) at Landlord's option, immediately recover an amount equal to
the present value (as of the date of Tenant's default) of the Base Rent and
Additional Rent which would have become due through the date on which the Lease
Term would have expired but for Tenant's default, which damages shall be payable
to Landlord in a lump sum on demand. For purposes of this Section, present value
shall be computed by discounting at a rate equal to one (1) whole per cent point
above the "prime rate" then in effect at Morgan Guaranty Trust Company of New
York, and collect such balance in any manner not inconsistent with applicable
law. Landlord agrees to offset against any judgment that may be obtained for the
sums due hereunder the net amounts received by Landlord as a result of any
reletting, following deduction from such receipts of the out-of-pocket cost to
Landlord of any reasonable fees relating to reletting of the Premises including
but not limited to construction costs, brokerage fees, reasonable attorney's
fees or of any repairs or other action (including those taken in exercising
Landlord's rights under any provision of this Lease) taken by Landlord ; and/or

(iii) relet any or all of the Premises for Tenant's account for
any or all of the remainder of the Lease Term, and require Tenant to pay to
Landlord, any deficiency in the Rent and any other sum which Tenant is obligated
to pay resulting, with respect to such remainder, from such reletting, as well
as the out-of-pocket cost to Landlord of any reasonable fees relating to
reletting of the Premises including but not limited to construction costs,
brokerage fees, reasonable attorney's fees or of any repairs or other action
(including those taken in exercising Landlord's rights under any provision of
this Lease) taken by Landlord on account of such Event of Default. Landlord
shall not be liable for, nor shall Tenant's obligations be diminished by reason
of, Landlord's failure to relet the Premises or collect any rent due upon such
reletting.

Landlord's rights and remedies set forth in this Lease are cumulative and in
addition to Landlord's other rights and remedies at law or in equity, including
those available as a result of any anticipatory breach of this Lease.
Landlord's exercise of any

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such right or remedy shall not prevent the concurrent or subsequent exercise of
any other right or remedy. Landlord's delay or failure to exercise or enforce
any of Landlord's rights or remedies or Tenant's obligations shall not
constitute a waiver of any such rights, remedies or obligations. Landlord shall
not be deemed to have waived any default unless such waiver expressly set forth
in an instrument signed by Landlord. Any such waiver shall not be construed as
a waiver of any covenant or condition except as to the specific circumstances
described in such waiver. Neither Tenant's payment of an amount less than a sum
due nor Tenant's endorsement or statement on any check or letter accompanying
such payment shall be deemed an accord and satisfaction. Notwithstanding any
request or designation by Tenant, Landlord may apply any payment received from
Tenant to any payment then due. Landlord may accept the same without prejudice
to Landlord's right to recover the balance of such sum or to pursue other
remedies. Re-entry and acceptance of keys shall not be considered an acceptance
of a surrender of this Lease.

(d) Right of Landlord to Cure Tenant's Default. If Tenant defaults in
the performance of any of its obligations under this Lease, then Landlord shall
have the right (but not the duty) to perform such obligation, and Tenant shall
reimburse Landlord for any reasonable costs and expenses thereby incurred,
together with interest thereon at that rate per annum which is two per cent (2%)
greater than the "prime rate" then in effect at Morgan Guaranty Trust Company of
New York, from the date such costs and expenses are incurred by Landlord to the
date of payment thereof by Tenant; provided, however, that nothing herein
contained shall be construed or implemented in such a manner as to allow
Landlord to charge or receive interest in excess of the maximum legal rate then
allowed by law. Such payment and interest shall constitute Additional Rent
hereunder, which shall be due and payable with the next monthly installment of
Rent; but the making of such payment or the taking of such action by Landlord
shall not operate to cure such default or to stop Landlord from the pursuit of
any remedy to which Landlord would otherwise be entitled.

(e) Lien on Personal Property. As security for all of Tenant's
obligations under this Lease, Tenant hereby grants to Landlord a Uniform
Commercial Code Security interest in all of Tenant's tangible and intangible
personal property now or hereafter located upon the Premises. Landlord may
enforce its security interest pursuant to any applicable law then in effect.
Tenant shall, within five (5) days after request, execute any document,
including financing statements, required by Landlord to perfect the security
interest herein provided. The security interest provided herein shall be in
addition to, and not in lieu of, any common law or statutory Landlord lien
provided under applicable law, and Landlord's rights and remedies provided in
this section shall be in addition to, and not in lieu of, any other rights and
remedies available to Landlord pursuant to the terms of this Lease or pursuant
to applicable law. Provided, however, that Landlord's lien (i) shall be
subordinate to any purchase money financing for the acquisition of such items as
good, wares, equipment, fixtures and furniture used in the ordinary course of
business, and (ii) shall be waived with respect to items leased by Tenant under
bona fide leases.

(f) No Waiver. If Landlord institutes legal proceedings against
Tenant as to any matter under this Lease and a compromise or settlement is made,
Landlord shall not be deemed to have waived any rights under this Lease except
as explicitly set forth in a written agreement signed by Landlord evidencing
such compromise or settlement. No waiver by Landlord of any breach of any
covenant, condition, or agreement in this Lease shall operate as a waiver of
such covenant or condition itself or of any subsequent breach thereof. No
payment by Tenant or receipt by Landlord of a lesser amount than the monthly
installments of Rent herein stipulated shall be deemed to be other than a
payment on account, nor shall any endorsement or statement on any check or
letter accompanying a check for payment of Rent be deemed an accord and
satisfaction, and Landlord may accept such check prepayment without prejudice to
Landlord's right to recover the balance of such Rent or to pursue any other
remedy provided in the Lease. No re-entry by Landlord, and no acceptance by
Landlord of keys from Tenant, shall be considered an acceptance of a surrender
of the Lease.

18. HOLDING OVER. Tenant acknowledges that it is extremely important that
Landlord have substantial advance notice of the date on which Tenant will vacate
the Premises, because Landlord will (a) require a substantial period to locate a
replacement tenant, and (b) plan its entire leasing and renovation program for
the Building in reliance on its lease expiration dates. Tenant also
acknowledges that if Tenant fails to surrender the Premises at the expiration or
earlier termination of the Lease Term, then it will be conclusively presumed
that the value to Tenant of remaining in possession, and the loss that will be
suffered by Landlord as a result thereof, far exceed the Base Rent and
Additional Rent that would

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<PAGE>

have been payable had the Lease Term continued during such holdover period.
Therefore, if Tenant (or anyone claiming through Tenant) does not immediately
surrender the Premises or any portion thereof upon the expiration or earlier
termination of the Lease Term, then the rent shall be increased to equal the
greater of (1) the fair market rent for the Premises, or (2) One Hundred Fifty
percent (150%) of the Base Rent, Additional Rent and other sums that would have
been payable pursuant to the provisions of this Lease if the Lease Term had
continued such holdover period. Such rent shall be computed by Landlord on a
monthly basis and shall be payable on the first day of such holdover period and
the first day of each calendar month thereafter during such holdover period
until the Premises have been vacated. Notwithstanding any other provision of
this Lease, Landlord's acceptance of such rent shall not in any manner adversely
affect Landlord's other rights and remedies, including Landlord's right to evict
Tenant and to recover all damages. Any holdover shall be deemed to be a
tenancy-at-sufferance and not a tenancy-at-will or tenancy from month-to-month;
provided, however, that Landlord may, in addition to its other remedies, elect,
in its sole discretion, to treat such holdover as the creation of a month-to-
month tenancy with Tenant. In no event shall any holdover be deemed a permitted
extension or renewal of the Lease Term, and nothing contained herein shall be
construed to constitute Landlord's consent to any holdover or to give Tenant any
right with respect thereto. Except as otherwise specifically provided in this
Article, all terms of this Lease shall remain in full force and effect during
the holdover period.

19. LANDLORD'S RIGHT OF ENTRY. Landlord and its agents shall be entitled
to enter the Premises at any reasonable time, with reasonable prior notice
except in emergency,

(a) To inspect the Premises;

(b) To exhibit the Premises to any existing or prospective purchaser
or mortgagee thereof or, during the last nine (9) months of the Term, any
prospective tenant thereof;

(d) For any other reasonable purpose relating to the operation or
maintenance of the Premises; provided, that Landlord shall (i) give Tenant
reasonable prior notice of its intention to enter the Premises, except in the
case of emergency, and (ii) use reasonable efforts to avoid thereby interfering
any more than is reasonably necessary with Tenant's use and enjoyment thereof.

20. LIABILITY, TENANT'S INDEMNITY, INSURANCE.

(a) Landlord shall not be liable for, and Tenant shall indemnify and
hold Landlord harmless from and against, any injury, loss or damage of whatever
nature to any persons or property arising within the Premises unless caused by
the willful act or omission of Landlord, its agents, employees or contractors.
Commencing with the date on which the Premises are made available to Tenant and
continuing thereafter throughout the Lease Term, Tenant shall maintain, at its
sole expense, (i) general comprehensive public liability insurance, including
bodily injury, property damage or other loss, insuring Tenant, Landlord,
Landlord's Lender, Landlord's Ground Lessor and Landlord's appointed agent with
respect to the Premises and their appurtenances, in a company or companies
reasonably satisfactory to Landlord, in an amount not less than Five Million
Dollars ($5,000,000), (ii) all-risk property and casualty insurance, including
theft, written at replacement cost value and with replacement cost endorsement,
covering all of Tenant's personal property in the Premises, and (iii) if, and to
the extent required by law, worker's compensation or similar insurance offering
statutory coverage and containing statutory limits. All such insurance shall:
(1) be issued by a company that is licensed to do business in the jurisdiction
in which the Building is located, that has been approved in advance by Landlord
and that has a rating equal to or exceeding A:XI from Best's Insurance Guide;
(2) name Landlord, its managing agent (or its successor) and the holder of any
Mortgage as additional insureds and/or loss payees as applicable (as their
interests may appear), except that the liability insurance shall not name
Landlord's Mortgage holder as an additional insured; (3) contain an endorsement
that such insurance shall remain in full force and effect notwithstanding that
the insured may have waived its right of action against any person or entity
prior to the occurrence of a loss (Tenant hereby waiving its right of action and
recovery against and releasing Landlord and its employees, affiliates, partners
and agents from any and all liabilities, claims and losses for which they may
otherwise be

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liable to the extent Tenant is covered by insurance carried or required to be
carried under this Lease); (4) provide that the insurer waives all right of
recovery by way of subrogation against Landlord, its partners, affiliates,
agents and employees, (5) be acceptable in form and content to Landlord; (6) be
primary and non-contributory; and (7) contain an endorsement prohibiting
cancellation, failure to renew, reduction in amount of insurance or change of
coverage (A) as to the interests of Landlord or the holder of the Mortgage by
reason of any act or omission of Tenant, and (B) without the insurer's giving
Landlord thirty (30) days' prior written notice of such action. No such policy
shall contain any deductible provision except as otherwise approved in writing
by Landlord, which approval shall not be unreasonably withheld. Landlord
reserves the right from time to time to require Tenant to obtain higher minimum
amounts or different types of insurance. Tenant shall deliver a certificate of
all such insurance and receipts evidencing payment of the premium for such
insurance (and, upon request, copies of all required insurance policies,
including endorsements and declarations) to Landlord concurrently with Tenant's
execution of this Lease and at least annually thereafter.

In addition, Tenant shall require any contractor retained by it to
perform any Alteration to carry and maintain at Tenant's or such contractor's
expense (and furnish the policy, policies or certificates thereof to Landlord,
Landlord's lender and Ground Lessor) during such times as contractor is working
in the Premises, (i) comprehensive general liability insurance policy,
including, but not limited to, contractor's liability coverage, contractual
liability coverage, complete operations coverage, broad form property damage
endorsement and contractor's protective liability coverage, to afford protection
with limits per person and for each occurrence, of not less than One Million
($1,000,000), combined single limit, with respect to personal injury and death
and property damage, such insurance to provide for no deductible, to name
Landlord, Landlord's lender and Ground Lessor as additional insureds and (ii)
worker's compensation insurance or similar insurance in form and amounts as
required by law.

Landlord shall maintain insurance coverage for the Building, the
cost of such insurance shall be an Operating Cost for purposes of paragraph 11
hereof, in such amounts and with such carriers as shall be reasonable and
necessary from time to time including (a) fire insurance, with standard extended
coverage endorsement including demolition costs, increased costs of
construction, and contingent liability from changes in building codes on the
Premises, in an amount not less than the full replacement value from time to
time of the Premises; (b) flood insurance in an amount Landlord may from time to
time reasonably require, if the Premises are located in an area designated as
"flood prone" pursuant to the national Flood Insurance Act of 1968 and the Flood
Disaster Protection Act; (c) difference-in-conditions coverage (including flood
and earthquake to the extent available) to the extent not covered under (a) and
(b) above, in an amount Landlord from time to time may reasonably require; (d)
rental value insurance in an amount equal to one (1) year gross rent; (e) steam
boiler and machinery breakdown direct damage insurance and third-party liability
coverage (if applicable and if not covered under the comprehensive general
liability policy), with full comprehensive coverage on a repair and replacement
cost basis, for all boilers and machinery which form a part of the Premises,
including business interruption insurance in connection therewith in accordance
with (d) above; and (f) such other insurance as Landlord may require against
such other insurable hazards which at the time are customary and prudent under
the circumstances.

(b) All damages to the Premises or the Building of which they are a
part, caused by Tenant, or the agents, servants, employees and invitees of
Tenant, will be repaired by Landlord at the expense of Tenant, to the extent not
covered by insurance proceeds, with the right on the part of Landlord to elect
in its discretion to regard the same as Additional Rent, in which event such
cost or charge shall become Additional Rent payable with the installment of Rent
next becoming due or thereafter falling due under the terms of this Lease. This
provision shall be construed as an additional remedy granted to Landlord and not
in limitation of any other rights and remedies which Landlord has or may have in
said circumstances.

(c) All personal property of Tenant in the Premises or in the Building
of which the Premises is a part shall be at the sole risk of Tenant. Landlord
shall not be liable for any accident to or damage to the property of Tenant
resulting from the use or operation of the heating, cooling, electrical or
plumbing apparatus or any other cause whatsoever. Landlord shall not be liable
in damages, nor shall this Lease be affected, for conditions arising or
resulting, and which may affect the Building of which the Premises is a part,
due to construction on contiguous premises unless such construction renders the
Premises untenantable or impractical for use for Tenant's purposes.

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(d) Landlord assumes no liability or responsibility whatsoever to the
conduct and operations of the business to be conducted in the Premises.
Landlord shall not be liable for any accident to or injury to any person or
persons or property in or about the Premises which are caused by the conduct and
operation of said business or by virtue of equipment or property of Tenant in
said Premises.

(e) Except to the extent caused by the willful misconduct of Landlord,
its agents or employees, Landlord shall have no liability to Tenant, its
employees, agents, invitees, licensees, customers, clients, family members or
guests for any damage, compensation or claim arising from the repair by Landlord
of any portion of the Premises or the Building, any interruption in the use of
the Premises, accident or damage resulting from the use or operation (by
Landlord, Tenant or any other person) of heating, cooling, electrical or
plumbing equipment or apparatus, or from untenantability of the Premises
resulting from fire or other casualty subject to Paragraph 13, or from any
robbery, theft, mysterious disappearance and/or any other casualty, or from any
leakage in any part or portion of the Premises or the Building, or from water,
rain or snow that may leak into or flow from any part of the Premises, or from
drains, pipes or plumbing work in the Building, or from any other cause
whatsoever. Any goods, property or personal effects, stored or placed by Tenant
in or about the Premises shall be at the risk of Tenant, and Landlord shall not
in any manner be held responsible therefor. The employees of Landlord are
prohibited from receiving any packages or other articles delivered to the
Premises for Tenant, and if any such employee receives any such package or
article, at the request of Tenant, such employee shall be the agent of Tenant
for such purposes and not of Landlord.

21. WAIVER OF SUBROGATION. If either party hereto is paid or indemnified
by any proceeds under any policy of insurance naming such party as an insured
(or would have been paid or indemnified by such proceeds if it had maintained
all of the insurance coverages it is required under this Lease to maintain), on
account of any loss, damage or liability, then such party hereby releases the
other party hereto from any and all liability for such loss, damage or
liability, notwithstanding that such loss, damage or liability, may arise out of
the negligent act or omission of the other party, its agents or employees.

22. EMINENT DOMAIN.

(a) If any or all of the Premises are taken by the exercise of any
power of eminent domain or are conveyed to or at the direction of any
governmental entity under a threat of any such taking (each of which is
hereinafter referred to as a "Condemnation"), Landlord, subject to subparagraph
(c) below shall be entitled to collect from the condemning authority thereunder
the entire amount of any award made in any such proceeding or as consideration
for such deed, without deduction therefrom for any leasehold or other estate
held by Tenant by virtue of this Lease.

(b) Tenant, subject to subparagraph (c) below, hereby (i) assigns to
Landlord all of Tenant's right, title and interest, if any, in and to any such
award, (ii) waives any right which it may otherwise have in connection with such
Condemnation, against Landlord or such condemning authority, to any payment for
(a) the value of the then unexpired portion of the Term, (b) leasehold damages
(except the unamortized portion of any improvements paid for by Tenant and title
to which is retained by Tenant, provided such amount does not diminish and/or
delay any award or payment which Landlord would otherwise receive as a result of
such condemnation), and (c) any damage to or diminution of the value of Tenant's
leasehold interest hereunder or any portion of the Premises not covered by such
Condemnation; and (iii) agrees to execute any and all further documents which
may be required in order to facilitate the Landlord's collection of any and all
such awards.

(c) Notwithstanding the foregoing provisions of this Paragraph, Tenant
may seek a separate award pursuant to Section 25-46.21:1 of the Code of
Virginia, as amended, so long as such separate award in no way diminishes and/or
delays any award or payment which Landlord would otherwise receive as a result
of such Condemnation.

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<PAGE>

23. EFFECT OF CONDEMNATION.

(a) If (i) all of the Premises are covered by a Condemnation, or (ii)
if any part of the Premises is covered by a Condemnation and the remainder
thereof is insufficient for the reasonable operation therein of Tenant's
business, or (iii) any of the Building is covered by a Condemnation and, in
Landlord's reasonable opinion, reasonably concurred in by Tenant, it would be
impractical to restore the remainder thereof, then, in any such event, the Term
shall terminate on the date upon which possession of so much of the Premises as
is covered by such Condemnation is taken by the condemning authority thereunder,
and all Rent (including, by way of example rather than of limitation, any
Operating Costs payable pursuant to the provisions of Paragraph 11), taxes, and
other charges payable hereunder shall be prorated and paid to such date.

(b) If there is a Condemnation and the Term does not terminate
pursuant to the foregoing provisions of this Paragraph, the operation and effect
of this Lease shall be unaffected by such Condemnation, except that the Base
Monthly Rent payable under the provisions of Paragraph 3 shall be reduced in
proportion to the square footage, if any, of the Premises covered by such
Condemnation.

(c) If there is a Condemnation, Landlord shall have no liability to
Tenant on account of any (i) interruption of Tenant's business upon the
Premises, (ii) diminution in Tenant's ability to use the Premises, or (iii)
other injury or damage sustained by Tenant as a result of such Condemnation.

(d) Except for any separate award to Tenant under the provisions of
Paragraph 22(c), Landlord shall be entitled to conduct any such condemnation
proceeding and any settlement thereof free of interference from Tenant, and
Tenant hereby waives any right which it might otherwise have to participate
therein.

24. MECHANIC'S AND MATERIALMEN'S LIENS. Excluding labor or materials
provided in connection with the construction of the Building by Landlord, Tenant
shall bond, remove or have removed any mechanic's, materialmen's or other lien
filed or claimed against any or all of the Premises, by reason of labor or
materials provided for or at the request of Tenant of any of its contractors or
subcontractors within thirty (30) days of notice of filing said lien.

25. QUIET ENJOYMENT. Landlord hereby covenants that Tenant, on paying the
Rent and performing the covenants set forth herein, shall without interference
from Landlord peaceably and quietly hold and enjoy, throughout the Term, (i) the
Premises, and (ii) such rights as Tenant may hold hereunder with respect to the
Premises.

26. SURRENDER.

(a) Upon the expiration or earlier termination of the Term, Tenant
shall surrender the Premises to Landlord in good order, cleanliness and repair,
ordinary wear and tear excepted.

(b) Subject to Paragraph 14(c) hereof, any and all improvements,
repairs, alterations and all other property attached to, used in connection with
or otherwise installed upon the Premises (i) shall, immediately upon the
completion of the installation thereof, be and become Landlord's property
without payment therefor by Landlord, and (ii) shall be surrendered to Landlord
upon the expiration or earlier termination of the Term, except that any
machinery, equipment or fixtures installed by Tenant and used in the conduct of
Tenant's trade or business (rather than to service the Premises) shall remain
Tenant's property and shall be removed by Tenant within five (5) days after the
expiration or earlier termination of the Term, and Tenant shall promptly and
thereafter fully restore any of the Premises or the Building damaged by such
installation or removal thereof.

27. SUBORDINATION. Landlord represents that as of the date hereof, the
Property is not encumbered by any mortgage or deed of trust. This Lease shall
be subject and subordinate to all ground or underlying leases and to all
mortgages and/or deeds of trust which may hereafter affect such leases or the
Property,(the "Mortgage") and to all renewals, modifications, consolidations,
re-castings, replacements and extensions thereof. The holder of the Mortgage
to which this Lease is subordinate shall have the right at any time to declare
this Lease to be superior to the lien, provisions, operation and

-17-
<PAGE>

effect of such Mortgage and Tenant shall execute, acknowledge and deliver all
confirming documents required by such holder. Such subordination shall,
however, be conditioned upon Landlord utilizing commercially reasonable efforts
to obtain from the holder of such ground lease, mortgage, or deed of trust, a
written non-disturbance agreement to the effect that in the event of a
foreclosure or other action taken under such ground lease, mortgage, or deed of
trust by thereof, this Lease and the rights of Tenant hereunder shall not be
disturbed but shall continue in full force and effect so long as Tenant shall
not be in default hereunder. In confirmation of the foregoing subordination,
Tenant shall at Landlord's request promptly execute any requisite and
appropriate document. Tenant appoints Landlord as Tenant's attorney-in-fact to
execute any such document for Tenant if Tenant fails to execute same within ten
(10) days after request therefor. Tenant waives the provisions of any statute
or rule of law now or hereafter in effect which may give or purport to give
Tenant any right to terminate or otherwise adversely affect this Lease or
Tenant's obligations in the event any such foreclosure proceeding is prosecuted
or completed or in the event the Land, the Building or Landlord's interest
therein is sold at a foreclosure sale or by deed in lieu of foreclosure. In
the event any proceedings are brought for foreclosure, or in the event of the
exercise of the power of sale under any mortgage or deed of trust encumbering
the Property, Tenant shall attorn to such purchaser or to the grantee of a deed
in lieu of foreclosure, and shall recognize such purchaser or grantee as the
landlord under this Lease. Upon such attornment such purchaser or grantee shall
not be (a) bound by any payment of the Base Rent or additional rent more than
one (1) month in advance, (b) bound by any amendment of this Lease made without
the consent of the holder of the Mortgage existing as of the date of such
amendment, (c) liable for damages for any breach, act or omission of any prior
landlord, or (d) subject to any offset or defenses which Tenant might have
against any prior landlord. Within five (5) days after receipt, Tenant shall
execute, acknowledge and deliver any requisite or appropriate document submitted
to Tenant confirming such attornment.

28. ESTOPPEL CERTIFICATE. Landlord and Tenant agree from time to time,
upon not less than fifteen (15) days' prior written notice by the other party,
to execute, acknowledge and deliver to such party or to any existing or
prospective owner or mortgagee of the Building or land upon which such Building
has been built, or any interest in either, a statement in writing (i) certifying
that this Lease is unmodified and in full force and effect (or if there have
been modifications, stating the modifications and that the Lease is in full
force and effect as modified), (ii) stating the dates to which the Rent and any
other charges hereunder have been paid by Tenant, (iii) stating whether or not,
to the knowledge of such party, the other party is in default in the performance
of any covenant, agreement or condition contained in this Lease, and if so,
specifying each such default of which such party may have knowledge, (iv)
stating that Tenant shall give notice to any mortgagee prior to seeking to
terminate the Lease by reason of any act or omission of Landlord until such
mortgagee has reasonable time, at its option, to remedy such act or omission,
and (v) stating the address to which notices to Tenant, or Landlord, as the case
may be, should be sent. Any such statement may be relied upon by any existing
or prospective owner or mortgagee of the Building or aforesaid land or any
interest in either or any assignee of any such person.

29. NOTICES. Any notice, demand, consent, approval request or other
communication or document to be provided hereunder to a party hereto, shall be
in writing and shall be deemed to have been provided after being sent by
certified or registered mail, return receipt requested, in the United States
mail or by personal delivery or commercial courier, against receipt. Any and
all notices or other communications to Landlord and Tenant shall be given as
follows:

Landlord: TransDulles Center, Inc.
c/o The Mark Winkler Company
4900 Seminary Road, Suite 900
Alexandria, Virginia 22311
Attn: Michael D. Lynch, President

Copy to: TransDulles Center, Inc.
c/o J.P. Morgan Investment Management, Inc.
522 Fifth Avenue at 44th Street
New York, New York 10036

-18-
<PAGE>

Tenant: Network Access Solutions, Inc.
Attn: Scott Yancey

Address Prior to Occupancy:
100 Carpenter Drive
Sterling, Virginia 20164

Address Following Occupancy:
22601 Davis Drive
Sterling, Virginia 20164

Either party may hereafter designate a new address for notice purposes, by
giving notice as provided hereunder.

30. GENERAL.

(a) Complete Understanding. This Lease, including without limitation,
all Exhibits represents the complete understanding between the parties hereto as
to the subject matter hereof, and supersedes all prior negotiations,
representations, warranties, statements or agreements, either written or oral,
between the parties hereto as to the same.

(b) Amendment. This Lease may be amended by and only by an instrument
executed and delivered by each party hereto.

(c) Applicable Law. This Lease shall be given effect and construed by
application of the laws of the Commonwealth of Virginia.

(d) Time of Essence. Time shall be of the essence of this Lease.

(e) Headings. The headings of the Paragraphs and subparagraphs hereof
are provided herein for and only for convenience or reference, and shall not be
considered in construing their contents.

(f) Exhibits. Each writing or plat referred to herein as being
attached hereto as an exhibit or otherwise designated herein as an exhibit
hereto is hereby made a part hereof .

(g) Severability. No determination by any court, governmental body or
otherwise that any provision of this Lease or any amendment hereof is invalid or
unenforceable in any instance shall affect the validity of enforceability of (a)
any other provision thereof, or (b) such provision in any circumstance not
controlled by such determination. Each such provision shall be valid and
enforceable to the fullest extent allowed by, and shall be construed wherever
possible as being consistent with, applicable law.

(h) Definition of "Landlord". As used herein, the term "Landlord"
means the entity hereinabove named as such, and its successors and assigns.

(i) Definition of "Tenant". As used herein, the term "Tenant" means
each person hereinabove named as such and such person's heirs, personal
representatives, successors and assigns, each of whom shall have the same
obligations, liabilities, rights and privileges as it would have possessed had
it originally executed this Lease, that no such right or privilege shall inure
to the benefit of any assignee of Tenant, immediate or remote, unless the
assignment to such assignee is made in accordance with the provisions of
Paragraph 12. Whenever two or more persons constitute Tenant, all such persons
shall be jointly and severally liable for the performance of Tenant's
obligations hereunder.

(j) It is agreed that all rights, remedies and liabilities herein
given to or imposed upon either of the parties hereto, shall extend to their
respective heirs, executors, administrators, successors and assigns.

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<PAGE>

(k) Landlord warrants that it is the owner of the Building and
Premises and has the full right and authority to make this Lease. Tenant hereby
accepts this Lease.

(l) Force Majeure. In the event that Landlord or Tenant shall be
delayed, or hindered, or prevented from the performance of any act required
hereunder (except for the payment of monies), by reason of government
restrictions, scarcity of labor or materials, or for other reasons beyond its
reasonable control, the performance of such act shall be excused for the period
of delay and the period for the performance of any such act shall be extended
for a period equivalent to the period of such delay.

(m) Recordation. The parties agree to execute a short form of this
Lease, which may, at Landlord's sole option, be recorded among the land records
of the jurisdiction where the Premises are located. The expense thereof shall be
borne by Landlord.

(n) Tenant's Corporate Authority. Tenant hereby warrants and
represents that each individual executing this Lease on behalf of Tenant is duly
authorized to execute and deliver this Lease and that Tenant is a duly organized
corporation under the laws of the State of its incorporation, is qualified to do
business in the Commonwealth of Virginia, and has the power and authority to
enter into this Lease, and that all corporate action requisite to authorize
Tenant to enter into this Lease has been duly taken.

(o) Commission. Landlord and Tenant warrant that they have not had
any dealings with any realtor, broker or agent in connection with the
negotiation of this Lease, except for The Staubach Company and The Mark Winkler
Company ("Brokers") whose commission shall be paid for by Landlord pursuant to
the terms of a separate agreement between Landlord and the Brokers. Should any
claim for a commission be established by any other broker or agent, the parties
hereby expressly agree to hold one another harmless with respect thereto to the
extent that one or the other is shown to have been responsible for the creation
of such claim.

(p) No Representations By Landlord. Tenant acknowledges that neither
Landlord or any broker, agent or employee of Landlord has made any
representations or promises with respect to the Premises or the Building except
as herein expressly set forth, and no rights, privileges, assessments or
licenses are acquired by Tenant except as herein expressly provided.

(q) Authority of Landlord. Landlord hereby represents and warrants
that it is a limited partnership duly organized and in good standing under the
laws of the Commonwealth of Virginia, that each individual or entity executing
this Lease on behalf of Landlord is authorized to do so, and that all action
necessary to authorize Landlord to enter into this Lease has been duly taken.

(r) Third-Party Consents. Landlord hereby represents and warrants
that (i) the execution and delivery of this Lease by Landlord, and the
performance of Landlord's obligations hereunder, do not conflict with or result
in any breach under the terms of Landlord's partnership agreement or any
agreement to which Landlord is a party or by which Landlord or the Premises is
bound and (ii) all consents of any third parties, including without limitation
any ground lessor or mortgagee of the Premises, required in connection with the
execution and delivery of this lease have been obtained by Landlord, and
Landlord shall furnish evidence of such consents.

(s) Litigation. The prevailing party shall recover all reasonable
attorney's fees and costs incurred by or on behalf of such prevailing party if
(a) either party institutes litigation for a breach of the terms and conditions
of this Lease, (b) either party institutes litigation for possession of the
Premises, (c) either party is made party to litigation instituted by a third
party relating to Premises. Such attorney's fees and costs may be levied
against the party whose conduct necessitated the use of an attorney whether or
not litigation is prosecuted to judgement.

(t) Assignment by Landlord. Landlord may freely assign its interest
hereunder. The term "Landlord" as used herein shall be deemed to be related
only to a person or entity during the time of his or its ownership of Landlord's
interest in this Lease.

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<PAGE>

(u) LANDLORD, TENANT AND ANY GUARANTORS WAIVE TRIAL BY JURY IN ANY
ACTION, CLAIM OR COUNTERCLAIM BROUGHT IN CONNECTION WITH LANDLORD-TENANT
RELATIONSHIP, TENANT'S USE OR OCCUPANCY OF THE PREMISES OR ANY CLAIM OF INJURY
OR DAMAGE. Tenant consents to service of process and any pleading relating to
any such action at the Premises; provided, however, that nothing herein shall be
construed as requiring such service at the Premises. Landlord, Tenant and all
Guarantors waive any objection to the venue of any action filed in any court
situated in the jurisdiction in which the Building is located and waive any
right under the doctrine of forum non conveniens or otherwise to transfer any
such action filed in any such court to any other court.

31. GENERATOR. Tenant shall have the right to install, at a location on
the Property to be determined by Landlord in its sole and absolute discretion,
an electrical generator/tank unit (the "Generator") to provide electrical power
to the Premises during power outages, subject to the terms and conditions of
this Lease and the following specific conditions:

(a) Tenant shall bear all costs and expenses associated with the
installation of the Generator, and Tenant shall be responsible for, and shall
bear all costs and expenses associated with, the operation and maintenance
thereof. Tenant understands and acknowledges that Landlord shall not be
responsible for the operation and maintenance of the Generator.

(b) The plans and specifications for the Generator, including the
manner of its connection to the Building's electrical system, and the nature and
location of conduit, shall be subject to the prior written approval of Landlord,
which may be granted or withheld in Landlord's sole and absolute discretion.
Tenant shall install the Generator in a good and safe manner in accordance with
the terms and conditions of this Lease. Tenant shall provide reasonable notice
to Landlord of the time and date upon which it desires to install such
facilities. A representative of Landlord shall be present at the installation of
the Generator in order to approve the methods of installation and performance
thereof.

(c) Tenant shall have the responsibility to secure all necessary
approvals relating to the installation and operation of the Generator from
state, federal and other governmental authorities. Further, Tenant shall
construct, operate and maintain such facilities in accordance with all
applicable laws, ordinances, rules and regulations and in compliance with the
reasonable requirements of the insurers of the Building.

(d) Tenant shall be responsible for the cost of repairs required to
the Building arising out of the construction, installation, operation,
maintenance, repair, replacement or removal of the Generator. In furtherance
thereof, Tenant agrees to indemnify, defend and hold Landlord harmless from an
against any and all such costs or expenses (including reasonable attorneys fees)
incurred by landlord as a result of the acts, omissions or negligence of Tenant
in the construction, installation, operation, maintenance, repair, replacement
or removal of the Generator and related equipment, including all cable, wires,
conduit, and transformers related thereto.

(e) Landlord shall have no responsibility to insure or maintain the
Generator, and Tenant, at its sole cost and expense, shall be responsible for
maintaining such insurance coverage with regard thereto as may be reasonably
required by Landlord, including Pollution Liability coverage with limits of
$1,000,000 each incident to include cleanup and cost of defense. Both Tenant
and Landlord should be reflected as named insureds. Tenant shall be solely
responsible for any damage or destruction to the Generator, regardless of the
cause.

(f) Tenant acknowledges that, as part of the installation of the
Generator, Tenant may be required to install a concrete pad on which the
Generator will be located in accordance with the specifications of the
manufacturer of the Generator, or a structural engineer approved by Landlord, a
spill containment field, and fencing or screening in order to obstruct the view
of the Generator, the specifications for which are subject to approval by
Landlord in its sole and absolute discretion.

(g) Tenant shall pay all taxes of any kind or nature whatsoever levied
upon the Generator facilities and all licensing fees, franchise fees and other
taxes, expenses and other costs of any nature whatsoever relating to the
construction, ownership, maintenance and operation of the Generator.

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<PAGE>

32. ANTENNAE. Landlord hereby grants to Tenant a license to install, at
a location on the roof of the Building to be determined by Landlord in its sole
and absolute discretion, no more than three (3) antennae (the "Antennae"), to be
used by Tenant solely for communications by and for Tenant in connection with
the conduct of its business operations, and not for any operations involving the
receipt or transmission of the communications of others as a common carrier or
public service company, or any similar operations, subject to the terms and
conditions of this Lease and the following specific conditions:

(a) Tenant shall bear all costs and expenses associated with the
installation of the Antennae, and Tenant shall be responsible for, and shall
bear all costs and expenses associated with, the operation and maintenance
thereof. Tenant understands and acknowledges that Landlord shall not be
responsible for the operation and maintenance of any such Antennae.

(b) The plans and specifications for the Antennae, including the size
and dimensions thereof, as well as the manner of their attachment to the roof of
the Building, and the nature and location of any roof penetrations and conduit,
shall be subject to the prior written approval of Landlord, which may be granted
or withheld in Landlord's sole and absolute discretion. Tenant shall install the
Antennae in a good and safe manner in accordance with the terms and conditions
of this Lease, by a contractor approved by Landlord. Tenant shall provide
reasonable notice to Landlord of the time and date upon which it desires to
install such Antennae. A representative of Landlord and Landlord's roofing
contractor shall, at Landlord's election, be present at the installation of the
Antennae in order to approve the methods of installation and performance
thereof.

(c) Tenant shall have the responsibility to secure all necessary
approvals relating to the installation and operation of the Antennae from state,
federal and other governmental authorities. Further, Tenant shall construct,
operate and maintain such facilities in accordance with all applicable laws,
ordinances, rules and regulations and in compliance with the reasonable
requirements of the insurers of the Building.

(d) Tenant shall be responsible for all reasonable costs and expenses
incurred by Landlord arising out of the construction, installation, operation,
maintenance, repair, replacement or removal of the Antennae and related
equipment (specifically including, but not limited to, the cost of a structural
engineer if desired by Landlord, to evaluate the ability of the roof to sustain
the additional loading of the antennae and related equipment, and any necessary
modifications to the roof structure) and shall take all commercially reasonable
steps to minimize wear and tear on the roof, including the use of walking pads.
In furtherance thereof, Tenant agrees to indemnify, defend and hold Landlord
harmless from an against any and all such costs or expenses (including
reasonable attorneys fees) incurred by landlord as a result of the acts,
omissions or negligence of Tenant in the construction, installation, operation,
maintenance, repair, replacement or removal of the Antennae and related
equipment, including all cable, wires and transformers related thereto.

(e) Tenant's Antennae shall not interfere in any way with any Building
systems, or with the transmission or reception of signals by any other antenna
or roof installation on the Building or within the TransDulles Centre. Landlord
shall have the right, at its expense, to relocate or temporarily move any
antenna in order to accommodate Landlord, any other tenant of TransDulles
Centre, or any other user of the roof.

(f) Tenant represents and warrants that Antennae do and will not emit
levels of electromagnetic, microwave, or other radiation in excess of any
health-related standards now or hereafter established by any law or regulation.
In furtherance thereof, Tenant agrees to indemnify, defend and hold Landlord
harmless from an against any and all such claims, losses, damages, costs or
expenses (including reasonable attorneys fees) incurred by Landlord as a result
of a claim by anyone that the Antennae, and the emissions therefrom, are in any
way harmful to human health.

(g) Landlord shall have no responsibility to insure or maintain the
Antennae, and Tenant, at its sole cost and expense, shall be responsible for
maintaining such insurance coverage with regard thereto as may be reasonably
required by Landlord. Both Tenant and Landlord should be reflected as named
insureds. Tenant shall be solely responsible for any damage or destruction to
the Antennae, regardless of the cause.

(h) Tenant acknowledges that, as part of the installation of the
Antennae, Landlord may require Tenant to install screening acceptable to
Landlord in order to obstruct the view of the Antennae.

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<PAGE>

(i) Tenant shall pay all taxes of any kind or nature whatsoever levied
upon the Antennae and all licensing fees, franchise fees and other taxes,
expenses and other costs of any nature whatsoever relating to the construction,
ownership, maintenance and operation of the Antennae.

(j) Upon the expiration of the Term, or earlier termination of this
Lease, Tenant shall be responsible for removing the Antennae and any associated
equipment from their location on the roof, restoring the roof to the condition
in which it existed prior to the installation of the Antennae (including
complete repair of any roof penetrations and removal of conduit), and repairing
any damage caused by the presence and removal of the Antennae and associated
equipment.

33. TENANT'S OBLIGATIONS AS RACKING SYSTEM. (a) The parties acknowledge
that a racking system (the "Racking System") installed for the benefit of
Purnell Furniture Services, Inc. remains upon the Premises. Landlord shall have
no liability to any party for any loss, claim or damage to the Racking System
while the same remains located within and upon the Premises. Tenant shall
indemnify and hold Landlord harmless of and from any and all damages, costs and
expenses (including attorneys fees) arising from the claims of any party
(including Purnell Furniture Services, Inc., and/or Crate & Barrel, Inc.) for
any loss, claim or damage to the Racking System, regardless of the cause
thereof.

(b) The parties agree that the Racking System shall be treated as an
"Alteration" to the Premises, and that the obligations of Tenant with respect
thereto shall be governed by the provisions of Paragraph 14(b).

IN WITNESS WHEREOF, each party hereto has executed and ensealed this Lease,
or has caused it to be executed and ensealed on its behalf by its duly
authorized representatives, the day and year first above written.

ATTEST: LANDLORD: TRANSDULLES CENTER, INC.

/s/ Susan Kessel By: /s/ Douglas Lawrence (Seal)
____________________ _____________________

Name: Douglas Lawrence
_____________________

Title: Vice President
_____________________

ATTEST: TENANT: NETWORK ACCESS
SOLUTIONS, INC.

/s/ Illegible By: /s/ Scott G. Yancey (Seal)
____________________ _____________________

Name: Scott G. Yancey
_____________________

Title: CFO
_____________________

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<PAGE>

EXHIBIT A-1
-----------
DESCRIPTION OF PREMISES AND PROPERTY
------------------------------------

TRANSDULLES CENTRE, BUILDING 2
22601 DAVIS DRIVE
STERLING, VIRGINIA

Building & Premises consists of 61,500 rentable square feet

[Floor Plan]

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<PAGE>

EXHIBIT A-2
-----------
TRANSDULLES CENTRE
[Location Map]

-25-
<PAGE>

EXHIBIT B
---------
RENT SCHEDULE
Network Access Solutions, Inc.
22601 Davis Drive
Sterling, Virginia 20164

Total Square Footage 61,500*
Lease Term-Months 60
Initial Annual Per Square Foot Rental Rate $ 7.59
Initial Monthly Rental Rate $38,898.75
Annual Rent Escalations 3%

- -------------------------------------------------------------------------------------
Lease Year Base Rent PRSF** Annual Base Rent*** Monthly Base Rent***
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $7.59 $466,785.00 $38,898.75
- -------------------------------------------------------------------------------------
2 $7.82 $480,788.52 $40,065.71
- -------------------------------------------------------------------------------------
3 $8.05 $495,212.16 $41,267.68
- -------------------------------------------------------------------------------------
4 $8.29 $510,068.52 $42,505.71
- -------------------------------------------------------------------------------------
5 $8.54 $525,370.56 $43,780.88
- -------------------------------------------------------------------------------------
</TABLE>

* Subject to measurement as provided in Paragraph 1.
** Excludes Additional Rent as defined in Paragraph 3(h).
*** Subject to adjustment due to measurement as provided in Paragraph 1;
excludes Additional Rent as defined in Paragraph 3(h).

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<PAGE>

EXHIBIT C
---------
(Form of Letter of Credit)
IRREVOCABLE LETTER OF CREDIT

Date of Issue:_____________________ Letter of Credit No.:
Expiration Date:___________________ Original Amount: USD $

Beneficiary: Applicant:
TransDulles Center, Inc.
c/o The Mark Winkler Company
4900 Seminary Road, Suite 900
Alexandria, Virginia 22311-1811
Attn: Mr. Peter S. Scholz

Ladies and Gentlemen:

We hereby establish this Irrevocable Letter of Credit No. _______________,
in your favor as Beneficiary for an aggregate amount of up to _________________
USD (USD $________________________), available to you by drafts drawn at sight,
accompanied by your dated and signed statement certifying that Landlord is
entitled to draw against the Letter of Credit posted as the Security Deposit
pursuant to the terms of that certain Deed of Lease between Beneficiary and
Applicant dated _____________________________, 1999 (the "Lease").

We hereby engage with you that all drafts drawn under and in compliance
with the terms of this Irrevocable Letter of Credit will be honored if presented
at [bank address], no later than [last day of month approximately 90 days after
expiration of first lease year] (the "Expiration Date"). This Letter of Credit
shall be automatically renewed for additional one (1) year periods ("Renewal
Periods") beginning on the first day of [the month after the Expiration Date],
and on the first day of [the month after the expiration date] each year
thereafter through [date 90 days after expiration of lease term and any option
periods], unless we send to you by nationally recognized overnight courier
service at the address shown above (or any other address you provide to us by
notice sent to us by nationally recognized overnight courier service which
references this Letter of Credit by Number) a notice of our intention not to
renew this Letter of Credit at least sixty (60) days prior to the beginning of
any of the Renewal Periods. At all times, we retain absolute discretion
concerning the decision to renew or not renew this Letter of Credit.

Partial and Multiple Drawings are permitted. The amount available under
this Irrevocable Letter of Credit shall be the Original Amount set forth above,
less the sum of any drawings honored by us hereunder. This Letter of Credit
letter is binding upon and shall inure to the benefit of the parties and their
respective successors and permitted assigns. This Letter of Credit is
transferable to any successor in title to Beneficiary's interests as Landlord
under the Lease, and any such successor shall be deemed the Beneficiary
hereunder, and shall be entitled to draw against this Letter of Credit in
accordance with the terms hereof. This Irrevocable Letter of Credit is subject
to the Uniform Customs and Practice for Documentary Credits, 1993 Revision, ICC
Publication 500.

Very truly yours,
BANK

By:
Name:_____________________________
_____________________________ Title:____________________________

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<PAGE>

EXHIBIT D
---------

CONFIDENTIALITY AGREEMENT
(OPERATING EXPENSE AND TAX AUDIT)

THIS CONFIDENTIALITY AGREEMENT (the "Agreement") is made and entered into
this ____ day of ____________, 199__ by and between TransDulles Center, Inc., a
Virginia corporation ("Landlord"), a corporation ("Tenant") and
________________________ ("Contractor").

Preamble
--------

Pursuant to the provisions of that certain Deed of Lease between Landlord
and Tenant, dated ____________, 1999, (the "Lease"), Tenant was provided with
certain limited rights to audit the annual Operating Expenses and taxes (as
those terms are defined in the Lease). In this regard, Tenant has engaged the
services of Contractor to perform an audit of the Operating Expenses and taxes
for the ____ Calendar Year ( the "Audit"). In connection with the Audit, Tenant
and Contractor will be given access to various documents, files and other
information relating to the Operating Expenses and Impositions for their review
and inspection (the "Confidential Information"). The Confidential Information
may include economic, commercial, marketing and financial information that is
confidential and/or proprietary in nature. Therefore, Landlord has determined
to require Tenant and Contractor to execute and deliver this Agreement as a
condition of their review and inspection of the Confidential Information.

In consideration of being granted the opportunity to review and inspect the
Confidential Information, Tenant and Contractor agree as follows:

Agreement
---------

Section 1. Purpose. Tenant and Contractor agree that their review and
--------- -------
inspection of the Confidential Information shall be solely to conduct an audit,
on Tenant's behalf and not as an agent, representative or broker of any
undisclosed party, to verify the accuracy of Operating Expenses and taxes for
the _____ Calendar Year which Tenant paid under the Lease.

Section 2. Non-Disclosure and Use of Confidential Information.
--------- --------------------------------------------------

(a) Tenant and Contractor agree that, except as set forth below, all
Confidential Information shall be used by Tenant and Contractor solely for the
purposes stated in Section 1 hereof. Tenant and Contractor further agree not to
disclose any of the Confidential Information without the prior written consent
of Landlord to any third party other than to their respective (i) employees,
officers, directors, and (ii) agents and representatives, including attorneys,
accountants and financial advisors (collectively, the "Representatives"), in
each case who (i) have a need to know the Confidential Information for the
limited purpose stated in Section 1 hereof, and (ii) have entered into an
agreement with Tenant and Contractor substantially in the form of this
Agreement.

(b) The term "Confidential Information" shall not include information
which: (a) is already known to Tenant or Contractor from non-Landlord sources
not known by Tenant or Contractor to be subject to any confidentiality
obligations to Landlord; (b) is or becomes generally available to the public
other than as a result of a disclosure by Tenant or Contractor or any of their
Representatives; or (c) is required to be disclosed by law or by regulatory or
judicial process.

-28-
<PAGE>

(c) In the event Tenant or Contractor or any of their Representatives fails
in any respect to comply with its obligations under this Agreement, Tenant and
Contractor shall be liable to Landlord for breach of this Agreement. In
addition, in the event of any such failure, Landlord may, in its sole
discretion, refuse to allow Tenant the opportunity to perform an audit with
respect to any other Calendar Years.

(d) The rights, powers and remedies provided for in the preceding
subsection (c) shall be in addition to and do not preclude the exercise of any
other right, power or remedy available to Landlord under law or in equity. No
forbearance, failure or delay in exercising any such right, power or remedy
shall operate as a waiver thereof or preclude its further exercise.

Section 3. Review of Confidential Information. The Confidential
--------- ----------------------------------
Information will be made available for review by appointment only, at a location
determined by Landlord, to Representatives of Tenant and/or Contractor whose
duties include the review and inspection of such information in other similar
transactions or evaluations for Tenant.

Section 4. Duplication. Tenant and Contractor agree to refrain from
--------- -----------
making any reproductions, other than handwritten summaries or notes and self-
generated computer records, of any item of Confidential Information without the
prior written consent of Landlord.

Section 5. Limited Access. Tenant and Contractor shall inform each of
--------- --------------
their Representatives that receives any of the Confidential Information of the
requirements of this Agreement and shall require each such Representative to
comply with such requirements.

Section 6. Tenant Contact. Tenant and Contractor agree not to communicate
--------- --------------
with any other tenants in the Project known as TransDulles Center in connection
with the Audit without the prior written consent of Landlord.

Section 7. Entire Agreement. This Agreement represents the entire
--------- ----------------
agreement between Tenant, Contractor and Landlord relating to the treatment of
Confidential Information heretofore or hereafter reviewed or inspected by Tenant
or Contractor in connection with the Audit. This Agreement supersedes all other
agreements relating to such matters which have previously been executed by
Tenant and/or Contractor in favor of Landlord.

Section 8. Reliance by Landlord's Management Company. Landlord's property
--------- -----------------------------------------
management company, The Mark Winkler Company, and its employees shall be
authorized to accept a copy of this Agreement (as executed by Tenant and
Contractor) as a basis for allowing Tenant or Contractor to review and inspect
the Confidential Information in connection with the Audit.

-29-
<PAGE>

IN WITNESS WHEREOF, a duly authorized representative for both Tenant and
Contractor have executed this Agreement as of the date set forth below.

TENANT: LANDLORD:

TRANSDULLES CENTER, INC.,
a __________________ corporation a Virginia corporation

By: _________________________ By: ______________________
Name: _________________________ Name: ______________________
Title: _________________________ Title: ______________________

Date of Execution:______________ Date of Execution:___________

CONTRACTOR:

________________________________

By: _________________________
Name: _________________________
Title: _________________________

Date of Execution:______________

-30-
<PAGE>

EXHIBIT E
---------

PARKING

[Map]

-31-

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-1
of our report dated March 18, 1999, except for the information in Note 11 for
which the date is April 1, 1999, on our audits of the financial statements of
Network Access Solutions Corporation. We also consent to the references to our
firm under the captions "Experts," "Summary Financial And Other Data," and
"Selected Financial And Other Data."

/s/ PricewaterhouseCoopers, LLP
- --------------------------------

McLean, Virginia
April 30, 1999