CYPRESS COMMUNICATIONS INC, 424B4, 2000-02-11

CYPRESS COMMUNICATIONS INC
424B4, 2000-02-11
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>

PROSPECTUS Filed pursuant to Rule 424(b)(4)
File No. 333-92011

10,000,000 Shares

[LOGO OF CYPRESS COMMUNICATIONS]

Common Stock

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

This is an initial public offering of 10,000,000 shares of common stock of
Cypress Communications, Inc. We are selling all of the shares of common stock
offered under this prospectus.

Our common stock has been approved for listing on the Nasdaq National Market
under the symbol "CYCO."

See "Risk Factors" beginning on page 6 about risks you should consider before
buying shares of our common stock.

Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

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

<TABLE>
<CAPTION>
Per
Share Total
------ ------------
<S> <C> <C>
Public offering price................................... $17.00 $170,000,000
Underwriting discount................................... $ 1.19 $ 11,900,000
Proceeds, before expenses, to us........................ $15.81 $158,100,000
</TABLE>

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

The underwriters may purchase up to an additional 1,500,000 shares of common
stock from us at the initial public offering price less the underwriting
discount to cover over-allotments.

The underwriters expect to deliver the shares against payment in New York, New
York on February 15, 2000.

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

Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
J.C. Bradford & Co.

The date of this prospectus is February 9, 2000.
<PAGE>

OUTSIDE FRONT GATE

[COMPANY LOGO]

<PAGE>

INSIDE FRONT GATE

[Map of the United States depicting Buildings under contract with the Registrant
in major markets which include Atlanta, Boston, Chicago, Dallas, Denver,
Houston, Los Angeles, Minneapolis, New York, Phoenix, San Francisco and
Washington, D.C. The map illustrates those markets with completed buildings and
those with buildings under contract]

<PAGE>

PROSPECTUS SUMMARY

The following summary provides an overview of selected information and does
not contain all the information you should consider. Therefore, you should also
read the more detailed information set out in this prospectus and the financial
statements.

Our Company

We provide a full range of communications services to small and medium-sized
businesses located in multi-tenant office buildings in major metropolitan
markets throughout the United States. We offer local and long distance voice
services, digital telephone systems, high speed, always-on Internet access,
business television, voicemail, e-mail, web site hosting and other enhanced
communications services. We differentiate ourselves from other communications
companies by providing a single-source solution with a high degree of customer
service and responsiveness. Our services are delivered over state-of-the-art
fiber-optic, digital and broadband, or high capacity, networks that we
design, construct, own and operate inside large and medium-sized office
buildings. We gain access to these buildings by executing long-term license
agreements with property owners and building managers.

As of December 31, 1999, we were operating our networks in 116 buildings
representing approximately 30 million rentable square feet in 12 major
metropolitan areas. Overall, we have long-term license agreements with building
owners and property managers giving us the right to install and operate our
networks in more than 730 buildings representing more than 229 million rentable
square feet in 50 major metropolitan areas. We have not been profitable over
the course of our limited operating history and we expect continued net losses
for the foreseeable future as we deploy our in-building networks. For the nine
months ended September 30, 1999, we experienced an $8.0 million net loss as
compared to a $2.5 million net loss in the nine months ended September 30,
1998.

Our Solution

We believe that it is difficult for small and medium-sized businesses to
evaluate the many communications providers and services available to them and
to secure affordable access to the advanced communications services they
require. To meet these needs, we provide our customers with a high-quality,
affordable single-source solution designed to address all of their various
communications requirements.

. A comprehensive solution from a single source. We effectively function
as our customers' communications manager and provide the convenience of
"one stop shopping."

. A reliable, feature-rich communications package with performance levels
and pricing that have traditionally been available only to large
corporations. Our solution includes high speed, always-on Internet
access, state-of-the-art, multi-function telephone equipment and
reliable performance supported by our multiple carriers, backup network
components and emergency power supplies.

1
<PAGE>

. Rapid installation and service expansion with minimal capital outlay by
customers. We deliver our comprehensive package of services to a new
customer within a few days of receiving an order and can often provide
same day service for existing customers requesting new services.
Additionally, because we provide telephone equipment to most of our
customers and can upgrade this equipment as needed, our customers avoid
significant capital outlays and substantially mitigate the risks of
encountering communications capacity constraints.

. On-site or near-site customer service and support. Each of our customers
is assigned a dedicated, experienced account team available on a 24x7
basis to address customer inquiries.

Our Strategy

. Provide a broad and growing range of communications services under long-
term customer contracts.

. Provide superior customer service through dedicated account teams.

. Control the critical "last few feet" between our customers and out-of-
building networks to position us as "gatekeeper" to our in-building
customers.

. Leverage our experience and first mover advantage to rapidly secure
additional licenses with building owners.

. Deploy cost effective, flexible networks by committing capital only
after entering into long-term license agreements and by using a
combination of transmission technologies provided by multiple vendors.

. Opportunistically pursue strategic acquisitions and relationships to
expand our customer base and geographic presence.

2
<PAGE>

The Offering

<TABLE>
<S> <C>
Common stock offered.............. 10,000,000 shares

Common stock to be outstanding
after the offering............... 45,856,415 shares

Use of proceeds................... We intend to use approximately $100.0
million of the net proceeds for the
construction of additional in-building
networks and the purchase of communications
equipment, approximately $10.0 million for
implementation and modification of
information systems and the remainder for
working capital and general corporate
purposes.

Nasdaq National Market Symbol..... CYCO
</TABLE>

The number of shares of common stock that will be outstanding after this
offering is based on the 2,759,806 shares outstanding as of December 31, 1999,
plus:

. 10,000,000 shares of common stock to be sold by us in this offering;

. 32,815,359 shares of common stock to be issued at the completion of this
offering upon the conversion of all of our outstanding convertible
preferred stock; and

. 281,250 shares of common stock to be issued in connection with our
agreed-upon investment in SiteConnect, a Seattle-based provider of
communications services.

The number of shares of common stock to be outstanding after this offering
excludes:

. 1,500,000 shares of common stock issuable pursuant to the over-allotment
option;

. 5,820,975 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $1.60 as of
December 31, 1999;

. 5,756,125 shares of common stock reserved for issuance in connection
with future grants under our stock option plan;

. 900,000 shares of common stock reserved for issuance under our employee
stock purchase plan; and

. up to 11,163,990 shares of common stock issuable upon the exercise of
warrants with an exercise price of $4.22 per share. We issued these
warrants to several real estate owners and operators in connection with
their execution of master license agreements giving us the right to
install and operate our networks in their buildings. The exact number of
shares of common stock underlying the warrants, which is based on the
gross leasable area of the buildings set forth in the master license
agreements, will not be determined until the completion of due diligence
and the finalization of the building schedules, which is currently in
process. The warrants are exercisable for periods of five to ten years,
but cannot be exercised until six months following completion of this
offering.

All information in this prospectus regarding shares of common stock and per
share amounts has been retroactively adjusted to reflect the 4.5-for-1 stock
split which occurred on February 8, 2000.

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

The address of our principal executive offices is Fifteen Piedmont Center,
Suite 710, Atlanta, Georgia 30305 and our telephone number is (404) 869-2500.
Our website address is www.cypresscom.net. The information on our website is
not a part of this prospectus.

3
<PAGE>

Summary Financial and Other Data

You should read the following summary financial and other data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes, all of which
appear elsewhere in this prospectus. The following summary statement of
operations data for the years ended December 31, 1997 and 1998 and the balance
sheet data as of December 31, 1998 have been derived from our audited financial
statements. The summary statement of operations data for the nine months ended
September 30, 1998 and 1999 and the summary balance sheet data as of September
30, 1999 are derived from our unaudited financial statements. Operating results
for the nine months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the entire year.

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended Year Ended September 30,
December 31, December 31, ------------------------
1997 1998 1998 1999
------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 709,402 $ 2,417,816 $ 1,428,497 $ 5,227,727
Operating expenses:
Cost of services...... 603,114 1,539,846 944,760 3,248,377
Sales and marketing... 448,916 1,470,107 1,075,039 2,466,844
General and
administrative....... 900,595 2,436,221 1,597,974 5,604,135
Amortization of
deferred
compensation......... -- 117,593 16,878 636,792
Depreciation and
amortization......... 196,415 576,659 351,453 1,413,906
----------- ----------- ----------- -----------
Total operating
expenses........... 2,149,040 6,140,426 3,986,104 13,370,054
----------- ----------- ----------- -----------
Operating loss.......... (1,439,638) (3,722,610) (2,557,607) (8,142,327)
Interest income, net.... 113,922 232,279 66,911 168,120
----------- ----------- ----------- -----------
Loss before income
taxes.................. (1,325,716) (3,490,331) (2,490,696) (7,974,207)
Income tax benefit...... -- -- -- --
----------- ----------- ----------- -----------
Net loss ............... $(1,325,716) $(3,490,331) $(2,490,696) $(7,974,207)
=========== =========== =========== ===========
Net loss per share of
common stock:
Basic and diluted....... $ (.41) $ (1.32) $ (0.94) $ (3.02)
=========== =========== =========== ===========
Weighted average shares
of common stock
outstanding:
Basic and diluted....... 3,266,237 2,636,906 2,636,906 2,636,906
=========== =========== =========== ===========
</TABLE>

4
<PAGE>

The pro forma balance sheet information below reflects the sale since
September 30, 1999 of 4,161,974 shares of our series C preferred stock for
total proceeds of approximately $79.1 million and the issuance of 281,250
shares of our common stock to occur in connection with our agreed-upon
investment in SiteConnect.

The pro forma as adjusted balance sheet information reflects the above
adjustments, as well as receipt of the estimated net proceeds of $155.7 million
from this offering, based on an initial public offering price of $17.00 per
share, and the conversion upon the completion of this offering of all
convertible preferred stock into common stock.

<TABLE>
<CAPTION>
As of
December 31,
1998 As of September 30,1999
------------ ----------------------------------------
(unaudited)
Pro Forma
Actual Actual Pro Forma As Adjusted
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $11,057,696 $ 3,378 $ 79,200,701 $234,900,701
Property and equipment,
net.................... 6,291,413 11,645,639 11,645,639 11,645,639
Total assets............ 19,407,105 14,281,941 98,260,514 253,960,514
Total liabilities....... 2,404,191 4,557,668 4,557,668 4,557,668
Convertible redeemable
preferred stock........ 21,317,263 21,376,037 100,453,537 --
Stockholders' (deficit)
equity................. (4,314,349) (11,651,764) (6,750,691) 249,402,846
</TABLE>

As used in the table below, EBITDA consists of net loss excluding net
interest, income taxes and depreciation and amortization. EBITDA excludes
depreciation and amortization expenses of $196,415, $694,252, $368,331, and
$2,050,698 for the year ended December 31, 1997, the year ended December 31,
1998, and the nine months ended September 30, 1998 and 1999, respectively. We
expect that depreciation and amortization will increase considerably as we
enter into additional property license agreements and deploy additional in-
building networks. We believe that because EBITDA is a measure of financial
performance it is useful to investors and analysts as an indicator of a
company's ability to fund its operations and to service or incur debt. However,
EBITDA is not a measure calculated under generally accepted accounting
principles. Other companies may calculate EBITDA or other similarly titled
measures differently from us; consequently, our calculation of EBITDA may not
be comparable to other companies' calculations of EBITDA or other similarly
titled measures. EBITDA is not an alternative to operating income as an
indicator of our operating performance or an alternative to cash flows from
operating activities as a measure of liquidity, and investors should consider
these measures as well. We do not expect to generate positive EBITDA in the
near term.

<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December Year Ended September 30,
31, December 31, -------------------------
1997 1998 1998 1999
----------- ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Other Operating Data:
Net cash used in
operating activities... $ (891,519) $ (2,914,905) $(1,971,373) $ (5,775,126)
Net cash used in
investing activities... (1,190,723) (4,991,641) (1,691,993) (5,172,675)
Net cash provided by
(used in) financing
activities............. 5,305,581 15,293,177 15,535,276 (106,517)
EBITDA.................. (1,243,223) (3,028,358) (2,189,276) (6,091,629)
Capital expenditures.... (1,190,723) (2,887,243) (1,691,993) (5,392,075)
Markets served.......... 2 4 2 9
Buildings served........ 19 39 24 96
Rentable square feet in
buildings served....... 3.6 million 11.0 million 5.5 million 23.5 million
</TABLE>

5
<PAGE>

RISK FACTORS

This offering involves a high degree of risk. You should carefully consider
the following risk factors before you decide to buy our common stock. You
should also consider the other information in this prospectus.

We expect our losses to continue to increase for the foreseeable future

Since our formation we have generated increasing negative EBITDA and larger
net losses each quarter. We have not achieved profitability and expect to
continue to incur increasing negative EBITDA and larger net losses for the
foreseeable future. For 1998, we had negative EBITDA of $3,028,358 and a net
loss of $3,490,331 on revenues of $2,417,816. For the first nine months of
1999, we had negative EBITDA of $6,091,629 and a net loss of $7,974,207 on
revenues of $5,227,727. In addition, we expect to continue to incur significant
costs as we deploy additional in-building networks and, as a result, we will
need to generate significant revenue to achieve profitability, which may not
occur.

Our business has grown rapidly and our business model is still evolving, which
makes it difficult to evaluate our prospects

We have grown our business rapidly and have experienced significant losses
in our efforts to penetrate our market. We will continue to make substantial
capital expenditures in deploying our networks before we know whether our
business plan can be successfully executed. As a result, there is a risk that
our business will fail. Additionally, our limited operating history makes it
difficult to evaluate the execution of our business model thus far.
Furthermore, because the market for services of in-building communications
providers is not well established, it is difficult for you to compare our
company with our competitors.

We are an early-stage company in an unproven industry and if we do not grow
rapidly or obtain additional capital we will not succeed

We began operating our first in-building network in June 1996 and were
operating 116 in-building networks as of December 31, 1999. We must, however,
continue to grow rapidly in order to succeed. Because the communications
industry is capital intensive, rapidly evolving and subject to significant
economies of scale, as a relatively small organization we are at a competitive
disadvantage. The growth we must achieve to reduce that disadvantage will put a
significant strain on all of our resources. Our current capital resources,
including our cash on hand, together with the proceeds of this offering, will
be sufficient to fund our operations and the projected deployment of additional
in-building networks only through mid-2001. We will require substantial
additional capital beyond then to finance our future operations according to
our current business plan. If we fail to grow rapidly or obtain additional
capital, we may not be able to compete with larger, more well-established
companies.

Additionally, we are unaware of any industry studies which have specifically
addressed the market for services of in-building communications providers. The
demand for bundled services from in-building communications providers is
unproven and may grow less than the demand for communications services
generally, or not at all. Furthermore, our own growth rate may not match the
growth rate of the in-building communications market as a whole.

6
<PAGE>

Our business plan cannot succeed unless we continue to obtain license
agreements with building owners and managers

Our business depends upon our ability to install in-building networks. The
failure of building owners or managers to grant or renew access rights on
acceptable terms, or any deterioration in our existing relationships with
building owners or managers, could harm our marketing efforts and could
substantially reduce our potential customer base. Current federal and state
regulations do not require building owners to make space available to us, or to
do so on terms that are reasonable or nondiscriminatory. Building owners or
managers may decide not to permit us to install our networks in their buildings
or may elect not to renew our license agreements. Non-renewal of these
agreements would reduce our revenues and we might not recover all of our
infrastructure costs.

We must place our network infrastructures in additional buildings before our
competitors do or we will face a substantial competitive disadvantage

Our success will depend upon our ability to quickly obtain license
agreements and install our in-building networks in many more buildings. This is
crucial in order to establish a first-mover advantage. We may not be able to
accomplish this. Each building in which we do not build a network is
particularly vulnerable to competitors. In addition, future expansions and
adaptations of our network infrastructures may be necessary to respond to
growth in the number of customers served, increased capacity demands and
changes to our services; otherwise other companies could be encouraged to
compete in buildings where we have installed networks.

In addition, future expansion will require us to outsource a significant
portion of the installation of our in-building networks. Any delays in
obtaining, or interruption in, the services of these third party installers
could delay our plans to install in-building networks, impair our ability to
acquire or retain customers and harm our business generally.

We may not be able to efficiently manage our growth, which could harm our
business

Future expansion will place significant additional strains on our personnel,
financial and other resources. The failure to efficiently manage our growth
could adversely affect the quality of our services, our business and our
financial condition. Our ability to manage our growth will be particularly
dependent on our ability to develop and retain an effective sales force and
qualified technical and managerial personnel. The competition for qualified
sales, technical and managerial personnel in the communications industry is
intense, and we may not be able to hire and retain sufficient qualified
personnel. In this regard, we note that we do not have employment contracts
with our key personnel. In addition, we may not be able to maintain the quality
of our operations, to control our costs, to maintain compliance with all
applicable regulations, and to expand our internal management, technical,
information and accounting systems in order to support our desired growth.

Our business will be harmed if our information support systems are not further
developed

Sophisticated information processing systems, including billing, are vital
to our growth and our ability to achieve operating efficiencies. A failure of
these systems could substantially impair our ability to provide services, send
invoices and monitor our operations. Among the systems we have identified as
being presently inadequate to meet the increased demands of our anticipated
growth are work-flow and customer priority management, human resources, sales
and customer support and fixed asset management, and there may be other systems
we have not identified that are in need of improvement. We estimate that
modifying or replacing these systems will cost approximately $10

7
<PAGE>

million in fiscal year 2000. Our plans for the development and implementation
of these systems rely largely upon acquiring products and services offered by
third-party vendors and integrating those products and services. We may be
unable to implement these systems on a timely basis or at all, and these
systems may not perform as expected. We may also be unable to maintain and
upgrade our operational support systems as necessary.

We operate in a highly competitive market, and we may not be able to compete
effectively against established competitors with greater financial resources
and diverse strategic plans

We face competition from many communications providers with significantly
greater financial resources, well-established brand names, larger customer
bases and diverse strategic plans and technologies. Intense competition has led
to declining prices and margins for many communications services. We expect
this trend to continue as competition intensifies in the future. We expect
significant competition from traditional and new communications companies,
including local, long distance, cable modem, Internet, digital subscriber line,
fixed and mobile wireless and satellite data service providers, some of which
are described in more detail below. If these potential competitors successfully
focus on our market, we may face intense competition which could harm our
business. In addition, we may also face severe price competition for building
access rights, which could result in higher sales and marketing expenses and
lower profit margins.

We face competition from other in-building communications providers

Some competitors, such as Allied Riser Communications, Broadband Office and
OnSite Access, are attempting to gain access to office buildings in our target
markets. To the extent these competitors are successful, we may face
difficulties in building our networks and marketing our services within some of
our target buildings. Because our agreements to use utility shaft space within
buildings are generally not exclusive, owners of such buildings could also give
similar rights to our competitors. Certain competitors already have rights to
install networks in some of the buildings in which we have rights to install
our networks. It is not clear whether it will be profitable for two or more
different companies to operate networks within the same building. Therefore, it
is critical that we build our networks in our target buildings quickly, before
our competitors do so. If a competitor installs a network in a building in
which we operate, there will likely be substantial price competition.

We face competition from local telephone companies

Incumbent local telephone companies, including GTE and regional Bell
operating companies such as Bell Atlantic and BellSouth, have several
competitive advantages over us, including established brand names and
reputations and significant capital to rapidly deploy or leverage existing
communications equipment and broadband networks. They often market their
services to tenants of buildings within our target markets and selectively
construct in-building facilities. Additionally, the regional Bell operating
companies are now permitted to provide long distance services in territories
where they are not the dominant provider of local services. These companies may
also provide long distance services in the territories where they are the
dominant provider of local services if they satisfy a regulatory checklist
established by the Federal Communications Commission. In December 1999, the FCC
ruled that Bell Atlantic has met these requirements in New York and may provide
long distance services in New York. If other regional Bell operating companies
are permitted to provide long distance services in territories where we
operate, we could face greater price competition.

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<PAGE>

We face competition from long distance companies

We will face strong competition from long distance companies. Many of the
leading long distance carriers, including AT&T, MCI WorldCom and Sprint, could
begin to build their own in-building voice and data networks. The newer
national long distance carriers, such as Level 3, Qwest and Williams
Communications, are building and managing high speed fiber-based national
voice and data networks, partnering with Internet service providers, and may
extend their networks by installing in-building facilities and equipment.

We face competition from fixed wireless service providers

We may lose potential customers to fixed wireless service providers. Fixed
wireless service providers are communications companies who can provide high
speed communications services to customers using microwave or other facilities
or satellite earth stations on building rooftops. Some of these providers have
targeted small and medium-sized business customers and have a business
strategy that is similar to ours. These providers include Advanced Radio
Telecom, NEXTLINK and Winstar.

We face competition from Internet service providers, digital subscriber line
companies and cable-based service providers

The services provided by Internet service providers, digital subscriber
line companies and cable-based service providers can be used by our potential
customers instead of our services. Internet service providers, such as
Concentric Networks, EarthLink and PSINet, provide Internet access to
residential and business customers, generally using the existing
communications infrastructure. Digital subscriber line companies and/or their
Internet service provider customers, such as Covad, NorthPoint and Rhythms
NetConnections, typically provide broadband Internet access using digital
subscriber line technology, which enables data traffic to be transmitted over
standard copper telephone lines at much higher speeds than these lines would
normally allow. Cable-based service providers, such as Excite@Home and its
@Work subsidiary, RCN Telecom Services and Road Runner, also provide broadband
Internet access. These various providers may also offer traditional or
Internet-based voice services to compete with us.

Competitors might use new or alternative technologies to offer better or less
expensive services than we can offer

In addition to the fiber-optic technology that our networks employ, there
are other technologies that provide greater bandwidth than traditional copper
wire transmission technology and may be used instead of our voice and data
services. Furthermore, these technologies may be improved and other new
technologies may develop that provide greater bandwidth than the fiber-optic
based technology we utilize. Existing alternative technologies include:

. Digital Subscriber Line Technology. Digital subscriber line technology
was developed to produce higher data transfer rates over the existing
copper-based telephone network. The data transfer rates for digital
subscriber lines are reported to range between 144,000 bits of data per
second and six million bits of data per second.

. Cable Modems. Cable modems can allow users to send and receive data
using cable television distribution systems. According to industry
sources, cable modem users typically experience download speeds of 1.5
million bits of data per second.

9
<PAGE>

. Wireless Technologies. Wireless technologies, such as satellite and
microwave communications systems, can provide high speed data
communications. Satellite systems, such as DirecPC, can offer high
download speeds that are advertised at 400,000 bits of data per second
or higher.

. Integrated Services Digital Networks. Integrated services digital
networks have been offered by the incumbent local telephone companies
over the existing copper-based telephone network for some time. These
services offer data transfer speeds of 128,000 bits of data per second.

. Internet Telephony. Several competitors have deployed, and others are
developing, Internet telephony, whereby voice calls may be made over the
Internet. The sound quality of these services has improved since their
introduction.

The development of new technologies or the significant penetration of
alternative technologies into our target market may reduce the demand for our
services and harm our business.

Legislation and government regulation could adversely affect us

Many of our services are subject to federal, state and/or local regulation.
As we continue to expand our operations geographically, we will become subject
to the regulation of additional jurisdictions. If we fail to comply with all
applicable regulations or experience delays in obtaining required approvals,
our business could be harmed. For example, we must make regular filings in some
of the states in which we operate and could be fined if we do not timely make
these filings. Additionally, compliance with these regulatory requirements may
be costly. Regulations governing communications services also change from time
to time in ways that are difficult to predict. Such changes may harm our
business by increasing competition, decreasing revenue, increasing costs or
impairing our ability to offer services. For example, the FCC could mandate
that building owners give access to competitive providers of communications
services.

If our interpretation of regulations applicable to our operations is incorrect,
we may incur additional expenses or become subject to more stringent regulation

Some of the jurisdictions where we provide services have little, if any,
written regulations regarding our operations. In addition, the written
regulations and guidelines that do exist in a jurisdiction may not specifically
address our operations. If our interpretations of these regulations and
guidelines is incorrect, we may incur additional expenses to comply with
additional regulations applicable to our operations.

Regulation of access to office buildings could negatively affect our business

There have been proposals to require that commercial office buildings give
access to competitive providers of communications services, and some states,
such as California and Texas, already have similar laws. Regulatory or legal
requirements that mandate access rights to our target buildings or our networks
would facilitate our competitors' entry into buildings where we have access
rights. Our competitors' access to buildings in which we operate could diminish
the value of our access rights to that property and adversely affect our
competitive position. Increased access would be particularly detrimental in
buildings in which we currently have exclusive or semi-exclusive access rights.
Recently, the FCC initiated a regulatory proceeding relating to utility shaft
access in multiple tenant buildings, and a bill was introduced in Congress
regarding the same topic. Some of the issues being

10
<PAGE>

considered in these developments include requiring building owners to provide
utility shaft access to communications carriers, and requiring some
communications providers to provide access to their wiring to other
communications providers. We do not know whether or in what form these
proposals will be adopted.

We must purchase voice and data transmission capacity from third parties who
may be unable or unwilling to meet our requirements

We rely upon other communications carriers, such as local telephone
companies, long distance companies and Internet service providers, to provide
transmission capacity from the buildings we serve. Our failure to obtain
adequate connections from other carriers on a timely basis could delay or
impede our ability to provide services and generate revenue. We have
experienced, and expect to continue to experience, delays in obtaining
transmission capacity. In addition, in some of our target markets there is only
one established carrier available to provide the necessary connection. This
increases our cost and makes it extremely difficult, if not impossible, to
obtain sufficient backup, or redundant, connections. Sufficient capacity or
redundant capacity may not be readily available from third parties at
commercially reasonable rates, if at all. Our failure to obtain sufficient
redundant connectivity could result in an inability to provide service in
certain buildings and service interruptions, which could in time lead to loss
of customers and damage to our reputation. Additionally, many of the
communications carriers we rely on for transmission capacity are also our
direct competitors. See "--We operate in a highly competitive market, and we
may not be able to compete effectively against established competitors with
greater financial resources and diverse strategic plans."

We rely on local telephone companies for transmission capacity

As noted above, we rely on local telephone companies for transmission
capacity. The rates we pay to the local telephone companies are generally
approved by the regulatory agency with jurisdiction over that carrier. Local
telephone companies may try to modify the terms under which they provide us
services to make it more difficult or more costly for us to provide services to
our tenants. Changes to the rates that local telephone companies charge us may
prevent us from providing services to our tenants at rates that are competitive
and profitable. Further, local telephone companies may not provide us access to
their network facilities in a prompt and efficient manner.

We rely on long distance providers for transmission capacity

We also rely on long distance providers for transmission capacity. The rates
that we pay these providers have generally been decreasing over time. These
rates may, however, rise in the future as a result of changes in regulation or
otherwise. Further, the rates we pay some long distance providers are
contingent upon our meeting minimum volume commitments. If we fail to meet
these volume requirements, our rates may rise. Increases in the rates we pay
for long distance service may make it more costly for us to provide these
services to our tenants. Further, long distance providers may not provide us
with access to their network facilities in a prompt and efficient manner.

We rely on Internet service providers for transmission capacity

With respect to Internet connectivity, we obtain the Internet access we
provide to our tenants from Internet service providers at negotiated rates. In
some instances, we must meet minimum volume commitments to receive the
negotiated rates. If we fail to meet the minimum volume

11
<PAGE>

commitments, our rates and costs may rise. Further, Internet service providers
may not provide us with access to their network facilities in a prompt and
efficient manner.

We have commitments to pay third parties for transmission capacity, regardless
of whether we use their services

As of December 31, 1999, we have committed to pay approximately $1.9 million
for services from other communications carriers through 2002. We will have to
pay those carriers even if we do not use their services.

Our business could suffer from a reduction or interruption from our equipment
suppliers

We purchase our equipment from various vendors. Any reduction in or
interruption of deliveries from our major equipment suppliers, such as Nortel
Networks or Cisco Systems, could delay our plans to install in-building
networks, impair our ability to acquire or retain customers and harm our
business generally. In addition, the price of the equipment we purchase may
substantially increase over time, increasing the costs we pay in the future. It
could take a significant period of time to establish relationships with
alternative suppliers for each of our technologies and substitute their
technologies into our networks.

We must make capital expenditures before generating revenues, which may prove
insufficient to justify those expenditures

We typically install an in-building network before we have any customers in
that building. Since we generally do not solicit customers within a building
until our network is in place we may not be able to recoup all of our
expenditures within any building. Prior to generating revenues in a building,
we must incur initial capital expenditures that are usually less than $90,000
on a typical 335,000 square foot building. In November and December 1999, we
entered into a number of master license agreements, the aggregate effect of
which is likely to increase the average size of the buildings we serve and
therefore increase our average initial capital expenditures for network
installation. Our expenditures will also vary depending on the size of the
building and whether we encounter any construction-related difficulties. After
initial installation of our network, our capital expenditures continue to grow
based on the extent to which we add customers within a building.

Any acquisitions or investments we make could disrupt our business and be
dilutive to our existing stockholders

We intend to consider acquisitions of, or investments in, complementary
businesses, technologies, services or products. Acquisitions and investments
involve numerous risks, including:

. the diversion of management attention;

. difficulties in assimilating the acquired business;

. potential loss of key employees, particularly those of the acquired
business;

. difficulties in transitioning key customer relationships;

. risks associated with entering markets in which we have no or limited
prior experience; and

. unanticipated costs.

12
<PAGE>

In addition, these acquisitions or investments may result in:

. dilutive issuances of equity securities;

. the incurrence of debt;

. the assumption of liabilities;

. large one-time expenses; and

. the creation of goodwill or other intangible assets that result in
significant amortization expense.

Any of these factors could materially harm our business or our operating
results.

Our networks may be vulnerable to unauthorized access which could interfere
with the provision of our services

Our networks may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Remediating the effects of computer viruses and
alleviating other security problems may require interruptions, incurrence of
costs and delays or cessation of service to our customers. Unauthorized access
could jeopardize the security of confidential information stored in our
computer systems or those of our customers, for which we could possibly be held
liable.

As an Internet access provider, we may incur liability for information
disseminated through our network

The law relating to the liability of Internet access providers and on-line
services companies for information carried on or disseminated through their
networks is unsettled. As the law in this area develops, the potential
imposition of liability upon us for information carried on and disseminated
through our network could require us to implement measures to reduce our
exposure to such liability, which may require the expenditure of substantial
resources or the discontinuation of certain products or service offerings. Any
costs that are incurred as a result of such measures or the imposition of
liability could harm our business.

Year 2000 problems could disrupt our business

During this calendar year, many software programs may not recognize calendar
dates beginning in the Year 2000. This problem could cause computers or
machines that utilize date dependent software to either shut down or provide
incorrect information. If we, or any of our key suppliers, customers or service
providers, fail to mitigate internal and external Year 2000 risks, we may
temporarily be unable to provide services or engage in any other business
activities, including customer billing, which could harm our business.

Our affiliates will own 59.0% of the outstanding common stock, and thus will
control all matters requiring a stockholder vote and, as a result, could
prevent or delay a change of control

Upon completion of this offering, our existing directors, executive officers
and greater-than-five-percent stockholders and their affiliates will, in the
aggregate, beneficially own approximately 59.0% of the outstanding shares of
common stock, or 57.1% if the underwriters' over-allotment option is exercised
in full. If all of these stockholders were to vote together as a group, they
would have the

13
<PAGE>

ability to exert significant influence over our board of directors and its
policies. For instance, these stockholders would be able to control the outcome
of all stockholders' votes, including votes concerning director elections,
charter and by-law amendments and possible mergers, corporate control contests
and other significant corporate transactions. This concentration of stock
ownership could have the effect of preventing or delaying a change of control
or otherwise discouraging a potential acquiror from attempting to obtain
control of us, which in turn could harm the market price of our common stock or
prevent our stockholders from realizing a takeover premium over the market
price for their shares of common stock.

Provisions in our certificate of incorporation and bylaws may discourage
takeover attempts

Provisions in our certificate of incorporation and bylaws may have the
effect of preventing or delaying a change of control or changes in our
management. These provisions include:

. the right of the board of directors, without stockholder approval, to
issue shares of preferred stock and to establish the voting rights,
preferences, and other terms of any preferred stock;

. the right of the board of directors to elect a director to fill a
vacancy created by the expansion of the board of directors;

. the ability of the board of directors to alter our bylaws without prior
stockholder approval;

. the election of three classes of directors to each serve three year
staggered terms;

. the elimination of stockholder voting by consent;

. the removal of directors only for cause;

. the vesting of exclusive authority in the board of directors and
specified officers (except as otherwise required by law) to call special
meetings of stockholders; and

. advance notice requirements for stockholder proposals and nominations
for election to the board of directors.

These provisions may have the effect of preventing or delaying a change of
control or impeding a merger, consolidation, takeover or other business
combination, which in turn could preclude our stockholders from recognizing a
premium over the prevailing market price of the common stock.

Prior to the completion of this offering, we intend to adopt a shareholder
rights plan. This plan will entitle our stockholders to rights to acquire
additional shares of our common stock when a third party acquires 15% of our
common stock or commences or announces its intent to commence a tender offer
for at least 15% of our common stock. This plan could delay, deter or prevent a
change of control.

You will suffer immediate and substantial dilution

The initial public offering price per share will be substantially higher
than the net tangible book value per share immediately after the offering.
Accordingly, if you purchase common stock in this offering, you will incur
immediate and substantial dilution. See "Dilution." We also have a large number
of outstanding stock options and warrants to purchase our common stock with
exercise prices significantly below the initial public offering price of the
common stock. To the extent these options and warrants are exercised, there
will be further dilution.

14
<PAGE>

Future sales and issuances of our common stock could adversely affect our stock
price

Substantial sales of our common stock in the public market following this
offering, or the perception by the market that such sales could occur, could
lower our stock price or make it difficult for us to raise additional equity
capital in the future. After this offering, we will have 45,856,415 shares of
common stock outstanding. Of these shares, the 10,000,000 shares sold in this
offering, or 11,500,000 shares if the underwriters' over-allotment is exercised
in full, will be freely tradeable. Substantially all of the remaining
35,856,415 shares will be subject to 180-day lock-up agreements. Of these
shares, up to 17,004,632 shares may be available for sale in the public market
180 days after the date of this prospectus, subject to compliance with Rule
144, and the balance will be available for sale at various times thereafter,
also subject to compliance with Rule 144. In addition, after this offering, we
also intend to register 11,577,100 shares of common stock for issuance under
our stock option plans and 900,000 shares of common stock under our employee
stock purchase plan. As of December 31, 1999, options to purchase 5,820,975
shares of common stock were issued and outstanding, of which options to
purchase 1,049,091 shares have vested. Additionally, up to 11,163,990 common
shares are issuable upon the exercise of warrants that were issued to several
property owners and operators pursuant to stock warrant agreements and master
license agreements executed in November and December 1999. These warrants are
exercisable for periods of five to ten years, but cannot be exercised until six
months following completion of this offering. We cannot predict if future sales
or issuances of our common stock, or the availability of our common stock for
sale, will harm the market price for our common stock or our ability to raise
capital by offering equity securities.

Members of our board serve on the boards of our potential competitors, which
may create conflicts of interest

Some members of our board of directors may serve as directors of other
communications or Internet services companies which might compete with us. To
the extent that any of these companies presently offer, or at some future point
begin to offer, integrated communications services similar to the services that
we provide, there may be conflicts of interest between the fiduciary duties
owed by these individuals to us and the duties owed to these other companies.
We have not adopted specific policy guidelines to address these potential
conflicts of interest, and if these conflicts of interest arise they may be
resolved on terms that are not in the best interests of all of our
stockholders.

Impairment of our intellectual property rights could harm our business

We regard certain aspects of our products, services and technology as
proprietary and attempt to protect them with patents, copyrights, trademarks,
trade secret laws, restrictions on disclosure and other methods. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our products, services or technology without authorization, or to
develop similar technology independently.

We currently have a patent application pending for our fiber-optic
infrastructure and network configuration. This patent may not be issued to us,
and if issued, it may not protect our intellectual property from competition
which could seek to design around or invalidate this patent.

We are aware of several other companies in our and other industries which
use the word "Cypress" in their corporate names. We are in the process of
attempting to secure a trademark for the name "Cypress Communications." Even if
we are able to secure this trademark, other companies

15
<PAGE>

could challenge our use of the word "Cypress." If such a challenge is
successful, we could be required to change our name and lose the goodwill
associated with the Cypress Communications name in our markets.

We may have a contingent liability arising out of a possible violation of
Section 5 of the Securities Act of 1933 in connection with the existence of a
hyperlink on our website

On or about December 20, 1999, one of our employees established an
unauthorized hyperlink on our website to an audio announcement regarding this
offering contained on an independent, unaffiliated website. The audio
announcement consisted solely of a person orally announcing limited factual
information regarding Cypress and this offering. This hyperlink was on our
website for approximately 17 days, and was removed on January 6, 2000. This
announcement may have constituted a prospectus that did not meet the
requirements of the Securities Act, in which case the existence of the
hyperlink may have caused us to violate Section 5 of the Securities Act. We
urge all persons to read and base their investment decision only on the
preliminary prospectus dated January 14, 2000 and this final prospectus.

If the existence of this hyperlink caused a violation of Section 5 of the
Securities Act, we believe that only purchasers in this offering who heard this
announcement through the hyperlink would have the right, for a period of one
year from the date of their purchase of the common stock, to bring an action
for rescission or for damages resulting from their purchase of common stock. We
cannot assure you, however, that if such a violation occurred this right would
be limited to those purchasers. We do not believe that the existence of this
hyperlink caused a violation of Section 5, and if any such claim were asserted,
we would contest the matter vigorously. Accordingly, we do not believe that our
exposure, if any, resulting from the existence of this hyperlink would be
material to our results of operations or financial condition.

Our forward-looking statements are speculative and may prove to be wrong

Some of the information under the captions "Summary," "Risk Factors," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risk and uncertainties, there
are important factors, including the factors discussed in this "Risk Factors"
section of the prospectus, that could cause actual results to differ materially
from those expressed or implied by these forward-looking statements.

16
<PAGE>

USE OF PROCEEDS

We estimate that our net proceeds from the sale of our common stock in this
offering will be approximately $155.7 million, based on an initial public
offering price of $17.00 per share, after deducting the estimated underwriting
discount and our estimated offering expenses. If the underwriters' over-
allotment option is exercised in full, we estimate that our net proceeds will
be approximately $179.4 million. We expect to use our net proceeds as follows:

. approximately $100.0 million will be used for the construction of in-
building networks and the purchase of communications equipment;

. approximately $10.0 million will be used for the implementation and
modification of information support systems; and

. the remainder will be used for working capital and general corporate
purposes.

A portion of the net proceeds may also be used to acquire or invest in
complementary businesses, technologies, services or products. However, we
currently have no plans, agreements or commitments with respect to these types
of transactions, and we are not currently engaged in any negotiations with
respect to these types of transactions.

We will invest the net proceeds in government securities and other short-
term, investment-grade securities pending use.

DIVIDEND POLICY

To date, we have never declared or paid any cash dividends on shares of our
common stock. We currently intend to retain our earnings for future growth and
development of our business and, therefore, do not anticipate paying cash
dividends in the foreseeable future.

17
<PAGE>

CAPITALIZATION

You should read this table in conjunction with the sections entitled
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Use of Proceeds" and our financial
statements and the related notes included elsewhere in this prospectus.

The following cash and capitalization table sets forth as of September 30,
1999:

. Our actual cash and capitalization.

. Our pro forma cash and capitalization after giving effect to:

- the sale of 4,161,974 shares of our series C preferred stock since
September 30, 1999; and

- the issuance of 281,250 shares of our common stock to occur in
connection with our agreed-upon investment in SiteConnect.

. Our pro forma as adjusted cash and capitalization to reflect the above,
as well as:

- the receipt of the estimated net proceeds of $155.7 million from
this offering, based on an initial public offering price of $17.00
per share; and

- the conversion upon the completion of this offering of all
convertible preferred stock into common stock.

<TABLE>
<CAPTION>
September 30, 1999
----------------------------------------
(unaudited)
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents............ $ 3,378 $ 79,200,701 $234,900,701
============ ============ ============
Capital lease obligations, including
current portion of $223,001......... 557,701 557,701 557,701
------------ ------------ ------------
Preferred stock:
$.001 par value; 1,211,140 shares
designated Series A, 1,211,140
shares issued and outstanding,
actual and pro forma; 0 shares
issued and outstanding, pro forma
as adjusted........................ 6,039,809 6,039,809 --
$.001 par value; 1,339,575 shares
designated Series B, 1,339,575
shares issued and outstanding,
actual and pro forma; 0 shares
issued and outstanding, pro forma
as adjusted........................ 10,704,559 10,704,559 --
$.001 par value; 579,613 shares
designated Series B-1, 579,613
shares issued and outstanding,
actual and pro forma; 0 shares
issued and outstanding, pro forma
as adjusted........................ 4,631,669 4,631,669 --
$.001 par value; 4,210,526 shares
designated Series C, 0 shares
issued and outstanding, actual;
4,161,974 shares issued and
outstanding, pro forma; 0 shares
issued and outstanding, pro forma
as adjusted........................ -- 79,077,500 --
------------ ------------ ------------
Total preferred stock............ 21,376,037 100,453,537 --
------------ ------------ ------------
Shareholders' (deficit) equity:
Common stock, $.001 par value;
20,594,088 shares authorized,
2,636,906 shares issued and
outstanding, actual; 20,594,088
shares authorized, 3,041,056 shares
issued and outstanding, pro forma;
150,000,000 shares authorized,
45,856,415 shares issued and
outstanding, pro forma as
adjusted........................... 2,637 3,041 45,856
Additional paid-in capital.......... 6,810,463 11,711,132 267,855,021
Deferred compensation............... (4,815,853) (4,815,853) (4,815,853)
Accumulated deficit................. (13,649,011) (13,649,011) (13,682,178)
------------ ------------ ------------
Total shareholders' (deficit)
equity.......................... (11,651,764) (6,750,691) 249,402,846
------------ ------------ ------------
Total capitalization................. $ 10,281,974 $ 94,260,547 $249,960,547
============ ============ ============
</TABLE>

18
<PAGE>

The cash and capitalization table excludes:

. 1,500,000 shares of common stock issuable pursuant to the over-allotment
option;

. 5,820,975 shares of common stock issuable upon exercise of outstanding
stock options at a weighted average exercise price of $1.60 per share as
of December 31, 1999;

. 5,756,125 shares of common stock reserved for issuance in connection
with future grants under our stock option plan;

. 900,000 shares of common stock reserved for issuance under our employee
stock purchase plan; and

19
<PAGE>

DILUTION

Our pro forma net tangible book value as of September 30, 1999 was $93.3
million, or $2.60 per share of outstanding common stock, after giving effect to
the adjustments shown in the pro forma column under "Capitalization" and the
conversion upon completion of this offering of all convertible preferred stock
into common stock. The pro forma net tangible book value per share represents
our total tangible assets less total liabilities, divided by 35,856,415 shares
of common stock outstanding on a pro forma basis before this offering. Dilution
per share represents the difference between the amount per share paid by
investors in this offering and the pro forma net tangible book value per share
after this offering. After giving effect to this offering, the pro forma as
adjusted net tangible book value at September 30, 1999 would have been $249.0
million, or $5.43 per share. This represents an immediate increase in net
tangible book value of $2.83 per share to existing stockholders and an
immediate dilution in net tangible book value of $11.57 per share to new
investors purchasing shares at the initial public offering price. The following
table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $17.00
------
Pro forma net tangible book value per share before this offering.. $2.60
Increase per share attributable to new investors.................. 2.83
Pro forma net tangible book value per share after this offering.... 5.43
------
Dilution per share to new investors................................ $11.57
======
</TABLE>

The following table summarizes, on a pro forma as adjusted basis as of
September 30, 1999, the difference between existing stockholders and new
investors with respect to the number of shares of common stock purchased, the
total consideration paid and the average price per share paid. These amounts do
not include estimated underwriting discounts and commissions and offering
expenses payable by us. The table is based on an initial public offering price
of $17.00.

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 35,856,415 78.2% 109,904,239 39.3% $ 3.07
New investors.................. 10,000,000 21.8% 170,000,000 60.7% $17.00
---------- ---- ----------- ----
Total ....................... 45,856,415 100% 279,904,239 100%
========== ==== =========== ====
</TABLE>

The foregoing table assumes no exercise of stock options or warrants. As of
September 30, 1999, there were options outstanding to purchase 3,881,970 shares
of common stock at a weighted average exercise price of $.87 per share. Between
October 1, 1999 and December 31, 1999 additional options were granted to
purchase 2,131,655 shares of common stock at a weighted average exercise price
of $2.89 per share. In November and December 1999, we entered into stock
warrant agreements and master license agreements with several property owners
and operators in which we agreed to issue warrants to acquire up to 11,163,990
shares of our common stock at an exercise price of $4.22 per share. To the
extent outstanding options and warrants are exercised, there will be further
dilution to new investors. In addition, we may agree to issue additional
warrants to acquire common stock to property owners and operators in the future
and we may issue equity securities to pay for acquisitions.

20
<PAGE>

SELECTED FINANCIAL DATA

You should read the following selected financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes, all of which
appear elsewhere in this prospectus. The following selected statement of
operations data for the years ended December 31, 1996, 1997, and 1998, and the
selected balance sheet data as of December 31, 1998 have been derived from the
audited financial statements of our company and the related notes. The selected
statement of operations data for the period from our inception (August 16,
1995) to December 31, 1995 and for the nine months ended September 30, 1998 and
1999, and the selected balance sheet data as of September 30, 1999 are derived
from our unaudited financial statements. Operating results for the nine months
ended September 30, 1999 are not necessarily indicative of the results that may
be expected for the entire year.

<TABLE>
<CAPTION>
Period from
Inception Nine Months Ended
(August 16, 1995) Year Ended Year Ended Year Ended September 30,
to December 31, December 31, December 31, ------------------------
December 31, 1995 1996 1997 1998 1998 1999
----------------- ------------ ------------ ------------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................. $ -- $ 83,556 $ 709,402 $ 2,417,816 $ 1,428,497 $ 5,227,727

Operating expenses:
Cost of services........ -- 131,771 603,114 1,539,846 944,760 3,248,377
Sales and marketing..... -- 12,189 448,916 1,470,107 1,075,039 2,466,844
General and
administrative......... 117,086 640,704 900,596 2,436,221 1,597,974 5,604,135
Amortization of deferred
compensation........... -- -- -- 117,593 16,878 636,792
Depreciation and
amortization........... 694 53,808 196,415 576,659 351,453 1,413,906
--------- --------- ----------- ----------- ----------- -----------
Total operating
expenses............... 117,780 838,472 2,149,040 6,140,426 3,986,104 13,370,054
--------- --------- ----------- ----------- ----------- -----------

Operating loss........... (117,780) (754,916) (1,439,638) (3,722,610) (2,557,607) (8,142,327)

Interest income, net..... -- 13,939 113,922 232,279 66,911 168,120
--------- --------- ----------- ----------- ----------- -----------
Loss before income
taxes................... (117,780) (740,977) (1,325,716) (3,490,331) (2,490,696) (7,974,207)
Income tax benefit....... -- -- -- -- -- --
--------- --------- ----------- ----------- ----------- -----------

Net loss................. $(117,780) $(740,977) $(1,325,716) $(3,490,331) $(2,490,696) $(7,974,207)
========= ========= =========== =========== =========== ===========
Net loss per share of
common stock:
Basic and diluted....... $ (.13) $ (0.29) $ (0.41) $ (1.32) $ (0.94) $ (3.02)
========= ========= =========== =========== =========== ===========
Weighted
average shares of
common stock outstanding:
Basic and diluted....... 900,000 2,523,032 3,266,237 2,636,906 2,636,906 2,636,906
========= ========= =========== =========== =========== ===========
</TABLE>

21
<PAGE>

The pro forma as adjusted balance sheet information reflects all of the
above adjustments, as well as the receipt of the estimated net proceeds of
$155.7 million from this offering, based on an initial public offering price of
$17.00 per share, and the conversion upon the completion of this offering of
all convertible preferred stock into common stock.

<TABLE>
<CAPTION>
As of
December 31,
1998 As of September 30, 1999
------------ ----------------------------------------
(unaudited)
Pro Forma
Actual Actual Pro Forma As Adjusted
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $11,057,696 $ 3,378 $ 79,200,701 $234,900,701
Property and equipment,
net.................... 6,291,413 11,645,639 11,645,639 11,645,639
Total assets............ 19,407,105 14,281,941 98,260,514 253,960,514
Total liabilities....... 2,404,191 4,557,668 4,557,668 4,557,668
Convertible redeemable
preferred stock........ 21,317,263 21,376,037 100,453,537 --
Stockholders' (deficit)
equity................. (4,314,349) (11,651,764) (6,750,691) 249,402,846
</TABLE>

As used in the table below, EBITDA consists of net loss excluding net
interest, income taxes and depreciation and amortization. EBITDA excludes
depreciation and amortization expenses of $53,808, $196,415, $694,252,
$368,331, and $2,050,698 for the years ended December 31, 1996, 1997, and 1998,
and the nine months ended September 30, 1998 and 1999, respectively. We expect
that depreciation and amortization will increase considerably as we enter into
additional property license agreements and deploy additional in-building
networks. We believe that because EBITDA is a measure of financial performance
it is useful to investors and analysts as an indicator of a company's ability
to fund its operations and to service or incur debt. However, EBITDA is not a
measure calculated under generally accepted accounting principles. Other
companies may calculate EBITDA or other similarly titled measures differently
from us; consequently, our calculation of EBITDA may not be comparable to other
companies' calculations of EBITDA or other similarly titled measures. EBITDA is
not an alternative to operating income as an indicator of our operating
performance or an alternative to cash flows from operating activities as a
measure of liquidity, and investors should consider these measures as well. We
do not expect to generate positive EBITDA in the near term.

22
<PAGE>

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

Overview

We provide a full range of communications services to small and medium-sized
businesses located in multi-tenant office buildings in major metropolitan
markets in the United States. Since the inception of our predecessor company in
August 1995, our principal activities have included securing license agreements
with building owners and real estate managers that enable us to install our in-
building fiber-optic, digital and broadband networks, marketing our services to
tenants and hiring qualified personnel to support our rapid growth. We began
operating in-building networks in June 1996 and currently provide services in
116 buildings representing approximately 30 million rentable square feet.
Overall, we have secured agreements giving us the right to operate our networks
in over 730 buildings representing more than 229 million rentable square feet.

Building and expanding our business will continue to require us to incur
significant capital expenditures. These expenditures will consist primarily of
purchases of communication equipment and construction costs associated with
building our in-building networks. We attempt to maximize the benefit of
deployed capital by investing in network assets only after entering into a
long-term license agreement with a property owner. In addition, we do not
expend capital on a customer until we have signed a contract with that
customer. As a result, a large portion of our capital expenditures is success-
based. On a typical 335,000 square foot building, our up-front capital
investment is usually less than $90,000 which includes the purchase and
installation of our in-building vertical communications infrastructure,
commonly known as a riser system, and associated network equipment. As we begin
to successfully penetrate a building, in order to provide additional network
capacity and equipment for our customers our capital deployment in that
building may grow to over $335,000.

We have experienced operating losses and generated negative EBITDA, as
defined in "Summary Financial and Other Data" and "Selected Financial Data,"
and expect to continue to generate losses and negative EBITDA for the
foreseeable future while we continue to construct in-building networks and
expand our customer base and internal information systems. As a result of our
limited operating history, prospective investors have limited operating and
financial data upon which to evaluate our performance.

Factors Affecting Future Operations

Revenue. We generate revenues from selling voice, data and other services
and from the rental of telephone systems and other equipment to tenants in the
buildings in which we own and operate our networks. The majority of our
revenues are generated on a monthly recurring basis. The remainder are derived
from non-recurring charges for installations and other one-time services. Our
customer contracts typically range between one and seven years in length and
are usually designed to coincide with our customers' office space leases. The
typical length of our customer contracts is three years.

We believe that our ability to generate revenues in the future will be
affected primarily by the following factors, some of which we cannot control:

. our ability to enter into license agreements with building owners and
install our in-building networks;

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. our ability to obtain customers before our competitors do;

. the level of competition we face from other communications providers,
including price competition, which has resulted in a trend of declining
prices and margins for communications services over time;

. the demand for our services; and

. possible regulatory changes, including regulations requiring building
owners to give access to competitive providers of communications
services.

Cost of services. Our cost of services consists primarily of leased
transport charges, which are lease payments to communications providers for the
transmission facilities used to connect our in-building networks to incumbent
local telephone companies' and other competitive local and long distance
carriers' networks. Other costs include per minute charges paid to long
distance providers for use of their networks, the monthly fees we pay to our
Internet providers, and labor costs associated with installing equipment and
changing customers' services. We expect these costs to increase in aggregate
dollar amount as we continue to grow our business but to decline as a
percentage of revenues due to economies of scale, expected improvements in
technology and price competition from an increased number of vendors from which
we can lease voice and data transport. However, in markets where there is only
a single carrier, or only a limited number of carriers, available to provide
sufficient transmission capacity, the cost of services may actually increase.

Sales and marketing expenses. Sales and marketing expenses include
applicable employee salaries and commission payments and marketing, advertising
and promotional expenses. Sales and marketing expenses also include payments to
building owners and operators under license agreements, as described below.

In November and December 1999, we entered into master license agreements
with several owners and operators of office buildings. Each master license
agreement sets forth a list of buildings owned or managed by the property owner
or operator that is a party to that agreement. In accordance with the terms of
these agreements, we have begun to enter into property-specific license
agreements with respect to each listed building. In some cases, the property
owner or operator may need to obtain the consent from third parties who may
have an ownership interest in the building before we can enter into a property-
specific license agreement for that building. Under the property-specific
license agreements, the property owner or operator will grant us a license to
install and operate our networks in each building in return for approximately
6% of the revenues we receive from tenants in that building. The initial term
of each property-specific license agreement is generally five years, with an
automatic five year extension at the end of the initial term, absent any
default under the agreement. These master license agreements give us the right
to operate our networks in more than 600 buildings representing more than 194
million rentable square feet.

In addition to the master license agreements, we also have license
agreements with a number of other property owners and operators which we have
previously executed on a per building basis. Under these agreements, which give
us the right to operate our networks in more than 130 buildings representing
more than 35 million rentable square feet, we have agreed to pay property
owners either a base fee or between 3% and 6% of our revenues in the building.
As of September 30, 1999, our aggregate minimum obligation under these
agreements was $125,000 per year for the next seven years.

We expect to incur significant sales and marketing expenses as we continue
to grow our business and build our brand.

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General and administrative expenses. General and administrative expenses
include costs associated with the recruiting and compensation of corporate
administration, customer care and technical services personnel as well as costs
of travel and entertainment, back office systems and legal, accounting and
other professional services. We expect these costs to increase significantly as
we expand our operations, but decline as a percentage of revenues due to
economies of scale.

Depreciation and amortization. Depreciation and amortization expenses
include depreciation of network related equipment, information systems,
furniture, fixtures, leasehold improvements and the amortization of goodwill
and acquired tenant contracts.

In connection with the execution of master license agreements in November
and December 1999, we also entered into stock warrant agreements with the same
property owners and operators. Under the terms of these agreements, we issued
these owners and operators warrants to purchase up to an aggregate of
11,163,990 shares of our common stock at an exercise price of $4.22 per share.
The exact number of shares of common stock underlying the warrants, which is
based on the gross leasable area of the buildings set forth in the master
license agreements, will not be determined until the completion of due
diligence and the finalization of the building schedules, which is currently in
process. We expect that the actual number of shares underlying these warrants
will not be adjusted significantly. The measurement date for valuing the
warrants will be the date(s) on which the property owners or managers
effectively complete their performance requirements.

Based upon the current structure of the agreements governing the warrants,
we expect that the fair value of the warrants will approximate $150 million and
will be capitalized as license inducement expense and amortized over the
applicable terms of the license agreements with property owners and operators.
Such license terms are generally 10 years. Depending on the prevailing fair
market value of the warrants at the measurement date, the amount of license
inducement and related amortization may change and such change could be
material. In addition, we could incur additional cash or non-cash charges as
license inducements to current or future property owners, and such amounts may
be material.

We expect depreciation and amortization expenses to increase significantly
as we enter into additional property license agreements and install our
networks in more buildings.

Amortization of deferred compensation. Amortization of deferred compensation
is a result of granting stock options to our employees with exercise prices per
share treated for accounting purposes as below the fair value of our common
stock at the dates of grant. We have recognized amortization of deferred
compensation expense for the nine months ended September 30, 1999 of $636,792.
See Note 4 and Note 10 to our financial statements. We are amortizing the
deferred compensation over the vesting period of the applicable option.

Acquisition strategy. We intend to opportunistically pursue acquisitions or
other strategic relationships to expand our customer base or geographic
presence. These activities could significantly impact our results of operations
and require us to raise additional capital earlier than expected.

In November 1999 we entered into a letter of intent to acquire approximately
19% of the common stock of SiteConnect, a Seattle-based in-building
communications service provider, in exchange for 281,250 shares of our common
stock. The agreement gives us a one-year option to purchase the remaining
outstanding shares of common stock of SiteConnect for approximately $5.0
million of our common stock, valued at the initial public offering price, which
would be 294,118 shares based on an initial public offering price of $17.00 per
share. Currently, SiteConnect provides primarily data communications services
to customers in ten commercial office buildings in Seattle.

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Results of Operations

Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998

Revenues. Revenues for the nine months ended September 30, 1999 increased
266% to $5.2 million from $1.4 million for the same period in the prior year.
$2.4 million of the increase in revenues relates to the addition of new
customers and providing additional services to existing customers. $1.4
million of the increase relates to the acquisition of the assets and customers
of MTS Communications Company in December 1998 (see Note 9 to our financial
statements).

Cost of services. Cost of services for the nine months ended September 30,
1999 increased 243.8% to $3.2 million from $944,760 for the same period in the
prior year. The increase in cost of services was due to an increase in the
number of leased facilities connecting our buildings to local, long distance
and Internet providers and our greater volume of voice and data traffic. As of
September 30, 1999, we had networks installed in 96 buildings versus 24
buildings installed at September 30, 1998.

Sales and marketing expenses. Sales and marketing expenses for the nine
months ended September 30, 1999 increased 129.5% to $2.5 million from $1.1
million for the same period in the prior year. $1.1 million of this increase
in expenses was due to a 170% increase in the size of our direct sales force;
$0.2 million of this increase was due to increased revenue sharing payments
made to property owners with whom we have license agreements; and $0.1 million
of this increase was due to increased promotion of our services via direct
marketing and advertising in our licensed buildings. The decrease in sales and
marketing expenses as a percentage of revenue related primarily to the
additional revenue attributable to the acquisition of the assets of MTS
Communications without a comparable increase in sales and marketing expenses.

General and administrative expenses. General and administrative expenses
for the nine months ended September 30, 1999 increased 250.7% to $5.6 million
from $1.6 million for the same period in the prior year. The increase in
general and administrative expenses was due primarily to a $3.2 million
increase in salaries, benefits and recruiting expenses related to the hiring
of additional personnel, a $369,000 increase in travel and entertainment
expenses primarily related to marketing to property owners and operators and
expenses associated with personnel travelling to oversee and conduct the
installation of our networks in additional buildings, and increases in
accounting, consulting and legal fees. We expect general and administrative
expenses to continue to grow as we hire additional personnel and incur
additional expenses to support the growth of our operations.

Amortization of Deferred Compensation. Amortization of deferred
compensation increased from $0.1 million to $0.7 million for the nine months
ended September 30, 1999 compared with the same period in the prior year. This
increase reflects additional issuances of stock options, primarily to general
and administrative employees, at exercise prices lower than fair value on
their dates of grant (see Note 4 to our financial statements).

Depreciation and amortization. Depreciation and amortization for the nine
months ended September 30, 1999 increased to $1.4 million from $351,453 for
the same period in the prior year. $0.6 million of this increase was due to
increased capital expenditures related to deploying our in-building networks
and related equipment; $0.4 million of this increase was due to depreciation
of fixed assets; and $0.1 million of this increase was due to amortization of
goodwill and tenant contracts related to the acquisition of MTS
Communications.

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Interest income, net. Interest income, net for the nine months ended
September 30, 1999 increased to $168,120 from $66,911 for the same period in
the prior year. The increase in interest income, net was due to increased
investments in short-term interest bearing investments as a result of investing
the proceeds raised from our Series B preferred stock offering in September
1998. Interest expense was nominal in both periods.

Results for the Year Ended December 31, 1998, the Year Ended December 31, 1997,
and the Year Ended December 31, 1996

Revenues. Revenues were $2.4 million, $709,402 and $83,556 for the years
ended December 31, 1998, December 31, 1997, and December 31, 1996,
respectively. The growth in revenues was the result of the addition of new
customers and the provision of additional services to existing customers.

Cost of services. Cost of services was $1.5 million, $603,114 and $131,771
for the years ended December 31, 1998, December 31, 1997, and December 31,
1996, respectively. The growth in cost of services was the result of our
providing services to an increased number of customers and an increase in the
number of leased facilities connecting our buildings to local, long distance
and Internet providers.

Sales and marketing expenses. Sales and marketing expenses were $1.5
million, $448,916 and $12,189 for the years ended December 31, 1998, December
31, 1997, and December 31, 1996, respectively. The growth in sales and
marketing expenses was the result of increases in the size of our direct sales
force, increased license fee payments made to property owners with whom we have
license agreements and increased promotion of our services via direct marketing
and advertising in our licensed buildings.

General and administrative expenses. General and administrative expenses
were $2.4 million, $900,595 and $640,704 for the years ended December 31, 1998,
December 31, 1997, and December 31, 1996, respectively. The growth in general
and administrative expenses was the result of increased salaries and benefits
related to the hiring of additional personnel, increased travel and
entertainment related to the installation of new sites and marketing to
property owners, and increases in accounting, consulting and legal fees.

Depreciation and amortization. Depreciation and amortization was $576,659,
$196,415, and $53,808 for the years ended December 31, 1998, December 31, 1997,
and December 31, 1996, respectively. These increases were related to our
increased capital expenditures during the periods.

Interest income, net. Interest income, net was $232,279, $113,922, and
$13,939 for the year ended December 31, 1998, December 31, 1997, and December
31, 1996, respectively. The increase in interest income, net was due to
increased investments in short-term interest bearing investments as a result of
investing the proceeds raised from our series A preferred stock offering in
July 1997 and our series B preferred stock offering in September 1998. Interest
expense was nominal in all periods.

Liquidity and Capital Resources

The results of our operations have generated a net cash outflow due to the
rate at which we have grown. Cash flow from operations totaled $(638,707),
$(891,519), $(2.9 million), and $(5.8 million) for the years ended December 31,
1996, December 31, 1997, and December 31, 1998, and the nine

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months ended September 30, 1999, respectively. The expansion of our operating
and administrative personnel, office space, and other operating expenses were
the principal contributors to the increases in the net cash outflow between the
periods. As we continue to expand our operations, these increases in period-
over-period operating cash outflows will continue.

Cash used in investing activities was $(638,638), ($1.2 million), $(5.0
million), and $(5.2 million) for the years ended December 31, 1996, December
31, 1997, and December 31, 1998, and the nine months ended September 30, 1999,
respectively. Our cash used in investing activities has primarily been used to
build-out our in-building networks. In 1998 we used $1.9 million to purchase
the assets of MTS Communications. As of September 30, 1999, we had made capital
expenditures of $10 million since inception. We expect that our capital
expenditures will increase substantially in future periods as we construct our
networks and purchase more communications equipment. We will continue to seek
access to additional buildings. If we are successful in gaining access to
additional buildings, we will have substantial needs for additional capital for
an indefinite period. We also expect to have substantial and increasing
negative EBITDA and net losses.

Cash provided by financing activities was $1.7 million, $5.3 million, $15.3
million and $(106,517) for the years ended December 31, 1996, December 31,
1997, and December 31, 1998, and the nine months ended September 30, 1999,
respectively. Our financing has primarily been obtained through the issuance of
convertible preferred stock to private investors. Since September 30, 1999, we
have sold additional shares of preferred stock for total cash proceeds of
approximately $79.1 million. See Note 10 to our financial statements. The
proceeds from these equity issuances have been and will continue to be used to
fund cash outflows from our operating and investing activities.

On December 8, 1998, we acquired certain assets of MTS Communications, a
provider of communications services in California, for total consideration of
$2,574,848 consisting of $1,904,398 in cash and the assumption of certain
capital lease obligations with a fair value of $670,450. In November 1999, we
signed a binding letter of intent to acquire 254,125 shares of common stock,
representing approximately 19%, of SiteConnect, a Seattle-based provider of
communication services, for consideration of 281,250 shares of our common
stock. The agreement contains an option to purchase the remaining outstanding
common stock of SiteConnect for approximately $5.0 million of our common stock
valued at the initial public offering price, which would be 294,118 shares
based on an initial public offering price of $17.00 per share.

In November and December 1999, we issued warrants to purchase up to an
aggregate of 11,163,990 shares of our common stock at an exercise price of
$4.22 per share to several property owners and operators who executed master
license agreements. The exact number of shares of common stock underlying the
warrants, which is based on the gross leasable area of the buildings set forth
in the master license agreements, will not be determined until the completion
of due diligence and the finalization of the building schedules, which is
currently in process. We expect that the actual number of shares underlying
these warrants will not be adjusted significantly. The master license
agreements give us the right to operate our networks in more than 600 buildings
representing more than 194 million rentable square feet. As noted above, on a
typical 335,000 square foot building, our up front capital investment is
usually less than $90,000. As we begin to successfully penetrate a building,
our capital deployment may grow to over $335,000.

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As of September 30, 1999, we had minimum payment obligations under our
existing license agreements of $125,000 per year for the next seven years.

As of September 30, 1999, we had $557,701 in capital lease obligations
outstanding. We assumed the majority of these capital lease obligations through
our acquisition of the assets of MTS Communications. Our capital lease
obligations contain no provisions that would limit our future borrowing
ability.

We currently have contracts with several communications providers under
which we have minimum purchase obligations for leased transport. As of
September 30, 1999, these minimum purchase obligations totaled approximately
$1.0 million through 2002. As of December 31, 1999, these obligations totaled
approximately $1.9 million through 2002. We will have to pay those providers
even if we do not use their services.

We estimate that our net proceeds from the sale of common stock in this
offering will be approximately $155.7 million, based upon an initial public
offering price of $17.00 per share, after deducting the estimated underwriting
discount and our estimated offering expenses. If the underwriters' over-
allotment option is exercised in full, we estimate that our net proceeds will
be approximately $179.4 million. We intend to use approximately $100.0 million
of the net proceeds from this offering for construction of in-building networks
and the purchase of communications equipment and approximately $10.0 million
for implementation and modification of information support systems; however, we
currently have no material purchase commitments with respect to these planned
expenditures. The remainder of the net proceeds will be available for working
capital and general corporate purposes. We may also use a portion of the net
proceeds to acquire or invest in complementary businesses, technologies,
services or products. However, we currently have no material commitments or
agreements with respect to any of these types of transactions.

We are currently operational in 12 markets, and we have plans to expand our
presence to approximately 27 markets by the end of 2000 and approximately 40
markets by the end of 2001. We estimate that this expansion will require
capital expenditures of approximately $50.0 million in 2000 and approximately
$90.0 million in 2001.

We estimate that the net proceeds of this offering in addition to our cash
on hand will be sufficient to fund our operations and the projected deployment
of our network through mid-2001. We do, however, expect to continue our growth,
expansion and the further development of our network and services beyond that
point. Accordingly, we expect that we will eventually need to arrange for
additional sources of capital through the issuance of debt or equity or bank
borrowings. We have no commitments for any such additional financing, and we
cannot be sure that we will be able to obtain any such additional financing at
the times required and on terms and conditions acceptable to us. In such event,
our growth could slow and operations could be adversely affected.

The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of many factors, some of which we
cannot control. These factors include:

. the timing of execution of license agreements;

. our ability to meet or exceed our construction schedules;

. obtaining favorable prices for purchases of equipment;

. our ability to develop, acquire and integrate the necessary operational
support systems;

. the cost of network development in each of our markets;

. demand for our services;

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. the nature and penetration of new services that may be offered by us;

. the timing and extent of future acquisitions or investments, if any, and
our ability to integrate these acquisitions or investments;

. regulatory changes; and

. changes in technology and competitive developments beyond our control.

Recent Accounting Pronouncements

We do not believe that any recent accounting pronouncements will have a
material impact on our financial statements.

Quantitative And Qualitative Disclosure About Market Risk

Our exposure to financial market risk, including changes in interest rates
and marketable equity security prices, relates primarily to our investment
portfolio. We typically do not attempt to reduce or hedge our market exposure
on our investment securities because a substantial majority of our investments
are in fixed-rate, short-term securities. We do not have any derivative
instruments. The fair value of our investment portfolio or related income would
not be significantly impacted by either a 100 basis point increase or decrease
in interest rates due mainly to the fixed-rate, short-term nature of the
substantial majority of our investment portfolio. As of September 30, 1999 we
had no debt outstanding, other than capital leases.

Year 2000 Compliance

The Year 2000 issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, certain
computer programs that have time-sensitive software may recognize a date ending
in "00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

As of February 9, 2000, we have experienced no material problems as a result
of the Year 2000 issue. Costs to ensure that our systems and networks are Year
2000 compliant have not been, and are not expected to be, material.

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BUSINESS

Overview

We provide a full range of communications services to small and medium-sized
businesses located in multi-tenant office buildings in major metropolitan
markets throughout the United States. We offer our customers a full range of
communications services, including multi-function digital telephones, local and
long distance voice services, high speed, always-on Internet access, business
television and other enhanced communications services. We deliver these
services over state-of-the-art fiber-optic, digital and broadband networks that
we design, construct, own and operate inside large and medium-sized office
buildings. We differentiate ourselves from other communications companies by
providing a single-source communications solution with a high degree of
customer service and responsiveness. Our customers are assigned a single
dedicated on-site or near-site support team to address their sales and service
needs. Our customers also benefit from the convenience and efficiency of
receiving a single integrated bill for all of their communications services.

We began providing bundled communications services and operating in-building
networks in June 1996 in Atlanta. As of December 31, 1999, we were operating
our networks in 116 buildings representing approximately 30 million rentable
square feet in 12 major metropolitan areas, including Atlanta, Boston, Chicago,
Dallas, Denver, Houston, Los Angeles, Miami, New Orleans, Orange County, San
Diego and Washington, D.C. Overall, we have license agreements with building
owners and property managers, including AEW, Boston Properties, Brookfield,
Cornerstone, Cousins, Lend Lease, Shorenstein, Taylor Simpson, Tower Realty,
Transwestern, TrizecHahn, Vornado and Westbrook, giving us the right to install
and operate our networks in more than 730 buildings representing more than 229
million rentable square feet in 50 major metropolitan areas. The typical length
of our license agreements is ten years.

Market Opportunity

In estimating our market opportunity, we have relied on reports from various
industry sources, including International Data Corporation, Dataquest, Access
Media International and Dun & Bradstreet.

According to Dun & Bradstreet, there are approximately 1.3 million small and
medium-sized businesses in the United States, which typically employ between 10
and 500 employees. According to International Data Corporation, small and
medium-sized businesses spent over $47 billion in 1998 for voice communication
services. While Dataquest estimates the demand for voice services will grow at
a modest pace to over $53 billion in 2002, the demand for data and Internet
services from this market segment is projected to grow at a substantially
greater pace. We believe, based on our industry sources, that small and medium-
sized businesses spent more than $14 billion for data and Internet services
during 1998 and that growth in data and Internet services will increase at a
compound annual growth rate of approximately 29% per year through 2002.

We are targeting this growing market segment by constructing our fiber-
optic, digital and broadband networks in the office buildings in which many
small and medium-sized businesses are

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located. We estimate that there are more than 8,100 office buildings with
greater than 100,000 square feet representing over 2.2 billion rentable square
feet of office space located in the 50 major metropolitan areas in which we
currently operate or plan to operate in the future.

As the communications market has grown rapidly over the past five years,
businesses have become inundated with offerings of new products, services and
carriers. As a result, it has become increasingly difficult for small and
medium-sized businesses, most of which do not have a dedicated communications
staff, to evaluate the vast array of communications options that are available.
In addition, these businesses have had to contend with the cost and complexity
of retaining multiple vendors in order to procure the various communications
services they require.

We believe there is a significant demand in the market for an integrated
communications provider who can offer the various communications services that
small and medium-sized businesses require. While most large enterprises build
or lease dedicated high speed networks and complex communications equipment,
most small and medium-sized businesses, due to cost and network infrastructure
constraints, are not able to enjoy the levels of service and functionality that
such facilities and equipment can provide. For example, the majority of small
and medium-sized businesses access the Internet through relatively slow dial-up
connections, often at speeds of 56,000 bits per second or less. We believe that
dedicated high speed connections to the Internet for small and medium-sized
businesses will grow significantly over the next two years, and that this will
create a significant opportunity for communications providers with the ability
to provide affordable high-speed Internet connectivity in addition to other
enhanced communications services.

Our Solution

We provide small and medium-sized businesses a broad range of communications
services over our own in-building state-of-the-art fiber-optic, digital and
broadband networks. Our solution offers these businesses a number of important
advantages, including:

. A comprehensive communications solution from a single source. We
effectively function as our customers' communications manager and
provide them with a "one stop shopping" solution. As a result, we
greatly reduce the administrative burden typically associated with
managing multiple communications vendors. Our comprehensive package of
communications services typically includes providing multi-function
digital telephones, local and long distance voice services, high speed,
always-on Internet access, business television, voicemail and e-mail. We
also offer web site hosting, domain name registration, 24x7 remote
systems monitoring, firewall, or data security, protection and many
other enhanced communications services. We offer our services at
competitive prices and deliver a single bill for all services rendered.
We are continually expanding and upgrading the products and services
that we offer our customers, so that as their needs evolve, our products
and services evolve with them.

. A reliable, feature-rich communications package typically available only
to large corporations. In addition to offering a comprehensive package
of communications services, we provide our small and medium-sized
business customers features and performance levels that traditionally
have been available only to large corporations. We provide voice
services using state-of-the-art equipment from manufacturers such as
Nortel Networks and Cisco Systems, which enables us to offer our
customers a variety of

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enhanced services. We provide our customers affordable, high speed,
always-on Internet access at transmission speeds up to 3.0 million bits
of data per second. We also have the ability to provide significantly
greater speeds should our customers require such capacity in the future.
Unlike traditional networks, our networks are designed to alleviate
network congestion resulting in slow transmission speeds, a common
problem which occurs when many customers within a multi-tenant
commercial building attempt to use traditional limited capacity
networks. In addition, to ensure reliable performance, we utilize
multiple carriers, backup network components and emergency power
supplies.

. Rapid installation and service expansion with minimal capital outlay by
customers. Because we own and operate our in-building networks, we are
able to deliver our comprehensive package of services to a new customer
within a few days of receiving an order. In addition, we are often able
to provide same day service for existing customers requesting new
services or features, such as increased Internet speeds or additional
lines. Additionally, because our customers typically rent their
telephone systems and related premise equipment from us, they avoid
significant capital outlays and substantially mitigate the risks of
being constrained by network capacity or having their phone system
become technologically obsolete.

. On-site or near-site customer service and support. Upon signing up for
service, each of our customers is assigned a dedicated, experienced
account team. This team is either on-site or near-site and is available
on a 24x7 basis to address customer inquiries. We believe that our high
standard of customer service will continue to enhance our ability to
acquire and retain customers.

Strategy

Our objective is to be a leading provider of integrated communications
services to small and medium-sized businesses. To achieve this objective, we
have developed a business strategy designed to achieve significant market
penetration and deliver superior customer service while maximizing operating
margins. Key components of this strategy include the following:

. Providing a broad range of communications services under long-term
customer contracts. We intend to continually add to and upgrade our
service offerings in order to attract new customers and further
penetrate our existing customer base. We sell our services under
contracts which are typically three years in length. We believe our
ability to provide a "one-stop shopping" solution will enable us to
continue to enter into long-term contracts with our customers. In
addition, we believe that our broad product portfolio also contributes
to our low customer defection, or churn rates. In short, our goal is to
ensure that a customer or potential customer need never look beyond
Cypress to fulfill any communications need.

. Providing superior customer service. As part of our continuous effort to
attract and retain customers, we are dedicated to providing the highest
levels of customer service and satisfaction in the industry. We assign
to each customer a dedicated team of customer service personnel that is
either on-site or near-site. Consequently, we believe that the level of
customer service and technical support we offer in terms of
responsiveness and customer knowledge exceeds that offered by
competitors who provide customer support on a regional or national
basis.

33
<PAGE>

. Controlling the critical "last few feet." We own and manage the in-
building infrastructure over which we provide services to our customers,
including the actual physical connection between our customers and out-
of-building networks. We believe this affords us important and
sustainable competitive advantages and allows us to:

- strengthen our position as "gatekeeper" to our in-building customers;

- provision services more quickly and efficiently; and

- better control service quality.

. Leveraging our experience and first mover advantage to secure license
agreements with building owners. As one of the first in-building
providers of integrated communications services in the United States, we
will continue to leverage our experience and first mover advantage to
secure additional license agreements with building owners. Before a
building owner will enter into a long-term contract with a
communications provider, the building owner must be confident that the
provider is capable of offering superior service to building tenants
throughout the life of the license agreement and thereafter. We believe
our experience, industry reputation and referenceable customer base give
us a meaningful competitive advantage with respect to instilling this
confidence. In addition, while we target all types of property owners
and managers, we have developed significant expertise in establishing
strategic relationships with owners of individual buildings or small
groups of buildings. These owners represent one of the largest single
types of ownership of office space in the country. We believe that over
the long term this competitive advantage will be particularly important
because many of the larger multi-market building owners will eventually
sign license agreements with either ourselves or our competitors.

. Deploying cost effective, flexible networks. A substantial portion of
our network related capital expenditures are made only after we have
entered into a long-term license agreement with a property owner. The
capital we deploy is highly success-based and modest on a per-building
basis. For example, our initial capital expenditures in a typical
building with approximately 335,000 rentable square feet are usually
less than $90,000, which includes the purchase and installation of our
riser system and associated network equipment. Furthermore, our networks
are designed using an open standard architecture which enables us to
rapidly and cost effectively incorporate the latest technological
developments. In addition, in order to minimize operating costs while
maximizing capacity and backup capacity, we deploy networks using a
combination of fiber-optic, copper, coaxial and wireless transmission
solutions.

. Opportunistically pursuing additional strategic acquisitions and
relationships. We opportunistically pursue acquisitions and other
strategic relationships which enable us to expand our customer base or
geographic presence or provide us with additional management, sales or
technical personnel. For example, in December 1998 we acquired the
assets of MTS Communications, which provided us access to 14 additional
buildings and expanded our customer base to the greater Los Angeles
area. In November 1999 we entered into an agreement to acquire
approximately 19% of the common stock of SiteConnect, an in-building
communications provider serving ten buildings in Seattle, with an option
to purchase the balance of the company. We intend to continue to seek
such domestic opportunities as well as explore international
opportunities either alone or with strategic partners.

34
<PAGE>

Our Communications Services

We use our state-of-the-art in-building networks to provide small and
medium-sized businesses with a full range of voice, data, video and other
enhanced communications services. We also provide paging and, in some markets,
wireless telephone services through agreements with various communications
carriers. Close contact with our customers by our direct sales force and
customer service personnel enables us to tailor our service offerings to meet
customers' needs and to creatively package our services to provide "one-stop
shopping" solutions for those customers. Services we offer are summarized as
follows:

Cypress Services Currently Available

<TABLE>
<CAPTION>
Voice Services Data Services Video/Wireless/Other
-------------- ------------- --------------------
<S> <C> <C>
. Local Dialtone . High Speed Internet Access . Business Television
. Long Distance . Electronic Mail . Wireless Voice
. Voice Mail . Web Hosting . Paging
. Telephone Equipment . Domain Name Services . Installation & Cabling
. Audio Conferencing . Firewall Services . Move, Add & Change Services
. Toll Free Services . SmartWatch
. Calling Cards . SmartView
</TABLE>

Voice services. The vast majority of our voice services customers rent their
telephones from us. This ensures a compatible interface with our state-of-the-
art in-building communications equipment and provides customers with a number
of key benefits, including:

. access to an advanced, multi-function telephone system which few small
businesses could afford to buy and support on their own;

. a significant reduction in up-front capital costs; and

. reduced risk of technological obsolescence.

Our voice offerings include both traditional telephone services, such as
local and long distance services, as well as value-added services, such as
integrated voicemail, audio conferencing, calling cards and toll-free number
services. Additional enhanced features include call waiting, call forwarding,
dialback and caller ID.

Data services. One of our most popular services is high speed, always-on
Internet access. We provide this service using our patent pending fiber-optic
infrastructure and network configuration. The key features of this service are:

. Dedicated connectivity. Our service is always on, providing
instantaneous connections and the capability to receive or transmit
information continuously.

. Range of speed options. Customers currently subscribe to delivery speeds
between 64,000 bits of data per second and 3.0 million bits of data per
second, but we have the capacity to provide up to 100.0 million bits of
data per second in response to customer demand. In addition, using
commercially available equipment, we can increase the transmission speed
of our infrastructure to one billion bits of data per second.

. Flexibility. We can usually increase a customer's bandwidth speed within
minutes of receiving a request. We can also deliver different speeds of
service to specific computers or groups of computers within a customer's
office.

35
<PAGE>

. Security. Because each customer's Internet service is provided over
dedicated fiber-optic strands, a customer's Internet traffic is secure
from that of other customers in the building.

In addition to our Internet access service, we offer other enhanced data
services such as web site hosting, e-mail, domain name registration and
firewall services. We also offer our customers SmartWatch services, in which we
provide 24-hour monitoring of web and e-mail servers, and SmartView services,
which enables our customers to monitor their bandwidth usage via the Internet.

Video, wireless and other services. In many of our buildings, we offer our
customers a comprehensive package of business television services consisting of
news, business, sports and network programming. We deliver these services
directly to our customers over our in-building networks using a combination of
direct broadcast satellite services and off-air antennas for local channels.
Our customers can elect to receive more or less programming depending on their
needs. In addition to voice, data and video services, we also offer our
customers a variety of other enhanced communications services, such as paging
and, in some markets, wireless telephones, which we are able to provide through
agreements we have with various communications carriers. We also provide on-
site installation, including installing telephone systems and configuring and
connecting customer computer equipment to our networks, as well as highly
responsive move, add and change services. We will continue to investigate, test
and add, where appropriate, complementary products and services to maintain our
"one stop shopping" strategy.

Network Architecture

We design, install, own and operate our networks inside buildings which we
serve under long-term license agreements with building owners or operators. Our
in-building networks typically consist of the following:

. a state-of-the-art riser system utilizing fiber-optic cable, broadband
coaxial cable and copper wire;

. communications equipment usually located in the building;

. high capacity leased facilities connecting our networks to the networks
of selected local, long distance and Internet service providers; and

. for our data services, high capacity leased facilities to move data
traffic to and from a central point that we establish in each market.

Riser systems inside buildings. Inside buildings, we design, install, own
and manage a vertical communications infrastructure, also known as the riser
system, that typically runs inside vertical utilities shafts from the
building's basement to the top floor. Our riser systems typically are comprised
of high capacity fiber-optic cable, broadband coaxial cable and copper wire.
These systems are designed to carry a full range of voice, data and video
traffic. We believe our riser systems have the capacity to accommodate all of
our customers' current and anticipated broadband needs.

Feeder systems inside buildings. Inside buildings, we also design, install,
own and manage a horizontal communications infrastructure, known as the feeder
system, that typically runs from our riser systems into our customers'
premises. Our feeder systems typically utilize high capacity fiber-optic cable,
broadband coaxial cable and copper wire. These systems are installed only upon
our signing a service contract with a customer. Key benefits of our feeder
systems design are as follows:

36
<PAGE>

Voice Services

. Our feeder systems provide a compatible connection between our
customers' telephone equipment and our in-building state-of-the-art
communications equipment.

Data Services

. We install our feeder link directly into our customer's local area
networks, thereby eliminating the need for our customers to purchase and
maintain their own Internet routers and switches to direct their
communications traffic.

. Our customer gains an always-on, secure connection to our network using
a link known as an Ethernet connection. These Ethernet connections allow
us to provide in-building transmission speeds ranging from 10.0 million
to 1.0 billion bits of data per second.

Video Services

. We connect our feeder systems to equipment which allows us to cost-
effectively deliver video programming to multiple television sets within
a customer's office.

Communications equipment inside buildings. Inside almost all of the
buildings we serve, we have routing and distribution equipment that connect our
riser systems to the networks of select local, long distance and Internet
service providers. This equipment include data switches, routers and voice
switches, which direct incoming and outgoing data and voice traffic, and other
video and communications equipment purchased from Nortel Networks, Cisco
Systems and other manufacturers. In the case of a multi-building real estate
complex, we are usually able to provide our services in all buildings within
that complex by deploying this communications equipment in one of the buildings
and connecting the other buildings in the complex to that equipment. This
results in significant cost savings and reduced capital expenditures.

Leased facilities outside buildings. We connect the communications equipment
in our buildings to leased network facilities of selected local, long distance
and Internet service providers that provide the out-of-building transport
necessary to provide full service to our customers. In some instances, as in
the case of a multi-building complex, we may interconnect a number of buildings
using leased facilities known as "private line" or "point-to-point"
connections.

For our Internet services, we have a central market point of presence, which
is a location at which we aggregate and disseminate data traffic to and from
all of the buildings we serve in that market. We typically connect each
building to the central market point of presence using leased high capacity
facilities, on a carrier's fiber-optic network wherever available. These lines
are leased from carriers that have previously installed fiber in the local
market. There are generally several providers in each market who are able to
provide us with connectivity for traffic between buildings and the point of
presence.

At our point of presence, we install the electronic equipment necessary to
provide our data services in the metropolitan area. This equipment includes
network servers, traffic routers and other related communications equipment. We
connect each point of presence to more than one Internet service provider to
provide diverse Internet connectivity to our network. Most points of presence
are connected to at least one other point of presence in a different market
over a dedicated leased facility to provide a backup means of transmitting data
in case any of our network connections to the Internet should fail.

37
<PAGE>

Advantages of our Network Architecture. The architecture of our network
provides us with significant competitive advantages, including the ability to:

. rapidly connect customers without the need to arrange local phone lines
and circuits for each new line added;

. capitalize on advanced Internet-protocol-based technology to construct a
more efficient and lower cost network;

. provide low cost, high performance services;

. offer always-on, secure data connections to our network and the
Internet; and

. provide a flexible platform for bandwidth upgrades and new service
offerings as communications technology and applications continue to
develop.

Network Management and Monitoring. We are implementing a state-of-the-art
automated alarm and control system to further enhance our network monitoring
capabilities. Our trained system engineering personnel use our control system
to monitor and control our networks on a 24x7 basis. This system enables fault
alarm monitoring, system control, environmental monitoring, remote system
diagnostics, physical security monitoring, backup control and usage statistics.
This Internet-enabled system allows our technicians to access and control our
systems over Internet, Intranet or local or wide area network configurations,
as well as through a dial-up connection in the unlikely event of loss of
Internet-based communications. Service affecting events are automatically
detected and immediately reported to both technical personnel located in our
network operations center and market-based field support engineers who address
network issues either remotely or directly on-site. Field engineering personnel
in our markets are equipped with a full set of parts and spares necessary to
support their routine service calls and we also maintain complete spare systems
in the unlikely event of a disaster.

Our network operations center also supports a 24x7 hotline for help desk
support. We intend to supplement this center with a geographically diverse
backup network operations center site to supplement day-to-day operations and
act as a disaster recovery site for the main network operations center.

Construction

We have developed and implemented a cost-efficient, team-based approach to
constructing and expanding our in-building networks. We have formulated
implementation procedures which incorporate standardized construction drawings
and equipment configurations to allow us to maintain high quality construction
standards which can be easily repeated for all of our installations with
minimal use of equipment space. As a result of our extensive experience gained
from having constructed over 100 in-building networks and our standardized
installation procedures, we can often begin serving customers within 45 to 60
days from the time that a property manager approves our network design. As a
result of our standardized construction process and our extensive engineering
capabilities, we are typically able to initially install our networks for less
than $90,000 per building. Thereafter, we are able to cost-effectively deploy
capital and expand our networks as needed to accommodate customer demand.

38
<PAGE>

We deploy teams of building survey engineers, regional project managers and
system implementation technicians who manage our network construction in three
phases:

Phase 1. A Cypress building survey engineer performs an in-depth building
site survey to analyze a building's specific construction requirements, tenant
profile and availability of out-of-building communications infrastructure. We
then tailor our standardized implementation template to the specific needs of
the building. The resulting proposed design plan is then submitted to building
management for final approval.

Phase 2. We assign a regional project manager to manage the in-building
infrastructure construction process. The project manager reviews the
implementation plan and supervises a team of Cypress employees and third-party
contractors which installs the riser system and related communications
equipment. The regional product manager also consults with our network facility
management group to secure the appropriate network communication facilities and
with our system procurement group to ensure that the proper equipment is
purchased and available for installation when needed.

Phase 3. Once the network installation is complete, a system implementation
technician works with the network operations center to test and calibrate all
remote alarm and automated diagnostic testing features. When the acceptance
testing is finished, the technician completes the required building site
documentation and a dedicated local account team is notified to commence sales
efforts.

Marketing and Sales

We directly market our services to the tenants in buildings in which we have
secured long-term license agreements from property owners or managers. We
leverage our relationships with property owners and managers as a first and
primary means of creating tenant awareness of our services. Upon our entering a
building, property owners or managers will typically send a letter to tenants
on their letterhead introducing Cypress, describing the nature and benefits of
our service offerings and highlighting the complete package of business
communications products that we are able to offer. Shortly thereafter, we will
conduct a promotional in-building event, typically in the building lobby, where
we will demonstrate our voice, Internet and video services to generate sales
leads. After our initial service launch we continue to work closely with the
building owner, property management and leasing representatives. Our typical
license agreements enable us to display our signage and marketing materials
within the leasing office and other high traffic locations within a building.
Our agreements also contain provisions whereby our building owners, management
and leasing representatives agree to advise tenants of the availability of our
services. In most cases, property owners or managers will also notify us as new
tenants enter the building.

Our goal is to offer a comprehensive communications solution and in effect
to become our customers' outsourced communications department. As such, our
sales approach is highly consultative. In our initial sales meetings we work
closely with prospective customers to assess their particular communications
needs. We also carefully analyze the communication bills from their current
vendors to understand a prospect's usage patterns and current cost. We then
return to the prospect with a highly customized, comprehensive proposal which
is typically more cost effective, feature-rich and easier to administer than
their current communications package.

We typically assign one permanent account team for every five or six
buildings. The account team usually consists of one account executive, one
customer service representative and one on-site

39
<PAGE>

or near-site technician. Our technicians and engineers provide our customers
with customized technical consulting on the use and availability of our various
services. This is generally highly valued by small and medium-sized businesses
that often have limited information technology staffs and expertise. We believe
that using dedicated account teams enhances our ability to build and retain
long-term customer relationships and our ability to cross-sell and upgrade
service offerings.

Our sales efforts are supported by our marketing department which, in
addition to creating various "point of sales" promotional materials, works with
outside advertising and public relations firms to develop a targeted, highly
cost-effective marketing approach to build Cypress brand awareness.

Real Estate Selection and Marketing

Property Selection

The criteria that our real estate professionals consider in targeting
buildings includes the buildings' location and size, the number of tenants, the
tenant mix, the proximity of the building to other buildings in which we hold
existing license agreements, and the expected time and cost involved in
installing our networks. In addition, we generally prefer buildings with some
tenant vacancy, or anticipated near-term tenant roll-over, because we believe
new tenants are particularly receptive to our single-source communications
solution. Once we have determined that a building or collection of buildings
meets our criteria, one of our real estate professionals contacts the property
owner or operator in an attempt to negotiate a license agreement which will
provide us access to the buildings.

License Agreements and Arrangements with Property Owners and Operators

We believe we present a compelling value proposition to property owners and
operators. In our negotiation with these property owners and operators, we
emphasize the following value-added benefits of doing business with Cypress:

. we pay property owners a fixed rental fee and/or a modest percentage of
the revenue we receive from providing communications services to the
tenants in their buildings;

. we enhance the marketability of the building to prospective tenants by
providing a complete communications solution with advanced features that
may not be available in other buildings; and

. we install our network architecture at no cost to the property owner.

In the past, we have entered into license agreements with property owners
and operators on a per building basis in order to gain the right to install and
operate our networks in their buildings. Under these agreements, we pay the
property owners and operators either a base fee or a modest percentage of the
revenues we generated from their tenants, typically between 3% and 6%. The
typical term of these agreements is ten years. Under these agreements, we have
the right to operate our networks in more than 130 buildings representing more
than 35 million rentable square feet.

In November and December 1999, we entered into master license agreements
with several owners and operators of multiple office buildings, including AEW,
Boston Properties, Brookfield, Cornerstone, Cousins, Lend Lease, Shorenstein,
Taylor Simpson, Tower Realty, Transwestern, TrizecHahn, Vornado and Westbrook.
Each master license agreement sets forth a list of buildings owned or managed
by the owner or operator that is a party to that agreement. In accordance with
the

40
<PAGE>

terms of these agreements, we have begun to enter into property-specific
license agreements with respect to each listed building. In some cases, the
property owner or operator may need to obtain the consent from third parties
who may have an ownership interest in the building before we can enter into a
property-specific license agreement for that building. Under the property-
specific license agreements, we will be granted a license to install and
operate our networks in each such building in return for approximately 6% of
the revenues we receive from tenants in that building. The initial term of each
property-specific license agreement is generally five years, with an automatic
five year extension at the end of the initial term, absent any default under
the agreement. The master license agreements give us the right to operate our
networks in more than 600 buildings representing more than 194 million rentable
square feet.

In connection with the execution of the master license agreements, we also
entered into stock warrant agreements with the same property owners and
operators. Under the terms of these agreements, we issued these owners and
operators warrants to purchase up to an aggregate of 11,163,990 shares of our
common stock at an exercise price of $4.22 per share. The exact number of
shares of common stock underlying the warrants, which is based on the gross
leasable area of the buildings set forth in the master license agreements, will
not be determined until the completion of due diligence and the finalization of
the building schedules, which it expected to occur shortly. The warrants are
exercisable for periods of five to ten years, but cannot be exercised until six
months following completion of this offering. We expect that the actual number
of shares underlying these warrants will not be adjusted significantly.

Generally, our license agreements are non-exclusive, which means the
property owners or operators may permit competitors to install their own in-
building networks in their buildings. Some competitors already have rights to
install networks in some of the buildings in which we have rights to install
our networks. While few in-building competitors are operating networks in
buildings in which we currently operate networks, this situation may change as
we and our competitors continue to expand operations.

41
<PAGE>

The following table sets forth the material details of our master license
agreements and stock warrant agreements:
<TABLE>
<CAPTION>
Square Square Footage Maximum License Fee Under
Total Footage Owned or Number Property-Specific
Total Square Owned or Controlled of Shares License
Number of Footage of Controlled by Affiliates Underlying Agreements**
Party Buildings Buildings by Party of Party Exclusivity Warrants* (% of gross sales)
- ----- --------- ---------- ---------- -------------- ----------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AEW..................... 15 4,000,376 2,388,560 1,611,816 Non-Exclusive 216,020 6%
Allegis, as agent for
owners................. 27 6,734,369 6,734,369 0 Non-Exclusive 151,523 6%
Boston Properties....... 32 15,322,759 14,385,210 937,549 11,952,058 sq.ft. 1,042,566 6%
Semi-Exclusive
3,370,701 sq.ft.
Non-Exclusive
Brookfield.............. 10 11,610,520 11,610,520 0 Exclusive 1,044,947 6%
Cornerstone............. 71 17,752,294 10,496,870 7,255,424 4,343,690 sq.ft. 1,036,810 6%
Semi-Exclusive
13,408,604 sq.ft.
Non-Exclusive
Cousins................. 19 7,352,795 2,243,853 5,108,942 Non-Exclusive 397,051 6%
Lend Lease.............. 123 46,561,496 10,731,485 35,830,011 Non-Exclusive 2,514,321 6%
McCord Development...... 8 1,011,077 701,074 310,003 Non-Exclusive 54,598 6%
Mezzanine Investors..... 41 6,858,926 6,858,926 0 Non-Exclusive 370,382 6%
Principal Office
Investors.............. 11 1,445,669 1,445,669 0 Non-Exclusive 78,066 6%
Shorenstein............. 33 15,094,609 5,205,069 9,889,540 Non-Exclusive 815,109 6%
SJ Plaza................ 2 347,570 347,570 0 Non-Exclusive 18,769 6%
Tower Realty............ 29 14,157,235 10,244,450 3,912,785 Non-Exclusive 764,491 6%
Transwestern............ 33 5,389,318 3,505,229 1,884,089 Non-Exclusive 291,023 6%
TrizecHahn.............. 35 6,690,000 6,690,000 0 Non-Exclusive 363,690 6%
Vornado ................ 62 28,893,619 19,081,381 9,812,238 Non-Exclusive 1,560,255 6%
Westbrook............... 48 8,068,069 8,068,069 0 Non-Exclusive 435,676 6%
101 Park................ 1 161,058 161,058 0 Non-Exclusive 8,697 6%
</TABLE>
- -------
* Represents the number of shares of common stock underlying warrants after
giving effect to a 4.5 for 1 common stock split which occurred on February 8,
2000.

** Some of the license agreements contain possible additional fees that we deem
to be immaterial.

42
<PAGE>

Our Real Estate Relationships and Opportunities

We currently have approximately 730 office buildings, representing
approximately 229 million rentable square feet, in which we have installed, or
have the right to install, our communications infrastructure. According to
Torto Wheaton, a real estate consulting firm, there are more than 3,900 office
buildings representing approximately 950 million square feet of rentable office
space in the 12 metropolitan markets in which we currently provide our
services. We recently entered into master license agreements with property
owners and operators that will allow us to enter 38 additional metropolitan
markets. Torto Wheaton covers 32 of these markets and, according to them, there
are more than 3,900 office buildings representing approximately 1.2 billion
square feet of rentable office space in these 32 additional markets.
Accordingly, this data indicates that there are more than 7,800 office
buildings representing approximately 2.1 billion square feet of rentable office
space in 44 of the 50 markets in which we currently provide, or have the right
to provide, our services.

We have established excellent working relationships with real estate
property owners and operators across the commercial real estate industry,
including private owners, pension funds and pension fund advisors, public real
estate operating companies such as public real estate investment trusts,
property managers, life insurance companies and foreign owners of domestic real
estate. In total, the property owners and operators with whom we have entered
into master license agreements own or operate more than 1,500 buildings
representing approximately 390 million rentable square feet.

43
<PAGE>

Set forth below is a table which summarizes our success to date in obtaining
license agreements and constructing our in-building networks. Specifically, for
each target market, the table shows both the number of buildings we have in
operation and the number of buildings we have under license agreement, but
which are not yet in operation. The table also presents information regarding
the size and composition of our market opportunity. This table was compiled
using data from Torto Wheaton and includes information regarding only buildings
with 100,000 rentable square feet or more, as we currently do not plan to
target buildings of less than this size.

<TABLE>
<CAPTION>
Target Buildings Target Buildings Square Feet
---------------------------- ------------------------------------
In Under Total in In Under Total in
Market Operation Agreement Market Operation Agreement Market
- ------ --------- --------- -------- ---------- ----------- -------------

<S> <C> <C> <C> <C> <C> <C>
Atlanta, GA............. 36 59 332 7,421,607 16,220,658 83,634,783
Baltimore, MD........... -- 3 105 -- 1,457,229 19,927,964
Boston, MA.............. 15 32 395 4,603,794 12,334,520 91,377,085
Charlotte, NC........... -- 9 64 -- 2,754,751 16,271,405
Chicago, IL............. 7 23 505 2,006,712 14,774,768 151,796,466
Cincinnati, OH.......... -- 1 74 -- 235,884 17,850,830
Cleveland, OH........... -- 2 79 -- 875,323 22,057,817
Columbus, OH............ -- 5 64 -- 1,403,895 12,866,860
Dallas, TX.............. 13 20 421 3,711,204 7,480,125 110,629,685
Denver, CO.............. 4 12 229 2,814,702 4,436,560 51,044,012
Detroit, MI............. -- 3 180 -- 524,256 41,004,906
Fort Worth, TX.......... -- 2 69 -- 1,325,355 15,143,802
Ft. Lauderdale, FL...... -- 2 54 -- 365,186 8,999,124
Hartford, CT............ -- 1 55 -- 155,221 11,812,220
Honolulu, HI............ -- 4 37 -- 1,895,410 8,168,251
Houston, TX............. 16 25 368 3,391,694 4,667,131 100,971,894
Indianapolis, IN........ -- 2 63 -- 816,639 13,508,804
Kansas City, MO......... -- 13 116 -- 1,919,436 22,475,756
Long Island, NY......... -- 4 98 -- 454,748 18,723,382
Los Angeles, CA......... 14 22 481 3,990,750 6,412,888 122,718,947
Miami, FL............... 1 7 107 139,000 2,381,277 21,383,132
Minneapolis, MN......... -- 30 161 -- 6,215,321 43,133,751
Nashville, TN........... -- 3 65 -- 667,967 81,119,299
New Jersey Metro ....... -- 10 369 -- 2,381,850 78,157,916
New York, NY............ -- 37 749 -- 30,166,751 352,401,110
Oakland, CA............. -- 14 132 -- 2,778,579 25,487,180
Orange County, CA....... 7 23 174 1,044,000 4,101,357 32,464,968
Orlando, FL............. -- 6 69 -- 894,518 12,064,976
Philadelphia, PA........ -- 10 204 -- 4,348,873 53,180,369
Phoenix, AZ............. -- 23 138 -- 4,531,969 26,711,581
Sacramento, CA.......... -- 7 68 -- 962,446 11,922,261
Salt Lake City, UT...... -- 3 53 -- 518,456 9,299,970
San Diego, CA........... 1 8 75 263,000 1,796,244 15,472,693
San Francisco, CA....... -- 47 208 -- 19,006,976 54,007,043
San Jose, CA............ -- 9 103 -- 1,433,534 15,592,513
Seattle, WA............. -- 6 140 -- 2,364,663 33,752,054
St. Louis, MO........... -- 6 102 -- 1,761,601 21,571,718
Stamford, CT............ -- 1 87 -- 100,399 17,130,048
Tampa, FL............... -- 7 77 -- 2,108,416 16,975,417
Washington, D.C. ....... 1 85 828 254,000 19,545,303 168,288,519
Westchester, NY......... -- 1 83 -- 234,185 16,050,416
West Palm Beach, FL..... -- 2 40 -- 450,104 8,214,621
Wilmington, DE.......... -- 1 22 -- 438,843 4,818,524
Other................... 1 27 * 453,255 9,816,883 *
--- --- ----- ---------- ----------- -------------
Total................. 116 617 7,843 30,093,718 199,516,498 2,060,184,072
</TABLE>
- --------
* Data not available for certain markets in which we currently provide, or have
the right to provide, our services. These markets include Memphis, Milwaukee,
Montreal, New Orleans, Pittsburgh, Richmond and San Antonio.

44
<PAGE>

Customer Service and Technical Support

We believe that we maintain a standard of customer service higher than other
companies serving small and medium-sized businesses and that this is a key
factor in our low customer turnover rate. The key aspects of our service
include:

. Dedicated Support Teams for Timely Response. We typically designate on-
site or near-site teams of one account executive, one customer service
representative and one technician to a territory which usually includes
five or six buildings grouped as closely as possible. These teams are
closely supported by Internet sales engineers and technicians certified
in Nortel, Cisco and Microsoft technologies. Customers benefit from this
arrangement because our dedicated account teams, in addition to being
physically located near our customers, are familiar with our customers'
particular communications packages and, accordingly, are able to more
efficiently respond to their needs. The team approach also further
personalizes our customer relationships.

. Dial "H-E-L-P" for Service. In Atlanta, our largest market, a customer
need only dial "H-E-L-P" (4357 on a telephone key pad) from any
telephone that is part of our network to be connected to our customer
service team. In most cases, our customer's name will appear on our
customer service representatives telephone display, allowing us to
answer the calling party using their name, further supporting the
personalized relationship between Cypress and our customers. If a
customer is not near a telephone connected to our network, we provide a
regular ten digit contact number to reach our customer service
representatives. We are implementing this system in our other markets as
well.

. Remote System Monitoring and Service Modifications. Many elements of our
networks can be controlled and modified remotely from a customer service
office or our network operations center, allowing us to respond to
customers more rapidly and with minimal disruption. For example, we can
increase a customer's bandwidth allocation within minutes of being
contacted or we can add additional lines and voice mail boxes to a
customer's existing services without the need to make an on-site service
call.

. Efficient On-Premises Service Modifications. Some move, add and change
services require a visit to our customers' premises. For example, when a
customer expands the number of employees in their office, we will send a
customer service representative to manage this expansion and a
technician to install additional cabling and telephones. Because our
networks are modular even at the customer premises level, we can
typically add the necessary services and equipment with minimal
disruption to our customer's regular operations.

. Continuous Training. Upon implementation of the Cypress solution for a
new customer, the members of the dedicated support team introduce
themselves to the end-users at the customer's premises and explain the
functionality of the new equipment and services for which the customer
has contracted. We provide further training when the customer expands
its services or adds new employees. We believe our emphasis on training
reduces calls to our customer service team and encourages quick adoption
of and higher usage rates for installed services, which we believe leads
to increased demand for bandwidth upgrades and additional services.

45
<PAGE>

Competition

The market for communications services for small and medium-sized businesses
is very competitive. We face competition from many communications providers
with significantly greater financial resources, well-established brand names,
larger customer bases and diverse strategic plans and technologies. Any of
these competitors may focus on our market strategy and subject us to intense
competition for our services or for access to the office buildings in our
target markets. We expect significant competition from traditional and new
communications companies, including the following:

Other in-building communications providers

Some competitors are attempting to gain access to office buildings in our
target markets. These companies include Advanced Radio Telecom, Allied Riser
Communications, Broadband Office, Intermedia, NEXTLINK, OnSite Access, RCN
Telecom Services, SiteLine, Teligent, Urban Media and Winstar. Some of these
competitors are seeking to develop exclusive relationships with building
owners. To the extent these competitors are successful, we may face
difficulties in building our networks and marketing our services within some of
our target buildings. Our agreements to use utility shaft space within
buildings are generally not exclusive. An owner of any of the buildings in
which we do not have exclusive rights to install a network could also give
similar rights to one of our competitors. Certain competitors already have
rights to install networks in some of the buildings in which we have rights to
install our networks. It will take a substantial amount of time to build
networks in all the buildings in which we intend to exercise our rights under
our license agreements and master license agreements. Each building in which we
do not build a network is particularly vulnerable to competitors. It is not
clear whether it will be profitable for two or more different companies to
operate networks within the same building. Therefore, it is critical that we
build our networks in additional buildings quickly. Once we have done so, if a
competitor installs a network in the same building, there will likely be
substantial price competition.

Local telephone companies

Incumbent local telephone companies, including GTE and regional Bell
operating companies such as Bell Atlantic and BellSouth, have several
competitive strengths which may place us at a competitive disadvantage. These
competitive strengths include an established brand name and reputation and
significant capital to rapidly deploy or leverage existing communications
equipment and broadband networks. Competitive local telephone companies often
market their services to tenants of buildings within our target markets and
selectively construct in-building facilities. Additionally, the regional Bell
operating companies are now permitted to provide long distance services in
territories where they are not the dominant provider of local services. These
companies may also provide long distance services in the territories where they
are the dominant provider of local services if they satisfy a regulatory
checklist established by the Federal Communications Commission. In December
1999, the FCC ruled that Bell Atlantic has met these requirements in New York
and may provide long distance services in New York. If other regional Bell
operating companies are permitted to provide long distance services in
territories where we operate, we could face greater price competition.

Long distance companies

Many of the leading long distance companies, such as AT&T, MCI WorldCom and
Sprint, could begin to build their own in-building voice and data networks. The
newer national long distance

46
<PAGE>

carriers, such as Level 3, Qwest and Williams Communications, are building and
managing high speed fiber-based national voice and data networks, partnering
with Internet service providers, and may extend their networks by installing
in-building facilities and equipment.

Fixed wireless service providers

Fixed wireless service providers, such as Advanced Radio Telecom, MCI
WorldCom, NEXTLINK, Sprint, Teligent and Winstar, provide high speed
communications services to customers using microwave or other facilities or
satellite earth stations on building rooftops.

Internet service providers

Internet service providers, such as Concentric Networks, EarthLink, GTE
Internetworking, Prodigy, PSINet, Sprint, the UUNET subsidiary of MCI WorldCom,
and Verio, provide traditional and high speed Internet access to residential
and business customers, generally using the existing communications
infrastructure. Providers, such as America Online, Microsoft Network, Prodigy
and WebTV, generally target the residential market and provide Internet
connectivity, ease-of-use and a stable environment for modem connections.

Digital subscriber line companies

Digital subscriber line companies and/or their Internet service provider
customers, such as Covad, Network Access Solutions, Northpoint and Rhythms
NetConnections, provide high capacity Internet access using digital subscriber
line technology, which enables data traffic to be transmitted over standard
copper telephone lines at much higher speeds than these lines would normally
allow.

Cable-based service providers

Cable-based service providers, such as Excite@Home and its @Work subsidiary,
High Speed Access, RCN Telecom Services and Road Runner, use cable television
distribution systems to provide high capacity Internet access.

Suppliers

We must connect our in-building networks to local, long distance and
Internet service providers in order to serve our customers. In most of our
markets, to connect our networks to local, long-distance and Internet
providers, we connect our networks to and lease facilities from the local
telephone company, which is usually one of the regional Bell operating
companies such as BellSouth, Bell Atlantic, SBC-Ameritech and Pac Bell.
Typically, we are able to secure connections for local calling service within
30 days of requesting such service, although additional delays of 15 to 30 days
are not uncommon.

We purchase long-distance transmission capacity from several long-distance
communications companies, such as ITC DeltaCom, Qwest and MCI WorldCom, on
terms customary for the industry. While we have entered into several long-
distance contracts with minimum purchase commitments, we believe that none of
these contracts are material and that in most cities in which we operate there
are a number of long distance carriers with whom we could arrange long-distance
services. Typically, we are able to secure connections for long-distance
service within 30 days of requesting such service.

To provide Internet services to our customers, we purchase data transmission
capacity from Internet service providers such as MCI WorldCom, Sprint, Verio
and Savvis. We believe that our

47
<PAGE>

agreements for data transmission capacity are on customary terms for the
industry and that in most cities in which we operate there are a number of data
transmission capacity providers with whom we could arrange data transmission
services. Typically, we are able to secure connections for data transmission
capacity within 45 days of requesting such service.

Our in-building networks contain equipment such as data switches, routers,
voice switches, and other communications and video equipment that we purchase
from Nortel Networks, Cisco Systems and other manufacturers. We do not have any
minimum purchase commitments with any of our manufacturers and believe that
there are alternative vendors available to us for all the types of equipment
which we purchase.

Regulation

Our provision of basic communications services is subject to regulation at
the federal, state and local level. Often, regulations do not specifically
address our operations and the application of these regulations is subject to
interpretation. Regulators may successfully assert that additional regulations
apply to our operations. Additionally, regulation of the communications
industry is evolving rapidly. The regulations that apply to us are subject to
ongoing administrative proceedings, litigation and legislation. The outcome of
these various proceedings, as well as any other regulatory initiatives, cannot
be predicted. Future regulatory changes may have a material adverse affect on
our business and operations.

Local Voice Services

In the states where we currently provide local voice services, we believe
that we qualify as what most states refer to as a "shared tenant service
provider." Laws in these states vary as to the terms and conditions with which
we must comply to be classified as a shared tenant service provider. Some of
these terms and conditions include:

. We must maintain a switching system, or private branch exchange, in each
building or set of contiguous buildings that we serve which allows calls
to be routed directly to the individual instead of through a central
number.

. The local telephone company must be permitted by the building owner to
provide service to any tenant in the buildings in which we operate.

. In California, we may not charge our customers a higher rate for local
voice services than we are charged by the local telephone company for
those services.

. In Illinois, we must permit local telephone companies, upon payment of a
fee, to use the communication equipment in our buildings.

. In some states, we must register as a shared tenant service provider and
file reports. Registering as a shared tenant services provider simply
involves filing the required application and, in some instances, may
also involve the payment of a small fee.

. In some states, we must pay regulatory fees and universal service fees.
Universal service fees are payments to funds established to, among other
things, help subsidize the incumbent local telephone company's provision
of telephone service to certain rural and other hard-to-reach areas.

A jurisdiction's regulations or guidelines governing shared tenant service
providers may not specifically address our operations. While we believe that we
qualify as a shared tenant service provider in all the jurisdictions where we
currently provide local voice services, a regulator may

48
<PAGE>

successfully challenge our position and conclude that we need to qualify as a
competitive local telephone company. Additionally, jurisdictions may modify
their regulations to reduce or eliminate their shared tenant service provider
classification, requiring us to comply with the regulation of competitive local
telephone companies. In fact, in some states in which we intend to provide
local voice services, we will become a competitive local telephone company
because the regulations in such states will effectively require us to do so in
order to perform our operations in the manner we propose.

Competitive local telephone companies are typically subject to more
stringent state regulation than shared tenant service providers. Our cost of
regulatory compliance would increase if we were subject to regulation as a
competitive local telephone company, but not in such a way that would have a
material adverse effect on our business. Most states require that competitive
local telephone companies receive approval from the public service commission
to operate. Competitive local telephone companies generally must also file
tariffs setting forth the terms, conditions and prices for intrastate voice
services. In many states, competitive local telephone companies must also,
among other things, file accident reports, notifications of complaints and
service interruptions, and contribute to universal service support. In
addition, under federal law, including the Telecommunications Act of 1996,
competitive local telephone companies are subject to certain rights and
obligations with respect to their agreements with incumbent local telephone
companies, including the duty to interconnect with other carriers, to provide
other carriers access to their poles, ducts, conduits, and rights-of-way, and
to make their agreements with the incumbent local telephone company available
to other carriers on a non-discriminatory basis. As a result of the
Telecommunications Act, which removed most of the significant legal barriers to
entry into communications service, including local telephone company service,
there has been increased competition in our target markets for the provisioning
of local telephone services.

While we are generally subject to less regulation as a shared tenant
services provider than we would be as a competitive local telephone company, we
have the added regulatory uncertainty that arises from the fact that many
states have little, if any, written regulations regarding shared tenant
services. The regulations that do exist are often unclear. In addition, some
states rely on the tariffs of the local telephone companies to determine what
constitutes permissible shared tenant services, and there are no assurances
that such tariffs will not change in a manner that materially affects our
ability to provide services as a shared tenant services provider. In addition,
as a shared tenant services provider we have less flexibility with respect to
the use of our switching systems than competitive local telephone companies
because we must maintain a switching system, or private branch exchange, in
each building or set of contiguous buildings that we serve.

Long Distance Voice Services

While the law on this issue is unclear, we believe that given the highly
customized interstate and international long distance services that we provide,
we are not required to make any material filing with, or seek the approval of,
the Federal Communications Commission. As with our local voice services, our
long distance services may be considered to be a common carrier service by the
Federal Communications Commission. If that occurs, we will be subject to common
carrier regulation under federal law and will need to file domestic and
international tariffs and seek FCC authorization to provide international
service. Our cost of regulatory compliance would increase if we were subject to
regulation as a common carrier. On the other hand, if we are deemed to be a
common carrier, we may find it easier to market our services to prospective
customers because we could simplify our agreements with them since many of the
protections we believe we need, such as limitation of liability, could be set
forth in the tariffs.

49
<PAGE>

Additionally, as a result of the Telecommunications Act of 1996, the
regional Bell operating companies are now permitted to provide long distance
services in territories where they are not the dominant provider of local
services. These companies may also provide long distance services in the
territories where they are the dominant provider of local services if they
satisfy a regulatory checklist established by the Federal Communications
Commission. In December 1999, the FCC ruled that Bell Atlantic has met these
requirements in New York and may provide long distance services in New York. If
other regional Bell operating companies are permitted to provide long distance
services in territories where we operate, we could face greater price
competition.

Data Services

The Internet and data services that we provide generally are not subject to
federal, state or local regulation. Congress and some state legislatures have
considered imposing taxes and other burdens on Internet service providers and
regulating content provided over the Internet. Additionally, we may be affected
by statutes, regulations and court cases relating to the liability of Internet
service
providers and other on-line service providers for information carried on or
through their services or equipment, including in the areas of copyright,
indecency/obscenity, defamation and fraud. Future regulation may have a
negative impact on our ability to offer Internet services at competitive and
profitable rates.

Video and Wireless Services

Our provision of video services is subject to some federal, state and/or
local regulations. We are, for example, required to obtain consent from local
broadcasters, and pay certain copyright fees, in order to provide their
programming, and we must also pay copyright fees to provide certain other
programming. We also are subject to some technical requirements with regard to
our provision of video services, such as requirements to ensure that our system
will not cause harmful interference with certain other communications systems.
Further, to the extent that we provide programming using wireless transmission,
we must obtain and maintain federal licenses.

Our video services are regulated to a far lesser extent than the video
services of franchised cable operators, which are those video services
providers who have received franchises from the municipalities they serve and
whose facilities typically cross public streets and rights of way. For example,
we are not subject to any rate regulation, and we are not subject to the "must
carry" obligations placed upon franchised cable operators, which require those
operators to carry certain programming.

Recent rulings of the Federal Communications Commission may impact our video
services. For example, the FCC recently ruled that owners of multiple unit
premises generally cannot forbid their tenants from installing some
communication devices, such as satellite dishes, on the tenant's balconies and
other areas controlled by the tenant.
We do not have any cellular or similar types of licenses. Rather, we rent or
sell pagers and wireless phones and resell the services of wireless providers.
Consequently, while we do pay some regulatory fees, we generally are not
subject to federal regulation with respect to these services.

Multiple Unit Premises

There have been proposals to require that commercial office buildings give
access to competitive providers of communications services, and some states,
such as California and Texas, already have

50
<PAGE>

mandatory access laws. These laws generally prohibit a property owner from
providing exclusive access to one provider or from restricting another
provider's access to the property. In addition, the Federal Communications
Commission is considering, among other things, whether building owners offering
access to any communications provider should be required to make comparable
access available to all such providers on a nondiscriminatory basis. We do not
know whether, or in what form, these proposals will be adopted. If the FCC or
many other states in which we operate or intend to operate require commercial
property owners to provide access to all communications providers, such laws
will facilitate our competitors' access to buildings we serve. Such laws may,
however, also enable us to obtain access to buildings in which we otherwise may
have been denied access.

Intellectual Property

Employees

As of December 31, 1999, we had 191 full-time employees. We are not 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.

Facilities

Our headquarters are located in facilities consisting of approximately 9,000
square feet in Atlanta, Georgia which we occupy under a lease which expires in
July 2005. We also occupy approximately 8,000 square feet of temporary space in
Atlanta under leases of less than one year, and we are currently negotiating a
lease for approximately 20,000 square feet which will replace these temporary
quarters. In addition, our engineering personnel, network operating facilities
and warehousing and distribution functions are scheduled to be relocated to a
new facility consisting of approximately 32,000 square feet in Norcross,
Georgia under a lease which expires in November 2006. We also occupy offices in
various major U.S. markets under leases of various terms. As we expand into new
markets we will continue to add office space as needed.

Legal Proceedings

We may from time to time be involved in legal proceedings in the ordinary
course of our business. We are not currently involved in any pending legal
proceedings that are expected to have a material adverse effect on our
business.

51
<PAGE>

MANAGEMENT

Executive Officers, Key Employees and Directors

Our executive officers, key employees and directors, their position and
their ages as of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
R. Stanley Allen........ 42 Chief Executive Officer and Director
Ward C. Bourdeaux, Jr... 41 Executive Vice President and Director
Mark A. Graves.......... 40 President, Chief Operating Officer and Secretary
Barry L. Boniface....... 37 Chief Financial Officer, Vice President and Treasurer
C. Timothy Allaway...... 41 Vice President of Customer Service
Eugene H. Kreeft........ 50 Vice President of Engineering
Robert W. McCarthy...... 37 Vice President, General Counsel and Assistant Secretary
James W. McClintock..... 44 Vice President of International
Raymond F. Potts........ 36 Vice President of Marketing and Sales
Claire S. Schenk........ 50 Vice President of Human Resources
Alistair Sloan.......... 35 Vice President of Internet Services
William P. Egan......... 54 Director
Laurence S. Grafstein... 39 Director
Randall A. Hack......... 52 Director
John C. Halsted......... 35 Director
Jeffrey H. Schutz....... 48 Director
P. Eric Yopes........... 47 Director
</TABLE>

R. Stanley Allen is a co-founder of Cypress and has served as our Chief
Executive Officer and a director since August 1995. From August 1995 until
September 1998, he also served as our President. From March 1994 to May 1996,
Mr. Allen was President and Chief Executive Officer of Applied Video
Technologies, Inc., a wireless cable and communications investment and
development company. From 1991 to 1994, Mr. Allen was President of American
Quality Cable Corporation, a wireless cable television operator. Mr. Allen has
also held positions as Manager-Real Estate Consulting for Coopers & Lybrand and
Analyst for Wellington Real Estate, an affiliate of Boston-based Wellington
Management Company. Mr. Allen was a Director for Wireless Cable of Atlanta
before its acquisition by BellSouth in 1997 and was also a Director for the
Wireless Cable Association. Mr. Allen received a Bachelor of Arts degree in
Economics and a Master of Business Administration degree from the University of
Virginia.

Ward C. Bourdeaux, Jr. is a co-founder of Cypress and has served as our
Executive Vice President and a director since August 1995. From January 1993 to
April 1995, Mr. Bourdeaux served as Director of Development for RealCom Office
Communications, where he was responsible for identifying new building and
market opportunities and entering into new license agreements on a national
basis, and for the renewal of existing agreements nationally. Prior to that, he
spent over nine years in the commercial real estate industry with Cushman &
Wakefield and Carter & Associates. Mr. Bourdeaux received a Bachelor of Arts
degree in Communications from the University of Alabama.

Mark A. Graves has served as our President since September 1998 and our
Chief Operating Officer and Secretary since September 1997. From September 1997
until September 1998, he also served as our Chief Financial Officer. From March
1994 to September 1997, Mr. Graves was Executive Director of Corporate
Development for BellSouth Corporation, where he was involved in

52
<PAGE>

mergers, acquisitions and other strategic transactions. Mr. Graves' activities
principally involved BellSouth Corporation's telephone services, Internet
services unit and wireless data partnerships. From May 1989 to February 1994,
Mr. Graves was a Principal at Sterling Payot Company, a private investment firm
in San Francisco, where he provided advisory services in strategy and finance
predominantly to media and telecommunications companies, including Pacific
Telesis in its spin-off of PacTel Corp., which was renamed AirTouch
Communications. Prior to joining Sterling Payot Company, Mr. Graves held
positions at The First Boston Corporation and United Technologies Corporation.
Mr. Graves received a Bachelor of Arts degree in Economics and a Master of
Business Administration degree from Harvard University.

Barry L. Boniface has served as our Chief Financial Officer since October
1998. From September 1994 to October 1998, Mr. Boniface was Executive Director
of Corporate Development for BellSouth Corporation, where he was responsible
for domestic and international mergers, acquisitions, divestitures and other
strategic transactions. Mr. Boniface's activities principally involved
BellSouth's domestic and international wireless telephone services and
competitive local telephone activities. Prior to that, Mr. Boniface was a
principal in Berkshire Partners, Inc., a merchant banking firm based in Dallas,
Texas. He has also held the positions of Chief Operating Officer for Global
Business Acceleration, Inc., an early stage software development company, and
Vice President in the Corporate Finance Department at Principal Financial
Securities, Inc., an investment banking firm. Mr. Boniface received a Bachelor
of Business Administration degree in Management Information systems from
Southern Methodist University and a Master of Business Administration degree
from the Goizueta Business School at Emory University.

C. Timothy Allaway has served as our Vice President of Customer Service
since December 1999. From June 1996 to December 1999, Mr. Allaway was Director,
Customer Services for IBM, North America supporting the full line of hardware
and software offerings. From September 1994 to June 1996, Mr. Allaway was
Director, Small Business Sales and Partnerships for MCI. From 1986 to September
1994, Mr. Allaway held various sales and service management positions for MCI.
Prior to that, Mr. Allaway spent five years with Xerox Corporation. Mr. Allaway
received a Bachelor of Science degree in Management from Jacksonville State
University and a Master of Business Administration degree from Auburn
University.

Eugene H. Kreeft has served as our Vice President of Engineering since
February 1999. From 1991 until February 1999, Mr. Kreeft was an Executive Vice
President of Preferred Networks Inc., an outsourcing services provider to the
wireless industry which he founded in 1991. From 1989 to 1991, Mr. Kreeft
served as Director of Technical Support, U.S. Operations, for Glenayre
Technologies, a developer and provider of personal telecommunications systems.
Prior to that, Mr. Kreeft was employed by BBL Industries, Inc., a paging
equipment manufacturer, where he served as both Vice President of Engineering
and Manufacturing and Vice President of Applications/New Product Development.
Mr. Kreeft has also held management and engineering positions with Motorola,
RAM Broadcasting, AT&T, Western Union Microwave Systems, Highland Telephone
Company and Delaware Telephone Company.

Robert W. McCarthy has served as our General Counsel since December 1999.
From August 1996 until December 1999, Mr. McCarthy was a General Attorney at
BellSouth Corporation, where he specialized in domestic and international
mergers and acquisitions and joint venture transactions. Prior to that, he was
a partner in the Atlanta offices of Hunton & Williams, where he specialized in
mergers and acquisitions, joint ventures and venture capital transactions. Mr.
McCarthy received a

53
<PAGE>

Bachelor of Arts degree in Political Science and a Juris Doctor degree from the
University of North Carolina at Chapel Hill.

James W. McClintock has served as our Vice President of International since
December 1999. From March 1999 until December 1999, Mr. McClintock was Vice
President of Data Services for BellSouth International (BSI), where he led the
development of BSI's Internet and data strategy and associated business
development activities, focusing principally on Latin America and Europe. Prior
to that, Mr. McClintock was Executive Director of Corporate Development for
BellSouth Corporation, where he worked primarily with BellSouth Entertainment
and BellSouth.net, managing a number of significant merger, acquisition and
alliance activities involving these two business units. Prior to joining
BellSouth in 1993, Mr. McClintock had fourteen years of experience managing,
investing in and financing entrepreneurial ventures of all types and scale,
including positions in banking with Citicorp and in venture capital with Equity
Group Investments. Mr. McClintock received a Bachelor of Arts degree in
Economics from Washington and Lee University and a Master of Business
Administration degree in Finance from the University of North Carolina.

Raymond F. Potts has served as our Vice President of Marketing and Sales
since October 1999. From September 1997 to October 1999, Mr. Potts was Regional
Vice President for Sales, Operations and Marketing for the midwest territory of
Teligent, Inc., a wireless telecommunications company. From 1996 to September
1997, Mr. Potts served as Vice President of Sales for the midwest region of
Cable & Wireless, Inc., a wireless telecommunications company. Prior to that,
Mr. Potts spent in excess of ten years in various senior-level sales and
service management positions for Midcom Communications, Sprint, LCI and TFN
Communications. Mr. Potts received a Bachelor of Business Administration degree
from St. Joseph's College in Rensselaer, Indiana.

Claire S. Schenk has served as our Director of Human Resources since June
1999. From June 1996 until May 1999, Ms. Schenk was Vice President for Human
Resources for Trism, Inc., a national specialized transportation company
headquartered in Atlanta. From December 1989 until June 1996, Ms. Schenk was
Vice President, Senior Business Partner for two national mortgage companies.
Ms. Schenk also has ten years of human resources management experience with
Sheraton Corporation and Six Flags Corporation. Ms. Schenk received a Bachelor
of Arts degree in Psychology from Emory University.

Alistair Sloan has served as our Vice President of Internet Services since
September 1999. From January 1998 until September 1999, Mr. Sloan was our
Manager of Internet Services. Prior to joining Cypress, Mr. Sloan was Project
Manager at Systems Atlanta, where he consulted with clients on Internet and
Wide Area Networking design and security. Prior to that, Mr. Sloan was a
manager of Internet Connect, a division of Systems Atlanta specializing in
dedicated business Internet connectivity. Mr. Sloan has also held positions
with Ingram Micro, Inc. and has been an independent consultant in the field of
local area networking. Mr. Sloan received a Bachelor of Arts degree in
Political Science from the University of Bridgeport.

William P. Egan has served as a director since February 1997. Mr. Egan is a
founding partner of Burr, Egan, Deleage & Co. and Alta Communications, an
affiliated firm. For over twenty years, Mr. Egan has invested in a wide variety
of companies in the information technology, life sciences and communications
industries. He is a past President and Chairman of the National Venture Capital
Association. Mr. Egan received a Bachelor of Arts degree from Fairfield
University and a Master of Business Administration degree from the University
of Pennsylvania. He serves as a director of Cephalon, Inc.

54
<PAGE>

Laurence S. Grafstein has served as a director since November 1999. Mr.
Grafstein is Managing Director and co-founder of Gramercy Communications
Partners, Inc., a private equity firm specializing in telecommunications
investments. From February 1996 to May 1999, Mr. Grafstein was a Managing
Director and head of the global telecommunications investment banking practice
at Credit Suisse First Boston, a global investment bank. From February 1994 to
February 1996, Mr. Grafstein was a Managing Director of Wasserstein Perella &
Co., a global investment bank. Mr. Grafstein received a Bachelor of Arts degree
from Harvard University, a Master of Philosophy degree from Balliol College of
Oxford University, where he was a Rhodes Scholar and president of the Oxford
Union Society, and an LLB from the University of Toronto Law School. Mr.
Grafstein is a director of Z-Tel Technologies, Inc.

Randall A. Hack has served as a director since November 1999. He is a Senior
Managing Director of Nassau Capital. From 1990 to 1994, Mr. Hack served as
President and Chief Executive Officer of the Princeton University Investment
Company, where he had overall management responsibility for Princeton's multi
billion-dollar endowment of publicly traded securities and private investments.
From 1979 to 1988, he was President and Chief Executive Officer of Matrix
Development Group, a commercial and industrial real estate development firm,
which he founded. Mr. Hack received a Bachelor of Arts degree from Princeton
University and a Master of Business Administration degree from Harvard
University. He serves as a director of OmniCell.com, Inc., Cornerstone
Properties, Acacia Capital Corp., KMC Telecom, Inc. and Crown Castle
International Corp.

John C. Halsted has served as a director since October 1998. Mr. Halsted
serves as Senior Vice President of Beacon Capital Partners, Inc. and Chief
Investment Officer of Beacon Venture Partners, Beacon Capital's venture capital
subsidiary. From 1993 to 1997, Mr. Halsted was Vice President at Harvard
Private Capital Group. From 1991 to 1993, Mr. Halsted was an Associate with
Simmons & Company, an investment banking firm in Houston, Texas. Mr. Halsted
received a Master of Business Administration degree from The Harvard Business
School and a Bachelor of Arts degree in Economics from The University of
California at Berkeley.

Jeffrey H. Schutz has served as a director since November 1996. Mr. Schutz
is a general partner of The Centennial Funds, a venture capital firm based in
Denver, Colorado that focuses on electronic communications companies. Since
1981, Centennial has invested more than $700 million in pioneering
entrepreneurial ventures in communications networks, services and technologies.
Mr. Schutz received an AB in Economics from Middlebury College and a Master of
Business Administration degree from the Colgate Darden Graduate School of
Business Administration at the University of Virginia. Mr. Schutz is a director
of Crown Castle International Corp., Enhance Media, Inc. and Point-To-Point,
Inc.

P. Eric Yopes has served as a director since December 1999. Mr. Yopes is the
Vice Chairman-Investments of Shorenstein Management, Inc. Mr. Yopes joined
Shorenstein in 1984 and his responsibilities have encompassed all aspects of
real estate investment, development, acquisitions/sales, finance, operations
and leasing. He has served as Senior Operating Executive and Chief Financial
Officer of Shorenstein. His current responsibilities include strategy and
investment management, portfolio management, and investor and lender relations.
Mr. Yopes received a Bachelor of Arts degree from Yale University and a Juris
Doctor degree from the University of Chicago.

55
<PAGE>

Board Composition

In connection with the sale of our series C preferred stock, all of our then
existing stockholders entered into a stockholders agreement. This agreement
provides for, among other things, the nomination of and voting for a total of
nine directors of Cypress, as follows:

. two management representatives designated by the founding stockholders -
- these representatives are Messrs. Allen and Bourdeaux;

. one representative designated by The Centennial Funds -- this
representative is Mr. Schutz;

. one representative designated by Alta Communications -- this
representative is Mr. Egan;

. one representative designated by Beacon Capital Partners -- this
representative is Mr. Halsted;

. one representative designated by Nassau Capital -- this representative
is Mr. Hack;

. one representative designated by Gramercy Communications Partners --
this representative is Mr. Grafstein;

. one representative designated by Boston Properties, Cornerstone and
Shorenstein, voting together as a group -- this representative is Mr.
Yopes; and

. one outside representative designated jointly by:

(1) The Centennial Funds, Alta Communications, Beacon Capital
Partners, Nassau Capital and Gramercy Communications Partners,
voting together as a class; and

(2) R. Stanley Allen, Ward C. Bourdeaux, Jr., Mark A. Graves, Barry L.
Boniface and George J. Cisler, voting together as a class. This
last directorship is currently vacant.

The stockholders agreement requires each stockholder to vote all securities
over which they have voting control and to take all other necessary or
desirable action within their control to effect the preceding election of
directors. The provisions of the stockholders agreement regarding the
nomination and election of directors automatically terminate upon the closing
of this offering.

Following this offering, the board of directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Messrs. Bourdeaux, Egan and Schutz will serve as Class I directors whose terms
will expire at the annual meeting of stockholders held in 2000. Messrs.
Grafstein, Hack and Yopes will serve as Class II directors whose terms will
expire at the annual meeting of stockholders held in 2001. Messrs. Allen and
Halsted will serve as Class III directors whose terms will expire at the annual
meeting of stockholders held in 2002.

Committees of the Board of Directors

Our bylaws provide that our board of directors may designate one or more
board committees. We currently have an audit committee and a compensation
committee.

Audit Committee. The audit committee is responsible for recommending to the
board of directors the engagement of our outside auditors and reviewing our
accounting controls and the results and scope of audits and other services
provided by our auditors. The members of the audit committee are Messrs. Hack,
Halsted and Grafstein.

56
<PAGE>

Compensation Committee. The compensation committee is responsible for
reviewing and approving the amount and type of consideration to be paid to
senior management. The members of the compensation committee are Messrs. Egan,
Halsted and Schutz.

Other Committees. The board of directors may establish, from time to time,
other committees to facilitate the management of our business.
Compensation Committee Interlocks and Insider Participation

As noted above, the members of the compensation committee are Messrs. Egan,
Halsted and Schutz. Mr. Egan is a general partner of Alta Communications, which
purchased 263,158 shares of series C preferred stock from Cypress on October 8,
1999 for $5.0 million. Mr. Halsted is an executive officer of Beacon Capital
Partners, which purchased 342,105 shares of series C preferred stock from
Cypress on October 8, 1999, for $6.5 million. Mr. Schutz is a general partner
of The Centennial Funds, which purchased 263,158 shares of series C preferred
stock from Cypress on October 8, 1999 for $5.0 million. Prior to 1999, these
same investors purchased additional shares of our convertible preferred stock.
See "Certain Relationships and Related Transactions."
Director Compensation

Directors who are employees receive no additional compensation for their
services as directors. We plan to compensate non-employee directors as follows:
$5,000 annual fee, $1,000 for each meeting attended in person and $500 for each
meeting attended by telephone. Non-employee directors are also eligible to
participate in our 2000 stock option plan at the discretion of the full board
of directors.

Severance Plan

We intend to adopt a severance plan which will cover Messrs. Allen,
Bourdeaux, Graves and Boniface. This plan will provide severance benefits to
these executive officers if they are terminated without "cause" or they
terminate with "good reason" within a one-year period following a change of
control of Cypress. Upon a qualifying termination, the executive officer will
be entitled to a lump sum payment equal to one and one-half times his base
salary.
Executive Compensation

The following table sets forth in summary form the compensation that was
paid to our Chief Executive Officer and the other most highly compensated
executive officers whose aggregate compensation exceeded $100,000 in the year
ended December 31, 1999.

Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
------------
Annual
Compensation Securities
-------------- Underlying
Name and Principal Position Salary Bonus Options
- --------------------------- -------- ----- ------------
<S> <C> <C> <C>
R. Stanley Allen.................................. $165,000 (1) 243,000
Chief Executive Officer
Mark A. Graves.................................... 155,000 (1) 306,000
President, Chief Operating Officer and Secretary
Ward C. Bourdeaux, Jr. ........................... 135,000 (1) 369,000
Executive Vice President
Barry L. Boniface ................................ 145,000 (1) 297,000
Vice President, Chief Financial Officer and
Treasurer
</TABLE>
- --------
(1) Bonus has not yet been determined.

57
<PAGE>

Option Grants in Last Fiscal Year

The following table sets forth information related to stock options granted
to our named executive officers during the year ended December 31, 1999.

Option Grants in Last Fiscal Year(1)

<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Percent of Potential Realizable
Number of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation For
Options Employees Price Public Option Terms(2)
Grant in Fiscal Per Offering Expiration ----------------------
Name (#) Year(%) Share Price Date 5% 10%
- ---- ---------- ---------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
R. Stanley Allen........ 180,000 5.14% $1.07 $17.00 4/7/09 $ 983,136 $ 1,679,563
63,000 1.80 2.53 17.00 11/29/09 1,379,915 2,291,697

Mark A. Graves.......... 180,000 5.14 1.07 17.00 4/7/09 983,136 1,679,563
126,000 3.60 2.53 17.00 11/29/09 2,759,831 4,583,393

Ward C. Bourdeaux, Jr... 180,000 5.14 1.07 17.00 4/7/09 983,136 1,679,563
189,000 5.40 2.53 17.00 11/29/09 4,139,746 6,875,090

Barry L. Boniface....... 45,000 1.29 1.07 17.00 4/7/09 245,784 419,891
252,000 7.20 2.53 17.00 11/29/09 5,519,662 9,166,786
</TABLE>
- --------
(1) The number of options granted in the year ended December 31, 1999 was
3,526,655. The options expire ten years after the date of the grant and
vest 20% upon the first anniversary of the date of grant and 5% each
subsequent quarter measured from the first anniversary of the date of
grant. The options fully vest upon a change of control. The exercise price
of the options is adjusted appropriately in the event of a subdivision or
combination of the outstanding common stock or in the event of a payment
of a stock dividend in shares of common stock to the holders of common
stock. In the event of a merger, consolidation or other reorganization,
the compensation committee may make any adjustments to the option that it
deems necessary.

(2) Potential realizable value is based on the assumption that our common
stock appreciates at the annual rate shown, compounded annually, from the
date of grant until expiration of the ten-year term. These numbers are
calculated based on SEC requirements and do not reflect our projection or
estimate of future stock price growth. Potential realizable values are
computed by multiplying the number of shares of common stock subject to a
given option by the fair market value of the common stock on the date of
grant, determined to be $4.01 as of April 7, 1999 and $15.00 as of
November 29, 1999, and assuming that the aggregate stock value derived
from that calculation compounds at the annual 5% or 10% rate shown in the
table for the entire ten-year term of the option and subtracting from that
result the aggregate option exercise price. Actual realizable value, if
any, will be dependent on the future price of the common stock on the
actual date of exercise, which may be earlier than the stated expiration
date.

58
<PAGE>

Fiscal Year-End Option Values

The following table sets forth the number of shares covered by both
exercisable and unexercisable options as of December 31, 1999 and the year-end
value of exercisable and unexercisable options as of December 31, 1999 for the
named executive officers.

<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Options at
December 31, 1999 December 31, 1999(1)
---------------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
R. Stanley Allen........ 248,454 491,661 $4,058,045 $7,840,900
Mark A. Graves.......... 214,704 588,411 3,502,295 9,290,050
Ward C. Bourdeaux, Jr... 248,454 617,661 4,058,045 9,663,700
Barry L. Boniface....... 51,075 501,300 813,795 3,972,180
</TABLE>
- --------
(1) The value of the unexercised in-the-money options at December 31, 1999 was
calculated using an initial public offering price of $17.00 per share as
the estimated fair value per common share at that date.

Stock Plans

1997 Management Option Plan

Our 1997 management option plan was initially adopted by our board of
directors and approved by our stockholders on July 15, 1997. We established
this plan to provide officers, directors, key employees and consultants the
ability to acquire an ownership interest in Cypress. The options generally vest
20% per year and expire ten years after issuance. At December 31, 1999, there
were options to purchase a total of 5,820,975 shares of common stock granted
under this plan, of which options to purchase 1,049,091 shares have vested.
Although no further options will be granted under this plan, the unvested
options will continue to vest in accordance with this plan.

2000 Stock Option and Incentive Plan

Our 2000 stock option plan was adopted by our board of directors on December
21, 1999 and was subsequently approved by our stockholders on December 23,
1999. The 2000 stock option plan permits us to make grants of:

. incentive stock options;

. non-qualified stock options;

. restricted stock;

. deferred stock awards;

. unrestricted stock; and

. performance share awards.

Under the 2000 stock option plan, the aggregate number of shares available
for grants of awards shall be 5,756,125 shares of common stock, subject to
adjustment in the event of a stock split, stock dividend or other change in
capitalization. Any shares forfeited from awards under the 2000 stock option
plan or the 1997 management option plan will also be available for future
awards under the 2000 stock option plan. No common stock has been issued to
date under the 2000 stock option plan.

59
<PAGE>

2000 Stock Option Plan Administration. The 2000 stock option plan provides
for administration by either the board of directors or the compensation
committee, which consists of non-employee directors. The committee has full
power to select, from among the individuals eligible for awards, the
participants to whom awards will be granted, to make any combination of awards
to participants, and to determine the specific terms and conditions of each
award, subject to the provisions of the 2000 stock option plan.

Eligibility and Limitations on Grants. All officers, employees, directors
and key persons (including consultants and prospective employees) are eligible
to participate in the 2000 stock option plan, subject to the discretion of the
committee. From and after the date awards made under the 2000 stock option plan
become subject to Section 162(m) of the Internal Revenue Code, no participant
may receive options to purchase more than 1,500,000 shares of common stock
(subject to adjustment for stock splits, stock dividends and other change in
capitalization) during any one calendar year period, as stated above.

Option Terms. The committee has authority to determine the terms of options
granted under the 2000 stock option plan. However, incentive stock options will
have an exercise price that is not less than 100% of the fair market value of
the shares of common stock on the date of the option grant and non-qualified
stock options, other than those granted in lieu of a participant's cash
compensation at the participant's election with the consent of the committee,
will have an exercise price that is not less than 85% of the fair market value
of the shares of common stock on the date of the option grant.

At the discretion of the committee, stock options granted under the 2000
stock option plan may include a "re-load" feature pursuant to which an optionee
exercising an option by the delivery of shares of common stock would
automatically be granted an additional stock option (with an exercise price
equal to the fair market value of the common stock on the date the additional
stock option is granted) to purchase that number of shares of common stock
equal to the number delivered to exercise the original stock option. The
purpose of this feature is to enable participants to maintain their equity
interest without dilution.

Acceleration Upon a Merger, Sale or Change of Control of Company. Upon the
occurrence of any of the following events, unless otherwise provided in the
award agreements, all outstanding awards granted pursuant to the 2000 stock
option plan shall become fully exercisable or fully vested and nonforfeitable:

. the dissolution or liquidation of Cypress;

. the sale of all or substantially all of the assets of Cypress;

. a merger, reorganization or consolidation of Cypress;

. the sale of all of the stock of Cypress; or

. a change of control of Cypress.

In the event of certain transactions, such as a merger, consolidation,
dissolution or liquidation, the committee in its discretion may provide for
appropriate substitutions or adjustments of outstanding stock options;
alternatively, outstanding stock options will terminate and the holder will
receive a cash payment equal to the excess of the fair market value per share
over the applicable exercise price, multiplied by the number of shares of
common stock covered by the stock option.

60
<PAGE>

Amendments and Termination. The board of directors may at any time amend or
discontinue the 2000 stock option plan and the committee may at any time amend
or cancel any outstanding award for the purpose of satisfying changes in law or
for any other lawful purpose, but no such action shall adversely affect the
rights under any outstanding awards without the holder's consent. To the extent
required by the Internal Revenue Code to ensure that options granted under the
2000 stock option plan qualify as incentive stock options, plan amendments
shall be subject to approval by our stockholders.

Employee Stock Purchase Plan

Our employee stock purchase plan was adopted by our board of directors on
December 21, 1999 and was subsequently approved by our stockholders on December
23, 1999. Up to 900,000 shares of common stock may be issued under the employee
stock purchase plan.

The first offering under the employee stock purchase plan will begin on the
effective date of this offering and end on October 31, 2000. Subsequent
offerings will commence on each November 1 and May 1 thereafter and will have a
duration of six months. Generally, all employees who are customarily employed
for more than 20 hours per week as of the first day of the applicable offering
period will be eligible to participate in the employee stock purchase plan. An
employee who owns or is deemed to own shares of stock representing in excess of
5% of the combined voting power of all classes of our stock will not be able to
participate in the employee stock purchase plan.

During each offering, an employee may purchase shares under the employee
stock purchase plan by authorizing payroll deductions of up to 10% of his or
her cash compensation during the offering period. The maximum number of shares
that may be purchased by any participating employee during any six-month
offering period is limited to the number of whole shares which is less than or
equal to $12,500 divided by the closing price per share on the first day of the
applicable offering period. Unless the employee has previously withdrawn from
the offering, his or her accumulated payroll deductions will be used to
purchase common stock on the last business day of the period at a price equal
to 85% of the fair market value of the common stock on the first or last day of
the offering period, whichever is lower. For purposes of the initial offering
period, the fair market value of common stock on the first day of the offering
period shall be the offering price to the public. Under applicable tax rules,
an employee may purchase no more than $25,000 worth of common stock in any
calendar year. No common stock has been issued to date under the employee stock
purchase plan.

61
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership of
our common stock as of December 31, 1999. The percentage of beneficial
ownership is based on 35,575,169 shares of our common stock outstanding as of
such date, after giving effect to the conversion of all of our outstanding
shares of convertible preferred stock into common stock. The table sets forth
such information with respect to:

. each stockholder who is known by us to beneficially own 5% or more of
the common stock;

. each of our directors;

. each of the executive officers named in the "Summary Compensation
Table"; and

. all of our executive officers and directors as a group.

Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of common stock beneficially owned
by such stockholder.

The number of shares beneficially owned by each stockholder is determined
under rules issued by the Securities and Exchange Commission. The information
is not necessarily indicative of beneficial ownership for any other purpose.
Under these rules, beneficial ownership includes any shares as to which the
individual or entity has sole or shared voting power or investment power and
any shares as to which the individual or entity has the right to acquire
beneficial ownership within 60 days after December 31, 1999, through the
exercise of any stock option or other right.

<TABLE>
<CAPTION>
Shares Beneficially Percent Beneficially
Owned Owned
------------------- --------------------
Before After
Name of Beneficial Owner(1) Number Offering Offering(2)
- --------------------------- ------------------- -------- -----------
<S> <C> <C> <C>
Centennial Holdings V, L.P.(3)....... 8,240,153 23.2% 18.1%
Alta Communications, Inc.(4)......... 6,118,700 17.2 13.4
Beacon Capital Partners, Inc.(5)..... 4,351,973 12.2 9.5
Nassau Capital L.L.C.(6)............. 2,960,528 8.3 6.5
Gramercy Communications Partners,
Inc.(7)............................. 2,960,528 8.3 6.5
R. Stanley Allen(8).................. 979,884 2.7 2.1
Ward C. Bourdeaux, Jr.(9)............ 697,230 1.9 1.5
Jeffrey H. Schutz(3)................. 8,240,153 23.2 18.1
William P. Egan(4)................... 6,118,700 17.2 13.4
John C. Halsted(5)................... 4,351,973 12.2 9.5
Randall A. Hack(6)................... 2,960,528 8.3 6.5
Laurence S. Grafstein(7)............. 2,960,528 8.3 6.5
P. Eric Yopes(10).................... 828,950 2.3 1.8
Mark A. Graves(11)................... 285,890 * *
Barry L. Boniface(12)................ 88,830 * *
All directors and executive officers
as a group (12 persons)(13)......... 27,530,888 75.6 59.0
</TABLE>
- --------
* Represents less than 1% of the outstanding shares of common stock.

62
<PAGE>

(1) The address of Centennial Holdings V, L.P. and Mr. Schutz is 1428 15th
Street, Denver, CO 80202. The address of Alta Communications, Inc. and Mr.
Egan is One Post Office Square, Suite 3800, Boston, MA 02109. The address
of Beacon Capital Partners, Inc. and Mr. Halsted is One Federal Street,
26th Floor, Boston, MA 02110. The address of Nassau Capital L.L.C. and Mr.
Hack is 22 Chambers Street, Princeton, NJ 08542. The address of Gramercy
Communications Partners, Inc. and Mr. Grafstein is 712 Fifth Avenue, 43rd
Floor, New York, NY 10019. The address of P. Eric Yopes is c/o Shorenstein
Management, Inc., 555 California Street, 49th Floor, San Francisco, CA
94104. The address of all other listed stockholders is c/o Cypress
Communications, Inc., Fifteen Piedmont Center, Suite 710, Atlanta, GA
30305.
(2) Assumes the underwriters do not elect to exercise the over-allotment
option to purchase an additional 1,500,000 shares of common stock.
(3) Represents shares of common stock beneficially owned by investment funds
affiliated with Centennial Holdings V, L.P., of which Mr. Schutz is a
general partner, including 8,028,428 shares of common stock beneficially
owned by Centennial Fund V, L.P. and 211,725 shares of common stock
beneficially owned by Centennial Entrepreneurs Fund V, L.P. Mr. Schutz
disclaims beneficial ownership of the shares of common stock held by these
funds, except to the extent of his proportionate pecuniary interest in
such funds.
(4) Represents shares of common stock beneficially owned by investment funds
affiliated with Alta Communications, Inc., of which Mr. Egan is a general
partner, including 5,981,904 shares of common stock beneficially owned by
Alta Communications VI, L.P. and 136,796 shares of common stock
beneficially owned by Alta Comm S by S, LLC. Mr. Egan disclaims beneficial
ownership of the shares of common stock held by these funds, except to the
extent of his proportionate pecuniary interest in such funds.

(5) Represents shares of common stock beneficially owned by entities
affiliated with Beacon Capital Partners, Inc., of which Mr. Halsted is an
executive officer, including 204,242 shares of common stock beneficially
owned by Tenant Communications, Inc., 4,029,309 shares of common stock
beneficially owned by Building Communications, LLC and 118,422 shares of
common stock beneficially owned by Investor Communications LLC. Mr.
Halsted disclaims beneficial ownership of the shares of common stock held
by these funds, except to the extent of his proportionate pecuniary
interest in such funds. On January 3, 2000, the shares of common stock
owned by Tenant Communications, Inc. and Building Communications, LLC were
transferred to an affiliated voting trust.
(6) Represents shares of common stock beneficially owned by investment funds
affiliated with Nassau Capital L.L.C., of which Mr. Hack is a member,
including 2,914,146 shares of common stock beneficially owned by Nassau
Capital Partners III L.P. and 46,382 shares of common stock beneficially
owned by NAS Capital Partners I L.L.C. Mr. Hack disclaims beneficial
ownership of the shares of common stock held by these funds, except to the
extent of his proportionate pecuniary interest in such funds.
(7) Represents shares of common stock beneficially owned by Gramercy Cypress
LLC, an investment fund affiliated with Gramercy Communications Partners,
Inc., of which Mr. Grafstein is a Managing Director. Mr. Grafstein
disclaims beneficial ownership of the shares of common stock held by this
fund, except to the extent of his proportionate pecuniary interest in such
fund.
(8) Includes 271,058 shares of common stock held by Mr. Allen subject to
options exercisable as of December 31, 1999 or within 60 days thereafter.
(9) Includes 271,058 shares of common stock held by Mr. Bourdeaux subject to
options exercisable as of December 31, 1999 or within 60 days thereafter.

63
<PAGE>

(10) Represents shares of common stock beneficially owned by DWS Capital LLC,
an investment fund affiliated with Shorenstein Management, Inc., of which
Mr. Yopes is an executive officer. Mr. Yopes disclaims beneficial
ownership of the shares of common stock held by this fund, except to the
extent of his proportionate pecuniary interest in such fund.

(11) Includes 214,704 shares of common stock held by Mr. Graves subject to
options exercisable as of December 31, 1999 or within 60 days thereafter.

(12) Includes 63,846 shares of common stock held by Mr. Boniface subject to
options exercisable as of December 31, 1999 or within 60 days thereafter.

(13) Includes 863,874 shares of common stock held by all directors and
executive officers as a group subject to options exercisable as of
December 31, 1999 or within 60 days thereafter.

64
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We were formed as a limited liability company under the laws of Georgia on
August 16, 1995 as Cypress Communications, L.L.C. We completed a reorganization
on July 15, 1997 in which the operations of the predecessor company were merged
into Cypress Communications, Inc., a Delaware corporation.

In connection with our reorganization on July 15, 1997, we issued an
aggregate of 2,636,906 shares of our common stock to nine persons, including
Messrs. Allen and Bourdeaux, Centennial Holdings V, L.P. and Alta
Communications, in exchange for membership interests in our predecessor
company. On that date, we also issued an aggregate of 1,200,140 shares of our
series A preferred stock for $5 per share to eight investors, including Messrs.
Allen, Bourdeaux and Graves, Centennial Holdings V, L.P. and Alta
Communications. On March 9, 1998, we issued 11,000 shares of our series A
preferred stock to Mr. Graves for $5 per share.

On September 30, 1998, we issued an aggregate of 1,333,200 shares of our
series B preferred stock to investors, including Messrs. Allen, Bourdeaux and
Graves, Centennial Holdings V, L.P., Alta Communications and Beacon Capital
Partners for $8 per share. On that same date, we also issued 579,613 shares of
our series B-1 preferred stock to Beacon Capital Partners for $8 per share. On
February 1, 1999 we issued an aggregate of 6,375 shares of our series B
preferred stock to Mr. Boniface and another employee for $8 per share.

Since September 30, 1999, we have issued an aggregate of 4,161,974 shares of
our series C preferred stock to investors, including Messrs. Allen, Bourdeaux,
Graves and Boniface, Centennial Holdings V, L.P., Alta Communications, Beacon
Capital Partners, Nassau Capital and Gramercy Communications Partners for $19
per share.

Our series A preferred stock, series B and B-1 preferred stock, and series C
preferred stock have a redemption price of $5 per share, $8 per share, and $19
per share, respectively. Redemption is mandatory beginning on October 8, 2005,
at which time up to one-third of the outstanding shares may be redeemed on each
of October 8, 2005, October 8, 2006 and October 8, 2007. In the event of any
liquidation, dissolution or winding up of our affairs, holders of the preferred
stock are entitled to be paid the redemption price, plus all accrued dividends,
before any payments to the holders of common stock. Each holder of preferred
stock, in preference to the holders of common stock, is entitled to receive
dividends, when and as declared by the board of directors. With the exception
of the series B-1 preferred stock, which is non-voting stock, each holder of
preferred stock votes with the holders of common stock on an on-converted
basis. Under the conversion rate set forth in the terms of the preferred stock,
the preferred stock was originally convertible into common stock on a one-for-
one basis. However, as a result of the 4.5-for-1 stock split which occurred on
February 8, 2000, the conversion rate automatically adjusted such that each
share of preferred stock is now convertible into 4.5 shares of common stock.
The preferred stock automatically converts into common stock upon the
completion of this offering.

65
<PAGE>

As result of the foregoing equity issuances, the following persons who are
our principal stockholders and executive officers directly own the following
shares of our capital stock:

<TABLE>
<CAPTION>
Series A Series B Series B-1 Series C
Common Preferred Preferred Preferred Preferred
Name of Related Party Stock Stock Stock Stock Stock
--------------------- ------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Centennial Holdings V,
L.P. ....................... 750,001 776,320 625,000 -- 263,158
Alta Communications, Inc..... 374,999 388,220 625,000 -- 263,158
Beacon Capital Partners,
Inc......................... -- -- 45,387 579,613 342,105
Nassau Capital L.L.C. ....... -- -- -- -- 657,895
Gramercy Communications
Partners, Inc............... -- -- -- -- 657,895
R. Stanley Allen............. 682,245 4,000 1,250 -- 658
Ward C. Bourdeaux, Jr........ 410,387 1,600 1,250 -- 658
Mark A. Graves............... -- 11,000 2,188 -- 2,632
Barry L. Boniface............ -- -- 4,500 -- 1,053
</TABLE>

Certain of our directors are affiliated with certain of our principal
stockholders. Mr. Schutz is a general partner of Centennial Holdings V, L.P.
Mr. Egan is a general partner of Alta Communications. Mr. Halsted is an
executive officer of Beacon Capital Partners. Mr. Hack is a member of Nassau
Capital. Mr. Grafstein is a Managing Director of Gramercy Communications
Partners.

One of our directors, Mr. Yopes, is an executive officer of Shorenstein
Management, Inc. In December 1999, we issued 184,211 shares of our series C
preferred stock to an investment fund affiliated with Shorenstein for $19 per
share. In addition, as part of our master license agreement program, we entered
into a master license agreement with Shorenstein under which we have obtained
the right to install and operate our networks in up to 21 buildings
representing more than 15 million rentable square feet. Upon the execution of
property-specific license agreements with respect to these buildings, we will
be required to pay Shorenstein, or the appropriate property owner,
approximately 6% of the revenues generated from tenants in those buildings. In
connection with the execution of this master license agreement, we also issued
Shorenstein warrants to acquire up to 815,108 shares of our common stock at an
exercise price of $4.22 per share. The exact number of shares of common stock
underlying the warrants, which is based on the gross leasable area of the
buildings set forth in the master license agreement, will not be determined
until the completion of due diligence and the finalization of the building
schedules, which is currently in process. The warrants are exercisable for a
period of ten years, but cannot be exercised until six months following the
completion of this offering.

During 1999, we entered into a consulting arrangement with William Zierden,
an investor in The Centennial Funds. In accordance with this arrangement, Mr.
Zierden provided consulting services to us and has received fees totaling
approximately $92,868 in fiscal 1999. In addition, in December 1999 we issued
options to purchase 3,947 shares of common stock to Mr. Zierden in connection
with this arrangement.

We believe that each of the transactions described above was entered into on
terms no less favorable to Cypress than could be obtained with non-affiliated
parties. For all future transactions, we have adopted a conflict of interest
policy whereby our audit committee will review the fairness of all material
transactions between Cypress and our officers, directors and other affiliates
and will make recommendations after such review to the entire board of
directors.

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<PAGE>

Third Amended and Restated Stockholders Agreement

The stockholders agreement generally restricts the transfer of any shares of
common or preferred stock held by the parties thereto by granting parties
rights of first refusal, rights of first offer and participation rights in
connection with any proposed transfer by any other party. In addition, the
stockholders agreement generally provides that the parties thereto will have
the right of first refusal and participation rights in any subsequent offering
of equity securities or securities convertible into equity securities, subject
to exceptions such as a registered public offering. The provisions of the
stockholders agreement regarding nomination and voting and transferability of
shares automatically terminate upon the closing of this offering.

At any time after the effective date of this offering, groups of
stockholders may require us to register all or any portion of their shares by
filing one registration statement utilizing a Form S-1 and multiple
registration statements utilizing a Form S-3. The parties will also be entitled
to unlimited piggyback registration rights in connection with any registration
by us of securities for our own account or the account of other stockholders.
The registration rights available under the stockholders agreement generally
will terminate when all shares owned by the parties to the agreement may be
immediately sold under Rule 144 and our stock is listed on a national
securities market or traded in the Nasdaq Stock Market.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following summary describes the material terms of our capital stock. To
fully understand the actual terms of the capital stock you should refer to our
second amended and restated certificate of incorporation and our amended and
restated bylaws. The following summary gives effect to the conversion of all
outstanding shares of preferred stock upon completion of this offering. The
summary does not give effect to the exercise of outstanding warrants or options
to purchase common stock.

Authorized and Outstanding Capital Stock

There are currently 2,759,806 shares of common stock, 1,211,140 shares of
series A preferred stock, 1,339,575 shares of series B preferred stock, 579,613
shares of series B-1 preferred stock, 4,161,974 shares of series C preferred
stock and no shares of series C-1 preferred stock issued and outstanding. At
and subject to the closing of this offering, all of the outstanding shares of
preferred stock will be automatically converted into an aggregate of 32,815,359
shares of common stock. There are currently 13 holders of record of our common
stock and 20 holders of record of our preferred stock.

Following the offering, our authorized capital stock will consist of
150,000,000 shares of common stock, of which 45,856,415 will be issued and
outstanding, 20,000,000 shares of undesignated preferred stock authorized and
issuable in one or more series designated by our board of directors, of which
no shares will be issued and outstanding and 1,000,000 shares of series Z
junior participating cumulative preferred stock, as discussed in more detail
under "--Shareholder Rights Plan."

Common Stock

Voting Rights. The holders of our common stock have one vote per share.
Holders of our common stock are not entitled to vote cumulatively for the
election of directors. Generally, all matters to be voted on by stockholders
must be approved by a majority, or, in the case of the election of directors,
by a plurality, of the votes cast at a meeting at which a quorum is present,
voting together as a single class, subject to any voting rights granted to
holders of any then outstanding preferred stock.

Dividends. Holders of common stock will share ratably in any dividends
declared by our board of directors, subject to the preferential rights of any
preferred stock then outstanding. Dividends consisting of shares of common
stock may be paid to holders of shares of common stock.

Other Rights. Upon the liquidation, dissolution or winding up of Cypress,
all holders of common stock are entitled to share ratably in any assets
available for distribution to holders of shares of common stock. No shares of
common stock are subject to redemption or have preemptive rights to purchase
additional shares of common stock.

Preferred Stock

Our certificate of incorporation provides that shares of preferred stock may
be issued from time to time in one or more series. Our board of directors is
authorized to fix the voting rights, if any, designations, powers, preferences,
qualifications, limitations and restrictions thereof, applicable to the shares
of each series. Our board of directors may, without stockholder approval, issue
preferred stock

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<PAGE>

with voting and other rights that could adversely affect the voting power and
other rights of the holders of the common stock and could have anti-takeover
effects, including preferred stock or rights to acquire preferred stock in
connection with implementing a shareholder rights plan. We have no present
plans to issue any shares of preferred stock. The ability of our board of
directors to issue preferred stock without stockholder approval could have the
effect of delaying, deferring or preventing a change of control of Cypress or
the removal of existing management.

Warrants

In November and December 1999, pursuant to the execution of master license
agreements and stock warrant agreements, we issued warrants to acquire up to
11,163,990 shares of common stock to several owners and operators of office
buildings. The warrants have an exercise price of $4.22 per share of common
stock, and are exercisable for periods of five to ten years. However, the
warrants cannot be exercised until six months following completion of this
offering. The exact number of shares of common stock underlying the warrants,
which is based on the gross leasable area of the buildings set forth in the
master license agreements, will not be determined until the completion of due
diligence and the finalization of the building schedules, which is currently in
process.

Options

As of December 31, 1999:

. options to purchase a total of 5,820,975 shares of common stock at a
weighted average exercise price of $1.60 per share were outstanding, of
which options to purchase 1,049,091 shares have vested; and

. up to 5,756,125 additional shares of common stock may be subject to
options granted in the future under our 2000 stock option plan.

Indemnification Matters

We plan to enter into indemnification agreements with each of our directors
and certain of our executive officers. The form of indemnification agreement
provides that we will indemnify our directors and certain executive officers
for expenses incurred because of their status as such, to the fullest extent
permitted by Delaware law, our certificate of incorporation and our bylaws.

Our certificate of incorporation contains a provision permitted by Delaware
law that generally eliminates the personal liability of directors for monetary
damages for breaches of their fiduciary duty, including breaches involving
negligence or gross negligence in business combinations, unless the director
has breached his or her duty of loyalty, failed to act in good faith, engaged
in intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation
Law or obtained an improper personal benefit. This provision does not alter a
director's liability under the federal securities laws and does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. Our bylaws provide that directors and officers shall
be, and in the discretion of our board of directors, non-officer employees may
be, indemnified by Cypress to the fullest extent authorized by Delaware law, as
it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
Cypress. Our bylaws also provide for the advancement of expenses to directors
and, in the discretion of our board of directors, officers and non-officer
employees. In addition, our bylaws provide that the right of directors and
officers to

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<PAGE>

indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any bylaw, agreement,
vote of stockholders or otherwise. We also have directors' and officers'
insurance against certain liabilities. We believe that the indemnification
agreements, together with the limitation of liability and indemnification
provisions of our certificate of incorporation and bylaws and directors' and
officers' insurance will assist us in attracting and retaining qualified
individuals to serve as directors and officers of Cypress.

Insofar as indemnification for liabilities arising under the Securities Act
may be provided to directors, officers or person controlling Cypress as
described above, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. At present, there is no
pending material litigation or proceeding involving any director, officer,
employee or agent of Cypress in which indemnification will be required or
permitted.

Anti-takeover Effects of Certain Provisions of Delaware Law and our Certificate
of Incorporation and Bylaws

Provisions of our certificate of incorporation and bylaws described below,
as well as the ability of our board of directors to issue shares of preferred
stock and to set its voting rights, preferences and other terms, may be deemed
to have an anti-takeover effect and may discourage takeover attempts not first
approved by our board of directors, including takeovers which particular
stockholders may deem to be in their best interests. These provisions also
could have the effect of discouraging open market purchases of our common stock
because they may be considered disadvantageous by a stockholder who desires
subsequent to such purchases to participate in a business combination
transaction with us or elect a new director to our board.

Classified Board of Directors. Our board of directors is divided into three
classes serving staggered three-year terms, with one-third of the board being
elected each year. Our classified board, together with certain other provisions
of our certificate of incorporation authorizing the board of directors to fill
vacant directorships or increase the size of the board, may prevent a
stockholder from removing, or delay the removal of, incumbent directors and
simultaneously gaining control of the board of directors by filling vacancies
created by such removal with its own nominees.

Director Vacancies and Removal. Our certificate of incorporation provides
that vacancies in our board of directors shall be filled only by the
affirmative vote of a majority of the remaining directors. Our certificate of
incorporation provides that directors may be removed from office only with
cause and only by the affirmative vote of holders of at least seventy-five
percent of the shares then entitled to vote in an election of directors.

No Stockholder Action by Written Consent. Our certificate of incorporation
provides that any action required or permitted to be taken by our stockholders
at an annual or special meeting of stockholders must be effected at a duly
called meeting and may not be taken or effected by a written consent of
stockholders.

Special Meetings of Stockholders. Our certificate of incorporation and
bylaws provide that a special meeting of stockholders may be called only by our
board of directors. Our bylaws provide that only those matters included in the
notice of the special meeting may be considered or acted upon at that special
meeting unless otherwise provided by law.

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<PAGE>

Advance Notice of Director Nominations and Stockholder Proposals. Our bylaws
include advance notice and informational requirements and time limitations on
any director nomination or any new proposal which a stockholder wishes to make
at an annual meeting of stockholders. For the first annual meeting following
the completion of this offering, a stockholder's notice of a director
nomination or proposal will be timely if delivered to the secretary of Cypress
at our principal executive offices not later than the close of business on the
later of the 75th day prior to the scheduled date of such annual meeting or the
10th day following the day on which public announcement of the date of such
annual meeting is made by Cypress.

Amendment of the Certificate of Incorporation. As required by Delaware law,
any amendment to our certificate of incorporation must first be approved by a
majority of our board of directors and, if required by law, thereafter approved
by a majority of the outstanding shares entitled to vote with respect to such
amendment, except that any amendment to the provisions relating to stockholder
action by written consent, directors, limitation of liability and the amendment
of our certificate of incorporation must be approved by not less than seventy-
five percent of the outstanding shares entitled to vote with respect to such
amendment.

Amendment of Bylaws. Our certificate of incorporation and bylaws provide
that our bylaws may be amended or repealed by our board of directors or by the
stockholders. Such action by the board of directors requires the affirmative
vote of a majority of the directors then in office. Such action by the
stockholders requires the affirmative vote of at least seventy-five percent of
the shares present in person or represented by proxy at an annual meeting of
stockholders or a special meeting called for such purpose unless our board of
directors recommends that the stockholders approve such amendment or repeal at
such meeting, in which case such amendment or repeal only requires the
affirmative vote of a majority of the shares present in person or represented
by proxy at the meeting.

Shareholder Rights Plan

We have a shareholder rights plan to help ensure that our stockholders
receive fair and equal treatment in the event of any proposed acquisition of
Cypress. The rights plan may delay, deter or prevent a change of control of
Cypress and, therefore, could adversely affect stockholders' ability to realize
a premium over the then-prevailing market price for our common stock in
connection with such a transaction.

Pursuant to the rights plan, each share of our common stock outstanding as
of the closing of this offering will have attached to it one "right." Under
certain circumstances described below, each right will entitle its holder to
purchase from us shares of our series Z junior participating cumulative
preferred stock, par value $.001 per share.

Initially, the rights will not be exercisable and will be attached to, trade
with and be inseparable from the shares of common stock. Until the rights
become exercisable, they will be evidenced only by the certificates or book-
entry credits that represent shares of common stock. If a person or group
acquires ownership of 15% or more of the outstanding common stock or makes a
tender offer that could result in that person or group owning 15% or more of
the outstanding common stock, then the rights will separate from the common
stock and become their own separately tradable security. Thereafter, the rights
will be evidenced by book-entry credits or by rights certificates that we will
mail to all eligible holders of common stock. At this point, each right also
will become exercisable to acquire one one-thousandth of a share of the junior
preferred stock at a cash exercise price that will be substantially higher than
the market price of one share of our common stock, and accordingly, the

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<PAGE>

right will be "out-of-the-money." The exercise price initially has been
established as $110 per right. Each one one-thousandth of a share of junior
preferred stock will give the stockholder approximately the same dividend,
voting and liquidation rights as would one share of common stock and therefore
is expected to approximate the market price of one share of our common stock.
Prior to exercise, the right does not give its holder any dividend, voting or
liquidation rights. Any rights held by the person or group who acquired
ownership of 15% or more of the outstanding common stock or who made a tender
offer that could result in that person or group owning 15% or more of the
outstanding common stock will be void and may not be exercised.

If a person or group acquires 15% or more of the outstanding common stock,
all holders of rights except that person or group may, upon the payment of the
exercise price, purchase a number of one one-thousandths of a share of the
junior preferred stock having a market value of two times the exercise price of
the right, based on the market price of one one-thousandth of a share of junior
preferred stock prior to such acquisition. In other words, each holder of a
right will be permitted to acquire shares of the junior preferred stock at a
50% discount to the market price of such stock. Thus, at this point the rights
will be "in-the-money."

If our company is later acquired in a merger or similar transaction after a
person or group acquires ownership of 15% or more of the outstanding common
stock, holders of rights (other than that person or group, whose rights will be
void) may, upon the payment of the exercise price, purchase shares of the
acquiring corporation with a market value of two times the exercise price of
the right, based on the market price of the acquiring corporation's stock prior
to such merger or similar transaction. In other words, each holder of a right
is permitted to acquire shares of the acquiring company's common stock at a 50%
discount to the market price of such stock.

The rights plan and the rights will expire on the tenth anniversary of the
closing of the offering, unless the rights are earlier exercised, redeemed or
exchanged. Our board may redeem the rights for $.01 per right only until the
earlier of the time at which any person or group acquires ownership of 15% or
more of the outstanding common stock or the expiration of the rights plan. If
our board redeems any rights, it must redeem all of the rights. The redemption
price will be adjusted if we have a stock split of or stock dividends on our
common stock. After a person or group acquires ownership of 15% or more of the
outstanding common stock, but before that person or group owns 50% or more of
our outstanding common stock, our board may, at its option, extinguish the
rights by exchanging all or any part of the then outstanding exercisable rights
for shares of common stock at an exchange ratio specified in the rights plan,
other than rights held by that person or group, which are void.

Generally, prior to a person or group acquiring 15% or more of the
outstanding common stock or making a tender or exchange offer that could result
in such person or group owning 15% or more of the outstanding common stock, our
board of directors may amend the rights plan without the consent of the holders
of the rights, including an amendment to reduce the ownership limitation from
15% to not less than 10%. After such time, our board of directors may not amend
the rights plan in a way that adversely affects holders of the rights.

In the event that our board of directors approves a transaction that it has
determined is in the best interests of our stockholders but that otherwise
would cause the rights to separate from the common stock and become
exercisable, the board may, in connection with such approval, redeem the
rights. Once the rights are redeemed, the transaction can proceed without
causing the rights to separate from the common stock and become exercisable.
The rights plan could make it more

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difficult for a third party to acquire, and could discourage a third party from
acquiring or seeking to acquire, Cypress or a large block of our common stock.

Statutory Business Combination Provision

Following the offering, we will be subject to Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from consummating a "business combination," except under certain circumstances,
with an "interested stockholder" for a period of three years after the date
such person became an "interested stockholder" unless:

. before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;

. upon the closing of the transaction that resulted in the interested
stockholder acquiring that status, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding shares held by directors who are
also officers of the corporation and shares held by employee stock
plans; or

. following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of at least two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder. The term "interested stockholder" generally is defined as a
person who, together with affiliates and associates, owns, or, within
the prior three years, owned, 15% or more of a corporation's outstanding
voting stock.

The term "business combination" includes mergers, consolidations, asset
sales involving 10% or more of a corporation's assets and other similar
transactions resulting in a financial benefit to an interested stockholder.
Section 203 makes it more difficult for an "interested stockholder" to effect
various business combinations with a corporation for a three-year period. A
Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or by-laws resulting from an amendment approved by
holders of at least a majority of the outstanding voting stock. Neither our
certificate of incorporation nor our by-laws contain any such exclusion.

Trading on the Nasdaq National Market System

We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "CYCO."

No Preemptive Rights

No holder of any class of our stock has any preemptive right to subscribe
for or purchase any kind or class of our securities.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock will be State Street
Bank and Trust Company.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common
stock. No prediction can be made as to the effect, if any, that sales of common
stock or the availability of common stock for sale will have on the market
price of our common stock. The market price of our common stock could drop due
to sale of a large number of shares of our common stock or the perception that
such sales could occur. These factors could also make it more difficult to
raise funds through future offerings of common stock.

After this offering, 45,856,415 shares of common stock will be outstanding.
Of these shares, the 10,000,000 shares sold in this offering, or 11,500,000 if
the underwriters' over-allotment is exercised in full, will be freely tradeable
without restriction under the Securities Act, except that any shares held by
our "affiliates" as defined in Rule 144 under the Securities Act may be sold
only in compliance with the limitations described below. The remaining
35,856,415 shares of common stock are "restricted securities" within the
meaning of Rule 144 under the Securities Act. The restricted securities
generally may not be sold unless they are registered under the Securities Act
or are sold pursuant to an exemption from registration, such as the exemption
provided by Rule 144 under the Securities Act.

In connection with this offering, our existing officers and directors and
substantially all of our stockholders, who will own a total of 35,856,415
shares of common stock after the offering, have entered into lock-up agreements
pursuant to which they have agreed not to offer or sell any shares of common
stock for a period of 180 days after the date of this prospectus without the
prior written consent of Bear, Stearns & Co. Inc., which may in its sole
discretion, at any time and without notice, waive any of the terms of these
lock-up agreements. Bear, Stearns & Co. Inc. presently has no intention to
allow any shares of common stock or warrants to be sold or otherwise offered by
Cypress prior to the expiration of the 180 day lock-up period, although it may
decide to do so in light of the purpose for which any such shares or warrants
are requested to be sold or otherwise offered, prevailing market conditions and
any other factor which Bear, Stearns & Co. Inc., in its sole discretion, may
deem to be relevant. Following the lock-up period, these shares will not be
eligible for sale in the public market without registration under the
Securities Act unless such sale meets the conditions and restrictions of Rule
144 as described below.

In general, under Rule 144 as currently in effect, any person or persons
whose shares are required to be aggregated, including an affiliate of ours, who
has beneficially owned shares for a period of at least one year is entitled to
sell, within any three-month period, commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of:

. 1% of the then outstanding shares of common stock, which is expected to
be approximately 458,564 shares upon the completion of this offering, or

. the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of
such sale on Form 144 is filed with the Securities and Exchange
Commission.

Sales under Rule 144 are also subject to certain provisions relating to
notice and manner of sale and the availability of current public information
about us during the 90 days immediately preceding a sale. In addition, a person
who is not an affiliate of ours during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to

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<PAGE>

sell such shares under Rule 144(k) without regard to the volume limitation and
other conditions described above.

Our employees, directors, officers or consultants who purchased our shares
in connection with a written compensatory plan or contract may be entitled to
rely on the resale provisions of Rule 701. Rule 701 permits non-affiliates to
sell their Rule 701 shares without having to comply with the public
information, holding period, volume limitation or notice provisions of Rule
144. Affiliates may sell their Rule 701 shares without having to comply with
Rule 144's holding period restrictions. In each of these cases, Rule 701 allows
the shareholders to sell 90 days after the date of this prospectus.

Prior to the expiration of the lock-up agreement, we intend to register on a
registration statement on Form S-8:

. a total of 5,820,975 shares of common stock issuable upon the exercise
of options issued under our 1997 management option plan;

. a total of up to 5,756,125 shares of common stock reserved for future
issuance pursuant to the 2000 stock option plan; and

. a total of 900,000 shares of common stock reserved for future issuance
pursuant to the employee stock purchase plan.

The Form S-8 will permit the resale in the public market of shares so
registered by non-affiliates without restriction under the Securities Act.

In November and December 1999, we entered into stock warrant and master
license agreements with several property owners and operators in which we
agreed to issue warrants to acquire up to 11,163,990 shares of our common stock
at an exercise price of $4.22 per share. The exact number of shares of common
stock underlying the warrants, which is based on the gross leasable area of the
buildings set forth in the master license agreements, will not be determined
until the completion of due diligence and the finalization of the building
schedules, which is currently in process. The warrants are exercisable for
periods of five to ten years, but cannot be exercised until six months
following completion of this offering. Upon such exercise, the holders of these
warrants are entitled to request that we register the shares of common stock
underlying their warrants in any future registration statement which we may
file. If we are unable to accommodate such request within 18 months following
this offering, holders representing at least 50% of the aggregate shares of
warrants issuable are entitled to require that we register their shares under
the Securities Act. After these shares are registered, they will become freely
tradeable without restriction under the Securities Act.

Upon completion of this offering and subject to the 180-day lock-up period
described above, the holders of approximately 35,856,415 shares of our common
stock, including the shares to be issued upon conversion of all of our
outstanding convertible preferred stock, are entitled to request that we
register their shares under the Securities Act or to have their shares included
in a future registration statement which we may file. After these shares are
registered, they will become freely tradeable without restriction under the
Securities Act.

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UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
between us and the underwriters named below, who are represented by Bear,
Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
J.C. Bradford & Co., the underwriters have severally agreed to purchase from us
the following respective numbers of shares of common stock at the public
offering price less the underwriting discount set forth on the cover page of
this prospectus.

<TABLE>
<CAPTION>
Number of
Underwriter: Shares
------------ ----------
<S> <C>
Bear, Stearns & Co. Inc........................................... 3,020,000
Donaldson, Lufkin & Jenrette Securities Corporation............... 3,020,000
J.C. Bradford & Co................................................ 1,510,000
Banc of America Securities LLC.................................... 140,000
Credit Suisse First Boston Corporation............................ 140,000
Lehman Brothers Inc............................................... 140,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................ 140,000
Morgan Stanley & Co. Incorporated................................. 140,000
Fleetboston Robertson Stephens Inc................................ 140,000
Salomon Smith Barney Inc.......................................... 140,000
SG Cowen Securities Corporation................................... 140,000
Warburg Dillon Read LLC........................................... 140,000
Wasserstein Perella Securities, Inc............................... 140,000
Thomas Weisel Partners LLC........................................ 140,000
Blaylock & Partners L.P........................................... 70,000
Corinthian Partners, L.L.C........................................ 70,000
Gaines, Berland Inc............................................... 70,000
Hagerty, Stewart & Associates, Inc................................ 70,000
Jefferies & Company............................................... 70,000
Jesup & Lamont Securities Corporation............................. 70,000
Josephthal & Co. Inc.............................................. 70,000
Parker/Hunter Incorporated........................................ 70,000
The Robinson-Humphrey Company, LLC................................ 70,000
Sanders Morris Harris Inc......................................... 70,000
Sands Brothers & Co., Ltd......................................... 70,000
Stephens, Inc..................................................... 70,000
Wachovia Securities, Inc.......................................... 70,000
----------
Total........................................................... 10,000,000
==========
</TABLE>

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

76
<PAGE>

We have granted to the underwriters an option, exercisable for 30 days from
the date of the underwriting agreement, to purchase up to 1,500,000 additional
shares at the public offering price less the underwriting discount. The
underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise such option, each underwriter will become obligated, subject to
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.

The underwriters propose to initially offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less
a concession not in excess of $.71 per share. The underwriters may allow, and
such dealers may re-allow, a concession not in excess of $0.10 per share on
sales to other dealers. After the initial offering of the shares to the public,
the representatives of the underwriters may change the public offering price
and such concessions. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.

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

<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share....................................... $ 1.19 $ 1.19
Total........................................... $11,900,000 $13,685,000
</TABLE>

The underwriting discount per share is equal to the public offering price
per share of common stock less the amount paid by the underwriters to us per
share of common stock.

We estimate that our total expenses in connection with this offering, other
than the underwriting discount, will be approximately $2.4 million.

At our request, the underwriters have reserved for sale at the initial
public offering price up to 525,000 of the shares, or approximately 5%, of our
common stock to be sold in this offering for sale to our directors, officers
and employees and friends and family of our directors, officers and employees.
The number of shares available for sale to the general public will be reduced
to the extent that any reserved shares are purchased. Any reserved shares not
purchased will be offered by the underwriters on the same basis as the other
shares offered.

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the common stock. Specifically, the underwriters may over-allot
shares of the common stock in connection with this offering, thereby creating a
short position in the common stock for their own account. Additionally, to
cover such over-allotments or to stabilize the market price of the common
stock, the underwriters may bid for, and purchase, shares of the common stock
in the open market. Finally, the representatives, on behalf of the
underwriters, also may reclaim selling concessions allowed to an underwriter or
dealer if the underwriting syndicate repurchases shares distributed by that
underwriter or dealer. Any of these activities may maintain the market price of
our common stock at a level above that which might otherwise prevail in the
open market. The underwriters are not required to engage in these activities
and, if commenced, may end any of these activities at any time.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.

77
<PAGE>

Our common stock has been approved for listing on the Nasdaq National Market
under the symbol "CYCO."

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

. prevailing market conditions;

. our results of operations in recent periods;

. the present stage of our development;

. the market capitalizations and stages of development of generally
comparable companies; and

. estimates of our business potential.

In addition, we have agreed that for a period of 180 days after the date of
this prospectus, we will not sell or offer to sell or otherwise dispose of any
shares of common stock without the prior written consent of Bear, Stearns & Co.
Inc., except that we may issue, and grant options to purchase, shares of common
stock under our stock option and employee stock purchase plans. During this
lock-up period, we may also issue additional warrants to acquire common stock
in connection with the execution of additional license agreements and
additional equity securities to pay for possible acquisitions, so long as the
recipients of such securities are also subject to the 180 day lock-up period
and the total amount of such securities does not exceed 20% of the shares of
common stock outstanding upon completion of this offering.

78
<PAGE>

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for Cypress by Goodwin, Procter & Hoar llp. Certain legal matters related
to the sale of the common stock offered hereby will be passed upon for the
underwriters by Latham & Watkins, Washington, D.C.

EXPERTS

The financial statements and schedules included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included in reliance upon the authority of said firm as
experts in giving said reports.

ADDITIONAL INFORMATION

In 1997 we decided to retain Arthur Andersen LLP as our independent public
accountants and dismissed our former auditors. The former auditors' report on
our financial statements for the period from inception (August 16, 1995) to
December 31, 1995 and for the year ended December 31, 1996 does not cover our
financial statements included in this prospectus. Such report did not contain
an adverse opinion or disclaimer of opinion and was not modified as to
uncertainty, audit scope or accounting principles. There were no disagreements
with the former auditors on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure at the time of
the change or with respect to our financial statements for 1995 and 1996,
which, if not resolved to the former auditors' satisfaction, would have caused
them to make reference to the subject matter of the disagreement in connection
with their report. Prior to retaining Arthur Andersen LLP, we had not consulted
with Arthur Andersen LLP regarding accounting principles.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed a registration statement on Form S-1 with the SEC for the
common stock we are offering by this prospectus. This prospectus does not
include all of the information contained in the registration statement. You
should refer to the registration statement and its exhibits for additional
information. Whenever we make reference in this prospectus to any of our
contracts, agreements or other documents, you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document. When we complete this offering, we will also be
required to file annual, quarterly and special reports, proxy statements and
other information with the SEC. We intend to furnish to our stockholders annual
reports containing audited financial statements for each fiscal year.

You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at
450 Fifth Street, NW, Washington, DC 20549; 7 World Trade Center, Suite 1300,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. You may also obtain copies of the documents
at prescribed rates by writing to the Public Reference Section of the SEC at
450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-
0330 for further information on the operation of the public reference
facilities.

79
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Cypress Communications, Inc.

Report of Independent Public Accountants................................. F-2

Balance Sheets--December 31, 1997 and 1998 and September 30, 1999
(Unaudited)............................................................. F-3

Statements of Operations for the Years Ended December 31, 1996, December
31, 1997, and December 31, 1998, and the Nine Months Ended September 30,
1998 and 1999 (Unaudited)............................................... F-4

Statements of Members' Equity for the Year Ended December 31, 1996 and
Statements of Stockholders' Equity (Deficit) for the Years Ended
December 31, 1997 and December 31, 1998................................. F-5

Statements of Cash Flows for the Years Ended December 31, 1996, December
31, 1997 and December 31, 1998, and the Nine Months Ended September 30,
1998 and 1999 (Unaudited)............................................... F-6

Notes to Financial Statements............................................ F-7

MTS Communications Company, Inc.

Report of Independent Public Accountants................................. F-20

Statements of Operations for the Year Ended December 31, 1997 and for the
Period From January 1, 1998 through December 7, 1998.................... F-21

Statements of Stockholders' Equity (Deficit) for the year ended December
31, 1997 and the Period from January 1, 1998 through December 7, 1998... F-22

Statements of Cash Flows for the Year Ended December 31, 1997 and for the
Period from January 1, 1998 through December 7, 1998.................... F-23

Notes to Financial Statements............................................ F-24

Pro Forma Financial Statements

Statement of Operations for the Year Ended December 31, 1998............. F-28

</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Cypress Communications, Inc.:

We have audited the accompanying balance sheets of CYPRESS COMMUNICATIONS,
INC. (a Delaware corporation and successor to Cypress Communications, L.L.C.)
as of December 31, 1997 and 1998 and the related statements of operations,
changes in members' or stockholders' deficit, and cash flows for the years
ended December 31, 1996, 1997, and 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 Cypress Communications,
Inc. as of December 31, 1997 and 1998 and the results of its operations and its
cash flows for the years ended December 31, 1996, 1997, and 1998 in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 8, 2000

F-2
<PAGE>

CYPRESS COMMUNICATIONS, INC.

BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
----------- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 3,671,065 $11,057,696 $ 3,378
Accounts receivable, net
of allowance for
doubtful accounts of
$9,945, $79,520, and
$212,985 in 1997, 1998,
and 1999 respectively.. 203,168 1,119,784 1,818,483
Note receivable......... 0 200,000 0
Prepaid expenses and
other.................. 44,423 26,238 174,994
----------- ----------- ------------
Total current assets... 3,918,656 12,403,718 1,996,855
----------- ----------- ------------
Property and equipment,
net..................... 1,609,791 6,291,413 11,645,639
----------- ----------- ------------
Other assets:
Cost in excess of net
assets acquired, net of
accumulated
amortization of $707
and $7,071 in 1998 and
1999, respectively..... 0 84,141 77,777
Tenant contracts, net of
accumulated
amortization of $11,944
and $119,444 in 1998
and 1999,
respectively........... 0 418,056 310,556
Long-term investment.... 120,000 120,000 100,600
Other................... 0 89,777 150,514
----------- ----------- ------------
Total other assets..... 120,000 711,974 639,447
----------- ----------- ------------
Total assets........... $ 5,648,447 $19,407,105 $ 14,281,941
=========== =========== ============

<CAPTION>
Pro Forma
September 30,
1999
(Note 10)
-------------
(unaudited)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........ $ 255,012 $ 381,032 $ 1,807,248
Accrued expenses........ 271,929 1,307,941 2,192,719
Current portion of
capital lease
obligations............ 24,826 192,635 223,001
----------- ----------- ------------
Total current
liabilities........... 551,767 1,881,608 4,222,968
Long-term portion of
capital lease
obligations............. 60,811 522,583 334,700
----------- ----------- ------------
Total liabilities...... 612,578 2,404,191 4,557,668
----------- ----------- ------------
Convertible redeemable
preferred stock (Note
5):
$.001 par value;
1,200,140 shares
designated Series A in
1997, 1,211,140 shares
designated Series A in
1998 and 1999, and 0
shares designated
Series A in pro forma
1999; 1,200,140,
1,211,140, 1,211,140,
and 0 shares issued and
outstanding in 1997,
1998, 1999, and pro
forma 1999,
respectively; entitled
to redemption value of
$5 per share........... 5,977,480 6,036,670 6,039,809 $ 0
$.001 par value; 0,
1,912,813, 1,919,188,
and 0 shares designated
Series B in 1997, 1998,
1999, and pro forma
1999, respectively; 0,
1,333,200, 1,339,575,
and 0 shares issued and
outstanding in 1997,
1998, 1999, and pro
forma 1999,
respectively; entitled
to redemption value of
$8 per share........... 0 10,650,328 10,704,559 0
$.001 par value; 0,
579,613, 579,613, and 0
shares designated
Series B-1 in 1997,
1998, 1999, and pro
forma 1999,
respectively; 0,
579,613, 579,613, and 0
shares issued and
outstanding in 1997,
1998, 1999, and pro
forma 1999,
respectively; entitled
to redemption value of
$8 per share........... 0 4,630,265 4,631,669 0
----------- ----------- ------------ ------------
Total preferred stock.. 5,977,480 21,317,263 21,376,037 0
----------- ----------- ------------ ------------
Commitments and
contingencies (Note 7)
Stockholders' (deficit)
equity:
Common stock, $.001 par
value; 5,023,467 shares
authorized in 1997,
20,594,088 shares
authorized in 1998,
1999, and pro forma
1999; 2,636,906 shares
issued and outstanding
in 1997, 1998, and
1999, 16,723,382 shares
issued and outstanding
in pro forma 1999...... 2,637 2,637 2,637 16,723
Additional paid-in
capital................ 1,240,225 3,536,863 6,810,463 28,191,495
Deferred compensation... 0 (2,179,045) (4,815,853) (4,815,853)
Accumulated deficit..... (2,184,473) (5,674,804) (13,649,011) (13,682,178)
----------- ----------- ------------ ------------
Total stockholders'
(deficit) equity ..... (941,611) (4,314,349) (11,651,764) $ 9,710,187
----------- ----------- ------------ ------------
Total liabilities and
stockholders'
(deficit) equity ..... $ 5,648,447 $19,407,105 $ 14,281,941
=========== =========== ============
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-3
<PAGE>

CYPRESS COMMUNICATIONS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended Year Ended Year Ended September 30,
December 31, December 31, December 31, ------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 83,556 $ 709,402 $ 2,417,816 $ 1,428,497 $ 5,227,727
Operating expenses:
Cost of services....... 131,771 603,114 1,539,846 944,760 3,248,377
Sales and marketing.... 12,189 448,916 1,470,107 1,075,039 2,466,844
General and
administrative........ 640,704 900,595 2,436,221 1,597,974 5,604,135
Amortization of
deferred
compensation.......... 0 0 117,593 16,878 636,792
Depreciation and
amortization.......... 53,808 196,415 576,659 351,453 1,413,906
---------- ----------- ----------- ----------- -----------
Total operating
expenses.............. 838,472 2,149,040 6,140,426 3,986,104 13,370,054
---------- ----------- ----------- ----------- -----------
Operating loss.......... (754,916) (1,439,638) (3,722,610) (2,557,607) (8,142,327)
Interest income, net.... 13,939 113,922 232,279 66,911 168,120
---------- ----------- ----------- ----------- -----------
Loss before income
taxes.................. (740,977) (1,325,716) (3,490,331) (2,490,696) (7,974,207)
Income tax benefit...... 0 0 0 0 0
---------- ----------- ----------- ----------- -----------
Net loss................ $ (740,977) $(1,325,716) $(3,490,331) $(2,940,696) $(7,974,207)
========== =========== =========== =========== ===========
Net loss per common
share (Note 10):
Basic and diluted...... $ (.29) $ (.41) $ (1.32) $ (0.94) $ (3.02)
========== =========== =========== =========== ===========
Weighted average number
of common shares
outstanding:
Basic and diluted...... 2,523,032 3,266,237 2,636,906 2,636,906 2,636,906
========== =========== =========== =========== ===========

</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>

CYPRESS COMMUNICATIONS, INC.

STATEMENTS OF MEMBERS' OR STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998

<TABLE>
<CAPTION>
Contributed
Members' Shares or
or Common Stock Additional
----------------- Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
--------- ------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... 100,000 $ 0 $ 94,400 $ 0 $ (117,780) $ (23,380)
Capital contributions.. 291,290 0 1,582,569 0 0 1,582,569
Issuance of shares for
employee services..... 9,141 0 54,847 0 0 54,847
Forgiveness of debt by
related party......... 0 0 155,697 0 0 155,697
Net loss............... 0 0 0 0 (740,977) (740,977)
--------- ------ ---------- ----------- ----------- -----------
Balance, December 31,
1996................... 400,431 0 1,887,513 0 (858,757) 1,028,756
Issuance of member
shares................ 41,667 0 250,000 0 0 250,000
Repurchases of member
shares................ (149,109) 0 (894,651) 0 0 (894,651)
Conversion to a C
corporation........... 2,343,917 2,637 (2,637) 0 0 0
Net loss............... 0 0 0 0 (1,325,716) (1,325,716)
--------- ------ ---------- ----------- ----------- -----------
Balance, December 31,
1997................... 2,636,906 2,637 1,240,225 0 (2,184,473) (941,611)
Deferred compensation.. 0 0 2,296,638 (2,296,638) 0 0
Amortization of
deferred
compensation.......... 0 0 0 117,593 0 117,593
Net loss............... 0 0 0 0 (3,490,331) (3,490,331)
--------- ------ ---------- ----------- ----------- -----------
Balance, December 31,
1998................... 2,636,906 $2,637 $3,536,863 $(2,179,045) $(5,674,804) $(4,314,349)
========= ====== ========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE>

CYPRESS COMMUNICATIONS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended Year Ended Year Ended September 30,
December 31, December 31, December 31, -------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. $ (740,977) $(1,325,716) $(3,490,331) $(2,490,696) $ (7,974,207)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 53,808 196,415 576,659 351,453 1,413,906
Amortization of
deferred
compensation......... 0 0 117,593 16,878 636,792
Deferred income
taxes................ 0 0 0 0 0
Other................. 0 1,920 5,737 3,141 7,774
Changes in operating
assets and
liabilities:
Accounts receivable,
net.................. (34,249) (168,919) (916,616) (445,909) (698,699)
Prepaid expenses and
other current
assets............... (6,776) (32,146) 18,185 21,344 (148,756)
Other assets.......... 0 0 (89,777) (81,251) (60,737)
Accounts payable and
accrued expenses..... 89,487 436,927 863,645 653,667 1,048,801
---------- ----------- ----------- ----------- ------------
Net cash used in
operating
activities......... (638,707) (891,519) (2,914,905) (1,971,373) (5,775,126)
---------- ----------- ----------- ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment........ (518,638) (1,190,723) (2,887,243) (1,691,993) (5,392,075)
Purchase of assets of
MTS Communications... 0 0 (1,904,398) 0 0
(Advance to) repayment
from MTS
Communications....... 0 0 (200,000) 0 200,000
(Purchase) sale of
investment, net...... (120,000) 0 0 0 19,400
---------- ----------- ----------- ----------- ------------
Net cash used in
investing
activities......... (638,638) (1,190,723) (4,991,641) (1,691,993) (5,172,675)
---------- ----------- ----------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of Series A preferred
stock, net of
offering expenses.... 0 5,975,560 55,000 55,000 0
Proceeds from issuance
of Series B and B-1
preferred stock, net
of offering
expenses............. 0 0 15,279,046 15,000,000 51,000
Principal payments on
capital lease
obligations.......... (16,291) (25,328) (40,869) (19,724) (157,517)
Proceeds from sale of
member shares........ 0 250,000 0 0 0
Borrowings under line
of credit............ 0 0 500,000 500,000 0
Acquisition of member
interests............ 0 (894,651) 0 0 0
Repayments of line of
credit............... 0 0 (500,000) 0 0
Proceeds from capital
contributions........ 1,582,569 0 0 0 0
Proceeds from related
party borrowing...... 155,697 0 0 0 0
---------- ----------- ----------- ----------- ------------
Net cash provided by
financing
activities......... 1,721,975 5,305,581 15,293,177 15,535,276 (106,517)
---------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 444,630 3,223,339 7,386,631 11,871,910 (11,054,318)
CASH AND CASH
EQUIVALENTS, beginning
of period............. 3,096 447,726 3,671,065 3,671,065 11,057,696
---------- ----------- ----------- ----------- ------------
CASH AND CASH
EQUIVALENTS, end of
period................ $ 447,726 $ 3,671,065 $11,057,696 $15,542,975 $ 3,378
---------- ----------- ----------- ----------- ------------
SUPPLEMENTAL
DISCLOSURES:
Cash paid for
interest............. $ 3,669 $ 2,031 $ 2,031 $ 5,710 $ 11,924
========== =========== =========== =========== ============
Conversion of related
party borrowing to
equity............... $ 155,697 $ 0 $ 0 $ 0 $ 0
========== =========== =========== =========== ============
Assets acquired under
capital leases....... $ 127,256 $ 0 $ $ 0 $ 0
========== =========== =========== =========== ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE>

CYPRESS COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996, DECEMBER 31, 1997 AND 1998
AND SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)

1. ORGANIZATION AND NATURE OF BUSINESS

Cypress Communications, Inc. (the "Company") was incorporated July 15, 1997
under the laws of Delaware. The Company was formed to effect the conversion
of Cypress Communications, L.L.C. (the "Predecessor Company") to a
Corporation. To effect this change in legal entity status, on July 15,
1997, the Predecessor Company was acquired by the Company and ceased to
exist as a legal entity. The accompanying financial statements reflect this
as a reorganization (the "Reorganization"). The Company provides
communications services and equipment to tenants of office buildings. The
Company currently serves tenants in Georgia, Massachusetts, Illinois,
Texas, Colorado, Washington, D.C., Florida, Louisiana, and California.

The Predecessor was incorporated August 16, 1995 as a limited liability
company under the laws of Georgia. Prior to 1996, the Predecessor Company
was a development-stage enterprise. All references to the Company refer to
the Company and the Predecessor unless otherwise noted.

The Company has experienced operating losses since its inception. The
Company expects to continue to focus on increasing its customer base and
expanding its operations. Accordingly, the Company expects that its
operating expenses and capital expenditures will continue to increase
significantly, all of which will have a negative impact on short-term
operating results and will require significant capital. Accordingly, the
Company may be required to raise additional funds through public or private
financing or other arrangements, or it may have to slow its rate of
expansion. There can be no assurance that any required additional funding,
if needed, will be available on terms attractive to the Company or at all,
which could have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations.

Other Risk Factors

The Company faces certain other risk factors including the
following: growth and expansion may strain the Company's resources,
dependence on key personnel, dependence on third-party suppliers of
equipment and communications services, dependence on relationships with
certain building owners and managers, competition from other providers of
communications services, and potential disruption of services due to system
failures.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements are presented on the accrual basis of
accounting.

Interim Information

The balance sheet as of September 30, 1999 and the statements of operations
and cash flows for the nine months ended September 30, 1998 and 1999 are
unaudited and have been prepared by management in accordance with rules and
regulations of the Securities and Exchange

F-7
<PAGE>

Commission. In the opinion of management, the balance sheet and statements
of operations and cash flows contain all necessary adjustments (consisting
of only normal recurring adjustments) necessary for the fair presentation
of the financial position and results of operations for the interim
periods. The results of operations for the nine months ended September 30,
1999 are not necessarily indicative of the results to be expected for the
entire year.

Accounting 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 dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual amounts could differ from these
estimates and such differences could be material.

Revenue Recognition

The Company's revenues include recurring charges for local access, long-
distance, equipment rental, Internet, voicemail and inbound 800 charges as
well as non-recurring revenues for installations and moves, adds, and
changes charges, all of which are recognized as services are provided. To
date, installation revenues have not exceeded the direct costs of
installation. To date, revenues from moves, adds, and changes have exceeded
the related direct costs by an insignificant amount. All expenses related
to services provided are recognized as incurred.

Cash and Cash Equivalents

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

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the
assets (generally three to seven years). Leasehold improvements are
depreciated over the lesser of the average lease term (or the term of the
related license agreement) or the assets' useful lives. Depreciation
expense was $120,025 $112,431, and $546,521 for the years ended December
31, 1996, 1997, and 1998, respectively. Maintenance and repairs are charged
to expense as incurred. Gains or losses on disposal of property and
equipment are recognized in operations in the year of disposition. There
were no significant gains or losses in any periods presented.

Income Taxes

The Predecessor Company was a limited liability company for federal and
state income tax purposes. The Internal Revenue Code and applicable state
statutes provide that income and expenses are not separately taxable to the
limited liability company but rather accrue directly to the members.
Accordingly, no provision for income taxes has been made in the statements
of operations of the Predecessor Company. Subsequent to the Reorganization,
income taxes have been provided for using the liability method in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes."

F-8
<PAGE>

Intangibles

The cost over the fair values of net assets acquired was recorded in
connection with the Company's purchase of substantially all of the assets
of MTS Communications Company, Inc. ("MTS Communications") (Note 9). These
costs are being amortized using the straight-line method over ten years.
Tenant contracts were acquired in the MTS Communications acquisition and
are being amortized using the straight-line method over three years.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, including property and equipment
and intangibles, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset should be assessed. An
impairment will be recognized when the future net cash flows estimated to
be generated by the asset are insufficient to recover the current carrying
value of the asset. Estimates of future cash flows are based on many
factors, including current operating results, expected market trends, and
competitive influences. Management believes that the long-lived assets in
the accompanying financial statements are appropriately valued.

Long-Term Investment

The Company maintains a certificate of deposit, which is pledged under a
letter of credit with a communications equipment supplier. The investment
is classified as held to maturity in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheet approximate the fair
values for cash and capital lease obligations.

In accordance with SFAS No. 107, "Disclosures about Fair Values of
Financial Instruments," the Company has estimated the fair value of the
Series A preferred stock as approximately $3.6 million and $5.8 million at
December 31, 1997 and 1998, respectively. The Company has estimated the
fair value of the Series B and Series B-1 preferred stock as $6.4 million
and $2.8 million, respectively, at December 31, 1998. The fair value of the
preferred stock is based on the estimated fair value of the Company's
common stock and the number of shares of common stock into which the
preferred stock converts.

Accrued Expenses

Accrued expenses includes the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Property and equipment additions........................ $ 62,965 $ 280,900
Compensation............................................ 96,675 257,838
Taxes................................................... 26,833 171,118
Recurring network costs................................. 3,182 221,912
Contracted support...................................... 44,562 53,286
Other................................................... 37,712 322,887
-------- ----------
$271,929 $1,307,941
======== ==========
</TABLE>

F-9
<PAGE>

Net Loss Per Common Share

Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 98, for the periods prior to the Company's anticipated initial public
offering (Note 10), basic net loss per share is computed using the weighted
average number of shares of common stock outstanding during the period.
Diluted net loss per share is computed using the weighted average number of
shares of common stock outstanding during the period and nominal issuances
of common stock and common stock equivalents, regardless of whether they
are antidilutive, as well as the potential dilution of common stock
equivalents, if dilutive.

The Company has not issued common stock or common stock equivalents for
consideration that management considers nominal. Additionally, potential
common stock equivalents are excluded from the calculation of diluted net
loss per share, as their effect is antidilutive. As such, diluted net loss
per share is the same as basic net loss per share for all periods
presented. Convertible redeemable preferred stock was outstanding at
December 31, 1997 and 1998 and September 30, 1998 and 1999. These
securities were not considered in the computation of net loss per share as
the conversion is dependent upon a qualifying public offering, as defined
in the preferred stock sale agreements.

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
System infrastructure................................ $1,188,293 $4,771,675
System equipment..................................... 414,634 1,583,018
Computer and office equipment........................ 144,405 495,737
Leasehold improvements............................... 95,610 220,655
---------- ----------
1,722,222 6,950,365
Less accumulated depreciation and amortization....... (233,151) (779,672)
---------- ----------
$1,609,791 $6,291,413
========== ==========
</TABLE>

4. CAPITAL TRANSACTIONS

Company Amendments to Operating Agreements

The Predecessor Company amended its operating agreements on four occasions
between February 1996 and February 1997. The primary purpose of these
amendments was to adjust the Predecessor Company's ownership to reflect
additional capital investments. Significant changes to the original
operating agreements included the authorization for issuance of 5,000,000
shares of the Predecessor Company's shares and the redefining of initial
ownership. Ownership had initially been defined as a percentage of interest
in the Predecessor Company; the second amendment to the operating
agreements required the issuance of 100,000 shares that were allocated to
the initial owners in proportion to their ownership. All references to
shares of the Predecessor Company have been restated to give effect to the
amendments of the operating agreements.

Predecessor Company Capital Contributions

In 1996, the Predecessor Company issued a total of 300,431 shares for
capital contributions totaling $1,793,113, including cash investments of
$1,582,569, debt forgiveness of $155,697,

F-10
<PAGE>

and employee services valued at $54,847. The fair value of the shares
issued for employee services were recorded as compensation expense at the
date of issuance.

Of the cash investments made during 1996, the Predecessor Company issued
83,333 shares to an investment company for $500,000. Under the terms of
this investment agreement, the Predecessor Company was required to first
offer any additional capital financing terms to this investor until total
capital contributions by this investor exceeded $3.5 million. In the event
the investor exercised its rights to purchase additional shares as offered
by the Predecessor Company, the Predecessor Company was required to change
its legal organization to a C corporation.

In February 1997, the Predecessor Company issued 41,667 shares to an
investment company for $250,000.

Predecessor Company Treasury Stock Transactions

In February 1997, the Predecessor Company repurchased 11,904 shares
outstanding for $71,421 in cash.

Stock Option Plans

In February 1996, the Predecessor Company adopted the 1996 Share Incentive
Plan (the "Predecessor Plan"). The Predecessor Plan was intended to provide
incentives to officers and key employees of the Predecessor Company. At
July 15, 1997, the Predecessor Company had options for 20,000 shares
outstanding with exercise prices of $5 to $6 per share based on the
estimated fair market value at dates of grant. These options were converted
pro rata into options, with identical terms, on the Company's common stock.

In July 1997, the 1997 Management Option Plan (the "1997 Option Plan") was
adopted by the Company. The 1997 Option Plan provides for the granting of
either incentive stock options or nonqualified stock options to purchase
shares of the Company's common stock to officers, directors, and key
employees responsible for the direction and management of the Company. The
options expire ten years after the date of grant and vest 20% upon the
first anniversary of the date of grant and 5% each subsequent quarter
measured from the first anniversary of the date of grant. At December 31,
1997 and 1998, 1,004,693 and 3,899,385 shares, respectively, of common
stock were reserved for issuance under the 1997 Option Plan.

Statement of Financial Accounting Standards No. 123

A summary of the changes in the option plans is as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Average Exercise
Shares Price
--------- --------
<S> <C> <C>
Balance at inception, February 1996...................... -- $ --
Granted................................................ 225,000 .60
---------
Balance at December 31, 1996............................. 225,000 .60
Forfeited.............................................. (45,000) .56
Granted................................................ 1,536,345 .67
---------
Balance at December 31, 1997............................. 1,716,345 .66
Granted................................................ 1,087,875 1.00
Forfeited.............................................. (76,500) 1.07
---------
Balance at December 31, 1998............................. 2,727,720 .78
=========
</TABLE>

F-11
<PAGE>

The following table summarizes information about the stock options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
Number of Weighted
Options Average Weighted Exercisable
Outstanding at Remaining Average As of
Exercise December 31, Contractual Exercise December
Price 1998 Life Price 1998
------------- -------------- ----------- -------- -----------
<S> <C> <C> <C> <C>
$.56 90,000 7.25 years $ .56 48,920
$.67 1,815,345 8.63 years $ .67 465,219
$1.07 822,375 9.81 years $1.07 0
--------- -------
$.56 to $1.07 2,727,720 8.95 years $0.78 514,139
========= =======
</TABLE>

The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its option plans. The Company has
recorded deferred compensation of approximately $2.2 million in 1998 which
represents the difference between the exercise prices per option and the
fair value of the Company's common stock at the dates of grant. Deferred
compensation is amortized over the vesting period of the stock options
which is generally five years.

Had compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123, the Company's net loss would have
been the pro forma amount indicated below. The pro forma net loss is
calculated using the Black-Scholes option pricing model, with the following
assumptions: risk-free interest rates of 5.28% for 1998, from 5.82% to
6.19% for 1997 and 6.09% to 6.19% for 1996, expected life of six years,
dividend yield of 0%, and expected volatility of 0%. The weighted average
fair value of options granted during the years ended December 31, 1996,
December 31, 1997, and December 31, 1998 was $.16, $.18 and $3.22 per
option, respectively.

<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net loss, as reported................. $(740,977) $(1,325,716) $(3,490,331)
Net loss, pro forma................... $(745,477) $(1,375,439) $(3,538,833)
Net loss per common share, as
reported............................. $ (.29) $ (.41) $ (1.32)
Net loss per common share, pro forma.. $ (.30) $ (.42) $ (1.34)
</TABLE>

Amendment to Certificate of Incorporation

In September 1998, the Company filed an amended and restated certificate of
incorporation (the "Certificate") which, among other things, increased the
total number of authorized common stock and preferred stock to 20,594,088
and 3,703,566, respectively. Additionally, the Certificate amended the
terms of the existing Series A preferred stock (Note 5) and increased the
number of shares of preferred stock designated as Series A to 1,211,140.
See Note 10 where further changes to the Company's capital structure
subsequent to December 31, 1998 are discussed.

Stock Split

In May 1998, the Company's board of directors and the majority stockholders
approved a 2-for-1 stock split (the "Split") with respect to each
outstanding share of common stock and Series A preferred stock. The Split
was effected in the form of a stock dividend that was paid in

F-12
<PAGE>

September 1998. All references to common stock share amounts have been
restated to reflect the Split on a retroactive basis. See note 10 regarding
an additional stock split.

5.CONVERTIBLE REDEEMABLE PREFERRED STOCK

On July 15, 1997, the Company authorized and issued 1,200,140 shares of
convertible and mandatorily redeemable preferred stock, designated as
Series A, for $5 per share. On September 30, 1998, the Company issued
1,333,200 and 579,613 shares of convertible and mandatorily redeemable
preferred stock, designated as Series B and Series B-1, respectively, for
$8 per share. These shares are entitled to 4.5 votes per share on all
matters upon which common stockholders are entitled to vote, except for the
Series B-1 shares which do not have any voting rights. In October 1999, in
connection with the second amended and restated stockholders' agreement,
certain terms of the Series A, Series B, and Series B-1 preferred stock
(the "Preferred Stock") were changed.

The Series A and Series B and B-1 preferred stock has a redemption price of
$5 and $8 per share, respectively, together with accrued and unpaid
dividends thereon. Redemption is mandatory beginning October 8, 2005, at
which time up to one-third of the outstanding shares may be redeemed on
October 8, 2005, October 8, 2006, and October 8, 2007. In the event of any
liquidation, dissolution, or winding up of the affairs of the Company,
holders of Series B and Series B-1 preferred stock shall be paid the
redemption price, plus all accrued dividends, before any payment to other
stockholders. In the event of any liquidation, dissolution, or winding up
of the affairs of the Company, holders of Series A preferred stock shall be
paid the redemption price, plus all accrued dividends, before any payment
to other stockholders, exclusive of any payments to be made to holders of
Series B and Series B-1 preferred stock. The Preferred Stock is convertible
into common stock at the discretion of the holder and automatically
converts into common stock upon the completion of an initial public
offering of the Company's common stock with proceeds in excess of
$50,000,000 and an adjusted per share price of at least $8.44. Under these
conversion terms, the Preferred Stock converts 4.5 for 1 into common stock.
The holders of the Preferred Stock are entitled to receive dividends, out
of the unreserved and unrestricted surplus or net profits of the Company,
as declared by the board of directors. No such dividends have been declared
as of December 31, 1998.

The Company is accreting the issuance costs of the Preferred Stock, which
is the difference between the redemption price and the face value of the
shares, over the period from the date of sale to the initial redemption
date. Such amount was $1,920 and $5,737 for the years ended December 31,
1997 and December 31, 1998, respectively, and is included in interest
expense in the accompanying statements of operations.

6.RELATED-PARTY TRANSACTIONS

The Predecessor Company received advances totaling $155,697 during 1996
from a company which had the same ownership as the Predecessor Company. In
March of 1996, the Predecessor Company was relieved of its obligation to
repay these amounts and these advances were recorded as capital
contributions.

A portion of the proceeds from the Predecessor Company's sale of member
shares was received from officers, directors, or other parties related to
the Predecessor Company. A portion of the

F-13
<PAGE>

cost of the Predecessor Company's purchase of member shares was paid to
officers, directors, or other parties related to the Predecessor Company.

A portion of the proceeds from the Company's sales of Series A, Series B,
and Series B-1 preferred stock (Note 5) was received from officers,
directors, or other parties related to the Company. The sales were
conducted concurrently with and on the same terms as those entered into
with unrelated parties.

7.COMMITMENTS AND CONTINGENCIES

Leases

The Company is obligated under several operating and capital lease
agreements, primarily for office space and equipment. Future annual minimum
rental payments under these leases as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
Operating Capital
---------- --------
<S> <C> <C>
1999................................................... $ 385,178 $283,923
2000................................................... 396,197 261,784
2001................................................... 411,123 181,345
2002................................................... 411,123 109,003
2003................................................... 404,939 28,186
Thereafter............................................. 558,058 0
---------- --------
$2,566,618 $864,241
==========
Less amount representing interest and taxes............ $149,023
--------
Present value of future minimum capital lease
payments.............................................. 715,218
Less current portion................................... 192,635
--------
Long-term portion...................................... $522,583
========
</TABLE>

Rental expense was $35,270 for the year ended December 31, 1996, $54,904
for the year ended December 31, 1997, and $159,236 for the year ended
December 31, 1998.

In November 1999, the Company entered into an agreement to lease additional
office space for seven years at a minimum of $250,000 per year.

Commission Obligation

The Company has entered into license agreements with the owners and/or
management companies of several office buildings whereby the Company has
the right to provide enhanced, integrated communications services. Under
the terms of the agreements, the Company is generally obligated to pay a
commission based on the greater of a base fee or a percentage of revenue
earned in the related building or development. At December 31, 1998 and
September 30, 1999, the Company's minimum obligation under these agreements
is $62,500 and $125,000, respectively, per year for the next seven years.

Purchase Obligation

At December 31, 1998, the Company has contracted with a communications
service provider to purchase a minimum of $50,000 of service per month
through September 2000.

F-14
<PAGE>

At December 31, 1998, the Company has contracted with a communications
service provider to purchase a minimum of $12,000 of service per month
through July 15, 2000 and $11,000 per month through August 31, 2002.

During November 1999, the Company entered into an agreement with a
communications service provider to purchase a minimum of $50,000 of service
per month for the next two years.

Line of Credit

The Company entered into an agreement with Silicon Valley Bank ("Silicon")
on September 1, 1998 for a credit line totaling $500,000 bearing interest
at Silicon's prime rate plus 1.25%. The total amount was borrowed and
subsequently repaid prior to December 31, 1998. The agreement expired on
April 22, 1999. Borrowings were secured by a security interest in certain
of the Company's assets.

Employee Benefit Plan

In 1997, the Company adopted a 401(k) defined contribution plan.
Participants may elect to defer 15% of compensation up to a maximum amount
determined annually pursuant to Internal Revenue Service regulations.

Legal Proceedings

The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. There are no pending legal proceedings to
which the Company is a party that management believes will have a material
adverse effect on the financial position, results of operations, or cash
flows of the Company. See Note 10.

8. INCOME TAXES

On July 15, 1997, the Company recorded a deferred tax liability in the
amount of $73,487 which represents the Predecessor Company's tax
consequences of temporary differences in reporting items for financial
statement and income tax purposes at the time of the Reorganization
(Note 1).

The income tax effects of temporary differences between the carrying
amounts of assets and liabilities in the financial statements and their
respective income tax bases, which give rise to deferred tax assets and
liabilities, as of December 31 are as follows:

<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards...................... $448,025 $1,737,863
Allowance for doubtful accounts....................... 3,779 30,218
Other................................................. 3,800 14,358
-------- ----------
Total deferred income tax assets..................... 455,604 1,782,439
Deferred income tax liabilities:
Depreciation.......................................... (144,838) (191,419)
Valuation allowance.................................... (310,766) (1,591,020)
-------- ----------
Net deferred income taxes............................. $ -- $ --
======== ==========
</TABLE>

F-15
<PAGE>

The Company has provided a valuation allowance against its net deferred tax
assets, as management has concluded that it is not more likely than not
that such assets will be realized. The Company had approximately $4.6
million of federal and state net operating loss carryforwards at December
31, 1998. The net operating loss carryforwards begin to expire in the year
2017 if not previously utilized. Utilization of existing net operating loss
carryforwards may be limited in future years if significant ownership
changes were to occur.

The components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December
1997 31, 1998
------------ -----------
<S> <C> <C>
Current............................................ $ -- $ --
Deferred........................................... (310,766) (1,280,254)
Increase in valuation allowance.................... 310,766 1,280,254
--------- -----------
Total income tax benefit.......................... $ -- $ --
========= ===========
</TABLE>

The differences between the federal statutory income tax rate and the
Company's effective rate are as follows:

<TABLE>
<CAPTION>
5 1/2 Months Ended Year Ended
December 31, December 31,
1997 1998
------------------- ------------
<S> <C> <C>
Federal statutory rate.................... (34)% (34)%
State income taxes, net of federal
benefit.................................. (3) (4)
Permanent differences..................... 5 3
Increase in valuation allowance........... 32 35
--- ---
Effective rate............................ -- % -- %
=== ===
</TABLE>

9.ACQUISITION

On December 8, 1998, the Company acquired certain assets of MTS
Communications, a provider of building-centric communications services in
California, for total consideration of $2,574,848 consisting of $1,904,398
in cash and the assumption of certain capital lease obligations with a fair
value of $670,450 (the "MTS Acquisition"). The acquisition was accounted
for as a purchase and the results of operations of MTS Communications have
been included since the date of acquisition in the accompanying statements
of operations. The purchase price was allocated as follows:

<TABLE>
<S> <C>
Property and equipment........................................... $2,060,000
Tenant contracts................................................. 430,000
Cost in excess of net assets acquired............................ 84,848
----------
$2,574,848
==========
</TABLE>

Prior to the MTS Acquisition, the Company advanced $200,000 to MTS
Communications in the form of a secured 8% promissory note to fund working
capital requirements of MTS Communications. The note was due March 8, 1999
and was repaid in full.

The following unaudited pro forma results of operations for the years ended
December 31, 1997 and 1998 assumes that the acquisition of MTS
Communications occurred on January 1, 1997. The pro forma information is
presented for informational purposes only and may not be

F-16
<PAGE>

indicative of the actual results had the acquisition occurred on the
assumed date, nor is the information necessarily indicative of future
results of operations.

<TABLE>
<CAPTION>
1997 1998
----------- -----------
(unaudited)
<S> <C> <C>
Revenues.......................................... $ 2,325,428 $ 4,485,236
=========== ===========
Net loss.......................................... $(2,006,128) $(3,874,625)
=========== ===========
Net loss per common share......................... $ (.76) $ (1.47)
=========== ===========
</TABLE>

10.EVENTS SUBSEQUENT TO YEAR-END

Changes in Capital Structure

In October 1999, the Company increased the authorized number of shares of
its common stock and preferred stock to 49,023,324 and 7,687,704,
respectively. In October 1999, the Company designated an additional
6,375 shares as Series B preferred stock and designated 3,977,763 shares as
Series C preferred stock. In December 1999, the Company increased the
authorized number of its common stock and preferred stock to 58,620,758 and
7,920,467, respectively. Additionally, in December 1999, the Company
designated an additional 232,763 shares as Series C preferred stock.

The Series C preferred stock has a redemption price of $19 per share,
together with accrued and unpaid dividends thereon. Redemption of the
Series C preferred stock is mandatory beginning October 8, 2005, at which
time up to one-third of the outstanding shares are to be redeemed on each
of the sixth, seventh, and eighth anniversaries of October 8, 1999. In the
event of any liquidation, dissolution, or winding up of the affairs of the
Company, holders of Series C preferred stock shall be paid the redemption
price, plus all accrued dividends, before any payment to other
stockholders. The Series C preferred stock is convertible into common stock
at the discretion of the holder. The Series C preferred stock automatically
converts into common stock upon the completion of an initial public
offering of the Company's common stock with proceeds in excess of
$50,000,000 and an adjusted per share price of at least $8.44. Under these
conversion terms, the Series C preferred stock converts 4.5 for 1 into
common stock.

Sale of Preferred Stock

In February 1999, the Company sold 6,375 shares of its Series B preferred
stock to two employees of the Company for $8 per share for total proceeds
of $51,000.

In October 1999, the Company completed the sale of 2,819,868 shares of its
Series C preferred stock to existing and new third party investors for $19
per share for total proceeds of approximately $53.6 million.

In November 1999 and December 1999, the Company completed the sale of
1,157,895 and 184,211 shares, respectively, of its Series C preferred stock
to certain property owners and operators for $19 per share for total
proceeds of $25.5 million.

In accordance with EITF 98-5, the Company will record a charge in the
quarter ending December 31, 1999 of approximately $79.1 million to reflect
the beneficial conversion features related to the shares of Series C
preferred stock.

F-17
<PAGE>

Stock Option Grants

For the period from January 1, 1999 through October 7, 1999, the Company
granted 1,620,000 common stock options to employees with an exercise price
of $1.78 per share. For the period from October 8, 1999 through December 2,
1999, the Company granted 1,791,000 common stock options to employees with
an exercise price of $2.53 per share. For the period from December 3, 1999
through December 31, 1999, the Company granted 90,000 common stock options
to employees with exercise prices which will be equal to the initial public
offering price.

During the year ended December 31, 1999, the Company will record deferred
compensation expense of approximately $26.3 million for the difference
between the exercise prices of options granted to employees and fair market
value at the dates of grant. Deferred compensation will be amortized over
the applicable vesting period, which is generally five years.

In December 1999, the Company granted 25,655 options to purchase common
stock, with an exercise price of $2.53 per share, to two consultants for
prior services. The options vested immediately and the consultants
exercised these options prior to December 31, 1999. The Company will record
an expense of approximately $300,000 related to this grant.

Warrants

In November and December 1999, the Company entered into master license
agreements and stock warrant agreements with several property owners and
operators. Under the terms of these agreements, the Company issued warrants
to purchase up to an aggregate of approximately 11 million shares of the
Company's common stock at an exercise price of $4.22 per share. The exact
number of shares of common stock underlying the warrants, which is based on
the gross leasable area of the building set forth in the master license
agreements, will not be determined until the completion of due diligence
and the finalization of the building schedules. These warrants are
exercisable for periods of five to ten years. The Company expects that the
actual number of shares underlying these warrants will not be adjusted
significantly. The measurement date for valuing the warrants will be the
date(s) on which the property owners or operators effectively complete
their performance requirements.

Accounting for License Inducements

Management estimates that the aggregate amount of license inducement
expense related to current license agreements will approximate $150 million
and will be amortized over the terms of the applicable license agreements,
which are expected to be 10 years. The actual expense related to license
inducements may differ from management's estimate depending on the ultimate
valuation of the Company's stock and such difference may be material.

Investment in SiteConnect, Inc.

In November 1999, the Company signed a binding letter of intent (the
"Agreement") to acquire 254,125 shares of common stock, representing less
than 20%, of SiteConnect, Inc. ("SiteConnect"), a Seattle-based provider of
communications services, for consideration of 281,250 shares of the
Company's common stock. The Agreement contains an option for the Company to
purchase the remaining outstanding common stock of SiteConnect for
approximately $5 million. The option is exercisable at any time prior to
the first anniversary of the closing date of the initial investment. The
option is payable in common stock of the

F-18
<PAGE>

Company valued at the per share price as sold in the Company's proposed
initial public offering.

Proposed Initial Public Offering

The Company is in the process of registering shares of its common stock
with the Securities and Exchange Commission. There can be no assurance that
this offering will be completed. The Company may have a contingent
liability arising out of a possible violation of Section 5 of the
Securities Act of 1933 in connection with the existence of a hyperlink on
its website to an audio announcement regarding this offering. The Company
does not believe that the existence of this hyperlink caused a violation of
Section 5, and if any such claim were asserted, the Company would contest
the matter vigorously. Accordingly, the Company does not believe that its
exposure, if any, resulting from the existence of this hyperlink would be
material to its results of operations or financial condition.

2000 Stock Option Plan

On December 21, 1999, the Company's board of directors adopted the 2000
stock option plan (the "2000 Plan") which was approved subsequently by the
stockholders on December 23, 1999. All officers, directors, and key persons
are eligible to participate in the plan, subject to the discretion of a
committee appointed by the board of directors. The board of directors
reserved a combined 11.7 million shares for issuance under the 1997 Plan
and the 2000 Plan.

Shareholder Rights Plan

In December 1999, the Company approved a stockholder rights plan. This plan
entitles the stockholders to rights to acquire additional shares of the
Company's common stock when a third party acquires 15% of the Company's
common stock or commences or announces its intent to commence a tender
offer for at least 15% of the Company's common stock. This plan could
delay, deter or prevent a change of control.

Employee Stock Purchase Plan

In December 1999, the board of directors and stockholders approved an
employee stock purchase plan. Up to 900,000 shares of common stock may be
issued under this plan.

Stock Split

In February 2000, a committee appointed by the Company's board of directors
approved a 4.5-for-1 stock split with respect to its outstanding common
stock. All shares of common stock and per share amounts in the accompanying
financial statements have been retroactively adjusted to reflect this
split.

Pro Forma Stockholders' Equity and Loss Per Share (Unaudited)

Simultaneous with the Company's initial public offering and pursuant to the
contractual agreements with the preferred stockholders, all shares of the
Company's Series A, Series B, and Series B-1, and Series C preferred stock
will be converted into 32,815,359 shares of common stock. Pro forma
stockholders' equity at September 30, 1999 after giving effect to the
conversion of the Series A, Series B and Series B-1 preferred stock would
be $9,710,187. Had the conversion of the Series A and Series B preferred
stock occurred at the of time of the sale of the preferred stock, net loss
per share would have been $(.38) for the year ended December 31, 1998 and
$(.49) for the nine months ended September 30, 1999.

F-19
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To MTS Communications Company, Inc.:

We have audited the accompanying statements of operations of MTS
COMMUNICATIONS COMPANY, INC. (a California S Corporation) for the year ended
December 31, 1997 and for the period from January 1, 1998 to December 7, 1998
and the related statements of stockholders' equity (deficit) and cash flows.
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 results of operations and cash flows of MTS
Communications Company, Inc. for the year ended December 31, 1997 and for the
period from January 1, 1998 to December 7, 1998 in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Atlanta, Georgia
November 29, 1999

F-20
<PAGE>

MTS COMMUNICATIONS COMPANY, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
January 1,
Year Ended 1998 to
December 31, December
1997 7, 1998
------------ ----------
<S> <C> <C>
OPERATING REVENUES.................................... $1,616,026 $1,933,794
---------- ----------
OPERATING EXPENSES:
Cost of services.................................... 690,631 756,646
Selling and marketing............................... 108,703 103,422
General and administrative.......................... 1,127,314 940,769
Depreciation and amortization....................... 154,187 193,271
---------- ----------
Total operating expenses.......................... 2,080,835 1,994,108
---------- ----------
Operating loss.................................... (464,809) (60,314)
INTEREST EXPENSE, net................................. (63,785) (184,813)
---------- ----------
NET LOSS.............................................. $ (528,594) $ (245,127)
========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-21
<PAGE>

MTS COMMUNICATIONS COMPANY, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Common Stock
----------------
Total
Stockholders'
Accumulated Equity
Shares Amount Deficit (Deficit)
------- -------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996......... 200,000 $450,000 $ (355,841) $ 94,159
Transfer of equity interests
(Note 5)........................ 0 264,000 0 264,000
Net loss......................... 0 0 (528,594) (528,594)
------- -------- ----------- ----------
BALANCE, December 31, 1997......... 200,000 714,000 (884,435) (170,435)
Net loss......................... 0 0 (245,127) (245,127)
------- -------- ----------- ----------
BALANCE, December 7, 1998.......... 200,000 $714,000 $(1,129,562) $ (415,562)
======= ======== =========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-22
<PAGE>

MTS COMMUNICATIONS COMPANY, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended January 1, 1998
December 31, to December 7,
1997 1998
------------ ---------------

<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $(528,594) $(245,127)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 154,187 193,271
Amortization of debt discount................. 8,000 88,000
Noncash compensation expense.................. 168,000 0
Changes in operating assets and liabilities:
Accounts receivable......................... (13,682) (212,440)
Interest receivable......................... (16,511) (17,160)
Other assets................................ (14,096) (6,340)
Accounts payable............................ (27,241) 58,911
Accrued interest............................ 14,383 14,582
Unearned revenue............................ 11,147 (18,089)
Accrued expenses............................ 302,488 49,010
--------- ---------
Total adjustments......................... 586,675 149,745
--------- ---------
Net cash provided by (used in) operating
activities............................... 58,081 (95,382)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............. (93,161) (50,266)
Loans to employees.............................. (44,151) (20,000)
Collection on employee loans receivable......... 0 12,000
--------- ---------
Net cash used in investing activities..... (137,312) (58,266)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt and short-term
borrowings..................................... (185,959) (277,206)
Proceeds from the issuance of debt and short-
term borrowings................................ 395,147 549,228
Principal payments on capital lease
obligations.................................... (110,279) (138,345)
--------- ---------
Net cash provided by financing
activities............................... 98,909 133,677
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 19,678 (19,971)
CASH AND CASH EQUIVALENTS, beginning of period.... 293 19,971
--------- ---------
CASH AND CASH EQUIVALENTS, end of period.......... $ 19,971 $ 0
========= =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.......... $ 51,914 $ 59,852
========= =========
Property and equipment acquired under capital
lease.......................................... $ 200,031 $ 365,180
========= =========
Property and equipment acquired under issuance
of note payable................................ $ 0 $ 85,000
========= =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-23
<PAGE>

MTS COMMUNICATIONS COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS

For the Year Ended December 31, 1997 and
for the Period from January 1, 1998 to December 7, 1998

1. NATURE OF BUSINESS

MTS Communications Company, Inc. ("MTS Communications," or the "Company")
provides building-centric communications services in the greater Los
Angeles, California, area. The Company was incorporated as an S corporation
in California on April 20, 1992. On December 8, 1998, Cypress
Communications, Inc. acquired certain assets of the Company (Note 6).

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements are prepared on the accrual basis of
accounting.

Accounting Estimates

Revenue recognition

Revenues are recognized in the month in which services are provided.
Recurring charges for future access services are billed one month in
advance and are recorded as unearned revenue until the month the service is
provided. Revenues include installation fees. To date, the revenues from
installations have not exceeded the related direct costs by a significant
amount. All expenses related to services provided are recognized as
incurred.

Cash Equivalents

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

Depreciation expense

Depreciation is computed using the straight-line method over the estimated
useful lives of the assets (three to seven years). Leasehold improvements
are depreciated over the lesser of the lease term or the assets' useful
lives. Maintenance and repairs are charged to expense as incurred. Gains or
losses on disposal of property and equipment are recognized in operations
in the year of disposition.

Income Taxes

The Company is an S corporation and is treated as a partnership for federal
and state income tax purposes. The taxable income or loss of the Company is
attributed directly to its shareholders.

F-24
<PAGE>

MTS COMMUNICATIONS COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Accordingly, no provision for any federal or state income taxes has been
made in the accompanying statements of operations.

Sources of Supply

All of the Company's network components are manufactured by large,
recognized telecommunications manufacturers who distribute their products
through multiple distribution channels. The Company currently uses only one
supplier for many components of its telecommunication systems in order to
receive more favorable terms and conditions. If the supplier is unable to
meet the Company's needs as it expands its systems infrastructure, then
delays and increased costs in the expansion could result while the Company
arranged alternative suppliers, which would adversely affect operating
results.

3.RELATED-PARTY TRANSACTIONS

For the year ended December 31, 1997 and the period from January 1, 1998 to
December 7, 1998, the Company received advances of $171,147 and $214,228
from several employees and affiliates of the Company to fund working
capital requirements. Of these amounts, $118,239 and $212,026 were repaid
during the year ended December 31, 1997 and the period from January 1, 1998
to December 7, 1998.

For the year ended December 31, 1997 and the period from January 1, 1998 to
December 7, 1998, the Company made loans of $44,151 and $20,000 to two of
the Company's officers. Of these amounts, $12,000 was repaid during the
period from January 1, 1998 to December 7, 1998.

4.COMMITMENTS AND CONTINGENCIES

Leases

The Company is obligated under several operating and capital lease
agreements, primarily for network equipment and office space. Future annual
minimum rental payments under these leases as of December 7, 1998 are as
follows:

<TABLE>
<CAPTION>
Operating Capital
---------- --------
<S> <C> <C>
1999.................................................. $ 162,881 $228,261
2000.................................................. 169,396 196,549
2001.................................................. 176,172 135,233
2002.................................................. 183,219 94,921
2003.................................................. 190,547 32,976
Thereafter............................................ 147,155 0
---------- --------
$1,029,370 $687,940
========== ========
</TABLE>

Rent expense was $148,633 for the year ended December 31, 1997 and $145,037
for the period from January 1, 1998 to December 7, 1998.

Legal Proceedings

The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. In the opinion of management, the
amount or ultimate liability with respect to these

F-25
<PAGE>

MTS COMMUNICATIONS COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

actions will not materially affect the Company's financial position, cash
flows or results of operations.

5. CAPITAL TRANSACTIONS

On December 15, 1997, the principal stockholder of the Company transferred
an aggregate 45,833 shares of the Company's common stock to the Company's
other two stockholders in consideration for services provided to MTS
Communications. These transactions were accounted for in the accompanying
financial statements in accordance with the Securities and Exchange
Commission Staff Accounting Bulletin No. 79. The first stockholder received
16,666 shares (or 8% additional equity interest) in consideration for
guaranteeing a line of credit on behalf of MTS Communications. The fair
value of these shares was recorded as debt issuance costs in the amount of
$96,000 related to the line of credit based on the estimated fair value of
these shares at the date of issuance. The discount was amortized to
interest expense over the term of the line of credit, which was one year.
The second stockholder received 29,167 shares (or 14% additional equity
interest) in consideration for services to the Company. The estimated fair
value of these shares at the date of issuance was recorded as compensation
expense in the amount of $168,000 in the accompanying statements of
operations for the year ended December 31, 1997.

6.ACQUISITION OF THE COMPANY

On December 8, 1998, certain assets of the Company were acquired by Cypress
Communications, Inc. ("Cypress"), a provider of building-centric
communications services, for total consideration of $2,574,848.

7.SUBSEQUENT EVENTS

In September 1999, an arbitrator ordered MTS Communications to pay
approximately $100,000 to a third party for disputed services received by
the Company in connection with its acquisition by Cypress. The Company
intends to petition the California Superior Court to vacate the arbitration
award. The Company has not accrued any liability related to this claim.

F-26
<PAGE>

UNAUDITED PRO FORMA FINANCIAL DATA

As discussed in Note 9 to the financial statements of Cypress
Communications, Inc. (the "Company"), on December 8, 1998, the Company
purchased substantially all of the assets of MTS Communications for total
consideration valued at $2,574,848.

The pro forma adjustments to the statements of operations for the year ended
December 31, 1998 reflect the acquisition of MTS Communications as if the
acquisition occurred on January 1, 1998.

The pro forma financial information does not purport to represent what the
Company's results of operations would have been if this acquisition would have
occurred on January 1, 1998, nor does it purport to indicate the future results
of operations of the Company. The pro forma adjustments are based on currently
available information and certain assumptions that management believes to be
reasonable.

F-27
<PAGE>

CYPRESS COMMUNICATIONS, INC.

PRO FORMA STATEMENT OF OPERATIONS

For the Year ended December 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Cypress MTS Adjustments(a) Pro Forma
----------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,417,816 $2,067,420 $ -- $ 4,485,236
Operating Expenses:
Cost of services........ 1,539,846 890,272 -- 2,430,118
Sales and marketing..... 1,470,107 103,422 -- 1,573,529
General and
administrative......... 2,436,221 940,769 -- 3,376,990
Amortization of deferred
compensation........... 117,593 -- -- 117,593
Depreciation and
amortization........... 576,659 193,271 139,167 909,097
----------- ---------- --------- -----------
Total operating
expenses............. 6,140,426 2,127,734 139,167 8,407,327
----------- ---------- --------- -----------
Operating loss............ (3,722,610) (60,314) (139,167) (3,922,091)
Interest income (expense),
net...................... 232,279 (184,813) 47,466
----------- ---------- --------- -----------
Loss before income taxes.. (3,490,331) (245,127) (139,167) (3,874,625)
Income tax benefit........ -- -- -- --
----------- ---------- --------- -----------
Net loss.................. $(3,490,331) $(3,874,625)
=========== ===========

Net loss per common share:
Basic and diluted....... $ (1.32) $ (1.47)
=========== ===========
Weighted average number of
common
shares outstanding:
Basic and diluted....... 2,636,906 2,636,906
=========== ===========
</TABLE>

- --------
(a) Reflects additional amortization of intangibles related to goodwill of
$84,848 and tenant contracts valued at $430,000 recorded in connection with
the acquisition of MTS Communications and being amortized over ten years
and three years, respectively.

F-28
<PAGE>

INSIDE BACK COVER

[Graphic illustration of the Registrant's In-Building Network]
<PAGE>

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

Prospective investors may rely only on the information contained in this pro-
spectus. Neither Cypress Communications, Inc. nor any underwriter has autho-
rized anyone to provide prospective investors with different or additional in-
formation. This prospectus is not an offer to sell nor is it seeking an offer
to buy these securities in any jurisdiction where such offer or sale is not
permitted. The information contained in this prospectus is correct only as of
the date of this prospectus, regardless of the time of delivery of this pro-
spectus or any sale of these securities.

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

TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 31
Management............................................................... 52
Principal Stockholders................................................... 62
Certain Relationships and Related Transactions........................... 65
Description of Capital Stock............................................. 68
Shares Eligible for Future Sale.......................................... 74
Underwriting............................................................. 76
Legal Matters............................................................ 79
Experts.................................................................. 79
Additional Information................................................... 79
Where You Can Find Additional Information................................ 79
Index to Financial Statements............................................ F-1
</TABLE>

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

Until March 5, 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.

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

[CYPRESS LOGO APPEARS HERE]

10,000,000 Shares

Common Stock

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

PROSPECTUS

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

Bear, Stearns & Co. Inc.

Donaldson, Lufkin & Jenrette

J.C. Bradford & Co.

February 9, 2000

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