NETWORK ACCESS SOLUTIONS CORP, S-1/A, 2000-03-27

NETWORK ACCESS SOLUTIONS CORP
S-1/A, 2000-03-27
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<PAGE>

As filed with the Securities and Exchange Commission on March 27, 2000

Registration No. 333-93455

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------

AMENDMENT NO. 1

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)

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

Jonathan P. Aust

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:
Sylvia M. Mahaffey, Esquire Scott M. Wornow, Esquire
Shaw Pittman Paul, Hastings, Janofsky & Walker LLP
2300 N Street, N.W. 399 Park Avenue, 31st Floor
Washington, D.C. 20037 New York, New York 10022
(202) 663-8000 (212) 318-6000

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. [_]

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

<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and it is not soliciting an offer to buy +
+these securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion

Preliminary Prospectus dated March 27, 2000

PROSPECTUS

5,000,000 Shares

[LOGO OF NETWORK ACCESS SOLUTIONS}

Network Access Solutions Corporation
Common Stock

-----------

Network Access Solutions Corporation is selling 4,800,177 shares of its
common stock. Some of our stockholders are selling 199,823 shares of our common
stock. Our common stock is traded on the Nasdaq National Market under the
symbol "NASC." The last reported sales price of our common stock on March 23,
2000 was $30 per share.

Investing in our common stock involves risks, which are described in the
"Risk Factors" section beginning on page 8 of this prospectus.

-----------

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price.................................. $ $
Underwriting discount.................................. $ $
Proceeds, before expenses, to Network Access
Solutions............................................. $ $
Proceeds, before expenses, to selling stockholders..... $ $
</TABLE>

We have granted the underwriters the right to purchase up to an additional
750,000 shares of common stock at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus, to
cover over-allotments.

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

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

The shares will be ready for delivery in New York, New York on or about
, 2000.

-----------

Merrill Lynch & Co. Bear, Stearns & Co. Inc.

Donaldson, Lufkin & Jenrette J.P.Morgan & Co.
-----------

The date of this prospectus is , 2000.
<PAGE>

[Inside Front Cover]

The text described below appears on the top of the page, which is oriented in
landscape mode.

The words "Enabling Broadband Solutions" appear in yellow, flush left and
italicized.

A five-layer, mock coaxial cable, known as a "pipe," appears in the middle of
the page.

To the left of the pipe is a list of customer applications enabled for transport
across the NAS CopperNet DSL network, segregated by a French bracket, listing
the following "Applications":

Voice - Local & LD
e Commerce (B2B)
Voice over IP/FR/ATM
Internet
Web hosting
Video conferencing
Layer 3 services

The four concentric layers of the pipe are portrayed as follows: the outer first
layer, in red, represents "Network Management" services offered by NAS; the
second layer, in orange, represents "Security Solutions" services offered by
NAS; the third layer, in green, represents "Network Integration" services
offered by NAS; the fourth layer, in blue, represents "Wide Area Network"
services offered by NAS; inside the fourth layer is a depiction of the inner
wire backbone, representing "CopperNet DSL".

Above the first three layers of the pipe - i.e., Network Management, Security
Solutions, Network Integration - is a French bracket representing the category
"Support Services."

Above the last two layers of the pipe - i.e., Wide Area Network and CopperNet
DSL - is a French bracket representing the category "Infrastructure."

The company's logo appears in the lower right corner of the page.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 8
Forward-Looking Statements............................................... 19
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 20
Price Range of Our Common Stock.......................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Financial and Other Data........................................ 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 36
Management............................................................... 61
Related Transactions and Relationships................................... 68
Principal and Selling Stockholders....................................... 70
Description of our Capital Stock......................................... 73
United States Federal Tax Consequences to Non-U.S. Holders of our Common
Stock................................................................... 77
Shares Eligible for Future Sale.......................................... 81
Underwriting............................................................. 83
Validity of the Shares................................................... 85
Experts.................................................................. 85
Additional Information................................................... 85
Index to Financial Statements............................................ F-1
</TABLE>

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

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
<PAGE>

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.

About Our Business

We are a major provider of broadband network solutions to business
customers. We provide our data communications services using digital subscriber
line, or DSL, technology and generally market those services directly through
our own sales force. DSL technology allows our customers to access their
corporate networks and the Internet through high-speed, "always on" connections
over traditional copper telephone lines at speeds up to 7 megabits per second,
substantially higher than common dial-up modems. We have branded our DSL
service CopperNet, which we commercially launched in the northeast and mid-
Atlantic regions of the United States in January 1999. We expect to
commercially launch CopperNet in the southeastern and western regions of the
United States in 2000.

In seeking to solve the data communications needs of our business
customers, we offer them network services, telecommunications products and
equipment made by others and consulting services. Although nearly all of our
revenue has historically been derived from our product sales and consulting
services, we expect to continue to dedicate most of our financial and
management resources to further developing our network services business.
Through this business, which includes our CopperNet service offering, we
provide metropolitan area networks, or MANs, and wide area networks, or WANs,
to our customers. We also manage and monitor our customers' networks. Through
our product sales business, we sell telecommunications equipment that our
customers use to build, maintain and secure their networks. Through our
consulting services business, we design our customers' networks, install the
related equipment and provide services to help them secure their networks.

We currently offer our DSL-based networking solutions in the following
nine northeast and mid-Atlantic cities and their surrounding markets:
Baltimore, Boston, New York, Norfolk, Philadelphia, Pittsburgh, Richmond,
Washington D.C. and Wilmington. On February 8, 2000, in connection with the
announcement of a strategic summary operating agreement with SBC Telecom, Inc.
and Telefonos de Mexico, S.A. de C.V. and a $150 million preferred stock
investment by SBC Communications Inc. and Telmex Communications, LLC, we
announced that we would be extending our network deployment into the
southeastern and western regions of the United States. We refer to these SBC
entities as SBC and to these Telmex entities as Telmex. We, along with SBC and
Telmex, have initially targeted deployment in the following 20 markets within
these regions: Atlanta, Charlotte, Denver, Greensboro, Jacksonville,
Louisville, Memphis, Miami, Minneapolis, Nashville, New Orleans, Orlando,
Phoenix, Portland, Raleigh-Durham, Salt Lake City, Seattle, Tampa, Tucson and
West Palm Beach. We intend to deploy our network in each of these markets in
the second half of 2000.

Since we began offering our DSL-based service we have made substantial
progress in implementing our broadband network service platform. In April 1997,
we entered into our first interconnection agreement with Bell Atlantic, which
allowed us to use their copper telephone lines and to collocate our equipment
in telephone company offices known as "central offices." Central offices serve
as the central connection point for all copper telephone lines in a local area
and form the basis for our network and a telephone company's network.

<PAGE>

As of December 31, 1999, we had installed our equipment in 362 central
offices within our northeast and mid-Atlantic markets, and we expect to have
installed our equipment in approximately 500 central offices by mid-2000, which
will essentially complete our current plans for the roll-out of our network in
these markets. We estimate that the central offices where we currently have
installed our equipment serve approximately 85% of the business users in these
areas. Upon the completion of our network deployment, we believe that the
central offices where we have installed our equipment will serve approximately
95% of the business users in these areas. As of December 31, 1999, we had
installed 2,910 lines in our northeast and mid-Atlantic regions.

We expect to have installed our equipment in approximately 400 central
offices in our new southeastern and western regions by the end of 2000 and in
approximately 500 central offices by mid-2001. We have obtained competitive
carrier certification in eight of the 17 southeastern and western states in
which we expect to eventually offer services, and have applied for competitive
carrier certification in the remaining nine states in which these markets are
located. To date, we have signed interconnection agreements with BellSouth, U S
WEST and GTE. Together, these three carriers serve as the traditional telephone
companies in substantially all of our 20 target markets in the southeastern and
western regions.

We have designed our network to support our customers' changing data
networking needs. Our network supports newer, evolving technologies designed to
transmit both data and voice. Unlike traditional telecommunications networks,
these newer technologies transmit data in small bundles, or packets, of
information from multiple users over the same lines, and are referred to as
packet-based technologies. These packet-based technologies generally allow for
a more efficient use of a network. Our CopperNet service is compatible with
Internet protocol, or IP, and packet-based communications systems such as
asynchronous transfer mode, or ATM, and frame relay. This same architecture
also supports the traditional technologies that carry most of today's voice
telephone conversations. This network design allows us to offer businesses and
their telecommuters cost-effective solutions for accessing the Internet, as
well as other emerging applications and services of corporate networks, such as
video and audio conferencing, application and Web hosting, multimedia and e-
commerce. We create city-wide MANs and connect them to our private, leased,
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, including other cities. Our network provides dedicated
connections to our customers, enabling them to operate as if they were using
their own private network. These virtual private networks, or VPNs, have
capacity, speed, reliability and level of service designed to meet our
customers' needs.

Market Opportunity

We believe that a substantial business opportunity exists because of the
concurrence of several factors. The growing demand for high-speed data
communications by businesses, their employees and consumers has created a need
for a local access solution with a higher capacity than traditional dial-up
modems and integrated services digital networks, or ISDNs. This demand is being
driven in part by an increasing need by small- and medium-sized businesses for
a cost-effective, high performance networking solution in order to access the
Internet and utilize today's bandwidth applications. In addition, large
businesses are seeking to improve remote worker productivity so that workers
have access to the same high performance communication and networking resources
available to workers located at corporate headquarters. Businesses are also
looking to network service providers to implement and manage broadband-based
applications and services. The commercial availability and acceptance of DSL
technology has allowed service providers to meet these customer needs through a
high-speed access alternative that requires a much lower initial fixed
investment than other technologies, such as cable modems, fiber optic cable,
fixed wireless and satellite communication systems. In addition, the
Telecommunications Act of 1996 and its related regulations has allowed
companies like us to implement DSL technology by taking advantage of
traditional telephone companies' existing infrastructure rather than building
our own at significant cost.

2
<PAGE>

Our Solution

We provide a full range of broadband network solutions to allow
businesses to effectively outsource their Internet access, data transport, and
other telecommunications needs. Our service offerings include high-speed local
connectivity through CopperNet, MAN and WAN solutions, along with network
management, monitoring, security solutions and other value-added applications
and services.

Our Strategy

Our goal is to be the premier provider of broadband network solutions in
our traditional and future markets. To achieve our goal, and to take advantage
of our market opportunity, we plan to implement a strategy consisting of the
following principal elements:

. provide in-depth coverage in our northeast and mid-Atlantic regions
and expand coverage into the southeastern and western regions of the
United States;

. focus on small- and medium-sized business customers, most of which do
not have a cost-effective, high-performance and integrated solution
to their Internet access and data transport needs;

. focus on selected large enterprise customers, many of which do not
have an adequate solution that allows them to provide high-speed
access to remote workers;

. enhance and expand our network to meet the needs of our customers and
integrate technological innovations as they are developed;

. offer productivity-enhancing, network-enabled features and
applications to maximize revenue per customer;

. provide superior customer care;

. sell our products and services through both direct and indirect
marketing;

. capitalize on the lower fixed-cost economics of DSL technology;

. accelerate growth through strategic acquisitions or relationships;
and

. leverage our relationships with SBC and Telmex.

Recent Developments

On February 8, 2000, we announced a strategic financing agreement with
SBC and Telmex in which those companies agreed to purchase a total of $150
million, $75 million each, of our Series B Convertible Preferred Stock for $100
per share. We closed the sale of this Series B preferred stock on
March 7, 2000.

Our Series B preferred stock is non-voting and pays a 7.0% cumulative
dividend, which can be satisfied with either additional stock or cash. Each
share of Series B preferred stock is convertible at any time into 3.2258 shares
of our common stock, or a total of 4,838,700 common shares, subject to
customary anti-dilution provisions. We may call the Series B preferred stock
for mandatory conversion into our common stock at any time between two and five
years after the original issue date, provided that our stock is trading above
$31.00 per share for a specified period prior to the call. On each anniversary
of the issue date, beginning on the second anniversary and ending on the
seventh anniversary, the holders of the Series B preferred stock may request
that we redeem the shares for a cash amount equal to $100 per share, plus
unpaid dividends. We may postpone this right of redemption until the following
year for all but the seventh year if our common stock share price is below
$31.00 for a specified period preceding the anniversary date.

3
<PAGE>

In conjunction with the financing agreement, we executed a summary
operating agreement with both SBC and Telmex, and we intend to execute several
definitive agreements with SBC and Telmex in the first half of 2000 that will
govern our joint sales and marketing, network operations, systems integration
and product development efforts. In connection with the financing agreement and
summary operating agreement, we announced that we would be initially expanding
our network into 20 additional markets in the southeastern and western regions
of the United States. We will use the proceeds from the Series B preferred
stock issuance to fund part of this expansion.

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

We are a Delaware corporation. Our headquarters 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.

We own the federal trademark for the marks COPPERNET(R) and CUNET(R) and
also own applications for federal registration and claim rights in CU
COPPERNET(TM). This prospectus also refers to trade names and trademarks of
other companies.

4
<PAGE>

The Offering

<TABLE>
<S> <C>
Common stock offered by Network Access Solutions(1)........... 4,800,177 shares
</TABLE>

<TABLE>
<S> <C>
Common stock offered by selling stockholders(2)............... 199,823 shares
</TABLE>

<TABLE>

<S> <C>
Common stock to be out-
standing after this of-
fering(3)(4)........... 51,623,832 shares

Use of proceeds(5)...... We expect to use the net proceeds of this offering for
capital expenditures, to fund expansion-related operating
losses, for any strategic acquisitions and for general
corporate purposes.

Dividend policy......... We do not anticipate paying cash dividends on our common
stock for the foreseeable future. Instead, we will retain
our earnings, if any, for the future operation and
expansion of our business.

Nasdaq National Market
symbol................. NASC
</TABLE>
- --------

(1) SBC may elect to purchase up to 228,037 of these shares, and Telmex may
elect to purchase up to 214,217 of these shares as described in "Business--
Preferred Stock Issuance and SBC and Telmex Agreements." In addition, we
may reduce the number of shares we are offering by up to 550,177 if two of
our current stockholders elect to sell shares in this offering.

(2) Includes 62,905 shares to be issued upon the exercise of outstanding
options. The number of shares offered by selling stockholders may be
increased by up to 550,177 if two of our current stockholders elect to sell
shares in this offering as described in "Principal and Selling
Stockholders."

(3) Based on the number of shares of our common stock outstanding on March 15,
2000. If the underwriters elect to fully exercise their over-allotment
option, there will be 52,373,832 shares of common stock outstanding after
this offering.

(4) Excludes 4,838,700 shares of our common stock issuable upon conversion of
our Series B preferred stock, which was purchased by SBC and Telmex, and
options that have been granted or may be granted under our stock option
plans. As of March 15, 2000, we had 10,645,005 shares of common stock
subject to outstanding options at a weighted average exercise price of
$4.23 per share, of which 10,277,605 shares are subject to outstanding
options that are fully exercisable at a weighted average exercise price of
$3.43 per share.

(5) We will not receive any proceeds from the sale of shares by the selling
stockholders.

<PAGE>

SUMMARY FINANCIAL AND OTHER DATA

(in thousands, except per share data)

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1996 1997 1998 1999
----------- ------- ------ ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Product sales................ $1,891 $14,368 $8,150 $ 9,900 $ 13,025
Consulting services.......... 36 114 791 1,428 2,593
Network services............. -- -- 4 311 1,821
------ ------- ------ ------- --------
Total revenue.............. 1,927 14,482 8,945 11,639 17,439
------ ------- ------ ------- --------
Cost of revenue:
Product sales................ 1,475 11,975 7,180 8,639 11,334
Consulting services.......... 15 91 231 761 1,693
Network services............. -- -- 2 41 4,813
------ ------- ------ ------- --------
Total cost of revenue...... 1,490 12,066 7,413 9,441 17,840
------ ------- ------ ------- --------
Gross profit (loss) ........... 437 2,416 1,532 2,198 (401)
------ ------- ------ ------- --------
Operating expenses:
Selling, general and
administrative.............. 299 2,255 1,437 4,017 27,670
Amortization of deferred
compensation on stock
options..................... -- -- -- 219 8,165
Depreciation and
amortization................ 9 7 12 130 5,195
------ ------- ------ ------- --------
Total operating expenses... 308 2,262 1,449 4,366 41,030
------ ------- ------ ------- --------
Income (loss) from operations.. 129 154 83 (2,168) (41,431)
Interest income (expense),
net........................... -- (1) (5) 64 1,072
------ ------- ------ ------- --------
Income (loss) before income
taxes......................... 129 153 78 (2,104) (40,359)
Provision (benefit) for income
taxes......................... 39 63 36 (28) (71)
------ ------- ------ ------- --------
Net income (loss).............. 90 90 42 (2,076) (40,288)
Preferred stock dividends and
accretion..................... -- -- -- 567 597
------ ------- ------ ------- --------
Net income (loss) applicable to
common stockholders........... $ 90 $ 90 $ 42 $(2,643) $(40,885)
====== ======= ====== ======= ========
Net income (loss) per common
share applicable to common
stockholders (basic and
diluted)...................... $ 0.00 $ 0.00 $ 0.00 $ (0.10) $ (0.99)
====== ======= ====== ======= ========
Weighted average common shares
outstanding (basic and
diluted)...................... 21,915 21,915 21,915 27,302 41,259
====== ======= ====== ======= ========
</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1995 1996 1997 1998 1999
----------- ---- ----- ------- --------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Other Data:
EBITDA(1)......................... $138 $161 $ 95 $(1,819) $(28,071)
Capital expenditures.............. 18 30 122 5,021 55,262
Net cash provided by (used in)
operating activities............. 3 (27) 805 (2,810) (20,184)
Net cash used in investing
activities....................... (18) (30) (122) (1,341) (61,435)
Net cash provided by financing
activities....................... 42 55 9 8,956 94,341
</TABLE>
- --------

(1) 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 generally accepted accounting principles. We may calculate
EBITDA differently than other companies. For further information, see our
financial statements and related notes elsewhere in this prospectus.

<TABLE>
<CAPTION>
As of
December 31, Pro forma,
1999 Pro forma (2) as adjusted (3)
------------ ------------- ---------------
(unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
short-term investments........ $ 42,816 $191,592 $326,345
Property and equipment, net.... 55,098 55,098 55,098
Total assets................... 104,620 253,396 388,149
Total debt (including capital
lease obligations)............ 23,814 23,814 23,814
Mandatorily redeemable
preferred stock............... -- 149,000 149,000
Total stockholders' equity
(4)........................... 68,009 67,785 202,538
</TABLE>
- --------

(2) Reflects the sale of 1,500,000 shares of our Series B mandatorily
redeemable convertible preferred stock on March 7, 2000 at a price of $100
per share, after deducting expenses of $1,000,000 related to the sale and
interest expense of $224,486 on our interim borrowings.

(3) Reflects the sale described in note 2 plus our sale of 4,800,177 shares of
our common stock offered by this prospectus at an assumed public offering
price of $30.00 per share, after deducting the underwriting discount and
the estimated offering expenses of $9,252,133 that we will pay. We may
reduce the number of shares we are offering by up to 550,177 if two of our
stockholders elect to participate in this offering as described in
"Principal and Selling Stockholders." If these stockholders elect to sell
550,177 shares in this offering, our pro forma, as adjusted cash, cash
equivalents and short-term investments would be $310,829,689.

(4) Excludes 11,014,379 shares of our common stock issuable upon exercise of
stock options outstanding on December 31, 1999.

7
<PAGE>

RISK FACTORS

An investment in our common stock involves a high degree of risk. You
should consider carefully the following risks, together with all other
information included in this prospectus, before you decide to buy our common
stock.

Risks Relating to Our Business

Because the focus of our company has changed to the provision of network
services, including high-speed digital communications service, our business is
difficult to evaluate

We began operations in 1995 by helping our customers to integrate their
network equipment, by selling them that network equipment and by providing them
with related network services. During the past several years, we have refocused
our company, through our CopperNet services, on the provision of DSL-based
high-speed digital communications services, which is a change from our
historical activities. Because our business focus has changed, and we expect to
dedicate most of our resources to develop our CopperNet 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 1999 was derived from product sales and
consulting services. Although in the short term we expect to continue to derive
the majority of our revenue from these activities, we expect that over time our
network services, which includes our CopperNet services, will constitute the
more significant portion of our revenue. Revenue from network services, which
we began offering in January 1999, represented 10.4% of our total revenue for
1999. 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. We are
depending principally on the success of our CopperNet services to achieve
future revenue growth. 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
CopperNet services are successful. If that situation arises, it is possible
that the price of our common stock may reflect the slower growth that might be
expected for a company that does not offer DSL-based services.

We have only provided our CopperNet services since January 1999, so it is
difficult to assess whether we will be successful in this new and evolving
market

Because we have only recently begun providing CopperNet services, it is
difficult for us to predict the extent to which CopperNet will achieve market
acceptance. The market for DSL-based services is in the early stages of
development, is highly competitive and is quickly changing. Providers of high-
speed data communications services are testing products from various suppliers
for certain applications, and suppliers have not broadly adopted an industry
standard. Critical issues concerning commercial use of DSL for Internet and
local area network, or LAN, access, including security, reliability, ease and
cost of access and quality of service, remain unresolved and may affect the
growth of this market. If the market for CopperNet fails to develop, grows more
slowly than anticipated or becomes saturated with competitors, our business
will not reach or maintain the level of profitability we hope to achieve.

To remain successful, we must develop and market services that are widely
accepted by businesses at profitable prices. We may never be able to achieve
significant market acceptance, favorable operating results or profitability.
Due to the relatively limited deployment of CopperNet at this time, we cannot
guarantee that our network will be able to connect and manage a substantial
number of DSL lines at high transmission speeds. We may be unable to scale our
network to service a substantial number of DSL lines while achieving high
performance.

Our business is evolving, and we may be unsuccessful in launching new services
and expanding into new regions

Our business is evolving. We are expanding the broadband network
solutions we offer to businesses, and we plan to deploy our network in new
regions. We may face challenges in connection with these new services and in
these new regions that we have not previously encountered, and we may not be
able to successfully replicate our business model in these new areas. We also
may not be able to modify our evolving

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business model in a timely and effective manner to respond to market demands.
If our business model is not successful with respect to our new services or in
our new regions, or if the evolving nature of the model makes us unable to
respond to changes in the marketplace, the value of your investment could be
reduced.

We may not be able to successfully roll out our services in our new target
southeastern and western markets in a timely manner

We are planning initially to roll out our network in 20 markets in the
southeastern and western United States in the second half of 2000. In addition,
we are obligated under our summary operating agreement with SBC and Telmex to
begin providing services in these markets in accordance with SBC's reasonable
timeline. If we are unable to roll out our network in at least these 20 markets
in accordance with the schedule and in accordance with specificatons expected
to be established by SBC, we could be viewed to be in breach of our obligations
under our summary operating agreement with SBC and Telmex.

We are an early stage company in a new and rapidly evolving market, subject to
a number of risks that may limit our revenue growth

Our failure to address the risks, expenses and difficulties we may
encounter as we expand our business in providing CopperNet services, including
those frequently encountered by early stage companies in new and rapidly
evolving markets, may limit our revenue growth and make it difficult for us to
compete effectively with others. These risks include our ability to:

. rapidly expand the coverage of CopperNet within current and future
target markets;
. attract and retain customers;

. increase awareness of the CopperNet brand;
. 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.

If we fail to manage these risks successfully, it would materially
adversely affect our financial performance.

Our resources have been strained by our rapid growth, which could impair the
expansion of our business

We are in the process of rapidly expanding, and plan to continue this
rapid expansion of, our CopperNet operations. This rapid growth has placed, and
will continue to 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 operational, financial and management information
controls, reporting systems and procedures and implement new
controls;
. 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.

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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. In addition, if we were
to make acquisitions in the future to expand our business, the integration of
those acquisitions could further strain our resources.

Funding of our business will require significant additional capital in the
future, which we may not be successful in obtaining at all or on favorable
terms

We intend to fund our business, including anticipated operating losses,
and the completion of our network roll-out in our northeastern and mid-Atlantic
markets by mid-2000 and the expansion of our network into our new southeastern
and western target markets, with a combination of available funds, anticipated
proceeds of this offering and, subject to certain funding conditions, financing
available through our existing vendor relationships. We also expect that we
will require significant additional capital to complete the expansion of our
network. Taking into account our estimated net proceeds from this offering, we
believe that we will have sufficient financing to fund our operations into the
third quarter of 2001. Our actual funding requirements may differ materially as
our business evolves. We also may be unable to generate revenue in the amount
and within the time frame we expect or if we have unexpected cost increases.
Under any of these circumstances, we may be required to find other sources of
capital, which we may not be successful in obtaining.

We may seek to borrow significant funds, the terms of which may contain
restrictive covenants that limit our ability to incur additional indebtedness,
pay dividends or undertake certain other transactions. These instruments also
could require us to pledge assets as security for the borrowings. If we were to
leverage our business by incurring significant debt, we would likely be
required to devote a substantial portion of our available cash or our cash flow
to service that indebtedness.

Our failure to achieve or sustain market acceptance at desired pricing levels
could impair our ability to achieve profitability or positive cash flow

Prices for data communication services have fallen historically, a trend
we expect will continue. Accordingly, we cannot predict to what extent we may
need to reduce our prices to remain competitive or whether we will be able to
sustain future pricing levels as our competitors introduce competing services
or similar services at lower prices. Our failure to achieve or sustain market
acceptance at desired pricing levels could impair our ability to achieve
profitability or positive cash flow, which would have a material adverse effect
on our business, prospects, financial condition and results of operations.

Bell Atlantic's expansion into the digital subscriber line business or
reluctance to cooperate with us could adversely affect our business

Bell Atlantic Corporation, as the dominant traditional telephone company
operating in our initial target markets, is both an essential supplier of
facilities and services for CopperNet and potentially a significant DSL
competitor. Traditional telephone companies, like Bell Atlantic, pose a
significant risk to the success of our business. Bell Atlantic has existing
networks in local areas and across metropolitan areas and has its own Internet
service provider businesses. It has also 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.

Bell Atlantic is currently our primary supplier of copper telephone lines
and of the central office space we need to place, or collocate, our DSL
equipment and support services for CopperNet. Bell Atlantic may be reluctant to
cooperate with us in meeting our supply needs. Bell Atlantic has in the past
rejected, and may in the future reject certain of our collocation applications
or delay providing us with the collocation space we need. 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. We
face competition for this space from other competitive telecommunications
companies. Bell Atlantic's position as both a DSL competitor and a supplier of
numerous essential inputs to our DSL offering also gives Bell Atlantic an
incentive to subsidize its own DSL offerings by failing to fully allocate to
its retail DSL service the costs it incurs in providing that service. As we
enter into other markets, we will encounter similar issues with other
traditional telephone companies.

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Our business could suffer if high-quality copper lines are not available or
cost us more than we expect

We significantly depend on the quality of the copper telephone lines and
Bell Atlantic's maintenance of such lines. We cannot assure you that we will be
able to obtain the copper telephone lines and the services we require from Bell
Atlantic at quality levels, prices, terms and conditions satisfactory to us.
Our failure to do so would have a material adverse effect on our business,
prospects, financial condition and results of operations.

We depend on other carriers to provide fiber optic transmission facilities to
connect our equipment, which is critical to providing our CopperNet 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 immediately available to connect our DSL equipment in
different locations. These fiber optic carriers include long distance carriers,
traditional telephone companies like Bell Atlantic and other competitive
telecommunications companies. Many of these entities are, or may become, our
DSL competitors. 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 that are critical to providing our CopperNet services

We plan to purchase our equipment from many vendors, including Lucent
Technologies Inc., Ascend Communications, which has been acquired by Lucent
Technologies Inc., Cisco Systems, Inc., FORE Systems, Inc., a wholly-owned
subsidiary of Marconi p.l.c., and Paradyne Corporation. We outsource a
significant and growing percentage of installation and field service to third
parties. Because we depend on third parties, we do not have guaranteed capacity
nor do we fully control delivery schedules, quality assurance, production
yields and costs. If any significant installer or field service provider
interrupts its service to us or fails to perform to required specifications, or
if any of our vendors reduces or interrupts its supply, this interruption or
reduction would force us to seek alternative vendors and providers, which 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 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 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.

Our success depends on the continuity of our interconnection agreements

We depend on contractual arrangements, or interconnection agreements,
which enable us to use Bell Atlantic's copper telephone lines, to collocate our
equipment in their offices and to obtain from Bell Atlantic the back office
support systems we need in order to provide CopperNet services. We have similar
agreements with BellSouth and U S WEST, which we need to expand our network.
The success of our strategy depends on our ability to renew our interconnection
agreements, principally with Bell Atlantic and, as we expand, with other
telephone companies, on a timely basis and on satisfactory terms and
conditions. Delays in obtaining renewals or a failure to obtain satisfactory
terms and conditions could have a material adverse effect on our business,
prospects, financial condition and results of operations.

Interconnection agreements typically have limited terms of two to three
years. Our Bell Atlantic interconnection agreements covering Delaware, the
District of Columbia, Maryland, New Jersey, Pennsylvania and Virginia terminate
on 90 days' notice by either party. We are currently negotiating a replacement
agreement with Bell Atlantic. Our current agreements covering New York and the
New England states terminate in January 2001. We cannot guarantee that we will
be able to negotiate new agreements with Bell Atlantic that will be beneficial
to us.

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Interconnection agreements are also subject to state telecommunications
regulatory, FCC and judicial oversight. These governmental bodies may modify
the terms or prices of our interconnection agreements in ways that adversely
affect our business, prospects, financial condition and results of operations.

Because two of our 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 AstraZeneca, Inc., AT&T and AstraZeneca PLC (formerly Zeneca
Group PLC) accounted for 50.4% and 8.0%, respectively, of our revenue for 1998
and 30.7% and 9.2%, respectively, of our revenue for 1999. Almost all of this
revenue was derived from product sales and consulting services. We have no
long-term contracts with either customer and the loss of either of these
customers could have a material adverse effect on our financial performance.

The data communications 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 face competition in the data communications 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 DSL, wireless data, cable modems and ISDN
technologies. ISDN is a technology that works with the traditional telephone
system to send voice and data over existing copper telephone lines at speeds up
to 128 kilobits per second. 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 that are more favorable than contracts negotiated
by us.

Examples of competitive activity in our target markets include the
following:

. Bell Atlantic, through its network integration services division,
and other companies, like Tech Data Corporation, are offering
product sales and consulting services focused on integrating
network components that directly compete with our product sales
and consulting services.

. Bell Atlantic and other traditional telephone companies present in
our target markets are conducting technical and market trials or
have commenced commercial deployment of DSL-based services.

. 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.

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. Other competitive telecommunications companies 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 do not have any definitive agreements with SBC and Telmex, so you cannot be
sure that we will receive any operational benefits from our planned
relationships with these companies

In February 2000, we entered into a summary operating agreement with SBC
and Telmex covering our joint sales and marketing, network operations, systems
integration and product development efforts. The terms of the summary operating
agreement are binding on the parties for only one year, and are subject to
execution of definitive agreements. As a result, we may never enter into any
definitive agreements with SBC or Telmex, which would deprive us of the
anticipated operational benefits of the relationship.

If we are required to redeem our Series B preferred stock, our financial
position could be impaired

On March 7, 2000, we completed the sale of 1,500,000 shares of our Series
B preferred stock to SBC and Telmex, for approximately $150 million in cash.
Under the terms of the Series B preferred stock. We have the right, under
certain circumstances, to require the conversion of the Series B preferred
stock into common stock, and SBC and Telmex have the right, under certain
circumstances, to require us to redeem the Series B preferred stock they
acquired for a cash amount equal to $150 million, plus unpaid dividends,
beginning on March 7, 2002. If we are ever required to redeem the Series B
preferred stock, our financial position could be materially adversely affected.

Uncertain federal and state tax and surcharges on our services may increase our
payment obligations and have a material adverse effect on our business

Telecommunication service 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. A
finding that we misjudged the applicability of the surcharges and fees could
increase our payment obligations and have a material adverse effect on our
business, prospects, financial condition, results of operations and cash flows.

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

Given our early 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. Moreover, we do not have
"key person" life insurance policies on any of our employees. Although we have
employment agreements with six members of the senior management team, these
agreements can be terminated by the employees on thirty days' notice. Each 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 competition for qualified personnel, particularly
in software development, network engineering and product management. The
northern Virginia region, which is the location of our headquarters and where
we currently have our greatest hiring needs, is experiencing a severe shortage
of qualified employees in each of these areas. As a result, the costs of
attracting and retaining qualified employees has increased significantly during
recent periods and is continuing to increase. We may be unable to continue to
employ our key personnel or to attract and retain qualified personnel in the
future.

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Any application of the Investment Company Act to our company would restrict our
business activities and capital structure

We have a significant amount of cash and cash equivalents and, pending
our utilization of all of the net proceeds from this offering and our recent
Series B preferred stock offering, we will have an even greater amount of cash
invested in short-term interest-bearing securities, which could subject us to
the provisions of the U.S. Investment Company Act of 1940.

We do not propose to engage in investment activities in a manner or to an
extent that would require us to register as an investment company under the
Investment Company Act. We believe that we are primarily engaged in a business
other than investing, reinvesting, owning, holding or trading securities and,
therefore, we are not an investment company within the meaning of this statute.
Application of the provisions of the Investment Company Act of 1940 would
subject us to substantial regulation with respect to our capital structure,
management, operations, transactions with affiliated persons and other matters.
In addition, having to register as an investment company or having to invest a
material portion of our liquid assets in cash and demand deposits to avoid such
registration could have a material adverse effect on our business, financial
condition and results of operations.

Risks Related to Our Technology

The data communications industry is undergoing rapid technological change and
new technologies may be superior to the technology we use, which could
materially adversely affect our business

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.

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 a traditional telephone company, competitive telecommunications
company 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.

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Our intellectual property protection may be inadequate to protect our
proprietary rights and we may be subject to infringement claims that could
materially adversely affect our business

The steps we have taken may be inadequate to protect our technology or
other intellectual property. Our inability to protect our proprietary rights
could have a material adverse effect on our business, prospects, financial
condition and results of operations. 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. If such claims materialize, it could materially adversely affect our
business.

Potential year 2000 problems with our systems or software could cause delay or
loss of revenue, diversion of resources or increased costs

Many companies' computer systems, software products and control devices
needed to be upgraded or replaced in order to operate properly in the year 2000
and beyond because of an inability to distinguish 21st century dates from 20th
century dates.

Our systems and software did not experience any date-related problems on
January 1, 2000 or in connection with the leap year in 2000. However, our
systems and software may contain undetected errors or defects associated with
year 2000 date functions that have not yet surfaced. If any such errors or
defects do exist, we may incur material costs to resolve them. The internal
systems used to run our business utilize third-party hardware and software.
Although to date we have not experienced any date-related problems with
third-party hardware or software, we cannot assure you that such problems will
not surface in the next several months. If any of these systems do experience
date-related problems, we could experience delay or loss of revenue, diversion
of resources or increased costs, and our financial condition could be harmed.

In addition, although we believe that the costs of ensuring that our
systems and software and those of third parties with which we do business do
not experience any date-related problems will not be material, we cannot assure
you of this.

Risks Related to Government Regulation

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
CopperNet are subject to regulation at the federal, state and local levels,
changes in applicable laws or regulations could have an adverse impact on our
business. For example, the Federal Communications Commission, or 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 a traditional telephone company's copper telephone lines and transport
facilities, including price, that we need in order to provide CopperNet
services. Regulatory policies may also affect the terms under which traditional
telephone companies provide us with the operational support and management of
telephone line usage that are crucial to the success of CopperNet. Future
federal or state regulations and legislation may 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 traditional telephone companies to
pursue litigation in courts, institute

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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.

The interconnection agreements that enable us to provide our services are
subject to uncertain regulation that is the subject of ongoing legal
proceedings

We are subject to FCC regulation for our contractual, or interconnection,
arrangements with the traditional telephone companies in our markets, but
certain aspects of this regulation are uncertain because it is the subject of
ongoing court and administrative proceedings. Several parties have brought
court challenges to the FCC's interconnection rules, including the rules that
establish the terms under which a competitive telecommunications company may
use portions of a traditional telephone company's network. If a rule that is
beneficial to our business is struck down by the courts, it could harm our
ability to compete. In particular, the courts have not yet resolved the
lawfulness of the methodology that the FCC established to determine the price
that competitive telecommunications companies would have to pay traditional
telephone companies for use of the traditional telephone companies' networks.
The courts may determine that the FCC's pricing rules are unlawful, which would
require the FCC to establish a new pricing methodology. If this occurs, the new
pricing methodology that the FCC adopts may result in our having to pay a
higher price to traditional telephone companies if we were to use a portion of
their networks in providing our services, and this could have a detrimental
effect on our business.

Various traditional telephone companies have requested regulatory relief to
provide data transmission services, which if granted, would allow them to
compete with us

Various traditional telephone companies have requested that the FCC
substantially deregulate the retail price they charge for various types of
telecommunications services, including high-speed data services like CopperNet.
The FCC recently issued a decision in response that establishes a procedure by
which traditional telephone companies may apply for certain pricing
flexibility. We cannot yet determine the extent to which traditional telephone
companies will use this procedure or the impact of any pricing flexibility that
the FCC awards to any given company under this new procedure, since no
telephone company has yet applied for pricing flexibility under this new
procedure. The ultimate impact of the FCC's order also is uncertain because the
order has been appealed to a U.S. Court of Appeals. If the FCC were to
substantially eliminate price regulation of the high-speed data services that
traditional telephone companies provide in competition with CopperNet, our
business could be adversely affected.

The FCC has also proposed to permit traditional telephone companies to
provide advanced services through separate affiliates on a deregulated basis.
This proposal could permit the separate affiliates to provide advanced services
free of the requirements relating to interconnection, unbundling, resale and
collocation imposed by the Telecommunications Act of 1996. Bills also have been
introduced in Congress that would grant regional Bell operating companies
regulatory relief to provide data services in areas where they are currently
restricted from doing so.

On November 2, 1999, the FCC held that a statute requiring that
traditional local telephone companies offer their retail services at a
wholesale price to competitors like us does not apply when these telephone
companies provide a discounted DSL service directed to Internet service
providers, or ISPs. In that case, while competitors may purchase the
traditional telephone companies' ISP-directed DSL offering on the same terms as
the ISPs, the FCC ruled that competitors have no legal right to a wholesale
discount off the price paid by ISPs. This ruling could adversely affect us if
it gives ISPs an economic incentive to meet all of their DSL needs by
subscribing to the traditional telephone companies' ISP-directed discounted DSL
offerings rather than by subscribing to DSL services offered by competitors
like us.

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Our stock price may fluctuate significantly, depending on various factors,
including future operating results

The price at which our common stock trades depends 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. 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. You should be aware that the stock market
has from time to time experienced extreme price and volume fluctuations.

Our principal stockholders and management own a significant percentage of our
company and will be able to exercise significant influence over our company,
which could have a material and adverse effect on the market price of our
common stock

Our executive officers, directors and principal stockholders together
will beneficially own 60.4% of our common stock after this offering, or 59.6%
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 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.

Risks Related to this Offering

You will incur immediate and substantial dilution of approximately $26.55 per
share

The 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 $26.55 in the net tangible book value per
share of the common stock you purchase in this offering. As of March 15, 2000,
10,645,005 shares of common stock were issuable upon exercise of outstanding
stock options at a weighted average exercise price of $4.23 per share. If all
of these stock options are exercised, you will experience further dilution.
This dilution may cause the value of your investment to decline.

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 certain holders 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
days after the date of this prospectus without the prior written consent of
Merrill Lynch & Co. However, Merrill Lynch & Co. 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 and a private sale of shares by one of our
stockholders described in "Principal and Selling Stockholders," the holders of
22,853,244 shares of common stock will have the right to require us to register
the sale of their shares, subject to certain limitations and to the lock-up
agreements with the underwriters. These holders also have the right to require
us to include their shares in any future public offerings of our equity
securities. In addition, after March 7, 2002, the holders of our Series B
preferred stock

17
<PAGE>

have the right to require us to register the 4,838,700 shares issuable upon
conversion of our Series B preferred stock and to require us to include these
common shares in any future public offerings of our equity securities. On
August 17, 1999, we filed a registration statement on Form S-8 under the
Securities Act to register 11,250,000 shares of common stock subject to
outstanding stock options or reserved for issuance under our stock incentive
plan. We expect to file a registration statement on Form S-8 to register
500,000 shares of common stock reserved for issuance under our Employee Stock
Purchase Plan. The sale of any of these additional shares into the public
market may further adversely affect the market price of our common stock.

Our preferred stockholders have rights that could allow them to delay or cause
a change in control of our company

Our preferred stock is convertible, at the option of SBC and Telmex, into
4,838,700 shares of our common stock, subject to adjustment. If either SBC or
Telmex decided to convert its shares of preferred stock, it would own
approximately 6.0% and 5.6%, respectively, of our outstanding common stock
(approximately 5.5% and 5.1% of our stock outstanding after this offering), and
that company's non-voting member of our board of directors would automatically
acquire the right to vote on all matters coming before the board. In connection
with their purchase of our Series B preferred stock, SBC and Telmex also
obtained a right of first offer, which is described in more detail in
"Business--Preferred Stock Issuance and SBC and Telmex Agreement," with respect
to any shares of our stock that either Jonathan P. Aust, our Chief Executive
Officer, or Spectrum Equity Investors II, L.P., or Spectrum, desire to sell to
a third party. Mr. Aust and Spectrum are our two largest shareholders,
collectively owning 62.3% of our common stock. If SBC or Telmex convert their
preferred stock into our common stock or exercise their right of first offer
with respect to any of Mr. Aust's or Spectrum's shares, including the shares
Mr. Aust and Spectrum are currently offering to them, that company could
increase its influence over our board of directors or, in some cases, acquire a
majority of the outstanding stock of our company. Using these rights, SBC or
Telmex could either discourage a takeover or cause a takeover of our company to
the detriment of our other stockholders.

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 provides 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.

18
<PAGE>

FORWARD-LOOKING STATEMENTS

Many statements made in this prospectus under the captions "Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" and elsewhere are forward-looking
statements relating to future events and our future performance within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including, without limitation, statements
regarding our expections, beliefs, intentions or future strategies that are
signified by the words "expects", "anticipates", "intends", "believes" or
similiar language. Our actual results could differ materially from those
anticipated in such forward-looking statements.

We caution you that these forward-looking statements, which may deal
with subjects such as our network roll-out plans and strategies, our planned
relationships with SBC and Telemex, the development of our business, the
markets for our services and products, our anticipated capital expenditures,
possible changes in regulatory requirements and other statements contained
herein regarding matters that are not historical facts, are only predictions
and estimates regarding future events and circumstances. All forward-looking
statements included in this document are based on information available to us
on the date hereof, and we assume no obligation to update any forward-looking
statements. We caution you that our business and financial performance are
subject to subtantial risks and uncertainties. In evaluating our business, you
should carefully consider the information set forth below under the caption
"Risk Factors" in addition to the other information set forth herein and
elsewhere in our other public filings with the Securities and Exchange
Commission.

USE OF PROCEEDS

We estimate that the net proceeds to us from this offering will be
approximately $134.8 million, assuming a public offering price of $30.00. This
amount reflects deductions from the gross proceeds of the offering of:

. approximately $8.6 million, which will be retained by the
underwriters as discounts and commissions; and

. approximately $612,000 representing our estimated expenses for this
offering.

We expect to use the net proceeds for:

. our capital expenditures;

. our operating losses that we expect to incur as we expand our
customer base and network;

. any strategic acquisitions; and

. 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. We have not definitively
allocated any portion of the net proceeds of the offering. We will retain
complete discretion in applying the proceeds of this offering.

We will not receive any of the proceeds from sales of shares by selling
stockholders. We may reduce the number of shares we are offering by up to
550,177 if two of our stockholders elect to participate in this offering as
described in "Principal and Selling Stockholders." If these stockholders elect
to sell 550,177 shares in this offering, the net proceeds to us from this
offering will be approximately $119.2 million.

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

19
<PAGE>

DIVIDEND POLICY

We have never declared or paid dividends on our common stock. We do not
anticipate declaring or paying cash dividends on our common stock 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.

PRICE RANGE OF OUR COMMON STOCK

Since our initial public offering on June 3, 1999, our common stock has
traded on the Nasdaq National Market under the symbol "NASC." Prior to that
time, there was no public market for our common stock. The following table sets
forth the range of the high and low closing sales prices of our common stock
for the periods indicated:

<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year ended December 31, 1999:
Second Quarter (from June 3, 1999).......................... $13.94 $ 8.63
Third Quarter............................................... 18.00 10.00
Fourth Quarter ............................................. 36.50 12.25
Year ended December 31, 2000:
First Quarter (through March 23, 2000)...................... $35.12 $24.62
</TABLE>

On March 23, 2000, the last reported sales price for our common stock on
the Nasdaq National Market was $30.00 per share. On March 15, 2000, there were
91 holders of record of our common stock.

20
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1999
on an actual basis, a pro forma basis to reflect the issuance of our Series B
mandatorily redeemable convertible preferred stock on March 7, 2000, and a pro
forma, as adjusted basis to reflect this offering. This table should be read in
conjunction with our financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 25.

<TABLE>
<CAPTION>
December 31, 1999
------------------------------------
Pro Pro forma,
Actual forma(1) as adjusted(2)
-------- ----------- --------------
(unaudited) (unaudited)
(in thousands, except per share
data)
<S> <C> <C> <C>
Cash, cash equivalents and short-term in-
vestments................................ $ 42,816 $191,592 $326,345
======== ======== ========
Long-term obligations:
Capital lease obligations (including
current portion)....................... $ 20,882 $ 20,882 $ 20,882
Note payable (including current
portion)............................... 2,932 2,932 2,932
Deferred compensation................... 167 167 167
-------- -------- --------
Total long-term obligations (including
current portion)..................... 23,981 23,981 23,981
-------- -------- --------
Series B mandatorily redeemable
convertible preferred stock, $.001 par
value, 1,500,000 shares authorized, 0
shares issued (actual), 1,500,000
shares issued (pro forma and pro forma,
as adjusted)........................... -- 149,000 149,000
-------- -------- --------
Stockholders' equity:
Common stock, $.001 par value,
150,000,000 shares authorized,
53,831,997 shares issued (actual and
pro forma), 58,632,174 shares issued
(pro forma, as adjusted) (3)........... 54 54 59
Additional paid-in capital.............. 130,432 130,432 265,180
Accumulated other comprehensive loss.... (52) (52) (52)
Deferred compensation on stock options.. (18,390) (18,390) (18,390)
Accumulated deficit..................... (42,135) (42,359) (42,359)
Less treasury stock, at cost, 8,550,000
shares................................. (1,900) (1,900) (1,900)
-------- -------- --------
Total stockholders' equity............ 68,009 67,785 202,538
-------- -------- --------
Total capitalization................. $ 91,990 $240,766 $375,519
======== ======== ========
</TABLE>
- --------

(1) Reflects the sale of 1,500,000 shares of our Series B mandatorily
redeemable convertible preferred stock on March 7, 2000 at a price of $100
per share, after deducting expenses of $1,000,000 related to the sale and
interest expense of $224,486 on our interim borrowings.

(2) Reflects the sale described in note 1 plus our sale of 4,800,177 shares of
our common stock offered by this prospectus at an assumed public offering
price of $30.00 per share, after deducting the underwriting discount and
the estimated offering expenses of $9,252,133 that we will pay. We may
reduce the number of shares we are offering by up to 550,177 if two of our
stockholders elect to participate in this offering as described in
"Principal and Selling Stockholders." If these stockholders elect to sell
550,177 shares in this offering, our pro forma, as adjusted cash, cash
equivalents and short-term investments would be $310,829,689.

(3) Excludes 11,014,379 shares of our common stock issuable upon exercise of
stock options outstanding on December 31, 1999.

21
<PAGE>

DILUTION

If you invest in our shares of common stock, your interest will be
diluted by an amount of the difference between the public offering price per
share and the pro forma as adjusted net tangible book value per share of common
stock after this offering. As of December 31, 1999, our net tangible book value
was approximately $67.6 million or $1.26 per common share. 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, our net tangible book value at
December 31, 1999 would have been $202.4 million, or $3.45 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 net tangible book value of $2.19
per common share to existing stockholders, and an immediate dilution in net
tangible book value of $26.55 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>
Public offering price per common share ...................... $30.00
Net tangible book value per common share at December 31,
1999 ...................................................... $1.26
Increase per share attributable to new investors ........... 2.19
Net tangible book value per common share after this offer-
ing ........................................................ 3.45
------
Dilution per common share to new investors .................. $26.55
======
</TABLE>

22
<PAGE>

SELECTED FINANCIAL AND OTHER DATA

(in thousands, except per share data)

We present below summary financial and other data for our company. The
summary historical statement of operations and other data for each of the three
years in the period ended December 31, 1999 have been derived from our audited
financial statements that are included elsewhere in this prospectus. The
statement of operations and other data for the year ended December 31, 1996
have been derived from audited financial statements that were included in our
prior public filings. The summary balance sheet data as of December 31, 1998
and 1999 has been derived from our audited financial statements that are
included elsewhere in this prospectus. The balance sheet data as of December
31, 1996 and 1997 has been derived from audited financial statements that were
included in our prior public filings. PricewaterhouseCoopers LLP has audited
the financial statements as of and for each of these years. The summary
financial data as of and 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.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1995 1996 1997 1998 1999
----------- ------- ------ -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Product sales.............. $1,891 $14,368 $8,150 $ 9,900 $ 13,025
Consulting services........ 36 114 791 1,428 2,593
Network services........... -- -- 4 311 1,821
------ ------- ------ -------- ---------
Total revenue............ 1,927 14,482 8,945 11,639 17,439
------ ------- ------ -------- ---------
Cost of revenue:
Product sales.............. 1,475 11,975 7,180 8,639 11,334
Consulting services........ 15 91 231 761 1,693
Network services........... -- -- 2 41 4,813
------ ------- ------ -------- ---------
Total cost of revenue.... 1,490 12,066 7,413 9,441 17,840
------ ------- ------ -------- ---------
Gross profit (loss).......... 437 2,416 1,532 2,198 (401)
------ ------- ------ -------- ---------
Operating expenses:
Selling, general and
administrative............ 299 2,255 1,437 4,017 27,670
Amortization of deferred
compensation on stock
options................... -- -- -- 219 8,165
Depreciation and
amortization.............. 9 7 12 130 5,195
------ ------- ------ -------- ---------
Total operating
expenses................ 308 2,262 1,449 4,366 41,030
------ ------- ------ -------- ---------
Income (loss) from
operations.................. 129 154 83 (2,168) (41,431)
Interest income (expense),
net......................... -- (1) (5) 64 1,072
------ ------- ------ -------- ---------
Income (loss) before income
taxes....................... 129 153 78 (2,104) (40,359)
Provision (benefit) for
income taxes................ 39 63 36 (28) (71)
------ ------- ------ -------- ---------
Net income (loss)............ 90 90 42 (2,076) (40,288)
Preferred stock dividends and
accretion................... -- -- -- 567 597
------ ------- ------ -------- ---------
Net income (loss) applicable
to common stockholders ..... $ 90 $ 90 $ 42 $ (2,643) $ (40,885)
====== ======= ====== ======== =========
Net income (loss) per common
share applicable to common
stockholders (basic and
diluted).................... $ 0.00 $ 0.00 $ 0.00 $ (0.10) $ (0.99)
====== ======= ====== ======== =========
Weighted average common
shares outstanding (basic
and diluted)................ 21,915 21,915 21,915 27,302 41,259
====== ======= ====== ======== =========
</TABLE>

23
<PAGE>

<TABLE>
<CAPTION>
As of December 31,
------------------------------------------
Pro forma,
1995 1996 1997 1998 1999 Pro forma(2) as adjusted(3)
----------- ------ ------ ------- -------- ------------ --------------
(unaudited) (unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and short-term
investments............ $ 24 $ 22 $ 713 $ 5,518 $ 42,816 $191,592 $326,345
Property and equipment,
net.................... 8 31 140 5,031 55,098 55,098 55,098
Total assets............ 458 5,352 1,865 12,928 104,620 253,396 388,149
Total debt (including
capital lease
obligations)........... 30 84 93 2,513 23,814 23,814 23,814
Mandatorily redeemable
preferred stock........ -- -- -- 5,641 -- 149,000 149,000
Total stockholders'
equity (4) ............ 118 208 250 932 68,009 67,785 202,538
</TABLE>
- --------

(4) Excludes 11,014,379 shares of our common stock issuable upon exercise of
stock options outstanding on December 31, 1999.

24
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis is provided to increase the
understanding of, and should be read in conjunction with, the Financial
Statements and Notes. Historical results and percentage relationships among any
amounts in the Financial Statements are not necessarily indicative of trends in
operating results for any future period.

Overview

We began operations in 1995 by selling data communications products made
by others and providing consulting services for WANs. Shortly thereafter, we
began offering a wide range of networking solutions for the data communications
needs of businesses. We provide network integration services, where we design
our customers' networks and sell and install related network equipment. We also
manage our customers' networks, ensure the security of their networks and
provide related professional services. From 1995 through 1998, our revenue was
derived primarily from product sales and consulting services. Historically, we
have primarily depended on AT&T and AstraZeneca for revenue from our product
sales and consulting services operations. AT&T accounted for 30.7% and 50.4% of
total revenue for the years ended December 31, 1999 and 1998, respectively,
while AstraZeneca accounted for 8.0% and 9.2% of total revenue for the years
ended December 31, 1999 and 1998, respectively.

In 1996, we began to pursue deployment of a series of city-wide networks
that enable DSL services. 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, which allowed us to use their
copper telephone lines and to collocate our equipment in telephone company
offices known as "central offices." Central offices serve as the central
connection point for all copper telephone lines in a local area and form the
basis for our network and a telephone company's network. We began CopperNet
service trials in November 1997 and began commercially offering our CopperNet
service in Philadelphia and Washington, D.C. in January 1999.

We currently offer our DSL-based networking solutions in the following
nine northeast and mid-Atlantic cities and their surrounding markets:
Baltimore, Boston, New York, Norfolk, Philadelphia, Pittsburgh, Richmond,
Washington D.C. and Wilmington. On February 8, 2000, in connection with the
announcement of a $150 million Series B preferred stock investment by, and a
strategic summary operating agreement with SBC and Telmex, we announced that we
would be extending our network deployment into the southeastern and western
regions of the United States. We, along with SBC and Telmex, have initially
targeted deployment in the following 20 markets within these regions: Atlanta,
Charlotte, Denver, Greensboro, Jacksonville, Louisville, Memphis, Miami,
Minneapolis, Nashville, New Orleans, Orlando, Phoenix, Portland, Raleigh-
Durham, Salt Lake City, Seattle, Tampa, Tucson and West Palm Beach. We intend
to deploy our network in each of these markets in the second half of 2000.

25
<PAGE>

states in which these markets are located. To date, we have signed
interconnection agreements with BellSouth, U S WEST and GTE. Together, these
three carriers serve as the traditional telephone companies in substantially
all of our 20 target markets in the southeastern and western regions.

Since February 1997, we have invested increasing amounts in the
development and deployment of our CopperNet service. We have funded the
deployment of our CopperNet services through proceeds received from a
preferred and common stock financing in August 1998, issuance of promissory
notes that were converted into common stock during the three months ended June
30, 1999, capital lease financing, our initial public offering and the
proceeds recently received from a sale of preferred stock to SBC and Telmex.
We intend to increase our operating expenses and capital expenditures
substantially in an effort to rapidly expand our equipment and human resource-
related 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. Although in the short term we expect to derive the majority of our
revenue from our product sales and related consulting services, we expect that
over time revenue from network services, which includes our CopperNet
services, will constitute the more significant portion of our total revenue.

Revenue

Revenue consists of:

. Network services. We charge monthly service fees for access to our
CopperNet 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, dedicated
private connections to our network, Internet access, e-commerce and
other data applications. Some of these services are delivered to
customers using resources from third-party providers under contract
to us.

. Consulting services. We bill our customers for network design and
integration, on-site network management, staging, installation,
maintenance and warranty services, 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.

. Product sales. As part of our overall data communications solutions,
we sell data communications products, including the network
components and security components that our customers require in
order to build, maintain and secure their networks. We sell, install
and configure selected equipment from our manufacturing partners. Our
engineers select product solutions to improve our customers'
operations and network efficiencies. Our engineers refer to a
standard network design that they seek to customize to fit the needs
of each customer.

Cost of Revenue

Cost of revenue consists of:

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

. CopperNet service fees. We pay a monthly service fee for each
copper line and for each collocation arrangement, as well as usage
fees for the support services we obtain from the traditional
telephone companies we work with in order to serve our CopperNet
customers. Sometimes, we must pay these companies to perform
special work, such as preparing a telephone line to use DSL
technology, 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 telecommunications
companies or traditional telephone companies for other types of
access, other than through our CopperNet network, which we provide
to customers as part of our network services.

26
<PAGE>

. Backbone connectivity charges. We incur charges for our fiber
optic network, or backbone, within a metropolitan area, typically
from a competitive telecommunications company or a traditional
telephone company, and for the backbone interconnecting our
networks in different metropolitan areas 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 the DSL equipment we use in the
traditional telephone company's central office locations 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.

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

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.

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. We expect that
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 and indirect sales efforts, agents and telemarketing.
Our direct sales force focuses on selling CopperNet connectivity to
small- and medium-sized businesses and consulting services and
network services to medium- and large-sized businesses. We indirectly
sell our full complement of products and services, including our
network services, consulting services and products, through network
service providers, including ISPs, long distance and local carriers
and other networking services companies. Our sales and marketing
expenses have increased, and will continue to increase, as we develop
our CopperNet 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
billing systems.

Amortization of deferred compensation on stock options

We had outstanding stock options to purchase a total of 7,090,875 and
11,014,379 shares of common stock as of December 31, 1998 and 1999,
respectively, at weighted average exercise prices of $0.09 and $1.73 per share,
respectively. At December 31, 1999, all of these options were exercisable into
restricted shares of our common stock that generally vest over a three- to
four-year period. In certain instances, we determined the fair

27
<PAGE>

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 $23.1 million for the years ended December 31, 1998 and
1999, respectively. We recorded this amount as a reduction to stockholders'
equity that is amortized as a charge to operations over the vesting periods.
For the years ended December 31, 1998 and 1999, we recognized $219,000 and $8.2
million of stock compensation expense, respectively, related to these options.

On April 1, 1999, we entered into a stock option agreement that granted
to one of our directors an option to purchase 250,000 shares of our common
stock at an exercise price of $6.67 per share. On June 3, 1999, this director
exercised this option. In addition, the agreement stipulated that this director
will be issued an additional option to purchase 407,500 shares of common stock
at an exercise price of $3.00 per share. These options immediately vested upon
our initial public offering. As a result, we recognized approximately $3.5
million of compensation expense during the year ended December 31, 1999 related
to these options.

Depreciation and amortization

Depreciation expense arising from our network and equipment purchases for
our customers' premises 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 cash equivalents 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.

Results of Operations

The following tables present our results of operations data and the
components of net income (loss) in dollars and as a percentage of our revenue.

28
<PAGE>

<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------
1997 1998 1999
---------- ---------- -----------
(in thousands)
<S> <C> <C> <C>
Revenue:
Product sales.......................... $ 8,150 $ 9,900 $ 13,025
Consulting services.................... 791 1,428 2,593
Network services....................... 4 311 1,821
--------- ---------- -----------
Total revenue........................ 8,945 11,639 17,439
--------- ---------- -----------
Cost of revenue:
Product sales.......................... 7,180 8,639 11,334
Consulting services.................... 231 761 1,693
Network services....................... 2 41 4,813
--------- ---------- -----------
Total cost of revenue................ 7,413 9,441 17,840
--------- ---------- -----------
Gross profit (loss).................. 1,532 2,198 (401)
--------- ---------- -----------
Operating expenses:
Selling, general and administrative.... 1,437 4,017 27,670
Amortization of deferred compensation
on stock options...................... -- 219 8,165
Depreciation and amortization.......... 12 130 5,195
--------- ---------- -----------
Total operating expenses............. 1,449 4,366 41,030
--------- ---------- -----------
Income (loss) from operations............ 83 (2,168) (41,431)
Interest income (expense), net........... (5) 64 1,072
--------- ---------- -----------
Income (loss) before income taxes........ 78 (2,104) (40,359)
Provision (benefit) for income taxes..... 36 (28) (71)
--------- ---------- -----------
Net income (loss)........................ $ 42 $ (2,076) $ (40,288)
========= ========== ===========
<CAPTION>
For the years ended December 31,
-----------------------------------
1997 1998 1999
---------- ---------- -----------
(percentage of revenue)
<S> <C> <C> <C>
Revenue:
Product sales.......................... 91.1% 85.1% 74.7%
Consulting services.................... 8.8 12.3 14.9
Network services....................... 0.1 2.6 10.4
--------- ---------- -----------
Total revenue........................ 100.0% 100.0% 100.0%
--------- ---------- -----------
Cost of revenue:
Product sales.......................... 80.3 74.2 65.0
Consulting services.................... 2.6 6.5 9.7
Network services....................... -- 0.4 27.6
--------- ---------- -----------
Total cost of revenue................ 82.9 81.1 102.3
--------- ---------- -----------
Gross profit (loss).................. 17.1 18.9 (2.3)
--------- ---------- -----------
Operating expenses:
Selling, general and administrative.... 16.1 34.5 158.7
Amortization of deferred compensation
on stock options...................... -- 1.9 46.8
Depreciation and amortization.......... 0.1 1.1 29.8
--------- ---------- -----------
Total operating expenses............. 16.2 37.5 235.3
--------- ---------- -----------
Income (loss) from operations............ 0.9 (18.6) (237.6)
Interest income (expense), net........... -- 0.6 6.2
--------- ---------- -----------
Income (loss) before income taxes........ 0.9 (18.0) (231.4)
Provision (benefit) for income taxes..... 0.4 (0.2) (0.4)
--------- ---------- -----------
Net income (loss)........................ 0.5% (17.8)% (231.0)%
========= ========== ===========
</TABLE>

29
<PAGE>

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Revenue. We recognized $17.4 million in revenue for the year ended
December 31, 1999, as compared to $11.6 million for the year ended December 31,
1998, an increase of $5.8 million. This increase was principally attributable
to a $3.1 million increase in product sales, primarily from one of our largest
customers, AT&T. Network services revenue increased by $1.5 million as a result
of the introduction of our DSL-enabled network service offerings in early 1999.
Consulting services increased by $1.2 million, which was attributable to
increases in maintenance and consulting contracts.

Cost of revenue. Cost of revenue was $17.8 million for the year ended
December 31, 1999, as compared to $9.4 million for the year ended December 31,
1998, an increase of $8.4 million. The increase was principally attributable to
growth in cost of network services of $4.8 million associated with expenses
incurred to continue to develop and operate our CopperNet and other networking
services and an increase in our product sales of $2.7 million. These were
accompanied by a growth in cost related to additional consulting services of
$932,000.

Gross profit (loss). Gross loss was $401,000 and 2.3% of revenue for the
year ended December 31, 1999, as compared to gross profit of $2.2 million and
18.9% of revenue for the year ended December 31, 1998, a decrease of $2.6
million. This loss was primarily a result of increased network services costs
related to the continued expansion of our network. As a result of the expansion
of our network, expenses have exceeded our revenue realized from our customer
base.

Selling, general and administrative expenses. Selling, general and
administrative expenses were $27.7 million and 158.7% of revenue for the year
ended December 31, 1999, as compared to $4.0 million and 34.5% of revenue for
the year ended December 31, 1998, an increase of $23.7 million. This increase
as a percentage of revenue was primarily due to increased staffing and other
expenses incurred to develop, operate and sell our CopperNet network and other
networking solutions.

Amortization of deferred compensation on stock options. Amortization of
deferred compensation was $8.2 million for the year ended December 31, 1999, as
compared to $219,000 for the year ended December 31, 1998, an increase of $8.0
million. This increase is attributable to the increase in the unamortized
deferred compensation from $3.5 million to $18.4 million as of December 31,
1998 and 1999, respectively, which is principally due to the granting of stock
options to key employees, and the related amortization of this balance over the
remaining vesting period for these options.

Depreciation and amortization expense. Depreciation and amortization
expense was $5.2 million and 29.8% of revenue for the year ended December 31,
1999, as compared to $130,000 and 1.1% of revenue for the year ended December
31, 1998, an increase of $5.1 million. This increase was primarily due to
investments in our CopperNet network, computer equipment and software, office
furnishings and leasehold improvements.

Loss from operations. Our loss from operations was $41.4 million for the
year ended December 31, 1999, as compared to $2.2 million for the year ended
December 31, 1998, an increase of $39.2 million. The increased loss for the
year ended December 31, 1999 was primarily due to increased staffing,
amortization of deferred compensation and other operating expenses we incurred
in connection with the expansion and support of our CopperNet network.

Interest income (expense), net. For the year ended December 31, 1999, we
recorded net interest income of $1.1 million, consisting of interest income of
$2.1 million and interest expense of $(1.0) million. For the year ended
December 31, 1998 we recorded net interest income of $64,000, consisting of
interest income of $145,000 and interest expense of $(81,000). The increase in
interest income was primarily attributable to interest earned from the net
proceeds of $81.8 million from our initial public offering in June 1999. The
increase in interest expense is primarily due to interest on notes payable and
capital leases that commenced during 1999.

Benefit for income taxes. We had a benefit for income taxes of $71,000
for the year ended December 31, 1999, as compared to a benefit of $28,000 for
the year ended December 31, 1998.

30
<PAGE>

Net loss. For the foregoing reasons, our net loss was $40.3 million for
the year ended December 31, 1999, as compared to a net loss of $2.1 million for
the year ended December 31, 1998, an increase of $38.2 million.

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. 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. 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 CopperNet 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 as a percentage of revenue was attributable to the costs
associated with higher product sales and consulting services and the
introduction of broader network service offerings 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. This increase as
a percentage of revenue was primarily due to increased staffing and other
expenses incurred to develop our CopperNet network and other networking
solutions.

Amortization of deferred compensation on stock options. Amortization of
deferred compensation was $219,000 for the year ended December 31, 1998, which
was primarily attributable to the granting of stock options to key employees
and the amortization of the resulting deferred compensation over the remaining
vesting period of these options. 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.

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, a decrease of $2.3 million. The
loss in 1998 was primarily due to increased staffing and other operating
expenses we incurred in support of our CopperNet 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, interest expense of $81,000, 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.

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.

31
<PAGE>

Liquidity and Capital Resources

Although we do not require significant capital expenditures for our product
sales and consulting services segments, the development and expansion of our
CopperNet network requires significant capital expenditures. The principal
capital expenditures that we expect to incur during our CopperNet rollout
include the procurement, design and construction of our collocation spaces and
the deployment of DSL-based equipment in central offices and connection sites.
Capital expenditures were $5.0 million and $55.3 million for the years ended
1998 and 1999, respectively. During the year 2000 and for future periods, we
expect our capital expenditures to increase substantially primarily due to:

. continued collocation construction in the Bell Atlantic and new
collocation construction in the U S WEST and Bell South regions;

. procurement of software systems; and

. the purchase of telecommunications equipment for expansion of our
network.

Our capital expenditures will depend in part upon obtaining adequate demand
for our services from our CopperNet customers. We anticipate capital
expenditures during 2000 to range from $110.0 million to $125.0 million for the
expansion of our network from 362 central offices at December 31, 1999 to
approximately 900 central offices by the end of 2000.

Initial Public Offering. The net proceeds from our initial public offering,
completed in June 1999, were approximately $81.8 million. As of December 31,
1999, we have used approximately $37.3 million of these net proceeds. Of this
amount, approximately $21.0 million was used to finance capital expenditures
for central office installation and collocation fees, approximately $11.0
million was used to finance operating losses and approximately $4.1 million was
used to finance capital expenditures for property and equipment. We expect to
use approximately one half of the remaining net proceeds to finance operating
losses that we expect to incur as we expand our customer base and network. We
expect to use the remaining net proceeds from our initial public offering to
finance additional capital expenditures for central office installation and
collocation fees and to make payments under lease commitments and for general
corporate purposes.

Borrowings and Sale of Preferred Stock. In February 2000, we borrowed $15
million from each of SBC and Telmex until we received regulatory approvals for
the issuance of our Series B preferred stock on March 7, 2000. The loans bore
interest at a rate of prime plus 2% during the time they were outstanding, and
we repaid both loans plus accrued interest in full upon consummation of the
Series B preferred stock sale on March 7, 2000. The net proceeds from our sale
of Series B preferred stock in March 2000 were approximately $149.0 million. Of
this amount, approximately one half will be used to finance capital
expenditures for central office installation and collocation fees, software
systems, other capital equipment and certain operating costs related to
expansion of our network into new regions beyond our original target markets.
We expect to use the remaining net proceeds from our sale of Series B preferred
stock to finance operating losses that we expect to incur as we expand our
customer base and network, to make payments under lease commitments and for
general corporate purposes.

Operating Activities. Net cash used in operating activities was $2.8 million
in 1998 and $20.2 million in 1999. Net cash provided by operating activities
was $805,000 in 1997. The increase in cash used in operating activities of
$17.4 million from 1998 to 1999 was primarily the result of an increase in
operating losses of $38.2 million attributable to the expansion of our network
and the development of our CopperNet services, but also the result of increases
in accounts receivable and other current assets. These increases were offset by
increases in non-cash expenses for amortization of deferred compensation of
$8.0 million and depreciation of $5.1 million accompanied by increases in
accounts payable and accrued liabilities. 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 CopperNet
services, but also the result of an increase in accounts receivable accompanied
by a decrease in accounts payable.

Investing Activities. Net cash used in investing activities was $122,000 in
1997, $1.3 million in 1998 and $61.4 million in 1999. The increase in cash used
for investing activities during 1999 of $60.1 million was

32
<PAGE>

primarily due to an increase in the deployment of equipment for our CopperNet
services of $27.7 million and an increase in purchases of property and
equipment of $6.3 million. These were accompanied by a net increase in the
purchase of short-term investments of $24.6 million. The increase in cash used
for investing activities during 1998 of $1.2 million was primarily due to an
increase in the deployment of equipment for our CopperNet services of $641,000
accompanied by an increase in purchases of property and equipment of $394,000.

Financing Activities. Net cash provided by financing activities was $9,000
in 1997, $9.0 million in 1998 and $94.3 million in 1999. The increase in cash
provided by financing activities of $85.3 million during 1999 was primarily
the result our initial public offering of $83.7 million partially offset by
issuance costs paid of $1.9 million and borrowings on notes payable of $12.0
million. The increase in cash provided by financing activities of $9.0 million
during 1998 was primarily the result of preferred and common stock financing
of $9.9 million offset by the repurchase of common stock from existing
shareholders of $1.9 million.

Debt and Capital Lease Arrangements. We currently have debt and capital
lease facilities available to us of approximately $125.0 million. Of this
amount, Lucent (through its acquisition of Ascend) has provided us with a
$95.0 million capital lease facility to fund acquisitions of certain Lucent
equipment, under which $9.7 million was outstanding as of December 31, 1999.
The terms of our capital leases range from three to four years. These leases
require monthly lease payments and have an interest rate of 9.5%. Lucent has
the right to withdraw or suspend further advances to us if our interconnection
agreements with Bell Atlantic are not renewed or are terminated, or if certain
key employees terminate their employment with us without competent replacement
in the reasonable commercial judgment of Lucent.

In addition, we have arrangements with other vendors that permit us to
finance up to $25.0 million of equipment and other assets and $5.0 million of
working capital. An aggregate of $23.8 million was outstanding under these
arrangements as of December 31, 1999.

Liquidity Requirements. We believe that our existing cash and cash
equivalents, including the net proceeds of approximately $149.0 million we
received from SBC and Telmex, existing equipment lease financings and
anticipated future revenue generated from operations will be sufficient to
complete the current planned build-out of our network in the northeast and
mid-Atlantic regions and to begin expansion into the BellSouth and U S WEST
territories during 2000 and to fund our operating losses, capital
expenditures, lease payments and working capital requirements into the first
quarter of 2001. Taking into account our estimated net proceeds from this
offering, we believe that we will have sufficient financing to fund our
operations into the third quarter of 2001.

We expect our operating losses and capital expenditures to increase
substantially primarily due to our network expansion into new markets. We
expect that additional financing will be required for us to complete our
planned network roll-out in the BellSouth & U S WEST regions. We may seek to
finance such future operations through a combination of commercial bank
borrowings, leasing, vendor financing or the private or public sale of equity
or debt securities. 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 cash flow would otherwise be
available to finance the deployment of our network. If we are forced to use
our cash flow in this manner, we may be forced to delay the capital
expenditures necessary to complete our network. Equity or debt financing may
not be available to us on favorable terms or at all. Any delay in the
deployment of our network could have a material adverse effect on our
business.

Our capital requirements may vary based upon the timing and success of our
CopperNet roll-out, 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 accelerate deployment of our network or otherwise alter the
schedule or targets of our CopperNet roll-out plan; or

. we engage in any strategic acquisitions or relationships.

33
<PAGE>

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain financial market risks, the most predominant
being fluctuations in interest rates. We monitor interest rate fluctuations as
an integral part of our overall risk management program, which recognizes the
unpredictability of financial markets and seeks to reduce the potentially
adverse effect on our results of operations. We do not believe that we are
currently exposed to material financial market risks.

Impact of the Year 2000 Issue

During 1999, we completed any required modifications to our critical
systems and applications relating to year 2000 issues. We also completed our
survey of our significant third-party service and product partners to assess
our vulnerability if these companies were to fail to remediate their year 2000
issues. The responses received indicated that our third-party service and
product partners were aware of the year 2000 issue and were implementing all
necessary changes prior to the end of calendar year 1999. We also formulated
contingency plans to ensure that business-critical processes were protected
from disruption and will continue to function during and after the year 2000
and to ensure that our ability to produce an acceptable level of products and
services is safeguarded in the event of failures of external systems and
services. During 1999, we did not incur any material costs in connection with
identifying, evaluating or remediating year 2000 issues.

Our business and operations experienced no material adverse effects from
the calendar change to the year 2000 or from the leap year that occurred in
2000, and we have not been notified of any disruptions to or failures in the
systems of any of our suppliers.

We will continue to monitor our information technology and non-
information technology systems and those of third parties with whom we conduct
business throughout the year 2000 to ensure that any latent year 2000 issues
that may arise are addressed promptly. Although we do not anticipate any
additional expenditures relating to year 2000 compliance, we cannot provide
any assurance as to the magnitude of any future costs until significant time
has passed.

Recent Accounting Pronouncements

In June 1999, the Financial Accounting Standards Board issued SFAS No.
137, which delays the effective date of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which will be effective for
our fiscal year 2001. This statement establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments imbedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. We
believe the adoption of SFAS No. 133 and SFAS No. 137 will not have a material
impact on the financial statements.

34
<PAGE>

Quarterly Results of Operations

The following table presents our quarterly results of operations data and
the components of net income (loss) for 1998 and 1999. In the opinion of
management, this information has been prepared substantially on the same basis
as the financial statements appearing elsewhere in this prospectus, and all
necessary adjustments, consisting only of normal recurring adjustments, have
been included in the amounts stated below to present fairly the unaudited
quarterly results when read in conjunction with our financial statements and
related notes thereto appearing elsewhere in this prospectus. The operating
results for any quarter are not necessarily indicative of the operating results
for any future period.

<TABLE>
<CAPTION>
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands, unaudited)
Revenue:
Product sales.......... $2,194 $2,297 $2,902 $ 2,507 $ 3,955 $ 2,913 $ 3,113 $ 3,044
Consulting services.... 317 462 274 375 702 665 526 700
Network services....... 41 82 87 101 119 166 529 1,007
------ ------ ------ ------- ------- -------- -------- --------
Total revenue.......... 2,552 2,841 3,263 2,983 4,776 3,744 4,168 4,751
------ ------ ------ ------- ------- -------- -------- --------
Cost of revenue:
Product sales.......... 1,858 1,947 2,549 2,285 3,535 2,488 2,683 2,628
Consulting services.... 160 285 152 164 299 476 402 516
Network services....... 1 7 7 26 171 612 1,359 2,671
------ ------ ------ ------- ------- -------- -------- --------
Total cost of revenue.. 2,019 2,239 2,708 2,475 4,005 3,576 4,444 5,815
------ ------ ------ ------- ------- -------- -------- --------
Gross profit (loss)..... 533 602 555 508 771 168 (276) (1,064)
Operating expenses:
Selling, general and
administrative........ 538 509 1,357 1,613 2,533 5,385 8,809 10,943
Amortization of
deferred compensation
on stock options...... -- -- 47 172 540 4,728 1,431 1,466
Depreciation and
amortization.......... 4 9 48 69 187 698 1,612 2,698
------ ------ ------ ------- ------- -------- -------- --------
Total operating
expenses.............. 542 518 1,452 1,854 3,260 10,811 11,852 15,107
------ ------ ------ ------- ------- -------- -------- --------
Income (loss) from
operations............. (9) 84 (897) (1,346) (2,489) (10,643) (12,128) (16,171)
Interest income
(expense), net......... (12) (14) 25 65 (9) 202 559 320
------ ------ ------ ------- ------- -------- -------- --------
Income (loss) before
taxes.................. (21) 70 (872) (1,281) (2,498) (10,441) (11,569) (15,851)
Provision (benefit) for
income taxes........... (8) 27 (47) -- -- (72) 1 --
------ ------ ------ ------- ------- -------- -------- --------
Net income (loss)....... $ (13) $ 43 $ (825) $(1,281) $(2,498) $(10,369) $(11,570) $(15,851)
====== ====== ====== ======= ======= ======== ======== ========
</TABLE>

35
<PAGE>

BUSINESS

In seeking to solve the data communications needs of our business
customers, we offer them network services, telecommunications products and
equipment made by others and consulting services. Although nearly all of our
revenue has historically been derived from our product sales and consulting
services, we expect to continue to dedicate most of our financial and
management resources to further developing our network services business.
Through this business, which includes our CopperNet service offering, we
provide MANs and WANs to our customers. We also manage and monitor our
customers' networks. Through our product sales business, we sell
telecommunications equipment that our customers use to build, maintain and
secure their networks. Through our consulting services business, we design our
customers' networks, install the related equipment and provide services to help
them secure their networks.

We currently offer our DSL-based networking solutions in the following
nine northeast and mid-Atlantic cities and their surrounding markets:
Baltimore, Boston, New York, Norfolk, Philadelphia, Pittsburgh, Richmond,
Washington D.C. and Wilmington. On February 8, 2000, in connection with the
announcement of a $150 million Series B preferred stock investment by, and a
strategic summary operating agreement with SBC and Telmex, we announced that we
would be extending our network deployment into the southeastern and western
regions of the United States. We, along with SBC and Telmex, have initially
targeted deployment in the following 20 markets within these regions: Atlanta,
Charlotte, Denver, Greensboro, Jacksonville, Louisville, Memphis, Miami,
Minneapolis, Nashville, New Orleans, Orlando, Phoenix, Portland, Raleigh-
Durham, Salt Lake City, Seattle, Tampa, Tucson and West Palm Beach. We intend
to deploy our network in each of these markets in the second half of 2000.

36
<PAGE>

We have designed our network to support our customers' changing data
networking needs. Our network supports newer, evolving technologies designed
to transmit both data and voice. Unlike traditional telecommunications
networks, these newer technologies transmit data in small bundles, or packets,
of information from multiple users over the same lines, and are referred to as
packet-based technologies. These packet-based technologies generally allow for
a more efficient use of a network. Our CopperNet service is compatible with
Internet protocol, or IP, and packet-based communications systems such as
asynchronous transfer mode, or ATM, and frame relay. This same architecture
also supports the traditional technologies that carry most of today's voice
telephone conversations. This network design allows us to offer businesses and
their telecommuters cost-effective solutions for accessing the Internet, as
well as other emerging applications and services of corporate networks, such
as video and audio conferencing, application and Web hosting, multimedia and
e-commerce. We create city-wide MANs and connect them to our private, leased,
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, including other cities. Our network provides dedicated
connections to our customers, enabling them to operate as if they were using
their own private network. These virtual private networks, or VPNs, have
capacity, speed, reliability and level of service designed to meet our
customers' needs.

Industry Overview

We believe that a substantial business opportunity exists because of the
concurrence of several factors.

Growing Demand for High-Speed Data Communications and Networking
Solutions. Many 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, or
intranets, and remote local area networks, or LANs, to enable employees to
work from remote locations and from home, and to create private networks that
connect corporate networks in multiple locations. Gartner Group estimates that
the U.S. market for packet-based, VPN and Internet data services will grow
from $3.4 billion in 1997 to $14.5 billion in 2003, a compounded annual growth
rate of 34%. Business demand for Internet access, e-mail, video and audio
services, web and application hosting and e-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 18%.

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. Gartner Group forecasts data traffic to grow over
five times faster than voice traffic through 2002. Furthermore, Gartner Group
projects an increase in the number of DSL lines in use from 3,000 in 1997,
providing over $1.8 million in revenue, to over 7.1 million lines providing
over $18 billion in revenue, in 2003, representing a 373% compounded annual
growth rate in the number of lines and a 531% compounded annual growth rate in
revenue.

37
<PAGE>

Increasing Network Congestion. The growing use of bandwidth-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 LANs and
WANs.

High-speed local access technologies such as DSL will be deployed to help
solve the local access, or "last mile," bottleneck. The "last mile" is that
part of the network that runs from an end-user's location to the first central
office or nearest alternative service entry point into our 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. Although
competition in the long distance market has evolved, stimulating technological
development and causing price reductions, the local access markets have not
similarly developed. As a result, the traditional 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. In addition, expertise and networking solutions still will
be needed to remedy bottlenecks, other than the last-mile bottlenecks that
subsist throughout existing networks.

Commercial Availability of Low-Cost DSL Technology. The full potential of
Internet and remote LAN applications cannot be realized without removing the
performance bottlenecks of the local telephone networks. DSL technology is
designed to remove 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. As a result, after the build-out of a
central office, subsequent investments in DSL technology for customers within
the area served by that central office are directly related to the number of
paying customers.

Needs of Small- and Medium-Sized Businesses. A significant number of
small- and medium-sized businesses have no practical alternative to low
performance dial-up or ISDN lines and lack the financial resources to afford
traditional high-cost alternatives, such as T-1 or T-3 lines. As a result,
their employees suffer productivity limitations associated with slow
transmission speeds. In addition, there is an increasing need by these
businesses for integrated, value-added applications and services, such as web
and application hosting or computer system back-up, that require an increasing
amount of bandwidth capacity.

Needs of Large Businesses to Improve Remote Worker Productivity. Many
large companies are supporting increasing numbers of remote offices and workers
as a means of dealing with transportation infrastructure constraints, skilled
worker unavailability and other workplace issues. These companies face the
challenge of finding a cost-effective way to make their remote workers as
productive as those who have access to all of the high performance
communications and networking resources available to workers located at
corporate headquarters. A high-speed network solution that encompasses access
to the corporate LAN, the corporate telephone system, the Internet, the
corporate video conferencing system, customers, suppliers, and partners permits
a substantial increase in remote office and worker productivity.

Significant and Growing Demand for Network-Enabled Broadband Applications
and Services. As applications become more advanced and necessary to conduct
day-to-day business, we expect that the demand for broadband capacity will rise
accordingly. Many companies lack the resources to develop, implement, manage
and continually enhance their business' hosting and information technology
applications needs. As a result, not only should the demand for bandwidth
capacity rise, but there should be strong demand for outsourcing many of these
applications so that companies are able to focus on their core competencies.

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Impact of the Telecommunications Act of 1996. The Telecommunications Act
of 1996 (including its related regulations), which we refer to as the 1996
Telecom Act, allows competitive telecommunications companies like us to take
advantage of traditional telephone companies' existing copper telephone line
networks rather than constructing a competing infrastructure at significant
cost. The 1996 Telecom Act requires traditional telephone companies:

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

. to permit competitive telecommunications companies to collocate their
equipment, including DSL equipment, in traditional telephone companies'
central offices, which enables competitive telecommunications companies
to access end-users through existing telephone line connections;

. to provide competitive telecommunications companies with the operations
support services necessary for competitive telecommunications companies
to compete; and

. to permit competitive telecommunications companies to share access to
and provide service over traditional telephone companies' existing
copper telephone lines.

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

Our Solution

We provide a full range of broadband network solutions to allow
businesses to outsource their Internet access, data transport, and other
telecommunications or data communications needs effectively. We market our
services both directly to businesses through our sales force and indirectly
through other service providers. Our network services include:

. High-speed, Last Mile Connectivity. CopperNet is designed to solve 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 CopperNet speeds allow our customers to transfer
data at rates faster than standard high-speed data connections, like T-1
lines and frame relay circuits. We provide packet-based connections like
other DSL providers, but because many of today's existing networks use
channelized technology, we also provide channelized connections, which
we believe no other major DSL provider currently offers. Thus, CopperNet
addresses both older channelized network requirements, like traditional
voice telephone networks, and the packet-based communications better
suited for newer, more efficient technologies such as ATM and frame
relay, both of which transmit data at high-speed and can accommodate
multiple types of media, including voice, video and data. In addition to
ATM and frame relay, CopperNet can also accommodate other technologies
based on IP, which is the set of standards that enables Internet
communications.

. Adaptable Network Design. The design of our network supports today's
bandwidth-intensive business requirements, such as corporate networks,
VPNs, office-to-office connectivity, telecommuting solutions,
collaborative computing of users in different areas, Internet/intranet
access, traditional voice, video conferencing, multimedia, e-mail, video
and audio transmission, web and

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<PAGE>

application hosting and e-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 have constructed data
communications networks that cover an entire city-wide, or metropolitan,
area. These MANs provide high-capacity, secure, direct connections
between remote locations and provide cost effective private network
solutions to our customers with the capacity, speed, reliability and
level of service that they require.

. Wide Area Network Solutions. Many organizations have offices and
employees in multiple cities. By linking our MANs, we have constructed a
data communications network that covers an entire region in our
northeast and mid-Atlantic regions. This WAN provides high-capacity,
secure and reliable connections between geographically dispersed
locations. Because our WAN customers, like our MAN customers, are served
end-to-end on our CopperNet 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. With our newly
announced network expansion and through the definitive operating
agreements we expect to sign with SBC and Telmex, we expect to be able
to offer a significantly expanded WAN solution, over either our own or
our partners' networks, to our customers.

. Network-Enabled Broadband Communications and Services. We believe that
providing high-speed access and data communications solutions will only
be part of the solution we provide to our customers. Because our
emphasis is on building customer relationships through our direct sales
force and working with them to provide the best communications
solutions, we believe that we will be able to identify further customer
needs and effectively market and sell new solutions to meet these needs.
For example, we currently provide remote online control, monitoring and
management of our customers' networks. In addition, we develop and
implement sophisticated network security solutions to protect our
customers' networks and vital data, including VPNs, encryption and
access authentication, risk assessment and audits, design consulting,
security testing through attempted breaches of security and analysis of
and response to breaches of security. In the future, we intend to offer
additional services that may include e-commerce, voice-over technology
(including IP, frame relay and ATM), web and application hosting, video
conferencing and server back-up services.

. SBC and Telmex Products and Services. Upon completion of a definitive
sales agreement with SBC and Telmex, we expect to be able to offer our
customers various SBC and Telmex data and voice telecommunications
services, which we expect to bundle with our other product offerings,
providing integrated communications solutions to our customers.

Our Strategy

. Provide in-depth coverage in our traditional markets. Because DSL can
only be provided to each individual end-user from the central office or
alternative service entry point closest to that end-user, we must
collocate our equipment in many central offices in order to provide a
wide area of coverage of our markets. Thus, we have pursued a strategy
of providing services in a substantial majority of the central offices
in each of our target markets. Furthermore, our traditional focus on the
northeast and mid-Atlantic regions has enabled us to deploy our network
with speed and depth. We believe that

40
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our coverage within our traditional target markets is much deeper than
that of other providers of DSL-based broadband access, enabling us to
better serve our customers by providing them with access for
substantially all of their end-users.

. Expand our network coverage area. We have announced a significant
expansion of our network coverage area, which we will begin building out
in mid-2000. We expect to be able to initially deploy our network in all
20 southeastern and western markets in the second half of 2000. We
believe that the skills, processes and certain other resources that we
used to build out, provide service and obtain customers in our
traditional nine markets are directly transferable to developing these
additional 20 markets. We believe that by expanding our network coverage
area, and through our planned relationships with SBC and Telmex, we will
be able to offer our customers a seamless, integrated broadband
communications solution throughout a significant portion of the United
States.

. Focus on small- and medium-sized business customers. We believe that
many small- and medium-sized businesses currently do not have a cost-
effective and integrated solution to their Internet access and data
transport needs. Many small- and medium-sized businesses want to provide
high-speed Internet access to their employees and connect multiple
branch offices in the same city or multiple cities through MAN or WAN
connections, but traditional data communications services are cost-
prohibitive for these businesses. Because our CopperNet solution is more
cost-effective than current solutions offered by traditional telephone
companies, such as T-1 or ISDN connections, we intend to focus on this
natural market for our services. In addition, we believe that our
marketing approach enables us to provide these customers with a more
effective and integrated solution to their data communications needs.

. Focus on selected large enterprise customers. We believe that many large
enterprise customers are unable to efficiently provide cost-effective
high-speed access to their remote workers. Many large businesses have
remote offices and workers that are not able to take advantage of the
full array of communications and networking resources available to
workers at the main office. Our extensive network coverage within our
traditional markets allows us to provide service to most remote workers
or office locations within those markets, and we expect to be able to
provide a similar level of service in our southeastern and western
markets by mid-2001. In addition, we believe that our planned expansion
into an additional 20 markets and our planned relationships with SBC and
Telmex will allow us to more effectively service large enterprise
customers with employees in many geographic locations.

. Enhance and expand our network to meet the broadest array of business
requirements. Our network design and technology is designed to provide
our customers with adaptable networking solutions that take advantage of
many technologies. Our network supports a broad array of business
requirements, such as corporate networks, VPNs, 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 and application
hosting and e-commerce. Our network provides solutions that can be
adapted to meet the needs of our customers and integrate technological
innovations as they are developed.

. Expand network-enabled features and applications. We seek to have our
network become a platform that facilitates the delivery of productivity-
enhancing features and applications to businesses and their employees.
We intend to either directly offer or jointly provide these services. We
expect that our planned relationships with SBC and Telmex, along with
Prodigy, an affiliate of both companies, will allow us to provide
additional services, such as enhanced Internet services and local and
long distance voice services, to our customers. One of our objectives in
providing these enhanced features and applications is to strengthen
customer loyalty and increase revenue per customer.

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. Provide superior customer care. We emphasize a comprehensive 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 it has contracted according to our
service level agreements. 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 day 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 different types of
marketing. We emphasize direct sales and marketing to small- and medium-
sized businesses and to selected large enterprises. We also sell our
services indirectly through our sales partners, including Internet
service providers, or ISPs, long distance and local carriers and other
networking service companies. Our sales force is supported by sales
engineers who are trained, certified experts in all our vendor-partners'
products and technologies, including Lucent Technologies, Inc. (through
its acquisition of Ascend), Cisco Systems, Inc., and Paradyne
Corporation. We intend to leverage our existing customer base through
selling them additional products and services. Some of our sales
partners include Verio, Inc., Intermedia Communications, Inc. and
Comcast Telecommunications, Inc. In addition, we expect that our planned
relationships with SBC and Telmex will offer us additional sales
channels through which we expect to be able to distribute our products
and services in both our traditional and future markets.

. 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 WAN technologies,
like high-speed T-1 lines and frame relay circuits, at approximately 30%
to 70% of the cost of such services. After we build out a central
office, our subsequent investments in DSL technology for the customers
within the area served by that central office are directly related to
the number of paying customers, making a significant portion of our
capital expenditures success-based.

. Accelerate growth through strategic acquisitions or relationships. As
part of our growth strategy, we intend to evaluate and consider
opportunities to pursue strategic acquisitions, investments and
relationships on an ongoing basis. We expect to focus our efforts on
companies with complementary service capabilities, talented personnel
with skills compatible with our business technologies that will permit
us to enhance or expand our business and/or additional applications that
will enable us to expand our network services. In addition, we may
selectively acquire or partner with companies that permit us to increase
our customer base.

. Leverage our relationships with SBC and Telmex. We have executed a
summary operating agreement, and we expect to enter into several
definitive agreements, with SBC and Telmex that will govern our joint
sales and marketing, network operations, systems integration and product
development efforts. By closely aligning our network architecture and
integrating our information systems with those of SBC and Telmex, we
expect to create a national broadband network. This offers us a time-to-
market advantage, as we anticipate that the combined networks will be
deployed in more locations, with greater coverage, more quickly, and
less expensively than if we were to build a nationwide network
ourselves. We intend, working with SBC and Telmex, and possibly with
other third parties, to provide DSL, certain other broadband services,
and traditional voice services on a nationwide basis to business and
residential customers. We intend to continue to market directly to our
traditional customer base, but will also jointly market products and
services with SBC and Telmex to both our traditional and non-traditional
customers, such as Fortune 50 and residential customers. In addition, we
believe that SBC could become a significant distribution channel for us
as it fulfills its out-of-region strategy of offering data and
communications services in additional markets.

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Our Service and Product Offerings

Network Services

CopperNet. In January 1999, we began commercially offering our CopperNet
services. CopperNet uses DSL technology to provide high-speed continuously
connected packet-based and channelized communications services. CopperNet
connects business users to our MANs and WAN using ATM, frame relay and DSL
technologies over traditional copper telephone lines. CopperNet customers are
able to connect to our regional networks to obtain high-capacity, secure and
reliable connections among geographically distant locations. Because our
customers are served end-to-end on our CopperNet network, we are better able
to deliver a true wide area VPN with the capacity, speed, reliability and
level of service that they require.

The chart below shows the service, speed, retail price (which includes
equipment installed at the customer's location), range and performance of our
CopperNet services, as of March 1, 2000:

<TABLE>
<CAPTION>
Speed Speed Retail List
to from Retail List Price for
End End Price for Monthly
Service(1) User(2) User(2) Activation(3) Service(3) Market/Usage
---------- ------- ------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Symmetrical:
CopperNet 128 128 Kbps 128 Kbps $270 $129 Integrated services digital
network replacement for
telecommuters.
CopperNet 256 256 Kbps 256 Kbps $270 $146 Small businesses with standard
e-mail and web usage.
CopperNet 384 384 Kbps 384 Kbps $270 $162 Higher bandwidth solution for
small- to medium-sized
businesses running moderately
visited web sites.
CopperNet 512 512 Kbps 512 Kbps $270 $185 Allows small- and medium-sized
businesses to meet most network
video and Internet needs.
CopperNet 768 768 Kbps 768 Kbps $270 $217 Supports high bandwidth
intensive applications such as
e-commerce, video conferencing,
frame relay and voice over
frame relay.
CopperNet 1.0 1.0 Mbps 1.0 Mbps $270 $239 Close to full T-1 for medium-
to-large sized businesses.
CopperNet 1.5 1.5 Mbps 1.5 Mbps $270 $294 Standard for large
organizations that require
high-capacity connections.
Applications include the
ability to integrate voice,
data and Internet services over
a single connection.
CopperNet 2.0 2.0 Mbps 2.0 Mbps $270 $348 Full motion video and
multimedia applications for
large businesses.
Asymmetrical:
CopperNet 1.5 1.5 Mbps 384 Kbps $270 $239 High-speed web access, e-mail
and file distribution.
CopperNet 4.0 4.0 Mbps 1.0 Mbps $270 $429 Very high-speed web access, e-
mail and file distribution.
CopperNet 7.0 7.0 Mbps 2.0 Mbps $270 $729 Bandwidth and capacity
sufficient to meet most
asymmetrical data communication
requirements.
</TABLE>
- --------
(1) In each case, the range from the central office is 18,000 feet. However,
through our symmetrical CopperNet 128 application, there is no limitation
on range.
(2) "Kbps" means kilobits per second. "Mbps" means megabits per second.

(3) Represents price per line. Wholesale and volume discount prices are
available for network service providers.

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<PAGE>

CopperNet Frame. CopperNet Frame provides seamless access to LANs and
WANs using ATM and DSL technologies to deliver a flexible suite of frame relay
services. The benefit to CopperNet Frame customers is the low cost and
simplicity of use when contrasted against T-1 and ISDN services provided by
traditional telephone companies and long distance carriers.

CopperNet Internet. CopperNet Internet is a suite of Internet services
and connectivity options designed specifically for business applications. Our
customers choose their DSL connectivity speed, ranging from 128 Kbps to 2 Mbps,
and we provide the necessary hardware, register our customers' chosen domain
name and configure and maintain our customers' e-mail service.

VPN Service. Our VPN service is a fully managed offering for
organizations with a remote or mobile workforce that needs reliable and secure
access to the corporate network. We provide a full service VPN solution that
includes necessary hardware, software and communications services for a single
monthly fee.

VPOP Service. Our virtual point of presence, or VPOP, service provides
network service providers access to our entire CopperNet network. With VPOP, a
network service provider can offer services throughout the entire CopperNet
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 service area in which they physically connect to
the CopperNet network. Wholesale and volume discount prices are available for
network service providers.

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' MANs and WANs, evaluate their network utilization, implement problem
resolution systems, provide network health and status monitoring and other
customized management solutions. We proactively monitor the performance of our
customers' network devices and perform trouble resolution to address network
problems, often before our customers' 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 day a week basis. We provide a
variety of security solutions including barriers, or firewalls, between
internal corporate networks and external networks like the Internet, VPN
service, encryption and access authentication solutions for customers looking
for the highest level of security on any network on which data is transported.

Value-Added Products and Services. We offer an array of network and
broadband enabled applications and features that take advantage of DSL's high-
speed connectivity. These applications extend the capabilities of small- and
medium-sized businesses and provide them access to expanded markets, resources,
and functionality.

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 vendors for equipment on the customers'
premises, long distance carriers and traditional telephone companies, a help
desk for network administrators, monitoring and coordinated maintenance of
network services, analysis of network performance and capacity planning and
network monitoring.

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

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<PAGE>

Consulting Services

We provide professional consulting and network integration services to
complement all of our network services. We also provide network design and
integration, network management, staging, installation, maintenance and
warranty services. Our consulting services include network security and
professional services such as:

. 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 defensive 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 security breaches. We will conduct organized security
breaches with software tools and techniques designed to expose
unauthorized information security breaches. These controlled
penetrations are tailored to customer requirements. Following a security
breach, 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 security breach is not lost
during subsequent implementation and maintenance phases.

Product Sales

As part of our overall data communications solutions, we sell data
communications products, including the network components and security
components that our customers require in order to build, maintain and secure
their networks. We primarily provide equipment manufactured by Lucent, Cisco
and Paradyne. We do not manufacture any of this equipment ourselves. Our
engineers select product solutions to improve our customers' operations and
network efficiencies, and then help install and configure the equipment in our
customers' networks.

Customers

As of December 31, 1999, we had more than 1,492 customers. AT&T accounted
for 50.4% and 30.7%, and AstraZeneca PLC, accounted for 8.0% and 9.2%, of our
revenue for the years ended December 31, 1998 and 1999, respectively.

Network services, which includes our CopperNet service, represented 2.6%
and 10.4% of our revenue for the years ended December 31, 1998 and 1999,
respectively.

Sales and Marketing

We emphasize direct sales and marketing to small- and medium-sized
businesses and to selected large enterprises. We also sell our services
indirectly through our sales partners, including ISPs, long distance and local
carriers and other networking services companies, and, subject to entering into
definitive agreements with SBC and Telmex, we expect to sell indirectly through
SBC, Telmex and Prodigy.

Direct Sales. We market our full complement of products and services,
including our network services, consulting services and product sales, through
a sales force of 133 people at December 31, 1999. Our direct sales force is
supported by sales engineers who also seek to sell our consulting services and
network services. Our sales representatives focus on selling CopperNet
connectivity to small- and medium-sized businesses and our account executives
focus on selling CopperNet connectivity and consulting services and network
services to medium- and large-sized businesses. We target businesses that have
at least one of the following requirements: Internet connectivity, remote LAN
access, traditional voice and data applications or

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<PAGE>

MAN or WAN frame relay. We also generate lead referrals for our direct sales
forces through telemarketing efforts. We intend to increase the size of our
sales and technical support force to sell and support our services as we expand
our business. By the end of 2000, we expect to have a sales force of
approximately 400 people. We also seek to coordinate our direct sales and
marketing efforts with our vendor partners, including Lucent, Cisco and
Paradyne. Our direct sales process generally ranges from 30 to 60 days for
small- and medium-sized 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 rollout of our services; and

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

Indirect Sales. We sell our full complement of products and services,
including our network services, consulting services and products, through
network service providers, including ISPs, 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 CopperNet sales through partnerships with other service
providers which offer complementary services and can offer CopperNet as part of
a complete business solution. 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.

SBC and Telmex Sales. In connection with our recently announced summary
operating agreement with SBC and Telmex, we expect to enter into definitive
operating agreements with SBC and Telmex covering several areas of our
operations, including sales and marketing. We intend to continue to market
directly to our traditional customer base, but will also jointly market
products and services with SBC and Telmex to both our traditional and non-
traditional customers, such as Fortune 50 and residential customers. In
addition, we believe that SBC could become a significant distribution channel
for us as it fulfills its out-of-region strategy of offering data and
communications services in additional markets.

Preferred Stock Issuance and SBC and Telmex Agreement

On February 8, 2000, we announced strategic financing agreements with SBC
and Telmex in which those companies agreed to purchase a total of $150 million,
$75 million each, of our Series B preferred stock for $100 per share. On March
7, 2000, we issued 1,500,000 shares of our Series B preferred stock to SBC and
Telmex. Our Series B preferred stock is non-voting and pays a 7.0% cumulative
dividend, which can be satisfied with either additional stock or cash. Each
share of Series B preferred stock is convertible at any time into 3.2258 shares
of our common stock, or a total of 4,838,700 common shares. For more
information on our Series B preferred stock, please see the section entitled
"Description of Our Capital Stock" later in this prospectus.

In conjunction with the financing agreements, we executed a summary
operating agreement with both SBC and Telmex, and we intend to execute several
definitive agreements with SBC and Telmex covering distinct operating areas in
the first half of 2000. In connection with the financing agreements, we
announced that we would be expanding our network into 20 additional markets in
the southeastern and western regions of the United States. We will use the
proceeds from the Series B preferred stock issuance to fund part of this
expansion.

Pursuant to the financing agreements, we granted to each of SBC and
Telmex a right of first offer to purchase a percentage of any new securities we
offer to sell to any third parties. That percentage is equal to the percentage
ownership by each of SBC and Telmex in our common stock on a fully diluted
basis prior to the sale of the stock subject to the right of first offer.
Pursuant to its right of first offer, SBC has the right to purchase up to
228,037 of the shares we are offering by this prospectus and up to 35,629 of
the shares subject to the over-allotment option. Telmex has the right to
purchase up to 214,217 of the shares we are offering and

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<PAGE>

up to 33,470 of the shares subject to the over-allotment option. Any shares
purchased by SBC and Telmex pursuant to the right of first offer will be
restricted to the same extent as if issued without registration under the
Securities Act.

In connection with the financing agreements, each of Jonathan P. Aust,
our Chief Executive Officer, and Spectrum granted each of SBC and Telmex a
right of first offer to purchase any shares that either of the stockholders
proposes to sell to any third party. As described under "Principal and Selling
Stockholders" below, Mr. Aust and Spectrum have offered to sell to SBC and
Telmex 177,325 and 372,852 shares, respectively, in a private placement. If SBC
and Telmex elect not to purchase these shares, they may be sold in this
offering.

The summary operating agreement is designed to align and integrate
certain aspects of our, SBC's and Telmex's sales and marketing efforts,
networks and operations, systems and new product development and collocation.
We expect to execute definitive operating agreements which will further detail
the scope and nature of the relationships among the parties in these various
operational areas. The summary operating agreement is binding on the parties
for one year. The summary operating agreement provides that the term of each
definitive operating agreement will be five years from the date of execution,
except that any of these agreements may be terminated by SBC or Telmex within
specified periods if we are acquired by a third party or otherwise undergo a
change in control.

Other Key Strategic and Commercial Relationships

In addition to our relationships with SBC and Telmex, we have entered
into, are continuing to explore, and expect to enter into additional strategic
and commercial relationships. We believe that these relationships are valuable
because they provide additional marketing and distribution, network resources,
technology and geographic expansion opportunities. In some cases, these
relationships involve capital investment, product development or targeted
numbers of new lines or customers.

Lucent. Since 1995 we have sold data communications products and
equipment made by Ascend (which recently became a wholly owned subsidiary of
Lucent). Ascend has provided us with a capital lease facility and a credit
facility for working capital. In addition, we are continuing to explore
opportunities to participate in product development and the distribution of
products and services for their network of sales partners.

Cisco. In November 1999, we were awarded Cisco Powered Network, or CPN,
certification. The CPN certification represents our next step towards
introducing an enhanced business-class Internet access service that includes
Cisco routers as the customer premises equipment.

Paradyne. Since 1995 we have sold data communications products and
equipment made by Paradyne. In addition, we are continuing to explore
opportunities to participate in product development and the distribution of
products and services for their network of sales partners.

Turnstone. In December 1999, we entered into an agreement with Turnstone
to use their cross-connect hardware systems in our collocated central offices.
The agreement calls for Turnstone to be our exclusive loop management vendor.

Verio. In August 1999, we were named as Verio's preferred provider of DSL
service in Richmond, Virginia.

Intermedia. In August 1999, we entered into a reseller agreement to sell
frame relay services out of region. This allows us to expand our frame relay
service via a network-to-network interface, or NNI, which provides nationwide
frame relay coverage.

Comcast. In May 1999, we entered into a master service agreement with
Comcast to provide their business customers with CopperNet services across our
northeast service territory.

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Customer Service

Network service providers and communications managers at businesses
typically have to assemble their digital communications networks using multiple
vendors. This leads to additional work and cost for the customer as well as
complex coordination issues. We work with each customer to develop project
implementation plans. These plans include 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
comprehensive service solution for our customers and provide our service
according to a predetermined service level commitment with each customer. Our
comprehensive solution includes:

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

. End-User Line Installation. We order all end-user connections from the
traditional telephone companies according to pre-determined technical
line specifications. We manage the traditional telephone company's
provisioning 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 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, 7 days a week to all our customers. We serve as
the sole contact for customers to whom we make direct sales. We also
provide the second level of support for our indirect customers. 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 believe we have designed a system that will facilitate
rapid service responsiveness and reduce the cost of customer support.
Upon execution of definitive agreements with SBC and Telmex, we expect
to upgrade our platform to provide integrated operating support systems.

Network Structure and Technology

Overview. We operate a series of MANs connected by our private, leased,
high-speed fiber optic backbone. Our network employs a structure designed to
deliver superior end-to-end capabilities, high-speed "last mile" connections
and efficient data traffic management. Our technologically advanced network
design

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has positioned us to deliver the high level of data communications services,
including Internet access, VPNs, 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, flexible and secure. We intend
to make seamless connections between our network and systems and those of SBC
and Telmex in order to provide our customers with integrated national
connectivity.

. Scalable. Our adaptable, hierarchical network structure allows us to
provide both channelized and packet-based services reliably and
incrementally, which enables us to match investment with demand. As new
CopperNet end-users are added to our network, our Traffic Management
group monitors network utilization, and installs more equipment and
network transmission circuits as necessary so that reliable performance
is maintained for all users as our network grows.

. Flexible. From our network operations center, we constantly monitor our
network, the network service providers' networks and our customers'
connections, and also 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 businesses generally 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 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 provides a direct connection between discrete locations, which
reduces the possibility of unauthorized access and allows our customers
to safely perform their required tasks.

Components. Our components are integrated into networks across local,
metropolitan and wide areas 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 provide our customers with a DSL modem as
part of our complete service offering, the cost of which is included in
the list price of the service. We configure and install these modems
with the end-user's computer and network equipment along with any
required on-site wiring needed to connect the modem and the telephone
line. Under FCC policies, a customer also is free to obtain compatible
modems from sources other than us.

. 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
provide for the quality of the copper telephone lines we receive,
thereby ensuring the transmission speed of end-user connections. We
expect to have the same working relationship with BellSouth and U S
WEST.

. Central Office Collocation Spaces. Through FCC and state
telecommunications regulatory policies as well as our interconnection
agreements, we secure collocation space in central offices from which we
desire to offer CopperNet. These collocation spaces are designed to
offer the same high reliability and availability standards as the
telephone companies' other central office spaces. At present, our
collocation spaces are either physical, SCOPE or virtual. With physical
collocation, we install and maintain our equipment in central offices
and have complete access to the space. With SCOPE collocation, we
install and maintain our equipment in central offices, but our access to
the space is non-exclusive. With virtual collocation, the telephone
company installs and maintains the equipment on our behalf, but we have
no access to the space. Approximately 98% of our central office
collocations are physical or SCOPE, and we expect over time to eliminate
virtual collocation.

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. Metropolitan Area Backbone. Our metropolitan area backbone is a private,
leased, high-speed, fiber optic network that connects our network access
points in central offices, node sites, and selected customer locations.
To date, we have leased fiber optic circuits capable of speeds of up to
45 megabits per second from Bell Atlantic, Level 3 Communications and
other providers for metropolitan area backbone services. We continue to
review alternative providers in an effort to reduce costs. We do not
have long-term lease agreements for these fiber optic circuits.

. Node Sites. A node site is a physical location where we connect
businesses and network service providers with our central offices within
a particular MAN. The node site houses our equipment to switch and
interconnect customer traffic to central offices within a region or
across our entire network. Our node sites are housed in a secured
facility in each of the nine metropolitan areas in which our network
currently operates.

. Wide Area Backbone. Our wide area backbone is a private, leased, high-
speed, 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,
Virginia Electric and Power Company and other providers. We do not have
long-term lease agreements for these fiber optic circuits. 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.

. Network Operations Center. We manage our network from our network
operations center located in our corporate headquarters in Sterling,
Virginia. We provide end-to-end network management to our customers
using advanced network management tools on a 24 hour a day, seven day 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 MANs and central offices, and our
customers' networks, including individual end-user lines and DSL modems.
Assuming execution of definitive agreements with SBC and Telmex, we
expect to be able to monitor our customers' connections to the networks
of SBC and Telmex in addition to our own network.

Competition

In each of our businesses, 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 in each of our
business segments include:

. reliability of service;

. diversity of product and service offerings;

. breadth of network coverage;

. price/performance;

. network security;

. infrastructure scaleability;

. ease of access and use;

. service bundling;

. sales relationships;

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. customer support;

. strategic relationships; and

. operating experience.

We believe that each potential customer presents a unique opportunity for
competition and presents competitive challenges specific 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
another provider of product sales and consulting services, we expect to compare
favorably as to diversity of product and service offerings and operating
experience, but perhaps less favorably as to brand recognition and financial
resources. If we are competing for a customer against a traditional telephone
company, we expect to compare favorably as to client support, transmission
speed and price/performance, but perhaps less favorably as to operating
experience, brand recognition and access to capital. 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 less favorably 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 like our new
relationships with SBC and Telmex.

We believe that our most direct competition for product sales and
consulting services will come from Bell Atlantic's network integration services
division and from other providers of network integration services like Tech
Data Corporation. Historically, these companies have been our principal
competitors.

By focusing our business on broadband network solutions, we encounter a
different set of competitors for our network services. We believe that our most
direct competition for broadband network solutions will come from Bell Atlantic
and other traditional telephone companies and carriers operating in our target
markets. However, we also anticipate competition from service providers using
other technologies.

Bell Atlantic and Other Traditional Telephone Companies. Bell Atlantic
and the other traditional telephone companies present in our target markets are
conducting technical and/or market trials or have commenced commercial
deployment of DSL-based services. We recognize that each traditional telephone
company has the potential to quickly overcome many of the obstacles that we
believe have delayed widespread deployment of DSL services by traditional
telephone companies in the past. The traditional telephone companies currently
represent and will in the future increasingly represent strong competition in
all of our target markets. The traditional telephone companies 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, traditional telephone companies also have
an economic incentive to benefit their own DSL retail operations by providing
themselves with the copper telephone lines, collocation, 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 traditional telephone companies a potential competitive advantage
compared with us. Accordingly, we may be unable to compete successfully against
Bell Atlantic, BellSouth, U S WEST or the other traditional telephone
companies, and any failure to do so would materially and adversely affect our
business, operating results and financial condition.

Other Major DSL Providers. Other competitive telecommunications companies
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
telecommunications companies that provide DSL service include Covad
Communications Group, Inc., Rhythms NetConnections, Inc. and NorthPoint
Communications Group, Inc.

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Other Service Providers and Technologies. 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 T-1,
ISDN, satellite, cable modems and analog modems and could be provided by the
following:

. Cable Modem Service Providers. Cable modem service providers, like
MediaOne, Excite@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 CopperNet. 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 MANs and WANs, 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 traditional
telephone companies 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
Communications, Qwest Communications International Inc. and Level 3
Communications, are building and managing high bandwidth, nationwide
packet-based technology networks for the WAN. These same providers are
acquiring or partnering with ISPs 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. ISPs provide Internet access to business and
residential customers. These companies generally provide Internet access
over the traditional telephone company's networks at ISDN speeds or
below. Some ISPs have begun offering DSL-based access using DSL services
offered by the traditional telephone company or other DSL-based
competitive telecommunications companies. Some Internet service
providers such as Concentric Network Corporation, Earthlink, Inc.,
PSINet and Verio, Inc. have significant and even nationwide marketing
presences and combine these with strategic or commercial alliances with
DSL-based competitive telecommunications companies.

. 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, Globalstar Telecommunications Ltd. and others that
are planning or are in the process of building global satellite networks
that can be used to provide broadband voice and data services.

Relationship with Bell Atlantic and Other Traditional Telephone Companies

Our relationship with Bell Atlantic is critical to our current business.
We depend on Bell Atlantic for collocation facilities, copper telephone lines,
support services and some of the fiber optic transport that we use for
CopperNet in our traditional markets. Our interconnection agreements with Bell
Atlantic govern much of

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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 relating to 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 with Bell Atlantic for Delaware,
Maryland, New Jersey, Pennsylvania, Virginia and Washington, D.C. terminate
upon 90 days written notice by either party. We are presently negotiating new
agreements with Bell Atlantic for these areas. We expect the new agreements to
have a two-year term. Although we expect to arrive at new agreements, there is
no assurance that they will provide us with the same or more favorable terms.
Our interconnection agreements with Bell Atlantic for Massachusetts and New
York expire in January 2001. We plan to initiate negotiations with Bell
Atlantic to renew these agreements within the next several weeks. If an
agreement expires, 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 expired agreement.

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.

As we expand into other regions that are served by traditional telephone
companies other than Bell Atlantic, we will need interconnection agreements
with those incumbent carriers. We have entered into an interconnection
agreement with BellSouth with an initial term that expires December 1, 2000.
This agreement has been approved by the state public utility commissions in
Alabama, Florida, Georgia, Kentucky, Louisiana and South Carolina. We plan to
submit the agreement for approval to state public utility commissions in North
Carolina and Tennessee as well. More recently, we have entered into an
interconnection agreement with U S WEST covering the States of Arizona,
Colorado, Iowa, Minnesota, New Mexico, Oregon, Utah and Washington. Each of
the agreements must be approved by the public utility commission of the state
to which it applies. We also have interconnection agreements with GTE
(covering the States of Alabama, Florida, Kentucky, North Carolina, Oregon,
Pennsylvania, South Carolina, Virginia and Washington) and with Sprint
Corporation (covering New Jersey). Similar to our relationship with Bell
Atlantic, we expect that our relationship with BellSouth and U S WEST and the
services they provide to us will become critical to our business.

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As we expand our existing SBC and Telmex relationships through
negotiation and execution of the definitive operating and related agreements,
these relationships could become critical to our business.

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 and other
traditional telephone companies in order to provide CopperNet 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 CopperNet 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, rules, regulations or
policies. Fines or other penalties also may be imposed for such violations. 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. However, we
cannot assure you that regulators or third parties would not raise issues
regarding our compliance or non-compliance with applicable laws and
regulations.

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
legislation 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 1996 Telecom Act also greatly expands the
interconnection requirements applicable to traditional telephone companies. It
requires the traditional telephone companies to:

. provide collocation, which allows competitive telecommunications
companies to install and maintain their own network termination
equipment in telephone company 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 telecommunications companies; and

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

Traditional telephone companies also 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 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 July 1997, 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 traditional telephone companies
charge for collocation and for the copper telephone lines

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and other network elements that competitive telecommunications companies
must obtain from traditional telephone companies in order to provide
service; and

. giving competitive telecommunications companies the right to "pick-and-
choose" interconnection provisions by requiring that a traditional
telephone company enter into an interconnection agreement with the
competitive telecommunications companies that combines provisions from a
variety of interconnection agreements between that traditional telephone
company and other competitive telecommunications companies.

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 telecommunications
companies 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 telecommunications
companies, and required the FCC to reconsider its delineation of these
elements. It sent the matter back to the FCC with instructions to consider
further the question of which parts of a traditional telephone company's
network must be provided to competitors. The FCC released an order on November
5, 1999 that sought to follow the Supreme Court's instructions in delineating
the particular network elements that traditional telephone companies must make
available to competitors. The FCC's November decision reaffirms its earlier
holding that traditional telephone companies must make available the particular
inputs that we need in order to provide our CopperNet services (including, but
not limited to, copper telephone lines, transmission facilities between local
telephone company offices and various back-office support services). In
addition, the FCC's November order requires, upon the request of competitive
telecommunications companies like us, that traditional telephone companies
provide competitive carriers with certain other inputs (such as "subloops" and
in some cases packet switching) that may prove useful as we expand our
CopperNet service, especially into more suburban areas.

The Supreme Court's determination in its January 1999 order 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
telecommunications companies 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.

In an order released March 31, 1999, the FCC adopted new regulations that
are designed to clarify the obligations of a traditional telephone company in
providing space inside its offices to competitors like us so that they can
access the telephone company's copper telephone lines and connect those lines
to the competitor's electronic equipment located inside that telephone company
office. Another rule adopted in that order is intended to help ensure that the
customers of companies who provide services like CopperNet do not receive
harmful interference from other users of the traditional telephone company
network on which the service is provided. Several traditional telephone
companies appealed the FCC order adopting these rules to the U.S. Court of
Appeals for the District of Columbia Circuit, and on March 17, 2000, the Court
vacated limited portions of the order on grounds that it contained certain
definitions that are impermissibly broad. The Court remanded those aspects of
the order to the FCC for further consideration. The FCC will be instituting
proceedings to comply with the Court's mandate. The impact of the Court's
decision on our company is unclear since we have no way to determine what
action the FCC will take in response to the Court's mandate.

An FCC order released on December 9, 1999 is designed to make it easier
for companies like us to market high-speed data services like CopperNet to
residential customers for accessing the Internet. Under this "line-sharing"
order, traditional telephone companies are required to let a competitor use the
same copper

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telephone line for providing the customer with data service that the telephone
company uses for providing the same customer with local telephone service. At
present, the traditional telephone companies provide residential customers with
local phone service and high-speed Internet access service over a single phone
line, but the traditional telephone companies require competitors like us to
lease a separate phone line to provide high-speed Internet access to any
residential customer when that customer obtains local phone service from the
traditional local telephone company. The FCC's December 9, 1999 order requires
that a traditional telephone company permit companies like us to provide high-
speed Internet access service to a customer over the same line that the
telephone company uses to provide local phone service to that customer. One
goal of the order is to make it easier for companies like us to compete with
the traditional local telephone companies in the residential high-speed
Internet access market by permitting competitors to reduce significantly their
costs to serve this market. However, it is not yet clear that the FCC's order
will achieve its intended objective since the traditional local telephone
companies have not yet put in place the policies and procedures necessary to
implement the order. Moreover, some traditional telephone companies have
appealed the order, and we have no way of determining whether the FCC's
requirements will be affirmed.

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 CopperNet 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 rather than state telecommunications regulators. This ruling is potentially
advantageous to us because it reduces the number of telecommunications
regulatory agencies that control the terms under which we provide CopperNet. 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
exempting non-dominant carriers like us from filing a tariff setting forth the
terms under which they provide any interstate access service. Since we believe
CopperNet is interstate special access, we provide the service to existing
customers pursuant to contract rather than tariff.

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
underserved 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 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.

On November 2, 1999, the FCC held that a statute requiring that
traditional local telephone companies offer their retail services at a
wholesale price to competitors like us does not apply when these telephone
companies provide a discounted DSL service directed to ISPs. In that case,
while competitors may purchase the traditional telephone companies' ISP-
directed DSL offering on the same terms as the ISPs, the FCC ruled that
competitors have no legal right to a wholesale discount off the price paid by
ISPs. This ruling could adversely affect us if it gives ISPs an economic
incentive to meet all of their DSL needs by subscribing to the traditional
telephone companies' ISP-directed discounted DSL offerings rather than by
subscribing to DSL services offered by competitors like us.

In response to petitions by several traditional telephone companies
requesting that the FCC substantially deregulate the retail price they charge
for various types of telecommunications services, including high-speed data
services like CopperNet, the FCC recently issued a decision that establishes a
procedure by

56
<PAGE>

which traditional telephone companies may apply for certain pricing
flexibility. We cannot yet determine the extent to which traditional telephone
companies will use this procedure or the impact of any pricing flexibility that
the FCC awards to any given company under this new procedure. The ultimate
impact of the FCC's order also is uncertain because the order has been appealed
to the U.S. Court of Appeals. If the FCC were to substantially eliminate price
regulation of the high-speed data services that traditional telephone companies
provide in competition with CopperNet, our business could be adversely
affected.

Late last December, the FCC approved Bell Atlantic's application for
authority to provide long distance telephone service to customers in New York.
The agency based its decision to grant this application on its finding that
Bell Atlantic is providing services and facilities to competitors like us on
terms that comply with the 1996 Telecom Act and the FCC's rules. The agency
made this finding even though many Bell Atlantic competitors, including us, had
urged the FCC to find that Bell Atlantic is not yet complying with these
requirements. Although not certain, the FCC's finding that Bell Atlantic
provides facilities and service to competitors in compliance with existing
regulatory requirements could reduce Bell Atlantic's incentive to improve its
provisioning of services and facilities to competitors.

The FCC's December order approving Bell Atlantic's application to provide
long distance telephone service in New York contains one feature that is
designed to help ensure that Bell Atlantic provides competitors with facilities
and services they need to provide advanced services like CopperNet on fair
terms. More specifically, the order accepted Bell Atlantic's commitment to
provide advanced services through an affiliate rather than through Bell
Atlantic's New York telephone company and to provide advanced service
competitors with facilities and services on the same terms that it provides
such facilities and services to its advanced services affiliate. Even more
recently, Bell Atlantic has told the FCC that, in return for FCC approval of
Bell Atlantic's pending application for authority to merge with GTE, it would
be willing to provide advanced services in all states through an advanced
services affiliate subject to the same non-discriminatory treatment that it
committed to as part of its application for authority to provide long distance
telephone service in New York. It remains to be seen whether Bell Atlantic's
provision of advanced services through an advanced services affiliate will help
ensure that the Bell Atlantic telephone companies provide needed facilities and
services to competitors on non-discriminatory terms.

Apart from Bell Atlantic's voluntary offer to provide advanced services
through an advanced services affiliate rather than through its telephone
companies, the FCC has also proposed to permit all other traditional telephone
companies to provide advanced services like CopperNet through separate
affiliates on a deregulated basis. However, the agency has not yet implemented
its proposal in this regard. Under the FCC's proposal, the affiliates would
provide advanced services free of the requirements relating to interconnection,
unbundling, resale and collocation imposed by the 1996 Telecom Act.

In addition to regulatory policies set by the FCC, a variety of bills
have been introduced in Congress that, if enacted, could affect competition in
the advanced services market. Of most significance are several bills sponsored
by key members of the House and Senate that would make it easier for the
regional Bell operating companies to discriminate against their competitors in
the advanced services market. It is unclear whether any of these bills will
become law.

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 traditional
telephone companies must use in setting the price of copper 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. Other states

57
<PAGE>

have begun proceedings to set new permanent prices based on more current data.
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
telecommunications companies enter with traditional telephone companies and
broad authority to resolve disputes that arise under these interconnection
agreements. Under the 1996 Telecom Act, if we request, traditional telephone
companies 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 traditional telephone company 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, CopperNet may, as to some future customers, be classified as
intrastate service subject to state regulation. All of the states in which we
operate, or will operate, require some degree of state regulatory commission
approval to provide certain intrastate services. We have obtained non-expiring
state authorizations to provide intrastate services from the state regulatory
agency in all states where we currently provide CopperNet service. We also have
obtained non-expiring certificates to provide intrastate service in many of the
states where we may provide CopperNet service in the future (Alabama, Colorado,
Florida, Georgia, Iowa, Kentucky, South Carolina and Washington). Our
applications for certificates to provide intrastate services are pending in
several other states (Arizona, Connecticut, Louisiana, Minnesota, Nebraska, New
Mexico, North Carolina, Oregon, Tennessee and Utah). 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. The statutes of three states where
we provide CopperNet service--Delaware, New Jersey and New York--require that
we obtain approval from the public utility commission in those states to issue
new securities. On March 14, 2000, the Delaware public utility commission
authorized us to issue the securities that are the subject of the present
registration statement. Our applications for authority to issue these
securities are pending before the New Jersey and New York public utility
commissions. We hope to obtain the approval of these agencies within the next
few weeks.

It is possible that laws and regulations could be adopted that 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 pose barriers to entry for competitive telecommunications companies
that may be preempted by the FCC is the subject of litigation. Although our
network consists primarily of unbundled network elements of the traditional
telephone companies, 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 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 them 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

58
<PAGE>

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. We own federal trademarks for the marks CuNet and COPPERNET for
use with "communications services, namely, high-speed electronic data
transmission services." We also have pending applications for the mark CU
COPPERNET. 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 that 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 that 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. Litigation of this type 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 December 31, 1999, we employed 383 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 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. In
addition, we have established branch offices in Wilmington, Delaware; Columbia
and Monkton, Maryland; Boston and Woburn, Massachusetts; East Brunswick and
Morristown, New Jersey; New York and Uniondale, New York; Malvern and
Pittsburgh, Pennsylvania; and Richmond and Virginia Beach, Virginia.

On October 27, 1999, we executed a lease for approximately 113,000 square
feet in Herndon, Virginia. We have begun to move our headquarters to this
location, and we expect to complete the move in May 2000.

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
telecommunications regulators 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 that have initial terms that expire in
2000 and 2001. We will increase our collocation space as we expand our network.

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<PAGE>

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
telecommunications regulators, 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 telecommuni-cations
statutes and regulations, the interpretation of competitive telecommunications
company 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, financial condition, results of operations and cash flows.

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<PAGE>

MANAGEMENT

Our Directors and Executive Officers

The following table shows information about our directors and executive
officers as of March 15, 2000:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jonathan P. Aust........ 42 Chief Executive Officer and Chairman of the Board of Directors
Nicholas J. Williams.... 52 President and Chief Operating Officer
Christopher J. Melnick.. 34 Senior Vice President, Sales Development and Marketing and Director
Scott G. Yancey, Jr..... 47 Chief Financial Officer and Director
John J. Hackett......... 46 Senior Vice President, Sales and Marketing
Lester M. Lichter....... 53 Chief Information Officer
Worth D. MacMurray...... 46 Vice President, Legal and Strategic Projects
Brian D. Roberts........ 40 Vice President, Engineering and Operations
Brion B. Applegate...... 46 Director
Dennis R. Patrick....... 48 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, and served as our President until February 2000. 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.

Nicholas J. Williams has been our President and Chief Operating Officer
since joining us in February 2000. Prior to joining us, Mr. Williams served as
Chief Executive Officer and a member of the Board of Directors from July 1998,
and as President from April 1997, of Premisys Communications, Inc., a
manufacturer of integrated multiple access communications servers, until its
acquisition by Zhone Technologies, Inc. in November 1999. Mr. Williams also
served as Chief Operating Officer of Premisys between April 1997 and July 1998.
From 1993 until his move to Premisys, Mr. Williams was Vice President and
General Manager, International, of Tellabs, Inc., a telecommunications company,
where he contributed to the growth of multiple product lines, including the DXX
and wireless products.

Christopher J. Melnick was our Chief Operating Officer from July 1998 to
February 2000 when he became our Senior Vice President, Sales Development and
Marketing, and has been 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 a Vice President
of Sales for Worldcom, and formerly, MFS Telcom, from September 1995 to March
1998. From June 1994 to September 1995, Mr. Melnick was a member of sales
management at MFS Telcom.

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.

John J. Hackett has been our Senior 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.

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<PAGE>

Lester M. Lichter has been our Chief Information Officer since October
1999. Prior to joining us, Mr. Lichter was Executive Vice President and Chief
Information Officer of Excel Communications from November 1997 to February
1999, where he was responsible for developing information services solutions to
support the company's business development activities. Mr. Lichter was Chief
Information Officer of Cable & Wireless USA from June 1996 to November 1997.
Before joining Cable & Wireless USA, Mr. Lichter was Vice President and Chief
Information Officer of AT&T's Business Communications Systems group from
December 1993 to May 1996.

Worth D. MacMurray has been our Vice President, Legal and Strategic
Projects, since joining us in September, 1999. Prior to joining us, Mr.
MacMurray served as Vice President, Legal & Administration from November 1998
to August 1999 at Landmark Systems Corporation, a performance management
software company. Prior to joining Landmark, Mr. MacMurray served as Vice
President and General Counsel of Intersolv, Inc., a software tools company,
from October 1997 to October 1998. From February 1988 to September 1997, Mr.
MacMurray served in various legal capacities for GTSI, an information
technology reseller, including as General Counsel.

Brian D. Roberts has been our Vice President for Engineering and
Operations since August 1999. Prior to joining us, Mr. Roberts was Managing
Partner for Network Solutions in the Mid-Atlantic Region for USWeb/CKS from
February 1998 to August 1999. Mr. Roberts was Vice President for Engineering
and Operations for ACSI Advanced Data Systems Division (now e.spire
Communications, Inc.) from November 1997 to February 1999. Before joining ACSI,
Mr. Roberts was Vice President for Operations and Data Services at MFS
Communications (now MCI WorldCom) from August 1992 to April 1997.

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, a private equity fund, since March 1993. Mr. Applegate is
a director of Tut Systems, Inc., a provider of broadband access services to
multi-tenant buildings.

Dennis R. Patrick has been a Director of Network Access Solutions since
April 1999. Since February 2000, Mr. Patrick has been the President of AOL
Wireless (a division of AOL Online, Inc.), a deliverer of AOL content and
services to wireless devices. In addition, 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.

Our executive officers are elected by our board of directors and serve at
its discretion. There are no family relationships among our executive officers
and directors.

Our certificate of incorporation and bylaws provide for a classified
board of directors consisting of three classes of directors, each serving
three-year terms. As a result, a portion of our board of directors will be
elected each year. Prior to consummation of our initial public offering on June
3, 1999, two of the nominees to the board were elected to a one-year term, two
were elected to two-year terms and one was elected to a three-year term.
Thereafter, directors will be elected for three-year terms. Messrs. Yancey and
Melnick are Class I directors with terms expiring at the 2000 annual meeting of
stockholders, Messrs. Applegate and Patrick are Class II directors, with terms
expiring at the 2001 annual meeting of stockholders, and Mr. Aust is Class III
director, with a term expiring at the 2002 annual meeting of stockholders.

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<PAGE>

Board Committees

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.

Our board of directors established a compensation committee in August
1998. The compensation committee consists of Messrs. Aust, Applegate and
Patrick. The compensation committee determines the compensation of our
executive officers and administers our stock plans and generally reviews our
compensation plans to ensure that they meet our objectives. Mr. Aust does not
participate in decisions regarding his own compensation.

Compensation Committee Interlocks and Insider Participation

During 1999, members of our compensation committee were Messrs. Aust and
Applegate. None of our executive officers has served as a member of the
compensation committee or other committee serving an equivalent function of any
other entity, whose executive officers served as a director of or member of our
compensation committee. Mr. Aust is our Chief Executive Officer. Mr. Applegate
is the Managing General Partner of Spectrum, which is a holder of approximately
42.2% of our common stock. See "Related Transactions and Relationships" for a
description of transactions between our company and Mr. Aust, and between our
company and Spectrum.

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 an option to acquire 250,000 shares of our common stock at a
price of $6.67 per share to Mr. Patrick. On June 3, 1999, Mr. Patrick received
an option to purchase an additional 407,500 shares of common stock at an
exercise price equal to $3.00 per share. Mr. Patrick exercised the option to
acquire 250,000 shares of our common stock on June 3, 1999. The options granted
to Mr. Patrick vested immediately upon the completion of our initial public
offering on June 3, 1999.

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<PAGE>

Executive Compensation

Summary Compensation Table. The following table summarizes the compensation
paid to our chief executive officer and the three other executive officers
whose total salary and bonus exceeded $100,000 during 1999, whom we identify
as "named executive officers":

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------------- ------------
Other Annual Securities
Salary Bonus Compensation Underlying All Other
Name and Principal Position Year (1) (2) (3) Options Compensation
--------------------------- ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jonathan P. Aust............... 1999 $362,500 $274,867 -- -- --
Chief Executive Officer and 1998 122,922 135,000 -- -- --
Chairman of the Board of Di- 1997 54,000 139,650 -- -- --
rectors
Christopher J. Melnick......... 1999 200,000 20,000 -- -- --
Senior Vice President, 1998 101,624(4) -- -- 3,150,000 --
Sales Department and Marketing 1997 -- -- -- -- --
Scott G. Yancey, Jr............ 1999 191,667 15,000 -- -- --
Chief Financial Officer 1998 75,000(4) -- -- 2,250,000 --
1997 -- -- -- -- --
John J. Hackett................ 1999 145,833(4) -- -- 1,350,000 --
Senior Vice President, 1998 -- -- -- -- --
Sales and Marketing 1997 -- -- -- -- --
</TABLE>
- --------

(1) Includes amounts, if any, deferred by the named executive officer pursuant
to our 401(k) plan.

(2) Bonuses are based on corporate and individual performance.

(3) Pursuant to SEC rules, perquisites not exceeding the lesser of $50,000 or
10% of a named executive officer's combined salary and bonus are not
required to be reported.

(4) Represents compensation for that portion of the year in which the officer
commenced employment with us.

Options Grants in 1999. The following table shows information about our
grants of options to purchase our common stock made to the named executive
officers during 1999:

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock
Price Appreciation for
Individual Grants Option Term(5)
------------------------------------------------ -----------------------
Number of
Securities Percent of
Underlying Total Options Exercise
Options Granted to or Base
Granted Employees Price Expiration
(1) in 1999(2) ($/share)(3) Date(4) 5% 10%
---------- ------------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jonathan P. Aust........ -- -- -- -- -- --
Christopher J. Melnick.. -- -- -- -- -- --
Scott G. Yancey, Jr..... -- -- -- -- -- --
John J. Hackett......... 1,350,000 28.6% $12.00 3/1/09 $10,192,500 $25,812,000
</TABLE>
- --------

(1) All options were granted under our 1998 stock incentive plan. All options
were incentive stock options that vest over time. Generally, these options
vest in quarterly installments over 36 to 48 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.

64
<PAGE>

(2) Based on options to purchase 4,720,100 shares of our common stock granted
to employees in 1999.

(3) Based on our initial public offering price, in accordance with SEC
guidance on treatment of options granted prior to our initial public
offering.

(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 2009. Depending on inflation rates, these
amounts may be worth significantly less in 2009, in real terms, than their
value today.

Aggregated Option Exercises in 1999 and Option Values at December 31,
1999. The following table sets forth information with respect to the named
executive officers concerning the exercise of options during the year ended,
and unexercised options held as of, December 31, 1999:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money Options at
Options at 12/31/99 12/31/99(2)
------------------------- -------------------------
Shares
Acquired Value
on Realized
Name Exercise (1) Exercisable Unexercisable Exercisable Unexercisable
---- --------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jonathan P. Aust........ -- -- -- -- -- --
Christopher M. Melnick.. 100,000 $1,438,010 1,212,500 1,837,500 $40,012,500 $60,637,500
Scott G. Yancey, Jr..... 30,000 327,333 907,500 1,312,500 29,947,500 43,312,500
John J. Hackett......... -- -- 253,125 1,096,875 8,353,125 36,196,875
</TABLE>
- --------

(1) Represents the excess of the market value of the shares acquired upon
exercise of such options over the exercise price of such options.

(2) Represents the excess of the market value of the shares subject to such
options over the exercise price of such options.

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 named executive officers.

Employment Arrangements. We have entered into employment agreements with each
of the named executive officers. Each of these agreements 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 that vest in quarterly
installments over either three or four years from the date of grant. The
following table shows information about the current compensation arrangements
we have with our named executive officers:
<TABLE>
<CAPTION>
Current Annual Maximum Options Granted
Base Salary Annual Bonus (Shares)
-------------- ------------ ---------------
<S> <C> <C> <C>
Jonathan P. Aust................... $450,000 20% --
Christopher J. Melnick............. 200,000 20 3,150,000
Scott G. Yancey, Jr. .............. 200,000 20 2,250,000
John J. Hackett.................... 175,000 20 1,350,000
</TABLE>

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<PAGE>

The annual bonus and any salary increase for Mr. Aust are determined by
our compensation committee on an annual basis, and Mr. Aust does not
participate in decisions regarding his own compensation.

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 employees to sign agreements that prohibit the
employee from directly or indirectly competing with us while they are employed
by us and generally for a period of one year thereafter. We require all of our
employees to sign agreements that 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 13,250,000. As of March 15, 2000, we had 10,645,005 shares of
common stock subject to outstanding options at a weighted average exercise
price of $4.23 per share.

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 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.

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<PAGE>

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 of 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 that 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.

Employee Stock Purchase Plan. On March 1, 2000, we adopted an Employee Stock
Purchase Plan, or ESPP. A total of 500,000 shares of common stock are initially
reserved for issuance under the ESPP.

The ESPP, which is intended to qualify under Section 423 of the IRS Code,
will be implemented by a series of overlapping offering periods of 12 months'
duration each. New offering periods, other than the first offering period, will
commence on January 1 and July 1 of each year. Participants will not be
permitted to accumulate payroll deductions that exceed $10,000 during any
offering period.

The purchase price per share at which shares will be sold in an offering
under the ESPP will be the lower of 85% of the fair market value of a share of
our common stock on the first day of an offering period or 85% of the fair
market value of a share of our common stock on the last day of an offering
period. The fair market value of our common stock on a given date will be equal
to the closing price of our common stock on such date on the Nasdaq National
Market, as reported in The Wall Street Journal.

Implementation of the ESPP will require approval of a majority of our
shareholders, a vote of whom will be taken at our scheduled June 6, 2000 annual
meeting.

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<PAGE>

RELATED TRANSACTIONS AND RELATIONSHIPS

In August 1998, we entered into a Series A Preferred Stock Purchase
Agreement with Spectrum, or Spectrum, FBR Technology Venture Partners, LLC, or
FBR, and other investors and issued a total of 10,000,000 shares of mandatorily
redeemable preferred stock and 22,050,000 shares of common stock in exchange
for $10,004,900. Pursuant to this agreement, we issued to Spectrum and its
affiliates 8,470,000 shares of our Series A preferred stock and 18,676,350
shares of our common stock in exchange for an aggregate purchase price of
$8,474,150. As of March 15, 2000, Spectrum beneficially owned 42.2% 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 1,500,000 shares of our
Series A preferred stock and 3,307,500 shares of our common stock in exchange
for an aggregate purchase price of $1,500,735. As of March 15, 2000, FBR owned
7.5% of our common stock.

In March 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 principal of and interest on the notes were
converted into 416,667 shares of our common stock upon the closing of our
initial public offering. Pursuant to our amended note purchase agreement,
Spectrum purchased an additional convertible note in the principal amount of
$4,250,000 and FBR purchased an additional convertible note in the principal
amount of $750,000 on May 17, 1999. Those notes converted into an aggregate of
416,667 shares of our common stock upon the closing of the initial public
offering on June 3, 1999.

In March 1999, we amended our certificate of incorporation to modify the
terms of our then outstanding Series A preferred stock. Upon completion of our
initial public offering on June 3, 1999, 50% of our Series A redeemable
preferred stock was cancelled and ceased to exist without compensation or
recourse, and the remaining shares of Series A preferred stock were converted
into 416,667 shares of our common stock.

Following the sale of our Series A 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. Aust and Stephen C. Aust. We repurchased 1,350,000
shares of our common stock for an aggregate purchase price of $300,000 from
James A. Aust. We repurchased 1,953,950 shares of our common stock for an
aggregate purchase price of $434,211 from Jonathan P. Aust. We repurchased
3,986,051 shares of our common stock for an aggregate purchase price of
$885,789 from Longma M. Aust. We repurchased 1,260,000 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.

In July 1998, we issued an option to purchase 2,250,000 shares of our
common stock at an exercise price of $0.09 per share to Mr. Yancey, our Chief
Financial Officer. In August 1998, we issued 585,000 shares of our common stock
to William Farrer, one of our sales directors, in exchange for past services
rendered valued at a price of $0.22 per share. In November 1998, we issued an
option to purchase 18,000 shares at an exercise price of $0.09, to Gerald Buhl,
one of our national account managers. In November 1998, we issued an option to
purchase 112,500 shares at an exercise price of $0.09 to Mr. Farrer. In March
1999, we issued an option to purchase 1,350,000 shares of our common stock at
an exercise price of $0.09 per share to Mr. Hackett, our Vice President, Sales
and Marketing. In August 1999, we issued options to purchase 125,000 shares of
common stock at an exercise price of $5.12 to both Mr. MacMurray, our Vice
President, Legal and Strategic Projects, and Mr. Roberts, our Vice President,
Engineering and Operations. In October 1999, we issued an option to purchase
75,000 shares of our common stock at an exercise price of $12.62 to Mr.
Lichter, our Chief Information Officer. We have also granted options to acquire
shares of our common stock to Messrs. Patrick, James A. Aust and Melnick that
are described under "Management--Directors' Compensation" and "Management--
Executive Compensation." We have entered into employment agreements with six of
our senior executive officers. For details of these agreements, see
"Management--Executive Compensation--Employment Arrangements."

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<PAGE>

In November 1998, we entered into an agreement with a software and
service provider to support its DSL services. Spectrum, our single largest
shareholder, is also a shareholder of this software and service provider. Under
the terms of the agreement, software licensing and service fees were $1,023,700
which were 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%. We commenced implementing
the software and support service in 1999. As of December 31, 1999, all fees
under this agreement had been paid.

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.

69
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following shows the number and percentage of outstanding shares of
our common stock that were owned as of March 15, 2000 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.

An asterisk indicates ownership of less than 1%.

As of March 15, 2000, there were 46,760,750 shares of our common stock
outstanding. After this offering, 51,623,832 shares of our common stock will be
outstanding.

<TABLE>
<CAPTION>
Before Offering After Offering(2)
-------------------- --------------------
Shares Shares
Beneficially Beneficially
Name of Beneficial Owner(1) Owned(3) Percent Owned(3) Percent
- --------------------------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Brion B. Applegate / Spectrum Equity 19,737,601 42.2% 19,737,601 38.2%
Investors II, L.P.(4)..............
245 Lytton Avenue
Palo Alto, CA 94301
Jonathan P. Aust(5)................. 9,387,000 20.1 9,387,000 18.2
FBR Technology Venture Partners, 3,495,000 7.5 3,428,978 6.6
LP.................................
1001 19th Street
Arlington, VA 22209
SBC Communications Inc.(6).......... 2,956,984 6.0 2,956,984 5.5
175 E. Houston Street
San Antonio, TX 78205
Telefonos de Mexico, S.A. de 2,777,773 5.6 2,777,773 5.1
C.V.(7)............................
Parque Via 198
Oficina 701
Col Cuauhtemoc
Mexico City DF 06599
Mexico
Christopher J. Melnick(8)........... 1,837,499 3.9 1,807,747 3.5
Scott G. Yancey, Jr.(9)............. 1,312,500 2.7 1,291,248 2.4
Dennis R. Patrick(10)............... 657,500 1.4 657,500 1.3
John J. Hackett(11)................. 337,500 * 331,124 *
All executive officers and directors 67.2 32,860,969 60.4
as a group (10 persons)(12)........ 33,325,849
</TABLE>
- --------

(1) The address of Messrs. Aust, Hackett, Melnick, Patrick and Yancey is 100
Carpenter Drive, Sterling, Virginia 20164.

(2) Assumes no exercise by the underwriters of their over-allotment option. If
the underwriters elect to fully exercise their over-allotment option,
there will be 52,373,832 shares of our common stock outstanding after the
offering. Also assumes that two of our stockholders do not elect to
participate in this offering, as described below in the introduction to
the selling stockholder table. If the two stockholders do elect to
participate in this offering, we will reduce the number of shares we are
offering by 550,177 and there will be 51,073,655 shares outstanding after
this offering, assuming no exercise by the underwriters of their over-
allotment option, and 51,823,655 shares outstanding after this offering,
assuming the underwriters elect to fully exercise their over-allotment
option.

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<PAGE>

(3) The number of shares beneficially owned by each person includes
outstanding shares of our common stock and shares of our common stock
issuable upon conversion of our Series B preferred stock and exercise of
stock options exercisable within 60 days of March 15, 2000.

(4) Includes 372,852 shares proposed to be sold as described below. Spectrum
is under common control with SEA 1998 II, L.P., or SEA, 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.

(5) Includes 374,999 shares held by the Jonathan P. Aust Grantor Retained
Annuity Trust, 5,962,660 shares held by Longma M. Aust, Mr. Aust's wife,
and 375,001 shares held by the Longma M. Aust Grantor Retained Annuity
Trust. Includes 177,325 shares proposed to be sold as described below.

(6) Includes shares issuable upon conversion of 750,000 shares of our Series B
preferred stock. As reported in the Schedule 13-D dated March 8, 2000,
filed by SBC Communications Inc. Assumes that SBC does not elect to
purchase any of the shares being offered by Mr. Aust or Spectrum, as
described below, and assumes that SBC does not elect to purchase any
shares from us in this offering. If SBC purchased half of the shares being
offered by Mr. Aust and Spectrum and purchased the shares it has the right
to purchase from us pursuant to its right of first offer, SBC would own
3,460,110 shares (6.4% of our outstanding common stock) after this
offering, assuming no exercise by the underwriters of their over-allotment
option.

(7) Includes shares issuable upon conversion of 750,000 shares of our Series B
preferred stock. As reported in the Schedule 13-G dated March 17, filed by
Carlos Slim Helu, Telefonos de Mexico, S.A. de C.V., or Telmex Parent, is
the beneficial owner of 2,777,773 shares. Of such 2,777,773 shares, Telmex
Communications, LLC is the beneficial owner of 2,419,350 shares, which it
has the right to acquire upon conversion of 750,000 shares of our Series B
preferred stock owned by it. The shares beneficially owned by Telmex
Parent are owned indirectly through Telmex Communications, L.L.C. and
Inmobiliaria Aztlan, S.A. de C.V., each a wholly-owned subsidiary of
Telmex Parent. Carso Global Telecom, S.A. de C.V. , or CGT, is the
beneficial owner of the 2,777,773 shares. Each of Carlos Slim Helu, Carlos
Slim Domit, Marco Antonio Slim Domit, Patrick Slim Domit, Maria Soumaya
Slim Domit, Vanessa Paolo Slim Domit and Johanna Monique Slim Domit, which
we collectively refer to as the Slim Family, as majority owners of CGT,
are the beneficial owners of 2,777,773 shares, and has shared power to
dispose of such shares. CGT may be deemed to control Telmex Parent through
the regular voting shares of Telmex Parent that it owns directly, as well
as through its interest in a trust, which we refer to as the Control
Trust, that owns all of the outstanding Series AA shares of Telmex Parent,
or AA Shares. The principal beneficiaries of the Control Trust are CGT,
which owns a 45.0% economic and voting interest in the trust, SBC, which
owns a 24.5% economic and voting interest in the trust, and France
Telecom, which owns a 24.5% economic and voting interest in the trust.
Under the terms of the Control Trust, the trustee must vote all shares
held in the Control Trust as instructed by a simple majority of the
members of a technical committee appointed by the trust's beneficiaries
(except in the case of certain significant corporate matters). The Control
Trust entitles CGT to appoint a majority of the members of such technical
committee; therefore, CGT may be deemed to control the Control Trust.
Through its ownership of all the outstanding AA Shares, the Control Trust
owns a majority of Telmex Parent's outstanding regular voting equity
securities. Therefore, through the Control Trust, CGT may be deemed to
control Telmex Parent. All information presented above in this footnote
relating to Telmex Parent, Telmex Communications, LLC, Inmobiliaria
Aztlan, S.A. de C.V., CGT and the Slim Family is based solely on the
Schedule 13-G filed by Carlos Slim Helu. Assumes that Telmex does not
elect to purchase any of the shares being offered by Mr. Aust or Spectrum,
as described below, and assumes that Telmex does not elect to purchase any
shares from us in this offering. If Telmex purchased half of the shares
being offered by Mr. Aust and Spectrum and purchased the shares it has the
right to purchase from us pursuant to its right of first offer, Telmex
would own 3,267,078 shares (6.0% of our outstanding common stock) after
this offering, assuming no exercise by the underwriters of their over-
allotment option.

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<PAGE>

(8) Includes 712,502 shares issuable upon exercise of options to acquire our
common stock before the offering, and 682,750 shares issuable upon the
exercise of options after the offering.

(9) Includes 1,282,500 shares issuable upon exercise of options to acquire our
common stock before the offering, and 1,261,248 shares issuable upon the
exercise of options after the offering.

(10) Includes 407,500 shares issuable upon exercise of options to acquire our
common stock.

(11) Includes 337,500 shares issuable upon exercise of options to acquire our
common stock before the offering, and 331,124 shares issuable upon the
exercise of options after the offering.

(12) Shares owned before the offering include 2,796,251 shares issuable upon
exercise of options to acquire our common stock that are held by Messrs.
Hackett, Lichter, MacMurray, Melnick, Patrick, Roberts and Yancey. Shares
owned after the offering include 2,738,871 shares issuable upon exercise
of options held by these same officers and directors.

The following table sets forth for each of the selling stockholders their
beneficial ownership as of March 15, 2000, the number of shares being offered,
the number of shares to be owned after the offering and the percentage of our
outstanding stock to be beneficially owned after the offering. In addition, we
have been informed that Jonathan P. Aust has offered to sell up to 177,325
shares of his common stock to SBC or Telmex in a private placement, and
Spectrum has offered to sell up to 372,852 shares of its common stock to SBC or
Telmex in a private placement. If each of these sales is completed, Mr. Aust
will own 9,209,675 shares after the offering (17.8% of our outstanding common
stock), and Spectrum will own 19,364,749 shares after the offering (37.5% of
our outstanding common stock), assuming no exercise by the underwriters of
their over-allotment option. If SBC or Telmex do not purchase all of the shares
Mr. Aust and Spectrum are offering to sell, Mr. Aust or Spectrum may elect to
sell the remaining unsold shares as selling stockholders in this offering, in
which case we would reduce the number of shares we are selling in this offering
by an equal amount.
<TABLE>
<CAPTION>
After Offering
--------------------
Shares
Beneficially Shares Shares
Owned Before Being Beneficially
Name of Beneficial Owner Offering(1) Offered Owned(1) Percent
- ------------------------ ------------ ------- ------------ -------
<S> <C> <C> <C> <C>
James A. Aust (2)................ 2,092,500 39,528(4) 2,052,972 4.0%
Stephen C. Aust (2).............. 2,245,500 36,893 2,208,607 4.3
John Hackett (2)................. 337,500 6,376(4) 331,124 *
Christopher J. Melnick (3)....... 1,837,499 29,752(4) 1,807,747 3.5
Scott G.Yancey, Jr. (3).......... 1,312,500 21,252(4) 1,291,248 2.4
FBR Technology Venture Partners,
L.P............................. 3,495,000 66,022 3,428,978 6.7
</TABLE>
- --------
<TABLE>
<S> <C>
(1) The number of shares beneficially owned by each person includes outstanding
shares of our common
stock and shares of our common stock issuable upon exercise of stock
options exercisable within 60 days of March 15, 2000.
(2) Employee of our company.
(3) Director and employee of our company.
(4) Includes shares to be issued upon exercise of outstanding options.
</TABLE>

72
<PAGE>

DESCRIPTION OF OUR CAPITAL STOCK

Our authorized capital stock consists of 150,000,000 shares of common
stock, par value $0.001 per share, and 15,000,000 shares of preferred stock,
par value $0.001 per share. As of March 15, 2000, there were 46,760,750 shares
of our common stock outstanding, held by 91 holders of record. As of March 15,
2000, there were 1,500,000 shares of our Series B preferred stock outstanding.

After this offering, we will have outstanding 51,623,832 shares of common
stock. If the underwriters elect to fully exercise their over-allotment option,
there will be 52,373,832 shares of common stock outstanding after this
offering.

The following is a description of our capital stock.

Common Stock

We are authorized to issue 150,000,000 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. 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

Our certificate of incorporation allows us to issue without stockholder
approval preferred stock having rights senior to those of our common stock. Our
board of directors is authorized, without further stockholder approval, to
issue up to 15,000,000 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 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.

Series B Preferred Stock

On March 7, 2000, we issued 1,500,000 shares of our Series B Convertible
Preferred Stock to SBC and Telmex. Our Series B preferred stock is senior to
all of our other capital stock with respect to dividends and as to the
distribution of assets on liquidation, dissolution and winding up.

Distributions. SBC and Telmex are entitled to receive dividends at a rate
of 7.0% per annum on the stated value of the Series B preferred stock ($100 per
share), payable in shares of Series B preferred stock or cash, at our election.
We may not pay any dividends on our common stock, or any other of our capital
stock, until all accrued and unpaid dividends have been paid on the Series B
preferred stock.

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<PAGE>

Liquidation Preference. Upon any liquidation, dissolution or winding up
of our company, SBC and Telmex shall be entitled, before any distribution or
payment is made on our common stock, to be paid an amount equal to $100.00 per
preferred share plus all declared but unpaid dividends.

Voluntary Conversion. Each share of Series B preferred stock is
convertible at any time, at the option of the holder, into fully paid and
nonassessable shares of our common stock at the rate of 3.2258:1 (i.e., 3.2258
shares of common stock for each share of Series B preferred stock being
converted), subject to customary anti-dilution provisions.

Voting Rights. Holders of our Series B preferred stock are entitled to
notice of any stockholder's meeting, but they are not entitled to vote upon any
matters upon which holders of the common stock have the right to vote.

Redemption. On each anniversary of the issue date, beginning on the
second anniversary and ending on the seventh anniversary, the holders of our
Series B preferred stock may require that we redeem the shares for a cash
amount equal to $100 per share, plus unpaid dividends. We may postpone this
right of redemption until the following year for all but the seventh year,
provided that the average closing price of our common stock is below $31.00 for
a specified period preceding the anniversary date.

Mandatory Conversion. We may call our Series B preferred stock for
mandatory conversion into our common stock at any time between the second and
fifth anniversaries of the original issue date, provided that the average
closing price of our common stock is greater than $31.00 per share for a
specified period before the conversion date.

Registration Rights

Holders of an aggregate of 23,300,001 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 the holders of at least
4,660,000 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. These stockholders are also
entitled to notice of the registration under the Securities Act and to include
their shares in the registration provided that the underwriters for any
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.

In addition, in connection with our sale of $150 million of Series B
preferred stock, we granted SBC and Telmex the right to require us to register
the sale of their shares under the Securities Act. At any time after March 7,
2002, if the requesting stockholder holds at least 500,000 shares of our common
stock issued upon conversion of the Series B preferred stock, the stockholder
may request, on one occasion, that we provide a registration statement for sale
of the shares. At any time after March 7, 2002, if we propose to register our
securities under the Securities Act, then SBC and Telmex, and the other
stockholders described in the preceding paragraph will be entitled to notice of
registration and to include their shares in the registration statement 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.

If the stockholders holding an aggregate of 23,300,001 shares of our
common stock wish to sell and SBC and Telmex, or either of them, also wish to
sell, and not all of the shares may be included in a single registration
statement, then the number of shares to be sold shall be reduced on a pro rata
basis based on the number of shares of our common stock beneficially owned by
each group affected, with the stockholders holding an aggregate of 23,300,001
shares constituting one group, each of SBC and any of its subsequent
transferees constituting a second group and Telmex and any of its subsequent
transferees constituting a third group.

74
<PAGE>

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 that 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.

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 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 provides 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 provides that

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<PAGE>

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 by-laws 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 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 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

American Stock Transfer & Trust Company is the transfer agent and
registrar for our common stock.

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<PAGE>

UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK

The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of our common
stock by a non-U.S. holder. As used in this discussion, a "non-U.S. holder" is
any person other than:

. a citizen or resident of the United States;

. a corporation or other entity created or organized in or under the
laws of the United States, any state thereof, or the District of
Columbia;

. an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or

. a trust that is subject to the primary supervision of a U.S. court
and the control of one or more U.S. persons.

This discussion is based on the Internal Revenue Code of 1986, as
amended, or the Code, U.S. Treasury regulations, and administrative and
judicial interpretations thereof, all of which may be subject to change,
possibly with retroactive effect. This discussion does not address all aspects
of U.S. federal income and estate taxation that may be relevant to a particular
non-U.S. holder in light of the holder's particular circumstances or to non-
U.S. holders that may be subject to special rules. This discussion also does
not address the tax consequences arising under the laws of any state, local or
non-U.S. jurisdiction.

The following discussion is included in this prospectus only for general
information. Accordingly, you should consult your tax advisor regarding the
U.S. federal, state, local and non-U.S. tax consequences of holding and
disposing of shares of our common stock.

An individual may be deemed to be a resident alien of the United States,
as opposed to a nonresident alien, by virtue of being present in the United
States for at least 31 days in the calendar year and for an aggregate of at
least 183 days during the three-year period ending in the current calendar
year. In determining the 183-day period, all of the days of U.S. presence in
the current year are counted, one-third of the days of U.S. presence in the
preceding year are counted, and one-sixth of the days of U.S. presence in the
second preceding year are counted. Resident aliens are subject to U.S. federal
income and estate taxes in the same manner as U.S. citizens.

Dividends

In the event that we pay dividends on our common stock, dividends paid to
a non-U.S. holder will generally be subject to a U.S. withholding tax at a rate
of 30 percent, unless an applicable income tax treaty between the United States
and your country of residence provides a lower withholding rate. You should
consult your tax advisor regarding your possible entitlement to benefits under
a relevant income tax treaty.

Dividends that (1) are effectively connected with a non-U.S. holder's
conduct of a trade or business in the U.S. and (2) if an income tax treaty
applies, attributable to a permanent establishment or, in the case of an
individual, a "fixed base" in the United States as provided in that treaty are
subject to U.S. federal income tax on a net income basis at graduated rates,
and are exempt from the 30 percent withholding tax if the non-U.S. holder files
the appropriate U.S. Internal Revenue Service, or IRS, form with the payor. In
addition, if received by a non-U.S. holder that is a corporation, those
dividends may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30 percent rate or such lower rate as may be
specified by an applicable income tax treaty.

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<PAGE>

Dividends paid prior to January 1, 2001 to an address in a foreign
country are presumed, absent actual knowledge to the contrary, to be paid to a
resident of that country for purposes of the withholding tax discussed above
and for purposes of determining the applicability of a tax treaty rate. For
dividends paid after December 31, 2000:

. a non-U.S. holder of our common stock who claims the benefit of an
applicable income tax treaty rate generally will be required to
satisfy applicable certification and other requirements;

. in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners
of the partnership and the partnership will be required to provide
certain information; and

. look-through rules will apply for tiered partnerships.

A non-U.S. holder may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund along with the required information with
the IRS.

Gain on Disposition of Common Stock

A non-U.S. holder generally will not be subject to U.S. federal income
tax or withholding requirements with respect to gain recognized on the
disposition of our common stock unless one of the following situations applies:

. The gain is (1) effectively connected with a U.S. trade or business
of the non-U.S. holder or a U.S. partnership, trust, or estate in
which the non-U.S. holder is a partner or beneficiary, and (2) if
required by an applicable tax treaty, the gain is attributable to a
permanent establishment or fixed base of the non-U.S. holder in the
United States. In these cases, the non-U.S. holder will generally be
taxed on its net gain at regular graduated U.S. federal income tax
rates, unless an applicable treaty provides otherwise. If, in these
cases, the non-U.S. holder is a foreign corporation, it may be
subject to an additional "branch profits tax" at a 30 percent rate or
such lower rate as may be specified by an applicable tax treaty.

. The non-U.S. holder is an individual who holds the common stock as a
capital asset within the meaning of section 1221 of the Code and who
is present in the United States for 183 or more days in the taxable
year of the disposition and meets certain other requirements. In such
a case, unless an applicable treaty provides otherwise, the non-U.S.
holder would generally be subject to a flat 30 percent tax on the net
gain derived from the sale, which gain, along with other capital
gains from U.S. sources, may be offset by capital losses of the non-
U.S. holder for the taxable year from sources within the United
States.

. The non-U.S. holder is subject to tax pursuant to the provisions of
U.S. tax law applicable to certain expatriates.

. We are, or have previously been, a "United States real property
holding corporation" for U.S. federal income tax purposes at any time
during the shorter of (1) the five-year period preceding the non-U.S.
holder's disposition of our common stock, or (2) the period during
which the non-U.S. holder held the common stock. In such a case, the
non-U.S. holder would be subject to U.S. federal income tax on its
net gain at regular graduated rates, except as described below.
Generally, a corporation is a United States real property holding
corporation if the fair market value of its interests in U.S. real
property represents 50 percent or more of the fair market value of
its worldwide real property interests plus other assets used or held
for use in a trade or business. We do not believe that we are or ever
have been, nor do we anticipate becoming, a United States real
property holding corporation for U.S. federal income tax purposes. In
the event that we were to become a United States real property
holding corporation, any gain realized by a non-U.S. holder that
directly or indirectly held 5 percent or less of our outstanding
common stock at all times

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<PAGE>

during the applicable period would not be subject to tax if such
stock were "regularly traded" on an established securities market. If
our common stock were not treated as regularly traded, the purchaser
of such stock from any non-U.S. holder would be required to withhold
10 percent of the proceeds of the sale unless we could certify that
we are not and were not during the applicable period a United States
real property holding corporation.

Federal Estate Tax

For U.S. federal estate tax purposes, a nonresident alien individual's
gross estate will include stock issued by a U.S. corporation and owned, or
treated as owned, by that individual at the time of his or her death. Thus,
such common stock owned by non-U.S. holders may be subject to U.S. federal
estate tax, unless an applicable estate tax or other treaty limits such an
inclusion.

Information Reporting and Backup Withholding Tax

Generally, we must report annually to the IRS and to each non-U.S.
holder the amount of dividends paid to such holder and the tax withheld with
respect to such dividends. These information reporting requirements apply
regardless of whether withholding is required. Copies of these information
returns may also be made available to the tax authorities in the country in
which the non-U.S. holder is a resident under provisions of an applicable
income tax treaty or agreement.

Dividends paid to a non-U.S. holder at an address within the United
States may be subject to backup withholding at a rate of 31 percent if the
non-U.S. holder fails to establish that it is entitled to an exemption or to
provide a correct taxpayer identification number and other information to the
payor. Under currently applicable law, non-U.S. holders of common stock
generally will be exempt from backup withholding on dividends paid prior to
January 1, 2001 to an address outside the United States. For dividends paid
after December 31, 2000, however, a non-U.S. holder of common stock that fails
to certify its non-U.S. holder status in accordance with applicable U.S.
Treasury regulations may be subject to backup withholding at a rate of 31
percent on payments of dividends.

The payment of the proceeds of a sale of our common stock effected at a
United States office of a broker generally will be subject to both backup
withholding and information reporting unless the holder certifies to the payor
its status as a non-U.S. holder under penalties of perjury or otherwise
establishes an exemption. A sale of our common stock will after December 31,
2000 will be deemed to be effected at a U.S. office of a broker for this
purpose if (i) the holder has a specified relationship with a United States
office of the broker, (ii) the proceeds are transferred to an account
maintained by the holder in the United States or are mailed to a United States
address, (iii) the confirmation of the sale is mailed to a United States
address, or (iv) the holder has transmitted instructions to the broker from
within the United States other than in isolated and infrequent circumstances.

Information reporting and backup withholding generally will not apply to
a payment by or through a foreign office of a foreign broker of the proceeds
of a sale of our common stock effected outside the United States. However,
information reporting requirements, but currently not backup withholding, will
apply to a payment by or through a foreign office of a broker of the proceeds
of a sale of our common stock effected outside the United States if that
broker:

. is a United States person for U.S. federal income tax purposes;

. is a foreign person that derives 50 percent or more of its gross
income for certain periods from the conduct of a trade or business in
the United States;

. is a "controlled foreign corporation" as defined in the Code; or

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<PAGE>

. is a foreign partnership with certain U.S. connections (for payments
made after December 31, 2000).

Information reporting requirements will not apply in the above cases if
the broker has documentary evidence in its records that the holder is a non-
U.S. holder and certain conditions are met or the holder otherwise establishes
an exemption. In addition, effective after December 31, 2000, backup
withholding may apply to the payment of disposition proceeds by or through a
non-U.S. office of a broker in the above cases unless certain certification
requirements are satisfied or an exemption is otherwise established and the
broker has no actual knowledge or reason to know that the holder is a U.S.
person. Non-U.S. holders should consult their own tax advisors regarding the
application of the information reporting and backup withholding rules to them,
including changes to these rules that will become effective after December 31,
2000.

Amounts withheld under the backup withholding rules do not constitute a
separate United States federal income tax. Rather, any amounts withheld under
the backup withholding rules will be refunded or allowed as a credit against
the holder's U.S. federal income tax liability, if any, provided the required
information or appropriate claim for refund is filed with the IRS.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

After this offering, we will have 51,623,832 shares of common stock
outstanding (52,373,832 if the underwriters elect to fully exercise their over-
allotment option). We sold 7,500,000 shares of common stock in our initial
public offering on June 3, 1999. All of the shares we sell in this offering and
those sold in the initial public 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, and any shares purchased by SBC or Telemex under their rights of first
offer will be restricted to the same extent as if issued without registration
under the Securities Act.

Of the remaining shares of common stock outstanding after this offering,
37,118,708 shares will not be freely tradeable under the terms of the
Securities Act. Transfer of 36,220,563 shares will be further limited by lock-
up agreements as described below.

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
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 that 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 22,849,127 shares of our common
stock after this offering assuming the sale of 66,022 shares of our common
stock by these stockholders in this offering and 372,852 shares of our common
stock in a private placement, as described in "Principal and Selling
Stockholders." These stockholders, SBC and Telmex have certain registration
rights. See "Description of Our Capital Stock--Registration Rights."

Common Stock and Options Issuable under our Stock Incentive Plan and Employee
Stock Purchase Plan

On August 17, 1999, we filed a registration statement on Form S-8 under
the Securities Act registering 11,250,000 shares of our common stock underlying
outstanding stock options or those reserved for issuance under our 1998 stock
incentive plan. This registration statement became effective upon filing, and
shares covered by the registration statement are eligible for sale in the
public market, subject to the lock-up agreements with the underwriters.

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<PAGE>

On March 1, 2000, we adopted an Employee Stock Purchase Plan, or ESPP,
under which a total of 500,000 shares of our common stock are initially
available for issuance. The ESPP, which is intended to qualify under Section
423 of the IRS Code, will be implemented by a series of overlapping offering
periods of 12 months' duration, with new offering periods, other than the first
offering period, commencing on January 1 and July 1 of each year. Participants
may not accrue payroll deductions exceeding $10,000 during any offering period.
The purchase price per share at which shares will be sold in an offering under
the ESPP will be the lower of 85% of the fair market value of a share of our
common stock on the first day of an offering period or 85% of the fair market
value of a share of our common stock on the last day of an offering period. The
fair market value of our common stock on a given date will be equal to the
closing price of our common stock on such date on the Nasdaq National Market,
as reported in The Wall Street Journal. Implementation of the ESPP will require
approval of a majority of our shareholders, a vote of whom will be taken at our
scheduled June 6, 2000 annual meeting.

Lock-up Agreements

Other than with respect to the shares to be sold by the selling
stockholders and in the proposed private placements by Mr. Aust and Spectrum,
our officers, directors and certain of our other stockholders, who will hold an
aggregate of approximately 36,220,563 shares of common stock and vested options
to acquire approximately 2,738,871 shares of our common stock after this
offering and the proposed private placements by Mr. Aust and Spectrum, have
agreed that they will not, without the prior written consent of Merrill Lynch &
Co., 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 90
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 bona
fide gifts approved by Merrill Lynch & Co. 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. Merrill Lynch & Co. 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.

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<PAGE>

UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co.
Inc., Donaldson, Lufkin & Jenrette Securities Corporation and J.P. Morgan
Securities Inc. are acting as representatives of the underwriters named below.
Subject to the terms and conditions described in a purchase agreement among us,
the selling stockholders and the underwriters, we and the selling stockholders
have agreed to sell to the underwriters, and the underwriters severally have
agreed to purchase from us, the number of shares listed opposite their names
below.

<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith ..........................
Incorporated
Bear, Stearns & Co. Inc. .......................................
Donaldson, Lufkin & Jenrette Securities Corporation.............
J.P. Morgan Securities Inc. ....................................
---------
Total..................................................... 5,000,000
=========
</TABLE>

The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of the shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.

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

The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreement, such as the receipt by the underwriters of
officers' certificates and legal opinions. The underwriters reserve the right
to withdraw, cancel or modify offers to the public and to reject orders in
whole or in part.

Commissions and Discounts

The representatives have advised us and the selling stockholders that the
underwriters propose initially to offer the shares to the public at the public
offering price on the cover page of this prospectus and to dealers at that
price less a concession not in excess of $ per share. The underwriters may
allow, and the dealers may reallow, a discount not in excess of $ per share
to other dealers. After the public offering, the public offering price,
concession and discount may be changed.

The following table shows the public offering price, underwriting
discount and proceeds before expenses to us and the selling stockholders. The
information assumes either no exercise or full exercise by the underwriters of
their over-allotment option.

<TABLE>
<CAPTION>
Per Share Without Option With Option
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price................. $ $ $
Underwriting discount................. $ $ $
Proceeds, before expenses, to Network
Access Solutions..................... $ $ $
Proceeds, before expenses, to the
selling stockholders................. $ $ $
</TABLE>

The expenses of the offering, not including the underwriting discount,
are estimated at $612,000 and are payable by us.

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<PAGE>

Over-allotment Option

We have granted an option to the underwriters to purchase up to 750,000
shares at the public offering price less the underwriting discount. The
underwriters may exercise the over-allotment option for 30 days from the date
of this prospectus solely to cover any over-allotments. If the underwriters
exercise this option, each will be obligated, subject to conditions contained
in the purchase agreement, to purchase a number of additional shares
proportionate to that underwriter's initial amount reflected in the above
table.

No Sales of Similar Securities

We, the selling stockholders and our executive officers and directors and
certain of our other stockholders have agreed, with exceptions, not to sell or
transfer any common stock for 90 days after the date of this prospectus without
first obtaining the written consent of Merrill Lynch. Specifically, we and
these other persons or entities have agreed not to directly or indirectly

. offer, pledge, sell or contract to sell any common stock;

. sell any option or contract to purchase any common stock;

. purchase any option or contract to sell any common stock;

. grant any option, right or warrant for the sale of any common
stock;

. lend or otherwise dispose of or transfer any common stock;

. request or demand that we file a registration statement related to
the common stock; or

. enter into any swap or other agreement that transfers, in whole or
in part, the economic consequence of ownership of any common stock
whether any such swap or transaction is to be settled by delivery
of shares or other securities, in cash or otherwise.

This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing the agreement
later acquires the power of disposition.

Quotation on the Nasdaq National Market

The shares are quoted on the Nasdaq National Market under the symbol
"NASC."

Right of First Offer

Pursuant to its right of first offer, SBC has the right to purchase up to
228,037 of the shares we are offering by this prospectus and up to 35,629 of
the shares subject to the over-allotment option. Telmex has the right to
purchase up to 214,217 of the shares we are offering and up to 33,470 of the
shares subject to the over-allotment option. If either SBC or Telmex elects to
purchase any of the shares subject to the right of first offer, the
representatives intend to allot to that entity the number of shares it has
elected to purchase. Any shares purchased by SBC and Telmex pursuant to the
right of first offer will be restricted to the same extent as if issued without
registration under the Securities Act. In addition, we have been informed that
Jonathan P. Aust has offered to sell up to 177,325 shares of his common stock
to SBC or Telmex in a private placement, and Spectrum has offered to sell up to
372,852 shares of its common stock to SBC or Telmex in a private placement.

Price Stabilization and Short Positions

Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the representatives may engage in transactions that
stabilize the price of the common stock, such as bids or purchases to peg, fix
or maintain that price.

If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the representatives may reduce that short
position by purchasing shares in the open market. The representatives may also
elect to reduce any short

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<PAGE>

position by exercising all or part of the over-allotment option described
above. Purchases of the common stock to stabilize its price or to reduce a
short position may cause the price of the common stock to be higher than it
might be in the absence of such purchases.

Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.

Passive Market Making

In connection with this offering, underwriters and selling group members
may engage in passive market making transactions in the common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act during a period before the commencement of offers or sales of
common stock and extending through the completion of distribution. A passive
market maker must display its bid at a price not in excess of the highest
independent bid of that security. However, if all independent bids are lowered
below the passive market maker's bid, that bid must then be lowered when
specified purchase limits are exceeded.

Other Relationships

Merrill Lynch and its affiliates have engaged in, and may in the future
engage in, investment banking and other commercial dealings in the ordinary
course of business with us and with certain of the selling stockholders or
other companies in which certain of the selling stockholders may have an
ownership interest. They have received, and may in the future receive,
customary fees and commissions for these transactions.

VALIDITY OF THE SHARES

Shaw Pittman, 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, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

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 that 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.

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
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.

85
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-2
Balance Sheets as of December 31, 1998 and 1999........................... F-3
Statements of Operations and Other Comprehensive Income (Loss) for the
years ended December 31, 1997, 1998 and 1999............................. F-4
Statements of Changes in Stockholders' Equity for the years ended December
31, 1997, 1998 and 1999.................................................. F-5
Statements of Cash Flows for the years ended December 31, 1997, 1998 and
1999..................................................................... 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 and other comprehensive income (loss), changes in
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of Network Access Solutions Corporation (the Company) at
December 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States 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 7, 2000

F-2
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 5,518,117 $ 18,240,096
Short-term investments............................ -- 24,575,893
Accounts receivable, net of allowance for doubtful
accounts of $51,959 and $376,399 as of December
31, 1998 and 1999, respectively.................. 1,806,791 3,257,204
Inventory......................................... 59,233 440,770
Prepaid and other current assets.................. 105,693 927,218
----------- ------------
Total current assets............................ 7,489,834 47,441,181
Property and equipment, net......................... 5,030,793 55,097,670
Restricted cash..................................... -- 1,600,000
Deferred offering costs............................. -- 259,272
Deposit............................................. 185,000 72,554
Income tax receivable............................... 100,865 27,600
Deferred tax asset.................................. 121,586 121,586
----------- ------------
Total assets.................................... $12,928,078 $104,619,863
=========== ============
LIABILITIES, PREFERRED STOCK, AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable.................................. $ 2,525,102 $ 8,221,681
Accrued expenses.................................. 750,308 4,118,746
Current portion of deferred compensation
liability........................................ 333,333 166,667
Current portion of capital lease obligations...... 328,982 5,630,429
Current portion of note payable................... -- 478,925
Other current liabilities......................... 67,201 247,678
Deferred revenue.................................. -- 42,788
----------- ------------
Total current liabilities....................... 4,004,926 18,906,914
Long term portion of capital lease obligations...... 1,184,156 15,251,100
Long-term portion of note payable................... 1,000,000 2,453,211
Long term portion of deferred compensation
liability.......................................... 166,667 --
----------- ------------
Total liabilities............................... 6,355,749 36,611,225
----------- ------------
Commitments and contingencies
Series A mandatorily redeemable preferred stock..... 5,640,651 --
----------- ------------
Stockholders' equity:
Common stock, $.001 par value, 150,000,000 shares
authorized, 44,550,000 and 53,831,997 shares
issued and outstanding as of December 31, 1998
and 1999, respectively........................... 44,550 53,832
Additional paid-in capital........................ 8,097,566 130,431,898
Accumulated other comprehensive loss.............. -- (51,960)
Deferred compensation on stock options............ (3,462,753) (18,389,540)
Retained earnings (deficit)....................... (1,847,685) (42,135,592)
Less treasury stock, at cost, 8,550,000 shares as
of December 31, 1999 and 1998, respectively...... (1,900,000) (1,900,000)
----------- ------------
Total stockholders' equity...................... 931,678 68,008,638
----------- ------------
Total liabilities, preferred stock and
stockholders' equity........................... $12,928,078 $104,619,863
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)

<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Product sales........................ $ 8,149,680 $ 9,899,623 $ 13,025,582
Consulting services.................. 791,280 1,428,531 2,593,028
Network services..................... 3,856 310,921 1,820,519
----------- ----------- ------------
Total revenue...................... 8,944,816 11,639,075 17,439,129
----------- ----------- ------------
Cost of revenue:
Product sales........................ 7,180,064 8,639,337 11,334,352
Consulting services.................. 230,565 761,315 1,693,209
Network services..................... 2,406 40,738 4,812,522
----------- ----------- ------------
Total cost of revenue.............. 7,413,035 9,441,390 17,840,083
----------- ----------- ------------
Gross profit (loss).................... 1,531,781 2,197,685 (400,954)
Operating expenses:
Selling, general and administrative.. 1,436,513 4,017,057 27,669,535
Amortization of deferred compensation
on stock options.................... -- 218,997 8,165,293
Depreciation and amortization........ 12,298 130,004 5,195,282
----------- ----------- ------------
Income (loss) from operations.......... 82,970 (2,168,373) (41,431,064)
Interest income........................ -- 145,468 2,094,719
Interest expense....................... (5,144) (81,006) (1,022,854)
----------- ----------- ------------
Income (loss) before income taxes...... 77,826 (2,103,911) (40,359,199)
Provision (benefit) for income taxes... 35,674 (27,973) (71,292)
----------- ----------- ------------
Net income (loss)...................... 42,152 (2,075,938) (40,287,907)
Preferred stock dividends.............. -- 322,192 339,726
Preferred stock accretion.............. -- 244,417 257,719
----------- ----------- ------------
Net income (loss) applicable to
common stockholders................. $ 42,152 $(2,642,547) $(40,885,352)
=========== =========== ============
Net income (loss) per common share
applicable to common stockholders
(basic and diluted)................. $ 0.00 $ (0.10) $ (0.99)
=========== =========== ============
Weighted average common shares
outstanding (basic and diluted)....... 21,915,000 27,302,144 41,258,618
=========== =========== ============
Comprehensive income (loss):
Net income (loss)...................... $ 42,152 $(2,075,938) $(40,287,907)
Other comprehensive loss:
Unrealized loss on securities
available for sale.................. -- -- (51,960)
----------- ----------- ------------
Total comprehensive income (loss)...... $ 42,152 $(2,075,938) $(40,339,867)
=========== =========== ============
</TABLE>

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

F-4
<PAGE>

NETWORK ACCESS SOLUTIONS CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1997, 1998 and 1999

<TABLE>
<CAPTION>
Other Deferred
Common Stock Additional Compre- Compensation Retained Treasury Stock
------------------ Paid-in hensive on Stock Earnings ---------------------
Shares Amount Capital loss Options (Deficit) Shares Amount Total
---------- ------- ------------ -------- ------------ ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1997........... 21,915,000 $21,915 $ -- $ -- $ -- $ 228,253 -- $ -- $ 250,168
Sale of common
stock, net of
direct issuance
costs of
$27,341........ 22,050,000 22,050 4,853,010 -- -- -- -- -- 4,875,060
Purchase of
treasury stock
at cost........ -- -- -- -- -- -- 8,550,000 (1,900,000) (1,900,000)
Shares issued to
employee for
service........ 585,000 585 129,415 -- -- -- -- -- 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........... 44,550,000 44,550 8,097,566 -- (3,462,753) (1,847,685) 8,550,000 (1,900,000) 931,678
Sale of common
stock, net of
direct issuance
costs of
$1,846,100..... 7,500,000 7,500 81,846,400 -- -- -- -- -- 81,853,900
Conversion of
convertible
notes payable.. 833,334 833 9,999,167 -- -- -- -- -- 10,000,000
Conversion of
preferred
stock.......... 416,667 417 4,999,583 -- -- -- -- -- 5,000,000
Cancellation of
preferred
stock.......... -- -- 1,238,096 -- -- -- -- -- 1,238,096
Exercise of
stock options.. 531,996 532 1,756,451 -- -- -- -- -- 1,756,983
Accrual of
preferred stock
dividends...... -- -- (339,726) -- -- -- -- -- (339,726)
Accretion of
preferred
stock.......... -- -- (257,719) -- -- -- -- -- (257,719)
Deferred
compensation... -- -- 23,092,080 -- (23,092,080) -- -- -- --
Amortization of
deferred
compensation... -- -- -- -- 8,165,293 -- -- -- 8,165,293
Net unrealized
loss on short-
term
investments
available for
sale........... -- -- -- (51,960) -- -- -- -- (51,960)
Net loss........ -- -- -- -- -- (40,287,907) -- -- (40,287,907)
---------- ------- ------------ -------- ------------ ------------ --------- ----------- -----------
Balance,
December 31,
1999........... 53,831,997 $53,832 $130,431,898 $(51,960) $(18,389,540) $(42,135,592) 8,550,000 $(1,900,000) $68,008,638
========== ======= ============ ======== ============ ============ ========= =========== ===========
</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 years ended December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ 42,152 $(2,075,938) $(40,287,907)
Adjustment to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization
expense.............................. 12,298 130,004 5,195,282
Provision for doubtful accounts
receivable........................... 23,826 28,133 324,441
Deferred income taxes................. (118,274) 77,146 --
Shares issued to employee for
services............................. -- 130,000 --
Amortization of deferred compensation
on stock options..................... -- 218,997 8,165,293
Net changes in assets and
liabilities:
Accounts receivable.................. 4,072,345 (1,069,599) (1,774,854)
Inventory............................ 300,678 (11,686) (381,537)
Income tax receivable................ -- (127,073) 73,265
Prepaid and other current assets..... 10,000 (105,693) (821,525)
Deposits............................. -- -- 112,445
Deferred tax asset................... -- 26,208 --
Accounts payable..................... (3,612,797) (139,113) 6,153,050
Accrued expenses..................... (148,752) 173,795 3,168,438
Deferred compensation................ 291,667 -- (333,333)
Income tax payable................... -- (132,064) --
Deferred revenue..................... -- -- 42,788
Other current liabilities............ (68,195) 67,201 180,478
----------- ----------- ------------
Net cash provided by(used in)
operating activities............... 804,948 (2,809,682) (20,183,676)
----------- ----------- ------------
Cash flows from investing activities:
Purchases of short-term investments... -- -- (24,627,853)
Expenditures for network under
development.......................... -- (640,511) (28,384,550)
Purchases of property and equipment... (121,915) (515,690) (6,822,909)
Restricted cash....................... -- -- (1,600,000)
Deposit for software and services..... -- (185,000) --
----------- ----------- ------------
Net cash used in investing
activities......................... (121,915) (1,341,201) (61,435,312)
----------- ----------- ------------
Cash flows from financing activities:
Borrowings on notes payable........... 1,500,000 2,406,652 12,000,000
Borrowings on sale/leaseback.......... -- -- 530,000
Repayments of notes payable........... (1,491,291) (1,500,000) (67,864)
Principal payments on capital leases.. -- -- (1,672,781)
Issuance of common stock.............. -- 4,902,401 83,700,000
Issuance of redeemable preferred
stock................................ -- 5,102,499 --
Issuance costs related to preferred
and common stock offerings........... -- (55,798) (1,905,371)
Exercise of stock options............. -- -- 1,756,983
Treasury stock acquired............... -- (1,900,000) --
----------- ----------- ------------
Net cash provided by financing
activities......................... 8,709 8,955,754 94,340,967
----------- ----------- ------------
Net increase in cash and cash
equivalents........................... 691,742 4,804,871 12,721,979
Cash and cash equivalents at the
beginning of the period............... 21,504 713,246 5,518,117
----------- ----------- ------------
Cash and cash equivalents at the end of
the period............................ $ 713,246 $ 5,518,117 $ 18,240,096
=========== =========== ============
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest.............................. $ 5,142 $ 27,948 $ 1,027,452
Income taxes.......................... 222,143 153,343 --
Non-cash investing and financing
activities:
Capital leases........................ -- 1,513,138 20,511,172
Preferred stock dividends............. -- 322,192 339,726
Preferred stock accretion............. -- 244,417 257,719
Shares issued to employee for
services............................. -- 130,000 --
Expenditures for network included in
accounts payable..................... -- 2,351,281 1,894,810
Expenditures for deferred offering
costs included in accrued expenses... -- -- 200,000
Conversion of notes payable into
common stock......................... -- -- 10,000,000
Conversion of redeemable preferred
stock into common stock.............. -- -- 6,238,096
</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

Network Access Solutions Corporation, or 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. On May 7, 1999, the
Company and its Board of Directors declared a 2.25 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 splits.

The Company, which is a major provider of high-speed data communications
services and related applications, provides network services,
telecommunications products and equipment and consulting services to business
customers. Through its CopperNet branded service, the Company offers its
customers high-speed connectivity using Digital Subscriber Line (DSL)
technology. The Company provides metropolitan area and wide area network
services, manages and monitors its customers' networks, sells
telecommunications equipment, designs networks for its customers, installs the
equipment and provides related services. The Company currently offers its DSL-
based networking solutions in the following nine cities and their surrounding
markets: Baltimore, Boston, New York, Norfolk, Philadelphia, Pittsburgh,
Richmond, Washington, D.C., and Wilmington. The Company also intends to expand
its geographical coverage to the southeastern and western U.S. markets.

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.

Revenue Recognition

The Company's revenue is derived from product sales, 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, including DSL-based services,
under monthly and fixed rate service contracts. Revenue on monthly contracts is
recognized when services are performed. Revenue on fixed rate service contracts
is recognized as costs are incurred over the related contract period, which
generally does

F-7
<PAGE>

not exceed one year. Payments received in advance of providing services are
recorded as deferred revenue until the period in which such services are
provided. Revenue related to installation and activation fees are recognized to
the extent of direct costs incurred. Any excess installation and activation
fees over direct costs are deferred and amortized over the service contract.
Such revenue is not expected to significantly exceed the direct costs. In
certain situations, the Company will waive non-recurring installation and
activation fees in order to obtain a sale. The Company will expense the related
direct costs as incurred.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents, short-term
investments and accounts receivable. Cash and cash equivalents are held in a
money market account at a national financial institution. Short-term
investments consist of marketable securities, which are principally composed of
debt securities with corporations and foreign governments. 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, 1999, AstraZeneca PLC.
comprised 12% of accounts receivable. 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>
For the years ended December 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
AT&T....................................... $3,421,878 $5,869,907 $5,358,165
AstraZeneca................................ 921,356 933,556 --
Network Monitoring and Repair, Inc......... 1,301,440 -- --
---------- ---------- ----------
$5,644,674 $6,803,463 $5,358,165
========== ========== ==========
</TABLE>

Cash and Cash Equivalents

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

Restricted Cash

Restricted cash is composed of amounts held in escrow to collateralize
the Company's operating lease commitments for its new headquarters in Herndon,
Virginia.

Short-term Investments

The Company's short-term investments consist of marketable securities
that include bonds with maturities of less than two years. The marketable
securities are classified as "available for sale" since management intends to
hold the investments for an indefinite period and may sell the investments
prior to their maturity. The investments are carried at aggregate fair value
based generally on quoted market prices. Gains and losses are determined based
on the specific identification method. Available-for-sale marketable securities
that are reasonably expected by management to be sold within one year from the
balance sheet date are classified as current assets.

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 composed of collocation fees, equipment,
equipment held under capital

F-8
<PAGE>

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 commences as individual
network components are placed in service and are 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 Company believes the carrying amount of certain of its financial
instruments, which include cash equivalents, accounts payable, capital leases
and notes payable, approximate 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
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, 1999,
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

The Company has determined its reportable segments based on the Company's
method of internal reporting, which disaggregates its business by product
category. The Company's reportable segments are:

F-9
<PAGE>

network services, product sales and consulting services. The network services
segment provides local, metropolitan and wide area data communications services
to customers. This segment also provides a wide variety of other services to
customers, including remote network management and monitoring, network
security, virtual private networks, e-commerce and CopperNet, the Company's
high-speed, continuously connected DSL access to telecommunications networks.
The product sales segment provides sales of selected equipment from
manufacturing partners. Engineers select product solutions based upon
customized network designs to improve the customers' operations and network
efficiencies. The consulting services segment provides nonrecurring service
activation and installation, network integration, on site network management,
network security consulting and professional services. In addition, the
consulting services segment provides maintenance and installation of equipment,
some of which may be provided through third party providers under contract. The
Company's business is currently conducted principally in the eastern United
States. There are no foreign operations.

Recent Accounting Pronouncements

In June 1999, the Financial Accounting Standards Board issued SFAS No.
137, which delays the effective date of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which will be effective for the
Company's fiscal year 2001. This statement establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments imbedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
also requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. The Company
believes the adoption of SFAS No. 133 and SFAS No. 137 will not have a material
impact on the financial statements.

3. Initial and Secondary Public Offerings

In June 1999, the Company completed an initial public offering (IPO) of
7,500,000 shares of common stock. Total proceeds to the Company were
$81,853,900, net of underwriting discounts and commissions of approximately
$5,500,000 and offering costs of $1,846,100. Concurrent with the IPO,
$5,000,000 of the Company's Series A Mandatorily Redeemable Preferred Stock
(Preferred Stock) was converted into 416,667 shares of common stock at $12.00
per share, the public offering price, with the remaining shares of Preferred
Stock and all accrued dividends and accretion amounting to $1,238,096 cancelled
without additional payment to the holders of those shares. In addition,
$10,000,000 of the Company's 8% convertible notes (see Note 6) were converted
into 833,334 shares of common stock at $12.00 per share, the public offering
price.

On December 22, 1999, the Company filed a registration statement on Form
S-1 for the sale of shares of their common stock in a secondary public offering
that has not been completed. In connection with the preparation and filing of
this registration statement the Company incurred costs of $259,272, of which
$59,272 has been paid as of December 31, 1999. These offering costs have been
deferred on the balance sheet and will be offset against the proceeds and
reported as a reduction to stockholders' equity when the secondary offering
occurs.

4. Short-term Investments

As of December 31, 1999, the Company had invested in marketable
securities with original maturity dates exceeding 90 days. These marketable
securities, which principally consist of debt securities with corporations and
foreign governments, are due in one year or less and are considered "available
for sale" and, as such, are stated at fair value. The aggregate amortized cost
of these marketable securities was $24,627,853 at December 31, 1999. Given the
rise in interest rates from the purchase date of these securities the Company
has recorded an unrealized loss of $51,960 for the year ended December 31, 1999
to reduce the carrying value of these securities to fair value of $24,575,893
as of December 31, 1999. These net unrealized losses are reported as a part of
accumulated other comprehensive income (loss). Realized gains or losses from
the sale of marketable securities are based on the specific identification
method. There were no gross realized gains and gross realized losses on sales
of available for sale securities during the year ended December 31, 1999.

F-10
<PAGE>

5. Property and Equipment

Property and equipment consists of the following:

<TABLE>
<CAPTION>
As of December 31,
-----------------------
1998 1999
---------- -----------
<S> <C> <C>
Network placed in service......................... $ -- $40,291,575
Network development in process.................... 4,657,975 12,790,617
Office and computer equipment..................... 355,962 5,925,278
Furniture and fixtures............................ 159,728 1,428,356
Less accumulated depreciation..................... (142,872) (5,338,156)
---------- -----------
Property and equipment, net....................... $5,030,793 $55,097,670
========== ===========
</TABLE>

The Company's network includes equipment under capital leases, equipment,
installation, and collocation fees. Collocation fees represent nonrecurring
fees paid to obtain central office space for location of certain equipment.
When a new portion of the Company's network has been completed and made
available for use, it is transferred from network development to network placed
in service. As of December 31, 1998 and 1999, the recorded cost of the network
equipment under capital leases was $1,513,138 and $22,939,012, respectively.
Accumulated amortization for this equipment under capital leases was $20,739
and $2,998,446 as of December 31, 1998 and 1999, respectively.

6. Note Payable

On October 16, 1998, the Company entered into a $10,000,000 line of
credit agreement and a $30,000,000 equipment financing agreement (see Note 8)
with Ascend Communications, Inc. (Ascend). Under the terms of the line of
credit, the Company could draw on the line of credit in $1,000,000 increments
up to a maximum of $5,000,000. The Company could draw 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 Ascend and (ii) demonstrating that at
least 70% of such equipment is being used by the Company to generate revenue.
The Company was 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 was 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 at a
rate equal to the prevailing high yield bond index for the next fifteen months.
The remaining unpaid interest was due forty-two months after the related
advance. The credit agreement required 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.

On May 4, 1999, the Company amended its financing agreement with Ascend.
The amendment reduced the line of credit available for working capital loans
from $10,000,000 to $5,000,000 and relieved the Company's obligation to repay
these loans upon the Company's IPO. As of December 31, 1999, the Company's
total obligation under this agreement for working capital was $2,932,136.

Principal payments due under this note payable as of December 31, 1999
are as follows:

<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ ----------
<S> <C>
2000.......................................................... $ 478,925
2001.......................................................... 579,584
2002.......................................................... 1,873,627
----------
$2,932,136
==========
</TABLE>

F-11
<PAGE>

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).

On March 31, 1999, the Company entered into a financing agreement whereby
certain holders of its 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 and an additional $5,000,000 on May 11, 1999 by
issuing 8% convertible notes. Concurrent with the IPO, these notes, including
principal and accrued interest, were converted into 833,334 shares of common
stock.

7. Deferred Compensation Liability

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, 1998 and 1999, the deferred compensation
liability was $500,000 and $166,667, 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 three-year Federal treasury
notes. Accrued interest related to these amounts was $47,500 and $25,833 at
December 31, 1998 and 1999, respectively.

8. Commitments and Contingencies

Leases

The Company leases or subleases office space in Maryland, Massachusetts,
New York, Pennsylvania and Virginia and collocation space in central offices
under the terms of the interconnection agreements with Bell Atlantic and other
vendors. On October 27, 1999, the Company executed a lease for space in
Herndon, Virginia. The Company entered into a Letter of Credit agreement, in
the amount of $1,600,000 with a financial institution, that will serve as
collateral for this lease. The Company has begun to move its headquarters to
this location in phases beginning in March 2000 and expects to complete the
move in May 2000. Commitments for minimum rental payments under noncancelable
leases and subleases at December 31, 1999 are as follows:

<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ -----------
<S> <C>
2000...................................................... $ 3,802,796
2001...................................................... 4,455,402
2002...................................................... 4,305,924
2003...................................................... 4,332,981
2004...................................................... 4,062,804
Thereafter................................................ 17,412,974
-----------
Total minimum rental payments............................... $38,372,881
===========
</TABLE>

Rent expense for the years ended December 31, 1997, 1998 and 1999 was
$80,103, $113,600 and $1,580,211, respectively.

During 1998 and 1999, the Company entered into capital leases related to
the acquisition of equipment for the development of the DSL network. Initially,
the Company entered into a master lease agreement with Ascend to finance
purchases of up to $30,000,000 through capital lease agreements. During 1999,
this agreement was amended and increased to $95,000,000. In addition, the
Company has an arrangement with Paradyne Corporation whereby the Company can
finance DSL equipment purchases of up to $8,000,000 subject

F-12
<PAGE>

to vendor approval. During 1999, the Company entered into two sales leaseback
transactions with a vendor totaling $530,000. The leaseback transactions were
accounted for as capital leases. The present value of future minimum capital
lease payments as of December 31, 1999, is as follows:

<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ -----------
<S> <C>
2000...................................................... $ 7,290,275
2001...................................................... 7,289,787
2002...................................................... 7,101,517
2003...................................................... 2,653,710
-----------
24,335,289
Less amounts representing interest.......................... 3,453,760
-----------
Present value of net minimum lease payments................. 20,881,529
Less current portion of capital lease obligations........... 5,630,429
-----------
Long-term portion of capital lease obligations.............. $15,251,100
===========
</TABLE>

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 single
largest shareholder is also a shareholder of this software and service
provider. Under the terms of the agreement, software licensing and service fees
were $1,023,700 which were 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
Company commenced implementing the software and support service in 1999. As of
December 31, 1999, all fees under this agreement had been paid.

Employment agreements

The Company has entered into an employment agreement with certain 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 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.

9. Income Taxes

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

<TABLE>
<CAPTION>
For the
years ended December 31,
------------------------------
1997 1998 1999
--------- --------- --------
<S> <C> <C> <C>
Current tax (benefit) provision............. $ 153,948 $(105,119) $(71,292)
Deferred tax provision (benefit)............ (118,274) 77,146 --
--------- --------- --------
Total (benefit) provision for income
taxes.................................... $ 35,674 $ (27,973) $(71,292)
========= ========= ========
</TABLE>

F-13
<PAGE>

Deferred tax assets consist of the following:

<TABLE>
<CAPTION>
As of December 31,
--------------------------------
1997 1998 1999
-------- --------- ------------
<S> <C> <C> <C>
Deferred compensation..................... $193,100 $ 349,956 $ 64,367
Accrued interest.......................... 5,632 19,149 15,139
Accrued other expenses.................... -- -- 69,712
Bad debt expense.......................... -- 20,066 145,365
Depreciation expense...................... -- (2,083) (2,691,163)
Net operating loss........................ -- 444,160 15,446,718
Valuation allowance....................... -- (709,662) (12,928,552)
-------- --------- ------------
Net deferred tax asset.................. $198,732 $ 121,586 $ 121,586
======== ========= ============
</TABLE>

As of December 31, 1999, 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 carry-back
period net of refundable taxes.

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 (there are no material changes to the Company's effective tax rate for
1999):

<TABLE>
<CAPTION>
For the years
ended
December 31,
-------------------
1997 1998 1999
---- ----- -----
<S> <C> <C> <C>
Federal statutory rate................................ 34.0% (34.0)% 34.0%
State income taxes, net of federal provision
(benefit)............................................ 5.4 (2.7) 4.6
Increase to valuation allowance....................... -- 33.7 (30.4)
Business meals, entertainment, penalties and other.... 6.4 1.5 (1.1)
Amortization of deferred compensation on stock options
disallowed for tax purposes.......................... -- -- (6.9)
---- ----- -----
45.8% (1.5)% 0.2%
==== ===== =====
</TABLE>

10. 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 22,050,000 shares
of common stock for total proceeds of $10,004,900, excluding direct issuance
costs of $55,798. The Company had 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.

Concurrently with the IPO, $5,000,000 of the Company's Series A
Mandatorily Redeemable Preferred Stock (Preferred Stock) was converted into
416,667 shares of common stock at $12.00 per share, the public offering price,
with the remaining shares of Preferred Stock and all accrued dividends and
accretion, amounting to $1,238,096, cancelled without additional payment to the
holders of those shares.

F-14
<PAGE>

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.................................. -- 339,726
Accretion to redemption price...................... -- 257,719
Conversion of preferred stock to common stock...... (5,000,000) (5,000,000)
Cancellation of preferred stock.................... (5,000,000) (1,238,096)
----------- -----------
Balance, December 31, 1999......................... $ -- $ --
=========== ===========
</TABLE>

Stock Repurchase

On August 6, 1998, the Company repurchased 8,550,000 shares of common
stock for $1,900,000 from certain founders of the Company. This treasury stock
transaction was accounted for at cost.

11. 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 by the Company at the lower of fair value or the exercise
price. At December 31, 1998, 9,000,000 shares were reserved for issuance under
the Plan. Effective November 1, 1999, the Company increased the number of
shares of common stock reserved for issuance under the Plan to 13,250,000.

On April 1, 1999, the Company entered into a stock option agreement,
which granted a board of director member an option to purchase 250,000 shares
of the Company's common stock at an exercise price of $6.67 per share. On June
3, 1999, the board member exercised the stock option by paying $1,667,500 to
the Company. In addition, the agreement stipulated the board of director member
was issued an additional option to purchase 407,500 shares of common stock at
an exercise price of $3.00 per share and is unexercised as of December 31,
1999. These options immediately vested upon the Company's IPO. As a result, the
Company recognized $3,504,375 of compensation expense during the year ended
December 31, 1999.

F-15
<PAGE>

As of December 31, 1998 and 1999, a total of 7,090,875 and 11,014,379,
respectively, of stock options which were immediately exercisable as of those
dates had been granted at exercise prices ranging from $.09 to $32.00 per
share. Stock option activity was as follows:

<TABLE>
<CAPTION>
Weighted
Incentive Range of Average
Stock Exercise Exercise
Options Prices Price
---------- ------------ --------
<S> <C> <C> <C>
Options outstanding, December 31, 1997....... -- $ -- $ --
Options granted, July 1998................... 5,400,000 $ 0.09 $ 0.09
Options granted, August 1998................. 225,000 $ 0.09 $ 0.09
Options granted, November 1998............... 1,465,875 $ 0.09 $ 0.09
---------- ------------ ------
Options outstanding, December 31, 1998....... 7,090,875 $ 0.09 $ 0.09
Options granted, January 1999................ 559,575 $ 0.09 $ 0.09
Options granted, March 1999.................. 1,350,000 $ 0.09 $ 0.09
Options granted, April 1999.................. 437,875 $ 0.09- 6.67 $ 3.84
Options granted, May 1999.................... 479,900 $ 3.00- 6.00 $ 5.78
Options granted, June 1999................... 733,850 $ 3.00-13.94 $ 4.55
Options granted, July 1999................... 139,650 $ 6.00-16.25 $10.60
Options granted, August 1999................. 395,050 $ 5.13-12.75 $ 6.43
Options granted, September 1999.............. 26,200 $13.00-13.75 $13.61
Options granted, October 1999................ 196,900 $12.63-12.81 $12.63
Options granted, November 1999............... 280,600 $12.25-16.19 $14.58
Options granted, December 1999............... 120,500 $20.63-32.00 $23.28
Options exercised............................ (531,996) $ 0.09- 6.67 $ 3.29
Options cancelled............................ (264,600) $ 0.09-20.63 $ 4.78
---------- ------------ ------
Options outstanding, December 31, 1999....... 11,014,379 $ 0.09-32.00 $ 1.73
========== ============ ======
</TABLE>

In certain instances, the Company has determined 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 $23,092,080 for the years ended December 31, 1998 and 1999,
respectively. This amount was recorded as a reduction to additional paid-in
capital and is being amortized as a charge to operations over the vesting
periods which range from three to four years of the underlying restricted
common stock. The Company recognized stock compensation expense related to
those options of $218,997, and $8,165,293 for the years ended December 31, 1998
and 1999, respectively.

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>
For the years ended
December 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Net loss as reported............................ $(2,075,938) $(40,287,907)
Pro forma net loss.............................. (2,100,700) (41,630,526)
Net loss per share as reported, basic and
diluted........................................ (0.08) (0.98)
Pro forma net loss per share, basic and
diluted........................................ (0.08) (1.01)
</TABLE>

The weighted-average fair value of options granted during the years ended
December 31, 1998 and 1999 was approximately $1.04 and $7.23, respectively,
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.

F-16
<PAGE>

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 years ended December 31, 1998 and 1999:
Dividend yield of 0%; expected volatility of 0% to 92%; risk-free interest
rates of 5.21% to 6.48%; and expected term of 5 years.

As of December 31, 1998 and 1999, the weighted average remaining
contractual life of the options is 9.8 and 8.8 years, respectively.

12. 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 incrementally vest in Company
contributions on a straight-line basis over their first three years of
employment. The Company did not make contributions to the Plan during 1998.
During 1999 the Company contributed $403,726 to the Plan.

13. Segment Information

In accordance with SFAS No. 131, the Company discloses certain segment
information. The financial results of the Company's segments are presented on
an accrual basis. The Company evaluates the performance of its segments and
allocates resources to them based on gross profit. There are no intersegment
revenues. The table below presents information about the reported gross profit
(loss) of the Company's reportable segments for the years ended December 31,
1997, 1998 and 1999. Asset information is not reported for the product sales
and consulting services segments, as this data is not considered by the Company
in making its decisions regarding operating matters.

<TABLE>
<CAPTION>
Product Consulting Network Reconciling
Sales Services Services Items Total
------- ---------- -------- ----------- -------
(unaudited; dollars in thousands)
<S> <C> <C> <C> <C> <C>
As of and for the year ended
December 31, 1997:
Revenue................... $ 8,150 $ 791 $ 4 $ -- $ 8,945
======= ====== ======= ====== =======
Gross Profit (1).......... $ 970 $ 561 $ 1 $ -- $ 1,532
======= ====== ======= ====== =======
As of and for the year ended
December 31, 1998:
Revenue................... $ 9,900 $1,428 $ 311 $ -- $11,639
======= ====== ======= ====== =======
Gross profit (1).......... $ 1,260 $ 668 $ 270 $ -- $ 2,198
======= ====== ======= ====== =======
Property and equipment,
net........................ $ -- $ -- $ 4,652 $ 379 $ 5,031
======= ====== ======= ====== =======
As of and for the year ended
December 31, 1999:
Revenue................... $13,026 $2,593 $ 1,820 $ -- $17,439
======= ====== ======= ====== =======
Gross profit (loss) (1)... $ 1,692 $ 900 $(2,993) $ -- $ (401)
======= ====== ======= ====== =======
Property and equipment,
net........................ $ -- $ -- $48,903 $6,195 $55,098
======= ====== ======= ====== =======
</TABLE>
- --------

(1) Adjustments that are made to the total of the segments gross profit in
order to arrive at income (loss) before income taxes are as follows:

F-17
<PAGE>

<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------
1997 1998 1999
----------- ----------- ------------
(unaudited; dollars in thousands)
<S> <C> <C> <C>
Gross profit (loss)..................... $ 1,532 $ 2,198 $ (401)
Operating expenses:
Selling, general and administrative... 1,437 4,017 27,670
Amortization of deferred
compensation......................... -- 219 8,165
Depreciation and amortization......... 12 130 5,195
---------- ----------- ------------
Income (loss) from operations........... 83 (2,168) (41,431)
Interest income....................... -- 145 2,095
Interest expense...................... (5) (81) (1,023)
---------- ----------- ------------
Income (loss) before income taxes....... $ 78 $ (2,104) $ (40,359)
========== =========== ============
</TABLE>

14. Subsequent Events

On February 8, 2000, the Company announced a strategic financing
agreement with SBC Communications, Inc. (SBC) and Telefonos de Mexico, S.A. de
C.V. (Telmex), in which both companies agreed to purchase a total of $150
million ($75 million each), of the Company's convertible preferred stock for
$100 per share.

Due to the Company's need to obtain regulatory approvals, the Company was
not able to consummate the preferred stock sale upon execution of the strategic
financing agreement. In order to provide the Company with financing to begin
its strategic plan, SBC and Telmex loaned the Company a total of $30 million
($15 million each) until it received the necessary regulatory approvals to
complete the preferred stock sale. The loans bore interest at a rate of prime
plus 2% during the time they were outstanding. Upon obtaining the regulatory
approval, the Company exchanged the loans for preferred stock and received the
remaining proceeds upon the consummation of the preferred stock sale on March
7, 2000, net of the principal and accrued interest on these interim borrowings.
In conjunction with the financing agreement, the Company executed a summary
operating agreement with both SBC and Telmex, and intends to execute several
definitive agreements with SBC and Telmex covering distinct operating areas
during April 2000. In connection with the financing agreement, the Company also
announced that it would be expanding its network into 20 additional markets in
the southeastern and western regions of the United States. The proceeds from
the preferred stock issuance will, in part, fund this expansion.

The convertible preferred stock is non-voting pays a 7.0% dividend, which
can be satisfied with either additional stock or cash. Each $100.00 share of
preferred stock is convertible at any time at the election of the holder into
3.2258 shares of the Company's common stock, or a total of 4,838,700 common
shares. The preferred stock may be called by the Company for mandatory
conversion into its common stock at any time between two and five years after
the original issue date, provided the Company's stock is trading above $31.00
per share. On each anniversary of the issue date, beginning on the second
anniversary and ending on the seventh anniversary, the holders of the preferred
stock may request that the Company redeem the shares for a cash amount equal to
$100 per share plus unpaid dividends. The Company may postpone such right until
the following year for all but the seventh year if its common stock share price
is below $31.00 for a specified period preceding the anniversary date. The
Company has agreed to use 50% of the proceeds from the preferred stock to more
closely align its network and business operations with the future network and
business operations of both SBC and Telmex. If SBC and Telmex convert their
preferred stock positions into the Company's common stock, SBC will own
approximately 4.8% and Telmex will own approximately 4.5% of the Company's
equity on a fully diluted basis. SBC and Telmex have the right to maintain
their percentage equity ownership interests in the Company's common stock
through a right of primary offer mechanism in the financing agreement. This
right permits them to purchase, in any subsequent offering of the Company's
stock by the Company, on the same terms and conditions as the stock is offered
to third parties, an amount of stock that will allow them to maintain their
respective percentage ownership interests. Through a separate agreement

F-18
<PAGE>

with the Company's present principal stockholders, Spectrum Equity Investors
II, L.P. and Jonathan P. Aust, the Company's Chief Executive Officer, SBC and
Telmex also have a right of first offer to purchase, in certain circumstances,
any shares that these stockholders may wish to sell in the future.

On March 1, 2000, the Company adopted an Employee Stock Purchase Plan
(ESPP). A total of 500,000 shares of common stock are initially available for
issuance under the ESPP.

The ESPP, which is intended to qualify under Section 423 of the IRS Code,
will be implemented by a series of overlapping offering periods of 12 months'
duration, with new offering periods, other than the first offering period,
commencing on January 1 and July 1 of each year. Participants may not accrue
payroll deductions exceeding $10,000 during any offering period.

The purchase price per share at which shares will be sold in an offering
under the ESPP will be the lower of 85% of the fair market value of a share of
the Company's common stock on the first day of an offering period or 85% of the
fair market value of a share of the Company's common stock on the last day of
an offering period. The fair market value of the Company's common stock on a
given date will be equal to the closing price of the Company's common stock on
such date on The Nasdaq Stock Market, as reported in The Wall Street Journal.

F-19
<PAGE>

[Inside Back Cover]

The text described below appears on the top of the page, which is oriented in
landscape mode.

The words "National Service Expansion" appear in yellow, flush left and
italicized.

The map of the United States described below appears at the middle of the page.

A map, with states divided into three categories and distinguished by different
colors or outlines, depicting the areas of proposed service coordination with
SBC Communications Inc., the area of NAS planned service expansion and the
territories currently served by NAS. The latter two sections of the map include
one or more NAS logos.

The legend described below appears at the bottom of the page. The legend has
three components that are as follows, from left to right:

- a blue box next to the NAS logo and the words "planned service
expansion"

- a green box next to the SBC logo and the words "proposed service
coordination"

- a blue box with a yellow border next to the NAS logo and the words
"current service territories"

<PAGE>

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

5,000,000 Shares

[LOGO OF NETWORK ACCESS SOLUTIONS}

Common Stock

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

P R O S P E C T U S

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

Merrill Lynch & Co.

Bear, Stearns & Co. Inc.

Donaldson, Lufkin & Jenrette

J.P. Morgan & Co.

, 2000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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............. $ 42,314
National Association of Securities Dealers, Inc. filing fee..... 7,000
Nasdaq National Market listing fee.............................. 17,500
Transfer agent's and registrar's fees........................... 10,000
*Printing expenses.............................................. 100,000
*Legal fees and expenses........................................ 150,000
*Accounting fees and expenses................................... 150,000
*Miscellaneous expenses......................................... 135,000
--------
Total....................................................... $611,814
========
</TABLE>
- --------
* Estimated.

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.

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 on the basis that these options were offered and sold
either pursuant to a written compensatory benefit plan or pursuant to written
contracts relating to compensation. The sales of securities were made without
the use of an underwriter and the certificates evidencing the shares bear a

II-1
<PAGE>

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 585,000 shares of Common
Stock in a private placement to an employee at a price of $0.22 per
share in exchange for services rendered.

(2) In August 1998 the Registrant issued 22,050,000 shares of
Common Stock in a private placement to a group of four accredited
investors at a purchase price of $0.0002 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 in a private placement 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) In March 1999 the Registrant issued in a private placement to
two of its existing accredited stockholders $5,000,000 aggregate
principal amount of notes convertible into shares of Common Stock based
upon the Registrant's initial public offering price on June 3, 1999.

(5) Between July 1998 and April 1999, the Registrant issued
options to its employees and directors exercisable for an aggregate of
9,000,450 shares of Common Stock at an exercise price of $0.09 per share
pursuant to its 1998 Stock Incentive Plan.

(6) In April 1999 the Registrant issued options to one of its
directors exercisable for an aggregate of 250,000 shares of Common Stock
at an exercise price of $6.67 per share, subject to adjustment pursuant
to its 1998 Stock Incentive Plan.

(7) In May 1999 the Registrant issued in a private placement to
two of its existing accredited stockholders $5,000,000 aggregate
principal amount of notes convertible into shares of Common Stock based
upon the Registrant's initial public offering price on June 3, 1999.

(8) In March 2000 the Registrant issued 1.5 million shares of
Series B Preferred Stock in a private placement to two accredited
investors, at a purchase price of $100 per share for an aggregate price
of $150 million.

16. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1/2/ Amended and Restated Certificate of Incorporation of the Company
3.2/2/ Amended and Restated By-Laws of the Company
3.3/4/ Certificate of the Designations, Voting Powers, Preferences and
Relative, Participating, Optional or Other Special Rights of
Preferred Stock and Qualifications, Limitations or Restrictions
Thereof dated February 4, 2000
4.1/2/ Specimen stock certificate for shares of Common Stock of the
Company
4.2/4/ Specimen stock certificate for shares of Series B Preferred Stock
of the Company
5.1/3/ Form of opinion of Shaw Pittman, regarding legality of securities
being registered
10.1/2/,/5/ Master Equipment Lease Agreement dated November 17, 1998, by and
between the Company and Paradyne Credit Corporation
10.2/2/,/5/ Purchase and Sale Agreement dated as of October 16, 1998, by and
between the Company and Ascend Communications, Inc., as amended
10.3/2/ Master Lease Agreement dated October 9, 1998, by and between the
Company and Ascend Credit Corporation
10.4/2/ Promissory Note dated October 16, 1998, by and between the Company
and Ascend Communications, Inc., as amended
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.5/2/ Commercial Lease dated February 24, 1997, by and between the
Company, Sterling/Gunston Limited Partnership and Bernstein
Management Corporation
10.5.1/2/ First Lease Amendment dated June 26, 1998, by and between the
Company and Sterling/Gunston LLC
10.5.2/2/ Third Lease Amendment dated February 1, 1999, by and between the
Company and Sterling/Gunston LLC
10.6/2/ Sublease dated August 31, 1998, by and between the Company and
U.S. Interactive, Inc.
10.7/2/ Letter of Intent dated March 2, 1999 by and between the Company
and Trans Dulles Center, Inc.
10.8/2/ Employment Agreement dated as of August 16, 1998, by and between
the Company and Jonathan P. Aust
10.9/2/ Employment Agreement dated as of July 13, 1998, by and between the
Company and Christopher J. Melnick
10.10/2/ Employment Agreement dated as of July 13, 1998, by and between the
Company and Scott G. Yancey, Jr.
10.11/2/ Employment Agreement dated as of August 18, 1998, by and between
the Company and James A. Aust
10.12/2/ Employment Agreement dated as of March 1, 1999, by and between the
Company and John J. Hackett
10.13/2/ 1998 Stock Incentive Plan, as amended
10.14/2/ Incentive Stock Option Grant Agreement dated July 23, 1998, by and
between the Company and Scott G. Yancey, Jr., as amended
10.15/2/ Incentive Stock Option Grant Agreement dated July 23, 1998, by and
between the Company and Christopher J. Melnick, as amended
10.16/2/ Incentive Stock Option Grant Agreement dated November 1, 1998, by
and between the Company and James A. Aust
10.17/2/ Incentive Stock Option Grant Agreement dated March 30, 1999, by
and between the Company and John J. Hackett
10.18/2/ Deferred Compensation Agreement dated June 1, 1997, by and between
the Company and Jonathan P. Aust
10.19/2/ Deferred Compensation Agreement dated June 1, 1997, by and between
the Company and James A. Aust
10.20/2/ 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
10.21/2/ 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
10.22/2/ 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
10.23/2/ Amended and Restated Note Purchase Agreement dated as of March 31,
1999 and amended as of May 11, 1999, by and between the Company,
Spectrum Equity Investors II, L.P. and FBR Technology Venture
Partners L.P.
10.24/2/ Amended and Restated Convertible Note dated as of March 31, 1999,
by and between the Company and Spectrum Equity Investors II, L.P.
10.25/2/ Amended and Restated Convertible Note dated as of March 31, 1999,
by and between the Company and FBR Technology Venture Partners
L.P.
10.26/2/ Nonqualified Stock Option Grant Agreement dated April 1, 1999, by
and between the Company and Dennis R. Patrick
10.27/2/ Deed of Lease dated April 8, 1999, by and between the Company and
TransDulles Center, Inc.
10.28/2/ Letter Agreement dated May 6, 1999, by and between the Company and
SBC Communications Inc.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.29/2/ Letter Agreement dated May 7, 1999, by and between the Company and
Telefonos de Mexico, S.A. de C.V.
10.30/2/ Letter Agreement dated May 10, 1999, by and between the Company
and DSL Solutions, Inc. d/b/a DSL Networks
10.3/1/ Employment Agreement dated as of September 13, 1999 by and between
the Company and Worth D. MacMurray
10.32/1/ Nonqualified Stock Option Grant Agreement dated August 9, 1999 by
and between the Company and Worth D. MacMurray
10.33/4/ Lease Agreement by and between Dulles Tech, Inc. and the Company
dated October 27, 1999
10.34/4/ Stock Purchase Agreement dated February 4, 2000 by and between the
Company and SBC Communications Inc.
10.35/4/ Stock Purchase Agreement dated February 4, 2000 by and between the
Company and Telefonos de Mexico, S.A. de C.V.
10.36/4/ Summary of Operating Agreement dated February 4, 2000 by and
between the Company and each of SBC Telecom, Inc. and Telefonos de
Mexico, S.A. de C.V.
10.37/4/ Employee Stock Purchase Plan
23.1 Consent of PricewaterhouseCoopers, LLP
23.2/3/ Consent of Shaw Pittman (included as part of Exhibit 5.1)
24.1/1/ Powers of Attorney
27 Financial Data Schedule
</TABLE>
- --------

/1 /Previously filed.

/2 /Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 333-74679).

/3 /To be filed by amendment.

/4 /Incorporated by reference to the Company's Annual Report on Form 10-K,
filed March 27, 2000.

/5 /Confidential portions omitted and supplied separately to the Securities and
Exchange Commission.

(b) Financial Statement Schedules:

Schedule II -- Valuation and Qualifying Accounts

17. Undertakings

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 27 day of March, 2000.

Network Access Solutions Corporation

/s/ Jonathan P. Aust
By: _________________________________
Jonathan P. Aust

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 Chief Executive Officer March 27, 2000
______________________________________ and Chairman of the Board
Jonathan P. Aust of Directors (Principal
Executive Officer)

/s/ Scott G. Yancey, Jr. Chief Financial Officer March 27, 2000
______________________________________ and Director (Principal
Scott G. Yancey, Jr. Accounting and Financial
Officer)

* Senior Vice President, March 27, 2000
______________________________________ Sales, Development and
Christopher J. Melnick Marketing and Director

* Director March 27, 2000
______________________________________
Brion B. Applegate

* Director March 27, 2000
______________________________________
Dennis R. Patrick

* /s/ Jonathan P. Aust Attorney-in-Fact March 27, 2000
______________________________________
Jonathan P. Aust
</TABLE>

II-5
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS ON

FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of

Network Access Solutions Corporation:

Our audits of the financial statements referred to in our report dated
March 7, 2000, appearing in this Form S-1 also included an audit of the
financial statement schedule listed in Item 16(b) of this Form S-1. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related financial statements.

/s/ PricewaterhouseCoopers LLP

McLean, Virginia

March 7, 2000

II-6
<PAGE>

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

<TABLE>
<CAPTION>
Balance
at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Tax valuation allowance:
Year ended December 31, 1997... $ -- $ -- $ -- $ --
Year ended December 31, 1998... $ -- $ 709,662 $ -- $ 709,662
Year ended December 31, 1999... $ 709,662 $12,218,890 $ -- $12,928,552
Allowance for doubtful accounts
receivable:
Year ended December 31, 1997... $ -- $ -- $ -- $ --
Year ended December 31, 1998... $ -- $ 51,959 $ -- $ 51,959
Year ended December 31, 1999... $ 51,959 $ 324,440 $ -- $ 376,399
</TABLE>

All other schedules are omitted because they are not required, are not
applicable, or the information is included in the financial statements or notes
thereto.

II-7
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1/2/ Amended and Restated Certificate of Incorporation of the
Company
3.2/2/ Amended and Restated By-Laws of the Company
3.3/4/ Certificate of the Designations, Voting Powers, Preferences
and Relative, Participating, Optional or Other Special
Rights of Preferred Stock and Qualifications, Limitations or
Restrictions Thereof dated February 4, 2000
4.1/2/ Specimen stock certificate for shares of Common Stock of the
Company
4.2/4/ Specimen stock certificate for shares of Series B Preferred
Stock of the Company
5.1/3/ Form of opinion of Shaw Pittman, regarding legality of
securities being registered
10.1/2/,/5/ Master Equipment Lease Agreement dated November 17, 1998, by
and between the Company and Paradyne Credit Corporation
10.2/2/,/5/ Purchase and Sale Agreement dated as of October 16, 1998, by
and between the Company and Ascend Communications, Inc., as
amended
10.3/2/ Master Lease Agreement dated October 9, 1998, by and between
the Company and Ascend Credit Corporation
10.4/2/ Promissory Note dated October 16, 1998, by and between the
Company and Ascend Communications, Inc., as amended
10.5/2/ Commercial Lease dated February 24, 1997, by and between the
Company, Sterling/Gunston Limited Partnership and Bernstein
Management Corporation
10.5.1/2/ First Lease Amendment dated June 26, 1998, by and between
the Company and Sterling/Gunston LLC
10.5.2/2/ Third Lease Amendment dated February 1, 1999, by and between
the Company and Sterling/Gunston LLC
10.6/2/ Sublease dated August 31, 1998, by and between the Company
and U.S. Interactive, Inc.
10.7/2/ Letter of Intent dated March 2, 1999 by and between the
Company and Trans Dulles Center, Inc.
10.8/2/ Employment Agreement dated as of August 16, 1998, by and
between the Company and Jonathan P. Aust
10.9/2/ Employment Agreement dated as of July 13, 1998, by and
between the Company and Christopher J. Melnick
10.10/2/ Employment Agreement dated as of July 13, 1998, by and
between the Company and Scott G. Yancey, Jr.
10.11/2/ Employment Agreement dated as of August 18, 1998, by and
between the Company and James A. Aust
10.12/2/ Employment Agreement dated as of March 1, 1999, by and
between the Company and John J. Hackett
10.13/2/ 1998 Stock Incentive Plan, as amended
10.14/2/ Incentive Stock Option Grant Agreement dated July 23, 1998,
by and between the Company and Scott G. Yancey, Jr., as
amended
10.15/2/ Incentive Stock Option Grant Agreement dated July 23, 1998,
by and between the Company and Christopher J. Melnick, as
amended
10.16/2/ Incentive Stock Option Grant Agreement dated November 1,
1998, by and between the Company and James A. Aust
10.17/2/ Incentive Stock Option Grant Agreement dated March 30, 1999,
by and between the Company and John J. Hackett
10.18/2/ Deferred Compensation Agreement dated June 1, 1997, by and
between the Company and Jonathan P. Aust
10.19/2/ Deferred Compensation Agreement dated June 1, 1997, by and
between the Company and James A. Aust
</TABLE>

II-8
<PAGE>

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.20/2/ 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
10.21/2/ 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
10.22/2/ 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
10.23/2/ Amended and Restated Note Purchase Agreement dated as of March 31,
1999 and amended as of May 11, 1999, by and between the Company,
Spectrum Equity Investors II, L.P. and FBR Technology Venture
Partners L.P.
10.24/2/ Amended and Restated Convertible Note dated as of March 31, 1999,
by and between the Company and Spectrum Equity Investors II, L.P.
10.25/2/ Amended and Restated Convertible Note dated as of March 31, 1999,
by and between the Company and FBR Technology Venture Partners
L.P.
10.26/2/ Nonqualified Stock Option Grant Agreement dated April 1, 1999, by
and between the Company and Dennis R. Patrick
10.27/2/ Deed of Lease dated April 8, 1999, by and between the Company and
TransDulles Center, Inc.
10.28/2/ Letter Agreement dated May 6, 1999, by and between the Company and
SBC Communications Inc.
10.29/2/ Letter Agreement dated May 7, 1999, by and between the Company and
Telefonos de Mexico, S.A. de C.V.
10.30/2/ Letter Agreement dated May 10, 1999, by and between the Company
and DSL Solutions, Inc. d/b/a DSL Networks
10.31/1/ Employment Agreement dated as of September 13, 1999 by and between
the Company and Worth D. MacMurray
10.32/1/ Nonqualified Stock Option Grant Agreement dated August 9, 1999 by
and between the Company and Worth D. MacMurray
10.33/4/ Lease Agreement by and between Dulles Tech, Inc. and the Company
dated October 27, 1999
10.34/4/ Stock Purchase Agreement dated February 4, 2000 by and between the
Company and SBC Communications Inc.
10.35/4/ Stock Purchase Agreement dated February 4, 2000 by and between the
Company and Telefonos de Mexico, S.A. de C.V.
10.36/4/ Summary of Operating Agreement dated February 4, 2000 by and
between the Company and each of SBC Telecom, Inc. and Telefonos de
Mexico, S.A. de C.V.
10.37/4/ Employee Stock Purchase Plan
23.1 Consent of PricewaterhouseCoopers, LLP
23.2/3/ Consent of Shaw Pittman (included as part of Exhibit 5.1)
24.1/1/ Powers of Attorney
27 Financial Data Schedule
</TABLE>
- --------

/1/Previously filed.

/2/Incorporated by reference to the Company's Registration Statement on Form S-
1 (No. 333-74679).

/3/To be filed by amendment.

/4/Incorporated by reference to the Company's Annual Report on Form 10-K, filed
March 27, 2000.

/5/Confidential portions omitted and supplied separately to the Securities and
Exchange Commission.

II-9

<PAGE>

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

NETWORK ACCESS SOLUTIONS CORPORATION

[5,750,000] Shares of Common Stock

PURCHASE AGREEMENT

Dated: _________ ___, 2000

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

NETWORK ACCESS SOLUTIONS CORPORATION
[5,750,000] Shares of Common Stock
(Par Value $.001 Per Share)
PURCHASE AGREEMENT
__________ ___, 2000
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
as Representative of the several Underwriters
North Tower
World Financial Center
New York, New York 10281-1209

Ladies and Gentlemen:

Network Access Solutions Corporation, a Delaware corporation (the
"Company"), and the persons listed in Schedule B hereto (the "Selling
Shareholders"), confirm their respective agreements with Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of
the other Underwriters named in Schedule A hereto (collectively, the
"Underwriters", which term shall also include any underwriter substituted as
hereinafter provided in Section 10 hereof), for whom Merrill Lynch is acting as
representative (in such capacity, the "Representative"), with respect to (i) the
sale by the Company, and the purchase by the Underwriters, acting severally and
not jointly, of the respective numbers of shares of Common Stock, par value
$.001 per share, of the Company ("Common Stock") set forth in Schedule B hereto
and (ii) the grant by the Selling Stockholders to the Underwriters, acting
severally and not jointly, of the option described in Section 2(b) hereof to
purchase all or any part of 750,000 additional shares of Common Stock from the
Selling Stockholders in the proportions set forth in Schedule B to cover over-
allotments, if any. The aforesaid $5,000,000 shares of Common Stock (the
"Initial Securities") to be purchased by the Underwriters and all or any part of
the 750,000 shares of Common Stock subject to the option described in Section
2(b) hereof (the "Option Securities") are hereinafter called, collectively, the
"Securities".

The Company and the Selling Shareholders understand that the Underwriters
propose to make a public offering of the Securities as soon as the
Representative deems advisable after this Agreement has been executed and
delivered.

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-93455) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this
<PAGE>

Agreement, the Company will either (i) prepare and file a prospectus in
accordance with the provisions of Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations")
and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or
(ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933
Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance
with the provisions of Rule 434 and Rule 424(b). The information included in
such prospectus or in such Term Sheet, as the case may be, that was omitted from
such registration statement at the time it became effective but that is deemed
to be part of such registration statement at the time it became effective (a)
pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information"
or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434
Information." Each prospectus used before such registration statement became
effective, and any prospectus that omitted, as applicable, the Rule 430A
Information or the Rule 434 Information, that was used after such effectiveness
and prior to the execution and delivery of this Agreement, is herein called a
"preliminary prospectus." Such registration statement, including the exhibits
thereto and schedules thereto at the time it became effective and including the
Rule 430A Information and the Rule 434 Information, as applicable, is herein
called the "Registration Statement." Any registration statement filed pursuant
to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule
462(b) Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final
prospectus in the form first furnished to the Underwriters for use in connection
with the offering of the Securities is herein called the "Prospectus." If Rule
434 is relied on, the term "Prospectus" shall refer to the preliminary
prospectus dated January ___, 2000 together with the Term Sheet and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the Prospectus or any Term
Sheet or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").

SECTION 1. Representations and Warranties.
---------- ------------------------------

(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter that:

(i) The Registration Statement has become effective (other than
any Rule 462(b) Registration Statement to be filed by the Company after
the effectiveness of this Agreement); any Rule 462(b) Registration
Statement filed after the effectiveness of this Agreement will become
effective no later than 10:00 P.M., New York City time, on the date of
this Agreement; and no stop order suspending the effectiveness of the
Registration Statement is in effect, and no proceedings for such purpose
are pending before or threatened by the Commission.

(ii) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the
effectiveness of this Agreement), when it became effective, did not
contain and, as amended, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (ii) the Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company

2
<PAGE>

after the effectiveness of this Agreement) and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the 1933 Act, (iii) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of
this Agreement, such Rule 462(b) Registration Statement and any
amendments thereto, when they become effective (A) will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading and (B) will comply in all material respects with
the Act and (iv) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.

(iii) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when
so filed in all material respects with the 1933 Act, and did not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.

(iv) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority to carry on its business as
described in the Prospectus and to own, lease and operate its
properties. The Company is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified
would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company (a "Material
Adverse Effect"). The Company does not presently own or control,
directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, association, or other entity other
than Network Access Solutions, LLC, a Virginia limited liability company
("LLC"). LLC conducts no operations and has no assets or liabilities
other than a certificate to provide telecommunications services in the
Commonwealth of Virginia.

(v) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
granted or issued by the Company relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock or
other equity interest of the Company, except as otherwise disclosed in
the Registration Statement.

3
<PAGE>

(vi) All the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid, non-
assessable and not subject to any preemptive or similar rights. The
Securities have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor as provided by this Agreement,
will be validly issued, fully paid and non-assessable, and the issuance
of such Securities will not be subject to any preemptive or similar
rights.

(vii) The authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the Prospectus.

(viii) The Company is not in violation of its charter or by-
laws or in default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to the
Company, to which the Company is a party or by which the Company or any
of its assets or properties is bound. There exists no condition that,
with notice, the passage of time or otherwise would constitute a default
under any such agreement or instrument, except for any such condition
which would not reasonably be expected to have a Material Adverse
Effect.

(ix) The execution, delivery and performance of this Agreement
by the Company, the compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby will
not (i) require any consent, approval, authorization or other order of,
or qualification or filing with, any foreign or domestic court or
governmental body or agency, including, without limitation, the Federal
Communications Commission (the "FCC") (except such as may be required
under the securities or Blue Sky laws of the various states and except
those that have already been obtained or made), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default
under, the charter or by-laws of the Company or any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is
material to the Company, to which the Company is a party or by which the
Company or any of its assets or properties is bound, (iii) violate or
conflict with any applicable law, statute, ordinance or any rule,
regulation, judgment, order, decision, writ or decree of any foreign or
domestic court or any governmental body or agency having jurisdiction
over the Company or any of its assets or properties or (iv) result in
the suspension, termination, adverse modification or revocation of any
Authorization (as defined below) of the Company or any other impairment
of the rights of the holder of any such Authorization.

(x) There are no legal or governmental actions, suits,
complaints, inquiries, investigations or proceedings pending or
threatened to which the Company is or could be a party or to which any
of its assets or properties or Authorizations could be subject that are
required to be described in the Registration Statement or the Prospectus
and are not so described, nor are there any domestic or foreign
statutes, laws, ordinances, rules, regulations, contracts or other
documents, or judicial or administrative proceedings that are required
to be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not so
described or filed as required.

4
<PAGE>

(xi) The Company has not violated any foreign, federal, state or
local law or regulation relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, any
provisions of the Foreign Corrupt Practices Act, or the rules and
regulations promulgated thereunder, or any provisions of the
Communications Act of 1934, as amended, including the Telecommunications
Act of 1996 (the "Communications Act"), except for such violations
which, singly or in the aggregate, would not have a Material Adverse
Effect.

(xii) The Company has such permits, licenses, certificates,
registrations, consents, exemptions, franchises, authorizations and
other approvals (each, an "Authorization") of, and has made all filings
with and notices to, all domestic and foreign governmental or regulatory
authorities and self-regulatory organizations and all courts and other
tribunals, including, without limitation, under any applicable
Environmental Laws, and pursuant to the Communications Act, and state
laws and regulations applicable to intrastate telecommunications, as are
necessary or required to own, lease, license and operate its properties
and to conduct its business in the manner currently conducted, except
where the failure to obtain such Authorization or to make such filing
would not have a Material Adverse Effect. Each such Authorization is
valid and in full force and effect and the Company is in compliance with
all the terms and conditions thereof and with the rules and regulations
of the authorities and governing bodies having jurisdiction with respect
thereto, except where such failure to be valid and in full force and
effect or to be in compliance, the occurrence of any such event or the
presence of any such restriction would not, singly or in the aggregate,
have a Material Adverse Effect. To the Company's knowledge, no event has
occurred (including, without limitation, the receipt of any notice from
any authority or governing body) which allows or, after notice or lapse
of time or both, would allow, revocation, suspension, adverse
modification or termination of any such Authorization or results or,
after notice or lapse of time or both, would result in any other
material impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or that are subject to conditions outside of
the ordinary course.

(xiii) The Company has obtained competitive local exchange
carrier ("CLEC") authorization or regulatory approval to provide CLEC
services in each of the following states: Alabama, Delaware, Florida,
Georgia, Kentucky, Maryland Massachusetts, New York, Pennsylvania, South
Carolina and Virginia. No such regulatory approval has been withdrawn,
modified or suspended and, to the Company's knowledge, no such
regulatory approval is the subject of any legal challenge (except as
disclosed in the Registration Statement).

(xiv) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any Authorization, any related
constraints on operating activities and any potential liabilities to
third parties) which would, singly or in the aggregate, have a Material
Adverse Effect.

5
<PAGE>

(xv) This Agreement has been duly authorized, executed and
delivered by the Company and is enforceable against it in accordance
with its terms, except insofar as indemnification and contribution
provisions may be limited by applicable law or equitable principles and
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or other laws affecting the rights of creditors generally
and subject to general principles of equity.

(xvi) Pricewaterhouse Coopers LLP are independent public
accountants with respect to the Company as required by the Act.

(xvii) The financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto),
together with the related schedules and notes, present fairly the
financial position, results of operations and cash flows of the Company
on the basis stated therein at the respective dates or for the
respective periods to which they apply. Such financial statements and
related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout
the periods involved, except as disclosed therein. The supporting
schedules, if any, included in the Registration Statement present fairly
in accordance with generally accepted accounting principles the
information required to be stated therein. The other financial and
statistical information and data set forth in the Registration Statement
and the Prospectus (and any amendment or supplement thereto) are, in all
material respects, accurately presented and prepared on a basis
consistent with such financial statements and the books and records of
the Company.

(xviii) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be, an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended.

(xix) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company except as described in the
Registration Statement, and no person has the right to require the
Company to include any securities with the Shares registered pursuant to
the Registration Statement.

(xx) Since the respective dates as of which information is given
in the Prospectus, and except as set forth in the Prospectus (exclusive
of any amendments or supplements thereto subsequent to the date of this
Agreement), (i) there has not occurred any material adverse change or
any development involving a prospective material adverse change in the
condition, financial or otherwise, or the earnings, business, management
or operations of the Company, (ii) there has not been any material
adverse change or any development involving a prospective material
adverse change in the capital stock or in the long-term debt of the
Company and (iii) the Company has not incurred any material liability or
obligation, direct or contingent.

6
<PAGE>

(xxi) The Common Stock (including the Shares) is registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the
"1934 Act") and is listed for quotation on the Nasdaq National Market.
The Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Stock under the
Exchange Act or delisting the Common Stock from the Nasdaq National
Market, nor has the Company received any notification that the
Commission or the Nasdaq National Market is contemplating terminating
such registration or listing.

(xxii) The Company has good and marketable title to all
personal property owned by it which is material to the business of the
Company, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company.
Any real property and buildings held under lease by the Company are held
by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company,
in each case except as described in the Prospectus. The Company does not
own any real property.

(xxiii) Except as described in the Prospectus, the Company owns
or possesses, or can acquire on reasonable terms, all patents, patent
rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks and trade names ("intellectual property") currently employed by it
in connection with the business now operated by it except where the
failure to own or possess or otherwise be able to acquire such
intellectual property would not, singly or in the aggregate, have a
Material Adverse Effect. The Company has not received any notice of
infringement of or conflict with asserted rights of others with respect
to, any of such intellectual property which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would have
a Material Adverse Effect.

(xxiv) The Company, or to the knowledge of the Company, any of
its respective officers, directors, partners, employees, agents or
affiliates or any other person acting on behalf of the Company has not,
directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or
agent of a customer or supplier, official or employee of any
governmental agency (domestic or foreign), instrumentality of any
government (domestic or foreign) or other person who was, is or may be
in a position to help or hinder the business of the Company (or assist
the Company in connection with any actual or proposed transaction) which
(a) would reasonably be expected to subject the Company or any other
individual or entity to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign), (b) if not
given in the past, would reasonably be expected to have had a Material
Adverse Effect or (c) if not continued in the future, would reasonably
be expected to have a Material Adverse Effect.

7
<PAGE>

(xxv) All material tax returns required to be filed by the
Company in all jurisdictions have been so filed. All taxes, including
withholding taxes, penalties and interest, assessments, fees and other
charges due pursuant to such returns or pursuant to any assessment
received by the Company have been paid, other than those being contested
in good faith and for which adequate reserves have been provided. To the
knowledge of the Company, there are no material proposed additional tax
assessments against the Company or the assets or property of the
Company. The Company has made adequate charges, accruals and reserves in
the applicable financial statements included in the Prospectus in
respect of all federal, state and foreign income and franchise taxes for
all periods as to which the tax liability of the Company has not been
finally determined.

(xxvi) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that: (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(xxvii) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the business in which it is
engaged; and the Company (i) has not received notice from any insurer or
agent of such insurer that substantial capital improvements or other
material expenditures will have to be made in order to continue such
issuance or (ii) has no reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers at a cost that would
not have a Material Adverse Effect.

(xxviii) No relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company, on the other hand,
which is required by the 1933 Act to be described in the Registration
Statement or the Prospectus and which is not so described.

(xxix) The Company has not (i) taken, directly or indirectly,
any action designed to, or that might reasonably be expected to, cause
or result in stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Shares or (ii)
since the date of the Preliminary Prospectus (1) sold, bid for,
purchased or paid any person any compensation for soliciting purchases
of, the Shares or (2) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of
the Company.

(xxx) Except pursuant to this Agreement, there are no
contracts, agreements or understandings between the Company and any
other person that would give rise to a valid claim against the Company
or either of the Underwriters for a brokerage commission,

8
<PAGE>

finder's fee or like payment in connection with the issuance, purchase
and sale of the Shares.

(xxxi) Each certificate signed by any officer of the Company
and delivered to the Underwriters or counsel for the Underwriters shall
be deemed to be a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.

(b) Representation, Warranties and Agreements by the Selling
Shareholders. Each Selling Stockholder represents and warrants to, and agrees
with, each Underwriter that:

(i) Such Selling Stockholder is the lawful owner of the
Securities to be sold by such Selling Stockholder pursuant to this
Agreement and has, and on the Date of Delivery, as defined in Section
2(b), will have, good and clear title to such Securities, free of all
restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever.

(ii) The Securities to be sold by such Selling Stockholder have
been duly authorized and are validly issued, fully paid and non-
assessable.

(iii) Such Selling Stockholder has, and on the Date of Delivery
will have, full legal right, power and authority, and all authorization
and approval required by law, to enter into this Agreement, the Custody
Agreement signed by such Selling Stockholder and the Company, as
Custodian, relating to the deposit of the Shares to be sold by such
Selling Stockholder (the "Custody Agreement") and the Power of Attorney
of such Selling Stockholder appointing certain individuals as such
Selling Stockholder's attorneys-in-fact (the "Attorneys") to the extent
set forth therein, relating to the transactions contemplated hereby and
by the Registration Statement and the Custody Agreement (the "Power of
Attorney") and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Stockholder in the manner provided herein and
therein.

(iv) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder.

(v) The Custody Agreement of such Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and
is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms.

(vi) The Power of Attorney of such Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and
is a valid and binding instrument of such Selling Stockholder,
enforceable in accordance with its terms, and, pursuant to such Power of
Attorney, such Selling Stockholder has, among other things, authorized
the Attorneys, or any one of them, to execute and deliver on such
Selling Stockholder's behalf this Agreement and any other document that
they, or any one of them, may deem necessary or desirable in connection
with the transactions contemplated hereby and thereby and to deliver the
Shares to be sold by such Selling Stockholder pursuant to this
Agreement.

9
<PAGE>

(vii) Upon delivery of and payment for the Shares to be sold by
such Selling Stockholder pursuant to this Agreement, good and clear
title to such Shares will pass to the Underwriters, free of all
restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever.

(viii) The execution, delivery and performance of this
Agreement and the Custody Agreement and Power of Attorney of such
Selling Stockholder by or on behalf of such Selling Stockholder, the
compliance by such Selling Stockholder with all the provisions hereof
and thereof and the consummation of the transactions contemplated hereby
and thereby will not (i) require any consent, approval, authorization or
other order of, or qualification with, any court or governmental body or
agency (except such as may be required under the securities or Blue Sky
laws of the various states), (ii) conflict with or constitute a breach
of any of the terms or provisions of, or a default under, the
organizational documents of such Selling Stockholder, if such Selling
Stockholder is not an individual, or any indenture, loan agreement,
mortgage, lease or other agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder or any
property of such Selling Stockholder is bound or (iii) violate or
conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or agency having
jurisdiction over such Selling Stockholder or any property of such
Selling Stockholder.

(ix) The information in the Registration Statement under the
caption "Principal Stockholders' which specifically relates to such
Selling Stockholder does not, and will not on the Date of Delivery,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.

(x) If there is any change in the information referred to in
Section 1(b)(ix), such Selling Stockholder will immediately notify you
to such change.

(xi) Each certificate signed by or on behalf of such Selling
Stockholder and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a representation and warranty by such
Selling Stockholder to the Underwriters as to the matters covered
thereby.

(c) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its subsidiaries delivered to the Representative or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby; and any
certificate signed by or on behalf of the Selling Shareholders as such and
delivered to the Representative or to counsel for the Underwriters pursuant to
the terms of this Agreement shall be deemed a representation and warranty by the
Selling Shareholders to the Underwriters as to the matters covered thereby.

SECTION 2. Sale and Delivery to Underwriters; Closing.
---------- ------------------------------------------

(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to

10
<PAGE>

each Underwriter, severally and not jointly, and each Underwriter, severally and
not jointly, agrees to purchase from the Company, at the price per share set
forth in Schedule C, that proportion of the number of Initial Securities set
forth in Schedule B opposite the name of the Company, which the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof, bears to the total number of Initial Securities, subject, in
each case, to such adjustments among the Underwriters as the Representative in
its sole discretion shall make to eliminate any sales or purchases of fractional
securities.

(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Selling Shareholders hereby grant an option to the Underwriters,
severally and not jointly, to purchase up to an additional [_________] shares of
Common Stock, as set forth in Schedule B, at the price per share set forth in
Schedule C. The option hereby granted will expire 30 days after the date hereof
and may be exercised in whole or in part from time to time only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial Securities upon notice by the Representative to
the Company and the Selling Shareholders setting forth the number of Option
Securities as to which the several Underwriters are then exercising the option
and the time and date of payment and delivery for such Option Securities. Any
such time and date of delivery (a "Date of Delivery") shall be determined by the
Representative, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of the
Option Securities, each of the Underwriters, acting severally and not jointly,
will purchase that proportion of the total number of Option Securities then
being purchased which the number of Initial Securities set forth in Schedule A
opposite the name of such Underwriter bears to the total number of Initial
Securities, subject in each case to such adjustments as the Representative in
its discretion shall make to eliminate any sales or purchases of fractional
shares.

(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Paul,
Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York, New York 10022, or
at such other place as shall be agreed upon by the Representative and the
Company at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs
after 4:30 P.M. (Eastern time) on any given day) business day after the date
hereof (unless postponed in accordance with the provisions of Section 10), or
such other time not later than ten business days after such date as shall be
agreed upon by the Representative and the Company (such time and date of payment
and delivery being herein called "Closing Time").

In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representative
and the Company, on each Date of Delivery as specified in the notice from the
Representative to the Company.

Payment shall be made to the Company and the Selling Shareholders, as
the case may be, by wire transfer of immediately available funds to bank
accounts designated by the Company

11
<PAGE>

and the Custodian pursuant to each Selling Shareholder's Power of Attorney and
Custody Agreement, as the case may be, against delivery to the Representative
for the respective accounts of the Underwriters of certificates for the
Securities to be purchased by them. It is understood that each Underwriter has
authorized the Representative, for its account, to accept delivery of, receipt
for, and make payment of the purchase price for, the Initial Securities and the
Option Securities, if any, which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the Underwriters, may (but shall not
be obligated to) make payment of the purchase price for the Initial Securities
or the Option Securities, if any, to be purchased by any Underwriter whose funds
have not been received by the Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such Underwriter from its
obligations hereunder.

(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representative may request in writing at least
one full business day before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representative in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.

SECTION 3. Covenants of the Company. The Company covenants with each
---------- ------------------------
Underwriter as follows:

(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Representative immediately, and confirm the notice in writing, (i)
when any post-effective amendment to the Registration Statement shall
become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.

(b) Filing of Amendments. The Company will give the
Representative notice of its intention to file or prepare any amendment
to the Registration Statement (including any filing under Rule 462(b)),
any Term Sheet or any amendment, supplement or revision to either the
prospectus included in the Registration Statement at the time it became

12
<PAGE>

effective or to the Prospectus, will furnish the Representative with
copies of any such documents a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file or use any
such document to which the Representative or counsel for the
Underwriters shall object.

(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Representative and counsel for the
Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein) and
signed copies of all consents and certificates of experts, and will also
deliver to the Representative, without charge, a conformed copy of the
Registration Statement as originally filed and of each amendment thereto
(without exhibits) for each of the Underwriters. The copies of the
Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.

(d) Delivery of Prospectuses. The Company has delivered to
each Underwriter, without charge, as many copies of each preliminary
prospectus as such Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Company will furnish to each Underwriter, without charge,
during the period when the Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably request.
The Prospectus and any amendments or supplements thereto furnished to
the Underwriters will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to
the extent permitted by Regulation S-T.

(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated in this Agreement and in the Prospectus. If at any time
when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the
opinion of counsel for the Underwriters or for the Company, to amend the
Registration Statement or amend or supplement the Prospectus in order
that the Prospectus will not include any untrue statements of a material
fact or omit to state a material fact necessary in order to make the
statements therein not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser, or if it shall be
necessary, in the opinion of such counsel, at any such time to amend the
Registration Statement or amend or supplement the Prospectus in order to
comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as may
be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectus comply with such requirements,
and the Company will furnish to the Underwriters such number of copies
of such amendment or supplement as the Underwriters may reasonably
request.

13
<PAGE>

(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the Securities
for offering and sale under the applicable securities laws of such
states and other jurisdictions (domestic or foreign) as the
Representative may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject. In each jurisdiction in which the Securities
have been so qualified, the Company will file such statements and
reports as may be required by the laws of such jurisdiction to continue
such qualification in effect for a period of not less than one year from
the effective date of the Registration Statement and any Rule 462(b)
Registration Statement.

(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.

(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectus under "Use of Proceeds".

(i) Listing. The Company will use its best efforts to effect
and maintain the quotation of the Securities on the Nasdaq National
Market and will file with the Nasdaq National Market all documents and
notices required by the Nasdaq National Market of companies that have
securities that are traded in the over-the-counter market and quotations
for which are reported by the Nasdaq National Market.

(j) Restriction on Sale of Securities. During a period of 90
days from the date of the Prospectus, the Company will not, without the
prior written consent of Merrill Lynch, (i) directly or indirectly,
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 any
share of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence of
ownership of the Common Stock, whether any such swap or transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Securities to be sold
hereunder, (B) any shares of Common Stock issued by the Company upon the
exercise of an option or warrant or the conversion of a security
outstanding on the date hereof and referred to in the Prospectus, (C)
any shares of Common Stock issued or options to purchase Common Stock
granted pursuant to existing employee benefit plans of the Company
referred to in

14
<PAGE>

the Prospectus or (D) any shares of Common Stock issued pursuant to any
non-employee director stock plan or dividend reinvestment plan.

(k) Reporting Requirements. The Company, during the period when
the Prospectus is required to be delivered under the 1933 Act or the
1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission thereunder.

SECTION 4. Payment of Expenses.
---------- -------------------

(a) Expenses. The Company will pay or cause to be paid all expenses
incident to the performance of their obligations under this Agreement, including
(i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees
and disbursements of the Company's counsel, accountants and other advisors, (v)
the qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities,
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Securities and (x) the fees and expenses incurred in connection with the
inclusion of the Securities in the Nasdaq National Market.

(b) Expenses of the Selling Shareholders. The Selling Shareholders,
will pay all expenses incident to the performance of their respective
obligations under, and the consummation of the transactions contemplated by this
Agreement, including (i) any stamp duties, capital duties and stock transfer
taxes, if any, payable upon the sale of the Securities to the Underwriters, and
their transfer between the Underwriters pursuant to an agreement between such
Underwriters, and (ii) the fees and disbursements of their respective counsel
and accountants.

(c) Termination of Agreement. If this Agreement is terminated by the
Representative in accordance with the provisions of Section 5, Section 9(a)(i)
or Section 11 hereof, the Company shall reimburse the Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.

15
<PAGE>

(d) Allocation of Expenses. The provisions of this Section shall not
affect any agreement that the Company and the Selling Shareholders as between
themselves may make for the sharing of such costs and expenses.

SECTION 5. Conditions of Underwriters' Obligations. The obligations
---------- ---------------------------------------
of the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Selling Shareholders
contained in Section 1 hereof or in certificates of any officer of the Company
or any subsidiary of the Company or on behalf of any Selling Shareholder
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:

(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the 1933 Act
or proceedings therefor initiated or threatened by the Commission, and
any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of counsel
to the Underwriters. A prospectus containing the Rule 430A Information
shall have been filed with the Commission in accordance with Rule 424(b)
(or a post-effective amendment providing such information shall have
been filed and declared effective in accordance with the requirements of
Rule 430A) or, if the Company has elected to rely upon Rule 434, a Term
Sheet shall have been filed with the Commission in accordance with Rule
424(b).

(b) Opinion of Counsel for Company. At Closing Time, the
Representative shall have received the favorable opinion, dated as of
Closing Time, of Shaw Pittman, counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other
Underwriters to the effect set forth in Exhibit A hereto and to such
further effect as counsel to the Underwriters may reasonably request.

(c) Opinion of Counsel for the Selling Shareholders. At Closing
Time, the Representative shall have received the favorable opinion,
dated as of Closing Time, of [Shaw Pittman], counsel for the Selling
Shareholders, in form and substance satisfactory to counsel for the
Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters to the effect set forth in Exhibit B
hereto and to such further effect as counsel to the Underwriters may
reasonably request.

(d) Opinion of Counsel for Underwriters. At Closing Time, the
Representative shall have received the favorable opinion, dated as of
Closing Time, of Paul, Hastings, Janofsky & Walker, LLP, counsel for the
Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters with respect to the matters set forth
in clauses (i), (ii), (v), (vi) (solely as to preemptive or other
similar rights arising by operation of law or under the charter or by-
laws of the Company), (viii) through (x), inclusive, (xii), (xiv)
(solely as to the information in the Prospectus under "Description of
Capital Stock--Common Stock") and the penultimate paragraph of Exhibit A
hereto. In giving such opinion such counsel may rely, as to all matters

16
<PAGE>

governed by the laws of jurisdictions other than the law of the State of
New York and the federal law of the United States, upon the opinions of
counsel satisfactory to the Representative. Such counsel may also state
that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of
the Company and its subsidiaries and certificates of public officials.

(e) Officers' Certificate. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of
which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, and the Representative shall have received
a certificate of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company, dated as
of Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1(a)
hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Time, (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and (iv) no stop
order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or
are pending or are contemplated by the Commission.

(f) Certificate of Selling Shareholders. At Closing Time, the
Representative shall have received a certificate of an Attorney-in-Fact
on behalf of each Selling Shareholder, dated as of Closing Time, to the
effect that (i) the representations and warranties of each Selling
Shareholder contained in Section 1(b) hereof are true and correct in all
respects with the same force and effect as though expressly made at and
as of Closing Time and (ii) each Selling Shareholder has complied in all
material respects with all agreements and all conditions on its part to
be performed under this Agreement at or prior to Closing Time.

(g) Accountant's Comfort Letter. At the time of the execution
of this Agreement, the Representative shall have received from
Pricewaterhouse Coopers LLP a letter dated such date, in form and
substance satisfactory to the Representative, together with signed or
reproduced copies of such letter for each of the other Underwriters
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.

(h) Bring-down Comfort Letter. At Closing Time, the
Representative shall have received from Pricewaterhouse Coopers LLP a
letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection of this
Section, except that the specified date referred to shall be a date not
more than three business days prior to Closing Time.

17
<PAGE>

(i) Approval of Listing. At Closing Time, the Securities shall
have been approved for inclusion in the Nasdaq National Market, subject
only to official notice of issuance.

(j) No Objection. The NASD has confirmed that it has not raised
any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.

(k) Lock-up Agreements. At the date of this Agreement, the
Representative shall have received an agreement substantially in the
form of Exhibit C hereto signed by the persons (including the Selling
Shareholders) listed on Schedule D hereto.

(l) Conditions to Purchase of Option Securities. In the event
that the Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the Option Securities, the
representations and warranties of the Company and the Selling
Shareholders contained herein and the statements in any certificates
furnished by the Company, any subsidiary of the Company and the Selling
Shareholders hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the Representatives
shall have received:

(i) Officers' Certificate. A certificate, dated such Date of
---------------------
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming
that the certificate delivered at the Closing Time pursuant to Section
5(e) hereof remains true and correct as of such Date of Delivery.

(ii) Certificate of Selling Shareholders. A certificate, dated
-----------------------------------
such Date of Delivery, of an Attorney-in-Fact on behalf of each Selling
Shareholder confirming that the certificate delivered at Closing Time
pursuant to Section 5(f) remains true and correct as of such Date of
Delivery.

(iii) Opinion of Counsel for Company. The favorable opinion of
------------------------------
Shaw Pittman, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of
Delivery, relating to the Option Securities to be purchased on such Date
of Delivery and otherwise to the same effect as the opinion required by
Section 5(b) hereof.

(iv) Opinion of Counsel for the Selling Shareholders. The
-----------------------------------------------
favorable opinion of, [Shaw Pittman] counsel for the Selling
Shareholders, in form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(c) hereof.

(v) Opinion of Counsel for Underwriters. The favorable opinion
-----------------------------------
of Paul, Hastings, Janofsky & Walker LLP, counsel for the Underwriters,
dated such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as
the opinion required by Section 5(d) hereof.

18
<PAGE>

(vi) Bring-down Comfort Letter. A letter from Pricewaterhouse
-------------------------
Coopers LLP, in form and substance satisfactory to the Representative
and dated such Date of Delivery, substantially in the same form and
substance as the letter furnished to the Representative pursuant to
Section 5(g) hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more than five
days prior to such Date of Delivery.

(m) Additional Documents. At Closing Time and at each Date of
Delivery counsel for the Underwriters shall have been furnished with
such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
herein contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company
and the Selling Shareholders in connection with the issuance and sale of
the Securities as herein contemplated shall be satisfactory in form and
substance to the Representative and counsel for the Underwriters.

(n) Termination of Agreement. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of Option Securities on a Date of Delivery which is after the
Closing Time, the obligations of the several Underwriters to purchase
the relevant Option Securities, may be terminated by the Representative
by notice to the Company at any time at or prior to Closing Time or such
Date of Delivery, as the case may be, and such termination shall be
without liability of any party to any other party except as provided in
Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such
termination and remain in full force and effect.

SECTION 6. Indemnification.
---------- ---------------

(a) Indemnification of Underwriters. The Company and the Selling
Shareholders, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act to the
extent and in the manner set forth in clauses (i), (ii) and (iii) below:

(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission
or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;

(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or

19
<PAGE>

any investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the Company and the
Selling Shareholders; and

(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).

(b) Indemnification of Company, Directors and Officers and Selling
Shareholders. Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and each Selling
Shareholder against any and all loss, liability, claim, damage and expense
described in the indemnity contained in this Section, as incurred, but only with
respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto),
including the Rule 430A Information and the Rule 434 Information, if applicable,
or any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through Merrill Lynch expressly for use in
the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).

(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of

20
<PAGE>

the indemnified party) also be counsel to the indemnified party. In no event
shall the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 6 or Section 7 hereof (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.

(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.

SECTION 7. Contribution. If the indemnification provided for in
------------
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholders on the one hand and the Underwriters on the
other hand from the offering of the Securities pursuant to this Agreement or
(ii) if the allocation provided by clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Selling Shareholders on the one hand and of the Underwriters on
the other hand in connection with the statements or omissions which resulted in
such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations.

The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other hand in
connection with the offering of the Securities pursuant to this Agreement shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Securities pursuant to this Agreement (before deducting
expenses) received by the Company and the Selling Shareholders and the total
underwriting discount received by the Underwriters, in each case as set forth on
the cover of the Prospectus, or, if Rule 434 is used, the corresponding location
on the Term Sheet bear to the aggregate initial public offering price of the
Securities as set forth on such cover.

21
<PAGE>

The relative fault of the Company and the Selling Shareholders on the
one hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or the Selling Shareholders or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.

The Company, the Selling Shareholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
7. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.

Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.

No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.

For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company or any
Selling Shareholder within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company or
such Selling Shareholder, as the case may be. The Underwriters' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the number of Initial Securities set forth opposite their respective names in
Schedule A hereto and not joint.

The provisions of this Section shall not affect any agreement among the
Company and the Selling Shareholders with respect to contribution.

22
<PAGE>

SECTION 8. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- --------
Agreement or in certificates of officers of the Company or any of its
subsidiaries or the Selling Shareholders submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or controlling person, or by or on behalf of the
Company or the Selling Shareholders, and shall survive delivery of the
Securities to the Underwriters.

SECTION 9. Termination of Agreement.
---------- ------------------------

(a) Termination; General. The Representative may terminate this
Agreement, by notice to the Company and the Selling Shareholders, at any time at
or prior to Closing Time (i) if there has been, since the time of execution of
this Agreement or since the respective dates as of which information is given in
the Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, any
outbreak of hostilities or escalation thereof or other calamity or crisis or any
change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Representative,
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iii) if trading in any securities of the Company has been
suspended or materially limited by the Commission or the Nasdaq National Market,
or if trading generally on the American Stock Exchange or the New York Stock
Exchange or in the Nasdaq National Market has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal or New York authorities.

(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.

SECTION 10. Default by One or More of the Underwriters. If one or more
------------------------------------------
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representative shall have the right, within 24
hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representative shall not have completed
such arrangements within such 24-hour period, then:

(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the

23
<PAGE>

proportions that their respective underwriting obligations hereunder
bear to the underwriting obligations of all non-defaulting Underwriters,
or

(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the Underwriters to purchase and of the Company
to sell the Option Securities to be purchased and sold on such Date of
Delivery shall terminate without liability on the part of any non-
defaulting Underwriter.

No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.

In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the (i) Representative or (ii) the Company and any
Selling Shareholder shall have the right to postpone Closing Time or the
relevant Date of Delivery, as the case may be, for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10.

SECTION 11. Default by one or more of the Selling Shareholders or the
---------------------------------------------------------
Company. (a) If a Selling Shareholder shall fail at Closing Time or at a Date of
- -------
Delivery to sell and deliver the number of Securities which such Selling
Shareholder or Selling Shareholders are obligated to sell hereunder, and the
remaining Selling Shareholders do not exercise the right hereby granted to
increase, pro rata or otherwise, the number of Securities to be sold by them
hereunder to the total number to be sold by all Selling Shareholders as set
forth in Schedule B hereto, then the Underwriters may, at option of the
Representative, by notice from the Representative to the Company and the non-
defaulting Selling Shareholders, either (a) terminate this Agreement without any
liability on the fault of any non-defaulting party except that the provisions of
Sections 1, 4, 6, 7 and 8 shall remain in full force and effect or (b) elect to
purchase the Securities which the non-defaulting Selling Shareholders and the
Company have agreed to sell hereunder. No action taken pursuant to this Section
11 shall relieve any Selling Shareholder so defaulting from liability, if any,
in respect of such default.

In the event of a default by any Selling Shareholder as referred to in
this Section 11, each of the Representative, the Company and the non-defaulting
Selling Shareholders shall have the right to postpone Closing Time or Date of
Delivery for a period not exceeding seven days in order to effect any required
change in the Registration Statement or Prospectus or in any other documents or
arrangements.

(b) If the Company shall fail at Closing Time or at the Date of
Delivery to sell the number of Securities that it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the part
of any nondefaulting party; provided, however, that the provisions of Sections
1, 4, 6, 7 and 8 shall remain in full force and effect. No action taken

24
<PAGE>

pursuant to this Section shall relieve the Company from liability, if any, in
respect of such default.

SECTION 12. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representative at North Tower, World
Financial Center, New York, New York 10281-1201, attention of [___________];
notices to the Company shall be directed to it at [___________], attention of
[____________]; and notices to the Selling Shareholders shall be directed
to [____________], attention of [__________].

SECTION 13. Parties. This Agreement shall each inure to the benefit of
-------
and be binding upon the Underwriters, the Company and the Selling Shareholders
and their respective successors. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Underwriters, the Company and the Selling
Shareholders and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters, the Company and the Selling Shareholders
and their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.

SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
----------------------
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. SPECIFIED TIMES OF DAY REFER
TO NEW YORK CITY TIME.

SECTION 15. Effect of Headings. The Article and Section headings
------------------
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.

25
<PAGE>

If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company and the Attorney-in-Fact for the Selling
Shareholders a counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement among the Underwriters, the
Company and the Selling Shareholders in accordance with its terms.

Very truly yours,

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

By
---------------------------------------
As Attorney-in-Fact acting on behalf of
the Selling Shareholders named in
Schedule B hereto

CONFIRMED AND ACCEPTED,
as of the date first above written:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

By
---------------------------------------------------
Authorized Signatory

For itself and as Representative of the other Underwriters named in Schedule A
hereto.

26
<PAGE>

SCHEDULE A

Number of
Name of Underwriter Initial Securities
- ------------------- ------------------

Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................

5,000,000
Total..................................

Sch A - 1
<PAGE>

SCHEDULE B

<TABLE>
<CAPTION>
Number of Initial Maximum Number of Option
Securities to be Sold Securities to Be Sold
------------------------------- --------------------------------
<S> <C> <C>

Total......................... 750,000
</TABLE>

Sch B - 1
<PAGE>

SCHEDULE C

5,750,000 Shares of Common Stock
(Par Value $.001 Per Share)

1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $[_________ ].

2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $[___________], being an amount equal to the
initial public offering price set forth above less $[__________] per share.

Sch C - 1
<PAGE>

SCHEDULE D

List of persons and entities
subject to lock-up

[__________________]

Sch D - 1
<PAGE>

Exhibit A

FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)

You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Underwriters), dated the Closing Date, of Shaw Pittman,
counsel for the Company, to the effect that:

(i) the Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority to carry on its business as described in the
Prospectus and to own, lease and operate its properties;

(ii) the Company is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect;

(iii) all the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights;

(iv) the Shares have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor as provided by this Agreement, will
be validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights;

(v) the Agreement has been duly authorized, executed and delivered by
the Company;

(vi) the authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus;

(vii) the Registration Statement has become effective under the Act, no
stop order suspending its effectiveness has been issued and no proceedings for
that purpose are, to the best of such counsel's knowledge after due inquiry,
pending before or threatened by the Commission;

(viii) the statements under the captions "Management - Employment
Agreements", "Management - 1998 Stock Incentive Plan", and "Description of
Capital Stock" and the eighth and eleventh paragraphs of the caption
"Underwriting" in the Prospectus and Items 14 and 15 of Part II of the
Registration Statement, insofar as such statements constitute a summary of the
legal matters, documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings;

(ix) the Company is not in violation of its charter or by-laws and, to
the best of such counsel's knowledge after due inquiry, the Company is not in
default in the performance of any

A-1
<PAGE>

obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company, to which the Company is a party or by which the Company or any of
its assets or properties is bound;

(x) the execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (A) require any
consent, approval, authorization or other order of, or qualification or filing
with, any foreign or domestic court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various states
and except those that have already been obtained or made), (B) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to the
Company, to which the Company is a party or by which the Company or any of its
assets or properties is bound, (C) violate or conflict with any applicable law,
statute, ordinance or any rule, regulation, judgment, order, decision, writ or
decree of any foreign or domestic court or any governmental body or agency
having jurisdiction over the Company or any of its assets or properties or (D)
result in the suspension, termination, revocation or adverse modification of any
Authorization of the Company or any other impairment of the rights of the holder
of any such Authorization;

(xi) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company is or could
be a party or to which any of its assets or properties or Authorizations is or
could be subject that are required to be described in the Registration Statement
or the Prospectus and are not so described, or of any domestic or foreign
statutes, laws, ordinances, rules, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
so described or filed as required;

(xii) to the best of such counsel's knowledge after due inquiry, the
Company has not violated any Environmental Law, any provisions of the Employee
Retirement Income Security Act of 1974, as amended, or any provisions of the
Foreign Corrupt Practices Act, or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a Material Adverse Effect;

(xiii) to the best of such counsel's knowledge, the Company has such
Authorizations of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary or required to own, lease, license and
operate its properties and to conduct its business. Each such Authorization is
valid and in full force and effect and the Company is in compliance with all the
terms and conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect thereto,
except where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect. To the best of such counsel's knowledge, no event has occurred
(including, without limitation, the receipt of any notice from any authority or
governing body) which allows or, after notice or lapse of time or both, would
allow, revocation, suspension, adverse modification or termination of any such
Authorization or

A-2
<PAGE>

results or, after notice or lapse of time or both, would result in any other
impairment of the rights of the holder of any such Authorization; and such
Authorizations contain no restrictions that are burdensome to the Company
(provided that Shaw Pittman shall not be required to give any opinion regarding
FCC or state regulatory or intellectual property matters);

(xiv) the Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended;

(xv) to the best of such counsel's knowledge after due inquiry, there
are no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company except as described in the Registration Statement, and no person has the
right to require the Company to include any securities with the Shares
registered pursuant to the Registration Statement; and

(xvi) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements and other
financial data, FCC and state regulatory and intellectual property matters
included therein as to which no opinion need be expressed) comply as to form
with the Act, (B) such counsel has no reason to believe that at the time the
Registration Statement became effective or on the date of this Agreement, the
Registration Statement and the prospectus included therein (except for the
financial statements and Schedules as to which such counsel need not express any
belief) contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading and (C) such counsel has no reason to believe that the
Prospectus, as amended or supplemented, if applicable (except for the financial
statements and Schedules) contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

A-3
<PAGE>

Exhibit B

FORM OF OPINION OF COUNSEL FOR THE SELLING SHAREHOLDERS
TO BE DELIVERED PURSUANT TO SECTION 5(c)

(i) No filing with, or consent, approval, authorization, license, order,
registration, qualification or decree of, any court or governmental authority or
agency, domestic or foreign, (other than the issuance of the order of the
Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state securities
laws, as to which we need express no opinion) is necessary or required to be
obtained by the Selling Shareholders for the performance by each Selling
Shareholder of its obligations under the Purchase Agreement or in the Power of
Attorney and Custody Agreement, or in connection with the offer, sale or
delivery of the Securities.

(ii) Each Power of Attorney and Custody Agreement has been duly executed
and delivered by the respective Selling Shareholders named therein and
constitutes the legal, valid and binding agreement of such Selling Shareholder.

(iii) The Purchase Agreement has been duly authorized, executed and
delivered by or on behalf of each Selling Shareholder.

(iv) Each Attorney-in-Fact has been duly authorized by the Selling
Shareholders to deliver the Securities on behalf of the Selling Shareholders in
accordance with the terms of the Purchase Agreement.

(v) The execution, delivery and performance of the Purchase Agreement and
the Power of Attorney and Custody Agreement and the sale and delivery of the
Securities and the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement and compliance by the Selling
Shareholders with its obligations under the Purchase Agreement have been duly
authorized by all necessary action on the part of the Selling Shareholders and
do not and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default under or
result in the creation or imposition of any tax, lien, charge or encumbrance
upon the Securities or any property or assets of the Selling Shareholders
pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, license, lease or other instrument or agreement to which any
Selling Shareholder is a party or by which they may be bound, or to which any of
the property or assets of the Selling Shareholders may be subject nor will such
action result in any violation of the provisions of the charter or by-laws of
the Selling Shareholders, if applicable, or any law, administrative regulation,
judgment or order of any governmental agency or body or any administrative or
court decree having jurisdiction over such Selling Shareholder or any of its
properties.

(vi) To the best of our knowledge, each Selling Shareholder has valid and
marketable title to the Securities to be sold by such Selling Shareholder
pursuant to the Purchase Agreement, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind, and has full right,
power and authority to sell, transfer and deliver such Securities pursuant

B-1
<PAGE>

to the Purchase Agreement. By delivery of a certificate or certificates therefor
such Selling Shareholder will transfer to the Underwriters who have purchased
such Securities pursuant to the Purchase Agreement (without notice of any defect
in the title of such Selling Shareholder and who are otherwise bona fide
purchasers for purposes of the Uniform Commercial Code) valid and marketable
title to such Securities, free and clear of any pledge, lien, security interest,
charge, claim, equity or encumbrance of any kind.

Nothing has come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules, as to which such counsel need not express any belief),
at the time such Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus or any amendment or supplement thereto
(except for financial statements and schedules as to which we need make no
statement), at the time the Prospectus was issued, at the time any such amended
or supplemented prospectus was issued or at the Closing Time, included or
includes an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.

B-2
<PAGE>

Form of lock-up from directors, officers or other stockholders pursuant to
Section 5(k)

Exhibit C
January ___, 2000
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
as Representative of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
North Tower
World Financial Center
New York, New York 10281-1209

Re: Proposed Public Offering by Network Access Solutions Corporation
----------------------------------------------------------------

Dear Sirs:

The undersigned, a stockholder [and an officer and/or director] of Network
Access Solutions Corporation, a Delaware corporation (the "Company"),
understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") proposes to enter into a Purchase Agreement (the
"Purchase Agreement") with the Company and the Selling Shareholders providing
for the public offering of shares (the "Securities") of the Company's common
stock, par value $.001 per share (the "Common Stock"). In recognition of the
benefit that such an offering will confer upon the undersigned as a stockholder
[and an officer and/or director] of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees with each underwriter to be named in the Purchase Agreement
that, during a period of 90 days from the date of the Purchase Agreement, the
undersigned will not, without the prior written consent of Merrill Lynch,
directly or indirectly, (i) 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 for the sale of, or otherwise dispose of or
transfer any shares of the Company's Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
hereafter acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition, or file any registration
statement under the Securities Act of 1933, as amended, with respect to any of
the foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise.

Very truly yours,

Signature:
_________________________________

Print Name:
________________________________

C-1
<PAGE>

Annex A

[FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(g)]

[We are independent public accountants with respect to the Company within the
meaning of the 1933 Act and the applicable published 1933 Act Regulations]

(i) in our opinion, the audited financial statements [and the related
financial statement schedules] included in the Registration Statement and
the Prospectus comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules
and regulations thereunder;

(ii) on the basis of procedures (but not an examination in accordance
with generally accepted auditing standards) consisting of a reading of the
unaudited interim [consolidated] financial statements of the Company for
the [three month periods ended _________, 19___ and _________, 19___ , the
three and six month periods ended _________, 19___ and _________, 19___ and
the three and nine month periods ended _________, 19___ and _________,
19___, included in the Registration Statement and the Prospectus
(collectively, the "Quarterly Financials")] [, a reading of the unaudited
interim [consolidated] financial statements of the Company for the _____-
month periods ended _________, 19___ and _________, 19___, included in the
Registration Statement and the Prospectus (the "____-month financials")] [,
a reading of the latest available unaudited interim [consolidated]
financial statements of the Company], a reading of the minutes of all
meetings of the stockholders and directors of the Company [and its
subsidiaries] and the ____________ and ____________ Committees of the
Company's Board of Directors [and any subsidiary committees] since [day
after end of last audited period], inquiries of certain officials of the
Company [and its subsidiaries] responsible for financial and accounting
matters, a review of interim financial information in accordance with
standards established by the American Institute of Certified Public
Accountants in Statement on Auditing Standards No. 71, Interim Financial
Information ("SAS 71"), with respect to the [description of relevant
periods] and such other inquiries and procedures as may be specified in
such letter, nothing came to our attention that caused us to believe that:

[(A) the Quarterly Financials included in the Registration
Statement and the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
1933 Act and the 1933 Act Regulations or any material modifications
should be made to the unaudited [consolidated] financial statements
included in the Registration Statement and the Prospectus for them
to be in conformity with generally accepted accounting principles;]

[( ) the _____-month financials included in the Registration
Statement and the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
1933 Act and the 1933 Act Regulations applicable to unaudited
interim financial statements included in registration statements or
any material modifications should be made to the

Annex A-1
<PAGE>

_____-month financials included in the Registration Statement and
the Prospectus for them to be in conformity with generally accepted
accounting principles;]

( ) at [_________, 19___ and at] a specified date not more than
five days prior to the date of this Agreement, there was any change
in the ___________ of the Company [and its subsidiaries] or any
decrease in the __________ of the Company [and its subsidiaries] or
any increase in the __________ of the Company [and its
subsidiaries,] in each case as compared with amounts shown in the
latest balance sheet included in the Registration Statement, except
in each case for changes, decreases or increases that the
Registration Statement discloses have occurred or may occur; or

( ) [for the period from _________, 19___ to _________, 19___
and ] for the period from _________, 19___ to a specified date not
more than five days prior to the date of this Agreement, there was
any decrease in _________, __________ or ___________, in each case
as compared with the comparable period in the preceding year, except
in each case for any decreases that the Registration Statement
discloses have occurred or may occur;

(iii) based upon the procedures set forth in clause (ii) above
and a reading of the [Selected Financial Data] included in the
Registration Statement [and a reading of the financial statements
from which such data were derived], nothing came to our attention
that caused us to believe that the [Selected Financial Data]
included in the Registration Statement do not comply as to form in
all material respects with the disclosure requirements of Item 301
of Regulation S-K of the 1933 Act [, that the amounts included in
the [Selected Financial Data] are not in agreement with the
corresponding amounts in the audited [consolidated] financial
statements for the respective periods or that the financial
statements not included in the Registration Statement from which
certain of such data were derived are not in conformity with
generally accepted accounting principles];

(iv) we have compared the information in the Registration
Statement under selected captions with the disclosure requirements
of Regulation S-K of the 1933 Act and on the basis of limited
procedures specified herein. nothing came to our attention that
caused us to believe that this information does not comply as to
form in all material respects with the disclosure requirements of
Items 302, 402 and 503(d), respectively, of Regulation S-K;

[(v) based upon the procedures set forth in clause (ii) above, a
reading of the unaudited financial statements of the Company for
[the most recent period] that have not been included in the
Registration Statement and a review of such financial statements in
accordance with SAS 71, nothing came to our attention that caused us
to believe that the unaudited amounts for _____________ for the
[most recent period] do not agree with the amounts set

Annex A-2
<PAGE>

forth in the unaudited consolidated financial statements for those
periods or that such unaudited amounts were not determined on a
basis substantially consistent with that of the corresponding
amounts in the audited [consolidated] financial statements;]

[(vi)] we are unable to and do not express any opinion on the
[Pro Forma Combining Statement of Operations] (the "Pro Forma
Statement") included in the Registration Statement or on the pro
forma adjustments applied to the historical amounts included in the
Pro Forma Statement; however, for purposes of this letter we have:

(A) read the Pro Forma Statement;

(B) performed [an audit] [a review in accordance with SAS 71]
of the financial statements to which the pro forma adjustments
were applied;

(C) made inquiries of certain officials of the Company who
have responsibility for financial and accounting matters about
the basis for their determination of the pro forma adjustments
and whether the Pro Forma Statement complies as to form in all
material respects with the applicable accounting requirements of
Rule 11-02 of Regulation S-X; and

(D) proved the arithmetic accuracy of the application of the
pro forma adjustments to the historical amounts in the Pro Forma
Statement; and

on the basis of such procedures and such other inquiries and
procedures as specified herein, nothing came to our attention that
caused us to believe that the Pro Forma Statement included in the
Registration Statement does not comply as to form in all material
respects with the applicable requirements of Rule 11-02 of
Regulation S-X or that the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of
those statements; and

[(vii)] in addition to the procedures referred to in clause (ii)
above, we have performed other procedures, not constituting an
audit, with respect to certain amounts, percentages, numerical data
and financial information appearing in the Registration Statement,
which are specified herein, and have compared certain of such items
with, and have found such items to be in agreement with, the
accounting and financial records of the Company; and

[(viii) in addition, we [comfort on a financial forecast that is
included in the Registration Statement].

Annex A-3
<PAGE>

M-1

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registation Statement on Form S-1 of our
reports dated March 7, 2000 relating to the financial statements and financial
statement schedules of Network Access Solutions Corporation, which appear in
such Registration Statement. We also consent to the references to us under the
headings "Experts", "Summary Financial and Other Data" and "Selected Financial
And Other Data" in such Registration Statement.

/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP

McLean, Virginia
March 24, 2000

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,240
<SECURITIES> 24,576
<RECEIVABLES> 3,634
<ALLOWANCES> (377)
<INVENTORY> 441
<CURRENT-ASSETS> 47,441
<PP&E> 60,436
<DEPRECIATION> (5,338)
<TOTAL-ASSETS> 104,620
<CURRENT-LIABILITIES> 18,907
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 67,955
<TOTAL-LIABILITY-AND-EQUITY> 104,620
<SALES> 17,439
<TOTAL-REVENUES> 17,439
<CGS> 17,840
<TOTAL-COSTS> 17,840
<OTHER-EXPENSES> 41,030
<LOSS-PROVISION> (41,431)
<INTEREST-EXPENSE> 1,023
<INCOME-PRETAX> (40,359)
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