FASTNET CORP, S-1/A, 1999-09-28

FASTNET CORP
S-1/A, 1999-09-28
BUSINESS SERVICES, NEC

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1999

REGISTRATION STATEMENT NO. 333-85465

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

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

AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

FASTNET CORPORATION
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
PENNSYLVANIA 7379 23-2767197
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code No.) Identification Number)
</TABLE>

TWO COURTNEY PLACE--SUITE 130
3864 COURTNEY STREET
BETHLEHEM, PA 18017
(610) 266-6700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
DAVID K. VAN ALLEN
CHIEF EXECUTIVE OFFICER
FASTNET CORPORATION
TWO COURTNEY PLACE--SUITE 130
3864 COURTNEY STREET
BETHLEHEM, PA 18017
(610) 266-6700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------

COPIES TO:

<TABLE>
<S> <C>
STEPHEN M. GOODMAN, ESQ. LORRAINE MASSARO, ESQ.
MORGAN, LEWIS & BOCKIUS LLP MORRISON & FOERSTER LLP
1701 MARKET STREET 1290 AVENUE OF THE AMERICAS
PHILADELPHIA, PA 19103 NEW YORK, NY 10104
(215) 963-5000 (212) 468-8000
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If the only 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

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

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

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE THE REGISTRATION FEE
<S> <C> <C>
Common Stock, no par value per share......................... $55,200,000(1) $15,346(2)
</TABLE>

(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended and
includes $7,200,000 representing the aggregate offering price relating to
the issuance of shares pursuant to the underwriters' over-allotment option.

(2) A fee of $13,900 was previously paid based on a proposed maximum aggregate
offering price of $50,000,000.

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, AS AMENDED OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
UNDERWRITERS MAY NOT CONFIRM SALES OF THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE>

SUBJECT TO COMPLETION, DATED SEPTEMBER 28, 1999

PROSPECTUS

4,000,000 SHARES

[LOGO]

COMMON STOCK

This is the initial public offering of shares of FASTNET Corporation's
common stock. We expect that the initial public offering price will be between
$10.00 and $12.00 per share.

We have applied to list the common stock on the Nasdaq National Market under
the symbol FSST.

INVESTING IN OUR SHARES INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS
BEGINNING ON PAGE 9 FOR A DISCUSSION OF MATERIAL RISKS THAT YOU SHOULD CONSIDER
BEFORE YOU INVEST IN THE COMMON STOCK BEING SOLD WITH THIS PROSPECTUS.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------ ------------------
<S> <C> <C>
Initial public offering price........................................... $ $
Underwriting discounts and commissions.................................. $ $
Proceeds, before expenses, to us........................................ $ $
</TABLE>

The underwriters may purchase up to an additional 600,000 shares of common
stock from us at the initial public offering price less underwriting discounts
solely to cover over-allotments.

ING BARINGS

SOUNDVIEW TECHNOLOGY GROUP

FAC/EQUITIES

DLJDIRECT INC.

The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................... 4
Risk Factors..................................... 9
Use of Proceeds.................................. 17
Dividend Policy.................................. 17
Forward-Looking Statements....................... 17
Capitalization................................... 18
Dilution......................................... 20
Selected Financial Data.......................... 21
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 23

<CAPTION>
PAGE
-----
<S> <C>
Our Business..................................... 32
Management....................................... 45
Related Party Transactions....................... 51
Principal Shareholders........................... 52
Description of Capital Stock..................... 53
Shares Eligible for Future Sale.................. 56
Underwriting..................................... 58
Legal Matters.................................... 61
Experts.......................................... 61
Where You Can Find Additional Information........ 61
Index to Financial Statements.................... F-1
</TABLE>

FASTNET-Registered Trademark- and the FASTNET logo are registered United
States trademarks. Total Managed Security-TM- and CC/vpn-TM- are trademarks of
FASTNET. Other trademarks and tradenames appearing in this prospectus are the
property of their respective owners.

In making your investment decision relating to the shares offered hereby,
you should rely only on the information contained in this prospectus and not on
any other information, including information available on our Web site. We have
not authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business and financial condition may
have changed since that date.

UNTIL , 1999 ALL DEALERS SELLING SHARES OF THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS AND SUBSCRIPTIONS.

3
<PAGE>
PROSPECTUS SUMMARY

THIS PROSPECTUS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE
IN THIS PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE RISK FACTORS SECTION STARTING ON PAGE 9 AND
THE FINANCIAL STATEMENTS, BEFORE MAKING AN INVESTMENT DECISION.

FASTNET

OVERVIEW

We are a growing Internet service provider targeting small and medium sized
enterprises in selected high growth markets in the mid-Atlantic area of the
United States. We currently have customer network facilities in Pennsylvania
that enable us to service markets in Pennsylvania, New Jersey and Delaware. We
have been providing Internet access services to our customers since 1994. The
services we provide include:

- INTERNET ACCESS SERVICES--connectivity to our regional networks that
provides our customers access to the Internet;

- TOTAL MANAGED SECURITY--electronic protection for a customer's computer
network;

- WEB HOSTING SERVICES--shared and dedicated hosting, collocation and
hosting of Internet applications;

- VIRTUAL PRIVATE NETWORK--a secure seamless network connecting a company's
remote offices, employees and customers via our CC/vpn product;

- UNIFIED MESSAGING--remote access to faxes, paging messages and e-mail
messages through a single Internet application; and

- TOTAL MANAGED BACKUP AND RECOVERY SERVICES--Internet-enabled backup and
recovery services for a company's data network through off-site data
storage.

As of June 30, 1999, we provided Internet access and enhanced products and
services to approximately 170 small and medium sized enterprises and
approximately 12,760 dial-up customers in the mid-Atlantic area. The number of
our customers using our Web hosting services recently increased as a result of
our acquisition of Internet Unlimited, Inc. on July 30, 1999. As of July 30,
1999, the number of our Web hosting customers increased from 280 to
approximately 2,780, on a pro forma basis. Internet Unlimited also provides
collocation services, including necessary floor space, electrical and
environmental control, physical and electronic security, Internet bandwidth,
monitoring and maintenance to customers who wish to outsource their Web site or
application site servers to a service provider.

We have developed a highly reliable and scalable network architecture that
is designed to be efficiently deployed and operated in each of our target
markets. Our network architecture is designed around our customer network
facilities, which are high capacity data centers that provide our customers with
not less than two direct connections to the Internet as well as access to our
enhanced products and services. Each customer network facility is connected to
our centralized network operations center.

We currently have three customer network facilities in operation servicing
the regions in and around Allentown, Pennsylvania and Harrisburg, Pennsylvania;
and the secondary markets surrounding Philadelphia, Pennsylvania. We are in the
process of constructing four additional customer network facilities to service
the regions in and around Jersey City, New Jersey and Scranton/Wilkes Barre,
Pennsylvania; and the secondary markets surrounding Washington, D.C. and
Pittsburgh, Pennsylvania. We anticipate that these customer network facilities
will be fully-operational during the fourth quarter of 1999.

4
<PAGE>
OUR CUSTOMERS

We target primarily small and medium sized enterprise customers located in
selected high growth secondary markets that generally have 20 or more employees
and annual revenues between $3 million and $5 million. Our target markets are
typically smaller than the 100 most populated U.S. metropolitan markets. We
select these markets based upon specific criteria, such as the density of target
customers, expected population and economic growth and existing competitive
factors. Small and medium sized enterprises are often concentrated in these
markets to avoid the higher cost associated with locating in a metropolitan
area. We target small and medium sized enterprises because, based upon our
experience, we believe that:

- These enterprises increasingly need high-speed data and Internet
connections to access business information and to communicate more
effectively with employees, customers, vendors and business partners.

- A relatively small percentage of these enterprises currently utilize the
Internet. This number is increasing rapidly. The small and medium sized
enterprise segment of the Internet industry is growing quickly.

- Many of these enterprises lack the resources and expertise to develop,
maintain and expand the facilities and network systems necessary for
successful Internet operations.

- These enterprises often prefer an Internet service provider with
locally-based personnel who are available to assist in developing and
implementing their growing use of the Internet and to respond to technical
problems in a timely manner.

- These enterprises rely more heavily on their Internet service provider
than larger enterprises and tend to change Internet service providers
relatively infrequently.

OUR GROWTH STRATEGY

Our goal is to be the premier provider of Internet access and enhanced
Internet products and services to small and medium sized enterprises in our
target markets. Key elements of our strategy include:

- replicating our model rapidly in selected secondary markets;

- leveraging customer relationships to market enhanced services;

- leveraging our centralized sales and marketing operations to take
advantage of economies of scale; and

- entering into strategic relationships and making selected acquisitions.

Our headquarters are located at Two Courtney Place, Suite 130, 3864 Courtney
Street, Bethlehem, Pennsylvania 18017 and our telephone number is (610)
266-6700.

5
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common stock offered by FASTNET.............. 4,000,000 shares
Common stock to be outstanding after this
offering................................... 14,388,947 shares
Over-allotment option........................ 600,000 shares
Use of proceeds.............................. For working capital, capital expenditures for
the construction of additional customer
network facilities, the expansion of our
sales and marketing capabilities, other
general corporate purposes and potential
strategic acquisitions. See the section
entitled Use of Proceeds for more
information.
Proposed Nasdaq National Market symbol....... FSST
</TABLE>

Please see the section of this prospectus entitled Capitalization for a more
complete discussion regarding the outstanding shares of FASTNET common stock and
warrants and options to purchase shares of FASTNET common stock and other
related matters.

RISK FACTORS

Investing in our shares of common stock involves a high degree of risk. In
particular, you should be aware that we incurred net losses of approximately
$115,000 for the year ended December 31, 1996, approximately $322,000 for the
year ended December 31, 1997, approximately $1.3 million for the year ended
December 31, 1998 and approximately $1.1 million for the six months ended June
30, 1999, resulting in an accumulated deficit of approximately $3.0 million at
June 30, 1999. We expect to continue to operate at a net loss as we incur costs
related to expanding our regional network, expanding our product and service
offerings, and establishing brand-name recognition in our new regions of
operation. We face strong competition in our industry which could also cause our
net operating losses to continue and increase. You should read the section
entitled Risk Factors beginning on page 9 as well as the other cautionary
statements throughout this prospectus to ensure you understand the risks
associated with an investment in our common stock.

ADDITIONAL INFORMATION

For additional information concerning the common stock, see the sections of
this prospectus entitled Description of Capital Stock and Where You Can Find
Additional Information.

6
<PAGE>
SUMMARY FINANCIAL INFORMATION

The statement of operations data set forth below is presented on an actual
basis for the years ended December 31, 1996, 1997 and 1998 and for the six
months ended June 30, 1998 and 1999. The balance sheet data set forth below is
presented on an actual basis as of June 30, 1999. The statement of operations
data for the year ended December 31, 1998 and for the six months ended June 30,
1999 is also presented on a pro forma basis to reflect the following events:

- the issuance of 546,984 shares of common stock in connection with the
acquisition of Internet Unlimited, Inc. on July 30, 1999, as if it had
occurred at the beginning of each period;

- the conversion of a $3.1 million note payable into 2,033,334 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering, as if it had occurred on May 28, 1998, the
date on which the note was issued; and

- the conversion of a $1.0 million note payable and associated accrued
interest into 142,431 shares of series A convertible preferred stock in
August 1999, and the conversion of such shares into 142,431 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering, as if each had occurred on May 14, 1999,
the date the note was issued.

The balance sheet data as of June 30, 1999 is also presented on a pro forma
basis to reflect the following events as if they had occurred on June 30, 1999:

- the issuance of 546,984 shares of common stock in connection with the
acquisition of Internet Unlimited, Inc. on July 30, 1999;

- the issuance of 666,198 shares of series A convertible preferred stock in
August 1999;

- the conversion of a $3.1 million note payable into 2,033,334 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering;

- the conversion of a $1.0 million note payable and associated accrued
interest into 142,431 shares of series A convertible preferred stock in
August 1999; and

- the conversion of all outstanding shares of series A convertible preferred
stock into 808,629 shares of common stock, which will automatically occur
immediately prior to consummation of this offering.

In addition, the balance sheet data as of June 30, 1999 is also presented on
a pro forma as adjusted basis to reflect the events described above as well as
the sale of 4,000,000 shares of common stock in this offering, assuming that the
underwriters' over-allotment option is not exercised, at an assumed initial
public offering price of $11.00 and our application of the estimated net
proceeds of this offering as described in Use of Proceeds.

The pro forma results are not necessarily indicative of the results of
operations or financial position of FASTNET had the events described above
occurred at the dates described above.

7
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------- -------------------------------------
1998 1999
------------------------ ------------------------
1996 1997 ACTUAL PRO FORMA 1998 ACTUAL PRO FORMA
---------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Services.............................. $1,545,072 $ 2,846,338 $ 4,875,471 $ 5,576,349 $ 2,155,720 $ 3,469,506 $ 4,114,675
Hardware and software................. 397,535 824,276 652,508 672,635 499,462 79,509 100,351
---------- ----------- ----------- ----------- ----------- ----------- -----------
1,942,607 3,670,614 5,527,979 6,248,984 2,655,182 3,549,015 4,215,026
---------- ----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Cost of services...................... 740,186 1,771,968 2,572,732 2,768,661 1,066,605 2,065,187 2,196,234
Cost of hardware and software......... 421,825 561,951 669,009 680,196 475,748 50,951 62,900
Selling, general and administrative... 793,336 1,445,224 3,067,740 3,516,740 1,177,104 2,154,680 2,639,977
Depreciation and amortization......... 78,804 177,375 346,568 1,867,818 140,384 247,796 1,024,799
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses............ 2,034,151 3,956,518 6,656,049 8,833,415 2,859,841 4,518,614 5,923,910
---------- ----------- ----------- ----------- ----------- ----------- -----------
Operating loss.......................... (91,544) (285,904) (1,128,070) (2,584,431) (204,659) (969,599) (1,708,884)
Other expenses, net..................... (23,680) (36,162) (146,220) (39,975) (47,436) (110,842) (19,484)
---------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss................................ $ (115,224) $ (322,066) $(1,274,290) $(2,624,406) $ (252,095) $(1,080,441) $(1,728,368)
---------- ----------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- ----------- -----------
Basic and diluted net loss per common
share................................. $ (0.01) $ (0.03) $ (0.14) $ (0.25) $ (0.02) $ (0.15) $ (0.18)
---------- ----------- ----------- ----------- ----------- ----------- -----------
Weighted average number of common shares
outstanding........................... 11,575,000 11,575,000 8,880,833 10,613,929 10,761,666 7,000,000 9,615,381
---------- ----------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 524,671 $ 4,920,117 $44,240,117
Working capital (deficit)......................... (5,878,946) 1,846,580 41,166,580
Total assets...................................... 4,322,194 13,532,068 52,852,068
Shareholders' (deficit) equity.................... (3,575,397) 8,825,914 48,145,914
</TABLE>

The foregoing tables should be read in conjunction with the historical
financial information of FASTNET and Internet Unlimited, Inc. and the unaudited
pro forma combined financial information contained elsewhere in this prospectus.
See the sections entitled Selected Financial Data and Management's Discussion
and Analysis of Financial Condition and Results of Operations for additional
information.

8
<PAGE>
RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.

RISKS RELATED TO OUR BUSINESS

WE ONLY RECENTLY BEGAN TO IMPLEMENT OUR CURRENT BUSINESS STRATEGY. AS A RESULT,
YOU MAY NOT BE ABLE TO EVALUATE OUR BUSINESS PROSPECTS BASED ON OUR HISTORICAL
RESULTS.

We began to implement our current business strategy of targeting small and
medium sized enterprises in high growth secondary markets within and outside the
mid-Atlantic United States in late 1998. To date, we have only conducted
business in the mid-Atlantic area. Therefore, the evaluation of our future
business prospects is difficult because our historical results for periods
during which we were implementating our current business strategy are limited.

WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES.

We incurred net losses of approximately $115,000, or 6% of revenues, for the
year ended December 31, 1996, approximately $322,000, or 9% of revenues, for the
year ended December 31, 1997, approximately $1.3 million, or 23% of revenues,
for the year ended December 31, 1998 and approximately $1.1 million, or 30% of
revenues, for the six months ended June 30, 1999 resulting in an accumulated
deficit of approximately $3.0 million at June 30, 1999. On a pro forma basis,
assuming that the acquisition of Internet Unlimited was consummated on January
1, 1998, we would have incurred net losses of approximately $2.6 million, or 42%
of revenues, for the year ended December 31, 1998 and approximately $1.7
million, or 41% of revenues, for the six months ended June 30, 1999. We expect
to continue to operate at a loss as we incur costs related to expanding our
regional network, expanding our product and service offerings, and establishing
brand-name recognition in our new regions of operation.

In order to achieve profitability, we must develop and market products and
services that gain broad commercial acceptance by small and medium sized
enterprises and residential customers in our target regions. We cannot give any
assurances that our products and services will ever achieve broad commercial
acceptance among our customers. Although our revenues have increased each year
since we began operations, we cannot give any assurances that this growth in
annual revenues will continue or lead to our profitability in the future.
Therefore, we cannot predict whether we will obtain or sustain positive
operating cash flow or generate net income in the future.

OUR OPERATING RESULTS FLUCTUATE DUE TO A VARIETY OF FACTORS AND ARE NOT A
MEANINGFUL INDICATOR OF FUTURE PERFORMANCE.

Our operating results have fluctuated in the past and may fluctuate
significantly in the future, depending upon a variety of factors, including:

- the timing of costs relating to the construction of our customer network
facilities;

- the timing of the introduction of new products and services;

- changes in pricing policies and product offerings by us or our
competitors; and

- fluctuations in demand for Internet access and enhanced products and
services.

Therefore, we believe that period-to-period comparisons of our operating
results are not necessarily meaningful and cannot be relied upon as indicators
of future performance. If our operating

9
<PAGE>
results in any future period fall below the expectations of common stock
analysts and investors, the market price of our common stock would likely
decline.

OUR EXPANSION EFFORTS MAY NOT BE SUCCESSFUL IN OUR NEW TARGET REGIONS BECAUSE
OUR BUSINESS GROWTH STRATEGY IS LARGELY UNTESTED.

Our growth strategy includes building customer network facilities in high
growth secondary markets where we do not currently operate. In each market, we
will target primarily small and medium sized enterprise customers. Since our
growth strategy is largely untested, we cannot give any assurances that we will
be able to successfully implement it in our target regions.

Our success will depend upon:

- our ability to identify attractive target regions outside of the
mid-Atlantic area;

- our ability to rapidly deploy additional customer network facilities; and

- our ability to replicate our sales and marketing efforts.

Our ability to successfully implement our business strategy, and the
expected benefits to be obtained from our strategy, may be adversely affected by
a number of factors, such as unforeseen costs and expenses, technological
change, economic downturns, competitive factors or other events beyond our
control.

RECENTLY, TWO OF OUR CUSTOMERS TOGETHER ACCOUNTED FOR MORE THAN 10% OF OUR TOTAL
REVENUES. THE LOSS OF EITHER OF THESE CUSTOMERS COULD HARM OUR RESULTS OF
OPERATIONS.

We currently derive, and expect in the future to derive, more than 10% of
our revenues from a small number of our business customers. For example, Lucent
Technologies, Inc. accounted for 10% of total revenues for the six months ended
June 30, 1999 and 9% of total revenues for the fiscal year ended December 31,
1998 and Microsoft's WebTV Networks, Inc. accounted for 20% of total revenues
for the six months ended June 30, 1999 and 9% of total revenues for the fiscal
year ended December 31, 1998. On a pro forma basis, assuming that the
acquisition of Internet Unlimited was consummated on January 1, 1998, Lucent
Technologies would have accounted for 8% of total revenues for the six months
ended June 30, 1999 and 8% of total revenues for the fiscal year ended December
31, 1998 and Microsoft's WebTV Networks, Inc. would have accounted for 16% of
total revenues for the six months ended June 30, 1999 and 8% of total revenues
for the fiscal year ended December 31, 1998. We expect revenues from these
customers to vary from year to year. Our agreement with Lucent Technologies is a
service contract with a one year term, which automatically renews on a monthly
basis until such time as it is renegotiated or terminated. Our agreement with
Microsoft's WebTV Networks may be terminated upon 120 days notice. The loss of
any of our significant customers or a significant decrease in revenues from
these customers could harm our results of operations.

WE MAY BE UNABLE TO EXPAND OUR SALES, TECHNICAL SUPPORT AND CUSTOMER SUPPORT
INFRASTRUCTURE, WHICH MAY HINDER OUR ABILITY TO GROW AND MEET CUSTOMER
DEMANDS.

We rely upon our centralized sales force and regional marketing managers to
sell our products and services in our new regions. We serve our existing
customers through our sales, technical support and customer support staff. If we
are unable to expand our sales force and our technical support and customer
support staff, our business would be harmed because this would limit our ability
to obtain new customers, sell products and services and provide existing
customers with a high level of technical support.

10
<PAGE>

IF WE ARE UNABLE TO RAPIDLY EXPAND INTO OUR TARGET REGIONS, WE MAY NEED TO
MODIFY OUR GROWTH AND OPERATING PLANS.

Our business strategy depends on our ability to rapidly expand into our new
regions, which requires significant capital resources. As a result, we
anticipate that we will need significant additional funds to execute our growth
strategy, including cash to:

- build additional customer network facilities;

- expand our sales and marketing capabilities;

- develop enhanced product and service offerings;

- make acquisitions; and

- finance working capital and general corporate purposes.

If the net proceeds from this offering are not sufficient to meet our cash
requirements, we will need to seek additional capital from public or private
equity and debt sources to fund our growth and operating strategies. We cannot
be certain that we will be able to raise additional capital in the future on
terms acceptable to us or at all. If alternative sources of financing are
insufficient or unavailable, we may be required to modify our growth and
operating plans in accordance with the extent of available financing.

WE FACE SIGNIFICANT AND INCREASING COMPETITION IN OUR INDUSTRY WHICH COULD CAUSE
US TO LOWER PRICES RESULTING IN REDUCED REVENUES.

The growth of the Internet access and related services market and the
absence of substantial barriers to entry have attracted many start-ups as well
as existing businesses from the telecommunications, cable, and technology
industries. As a result, the market for Internet access and related services is
very competitive. We anticipate that competition will continue to intensify as
the use of the Internet grows. Current and prospective competitors include:

- national, regional and local Internet service providers, including
providers of free dial-up Internet access;

- national and regional long distance and local telecommunications carriers;

- cable operators and their affiliates;

- providers of Web hosting, collocation and other Internet-based business
services;

- computer hardware and other technology companies that bundle Internet
connections with their products; and

- terrestrial wireless and satellite Internet service providers.

As a result of an increase in the number of competitors, and vertical and
horizontal integration in the industry, we currently face and expect to continue
to face significant pricing pressure and other competition in the future.
Advances in technology and changes in the marketplace and the regulatory
environment will continue, and we cannot predict the effect that ongoing or
future developments may have on us or the pricing of our products and services.

We believe that the following are the primary competitive factors in our
market:

- pricing;

- quality and breadth of products and services;

- ease of use;

11
<PAGE>
- personal customer support and service; and

- brand awareness.

Many of our competitors have significantly greater market presence,
brand-name recognition, and financial resources than we do. In addition, all of
the major long distance telephone companies, also known as interexchange
carriers, offer Internet access services. The recent reforms in the federal
regulation of the telecommunications industry have created greater opportunities
for local exchange carriers, including incumbent local exchange carriers and
competitive local exchange carriers, to enter the Internet access market. In
order to address the Internet access requirements of the current business
customers of long distance and local carriers, many carriers are integrating
horizontally through acquisitions of or joint ventures with Internet service
providers, or by wholesale purchase of Internet access from Internet service
providers. In addition, many of the major cable companies and other alternative
service providers, such as those companies utilizing wireless and
satellite-based service technologies, have announced their plans to offer
Internet access and related services. While few of these larger companies have
focused on our key customer base of small and medium sized enterprises in our
target markets, it is possible that they will do so in the future. Accordingly,
we may experience increased competition from traditional and emerging
telecommunications providers. Many of these companies, in addition to their
substantially greater network coverage, market presence, and financial,
technical and personnel resources, also already provide telecommunications and
other services to many of our target customers. Furthermore, they may have the
ability to bundle Internet access with basic local and long distance
telecommunications services, which we do not currently offer. This bundling of
services may harm our ability to compete effectively with them and may result in
pricing pressure on us that would reduce our earnings.

OUR GROWTH DEPENDS ON THE CONTINUED ACCEPTANCE BY SMALL AND MEDIUM SIZED
ENTERPRISES OF THE INTERNET FOR COMMERCE AND COMMUNICATION.

If the use of the Internet by small and medium sized enterprises for
commerce and communication does not continue to grow, our business and results
of operations will be harmed. Our products and services are designed primarily
for the rapidly growing number of business users of the Internet. Commercial use
of the Internet by small and medium sized enterprises is still in its early
stages. Despite growing interest in the commercial uses of the Internet, many
businesses have not purchased Internet access and related services for several
reasons, including:

- lack of inexpensive, high-speed connection options;

- a limited number of reliable local access points for business users;

- lack of affordable electronic commerce solutions;

- limited internal resources and technical expertise;

- inconsistent quality of service; and

- difficulty in integrating hardware and software related to Internet based
business applications.

In addition, we believe that many Internet users lack confidence in the
security of transmitting their data over the Internet, which has hindered
commercial use of the Internet. Technologies that adequately address these
security concerns may not be developed.

The adoption of the Internet for commerce and communication applications,
particularly by those enterprises that have historically relied upon alternative
means, generally requires the understanding and acceptance of a new way of
conducting business and exchanging information. In particular, enterprises that
have already invested substantial resources in other means of conducting
commerce

12
<PAGE>

and exchanging information may be reluctant or slow to adopt a new strategy that
may make their existing personnel and infrastructure obsolete.

OUR SUCCESS DEPENDS ON THE CONTINUED DEVELOPMENT OF INTERNET INFRASTRUCTURE.

The recent growth in the use of the Internet has caused periods of
performance degradation, requiring the upgrade by providers and other
organizations with links to the Internet of routers and switches,
telecommunications links and other components forming the infrastructure of the
Internet. We believe that capacity constraints caused by rapid growth in the use
of the Internet may impede further development of the Internet to the extent
that users experience increased delays in transmission or reception of data or
transmission errors that may corrupt data. Any degradation in the performance of
the Internet as a whole could impair the quality of our products and services.
As a consequence, our future success will be dependent upon the reliability and
continued expansion of the Internet.

WE RELY ON A LIMITED NUMBER OF VENDORS AND SERVICE PROVIDERS, SOME OF WHICH ARE
OUR COMPETITORS. THIS MAY ADVERSELY AFFECT THE FUTURE TERMS OF OUR
RELATIONSHIPS.

We rely on other companies to supply key components of our network
infrastructure, which are available only from limited sources. For example, we
currently rely on routers, switches and remote access devices from Lucent
Technologies, Inc., Cisco Systems, Inc. and Nortel Networks Corporation. We
could be adversely affected if any of these products were no longer available on
commercially reasonable terms, or at all. From time to time, we experience
delays in the delivery and installation of these products and services, which
can lead to the loss of existing or potential customers. We do not know that we
will be able to obtain such products in the future cost-effectively and in a
timely manner. Moreover, Sprint Communications Company, L.P., MCI WorldCom, Inc.
and UUNET Technologies, Inc., our primary backbone providers, also sell products
and services that compete with ours. Our agreements with our primary backbone
providers are fixed price contracts with terms ranging from one to three years.
Our backbone providers operate national or international networks that provide
data and Internet connectivity and enable our customers to transmit and receive
data over the Internet. Our relationship with these backbone providers could be
adversely affected as a result of our direct competition with them. Failure to
renew these relationships when they expire or enter into new relationships for
such services on commercially reasonable terms or at all could harm our
business, financial condition and results of operations.

WE DEPEND ON OUR EXECUTIVE OFFICERS TO EXECUTE OUR BUSINESS STRATEGY AND COULD
BE HARMED BY THE LOSS OF THEIR SERVICES.

Our success depends in part upon the continued service and performance of
our executive officers who possess industry expertise and technical knowledge of
our operations. We currently do not have employment agreements with any of our
executive officers. The loss of the services of one or more of our executive
officers could impair our ability to expand our operations and provide a high
level of service to our customers.

WE NEED TO RECRUIT AND RETAIN QUALIFIED PERSONNEL OR OUR BUSINESS COULD BE
HARMED.

Competition for highly-qualified employees in the Internet service industry
is intense because there is a limited number of people with an adequate
knowledge of and significant experience in our industry. Our success depends to
a significant degree upon our ability to attract, train and retain highly
skilled management, technical, marketing and sales personnel and upon the
continued contributions of such people. Since it is difficult and time consuming
to identify and hire highly qualified employees, we cannot assure you of our
ability to do so. Our failure to attract additional highly qualified personnel
could impair our ability to grow our operations and services to our customers.

13
<PAGE>
WE COULD EXPERIENCE SYSTEM FAILURES AND CAPACITY CONSTRAINTS, WHICH COULD RESULT
IN THE LOSS OF OUR CUSTOMERS OR LIABILITY TO OUR CUSTOMERS.

The continued operation of our network infrastructure depends upon our
ability to protect against:

- downtime due to malfunction or failure of hardware or software;

- overload conditions;

- power loss or telecommunications failures;

- human error;

- natural disasters; and

- sabotage or other intentional acts of vandalism.

Any of these occurrences could result in interruptions in the services we
provide to our customers and require us to spend substantial amounts of money
repairing and replacing equipment. Although we do not guarantee uninterrupted
service, we could still incur significant liability to our customers for any
damages they suffer due to any system downtime as well as the possible loss of
customers.

OUR NETWORK MAY EXPERIENCE SECURITY BREACHES WHICH COULD DISRUPT OUR SERVICES.

Our network infrastructure may be vulnerable to computer viruses, break-ins
and similar disruptive problems caused by our customers or other Internet users.
Computer viruses, break-ins or other problems caused by third parties could lead
to interruptions, delays or cessation in service to our customers. There
currently is no existing technology that provides absolute security, and the
cost of minimizing these security breaches could be prohibitively expensive. We
may face liability to customers for such security breaches. Furthermore, such
incidents could deter potential customers and adversely affect existing customer
relationships.

WE FACE POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED THROUGH OUR NETWORK.

It is possible that claims could be made against Internet service providers
in connection with the nature and content of the materials disseminated through
their networks. The law relating to the liability of Internet service providers
due to information carried or disseminated through their networks is not
completely settled. While the U.S. Supreme Court has held that content
transmitted over the Internet is entitled to the highest level of protection
under the U.S. Constitution, there are federal and state laws regarding the
distribution of obscene, indecent, or otherwise illegal material, as well as
material that violates intellectual property rights which may subject us to
liability. Several private lawsuits have been brought in the past and are
currently pending against other entities which seek to impose liability upon
Internet service providers as a result of the nature and content of materials
disseminated over the Internet. If any of these actions succeed, we might be
required to respond by investing substantial resources or discontinuing some of
our service or product offerings, which could harm our business.

NEW LAWS AND REGULATIONS GOVERNING OUR INDUSTRY COULD HARM OUR BUSINESS.

We are subject to a variety of risks that could materially affect our
business due to the rapidly changing legal and regulatory landscape governing
Internet access providers. For example, the Federal Communications Commission
currently exempts Internet access providers from having to pay per-minute access
charges that long-distance telecommunications providers pay local telephone
companies for the use of the local telephone network. In addition, Internet
access providers are currently exempt from having to pay a percentage of their
gross revenues as a contribution to the federal universal service fund. Should
the Federal Communications Commission eliminate these exemptions and impose

14
<PAGE>

such charges on Internet access providers, this would increase our costs of
providing dial-up Internet access service and could have a material adverse
effect on our business, financial condition and results of operations.

We face risks due to possible changes in the way our suppliers are regulated
which could have an adverse effect on our business. For example, most states
require local exchange carriers to pay reciprocal compensation to competing
local exchange carriers for the transport and termination of Internet traffic.
However, in February 1999, the Federal Communications Commission concluded that
at least a substantial portion of dial-up Internet traffic is jurisdictionally
interstate which could ultimately eliminate the reciprocal compensation payment
requirement for Internet traffic. Should this occur our telephone carriers may
no longer be entitled to receive payment from the originating carrier to
terminate traffic delivered to us. The Federal Communications Commission has
launched an inquiry to determine a mechanism for covering the costs of
terminating calls to Internet service providers, but in the interim state
commissions will determine whether carriers will receive compensation for such
calls. If the new compensation mechanism that may be adopted by the Federal
Communications Commission increases the costs to out telephone carriers for
terminating traffic to us, or if states eliminate reciprocal compensation
payments, our telephone carriers may increase the price of service to us in
order to recover such costs. This could have a material adverse effect on our
business, financial condition and results of operations.

We face risks due to possible changes in the way our competitors are
regulated which could have an adverse effect on our business. For example, the
Federal Communications Commission is considering measures that could stimulate
the development of high-speed telecommunications facilities and make it easier
for operators of these facilities to obtain access to customers. Such favorable
regulatory measures could enhance the viability of our competitors in the
Internet access marketplace. In addition, changes in the regulatory environment
may provide competing Internet service providers the right of access to the
cable systems of local franchised cable operators. The adoption of open access
to cable systems by Internet service providers could harm our business.

POTENTIAL YEAR 2000 PROBLEMS COULD HARM OUR BUSINESS.

Many computer systems are not capable of distinguishing 21(st) century dates
from 20(th) century dates. As a result, beginning on January 1, 2000, computer
systems and software used by many companies and organizations in a wide variety
of industries will produce erroneous results or fail unless they have been
modified or upgraded to process date information correctly. Our year 2000
assessment and remediation efforts are not complete. The risks to our business
could be significant if we are unable to provide products and services to our
customers. Our operations could also be disrupted and our financial condition
could be adversely affected if our customers and third-party providers do not
ensure that their hosted hardware and software is year 2000 compliant. Our Web
hosting and collocation services could be adversely affected if Internet
Unlimited, Inc., our recent acquisition, is not year 2000 compliant. In
addition, if the actual costs of implementing our year 2000 program
significantly exceed our estimates, it may have a material adverse effect on our
business, financial condition or results of operations.

RISKS RELATED TO THIS OFFERING

OUR OFFICERS, DIRECTORS AND AFFILIATES WILL BE ABLE TO CONTROL MATTERS REQUIRING
SHAREHOLDER APPROVAL, AND MAY HAVE INTERESTS THAT DIFFER FROM OUR INVESTORS.

Following the closing of this offering, our officers, directors and 5%
shareholders together will beneficially own approximately 67.8% of the
outstanding shares of our common stock, 64.3% if the underwriters'
over-allotment option is exercised in full. As a result, these shareholders will
be able to

15
<PAGE>
control all matters requiring shareholder approval and, thereby, our management
and affairs. These shareholders may have interests that differ from our
investors. Matters that typically require shareholder approval include:

- election of directors;

- approval of a merger or consolidation; and

- approval of a sale of all or substantially all our assets.

In addition, this concentration of ownership may delay, deter or prevent
acts that would result in a change of control, which in turn could reduce the
market price of our common stock.

WE WILL HAVE BROAD DISCRETION AS TO USE OF PROCEEDS FROM THIS OFFERING.

We have broad discretion as to the use of the proceeds from this offering
without prior shareholder approval and our failure to apply these proceeds
effectively could cause our business to suffer. Accordingly, you will have to
rely on our management to properly apply the proceeds. As of the date of this
prospectus, we do not plan to use the proceeds from this offering other than for
implementation of our regional growth program, working capital and general
corporate purposes. We may use the proceeds in future strategic acquisitions of,
or investments in, businesses that offer us the opportunity to obtain additional
enhanced products and services. Until the need arises, we plan to invest the net
proceeds from this offering in short-term, interest-bearing, investment-grade
securities.

FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.

Sales of a substantial number of shares of common stock in the public market
following this offering and the expiration of lock-up arrangements with the
underwriters could reduce the market price of our common stock. All the shares
sold in this offering will be freely tradable. The remaining shares of common
stock outstanding after this offering will be available for sale in the public
market as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
no shares............................................... , 1999 (date of this prospectus)

no shares............................................... , 2000 (180 days after the date of this prospectus)

10,388,947 shares....................................... At various times thereafter upon the expiration of
holding periods
</TABLE>

We have granted options to purchase shares of our common stock under our
equity compensation plan, and intend to register the shares of common stock
issuable or reserved for issuance under the plan within 180 days after the
consummation of this offering.

NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.

The initial public offering price is substantially higher than the book
value per share of our common stock. Investors purchasing our common stock in
this offering will, therefore, incur immediate dilution of $7.96 in net tangible
book value per share of our common stock on a pro forma basis assuming the
acquisition of Internet Unlimited, the sale of series A convertible preferred
stock, the conversion of all outstanding shares of series A convertible
preferred stock into shares of common stock and no exercise of the underwriters'
over-allotment option. This dilution figure deducts the estimated underwriting
discounts and commissions and estimated offering expenses payable by us from the
initial public offering price. Investors will incur additional dilution upon the
exercise of outstanding stock options.

16
<PAGE>
USE OF PROCEEDS

We expect to receive approximately $39.3 million in net proceeds from the
sale of the 4,000,000 shares of common stock in this offering, assuming that the
initial public offering price is $11.00 per share, after deducting the estimated
underwriting discount and commissions and offering expenses. We expect to
receive approximately $45.5 million in net proceeds if the underwriters'
over-allotment option is exercised in full, after deducting the estimated
underwriting discount and commissions and offering expenses.

We intend to use the net proceeds of this offering for working capital and
other general corporate purposes, including the construction of additional
customer network facilities in our target regions, the expansion of our sales
and marketing capabilities and capital expenditures made in the ordinary course
of business. We may also use a portion of the net proceeds to acquire additional
businesses, products and technologies or to establish joint ventures that we
believe will complement our current or future business. However, we have no
specific plans, agreements or commitments, oral or written, to do so. The
amounts that we actually expend for working capital purposes will vary
significantly depending on a number of factors, including future revenue growth,
if any, and the amount of cash we generate from operations. As a result, we will
retain broad discretion in the allocation of the net proceeds of this offering.
Pending the uses described above, we will invest the net proceeds in short-term,
interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never paid cash dividends on our common stock. We currently intend
to retain any future earnings to fund the development and growth of our
business. Therefore, we do not anticipate paying any cash dividends in the
foreseeable future.

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements which involve risks and
uncertainties. These forward-looking statements are often accompanied by words
such as believes, anticipates, plans, expects and similar expressions. These
statements include, without limitation, statements about the market opportunity
and our growth strategy. These statements may be found in the sections of this
prospectus entitled Prospectus Summary, Risk Factors, Use of Proceeds,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Our Business and in this prospectus generally. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including all the risks discussed in
Risk Factors and elsewhere in this prospectus.

17
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization as of June 30, 1999. We
present capitalization:

- on an actual basis;

- on a pro forma basis to reflect the issuance of 546,984 shares of common
stock in connection with the acquisition on July 30, 1999 of Internet
Unlimited, the sale of 666,198 shares of series A convertible preferred
stock for net proceeds of $4.4 million which occurred in August 1999, the
conversion of a $1.0 million note payable and associated accrued interest
into 142,431 shares of series A convertible preferred stock which occurred
in August 1999, and the conversion of all outstanding shares of series A
convertible preferred stock into 808,629 shares of common stock and the
conversion of a $3.1 million note payable into 2,033,334 shares of common
stock; both conversions will automatically occur immediately prior to the
consummation of this offering; and

- on a pro forma as adjusted basis to reflect events described in the
previous bullet point as well as the sale of 4,000,000 shares of common
stock in this offering at an assumed initial public offering price of
$11.00 per share and our application of the estimated net proceeds of
approximately $39.3 million as described in Use of Proceeds, assuming no
exercise of the underwriters' over-allotment option.

This table should be read in conjunction with the historical financial
information of FASTNET and Internet Unlimited, and the unaudited pro forma
combined financial information contained elsewhere in this prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
---------- ----------- ----------
<S> <C> <C> <C>
Current portion of long-term debt and lease
obligations......................................... $4,114,445 $ 60,020 $ 60,020
---------- ----------- ----------
Long-term debt and capital lease obligations,
excluding current portion........................... 157,482 168,188 168,188
Shareholders' equity (deficit):
Preferred stock, no par value, 10,000,000 shares
authorized, no shares issued and outstanding actual;
9,191,371 shares authorized and no shares issued and
outstanding pro forma and pro forma as adjusted..... -- -- --
Common stock, no par value per share, 50,000,000
shares authorized, 7,000,000 shares issued and
outstanding actual; 10,388,947 issued and
outstanding pro forma; and 14,388,947 issued and
outstanding pro forma as adjusted................... 545,368 12,946,679 52,266,679
Deferred compensation................................. (109,765) (109,765) (109,765)
Accumulated deficit................................... (3,011,000) (3,011,000) (3,011,000)
Treasury stock, at cost............................... (1,000,000) (1,000,000) (1,000,000)
---------- ----------- ----------
---------- ----------- ----------
Total shareholders' equity (deficit).............. (3,575,397) 8,825,914 48,145,914
---------- ----------- ----------
---------- ----------- ----------
Total capitalization (deficit).................. $(3,417,915) $ 8,994,102 $48,314,102
---------- ----------- ----------
---------- ----------- ----------
</TABLE>

This table is based on shares outstanding as of June 30, 1999 and does not
include:

- 563,000 shares of our common stock issuable upon the exercise of
outstanding options that have been granted under our equity compensation
plan at a weighted average exercise price of $1.70 per share, of which
options to purchase 295,000 shares of common stock are currently
exercisable at a weighted average exercise price of $1.52 per share;

18
<PAGE>

- 22,000 shares of our common stock issuable upon the exercise of options
that have been granted under our equity compensation plan from June 30,
1999 to the date of this prospectus at a weighted average exercise price
of $6.71 per share;

- 415,000 shares of our common stock available for grant under our equity
compensation plan as of the date of this prospectus; and

- 1,000,000 shares of our common stock issuable upon the exercise of a
warrant issued to H&Q You Tools Investment Holding, L.P. that is
exercisable at an exercise price of $1.50 per share.

19
<PAGE>
DILUTION

As of June 30, 1999, we had a net tangible deficit of approximately $3.6
million or $0.51 per share of common stock. Net tangible deficit per share
represents the amount of our total tangible assets reduced by the amount of our
total liabilities, divided by the number of shares of common stock outstanding.
As of June 30, 1999, our net tangible book value was $4.4 million or $0.42 per
share; assuming on a pro forma basis, the issuance of 546,984 shares of common
stock in connection with the acquisition of Internet Unlimited, which occurred
on July 30, 1999, the sale of 666,198 shares of series A convertible preferred
stock for net proceeds of $4.4 million which occurred in August 1999, the
conversion of a $1.0 million note payable and associated accrued interest which
occurred in August 1999 into 142,431 shares of series A convertible preferred
stock, the conversion of all outstanding shares of series A convertible
preferred stock into 808,629 shares of common stock and the conversion of a $3.1
million note payable into 2,033,334 shares of common stock. Both conversions
will automatically occur immediately prior to the consummation of this offering.
As of June 30, 1999, our pro forma net tangible book value, on a pro forma as
adjusted basis for the factors listed in the preceding sentence and for the sale
of 4,000,000 shares in this offering, assuming no exercise of the underwriters'
over-allotment option, based on an assumed initial public offering price of
$11.00 per share and after deducting the underwriting discounts and commissions
and other estimated offering expenses, would have been $3.04 per share. This
represents an immediate increase of $2.62 per share to existing shareholders and
an immediate dilution of $7.96 per share to new investors. The following table
should be read in conjunction with the historical financial information of
FASTNET and Internet Unlimited and the unaudited pro forma combined financial
information contained elsewhere in this prospectus. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 11.00
---------
Pro forma net tangible book value per share at June 30, 1999.... $ 0.42
Pro forma increase per share attributable to new investors...... 2.62
---------
Pro forma as adjusted net tangible book value per share after the
offering.......................................................... 3.04
---------
Dilution per share to new investors................................. $ 7.96
---------
---------
</TABLE>

The following summarizes as of June 30, 1999, the differences between the
total consideration paid and the average price per share paid by the existing
shareholders and the new investors with respect to the number of shares of
common stock purchased from us based on an assumed initial public offering price
of $11.00 per share assuming the pro forma adjustments described in the
paragraph above.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders................................. 10,388,947 72% $ 12,767,789 22% $ 1.23
New investors......................................... 4,000,000 28 44,000,000 78 11.00
------------ --- ------------- ---
Total............................................. 14,388,947 100% $ 56,767,789 100%
------------ --- ------------- ---
------------ --- ------------- ---
</TABLE>

The above information is based on shares outstanding as of June 30, 1999 and
does not include:

- 415,000 shares of our common stock available for grant under our equity
compensation plan as of the date of this prospectus; and

- 1,000,000 shares of our common stock issuable upon the exercise of a
warrant issued to H&Q You Tools Investment Holding, L.P. that is
exercisable at an exercise price of $1.50 per share.

20
<PAGE>
SELECTED FINANCIAL DATA

The tables that follow present portions of our financial statements and are
not complete. You should read the following selected financial data in
conjunction with our Financial Statements and related Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations and unaudited pro forma financial information included elsewhere in
this prospectus. The statement of operations data for the years ended December
31, 1996, 1997, and 1998, and the balance sheet data as of December 31, 1996,
1997 and 1998 are derived from our Financial Statements that have been audited
by Arthur Andersen LLP, independent auditors, which are included elsewhere in
this prospectus. The statement of operations data for the period from inception
(May 10, 1994) to December 31, 1994 and the year ended December 31, 1995 and the
six months ended June 30, 1998 and 1999 and the balance sheet data as of
December 31, 1994 and 1995 and June 30, 1999 are derived from unaudited
Financial Statements and include all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of our
financial position and operating results for that period. Historical results are
not necessarily indicative of future results. See Note 2 of Notes to Financial
Statements and Note 2 of Notes to Unaudited Pro Forma Financial Information for
an explanation of the method used to calculate pro forma basic and diluted loss
per share. See the section entitled Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations for more
information.

The statement of operations data for the years ended December 31, 1998 and
for the six months ended June 30, 1999 is also presented on a pro forma basis to
reflect the following events:

- the issuance of 546,984 shares of common stock in connection with the
acquisition of Internet Unlimited, Inc. on July 30, 1999, as if it had
occurred at the beginning of each period;

- the conversion of $3.1 million note payable into 2,033,334 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering, as if it had occurred on May 28, 1998, the
date on which the note was issued; and

- the conversion of $1.0 million note payable and associated accrued
interest into 142,431 shares of series A convertible preferred stock in
August 1999, and the conversion of such shares into 142,431 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering, as if each had occurred on May 14, 1999,
the date the note was issued.

The balance sheet data as of June 30, 1999 is also presented on a pro forma
basis to reflect the following events as if they had occurred on June 30, 1999:

- the issuance of 546,984 shares of common stock in connection with the
acquisition of Internet Unlimited, Inc. on July 30, 1999;

- the issuance of 666,198 shares of series A convertible preferred stock in
August 1999;

- the conversion of $3.1 million note payable into 2,033,334 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering;

- the conversion of $1.0 million note payable and associated accrued
interest into 142,431 shares of series A convertible preferred stock in
August 1999; and

The pro forma results are not necessarily indicative of the results of
operations or financial position of FASTNET had the events described above
occurred at the dates described above.

21
<PAGE>

<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
(MAY 10, -------------------------------------------------------------- -------------------------------------
1994) TO 1998 1999
DECEMBER ------------------------ ------------------------
31, 1994 1995 1996 1997 ACTUAL PRO FORMA 1998 ACTUAL PRO FORMA
---------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Revenues:
Services...... $ 26,258 $ 299,956 $1,545,072 $ 2,846,338 $ 4,875,471 $ 5,576,349 $ 2,155,720 $ 3,469,506 $ 4,114,675
Hardware and
software.... 50,918 148,848 397,535 824,276 652,508 672,635 499,462 79,509 100,351
---------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
77,176 448,804 1,942,607 3,670,614 5,527,979 6,248,984 2,655,182 3,549,015 4,215,026
---------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Operating
expenses:
Cost of
services.... 37,427 122,622 740,186 1,771,968 2,572,732 2,768,661 1,066,605 2,065,187 2,196,234
Cost of
hardware and
software.... 38,341 190,482 421,825 561,951 669,009 680,196 475,748 50,951 62,900
Selling,
general and
administrative... 78,991 243,525 793,336 1,445,224 3,067,740 3,516,740 1,177,104 2,154,680 2,639,977
Depreciation
and
amortization.. 6,448 23,193 78,804 177,375 346,568 1,867,818 140,384 247,796 1,024,799
---------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Total
operating
expenses.. 161,207 579,822 2,034,151 3,956,518 6,656,049 8,833,415 2,859,841 4,518,614 5,923,910
---------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Operating
loss.......... (84,031 ) (131,018) (91,544) (285,904) (1,128,070) (2,584,431) (204,659) (969,599) (1,708,884)
Other expenses,
net........... 680 (4,610) (23,680) (36,162) (146,220) (39,975) (47,436) (110,842) (19,484)
---------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss........ $ (83,351 ) $ (135,628) $ (115,224) $ (322,066) $(1,274,290) $(2,624,406) $ (252,095) $(1,080,441) $(1,728,368)
---------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Basic and
diluted net
loss per
common
share......... $ (.02 ) $ (.01) $ (0.01) $ (0.03) $ (0.14) $ (0.25) $ (0.02) $ (0.15) $ (0.18)
---------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Weighted average
number of
common shares
outstanding... 5,450,000 9,537,500 11,575,000 11,575,000 8,880,833 10,613,929 10,761,666 7,000,000 9,615,381
---------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1999
------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 ACTUAL PRO FORMA
-------- --------- --------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 2,401 $ 6,113 $ 28,591 $ 88,981 $ 256,782 $ 524,671 $ 4,920,117
Working capital deficit................. (95,682) (209,282) (552,418) (1,447,138) 4,356,637 (5,878,946) 1,846,580
Total assets............................ 64,413 288,205 822,953 1,683,345 3,226,841 4,322,194 13,532,068
Shareholders' (deficit) equity.......... (39,352) (94,900) (210,203) (532,269) (2,564,081) (3,575,397) 8,825,914
</TABLE>

22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR
FINANCIAL STATEMENTS AND THE RELATED NOTES TO THE FINANCIAL STATEMENTS APPEARING
ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING INCLUDES A NUMBER OF FORWARD-LOOKING
STATEMENTS THAT REFLECT OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE. WE USE WORDS SUCH AS ANTICIPATE, BELIEVES, EXPECTS,
FUTURE, AND INTENDS, AND SIMILAR EXPRESSIONS TO IDENTIFY FORWARD-LOOKING
STATEMENTS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH APPLY ONLY AS OF THE DATE OF THIS PROSPECTUS. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR OUR
PREDICTIONS. FOR A DESCRIPTION OF THESE RISKS, SEE THE SECTION ENTITLED RISK
FACTORS.

OVERVIEW

We began providing Internet access services to our customers in 1994. In
1998, we began to implement our current strategy of providing Internet access
and enhanced products and services to small and medium sized enterprises in
selected high growth markets. In order to fund this strategy, we decided to seek
financing through the issuance of additional equity and debt.

- In May 1998, we raised approximately $3.3 million in a private debt and
equity financing, of which approximately $1.5 million was used to retire
debt and repurchase outstanding shares of our common stock. We used the
remainder of the proceeds to advance our business plan.

- In May 1999, we raised $1.0 million from H&Q You Tools Investment Holding,
L.P. through the issuance of a convertible note. The principal and accrued
interest on this note were converted in August 1999 into 142,431 shares of
series A convertible preferred stock at $7.13 per share. In August 1999,
we sold 666,198 shares of series A convertible preferred stock at $7.13
per share for net proceeds of approximately $4.4 million to a group of
investors including Lucent Technologies, Inc. All of the outstanding
preferred stock will convert automatically into an equivalent number of
common shares immediately prior to the consummation of this offering.

On July 30, 1999 we acquired Internet Unlimited, Inc., a Web hosting and
collocation company located in Bethlehem, Pennsylvania. As a result of this
acquisition, we increased the number of customers using our Web hosting services
and supplemented our management and technical expertise.

OUR HISTORY OF OPERATING LOSSES

We have incurred operating losses in each year since our inception. Our
losses were 6% of revenues for the year ended December 31, 1996, 9% of revenues
for the year ended December 31, 1997, 23% for the year ended December 31, 1998
and 30% of revenues for the six months ended June 30, 1999. On a pro forma
basis, assuming the acquisition of Internet Unlimited was consummated on January
1, 1998, our losses would have increased from 23% of revenues on an actual basis
to 42% on a pro forma basis for the year ended December 31, 1998, and would have
increased from 30% on an actual basis to 41% on a pro forma basis for the six
months ended June 30, 1999. We anticipate that we will continue to operate at a
loss for the foreseeable future.

RESULTS OF OPERATIONS

We broadly classify our revenues by customer type, enterprise and
non-enterprise. Enterprise customers are business customers, governmental
entities, and non-profit organizations. Our non-enterprise customers are
residential customers and Microsoft's WebTV Networks' customers. We historically
have derived at least 60% of our revenues from our enterprise customers. Our
customers purchase Internet access, Web hosting services and other enhanced
products or services either individually or as part of a bundled solution.

Typically, our customers sign annual service contracts that set forth their
charges for recurring services, and may include one time set up fees. We offer
our customers monthly, quarterly, semi-annual

23
<PAGE>
and annual service periods and provide discounts to our customers for prepayment
and for purchase of bundled services. In most cases, our customers are invoiced
30 days prior to the start of their service period. In only a limited number of
instances are our customers invoiced after services have been provided. Revenues
are recognized as services are rendered. Amounts billed relating to future
periods are recorded as deferred revenue and recognized as services are
rendered.

Dedicated Internet access, virtual private networking and dial-up Internet
access together represent more than 60% of our revenues in each period
presented. Our dedicated Internet access revenue has grown in each period and
represented approximately $1.4 million in 1996, $1.7 million in 1997 and $2.9
million in 1998. In addition, for the six months ended June 30, 1999, dedicated
Internet access revenue represented $1.6 million. Revenues from our virtual
private networking service, which we began offering in 1997, were $632,000 for
the year ended December 31, 1998 and $840,000 for the six months ended June 30,
1999. This increase in virtual private networking revenues is primarily
attributable to the increase in Microsoft's WebTV Networks' customers utilizing
this service. Dial-up access revenues increased from approximately $174,000 in
1996 to approximately $719,000 in 1998 and approximately $600,000 in the six
months ended June 30, 1999. This growth is primarily attributable to expansion
of our customer base and increased sales and marketing efforts.

Our primary focus is on generating recurring revenues from small and medium
sized business customers. Currently, revenues from enterprise customers
represent more than 85% of total revenues. During the years ended December 31,
1997 and 1998, revenues from the sale of our enhanced products and services
represented between 10% and 16.0% of our total revenues. On a pro forma basis
assuming our acquisition of Internet Unlimited occurred on January 1, 1998,
enhanced products and services revenues would have been 21% of revenues in the
year ended December 31, 1998 and 26% of revenues in the six months ended June
30, 1999. We anticipate that enhanced products and services revenues will
increase as a percentage of our total revenues in the future.

As our revenues have grown, we have increased the number of our employees,
expanded our facilities and infrastructure, and increased our sales and
marketing efforts. We had 19 employees at December 31, 1996, 33 employees at
December 31, 1997, 41 employees at December 31, 1998 and 52 employees at June
30, 1999. As of December 31, 1996 we operated our network operations center and
one customer network facility. As of June 30, 1999, we had expanded the
capabilities of the network operations center and had three customer network
facilities in operation with four additional customer network facilities in
construction. Our advertising expenditures increased from $104,000 in 1996 and
$243,000 in 1997 to $625,000 in 1998. Advertising expenditures were $210,000 in
the six months ended June 30, 1999. We expect to continue to increase the number
of our employees, to expand our facilities and infrastructure, and to increase
our sales and marketing efforts. As a consequence, we expect operating expenses
to continue to increase for the foreseeable future.

Cost of services revenues consists primarily of Internet access and
telecommunications charges. These charges are the costs of directly connecting
to Internet backbone providers. Cost of services revenues also includes the
payroll and related expenses for engineering, and rental expense on leased
network and customer network facility equipment. Costs of hardware and software
includes the costs of third party hardware and software sold to our customers.

Selling, general and administrative expense consists primarily of payroll
and related expenses for personnel engaged in marketing, selling, customer
service, accounting, management, and administrative functions. Selling, general
and administrative expense includes office space rent, advertising, promotion,
insurance, professional fees, as well as other general corporate expenses.

24
<PAGE>
The following table sets forth statement of operations data as a percentage
of revenues for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE
DECEMBER 31, 30,
--------------------- -------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Services........................................................................ 79.5% 77.5% 88.2% 81.2% 97.8%
Hardware and software........................................................... 20.5 22.5 11.8 18.8 2.2
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Operating Expenses:
Cost of services................................................................ 38.1 48.3 46.5 40.2 58.2
Cost of hardware and software................................................... 21.7 15.3 12.1 17.9 1.4
Selling, general and administrative............................................. 40.8 39.4 55.5 44.3 60.7
Depreciation and amortization................................................... 4.1 4.8 6.3 5.3 7.0
----- ----- ----- ----- -----
104.7 107.8 120.4 107.7 127.3
----- ----- ----- ----- -----
Operating loss.................................................................. (4.7) (7.8) (20.4) (7.7) (27.3)
Other expense, net.............................................................. (1.2) (1.0) (2.7) (1.8) (3.1)
----- ----- ----- ----- -----
Net loss........................................................................ (5.9)% (8.8)% (23.1)% (9.5)% (30.4)%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998

REVENUES. Total revenues increased by $894,000, or 34%, to $3.5 million for
the six months ended June 30, 1999, compared to $2.7 million for the six months
ended June 30, 1998. On a pro forma basis, assuming our acquisition of Internet
Unlimited occurred prior to January 1, 1999, total revenues would have been $4.2
million for the six months ended June 30, 1999.

Services revenues increased by $1.3 million, or 61%, to $3.5 million for the
six months ended June 30, 1999, compared to $2.2 million for the six months
ended June 30, 1998. This increase in services revenues is primarily
attributable to an increase in the number of customers using our dedicated
Internet access services and a 409% increase in virtual private network revenues
from $165,000 for the period ended June 30, 1998 to $840,000 for the period
ended June 30, 1999. This increase in virtual private networking revenues is
primarily attributable to the increase in revenues from one customer,
Microsoft's WebTV Networks. Our enhanced products and service revenues increased
by 22% for the period ended June 30, 1999 over the same period in 1998. Our
dial-up customer base continued to grow over the comparable period, resulting in
an increase in dial-up revenues of 67% for the period ended June 30, 1999 over
the same six-month period in 1998.

Hardware and software revenues which represents our resale of third party
hardware and software to our customers decreased by $420,000 or 84% to $79,000
for the six months ended June 30, 1999, compared to $499,000 for the six months
ended June 30, 1998. In the six months ended June 30, 1998, we sold a
significant amount of third party hardware and software as part of an
installation for one of our major customers.

During these periods, we derived a significant portion of our revenues from
Microsoft's WebTV Networks, Lucent Technologies, Inc. and the State of Delaware.
Microsoft's WebTV Networks represented 20% and Lucent Technologies represented
10% of total revenues for the six months ended June 30, 1999. The State of
Delaware represented 11% of total revenues for the six months ended June 30,
1998.

COST OF REVENUES. Cost of revenues increased by $574,000, or 37%, to $2.1
million for the six months ended June 30, 1999, compared to $1.5 million for the
six months ended June 30, 1998. As a percentage of revenues, cost of revenues
increased to 60% for the six months ended June 30, 1999

25
<PAGE>

from 58% for the six months ended June 30, 1998. On a pro forma basis, assuming
our acquisition of Internet Unlimited occurred prior to January 1, 1999, cost of
revenues would have been $2.3 million for the six months ended June 30, 1999.

Cost of services increased by $1.0 million, or 94%, to $2.1 million for the
six months ended June 30, 1999, compared to $1.1 million for the six months
ended June 30, 1998. As a percentage of services revenues, cost of services were
50% in the six months ended June 30, 1998 compared to 60% in the six months
ended June 30, 1999. These increases were primarily attributable to the increase
in Internet access and telecommunications charges, increased rental expense on
leased equipment, and an increase in payroll and related expenses for engineers
associated with our increased revenues.

Cost of hardware and software decreased by $425,000 or 89% to $51,000 for
the six months ended June 30, 1999, compared to $476,000 for the six months
ended June 30, 1998 as a result of the decrease in hardware and software
revenues.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $978,000, or 83%, to $2.2 million for the six months ended
June 30, 1999 compared to $1.2 million for the six months ended June 30, 1998.
As a percentage of revenues, selling, general and administrative expenses
increased to 61% for the six months ended June 30, 1999 from 44% for the six
months ended June 30, 1998. This increase is primarily attributable to the
increase in selling, general and administrative personnel from 34 at June 30,
1998 to 43 at June 30, 1999, and a 42% increase in advertising expense from
$147,000 in the six months ended June 30, 1998 to $210,000 in the six months
ended June 30, 1999. As a result of the increase in personnel, all related
general and administrative expenses increased. On a pro forma basis, assuming
our acquisition of Internet Unlimited occurred prior to January 1, 1998,
selling, general and administrative expenses would have been $2.6 million for
the six months ended June 30, 1999.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
$108,000 or 77%, to $248,000 for the six months ended June 30, 1999, compared to
$140,000 for the six months ended June 30, 1998. This increase was primarily
attributable to the purchase of equipment necessary to support the expansion of
our network. On a pro forma basis, assuming our acquisition of Internet
Unlimited occurred prior to January 1, 1999, depreciation and amortization,
including the amortization of intangible assets associated with the Internet
Unlimited acquisition, would have been $1.0 million for the six months ended
June 30, 1999.

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

REVENUES. Total revenues increased by $1.8 million, or 51%, to $5.5 million
for the year ended December 31, 1998, from $3.7 million for the year ended
December 31, 1997. On a pro forma basis, assuming our acquisition of Internet
Unlimited occurred prior to January 1, 1998, total revenues would have been $6.2
million for the year ended December 31, 1998.

Services revenues increased by $2.1 million, or 71%, to $4.9 million for the
year ended December 31, 1998, from $2.8 million for the year ended December 31,
1997. This increase in services revenues resulted from an overall increase in
the number of customers using our dedicated Internet access services and from an
almost 2,000% increase in virtual private networking revenues for the year ended
December 31, 1998, compared, to the year ended December 31, 1997. Our dedicated
Internet access revenues increased by $1.2 million, or 73%, in 1998 compared to
1997. Our dial-up customer base continued to increase in 1998 compared to 1997,
resulting in dial-up revenues increasing $145,000, or 25%, in 1998 compared to
1997.

Hardware and software revenues decreased by $171,000, or 21%, to $653,000
for the year ended December 31, 1998, from $824,000 for the year ended December
31, 1997, primarily because we sold a significant amount of third party hardware
and software as part of an installation for one of our major customers in 1997.

26
<PAGE>

During the year ended December 31, 1998, no customer represented in excess
of 10% of total revenues. During the year ended December 31, 1997, Lucent
Technologies represented 23% and Vanguard Cellular Systems, Inc. represented 13%
of total revenues.

COST OF REVENUES. Cost of revenues increased by $908,000, or 39%, to $3.2
million for the year ended December 31, 1998 from $2.3 million for the year
ended December 31, 1997. On a pro forma basis, assuming our acquisition of
Internet Unlimited occurred on January 1, 1998, cost of revenues would have been
$3.4 million for the year ended December 31, 1998.

Cost of services increased by $801,000, or 45%, to $2.6 million for the year
ended December 31, 1998, from $1.8 million for the year ended December 31, 1997.
This increase was primarily attributable to the increase in Internet access and
telecommunications charges and increased rental expense on leased equipment. As
a percentage of services revenues, cost of services were 53% in the year ended
December 31, 1998 compared to 62% in the year ended December 31, 1997. This
decrease is primarily attributable to a higher utilization rate of our network
and the addition of new customers without proportional incremental
infrastructure and telecommunications costs.

Cost of hardware and software increased by $107,000 or 19% to $669,000 for
the year ended December 31, 1998, from $562,000 for the year ended December 31,
1997. This increase is primarily attributable to a large sale of hardware to one
customer.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $1.7 million, or 112%, to $3.1 million for the year ended
December 31, 1998 from $1.4 million for the year ended December 31, 1997. As a
percentage of revenues, these expenses were 56% for the year ended December 31,
1998, compared to 39% for the year ended December 31, 1997. This increase in
selling, general and administrative expense in dollars and as a percentage of
revenues is primarily attributable to the increase in selling, general and
administrative personnel from 28 at December 31, 1997 to 35 at December 31,
1998, and a 157% increase in advertising expense from $243,000 in the year ended
December 31, 1997 to $625,000 in the year ended December 31, 1998. On a pro
forma basis, assuming our acquisition of Internet Unlimited occurred on January
1, 1998, selling, general and administrative expenses would have been $3.5
million for the year ended December 31, 1998.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
$170,000, or 95%, to $347,000 for the year ended December 31, 1998 from $177,000
for the year ended December 31, 1997. This increase was primarily attributable
to the purchase of equipment necessary to support the expansion of our network.
On a pro forma basis, assuming our acquisition of Internet Unlimited occurred on
January 1, 1998, depreciation and amortization, including the amortization of
intangible assets associated with the Internet Unlimited acquisition, would have
been $1.9 million for the year ended December 31, 1998.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996

REVENUES. Total revenues increased by $1.8 million, or 89%, to $3.7 million
for the year ended December 31, 1997, from $1.9 million for the year ended
December 31, 1996.

Services revenues increased by $1.3 million, or 84%, to $2.8 million for the
year ended December 31, 1997, from $1.5 million for the year ended December 31,
1996. Our 1997 dedicated Internet access revenues grew by $327,000, or 24%,
compared to 1996. As a result of growth in our dial-up customer base in 1997,
our dial-up revenue increased $400,000, or 230%, over 1996.

Hardware and software revenues increased by $426,000, or 107%, to $824,000
for the year ended December 31, 1997, from $398,000 for the year ended December
31, 1996.

During the year ended December 31, 1997, Lucent Technologies, Inc.
represented 23% of total revenues compared to 18% of total revenues for the year
ended December 31, 1996. During the year ended December 31, 1997, Vanguard
Cellular Systems represented 13% of our total revenues.

27
<PAGE>

COST OF REVENUES. Cost of revenues increased by $1.1 million, or 101%, to
$2.3 million for the year ended December 31, 1997, from $1.2 million for the
year ended December 31, 1996.

Cost of services increased by $1.1 million, or 139%, to $1.8 million for the
year ended December 31, 1997, from $740,000 for the year ended December 31,
1996. In 1997, we began leasing equipment through operating leases. Equipment
lease expense was $172,000 in 1997. As a percentage of services revenues, cost
of services were 62.3% for the year ended December 31, 1997, compared to 47.9%
for the year ended December 31, 1996. This increase was primarily attributable
to the increase in Internet access and telecommunications charges, and rental
expense on leased equipment.

Cost of hardware and software increased by $140,000 or 33% to $562,000 for
the year ended December 31, 1997, from $422,000 for the year ended December 31,
1996.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $652,000, or 82%, to $1.4 million for the year ended
December 31, 1997, from $793,000 for the year ended December 31, 1996. This
increase was primarily due to the growth in selling, general, and administrative
personnel from 15 at December 31, 1996 to 28 at December 31, 1997. Advertising
expense increased by $139,000, or 134%, for the year ended December 31, 1997,
compared to the year ended December 31, 1996.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
$98,000, or 125%, to $177,000 for the year ended December 31, 1997 from $79,000
for the year ended December 31, 1996. This increase was primarily attributable
to the purchase of equipment necessary to support the expansion of our network.

LIQUIDITY AND CAPITAL RESOURCES

Our business plan has required, and is expected to continue to require,
substantial capital to fund operations, capital expenditures, expansion of sales
and marketing capabilities and acquisitions. The following is a table setting
forth our cash flow activities:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
operating activities............... $ 175,518 $ 483,415 $(613,979) $(762,326) $ 11,989
Cash flows used in investing
activities......................... (331,153) (690,352) (899,996) (198,915) (738,321)
Cash flows provided by financing
activities......................... 178,113 267,327 1,681,776 1,659,118 994,221
--------- --------- --------- --------- ---------
Net increase in cash and cash
equivalents........................ $ 22,478 $ 60,390 $ 167,801 $ 697,877 $ 267,889
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

To date, we have satisfied our cash requirements primarily through debt and
equity financings. In May 1998, we issued 1,000,000 shares of our common stock,
a convertible promissory note in the amount of approximately $3.1 million to H&Q
You Tools Investment Holding, L.P. and a warrant to purchase 1,000,000 shares of
our common stock at an exercise price of $1.50 per share to H&Q You Tools
Investment Holding, L.P. for an aggregate of approximately $3.3 million in cash.
In connection with this financing, we granted H&Q You Tools Investment Holding,
L.P. a security interest in substantially all of our assets. H&Q You Tools
Investment Holding, L.P. has committed to convert this note into 2,033,334
shares of our common stock and release its security interest immediately prior
to the consummation of this offering. We used a portion of the proceeds from
this financing to repurchase outstanding shares of our common stock representing
50% of our then outstanding shares of common stock for $1.0 million.

In May 1999, we issued a $1.0 million convertible note to H&Q You Tools
Investment Holding, L.P. for $1.0 million in cash. The principal amount of this
note and accrued interest was converted into

28
<PAGE>
142,431 shares of series A convertible preferred stock at $7.13 per share in
August 1999. In July 1999, we used a portion of the proceeds from this financing
to acquire Internet Unlimited, Inc. a provider of Web hosting and collocation
services, for $400,000 in cash and 546,984 shares of common stock.

In August 1999, we sold 666,198 shares of series A convertible preferred
stock to purchasers including Lucent Technologies, Inc. at $7.13 per share. The
net proceeds from these sales of series A convertible preferred stock were
approximately $4.4 million. All of the outstanding preferred stock will
automatically convert into common stock immediately prior to the consummation of
this offering.

In August 1999, we entered into a master lease agreement with Ascend Credit
Corporation for a $20 million equipment lease facility. Under this arrangement,
we lease equipment necessary for the construction of our customer network
facilities. Currently, we have approximately $18.0 million available under this
facility. In order to complete the four customer network facilities currently
being constructed and the related expansion of our network operations center, we
anticipate that we will require an aggregate of approximately $1.1 million, of
which approximately $500,000 will be funded through our Ascend equipment lease
facility.

As of June 30, 1999, our cash and cash equivalents were $524,671. We do not
invest our cash in securities that are subject to market risks. We believe that
the net proceeds from this offering, together with our existing cash and cash
equivalents, and available financing under the $20 million equipment lease
facility, will be sufficient to meet our working capital and capital expenditure
requirements for at least the next 12 months. Thereafter, we may be required to
seek additional sources of financing. We may also be required to raise
additional financing before such time. If additional funds are raised through
the issuance of equity securities, our existing shareholders may experience
significant dilution. Furthermore, additional financing may not be available
when needed or, if available, such financing may not be on terms favorable to us
or our shareholders. If such sources of financing are insufficient or
unavailable, or if we experience shortfalls in anticipated revenue or increases
in anticipated expenses, we may need to slow down or stop the expansion of our
regional deployment, including our customer network facilities and reduce our
marketing and development efforts. Any of these events could harm our business,
financial condition or results of operations.

IMPACT OF THE YEAR 2000 ISSUE

Many computer programs have been written using two digits rather than four
to define the applicable year. This poses a problem at the end of the century
because these computer programs may recognize a date using 00 as the year 1900
rather than the year 2000. This, in turn, could result in major system failures
or miscalculations, and is generally referred to as the year 2000 issue. We have
formulated and, to a large extent, implemented a plan to address our year 2000
issues.

During 1998, we established a year 2000 compliance program to coordinate our
efforts to resolve our year 2000 issues. We are addressing our year 2000 issues
through a comprehensive assessment of both our internal systems and the systems
of our external partners and suppliers.

INTERNAL SYSTEMS ASSESSMENT AND REVIEW

Our internal systems assessment and review consists of four-phases, which we
expect to complete by the end of the third quarter of 1999:

- ASSESSMENT--We have conducted an inventory of our existing systems,
performed risk assessment on these systems, prioritized the importance of
these systems, and determined appropriate allocation of resources. This
assessment is substantially complete.

- ANALYSIS AND PLANNING--We have selected corrective methods where needed,
developed appropriate test standards, determined conversion sequences
where needed, and established a detailed timeline for correcting any known
year 2000 problems. This analysis and planning is substantially complete.

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- CONVERSION AND TESTING--We are developing and modifying operating codes,
purchasing or installing vendor-provided solutions and conducting unit and
system tests. Our conversion and testing phase is substantially complete.

- IMPLEMENTATION--We have begun modifying previously non-compliant systems,
installing third party solutions, updating operational procedures, and
training our employees as needed. This implementation phase is
substantially complete.

We also face risks from customer-provided hardware and software that we host
in our data centers that in many cases has been customized by outside service
providers or customer personnel. While we inform our customers that they are
responsible for year 2000 compliance of their hosted hardware and software, we
cannot assure you that our customers will take the steps necessary to achieve
year 2000 compliance. The failure of our customers and third-party providers to
ensure that their hosted hardware and software is year 2000 compliant could
disrupt our operations and materially adversely affect our financial condition
and operating results.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments primarily consist of debt. All of our debt
instruments bear interest at fixed rates. Therefore, a change in interest rates
would not affect the interest incurred or cash flows related to our debt. A
change in interest rates would, however, affect the fair value of the debt. The
following sensitivity analysis assumes an instantaneous 100 basis point move in
interest rates from levels at December 31, 1998 with all other factors held
constant. A 100 basis point increase or decrease in market interest rates would
result in a change in the value of our debt of less than $50,000 at December 31,
1998. Because our debt is neither publicly traded nor redeemable at our option,
it is unlikely that such a change would impact our financial statements or
results of operations.

All of our transactions are conducted using the United States dollar.
Therefore, we are not exposed to any significant market risk relating to
currency rates.

EXTERNAL SYSTEMS ASSESSMENT AND REVIEW

We have also conducted a four-phase review of the systems of our partners,
suppliers, and other third parties including equipment providers and other
telecommunications service providers to assess their year 2000 compliance
efforts. The first phase, which is completed, included identifying our critical
partners, suppliers, and vendors. This phase involved requesting information
from these critical partners, analyzing their responses, studying their
published year 2000 statements, performing our own risk assessments,
prioritizing the importance of potential non-compliant systems and determining
appropriate allocation of resources.

Our second phase includes developing personal contacts with critical
partners' year 2000 staff, articulating our concerns and requesting assistance
from them with respect to their products. This phase is substantially complete.
Our third phase includes receiving information from responses to our requests
for assistance, researching Web sites, making phone contacts and summarizing the
results of the information that we receive. Finally, our fourth phase includes
actively evaluating different systems, testing critical partners' year 2000
updates, reviewing such information with our management team and identifying any
additional resources that may be needed. We believe that phases three and four
of our review will be substantially complete prior to the end of the third
quarter of 1999.

We have reviewed and analyzed the year 2000 compliance of Internet Unlimited
which we acquired on July 30, 1999. Our review included discussions with the
founders of Internet Unlimited and its technical staff. As a result of these
discussions, we concluded that there were no significant issues with either the
infrastructure hardware or software used by Internet Unlimited to service their
customers. We also concluded that other less significant issues could be
addressed by the planned integration of our respective network operations
centers into one facility under our direct control. This integration is under
way with expected completion of the integration prior to January 1, 2000. In
addition, since

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Internet Unlimited prior to the acquisition accessed the Internet via FASTNET's
network operations center, they benefited indirectly from our year 2000
preplanning and compliance efforts.

During the year ended December 31, 1998, we spent over $750,000 in
connection with the upgrade and continuing build-out of our technical operations
and network. We believe that all of this newly acquired equipment is year 2000
compliant. We have incurred costs and expect to incur additional costs in 1999
in connection with our year 2000 program, which we believe will not be material.
In addition, we have implemented a new billing and customer care system, as part
of our business strategy, which we believe to be year 2000 compliant.

We currently believe that our most likely worst case scenario related to the
year 2000 issue is associated with our partners' and suppliers' products and
software. We have taken steps to ensure that all network operations center
hardware and software from vendors are year 2000 compliant. We rely on the
representations and warranties of our infrastructure hardware and software
suppliers that the items we are purchasing are year 2000 compliant. Our efforts
in preparing for year 2000 problems have focused primarily on remedying local
customer problems rather than global access problems in transmitting data via
the Internet. If one or more of our partners or suppliers experience previously
unrecognized year 2000 problems, this could result in decreased Internet usage
and interfere with our ability to receive or transmit our customers' data.
Either or both of these results would adversely affect our business. We plan to
notify our customers with hardware and software that we believe may not be year
2000 compliant of our potential concerns in sufficient time for them to review
their systems and correct any problems before January 1, 2000. Our business
could be harmed by either the short term loss of revenue during periods in which
customers are in the process of correcting hardware and software problems or if
there are limited supplies of year 2000 compliant equipment and software needed
to replace non-year 2000 compliant items.

We believe that our plan to address year 2000 issues will be fully executed
prior to January 1, 2000; however, any failure of this plan could have a
material adverse effect on our operating results. Despite the testing performed
by us and our vendors, our products, services and systems may contain undetected
errors or defects associated with year 2000 date functions. In the event any
material errors or defects are not detected and fixed, or third parties cannot
timely provide us with products, services or systems that meet the year 2000
requirements, our operating results could be materially adversely affected. We
cannot guarantee that we will be able to timely and successfully modify our
products, services and systems to comply with year 2000 requirements if we have
failed to accurately assess, test and correct year 2000 issues. Known or unknown
errors or defects that affect the operation of our products, services or systems
could result in a delay in the receipt of payment, interruption of network
services, cancellation of customer contracts, diversion of development
resources, damage to our reputation and litigation costs. We cannot guarantee
that these or other factors relating to year 2000 compliance issues will not
have a material adverse effect on our business.

We have prepared a contingency plan in the event that any of our products,
services or systems remain non-compliant as of December 31, 1999. As part of
this contingency plan, we may replace any non-compliant partners, suppliers or
other third party providers with those with demonstrated year 2000 compliance.
We will have customer support and engineering personnel on-site or on-call on an
around the clock basis beginning 12:01 a.m. on January 1, 2000 and will plan our
staffing to take into account the January 1, 2000 holiday and weekend. We will
also stock additional customer equipment during this period to expedite any
necessary replacement of hardware or software that is not year 2000 compliant.

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OUR BUSINESS

GENERAL

We are a growing Internet service provider, or ISP, targeting small and
medium sized enterprises in selected high growth markets in the mid-Atlantic
area of the United States. We have been providing Internet access services to
our customers since 1994. We supplement our dedicated Internet access services
with a comprehensive suite of enhanced products and services that are designed
to meet the expanding needs of our customers and increase our revenue per
customer. The services we provide include:

- Internet access services;

- Total Managed Security;

- Web hosting services;

- virtual private networks;

- unified messaging; and

- total managed backup and recovery services.

Our customer network facility infrastructure and local sales support are
regionally located in order to provide cost savings to our customers and a high
quality of customer service. We intend to duplicate this network architecture in
targeted high growth secondary markets across the mid-Atlantic and northeastern
United States and, eventually, across the entire country.

On July 30, 1999, we acquired Internet Unlimited, Inc., a Web hosting and
collocation company. As of June 30, 1999, pro forma for the acquisition of
Internet Unlimited, we provided Internet access and enhanced products and
services to approximately 170 small and medium sized enterprises and
approximately 12,760 dial-up customers in the mid-Atlantic area. We also provide
Web hosting services to approximately 2,780 customers.

OUR MARKET OPPORTUNITY

OVERVIEW. The Internet has become an important global medium enabling
millions of people to obtain and share information and conduct business
electronically. Its expanded use has made the Internet a critical tool for
information and communications for many users. Internet access and enhanced
Internet services, including Web hosting and electronic commerce services,
represent two of the fastest growing segments of the telecommunications services
market. International Data Corporation estimates that at the end of 1998 there
were over 63 million Web users in the United States and over 134 million
worldwide, and projects that by the end of 2003 the number of Web users will
increase to over 177 million in the United States and over 472 million
worldwide. The availability of Internet access, advancements in technologies
required to navigate the Internet, and the proliferation of content and
applications available over the Internet have attracted a rapidly growing number
of Internet users.

GROWTH IN BUSINESS USE OF THE INTERNET. The dramatic growth in Internet
usage in recent years, combined with enhanced functionality, accessibility and
security, has made the Internet increasingly attractive to businesses as a
medium for communication and commerce. For many businesses, the Internet has
created a new communication and sales channel which enables large numbers of
geographically dispersed organizations and consumers to be reached quickly and
cost-effectively. International Data Corporation estimates that the number of
consumers buying goods and services on the Internet will grow from 21.1 million
in 1998 to 72.1 million in 2003, and that the total value of goods and services
purchased over the Internet will increase from approximately $37 billion in 1998
to approximately $707 billion by 2002.

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Businesses are increasingly adding a variety of enhanced services and
applications to their basic Internet access, Web sites and e-commerce
applications in order to more fully capitalize on the power of the Internet.
These services and applications allow them to more efficiently and securely
communicate company information, expand and enhance their distribution channels,
increase productivity through back-office automation, ensure reliability and
reduce costs.

- DEMAND FOR INTERNET ACCESS SERVICES. The Internet continues to increase
in size and importance as its role in integral business operations
expands. Internet access services represent the means by which ISPs
interconnect their customers to the Internet or corporate intranets and
extranets. According to International Data Corporation, Internet access
revenues from businesses are expected to more than double in the next four
years from $5.1 billion in 1999 to $12 billion in 2003. Because small and
medium sized enterprises often lack the technical capabilities and
operational scale to implement their Internet operations, these
enterprises often seek assistance from third-party service providers.

- DEMAND FOR WEB HOSTING SERVICES. As Internet Web sites become
increasingly critical to businesses, many businesses are seeking to
outsource to ISPs services such as Web hosting, collocation and file
transfer protocol data storage and retrieval.

- DEMAND FOR SECURE PRIVATE NETWORKS. As businesses increasingly rely on
the Internet for communication and commerce, concerns relating to the
security of their internal and proprietary information, data loss and
reduced transmission speed has led those businesses to demand Internet
services that include the ability to provide electronic security
monitoring and threat responses.

THE SMALL AND MEDIUM SIZED ENTERPRISE MARKET. We have specifically targeted
small and medium sized enterprises because:

- We believe that these enterprises increasingly need high-speed data and
Internet connections to access business information and to communicate
more effectively with employees, customers, vendors and business partners.

- We believe that a relatively small percentage of these enterprises
currently utilize the Internet. This number is increasing rapidly. The
small and medium sized enterprise segment is expected to be one of the
fastest growing segments of the Internet industry.

- Many of these enterprises lack the resources and expertise to develop,
maintain and expand, on a cost-effective basis, the facilities and network
systems necessary for successful Internet operations.

- We believe that these enterprises rely more heavily on their Internet
service provider than larger enterprises and tend to change Internet
service providers relatively infrequently.

INTERNET SERVICES IN SECONDARY MARKETS. Small and medium sized enterprises
are often concentrated in secondary markets to avoid the higher costs associated
with locating in a metropolitan area. We define a secondary market as typically
smaller than the 100 most populated U.S. metropolitan markets. However, national
ISPs have historically placed their largest points of presence, only in or
around densely populated major cities. Customers that are located within a few
miles from these points of presence often receive cost savings on their access
pricing. However, customers located in secondary markets that are 20 to 75 miles
away from these points of presence have typically been charged higher prices for
Internet access services.

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We believe that small and medium sized enterprises located in high growth
secondary markets are currently underserved by both national and local providers
of Internet access and related services. National ISPs typically lack the local
presence to provide local support. Local ISPs, on the other hand, often lack the
requisite scale and resources to provide a full range of services at acceptable
quality and pricing levels.

OUR SOLUTION

We believe that we offer our customers a comprehensive solution to their
Internet access and enhanced products and services needs. Key aspects of our
solution include:

TECHNOLOGY PLATFORM. Our network architecture is designed around our
customer network facilities that we construct in each region in which we
operate. A customer network facility is a high capacity data center that
provides our customers with redundant connections to the Internet through
connections to not less than two independent Internet backbone networks. This
assures our customers of fewer delays in accessing the Internet and continued
service should one of the backbone networks fail. In addition, our customer
network facilities feature redundant power and climate control systems, and are
continuously monitored through a connection to our network operations center.
This connection allows us to monitor and control regional customer network
facility operations 24 hours-a-day, 7 days a week, which allows our staff to be
immediately alerted and responsive to problems as they arise. This control of
our network infrastructure also allows us to improve quality of service by
minimizing network downtime. The network operations center also provides an
additional level of redundancy of Internet connectivity. In the event that both
independent Internet backbone networks to which a customer network facility is
connected fail, customer traffic can be routed to the Internet through the
network operations center to minimize service interruptions. Likewise, a
customer network facility will continue to function even if its connection to
the network operations center fails.

[Diagram appears here illustrating connections between the customers,
customer network facilities, the network operations center and the backbone
providers]

COMPREHENSIVE SUITE OF SERVICES. We seek to provide small and medium sized
enterprises with a single source for their Internet service needs. Our
comprehensive suite of services enables our customers to easily and more
cost-effectively address their Internet needs without developing solutions
internally or assembling services from multiple vendors, including resellers,
other Internet service providers and information technology service providers.
We offer our services in customized bundles through a single network connection
and provide our customers with technical support and management expertise.

HIGH QUALITY CUSTOMER SUPPORT AND SERVICE. We focus on providing our
customers with high quality support and service in order to maintain customer
loyalty and maximize retention. Our focus on regional marketing and regional
network access enables us to provide the personalized service and attention that
small and medium sized enterprises often require. In addition, we believe that
customer satisfaction is critical to our success in selling our enhanced
products and services. We provide around-the-clock customer support, real-time
monitoring of all circuits and services and high quality customer service.

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PLUG AND PLAY EASE OF INSTALLATION. In order to simplify what is sometimes
a technically challenging installation, we have designed and continue to enhance
our products and services to provide our customers with plug and play
installation. We ship pre-configured equipment to our customers that, in most
cases, is ready for installation. In the event that a customer requires
assistance, the customer can contact our engineering installation department,
where the customer is guided through the installation process at no additional
charge. In addition, many of our enhanced products and services require no
additional hardware and can be installed through the customer's existing
connection to our customer network facility.

COST SAVINGS TO OUR CUSTOMERS. We believe that our Internet solutions are
more cost-effective for our customers than developing their own in-house
Internet solutions. In order to match the level of performance and reliability
that we provide to our customers, they would need to make significant
expenditures for equipment, personnel and dedicated bandwidth. In addition, they
would need to develop Internet expertise and would be required to divert
resources from their primary business activities.

Furthermore, we believe that our Internet services are competitively priced
relative to other ISPs that compete in our current markets. We believe that we
can continue to provide high quality Internet services to small and medium sized
enterprises at a competitive price because we have developed a cost-effective
and highly efficient regional strategy that enables us to eliminate many of the
high cost network transport and interconnect elements typically associated with
a national network. A national network is commonly designed to include a point
of presence, or Internet access point, which enables a customer to connect to
one or more peering points. These peering points enable national networks to
connect with other networks to access the Internet for their customers. National
network customers connect to a point of presence then to a peering point through
large and typically expensive data circuits owned by the national network. Our
regional network design reduces the high costs associated with a national
network structure by eliminating the need for us to invest capital to purchase
large expensive data circuits. Instead, our network delivers the data from the
customer directly to the primary backbone provider which requires less expensive
circuits that connect our regionally located customer network facilities to our
main network operations center. In addition, because we position our customer
network facilities close to secondary markets, we often are able to utilize
shorter circuits than those used by national providers and do not need to rely
on national or international transport circuits, which are generally higher cost
than regional circuits. Furthermore, because our customer network facilities
support only our data products, we do not incur expenses related to telephony
equipment, long-distance switches and other voice services.

OUR STRATEGY

REPLICATING OUR MODEL RAPIDLY IN SELECTED SECONDARY MARKETS. We intend to
expand into selected high growth secondary markets by replicating our regional
network and marketing model. Our network architecture and scalable sales and
marketing plan are designed to allow us to penetrate additional regions rapidly
and cost-effectively. By focusing on smaller regions, we are able to build our
regional networks more quickly than if we were to build a contiguous national
network. Our customer network facilities are modular and use non-proprietary
standards-based equipment that can be obtained from multiple vendors. This
allows for a simpler design, easier duplication and cost savings. We also
implement a flexible marketing model in each region that addresses the
particular product and service needs of our target customers in that region. In
order to successfully replicate our model in our target regions, we must:

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- IDENTIFY ATTRACTIVE REGIONS. We target regions that are typically growing
rapidly and have a large concentration of small and medium sized
enterprises. Our focus has been on regions outside of major metropolitan
cities located in the mid-Atlantic area of United States. We intend to
expand throughout the mid-Atlantic United States and enter into target
regions in the northeastern United States and, eventually, throughout the
entire country.

- RAPIDLY BUILD ADDITIONAL CUSTOMER NETWORK FACILITIES. Our network
architecture is easily replicated in each target region. Each of our
customer network facilities requires virtually the same equipment,
physical space and redundancy regardless of the region. As a result, we
can pre-fabricate many of the elements required to deploy a customer
network facilities and also take advantage of volume pricing for our
equipment.

- CONTINUE OUR HIGHLY FOCUSED SALES AND MARKETING EFFORTS. We have
established a sales and marketing strategy based upon a centralized sales
staff with active local support. We will continue to market our products
and services in our target regions through a combination of highly focused
local advertising, brand awareness campaigns and a focused sales effort.
We tailor our marketing efforts to each region to utilize the most
cost-effective methods of advertising and to address local preferences. As
a result, we generally do not incur the significant expenses related to
broad-based national media and advertising campaigns.

EXPANDING CUSTOMER RELATIONSHIPS TO MARKET ENHANCED SERVICES. We offer a
portfolio of enhanced products and services to meet the expanding needs and
complexity of our customers' Internet operations. We market these products and
services to our existing customers to increase revenue per customer and maintain
high customer retention by strengthening our customers' relationships with us.

USING CENTRALIZED SALES AND MARKETING OPERATIONS TO EXPAND OUR REGIONAL
SALES AND MARKETING BY TAKING ADVANTAGE OF ECONOMIES OF SCALE. We use our
centralized sales and marketing staff to help implement our regional strategy
cost-effectively. We intend to hire and train additional local sales and
marketing personnel within our target regions to compliment the core of our
sales and marketing staff which will continue to be concentrated in one
centralized location to maximize efficiency. These regionally located employees
add local market knowledge, expertise and familiarity to our sales and marketing
efforts. This allows us to maintain a field presence in each of our regions,
while maximizing the utilization of our central operations, where the majority
of our employees are located.

ENTERING INTO STRATEGIC RELATIONSHIPS AND MAKING SELECTED ACQUISITIONS. We
seek to enter into multiple strategic relationships to obtain technology to
incorporate into our product and service offerings. We believe that this enables
us to meet our customers' needs efficiently and in a cost-effective manner. We
intend to enter into strategic relationships and to make acquisitions to expand
our suite of enhanced products and services. As part of this strategy, we have
recently acquired Internet Unlimited, Inc., a provider of Web hosting and
collocation services. We have relationships with numerous vendors, including
Lucent Technologies and WatchGuard Technologies, Inc. We intend to make
strategic acquisitions that enable us to offer additional enhanced products and
services to our customers. We may also enter into strategic relationships with
third-party service providers to enable them to deliver their Internet products
and services directly to our customers.

SALES AND MARKETING

As of July 31, 1999, we employed 20 sales and marketing professionals at our
corporate headquarters. This group comprises our centralized sales and marketing
team and is responsible for contacting potential and existing customers within
each region. Our sales team also works with our regional marketing managers to
offer enhanced products and services to existing customers and ensure overall
customer satisfaction. In order to maximize the efficiency of our sales process,
we have developed a uniform set of sales procedures, which our sales staff has
been trained to implement.

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We use targeted marketing and media advertising to develop brand awareness
and supplement these efforts with our highly customized sales process and
personalized customer service. Through our regional marketing managers, we seek
to develop strong customer relationships within local communities.

Our regional marketing managers will also provide assistance and support to
our centralized sales staff. This enables us to evaluate customers' needs more
effectively, to design customized solutions and to reinforce our local presence
as a value-added provider of enhanced Internet services. Our regional marketing
managers also identify market trends, provide constant data regarding changes in
the competitive landscape and also may identify and initiate contact with new
customers. In addition, our regional marketing managers attend trade shows and
Chamber of Commerce events, as examples, to further reach the targeted small and
medium sized enterprises in each region.

We also maintain a Web site at WWW.FAST.NET, which provides Internet users
information about us and the opportunity to obtain answers to some frequently
asked questions. Through our Web site, customers can also learn how to obtain
Internet access and enhanced products and services through a FASTNET connection.

PRODUCTS AND SERVICES

We offer a comprehensive Internet solution to our customers, which includes
dedicated and dial-up Internet access and enhanced Internet products and
services. Our dedicated Internet access offering is available at speeds that
range from 56 kilobits per second to 45 megabits per second. Dedicated Internet
access can be delivered through standard telephony circuits, such as T-1 through
T-3 digital circuits, digital subscriber line technology, also known as DSL, or
wireless connections. Our dedicated Internet access provides our customers with
always-on connectivity to the Internet as well as access to our enhanced
Internet products and services. In addition, we offer dial-up Internet access to
customers, which provides lower cost, lower bandwidth connectivity to the
Internet. To ensure maximum availability and reliability of our products and
services, our facilities feature backup power and redundant bandwidth.

We offer enhanced Internet products and services to our customers on a
monthly recurring fee basis including:

- TOTAL MANAGED SECURITY SERVICES--We address our customers' concerns about
the security of data transmitted over the Internet by offering various
levels of protection through our Total Managed Security services. These
services will provide security to a company's network, including local
area networks and wide area networks, from unauthorized access by external
sources. In addition, as part of our services, our network operations
center personnel provide 24 hours-a-day, seven days-a-week monitoring and
threat response. We incorporate third-party products into our security
solution and we continually evaluate third-party products to meet the
future needs of our customers. These products include Web content
filtering, mail filtering and detailed log file generation. We have
entered into a Managed Security Services Agreement with WatchGuard
Technologies, Inc. to provide these security services and products, which
expires on December 31, 2000 and, thereafter, is subject to one year
renewal terms.

- WEB HOSTING SERVICES--We provide a wide range of content hosting services,
including shared and dedicated hosting on our servers for customer Web
sites as well as collocation hosting of customer supplied servers in our
facilities. Entry level shared server Web hosting provides our customers
with a managed and pre-configured system at a reasonable cost. The
customer simply adds its content through an interface such as FTP (file
transfer protocol) or, in a growing number of cases, through Microsoft's
FrontPage extensions. Server collocation allows customers to place their
own servers within our facilities. Upon request, we can sell servers to
the customer and maintain them for an additional fee.

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- VIRTUAL PRIVATE NETWORK SERVICES--When an enterprise customer wants to
enable remote or off-site access to its computer network, the enterprise
commonly uses a form of a virtual private network connection. A virtual
private network provides a convenient and secure computer connection from
a remote location back to the company's main computer network. We provide
customers with our CC/vpn product, which enables them to control many
aspects of their configuration, such as user profile changes and security
functions, through a private Web-based interface.

- UNIFIED MESSAGING SERVICES--The Internet has been the catalyst for a
variety of convenient Web-based communications services, such as e-mail,
computer-based faxing and paging. In many cases, each of these services
requires the user to access individual applications to view messages.
Unified messaging combines messaging services and allows a user to view
all messages through one application. We provide our customers with a user
friendly unified messaging service that is based on Internet protocol
standards. We believe that we will be able to offer our unified messaging
services in the future with enhancements such as voicemail and other
multimedia tools.

- TOTAL MANAGED BACKUP AND RECOVERY SERVICES--We provide Internet-enabled
backup and recovery services for a company's data network through off-site
data and storage. We believe that many small and medium sized businesses
lack a scheduled computer data back-up routine, which may leave them
vulnerable to data loss. Our total managed backup and recovery product is
simple to use and can be easily installed on most servers and desktop
computers. By using this service, our customers can schedule automatic
data back-ups to our servers located within our network. Typically, the
customer accesses our server over the customer's connection to our
customer network facility. In most cases, this eliminates the need for the
customer's data to be transmitted over the Internet. For a further level
of security, we encrypt the customer's data before transmission to the
storage servers. We encrypt the customer's data before it is transmitted
to the storage servers where it remains in a secret encrypted form. These
total managed backup and recovery services effectively provide our
customers convenient and secure off-site storage of their data.

We have agreements with our customers for our services that are typically
for a one year term that after expiration will automatically convert to a
monthly term until the agreement is either terminated upon 30 days notice or
renewed for a new one year term. We bill our customers on a monthly basis and in
circumstances we offer discounts for prepayment. We offer each of our services
individually or as part of a bundled solution. Our customers receive additional
discounts from us if they purchase more than one of our services.

NETWORK ARCHITECTURE AND INFRASTRUCTURE

Our network architecture is designed to provide our customers with reliable,
high speed Internet access as well as our comprehensive suite of enhanced
products and services. Key components of our network are:

CUSTOMER NETWORK FACILITY. The core of each of our regional networks is the
customer network facility. Each customer network facility is designed to operate
as a stand-alone, self-contained Internet services facility capable of
supporting our full range of products and services to meet the needs of our
customers in each region. We provide our dedicated access customers with
constant Internet access through a data circuit that is connected continuously
to the Internet by way of a central network facility. Dedicated access customers
in each region connect to one of our customer network facilities using high
speed data circuits provided by an incumbent local exchange carrier or
competitive local exchange carrier. An incumbent local exchange carrier is
generally the original telephone company which services the customer's area. A
competitive local exchange carrier is generally a company that is trying to
compete with an incumbent local exchange carrier. Our dial-up customers connect
to our network using either 56K modem or digital ISDN circuits. We subscribe on
a monthly basis for services

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provided by a number of local exchange carriers, including AT&T Corporation,
through its subsidiary Teleport Communications Group and Bell Atlantic
Corporation. We also have agreements with local exchange carriers, including
Hyperion Communications of New Jersey, LLC and NEXTLINK Pennsylvania, Inc. Our
Service Agreement with Hyperion expires on May 12, 2000 and our Service Order
and Agreement with NEXTLINK is currently on a month-to-month basis.

Each customer network facility has access to at least two Internet backbone
providers. We have agreements with a number of national Internet backbone
providers, including MCI WorldCom Inc., UUNET Technologies, Inc. and Sprint
Communications Company, L.P. This provides redundancy and high reliability in
the event that any of our backbone providers should experience network
difficulties. Our agreements with our backbone providers are fixed price
agreements that typically have a term of one to three years. Some of these
agreements additionally include options to renew on a monthly or yearly basis.
We are billed by all of our backbone providers monthly and are generally charged
according to the number of services that we choose to subscribe to in addition
to initial installation fees. Since we maintain a carrier-independent design, we
have the flexibility to select the most reliable and lowest cost provider in
each region.

NETWORK OPERATIONS CENTER. Each customer network facility is connected to
our network operations center. The network operations center monitors the
operation of each device connected to our network and provides instantaneous
notification of any faults or failures. This monitoring process is designed to
ensure that we are in position to react quickly to restore operations in the
event of technical problems. In addition, the connection between the network
operations center and the customer network facilities provides an additional
level of redundancy for customer traffic if needed. Since each customer network
facility is connected to the Internet independently from the network operations
center, connections from a customer network facility to the network operations
center typically do not require the same expensive high capacity or high
bandwidth transport facilities that link customer network facilities to the
Internet. As a result, we reduce our costs of backbone transport.

EQUIPMENT. We purchase our equipment from a number of vendors to take
advantage of beneficial pricing and improvements in technology and performance.
We currently use routers from Cisco Systems, Inc., such as the 7500 series, that
are equipped with redundant components including route switching processors and
power supplies for added reliability. We sell both Cisco Systems, Inc. and
Nortel Networks Corporation (Bay Networks) routers to our customers for use as
customer premise equipment. Our Equipment Lease Agreement with Bay Networks
expires on May 29, 2000 and our Master Lease Agreement with Cisco Systems
expires on October 23, 2000. Both of these agreements are subject to one year
renewal periods. Our dial-up Internet access, as well as our virtual private
network services for 56K analog and 128K ISDN use Lucent Technologies (Ascend)
TNT remote access servers. We have entered into two Master Lease Agreements for
equipment leasing with Lucent Technologies (Ascend), one which expires in
September, 2001 and another that expires in September, 2000. We have the option
to purchase the equipment subject to these leases at the end of the lease term,
and in some cases, renew the term of the lease for an additional rental period.
Our networks also utilize and rely on switches, hubs and other connection
devices, which we purchase from a number of different manufacturers. Our
enhanced products and services are supported by Sun Microsystems, Inc.
UNIX-based and Microsoft Windows NT-based servers located at our customer
network facilities.

PEERING ARRANGEMENTS. Peering is the act of exchanging data across
networks, typically at specific, defined locations. Peering allows traffic from
one network to be delivered to an address located on another network. In
general, our contracts with our Internet backbone providers include peering
arrangements at the public peering points on the Internet. We may decide in the
future to supplement these public peering arrangements with private peering
agreements with other service providers if we determine that these would improve
our service and provide economic and/or technological benefits.

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<PAGE>
CUSTOMERS

Our customer base consists primarily of small and medium sized enterprises
and dial-up customers located in high growth secondary markets. As of June 30,
1999, pro forma for the acquisition of Internet Unlimited, we provided Internet
access and enhanced services to approximately 170 small and medium sized
enterprises and approximately 12,760 dial-up customers in the mid-Atlantic area.
We also provided Web hosting services to approximately 2,780 customers. While we
have not concentrated our sales and marketing efforts on Fortune 500 companies,
we provide our Internet solutions to a number of large enterprises. Lucent
Technologies, Inc. accounted for 10% of total revenues for the six months ended
June 30, 1999 and 9% of total revenues for the fiscal year ended December 31,
1998 and Microsoft's WebTV Networks, Inc. accounted for 20% of total revenues
for the six months ended June 30, 1999 and 9% of total revenues for the fiscal
year ended December 31, 1998. On a pro forma basis, assuming that the
acquisition of Internet Unlimited was consummated at the beginning of each
period, Lucent Technologies would have accounted for 8% of total revenues for
the six months ended June 30, 1999 and 8% of total revenues for the fiscal year
ended December 31, 1998 and Microsoft's WebTV Networks, Inc. would have
accounted for 16% of total revenues for the six months ended June 30, 1999 and
8% of total revenues for the fiscal year ended December 31, 1998. We expect that
a significant portion of our revenues will continue to be derived from a limited
number of customers which may vary from year to year.

CUSTOMER AND TECHNICAL SUPPORT

We believe superior customer and technical support is critical to our
ability to retain existing customers and attract new customers. Our customers
depend on the speed and reliability of our network and our ability to keep them
connected to the Internet at all times. The knowledge and service orientation of
our local customer and technical support personnel are key elements in our
ability to assist our customers in quickly resolving their problems.

To address individual customer problems, we provide customer technical
support 24 hours-a-day, seven days-a-week. Our customers also have the ability
to reach our customer support representatives by e-mail or schedule a telephone
appointment at a time that is convenient to the customer. In addition, our local
customer representatives are also available to respond to individual customer
needs and provide direct customer support within their designated area. Our
strategy of creating a partnership between local support teams and a central
call center enables us to capture economies of scale, improve quality and
responsiveness and increase productivity, while allowing local personnel to
focus on relationships with customers.

COMPETITION

The Internet services market is extremely competitive and highly fragmented.
We face competition from numerous types of ISPs, including national ISPs, and
anticipate that competition will only intensify in the future as the ISP
industry consolidates. We believe that the primary competitive factors in the
Internet services market include:

- pricing;

- quality and breadth of products and services;

- ease of use;

- personal customer support and service; and

- brand awareness.

We believe that we have competed favorably based on these factors, particularly
due to our:

- regionally focused operating strategy;

- superior customer support and service;

- high performance; and

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<PAGE>
- competitive pricing.

Our current competitors include many large companies that have substantially
greater market presence, brand-name recognition and financial resources than we
do. Some of our local or regional competitors may also enjoy greater recognition
within a particular community. We currently compete, or expect to compete, with
the following types of companies:

- national Internet service providers, such as PSINet, Inc. and Concentric
Network Corporation;

- providers of Web hosting, collocation and other Internet-based business
services, such as Verio, Inc.;

- numerous regional and local Internet service providers, some of which have
significant market share in their particular market area;

- established on-line service providers, such as America Online, Inc.;

- computer hardware and other technology companies that provide Internet
connectivity with their or other products, including the International
Business Machines Corporation and Microsoft Corporation;

- national long distance carriers such as AT&T Corporation, MCI WorldCom,
Inc., Qwest Communications International Inc. and Sprint Communications
Company, L.P.;

- regional Bell operating companies and local telephone companies;

- providers of free Internet service, including NetZero, Inc. and MicroWorkz
Computer Corporation

- cable operators or their affiliates, including At Home Corporation and
Time Warner Entertainment Company, L.P.;

- terrestrial wireless and satellite Internet service providers; and

- nonprofit or educational ISPs.

Many of the major cable companies and some other Internet access providers
have begun to offer or are exploring the possibility of offering Internet
connectivity through the use of cable modems. Cable companies, however, are
faced with large-scale upgrades of their existing plant, equipment and
infrastructure in order to support connections to the Internet backbone via
high-speed cable access devices. We believe that there is a trend toward
horizontal integration through acquisitions or joint ventures between cable
companies and telecommunications carriers. Other alternative service companies
have also announced plans to enter the Internet connectivity market with various
wireless terrestrial and satellite-based service technologies. In addition,
several competitive local exchange carriers and other Internet access providers
have launched national or regional digital subscriber line programs providing
high speed Internet access using the existing copper wire telephone
infrastructure. Several of these competitive local exchange carriers have
announced strategic alliances with local, regional and national service
providers to provide broadband Internet access. These developments could harm
our business.

Recently, several national access providers have begun to offer dial-up
Internet access for free or at substantial discounts to prevailing rates, which
may result in significant pricing pressure for dial-up Internet access services.
We also believe that manufacturers of computer hardware and software products,
media and telecommunications companies and others will continue to enter the
Internet services market, which will also intensify competition, especially for
dial-up access providers.

GOVERNMENT REGULATION

We provide Internet access, in part through transmissions over public
telephone lines. These transmissions are governed by regulations and policies
establishing charges, terms and conditions for communications. As an Internet
provider, we are not currently regulated directly by the Federal Communications
Commission or any other agency, other than regulations applicable to businesses

41
<PAGE>
generally. We could, however, become subject in the future to regulation by the
Federal Communications Commission and/or other regulatory agencies if we become
classified as a provider of basic telecommunications services. These regulations
could affect the charges that we pay to connect to the local telephone network
or for other purposes. For example, currently, Internet access providers, unlike
long distance telephone companies, are not required to pay carrier access
charges. Access charges are assessed by local telephone companies on
long-distance companies for the use of the local telephone network when the
local telephone company originates and terminates long-distance calls, generally
on a per-minute basis. The payment of access charges has been a matter of
continuing dispute, with long-distance companies complaining that the charges
are substantially in excess of actual costs and local telephone companies
arguing that access charges are justified to subsidize lower local rates for end
users and other purposes. In May 1997, the Federal Communications Commission
reaffirmed its decision that Internet access providers should not be required to
pay access charges. Subsequent statements issued by the Federal Communications
Commission have not altered this conclusion. A requirement by the Federal
Communications Commission that we pay access charges could have a significant
impact on our costs of providing service.

The Federal Communications Commission also has concluded that Internet
access providers should not be required to contribute to a new universal service
fund established to replace current local rate subsidies and to meet other
public policy objectives, such as providing access to enhanced communications
systems for schools, libraries and health care providers. As a result, unlike
other telecommunications providers, Internet access providers do not have to
contribute a percentage of their revenues to the federal universal service fund
and are not expected to be required to contribute to similar funds being
established at the state level. Both the access charge issue and the universal
service treatment of Internet access providers, however, are the subjects of
further Federal Communications Commission proceedings and could change.
Telephone companies are actively seeking reconsideration or reversal of the
relevant Federal Communications Commission decisions and their arguments are
gaining support as Internet-based telephony begins to compete with conventional
telecommunications services. We cannot predict how these matters will be
resolved but we could be adversely affected if, in the future, Internet service
providers are required to pay access charges or contribute to universal service
support.

In addition, to the extent that an end user's call to an Internet access
provider is considered local rather than long distance, the local telephone
company that serves the Internet service provider may be entitled to reciprocal
compensation from the calling party's local telephone company. Reciprocal
compensation is a reimbursement mechanism between telephone companies whereby
the carrier that terminates a call is eligible for payment from the carrier
serving the calling party. To the extent that a call to an Internet service
provider is considered local, the local telephone company serving an Internet
service provider would be entitled to reciprocal compensation. This payment of
reciprocal compensation reduces the local telephone company's costs and
ultimately reduces the internet service provider's costs. However, the Federal
Communications Commission recently determined that most, but not all, traffic to
an Internet access provider is interstate rather than local in nature. This
determination could potentially eliminate the payment of reciprocal compensation
to the local telephone companies that serve us, which ultimately may affect our
costs. There is a pending proceeding at the Federal Communications Commission to
determine appropriate compensation mechanisms for such calls and has ruled that
state commissions, in the interim, may determine under what circumstances
reciprocal compensation should be paid. To date, most states considering the
issue have upheld reciprocal compensation for calls placed to Internet service
providers. If new compensation mechanisms increase the costs to carriers that
terminate calls to Internet service providers or if states eliminate reciprocal
compensation payments for calls to Internet service providers, the affected
carriers could increase the price of service to Internet service providers to
compensate, which could have a material adverse effect on our business,
financial condition and results of operation.

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<PAGE>
The Federal Communications Commission is also considering measures that
could stimulate the development of high-speed telecommunications facilities and
make it easier for operators of these facilities to obtain access to customers
by requiring incumbent telephone companies to provide access to their
rights-of-way and wiring located within multiple tenant buildings. In addition,
the Federal Communications Commission is considering requiring owners of
multiple tenant buildings to provide competing service providers
nondiscriminatory access to their buildings. Such regulatory measures could
enhance the competitive viability of Internet service providers that are
affiliated with the providers of these high-speed facilities.

Finally, the issue of Internet service provider access to the infrastructure
deployed by cable television operators is being considered at the local and
federal levels. Several municipal franchising authorities have required
franchised cable companies to provide competing Internet service providers open
access to their cable infrastructure. However, the Federal Communications
Commission has recently filed a brief in federal court addressing the open
access issue in which it voiced its opposition to such local regulation,
preferring instead a uniform national policy on the issue of open access. Also,
an ISP has recently sought a ruling from the Federal Communications Commission
that, pursuant to Section 612 of the Communications Act, cable operators should
be required to lease to competitors a 6 MHz channel to be used to provide
Internet services. Section 612 of the Communications Act requires cable
operators to provide leased access to competitors seeking to provide video
service. The Internet service provider seeking this Federal Communications
Commission ruling claims that almost all Internet services involve video
services, such as streaming technology, and therefore qualify for leased access
rights under Section 612. The outcome of these efforts to compel open access and
leased access will affect our business, by either increasing or foreclosing
Internet service provider access rights to the cable television infrastructure.

The law relating to the liability of Internet service providers and online
service providers due to information disseminated through their networks is not
completely settled. While the U.S. Supreme Court has held that content
transmitted over the Internet is entitled to the highest level of protection
under the U.S. Constitution, nevertheless, there are federal and state laws
regarding the distribution of obscene, indecent, defamatory or otherwise illegal
material, as well as materials that infringe on intellectual property rights,
that may subject us to liability. These risks are mitigated by two federal laws.
In 1996, Congress immunized Internet service providers and online service
providers from liability for defamation and similar claims arising from
materials the Internet service providers and online service providers did not
create, but merely distributed without knowing or having had reason to know of
their defamatory nature. Likewise, in 1998, Congress created a safe harbor from
copyright infringement liability for Internet service providers and online
service providers arising from materials placed on the Internet service
provider's or online service provider's network by third parties so long as
basic requirements are satisfied.

Due to the increasing popularity and use of the Internet, it is possible
that additional laws and regulations may be adopted with respect to the
Internet, covering issues such as the sale of alcohol and firearms, content,
user privacy, pricing and trademark or copyright infringement. Laws and
regulations potentially affecting us have been adopted, and may be adopted in
the future, by federal and state governments, as well as by foreign governments.
We cannot predict the impact, if any, that recent and any future legislative or
regulatory changes or developments may have on our business, financial condition
and results of operations. Changes in the regulatory environment relating to the
Internet access industry, including regulatory changes that directly affect
telecommunications costs or increase the likelihood or scope of competition from
regional telephone companies or others, such as open access to cable
infrastructure, could have a material adverse effect on our business.

INTELLECTUAL PROPERTY

We have proprietary rights to trade secrets relating to technical and
business aspects of our operations. We have sought and will continue to seek
federal, state and local protection for these

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<PAGE>

proprietary rights. We rely on a combination of copyright, trademark and trade
secret laws to protect our proprietary rights, particularly related to our names
and logos. We have each of our employees enter into an inventions agreement
pursuant to which each agrees that any intellectual property rights developed
while in our employment belong to us. We believe that we were the first to adopt
the service mark FASTNET and the associated logo in connection with Internet
service business, and have received federal registrations for them. In addition,
we have registrations pending for other names and marks for which we do
business.

In connection with the delivery of some of our services, we bundle third
party software in our products for customers using personal computers operating
on the Microsoft Windows or Apple Macintosh platforms. While some of the
applications included in our start-up kit for access services subscribers are
shareware that we have obtained permission to distribute or that are otherwise
in the public domain and freely distributable, other applications included in
the start-up kit have been licensed where necessary. We currently intend to
maintain or negotiate renewals of all existing software licenses and
authorization as necessary, although we cannot be certain that such renewals
will be available to us on acceptable terms, if at all. We may also enter into
additional licensing agreements in the future for other applications.

EMPLOYEES

As of September 1, 1999, we had a total of 76 employees, including 74
full-time employees and two part-time employees. Of these employees, 12 people
were in engineering, 39 people in general and administrative positions,
including executives, customer support, facilities-based transport and
accounting/billing and 25 people in sales and marketing.

We are not a party to any collective bargaining agreements covering any of
our employees, have never experienced any material labor disruption and are
unaware of any current efforts or plans to organize our employees. We consider
our relationships with our employees to be good.

PROPERTIES

Our principal administrative, marketing, sales and technical support
facilities and our network operations center is located at our headquarters in
Bethlehem, Pennsylvania. As of September 1, 1999 we leased approximately 41,470
square feet of office space under a lease which ends July 22, 2006. We paid
aggregate rent of approximately $90,000 for the year ended December 31, 1998 for
our Bethlehem facility.

We require at least 800 square feet of space for each of our customer
network facilities. We currently lease space at the following two customer
network facility locations:

<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE LEASE EXPIRATION 1998 ANNUAL RENTS
- ------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Philadelphia, 1,100 January 1, 2002 $19,200
Pennsylvania

Holland Township, New 1,700 June 15, 2004 $1,200
Jersey
</TABLE>

In addition, as part of our acquisition of Internet Unlimited, we assumed a
lease for an additional 15,000 square feet of office space in Bethlehem,
Pennsylvania. Internet Unlimited paid approximately $34,000 in rent for the year
ended December 31, 1998 under this lease, which expires March 31, 2004. Our
annual rents are subject to adjustments. We also have collocation agreements for
space in Harrisburg, Pennsylvania. We anticipate that we will require additional
space for customer network facilities as we expand, and we believe that we will
be able to obtain suitable space as needed on commercially reasonable terms.

LEGAL PROCEEDINGS

We are not involved currently in any pending legal proceedings that either
individually or taken as a whole, will have a material adverse effect on our
business, financial condition and results of operations.

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<PAGE>
MANAGEMENT

The following table sets forth information about our executive officers and
directors as of the date of this prospectus.

EXECUTIVE OFFICERS AND DIRECTORS

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
David K. Van Allen................................... 40 Chief Executive Officer and Director
Sonny C. Hunt........................................ 38 President and Director
Stanley F. Bielicki.................................. 54 Chief Financial Officer
Rafe Scheinblum...................................... 47 Executive Vice President--Operations
Phillip L. Weller.................................... 39 Executive Vice President--Engineering
Douglas L. Michels................................... 45 Director
</TABLE>

DAVID K. VAN ALLEN has served as the chief executive officer and chairman of
the board of directors of FASTNET since May 1994. Mr. Van Allen co-founded
FASTNET together with Mr. Hunt in May 1994. From March 1991 until May 1994, Mr.
Van Allen formed and managed his own company, Van Allen & Associates, which
provided computer network services to businesses. From July 1988 until February
1991, Mr. Van Allen was a manager with Tandy Corporation, a manufacturer and
vendor of consumer electronics. From April 1986 until June 1988, Mr. Van Allen
was a chief design engineer with Texar Inc., a provider of hardware to the radio
broadcast industry. From January 1984 until March 1986, Mr. Van Allen was a
consultant with Motorola Corporation, a manufacturer of electronic equipment and
developer of communications and computer systems, where he focused on designing
and marketing audio processing systems.

SONNY C. HUNT has served as president and a member of the board of directors
of FASTNET since May 1994. Mr. Hunt co-founded FASTNET together with Mr. Van
Allen in May 1994. From June 1991 until May 1994, Mr. Hunt formed and managed
his own company, HS&T, a provider of hardware, software and training services.
From December 1987 until June 1991, Mr. Hunt, was a programmer for Nexus Inc., a
developer of word processors and other multi-user software tools for business,
and in June 1991, he acquired the company. From August 1985 until December 1987,
Mr. Hunt was a programmer for The Small Computer Company, a database software
developer. Mr. Hunt attended George Mason University and has completed advanced
courses in computer programming.

STANLEY F. BIELICKI has served as chief financial officer of FASTNET since
February 1997. From March 1984 until February 1997, Mr. Bielicki maintained a
private practice as a financial advisor, specializing in small and medium sized
businesses. Mr. Bielicki is a certified public accountant and holds a B.S. in
microbiology from Ohio State University and a M.B.A. from Southern Illinois
University.

RAFE SCHEINBLUM has served as executive vice president of operations of
FASTNET since July 1996. From September 1989 until June 1996, Mr. Scheinblum
formed and managed his own company, Double Click Computers. Mr. Scheinblum holds
a B.F.A. in theatrical design from Windham College.

PHILLIP L. WELLER has served as executive vice president of engineering of
FASTNET since November 1996. From June 1991 until November 1996, Mr. Weller was
a project manager and senior developer with AT&T Microelectronics/Lucent
Technologies, where he participated in the development of new and modern message
handling systems. From June 1980 until June 1991, Mr. Weller was a circuit
designer with AT&T Bell Laboratories, a developer of voice, data and video
telecommunications, in its Very Large Scale Integration division. Mr. Weller
holds an A.A.S. in electronics technology from Lehigh County Community College,
a B.S. in computer science from Moravian College and a M.S. in engineering
science from Pennsylvania State University.

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<PAGE>
DOUGLAS L. MICHELS has served as a member of the board of directors of
FASTNET since October 1998. Mr. Michels currently serves as the President, Chief
Executive Officer and a director of The Santa Cruz Operation, Inc., which
provides UNIX-based, open system software, where he has held various positions
since 1979. Mr. Michels co-founded The Santa Cruz Operation, Inc. in 1979. Mr.
Michels holds a B.S. in computer and information science from the University of
California, Santa Cruz.

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

BOARD COMMITTEES

We established a compensation committee. The compensation committee consists
of Mr. Van Allen and Mr. Michels. The compensation committee:

- reviews and approves the compensation and benefits for our executive
officers and grants stock options under our stock option plans, and

- makes recommendations to the board of directors regarding such matters.

Prior to the effectiveness of this registration statement, we intend to
establish an audit committee. The audit committee will:

- review the results and scope of the audit and other services provided by
our independent auditors, and

- review and evaluate our audit and control functions.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The compensation committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of FASTNET and administering various incentive compensation and
benefit plans. The compensation committee consists of Mr. Van Allen and Mr.
Michels. Mr. Van Allen participates in all discussions and decisions regarding
salaries and incentive compensation for all employees and consultants of
FASTNET, other than himself. No interlocking relationship exists between any
member of FASTNET's compensation committee and any member of any other company's
board of directors or compensation committee.

DIRECTOR COMPENSATION

We reimburse each member of our board of directors for out-of-pocket
expenses incurred in connection with attending board meetings. No member of our
board of directors currently receives any additional cash compensation.

On March 3, 1999, we granted Mr. Michels, a member of our board of
directors, an option to purchase 100,000 shares of our common stock at an
exercise price of $1.50 per share, which expires on March 3, 2009. The option
became immediately exercisable on the date of grant.

EXECUTIVE COMPENSATION

The table below summarizes information concerning the compensation awarded
to, earned by, or paid for services rendered to FASTNET in all capacities during
the fiscal year ended December 31, 1998 by:

- our chief executive officer; and

- our executive officers whose salary and bonus for that fiscal year
exceeded $100,000 and who served as an executive officer of FASTNET during
that fiscal year.

Other than the salary and bonus described in the table below, we did not pay
any executive officer named in the Summary Compensation Table any fringe
benefits, perquisites or other compensation in

46
<PAGE>
excess of either $50,000 or 10% of the total of his salary and bonus during the
fiscal year ended December 31, 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)
- --------------------------------------- --------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
David K. Van Allen..................... 1998 33,800 70,000 -- 2,705
CHIEF EXECUTIVE OFFICER
Sonny C. Hunt.......................... 1998 76,154 54,699 -- --
PRESIDENT
Phillip L. Weller...................... 1998 95,000 35,000 2,308 --
EXECUTIVE VICE PRESIDENT -ENGINEERING
Rafe Scheinblum........................ 1998 72,700 48,403 3,060 --
EXECUTIVE VICE PRESIDENT--OPERATIONS
</TABLE>

The amount listed under All Other Compensation for Mr. Van Allen represents
a life insurance policy on Mr. Van Allen, for which Kathryn Van Allen, Mr. Van
Allen's wife, is a co-beneficiary with FASTNET.

OPTION GRANTS IN LAST FISCAL YEAR

During the 1998 fiscal year, no stock options were granted to our executive
officers named in the summary compensation table and, as of December 31, 1998,
there were no outstanding stock options.

On March 3, 1999, we granted each of Mr. Bielicki, Mr. Scheinblum and Mr.
Weller options to purchase 100,000 shares of our common stock at an exercise
price of $1.50 per share. Under the terms of these option agreements, 50% of the
options vested on the date of grant, an additional 25% vest on March 3, 2000 and
the final 25% vest on March 3, 2001. These options expire on March 3, 2009.

EQUITY COMPENSATION PLAN

We have adopted the FASTNET Corporation 1999 Equity Compensation Plan,
effective as of March 3, 1999. The plan provides for grants of incentive stock
options, nonqualified stock options, and restricted stock to our designated
employees, advisors and consultants, and to non-employee directors. By
encouraging stock ownership, we seek to motivate such individuals to contribute
materially to our success.

GENERAL. The plan authorizes up to 1,000,000 shares of common stock for
issuance under the terms of the plan. No more than 500,000 shares in the
aggregate may be granted to any individual in any calendar year. If options
granted under the plan expire or are terminated for any reason without being
exercised, or shares of restricted stock are forfeited, the shares of common
stock underlying such grant will again be available for purposes of the plan.

ADMINISTRATION OF THE PLAN. A compensation committee administers and
interprets the plan. The compensation committee consists of two or more persons
appointed by the board of directors from among its members, each of whom must be
a non-employee director as defined by Rule 16b-3 under the Securities Exchange
Act of 1934, and an outside director as defined by Section 162(m) of the
Internal Revenue Code of 1986 and related U.S. Treasury Regulations. The
compensation committee has the sole authority to:

- determine the individuals to whom grants shall be made under the plan;

- determine the type, size and terms of the grants to be made to each such
individual;

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<PAGE>
- determine the time when the grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for
vesting and the acceleration of vesting;

- determine the total number of shares of common stock available for grants;
and

- deal with any other matters arising under the plan.

The compensation committee may require a grantee to execute a shareholder's
agreement with terms that the compensation committee deems appropriate.

GRANTS. Grants under the plan may consist of:

- options intended to qualify as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code;

- nonqualified stock options that are not intended to qualify; and

- restricted stock.

ELIGIBILITY FOR PARTICIPATION. Grants may be made to any of our employees
or employees of our subsidiaries and to any non-employee member of the board of
directors. Key consultants and advisors who perform services for us or any of
our subsidiaries are eligible if they render bona fide services, not as part of
the offer or sale of securities in a capital-raising transaction. As of June 30,
1999, options to purchase 565,000 shares of common stock were outstanding under
the plan.

OPTIONS. Incentive stock options may be granted only to employees. Any
stock option will become a nonqualified stock option if the aggregate fair
market value of common stock on the date of grant under which incentive stock
options are exercisable for the first time by the grantee during the calendar
year, under all of our stock option plans, exceeds $100,000. Nonqualified stock
options may be granted to employees, non-employee directors, and key advisors.
The exercise price of common stock underlying an option will be determined by
the compensation committee and may be equal to, greater than, or less than the
fair market value; provided that:

- the exercise price of an incentive stock option will be equal to or
greater than the fair market value of a share of common stock on the date
such incentive stock option is granted;

- the exercise price of an incentive stock option granted to an employee who
owns more than 10% of the common stock may not be less than 110% of the
fair market value of the underlying shares of common stock on the date of
grant;

- if required by state law, the exercise price of a nonqualified stock
option granted to any individual may not be less than 85% of the fair
market value of the underlying shares of common stock on the date of
grant; and

- if required by state law, the exercise price of a nonqualified stock
option granted to any individual who owns at least 10% of the common stock
may not be less than 110% of the fair market value of the underlying
shares of common stock on the date of grant.

The participant may pay the exercise price:

- in cash;

- with the approval of the compensation committee, by delivering shares of
common stock owned by the grantee and having a fair market value on the
date of exercise equal to the exercise price of the grant; or

- by other method as the compensation committee shall approve, including
payment through a broker in accordance with procedures permitted by
Regulation T of the Federal Reserve Board.

Options vest according to the terms and conditions determined by the
compensation committee and specified in the grant instrument. Options are
nontransferable during the grantee's lifetime; provided that, nonqualified stock
options may be transferred to family members, or for the benefit of

48
<PAGE>
family members, according to the terms determined by the compensation committee
and as specified in the grant instrument.

The compensation committee will determine the term of each option up to a
maximum of ten years from the date of grant, except that the term of an
incentive stock option granted to an employee who owns more than 10% of the
common stock may not exceed five years from the date of grant. The compensation
committee may accelerate the exercisability of any or all outstanding options,
at any time, for any reason.

RESTRICTED STOCK. The compensation committee will determine the number of
shares of restricted stock granted to a participant, but may not exceed the
maximum plan limit described above. Grants of restricted stock will be
conditioned on such performance requirements, vesting provisions, transfer
restrictions or other restrictions and conditions as the compensation committee
may determine in its sole discretion. The restrictions will remain in force
during a restricted period set by the compensation committee. Unless the
compensation committee determines otherwise:

- if the grantee is no longer employed by us during the restriction period
or if any other conditions are not met, the restricted stock grant will
terminate as to all shares covered by the grant for which the restrictions
are still applicable, and those shares must be immediately returned to us;
and

- during the restriction period, restricted stock may not be sold, assigned,
transferred or otherwise disposed of and will not have voting rights or
dividend rights.

AMENDMENT AND TERMINATION OF THE PLAN. The compensation committee may amend
or terminate the plan at any time, except that, it may not make any amendment
that requires shareholder approval pursuant to Rule 16b-3 of the Securities
Exchange Act of 1934 or Section 162(m) of the Internal Revenue Code without
shareholder approval. The plan will terminate on the day immediately preceding
the tenth anniversary of its effective date, unless the compensation committee
terminated the plan earlier or extends it with approval of the shareholders.

ADJUSTMENT PROVISIONS. Upon several transactions identified in the plan,
the compensation committee may appropriately adjust:

- the maximum number of shares available for grants;

- the maximum number of shares that any participant may be granted in any
year;

- the number of shares covered by outstanding grants;

- the kind of shares issued under the plan; and

- the price per share or the applicable market value of such grants.

CHANGE OF CONTROL. Upon a change of control, the compensation committee may
determine that:

- all outstanding options will immediately vest; and

- the restrictions and conditions on all outstanding restricted stock will
immediately lapse.

Upon a change of control where we are not the surviving entity or where we
survive only as a subsidiary of another entity, unless the compensation
committee determines otherwise, all outstanding grants will be assumed by or
replaced with comparable options or stock by the surviving corporation. In
addition, the compensation committee may

- require that grantees surrender their outstanding options in exchange for
payment by us, in cash or common stock, at an amount equal to the amount
by which the then fair market value of the shares of common stock subject
to the grantee's unexercised options exceeds the exercise price of those
options; and/or

- after giving grantees an opportunity to exercise their outstanding
options, terminate any or all unexercised options.

49
<PAGE>
A change of control is defined to have occurred if:

- any person other than persons who are our shareholders as of the effective
date of the plan becomes a beneficial owner, directly of indirectly, of
common stock representing more than 50% of the voting power of the
then-outstanding shares of common stock; the terms person and beneficial
owner are each defined in the Securities Exchange Act of 1934; or

The shareholders or the directors, as appropriate, approve:

- any merger or consolidation of us with another corporation where the
shareholders, immediately prior to such transaction, will not beneficially
own, immediately after the transaction, shares entitling such shareholders
to more than 50% of all votes to which all shareholders of the surviving
corporation would be entitled to in the election of directors, without
consideration of the rights of any class of stock to elect directors by a
separate class vote;

- the sale or other disposition of all or substantially all of our assets;
or

- our liquidation or dissolution.

SECTION 162(M). Under Section 162(m) of the Internal Revenue Code, we may
be precluded from claiming a federal income tax deduction for total remuneration
in excess of $1.0 million paid to the chief executive officer or to any other of
our four most highly compensated officers in any one year. Total remuneration
would include amounts received upon the exercise of stock options granted under
the plan and the value of shares received when the shares of restricted stock
became transferable or such other time when income is recognized. An exception
does exist, however, for performance-based compensation, including amounts
received upon the exercise of stock options pursuant to a plan approved by
shareholders that meets requirements. The plan has been approved by shareholders
and is intended to make grants of options thereunder by meeting the requirements
of performance-based compensation. Awards of restricted stock generally will not
qualify as performance-based compensation.

LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS AND INDEMNIFICATION

LIMITATION OF LIABILITY.

Our articles of incorporation provides that our officers and directors will
not be personally liable to us or our shareholders for monetary damages
resulting from a breach of fiduciary duty except for:

- any breach of the duty of loyalty to the corporation or its shareholders,

- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,

- unlawful payments of dividends or unlawful stock repurchases or
redemptions, or

- any transaction from which the director derived an improper personal
benefit.

This limitation of liability does not apply to non-monetary remedies that
may be available, such as injunctive relief or rescission nor does it relieve
our officers and directors from complying with federal or state securities laws.

INDEMNIFICATION.

Our articles of incorporation provide that we will indemnify our directors
and executive officers and may indemnify our other corporate agents, to the
fullest extent permitted by Pennsylvania law. Section 1741 of the Pennsylvania
corporate laws provides the power to indemnify any office or director acting in
his capacity as our representative who was, is or is threatened to be made a
party to any action or proceeding for expenses, judgments, penalties, fines and
amounts paid in settlement in connection with such action or proceeding. The
indemnity provisions apply whether the action was instituted by a third party or
arose by or in our right. Generally, the only limitation on our ability to
indemnify our offices and directors is if the act violates a criminal statute or
if the act or failure to act is finally determined by a court to have
constituted willful misconduct or recklessness.

50
<PAGE>

RELATED PARTY TRANSACTIONS

EQUITY INVESTMENTS

In May 1998, we sold 1,000,000 shares of our common stock for an aggregate
purchase price equal to $200,000 and issued a secured note for cash in the
principal amount of $3.1 million and a warrant to purchase 1,000,000 shares of
our common stock to H&Q You Tools Investment Holding, L.P. The note bears
interest at a rate equal to 7% per annum and matures on January 31, 2001. H&Q
You Tools may convert the note into our common stock at any time prior to
maturity of the note and has agreed with us to convert the note immediately
prior to the closing of this offering. The warrant is currently exercisable at
an exercise price of $1.50 per share and expires in May 2005.

In May 1999 we issued a second secured note for cash in the principal amount
of $1.0 million to H&Q You Tools Investment Holding, L.P. The note bears
interest at a rate equal to 7% per annum and matures on May 15, 2000. H&Q You
Tools has converted this note into 142,431 shares of series A preferred stock at
a conversion price equal to $7.13 per share.

In August 1999, Lucent Technologies, Inc. purchased 280,505 shares of series
A convertible preferred stock and H&Q You Tools Investment Holding, L.P.
purchased 142,431 shares of series A convertible preferred stock, at a price of
$7.13 per share. The shares issued to H&Q You Tools Investment Holding, L.P.
were in exchange for the cancellation of their $1.0 million secured term note
and accrued interest on the note. These shares of series A convertible preferred
stock are convertible into shares of common stock at any time at the option of
the holders and all of the series A convertible preferred stock will
automatically convert into our common stock immediately prior to the closing of
this offering.

We also entered into a rights agreement with the holders of series A
convertible preferred stock, granting them registration rights, other than in
connection with this offering, of the common stock issuable upon conversion of
their preferred stock.

INDEBTEDNESS OF MANAGEMENT

On October 10, 1998, we made an unsecured loan of $50,000 at 6% interest per
year to David K. Van Allen, our chief executive officer and a director. In
addition, in 1997 and 1998, we made unsecured loans totaling $19,400, each at 6%
interest per year, to Kathryn Van Allen, spouse of David K. Van Allen. All of
these notes mature upon consummation of this offering. If this offering is not
consummated prior to January 1, 2000, the notes will become due and payable
pursuant to an agreed upon payment schedule.

51
<PAGE>
PRINCIPAL SHAREHOLDERS

The following table sets forth information regarding the beneficial
ownership of FASTNET's common stock as of September 1, 1999, and as adjusted to
reflect the sale of common stock in this offering, by:

- each person or entity who is known by us to own beneficially more than 5%
of FASTNET's outstanding common stock;

- each of the executive officers set forth on the summary compensation table
on page 48;

- each director of FASTNET; and

- all directors and executive officers as a group.

Except as otherwise indicated, and subject to applicable community property
laws, the persons named in the table have sole voting and investment power with
respect to all shares of common stock held by them. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock subject to
options or warrants held by that person that are currently exercisable or will
become exercisable within 60 days of September 1, 1999 are deemed outstanding,
while such shares are not deemed outstanding for purposes of computing
percentage ownership of any other person. The options listed as beneficially
owned by Mr. Hunt reflect options to purchase 5,000 shares of common stock that
were issued to Mr. Hunt's wife, who is also an employee of FASTNET. Applicable
percentage ownership in the following table is based on 10,388,947 shares of
common stock outstanding and 14,388,947 shares immediately following the
completion of this offering. The number of options represents stock options that
are exercisable within 60 days of September 1, 1999. To the extent that any
shares are issued upon exercise of options, warrants or other rights to acquire
FASTNET's capital stock that are presently outstanding or granted in the future
or reserved for future issuance under FASTNET's equity compensation plan, there
will be further dilution to new public investors.

In addition, the following table reflects:

- the issuance of 666,198 shares of series A convertible preferred stock in
August 1999;

- the exchange of a $1.0 million note payable and associated accrued
interest for 142,431 shares of series A convertible preferred stock in
August 1999;

- the conversion of a $3.1 million note payable into 2,033,334 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering;

- the conversion of all outstanding shares of series A convertible preferred
stock into 808,629 shares of common stock which will automatically occur
immediately prior to this offering; and

- no exercise of the underwriters' over-allotment option.

<TABLE>
<CAPTION>
PRIOR TO OFFERING AFTER OFFERING
---------------------------------------------- ----------------------------------------------
OPTIONS AND OPTIONS AND
NAME SHARES WARRANTS TOTAL PERCENT SHARES WARRANTS TOTAL PERCENT
- ------------------------------------ --------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5% SHAREHOLDERS
H&Q You Tools Investment Holding, % %
L.P............................... 3,175,765 1,000,000 4,175,765 36.7 3,175,765 1,000,000 4,175,765 27.1
One Bush Street
San Francisco, CA
94104
EXECUTIVE OFFICERS AND DIRECTORS
David K. Van Allen.................. 2,825,000 -- 2,825,000 27.2% 2,825,000 -- 2,825,000 19.6%
Sonny C. Hunt....................... 2,725,000 5,000 2,730,000 26.3% 2,725,000 5,000 2,730,000 19.0%
Rafe Scheinblum..................... 175,000 50,000 225,000 2.2% 175,000 50,000 225,000 1.6%
Phillip L. Weller................... 175,000 50,000 225,000 2.2% 175,000 50,000 225,000 1.6%
Stanley F. Bielicki................. 100,000 50,000 150,000 1.4% 100,000 50,000 150,000 1.0%
Douglas L. Michels.................. -- 100,000 100,000 1.0% -- 100,000 100,000 0.07%
All directors and executive officers
as a group (6 persons)............ 6,000,000 255,000 6,255,000 60.3% 6,000,000 255,000 6,255,000 42.8%
</TABLE>

52
<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

At the closing of the offering our authorized capital stock will consist of
50,000,000 shares of common stock, no par value per share, and 10,000,000 shares
of preferred stock, no par value per share.

Our articles of incorporation and bylaws contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and which may have the effect of delaying,
deferring, or preventing a future takeover or change in control of FASTNET
unless such takeover or change in control is approved by the board of directors.

COMMON STOCK

As of September 1, 1999, there were 7,546,984 shares of common stock
outstanding which were held of record by 9 shareholders. There will be
14,388,947 shares of common stock outstanding (assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options or
warrants) after giving effect to the sale of common stock in this offering and
the conversion of all of the outstanding shares of series A preferred stock.

Holders of common stock are entitled to one vote per share on all matters to
be voted upon. Holders of common stock do not have cumulative voting rights.
Holders of common stock are entitled to receive dividends as may be declared
from time to time by the board of directors out of funds legally available for
the payment of dividends, subject to the preferences that apply to any
outstanding preferred stock. See the section entitled Dividend Policy for more
information. In the event of liquidation, dissolution or winding up of FASTNET,
the holders of common stock are entitled to share proportionately in all assets
remaining after payment of liabilities, subject to distribution rights of any
then outstanding preferred stock. The common stock has no preemptive or
conversion rights and no additional subscription rights. There are no redemption
or sinking fund provisions applicable to the common stock. All outstanding
shares of common stock are fully paid and nonassessable. The shares issued in
this offering will be fully paid and nonassessable.

PREFERRED STOCK

Our articles of incorporation authorize the board of directors, without
shareholder action, to designate and issue preferred stock. The board may
designate the price, rights, preferences and privileges of the preferred shares,
which may be greater than the rights of the common stock. It is not possible to
state the actual effect of the issuance of any shares of preferred stock upon
the rights of holders of common stock until the board determines the specific
rights of the preferred stock. However, possible effects of issuing preferred
stock with voting and conversion rights include:

- restricting dividends on common stock;

- diluting the voting power of common stock;

- impairing the liquidation rights of the common stock;

- delaying or preventing a change of control of FASTNET without shareholder
action; and

- lowering the market price of common stock.

We have no present plans to issue any additional shares of preferred stock.

COMMON STOCK WARRANTS

H&Q You Tools Investment Holding, L.P. holds a warrant to purchase up to
1,000,000 shares of our common stock at an exercise price of $1.50 per share.
This warrant is currently exercisable and will remain exercisable until May 30,
2005.

53
<PAGE>
The exercise price and the number of shares of common stock issuable upon
the exercise of the warrant may be adjusted upon the occurrence of a stock
split, stock dividend, reorganization, reclassification or merger.

REGISTRATION RIGHTS

Lucent Technologies, Inc. and H&Q You Tools Investment Holding, L.P. and the
other holders of our series A convertible preferred stock are entitled to
registration rights with respect to their securities pursuant to a registration
rights agreement. The agreement grants three types of registration rights:

- REQUESTED REGISTRATION. The holders of the registrable securities may
require us to use our best efforts to prepare a registration statement and
other related documents which would permit the sale of their registrable
securities. We only need to prepare the registration statement and related
documents if at least 20% of the registrable securities are to be
registered. We are obligated to pay the expenses incurred in a requested
registration.

- FASTNET REGISTRATION. If we elect to register any of our shares of common
stock in any future public offerings, the holders of the registrable
securities are entitled to include their shares in the registration. We
have the right to reduce the number of shares to be registered in view of
market conditions, but to not less than 30% of any offering after this
offering. We are obligated to pay the expenses incurred in this type of
registration.

- REGISTRATION ON FORM S-3. Holders of the registrable securities may
require that we register their shares for public resale on Form S-3, if we
are eligible to use Form S-3 and the value of the securities to be
registered is at least $500,000. We could be required to make two
requested S-3 registrations in any one-year period. We are obligated to
pay the expenses incurred in a registration on Form S-3.

The holders of these registration rights have entered into lock-up
agreements with the underwriters and have no registration rights with respect to
this offering.

PENNSYLVANIA ANTI-TAKEOVER LAW AND PROVISIONS IN OUR CHARTER AND BYLAWS

Provisions of Pennsylvania law, our articles of incorporation and bylaws
could make the acquisition of FASTNET by proxy contest or otherwise and the
removal of incumbent officers and directors more difficult. These provisions are
intended to discourage coercive takeover practices and inadequate takeover bids
and to encourage persons seeking to control FASTNET to first negotiate with us.
We believe that the benefits provided to FASTNET by allowing us to negotiate
with an unfriendly or unsolicited acquiror outweigh the disadvantages of
discouraging such proposals since we will have the opportunity to negotiate
improved terms. These provisions deter transactions not approved by the board,
and could have the effect of discouraging tender offers which may provide a
premium over the market price of our shares of common stock. Consequently, these
provisions may also inhibit fluctuations in the market price of our shares
resulting from actual or rumored takeover attempts.

PENNSYLVANIA LAW. Generally, subchapters 25E, F, G, H, I and J of the
Pennsylvania corporate laws place procedural requirements and establish
restrictions upon the acquisition of voting shares of a corporation which would
entitle the acquiring person to cast or direct the casting of a percentage of
votes in an election of directors. Subchapter 25E of the Pennsylvania corporate
laws provides generally that, if a company were involved in a control
transaction, shareholders of the company would have the right to demand from a
controlling person or group payment of the fair value of their shares. For
purposes of subchapter 25E, a controlling person or group is a person or group
of persons acting in concert that, through voting shares, has voting power over
at least 20% of the votes which shareholders of the company would be entitled to
cast in the election of directors. A control transaction arises, in general,
when a person or group acquires the status of a controlling person or group.

54
<PAGE>
In general, Subchapter 25F of the Pennsylvania corporate laws delays for
five years and imposes conditions upon business combinations between an
interested shareholder and us. The term business combinations is defined broadly
to include various merger, consolidation, division, exchange or sale
transactions, including transactions utilizing our assets for purchase price
amortization or refinancing purposes. An interested shareholder, in general,
would be a beneficial owner of at least 20% of our voting shares.

In general, subchapter 25G of the Pennsylvania corporate laws suspends the
voting rights of the control shares of a shareholder that acquires for the first
time 20% or more, 33 1/3% or more, or 50% or more of a company's shares entitled
to be voted in an election of directors. The voting rights of the control shares
generally remain suspended until such time as the disinterested shareholders of
the company vote to restore the voting power of the acquiring shareholder.

Subchapter 25H of the Pennsylvania corporate laws provides in circumstances
for the recovery by a company of profits made upon the sale of its common stock
by a controlling person or group if the sale occurs within 18 months after the
controlling person or group became a controlling person or group and the common
stock was acquired during such 18 month period or within 24 months before such
period. In general, for purposes of Subchapter 25H, a controlling person or
group is a person or group that:

- has acquired;

- offered to acquire; or

- publicly disclosed or caused to be disclosed an intention to acquire
voting power over shares that would entitle such person or group to cast
at least 20% of the votes that shareholders of the company would be
entitled to cast in an election of directors.

If the disinterested shareholders of a company vote to restore the voting
power of a shareholder who acquires control shares subject to Subchapter 25G,
such company would then be subject to subchapters 25I and J of the Pennsylvania
corporate laws. Subchapter 25I generally provides for a minimum severance
payment to employees terminated within two years of such approval. Subchapter
25J, in general, prohibits the abrogation of labor contracts prior to their
stated date of expiration.

The above descriptions of subchapters of the Pennsylvania corporate laws
summarize the material anti-takeover provisions contained in the Pennsylvania
corporate laws but are not a complete discussion of those provisions.

OUR CHARTER DOCUMENTS. Our articles of incorporation and bylaws do not
provide for cumulative voting in the election of directors. The authorization of
undesignated preferred stock makes it possible for the board of directors to
issue preferred stock with voting or other rights or preferences that could
impede the success of any attempt to change control of FASTNET. These and other
provisions are intended to enhance continuity and stability in the composition
of the board of directors and to reduce the vulnerability to unsolicited or
hostile takeovers, and could delay changes in the control or management of
FASTNET. The amendment of any of these provisions requires approval by holders
of 66 2/3% of the outstanding common stock.

TRANSFER AGENT

The transfer agent and registrar for the common stock is StockTrans, Inc.,
Ardmore, Pennsylvania.

NASDAQ NATIONAL MARKET LISTING

We have applied to list our common stock on the Nasdaq National Market under
the symbol FSST.

55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have outstanding 14,388,947 shares
of common stock based upon shares outstanding at September 1, 1999, assuming no
exercise of the underwriters' over-allotment option. Excluding the 4,000,000
shares of common stock offered hereby and assuming no exercise of the
underwriters' over-allotment option, as of the effective date of this
registration statement, there will be 10,388,947 shares of common stock
outstanding all of which will be restricted shares under the Securities Act of
1933. All restricted shares are subject to lock-up agreements with the
underwriters pursuant to which the holders of the restricted shares have agreed
not to sell, pledge or otherwise dispose of such shares for a period of 180 days
after the date of this prospectus. Beginning 180 days after the effective date
of this registration statement, all of such restricted shares will become
available for sale at various times pursuant to Rule 144. The general provisions
of Rule 144 are described below. All of the restricted shares that will become
available for sale in the public market beginning 180 days after the effective
date will be subject to volume and other resale restrictions pursuant to Rule
144 because the holders are affiliates of FASTNET. ING Barings LLC may release
the shares subject to the lock-up agreements in whole or in part at any time
with or without notice. However, ING Barings LLC has no current plans to do so.

In general, under Rule 144, an affiliate of FASTNET, or person or persons
whose shares are aggregated who has beneficially owned restricted shares for at
least one year, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (a) 1% of the then outstanding shares
of our common stock, approximately 143,900 shares immediately after this
offering, assuming no exercise of the underwriters' over-allotment option or (b)
the average weekly trading volume during the four calendar weeks preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission. Sales pursuant to Rule 144 are subject to requirements relating to
manner of sale, notice and availability of current public information about us.
A person, or persons whose shares are aggregated, who is not deemed to have been
an affiliate of FASTNET at any time during the 90 days immediately preceding the
sale and who has beneficially owned his or her shares for at least two years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above.

H&Q You Tools Investment Holding, L.P. holds a warrant to purchase 1,000,000
shares of common stock. In addition, 1,000,000 shares were reserved for issuance
under our equity compensation plan, of which options to purchase 585,000 shares
were then outstanding and 290,500 options to purchase shares of common stock
were then exercisable. Beginning 180 days after the date of this prospectus,
approximately 380,000 shares issuable upon the exercise of vested options will
become eligible for sale.

The holders of 666,198 shares of our series A preferred stock are entitled
to registration rights with respect to the shares of common stock issuable upon
the conversion of the preferred stock. If such holders, by exercising their
registration rights, cause a large number of shares to be registered and sold,
it could have an adverse effect on the market price for our common stock.

We intend to file, within 180 days after the date of this prospectus, a Form
S-8 registration statement under the Securities Act to register shares issued
pursuant to stock purchase agreements under our equity compensation plan and
shares issued in connection with option exercises. Shares of common stock issued
pursuant to our equity compensation plan or upon exercise of options after the
effective date of the Form S-8 will be available for sale in the public market,
subject to Rule 144 volume limitations applicable to affiliates and lock-up
agreements.

LOCK-UP AGREEMENTS

All officers and directors and holders of our common stock, warrant and
options to purchase common stock have agreed pursuant to lock-up agreements
that, among other things, they will not offer, sell, contract to sell, pledge,
grant any option to sell, or otherwise dispose of, directly or

56
<PAGE>
indirectly, any shares of common stock or securities convertible or exchangeable
for common stock, or warrant or other rights to purchase common stock for a
period of 180 days after the date of this prospectus without the prior written
consent of ING Barings LLC.

57
<PAGE>
UNDERWRITING

Subject to the terms and conditions in an underwriting agreement, dated
, 1999, the underwriters named below, who are represented by ING
Barings LLC, SoundView Technology Group, Inc., FAC/Equities, a division of First
Albany Corporation, and DLJdirect Inc., have severally agreed to purchase from
FASTNET the number of shares of common stock set forth opposite their names
below.

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------------------------------------------------------------------------------- -----------------
<S> <C>
ING Barings LLC......................................................................
SoundView Technology Group, Inc......................................................
FAC/Equities, a division of First Albany Corporation.................................
DLJdirect Inc........................................................................
-----------------

Total.......................................................................... 4,000,000
-----------------
-----------------
</TABLE>

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

The underwriters propose initially to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to selected broker/dealers,
including the underwriters, and other broker/dealers not included in the table
above, at this price less a concession not in excess of $ per share. The
underwriters may allow, and these dealers may re-allow, to other dealers, a
concession not in excess of $ per share. After the initial offering of the
shares of common stock, the public offering price and other selling terms may be
changed by ING Barings LLC at any time without notice.

The following table shows the underwriting fees to be paid to the
underwriters by FASTNET in connection with this offering. The underwriting
discounts and commissions are equal to the public offering price per share of
the common stock less the amount paid by the underwriters to us for each share
of common stock. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.

<TABLE>
<CAPTION>
TOTAL
--------------------------
<S> <C> <C> <C>
PER SHARE NO EXERCISE FULL EXERCISE
----------- ----------- -------------
Underwriting discounts and commissions paid by us................ $ $ $
</TABLE>

Other expenses of this offering, including the registration fees and the
fees of financial printers, counsel and accountants, payable by FASTNET are
expected to be approximately $1.6 million.

FASTNET has granted to the underwriters an option that may be exercised
within 30 days after the date of this prospectus, to purchase, from time to
time, in whole or in part, up to a total of 600,000 additional shares of common
stock at the public offering price less the underwriting discounts and
commissions. 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 conditions, to purchase its pro rata portion of these
additional shares based on such underwriter's percentage underwriting commitment
as indicated in the table above.

An electronic prospectus will be made available on the Web site maintained
by DLJdirect. Other than the prospectus in electronic format, the information on
the Web site maintained by DLJdirect

58
<PAGE>

relating to this offering is not part of this prospectus and has not been
approved and/or endorsed by us or any underwriter, and should not be relied on
by prospective investors.

FASTNET has agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the underwriters may be required to make in respect of any of those
liabilities. These liabilities generally consist of losses, claims, damages or
actions arising from or relating to the offer, purchase or sale of common stock
in this offering by the underwriters.

Each of FASTNET, its executive officers, directors and shareholders has
agreed, subject to exceptions, not to: (1) issue, 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 common stock or
any securities convertible into, exercisable or exchangeable for, or represent
the right to receive common stock, or (2) grant any options or warrants to
purchase common stock or enter into any swap or other arrangement that transfers
all or a portion of the economic consequences associated with the ownership of
any common stock, regardless of whether any of the transactions described in the
first or second clause is to be settled by the delivery of common stock, or such
other securities, in cash or otherwise, for a period of 180 days after the date
of this prospectus without the prior written consent of ING Barings LLC. In
addition, during such period, we also agreed not to file any registration
statement with respect to, other than a Form S-8 registration statement in
connection with shares received under a FASTNET stock plan, stock ownership
plan, employment agreement or dividend reinvestment plan), and each of our
executive officers, directors and shareholders 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 ING Barings.

At our request, the underwriters have reserved for sale, at the initial
public offering price, 100,000 shares of common stock, representing
approximately 2.5% of the shares of common stock offered by this prospectus, for
sale to directors, officers and employees and their family members of FASTNET
and to business associates of FASTNET. The number of shares of common stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of the pricing of this offering will be
offered by the underwriters to the general public on the same terms as the other
shares offered by this prospectus.

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 in any jurisdiction where action for that purpose is required. The shares
of common stock may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisements in connection with
the offer and sale of any shares of our common stock be distributed or published
in any jurisdiction, except under circumstances that will result in compliance
with the applicable rules and regulations of such jurisdiction. Persons into
whose possession this prospectus comes are advised to inform themselves about,
and to observe, any restrictions relating to the common stock and the
distribution of this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy any shares of our common stock in any
jurisdiction in which such an offer or solicitation is unlawful.

We have been informed that the underwriters do not intend to confirm sales
to any accounts over which they exercise discretionary authority without the
prior written approval of the customer.

Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price will be determined by
negotiations between us and the representatives of the underwriters. The factors
to be considered in determining the initial public offering price are:

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

59
<PAGE>
- an assessment of our management and the present state of our development;

- our past and present revenues, earnings and cash flows;

- our prospects for growth, revenues, earnings and cash flows;

- the current state of the economy in the United States and the current
level of economic activity in the industry in which we compete and in
related or comparable industries; and

- currently prevailing conditions in the securities markets, including
current market valuations of publicly traded companies which are
comparable to FASTNET.

We have applied to list the common stock on the Nasdaq National Market,
under the symbol FSST.

Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase the common stock. As an exception
to these rules, the representatives of the underwriters are permitted to engage
in transactions that stabilize the price of the common stock. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the common stock.

If the underwriters create a short position in the common stock in
connection with the offering, I.E., if they sell more shares of the common stock
than are set forth on the cover pages of this prospectus, the representatives of
the underwriters may reduce that short position by purchasing the common stock
in the open market. The representatives of the underwriters may elect to reduce
any short position by exercising all or part of the over-allotment option
described above.

The representatives of the underwriters may also impose a penalty bid on
individual underwriters and selling group members. This means that if the
representatives purchase shares of the common stock in the open market to reduce
the underwriters' short position or to stabilize the price of the common stock,
it may reclaim the amount of the selling concession from the underwriters and
selling group members who sold those shares as part of the offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the common stock to the extent that it
were to discourage resales of the common stock.

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

60
<PAGE>
LEGAL MATTERS

Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania will provide us an
opinion relating to the validity of the common stock issued in this offering.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Morrison & Foerster LLP, New York, New York.

EXPERTS

FASTNET's financial statements, as of December 31, 1997 and 1998 and for the
years ended December 31, 1996, 1997 and 1998, included in this prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of such firm as experts in giving said report.

Internet Unlimited's financial statements, as of December 31, 1997 and 1998
and for the years ended December 31, 1997 and 1998, included in this prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of such firm as experts in giving said report.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to our common stock. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information described in the registration statement or the exhibits and
schedules which are part of the registration statement. For further information
with respect to FASTNET and the common stock, refer to the registration
statement and the related exhibits and schedules. You may read and copy any
document we file at the Securities and Exchange Commission's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
about the public reference rooms. Our Securities and Exchange Commission filings
are also available to the public from the Securities and Exchange Commission's
web site at HTTP://WWW.SEC.GOV. Upon completion of this offering, we must comply
with the information and periodic reporting requirements of the Securities
Exchange Act and will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. These periodic reports,
proxy statements and other information will be available for inspection and
copying at the Securities and Exchange Commission's public reference room and
the Web site of the Securities and Exchange Commission. We maintain a web site
at HTTP://WWW.FAST.NET.

61
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
UNAUDITED PRO FORMA FINANCIAL INFORMATION

Basis of Presentation................................................................ F-2
Unaudited Pro Forma Statement of Operations--Year Ended December 31, 1998............ F-3
Unaudited Pro Forma Statement of Operations--Six Months Ended June 30, 1999.......... F-4
Unaudited Pro Forma Balance Sheet--June 30, 1999..................................... F-5
Notes to Unaudited Pro Forma Financial Information................................... F-6

FASTNET CORPORATION

Report of Independent Public Accountants............................................. F-8
Balance Sheets....................................................................... F-9
Statements of Operations............................................................. F-10
Statements of Shareholders' Deficit.................................................. F-11
Statements of Cash Flows............................................................. F-12
Notes to Financial Statements........................................................ F-13

INTERNET UNLIMITED, INC.

Report of Independent Public Accountants............................................. F-21
Balance Sheets....................................................................... F-22
Statements of Operations............................................................. F-23
Statements of Shareholders' Deficit.................................................. F-24
Statements of Cash Flows............................................................. F-25
Notes to Financial Statements........................................................ F-26
</TABLE>

F-1
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

BASIS OF PRESENTATION

On July 30, 1999 FASTNET Corporation ("FASTNET") acquired all of the
outstanding capital stock of Internet Unlimited, Inc. ("Internet Unlimited"), a
provider of Web hosting and collocation services for $400,000 in cash and
546,984 shares of FASTNET Common stock valued at $7.13 per share (the
"Acquisition"). (FASTNET and Internet Unlimited are collectively referred to as
the "Combined Company") The Acquisition will be accounted for as a purchase by
FASTNET pursuant to Accounting Principles Board Opinion No. 16, "Business
Combinations" ("APB 16").

In August 1999, FASTNET sold an aggregate of 666,198 shares of Series A
Convertible Preferred stock ("Series A Preferred") to investors at $7.13 per
share. The proceeds from the sales of the Series A Preferred were $4,439,992,
net of offering costs of $310,000. On August 3, 1999 the principal and accrued
interest on a $1,000,000 note payable to H&Q You Tools Investment Holding, L.P.
converted into shares of Series A Preferred. All of these outstanding shares of
Series A Preferred will automatically convert into 808,629 shares of Common
stock immediately prior to the consummation of FASTNET's initial public offering
(the "Offering"). In addition, H&Q You Tools Investment Holding, L.P. has
committed to convert a $3,050,000 convertible note into 2,033,334 shares of
Common stock upon the consummation of the Offering. The sales of the Series A
Preferred, the conversion of the notes payable and accrued interest, and the
conversion of the Series A Preferred are collectively referred to as the
"Financing Transactions."

The Pro Forma Balance Sheet reflects the application of the purchase method
of accounting pursuant to APB 16 for the Acquisition. The purchase price was
$4,299,996 excluding costs of approximately $75,000. The application of the
purchase method of accounting will result in approximately $4,465,228 in excess
of purchase price over net tangible deficit acquired as of June 30, 1999. Based
on a preliminary analysis completed by management, it expects to allocate
$2,000,000 of this amount to customer list and the remaining amount of
$2,465,228 to goodwill. Customer list and goodwill are expected to be amortized
on a straight-line basis over 3 years. The final allocation of the purchase
price and the assignment of useful lives are subject to change.

The Pro Forma Balance Sheet also reflects (i) the sale of the Series A
Preferred, (ii) the conversion into Series A Preferred of the $1,000,000 H&Q You
Tools Investment Holding, L.P. note and accrued interest thereon and (iii) the
conversion of all of the outstanding Series A Preferred stock and the conversion
of the $3,050,000 H&Q You Tools Investment Holding, L.P. note into Common stock,
both of which will occur automatically immediately prior to the consummation of
the Offering.

The Pro Forma Statements of Operations reflect the amortization of customer
list and goodwill of $1,488,410 for the year ended December 31, 1998 and
$744,205 for the six months ended June 30, 1999 and the removal of interest
expense related to the notes payable to H&Q You Tools Investment Holding, L.P.
which have been or will be converted into Common stock.

We present the pro forma amounts below for informational purposes only.
These pro forma amounts are not necessarily indicative of the results of
operations of the Combined Company that would have actually occurred had the
Acquisition been consummated as of January 1, 1998 and if the notes payable had
been converted on the date the notes were issued or of the financial condition
of the Combined Company had the Acquisition and the Financing Transactions been
consummated as of June 30, 1999 or of the future results of operations or
financial condition of the Combined Company. The unaudited pro forma statements
of operations and the unaudited pro forma combined balance sheet do not reflect
any synergies FASTNET expects to realize as a result of the Acquisition, in
particular, the elimination of costs associated with duplicative operating and
administrative activities. FASTNET cannot assure that such synergies will be
realized.

F-2
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
INTERNET PRO FORMA
FASTNET UNLIMITED ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (SEE NOTE 3) COMBINED
------------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Services............................................. $ 4,875,471 $ 700,878 $ $ 5,576,349
Hardware and software................................ 652,508 20,127 672,635
------------- ---------- ------------- --------------
5,527,979 721,005 6,248,984
------------- ---------- ------------- --------------

OPERATING EXPENSES:
Cost of services..................................... 2,572,732 195,929 2,768,661
Cost of hardware and software........................ 669,009 11,187 680,196
Selling, general and administrative.................. 3,067,740 449,000 3,516,740
Depreciation and amortization........................ 346,568 32,840 1,488,410 1,867,818
------------- ---------- ------------- --------------
6,656,049 688,956 1,488,410 8,833,415
------------- ---------- ------------- --------------
Operating income (loss)............................ (1,128,070) 32,049 (1,488,410) (2,584,431)
------------- ---------- ------------- --------------

OTHER INCOME (EXPENSES):
Interest income...................................... 15,256 -- 15,256
Interest expense..................................... (166,831) (18,297) 124,542 (60,586)
Other................................................ 5,355 -- 5,355
------------- ---------- ------------- --------------
(146,220) (18,297) 124,542 (39,975)
------------- ---------- ------------- --------------

NET INCOME (LOSS)...................................... $ (1,274,290) $ 13,752 $ (1,363,868) $ (2,624,406)
------------- ---------- ------------- --------------
------------- ---------- ------------- --------------

BASIC NET LOSS PER COMMON SHARE........................ $ (0.14) $ (0.25)
------------- --------------
------------- --------------

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(Note 2)............................................. 8,880,833 1,733,096 10,613,929
------------- ------------- --------------
------------- ------------- --------------
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.

F-3
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1999

<TABLE>
<CAPTION>
PRO FORMA
INTERNET ADJUSTMENTS
FASTNET UNLIMITED (SEE NOTE PRO FORMA
HISTORICAL HISTORICAL 3) COMBINED
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Services............................................... $ 3,469,506 $ 645,169 $ $ 4,114,675
Hardware and software.................................. 79,509 20,842 100,351
------------- ---------- ----------- -------------
3,549,015 666,011 4,215,026
------------- ---------- ----------- -------------

OPERATING EXPENSES:
Cost of services....................................... 2,065,187 131,047 2,196,234
Cost of hardware and software.......................... 50,951 11,949 62,900
Selling, general and administrative.................... 2,154,680 485,297 2,639,977
Depreciation and amortization.......................... 247,796 32,798 744,205 1,024,799
------------- ---------- ----------- -------------
4,518,614 661,091 744,205 5,923,910
------------- ---------- ----------- -------------
Operating income (loss).............................. (969,599) 4,920 (744,205) (1,708,884)
------------- ---------- ----------- -------------

OTHER INCOME (EXPENSES):
Interest income........................................ 10,746 -- 10,746
Interest expense....................................... (121,588) (22,392) 113,750 (30,230)
------------- ---------- -------------
(110,842) (22,392) 113,750 (19,484)
------------- ---------- -------------

NET LOSS................................................. $ (1,080,441) $ (17,472) $(630,455) $ (1,728,368)
------------- ---------- ----------- -------------
------------- ---------- ----------- -------------

BASIC NET LOSS PER COMMON SHARE.......................... $ (0.15) $ (0.18)
------------- -------------
------------- -------------

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(Note 2)............................................... 7,000,000 2,615,381 9,615,381
------------- ----------- -------------
------------- ----------- -------------
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.

F-4
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET

JUNE 30, 1999

<TABLE>
<CAPTION>
INTERNET PRO FORMA
FASTNET UNLIMITED ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (SEE NOTE 3) COMBINED
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 524,671 $ 45,454 $ 4,349,992 $ 4,920,117
Accounts receivable, net of reserve.................. 1,201,120 112,124 1,313,244
Other current assets................................. 135,372 15,813 151,185
------------- ----------- ------------- -------------
Total current assets............................... 1,861,163 173,391 4,349,992 6,384,546
------------- ----------- ------------- -------------
PROPERTY AND EQUIPMENT, net............................ 2,232,160 210,961 2,443,121
INTANGIBLE ASSETS...................................... -- -- 4,465,228 4,465,228
OTHER ASSETS........................................... 228,871 10,302 239,173
------------- ----------- ------------- -------------
$ 4,322,194 $ 394,654 $ 8,815,220 $ 13,532,068
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------

LIABILITIES AND
SHAREHOLDERS DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt.................... $ 4,072,607 $ -- $ (4,061,323) $ 11,284
Current portion of capital lease obligations......... 41,838 6,898 48,736
Due to shareholder................................... -- 154,554 154,554
Accounts payable and accrued expenses................ 2,126,325 41,306 385,000 2,552,631
Deferred revenues.................................... 1,499,339 271,422 1,770,761
------------- ----------- ------------- -------------
Total current liabilities.......................... 7,740,109 474,180 (3,676,323) 4,537,966
------------- ----------- ------------- -------------
LONG-TERM DEBT......................................... 43,412 -- 43,412
------------- ----------- ------------- -------------
CAPITAL LEASE OBLIGATIONS.............................. 114,070 10,706 124,776
------------- ----------- ------------- -------------
SHAREHOLDERS' DEFICIT:
Common stock......................................... 545,368 93,800 12,307,511 12,946,679
Deferred compensation................................ (109,765) -- (109,765)
Accumulated deficit.................................. (3,011,000) (154,032) 154,032 (3,011,000)
Less--Treasury stock, at cost........................ (1,000,000) (30,000) 30,000 (1,000,000)
------------- ----------- ------------- -------------
Total shareholders' (deficit) equity............... (3,575,397) (90,232) 12,491,543 8,825,914
------------- ----------- ------------- -------------
$ 4,322,194 $ 394,654 $ 8,815,220 $ 13,532,068
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.

F-5
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

1. SIGNIFICANT ACCOUNTING POLICIES:

There are currently no material differences in the Companies' significant
accounting policies, therefore, no consideration has been given to conforming
the Companies' significant accounting policies in this pro forma presentation.
The Companies do not expect to have material changes to current accounting
policies in connection with the transaction. For further information on the
Companies significant accounting policies, see notes to the consolidated
financial statements of the Companies, included elsewhere in this proxy
statement.

2. LOSS FROM CONTINUING OPERATIONS PER COMMON SHARE:

The Combined Company has presented its net loss per common share for the
year ended December 31, 1998 and for the six months ended June 30, 1999 pursuant
to Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share."

Basic net loss per common share was computed by dividing the net loss by the
weighted average number of shares of Common stock outstanding during the year
ended December 31, 1998 and the six months ended June 30, 1999. Diluted loss per
common share has not been presented, since the impact on loss per share using
the treasury stock method is anti-dilutive due to the Combined Company's losses.
The shares used in computing pro forma combined net loss per share reflects the
following:

- Actual weighted average common shares outstanding for the periods
presented.

- Common shares issued for the Acquisition as if the transaction occurred on
January 1, 1998.

- Common shares issued for the conversion of the principal and accrued
interest on a $1,000,000 note payable to H&Q You Tools Investment Holding,
L.P. as if such conversion occurred on May 14, 1999, the date of the
original issuance of the note.

- Common shares to be issued for the conversion of the $3,050,000
convertible note payable to H&Q You Tools Investment Holding, L.P. upon
the consummation of the Offering as if such conversion occurred on May 28,
1998, the date of the original issuance of the note.

3. PRO FORMA ADJUSTMENTS:

The Pro Forma Balance Sheet reflects the application of the purchase method
of accounting pursuant to APB 16 for the Acquisition. The purchase price was
$4,299,996 excluding transaction costs of approximately $75,000. The application
of the purchase method of accounting will result in approximately $4,465,228 in
excess of purchase price over net tangible deficit acquired as of June 30, 1999.
Based on a preliminary analysis completed by management, it expects to allocate
$2,000,000 of this amount to customer list and the remaining amount of
$2,465,228 to goodwill. Customer list and goodwill are expected to be amortized
on a straight-line basis over 3 years. The final allocation of the purchase
price and the assignment of useful lives are subject to change.

F-6
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)

3. PRO FORMA ADJUSTMENTS: (CONTINUED)

<TABLE>
<S> <C>
COMPUTATION OF PRO FORMA PURCHASE PRICE OF INTERNET UNLIMITED

Issuance of 546,984 shares of Fastnet Common stock at $7.13 per share.......... $3,899,996
Cash paid...................................................................... 400,000
Transaction costs.............................................................. 75,000
----------
Pro forma purchase price..................................................... 4,374,996
Add- Deficit of Internet Unlimited at June 30, 1999.......................... 90,232
----------
Excess pro forma purchase price.............................................. $4,465,228
----------
----------
Preliminary Allocation of Excess Purchase Price
Customer list (3 year life).................................................. $2,000,000
Goodwill (3 year life)....................................................... 2,465,228
----------
$4,465,228
----------
----------
SUMMARY OF PRO FORMA BALANCE SHEET ADJUSTMENTS

Cash
Sales of Series A Preferred.................................................. $4,749,992
Payment of cash to acquire Internet Unlimited................................ (400,000)
----------
Pro forma increase in cash................................................. $4,349,992
----------
----------
Accrued expenses
Series A Preferred offering costs............................................ $ 310,000
Internet Unlimited transaction costs......................................... 75,000
----------
Pro forma increase in accrued expenses..................................... $ 385,000
----------
----------
Debt
Conversion of H&Q You Tools Investment Holding, L.P., $1,000,000 note and
accrued interest into Series A Preferred................................... (1,011,323)
Conversion of H&Q You Tools Investment Holding, L.P., $3,050,000 note into
Common stock............................................................... (3,050,000)
----------
Pro forma decrease in debt................................................. $(4,061,323)
----------
----------
Common stock
Acquisition of Internet Unlimited............................................ $3,899,996
Conversion of Series A Preferred into Common stock........................... 5,761,315
Conversion of H&Q You Tools Investment Holding, L.P. $3,050,000 note into
Series A Preferred......................................................... 3,050,000
Offering costs............................................................... (310,000)
Elimination of Internet Unlimited Common stock............................... (93,800)
----------
Pro forma increase in Common stock......................................... $12,307,511
----------
----------
Accumulated deficit
Elimination of Internet Unlimited accumulated deficit........................ $ (154,032)
----------
----------
Treasury stock
Elimination of Internet Unlimited treasury stock............................. $ (30,000)
----------
----------
</TABLE>

F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To FASTNET Corporation:

We have audited the accompanying balance sheets of FASTNET Corporation (a
Pennsylvania Corporation) as of December 31, 1997 and 1998, and the related
statements of operations, shareholders' deficit and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FASTNET Corporation as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.

/s/ Arthur Andersen LLP

Philadelphia, Pa.,
August 17, 1999

F-8
<PAGE>
FASTNET CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 88,981 $ 256,782 $ 524,671
Accounts receivable, net of allowance of $14,442, $17,187 and
$17,187............................................................. 449,662 878,523 1,201,120
Other current assets.................................................. 71,759 135,478 135,372
------------ ------------ ------------
Total current assets.............................................. 610,402 1,270,783 1,861,163
------------ ------------ ------------
PROPERTY AND EQUIPMENT, net............................................. 1,047,402 1,741,635 2,232,160
OTHER ASSETS............................................................ 25,541 214,423 228,871
------------ ------------ ------------
$ 1,683,345 $ 3,226,841 $ 4,322,194
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND
SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Line of credit........................................................ $ 217,489 $ -- $ --
Current portion of long-term debt..................................... 248,857 3,061,283 4,072,607
Current portion of capital lease obligations.......................... 31,206 52,921 41,838
Accounts payable...................................................... 879,174 1,289,156 1,827,683
Accrued expenses...................................................... 58,761 338,896 298,642
Deferred revenues..................................................... 622,053 885,164 1,499,339
------------ ------------ ------------
Total current liabilities......................................... 2,057,540 5,627,420 7,740,109
------------ ------------ ------------
LONG-TERM DEBT.......................................................... 127,272 44,816 43,412
------------ ------------ ------------
CAPITAL LEASE OBLIGATIONS............................................... 30,802 118,686 114,070
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)

SHAREHOLDERS' DEFICIT:
Preferred stock (Note 6).............................................. -- -- --
Common stock (Note 6)................................................. 124,000 366,478 545,368
Deferred compensation................................................. -- -- (109,765)
Accumulated deficit................................................... (656,269) (1,930,559) (3,011,000)
Less- Treasury stock, at cost......................................... -- (1,000,000) (1,000,000)
------------ ------------ ------------
Total shareholders' deficit....................................... (532,269) (2,564,081) (3,575,397)
------------ ------------ ------------
$ 1,683,345 $ 3,226,841 $ 4,322,194
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-9
<PAGE>
FASTNET CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Services............................ $ 1,545,072 $ 2,846,338 $ 4,875,471 $ 2,155,720 $ 3,469,506
Hardware and software............... 397,535 824,276 652,508 499,462 79,509
------------- ------------- ------------- ------------- -------------
1,942,607 3,670,614 5,527,979 2,655,182 3,549,015
------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES:
Cost of services.................... 740,186 1,771,968 2,572,732 1,066,605 2,065,187
Cost of hardware and software....... 421,825 561,951 669,009 475,748 50,951
Selling, general and
administrative.................... 793,336 1,445,224 3,067,740 1,177,104 2,154,680
Depreciation and amortization....... 78,804 177,375 346,568 140,384 247,796
------------- ------------- ------------- ------------- -------------
2,034,151 3,956,518 6,656,049 2,859,841 4,518,614
------------- ------------- ------------- ------------- -------------
Operating loss.................. (91,544) (285,904) (1,128,070) (204,659) (969,599)
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income..................... 1,151 1,305 15,256 6,831 10,746
Interest expense.................... (18,587) (38,368) (166,831) (54,521) (121,588)
Other............................... (6,244) 901 5,355 254 --
------------- ------------- ------------- ------------- -------------
(23,680) (36,162) (146,220) (47,436) (110,842)
------------- ------------- ------------- ------------- -------------
NET LOSS.............................. $ (115,224) $ (322,066) $ (1,274,290) $ (252,095) $ (1,080,441)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
BASIC AND DILUTED NET LOSS PER COMMON
SHARE............................... $ (0.01) $ (0.03) $ (0.14) $ (0.02) $ (0.15)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING.................. 11,575,000 11,575,000 8,880,833 10,761,666 7,000,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-10
<PAGE>
FASTNET CORPORATION

STATEMENTS OF SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
COMMON STOCK
------------------------ DEFERRED ACCUMULATED TREASURY
SHARES AMOUNT COMPENSATION DEFICIT STOCK TOTAL
------------ ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996.............. 11,575,220 $ 124,000 $ -- $ (334,203) $ -- $ (210,203)
Net loss.............................. -- -- -- (322,066) -- (322,066)
------------ ---------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997.............. 11,575,220 124,000 -- (656,269) -- (532,269)
Purchase of treasury stock............ (5,787,610) -- -- -- (1,000,000) (1,000,000)
Sale of Common stock.................. 1,000,000 200,000 -- -- -- 200,000
Issuance of Common stock to employees
for compensation.................... 212,390 42,478 -- -- -- 42,478
Net loss.............................. -- -- -- (1,274,290) -- (1,274,290)
------------ ---------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1998.............. 7,000,000 366,478 -- (1,930,559) (1,000,000) (2,564,081)
Issuance of Common stock options below
fair value (unaudited).............. -- 178,890 (178,890) -- -- --
Amortization of deferred compensation
(unaudited)......................... -- -- 69,125 -- -- 69,125
Net loss (unaudited).................. -- -- -- (1,080,441) -- (1,080,441)
------------ ---------- ------------- ------------- ------------- -------------
BALANCE, JUNE 30, 1999 (unaudited)...... 7,000,000 $ 545,368 $ (109,765) $ (3,011,000) $ (1,000,000) $ (3,575,397)
------------ ---------- ------------- ------------- ------------- -------------
------------ ---------- ------------- ------------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-11
<PAGE>
FASTNET CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- ----------------------
1996 1997 1998 1998 1999
--------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................ $(115,224) $(322,066) $(1,274,290) $ (252,095) $(1,080,441)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities-
Depreciation and amortization..... 78,804 177,375 346,568 140,384 247,796
Stock-based compensation
expense......................... -- -- 42,478 42,478 --
Amortization of deferred
compensation.................... -- -- -- -- 69,125
Changes in operating assets and
liabilities--
Decrease (increase) in assets--
Accounts receivable........... (176,554) (216,190) (428,861) (250,961) (322,597)
Other current assets.......... 4,603 (88,079) (252,601) (303,829) (14,342)
Increase (decrease) in
liabilities--
Accounts payable and accrued
expenses.................... 277,067 533,819 689,616 (301,911) 498,273
Deferred revenues............. 106,822 398,556 263,111 163,608 614,175
--------- --------- ---------- ---------- ----------
Net cash provided by (used
in) operating
activities................ 175,518 483,415 (613,979) (762,326) 11,989
--------- --------- ---------- ---------- ----------
INVESTING ACTIVITIES:
Purchases of property and
equipment......................... (331,153) (690,352) (899,996) (198,915) (738,321)
--------- --------- ---------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from long-term debt........ 381,873 215,599 3,344,000 3,300,000 1,000,000
Repayments of long-term debt........ (296,960) (46,049) (615,920) (609,258) (3,259)
Repayments of capital lease
obligations....................... (3,800) (22,712) (28,815) (14,135) (2,520)
Net borrowings (repayments) of line
of credit......................... 97,000 120,489 (217,489) (217,489) --
Purchase of treasury stock.......... -- -- (1,000,000) (1,000,000) --
Proceeds from sale of Common
stock............................. -- -- 200,000 200,000 --
--------- --------- ---------- ---------- ----------
Net cash provided by
financing activities...... 178,113 267,327 1,681,776 1,659,118 994,221
--------- --------- ---------- ---------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS......................... 22,478 60,390 167,801 697,877 267,889
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD........................... 6,113 28,591 88,981 88,981 256,782
--------- --------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.............................. $ 28,591 $ 88,981 $ 256,782 $ 786,858 $ 524,671
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-12
<PAGE>
FASTNET CORPORATION

NOTES TO FINANCIAL STATEMENTS

(INFORMATION AS OF JUNE 30, 1999, AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998, IS UNAUDITED)

1. THE COMPANY:

FASTNET Corporation (formerly You Tools Corporation) ("FASTNET" or the
"Company"), a Pennsylvania corporation, has been providing Internet access
services to its customers since 1994.The Company is a growing Internet services
provider targeting small and medium sized enterprises in selected high growth
secondary markets in the mid-Atlantic area of the United States. The Company
complements its Internet access services by delivering a wide range of enhanced
products and services that are designed to meet the needs of its target customer
base.

As of June 30, 1999, the Company had a working capital deficit of $5,878,946
and accumulated losses of $3,011,000. The Company has incurred losses since
inception and continues to incur losses in 1999. The Company intends to expand
its operation into new regions in the northeastern United States and eventually
across the entire country. To do so, the Company plans to construct and deploy
new facilities, increase its sales and marketing operations and enhance its
internal systems. The Company is subject to those risks associated with
companies in the early stages of development. The Company's future results of
operations involve a number of risks and uncertainties. Factors that could
affect the Company's future operating results and cause actual results to vary
materially from expectations include, but are not limited to, dependence on
major customers, risks from competition, new products and technological change,
dependence on key personnel, and potential year 2000 issues.

In August 1999, FASTNET sold 666,198 shares of Series A Convertible
Preferred stock ("Series A Preferred") to certain investors at $7.13 per share.
The Series A Preferred will convert into Common stock immediately prior the
consummation of FASTNET's initial public offering. The proceeds from the sales
of the Series A Preferred were $4,439,992, net of offering costs of $310,000.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INTERIM FINANCIAL STATEMENTS

The financial statements for the six months ended June 30, 1998 and 1999 are
unaudited, and in the opinion of management, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
financial position as of June 30, 1999 and the results of its operations for the
six months ended June 30, 1998 and 1999. The results of operations for the six
months ended June 30, 1999 are not necessarily indicative of the results to be
expected for the entire year.

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.

F-13
<PAGE>
FASTNET CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

CASH AND CASH EQUIVALENTS

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

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization are
provided on the straight-line basis over the estimated useful lives of the
respective assets, which range from 5 to 7 years. Maintenance, repairs and minor
replacements are charged to expense as incurred.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Carrying amounts of financial instruments held by the Company, which include
cash equivalents, accounts receivable, other current assets, accounts payable,
accrued expenses and deferred revenue, are reflected in the accompanying
financial statements at fair value due to the short-term nature of those
instruments. The carrying amount of long-term debt approximates fair value on
the balance sheet dates.

IMPAIRMENT OF LONG-LIVED ASSETS

In 1996, the Company adopted Statement of Financial Accounting Standard
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of." The Company reviews its long-lived assets,
primarily property and equipment, for impairment, whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows, without
interest charges, will be less than the carrying amount of the assets.
Impairment is measured at fair value. There have been no such asset impairments.

REVENUE RECOGNITION

Revenues include one-time and ongoing charges to customers for accessing the
Internet. One-time charges relate to porting, initial connection or other
related fees and are recognized as revenue when the Company completes the
process, typically when the customer is set up for initial or expanded service.
The Company recognizes ongoing access revenue over the period the services are
provided. The Company offers contracts for Internet access that are generally
paid for in advance by customers. The Company has deferred revenue recognition
on these advance payments and recognizes this revenue on a straight-line basis
over the service period.

Revenues also include revenues from the resale of products, including
hardware and software, revenues derived from web hosting services and other
revenues. The Company recognizes product sales revenue when the equipment is
shipped to the customer. The Company sells its Web hosting and related services
for contractual periods ranging from one to twelve months. These contracts
generally are cancelable by either party without penalty. Revenues from these
contracts are recognized ratably over the contractual period as services are
provided. Incremental fees for excess bandwidth usage and data storage are
billed and recognized as revenues in the period customers utilized such
services. Revenues include network installation, maintenance and consulting
services. These services are provided on a time-and-material basis and revenues
are recognized based upon time (at established rates) and other direct costs as
incurred.

F-14
<PAGE>
FASTNET CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

ADVERTISING

All advertising costs are expensed as incurred. Advertising expenses for the
years ended December 31, 1996, 1997 and 1998 and the six months ended June 30,
1998 and 1999 amounted to $105,053, $243,104, $625,264, $147,264 and $209,960,
respectively.

COST OF REVENUES

Cost of revenues includes telecommunications charges and other charges
incurred in the delivery and support of services, including personnel costs in
the Company's operations support function, as well as equipment costs related to
hardware and software sales. The telecommunications component of cost of
revenues was $671,578, $395,002, $651,526, $965,170 and $1,719,681 for the years
ended December 31, 1996, 1997, and 1998, and the six months ended June 30, 1998
and 1999, respectively.

INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using enacted tax rates
that are expected to be in effect when the differences reverse.

At December 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $1,450,000. The net operating loss
carryforward will begin to expire in 2010. The Company's utilization of its loss
carryforward could be limited pursuant to the Tax Reform Act of 1986, due to
cumulative changes in ownership in excess of 50%.

The Company has a net deferred tax asset primarily related to the net
operating loss carryforward and timing differences between the financial
reporting and tax accounting treatment of certain expenses. Due to the Company's
history of operating losses, the realization of the deferred tax asset is
uncertain. The Company has; therefore, provided a full valuation allowance
against the net deferred tax asset.

NET LOSS PER COMMON SHARE

The Company has presented net loss per share pursuant to SFAS No. 128,
"Earnings per Share," and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98. Basic loss per share was computed by dividing net
loss by the weighted average number of shares of Common stock outstanding during
the period. Diluted loss per share has not been presented, since the impact on
loss per share using the treasury stock method is antidilutive due to the
Company's losses.

F-15
<PAGE>
MAJOR CUSTOMERS

The Company derived revenues of approximately 18% from its largest customer
for the year ended December 31, 1996, 23% and 13% from its two largest customers
for the year ended December 31, 1997, 11% from its largest customer for the six
months ended June 30, 1998, and 20% and 10% from its two largest customers for
the six months ended June 30, 1999. The Company had no other customer which
exceeded 10% of revenues in 1996, 1997, 1998 or the six months ended June 30,
1998 and 1999.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash balances and trade receivables. The
Company invests its excess cash with federally insured banks. The Company does
not require collateral from its customers.

SUPPLEMENTAL CASH FLOW INFORMATION

For the years ended December 31, 1996, 1997 and 1998, and the six months
ended June 30, 1998 and 1999, the Company paid interest of $18,540, $36,281,
$171,101, $58,208 and $112,383, respectively. For the years ended December 31,
1997, 1998 and for the six months ended June 30, 1998, the Company paid income
taxes of $23,069, $103,187 and $85,581, respectively; these amounts are included
in other current assets in the accompanying balance sheets at June 30, 1999, as
the Company expects these amounts to be refunded. For the year ended December
31, 1996 and for the six months ended June 30, 1999, the Company paid no income
taxes.

STOCK-SPLIT

On May 28, 1998, the Company effected a 24,115-for-1 split. All references
in the financial statements to the number of shares and to per share amounts
have been retroactively restated to reflect this change.

3. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1997 1998 1999
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Equipment........................................... $ 920,610 $ 1,591,667 $ 2,063,766
Computer equipment.................................. 272,084 359,095 456,687
Computer software................................... 77,745 133,385 177,390
Furniture and fixtures.............................. 52,004 153,510 209,100
Leasehold improvements.............................. 14,209 125,109 204,806
------------ ------------ ------------
1,336,652 2,362,766 3,111,749

Less--Accumulated depreciation and amortization..... (289,250) (621,131) (879,589)
------------ ------------ ------------
$ 1,047,402 $ 1,741,635 $ 2,232,160
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

Depreciation and amortization expense for the years ended December 31, 1996,
1997 and 1998, and the six months ended June 30, 1998 and 1999 was $78,804,
$177,375, $346,568, $140,384 and $247,796, respectively. The net carrying value
of property and equipment under capital leases was $79,919, $188,883 and
$166,372 at December 31, 1997 and 1998 and June 30, 1999, respectively.

F-16
<PAGE>
4. LINE OF CREDIT:

The Company had a $500,000 line of credit with a bank. The line was paid in
full in May 1998 with the proceeds from a convertible note (see Note 5) and was
immediately cancelled.

5. DEBT:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1997 1998 1999
----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Convertible Notes Payable.......................... $ -- $ 3,050,000 $ 4,061,323
Demand Note Payable................................ 200,000 -- --
Term Loans......................................... 176,129 56,099 54,696
----------- ------------- -------------
376,129 3,106,099 4,116,019
Less--Current portion.............................. (248,857) (3,061,283) (4,072,607)
----------- ------------- -------------
$ 127,272 $ 44,816 $ 43,412
----------- ------------- -------------
----------- ------------- -------------
</TABLE>

On May 28, 1998, the Company sold a $3,050,000 convertible note (the
"Convertible Note"), and a warrant to purchase 1,000,000 shares of Common stock
at an exercise price of $1.50 per share to an investor. The investor also
purchased 1,000,000 shares of Common stock (see Note 6). The Black-Scholes
pricing model calculated a minimal value for the warrants; therefore, no
proceeds were assigned to the warrant.

The Convertible Note bears interest at 7% and is convertible into Common
stock at the option of the investor at any time prior to maturity at $1.50 per
share subject to adjustment, as defined. The Convertible Note is secured by
substantially all of the assets of the Company. Interest on the Convertible Note
is payable quarterly in arrears. The Convertible Note matures on November 30,
1999. On August 9, 1999, the investor agreed to extend the maturity of the
Convertible Note to January 31, 2001. The investor also agreed to convert the
Convertible Note into 2,033,334 shares of Common stock immediately prior to the
consummation of the Offering.

On May 14, 1999, the Company sold a $1,000,000 convertible note to an
investor (the "May 14(th) Convertible Note"). The May 14(th) Convertible Note
bears interest at 7%, and both principal and accrued interest are convertible at
the option of the holder at any time prior to maturity at rates subject to
adjustment based on the future sales price of the Company's Common stock.
Accrued interest at June 30, 1999 was $11,323 and such amount has been recorded
as debt on the accompanying balance sheet. In August 1999, this investor
converted the May 14(th) Convertible Note together with accrued and unpaid
interest on the note into 142,431 shares of Series A Preferred.

In 1997, the Company received a $21,873 term note from a financing company,
bearing interest at 10.75%. The outstanding balance at December 31, 1998 was
$14,772.

In 1998, the Company received a $44,000 term note from a bank, bearing
interest at 9%. The outstanding balance at December 31, 1998 was $41,828. Future
maturities on this term note are $7,096, $8,200, $8,969, $9,811, and $7,752 and
are due in 1999, 2000, 2001, 2002, and 2003, respectively.

In 1998, the Company received a $250,000 note from a customer bearing 7.5%
interest. The note was paid off in May 1998.

In 1997, the Company issued a $200,000 demand note bearing 8.0% interest to
a company controlled by a shareholder of FASTNET. The note was repaid in May
1998 with the proceeds from the Convertible Note.

F-17
<PAGE>
6. SHAREHOLDERS' EQUITY:

COMMON STOCK

The Company has 50,000,000 authorized shares of no par value Common stock.
The Company had 11,575,220 shares outstanding on December 31, 1997 and 7,000,000
shares outstanding on December 31, 1998.

In May 1998, the Company purchased 5,787,610 shares of Common stock from
certain employee shareholders (the "Sellers") of the Company. Subsequently in
May 1998, the Company sold 1,000,000 shares to an investor. The Company has
recorded the purchase from the Sellers as a purchase of treasury stock. Also, in
May 1998, the investor purchased a $3,050,000 note from the Company and received
a warrant to purchase 1,000,000 shares of Common stock for $1,500,000 (see Note
5). Also in May 1998, the Company issued 212,390 shares of fully vested Common
stock to certain employees. In connection with issuing these vested shares, the
Company charged $42,478 to compensation expense, the value of the 212,390
shares. This expense is included within selling, general and administrative
expenses in the accompanying statements of operations.

PREFERRED STOCK

The Company has 10,000,000 authorized shares of no par value Preferred
stock. The Company designated and issued 808,629 shares as Series A Preferred in
August 1999 (see Note 1).

COMMON STOCK OPTIONS

In March 1999, the Company approved the 1999 Equity Compensation Plan (the
"1999 Plan"). The 1999 Plan provides for the issuance of up to 1,000,000 shares
of Common stock for incentive stock options ("ISOs"), nonqualified stock options
("NQSOs") and restricted shares. ISOs are granted with exercise prices at or
above fair value as determined by the Board of Directors. NQSOs are granted with
exercise prices determined by the Board of Directors. Each option expires on
such date as the Board of Directors may determine, generally ten years.

The Company applies Accounting Principal Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and the related interpretations in
accounting for options issued under the 1999 Plan. Accordingly, compensation
expense is recognized for the intrinsic value (the difference between the
exercise price and the fair value of the Company's stock) on the date of grant.
Compensation, if any, is deferred and charged to expense over the respective
vesting period. The Company issued options to purchase 110,000 shares of Common
stock for $2.50 per share in May 1999, at this time the fair value of the
Company's Common stock was $4.00 per share. The Company issued options to
purchase 3,000 shares of Common stock for $2.50 per share in June 1999, at this
time the fair value of the Company's Common stock was $7.13 per share. These
options vest over periods ranging from one to five years. As a result of these
option grants, deferred compensation of $178,890 was recorded as additional
paid-in capital for the six months ended June 30, 1999, and the resulting
amortization expense as a result of its amortization was $69,125 in the same
period.

Under SFAS No. 123, "Accounting for Stock-Based Compensation," compensation
cost related to stock options granted to employees is computed based on the
value of the stock option at the date of grant using an option valuation
methodology, typically the Black-Scholes pricing model. SFAS No. 123 can be
applied either by recording the fair value of the options or by continuing to
record the APB No. 25 value and disclosing the SFAS No. 123 impact on a pro
forma basis. The Company has elected the disclosure method of SFAS No. 123.

F-18
<PAGE>
6. SHAREHOLDERS' EQUITY: (CONTINUED)
Information with respect to outstanding options under the 1999 Plan is as
follows:

<TABLE>
<CAPTION>
OPTIONS
AVAILABLE AVERAGE
FOR OUTSTANDING EXERCISE
GRANT OPTIONS PRICE RANGE PRICE
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Plan inception, March 3, 1999............ 1,000,000 -- $ -- $ --
Granted................................ (563,000) 563,000 $1.50-$2.50 $ 1.70
------------ ----------- ------------- -----
Outstanding, June 30, 1999............... 437,000 563,000 $1.50-$2.50 $ 1.70
------------ ----------- ------------- -----
------------ ----------- ------------- -----
</TABLE>

As of June 30, 1999, there were 295,000 options vested under the 1999 Plan.

WARRANTS

In May 1998, the Company issued a warrant to an investor to purchase
1,000,000 shares of Common stock at an exercise price of $1.50 per share (see
Note 5). This warrant is currently exercisable and expires in May 2005.

7. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company leases office space and equipment under capital and operating
leases expiring through August 2005. Rent expense under the operating leases was
$40,384, $221,851, $542,447, $210,420, and $466,716 during 1996, 1997, 1998, and
the six months ended June 30, 1998 and 1999, respectively. The interest rates
implicit in the capital leases range from 6.6% to 12.7%. Future minimum lease
payments as of December 31, 1998, are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ------------
<S> <C> <C>
1999................................................................ $ 55,357 $ 841,273
2000................................................................ 27,304 687,059
2001................................................................ 28,608 417,396
2002................................................................ 28,608 129,564
2003................................................................ 28,608 131,004
2004 and thereafter................................................. 7,151 218,340
---------- ------------
Total minimum lease payments........................................ 175,636 $ 2,424,636
------------
------------
Less--Imputed interest (4,029)
----------
----------
Present value of future minimum lease payments...................... 171,607
Less--Current portion............................................... (52,921)
----------
$ 118,686
----------
----------
</TABLE>

LITIGATION

From time-to-time, the Company is involved in certain legal actions arising
in the ordinary course of business. In the Company's opinion, based on the
advise of counsel, the outcome of such actions will not have a material adverse
effect on the Company's future financial position or results of operations.

F-19
<PAGE>
8. ACQUISITION

On July 30, 1999, the Company acquired 100% of the capital stock of Internet
Unlimited, Inc., a provider of Web hosting and collocation services, for
approximately $400,000 in cash and 546,984 shares of Common stock with estimated
transaction costs of $75,000. The acquisition will be accounted for using the
purchase method of accounting pursuant to APB No. 16 "Accounting for Business
Combinations." The Company expects the excess of purchase price over the fair
value of net liabilities acquired to be approximately $4,500,000. The Company
expects to allocate the excess purchase price to customer list and goodwill.

F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Internet Unlimited, Inc.:

We have audited the accompanying balance sheets of Internet Unlimited, Inc.
(a Pennsylvania Corporation) as of December 31, 1997 and 1998, and the related
statements of operations, shareholders' deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Internet Unlimited, Inc. as
of December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.

/s/ Arthur Andersen LLP

Philadelphia, Pa.,
July 30, 1999

F-21
<PAGE>
INTERNET UNLIMITED, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 3,639 $ 2,614 $ 45,454
Accounts receivable....................................................... 85,144 134,448 112,124
Other current assets...................................................... 15,028 23,207 15,813
---------- ---------- -----------
Total current assets.................................................... 103,811 160,269 173,391
---------- ---------- -----------
PROPERTY AND EQUIPMENT, net................................................. 94,380 128,770 210,961
OTHER ASSETS................................................................ 11,322 5,069 10,302
---------- ---------- -----------
$ 209,513 $ 294,108 $ 394,654
---------- ---------- -----------
---------- ---------- -----------

LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of capital lease obligations.............................. $ -- $ -- $ 6,898
Accounts payable and accrued expenses..................................... 27,167 31,310 41,306
Deferred revenues......................................................... 123,308 185,004 271,422
Due to shareholder........................................................ 115,550 150,554 154,554
---------- ---------- -----------
Total current liabilities............................................... 266,025 366,868 474,180
---------- ---------- -----------
CAPITAL LEASE OBLIGATIONS................................................... -- -- 10,706
---------- ---------- -----------
COMMITMENTS (Note 6)
SHAREHOLDERS' DEFICIT:
Common stock, no par value, 1,000 shares authorized, 100, 67, and 67
shares issued and outstanding at December 31, 1997 and 1998, and June
30, 1999, respectively.................................................. 93,800 93,800 93,800
Accumulated deficit....................................................... (150,312) (136,560) (154,032)
Less--Treasury stock, at cost, 33 shares.................................. -- (30,000) (30,000)
---------- ---------- -----------
Total shareholders' deficit............................................. (56,512) (72,760) (90,232)
---------- ---------- -----------
$ 209,513 $ 294,108 $ 394,654
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-22
<PAGE>
INTERNET UNLIMITED, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:.......................................... $ 523,528 $ 721,005 $ 318,902 $ 666,011
OPERATING EXPENES:
Cost of revenues (see Note 2).................. 224,045 207,116 109,731 142,996
Selling general and administrative............. 381,947 449,000 151,380 485,297
Depreciation and amortization.................. 21,766 32,840 15,019 32,798
--------- --------- --------- ---------
627,758 688,956 276,130 661,091
--------- --------- --------- ---------
Operating income (loss).................... (104,230) 32,049 42,772 4,920
INTEREST EXPENSE................................... 10,407 18,297 6,841 22,392
--------- --------- --------- ---------
NET INCOME (LOSS).................................. $(114,637) $ 13,752 $ 35,931 $ (17,472)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these statements.

F-23
<PAGE>
INTERNET UNLIMITED, INC.

STATEMENTS OF SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TREASURY STOCK TOTAL
----------- --------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996.......................... 100 $ 37,100 $ (35,675) $ -- $ 1,425
Contribution of Common stock by
an officer...................................... (63) 56,700 -- (56,700) --
Issuance of Common stock to employees for
compensation.................................... 63 -- -- 56,700 56,700
Net loss.......................................... -- -- (114,637) -- (114,637)
--- --------- ------------ -------------- ----------
BALANCE, DECEMBER 31, 1997.......................... 100 93,800 (150,312) -- (56,512)
Purchase of treasury stock........................ (33) -- -- (30,000) (30,000)
Net income........................................ -- -- 13,752 -- 13,752
--- --------- ------------ -------------- ----------
BALANCE, DECEMBER 31, 1998.......................... 67 93,800 (136,560) (30,000) (72,760)
Net loss (unaudited).............................. -- -- (17,472) -- (17,472)
--- --------- ------------ -------------- ----------
BALANCE, JUNE 30, 1999 (unaudited).................. 67 $ 93,800 $ (154,032) $ (30,000) $ (90,232)
--- --------- ------------ -------------- ----------
--- --------- ------------ -------------- ----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-24
<PAGE>
INTERNET UNLIMITED, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................... $(114,637) $ 13,752 $ 35,931 $ (17,472)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities-
Depreciation and amortization..................... 21,766 32,840 15,019 32,798
Stock-based compensation expense.................. 56,700 -- -- --
Changes in operating assets and liabilities-
Decrease (increase) in assets--
Accounts receivable........................... (48,262) (49,304) 22,937 22,324
Other current assets.......................... (17,501) (7,523) 11,686 (637)
Increase (decrease) in liabilities--
Accounts payable and accrued expenses......... 20,259 4,143 (6,959) 9,996
Deferred revenues............................. 69,479 61,696 9,537 86,418
--------- --------- --------- ---------
Net cash (used in) provided by operating
activities................................ (12,196) 55,604 88,151 133,427
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment................. (78,232) (61,633) (42,471) (90,234)
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from shareholder loan...................... 94,996 40,000 20,000 34,000
Repayments on shareholder loan...................... -- (4,996) (34,996) (30,000)
Repayments of capital lease obligations............. (1,943) -- -- (4,353)
Purchase of treasury stock.......................... -- (30,000) (24,000) --
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities................................ 93,053 5,004 (38,996) (353)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... 2,625 (1,025) 6,684 42,840
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........ 1,014 3,639 3,639 2,614
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 3,639 $ 2,614 $ 10,323 $ 45,454
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these statements.

F-25
<PAGE>
INTERNET UNLIMITED, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)

1. THE COMPANY:

Internet Unlimited, Inc. (the "Company"), a Pennsylvania corporation,
commenced operations in 1995 as a partnership. The Company provides Web hosting
and collocation services.

As of June 30, 1999, the Company had a working capital deficit of $300,789
and accumulated losses of $154,032. The Company has incurred losses since
inception and continues to incur losses in 1999. The Company intends to invest
in expanding its network operations center, marketing, promotion, and
development of its infrastructure. The Company's future results of operations
involve a number of risks and uncertainties. Factors that could affect the
Company's future operating results and cause actual results to vary materially
from expectations include, but are not limited to, risks from competition, new
products and technological change, dependence on key personnel, availability of
capital, and potential year 2000 issues.

On July 30, 1999, FASTNET Corporation ("FASTNET") purchased all of the
outstanding capital stock of the Company pursuant to a definitive merger
agreement.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INTERIM FINANCIAL STATEMENTS

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

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

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization are
provided generally on the straight-line basis over the estimated useful lives of
the respective assets, which is currently 5 years for all assets. Maintenance,
repairs and minor replacements are charged to expense as incurred.

F-26
<PAGE>
INTERNET UNLIMITED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS

Carrying amounts of financial instruments held by the Company, which include
cash equivalents, accounts receivable, other current assets, accounts payable,
accrued expenses and deferred revenues, are reflected in the accompanying
financial statements at fair value due to the short-term nature of those
instruments.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company follows Statement of Financial Accounting Standard ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of." The Company reviews its long-lived assets, primarily
property and equipment, for impairment, whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows, without
interest charges, will be less than the carrying amount of the assets.
Impairment is measured at fair value. There have been no such asset impairments.

REVENUE RECOGNITION

The Company recognizes ongoing Web hosting and collocation services revenue
over the period the services are provided. The Company offers contracts for Web
hosting and collocation services that are generally paid for in advance by
customers. The Company has deferred revenue recognition on these advance
payments and records the amounts to revenue on a straight-line basis over the
service period.

COST OF REVENUES

Cost of revenues includes initial set-up and recurring Web hosting charges,
telecommunications charges and other charges incurred in the delivery and
support of services. The Company uses FASTNET for all telecommunication
services. The telecommunications component of cost of revenues was $106,172,
$123,800, $58,750 and $87,080 for the years ended December 31, 1997 and 1998,
and for the six months ended June 30, 1998 and 1999, respectively.

ADVERTISING EXPENSES

All advertising costs are expensed as incurred. Advertising expenses for the
years ended December 31, 1997 and 1998 and the six months ended June 30, 1998
and 1999 amounted to $7,267, $65,193, $4,425 and $77,304, respectively.

INCOME TAXES

From inception to June 30, 1996, the Company was a partnership. Effective
July 1, 1996, the Company elected to be taxed under Subchapter S of the Internal
Revenue Code. As a result, the Company was not subject to federal or state
income taxes, and the taxable loss or income of the Company was included in the
shareholders' individual tax returns.

F-27
<PAGE>
INTERNET UNLIMITED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash balances. The Company invests its
excess cash with federally insured banks. The Company does not require
collateral from its customers.

SUPPLEMENTAL CASH FLOW INFORMATION

For the years ended December 31, 1997 and 1998, and the six months ended
June 30, 1998 and 1999, the Company paid cash for interest of $1,690, $2,433, $0
and $3,592, respectively.

3. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Equipment............................................... $ 113,919 $ 175,552 $ 264,931
Leasehold improvements.................................. -- -- 18,310
Furniture and fixtures.................................. -- -- 4,502
---------- ---------- -----------
113,919 175,552 287,743
Less--Accumulated depreciation.......................... (19,539) (46,782) (76,782)
---------- ---------- -----------
$ 94,380 $ 128,770 $ 210,961
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

Depreciation and amortization expense for the years ended December 31, 1997
and 1998, and the six months ended June 30, 1998 and 1999 was $21,766, $32,840,
$15,019 and $32,798, respectively. The net carrying value of property and
equipment under capital leases was zero, zero and $20,312 at December 31, 1997
and 1998, and June 30, 1999, respectively.

4. DUE TO SHAREHOLDERS:

During 1997 and 1998, a certain officer/shareholder made loans to the
Company through personal borrowing from a bank. The borrowings are due on
demand. The Company pays interest on such borrowings at an annual rate of 6%,
payable monthly. The Company had $115,550 and $150,554 outstanding under these
loans at December 31, 1997 and 1998, respectively.

5. SHAREHOLDERS' EQUITY:

COMMON STOCK

In 1997, an officer/shareholder of the Company contributed 63 shares of
Common stock to the Company with a fair value of $56,700. As a result of the
transaction, the Company recorded an increase to Common stock for the fair value
of these shares with an offset to treasury stock. Immediately following this
contribution, the Company distributed these 63 shares of Common stock equally
among the other shareholders/officers of the Company. The distribution was
recorded as compensation expense for the fair value of the Common stock
distributed.

F-28
<PAGE>
INTERNET UNLIMITED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS:

LEASES

The Company leases office space under a non-cancelable operating lease,
expiring in 2002. Rent expense under the operating lease was $21,382, $34,270,
$18,136, and $35,298 during 1997, 1998, and the six months ended June 30, 1998
and 1999, respectively. Future minimum lease payments as of December 31, 1998,
are as follows:

<TABLE>
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
1999.............................................................................. $ 38,721
2000.............................................................................. 39,785
2001.............................................................................. 40,848
2002.............................................................................. 24,360
----------
Total minimum lease payments...................................................... $ 143,714
----------
----------
</TABLE>

F-29
<PAGE>

4,000,000 SHARES

[LOGO]

COMMON STOCK

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

PROSPECTUS

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

ING BARINGS
SOUNDVIEW TECHNOLOGY GROUP
FAC/EQUITIES

DLJDIRECT INC.

, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses (other than underwriting discounts and commissions) payable in
connection with this offering are as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 15,346
NASD filing fee................................................. 5,500
Nasdaq filing fee............................................... 30,000
Printing and engraving expenses................................. 240,000
Legal fees and expenses......................................... 400,000
Accounting fees and expenses.................................... 500,000
Blue Sky fees and expenses (including legal fees)............... 2,500
Transfer agent and rights agent and registrar fees and
expenses...................................................... 20,000
Miscellaneous................................................... 386,654
---------
Total....................................................... $1,600,000
---------
---------
</TABLE>

All expenses are estimated except for the Securities and Exchange Commission
fee and the NASD fee.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Registrant's Amended and Restated Articles of Incorporation provide that
pursuant to and to the extent permitted by Pennsylvania law, the Registrant's
directors shall not be personally liable for monetary damages for breach of any
duty owed to the Registrant and its shareholders. This provision does not
eliminate the duty of care, and, in appropriate circumstances, equitable
remedies such as an injunction or other forms of non-monetary relief would
remain available under Pennsylvania law. In addition, each director will
continue to be subject to liability for breach of the director's duty of loyalty
to the Registrant, for acts or omissions not in good faith or involving knowing
violations of law, or for actions resulting in improper personal benefit to the
director. The provision also does not affect a director's responsibilities under
any other law, such as federal securities laws or state or federal environmental
laws. The Registrant's Second Amended and Restated Bylaws provide that the
Registrant shall indemnify its officers and directors to the fullest extent
permitted by Pennsylvania law, including some instances in which indemnification
is otherwise discretionary under Pennsylvania law. Pennsylvania law permits the
Registrant to provide similar indemnification to employees and agents who are
not directors or officers. The determination of whether an individual meets the
applicable standard of conduct may be made by the disinterested directors,
independent legal counsel or the shareholders. Pennsylvania law also permits
indemnification in connection with a proceeding brought by or in the right of
the Registrant to procure a judgment in its favor. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers, or persons controlling the Registrant pursuant to the foregoing
provisions, the Registrant has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in that
Act and is therefore unenforceable.

In general, any officer or director of the Registrant shall be indemnified
by the Registrant against expenses including attorneys' fees, judgments, fines
and settlements actually and reasonably incurred by that person in connection
with a legal proceeding as a result of such relationship, whether or not the
indemnified liability arises from an action by or in the right of the
Registrant, if the officer or director acted in good faith, and in the manner
believed to be in or not opposed to the Registrant's best

II-1
<PAGE>
interest, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct was unlawful. Such indemnity is limited
to the extent that (i) such person is not otherwise indemnified and (ii) such
indemnifications are not prohibited by Pennsylvania law or any other applicable
law.

Any indemnification under the previous paragraph (unless ordered by a court)
shall be made by the Registrant only as authorized in the specific case upon the
determination that indemnification of the director or officer is proper in the
circumstances because that person has met the applicable standard of conduct set
forth above. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum of disinterested directors who are not parties to such
action or (ii) if such quorum is not obtainable or, even if obtainable, a quorum
of disinterested directors so directs, by independent legal counsel in a written
opinion. To the extent that a director or officer of the Registrant shall be
successful in prosecuting an indemnity claim, the reasonable expenses of any
such person and the fees and expenses of any special legal counsel engaged to
determine the possibility of indemnification shall be borne by the Registrant.

Expenses incurred by a director or officer of the Registrant in defending a
civil or criminal action, suit or proceeding shall be paid by the Registrant in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that person is not entitled to be
indemnified by the Registrant as authorized by our Bylaws.

The indemnification and advancement of expenses provided by, or granted
pursuant to Article 10 of our Bylaws is not deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled, both as to action in that person's official capacity and as to action
in another capacity while holding such office.

The Board of Directors has the power to authorize the Registrant to purchase
and maintain insurance on behalf of the Registrant and others to the extent that
power to do so has not been prohibited by Pennsylvania law, create any fund to
secure any of its indemnification obligations and give other indemnification to
the extent permitted by law. The obligations of the Registrant to indemnify a
director or officer under Article 10 of our Bylaws is a contract between the
Registrant and such director or officer and no modification or repeal of our
Bylaws shall detrimentally affect such officer or director with regard to that
person's acts or omissions prior to such amendment or repeal.

The Registrant intends to purchase insurance for its directors and officers
for certain losses arising from claims or charges made against them in their
capacities as directors and officers of the Registrant.

The Underwriting Agreement provides that the underwriters are obligated,
under certain circumstances, to indemnify directors, officers, and controlling
persons of the Registrant against certain liabilities, including liabilities
under the Securities Act. Reference is made to Section of the form of
Underwriting Agreement which will be filed by amendment as Exhibit 1.1 hereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In the preceding three years, the Registrant has issued the following
securities that were not registered under the Securities Act:

Since its inception, the Registrant has issued to employees and H&Q You
Tools Investment Holding, L.P. an aggregate of 7,000,000 shares of common stock
and to employees and directors options to purchase 585,000 shares issued
pursuant to the Registrant's Equity Compensation Plan. All of such sales were
made under the exemption from registration provided under Section 4(2) of the
Securities Act.

II-2
<PAGE>
On May 29, 1998, the Registrant issued 1,000,000 shares of common stock for
$.20 per share and a warrant to purchase 1,000,000 shares of our common stock at
a per share exercise price of $1.50 at any time on or before May 30, 2005 to H&Q
You Tools Investment Holding L.P. This sale was made under the exemption from
registration provided under Section 4(2) of the Securities Act.

Pursuant to the Registrant's Equity Compensation Plan, the Registrant has
granted since its inception options to purchase a total of 585,000 shares of
common stock, of which 450,000 are exercisable at a price of $1.50 per share,
115,000 are exercisable at a price of $2.50 per share and 20,000 are exercisable
at a price of $7.13. No options have been exercised. For a more detailed
description of our Equity Compensation Plan, see "Management--Equity
Compensation Plan" in this Registration Statement. In granting the options and
selling the underlying securities upon exercise of the options, the Registrant
relied upon exemptions from registration set forth in Rule 701 and Section 4(2)
of the Securities Act.

On June 30, 1999, the Registrant issued 546,984 shares of common stock to
the shareholders of Internet Unlimited, Inc. in connection with the Registrant's
acquisition of Internet Unlimited, Inc. These sales were made under the
exemption from registration provided under Section 4(2) of the Securities Act.

In August 1999, the Registrant's issued 666,198 shares of preferred stock to
H&Q You Tools Investment Holding L.P., Naveen Jain, Everest Venture Partners I,
L.P., Entrepreneurial Investment Corporation, J.F. Shea Co. Inc., as nominee,
Lucent Technologies, Inc., InterNetworking Systems, at a price of $7.13 per
share. All of these sales were made under the exemption from registration
provided under Section 4(2) of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS:

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

1.1# Form of Underwriting Agreement.

3.1+ Amended and Restated Articles of Incorporation of the Registrant.

3.2+ Second Amended and Restated Bylaws of the Registrant.

5.1# Opinion of Morgan, Lewis & Bockius LLP.

10.1+ 1999 Equity Compensation Plan of the Registrant.

10.2 Investor Rights Agreement between the Registrant and the investors listed on Exhibit A thereto,
dated August 3, 1999.

10.3#* MCI WorldCom On-Net Voice Agreement between the Registrant and MCI WorldCom, Inc., dated August
6, 1999.

10.4#* Customer Service Agreement between Sprint Communications Company, L.P. and the Registrant, dated
June 28, 1999.

10.5#* Agreement between UUNET Technologies, Inc. and the Registrant, dated August 11, 1999.

10.6#* Managed Security Services Provider Agreement by and between WatchGuard Technologies, Inc. and
the Registrant, dated October 30, 1998.

10.7#* Co-location License by and between Switch and Data Facilities Site Two, L.P. and the Registrant,
dated January 1, 1999.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- --------------- ------------------------------------------------------------------------------------------------
<S> <C>
10.8#* Commercial Lease Agreement by and between RB Associates and the Registrant, dated July 22, 1998.

10.9#* Lease Agreement between Holland Center, L.L.C. and the Registrant, dated June 15, 1999.

10.10#* Equipment Lease Agreement between Bay Networks USA, Inc. and the Registrant, dated May 29, 1997.

10.11#* Master Lease Agreement between Sunrise Leasing Corporation (Cisco Systems, Inc.) and the
Registrant, dated October 23, 1997.

10.12#* Letter of Agreement between the Registrant and Ascend Communications, Inc./ Ascend Credit
Corporation, dated February 10, 1997.

10.13#* Master Lease Agreement between Sun Microsystems, Inc. and the Registrant, dated February 21,
1997.

10.14#* Lease Agreement between Middle States Capital Corporation and the Registrant, dated August 13,
1997.

10.15#* Service Agreement between Service Electric Cable TV, Inc. and the Registrant, dated as of May
12, 1999.

10.16#* Agreement between NEXTLINK Pennsylvania, Inc. and the Registrant, dated May 25, 1999.

10.17#* Service Agreement between Hyperion Communications of New Jersey, LLC and the Registrant, dated
May 12, 1999.

10.18#* Master Lease Agreement between Ascend Credit Corporation and the Registrant, dated June 29,
1999.

10.19#* Agreement between WebTV Networks, Inc. and the Registrant, dated September 4, 1997.

10.20#* Form of Agreement between Focal Communications Corporation and the Registrant.

10.21+ Convertible Promissory Note between H&Q You Tools Investment Holding, L.P. and the Registrant,
dated May 28, 1998.

10.22 Common Stock Warrant Purchase Agreement by and among the Registrant and H&Q You Tools Investment
Holding, L.P., dated May 28, 1998.

10.23+ Statement with Respect to Shares of Series A Convertible Preferred Stock of the Registrant,
dated August 2, 1999.

21.1+ Subsidiaries of the Registrant.

23.1 Consent of Arthur Andersen LLP relating to the Registrant.

23.2 Consent of Arthur Andersen LLP relating to Internet Unlimited, Inc.

23.3# Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).

24.1 Power of Attorney (included on signature page).

27.1+ Financial Data Schedule.
</TABLE>

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

# To be filed by amendment.

+ Previously filed.

II-4
<PAGE>

* We have requested confidential treatment of certain portions of this exhibit
pursuant to Rule 406 of the Securities Act of 1933. The entire agreement
will be filed separately with the Securities and Exchange Commission.

(B) FINANCIAL STATEMENT SCHEDULES

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

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

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

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

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

(iii) To include any material information with respect to the plan of
distribution no previously disclosed in the registration statement or
any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment 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.

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

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to 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 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 Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes (1) to provide to the
underwriter at the closing specified in the standby underwriting agreement,
certificates in such denominations and registered in

II-5
<PAGE>
such names as required by the underwriter to permit prompt delivery to each
purchaser; (2) that for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of a registration
statement in reliance upon Rule 430(a) and contained in the form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
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 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.

The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriter during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriter, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriter is to be made on terms differing from those set
forth on the cover page of the prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.

II-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Bethlehem,
Pennsylvania, on September 28, 1999.

FASTNET CORPORATION

By: /s/ DAVID K. VAN ALLEN
-----------------------------------------
David K. Van Allen
CHIEF EXECUTIVE OFFICER

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

SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ DAVID K. VAN ALLEN Chief Executive Officer and
- ------------------------------ Director (Principal September 28, 1999
David K. Van Allen Executive Officer)

/s/ STANLEY F. BIELICKI Chief Financial Officer
- ------------------------------ (Principal Financial and September 28, 1999
Stanley F. Bielicki Accounting Officer)

/s/ SONNY C. HUNT President and Director
- ------------------------------ September 28, 1999
Sonny C. Hunt

/s/ DOUGLAS L. MICHELS Director
- ------------------------------ September 28, 1999
Douglas L. Michels

II-7
<PAGE>
EXHIBIT INDEX

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

1.1# Form of Underwriting Agreement.

3.1+ Amended and Restated Articles of Incorporation of the Registrant.

3.2+ Second Amended and Restated Bylaws of the Registrant.

5.1# Opinion of Morgan, Lewis & Bockius LLP.

10.1+ 1999 Equity Compensation Plan of the Registrant.

10.2 Investor Rights Agreement between the Registrant and the investors listed on Exhibit A thereto, dated
August 3, 1999.

10.3#* MCI WorldCom On-Net Voice Agreement between the Registrant and MCI WorldCom, Inc., dated August 6,
1999.

10.4#* Customer Service Agreement between Sprint Communications Company, L.P. and the Registrant, dated June
28, 1999.

10.5#* Agreement between UUNET Technologies, Inc. and the Registrant, dated August 11, 1999.

10.6#* Managed Security Services Provider Agreement by and between WatchGuard Technologies, Inc. and the
Registrant, dated October 30, 1998.

10.7#* Co-location License by and between Switch and Data Facilities Site Two, L.P. and the Registrant,
dated January 1, 1999.

10.8#* Commercial Lease Agreement by and between RB Associates and the Registrant, dated July 22, 1998.

10.9#* Lease Agreement between Holland Center, L.L.C. and the Registrant, dated June 15, 1999.

10.10#* Equipment Lease Agreement between Bay Networks USA, Inc. and the Registrant, dated May 29, 1997.

10.11#* Master Lease Agreement between Sunrise Leasing Corporation (Cisco Systems, Inc.) and the Registrant,
dated October 23, 1997.

10.12#* Letter of Agreement between the Registrant and Ascend Communications, Inc./Ascend Credit Corporation,
dated February 10, 1997.

10.13#* Master Lease Agreement between Sun Microsystems, Inc. and the Registrant, dated February 21, 1997.

10.14#* Lease Agreement between Middle States Capital Corporation and the Registrant, dated August 13, 1997.

10.15#* Service Agreement between Service Electric Cable TV, Inc. and the Registrant, dated May 12, 1999.

10.16#* Agreement between NEXTLINK Pennsylvania, Inc. and the Registrant, dated May 25, 1999.

10.17#* Service Agreement between Hyperion Communications of New Jersey, LLC and the Registrant, dated May
12, 1999.
</TABLE>

II-8
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------------
<S> <C>
10.18#* Master Lease Agreement between Ascend Credit Corporation, Inc. and the Registrant, dated June 29,
1999.

10.19#* Agreement between WebTV Networks, Inc. and the Registrant, dated September 4, 1997.

10.20#* Form of Agreement between Focal Communications Corporation and the Registrant.

10.21+ Convertible Promissory Note between H&Q You Tools Investment Holding, L.P. and the Registrant, dated
May 28, 1998.

10.22 Common Stock Warrant Purchase Agreement by and among the Registrant and H&Q You Tools Investment
Holding, L.P., dated May 28, 1998.

10.23+ Statement with Respect to Shares of Series A Convertible Preferred Stock of the Registrant, dated
August 2, 1999.

21.1+ Subsidiaries of the Registrant.

23.1 Consent of Arthur Andersen LLP relating to the Registrant.

23.2 Consent of Arthur Andersen LLP relating to Internet Unlimited, Inc.

23.3# Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).

24.1 Power of Attorney (included on signature page).

27.1+ Financial Data Schedule.
</TABLE>

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

# To be filed by amendment.

+ Previously filed.

II-9

EXHIBIT 10.2

FASTNET CORPORATION

INVESTOR RIGHTS AGREEMENT

This Investor Rights Agreement (the "AGREEMENT") is made as of the 3rd
day of August, 1999, between FASTNET Corporation, a Pennsylvania corporation
(the "COMPANY"), and the investors on EXHIBIT A hereto, each of which is herein
referred to as an "INVESTOR" and collectively, the "INVESTORS."

RECITALS

A. Concurrently with the execution and delivery of this Agreement, the
Company and the Investors are entering into a Series A Preferred Stock Purchase
Agreement whereby the Company is selling and the Investors are purchasing shares
of the Company's Series A Preferred Stock (the "PURCHASE AGREEMENT"). A
condition to the Investors' obligations under the Series A Preferred Stock
Purchase Agreement is that the Company and the Investors enter into this
Agreement. Capitalized terms used, but not defined herein shall have the
meanings given them in the Purchase Agreement.

B. By this Agreement, the Company and the Investors desire to provide
for certain registration and other rights as set forth herein.

AGREEMENT

The parties, intending to be legally bound, hereby agree as follows:

1. REGISTRATION RIGHTS.

1.1 DEFINITIONS. For purposes of this Section 1:

(a) The terms "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933, as
amended (the "ACT"), and the declaration or ordering of effectiveness of such
registration statement or document;

(b) The term "REGISTRABLE SECURITIES" means (i) the shares
of Common Stock issuable or issued upon conversion of the Series A Preferred
Stock issued or issuable pursuant to the Purchase Agreement (such shares of
Common Stock are collectively referred to hereinafter as the "STOCK"), and (ii)
any other shares of Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, the Stock; PROVIDED, HOWEVER, that the foregoing definition
shall exclude in all cases any Registrable Securities sold by a person in a
transaction in which his or her rights under this Agreement are not assigned.
Notwithstanding the foregoing, Common Stock or other securities

<PAGE>

shall only be treated as Registrable Securities if and so long as (A) they have
not been sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, (B) have not been sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Act under Section 4(1) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale; (C) may be sold pursuant to Rule 144(k) (or any
similar provision then in force) under the Act.

(c) The number of shares of "REGISTRABLE SECURITIES THEN
OUTSTANDING" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;

(d) The term "HOLDER" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof;

(e) The term "FORM S-3" means such form under the Act as in
effect on the date hereof or any successor form under the Act; and

(f) The term "SEC" means the Securities and Exchange
Commission.

1.2 REQUEST FOR REGISTRATION.

(a) If the Company shall receive at any time after the
earlier of (i) December 31, 2003 or (ii) nine (9) months after the effective
date of the first registration statement for a public offering of Common Stock
(other than a registration statement relating either to the sale of securities
to employees of the Company pursuant to a stock option, stock purchase or
similar plan or transactions under Rule 145 under the Act, a registration in
which the only stock being registered is Common Stock issuable upon conversion
of debt securities which are also being registered, or any registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of
Registrable Securities) (an "Initial Public Offering"), a written request from
the Holders of at least twenty percent (20%) of the Registrable Securities then
outstanding that the Company file a registration statement (including but not
limited to registration statements on Form S-1 and Form SB-2) under the Act
covering the registration of at least twenty percent (20%) of the Registrable
Securities then outstanding then the Company shall, within ten (10) days of the
receipt thereof, give written notice of such request to all Holders and shall,
subject to the limitations of subsection 1.2(b), use commercially reasonable
efforts to effect as soon as practicable, and in any event within ninety (90)
days of the receipt of such request, the registration, firmly underwritten by an
underwriter of nationally recognized standing, under the Act of all Registrable
Securities which the Holders request to be registered within twenty (20) days of
the mailing of such notice by the Company in accordance with Section 4.5.

(b) The underwriter will be selected by a majority in
interest of the Holders initiating the registration request hereunder (the
"INITIATING HOLDERS") and shall be acceptable to the Company, in its sole
discretion. The right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation

2
<PAGE>

in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting (unless otherwise mutually agreed by a majority in interest
of the Initiating Holders and such Holder) to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Company in writing that, in its opinion, that the number
of shares of Common Stock (including Registrable Securities requested to be
included in any registration under this Section 1.2) exceeds the number that can
be sold in such offering, at a price reasonably related to fair value, the
Company will include in such registration (i) first, any securities that the
Company desires to include on its own behalf, (ii) second, any Registrable
Securities, and (iii) third, any shares of Common Stock for which the Company
has received requests for inclusion from other securityholders of the Company
with contractual rights to include shares in such a registration, in each case
within each such group on a pro rata basis determined by reference to the total
number of securities sought to be included in such registration, PROVIDED,
HOWEVER, that if any securities are included in such registration on behalf of
the Company and any of the Registrable Securities requested by the Holders to be
included in such registration are not included, than such registration shall not
be deemed a registration pursuant to this Section 1.2, but rather, shall be
deemed a registration initiated pursuant to Section 1.3 hereof.

(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period or periods aggregating not more than one hundred twenty (120) days
after receipt of the request of the Initiating Holders; PROVIDED, HOWEVER, that
the Company may not utilize this right more than once in any eighteen (18) month
period.

(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:

(i) After the Company has effected two (2)
registrations pursuant to this Section 1.2;

(ii) During the period starting with the date the
Company receives a notice under Section 1.2(a) from the Initiating Holders for a
registration pursuant to Section 1.2 hereof, and ending on a date one hundred
eighty (180) days after the completion of the offering under a registration
under Section 1.2 hereof;

(iii) During the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred eighty (180) days after the completion of the
offering under a registration subject to

3
<PAGE>

Section 1.3 hereof; provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective; or

(iv) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.12 below.

1.3 COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
Common Stock under the Act in connection with the public offering of such
securities solely for cash (other than the first registration statement for a
public offering of Common Stock, a registration relating solely to the sale of
securities to participants in a Company stock plan or a transaction covered by
Rule 145 under the Act, a registration in which the only stock being registered
is Common Stock issuable upon conversion of debt securities which are also being
registered, or any registration on any form which does not include substantially
the same information as would be required to be included in a registration
statement covering the sale of the Registrable Securities), the Company shall,
at such time, promptly give each Holder written notice of such registration.
Upon the written request of each Holder given within twenty (20) days after
mailing of such notice by the Company in accordance with Section 4.5, the
Company shall, subject to the provisions of Section 1.8, cause to be registered
under the Act all of the Registrable Securities that each such Holder has
requested to be registered.

1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:

(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use commercially reasonable
efforts to cause such registration statement to become effective, and, in the
case of any Holder's participation in any shelf registration pursuant to Rule
415 of the Act and Section 1.3 of this Agreement, and upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty (120) days.

(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement provided that, if such registration statement is
a shelf registration statement filed pursuant to Rule 415 of the Act and Section
1.3 of the Agreement, the obligations of the Company set forth in this
subsection shall only continue for up to one hundred twenty (120) days.

(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.

4
<PAGE>

(d) Use commercially reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.

(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in any such underwriting shall also enter into and perform its
obligations under such an agreement.

(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, provided
that, if such registration statement is a shelf registration statement filed
pursuant to Rule 415 of the Act and Section 1.3 of the Agreement, the
obligations of the Company set forth in this subsection shall only continue for
up to one hundred twenty (120) days.

(g) Cause all such Registrable Securities registered
pursuant to the rights granted hereunder to be listed on each securities
exchange on which similar securities issued by the Company are then listed.

(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.

(i) In the case of an underwritten public offering, use
commercially reasonable efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.

1.5 FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable

5
<PAGE>

Securities of any selling Holder that such Holder shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
The Company shall have no obligation with respect to any registration
requested pursuant to Section 1.2 or Section 1.12 of this Agreement if, as a
result of the application of the preceding sentence, the number of shares or
the anticipated aggregate offering price of the Registrable Securities to be
included in the registration does not equal or exceed the number of shares or
the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in subsection
1.2(a) or subsection 1.12(b)(2), whichever is applicable.

1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to such demand registration pursuant to Section 1.2.

1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and
pay all expenses, other than underwriting discounts and commissions, incurred in
connection with any registration, filing or qualification of Registrable
Securities with respect to the registrations pursuant to Section 1.3 for each
Holder (which right may be assigned as provided in Section 1.13), including
(without limitation) all registration, filing, and qualification fees, printers'
and accounting fees relating or apportionable thereto and the reasonable fees
and disbursements of one counsel for the selling Holders selected by them with
the approval of the Company, which approval shall not be unreasonably withheld.

1.8 UNDERWRITING REQUIREMENTS. In connection with any
offering involving an underwriting of shares of the Company's capital stock
under Section 1.3, the Company shall not be required to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected
by it (or by other persons entitled to select the underwriters), and then
only in such quantity as the underwriters determine in their sole discretion
will not jeopardize the success of the offering by the Company. If the total
amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters
determine in their sole discretion will not jeopardize the success of the
offering (the securities so included to be apportioned first, pro rata among
Holders of Registrable Securities in proportion to the

6
<PAGE>

respective amounts of Registrable Securities held by such Holders and second,
pro rata among the other selling shareholders according to the total amount of
securities entitled to be included therein owned by each selling shareholder or
in such other proportions as shall mutually be agreed to by such selling
shareholders) but in no event shall (i) the amount of securities of the selling
Holders included in the offering be reduced below thirty percent (30%) of the
total amount of securities included in such offering, or (ii) notwithstanding
the preceding parenthetical or clause (i) above, any shares being sold by a
shareholder exercising a demand registration right similar to that granted in
Section 1.2 be excluded from such offering. For purposes of the preceding
parenthetical concerning apportionment, for any selling shareholder which is a
holder of Registrable Securities and which is a partnership or corporation, the
partners, retired partners and shareholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "SELLING
SHAREHOLDER," and any pro-rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder," as defined in this sentence.

1.9 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.

1.10 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Section 1:

(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), against any losses, claims, damages, or liabilities (joint
or several) to which they may become subject under the Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"VIOLATION"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Act, the Exchange Act or any state securities
law; and the Company will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in

7
<PAGE>

any such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.

(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.10(b) exceed the net
proceeds from the offering received by such Holder, except in the case of
willful fraud by such Holder.

(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.

8
<PAGE>

(d) If the indemnification provided for in this
Section 1.10 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations; provided, that, in no event shall any contribution by
a Holder under this Subsection 1.10(d) exceed the net proceeds from the offering
received by such Holder, except in the case of willful fraud by such Holder. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.

(e) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.

(f) The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Securities and Exchange Commission at the
time the registration statement in question becomes effective or in the amended
prospectus filed with the Securities and Exchange Commission pursuant to its
Rule 424(b) (the "FINAL PROSPECTUS"), such indemnity agreement shall not inure
to the benefit of any person if a copy of the Final Prospectus was furnished to
the indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Act.

1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company shall:

(a) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Act, at all times after
ninety (90) days after the effective date of the first registration statement
filed by the Company for the offering of its securities to the general public so
long as the Company remains subject to the periodic reporting requirements under
Sections 13 or 15(d) of the Exchange Act;

(b) take such action, including the voluntary registration
of its Common Stock under Section 12 of the Exchange Act, as is necessary to
enable the Holders to utilize Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as

9
<PAGE>

practicable after the end of the fiscal year in which the first registration
statement filed by the Company for the offering of its securities to the general
public is declared effective;

(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the Exchange Act; and

(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 under
the Act (at any time after ninety (90) days after the effective date of the
first registration statement filed by the Company), the Act and the Exchange Act
(at any time after it has become subject to such reporting requirements), or
that it qualifies as a registrant whose securities may be resold pursuant to
Form S-3 (at any time after it so qualifies), and (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.

1.12 FORM S-3 REGISTRATION. In case the Company shall receive
from any Holder or Holders a written request or requests that the Company effect
a registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:

(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and

(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this Section
1.12: (1) if Form S-3 is not available for such offering by the Holders; (2) if
the Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than
$500,000; (3) if the Company shall furnish to the Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration to be effected at such time,
in which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period or periods aggregating not more than one
hundred twenty (120) days after receipt of the request of the Holder or Holders
under this Section 1.12; provided, however, that the Company shall not utilize
this right more than once in any eighteen (18) month period; (4) if the Company
has, within the twelve (12) month period preceding the date of such request,
already effected two (2) registrations on Form S-3 for the Holders pursuant to
this Section 1.12; or (5) in any particular jurisdiction in which the Company

10
<PAGE>

would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.

(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with
registrations requested pursuant to Section 1.12, including (without limitation)
all registration, filing, qualification, printers' and accounting fees and the
reasonable fees and disbursements of one (1) counsel for the selling Holder or
Holders and counsel for the Company, but excluding any underwriters' discounts
or commissions associated with Registrable Securities, shall be borne by the
Company. Registrations effected pursuant to this Section 1.12 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.

1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee who is a partner or affiliate of the Holder, or to a transferee or
assignee who acquires at least ten percent (10%) of such Holder's shares of
Registrable Securities, provided that no such transferee or assignee is a
competitor of the Company as determined in good faith by the Company and Lucent
Technologies, Inc. InterNetworking Systems ("LUCENT"), and provided further that
the Company is, promptly after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under Section 1.

1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in Subsection
1.2(a) or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 1.2.

11
<PAGE>

1.15 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Section 1 after the earlier
of (i) seven (7) years following the consummation of the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with an Initial Public Offering.

1.16 MARKET-STANDOFF AGREEMENT.

(a) MARKET-STANDOFF PERIOD; AGREEMENT. In connection with
the Company's Initial Public Offering and upon request of the Company or the
underwriters managing such offering of the Company's securities, each Holder
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any securities of the Company without the
prior written consent of the Company or such underwriters, as the case may be,
for such period of time (not to exceed 180 days) from the effective date of such
registration as may be requested by the Company or such managing underwriters
and to execute an agreement reflecting the foregoing as may be requested by the
underwriters at the time of the Company's initial public offering.

(b) LIMITATIONS. The obligations described in Section
1.16(a) shall apply only if all officers and directors of the Company and all
one-percent securityholders, enter into similar agreements, and shall not apply
to a registration relating solely to employee benefit plans, or to a
registration relating solely to a transaction pursuant to Rule 145 under the
Securities Act.

(c) STOP-TRANSFER INSTRUCTIONS. In order to enforce the
foregoing covenants, the Company may impose stop-transfer instructions with
respect to the securities of each Holder (and the securities of every other
person subject to the restrictions in Section 1.16(a)).

2. PUT RIGHT. If, prior to the Company's Initial Public Offering, a
competitor of Lucent, as determined in good faith by Lucent and the Company,
acquires equity securities of the Company that represents at least five percent
(5%) of the then issued and outstanding capital stock of the Company, calculated
on a fully-diluted basis, the Company shall give Lucent notice within ten (10)
days of such event ("PUT NOTICE"). To the extent permitted by law, Lucent may
sell back to the Company (i) within forty-five (45) days from the receipt of the
Put Notice (the "PUT DATE"), one-third (1/3rd) of the Series A Preferred Stock
owned by Lucent at the then Fair Market Value of such shares; (ii) on the first
anniversary of the Put Date, one-third (1/3rd) of the Series A Preferred Stock
owned by Lucent at the then Fair Market Value of such shares; and (iii) on the
second anniversary of the Put Date, the final one-third (1/3rd) of the Series A
Preferred Stock owned by Lucent at the then Fair Market Value of such shares. If
Lucent sells all of its shares of Series A Preferred Stock to the Company in
accordance with this provision, all remaining rights of Lucent under this
Agreement, the Purchase Agreement and the Co-Sale Agreement, dated as of the
date hereof, between the Company, the Investors and certain other parties, will
terminate. "FAIR MARKET VALUE" shall be as mutually agreed by the Company and
Lucent; PROVIDED, HOWEVER, that if the Company and Lucent are unable to mutually
agree upon the Fair Market Value, the Company and Lucent shall, within five (5)
days from the date that either party determines that they cannot agree jointly
retain a valuation firm satisfactory to each

12
<PAGE>

of them. If the Company and Lucent are unable to agree on the selection of such
a firm within such five (5) day period, the Company and Lucent shall, within
twenty (20) days after expiration of such five day period, each retain a
separate independent valuation firm. If either the Company or Lucent fail to
retain such a valuation firm during such twenty (20) day period, then the
valuation firm retained by Lucent or the Company, as the case may be, shall
alone take the actions described below. Such firms shall determine within thirty
(30) days of being retained the Fair Market Value of a share of Series A
Preferred Stock and deliver their opinion in writing to the Company and to
Lucent as to the fair value. If such firms cannot jointly agree upon the Fair
Market Value, then, unless otherwise directed in writing by both the Company and
Lucent, such firms, in their sole discretion, shall choose another firm
independent of the Company and Lucent, which firm shall make such determination
and render such an opinion as promptly as practicable. In either case, the
determination so made shall be conclusive and binding on the Company and Lucent.
The Company and Lucent shall each pay for the respective fees and expenses of
each of their respective valuation firms for such determination. In the
determination of the Fair Market Value of a share of Series A Preferred Stock
there shall not be taken into consideration any premium for shares representing
control of the Company or any discount related to shares representing a minority
interest therein or related to any illiquidity or lack of marketability of
shares arising from restrictions on transfer under federal and applicable state
securities laws or otherwise.

3. COVENANTS OF THE COMPANY.

3.1 DELIVERY OF ANNUAL AND QUARTERLY FINANCIAL STATEMENTS. The
Company shall deliver to each Holder who holds not less than ten percent (10%)
of the outstanding shares of Registrable Securities:

(a) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by an independent public accounting firm of nationally
recognized standing selected by the Company;

(b) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement and
statement of cash flows for such fiscal quarter and an unaudited balance sheet
as of the end of such fiscal quarter;

(c) The obligations of the Company to furnish financial
information pursuant to this Section 3.1 shall terminate upon the Company's
Initial Public Offering.

3.2 INSPECTION. The Company shall permit each Holder, and any
authorized representative thereof, to visit and inspect the properties of the
Company, including its corporate and financial records to the extent such
records, do not constitute trade secrets or other confidential information of
the Company, and to discuss its business, finances and accounts with

13
<PAGE>

officers of the Company during normal business hours following reasonable notice
in a manner and subject to such reasonable procedures as the Company may
establish so as not to unreasonably interfere with the normal operations of the
Company.

3.3 BOARD MEETINGS. The Company shall permit one (1)
representative chosen by Lucent and acceptable to the Company to attend as an
observer all meetings of the Company's Board of Directors and of the committees
of the Board. The Company shall provide Lucent with such notice of and other
information with respect to such meetings as are provided to members of the
Board of Directors when as and such notice and information is provided to such
members. The Company shall promptly notify Lucent of the taking of any action by
written consent of the Board of Directors in lieu of a meeting thereof. All
matters discussed at any such meeting attended by Lucent's representative as
well as all notices and information provided to Lucent under Section 3.3 shall
constitute confidential information of the Company and shall be subject to the
Nondisclosure Agreement. Lucent's right to attend the Company's Board of
Directors meetings and to receive notices and information pursuant to this
Section 3.3 shall terminate upon the Company's Initial Public Offering.

3.4 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 3.4, the Company hereby grants to each Holder a right
of first offer with respect to future sales by the Company of its Shares (as
hereinafter defined). Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("SHARES"), the Company shall first make an offering of such
Shares to the Holder in accordance with the following provisions:

(a) The Company shall deliver a notice by certified mail
("NOTICE") to the Holder stating (i) its bona fide intention to offer such
Shares, (ii) the number of such Shares to be offered, and (iii) the price and
terms, if any, upon which it proposes to offer such Shares.

(b) Within five (5) calendar days after delivery of the
Notice, the Holder may elect to purchase or obtain, at the price and on the
terms specified in the Notice, up to that portion of such Shares which equals
the proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by the Holder bears to the total number of shares of
Common Stock then outstanding (assuming full conversion and exercise of all
outstanding convertible or exercisable securities).

(c) The Company may, during the sixty (60) day period
following the expiration of the period provided in subsection 3.4(b) hereof,
offer the remaining unsubscribed portion of the Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within sixty (60) days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Holder in accordance herewith.

14
<PAGE>

(d) The right of first offer in this paragraph 3.4(d) shall
not be applicable (i) to the issuance or sale of shares of Common Stock (or
options therefor) to employees, consultants and directors, pursuant to plans or
agreements approved by the Board of Directors, or (ii) to or after consummation
of the Company's Initial Public Offering, or (iii) to the issuance of securities
pursuant to the conversion or exercise of convertible or exercisable securities.

3.5 CONFIDENTIALITY AGREEMENT. The Company shall require all
employees, officers and consultants to execute and deliver a Confidentiality
Agreement in a form attached hereto as EXHIBIT B.

4. MISCELLANEOUS.

4.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties
(including transferees of any of the Series A Preferred Stock, or any Common
Stock issued upon conversion thereof).

4.2 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of New York, without giving effect to principles of
conflicts of laws.

4.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

4.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

4.5 NOTICES. Unless otherwise provided, any notice required or
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by
telegram or fax, or three (3) days after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or on SCHEDULE A
hereto or as subsequently modified by written notice.

4.6 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.

4.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any

15
<PAGE>

amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities and the Company. Notwithstanding the
foregoing, the parties hereto acknowledge that the Company may subsequently add
any purchasers of shares of the Company's Series A Preferred Stock under the
Purchase Agreement or an addendum thereto after the date of the Purchase
Agreement as a party to this Agreement as a Holder, which additional party shall
thereafter be bound by and entitled to the terms, benefits and conditions herein
by the execution of this Agreement on a signature page to this Agreement and by
attaching an addendum to EXHIBIT A.

4.8 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties shall renegotiate
such provision in good faith. If the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (x) such provision shall be
excluded from this Agreement, (y) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (z) the balance of the
Agreement shall be enforceable in accordance with its terms.

4.9 AGGREGATION OF STOCK. All shares of the Series A Preferred
Stock held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.

4.10 INJUNCTIVE RELIEF. Since any party's breach of this
Agreement may cause one or more other parties irreparable harm for which money
is inadequate compensation, each party hereto agrees that each other party will
be entitled to injunctive relief to enforce this Agreement, in addition to
damages and other available remedies.

[SIGNATURE PAGE FOLLOWS]

16
<PAGE>

The parties have executed this Investor Rights Agreement as of the date
first above written.

COMPANY:

FASTNET CORPORATION

By: /s/ David Van Allen
--------------------------------------
David Van Allen
President and Chief Executive Officer

Address: Two Courtney Place
Suite 130
3864 Courtney Street
Bethlehem, PA 18017

INVESTORS:

LUCENT TECHNOLOGIES, INC.,
INTERNETWORKING SYSTEMS

By: /s/ Curt Sanford
--------------------------------------
Curt Sanford
President

Address: 1701 Harbor Bay Parkway
Alameda, CA 94502

H&Q YOU TOOLS INVESTMENT HOLDING, L.P.

By: H&Q Management Corp.
-------------------------------------
Its general partner

By: /s/ Jackie Berterretche
--------------------------------------
Name: Jackie Berterretche
Title: Attorney-in-fact

Address: c/o Hambrecht & Quist Guaranty
Finance, L.L.C.
One Bush Street
San Francisco, CA 94104

SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT

<PAGE>

EXHIBIT A

INVESTORS

INVESTORS NAME AND ADDRESS NUMBER OF SHARES
- -------------------------- ----------------

<S> <C>
Lucent Technologies, Inc. InterNetworking Systems 280,505
1701 Harbor Bay Parkway
Alameda, CA 94502

H&Q You Tools Investment Holding, L.P. 140,252
c/o Hambrecht & Quist Guaranty Finance, L.L.C.
One Bush Street
San Francisco, CA 94104

</TABLE>

<PAGE>

EXHIBIT B

CONFIDENTIALITY AGREEMENT

This Confidentiality Agreement (the "Agreement") is made effective as of
__________________, between You Tools Corporation/FASTNET, of 3864 Courtney
Street - Suite 130, Two Courtney Place, Bethlehem, Pennsylvania 19017,
and __________________________________, of _______________________________,
______________________________________________.

In this Agreement, the party who owns the Confidential Information will be
referred to as ("The Company"), and a party to whom the Confidential Information
will be disclosed will be referred to as ("Employee").

The Company is engaged in the sales, installation, training, and provisioning of
Internet services and other Wide Area Networking activities. These include, but
are not limited to: direct digital connections, dial-up telephone connections,
World Wide Web (WWW) design and hosting, sales of network equipment and service,
training on Internet related topics, outsource and operation of customer remote
access equipment, and monitoring of Internet systems.

The Company's products are delivered in various fashions using both wire and
wireless methods. Employee is engaged in activities that require the knowledge
of Company proprietary and secret information. This information is needed by the
Employee to perform his/her duties while under the employ of the Company.
Employee has represented that Employee will protect the confidential material
and information which may be disclosed between The Company and Employee.
Therefore, the parties agree as follows:

I. CONFIDENTIAL INFORMATION. The term "Confidential Information" means any
information or material which is proprietary to The Company, whether or not
owned or developed by The Company, which is not generally known other than by
The Company, and which Employee may obtain through any direct contact with The
Company.

A. Confidential Information includes without limitation:
- business records and plans
- financial statements
- customer lists and records
- trade secrets
- technical information
- products
- inventions
- product design information
- pricing structure
- discounts
- costs
- computer programs and listings
- source code and/or object code

<PAGE>

- copyrights and other intellectual property
- Passwords, both internal and external
- Customer confidential information
- Backup tapes

and other proprietary information.

B. Confidential Information does not include:
- matters of public knowledge that result from disclosure by
The Company
- information rightfully received by Employee from a third party
without a duty of confidentiality
- information independently developed by Employee
- information disclosed by operation of law
- information disclosed by Employee with the prior written consent
of The Company

and any other information that both parties agree in writing is not
confidential.

II. PROTECTION OF CONFIDENTIAL INFORMATION. Employee understands and
acknowledges that the Confidential Information has been developed or obtained by
The Company by the investment of significant time, effort and expense, and that
the Confidential Information is a valuable, special and unique asset of The
Company which provides The Company with a significant competitive advantage.
Therefore, Employee agrees to hold in confidence and to not disclose the
Confidential Information to any person or entity without the prior written
consent of The Company.

NO COPYING. Employee will not copy or modify any Confidential Information
without the prior written consent of The Company.

APPLICATION TO EMPLOYEES. Further, Employee shall not disclose any Confidential
Information to any employees of Employee, except those employees who are
required to have the Confidential Information in order to per form their job
duties in connection with the limited purposes of this Agreement. Each permitted
employee to whom Confidential Information is disclosed shall sign a
non-disclosure agreement substantially the same as this Agreement at the request
of The Company.

UNAUTHORIZED DISCLOSURE OF INFORMATION. If it appears that Employee has
disclosed (or has threatened to disclose) Confidential Information in violation
of this Agreement, The Company shall be entitled to an injunction to restrain
Employee from disclosing, in whole or in part, the Confidential Information. The
Company shall not be prohibited by this provision from pursuing other remedies,
including a claim for losses and damages.

III. RETURN OF CONFIDENTIAL INFORMATION. Upon the written request of The
Company, Employee shall return to The Company all written materials containing
the Confidential Information. Employee shall also deliver to The Company written
statements

<PAGE>

signed by Employee certifying that all materials have been returned within five
(5) days of receipt of the request.

IV. LIMITED LICENSE TO USE. Employee shall not acquire any intellectual
property rights under this Agreement except the limited right to use set out
above. Employee acknowledges that, as between The Company and Employee, the
Confidential Information and all related copyrights and other intellectual
property rights, are (and at all times will be) the property of The Company,
even if suggestions, comments, and/or ideas made by Employee are incorporated
into the Confidential Information or related materials during the period of this
Agreement.

V. GENERAL PROVISIONS. This Agreement sets forth the entire understanding of
the parties regarding confidentiality. Any amendments must be in writing and
signed by both parties. This Agreement shall be construed under the laws of the
State of Pennsylvania. This Agreement shall not be assignable by either party,
and neither party may delegate its duties under this Agreement, without the
prior written consent of the other party.

Information Owner:
You Tools Corporation/FASTNET

By:
--------------------------------------
David K. Van Allen
CEO

Recipient:

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

By:
---------------------------------------

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

<PAGE>

JOINDER TO INVESTOR RIGHTS AGREEMENT

This Joinder to Investor Rights Agreement is made as of the 12th day of
August, 1999 by and between FASTNET Corporation, a Pennsylvania corporation (the
"Company") and the investor identified on EXHIBIT A hereto (the "Purchaser").

BACKGROUND

The Company is a party to an Investor Rights Agreement dated as of
August 3, 1999 (the "Investor Rights Agreement") by and among the Company,
Lucent Technologies, Inc. InterNetworking Systems and H&Q You Tools Investment
Holding L.P. Capitalized terms used herein that are not defined have the
meanings ascribed thereto in the Investor Rights Agreement. The Investor Rights
Agreement sets forth certain registration and other rights of the Investors.

On the date hereof, the Company is selling an aggregate of 140,252 shares
of Series A Preferred Stock to the Purchaser ("Purchaser's Shares") pursuant to
a Purchase Agreement dated the date hereof (the "Purchase Agreement") between
the Company and the Purchaser. In connection with the sale of the Purchaser's
Shares, the Company and the Purchaser desire that the Purchaser be deemed to be
an "Investor" under the Investor Rights Agreement and be subject to the terms
and conditions thereof.

Under Section 3.7 of the Investor Rights Agreement, the Company is
authorized to add as parties to the Investor Rights Agreement purchasers of the
Series A Preferred Stock. The Purchaser acknowledges that the Company has
delivered a copy of the Investor Rights Agreement to him.

NOW, THEREFORE, in consideration of the sale of the Purchaser's Shares
pursuant to the Purchase Agreement, and intending to be legally bound hereby,
the parties hereto agree that the Purchaser is hereby joined as a party to the
Investor Rights Agreement and is deemed to be an "Investor" for all purposes
under the Investor Rights Agreement.

This Joinder to Investor Rights Agreement may be executed in multiple
counterparts, each of which shall constitute an original and all of which shall
constitute one and the same document.

[SIGNATURES ON FOLLOWING PAGE]

<PAGE>

[SIGNATURE PAGE TO JOINDER TO INVESTOR RIGHTS AGREEMENT]

IN WITNESS WHEREOF, the parties hereto have executed this Joinder to
Investor Rights Agreement as of the date first written above.

FASTNET CORPORATION

By: /s/ David Van Allen
------------------------------------
Name: David Van Allen
Title: President and Chief Executive
Officer

PURCHASERS:

/s/ Naveen Jain
------------------------------------
Naveen Jain

<PAGE>

JOINDER TO INVESTOR RIGHTS AGREEMENT

BACKGROUND

The Company is a party to an Investor Rights Agreement dated as of August
3, 1999 (the "Investor Rights Agreement") by and among the Company, Lucent
Technologies, Inc. InterNetworking Systems and H&Q You Tools Investment Holding
L.P. Capitalized terms used herein that are not defined have the meanings
ascribed thereto in the Investor Rights Agreement. The Investor Rights Agreement
sets forth certain registration and other rights of the Investors.

On the date hereof, the Company is selling an aggregate of 35,063 shares of
Series A Preferred Stock to the Purchaser ("Purchaser's Shares") pursuant to a
Purchase Agreement dated the date hereof (the "Purchase Agreement") between the
Company and the Purchaser. In connection with the sale of the Purchaser's
Shares, the Company and the Purchaser desire that the Purchaser be deemed to be
an "Investor" under the Investor Rights Agreement and be subject to the terms
and conditions thereof.

This Joinder to Investor Rights Agreement may be executed in multiple
counterparts, each of which shall constitute an original and all of which shall
constitute one and the same document.

[SIGNATURES ON FOLLOWING PAGE]

<PAGE>

[SIGNATURE PAGE TO JOINDER TO INVESTOR RIGHTS AGREEMENT]

IN WITNESS WHEREOF, the parties hereto have executed this Joinder to
Investor Rights Agreement as of the date first written above.

FASTNET CORPORATION

By: /s/ David Van Allen
------------------------------------
Name: David Van Allen
Title: President and Chief Executive
Officer

PURCHASERS:

/s/ Vinod Gupta
------------------------------------
Everest Venture Partners I, L.P.
Vinod Gupta
Managing Partner

<PAGE>

JOINDER TO INVESTOR RIGHTS AGREEMENT

BACKGROUND

The Company is a party to an Investor Rights Agreement dated as of August
3, 1999 (the "Investor Rights Agreement") by and among the Company, Lucent
Technologies, Inc. InterNetworking Systems and H&Q You Tools Investment Holding
L.P. Capitalized terms used herein that are not defined have the meanings
ascribed thereto in the Investor Rights Agreement. The Investor Rights Agreement
sets forth certain registration and other rights of the Investors.

On the date hereof, the Company is selling an aggregate of 70,126 shares of
Series A Preferred Stock to the Purchaser ("Purchaser's Shares") pursuant to a
Purchase Agreement dated the date hereof (the "Purchase Agreement") between the
Company and the Purchaser. In connection with the sale of the Purchaser's
Shares, the Company and the Purchaser desire that the Purchaser be deemed to be
an "Investor" under the Investor Rights Agreement and be subject to the terms
and conditions thereof.

This Joinder to Investor Rights Agreement may be executed in multiple
counterparts, each of which shall constitute an original and all of which shall
constitute one and the same document.

[SIGNATURES ON FOLLOWING PAGE]

<PAGE>

[SIGNATURE PAGE TO JOINDER TO INVESTOR RIGHTS AGREEMENT]

IN WITNESS WHEREOF, the parties hereto have executed this Joinder to
Investor Rights Agreement as of the date first written above.

FASTNET CORPORATION

By: /s/ David Van Allen
------------------------------------
Name: David Van Allen
Title: President and Chief Executive
Officer

PURCHASER:

ENTREPRENEURIAL INVESTMENT
CORPORATION

/s/ Randall C. Luce
------------------------------------
Randall C. Luce
President

<PAGE>

JOINDER TO INVESTOR RIGHTS AGREEMENT

BACKGROUND

The Company is a party to an Investor Rights Agreement dated as of August
3, 1999 (the "Investor Rights Agreement") by and among the Company, Lucent
Technologies, Inc. InterNetworking Systems and H&Q You Tools Investment Holding
L.P. Capitalized terms used herein that are not defined have the meanings
ascribed thereto in the Investor Rights Agreement. The Investor Rights Agreement
sets forth certain registration and other rights of the Investors.

This Joinder to Investor Rights Agreement may be executed in multiple
counterparts, each of which shall constitute an original and all of which shall
constitute one and the same document.

[SIGNATURES ON FOLLOWING PAGE]

<PAGE>

[SIGNATURE PAGE TO JOINDER TO INVESTOR RIGHTS AGREEMENT]

IN WITNESS WHEREOF, the parties hereto have executed this Joinder to
Investor Rights Agreement as of the date first written above.

FASTNET CORPORATION

By: /s/ David Van Allen
------------------------------------
Name: David Van Allen
Title: President and Chief Executive
Officer

PURCHASER:

J.F. SHEA CO. INC., AS NOMINEE

/s/ Edmund H. Shea, Jr.
---------------------------------------
Name: Edmund H. Shea, Jr.
Title: Vice President

<PAGE>

EXHIBIT A

SCHEDULE OF PURCHASERS

WITH RESPECT TO THE CLOSING UNDER THE PURCHASE AGREEMENT DATED AUGUST 12, 1999

PURCHASER'S NAME AND ADDRESS NUMBER OF SHARES AMOUNT
- ---------------------------- ---------------- ------

<S> <C> <C>
Naveen Jain 140,252 $999,996.76
c/o Hambrecht & Quist LLC
One Bush Street
Sna Francisco, CA 94104

</TABLE>

<PAGE>

EXHIBIT A

SCHEDULE OF PURCHASERS

WITH RESPECT TO THE CLOSING UNDER THE PURCHASE AGREEMENT DATED AUGUST 12, 1999

PURCHASER'S NAME AND ADDRESS NUMBER OF SHARES AMOUNT
- ---------------------------- ---------------- ------
<S> <C> <C>
Everest Venture Partners I, L.P. 35,063 $249,999.19
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104

</TABLE>

<PAGE>

EXHIBIT A

SCHEDULE OF PURCHASERS

WITH RESPECT TO THE CLOSING UNDER THE PURCHASE AGREEMENT DATED AUGUST 12, 1999

PURCHASER'S NAME AND ADDRESS NUMBER OF SHARES AMOUNT
- ---------------------------- ---------------- ------

<S> <C> <C>
Entreprenurial Investment Corporation 70,126 $499,998.38
c/o Hambrecht & Quist LLC
One Bush Street
Sna Francisco, CA 94104

</TABLE>

<PAGE>

EXHIBIT A

SCHEDULE OF PURCHASERS

WITH RESPECT TO THE CLOSING UNDER THE PURCHASE AGREEMENT DATED AUGUST 12, 1999

PURCHASER'S NAME AND ADDRESS NUMBER OF SHARES AMOUNT
- ---------------------------- ---------------- ------

<S> <C> <C>
J.F. Shea Co. Inc., as Nominee 140,252 $999,996.76
c/o Hambrecht & Quist LLC
One Bush Street
Sna Francisco, CA 94104

</TABLE>

<PAGE>

Exhibit 10.22

ADDENDUM TO WARRANT TO PURCHASE SHARES OF COMMON STOCK

Paragraph 5.2 (e) shall have added the following:

It is specifically recognized herein that two million (2,000,000)
shares have been reserved as authorized but unissued shares by the
Company. It is expressly recognized herein that with regard to these
two million (2,000,000) reserved shares the Board of Directors of the
Company (Sonny Hunt and David Van Allen) shall have complete discretion
to distribute those shares pursuant to stock options, incentive plans
and ESOP Plans as they may deem appropriate under whatever conditions
or price they deem appropriate in their sole discretion. These two
million (2,000,000) reserved shares are to be considered "Options or
Warrants outstanding as of the Date of Grant" under this Paragraph and
if said shares are issued hereafter they shall not adjust the Warrant
Price pursuant to this paragraph in any way.

All other terms and conditions of the Warrant to Purchase Shares of
Common Stock dated May 28, 1998 shall remain the same.

YOU TOOLS CORPORATION

By: /S/ Sonny Hunt
--------------------
(Signature)

Name: Sonny Hunt
------------------
(Printed)

Title: President
-----------------

<PAGE>

COMMON STOCK WARRANT PURCHASE AGREEMENT

THIS COMMON STOCK WARRANT PURCHASE AGREEMENT (the "Agreement") is made
and entered into as of the 28th day of May, 1998 by and among You Tools
Corporation, a.k.a. FastNet (the "Company") and H&Q You Tools Investment
Holding, L.P. a California partnership ("Investor"). As used in this Agreement,
the term "Shares" shall mean the shares of Common Stock issuable upon exercise
of the Warrant, as defined in Section 1.1 below, or upon exercise of the right
to convert the Warrant, as provided under Section 7 of the Warrant (the
"Conversion Right").

The parties hereto agree as follows:

Article 1. ISSUANCE OF WARRANT; CLOSING.

1.1 ISSUANCE OF WARRANT. The Company agrees to issue to the
Investor a warrant in the form attached hereto as Exhibit A to purchase
1,000,000 shares of the Company's Common Stock (the "Common Stock") at an
initial per share exercise price of $1.50 at any time on or before May 30, 2005.
The warrant to be issued to the Investor hereunder shall be referred to herein
as the "Warrant".

1.2 CLOSING. The issuance of the Warrant shall take place on the
even date hereof, or on such other date as the parties shall mutually agree (the
"Closing"). At the Closing, the Company shall cause to be delivered to the
Investor the Warrant issued in the name of such Investor.

Article 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby agrees and represents and warrants to the Investor as follows:

2.1 CORPORATE STATUS. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite legal and corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as now conducted and as proposed to be conducted.

2.2 CAPITALIZATION. Immediately prior to the Closing, the
authorized and outstanding capitalization of the Company will consist of that
which is described on Schedule 1. Except as provided in Schedule 1, there are no
outstanding rights, options, warrants or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. The Company is
not a party or subject to any agreement, and, to the best of its knowledge,
there is no agreement or understanding between any other persons,

Page 1
<PAGE>

which relates to the voting or giving of written consents with respect to any
security or by a director of the Company.

2.3 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby or thereby, including the
authorization, issuance and delivery of the Warrant, the reservation of the
Shares issuable upon the exercise thereof has been taken or will be taken prior
to Closing. The person signing this Agreement has full power and authority to
enter into this Agreement on behalf of the Company. When executed and delivered,
this Agreement will constitute a valid and binding obligation of the Company
except as enforceability may be limited by the general laws of general
application relating to bankruptcy, insolvency and the relief of debtors and the
rules of law or principles at equity governing specific performance, injunctive
relief and other equitable remedies.

2.4 CORPORATE POWER. The Company has all requisite legal and
corporate power and authority to enter into this Agreement and all requisite
legal and corporate power and authority to issue and deliver the Warrant and the
Shares and to carry out and perform its obligations under the terms and
conditions of this Agreement.

2.5 VALIDITY OF WARRANT. The Warrant to be issued and delivered
pursuant to this Agreement shall constitute a valid and binding obligation of
the Company. The Shares have been duly and validly reserved, and when issued in
accordance with the Warrant shall be duly authorized, validly issued, fully paid
and free of any liens or encumbrances except for restrictions on transfer
provided for under this Agreement and applicable federal and state securities
laws. During the period within which the purchase rights represented by the
Warrant may be exercised, the Company shall at all times have authorized, and
reserved for issuance upon exercise of the Warrant or upon exercise of the
Conversion Right, a sufficient number of shares of Common Stock to provide for
the issuance of the Shares. The issuance of such Common Stock is not and will
not be subject to any preemptive rights or rights of first refusal except such
as have been effectively waived.

2.6 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation of, conflict with or default under (i) any provision of its amended
and restated certificate of incorporation or bylaws, or (ii) any contract,
instrument, judgment, order, writ or decree to which it or any of its
subsidiaries is a party or by which it or any of them is bound, or, to the best
of its knowledge, of any provision of any federal or state statute, rule or
regulation applicable to the Company or any of its subsidiaries, except as would
not have a material adverse effect on the assets, condition, affairs or
prospects of the Company and its subsidiaries taken as a whole, financial or
otherwise (an "MAE"). The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby and thereby,
including the authorization, issuance and delivery of the Warrant, and the
reservation of the Shares issuable upon exercise thereof,

Page 2
<PAGE>

will not, with or without the passage of time and giving of notice, result in
any such violation, conflict or default, or an event that results in the
creation of any material lien, charge or encumbrance upon any assets of the
Company or any of its subsidiaries or the suspension, revocation, impairment or
forfeiture of any material permit, license, authorization, or approval
applicable to the Company or any of its subsidiaries which is reasonably likely
to have an MAE.

Article 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor
represents and warrants to the Company that:

3.1 AUTHORIZATION. The person signing this Agreement has full
power and authority to enter into this Agreement on behalf of the Investor. When
executed and delivered, this Agreement will constitute the Investor's valid and
legally binding obligation.

3.2 INVESTMENT REPRESENTATIONS.

(a) The Investor understands that the Warrant and the Shares
have not been registered under the Securities Act of 1933, as
amended (the "Act"), and will be issued pursuant to an exemption
from registration contained in the Act based in part upon the
representations of the Investor contained herein and that the
Company's reliance on such exemption as predicated on the
representations set forth in this Section 3.2.

(b) The Investor is acquiring the Warrant and the Shares for
investment purposes only, solely for its own account and not as a
nominee for any other party and not with a view toward the resale
or distribution thereof.

(c) The Investor is a sophisticated investor experienced in
venture capital investing and able to fend for itself. The
Investor is able to bear the economic risk of the purchase of the
Warrant and the Shares, including a complete loss of the
Investor's investment. The Investor has been afforded an
opportunity to ask such questions of the Company's officers,
employees, agents, accountants and representatives concerning the
Company's business, operations, financial condition, assets,
liabilities and other relevant matters as it has deemed necessary
or desirable.

(d) Investor understands that if the Company does not
register the Shares with the Securities and Exchange Commission
pursuant to Section 12 of the Act, or file reports pursuant to
Section 15(d) of the Securities Exchange Act of 1934 ( the "1934
Act"), or if a registration statement covering the securities
under the 1933 Act is not in effect when it desires to sell (i)
the rights to purchase Common Stock pursuant to the Warrant, or
(ii) the Common Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an
indefinite

Page 3
<PAGE>

period. Investor also understands that any sale of the rights of
the Investor to purchase Common Stock which might be made by it
in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.

(e) Investor is an "accredited investor" within the meaning
of Rule 501 of Regulation D under the Act, as presently in
effect.

(f) Investor is a resident of the State of California.

Article 4. CONDITIONS OF THE INVESTOR'S OBLIGATIONS AT THE CLOSING. The
obligation of the Investor to accept the Warrant is subject to the fulfillment
to its satisfaction, or its written waiver thereof, prior to or at the Closing,
of each of the following conditions:

4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Article 2 hereof shall be true and
correct on and as of the Closing.

4.2 CORPORATE ACTION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby shall have been taken.

4.3 QPINION OF COUNSEL. There shall have been delivered to the
Investor an opinion of the Company's counsel dated as of the date of the Closing
in substantially the form attached hereto as Exhibit B.

4.4 DELIVERY OF WARRANT. There shall have been delivered to the
Investor the Warrant.

4.5 GOVERNMENTAL CONSENTS. All permits, consents, approvals,
orders and authorizations, if any, which the Company is required to obtain from,
and all registrations, qualifications, designations, declarations and filings
which the Company is required to make with, any federal or state governmental
authority of the United States in connection with the execution, delivery or
performance of this Agreement, the consummation of the transactions contemplated
hereby or the issuance and delivery of the Warrant to the Investor pursuant to
this Agreement, except post-sale filings which may be required under the Blue
Sky laws of any applicable states (which the Company hereby agrees to make in
accordance with such laws), shall have been duly obtained or made and shall be
effective on and as of the Closing.

Article 5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The
obligation of the Company to issue the Warrant to the Investor is subject to the
fulfillment to its satisfaction, or its written waiver thereof, prior to or at
the Closing, of the following conditions:

Page 4
<PAGE>

5.1 REPRESENTATION AND WARRANTIES. The representations and
warranties of the Investor contained in Article 3 hereof shall be true and
correct on and as of the Closing.

5.2 GOVERNMENTAL CONSENTS. All permits, consents, approvals,
orders and authorizations, if any, which the Company is required to obtain from,
and all registrations, qualifications, designations, declarations and filings
which the Company is required to make with, any federal or state governmental
authority of the United States in connection with the execution, delivery or
performance of this Agreement, the consummation of the transactions contemplated
hereby or the issuance and delivery of the Warrant to the Investor pursuant to
this Agreement, except post-sale filings which may be required under the Blue
Sky laws of any applicable states (which the Company hereby agrees to make in
accordance with such laws), shall have been duly obtained or made and shall be
effective on and as of the Closing.

Article 6. FINANCIAL STATEMENTS. So long as the Investor continues to hold
a Warrant or any Shares, the Company shall deliver to the Investor, in the form
and substance satisfactory to the Investor

(a) Immediately upon filing with the Commission, all
financial statements so filed; or

(b) In the event that the Company is not required to
file periodic or other reports with the Commission, as soon
as practicable (i) after the end of each fiscal year, and in
any event within ninety (90) days thereafter, the Company
will provide the Investor with annual audited consolidated
financial statements (consisting of a consolidated profit or
loss statement of profit or loss for such fiscal year, a
consolidated balance sheet of the Company as of the end of
the fiscal year, and a consolidated statement of cash flows
for such fiscal year, certified by independent public
accountants of recognized national standing selected by the
Company and satisfactory to the Investor) and (ii) as soon
as practicable after the end of each of the first three
fiscal quarters and in any event within forty-five (45) days
thereafter, the Company will provide the Investor with
quarterly unaudited consolidated financial statements
(consisting of an unaudited consolidated profit or loss
statement for such fiscal quarter and an unaudited
consolidated balance sheet, and a consolidated statement of
cash flows, as of the end of such fiscal quarter). The right
to receive financial statements under this Article 6 may be
transferred to any subsequent holder of a Warrant who
acquires not less than twenty-five (25%) of the Shares
acquired pursuant to this Agreement.

Article 7. MISCELLANEOUS.

Page 5
<PAGE>

7.1 AGREEMENT IS ENTIRE CONTRACT. This Agreement, including the
Exhibits, Appendices and Schedule 1 hereto, constitutes the entire contract
between the parties hereto with respect to the subject matter hereof.

7.2 EXPENSES. Each party to this Agreement shall bear its own
expenses incurred in connection with the negotiation, preparation, execution and
consummation of this Agreement.

7.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of the Company and the
Investor contained herein or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing.

7.4 SEVERABILITY. If one or more provisions of this Agreement
are held to be invalid, illegal or unenforceable under applicable law, portions
of such provisions, or such provisions in their entirety, to the extent
necessary, shall be severed from this Agreement, and the balance of this
Agreement shall be enforceable in accordance with its terms.

7.5 COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument

Page 6

<PAGE>

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

<TABLE>
<S> <C>
YOU TOOLS CORPORATION H&Q YOU TOOLS
INVESTMENT HOLDING, L.P.

By: By:

/s/ Sonny Hunt /s/ Jackie Berterretche
---------------------------------- --------------------------------
(Signature) (Signature)

Name: Sonny Hunt Name: Jackie Berterretche
---------------------------------- --------------------------------
(Print) (Print)

Title: President Title: Attorney-in-fact
---------------------------------- --------------------------------
</TABLE>

Page 1
<PAGE>

EXHIBIT A

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS FOR SUCH LAWS AS MAY THEN BE IN EFFECT, OR AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.

WARRANT TO PURCHASE SHARES
OF COMMON STOCK
<TABLE>
<S> <C>
Company: YOU TOOLS CORPORATION (the "Company"), and any corporation
that shall succeed to the obligations of the Company under this
Warrant.

Number of Shares: 1,000,000
Class of Stock: Common Stock
Initial Warrant Price: $1.50 per share
Expiration Date: May 30, 2005
Date of Grant: May 28, 1998
</TABLE>

THIS CERTIFIES THAT, for value received, H&Q YOU TOOLS INVESTMENT
HOLDING, L.P., A CALIFORNIA PARTNERSHIP, or nominees, is entitled to purchase
the above number (as adjusted pursuant to Section 5 hereof) of fully paid and
nonassessable shares of the above Class of Stock of the Company at the Initial
Warrant Price above (as adjusted pursuant to Section 5 hereof), subject to the
provisions and upon the terms and conditions set forth herein.

1. DEFINITIONS.

As used herein, the following terms, unless the context otherwise
requires, shall have the following meanings:

(a) "Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations thereunder, as shall
be in effect at the time.

(b) "Common Stock" shall mean shares of the presently authorized
common stock of the Company and any stock into which such common stock may
hereafter be exchanged.

Page 1
<PAGE>

(d) "Shares" shall mean the shares of the Class of Stock that the
Holder is entitled to purchase upon exercise of this Warrant, as adjusted
pursuant to Section 5 hereof.

(e) "Warrant Price" shall mean the Initial Warrant Price at which
this Warrant may be exercised, as adjusted pursuant to Section 5 hereof.

2. TERM. The purchase right represented by this Warrant is
exercisable, in whole or in part, on or before the Expiration Date.

3. EXERCISE OF WARRANT; PAYMENT; ISSUANCE OF NEW WARRANT.

3.1 Subject to Section 2 hereof, the purchase rights
represented by this Warrant may be exercised by the Holder, in whole or in part,
by the surrender of this Warrant (with the notice of exercise form attached
hereto as Appendix A duly executed) at the principal office of the Company and
by the payment to the Company, by check made payable to the Company drawn on a
United States bank and for United States dollars, or by wire transfer to an
account of the Company, of an amount equal to the then applicable Warrant Price
per share multiplied by the number of Shares then being purchased. In the event
of any exercise of the purchase right represented by this Section 3,
certificates for the Shares so purchased shall be delivered to the Holder within
thirty (30) days of receipt of such payment and, unless this Warrant has been
fully exercised or expired, a new Warrant (dated as of the date hereof)
representing the portion of the Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the Holder
within such thirty (30) day period.

3.2 The Company may require that such certificate or
certificates and any new Warrant contain on the face thereof a legend
substantially as follows:

"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, or applicable state
securities laws and rules. No sale, offer to sell or transfer of the
securities represented by this certificate shall be made unless a
registration statement under such act and applicable state securities
laws with respect to such securities is then in effect, or pursuant to
an exemption from such registration requirements for such laws is then
in effect, or an opinion of counsel reasonably satisfactory to the
Company and its counsel that such registration is not required."

Page 2
<PAGE>

4. EXERCISE PRICE. The Warrant Price at which this Warrant may be
exercised shall be the Initial Warrant Price, as adjusted from time to time
pursuant to Section 5 hereof.

5. ADJUSTMENT OF NUMBER AND KIND OF SHARES AND ADJUSTMENT OF WARRANT
PRICE.

5.1 CERTAIN DEFINITIONS. As used in this Section 5 the following
terms shall have the following respective meanings:

(a) OPTIONS: rights, options or warrants to subscribe for,
purchase or otherwise acquire shares of Common Stock or Convertible Securities.

(b) CONVERTIBLE SECURITIES: any evidence of indebtedness,
shares of stock or other securities directly or indirectly convertible into or
exchangeable for Common Stock.

5.2 ADJUSTMENTS. The number and kind of securities purchasable upon the
exercise of this Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:

(a) RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR
MERGER. In the case of any reclassification of the Common Stock,
or any reorganization, consolidation or merger of the Company
with or into another corporation (other than a merger or
reorganization with respect to which the Company is the
continuing corporation and which does not result in any
reclassification of the Common Stock), the Company, or such
successor corporation, as the case may be, shall execute a new
warrant, providing that the Holder shall have the right to
exercise such new warrant and upon such exercise to receive, in
lieu of each share of the Class of Stock theretofore issuable
upon exercise of this Warrant, the number and kind of securities
receivable upon such reclassification, reorganization,
consolidation or merger by a holder of shares of the same Class
of Stock of the Company for each such share of such Class of
Stock. The aggregate Warrant Price of the new warrant shall be
the aggregate Warrant Price in effect immediately prior to the
reclassification, reorganization, consolidation or merger and the
Warrant Price per share shall be appropriately increased or
decreased. Such new warrant shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5 including, without
limitation, adjustments to the Warrant Price and to the number of
shares issuable upon exercise of this Warrant. The provisions of
this subsection (a) shall similarly apply to successive
reclassifications, reorganizations, consolidations or mergers.

(b) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If
the Company at any time while this Warrant remains outstanding and
unexpired

Page 3
<PAGE>

shall split, subdivide or combine the Class of Stock for which
this Warrant is then exercisable, the Warrant Price shall be
proportionately decreased in the case of a split or subdivision
or proportionately increased in the case of a combination. Any
adjustment under this subsection (b) shall become effective when
the split, subdivision or combination becomes effective.

(c) STOCK DIVIDENDS. If the Company at any time while
this Warrant remains outstanding and unexpired shall pay a
dividend with respect to the Class of Stock for which this Warrant
is then exercisable, payable in shares of that Class of Stock,
Options, or Convertible Securities, the Warrant Price shall be
adjusted, from and after the date of determination of the
shareholders entitled to receive such dividend or distributions,
to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a
fraction (i) the numerator of which shall be the total number of
shares of that Class of Stock outstanding immediately prior to
such dividend or distribution, and (ii) the denominator of which
shall be the total number of shares of the same Class of Stock
outstanding immediately after such dividend or distribution
(including shares of that Class of Stock issuable upon exercise,
conversion or exchange of any Option or Convertible Securities
issued as such dividend or distribution). If the Options or
Convertible Securities issued as such dividend or distribution by
their terms provide, with the passage of time or otherwise, for
any decrease in the consideration payable to the Company, or any
increase by the number of shares issuable upon exercise,
conversion or exchange thereof (by change of rate or otherwise),
the Warrant Price shall, upon any such decrease or increase
becoming effective, be reduced to reflect such decrease or
increase as if such decrease or increase became effective
immediately prior to the issuance of the Options or Convertible
Securities as the dividend or distribution. Any adjustment under
this subsection (c) shall become effective on the record date.

(d) OTHER SECURITIES. In the event the Company at any
time or from time to time after the issuance of this Warrant
makes, or fixes a record date for the determination of Holders of
Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Company other than shares of Common
Stock, then, and in each such event, provision shall be made so
that the Holder shall receive, upon exercise thereof, in addition
to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Company which the Holder would have
received had this Warrant been exercised for such Common Stock on
the date of such event and had the Holder thereafter, during the
period from the date of such event to and including the date of
exercise, retained such securities receivable by such Holder as
aforesaid during such period, subject to all other adjustments
called for during such period under this Section 5 with respect to
the rights of the Holder.

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<PAGE>

(e) NEW SECURITIES. If the Company at any time while
this Warrant remains outstanding and unexpired shall issue
additional shares of Common Stock, Options or Convertible
Securities at a price per share below the Warrant Price, the
Warrant Price shall be reduced to such price. Notwithstanding the
foregoing, the Company shall not be required to make any
adjustment to the Warrant Price in the case of the issuance of
shares of Common Stock, Options or Convertible Securities upon the
exercise of any options or warrants outstanding as of the Date of
Grant.

5.3 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in
the Warrant Price pursuant to subsection 5.2 of this Section 5, the number of
Shares issuable upon exercise of this Warrant shall be adjusted to the product
obtained by multiplying the number of Shares issuable immediately prior to such
adjustment in the Warrant Price by a fraction (i) the numerator of which shall
be the Warrant Price immediately prior to such adjustment, and (ii) the
denominator of which shall be the Warrant Price immediately after such
adjustment.

6. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price shall be adjusted
pursuant to Section 5 hereof, the Company shall issue a certificate signed by
its chief financial officer or chief executive officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the Warrant
Price after giving effect to such adjustment and shall cause a copy of such
certificate to be mailed (by first class mail, postage prepaid) to the Holder.

7. RIGHT TO CONVERT WARRANT INTO STOCK.

7.1 CERTAIN DEFINITION. As used in this Section 7, the following
term shall have the following meaning:

CONVERSION PRICE. The Conversion Price of one share of the
Class of Stock for which this Warrant is then exercisable is determined as, for
the six months prior to any conversion of the Warrant into such Class of Stock:

(a) if the Common Stock is publicly traded, the
product of (a) the highest closing sale price or, if no closing sale
price is reported, the highest value that is the average between the
ask and bid prices of the Common Stock quoted on any exchange or
over-the-counter market on which the Common Stock is listed, whichever
is applicable, as published in the Western Edition of THE WALL STREET
JOURNAL, and (b) the number of shares of Common Stock into which each
share of the Class of Stock for which this Warrant is then exercisable
is then convertible, if applicable; or,

(b) if the Common Stock is not traded in an
over-the-counter market or on an exchange, the highest fair market
value of a single share of the Class of Stock for which this Warrant is
then exercisable shall be as determined in

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<PAGE>

good faith by the Company's Board of Directors; provided, however,
that if the Holder disputes in writing the fair market value
determined by the Board of Directors within thirty (30) days of being
informed of such fair market value, the fair market value shall be
determined by an independent appraiser, appointed in good faith by the
Company's Board of Directors.

7.2 RIGHT TO CONVERT. In addition to the rights granted under
Section 3 of this Warrant, the Holder shall have the right to require the
Company to convert this Warrant (the "Conversion Right") into shares of the
Class of Stock for which the Warrant is then exercisable, as provided in this
Section 7. Upon exercise of the Conversion Right, the Company shall deliver to
the Holder (without payment by the Holder of any Warrant Price) that number of
shares of stock equal to the quotient obtained by dividing (x) the value of this
Warrant at the time the Conversion Right is exercised (determined by subtracting
the aggregate Warrant Price immediately prior to the exercise of the Conversion
Right from the aggregate Conversion Price) by (y) the Conversion Price.

7.3 METHOD OF EXERCISE. The Conversion Right may be exercised
at any time by the Holder by the surrender of this Warrant at the principal
office of the Company together with a written statement specifying that the
Holder thereby intends to exercise the Conversion Right. Certificates of the
shares of stock issuable upon exercise of the Conversion Right shall be
delivered to the Holder within thirty (30) days following the Company's receipt
of this Warrant together with the aforesaid written statement.

7.4 AUTOMATIC CONVERSION PRIOR TO EXPIRATION. To the extent
this Warrant is not previously exercised, and if the Conversion Price of one
share of the Class of Stock for which this Warrant is then exercisable is
greater than the Warrant Price per share on the expiration date, this Warrant
shall be deemed automatically exercised in accordance with Section 7.2 hereof
(even if not surrendered) immediately before its expiration. To the extent this
Warrant or any portion thereof is deemed automatically exercised pursuant to
this Section 7.4, the Company agrees to notify Holder within a reasonable period
of time of the number of shares of the Class of Stock, if any, Holder is to
receive by reason of such automatic exercise. The Company shall issue to the
Holder certificates for the Shares issued upon such automatic conversion in
accordance with Section 7.3 above, although the Company may condition receipt of
the certificate upon surrender of the Warrant to the Company.

8. TRANSFERABILITY AND NON-NEGOTIABILITY OF WARRANTS AND SHARES. This
Warrant and the Shares issued upon exercise hereof may not be transferred or
assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if reasonably requested by the Company).
Subject to the provisions of this Section 8, title to the Warrant may be
transferred in the same manner as a negotiable instrument transferable by
endorsement and delivery.

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<PAGE>

9. NOTICES. The Company shall mail to the registered Holder of the Warrant,
at its last known post office address appearing on the books of the Company, not
less than twenty (20) days prior to the date on which (a) a record will be taken
for the purpose of determining the Holders of Common Stock entitled to dividends
or subscription rights, or (b) a record will be taken (or in lieu thereof, the
transfer books will be closed) for the purpose of determining the Holders of
Common Stock entitled to notice of and to vote at a meeting of stockholders at
which any capital reorganization, reclassification of shares of Common Stock,
consolidation, merger, dissolution, liquidation, winding-up or sales of
substantially all of the Company's assets shall be considered and acted upon.

10. MISCELLANEOUS. No fractional shares of the Shares shall be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect. The terms and provisions of this Warrant shall inure to
the benefit of, and be binding upon, the Company and the Holders hereof and
their respective successors and assigns. This Warrant shall be governed by and
construed under the laws of the State of California as applied to contracts
entered into between residents of the State of California to be wholly performed
in the State of California. The representations, warranties and agreements
herein contained shall survive the exercise of the Warrant. References to the
"holder of" include the immediate Holder of shares purchased on the exercise of
this Warrant, and the word "Holder" shall include the plural thereof. The titles
of the sections and the subscriptions of this Warrant are for convenience only
and are not to be considered in construing this Warrant. All pronouns used in
the Warrant shall be deemed to include masculine, feminine and neuter forms.

All shares of Common Stock or other securities issued upon the exercise of
this Warrant shall be validly issued, fully paid and nonassessable, and the
Company will pay all taxes in respect of the issuance thereof (other than any
income or capital gain taxes payable by the Holder).

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<PAGE>

IN WITNESS WHEREOF, the Warrant has been duly executed by the undersigned, as of
the ____________ day of May, 1998.

You Tools Corporation

By:______________________________________
(Signature)

Name:____________________________________
(Printed)

Title:___________________________________

<PAGE>

APPENDIX A

NOTICE OF EXERCISE

The undersigned, the Holder of the foregoing Warrant, hereby
irrevocably elects, pursuant to Section 3 of the Warrant, to exercise purchase
rights represented by such Warrant for, and to purchase thereunder, ______
shares of the Common Stock of _____________ (the "Company") to which such
Warrant relates and herewith makes payment of $__________ therefor in cash, wire
transfer or by certified check and requests to be delivered to the undersigned,
the address for which is set forth below the signature of the undersigned.

Dated: ______________________

Name of Holder:

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

By: _______________________________
(Signature of Authorized Officer)

Title: _____________________________

<PAGE>

APPENDIX B

NOTICE OF EXCHANGE

The undersigned, the Holder of the foregoing Warrant, hereby elects
pursuant to Section 7 of the Warrant, to exchange the purchase rights to
purchase ___________ shares of the Common Stock covered by such Warrant and
herewith makes payment in full therefor by surrender of such Warrant, and
requests that certificates for such shares (and any other securities or property
deliverable upon such exchange including a revised warrant) be issued in the
name of the undersigned and delivered to its address as set forth in the
Warrant.

Dated: _______________________

Name of Holder:

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

By: ____________________________________
(Signature of Authorized Officer)

Title: __________________________________

<PAGE>

EXHIBIT B

(LETTERHEAD OF COMPANY COUNSEL)

TO: H&Q You Tools Investment Holding, L.P.

Ladies and Gentlemen:

We have acted as counsel to You Tools Corporation (the "Company"), in
connection with the issuance to you of the warrant (the "Warrant") to purchase
an aggregate of 1,000,000 shares of Common Stock of the Company pursuant to that
certain Warrant Purchase Agreement, dated as of May 27, 1998 (the "Agreement"),
between you and the Company. We are rendering this opinion pursuant to Section
4.3 of the Agreement. Capitalized terms not otherwise defined herein have the
meanings assigned to them in the Agreement.

As counsel to the Company, we participated in the preparation,
execution and delivery of the Agreement and the Warrant and have made such legal
and factual examinations and inquiries as we have deemed advisable or necessary
for the purpose of rendering this opinion. In addition, we have examined
originals or copies of documents, corporate records and other writings which we
consider relevant for the purposes of this opinion.

Based upon and subject to the foregoing and subject to the
qualifications contained herein, we are of the opinion that:

1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Pennsylvania
and the Company has the requisite corporate power and authority to own its
properties and to conduct its business as presently conducted.

2. The Company is qualified to carry on its business in each
jurisdiction where the conduct of its businesses or the ownership or operation
of its properties and assets make such qualification necessary.

3. The Company has the requisite corporate power and authority
to execute, deliver and perform the Agreement and the transactions contemplated
thereby.

4. All corporate action on the part of the Company and its
officers, directors and stockholders necessary for the due and valid execution
and delivery of the Agreement and for the consummation of the transactions
contemplated thereby, including, but not limited to, the issuance and sale of
the Warrant to you, has been taken.

5. The Agreement has been duly executed and delivered by the
Company and represents a valid and binding obligation of the Company.

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<PAGE>

6. The Warrant has been duly and validly issued and represents
a valid and binding obligation of the Company.

7. The shares of Common Stock issuable upon exercise of the
Warrant have been duly and validly reserved for issuance and, if issued pursuant
to the terms and conditions of the Warrant, shall be duly authorized, validly
issued, fully paid and nonassessable.

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<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

To FASTNET Corporation:

As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
S-1 Registration Statement.

/s/ Arthur Andersen LLP

Philadelphia, Pa.,
September 28, 1999

<PAGE>

Exhibit 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Internet Unlimited, Inc.:

As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
S-1 Registration Statement.

/s/ Arthur Andersen LLP

Philadelphia, Pa.,
September 28, 1999