DSL NET INC, S-1/A, 1999-07-22

DSL NET INC
S-1/A, 1999-07-22
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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As filed with the Securities and Exchange Commission on July 22, 1999

Registration No. 333-80141
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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AMENDMENT NO. 1 TO
FORM S-1

REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

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DSL.net, Inc.
(Exact name of registrant as specified in its charter)

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Delaware 4813 06-1510312
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification Number)
of incorporation or
organization)

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DSL.net, Inc.
545 Long Wharf Drive
New Haven, CT 06511
(203) 772-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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David Struwas, President and Chief Executive Officer
DSL.net, Inc.
545 Long Wharf Drive
New Haven, CT 06511
(203) 772-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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Copies to:

Mark H. Burnett, Esq. Stephen Zamansky, Esq. Ellen B. Corenswet, Esq.
Testa, Hurwitz & DSL.net, Inc. Babak Yaghmaie, Esq.
Thibeault, LLP 545 Long Wharf Drive Brobeck, Phleger &
125 High Street New Haven, Connecticut 06511 Harrison LLP
Boston, Massachusetts (203) 772-1000 1633 Broadway, 47th
02110 Floor
(617) 248-7000 New York, New York 10019
(212) 581-1600

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.

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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, 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,
check the following box. [X]

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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price aggregate offering registration
securities to be registered registered per share(1) price(1) fee(1)(2)
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<S> <C> <C> <C> <C>
Common Stock, $.0005 par
value................. 10,971,818 $12.00 $131,661,818 $36,601.99
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</TABLE>

(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.

(2) Previously paid $31,970.00. Other expenses of the offering aggregate
$1,050,000 and are itemized under Item 13 of Part II of this Registration
Statement.

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

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<PAGE>

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

SUBJECT TO COMPLETION -- July 22, 1999

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Prospectus

August , 1999

[LOGO]

DSL.net, Inc.

9,600,000 Shares

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DSL.net, Inc.: The Offering:

. We provide high-
speed data . We are offering
communications 9,600,000 shares of
services and our common stock.
Internet access
using digital
subscriber line
technology to small
and medium sized
businesses in
select second and
third tier cities.

. Staples, Inc. has
indicated an
interest in
purchasing
$5,000,000 of
common stock
directly from us at
the initial public
offering price in
connection with
this offering,
although it is not
bound to do so.

Proposed Symbol &
Market:

. DSLN

. Nasdaq National Market

Use of Proceeds: . The underwriters
have an option to
purchase up to an
additional
1,371,818 shares to
cover over-
allotments.

. To continue building
our network

. For working capital and
other general corporate
purposes

. This is the initial
public offering of
our common stock.
We anticipate that
the initial public
offering price will
be between $10.00
and $12.00 per
share.

. Closing: August , 1999.

-----------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
----------------------------------------
<S> <C> <C>
Public offering price: $ $

Underwriting fees:

Proceeds to DSL.net:

----------------------------------------
</TABLE>

This investment involves risk. See "Risk
Factors" beginning on page 10.

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

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Donaldson, Lufkin & Jenrette
Deutsche Banc Alex. Brown

Lehman Brothers

DLJdirect Inc.
<PAGE>

[Map of United States highlighting selected cites in Connecticut in which we
currently provide service and selected cities in Tennessee in which we will
provide service in 1999.]

Text:

. DSL.net

. Representative Market Coverage

. Selected Cities in Connecticut (Service Currently Available)--Hartford,
New Haven, Bridgeport, Norwalk, Stamford and Greenwich

. Selected Cities in Tennessee (Service Available in 1999)--Memphis,
Nashville, Chattanooga and Knoxville

. High-Speed Data Communications for Under-Served Markets

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 10
Use of Proceeds..................... 21
Dividend Policy..................... 21
Capitalization...................... 22
Dilution............................ 23
Selected Financial and Other Data... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 27
Business............................ 36
<CAPTION>
Page
<S> <C>
Management.......................... 54
Certain Transactions................ 60
Principal Stockholders.............. 64
Description of Capital Stock........ 66
Shares Eligible for Future Sale..... 72
Underwriting........................ 74
Legal Matters....................... 77
Experts............................. 77
Additional Information.............. 77
Index to Financial Statements....... F-1
</TABLE>

3
<PAGE>

PROSPECTUS SUMMARY

This summary highlights certain important information regarding our business
and this offering. You should read this entire prospectus, including the "Risk
Factors" and the financial statements and all related notes, before deciding to
purchase our common stock. All share information reflects all stock splits
effected prior to the date of this prospectus. Except as otherwise indicated,
the information in this prospectus assumes that:

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

. all outstanding shares of our preferred stock will be converted into
35,759,794 shares of our common stock.

DSL.net

Our Business

We provide high-speed data communications and Internet access services using
digital subscriber line, or DSL, technology to small and medium sized
businesses. We target select second and third tier cities, generally with
populations of less than 900,000. Our networks enable data transport over
existing copper telephone lines at speeds of up to 1.5 megabits per second. Our
services, marketed under the NetGAIN brand name, offer customers high-speed
digital connections at prices that are attractive compared to the cost and
performance of alternative data communications services.

We offer our customers a single point of contact for a complete business
solution that includes all of the necessary equipment and services for high-
speed data communications. Our primary services include Internet access, e-mail
and hosting our customers' Web sites. We also support networks that connect
customers' various offices and connect our customers with their suppliers,
customers and others. In addition, through independent suppliers, we intend to
offer Web site design and development and applications enabling customers to
engage in electronic commerce. Key elements of our services include:

. high-speed digital connections at prices that are attractive compared to
the cost and performance of alternative data communications services;

. connections that allow for data transmission to and from the customer at
the same high speed, known as symmetric connections;

. connections that allow customers to access the Internet continuously
without having to dial into the network for each use;

. a network designed to reduce the possibility of unauthorized access and
to permit the secure transmission of sensitive information and
applications; and

. high quality customer support 24 hours a day, seven days a week, with
continuous network and customer connections monitoring.

We install our equipment in and provide our services from the offices of
traditional telephone companies from which local telephone service is provided,
known as central offices. Our network design allows us to monitor network
components and customer traffic from our network operations

4
<PAGE>

center located in New Haven, Connecticut. This enables us to enhance network
quality, service and performance and to identify and address network problems
promptly. We have designed our network so that new capacity is added
incrementally with each new customer.

We began providing service in Stamford, Connecticut in May 1998. As of June
30, 1999, we provided service or had installed equipment in 24 cities. We
intend to continue our network expansion into a total of more than 60 cities by
the end of 1999. We market our services through our direct sales organization
and through marketing partners located in our service areas, such as
integrators of computer networks and systems and consultants.

Our Market Opportunity

We believe that a substantial business opportunity has been created by the
convergence of several factors:

. growth in demand for high-speed data communications;

. increased demand for Internet access by small and medium sized
businesses;

. limitations of existing telecommunications services to meet these
demands; and

. emergence of low-cost, DSL-based solutions.

Data communications is the fastest growing segment of the telecommunications
industry. Forrester Research, Inc. projects that the total market for data
networking services and Internet access will grow from $6.2 billion in 1997 to
approximately $49.7 billion by 2002, with approximately $27.9 billion to come
from services to businesses.

Several DSL service providers have taken advantage of this opportunity in
large metropolitan areas. However, the limited availability of these services
outside of large metropolitan areas has created an opportunity to provide DSL-
based services to a significant, underserved market--small and medium sized
businesses in second and third tier cities.

Our Strategy

Our objective is to become the leading provider of DSL-based services to
small and medium sized businesses in second and third tier cities throughout
the United States. Key elements of our strategy are to:

. be the first DSL-based service provider in select second and third tier
cities throughout the United States;

. utilize our rapid deployment model and leverage our centralized network
management to implement our rollout plan quickly and cost effectively;

. establish relationships in each local market with select local and
regional integrators of computer networks and systems and consultants who
can help market our services and provide us with customer referrals;

5
<PAGE>

. develop direct relationships with customers in order to better understand
and serve their needs; and

. leverage our systems and network design to capitalize on the cost
efficiencies of DSL technology.

Another key component of our strategy is to develop relationships with
companies that provide complementary products and services or that can assist
us in attracting our target customers. In July 1999, we entered into separate
strategic arrangements with Staples, Inc. and Microsoft Corporation. As part of
our strategic relationships, Microsoft and Staples invested $15 million and
$3.5 million, respectively. Staples has also indicated its interest in
purchasing $5 million of common stock directly from us at the initial public
offering price in connection with this offering, although it is not bound to do
so. The Staples marketing agreement designates us as their exclusive supplier
of the types of DSL services we provide in each of our markets. Our services
will be co-branded and made available to Staples customers through their
stores, catalogs, direct sales force and Web site. In turn, we have agreed that
we will not sell our services through any other national office supplies
company. In our Microsoft arrangement, we will jointly market a co-branded
version of the Microsoft Network (MSN) service to our customers and Microsoft
intends to use its existing channels and sales force to augment our own
marketing efforts.

Our History

We were incorporated in Delaware on March 3, 1998. Our principal executive
offices are located at 545 Long Wharf Drive, New Haven, Connecticut 06511, and
our telephone number is (203) 772-1000. We maintain a corporate Web site at
www.dsl.net. The contents of our website are not part of this prospectus.

We own applications for federal registration and claim rights in the name
DSL.NET. This prospectus also refers to trade names and trademarks of other
companies.

6
<PAGE>

The Offering

Common stock offered........

9,600,000 shares

Common stock to be
outstanding after the
offering...................

59,639,556 shares

Use of proceeds............. To continue building our network and for working
capital and other general corporate purposes. We
may also use a portion of the proceeds to acquire
complementary businesses.

Proposed Nasdaq National
Market symbol..............
DSLN

The shares of common stock to be outstanding after the offering exclude, as
of July 21, 1999:

. 12,364,200 shares of common stock reserved for issuance under our stock
option plan, of which 5,259,352 shares with a weighted average exercise
price of $0.54 per share were subject to outstanding options;

. 300,000 shares of common stock reserved for issuance under our employee
stock purchase plan; and

. 194,554 shares of common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $0.68 per share.

Staples has indicated an interest in purchasing $5,000,000 of common stock
directly from us at the initial public offering price in connection with this
offering, although it is not bound to do so.

7
<PAGE>

Summary Financial Data

You should read the following summary financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes included
elsewhere in this prospectus. We were incorporated on March 3, 1998 and
commenced operations on March 28, 1998.

The pro forma balance sheet information below reflects each of the following
items, all of which occurred after June 30, 1999:

. the issuance of 939,086 shares of Series E preferred stock for net
proceeds of approximately $18,468,000; and

. the repayment of a note receivable from one of our officers of
approximately $1,000,000 on July 16, 1999.

The pro forma as adjusted information adjusts the pro forma information to
give effect to the conversion of all outstanding preferred stock into common
stock and the sale of 9,600,000 shares of common stock offered by us at an
assumed initial public offering price of $11.00 per share, after deducting
estimated underwriting discounts and commissions and offering expenses. See
"Use of Proceeds."

<TABLE>
<CAPTION>
Period
from Inception
Period from Inception (March 3, 1998)
(March 3, 1998) through through Six Months Ended
December 31, 1998 June 30, 1998 June 30, 1999
<S> <C> <C> <C>
Statement of Operations
Data:
Total revenue........... $ 31,533 $ 3,489 $ 184,173
Operating loss.......... (2,785,026) (2,509) (6,704,862)
Net loss................ (2,789,637) (2,741) (6,497,247)
Net loss per common
share.................. $ (0.55) $ (0.00) $ (0.71)
Pro forma net loss per
common share........... (0.55) (0.00) (0.25)
Other Data:
EBITDA.................. $(2,779,282) $(2,509) $ (5,603,935)
Capital expenditures.... 290,082 4,847 6,133,618
Cash Flow Data:
Used in operating activ-
ities.................. $ (153,505) $(1,427) $ (2,766,896)
Used in investing activ-
ities.................. (290,082) (4,847) (11,661,709)
Provided by financing
activities............. 483,066 49,133 44,859,829
</TABLE>

<TABLE>
<CAPTION>
June 30, 1999
------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable se-
curities................................ $35,998,794 $55,466,699 $152,974,699
Total assets............................. 43,575,321 72,081,234 160,551,226
Long-term obligations (including current
portion)................................ 1,725,090 1,725,090 1,725,090
Total stockholders' equity .............. 39,482,999 67,988,912 156,458,904
</TABLE>

8
<PAGE>

in terms of operating performance, leverage, and ability to incur and service
debt. EBITDA provides an alternative measure of cash flow from operations.
EBITDA should not be considered in isolation from, and you should not construe
it as a substitute for:

. operating loss as an indicator of our operating performance,

. cash flows from operating activities as a measure of liquidity,

. other consolidated statement of operations or cash flows data presented
in accordance with generally accepted accounting principles,

. or as a measure of profitability or liquidity.

9
<PAGE>

RISK FACTORS

You should consider carefully the following risks, together with all other
information included in this prospectus before you decide to buy our common
stock. Please keep these risks in mind when reading this prospectus, including
any forward-looking statements appearing in this prospectus. If any of the
following risks actually occurs, our business, financial condition or results
of operations would likely suffer materially. As a result, the trading price of
our common stock may decline, and you could lose all or part of the money you
paid to buy our common stock.

Risks relating to our business

Our extremely limited operating history makes it difficult to evaluate our
business and prospects

We commenced operations in March 1998 and only recently began to market and
sell our services. We began offering commercial service in Stamford,
Connecticut in May 1998. Several members of our senior management team and
other employees have only recently joined us and therefore have worked together
for only a short period of time. Accordingly, you have limited information
about our company with which to evaluate our business, strategies and
performance and an investment in our common stock.

Because the high-speed data communications industry is new and rapidly
evolving, we cannot predict its future growth or ultimate size

The high-speed data communications industry is in the early stages of
development and is subject to rapid and significant technological change. Since
this industry is new and because the technologies available for high-speed data
communications services are rapidly evolving, we cannot accurately predict the
rate at which the market for our services will grow, if at all, or whether
emerging technologies will render our services less competitive or obsolete. If
the market for our services fails to develop or grows more slowly than
anticipated, our business, prospects, financial condition and results of
operations could be materially adversely affected. Many providers of high-speed
data communication services are testing products from numerous suppliers for
various applications, and these suppliers have not broadly adopted an industry
standard. In addition, certain industry groups are in the process of trying to
establish standards which could limit the types of technologies we could use.
Certain critical issues concerning commercial use of DSL technology for
Internet access, including security, reliability, ease and cost of access and
quality of service, remain unresolved and may impact the growth of these
services.

We have incurred losses and have experienced negative operating cash flow to
date and expect our losses and negative operating cash flow to continue and to
increase

We have incurred significant losses and experienced negative operating cash
flow for each month since our formation. We expect to continue to incur
significant losses and negative operating cash flow for the foreseeable future.
If our revenue does not grow as expected or capital and operating expenditures
exceed our plans, our business, prospects, financial condition and results of
operations will be materially adversely affected. As of June 30, 1999, we had
an accumulated deficit of approximately $11,689,000. We cannot be certain if or
when we will be profitable or if or when we will generate positive operating
cash flow. We expect our operating expenses to increase significantly as we
expand our business. In addition, we expect to make significant additional
capital

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expenditures during the remainder of 1999 and in subsequent years. We also
expect to substantially increase our operating expenditures, particularly
network and operations and sales and marketing expenditures, as we implement
our business plan. However, our revenue may not increase despite this
increased spending.

Our business model is unproven, and may not be successful

We do not know whether our business model and strategy will be successful.
If the assumptions underlying our business model are not valid or we are unable
to implement our business plan, achieve the predicted level of market
penetration or obtain the desired level of pricing of our services for
sustained periods, our business, prospects, financial condition and results of
operations could be materially adversely affected. We have adopted a different
strategy than other DSL providers. We focus on selling directly to small and
medium sized businesses in second and third tier cities. In contrast, other DSL
providers sell services primarily to Internet service providers and others who,
in turn, resell these services to end users through their sales forces. In
addition, many other DSL providers are currently focused primarily on offering
their services in large metropolitan areas. Certain of our target markets are
within the larger metropolitan areas where other DSL providers are focused on
providing service. Our unproven business model makes it difficult to predict
the extent to which our services will achieve market acceptance. To be
successful, we must deploy our network in a significant number of our selected
markets and convince our target customers to utilize our service. As of June
30, 1999, we provided service or had installed equipment in only 24 cities. It
is possible that we may never be able to deploy our network as planned, achieve
significant market acceptance, favorable operating results or profitability.

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 digital 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.

If we fail to recruit qualified personnel in a timely manner and retain our
employees, we will not be able to execute our business plan

To meet our business plan, we need to hire a substantial number of qualified
personnel, particularly sales and marketing personnel. If we are unable to
recruit qualified personnel in a timely manner or to retain our employees, we
will not be able to execute our business plan. Our industry is characterized by
intense competition for, and aggressive recruiting of, skilled personnel, as
well as a high level of employee mobility. Many of our future employees must be
recruited to work locally in the new markets where we intend to establish a
presence. The combination of our local sales and marketing strategy and the
competitive nature of our industry may make it difficult to hire qualified
personnel on a timely basis and to retain our employees.

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<PAGE>

Our management team has little experience working together, and the loss of
key personnel could adversely affect our business

We depend on a small number of executive officers and other members of
senior management to work effectively as a team, to execute our business
strategy and business plan, and to manage employees who will be located
throughout the United States. The loss of key managers or their failure to work
effectively as a team could have a material adverse effect on our business and
prospects. Our senior management has worked together for only a short period of
time and may not work well together as a management team. Competition for
qualified executives in the data communication services industry is intense and
there are a limited number of persons with comparable experience. We do not
have employment agreements with any of our executive officers, so any of these
individuals may terminate his employment at any time.

Our failure to establish the necessary infrastructure to support our business
and to manage our growth could strain our resources and adversely affect our
business and financial performance

Our business plan anticipates that we will service in a significant number
of new cities and add a significant number of new employees in geographically-
dispersed areas. This rapid growth will continue to place a significant strain
on our management, financial controls, operations, personnel and other
resources. Our failure to manage our rapid growth could have a material adverse
effect on our ability to integrate expanding operations, the quality of our
services and our ability to recruit, manage and retain key personnel. If we do
not institute adequate financial and reporting systems, managerial controls,
and procedures to manage and operate from multiple geographically-dispersed
locations, our operations will be materially and adversely affected. We are
currently implementing an operations support system to help manage customer
service, bill customers, process customer orders and coordinate with vendors
and contractors. Implementation of this system, which we expect to be
substantially completed by the end of 1999, could be delayed or, when
implemented, could cause disruptions in service or billing. In addition, we are
currently implementing a new financial and reporting system which will interact
with our operations support system. To manage our growth effectively, we must
successfully implement these systems on a timely basis, and continually expand
and upgrade these systems as our operations expand.

Disappointing quarterly revenue or operating results could cause the price of
our common stock to fall

Our quarterly revenue and operating results are difficult to predict and may
fluctuate significantly from quarter to quarter. If our quarterly revenue or
operating results fall below the expectations of investors or security
analysts, the price of our common stock could fall substantially. Our quarterly
revenue and operating results may fluctuate as a result of a variety of
factors, many of which are outside our control, including:

. amount and timing of expenditures relating to the rollout of our
infrastructure and services;

. ability to obtain and the timing of necessary regulatory approvals;

. rate at which we are able to attract customers within our target markets
and our ability to retain these customers at sufficient aggregate revenue
levels;

. ability to deploy our network on a timely basis;

. availability of financing to continue our expansion;

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. technical difficulties or network downtime;

. availability of space in traditional telephone companies' central offices
and timing of the installation of our equipment in those spaces; and

. introduction of new services or technologies by our competitors and
resulting pressures on the pricing of our service.

The failure of our customers to pay their bills on a timely basis could
adversely affect our cash flow

Our target customers consist of small and medium sized businesses. We
anticipate having to bill and collect numerous relatively small customer
accounts. We may experience difficulty in collecting amounts due on a timely
basis. Our failure to collect accounts receivable owed to us by our customers
on a timely basis could have a material adverse effect on our business,
financial condition and cash flow.

Our failure to develop and maintain good relationships with marketing partners
in a local service market could adversely affect our ability to obtain and
retain customers in that market

In addition to marketing through our direct sales force, we rely on
relationships with local marketing partners, such as integrators of computer
systems and networks and consultants. These partners recommend our services to
their clients, provide us with referrals and help us build a local presence in
each market. We may not be able to identify, and maintain good relationships
with, quality marketing partners or assure you that they will recommend our
services rather than our competitors' services to their customers. Our failure
to identify, and maintain good relationships with, quality marketing partners
could have a material adverse effect on our ability to obtain and retain
customers in a market and, as a result, our business would suffer.

Our success depends on negotiating and entering into interconnection
agreements with traditional telephone companies

We must enter into and renew interconnection agreements with traditional
telephone companies in each of our target markets in order to provide service
in that market. These agreements govern, among other things, the price and
other terms regarding our location of equipment in the telephone companies'
central offices and our lease of copper telephone lines that connect those
central offices to our customers. To date, we have entered into agreements with
Ameritech, Bell Atlantic, BellSouth, SBC (including SNET) and GTE, which govern
our relationships in 21 states. Delays in obtaining interconnection agreements
would delay our entrance into target markets and could have a material adverse
effect on our business and prospects. Our interconnection agreements have
limited terms of one to two years and we cannot assure you that new agreements
will be negotiated or that existing agreements will be extended on terms
favorable to us. Interconnection agreements are also subject to oversight by
the FCC, state telecommunication regulators and the courts. These governmental
authorities may modify the terms or prices of our interconnection agreements in
ways that could adversely affect our ability to deliver service and our
business and results of operations.

Under federal law, traditional telephone companies have an obligation to
negotiate with us in good faith to enter into interconnection agreements. If no
agreement can be reached, either side may petition the applicable state
telecommunications regulators to arbitrate remaining disagreements. These
arbitration proceedings can last for many months. Moreover, the state
regulators must approve

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<PAGE>

any interconnection agreement resulting from negotiation or arbitration, and
any party may appeal an adverse decision by the state regulators to federal
district court. The potential cost in resources and delay from this process
would delay our entry into markets and could harm our ability to compete in
these markets, and we cannot assure you that a state regulatory authority would
resolve disputes in our favor. Moreover, the FCC rules governing pricing
standards for access to the networks of the traditional telephone companies are
currently being challenged in federal court. If the courts overturn the FCC's
pricing rules, the FCC may adopt a new pricing methodology that would require
us to pay a higher price to traditional telephone companies for access to
suitable facilities and lines. This could have a detrimental effect on our
business.

Many of the traditional local telephone companies, including those created
by AT&T's divestiture of its local telephone service business, are conducting
technical or market trials or have begun deploying DSL-based services. In
addition, these companies also currently offer high-speed data communications
services that use other technologies. Consequently, these companies have
certain incentives to delay:

.our entry into, and renewals of, interconnection agreements,

.our access to their central offices to install our equipment and provide
our services,

.provisioning acceptable transmission facilities and copper telephone
lines, and

.our introduction and expansion of our services.

Any such delays would negatively impact our ability to implement our business
plan and harm our competitive position, business and prospects.

Failure to obtain space for our DSL equipment in the local telephone
companies' central offices in our target markets could adversely affect our
business

Our strategy requires us to obtain space for our DSL equipment in those
central offices of the traditional telephone companies that already serve a
large number of our target customers. Failure to obtain required space to
locate our equipment on a timely basis could have a material adverse effect on
our business. In addition to negotiating and entering into interconnection
agreements with traditional telephone companies, we must negotiate and enter
into collocation agreements for each central office in which we locate
equipment. We may not be able to secure collocation space in the central
offices of our choice on a timely basis. We expect that central office space
will become increasingly scarce as demand increases. In addition, the terms of
our collocation agreements are one to two years and are subject to certain
renegotiation, renewal and termination provisions.

Our success depends on traditional telephone companies providing acceptable
transmission facilities and copper telephone lines

We interconnect with and use the networks of traditional telephone companies
to provide our services to our customers. We cannot assure you that these
networks will be able to meet the telecommunications needs of our customers or
maintain our service standards. We also depend on the traditional telephone
companies to provide and maintain their transmission facilities and the copper
telephone lines between our network and our customers' premises. Our dependence
on traditional telephone companies could cause delays in establishing our
network and providing our services. Any such delays could have a material
adverse effect on our business. We lease copper telephone lines running from
the central office of the traditional telephone companies to each customer's
location. In

14
<PAGE>

many cases, the copper telephone lines must be specially conditioned by the
telephone company to carry digital signals. We may not be able to lease a
sufficient number of acceptable telephone lines on acceptable terms, if at all.
Traditional telephone companies often rely on unionized labor and labor-related
issues have in the past, and may in the future, adversely affect the incumbent
carriers' provision of services.

Our success depends on contractors who install the equipment and wiring
necessary to utilize our service in the central offices of traditional
telephone companies and at our customers' premises

We primarily utilize contractors to install necessary equipment and wiring
in the central offices of traditional telephone companies and at our customers'
premises. These installations must be completed on a timely basis and in a
cost-efficient manner. Failure to retain experienced contractors to install the
equipment and wiring or failure to complete these installations on a timely,
cost-efficient basis could materially delay our growth or damage our
reputation, our business and prospects and results of operations. If we are
unable to retain contractors to provide these services, we will have to
complete these installations ourselves, probably at a greater cost and with
delay. We may be required to utilize numerous contractors as we expand our
operations, which may divert management attention and result in delays in
installations, increased costs and lower quality.

Intense competition in the high-speed data communication services market may
negatively affect the number of our customers and the pricing of our services

The high-speed data communication services market is intensely competitive.
If we are unable to compete effectively, our business, prospects, financial
condition and results of operations would be adversely affected. We expect the
level of competition to intensify in the future, due, in part, to increasing
consolidation in our industry. Our competitors use various technologies for
local access connections, that include higher speed alternatives to traditional
dial-up modems, such as integrated services digital network, or ISDN, frame
relay, T1 and DSL services, and alternatives to traditional telecommunications
networks such as wireless, satellite-based and cable networks. We expect
significant competition from:

. Other providers of DSL-based services like us, including Covad, Network
Access Solutions, NorthPoint and Rhythms NetConnections;

. Internet service providers, such as America Online, Concentric Network
and Flashcom, which have begun to develop high-speed access capabilities
to leverage their existing products and services.

. Traditional local telephone companies, including the traditional
telephone companies created by AT&T's divestiture of its local telephone
service business, some of which have begun deploying DSL-based services
and which provide other high-speed data communications services;

. National long distance carriers, such as AT&T and MCI WorldCom, which are
beginning to offer competitive DSL-based services;

. Cable modem service providers, such as At Home, which are offering high-
speed Internet access over cable networks and have positioned themselves
to do the same for businesses;

15
<PAGE>

. Providers utilizing alternative technologies, such as wireless and
satellite-based data service providers.

Many of our current and potential competitors have longer operating
histories, greater brand name recognition, larger customer bases and
substantially greater financial, technical, marketing, management, service
support and other resources than we do. Therefore, they may be able to respond
more quickly than we can to new or changing opportunities, technologies,
standards or customer requirements. See "Business --Competition."

We may not be able to continue to grow our business if we do not obtain
significant additional funds on acceptable terms by 2001

The actual amount and timing of our future capital requirements will depend
on the demand for our services and regulatory, technological and competitive
developments which could differ materially from our estimates. We may not be
able to raise sufficient debt or equity capital on terms that we consider
acceptable, if at all. If we are unable to obtain adequate funds on acceptable
terms, our ability to deploy and operate our network, fund our expansion or
respond to competitive pressures would be significantly impaired.

We may incur significant amounts of debt in the future to implement our
business plan and, if incurred, this indebtedness will create greater financial
and operating risk and limit our flexibility

We intend to seek additional debt financing in the future. We are not
generating sufficient revenue or operating cash flow to fund our operations or
to repay existing or expected debt. We may not be able to repay our current
debt or any future debt. In addition, the terms of any future debt would likely
contain additional restrictive covenants that would limit our ability to incur
additional indebtedness and place other operating restrictions on our business.
If we incur additional debt, we will be required to devote increased amounts of
our cash flow to service indebtedness. This could require us to modify, delay
or abandon the capital expenditures and other investments necessary to
implement our business plan.

We may be subject to risks associated with future acquisitions

We may acquire complementary businesses. At present, we have no agreements
or other arrangements with respect to any acquisition. An acquisition may not
produce the revenue, earnings or business synergies that we anticipate, and an
acquired business might not perform as we expect. If we pursue any acquisition,
our management could spend a significant amount of time and effort in
identifying and completing the acquisition and may be distracted from the
operation of our business. If we complete an acquisition, we would probably
have to devote a significant amount of management resources to integrating the
acquired business with our existing operations, and that integration may not be
successful.

Our services are subject to federal, state and local regulation and changes in
laws or regulations could adversely affect the way we operate our business

The facilities we use and the services we offer are subject to varying
degrees of regulation at the federal, state and/or local levels. Changes in
applicable laws or regulations could, among other things, increase our costs,
restrict our access to the central offices of the traditional telephone
companies, or restrict our ability to provide our services. For example, the
1996 Telecommunications Act, which, among other things, requires traditional
telephone companies to unbundle network

16
<PAGE>

elements and to allow competitors to locate their equipment in the telephone
companies' central offices, is the subject of ongoing administrative
proceedings at the federal and state levels, litigation in federal and state
courts, and legislation in federal and state legislatures. We cannot predict
the outcome of the various proceedings, litigation and legislation or whether
or to what extent these proceedings, litigation and legislation may adversely
affect our business and operations. In addition, decisions by the FCC and state
telecommunications regulators will determine some of the terms of our
relationships with traditional telecommunications carriers, including the terms
and prices of interconnection agreements, and access fees and surcharges on
gross revenue from interstate and intrastate services. State telecommunications
regulators determine whether and on what terms we will be authorized to operate
as a competitive local exchange carrier in their state. In addition, local
municipalities may require us to obtain various permits which could increase
the cost of services or delay development of our network. Future federal, state
and local regulations and legislation may be less favorable to us than current
regulations and legislation and may adversely affect our businesses and
operations. See "Business -- Governmental Regulation."

A recent U.S. Supreme Court decision has raised questions about our ability to
obtain interconnection facilities from the traditional telephone companies
which could hurt our business

A January 1999 decision by the U.S. Supreme Court could adversely affect our
business because it has raised questions about whether we will be able to
obtain certain interconnection facilities from the traditional telephone
companies that we need in order to provide our services. In that decision, the
Supreme Court invalidated an FCC rule which defines the particular parts of a
traditional telephone company's network that must be provided to competitors
like us, and it sent the matter back to the FCC with instructions to consider
further the question of which parts of a traditional telephone company's
network must be provided to competitors. The FCC recently initiated a
proceeding to develop a new standard for determining which portions of the
telephone companies' network elements must be made available to competitors
like us. The FCC has stated that it plans to issue a new decision on this
matter later this year. This new standard may change the parts of the telephone
companies' networks to which companies like ours have access. If this occurs,
our ability to implement our business plan will be adversely affected.

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

Telecommunications providers are subject to a variety of federal and state
surcharges and fees on their gross revenues from interstate and intrastate
services. These surcharges and fees may be increased and other surcharges and
fees not currently applicable to our services could be imposed on us. In either
case, the cost of our services would increase and that could have a material
adverse effect on our business, prospects, financial condition and results of
operations.

A breach of our network security could result in liability to us and deter
customers from using our services

Our network may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Any of the foregoing problems could result in
liability to us and deter customers from using our service. Unauthorized access
could jeopardize the security of confidential information

17
<PAGE>

stored in the computer systems of our customers. Eliminating computer viruses
and alleviating other security problems may require interruptions, delays or
cessation of service to our customers, cause us to incur significant costs to
remedy the problem, and divert management attention. We can provide no
assurance that the security measures we have implemented will not be
circumvented or that any failure of these measures will not have a material
adverse effect on our ability to obtain and retain customers. Any of these
factors could have a material adverse effect on our business and prospects.

Our failure to adequately protect our proprietary rights may adversely affect
our business

We rely on unpatented trade secrets and know-how to maintain our competitive
position. Our inability to protect these secrets and know-how could have a
material adverse effect on our business and prospects. We protect our
proprietary information by entering into confidentiality agreements with
employees and consultants and potential business partners. These agreements may
be breached or terminated. In addition, third parties, including our
competitors, may assert infringement claims against us. Any such claims, could
result in costly litigation, divert management's attention and resources,
require us to pay damages and/or to enter into license or similar agreements
under which we would be required to pay license fees or royalties.

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

Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. The use of software and
computer systems that are not Year 2000 compliant could result in system
failures or miscalculations and may result in disruptions of operations
including, among other things, a temporary inability to process transactions,
send invoices or engage in normal business activities. We are subject to
potential Year 2000 problems affecting our services and our business systems,
the systems of the incumbent local exchange carriers and other vendors, and our
customers' systems. Any of these Year 2000 problems could have a material
adverse effect on our business, financial condition and results of operations.
Year 2000 errors or defects may be discovered in our internal software or other
systems and, if such errors or defects are discovered, the costs of making
those systems Year 2000 compliant may be material. Year 2000 errors or defects
in the internal systems maintained by the incumbent carriers and other vendors,
could require us to incur significant unanticipated expenses to remedy any
problems or, if possible, replace affected vendors. Furthermore, Year 2000
problems of our target customers could negatively impact their decision to buy
our services. See "Management's Discussion and Analysis and Results of
Operations--Impact of Year 2000."

Risks relating to ownership of our common stock

The price of our common stock after this offering may be lower than the price
you pay

Prior to this offering, there has been no public market for our common
stock. After this offering, an active trading market in our stock might not
develop or continue. If you purchase shares of our common stock in this
offering, you will pay a price that was not established in a competitive
market. Rather, you will pay a price that we negotiated with the
representatives of the underwriters. The price of our common stock that will
prevail in the market after this offering may be higher or lower than the price
you pay.

18
<PAGE>

Our executive officers, directors and principal stockholders 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

After this offering, our executive officers, directors and principal
stockholders and their affiliates will together control approximately 59.4% of
our outstanding common stock. As a result, these stockholders, if they act
together, will be able to control all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions, and will continue to have significant influence over our affairs.
This concentration of ownership may have the effect of delaying, preventing or
deterring a change in control, could deprive our stockholders of an opportunity
to receive a premium for their common stock as part of a sale and might affect
the market price of our common stock.

Certain provisions of our charter, by-laws and Delaware law make a takeover
difficult

Our corporate documents and Delaware law contain provisions that might
enable our management to resist a takeover. These provisions include a
staggered board of directors, limitations on persons authorized to call a
special meeting of stockholders and advance notice procedures required for
stockholders to make nominations of candidates for election as directors or to
bring matters before an annual meeting of stockholders. These provisions might
discourage, delay or prevent a change of control or a change in our management.
These provisions could also discourage proxy contests and make it more
difficult for you and other stockholders to elect directors and take other
corporate actions. The existence of these provisions could limit the price that
investors might be willing to pay in the future for shares of common stock and
could deprive you of an opportunity to receive a premium for your common stock
as part of a sale.

The market price of our common stock may drop significantly when the
restrictions on resale by our existing securityholders lapse

Following this offering, we will have approximately 59,600,000 shares of
common stock outstanding. Approximately 50,500,000 shares, or 84.7%, of our
outstanding common stock will be subject to restrictions on resale. As these
restrictions on resale end beginning in February 1999, the market price of our
common stock could drop significantly if holders of these shares sell them or
are perceived by the market as intending to sell them. These sales also may
make it difficult for us to sell equity securities in the future at a time and
price that we deem appropriate. See "Shares Eligible for Future Sale."

We will have discretion as to the use of the proceeds of this offering, which
we may not use effectively

We have not committed the net proceeds of this offering to any particular
purpose. As a result, our management will have significant flexibility in
applying the net proceeds of this offering and could apply them in ways with
which stockholders may disagree. If we do not apply the funds we receive
effectively, our accumulated deficit will increase and we may lose significant
business opportunities. See "Use of Proceeds."

19
<PAGE>

Investors will experience immediate and substantial dilution in the book value
of their investment

If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution because the price you pay will be
substantially greater than the net tangible book value per share of the shares
you acquire. This dilution is due, in large part, to the fact that our current
investors paid substantially less than the public offering price when they
purchased their shares of common stock. You will experience additional dilution
upon the exercise of outstanding stock options and warrants to purchase common
stock.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

AND CERTAIN OTHER INFORMATION

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. These statements relate to future events or our future
financial performance, and are identified by terminology such as "may,"
"might," "will," "should," "expect," "scheduled," "plan," "intend,"
"anticipate," "believe," "estimate," "potential," or "continue" or the negative
of such terms or other comparable terminology. These statements speak only as
of the date of this prospectus and are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined under "Risk
Factors." These factors, among others, may cause our actual results to differ
materially from any forward-looking statement.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We do not intend to update any of the
forward-looking statements, whether as a result of new information, further
events or otherwise.

We use market data and industry forecasts throughout this prospectus, which
we have obtained from internal surveys, market research, publicly available
information and industry publications. Industry publications generally state
that the information they provide has been obtained from sources believed to be
reliable, but that the accuracy and completeness of this information is not
guaranteed by those publications. Similarly, we believe that the surveys and
market research we or others have performed is reliable, but we have not
independently verified this information. Such information may not be accurate.

20
<PAGE>

USE OF PROCEEDS

We estimate that the net proceeds from the sale of common stock in this
offering will be approximately $97,508,000, based upon an assumed offering
price per share of $11.00 and after deducting estimated underwriting discounts
and commissions and estimated offering expenses. If the underwriters' over-
allotment option is exercised in full, we estimate that such net proceeds will
be approximately $111,542,000. See "Underwriting."

We intend to use the net proceeds from this offering to continue building
our network and for working capital and other general corporate purposes. We
may also use a portion of the net proceeds to acquire complementary businesses,
although we have no specific understandings, commitments or agreements to do so
at this time. The amounts actually expended for these purposes will vary
significantly depending on a number of factors, including revenue growth, if
any, and the extent and timing of our entry into target markets and capital
expenditures. In addition to the intended uses of the net proceeds, the
principal purposes of the offering are to create a public market for our common
stock, enhance our ability to use our common stock as a means of attracting,
motivating and retaining key employees, and facilitate our future access to
public equity markets.

Prior to the application of the net proceeds from the offering as described
above, these proceeds will be invested in marketable, investment-grade
securities.

DIVIDEND POLICY

We have never declared or paid cash dividends. We do not anticipate
declaring or paying cash dividends for the foreseeable future. Instead, for the
foreseeable future, we will retain our earnings, if any, for the future
operation and expansion of our business. In addition, our credit agreement with
our bank prohibits the payment of cash dividends.

21
<PAGE>

CAPITALIZATION

The following table shows our capitalization at June 30, 1999 on an actual
basis, a pro forma basis and a pro forma as adjusted basis.

The pro forma balance sheet information below reflects each of the following
items, all of which occurred after June 30, 1999:

. the issuance of 939,086 shares of Series E preferred stock; and

. the repayment of a note receivable from one of our officers on July 16,
1999.

<TABLE>
<CAPTION>
June 30, 1999
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
<S> <C> <C> <C>
Cash, cash equivalents and marketable
securities.......................... $ 35,998,794 $ 55,466,699 $152,974,699
============ ============ ============
Long-term debt, including current
portion............................. 1,725,090 1,725,090 1,725,090
------------ ------------ ------------
Stockholders' equity:
Convertible preferred stock, $.001
par value; 18,962,500 shares au-
thorized; 18,962,500 shares autho-
rized pro forma; 20,000,000 shares
authorized pro forma as
adjusted;
Series A -- 225,000 issued and
outstanding;
225,000 issued and outstanding
pro forma and none issued and
outstanding pro forma as
adjusted......................... 225,000 225,000 --
Series B -- 6,500,000 issued and
outstanding; 6,500,000 issued and
outstanding pro forma; none
issued and outstanding pro forma
as adjusted...................... 15,424,999 15,424,999 --
Series C -- 2,785,516 issued and
outstanding; 2,785,516 issued and
outstanding pro forma; none
issued and outstanding pro forma
as adjusted...................... 9,941,104 9,941,104 --
Series D -- 2,963,672 issued and
outstanding; 2,963,672 issued and
outstanding pro forma; none
issued and outstanding pro forma
as adjusted...................... 30,973,869 30,973,869 --
Series E -- none issued and
oustanding; 939,086 issued and
outstanding pro forma; none
issued and outstanding pro forma
as adjusted...................... -- 18,467,994 --
Common stock, $.0005 par value;
55,925,000 shares authorized;
55,925,000 shares authorized pro
forma; 200,000,000 shares
authorized pro forma as adjusted;
14,129,800 shares issued and
outstanding; 14,129,800 issued and
outstanding pro forma; 59,489,589
shares issued and outstanding pro
forma as adjusted................. 7,065 7,065 29,745
Additional paid-in capital......... 8,039,317 8,039,317 180,557,603
Note receivable from officer....... (999,911) -- --
Deferred compensation.............. (12,439,562) (12,439,562) (12,439,562)
Accumulated deficit................ (11,688,882) (11,688,882) (11,688,882)
------------ ------------ ------------
Total stockholders' equity....... $ 39,482,999 $ 58,950,904 $156,458,904
------------ ------------ ------------
Total capitalization............. $ 41,208,089 $ 60,675,994 $158,183,994
============ ============ ============
</TABLE>

22
<PAGE>

DILUTION

As of June 30, 1999, our pro forma net tangible book value was $58,767,860,
or $1.17 per share of common stock. Pro forma net tangible book value is the
amount of total tangible assets less total liabilities. Pro forma net tangible
book value per common share is pro forma net tangible book value divided by the
number of shares of common stock outstanding, assuming the issuance of our
Series E preferred stock and the payment of a note receivable from one of our
officers which occurred after June 30, 1999 and the conversion of all shares of
preferred stock into common stock.

After giving effect to the sale of the common stock offered by us at an
assumed initial public offering price of $11.00 per share, after deducting
estimated underwriting discounts and commissions and offering expenses payable
by us, and the receipt of the net proceeds therefrom, our pro forma net
tangible book value at June 30, 1999 would have been $156,276,000, or $2.62 per
share of common stock. This represents an immediate increase in pro forma net
tangible book value of $1.45 per share of common stock to existing
stockholders, and an immediate dilution in pro forma net tangible book value of
$8.38 per share of common stock to new investors purchasing our common stock in
this offering. The following table illustrates this per share dilution.

<TABLE>
<S> <C> <C>
Assumed initial public offering price per common share........ $11.00
------
Pro forma net tangible book value per share at June 30,
1999....................................................... $1.17
Increase in pro forma net tangible book value per share
attributable to new investors.............................. 1.45
-----
Pro forma net tangible book value per share after this
offering..................................................... 2.62
------
Dilution per share to new investors........................... $ 8.38
======
</TABLE>

The following table summarizes on a pro forma basis as of June 30, 1999:

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

. the number of shares of our common stock purchased by new investors, the
total consideration and the price per share paid for these shares,
valuing them at an assumed initial public offering price of $11.00 per
share; and

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

<TABLE>
<CAPTION>
Total
Shares Purchased Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 50,039,556 83.9% $ 63,406,899 37.5% $ 1.27
New investors............. 9,600,000 16.1 105,600,000 62.5 11.00
---------- ----- ------------ -----
Total................... 59,639,556 100.0% $169,006,899 100.0%
========== ===== ============ =====
</TABLE>

This table assumes that none of the stock options or the warrants
outstanding upon the closing of this offering will be exercised, which as of
July 21, 1999 include:

. 5,259,352 shares of common stock issuable upon exercise of outstanding
stock options at a weighted average exercise price of $0.54 per share;
and

23
<PAGE>

. 194,554 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $0.68 per share.

To the extent any of these stock options or warrants are exercised, new
investors will experience further dilution. If all of these stock options and
warrants are exercised, the number of shares held by new investors will be
reduced to 14.7% of the shares purchased for which new investors will have paid
61.4% of the total consideration for shares purchased. Based on our pro forma
net tangible book value as of June 30, 1999 described above and giving effect
to the exercise of all of these stock options and warrants, the dilution per
share to new investors would be $8.60.

24
<PAGE>

SELECTED FINANCIAL AND OTHER DATA

We were incorporated on March 3, 1998 and commenced operations on March 28,
1998. We present below summary financial and other data for our company. The
following data at December 31, 1998 and for the period from inception (March 3,
1998) through December 31, 1998, except for "Other Data," has been derived from
our financial statements audited by PricewaterhouseCoopers LLP, independent
accountants. The balance sheet at December 31, 1998 and the related statements
of operations, changes in stockholders' equity and cash flows for the period
from inception (March 31, 1998) to December 31, 1998 and notes thereto appear
elsewhere in this prospectus. The balance sheet data as of June 30, 1999 and
the statement of operations and other data for the period from inception (March
3, 1998) through June 30, 1998 and the six months ended June 30, 1999 have been
derived from our unaudited financial statements that are included elsewhere 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.

The pro forma information gives effect to each of the following items, all
of which occurred after June 30, 1999:

. the issuance of 939,086 shares of Series E preferred stock.

. the repayment of a note receivable from one of our officers of $999,911
on July 16, 1999.

You should refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the more complete financial
information included elsewhere in this prospectus. The results for the six
months ended June 30, 1999 are not necessarily indicative of the results that
may be expected for the full year.

<TABLE>
<CAPTION>
Period
Period from Inception from Inception
(March 3, 1998) (March 3, 1998)
through through Six Months Ended
December 31, 1998 June 30, 1998 June 30, 1999
(unaudited) (unaudited)
<S> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 31,533 $ 3,489 $ 184,173
Operating expenses:
Network and
operations........... 127,054 705 1,482,628
General and
administrative....... 230,272 3,896 1,554,013
Sales and marketing... 35,961 1,397 1,235,589
Stock compensation.... 2,423,272 -- 2,616,805
----------- ------- -----------
Total operating
expenses........... 2,816,559 5,998 6,889,035
----------- ------- -----------
Operating loss.......... (2,785,026) (2,509) (6,704,862)
Interest expense (in-
come) ................. 4,611 232 (207,615)
----------- ------- -----------
Net loss................ $(2,789,637) $(2,741) $(6,497,247)
=========== ======= ===========
</TABLE>

25
<PAGE>

<TABLE>
<CAPTION>
Period
Period from Inception from Inception
(March 3, 1998) (March 3, 1998)
through through Six Months Ended
December 31, 1998 June 30, 1998 June 30, 1999
(unaudited) (unaudited)
<S> <C> <C> <C>
Net Loss per Common
Share Data:
Net loss per common
share.................. $ (0.55) $ (0.00) $ (0.71)
=========== ========= ============
Shares used in computing
net loss per share..... 5,118,342 5,089,634 9,151,630
Pro forma net loss per
common share........... (0.55) (0.00) (0.25)
Shares used in computing
pro forma net loss per
share.................. 5,118,342 5,089,634 26,411,314
Other Data:
EBITDA.................. $(2,799,282) $ (2,509) $ (5,603,935)
Capital expenditures.... 290,082 4,847 6,133,618
Cash Flow Data:
Used in operating activ-
ities.................. $ (153,505) $ (1,427) $ (2,766,896)
Used in investing activ-
ities.................. (290,082) (4,847) (11,661,709)
Provided by financing
activities............. 483,066 49,133 44,859,829
</TABLE>

<TABLE>
<CAPTION>
June 30, 1999
------------------------------------
December 31, Pro Forma
1998 Actual Pro Forma as Adjusted
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
marketable securities...... $ 39,479 $35,998,794 $55,466,699 $152,974,699
Total assets................ 369,980 43,575,321 63,043,226 160,551,226
Long-term obligations,
including current portion.. 433,161 1,725,090 1,725,090 1,725,090
Total stockholders' equity
(deficit).................. (315,865) 39,482,999 58,950,904 156,458,904
</TABLE>

EBITDA, shown above under "Other Data," consists of net loss excluding net
interest, taxes, depreciation of capital assets and amortization of deferred
compensation expense. Other companies, however, may calculate it differently
from us. We have provided EBITDA because it is a measure of financial
performance commonly used for comparing companies in the telecommunications
industry in terms of operating performance, leverage, and ability to incur and
service debt. EBITDA provides an alternative measure of cash flow from
operations. EBITDA should not be considered in isolation from, and you should
not construe it as a substitute for:

. operating loss as an indicator of our operating performance,

. cash flows from operating activities as a measure of liquidity,

. other consolidated statement of operations or cash flows data presented
in accordance with generally accepted accounting principles, or

. as a measure of profitability or liquidity.

26
<PAGE>

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

The following discussion and analysis of the financial condition and results
of operations should be read in conjunction with "Selected Financial and Other
Data" and our financial statements and related notes appearing elsewhere in
this prospectus.

Overview

We provide high-speed data communications services and Internet access to
small and medium sized businesses in second and third tier cities. We began
providing service in May 1998 and, as of June 30, 1999, we provided service or
had installed equipment in 24 cities. We intend to continue our network
expansion into a total of more than 60 cities by the end of 1999.

Since inception on March 3, 1998, our principal activities have included:

. developing criteria for market selection and analyzing potential markets
against these criteria;

. obtaining required governmental authorizations;

. negotiating and entering into interconnection agreements with traditional
telephone companies;

. acquiring space in traditional telephone companies' central offices and
installing our network equipment in those offices;

. launching service in target markets;

. selling and marketing to, and installing service for, customers in
markets where we have established service;

. hiring management and other personnel;

. raising capital; and

. developing and implementing our operations support system and other
information systems.

We have incurred operating losses, net losses and negative operating cash
flow for each month since our formation. As of December 31, 1998 and June 30,
1999, we had an accumulated deficit of approximately $2,790,000 and
$11,689,000, respectively. We intend to substantially increase our operating
expenses and capital expenditures in an effort to rapidly expand our network
infrastructure and service areas. We expect to incur substantial operating
losses, net losses and negative operating cash flow during our network build-
out and during the initial penetration of each new market we enter. Our losses
and negative operating cash flow are expected to continue and to increase as we
expand our operations.

We incur network and operations expenses, sales and marketing expenses and
capital expenditures when we enter a new market. After selecting a target
market, we apply for space in the traditional telephone company's central
office from which we intend to provide service. The availability of space in
these central offices and the timing and cost of our obtaining that space
varies by location and by telephone company. Based on our experience to date,
if space is available in a desired central office, the time for us to obtain
the required local approvals and deploy our equipment

27
<PAGE>

in that space has typically ranged from five to ten months. To date, our
initial cost for obtaining space in each central office and interconnection to
the telephone company's network has typically averaged less than $50,000. In
addition to this initial cost, we pay monthly fees for maintenance, utilities
and continued access to the telephone company's network, which vary by location
and are substantially lower than the initial cost for obtaining space. Once we
have deployed our network in a market, the majority of our additional capital
expenditures depend on orders to connect new end users. These additional
capital expenditures include the costs of additional DSL equipment that is
installed in the central offices and additional modems that are installed in
customers' sites. In addition to the capital expenditures required to enter a
market, we are required to fund each market's cash flow deficit as we build our
customer base.

Our financial performance will vary, and whether and when we achieve
profitability will depend on a number of factors, including:

. development of the high-speed data communications industry and our
ability to compete effectively;

. amount, timing and pricing of customer revenue;

. cost and timing of the deployment of our network, including installation
of equipment in traditional telephone companies' central offices;

. commercial acceptance of our service and attaining expected penetration
within our target markets;

. timely recruitment of qualified personnel, particularly sales and
marketing personnel;

. upfront sales and marketing expenses;

. our ability to retain contractors to install equipment and wiring at
customer premises on a timely and cost-effective basis;

. cost and utilization of our backbone network which we lease from other
telecommunications providers;

. our ability to establish and maintain relationships with marketing
partners;

. successful implementation of financial, information management and
operations support systems to efficiently and cost-effectively manage our
growth; and

. outcome of federal and state regulatory proceedings and related judicial
proceedings, including proceedings relating to the 1996
Telecommunications Act.

Factors Affecting Future Operations

Revenues. We derive our revenues from installation charges and monthly fees
paid by customers for our NetGAIN services, which vary based on the speed of
the connection. The monthly fee includes all phone line charges, Internet
access charges, the cost of the modem installed at the customer's site and the
other services we generally provide. During the six months ended June 30, 1999,
monthly fees represented more than 80% of our revenue. We expect that, as the
number of customers using our services increases, monthly fees will continue to
increase, and that installation charges will continue to decrease, as a percent
of revenue.

We seek to price our services competitively. The market for high-speed data
communications services and Internet access is rapidly evolving and intensely
competitive. While many of our competitors and potential competitors enjoy
competitive advantages over us, we are pursuing a

28
<PAGE>

significant market that, we believe, is currently underserved. Although pricing
will be an important part of our strategy, we believe that direct relationships
with our customers and consistent, high quality service and customer support
will be key to generating customer loyalty. During the past several years,
market prices for many telecommunications services and equipment have been
declining, a trend that we believe will likely continue. As prices decline for
any given speed of service, we expect that the total number and proportion of
our customers purchasing our higher-speed, higher-priced services will
increase. The majority of the cost to upgrade a customer's speed is generally
comprised of increased utilization of our backbone network.

Network and Operations. Our network and operations expenses include costs
related to personnel, monthly rental for telecommunications lines between
customers, central offices and network service providers, customer line
installation, Internet access, certain depreciation and amortization expenses
and other costs. The costs of provisioning a customer's copper telephone line
and the related monthly leased line costs, which typically range from $10 to
$30 per month, are expensed as incurred. Our total costs for leasing lines will
increase as we lease additional lines to service additional customers. In
addition, we lease high-speed fiber-optic lines to connect our central office
equipment with our network and the Internet and incur costs to connect to the
Internet. We expect these costs to increase as the volume of data
communications traffic generated by our customers increases.

The majority of our capital expenditures relate to building our network and
delivering service to customers. Accordingly, the majority of our depreciation
and amortization expense, excluding deferred compensation expense, is included
in our network and operations expenses. This expense includes:

. Depreciation of network and operations equipment and DSL modems installed
at customer sites;

. Depreciation of information systems, and computer hardware and software;
and

. Amortization and depreciation of the costs of obtaining, designing and
building our collocation space and corporate facilities.

We expect depreciation and amortization expense to increase significantly as
more of our network becomes operational and as we increase capital expenditures
to expand.

General and Administrative. Our general and administrative expenses consist
primarily of costs relating to personnel, customer service, finance, billing,
administrative services, recruiting, insurance, bad debts, legal services and
depreciation expense. As we have been implementing our business plan, we have
hired and expect to continue to hire additional employees. As a result, we
expect these expenses to increase as the number of employees increases.

Sales and Marketing. Our sales and marketing expenses consist primarily of
expenses for personnel, the development of our NetGAIN brand name, promotional
materials, advertising and sales commissions. Sales and marketing expenses are
expected to increase significantly as we continue to expand our business into
new markets.

We recently entered into strategic business relationships with Staples and
Microsoft. The Staples marketing agreement designates us as their exclusive
supplier of the types of DSL services we provide in each of our markets. The
Microsoft arrangement allows us to jointly market a co-branded

29
<PAGE>

version of the Microsoft Network (MSN) service to our customers and Microsoft
intends to use its existing channels and sales force to augment our own
marketing efforts. In connection with the Staples and Microsoft business
relationships, we expect to amortize to operating expense any difference
between the price paid by the strategic business partners for the Series E
convertible preferred stock and the deemed fair value of the underlying common
stock over the one to two year terms of the strategic business relationships.

Stock Compensation. We have incurred stock compensation expenses as a result
of the granting of stock and stock options to employees and others with
exercise prices per share subsequently determined to be below the fair values
per share of our common stock for financial reporting purposes at the dates of
grant. The stock compensation is being charged immediately or is being
amortized over the vesting period of the applicable options, which is generally
48 months.

Taxation. We have not generated any taxable income to date and, therefore,
have not paid any federal income taxes since inception. Use of our net
operating loss carryforwards, which begin to expire in 2003, may be subject to
limitations. We have recorded a full valuation allowance on a deferred tax
asset, consisting primarily of net operating loss carryforwards, because of
uncertainty regarding their recoverability.

Results of Operations

Revenue. We first introduced services in May 1998. Revenue in 1998 was
approximately $32,000. Revenue increased to approximately $184,000 for the six
months ended June 30, 1999 from approximately $3,500 for the period from
March 3, 1998 (inception) to June 30, 1998. The increase in revenue was
primarily due to the increased number of customers subscribing for our
services.

Network and operations. Network and operations expenses in 1998 were
approximately $127,000. Network and operations expenses increased to
approximately $1,483,000 for the six months ended June 30, 1999 from
approximately $700 for the period from March 3, 1998 (inception) to June 30,
1998. The increase in these expenses between the 1998 and 1999 interim periods
was primarily due to the increased number of customers subscribing for our
services and other increased costs resulting from the addition of personnel,
the expansion of our network and legal costs incurred in connection with our
applications for regulatory approvals in various states.

Depreciation and amortization expense, excluding amortization of deferred
compensation, in 1998 was approximately $6,000. Depreciation and amortization
expense, excluding amortization of deferred compensation, increased to
approximately $191,000 for the six months ended June 30, 1999 from $0 for the
period from March 3, 1998 (inception) to June 30, 1998. This expense increased
as more of our network became operational and we increased capital expenditures
to expand.

General and administrative. General and administrative expenses in 1998 were
approximately $230,000. General and administrative expenses increased to
approximately $1,554,000 for the six months ended June 30, 1999 from
approximately $3,900 for the period from March 3, 1998

30
<PAGE>

(inception) to June 30, 1998. The increases in general and administrative
expenses were principally the result of increases in the number of employees.

Sales and marketing. Sales and marketing expenses in 1998 were approximately
$36,000. Sales and marketing expenses increased to approximately $1,236,000 for
the six months ended June 30, 1999 from approximately $1,400 for the period
from March 3, 1998 (inception) to June 30, 1998. These expenses increased
primarily as a result of the increase in marketing and promotional activities
and increases in sales and marketing personnel.

Stock compensation. We incurred stock compensation expenses of approximately
$2,423,000 in 1998. Stock compensation expenses were approximately $2,617,000
for the six months ended June 30, 1999 compared to $0 for the period from March
3, 1998 (inception) to June 30, 1998. Expenses incurred in 1998 consisted of
current period charges related to common stock issued to certain officers. The
expenses incurred in the six months ended June 30, 1999 consisted of:

. amortization related to stock options granted during the first half of
1999, which amounted to approximately $549,000;

. amortization of restricted stock to senior management during the first
quarter of 1999, which amounted to approximately $1,480,000; and

. a current period charge related to common stock granted to an executive
for which there is no vesting requirement, which amounted to
approximately $588,000.

The unamortized balance of approximately $12,440,000 at June 30, 1999 will
be amortized over the remaining vesting period of each grant, which ranges from
33 to 45 months. As of June 30, 1999, options to purchase 5,042,739 shares of
common stock were outstanding, which were exercisable at a weighted average
exercise price of $0.25 per share.

Interest expense (income), net. Interest income was approximately $208,000
for the six months ended June 30, 1999 compared to interest expense of
approximately $200 for the period from March 3, 1998 (inception) to June 30,
1998. This increase was primarily due to an increase in our cash balances as a
result of the issuance of preferred stock in 1999 and the repayment of debt
with the proceeds therefrom. Interest expense in 1998 was approximately $5,000,
and related primarily to a note payable which was paid in full in January 1999.

Net loss. Net loss for 1998 totaled approximately $2,790,000. Net loss
increased to approximately $6,497,000 for the six months ended June 30, 1999
from approximately $2,700 for the period from March 3, 1998 (inception) to June
30, 1998.

Liquidity and Capital Resources

We have financed our capital expenditures and operations primarily with the
proceeds from stock issuances and borrowings. As of June 30, 1999, on a pro
forma basis giving effect to the sale of shares of Series E preferred stock to
Microsoft and Staples and the repayments of a note receivable from one of our
officers which occurred in July 1999, we had cash, cash equivalents and
marketable securities of approximately $55,467,000 and working capital of
approximately $53,197,000.

31
<PAGE>

Net cash provided by financing activities in 1998 and for the six months
ended June 30, 1999 was approximately $483,000 and $44,860,000, respectively.
This cash primarily resulted from the sale of preferred stock, amounts borrowed
under our lease facility and short-term bridge financings. We have used, and
intend to continue using, the proceeds from these financings primarily to
implement our business plan and for working capital.

In August 1998, we issued a $100,000 demand note which bore interest at the
annual rate of 5.56%. As of December 31, 1998, $66,667 of principal of this
note remained outstanding. This note was repaid in full in January 1999.

In November 1998, we received $350,000 from a short-term bridge note and
warrant financing. These notes had an aggregate principal amount of $350,000
and bore interest at annual rates of 5.56% or 6%. These notes were converted
into shares of our Series A preferred stock in January 1999.

During 1998, we also received $50,500 from the sale of our capital stock.

In January 1999 we received net proceeds of approximately $3,302,000 from
the sale of shares of Series A preferred stock and certain warrants. In April
1999, we received net proceeds of approximately $9,941,000 from the sale of
shares of Series C preferred stock. In May 1999, we received net proceeds of
approximately $29,974,000 from the sale of shares of Series D preferred stock.
In addition, in July, 1999, we received net proceeds of approximately
$18,468,000 from the sale of shares of Series E preferred stock and repayment
of a note receivable from an officer of approximately $1,000,000 for the
purchase of Series D preferred stock. Upon completion of the sale of common
stock in this offering, all outstanding shares of our preferred stock will
convert automatically into shares of common stock.

In March 1999, we entered into a 36-month lease facility to finance the
purchase of up to an aggregate of $2,000,000 of equipment. Amounts financed
under this lease facility bear an interest rate of 8% or 9%, depending on the
type of equipment, and are secured by the financed equipment. There was
approximately $504,000 outstanding on this lease facility at June 30, 1999.

In May 1999, we established a line of credit which allows us to borrow up to
an aggregate of $5.0 million. This line of credit expires in May 2000, at which
time amounts outstanding will convert into a term loan, which will be repayable
over 36 months. Amounts borrowed under this line of credit generally bear
interest at the sum of 1% plus the higher of the bank's prime rate of interest
and the federal funds rate plus .5%. As of June 30, 1999, amounts outstanding
under this line of credit bore interest at the annual rate of 8.75% and are
secured by a lien on certain of our equipment. Borrowings under the line of
credit are restricted based on our current ratio, our leverage ratio and the
amount of our stockholders equity. As of June 30, 1999, approximately
$4,200,000 was available under this line of credit.

We are currently negotiating another credit arrangement with a bank that
would provide an estimated $30,000,000 revolving line of credit to be used for
general corporate purposes and for the issuance of letters of credit. Borrowing
availability and rate of interest under the proposed line of credit are
expected to vary depending upon specified financial ratios. The interest rate
may be prime or LIBOR-based.

32
<PAGE>

In 1998 and for the six months ended June 30, 1999, the net cash used in our
operating activities was approximately $154,000 and $2,767,000, respectively.
This cash was used for a variety of operating expenses, including salaries,
consulting and legal expenses, network operations and overhead expenses. Our
negative operating cash flow is expected to continue and to increase as we
expand our operations.

Net cash used in investing activities in 1998 and for the six months ended
June 30, 1999 was approximately $290,000 and $11,662,000, respectively. This
cash was used primarily for the purchase of equipment and payment of
collocation costs and purchase of marketable securities.

In February 1999, we leased office space in New Haven, Connecticut. Annual
minimum lease payments under this lease are approximately $192,000 for 1999,
approximately $745,000 for each of the years 2000 through 2004, and
approximately $279,000 for 2005.

The development and expansion of our business requires significant capital
expenditures. The principal capital expenditures incurred to enter each market
include the procurement, design and construction of the space in traditional
telephone companies' central offices where we deploy our equipment, and the
purchase and installation of all necessary equipment. Capital expenditures,
including collocation fees, were approximately $290,000 and $6,134,000 in 1998
and for the six months ended June 30, 1999, respectively. Although we currently
have no material commitments for capital expenditures, we currently anticipate
spending approximately $20,000,000 and $50,000,000 for capital expenditures for
the second half of 1999 and for 2000, respectively. Our currently planned
capital expenditures for 1999 include approximately $8,000,000 for our
information and management systems, including our operations support system.
The remaining planned capital expenditures are primarily for the procurement,
design and construction of central office spaces and the purchase and
installation of the equipment necessary for us to provide our services. The
actual amounts and timing of our capital expenditures will vary depending on
the speed at which we are able to expand and implement our network and could
differ materially both in amount and timing from our current plans.

We believe that the net proceeds from this offering, together with our
existing cash and short-term investments, amounts available under our equipment
lease and credit facilities, and cash generated from operations, will be
sufficient to fund our operating losses, capital expenditures, lease payments
and working capital requirements through 2000. We estimate that the net
proceeds from the sale of common stock in this offering will be approximately
$97,508,000, based upon an assumed offering price per share of $11.00 and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. We currently anticipate that our cash and short-term
investments will exceed $152,000,000 after completion of this offering. We
intend to use these cash resources, including the net proceeds from this
offering, to continue building our network and for working capital and other
general corporate purposes. We may also use a portion of the net proceeds to
acquire complementary businesses, although we have no specific understandings,
commitments or agreements to do so at this time. The amounts actually expended
for these purposes will vary significantly depending on a number of factors,
including revenue growth, if any, planned capital expenditures, and the extent
and timing of our entry into target markets.

We expect our operating losses, negative operating cash flow and capital
expenditures to increase substantially as we expand our network. We expect that
additional financing will be required

33
<PAGE>

in the future. We may attempt to raise financing through some combination of
commercial bank borrowings, leasing, vendor financing and the sale of equity or
debt securities.

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

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

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

. we make any acquisitions; or

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

We cannot assure you that we will be able to raise sufficient debt or equity
capital on terms that we consider acceptable, if at all. If we are unable to
obtain adequate funds on acceptable terms, our ability to deploy and operate
our network, fund our expansion or respond to competitive pressures would be
significantly impaired.

We have not entered into any financial instruments that expose us to
material market risk.

Impact of Year 2000

Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. In order to distinguish
21st century dates from 20th century dates, the date code field needs to be
expanded to 4 digits. As a result, many companies' software and computer
systems may need to be upgraded or replaced in order to comply with these Year
2000 requirements. The use of software and computer systems that are not Year
2000 compliant could result in system failures or miscalculations resulting in
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices, or engage in normal business
activities.

Since we have been recently organized, we have been able to build our
internal business systems with Year 2000 compliance in mind. In the future, we
will seek assurance from vendors that new business systems which we purchase
will be Year 2000 compliant. We have not reviewed our non-information
technology systems for year 2000 issues relating to embedded microprocessors.

Our current service offerings are not date sensitive and do not rely on, and
do not need to process, date-related information in order to function as
designed, either prior to and after the year 2000.

Based on the foregoing, we have no reason to believe that our current
service offerings and our business systems will not be Year 2000 compliant.
Failure of our business systems or current service offerings to operate
properly with regard to the Year 2000 and thereafter could require us to incur
significant unanticipated expenses to remedy any problems or replace affected
vendors and could have a material adverse effect on our business, operating
results and financial condition.

We can provide no assurance that the incumbent carriers and other vendors
will be Year 2000 compliant or that Year 2000 problems among our target
customers will not negatively impact their

34
<PAGE>

decision to buy our service. We will initiate a Year 2000 compliance check of
incumbent carriers. Any Year 2000 related disruption of operations of the
incumbent carriers or other providers would likely have a material adverse
impact on our business, operation results, and financial condition.
Furthermore, Year 2000 issues may affect the purchasing decisions of our
customers as companies expend significant resources to correct their current
systems for Year 2000 compliance.

To date, we have not incurred significant costs in order to comply with Year
2000 requirements and we do not believe we will incur significant costs in the
foreseeable future. We plan to determine the risks associated with a reasonably
likely worse-case scenario and will formulate a contingency plan prior to
December 31, 1999 to address these risks.

Recently Issued Accounting Pronouncements

In 1998, we adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 supersedes SFAS 14, Financial Reporting for Segments of a Business
Enterprise, replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of our reportable segments. We operate in one segment: high-speed
data communication services. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 had no impact on our financial statements for the periods
presented.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. SoP 98-1 provides guidance for
determining whether computer software is internal-use software, and on
accounting for proceeds of computer software originally developed or obtained
for internal use and then subsequently sold to the public. It also provides
guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The adoption of SoP 98-1 had no impact
on our financial statements for the periods presented.

In April 1998, the Accounting Standards Executive Committee issued SoP 98-5,
Reporting on the Costs of Start-Up Activities, which provides guidance on the
financial reporting of start-up costs and organizational costs. It requires
costs of start-up activities and organizational costs to be expensed as
incurred. SoP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. As we have not capitalized such costs to
date, the adoption of SoP 98-5 is not expected to have an impact on our
financial statements.

35
<PAGE>

BUSINESS

Overview

We provide high-speed data communications and Internet access services using
digital subscriber line, or DSL, technology to small and medium sized
businesses. We target select second and third tier cities, which generally have
populations of less than 900,000. Our networks enable data transport over
existing copper telephone lines at speeds of up to 1.5 megabits per second. Our
services, marketed under the NetGAIN brand name, offer customers high-speed
digital connections at prices that are attractive compared to the cost and
performance of alternative data communications services.

Industry Background

We believe that a substantial business opportunity has been created by the
convergence of several factors:

. growth in demand for high-speed data communications;

. increased demand for Internet access by small and medium sized
businesses;

. limitations of existing telecommunications services to meet these
demands; and

. emergence of low-cost, DSL-based solutions.

Growth in High-Speed Data Communications. Data communications is the fastest
growing segment of the telecommunications industry. Forrester Research, Inc.
projects that the total market for data networking services and Internet access
will grow from $6.2 billion in 1997 to approximately $49.7 billion by 2002,
with approximately $27.9 billion to come from services to businesses. To remain
competitive, companies require high-speed connections to maintain complex
Internet sites, to access critical information and business applications, and
to communicate more efficiently with employees, customers and suppliers. In
addition, businesses are increasingly using the Internet to market and sell
their products and services.

Increased Demand for High-Speed Internet Access by Small and Medium Sized
Businesses. Small and medium sized businesses are increasingly using the
Internet to enable them to compete more effectively with larger organizations.
According to International Data Corporation/LINK, Internet access among small
businesses--those with under 100 employees--grew from 19.7% in 1996 to 38.8% in
1997. The following table illustrates the historical and estimated growth in
Internet use by these small businesses:

<TABLE>
<CAPTION>
1996 1997 1998E 1999E 2000E 2001E
<S> <C> <C> <C> <C> <C> <C>
Total small businesses (000s).......... 7,065 7,240 7,382 7,531 7,684 7,842
Percentage of small businesses with
Internet access....................... 19.7% 38.8% 43.9% 47.8% 51.3% 54.5%
Percentage of small businesses with
home pages............................ 2.1% 7.1% 9.1% 11.7% 15.0% 16.6%
</TABLE>

Source: International Data Corporation/LINK

36
<PAGE>

Currently, many small and medium sized businesses use the Internet to
exchange e-mails and files with customers, suppliers and other business
partners and to disseminate and obtain industry, product and market
information. Many of these businesses also have begun to use the Internet to
market and sell their products and services, to make purchases from suppliers
and for other commerce-related activities. For example, the percentage of small
businesses with home pages more than tripled from 1996 to 1997. To take full
advantage of electronic commerce applications and the Internet, these
businesses would benefit from high-speed, secure and affordable digital data
communications connections.

Limitations of Existing Telecommunications Network. The growing demand for
high-speed Internet access and data communications services is straining the
capacity of the existing telecommunications network, particularly the local
access portion. The long distance portion of the network typically consists of
fiber-optic cables and other equipment that enable high speed connections
between the offices of the traditional telephone companies from which local
telephone service is provided, known as central offices. In contrast, the local
access portion of the network, also known as the last mile, typically consists
of copper telephone wire that connects end users' locations to the nearest
central office. This last mile of copper telephone wire was not originally
designed for the transmission of high-speed digital signals, but has been
historically used for the transmission of low-speed, analog voice signals. Most
data transmission solutions to the last mile problem, including dial-up modems,
frame relay, integrated services digital network (ISDN) and T1 lines, are
relatively slow, hard to obtain or expensive.

Emergence of DSL-based Solutions. As a result of technological developments
and regulatory changes, DSL technology has emerged as a commercially available,
cost-effective means of providing high-speed data transmission using existing
copper telephone lines. DSL technology enables the transmission of digital
signals over existing copper telephone wires. DSL technology enables the
transmission of packets of data over a telecommunications network, which allows
multiple users to simultaneously transmit and receive data over a single
connection. DSL equipment, when deployed at each end of a standard copper
telephone line, increases the data carrying capacity of the line to speeds to
and from the user of up to 1.5 megabits per second, depending on the distance
between the user and the central office and the quality of the copper telephone
line.

The deployment of DSL-based solutions by competitive telecommunications
companies has been facilitated by changes in the regulatory framework in recent
years. Under the 1996 Telecommunications Act, traditional telephone companies
are generally required to lease telephone lines to competitive
telecommunications companies on a wholesale basis through resale or unbundling
and to allow these competitive telecommunications companies to locate certain
of their equipment in the traditional telephone companies' central offices. By
using existing facilities and copper lines, DSL providers avoid the
considerable up-front fixed costs necessary to deploy alternative high-speed
digital communications technologies, such as cable, wireless and satellite
networks. As a result, a significant portion of the investment in a DSL network
is incurred only as customers order the service. In addition, we anticipate
that continued advances in DSL technologies and transmission speeds, as well as
advances in DSL equipment manufacturing efficiencies, will further reduce the
cost of deploying a DSL-based network.

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Market Opportunity

We believe that the demand for affordable high-speed Internet access and
data communications services and the limited availability of these services
outside of large metropolitan areas have created an opportunity to provide DSL-
based services to a significant, underserved market -- small and medium sized
businesses located in second and third tier cities. These businesses
increasingly require high-speed data communications capabilities to compete
effectively. Traditional telephone companies have generally offered ISDN, frame
relay or T1 lines as high-speed alternatives in these markets, but these
services are typically at a higher cost or lower speeds than DSL-based
services.

The DSL.net Solution

Our services, marketed under the NetGAIN brand name, provide small and
medium sized businesses in second and third tier cities with high-speed
Internet access and data services using DSL technology. Key elements of our
solution are:

High-Speed, Symmetric Connections. We offer Internet access at speeds of up
to 1.5 megabits per second. Our network is designed to provide data
transmission at the same speed to and from the customer, known as symmetric
data transmission. We believe that symmetric data transmission is best suited
for business applications, because business users require fast connections both
to send and receive information. This compares to other DSL services which use
asymmetric data transmission, which only permits users to send information at
speeds much slower than they can receive information.

Complete Business Solution. We offer our customers a single point of contact
for a complete solution that includes all of the necessary equipment and
services to establish and maintain digital data communications. Our primary
services include Internet access, e-mail, assisting our customers in obtaining
Internet addresses, and hosting our customers' Web sites and support networks
that connect customers' various offices and connect our customers to their
suppliers, customers and others. Through independent suppliers, we also intend
to provide Web site design and development and applications enabling electronic
commerce. Our network is designed to enable us to individually configure each
customer's service remotely. As a result, our customers are able to upgrade to
higher speeds without adding networking equipment and without an on-site visit
from technical personnel.

Always-On Connections. With our service, customers can access the Internet
continuously without having to dial into the network for each use. These
"always-on" connections provide customers with the ability to readily access
the Internet and transfer information. Despite the always-on connection, we
charge our customers a flat fee per month rather than billing them based on
usage.

Attractive Value Proposition. Our NetGAIN services offer customers high-
speed digital connections at prices that are attractive compared to the cost
and performance of alternative data communications services, such as dial-up,
T1, ISDN or frame relay lines. We believe that our services also increase the
productivity of network users by decreasing the time they spend connecting to
the Internet and waiting for information downloads and transfers.

Secure Connections. Our network is designed to reduce the possibility of
unauthorized access to our customers' internal applications and information and
to allow them to safely transmit sensitive information and applications.

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Customer Support. We provide customer service 24 hours a day, seven days a
week. This support is important to many of our small and medium sized business
customers because they do not typically have dedicated internal support staff.
With our remote monitoring and troubleshooting capabilities, we continuously
monitor our network and our customers' connections. This enables us to identify
and enhance network quality, service and performance and address network
problems promptly.

The DSL.net Strategy

Our objective is to become the leading provider of DSL-based services to
small and medium sized businesses in second and third tier cities throughout
the United States. To achieve this objective, we plan to:

Establish Service in Select Markets Throughout the United States. We seek to
be the first DSL-based service provider in select second and third tier cities
throughout the United States. Before entering a market, we carefully analyze
the competitive environment, the composition of the small and medium sized
businesses located in the market, the location, cost and availability of
collocation space in the local telephone company's central offices, and the
proximity of our target customers to those central offices. Our goal is to
locate our equipment in central offices with a high density of small and medium
sized businesses that we believe will use our services. We are seeking to have
regulatory approval to operate as a competitive local exchange carrier in all
50 states and the District of Columbia and to have entered into interconnection
agreements with the Regional Bell Operating Companies, which are the
traditional telephone companies created by AT&T's divestiture of its local
telephone service businesses, and certain other traditional telephone companies
by the end of 1999.

Utilize Our Rapid Deployment Model. Once we have selected a market to enter,
we deploy our network using an operating and strategic model that we believe is
replicable across the country and leverages our centralized network management
capabilities. We deploy a standard package of pre-configured equipment at each
central office. We utilize third-party field service organizations, who have
the required authorizations from traditional telephone companies, as well as
our own internal personnel to install this equipment in central offices.
Through centralized network management, standardized configuration of our
equipment, the assistance of third-party service providers and on-site
inspection of central office installations, we believe we can implement our
rollout plan quickly and cost effectively.

Establish Local Referral Networks. We seek to establish relationships in
each local market with select local and regional technology-related
professionals, such as integrators of computer networks and systems and
consultants, who market our services and provide customer referrals. These
local marketing partners typically understand their clients' technology
requirements and capabilities and can provide valuable insights into customers'
needs. We also work with other local organizations which serve the business
community and refer customers to us. We use these relationships to leverage our
general advertising, direct mail and telemarketing efforts, which are directed
at decision makers in local businesses.

Develop Relationships Directly with Customers. Our strategy emphasizes
direct relationships with our customers. These relationships enable us to learn
information from our customers about their needs and preferences and help us
expand our service offerings to include additional value-added services based
on customer demand. We believe that these customer relationships increase

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customer loyalty and reduce turnover. In addition, our existing customers have
provided customer referrals and we believe strong relationships will result in
customer referrals in the future.

Leverage our Scaleable Systems and Network. Our network and operations
support systems have been designed to leverage the economies of DSL technology
and to grow with our business. Because DSL technology uses existing copper
telephone lines, implementing a DSL-based network generally requires a lower
initial capital investment than that needed for alternative technologies. Once
we install our pre-configured equipment in a central office, our subsequent
capital investments to expand service from that location are directly related
to the number of customers who order our service, thereby reducing our overall
capital expenditures until additional paying customers have ordered our
service. In addition, the design of our network and the operations support
systems that we are in the process of implementing is intended to allow us to
expand capacity as it is needed to support additional customers and markets.

Our NetGAIN Services

We utilize DSL technology to provide reliable and cost-effective service to
our customers under the NetGAIN brand. As part of our service offerings, we
function as our customer's Internet service provider and deliver a broad range
of Internet-based, value-added solutions. As of June 30, 1999, we provided
service or had installed equipment in 24 cities.

Our goal is to deliver services which:

. provide reliable, always-on, secure, high-speed Internet connections with
transmission speeds up to 1.5 megabits per second;

. are easily upgradable to higher speeds with simple software changes that
can be affected remotely from our offices;

. are more reliable and enable greater productivity than dial-up modems;
and

. are easier to provision, install and support than existing high-speed
data communications alternatives.

Our NetGAIN services currently include all necessary equipment, software and
lines required to establish and maintain a digital Internet connection. Our
primary services include Internet access, e-mail, assisting our customers in
obtaining Internet addresses and hosting our customers' Web sites. We also
support networks that connect customers' various offices and connect our
customers to their suppliers, customers and others. In addition, through
independent suppliers, we intend to offer Web site design and development, as
well as a suite of applications enabling electronic commerce.

The following table lists our primary Internet access service offerings:

<TABLE>
<CAPTION>
Maximum Speed*
----------------- Maximum
To From Distance from
Services Customer Customer Central Office
<S> <C> <C> <C>
NetGAIN Standard......................... 416 kb/s 416 kb/s 18,000 feet
NetGAIN Plus............................. 784 kb/s 784 kb/s 14,000 feet
NetGAIN Pro.............................. 1.2 mb/s 1.2 mb/s 12,000 feet
NetGAIN Premium.......................... 1.5 mb/s 1.5 mb/s 9,000 feet
</TABLE>
- ---------------------

* The speed and effectiveness of the DSL connection varies based on a number
of factors, including the distance of the customer from the central office
and the condition of the copper line that connects the customer to the
central office.

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<PAGE>

Customers pay an installation charge and a monthly fee for the NetGAIN
service. The monthly fee does not vary by number of users or usage, although it
does vary based on the speed of the connection. The fee includes the cost of
the modem installed at the customer's site, all phone line charges, and general
Internet access services, including e-mail, assistance in obtaining Internet
addresses and domain naming services. Generally, customers subscribe to our
NetGAIN services for at least one year and are billed for our services on a
monthly basis. We also intend to offer customers the ability to have their
monthly service fees charged directly to their credit cards.

We plan to continue expanding our network features and applications to meet
customer demand by working closely with leading hardware, software and
networking companies. We expect to focus on many applications, including
combining voice and data communications, increasing our directory and security
capabilities, and providing businesses with the ability to access their
important applications from remote locations. Using these network-enabled
features and applications, we will continue to provide a complete solution to
meet our business customers' needs.

Customers

Our target customers are small and medium sized businesses in second and
third tier cities in which we offer our services. In particular, we believe the
following are especially attractive customers:

. businesses currently using other high-speed data communications services,
such as T1, ISDN and frame relay services, or analog dial-up Internet
access;

. professional or service-based firms that have multiple Internet service
provider accounts and phone lines;

. branch offices located in second and third tier cities that require
transmission of large files between locations;

. businesses with a substantial amount of revenue from mail order or
Internet sales from customers outside their immediate geographic
territory; and

. businesses that use data-intensive applications, such as financial
services, technology, and publishing.

None of our customers accounted for more than 5% of our total revenues in
1998 or during the first six months of 1999.

Sales and Marketing

Our marketing professionals have developed a methodology to identify the
businesses that would benefit from our services. Once we identify businesses in
a target market, we employ a targeted local marketing strategy utilizing a
variety of mediums, including direct mail, print and radio. In addition, we
sponsor local promotional events, such as information technology or
telecommunications seminars, to assist our local sales professionals.

Direct Sales Channels. Our direct sales efforts are centered around
telemarketing personnel and city managers, who are assigned to one or more
local areas. These city managers are responsible for assessing business
opportunities and identifying marketing channel partners to assist us in the
sale

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<PAGE>

of our NetGAIN services. In addition, city managers work with local business
associations to identify potential customers and build brand awareness.

Our telemarketing personnel follow up on our direct mail marketing
campaigns. Unlike large corporations, decision-makers in small and medium sized
businesses generally decide over the phone and in a relatively short time
whether to initiate data communications service with us. We believe our
telemarketing personnel are effective in following up with those businesses
that have received direct mailings from us.

Marketing Partners. Our city managers also identify local information
technology professionals, such as integrators of computer networks and systems
and consultants, to assist in the sale of our NetGAIN services. We select
marketing partners based on several factors, including brand name, local market
presence, complementary technology or product lines, and a strong distribution
channel. Our local marketing partners understand the technology needs and
capabilities of their clients and are in position to recommend us to their
clients and provide us with referrals. We compensate our marketing partners for
each referral of a customer who purchases our services. We believe that
relationships with marketing partners are important in establishing a long-term
presence in the local community and leveraging our direct sales force.

Strategic Relationships

We have entered into strategic relationships that we believe are valuable
because they provide additional marketing capabilities and distribution
channels, in addition to capital investment. We anticipate that we will enter
into additional strategic relationships with others in the future.

Our current strategic relationships include:

Staples. In July 1999, we entered into a strategic relationship with Staples
pursuant to which, among other things:

. Staples Investment. Staples invested $3,500,000 in return for shares of
our Series E preferred stock which will convert into 473,655 shares of
our common stock upon the closing of this offering. In addition, Staples
has indicated an interest in purchasing $5,000,000 of our common stock
directly from us at the initial public offering price in connection with
this offering, although it is not bound to do so.

. Marketing Services through Staples. Staples has agreed to market our
services to their small and medium sized business customers. Staples
intends to offer our services for sale and refer potential customers to
us through their retail stores, direct marketing sales force, catalog and
Web site. We have agreed to compensate Staples for each sale of our
services generated through these channels. We intend to offer our
customers the ability to connect over the Internet directly to Staples
for their business supply purchases.

. Mutual Exclusivity. During the term of our agreement, which is initially
for one year with the potential for annual renewals, we have agreed not
to offer our services through another national office supply company. In
turn, Staples has agreed to offer our services exclusively to its
customers in all of the markets we serve.

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<PAGE>

Microsoft. In July 1999, we entered into a strategic relationship with
Microsoft pursuant to which, among other things:

. Microsoft Investment. Microsoft invested $15,000,000 in us, in return for
shares of our Series E preferred stock which will convert into 2,029,949
shares of common stock upon the closing of this offering.

. Co-branding for Our Customers. During the term of our agreement, which is
initially for two years with the potential for annual renewals, Microsoft
has agreed to jointly market with us a co-branded version of the
Microsoft Network service (MSN). We have agreed to provide and market the
co-branded MSN service to our new and existing customers. We and
Microsoft have agreed to share any advertising revenue generated through
the co-branded MSN service.

. Joint Marketing of Our Services. Microsoft has agreed to market and
provide our services through its sales force as well as to its Microsoft
certified systems integrators and consultants.

Customer Support and Operations

Our customer support professionals work to minimize the complexity and
inconvenience of data communications and Internet access for our customers.
They provide our customers with a single point of contact for implementation,
maintenance and operations support.

Implementation. We manage the implementation of our service for each
customer. We lease the copper telephone lines from the local telephone company.
These lines run from our equipment located in the telephone company's central
office to our customer. We test these lines to determine whether they meet our
specifications and work with the local telephone company to correct any
problems identified by our testing. Field service technicians, typically
outside contractors, install the modem and any necessary wiring inside our
customers' offices and test the modem and connection over our network.

Maintenance. Our network operations center provides network surveillance
for all equipment in our network. We are able to detect and correct many of our
customers' maintenance problems remotely, often before our customer is aware of
the problem. Customer-initiated maintenance and repair requests are managed and
resolved primarily through our help desk. Our information management system,
which generates trouble tickets for tracking maintenance problems, allows us to
communicate maintenance problems from the customer service center to our
network operations center 24 hours a day, seven days a week.

Operations Support System. We are in the process of implementing an
operations support system that will integrate many of our business systems,
including customer billing, provisioning, inventory control, customer care
reports and trouble ticket tracking. This operations support system has been
designed to provide us with accurate, up-to-date information in these areas. We
believe that our operations support system will provide us with the flexibility
to add additional services for our customers as well as to meet our expansion
goals. We expect that the operations support systems will be substantially
completed by the end of 1999.

Our Network

Our network delivers high-speed Internet access and data communication
services. It offers scaleability, reliability, security and high performance.

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<PAGE>

Network Design. The key design principles of our network are:

. Intelligent End-to-End Network Management. Our network is designed to
allow us to monitor network components and customer traffic from a
central location. Because we control the lines to the customer, we can
perform network diagnostics and equipment surveillance continuously. From
our network operations center, we have visibility across our entire
network, allowing us to identify and address network problems quickly and
to provide quality service and performance.

. Consistent and Scaleable Performance. We believe that networks that use
technology that transmits packets of information such as ours, will
eventually replace many of the existing dial-up modems currently
connected to networks that use current switching technology. We have
designed our network for scaleability and consistent performance. New
capacity is added automatically as each new user receives a line. We also
use asynchronous transfer mode equipment in our network, which implements
packet switching directly in integrated circuits in contrast to slower
router-based designs that implement switching in router software.

. Security. Our network is designed to reduce the possibility of
unauthorized access and to allow our customers to safely transmit and
receive sensitive information and applications. The modems we install on
our customers' premises are designed with enhanced security features and
work in conjunction with installed security systems and network servers
in an effort to provide safe connections to the Internet and a secure
operating environment.

Network Components. The primary components of our network are:

. DSL Modems and On-Site Connections. We purchase DSL modems and provide
them to our customers as part of the service contract. We configure the
DSL modem and arrange for the installation of the modem and on-site
wiring needed to connect the modem to the copper telephone line that we
lease. We contract with independent field service organizations to
perform these services, in addition to using a small internal staff.

. Copper Telephone Lines. We lease a copper telephone line running to each
customer from our equipment in the local telephone company's central
office under terms specified in our interconnection agreements with these
companies. Each copper line must be specifically conditioned by the local
telephone company to carry digital signals, typically for an additional
charge. If we are unable to lease, or experience delays in leasing, a
sufficient number of acceptable telephone lines on acceptable terms, our
business will be harmed.

. Central Office Collocation. Through our interconnection agreements, we
seek to secure space to locate our equipment in the central offices of
traditional telephone companies and offer our services from these
locations. These collocation spaces are designed to offer the same high
reliability and availability standards as the telephone companies' other
central office spaces. We install our digital subscriber line access
multiplexers, or DSLAMs, and other equipment necessary to provide high-
speed DSL signals to our customers in these spaces. We have continuous
access to these spaces to install and maintain our equipment. We expect
that space in central offices will become increasingly scarce as
competitive telecommunications companies vie for space. We may not be
able to secure space to install

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<PAGE>

our equipment on a timely basis, which could delay our roll-out plan and
adversely affect our business and prospects.

. Backbone Network. Network traffic gathered at each central office is
routed to one of our regional hubs and then to the Internet. In certain
areas where we offer service from more than one central office, network
traffic is routed from each central office in that area to a local hub
which aggregates its traffic and the traffic from the other central
offices located in that area and routes this traffic to a regional hub.
Our hubs are provisioned with extra equipment and backup power to provide
redundancy in the event of an equipment failure and are actively
monitored from our network operations center. We lease space for our hubs
in facilities designed to host network equipment. Our equipment is
located in central offices and our hubs are connected to one another and
the Internet via fiber-optic cables that we lease from various long
distance carriers.

. Network Operations Center. Our network is managed from our network
operations center, or NOC, located in New Haven, Connecticut. We provide
end-to-end network management 24 hours a day, seven days a week. This
enhances our ability to address performance and service issues before
they affect the customer. From the network operations center, we can
monitor individual customer lines and the equipment and circuits in each
regional network and central office.

. Private Regional Network. We anticipate that, at some point in the
future, we will operate our own private regional networks in certain
geographic areas. We believe our regional networks will consist of high-
speed telecommunications equipment that will connect our hubs to our
equipment in individual central offices. Private networks of this type
typically operate at speeds of 45 to 155 megabits per second.

Competition

We face competition from many companies with significantly greater financial
resources, well-established brand names and large installed customer bases.
Although we believe competition in many second and third tier cities is less
intense than competition in larger cities, we expect the level of competition
in our markets to intensify in the future. We expect significant competition
from:

Other DSL Providers. Certain competitive carriers, including Covad, Network
Access Solutions, NorthPoint and Rhythms NetConnections, offer DSL-based
services. The 1996 Telecommunications Act specifically grants competitive
telecommunications companies, including other DSL providers, the right to
negotiate interconnection agreements with traditional telephone companies,
including interconnection agreements which may be identical in all respects to,
or more favorable than, our agreements. Several of the large telecommunications
companies and computer companies, such as Microsoft and Intel, have made
investments in DSL service providers.

Internet Service Providers. Several national and regional Internet service
providers, including America Online, Concentric Network, Flashcom, Mindspring,
PSINet and Verio, have begun developing high-speed access capabilities to
leverage their existing products and services. These companies generally
provide Internet access to residential and business customers over the
traditional telephone companies' networks at higher speeds. However, some
Internet service providers have begun offering DSL-based access using another
carrier's DSL service or, in some cases, building

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<PAGE>

their own DSL networks. Some Internet service providers combine their
significant and even nationwide marketing presence with strategic or commercial
alliances with DSL-based competitive telecommunications companies.

Traditional Local Telephone Companies. Many of the traditional local
telephone companies, including those created by AT&T's divestiture of its local
telephone service business, are conducting technical or market trials or have
begun deploying DSL-based services. These companies have established brand
names and reputations for high quality in their service areas, possess
sufficient capital to deploy DSL equipment rapidly, have their own copper
telephone lines and can bundle digital data services with their existing voice
services to achieve a competitive advantage in serving customers. We believe
that the traditional telephone companies have the potential to quickly deploy
DSL services.

National Long Distance Carriers. National long distance carriers, such as
AT&T, MCI WorldCom, Qwest and Sprint, have deployed large-scale Internet access
networks and automated ATM networks, sell connectivity to businesses and
residential customers, and have high brand recognition. They also have
interconnection agreements with many of the traditional telephone companies and
are beginning to offer competitive DSL services.

Other Fiber-Based Carriers. Companies such as Allegiance, ChoiceOne,
e.spire, Intermedia and Williams have extensive fiber networks in many
metropolitan areas, primarily providing high-speed data and voice circuits to
small and large corporations. They also have interconnection agreements with
the traditional telephone companies under which they have acquired collocation
space in many large markets.

Cable Modem Service Providers. Cable modem service providers, such as At
Home and its cable partners, are offering or preparing to offer high-speed
Internet access over cable networks to consumers. @Work, a division of At Home,
has positioned itself to do the same for businesses. Where deployed, these
networks provide high-speed local access services, in some cases at speeds
higher than DSL service. 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.

Wireless and Satellite Data Service Providers. Several new companies,
including Advanced Radio Telecom, Teligent and WinStar Communications, are
emerging as wireless data service providers. In addition, other companies,
including Motorola Satellite Systems and Hughes Communications, are emerging as
satellite-based data service providers. These companies use a variety of new
and emerging technologies, such as terrestrial wireless services, point-to-
point and point-to-multipoint fixed wireless services and satellite-based
network services.

We may be unable to compete successfully against these competitors. The most
significant competitive factors include: transmission speed, service
reliability, breadth of product offerings, price/performance, network security,
ease of access and use, content bundling, customer support, brand recognition,
operating experience, capital availability and exclusive contracts with
customers, including Internet service providers and businesses with multiple
offices. We believe our services compete favorably within our service markets
with respect to transmission speed, price/performance, ease of access and use
and customer support. Many of our competitors enjoy competitive advantages over
us based on their brand recognition, breadth of product offerings, operating
experience and exclusive contracts with customers.

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<PAGE>

Interconnection Agreements with Traditional Telephone Companies

We are required to enter into and implement interconnection agreements
covering each of our target markets with the traditional local telephone
company in that market in order to provide service. These agreements govern,
among other things:

. the price and other terms under which we locate our equipment in the
telephone company's central offices,

. the price we pay to lease copper telephone lines,

. the special conditioning of these copper lines that the traditional
telephone company provides to enable the transmission of DSL signals,

. the price we pay to access the telephone company's transmission
facilities, and

. certain other terms and conditions of our relationship with the telephone
company.

Under the 1996 Telecommunications Act, traditional telephone companies have
a statutory duty to negotiate in good faith with us for agreements for
interconnection and access to certain unbundled network elements. This
interconnection process is subject to review and approval by the state
regulatory commissions. We have signed interconnection agreements with
Ameritech, Bell Atlantic, BellSouth, SBC (including SNET) and GTE, which govern
our relationships in 21 states. Certain of our interconnection agreements
govern our relationship with the traditional telephone company throughout its
service areas and others relate only to individual states. In addition, we are
currently negotiating agreements with Pacific Bell, US West and Sprint and
certain other carriers covering additional states. Future interconnection
agreements may contain terms and conditions less favorable to us than those in
our current agreements and could increase our costs of operations.

During these interconnection negotiations, either the telephone company or
we may submit disputes to the state regulatory commissions for mediation and,
after the expiration of the statutory negotiation period set forth in the 1996
Telecommunications Act, we may submit outstanding disputes to the states for
arbitration, as well as ask the state regulatory commissions to arbitrate a new
agreement or particulars thereof.

Under the 1996 Telecommunications Act, states have begun and, in a number of
cases, completed regulatory proceedings to determine the pricing of unbundled
network elements and services, and the results of these proceedings will
determine the price we pay for, and whether it is economically attractive for
us to use, these elements and services.

Our interconnection agreements have terms of one or two years. Therefore, we
will have to renegotiate our existing agreements when they expire. Although we
expect to renew our interconnection agreements and believe the 1996
Telecommunications Act limits the ability of traditional telephone companies
not to renew these agreements, we may not succeed in extending or renegotiating
our interconnection agreements on favorable terms. Additionally, disputes have
arisen and will likely arise in the future as a result of differences in
interpretations of the interconnection agreements. These disputes have delayed
our deployment of our networks. They have also adversely affected our service
to our customers and our ability to enter into additional interconnection
agreements with the traditional telephone companies in other states. Finally,
the interconnection

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<PAGE>

agreements are subject to state regulatory commission, FCC and judicial
oversight. These government authorities may modify the terms of the
interconnection agreements in a way that hurts our business.

Government Regulations

A significant portion of the services that we offer will be subject to
regulation at the federal and/or state levels. The Federal Communications
Commission, or FCC, and state public utility commissions regulate
telecommunications common carriers, which are companies that offer
telecommunications services to the public or to all prospective users on
standardized rates and terms. Our data transport services are common carrier
services.

The FCC exercises jurisdiction over common carriers, and their facilities
and services, to the extent they are providing interstate or international
communications. The various state utility commissions retain jurisdiction over
telecommunications carriers, and their facilities and services, to the extent
they are used to provide communications that originate and terminate within the
same state. The degree of regulation varies from state to state.

In recent years, the regulation of the telecommunications industry has been
in a state of flux as the United States Congress and various state legislatures
have passed laws seeking to foster greater competition in telecommunications
markets. The FCC and state commissions have adopted many new rules to implement
those new laws and to encourage competition. These changes, which are still
incomplete, have created new opportunities and challenges for us and our
competitors. Certain of these and other existing federal and state regulations
are currently the subject of judicial proceedings, legislative hearings and
administrative proposals which could change, in varying degrees, the manner in
which this industry operates. Neither the outcome of these proceedings nor
their impact upon the telecommunications industry or us can be predicted at
this time. Indeed, future federal or state regulations and legislation may be
less favorable to us than current regulations and legislation and therefore
have a material and adverse impact on our business and financial prospects by
undermining our ability to provide DSL services at competitive prices. In
addition, we may expend significant financial and managerial resources to
participate in proceedings setting rules at either the federal or state level,
without achieving a favorable result.

Federal Regulation and Legislation

We must comply with the requirements of a common carrier under the
Communications Act of 1934, as amended, to the extent we provide regulated
interstate services. These requirements include an obligation that our charges,
terms and conditions for communications services must be "just and reasonable"
and that we may not make any "unjust or unreasonable discrimination" in our
charges or terms and conditions. The FCC also has jurisdiction to act upon
complaints against common carriers for failure to comply with their statutory
obligations. We are not currently subject to price cap or rate of return
regulation at the federal level and are not currently required to obtain FCC
authorization for the installation, acquisition or operation of our facilities.

The FCC has established different levels of regulation for dominant and non-
dominant carriers. Of domestic carriers, only the traditional telephone
companies created by AT&T's divestiture of its local telephone service, GTE,
and other incumbent local exchange carriers are classified as dominant

48
<PAGE>

carriers and all other providers of domestic common carrier service, including
us, are classified as non-dominant carriers. As a non-dominant carrier, we are
subject to less FCC regulation than are dominant carriers.

In November 1998, the FCC ruled that DSL and other advanced data services
provided as dedicated access services in connection with interstate services
such as Internet access are interstate services subject to the FCC's
jurisdiction. Accordingly, we could offer DSL services without state regulatory
authority, so long as we do not also provide local or intrastate telephone
services via our network. This decision allows us to provide our DSL services
in a manner that potentially reduces state regulatory obligations. This
decision is currently subject to reconsideration and appeal.

Comprehensive changes to the Communications Act were made by the 1996
Telecommunications Act, enacted on February 8, 1996. It represents a
significant milestone in telecommunications policy by establishing competition
in local telephone service markets as a national policy. The 1996
Telecommunications Act removes many state regulatory barriers to competition
and forecloses state and local governments from creating laws preempting or
effectively preempting competition in the local telephone service market.

The 1996 Telecommunications Act places substantial interconnection
requirements on the incumbent local exchange carriers.

. Traditional telephone companies regulated as incumbent local exchange
carriers are required to provide physical collocation, which allows
companies such as us and other interconnectors to install and maintain
their own network termination equipment in the central offices of
incumbent local exchange carriers, and virtual collocation only if
requested or if physical collocation is demonstrated to be technically
infeasible. This is intended to enable us and other competitive carriers
to deploy our equipment on a relatively convenient and economical basis.

. Incumbent local exchange carriers are required to unbundle components of
their local service networks so that other providers of local service can
compete for a wide range of local service customers. This requirement is
designed to provide us flexibility to purchase only the equipment we
require to deliver our services.

. Incumbent local exchange carriers are required to establish "wholesale"
rates for their services to promote resale by competitive local exchange
carriers and other competitors.

. Incumbent local exchange carriers are required to establish number
portability, which allows a customer to retain its existing phone number
if it switches from the incumbent local exchange carriers to a
competitive local service provider.

. Incumbent local exchange carriers are required to establish dialing
parity, which ensures that customers will not detect a quality difference
in dialing telephone numbers or accessing operators or emergency
services.

. Incumbent local exchange carriers are required to provide
nondiscriminatory access to telephone poles, ducts, conduits and rights-
of-way. In addition, the 1996 Telecommunications Act requires incumbent
local exchange carriers to compensate competitive carriers for traffic
originated by them and terminated on the competitive carrier's network.

49
<PAGE>

The 1996 Telecommunications Act in some sections is self-executing. The FCC
issues regulations interpreting the 1996 Telecommunications Act that impose
specific requirements upon which we and our competitors rely. The outcome of
various ongoing FCC rulemaking proceedings or judicial appeals of such
proceedings could materially affect our business and financial prospects by
increasing the cost or decreasing our flexibility in providing DSL services.

The FCC prescribes rules applicable to interstate communications, including
rules implementing the 1996 Telecommunications Act, a responsibility it shares
in certain respects with the state regulatory commissions. As part of its
effort to implement the 1996 Telecommunications Act, the FCC issued an order
governing interconnection in August 1996. A federal appeals court for the
Eighth Circuit, however, reviewed the initial rules and overruled some of their
provisions, including some rules on pricing and nondiscrimination. In January
1999, the United States Supreme Court reversed elements of the Eighth Circuit's
ruling, finding that the FCC has broad authority to interpret the 1996
Telecommunications Act and issue rules for its implementation, specifically
including authority over pricing methodology. The Supreme Court upheld the
FCC's directive to the incumbent carriers to combine unbundled elements for
competitors, and to allow competitors to pick and choose among provisions in
existing interconnection agreements. The Supreme Court also found that the
FCC's interpretation of the rules for establishing unbundled elements was not
consistent with standards prescribed in the 1996 Telecommunications Act, and
required the FCC to reconsider and better justify its delineation of unbundled
elements. The pick and choose rule permits a competitive local exchange carrier
to select individual provisions of existing interconnection agreements yet
still tailor its interconnection agreement to its individual needs by
negotiating the remaining provisions. The FCC implemented a public rulemaking
seeking comment on these issues, including particularly, which network elements
should be offered on an unbundled basis by incumbent carriers, and a decision
is expected later this year. Although the FCC has tentatively concluded that
local copper telephone lines should continue to remain available as an
unbundled element, there is no certainty as to the FCC's outcome on this issue
or as to other network elements which the incumbent local exchange carriers
will be required to unbundle. Moreover, this proceeding, as well as a companion
FCC rulemaking, address related issues of significant importance to us,
including:

. the manner in which loops should be subject to unbundling;

. compatibility among DSL services and between DSL and non-DSL services;
and

. the sharing of copper telephone lines between DSL services offered by one
provider and analog voice services offered by another provider.

In addition, some traditional telephone companies may take the position that
they have no obligation to provide unbundled elements, including copper
telephone lines, until the FCC issues new rules, which could adversely affect
our ability to expand our network in accordance with our roll-out plan and
therefore adversely affect our business.

In March 1998, several traditional telephone companies petitioned the FCC to
be relieved of certain regulatory requirements in connection with their own DSL
and other advanced data services, including obligations to unbundle DSL copper
line loops and to resell DSL services. In October 1998, the FCC ruled that DSL
services are telecommunications services subject to the requirements of the
1996 Telecommunications Act and therefore, the incumbent local exchange
carriers must

50
<PAGE>

unbundle such services and offer them for resale. The FCC also issued a notice
of proposed rulemaking indicating its tentative conclusion to allow incumbent
carriers to create separate affiliates for their DSL businesses that would have
to operate as competitive carriers and would be permitted to operate free of
the resale and unbundling obligations of the 1996 Telecommunications Act. While
there has been no final FCC decision in this proceeding, in March 1999, the FCC
announced new rules for collocation and interconnection. These rules are
subject to reconsideration and appeal. The final outcome of these proceedings
interpreting the requirements of the 1996 Telecommunications Act may be less
favorable to us and adversely affect our ability to provide DSL services at a
competitive price.

The FCC recently adopted regulations which strengthen our leverage and that
of competitive carriers in negotiating interconnection arrangements. Most
significant for us, the FCC determined that incumbent local exchange carriers
must make shared cage and cageless collocation available to competitive local
exchange carriers, including DSL.net, and permit these competitors to collocate
any equipment used for interconnection and access to unbundled network
elements, even if the competitor's equipment includes switching or enhanced
service functions. The incumbent carriers may not require that switching
functions be disengaged. These rules are currently subject to appeal by several
incumbent carriers.

The 1996 Telecommunications Act also directs the FCC, in cooperation with
state regulators, to establish a universal service fund that will provide
subsidies to carriers that provide service to individuals in high-cost areas. A
portion of carriers' contributions to the universal service fund also will be
used to provide telecommunications related facilities for schools, libraries
and certain rural health care providers. The FCC released its initial order in
this context in June 1997, which requires all telecommunications carriers to
contribute to the universal service fund. The FCC's implementation of universal
service requirements remains subject to judicial and additional FCC review.
Additional changes to the universal service regime, which could increase our
costs, could have an adverse affect on us.

State Regulation

In November 1998, the FCC deemed pure data transmission to the Internet as
interstate services subject only to federal jurisdiction. However, this
decision is currently subject to reconsideration and appeal. Also, some of our
services that are not limited to interstate access potentially may be
classified as intrastate services subject to state regulation. All of the
states where we operate, or intend to operate, require some degree of state
regulatory commission approval to provide certain intrastate services and
maintain ongoing regulatory supervision. In most states, intrastate tariffs are
also required for various intrastate services, although we are not subject to
price or rate of return regulation for tariffed intrastate services. Actions by
state public utility commissions could cause us to incur substantial legal and
administrative expenses and adversely affect our business.

To date, we have been able to obtain authorizations to operate as a
competitive local exchange carrier in 32 states and the District of Columbia,
and we have filed for competitive local exchange carrier status in the
remaining states. Although we expect to obtain certifications in all states,
there is no guarantee that these certifications will be granted or obtained in
a timely manner.

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<PAGE>

Local Government Regulation

In certain instances, we may be required to obtain various permits and
authorizations from municipalities, such as for use of rights-of-way, in which
we operate our own local distribution facilities. Whether various actions of
local governments over the activities of telecommunications carriers such as
ours, including requiring payment of franchise fees or other surcharges, pose
barriers to entry for competitive local exchange carriers which violate the
1996 Telecommunications Act or may be preempted by the FCC is the subject of
litigation. While we are not a party to this litigation, we may be affected by
the outcome. If municipal governments impose conditions on granting permits or
other authorizations or if they fail to act in granting such permits or other
authorizations, the cost of providing DSL services may increase or negatively
impact our ability to expand our network on a timely basis and adversely affect
our business.

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 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. Effective patent, copyright, trademark and trade
secret protection may be unavailable or limited in certain foreign countries,
and the global nature of the Internet makes it virtually impossible to control
the ultimate destination of our proprietary information. There can be no
assurance that the steps we have taken will prevent misappropriation or
infringement of our technology. In addition, litigation may be necessary in the
future to enforce our intellectual property rights, to protect our trade
secrets or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business, operating
results and financial condition. In addition, some of our information,
including our competitive carrier status in individual states and our
interconnection agreements, is a matter of public record and can be readily
obtained by our competitors and potential competitors, possibly to our
detriment.

Employees

As of July 19, 1999, we had approximately 92 employees. We believe that our
future success will depend in part on our continued ability to attract, hire
and retain qualified personnel. Competition for such personnel is intense, and
we may be unable to identify, attract and retain such personnel in the future.
None of our employees are represented by a labor union or are the subject of a
collective bargaining agreement. We have never experienced a work stoppage and
believe that our employee relations are good.

Properties

Our headquarters consists of 31,500 square feet in an office building in New
Haven, Connecticut, which we occupy under a lease that expires in May 2005.
This lease may be extended

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<PAGE>

for two additional five-year periods. In addition, we have a right of first
refusal for additional space in the office building under certain
circumstances. We also lease office space for local sales personnel and space
for network equipment installations in a number of other locations. With
respect to our arrangements to use space in traditional telephone companies'
central offices, please see "Interconnection Agreements with Traditional
Telephone Companies."

Legal Proceedings

From time to time we are involved in legal proceedings, claims and
litigation arising in the ordinary course of business, the outcome of which,
in the opinion of management, would not have a material adverse effect on us.
We are also a party to legal proceedings related to regulatory approvals. We
are subject to state commission, FCC and court decisions as they relate to the
interpretation and implementation of the 1996 Telecommunications Act, the
interpretation of competitive carrier interconnection agreements in general
and our interconnection agreements in particular. In some cases, we may be
deemed to be bound by the results of ongoing proceedings of these bodies. We
therefore may participate in proceedings before these regulatory agencies or
judicial bodies that affect, and allow us to advance, our business plans.

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<PAGE>

MANAGEMENT

Directors and Executive Officers

The directors and executive officers of DSL.net are as follows:

<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Paul K. Sun............. 39 Chairman of the Board and Chief Technology Officer
David F. Struwas........ 51 President, Chief Executive Officer and Director
Raymond C. Allieri...... 39 Senior Vice President, Sales and Marketing
Robert Q. Berlin........ 33 Chief Financial Officer and Vice President, Strategic Planning
Alan A. Bolduc.......... 44 Vice President, Operations
John M. Jaser........... 40 Vice President, Technology
Stephen Zamansky........ 29 Vice President and General Counsel
Robert Gilbertson(1).... 58 Director
William J. Marshall(1).. 43 Director
James D. Marver......... 49 Director
William Seifert(1)...... 49 Director
</TABLE>
- ---------------------

(1) Member of the audit committee

Currently we have six members on our board of directors. These directors
were elected in accordance with an amended and restated voting agreement which
terminates upon the closing of the offering. Each of these directors will hold
office until the next annual meeting of our stockholders. Commencing at the
next annual meeting of our stockholders, our Board of Directors will be divided
into three classes. The members of each class will be determined by the Board
of Directors prior to that meeting. At that meeting, our stockholders will
elect one class of directors for a term expiring in one year, a second class of
directors for a term expiring in two years, and a third class of directors for
a term expiring in three years. Thereafter, each director will be elected for a
three-year term, with one class of directors being elected at each annual
meeting. Each director holds office until that director's successor is elected
and qualified.

Paul K. Sun has served as a director since January 1999 and Chairman of the
Board of Directors since February 1999. In addition, he has also served as
Chief Technology Officer since December 1999. From February 1997 to December
1998, Mr. Sun was a Director at PairGain Technologies, Inc. From December 1995
to February 1997, he was President and Chief Executive Officer of Avidia
Systems, Inc., an ATM switch vendor, which was acquired by PairGain
Technologies, Inc. in February 1997. From 1989 to 1995, Mr. Sun held various
positions at TranSwitch Corporation, a now-public telecommunications-oriented
semiconductor company, most recently as Manager of ATM Development.

David F. Struwas joined DSL.net in August 1998 and has served as our
President and Chief Executive Officer since November 1998 and as a director
since January 1999. From January 1997 to August 1998, Mr. Struwas was a General
Manager for Brooks Fiber-Worldcom. From May 1980 to January 1997, Mr. Struwas
held various positions at Southern New England Telephone, most recently as
Director of Marketing.

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<PAGE>

Raymond C. Allieri has served as Senior Vice President, Sales and Marketing
since June 1999. From 1988 to 1999, Mr. Allieri held various positions at MCI
WorldCom Communications Corporation, most recently as Senior Vice President,
Local Market Strategy and Development.

Robert Q. Berlin has served as Chief Financial Officer and Vice President,
Strategic Planning since July 1999, as Vice President, Strategic Planning since
May 1999 and as Executive Director, Strategic Planning from January 1999 to May
1999. From December 1997 to January 1999, Mr. Berlin was Managing Director of
Rice Sangalis Toole & Wilson, a private investment firm. From August 1994 to
December 1997, he held various positions, including Managing Director at GE
Capital Corporation. From June 1991 to August 1994, Mr. Berlin was a principal
at CHF Capital Partners, a private investment firm.

Alan A. Bolduc has served as Vice President, Operations since November 1998.
From June 1998 to November 1998, Mr. Bolduc was Managing Director of
Cablevision Lightpath of CT, Inc., a competitive carrier subsidiary of
Cablevision. From January 1995 to May 1998, he was a General Manager at Brooks
Fiber Communications of CT, Inc. From April 1992 to January 1995, Mr. Bolduc
held various positions at Sprint Communications, most recently as National
Account Manager.

John M. Jaser has served as Vice President, Technology since May 1999. Mr.
Jaser served as our President from March 1998 to November 1998 and was
responsible for business development from November 1998 to May 1999. From
January 1992 to March 1998, Mr. Jaser was the President and Chief Executive
Officer of FutureComm, Inc., a consulting firm specializing in network
planning, architecture and design.

Stephen Zamansky has served as Vice President and General Counsel since May
1999. From August 1997 to May 1999, Mr. Zamansky was an associate at Day, Berry
& Howard LLP. From October 1995 to August 1997, he was an associate at Sullivan
& Cromwell. From August 1994 to August 1995, Mr. Zamansky was a legal clerk for
a justice at the Supreme Judicial Court of Massachusetts.

Robert Gilbertson has served as a director since January 1999. Mr.
Gilbertson has been the President and Chief Executive Officer of Network
Computing Devices, Inc. since May 1997. From April 1996 to April 1997, Mr.
Gilbertson served as Chairman of Avidia Systems Inc. From January 1992 to May
1996, Mr. Gilbertson served as President and a director of CMX Systems, Inc., a
manufacturer of precision measurement and positioning products.

William J. Marshall has served as a director since January 1999. Mr.
Marshall has been a Managing Partner at VantagePoint Venture Partners since
1998 and served as Senior Advisor from 1996 to 1998. From 1985 to 1996, Mr.
Marshall was the Senior Managing Director and Chief Technology Officer of the
Communications Technologies Group at Bear Stearns & Co. Inc. Mr. Marshall is a
Co-Founder of the ATM Forum and was also a Board member of the Securities
Industry Association Technology Committee.

55
<PAGE>

James D. Marver has served as a director since April 1999. Mr. Marver has
been a Managing Partner at VantagePoint Venture Partners since co-founding the
firm in 1996. From 1988 to 1996, Mr. Marver was Senior Managing Director and
Head of the Global Technology Group at Bear Stearns & Co. Inc., as well as Head
of the San Francisco Investment Banking office.

William Seifert has served as a director since April 1999. Mr. Seifert has
been a General Partner of Prism Ventures Partners II, L.P. since October 1998.
From November 1997 to October 1998, Mr. Seifert was a consultant and private
investor. Mr. Seifert founded Agile Networks, Inc. in November 1991 and served
as its Chief Executive Officer until November 1997. Mr. Seifert is a director
of Digital Lightwave, Inc.

Committees of the Board of Directors

Our board of directors reviews and evaluates the salaries and incentive
compensation of our management and key employees. In addition, our board of
directors administers our 1999 Stock Plan and Employee Stock Purchase Plan.

Our audit committee consists of Messrs. Gilbertson, Marshall and Seifert. It
is responsible for reviewing the scope of annual audits, considering specific
problems and questions that arise during the course of audits, monitoring the
adequacy of accounting and audit controls, and such other functions as the
board of directors may from time to time delegate to it. Our audit committee
must report to the board of directors when asked to do so.

Director Compensation

In February 1999, our board of directors approved the grant of non-qualified
stock options to purchase 333,250 shares of our common stock to each of Mr.
Gilbertson and Mr. Marshall for their services as directors and 79,980 shares
to Mr. Marver for his service as our advisor, in each case at an exercise price
of $0.0375 per share. In July 1999, our board approved additional grants of
non-qualified stock options to purchase 53,320 and 133,300 shares of our common
stock to Messrs. Marver and Seifert for their services as a director at an
exercise price of $7.3875 per share. Each of these options provides that 25% of
the shares subject to the option will become exercisable one year after the
date of grant with the remaining amount becoming exercisable equally over the
next 36 months. The board of directors has also provided that all options
granted under the 1999 stock plan to a member of our board of directors or
certain of our advisors will vest immediately upon a change of control. In
addition, the option granted to Mr. Gilbertson provides that his option will
become immediately exercisable in full in the event he is removed as a director
for any reason other than in connection with a change of control of DSL.net.
See "Management -- Stock Plan."

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<PAGE>

Executive Compensation

The following summary compensation table sets forth the total compensation
paid or accrued for the period from our inception on March 3, 1998 through
December 31, 1998 for David Struwas, our Chief Executive Officer at December
31, 1998, and John M. Jaser, our Vice President, Technology, who served as our
chief executive officer from March 1998 to November 1998 (the "named executive
officers"). No other executive officer or employee had compensation in excess
of $100,000 during the year ended December 31, 1998.

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Compensation
-------------------------------
All Other
Name and Principal Position Salary Bonus Compensation
<S> <C> <C> <C>
David Struwas................................... $34,867(1) $30,000 $6,682
President and Chief Executive Officer
John M. Jaser................................... 20,975(2) -- 955
Vice President, Technology(3)
</TABLE>
- ---------------------

(1)Mr. Struwas' annual salary for fiscal year 1999 is $95,000.

(2)Mr. Jaser's annual salary for fiscal year 1999 is $65,000.

(3)Mr. Jaser served as President from March 1998 to November 1998.

All other compensation consists of an amount equal to the fair market value
of common stock, as determined by our board of directors, purchased in December
1998 by each named executive officer in exchange for a promissory note. The
notes were subsequently cancelled in full satisfaction of our obligation to pay
additional compensation under each of these agreements. Based on subsequent
events such as the issuance of the Series A preferred stock and our decision to
proceed with this offering, we have recorded aggregate stock compensation of
$1,023,272 relating to these shares of common stock. See "Certain
Transactions."

Option Grants

No stock options or appreciation rights were granted during the year ended
December 31, 1998 to Mr. Struwas or Mr. Jaser.

Stock Plans

1999 Stock Plan. Our stock plan was adopted by the board of directors in
February 1999 and approved by the stockholders in March 1999. A total of
12,364,200 shares of common stock have been authorized and reserved for
issuance under the stock plan. No shares have been issued pursuant to the
exercise of options. Under the terms of the stock plan, we are authorized to
grant incentive stock options as defined under the Internal Revenue Code, non-
qualified options, stock appreciation rights, stock awards or opportunities to
make direct purchases of common stock to officers, directors, consultants and
other employees of ours and our subsidiaries.

The stock plan is administered by our board of directors. The board selects
the individuals to whom options or other awards will be granted and determines
the option exercise price and other terms of each award, subject to the
provisions of the stock plan. Options generally provide that 25%

57
<PAGE>

of the shares exercisable under each option will vest one year following either
the date of grant or the optionee's date of employment and thereafter vest in
equal monthly installments over the next 36 months. The option exercise price
may be paid in cash or in shares of common stock valued at fair market value on
the exercise date. We may also allow the option to be exercised through a same-
day sale program without any cash outlay by the optionee. The stock plan also
provides that, if at any time following a change in control we terminate an
optionee's business relationship with DSL.net or any of our subsidiaries
without cause or the optionee terminates his or her business relationship with
us for good reason, all options and other awards held by that optionee will
immediately vest and become exercisable. In addition, the board of directors
has provided that all options granted under the stock plan to any person
serving as president, chief executive officer, seinor vice president, vice
president, chief financial officer, chief technology officer, chairman of our
board of directors, a member of our board of directors or a member of our
advisory board will vest immediately upon a change in control. An option is not
transferable by the recipient except by will or by the laws of descent and
distribution, or, in the case of non-qualified stock options, is only
transferable to the extent set forth in the agreement relating to the non-
qualified stock option or pursuant to a valid domestic relations order. The
term of the stock plan is ten years, unless sooner terminated by vote of our
board of directors.

1999 Employee Stock Purchase Plan. The 1999 Employee Stock Purchase Plan, or
purchase plan, was adopted by the board of directors and received stockholder
approval in July 1999. The purchase plan provides for the issuance of up to an
aggregate of 300,000 shares of common stock to participating employees.

The purchase plan is administered by our board of directors. All employees
who have completed three months of employment and whose customary employment is
more than 20 hours per week and for more than five months in any calendar year
are eligible to participate in the purchase plan. The right to purchase common
stock under the purchase plan will be made available through a series of
offerings. On the first day of an offering period, we will grant to each
eligible employee who has elected in writing to participate in the purchase
plan an option to purchase shares of common stock. The employee will be
required to authorize an amount, between 1% and 10% of the employee's
compensation, to be deducted from the employee's pay during the offering
period. On the last day of the offering period, the employee will be deemed to
have exercised the option, at the option exercise price, to the extent of
accumulated payroll deductions. Under the terms of the purchase plan, the
option exercise price is an amount equal to 85% of the fair market value of one
share of common stock on either the first or last day of the offering period,
whichever is lower. No employee may be granted an option that would permit the
employee's rights to purchase common stock to accrue in excess of $25,000 in
any calendar year. The first offering period under the purchase plan will
commence upon the initial offering of the common stock to the public and
continues through December, 1999. Thereafter, the offering periods will begin
on each January 1 and July 1. Options granted under the purchase plan terminate
upon an employee's voluntary withdrawal from the plan at any time or upon
termination of employment. No options have been granted to date under the
purchase plan.

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<PAGE>

Compensation Committee Interlocks and Insider Participation

Our board of directors reviews salaries and incentive compensation for our
employees and consultants and administers and grants stock options pursuant to
the stock plan and the purchase plan. Other than John Jaser, none of our
executive officers has served as a director or member of the compensation
committee, or other committee serving an equivalent function, of any other
entity, whose executive officers served as a director or member of our
compensation committee. Mr. Jaser was our sole director and president for a
portion of 1998 and also a director and executive officer of FutureComm, Inc.

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<PAGE>

CERTAIN TRANSACTIONS

Organization of DSL.net

In connection with our formation in 1998, we issued and sold 2,544,817
shares of common stock for a purchase price of $250 to each of our founders,
John Jaser and Felix Tang. Mr. Jaser is our Vice President, Technology. Mr.
Tang is our Director of Network Engineering.

In addition, we issued 20,000 shares of a prior series A preferred stock for
an aggregate of $50,000 to another founder Paul Sun, who currently is the
chairman of the board of directors and Chief Technology Officer.

In anticipation of the Series A preferred financing, in December 1998 Mr.
Sun exchanged 20,000 shares of a prior series A preferred stock for 7,634,451
shares of our common stock and in January 1999, Mr. Tang purchased 8 shares of
common stock for an aggregate purchase price of $0.02.

Issuance of Notes and Warrants

In November 1998, we issued a convertible promissory note in the aggregate
principal amount of $41,667 and a warrant to purchase 10,416 shares of Series A
preferred stock at an exercise price of $1.00 per share to VantagePoint Venture
Partners, 1996, L.P. In addition, we issued a convertible promissory note in
the aggregate principal amount of $83,333 and a warrant to purchase 20,834
shares of Series A preferred stock at an exercise price of $1.00 per share to
VantagePoint Communications Partners, L.P., an affiliate of VantagePoint
Venture Partners. Messrs. Marver and Marshall, two of our directors, are
members of the general partners of each of these VantagePoint entities.

Each of the notes issued to the VantagePoint entities provided for interest
at 6.0% and was repayable on demand beginning on January 8, 1999. Each of these
notes was converted in January 1999 in connection with the Series A preferred
stock financing described below.

Upon completion of this offering, each of the warrants will be exercisable
in whole or in part, at any time or from time to time, until November 18, 2003,
for an aggregate of 83,312 shares of common stock at an exercise price of
$0.375 per share.

Issuance of Notes and Rights to Warrants

Concurrently with the issuance of the convertible promissory notes and
warrants to the VantagePoint entities, we issued three convertible promissory
notes in the aggregate principal amount of $225,000 and contractual rights to
warrants to purchase an aggregate of 56,250 shares of Series A preferred stock
at an exercise price for $1.00 per share. Of that amount, one convertible
demand promissory note in the principal amount of $100,000 and a contractual
right to a warrant to purchase 25,000 shares of Series A preferred stock was
issued to Robert Gilbertson, one of our directors.

These convertible promissory notes provided for interest at 5.56% and were
repayable on demand if we failed to issue equity securities having an aggregate
purchase price of at least

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<PAGE>

$1,000,000 on or before September 30, 1998. These notes were automatically
converted into an aggregate of 225,000 shares of Series A preferred stock in
January 1999, of which Mr. Gilbertson was issued 100,000 shares. Upon
completion of this offering, the shares of Series A preferred stock will be
converted into 599,850 shares of common stock.

In January 1999, the contractual rights to the warrants were exchanged for
warrants to purchase an aggregate 56,250 shares of Series A preferred stock at
an exercise price of $1.00 per share. A warrant to purchase 25,000 shares of
Series A preferred stock at an exercise price of $1.00 per share was issued to
Mr. Gilbertson. The warrant issued to Mr. Gilbertson may be exercised in whole
or in part, at any time or from time to time, until the completion of this
offering, after which the warrant will terminate and no longer be exercisable.

Issuance of Stock

In December 1998, we issued 508,963 shares of common stock to Mr. Jaser in
exchange for his promissory note in the principal amount of $955 and 3,562,744
shares of common stock to David Struwas in exchange for his promissory note in
the principal amount of $6,682. Simultaneously with the issuance of this common
stock, we entered into agreements with each of Mr. Jaser and Mr. Struwas that
provided for additional compensation, after taxes, in the amount of $955 and
$6,682, respectively, plus interest of 5.56% from the date of the agreement
until the date of payment. The promissory notes of each of Mr. Jaser and Mr.
Struwas were cancelled in January 1999 in full satisfaction of our obligations
under each of these agreements.

In January 1999, we issued 1,166,667 shares of Series A preferred stock and
a warrant to purchase 1,166,667 shares of a prior series B preferred stock to
VantagePoint Venture Partners 1996, L.P. for aggregate consideration of
$1,166,667. These shares and warrants were subsequently exchanged in April
1999, for 2,166,667 shares of Series B preferred stock. In addition, we issued
2,333,333 shares of Series A preferred stock and a warrant to purchase
2,333,333 shares of a prior series B preferred stock to VantagePoint
Communications Partners, L.P. for aggregate consideration of $2,333,333. A
portion of the aggregate consideration paid by VantagePoint Venture Partners
1996, L.P. and VantagePoint Communications Partners, L.P. was in the form of
the cancellation of each of the convertible promissory notes issued by DSL.net
in November 1998. These shares and warrants were subsequently exchanged in
April 1999 for 4,333,333 shares of Series B preferred stock. At the time of the
exchange, the exchange rate was below the deemed fair market value of the
common stock. In addition, certain shares of common stock owned by
Messrs. Jaser, Struwas, Tang and Sun were made subject to vesting based on
tenure and certain performance criteria under a stockholders' agreement
described below.

In March 1999, we issued 436,256 shares of common stock to Mr. Struwas
having a fair market value as determined by our board of directors at the time
of issuance of approximately $29,455. Based on subsequent events, we recorded
compensation expense of $587,457 related to this issuance.

In April 1999, in connection with a recapitalization to adjust the share
ownership of each stockholder and the removal of certain vesting restrictions
based on performance criteria contained in the stockholders' agreement
described below, Mr. Jaser surrendered 867,660 shares of common stock, Mr. Tang
surrendered 731,945 shares of common stock and Mr. Sun surrendered 1,502,651
shares of common stock to DSL.net.

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<PAGE>

In April 1999, we issued an aggregate of 2,785,516 shares of Series C
preferred stock at a price of $3.59 per share, for aggregate consideration of
$10,000,002. Of that amount, we issued 185,701 shares to VantagePoint Venture
Partners 1996, L.P., 371,402 shares to VantagePoint Communications Partners,
L.P. and 1,392,758 shares to Prism Venture Partners II, L.P. Mr. Seifert, one
of our directors, is a managing director of the general partner of Prism
Venture Partners II, L.P. We also issued 819,778 shares to Oak Investment
Partners VIII, L.P. and 15,877 shares to Oak VIII Affiliates Fund L.P.

In May 1999, we issued an aggregate of 2,868,069 shares of Series D
preferred stock at a purchase price of $10.46 per share, for aggregate
consideration of $30,000,000, including a secured promissory note of
VantagePoint Venture Partners III, L.P. in an aggregate principal amount of
$5,999,429. Of that amount, we issued 191,204 shares to VantagePoint Venture
Partners, 1996, L.P., 382,410 shares to VantagePoint Communications Partners,
L.P., 573,614 shares to VantagePoint Venture Partners III, L.P. and 95,602
shares to Prism Venture Partners II, L.P. We also issued 515,823 shares of
Series D preferred stock to Oak Investment Partners VIII, L.P. and 9,990 shares
of Series D preferred stock to Oak VIII Affiliates Fund, L.P. VantagePoint
Venture Partners III, L.P. paid the secured promissory note in full on May 28,
1999.

In June 1999, we issued an aggregate of 95,603 shares of Series D preferred
stock to Raymond C. Allieri, our Senior Vice President, Sales and Marketing, at
a purchase price of $10.46 per share, for aggregate consideration of
$1,000,007, including a secured promissory note in an aggegate principal amount
of $999,911. The promissory note, as amended, matured on July 6, 1999 and
provided for interest at 6.00% per annum. Mr. Allieri paid the promissory note
in full on July 16, 1999.

In January 1999, Messrs Jaser, Tang, Sun and Struwas entered into a
Shareholders' Agreement which subjected 1,266,350, 1,055,291, 3,060,347 and
1,477,410 shares, respectively, to vesting pro-rata over 38 months. In
addition, 1,454,181, 1,211,825, 1,635,451 and 1,696,544 shares of common stock,
respectively, became subject to vesting over 84 months, or earlier if certain
gross revenue and EBITDA targets are achieved. In April 1999, in connection
with an Amended and Restated Shareholders' agreement and the recapitalization
discussed above, the vesting provisions relating to our gross revenue and EBITA
were removed. In addition all unvested shares will vest and the right to
repurchase terminates upon a change of control.

In connection with the preferred stock financings, we entered into an
investors rights agreement which contained certain covenants, all of which will
terminate upon the completion of this offering. In addition, we granted
registration rights to certain holders of preferred stock and common stock. See
"Description of Capital Stock--Registration Rights."

We also entered into a voting agreement under which the parties agreed to
elect nominees of certain holders to the board of directors. In addition, we
entered into a right of first refusal and co-sale agreement which gave us and
certain stockholders a right of first refusal and a right to sell shares in
connection with any sale of shares held by Messrs. Jaser, Struwas, Sun and
Tang. Each of these agreements will terminate upon the completion of this
offering.

Upon completion of this offering, each outstanding share of preferred stock
will convert into 2.666 shares of common stock.

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<PAGE>

Issuance of Options

In February 1999, we issued options to purchase 333,250 shares of our common
stock to each of Messrs. Gilbertson and Marshall and options to purchase 79,980
shares of our common stock to Mr. Marver. Each option has an exercise price of
$0.0375 per share, the fair market value of the common stock at the time of
grant as determined by the board of directors. In July 1999, our board approved
additional grants of non-qualified stock options to purchase 53,320 and 133,300
shares of our common stock to Messrs. Marver and Seifert, respectively, for
their services as directors at an exercise price of $7.3875 per share, the fair
market value of the common stock at the time of grant as determined by the
board of directors. See "Management--Director Compensation."

Other

In January 1999, we entered into an agreement with FutureComm, Inc., a
Connecticut corporation, under which FutureComm, Inc. transferred and assigned
all of its interest in certain equipment, agreements, licenses and intellectual
property in return for payment of approximately $28,000. Mr. Jaser is the sole
stockholder and director of FutureComm, Inc. and Mr. Jaser and Mr. Tang are
officers of FutureComm, Inc.

We are party to an agreement, dated as of April 1, 1999, with DMW Worldwide,
Inc. under which we license software for use in connection with our operations
support system. In addition, DMW will install and modify the software, and
provide training, maintenance and support services in connection with the
software. We expect to make payments approximating $2,000,000 in connection
with this agreement. Two of our stockholders, VantagePoint Venture Parners
1996, L.P. and VantagePoint Communications Partners, L.P., in the aggregate,
own in excess of 5% of the capital stock of DMW. Mr. Marshall and Mr. Marver,
affiliates of VantagePoint Venture Partners 1996, L.P. and VantagePoint
Communications Partners, L.P., are also members of our board of directors. In
addition Mr. Marver is a director of DMW.

We have adopted a policy whereby all future transactions between us and our
officers, directors and affiliates will be on terms no less favorable to us
than could be obtained from unaffiliated third parties and will be approved by
a majority of the disinterested members of our board of directors.

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of our common stock as of July 21, 1999, and as adjusted to reflect
the sale of the shares of common stock offered hereby, by:

. each person known by us to be the beneficial owner of more than 5% of our
common stock;

. each named executive officer;

. each of our directors; and

. all named executive officers and directors as a group.

Unless otherwise noted below, the address of each person listed on the table
is c/o DSL.net, Inc., 545 Long Wharf Drive, New Haven, CT 06511, and each
person has sole voting and investment power over the shares shown as
beneficially owned except to the extent authority is shared by spouses under
applicable law.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Shares of common stock issuable by us to a
person pursuant to options or warrants which may be exercised within 60 days
after July 21, 1999 are deemed to be beneficially owned and outstanding for
purposes of calculating the number of shares and the percentage beneficially
owned by that person. However, these shares are not deemed to be beneficially
owned and outstanding for purposes of computing the percentage beneficially
owned by any other person.

For purposes of calculating the percentage beneficially owned by any person,
the number of shares deemed outstanding before the offering includes:

. shares of common stock outstanding as of July 21, 1999;

. shares of common stock issuable upon the conversion of preferred stock
outstanding as of July 21, 1999; and

. shares of common stock issuable upon the exercise of options and warrants
which may be exercised by that person within 60 days of July 21, 1999.

For purposes of calculating the percentage beneficially owned by any person,
the number of shares deemed outstanding after the offering includes:

. all shares deemed to be outstanding before the offering and

. shares being sold in this offering, assuming no exercise of the
underwriters' over-allotment option.

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<PAGE>

<TABLE>
<CAPTION>
Percent of Common
Shares Stock Outstanding
Beneficially ------------------------------
Owned Before Offering After Offering
<S> <C> <C> <C>
David Struwas...................... 3,999,000 8.02% 6.71%

John Jaser......................... 2,186,120 4.38 3.67

Robert Gilbertson(1)............... 333,250 * *

James D. Marver(2)................. 21,956,059 43.95 36.69

William J. Marshall(2)............. 21,956,059 43.95 36.69

William Seifert(3)................. 3,967,968 7.95 6.7

Paul Sun........................... 3,097,892 6.21 5.21

The VantagePoint Entities(2)....... 21,956,059 43.95 36.69
1001 Bayhill Drive
Suite 100
San Bruno, CA 94066

Prism Venture Partners II, 3,967,968 7.95 6.65
L.P.(3)...........................
100 Lowder Brook Drive
Suite 2500
Westwood, MA 02090

The Oak Entities(4)................ 3,629,675 7.28 6.16
One Gorham Island
Westport, CT 06830

Stephen K. Gellman and Cecila S. 3,033,908 6.08 5.09
Wu(5).............................

Shipman & Goodwin L.L.P.
One American Row
Hartford, CT 06103
All executive officers and
directors as a group
(7 persons)(6).................... 35,539,189 71.08% 59.40%
</TABLE>
- ---------------------
* Less than 1%

(1) Includes 266,600 shares held by Mr. Gilbertson. Also includes 66,650 shares
of common stock issuable upon exercise of a warrant held by Mr. Gilbertson.

(2) Includes 6,781,163 shares and warrants to purchase 27,769 shares held by
VantagePoint Venture Partners 1996, L.P., of which VantagePoint Associates,
LLC is the general partner. Also includes 13,562,329 shares and warrants to
purchase 55,544 shares held by VantagePoint Communications Partners, L.P.,
of which VantagePoint Communications Associates, LLC is the general partner
and 1,529,254(.9) shares held by VantagePoint Venture Partners III, L.P.,
of which VantagePoint Ventures Associates III, LLC is the general partner.
Messrs Marver and Marshall are members of the general partner of each of
the VantagePoint entities. Each of Mr. Marver and Mr. Marshall may be
deemed to share voting and investment power with respect to such shares and
each disclaims beneficial ownership of such shares.

(3) Includes 3,967,968 shares held by Prism Venture Partners II, L.P., of which
Prism Investment Partners II, L.P. is the general partner, of which Prism
Venture Partners II, L.L.C. is the general partner. Mr. Seifert is a
managing director of Prism Venture Partners II, L.L.C. Mr. Seifert may be
deemed to share voting and investment power with respect to such shares and
disclaims beneficial ownership of such shares.

(4) Includes 3,560,713 shares held by Oak Investment Partners VIII, L.P., of
which Oak Associates VIII, LLC is the general partner. Also inlcudes 68,962
shares held by Oak VIII Affiliates Fund, L.P., of which Oak VIII Affiliates
Fund, LLC is the general partner.

(5) Includes an aggregate of 101,308 shares held in trust for Mr. Sun's
children, of which Mr. Gellman and Ms. Wu are co-trustees, and 2,932,600
shares held in trust for Mr. Sun, of which Mr. Gellman and Ms. Wu are co-
trustees. Each of Mr. Gellman and Ms. Wu may be deemed to share voting and
investment power with respect to such shares and each disclaims beneficial
ownership of such shares.
(6) See Notes 1 through 3.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

Effective upon the closing of this offering, our authorized capital stock
will consist of 200,000,000 shares of common stock, with a par value of $.0005
per share, and 20,000,000 shares of preferred stock, with a par value of $.01
per share.

Common Stock

As of July 21, 1999 there were 49,889,594 shares of common stock outstanding
and held of record by 25 stockholders, after giving effect to the conversion of
all outstanding shares of preferred stock upon the closing of this offering.

Based upon the number of shares outstanding as of July 21, 1999 and giving
effect to the issuance of the shares of common stock offered by us hereby,
there will be 59,489,594 shares of common stock outstanding upon the closing of
this offering. In addition, as of July 21,1999, there were outstanding stock
options for the purchase of a total of 5,259,352 shares of common stock at a
weighted average exercise price of $0.54, and outstanding warrants for the
purchase of a total of 129,226 shares of Series A preferred stock at a weighted
average exercise price of $1.45. Upon completion of this offering warrants to
purchase 56,250 shares of Series A preferred stock will terminate and the
remaining warrants will be exercisable for 194,554 shares of common stock.

Holders of common stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders. The holders
of common stock are entitled to receive ratably such lawful dividends as may be
declared by our board of directors. However, these dividends are subject to
preferences that may be applicable to the holders of any outstanding shares of
preferred stock. In the event of a liquidation, dissolution or winding up of
the affairs of DSL.net, whether voluntary or involuntary, the holders of common
stock will be entitled to receive pro rata all of our remaining assets
available for distribution to our stockholders. Any such pro rata distribution
would be subject to the rights of the holders of any outstanding shares of
preferred stock. The common stock has no preemptive, redemption, conversion or
subscription rights. The rights, powers, preferences and privileges of holders
of common stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock which we may designate
and issue in the future.

Preferred Stock

Upon completion of this offering, each outstanding share of preferred stock
will be converted into 2.666 shares of our common stock. A new certificate of
incorporation will be filed immediately after the completion of this offering
and will delete all references to the Series A, B, C and D preferred stock.

Our board of directors will be authorized, subject to any limitations
prescribed by Delaware law, without further stockholder approval, to issue from
time to time up to 20,000,000 shares of preferred stock, in one or more series.
Our board of directors will be also authorized, subject to the limitations
prescribed by Delaware law, to establish the number of shares to be included in
each series and to fix the voting powers, preferences, qualifications and
special or relative rights or privileges of each series. Our board of directors
will be authorized to issue preferred stock with voting, conversion and other
rights and preferences that could adversely affect the voting power or other
rights of the holders of common stock.

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<PAGE>

We have no current plans to issue any preferred stock following this
offering. However, the issuance of preferred stock or of rights to purchase
preferred stock could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
a majority of our outstanding voting stock.

Warrants

As of July 21, 1999, we had outstanding six warrants to purchase an
aggregate of 129,226 shares of Series A preferred stock:

. Two warrants provide for the purchase of an aggregate of 31,250 shares of
Series A stock at an exercise price of $1.00 per share, and are
exercisable, in whole or in part, at any time or from time to time, until
November 18, 2003. Upon completion of this offering, these warrants will
be exercisable for an aggregate of 83,312 shares of common stock at an
exercise price of $.375 per share.

. Three warrants are to purchase an aggregate of 56,250 shares of Series A
stock at an exercise price of $1.00 per share and are exercisable, in
whole or in part, at any time or from time to time, until the date on
which we complete our initial public offering.

. The sixth warrant is to purchase an aggregate of 41,726 shares of Series
A preferred stock at an exercise price of $2.40 per share and is
exercisable, in whole or in part, at any time or from time to time until
three years following the date on which we complete our initial public
offering. Upon completion of this offering, this warrant will be
exercisable for 111,241 shares of common stock at an exercise price of
$0.90 per share.

All of the outstanding warrants contain certain protections against dilution
resulting from stock splits, stock dividends and our consolidation or merger
with or into another person or sale of all or substantially all of our assets.

Registration Rights

Under the terms of the investors' rights agreement dated as of May 12, 1999,
holders of an aggregate of 49,439,594 shares of common stock, including shares
issuable upon conversion of the outstanding preferred stock, are entitled to
certain rights with respect to the registration of these shares under the
Securities Act.

If we propose to register any of our securities under the Securities Act,
either for our own account or for the account of other security holders, the
holders of registration rights are entitled to notice of such registration.
These holders are also entitled to include their shares of common stock in such
registration. However, in the event of a registration pursuant to an
underwritten public offering of common stock, the underwriters have the right,
subject to certain conditions, to limit the number of shares included in such
registration.

The holders of at least 40% of the then-outstanding shares of common stock
held by all of the holders of registration rights are entitled, at any time
following 180 days after the effective date of this prospectus, to request that
we file a registration statement under the Securities Act covering the sale of
the shares held by the requesting holders of registration rights. Upon the
receipt of such a request, we must use commercially reasonable efforts to
effect such registration. We are not required to effect more than two such
demand registrations.

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<PAGE>

Once we have qualified to use Form S-3 to register securities under the
Securities Act, the holders of registration rights have the right to request
that we file a registration statement on Form S-3 or any successor thereto for
a public offering of all or any portion of their shares, provided that the
reasonably anticipated aggregate price to the public of such offering would not
be less than $1,000,000. We are not required to effect a registration in this
manner more than once in any six-month period.

In general, all fees, costs and expenses of such registrations will be borne
by us. We have agreed to indemnify the holders of registration rights against,
and provide contribution with respect to, certain liabilities relating to any
registration in which any shares of these holders are sold under the Securities
Act.

Anti-Takeover Effects of Provisions of our Certificate of Incorporation and By-
Laws and Delaware General Corporation Law

Our certificate of incorporation and by-laws and the Delaware General
Corporation Law contain certain provisions that could be deemed to have anti-
takeover effects. These provisions could discourage, delay or prevent a change
in control of DSL.net or an acquisition of DSL.net at a price which many
stockholders may find attractive. The existence of these provisions could limit
the price that investors might be willing to pay in the future for shares of
our common stock.

Certificate of Incorporation and By-Laws

Our new certificate of incorporation will be filed immediately after the
closing of this offering and our by-laws will be amended prior to the offering.
The following description relates to the new certificate of incorporation and
the amended by-laws. Our certificate of incorporation provides that beginning
on the date of the first annual meeting of stockholders following completion of
this offering, the board will be divided into three classes as nearly equal in
size as possible with staggered three year terms. In addition, our certificate
of incorporation provides that any director may be removed without cause only
by the vote of at least 75% of the shares entitled to vote for the election of
directors or with cause by the vote of at least a majority of such shares. This
provision could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, control of
DSL.net.

Our by-laws provide that, except as otherwise provided by law or our
certificate of incorporation, newly created directorships resulting from an
increase in the authorized number of directors or vacancies on our board of
directors may be filled only by:

. a majority of the directors then in office, though less than a quorum is
then in office; or

. the sole remaining director.

These provisions prevent a stockholder from enlarging our board of directors
and filling the new directorships with such stockholder's own nominees without
board of directors approval.

68
<PAGE>

These provisions of our certificate of incorporation and by-laws may have
the effect of discouraging a third party from initiating a proxy contest,
making a tender offer or otherwise attempting to gain control of DSL.net, or of
attempting to change the composition or policies of the Board, even though such
attempts might be beneficial to DSL.net or its stockholders.

Our by-laws provide that, unless otherwise prescribed by law or the
certificate of incorporation, only a majority of our board of directors, the
Chairman of the board of directors or the President is able to call a special
meeting of stockholders. Our certificate of incorporation and by-laws also
provide that, unless otherwise prescribed by law or our certificate of
incorporation, stockholder action may be taken only at a duly called and
convened annual or special meeting of stockholders and may not be taken by
written consent. These provisions, taken together, prevent stockholders from
forcing consideration by the stockholders of stockholder proposals over the
opposition of our board of directors, except at an annual meeting.

Our by-laws also establish an advance notice procedure for stockholders to
make nominations of candidates for election as director, or to bring other
business before an annual meeting of our stockholders. Under the notice
procedure, notice of stockholder nominations or proposals to be made at an
annual meeting or a special meeting in lieu of an annual meeting generally must
be received by us not less than 120 days nor more than 150 days prior to the
first anniversary of the date of the proxy statement delivered to the
stockholders in connection with the preceding year's annual meeting. However,
if the number of directors to be elected to our board of directors is increased
and there is no public announcement by us naming all of the nominees for
director or specifying the size of the increased board of directors at least 70
days prior to the first anniversary of the preceding year's annual meeting,
then notice must be received not later than the 10th day following the earlier
of the day such notice was mailed or the day such public disclosure was made.
The notice will be timely only with respect to any director nominees for any
position caused by the increase in our board of directors. Notice of
stockholder nominations or proposals to be made at a special meeting called by
our board of directors for the purpose of electing one or more directors (other
than a special meeting in lieu of an annual meeting), must be received not
earlier than the 90th day prior to such special meeting nor later than the
close of business on the 60th day prior to such special meeting or the 10th day
following the earlier of the day such notice was mailed or the day such public
disclosure was made. These notices must contain certain prescribed information.

The notice procedure affords our board of directors an opportunity to
consider the qualifications of proposed director nominees or the merit of
stockholder proposals, and, to the extent deemed appropriate by our board of
directors, to inform stockholders about such matters. The notice procedure also
provides a more orderly procedure for conducting annual meetings of
stockholders. Our by-laws do not give our board of directors any power to
approve or disapprove stockholder nominations for the election of directors or
proposals for action. However, the notice procedure may prevent a contest for
the election of directors or the consideration of stockholder proposals. This
could deter a third party from soliciting proxies to elect its own slate of
directors or to approve its own proposal if the proper advance notice
procedures are not followed, without regard to whether consideration of such
nominees or proposals might be harmful or beneficial to DSL.net and its
stockholders.

69
<PAGE>

Delaware General Corporation Law

As provided in Section 203 of the Delaware General Corporation Law, our
certificate of incorporation authorizes the board of directors, when
considering a tender offer or merger or acquisition proposal, to take into
account factors in addition to potential economic benefits to stockholders.
Such factors may include:

. the interests of our stockholders, including the possibility that these
interests might be best served by the continued independence of DSL.net;

. whether the proposed transaction might violate Federal or state laws;

. the consideration being offered in the proposed transaction in relation
to the then current market price for our outstanding capital stock, as
well as in relation to the market price for our capital stock over a
period of years, the estimated price that might be achieved in a
negotiated sale of DSL.net as a whole or in part or through orderly
liquidation, the premiums over a market price for the securities of other
corporations in similar transactions, current political, economic and
other factors bearing on securities prices and our financial condition
and future prospects; and

. the social, legal and economic effects upon employees, suppliers,
customers, creditors and others having similar relationships with
DSL.net, upon the communities in which we conduct our business and upon
the economy of the state, region and nation.

The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party acquiring,
control of DSL.net. We are subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such
stockholder became an interested stockholder.

Section 203 does not apply if:

. prior to such time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;

. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or

. at or subsequent to such time, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock which is not owned by
the interested stockholder.

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<PAGE>

The application of Section 203 may limit the ability of stockholders to
approve a transaction that they may deem to be in their best interests.

Section 203 defines "business combination" to include:

. any merger or consolidation involving the corporation and the interested
stockholder;

. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation to or with the interested stockholder;

. subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;

. any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or

. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

In general, Section 203 defines an "interested stockholder" as any entity or
person who beneficially owns 15% or more of the outstanding voting stock of the
corporation or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the past three years, and any entity or person associated with,
affiliated with or controlling or controlled by such entity or person.

Limitation of Liability

Our certificate of incorporation provides that no director or officer of
DSL.net shall be personally liable to us or to our stockholders for monetary
damages for breach of fiduciary duty as a director or officer, except for
liability:

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

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

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

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

Our certificate of incorporation further provides for the indemnification
of, and advancement of expenses to, our directors and officers to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law,
including circumstances in which indemnification is otherwise discretionary. A
principal effect of these provisions is to limit or eliminate the potential
liability of our directors and officers for monetary damages arising from
breaches of their duty of care, subject to certain exceptions. These provisions
may also shield directors and officers from liability under federal and state
securities laws.

Stock Transfer Agent

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

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. These
sales also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate.

Upon completion of this offering, we will have outstanding an aggregate of
59,639,556 shares of our common stock, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options or
warrants. If the underwriters' over-allotment is exercised in full, we will
have outstanding an aggregate of 61,011,374 shares of our common stock,
assuming no exercise of outstanding options or warrants. As of July 19, 1999,
we had approximately 25 holders of our common stock. Of these shares, all of
the shares sold in this offering will be freely tradeable without restriction
or further registration under the Securities Act, unless such shares are
purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act. This leaves 50,039,556 shares eligible for sale in the public
market as follows:

<TABLE>
<CAPTION>
Number of Shares Date
------------------- ---------------------------------
<C> <S>
0 After the date of this
prospectus.
14,293,394 After 180 days from the date of
this prospectus (subject, in some
cases, to volume limitations).
35,746,162 At various times after 180 days
from the date of this prospectus.
</TABLE>

Lock-Up Agreements. All of our officers and directors and substantially all
of our stockholders have signed lock-up agreements under which they agreed not
to transfer or dispose of, directly or indirectly, any shares of our common
stock or any securities convertible into or exerciseable or exchangeable for
shares of our common stock other than shares purchased in the open market
following the completion of this offering, for a period of 180 days after the
date of this prospectus. Transfers or dispositions can be made sooner:

. with the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation;

. in the case of gifts or estate planning transfers where the donee signs a
lock-up agreement; or

. in the case of distributions to stockholders or affiliates of the
stockholders where the recipient signs a lock-up agreement.

Donaldson, Lufkin & Jenrette Securities Corporation has advised us that it
has no current intention to consent to any disposition of shares covered by
these lock-up agreements, but will consider each request for its consent at the
time and under the circumstances of the request.

Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:

72
<PAGE>

. 1% of the number of shares of our common stock then outstanding, which
will equal approximately 596,395 shares immediately after this offering;
or

. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to that sale.

Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the three months preceding a sale, and who
has beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, Rule 144(k) shares may be sold immediately upon
the completion of this offering. None of the shares of common stock that will
be outstanding after completion of this offering will be eligible to be sold
under Rule 144(k) until at least March 19, 2000.

Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors who purchases shares of
our common stock from us in connection with a compensatory stock or option plan
or other written agreement is eligible to resell those shares 90 days after the
effective date of this offering in reliance on Rule 144, but without compliance
with some of the restrictions, including the holding period, contained in Rule
144.

As of June 30, 1999, there were outstanding warrants to purchase an
aggregate of 129,226 shares of Series A preferred stock at a weighted average
exercise price of $1.45, all of which are presently exercisable. Upon
completion of this offering, the warrants will be exercisable for 194,554
shares of common stock at a weighted average exercise price of $0.68. In
addition, as of June 30, 1999, there were outstanding stock options to purchase
an aggregate of 5,042,739 shares of common stock at a weighted average exercise
price of $0.25, of which 101,084 are presently exercisable or exercisable
within 60 days.

Following this offering, we intend to file registration statements under the
Securities Act covering approximately 12,364,200 shares of common stock issued
upon the exercise of stock options, subject to outstanding options or reserved
for issuance under the stock plan. Accordingly, shares registered under such
registration statements will, subject to Rule 144 provisions applicable to
affiliates, be available for sale in the open market, except to the extent that
such shares are subject to vesting restrictions or the contractual restrictions
described above. See "Management -- Stock Plans."

In addition, the holders of an aggregate of shares of 49,439,594 common
stock, including shares issuable upon conversion of the outstanding preferred
stock, are entitled to certain rights with respect to the registration of these
shares. See "Description of Capital Stock--Registration Rights."

73
<PAGE>

UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement
dated , 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Deutsche Bank Securities
Inc., Lehman Brothers Inc. and DLJdirect Inc. have severally agreed to purchase
from us the number of shares opposite their names below:

<TABLE>
<CAPTION>
Number
Underwriters: of Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.............
Deutsche Bank Securities Inc....................................
Lehman Brothers Inc.............................................
DLJdirect Inc...................................................
---
Total.........................................................
===
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of certain legal matters and to certain other
conditions. The underwriters are obligated to purchase and accept delivery of
all the shares, other than those shares covered by the over-allotment option
described below, if they purchase any of the shares.

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

Staples has indicated an interest in purchasing $5,000,000 of common stock
directly from us at the initial public offering price in connection with this
offering, although it is not bound to do so. The sale of shares of common stock
to Staples will be made on the same terms and conditions available to the
public, except that:

. they will purchase the shares directly from us at the initial public
offering price applicable to shares sold to the public;

. they have agreed not to sell any shares of common stock that they may
acquire in connection with the offering for a period of 180 days from
the date of this prospectus; and

.no underwriting discount or commissions will be paid on the shares sold to
Staples.

These shares may not be purchased by Staples. Any shares not purchased by
Staples will not be offered to the general public on the same basis as the
other shares offered hereby.

In addition, the underwriters have reserved up to 460,000 additional shares
of common stock for sale to our directors, employees and associates. There can
be no assurance that any of the reserved shares will be so purchased. The
number of shares available for sale to the general public in the offering will
be reduced by the number of reserved shares sold. Any reserved shares not so
purchased will be offered to the general public on the same basis as the other
shares offered hereby.

74
<PAGE>

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

<TABLE>
<CAPTION>
Paid by Us
-----------------
No Full
Exercise Exercise
<S> <C> <C>
Per share..................................................... $ $
Total.........................................................
</TABLE>

We will pay the offering expenses, estimated to be $1,050,000.

We have granted to the underwriters an option, exercisable for 30 days after
the date of this prospectus, to purchase up to 1,371,818 additional shares at
the initial public offering price minus the underwriting fees. The underwriters
may exercise this option solely to cover over-allotments, if any, made in
connection with this offering. To the extent that the underwriters exercise
this option, each underwriter will become obligated, subject to certain
conditions, to purchase a number of additional shares approximately
proportionate to that underwriter's initial purchase commitments.

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

We, our executive officers and directors, and substantially all of our
stockholders have agreed, for a period of 180 days from the date of this
prospectus, not to, without the prior written consent of Donaldson, Lufkin &
Jenrette:

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

. enter into any swap or other arrangement that transfer all or a portion
of the economic consequences associated with the ownership of any common
stock, regardless of whether any of the transactions described in clause
(1) or (2) is to be settled by the delivery of common stock, or such
other securities, in cash or otherwise. None of the restrictions set
forth above shall apply to any shares of common stock purchased in the
open market following the completion of this offering.

However, we may:

. grant stock options or stock awards under the 1999 stock plan and the
employee stock purchase plan;

. issue shares of our stock upon the exercise of options, warrants or
rights or the conversion of currently outstanding securities; and

75
<PAGE>

. issue, offer and sell shares of our common stock or securities
convertible, exercisable or exchangeable for common stock in transactions
not involving a public offering, as long as each recipient of the
securities agrees in writing to be bound by the restrictions in this
paragraph.

In addition, during this period, we have agreed not to file any registration
statement with respect to, and each of our executive officers and directors and
a significant majority of our stockholders have agreed not to make any demand
for, or exercise any right with respect to, the registration of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for common stock, without the prior written consent of Donaldson, Lufkin &
Jenrette.

We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "DSLN."

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

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

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

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

. our past and present operations;

. our historical results of operations;

. our prospects for future earnings;

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

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

76
<PAGE>

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for us by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. Certain
legal matters will be passed upon for the underwriters by Brobeck, Phleger &
Harrison LLP.

EXPERTS

The financial statements as of December 31, 1998 and for the period from
inception (March 3, 1998) through December 31, 1998 included in this prospectus
have been so 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 which we believe is material to
an investor considering whether to make an investment in our common stock. We
refer you to the registration statement for additional information about us,
our common stock and this offering, including the full texts of the exhibits,
some of which have been summarized in this prospectus. After this offering, we
will be subject to the informational requirements of the Securities Exchange
Act. We will be required to file annual and quarterly reports, proxy statements
and other information with the SEC.

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

We intend to furnish our stockholders annual reports containing financial
statements audited by our independent accountants.

77
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-2

Balance Sheets as of December 31, 1998 and June 30, 1999 (unaudited)...... F-3

Statements of Operations for the period from inception (March 3, 1998)
through December 31, 1998, for the period from inception (March 3, 1998)
through June 30, 1998 (unaudited) and for the six months ended June 30,
1999 (unaudited)......................................................... F-4

Statements of Changes in Stockholders' Equity (Deficit) for the period
from inception (March 3, 1998) through December 31, 1998 and for the six
months ended June 30, 1999 (unaudited)................................... F-5

Statements of Cash Flows for the period from inception (March 3, 1998)
through December 31, 1998, for the period from inception (March 3, 1998)
through June 30, 1998 (unaudited) and for the six months ended June 30,
1999 (unaudited)......................................................... F-6

Notes to Financial Statements............................................. F-7
</TABLE>

F-1
<PAGE>

Report of Independent Accountants

To the Board of Directors and
Stockholders of DSL.net, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of DSL.net, Inc. (a
development stage company) at December 31, 1998 and the results of its
operations and its cash flows for the period from inception (March 3, 1998)
through December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.

PricewaterhouseCoopers LLP
Hartford, Connecticut

May 26, 1999, except for the
seventh paragraph of Note 7
referencing the July 1999 stock
dividend which is as of July 21,
1999

F-2
<PAGE>

DSL.net, Inc.

BALANCE SHEETS

<TABLE>
<CAPTION>
June 30, 1999
---------------------------
Pro Forma
December 31, Actual (Note 2)
1998 (unaudited) (unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......... $ 39,479 $ 30,470,703 $ 30,470,703
Marketable securities.............. -- 5,528,091 5,528,091
Accounts receivable (net of
allowance of $17,000 at June 30,
1999)............................. 30,597 66,037 66,037
Prepaid expenses and other current
assets............................ -- 413,418 413,418
----------- ------------- ------------
Total current assets............. 70,076 36,478,249 36,478,249
Fixed assets, net (Note 3)........... 284,338 6,185,168 6,185,168
Other assets......................... 15,566 911,904 911,904
----------- ------------- ------------
Total assets..................... $ 369,980 $ 43,575,321 $ 43,575,321
=========== ============= ============
Liabilities and Stockholders' Equity
(Deficit)
Current liabilities:
Accounts payable................... $ 231,073 $ 1,430,065 $ 1,430,065
Accrued liabilities................ 16,219 906,889 906,889
Deferred revenue................... 5,392 30,278 30,278
Current portion of capital lease
payable (Note 5).................. 16,494 382,123 382,123
Current portion of notes payable
(Note 4).......................... 66,667 -- --
----------- ------------- ------------
Total current liabilities........ 335,845 2,749,355 2,749,355
Long-term portion of capital lease
payable (Note 5).................... -- 556,060 556,060
Notes payable (Note 4)............... 350,000 786,907 786,907
----------- ------------- ------------
Commitments and contingencies (Note
5)
Total liabilities................ 685,845 4,092,322 4,092,322
----------- ------------- ------------

Stockholders' equity (deficit) (Notes
7 and 9):
Convertible preferred stock, $0.001
par value; 16,826,500 shares
authorized;
Series A convertible preferred
stock; 0, 225,000 and 0 shares
issued and outstanding,
respectively...................... -- 225,000 --
Series B convertible preferred
stock; 0, 6,500,000 and 0 shares
issued and outstanding,
respectively...................... -- 15,424,999 --
Series C convertible preferred
stock; 0, 2,785,516, and 0 issued
and outstanding, respectively..... -- 9,941,104 --
Series D convertible preferred
stock; 0, 2,963,672 and 0 issued
and outstanding, respectively..... -- 30,973,869 --
Common stock, $0.0005 par value;
508,963,394, 53,320,000 and
53,320,000 shares authorized;
16,795,800, 14,129,800 and
47,385,985 shares issued and
outstanding....................... 8,398 7,065 23,693
Additional paid-in capital........... 2,465,374 8,039,317 64,587,661
Note receivable from officer......... -- (999,911) (999,911)
Deferred compensation................ -- (12,439,562) (12,439,562)
Accumulated deficit.................. (2,789,637) (11,688,882) (11,688,882)
----------- ------------- ------------
Total stockholders' (deficit)
equity.......................... $ (315,865) $ 39,482,999 $ 39,482,999
----------- ------------- ------------
Total liabilities and
stockholders' equity............ $ 369,980 $ 43,575,321 $ 43,575,321
=========== ============= ============
</TABLE>

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

F-3
<PAGE>

DSL.net, Inc.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Period
From Inception For the Period
(March 3, 1998) From Inception
Through (March 3, 1998) Six Months
December 31, through Ended
1998 June 30, 1998 June 30, 1999
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenue......................... $ 31,533 $ 3,489 $ 184,173
----------- ---------- ------------
Operating expenses:
Network and operations........ 127,054 705 1,482,628
General and administrative.... 230,272 3,896 1,554,013
Sales and marketing........... 35,961 1,397 1,235,589
Stock compensation............ 2,423,272 -- 2,616,805
----------- ---------- ------------
Total operating expenses.... $ 2,816,559 $ 5,998 $ 6,889,035
----------- ---------- ------------
Operating loss.................. $(2,785,026) $ (2,509) $ (6,704,862)
----------- ---------- ------------
Interest expense (income), net.. 4,611 232 (207,615)
----------- ---------- ------------
Net loss.................... $(2,789,637) $ (2,741) $(6,497,247)
=========== ========== ============
Imputed divided on preferred
stock (Note 7)................. -- -- 11,998,000
----------- ---------- ------------
Loss applicable to common
stock.......................... $(2,789,637) $ (2,741) $(18,495,247)
=========== ========== ============
Net loss per share-basic and
diluted........................ $ (0.55) $ (0.00) $ (0.71)
=========== ========== ============
Shares used in computing net
loss per share................. 5,118,342 5,089,634 9,151,630
=========== ========== ============
Pro forma net loss per common
share (unaudited).............. $ (0.55) $ (0.00) $ (0.25)
=========== ========== ============
Pro forma shares used in
computing net loss per common
share (unaudited).............. 5,118,342 5,089,634 26,411,314
=========== ========== ============
</TABLE>

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

F-4
<PAGE>

DSL.net, Inc.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Note
Preferred Stock Common Stock Additional Receivable
----------------------- ------------------- Paid-in from Deferred Accumulated
Shares Amount Shares Amount Capital Officer Compensation Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
capitalization,
including
retroactive
effect of stock
splits......... 20,000 $ 50,000 5,089,634 $ 500 $ -- $ (500) $ -- $ -- $ 50,000
Exchange of
Series A
preferred stock
for common
stock.......... (20,000) (50,000) 7,634,451 5,862 1,444,138 -- -- -- 1,400,000
Issuance of
common stock... -- -- 4,071,715 2,036 1,021,236 -- -- -- 1,023,272
Repayment of
note receivable
from officer... -- -- -- -- -- 500 -- -- 500
Net loss........ -- -- -- -- -- -- -- (2,789,637) (2,789,637)
---------- ----------- ---------- ------- ------------ --------- ------------ ------------ -----------
Balance at
December 31,
1998........... -- $ -- 16,795,800 $ 8,398 $ 2,465,374 $ -- $ -- $ (2,789,637) $ (315,865)
Issuance of
preferred
stock and
warrants....... 9,249,188 43,187,217 -- -- 1,155,000 -- -- -- 44,342,217
Deferred
compensation--
restricted
stock.......... -- -- -- -- 3,733,854 -- (3,733,854) -- --
Conversion of
notes payable.. 225,000 225,000 -- -- -- -- -- -- 225,000
Stock
compensation... -- -- 436,256 218 587,239 -- -- -- 587,457
Deferred
compensation--
stock options.. -- -- -- -- 11,514,694 -- (11,514,694) -- --
Amortization of
deferred
compensation... -- -- -- -- -- -- 858,806 -- 858,806
Issuance of
warrants....... -- -- -- -- 112,000 -- -- -- 112,000
Surrender of
common stock... -- -- (3,102,256) (1,551) (778,087) -- 779,638 -- --
Acceleration
associated with
surrender...... -- -- -- -- -- -- 1,170,542 -- 1,170,542
Exchange of
preferred
stock.......... 3,000,000 13,152,755 -- -- (10,750,757) -- -- (2,401,998) --
Note receivable
from officer... -- -- -- -- -- (999,911) -- -- (999,911)
Net loss........ -- -- -- -- -- -- -- (6,497,247) (6,497,247)
---------- ----------- ---------- ------- ------------ --------- ------------ ------------ -----------
Balance at June
30, 1999
(unaudited).... 12,474,188 $56,564,972 14,129,800 $ 7,065 $ 8,039,317 $(999,911) $(12,439,562) $(11,688,882) $39,482,999
========== =========== ========== ======= ============ ========= ============ ============ ===========
</TABLE>

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

F-5
<PAGE>

DSL.net, Inc.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For the
For the Period Period From
From Inception Inception
(March 3, 1998) (March 3, 1998) For the Six
through through Months Ended
December 31, June 30, June 30,
1998 1998 1999
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(2,789,637) $(2,741) $(6,497,247)
Adjustments to reconcile net loss
to net cash used by
operating activities:
Depreciation and amortization... 5,744 -- 236,282
Noncash compensation expense.... 2,423,272 -- 2,616,805
Changes in operating assets and
liabilities:
Increase in accounts
receivable.................... (30,597) (1,361) (35,440)
Increase in prepaid expenses
and other current assets...... -- -- (304,912)
Increase in other assets....... (15,566) -- (896,338)
Increase in accounts payable... 231,073 -- 1,198,993
Increase in accrued
liabilities................... 16,814 2,675 890,075
Increase in deferred revenue... 5,392 -- 24,886
----------- ------- -----------
Net cash used in operating
activities................... (153,505) (1,427) (2,766,896)
----------- ------- -----------
Cash flows from investing
activities:
Purchases of fixed assets...... (290,082) (4,847) (6,133,618)
Purchases of marketable
securities.................... -- -- (5,528,091)
----------- ------- -----------
Net cash used in investing
activities................... (290,082) (4,847) (11,661,709)
----------- ------- -----------
Cash flows from financing
activities:
Initial capitalization......... 50,500 -- --
Proceeds from bridge
financing..................... 350,000 -- --
Proceeds from equipment credit
facility...................... -- -- 786,907
Proceeds from equipment notes
payable....................... 124,000 -- 980,370
Proceeds from preferred stock
issuance...................... -- 50,000 43,217,305
Payments on equipment notes
payable....................... (41,434) -- (66,667)
Principal payments under
capital lease obligation...... -- (867) (58,086)
----------- ------- -----------
Net cash provided by financing
activities................... 483,066 49,133 44,859,829
----------- ------- -----------
Net increase in cash and cash
equivalents...................... 39,479 42,859 30,431,224
Cash and cash equivalents at
beginning of period.............. -- -- 39,479
----------- ------- -----------
Cash and cash equivalents at end
of period........................ $ 39,479 $42,859 $30,470,703
=========== ======= ===========
Supplemental disclosure:
Cash paid (received):
Interest........................ $ 2,524 $ 232 $ (207,615)
=========== ======= ===========
</TABLE>

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

F-6
<PAGE>

DSL.net, Inc.

NOTES TO FINANCIAL STATEMENTS

1. Formation and Operations of the Company

DSL.net, Inc. (the "Company") was incorporated in Delaware on March 3, 1998
and operations commenced March 28, 1998. The Company was formed to provide
dedicated high-speed digital communications services using digital subscriber
line (DSL) technology. During the period ended December 31, 1998, the Company
was considered a development stage company in accordance with Statement of
Financial Accounting Standard No. 7. As of June 30, 1999, the Company is no
longer considered a development stage enterprise.

2. Summary of Significant Accounting Policies

Significant accounting policies followed in the preparation of these
financial statements are as follows:

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The markets
for the Company's services are characterized by intense competition, rapid
technological development, regulatory changes, and frequent new product
introductions, all of which could impact the future value of the Company's
assets.

Unaudited interim financial statements

The unaudited balance sheet as of June 30, 1999, the unaudited statements of
operations and cash flows for the six months ended June 30, 1999 and for the
period from inception through June 30, 1998, and the unaudited statement of
changes in stockholders equity for the six months ended June 30, 1999, have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months ended
June 30, 1999 are not necessarily indicative of results that may be expected
for the year ending December 31, 1999.

Unaudited pro forma balance sheet

Upon the closing of DSL's anticipated initial public offering, all of the
outstanding shares of preferred stock will automatically convert into common
stock. This conversion has been reflected in the unaudited pro forma balance
sheet as of June 30, 1999.

F-7
<PAGE>

DSL.net, Inc.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Cash equivalents and marketable securities

The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents. The carrying
value of cash equivalents at June 30, 1999 was approximately $24,430,000.

The Company considers its investment portfolio to be available-for-sale
securities as defined in Statement of Financial Accounting Standards ("SFAS")
No. 115. Marketable securities as of June 30, 1999 consist of debt securities
and certificates of deposit with maturities of five months to a year.
Securities are available for sale and are carried at fair value. The unrealized
or realized gains/losses earned on the securities as of June 30, 1999 were de
minimus.

Fixed assets

Fixed assets are stated at cost and are depreciated using the straight-line
method over the estimated useful lives of the assets, which are between 3 and 5
years. Leasehold improvements are amortized over the shorter of the term of the
related lease or the useful life of the asset. Maintenance and repairs are
charged to expense as incurred. Collocation space improvements represent
payments to carriers for infrastructure improvements within their central
offices to allow the Company to install its equipment, which allows the Company
to interconnect with the carrier's network. These payments are being amortized
over their estimated useful lives of five years.

Income taxes

The Company uses the liability method of accounting for income taxes, as set
forth in Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities and
net operating loss carryforwards, all calculated using presently enacted tax
rates.

Revenue recognition

Revenue is recognized pursuant to the terms of each contract on a monthly
service fee basis. Deferred revenue represents payments received in advance of
the services 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 to revenue 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.

Long-lived assets

Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
requires that long-lived assets and certain intangible assets be reviewed for
impairment whenever events or changes in circumstances indicate

F-8
<PAGE>

DSL.net, Inc.

NOTES TO FINANCIAL STATEMENTS--(Continued)

that the carrying amount may not be recoverable. If undiscounted expected
future cash flows are less than the carrying value of the assets, an impairment
loss is to be recognized based on the fair value of the assets. No impairment
losses have been recognized to date.

Segment information

In 1998, the Company adopted Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information (SFAS
No. 131). SFAS No. 131 supersedes SFAS No. 14, Financial Reporting for Segments
of a Business Enterprise, replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. The
Company operates in one segment: high-speed Internet access and data
communications services. SFAS No. 131 also requires disclosures about products
and services, geographic areas, and major customers. The adoption of SFAS No.
131 had no impact on the Company's financial statements for the periods
presented.

Stock compensation

The Company applies Accounting Principles Board Opinion No. 25 (APB 25) and
related interpretations in accounting for its stock option plan and stock
awards with the disclosure provisions of Statement of Financial Accounting
Standards No. 123 (SFAS 123). Under APB 25, compensation expense is computed to
the extent that the fair market value of the underlying stock on the date of
grant exceeds the exercise price of the employee stock option or stock award.
Compensation so computed is then recognized over the vesting period. The
Company accounts for equity instruments issued to nonemployees in accordance
with SFAS 123 and Emerging Issues Task Force ("EITF") 96-18.

Stock compensation expense includes amortization of deferred compensation
and charges related to stock grants which are not subject to vesting
requirements. Stock compensation expense for the period from inception (March
3, 1998) to December 31, 1998 and for the six months ended June 30, 1999
totaled $2,423,272 and $2,616,805, respectively.

Earnings (loss) per share

The Company computes net loss per share pursuant to Statement of Financial
Accounting Standards No. 128, Earnings Per Share. Basic net loss per share is
computed by dividing income or loss applicable to common stockholders by the
weighted average number of shares of the Company's common stock outstanding
during the period. Diluted net loss per share is determined in the same manner
as basic net loss per share except that the number of shares is increased
assuming exercise of dilutive stock options and warrants using the treasury
stock method and dilutive conversion of the Company's preferred stock.

F-9
<PAGE>

DSL.net, Inc.

NOTES TO FINANCIAL STATEMENTS--(Continued)

During the year ended December 31, 1998 and the six month period ended June
30, 1999, options to purchase no shares and 5,042,739 shares of common stock,
respectively, preferred stock convertible into no shares and 33,256,185 shares
of common stock, respectively, and warrants to purchase 233,275, and 344,517
shares of common stock, respectively, were excluded from the calculation of
earnings per share since their inclusion would be antidilutive for all periods
presented.

Pro forma basic and diluted earnings per share have been calculated assuming
the conversion of all outstanding shares of preferred stock into common stock,
as if the shares had converted immediately upon their issuance.

Comprehensive Income

The Company has adopted the accounting treatment prescribed by Statement of
Financial Accounting Standards No. 130, Comprehensive Income. The adoption of
this statement had no material impact on the Company's financial statements for
the periods presented.

Recently issued accounting pronouncements

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SoP 98-1). SoP 98-1 provides guidance
for determining whether computer software is internal-use software, and
guidance on accounting for the proceeds of computer software originally
developed or obtained for internal use and then subsequently sold to the
public. It also provides guidance on capitalization of the costs incurred for
computer software developed or obtained for internal use. The Company has not
yet determined the impact of adopting SoP 98-1, which will be effective for the
Company's year ending December 31, 1999.

In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5 (SoP 98-5), Reporting on the Costs of Start-Up Activities,
which provides guidance on the financial reporting of start-up costs and
organizational costs. It requires costs of start-up activities and
organizational costs to be expensed as incurred. SoP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. As the
Company has not capitalized such costs to date, the adoption of SoP 98-5 is not
expected to have an impact on the financial statements of the Company.

3. Fixed Assets

<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
(unaudited)
<S> <C> <C>
Network equipment.................................. $161,814 $ 2,987,960
Furniture, fixtures, office equipment and
software.......................................... 61,535 1,412,753
Vehicles........................................... -- 75,697
Collocation costs.................................. 66,733 1,947,290
-------- -----------
290,082 6,423,700
Less: accumulated depreciation and amortization.. 5,744 238,532
-------- -----------
$284,338 $ 6,185,168
======== ===========
</TABLE>

F-10
<PAGE>

DSL.net, Inc.

NOTES TO FINANCIAL STATEMENTS--(Continued)

As of December 31, 1998 and June 30, 1999, the recorded cost of the
equipment under capital lease was $22,699 and $860,754 (unaudited),
respectively. Accumulated amortization for this equipment under capital lease
was $1,265 and $140,830 (unaudited) as of December 31, 1998 and June 30, 1999,
respectively.

Depreciation and amortization expense related to fixed assets was $5,744 and
$232,788 (unaudited) for the period from inception March 3, 1998 to December
31, 1998 and for the six months ended June 30, 1999, respectively.

4. Debt

Notes payable

In August 1998, the Company issued a $100,000 demand note payable for
funding capital expenditures and operating expenses. The note was originally
payable October 1, 1998, and bore interest at 5.56% per annum. At December 31,
1998, $66,667 remained unpaid. The amount was paid in January 1999.

In November 1998, the Company entered into a series of Note and Warrant
Purchase Agreements pursuant to which the Company received $350,000 and issued
$350,000 principal amount of secured convertible promissory notes (the "Bridge
Notes") and warrants (the "Bridge Warrants") to acquire 87,500 shares of Series
A Preferred Stock. The Notes, which expire in January 1999 or September 2000,
bear interest at 5.56% or 6.0% per annum, depending upon the holder, and are
convertible into preferred shares at a rate equal to the Company's next
qualified equity financing. The Bridge Warrants, valued at approximately
$18,000, are exercisable at $0.375 per share for a period of five years or
until an initial public offering of the Company's common stock.

Credit Facility

In May 1999, the Company entered into a secured credit facility (the "Credit
Facility") with a bank which will provide up to $5.0 million for the purchase
of telecommunications and office equipment and vehicles. The Credit Facility
expires in May 2000, at which time amounts outstanding will convert to a term
loan payable over 36 months. The Credit Facility bears interest on outstanding
borrowings at 1% over the higher of the bank's prime rate or the federal funds
rate plus 0.5%. The Credit Facility is secured by a lien on certain equipment
and vehicles owned by the Company located at its principal office, and imposes
certain financial and other covenants. The amount outstanding was $786,907 as
of June 30, 1999. Financing costs associated with the Credit Facility of
$83,868 were deferred over the four year life of the facility and term loan
payable. Amortization expense recorded on the deferred costs was $3,494 for the
six months ended June 30, 1999.

5. Commitment and Contingencies

Leases

Rent expense under operating leases was approximately $14,275 and $179,783
(unaudited), for the period from inception (March 3, 1998) through December 31,
1998 and for the six months ended June 30, 1999.

F-11
<PAGE>

DSL.net, Inc.

NOTES TO FINANCIAL STATEMENTS--(Continued)

The Company is obligated under a capital equipment lease expiring in May
2000.

The present value of future minimum lease payments as of December 31, 1998
is as follows:

<TABLE>
<CAPTION>
Operating Capital
Leases Leases
<S> <C> <C>
1999...................................................... $225,318 $12,444
2000...................................................... 378,588 5,185
2001...................................................... 99,000 --
2002...................................................... 99,000 --
2003...................................................... 90,750 --
Thereafter................................................ -- --
-------- -------
Total................................................... $892,656 17,629
========
Less--Amount representing interest........................ 1,135
-------
Present value of future minimum lease payments............ $16,494
=======
</TABLE>

In September 1998, the Company entered into an operating lease agreement
for office space in Norwalk, Connecticut. The table above indicates the
minimum lease payments due under that lease. In February 1999, the Company
cancelled the Norwalk lease and entered into an operating lease for office
space in New Haven, Connecticut. Annual minimum lease payments under this
lease are $192,283 (unaudited) in 1999 and $745,290 (unaudited) for each of
the years 2000 through 2004, and $279,484 in 2005. Costs related to exiting
the Norwalk lease were $42,900 and were expensed as incurred.

In March 1999, the Company entered into a master lease agreement to provide
up to $2,000,000 for capital equipment purchases over an initial twelve month
period, subject to renewal options. Individual capital leases are amortized
over 30 or 36 month terms and bear interest at 8% to 9% per annum. The
outstanding balance under this agreement at June 30, 1999 was $503,832
(unaudited).

Litigation

The Company is involved in litigation concerning claims arising in the
ordinary course of its business. The Company does not believe any of the legal
claims or proceedings will result in a material adverse effect on its
business, financial position, results of operations or cash flows.

Other Matters

As part of the master lease agreement, the Company issued 41,726 warrants
(the "Lease Warrants") to the lessor to purchase Series A Preferred Stock at a
formula-based price equal to approximately $2.40 per share. The warrants are
exercisable until the earlier of March 4, 2006 or three years after an initial
public offering of the Company's common stock. The value of these warrants is
approximately $112,000 and is being amortized to interest expense over the
life of the capital lease obligation. Interest expense related to the warrants
was $9,333 for the six months ended June 30, 1999.

F-12
<PAGE>

DSL.net, Inc.

NOTES TO FINANCIAL STATEMENTS--(Continued)

The Company has entered into interconnection agreements. The agreements have
terms of one to two years and are subject to certain renewal and termination
provisions by either party generally upon 30 day notification. The table above
includes the Company's obligation under its interconnection agreements over
their initial terms. The Company anticipates that it will renew such agreements
beyond their initial terms.

6. Related Party Transactions

In January 1999, the Company entered an Asset Transfer Agreement with
FutureComm, Inc. whose sole shareholder is an officer and founder of the
Company. The amount paid by the Company in exchange for certain equipment,
agreements, licenses and intellectual property was approximately $28,000.

In May 1999, the Company entered into an agreement to license and implement
an operations support system from a software vendor. Two stockholders of the
Company, in the aggregate, own 16% of the outstanding capital stock of the
software vendor.

7. Stockholders' Equity

Capital stock transactions

In March 1998, the Company's founding stockholders were issued 5,089,634
shares of Common Stock and 20,000 shares of a prior series A preferred stock
for $50,500.

In December 1998, the Company's Board of Directors declared a 50:1 reverse
stock split. The accompanying financial statements have been restated to
reflect this stock split. Concurrently, the preferred shareholder exchanged all
the then outstanding Series A Preferred Stock for 7,634,451 shares of common
stock, adjusted for stock splits. The value attributed to this exchange, which
provided 3.75 shares of common stock for every split-effected share of
preferred stock, was approximately $1.4 million which has been charged to
compensation expense.

In December 1998, the Company issued 4,071,715 shares of common stock to two
officers in exchange for promissory notes totaling $7,637. Such notes were
subsequently forgiven by the Company. Compensation expense of $1,023,272, or
$0.25 per share, has been recognized related to this issuance.

In March 1999, the Company issued 436,256 shares of common stock to an
executive officer of the Company, adjusted for stock splits. Compensation
expense of $587,457 has been recognized related to this issuance.

In April 1999, the Company's founding shareholders surrendered 3,102,256
shares of common stock. Such stock was previously made subject to certain
employment tenure and performance vesting criteria. In exchange, the vesting
criteria on other restricted common stock owned by the

F-13
<PAGE>

DSL.net, Inc.

NOTES TO FINANCIAL STATEMENTS--(Continued)

founders was removed. This share surrender and acceleration of vesting resulted
in a compensation charge of approximately $1.2 million in the second quarter of
1999 and eliminated approximately $780,000, or $0.25 per share, from deferred
compensation.

In May 1999, the Company declared a 2:1 stock dividend of its Common Stock.
The accompanying financial statements have been restated to reflect this stock
dividend.

In July 1999, the Company declared a 0.333:1 stock dividend of its Common
Stock. The accompany financial statements have been restated to reflect this
stock dividend.

Convertible voting preferred stock

In January 1999, the Company's Board of Directors declared a stock split of
1,909.09 shares for every outstanding common share. The accompanying financial
statements have been restated to reflect this stock split. In conjunction with
this split and sale of Series A Preferred Stock described below, certain
employment tenure and performance criteria were required of management in order
to fully vest in a portion of their original founders' shares. The value
attributed to these 14,857,397 nonvested shares is reflected in deferred
compensation of approximately $3,734,000, or $0.25 per share, and is being
amortized over the related employment term, which may be accelerated based upon
the likelihood of attaining certain performance of measures.

In January 1999, the Company issued 3,500,000 shares of convertible voting
preferred stock designated as Series A Preferred Stock, together with warrants
to purchase 3,500,000 shares of a prior Series B Preferred Stock (the "Warrant
Shares"), at an exercise price of $1.00 per share, for an aggregate of
$3,500,000. A total of $1,155,000 of the related proceeds has been allocated to
the Warrants.

The Warrant Shares, which are exercisable for a period of 5 years, are
subject to a repurchase right by the Company contingent upon a specified rate
of return upon an initial public offering or acquisition of the Company. If the
Company exercises its repurchase right, it shall be obligated to pay the holder
the original exercise price plus interest from the date of exercise at 8% per
annum.

In January 1999, the holders of $225,000 of Bridge Notes (Note 4) converted
$225,000 of the Bridge Notes into 225,000 shares of Series A Preferred Stock.
The remaining $125,000 of Bridge Notes reduced the proceeds paid to the Company
for the Series A Preferred Stock.

In April 1999, the certain holders of the Series A Preferred Stock exchanged
3,500,000 shares of Series A Preferred Stock and warrants to purchase 3,500,000
shares of series B preferred stock, for 6,500,000 shares of Series B Preferred
Stock. This exchange, which was not contemplated in the original Series A
Preferred Stock purchase agreement, afforded the holders an exchange rate of
$0.54 per share which was lower than the deemed fair market value of the
preferred stock at the time of exchange of $3.59 per share. The difference
between the carrying value and the deemed fair market value has been treated as
an imputed non-cash dividend for purposes of calculating net loss per common
share, although no assets of the Company were expended. The imputed dividend,
which

F-14
<PAGE>

DSL.net, Inc.

NOTES TO FINANCIAL STATEMENTS--(Continued)

reduces additional paid-in capital and increases the carrying value of the
Series B Preferred Stock, was approximately $11,998,000 for the six month
period ended June 30, 1999. The imputed dividend will be given no other
accounting treatment in the 1999 financial statements of the Company.

In April 1999, the Company issued 2,785,516 shares of convertible voting
preferred stock designated as Series C Preferred Stock at $3.59 per share for
net proceeds of $9,941,104 (unaudited).

In May 1999, the Company issued 2,868,069 shares of convertible voting
preferred stock designated as Series D Preferred Stock at $10.46 per share for
net proceeds of $29,973,864 (unaudited).

Rights and preferences

The Series A, Series B, Series C, Series D and Series E Preferred
stockholders are entitled to receive noncumulative cash dividends of $0.08 per
share, $0.04 per share, $0.29 per share, $0.84 per share and $1.58 per share,
respectively, per annum when and as declared by the Board of Directors. In the
event of any voluntary or involuntary liquidation of the Company, the Preferred
stockholders shall be entitled to the original per share issuance price, plus
any declared but unpaid dividends. Remaining assets, if any, shall be
distributed to the Preferred and Common stockholders on a pro rata basis
assuming full conversion of all such Preferred Stock.

At the option of the Preferred stockholders, their shares may be converted
to common stock at the rate of one share of common stock for one share of
Preferred Stock adjusted for certain dilutive issuances, stock splits or
combinations. The Preferred Stock shall automatically convert into shares of
common stock upon the sale of the Company's Common Stock in a firm commitment
public offering pursuant to which the public offering proceeds are not less
than $5 per share of common stock, and the aggregate net proceeds are not less
than $30 million.

The Series A, Series B, Series C, Series D and Series E Preferred
stockholders shall have voting rights similar to common shareholders and other
rights, including the power to elect directors to the seven member board as
follows: Series A and B (as a class) elect two directors, Series C elects one
director, and Series A, B, C, D and E together with common shareholders elect
two directors. In addition, the holders of common stock elect two directors.

Common stock reserved

The Company has reserved shares of common stock as follows:

<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
(unaudited)
<S> <C> <C>
Conversion of Preferred stock....................... -- 33,256,185
1999 Stock Plan..................................... -- 12,364,200
Conversion of promissory notes...................... 933,100 --
Stock warrants...................................... 87,500 129,226
--------- ----------
1,020,600 45,749,611
========= ==========
</TABLE>

F-15
<PAGE>

DSL.net, Inc.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Stock warrants

At December 31, 1998 and June 30, 1999 the Company had outstanding stock
purchase warrants to purchase preferred stock totaling 87,500 and 129,226
(unaudited), respectively, to be adjusted for stock splits upon conversion of
preferred stock to common stock:

<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
(unaudited)
<S> <C> <C>
Lease Warrants for Series A Preferred Stock......... -- 41,726
Bridge Warrants for Series A Preferred Stock........ 87,500 87,500
------ -------
87,500 129,226
====== =======
</TABLE>

8. Income Taxes

The Company's gross deferred tax assets and liabilities were comprised of
the following:

<TABLE>
<CAPTION>
December 31,
1998
<S> <C>
Gross deferred tax asset:
Net operating loss carryforwards.............................. $1,076,382
Other......................................................... 53,599
----------
1,129,981
Gross deferred tax liability:
Depreciation.................................................. 8,054
----------
1,121,927
Valuation allowance............................................. (1,121,927)
----------
Net deferred taxes.............................................. $ --
==========
</TABLE>

The Company has provided a valuation allowance for the full amount of the
net deferred tax asset, since management has not determined that these future
benefits will more likely than not be realized as of December 31, 1998.

At December 31, 1998, the Company had approximately $2.7 million of federal
net operating loss carryforwards that begin to expire in 2018, and $2.7 million
of state net operating loss carryforwards that expire in 2003.

The amount of the net operating carryforwards that may be utilized annually
to offset future taxable income and tax liability will be limited as a result
of certain ownership changes pursuant to Section 382 of the Internal Revenue
Code.

9. Incentive Stock Award Plan

In February 1999, the Company's Board of Directors adopted the 1999 Stock
Plan (the "Plan") under which employees, directors, advisors and consultants
can be granted any or all of the following: stock options, including incentive
stock options and non-qualified stock options, stock appreciation rights, and
stock awards. A total of 9,864,200 shares were authorized under the Plan.

F-16
<PAGE>

DSL.net, Inc.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Options generally vest 25% after one year, then ratably over the next
thirty-six months and are exercisable once vested for ten years from the date
of grant.

A summary of activity under the Plan as of June 30, 1999 (unaudited) is as
follows:

<TABLE>
<CAPTION>
Weighted
Average
--------------
Number of Fair Exercise
Shares Value Price
<S> <C> <C> <C>
Outstanding at Inception.......................... -- $ -- $ --
Granted........................................... 6,109,139 2.21 0.23
Exercised......................................... -- -- --
Canceled.......................................... (1,066,400) 1.35 (0.07)
---------- ----- -----
Outstanding at June 30, 1999 (unaudited).......... 5,042,739 $2.37 $0.25
========== ===== =====
</TABLE>

The following summarizes the outstanding and exercisable options under the
Plan as of June 30, 1999:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- --------------------------
Exercise Number Weighted Avg Weighted Avg Number Weighted Avg
Price Outstanding Remaining Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$0.04 -
0.07 2,530,034 9.68 $0.05 -- --
$0.39 -
0.53 2,512,705 9.88 $0.46 -- --
--------- ---- ----- --- ---
5,042,739 9.78 $0.25 -- --
========= ==== ===== === ===
</TABLE>

If compensation expenses had been recognized based on the fair value of the
options at their grant date, in accordance with Financial Accounting Standard
No. 123 ("FAS 123"), the results of operations for the six months ended June
30, 1999 (unaudited) would have been as follows:

<TABLE>
<S> <C>
Net loss:
As reported................................................. $ (6,497,247)
Pro forma under FAS 123..................................... (16,970,959)
Basic and diluted net loss per share:
As reported................................................. $ (0.71)
Pro forma under FAS 123..................................... $ (0.64)
</TABLE>

The estimated fair value at date of grant for options granted for the six
months ended June 30, 1999 (unaudited) ranged from $0.16 to $1.20. The minimum
value of each option grant is estimated on the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions
(unaudited):

<TABLE>
<S> <C>
Risk free interest rate........................................ 4.88% - 5.63%
Expected dividend yield........................................ None
Expected life of option........................................ 10 years
Expected volatility............................................ .0001%
</TABLE>

As additional options are expected to be granted in future years and the
options vest over several years, the above pro forma results are not
necessarily indicative of future pro forma results.

F-17
<PAGE>

DSL.net, Inc.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Deferred compensation of approximately $11,514,694 (unaudited) has been
attributed to those common stock options granted during the six months ended
June 30, 1999, with an exercise price below estimated fair value. Stock
compensation expense is recognized over the four year vesting period and
totaled $2,616,805 (unaudited) for the six months ended June 30, 1999.

10. Subsequent Events (unaudited)

In July 1999, the Company's Board of Directors adopted the 1999 Employee
Stock Purchase Plan (the "Purchase Plan") under which employees can purchase
common shares during designated offering periods for an amount equal to 85% of
the fair market value of the underlying common stock. The first offering period
will commence upon an initial public offering of common stock and continue
through December 1999. There are 300,000 shares reserved under this plan.

In July 1999, the Company issued 939,086 shares of convertible voting
preferred stock designated as Series E Preferred Stock at $19.70 per share for
net proceeds of approximately $18,468,000.

The Series E Preferred stockholders have rights and preferences similar to
those of the Series A, B, C, and D Stockholders described in Note 7. In
connection with the issuance of the Series E preferred stock, the Company also
entered into strategic business relationships with the purchasers. In
connection with these business relationships, the Company expects to amortize
to operating expenses any difference between the price paid by the strategic
business partners for their Series E convertible preferred stock and the deemed
fair market value of the underlying common stock.

F-18
<PAGE>

[Picture of the Backbone network and the routing of network traffic from the
customer back to the network operations center and the Internet]

Text:

. DSL.net

. Network Design

. DSL.net NETWORK OPERATIONS CENTER, NEW HAVEN, CT

. NETWORK

. NEW YORK

. INTERNET

. REGIONAL HUB

. CUSTOMER

. BACKBONE NETWORK

. CENTRAL OFFICE

. CENTRAL OFFICE & LOCAL HUB

. CUSTOMER

. CENTRAL OFFICE

. CUSTOMER

. CUSTOMER
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999

[LOGO]

DSL.net, Inc.

----------------------
PROSPECTUS
----------------------

Donaldson, Lufkin & Jenrette

Deutsche Banc Alex. Brown

Lehman Brothers

DLJdirect Inc.

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

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Until , 1999 (25 days after the date of this prospectus), all dealers that
effect transactions in these shares of common stock may be required to deliver
a prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.

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<PAGE>

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the common stock offered hereby are as
follows:

<TABLE>
<S> <C>
SEC registration fee.......................................... $ 36,602
NASD filing fee............................................... 12,000
Nasdaq National Market listing fee............................ 95,000
Printing and engraving expenses............................... 175,000
Legal fees and expenses....................................... 350,000
Accounting fees and expenses.................................. 350,000
Blue Sky fees and expenses (including legal fees)............. 5,000
Transfer agent and registrar fees and expenses................ 5,000
Miscellaneous................................................. 21,398
----------
Total....................................................... $1,050,000
==========
</TABLE>
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*To be filed by Amendment.

DSL.net will bear all expenses shown above.

Item 14. Indemnification of Directors and Officers.

The Delaware General Corporation Law and the certificate of incorporation of
DSL.net that will become effective immediately following this offering and the
by-laws as amended prior to this offering will provide for indemnification of
our directors and officers for liabilities and expenses that they may incur in
such capacities. In general, directors and officers will be indemnified with
respect to actions taken in good faith in a manner reasonably believed to be
in, or not opposed to, the best interests of DSL.net and, with respect to any
criminal action or proceeding, actions that the indemnitee had no reasonable
cause to believe were unlawful. Reference is made to our Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws filed as Exhibits
3.02 and 3.04 hereto, respectively.

The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of DSL.net against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Reference is made to
the form of Underwriting Agreement filed as Exhibit 1.01 hereto.

In addition, we have an existing directors and officers liability insurance
policy.

Item 15. Recent Sales of Unregistered Securities.

In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Securities Act:

II-1
<PAGE>

(a) Issuances of Capital Stock, Notes and Warrants

In March 1998, DSL.net issued and sold an aggregate of (i) 5,089,634 shares
of common stock for an aggregate of $500 and (ii) 20,000 shares of a prior
Series A preferred stock for an aggregate of $50,000.

In August 1998, DSL.net issued a promissory note in the aggregate principal
amount of $100,000.

In November 1998, DSL.net issued five convertible promissory notes in the
aggregate principal amount of $350,000, two warrants to purchase an aggregate
31,250 shares of Series A preferred stock at a price of $1.00 per share and
rights to warrants to purchase 56,250 shares of old Series A preferred stock at
a price of $1.00 per share.

In December 1998, DSL.net issued and sold an aggregate of (i) 7,634,451
shares of common stock in exchange for 20,000 shares of a prior series A
preferred stock and (ii) 4,071,707 shares of common stock in exchange for
promissory notes in an aggregate principal amount of $7,637.

In January 1999, DSL.net issued and sold 3,500,000 shares of Series A
preferred stock and warrants to purchase 3,500,000 shares of a prior series B
preferred stock for an aggregate of $3,500,000, a portion of which was paid by
the conversion of two convertible promissory notes in the aggregate principal
amount of $125,000. In addition, DSL.net issued three warrants to purchase
56,250 shares of Series A preferred stock at a price of $1.00 per share in
exchange for the rights to warrants to purchase 56,250 warrants of Series A
preferred stock. DSL.net also issued an aggregate of 225,000 shares of Series A
preferred stock in conversion of three convertible promissory notes in the
aggregate principal amount of $225,000. Each outstanding share of Series A
preferred stock is convertible into 2.666 shares of common stock. Finally,
DSL.net issued 8 shares of common stock for aggregate consideration of $0.02.

In March 1999, DSL.net issued and sold an aggregate of 436,256 shares of
common stock for services valued at $29,455. Based on subsequent events,
DSL.net recognized compensation expense of $587,457 in connection with the
issuance of these shares. In addition, DSL.net issued one warrant to purchase
41,726 shares of Series A preferred stock at an exercise price of $2.40 per
share.

In April 1999, DSL.net issued and sold an aggregate of 6,500,000 shares of
Series B preferred stock in exchange for 3,500,000 shares of Series A preferred
stock and the cancellation of warrants to purchase 3,500,000 shares of a prior
series B preferred stock. In addition, in April 1999, DSL.net issued and sold
an aggregate of 2,785,516 shares of Series C preferred stock for aggregate
consideration of $10,000,002. Each outstanding share of preferred stock is
convertible into 2.666 shares of common stock.

In May 1999, DSL.net issued and sold an aggregate of 2,868,069 shares of
Series D preferred stock for aggregate consideration of $30,000,001, including
a secured promissory note in an aggregate principal amount of $5,999,429, which
note has since been paid in full. Each outstanding share of Series D preferred
stock is convertible into 2.666 shares of common stock.

II-2
<PAGE>

In June 1999, DSL.net issued an aggregate of 95,603 shares of Series D
preferred stock for aggregate consideration of $1,000,007, including a secured
promissory note in an aggregate principal amount of $999,912. In addition, in
July 1999, DSL.net issued an aggregate of 939,086 shares of Series E preferred
stock for aggregate consideration of $18,499,994. Each outstanding share of
Series E preferred stock is convertible into 2.666 shares of common stock.

(b) Grants and Exercises of Stock Options

As of July 21, 1999, DSL.net has granted options to purchase an aggregate of
5,042,739 shares of common stock under the 1999 Stock Plan at exercise prices
ranging from $.04 to $7.39 for an aggregate purchase price of approximately
$2,862,170. No shares of common stock have been issued in connection with the
exercise of options.

No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of certain options to purchase common stock and
employee stock grants, Rule 701 under the Securities Act. All of the foregoing
securities are deemed restricted securities for purposes of the Securities Act.

II-3
<PAGE>

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits:

<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S>
1.01* Form of Underwriting Agreement.

3.01* Restated Certificate of Incorporation of DSL.net, as amended.

3.02* Form of Amended and Restated Certificate of Incorporation of DSL.net
(to be filed immediately after the closing of the offering).

3.03* By-Laws of DSL.net.

3.04* Amended and Restated By-laws of DSL.net (to be effective immediately
after the closing of the offering).

4.01* Specimen Certificate for shares of DSL.net's Common Stock.

4.02* Description of Capital Stock (contained in the Certificate of
Incorporation filed as Exhibit 3.02).

4.03+ Form of Stock Purchase Warrant dated as of November 18, 1998 between
DSL.net and certain investors.

4.04+ Form of Warrant Agreement dated as of January , 1999 between DSL.net
and certain investors.

4.05+ Stock Subscription Warrant dated as of March 4, 1999 by and between
DSL.net and Comdisco, Inc.

5.01* Legal Opinion of Testa, Hurwitz & Thibeault, LLP.

10.01**+ 1999 Stock Plan.

10.02+ Registration Rights Provisions contained in the Amended and Restated
Investors' Rights Agreement dated as of May 12, 1999 between DSL.net
and the purchasers named therein.

10.03* Master Lease Agreement dated as of March 4, 1999 between Comdisco,
Inc. and DSL.net, as modified by the Addendum thereto.

10.04+ Credit Agreement dated as of May 12, 1999 by and between DSL.net and
Fleet National Bank.

10.05+ Security Agreement dated as of May 12, 1999 by and between DSL.net
and Fleet National Bank.

10.06+ Lease Agreement dated February 5, 1999 by and between DSL.net and
Long Wharf Drive, LLC., as amended.

10.07* Amended and Restated Shareholders' Agreement, as amended, by and
among DSL.net and certain investors.

23.01* Consent of Testa, Hurwitz & Thibeault, LLP (contained in Exhibit
5.01).

23.02 Consent of PricewaterhouseCoopers, LLP.

24.01 Power of Attorney (contained on page II-5).

27.01 Financial Data Schedule.
</TABLE>
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* To be filed by amendment.
** Indicates a management contract or any compensatory plan, contract or
arrangement.

+ Previously filed.

(b) Financial Statement Schedules

None.

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.

II-4
<PAGE>

Item 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 described in Item 14 above, 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 (1) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Securities Act, the information
omitted from 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; and (3) that 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-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement
(File No. 333-80141) to be signed on its behalf by the undersigned, thereunto
duly authorized, in New Haven, Connecticut on July 22, 1999.

DSL.NET, INC.

By: /s/ Robert Q. Berlin
---------------------------

Robert Q. Berlin

Chief Financial Officer and Vice
President, Strategic Planning

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
* President, Chief Executive July 22, 1999
______________________________________ Officer and Director
David F. Struwas (Principal Executive
Officer)

Chief Financial Officer July 22, 1999
______________________________________ and Vice President,
Robert Q. Berlin Strategic Planning
(Principal Financial and
Accounting Officer)

* Director July 22, 1999
______________________________________
Robert Gilbertson

* Director July 22, 1999
______________________________________
William J. Marshall

* Director July 22, 1999
______________________________________
William Seifert

* Director July 22, 1999
______________________________________
James D. Marver

* Director July 22, 1999
______________________________________
</TABLE> Paul K. Sun

/s/ Robert Q. Berlin
*By: ___________________________

Robert Q. Berlin

as Attorney-in-Fact

II-6
<PAGE>

Schedule II

DSL.net, Inc.

Valuation and Qualifying Accounts

(In Thousands)

<TABLE>
<CAPTION>
Additions
Balance at ------------------------------- Deductions Balance at
beginning of Charge to costs Charge to other Net of end of
Description period and expenses accounts Write-offs period
----------- ------------ --------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Period from inception
(March 3, 1998 through
December 31, 1998).... $-- $-- $-- $-- $--
Six months ended June
30, 1999 (unaudited)... -- 17 -- -- 17
</TABLE>

S-1
<PAGE>

Exhibit Index

<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S>
1.01* Form of Underwriting Agreement.

3.01* Restated Certificate of Incorporation of DSL.net, as amended.

3.02* Form of Amended and Restated Certificate of Incorporation of DSL.net
(to be filed immediately after the closing of the offering).

3.03* By-Laws of DSL.net.

3.04* Amended and Restated By-laws of DSL.net (to be effective immediately
after the closing of the offering).

4.01* Specimen Certificate for shares of DSL.net's Common Stock.

4.02* Description of Capital Stock (contained in the Certificate of
Incorporation filed as Exhibit 3.02).

4.03+ Form of Stock Purchase Warrant dated as of November 18, 1998 between
DSL.net and certain investors.

4.04+ Form of Warrant Agreement dated as of January 8, 1999 between DSL.net
and certain investors.

4.05+ Stock Subscription Warrant dated as of March 4, 1999 by and between
DSL.net and Comdisco, Inc.

5.01* Legal Opinion of Testa, Hurwitz & Thibeault, LLP.

10.01**+ 1999 Stock Plan.

10.02+ Registration Rights Provisions contained in the Amended and Restated
Investors' Rights Agreement dated as of May 12, 1999 between DSL.net
and the purchasers named therein.

10.03* Master Lease Agreement dated as of March 4, 1999 between Comdisco,
Inc. and DSL.net, as modified by the Addendum thereto.

10.04+ Credit Agreement dated as of May 12, 1999 by and between DSL.net and
Fleet National Bank.

10.05+ Security Agreement dated as of May 12, 1999 by and between DSL.net
and Fleet National Bank.

10.06+ Lease Agreement dated February 5, 1999 by and between DSL.net and
Long Wharf Drive, LLC., as amended.

10.07* Amended and Restated Shareholders' Agreement, as amended, by and
among DSL.net and certain investors, as amended.

23.01* Consent of Testa, Hurwitz & Thibeault, LLP (contained in Exhibit
5.01).

23.02 Consent of PricewaterhouseCoopers, LLP.

24.01 Power of Attorney (contained on page II-5).
</TABLE>
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* To be filed by amendment.
** Indicates a management contract or any compensatory plan, contract or
arrangement.

+ Previously filed.

<PAGE>

Exhibit 23.02

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to the Registration Statement on Form S-1 of our report dated
May 26, 1999, except as to the stock dividend described in Note 7 which is as of
July 21, 1999, relating to the financial statements and financial statement
schedule of DSL.net, Inc., which appear in such Prospectus. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Prospectus.

/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
July 21, 1999