CAPROCK COMMUNICATIONS CORP, S-1, 1999-03-19

CAPROCK COMMUNICATIONS CORP
S-1, 1999-03-19
COMMUNICATIONS SERVICES, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1999

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
CAPROCK COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
TEXAS 1731 75-2765572
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>

CAPROCK COMMUNICATIONS CORP.
15601 DALLAS PARKWAY, SUITE 700
DALLAS, TX 75248
(972) 982-9500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
----------------------
MR. JERE W. THOMPSON, JR.
CHIEF EXECUTIVE OFFICER
CAPROCK COMMUNICATIONS CORP.
15601 DALLAS PARKWAY, SUITE 700
DALLAS, TX 75248
(972) 982-9500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------

Copies to:

<TABLE>
<S> <C>
A. MICHAEL HAINSFURTHER WILLIAM F. SCHWITTER
MARK A. KOPIDLANSKY KNUTE J. SALHUS
MUNSCH HARDT KOPF & HARR, P.C. PAUL, HASTINGS, JANOFSKY & WALKER LLP
1445 ROSS AVENUE, 4000 FOUNTAIN PLACE 399 PARK AVENUE
DALLAS, TEXAS 75202-2790 NEW YORK, NEW YORK 10022
(214) 855-7500 (212) 318-6000
</TABLE>

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
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TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE PRICE REGISTRATION FEE
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Common Stock, $.01 par value....... 7,475,000 shares $17.19 $128,495,250 $35,721.68
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</TABLE>

The "Proposed Maximum Offering Price" and the "Price Per Share" includes
975,000 shares subject to the Underwriters' over-allotment option. All figures
used above are estimates solely for the purpose of calculating the registration
fee pursuant to Rule 457(c) using the average of the high and low prices on
March 18, 1999 of the registrant's common stock as reported on the Nasdaq
National Market System.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 19, 1999

PROSPECTUS

6,500,000 SHARES
[LOGO]

CAPROCK COMMUNICATIONS CORP.

COMMON STOCK
----------------------
CapRock Communications Corp. is selling 5,000,000 shares of its Common
Stock and certain of our shareholders are selling collectively 1,500,000 shares
of their Common Stock. We will not receive any proceeds from the sale of shares
by the selling shareholders. Our Common Stock is traded on the Nasdaq National
Market under the symbol "CPRK." The last reported sales price of the Common
Stock on the Nasdaq National Market on March 18, 1999 was $16 7/8 per share.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS, WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
----------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price...................................... $ $
Underwriting Discount...................................... $ $
Proceeds, before expenses, to CapRock...................... $ $
Proceeds, before expenses, to the selling shareholders..... $ $
</TABLE>

The selling shareholders have granted the Underwriters the right to
purchase up to an additional 975,000 shares of Common Stock at the public
offering price, less the underwriting discount, to cover over-allotments. The
Underwriters are offering the shares when, as and if they purchase them. They
have the right to reject orders from potential investors in whole or in part.
The Common Stock will be ready for delivery to investors on or about
, 1999.

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

MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
----------------------
The date of this Prospectus is , 1999
<PAGE> 3

INSIDE COVER

[MAP OF SOUTHWEST REGION SHOWING EXISTING AND PROPOSED NETWORK]
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements.................................. 2
Summary..................................................... 4
Risk Factors................................................ 8
Use Of Proceeds............................................. 17
Market Information And Dividend Policy...................... 18
Capitalization.............................................. 19
Selected Consolidated Financial Data........................ 20
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations................................. 22
Business.................................................... 33
Regulation And Licenses..................................... 47
Management.................................................. 56
Certain Transactions........................................ 65
Principal And Selling Shareholders.......................... 67
Description Of Certain Indebtedness......................... 69
Description Of Capital Stock................................ 70
Shares Eligible For Future Sale............................. 71
Underwriting................................................ 73
Legal Matters............................................... 75
Experts..................................................... 75
Where You Can Find More Information......................... 75
Index To Consolidated Financial Statements.................. F-1
</TABLE>

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

FORWARD-LOOKING STATEMENTS

This Prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about CapRock, including:

- our anticipated growth strategies,

- anticipated trends in our business, including trends in technology and
the growth of communication network products and services,

- future expenditures for capital projects, and

- our ability to continue to control costs and maintain quality.

These statements may be found in the sections of this Prospectus entitled
"Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business" and
in this Prospectus generally. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including all the risks discussed in "Risk Factors" and elsewhere in
this Prospectus.

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

In making a decision about buying these securities, you should rely only on
the information contained in this Prospectus. We have not, and the Underwriters
have not, authorized anyone to provide you with information that is different
from the information contained in this Prospectus. This Prospectus is intended
to offer no securities other than the Common Stock of CapRock. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and the Underwriters are not, making an

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<PAGE> 5

offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
Prospectus is accurate as of the date on the front cover of this Prospectus
only, regardless of the time of delivery of this Prospectus or any sale of these
securities. Our business, financial condition, results of operations and
prospects may have changed since that date.
----------------------

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

We are a Texas corporation. Our principal executive offices are located at
15601 Dallas Parkway, Suite 700, Dallas, Texas 75248, and our telephone number
is (972) 982-9500. We maintain a world wide web site at www.caprock.com. The
reference to our world wide web address does not constitute incorporation by
reference of the information contained at the site. In this Prospectus, the
"Company," "CapRock," "we," "us," and "our" refer to CapRock Communications
Corp. and its subsidiaries, including IWL Communications, Inc. ("IWL
Communications"), CapRock Telecommunications Corp. ("CapRock
Telecommunications"), CapRock Fiber Network Ltd. ("CapRock Fiber"), CapRock
Network Services, L.P., CapRock Telecommunications Leasing Corp. and CapRock
Design Services, L.P., unless the context otherwise requires. In addition,
"Common Stock" refers to our common stock, $.01 par value per share. See
"Description of Capital Stock." Unless otherwise stated, all information
contained in this Prospectus assumes no exercise of the Underwriters'
over-allotment option to purchase up to 975,000 shares of Common Stock. CapRock
and CapRock Communications are trademarks of CapRock. All other trade names or
trademarks appearing in this Prospectus are the property of their respective
holders.

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<PAGE> 6

SUMMARY

This summary highlights some information contained in this Prospectus and
may not contain all the information that is important to you. You should read
this summary together with the more detailed information and our financial
statements and notes appearing elsewhere in this Prospectus. This summary is not
complete and may not contain all of the information that you should consider
before investing in our Common Stock. You should carefully consider, among other
things, the matters shown in "Risk Factors."

OUR BUSINESS

We own and operate a scalable long-haul fiber network which upon completion
is expected to cover approximately 5,500 route miles throughout the Southwest
region, which includes Texas, Louisiana, Arkansas, Oklahoma and New Mexico. This
fiber network supports the voice, data, bandwidth and dark fiber services we
provide to our carrier and retail customers. Our 1998 revenues were $121.8
million and EBITDA (exclusive of merger related expenses of $2.3 million) was
$15.0 million. Over the past five years, our revenues have grown at a compound
annual growth rate of 55%.

We intend to be the premier provider of carriers' carrier services and the
leading facilities-based integrated communications provider in the Southwest
region. To measure our progress, we classify our revenues in three categories:
carriers' carrier, integrated services and systems services. Our carriers'
carrier revenues include domestic and international long distance, bandwidth and
dark fiber services sold to telecommunications carriers and other wholesale
customers. Currently, we have over 100 carrier customers, including AT&T, MCI
WorldCom, Sprint Corporation and Qwest Communications, as well as many regional
independent companies such as Century Telephone Enterprises, Inc. and Lufkin
Conroe Telephone. Our integrated services revenues reflect our local, long
distance, Internet, data and private line products provided to over 5,000 small
and medium-sized businesses on a single bundled bill. Lastly, our systems
services revenues represent the voice and data systems and services we provide
primarily to the oil and gas industry offshore in and along the Gulf of Mexico.

We are focused on the Southwest region because of this region's size and
attractive growth prospects and because we believe that as a region it is
currently underserved by other major telecommunications providers. We believe
our ability to offer integrated telecommunication services along with superior
customer service will be particularly attractive to small and medium-sized
businesses that desire simple bundled plans from a single provider. Many of the
smaller markets within our region do not have telecommunications alternatives to
the incumbent local telephone company. We also believe that a regional focus
enables us to achieve certain economies of scale due to the concentrated
deployment of network assets, our sales and marketing efforts and our
management. By maximizing the amount of traffic that remains on our network, we
can maximize our gross profit margins and returns on invested capital.

OUR STRATEGY

Our business objectives are to establish ourselves as the premier carriers'
carrier and to be the dominant integrated communications provider in the
Southwest region. To achieve these objectives, we intend to:

- build the region's most advanced, scalable and extensive fiber optic
network,

- create a strategic, regionally focused asset,

- pursue a cost-effective network build,

- focus on high value-added local switching infrastructure,

- provide bundled communications solutions to small and medium-sized
businesses,

- pursue acquisitions and strategic alliances,

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- build market share through personalized sales and customer service, and

- leverage our advanced back office systems.

OUR NETWORK

By the end of the year 2000, we intend to build out our fiber optic network
to approximately 5,500 route miles throughout the Southwest region. We began
constructing and operating a regional fiber network in 1993. At the end of 1998,
the first 800 route miles of our scalable, regional fiber network were
substantially completed, linking San Antonio, Laredo, McAllen, Harlingen, Corpus
Christi, Victoria and Houston, Texas. Over the past two years, we have met
substantially all of our milestones with respect to our construction schedules
and budgets. We currently have approximately 1,870 route miles under
construction and expect to have approximately 3,000 route miles completed by the
end of 1999, linking south Texas, San Antonio, Houston, Austin, Waco, Dallas,
Fort Worth, Amarillo, Oklahoma City, Tulsa, Little Rock, Monroe and New Orleans.
We expect that the remainder of the 5,500 mile fiber network will be completed
by the end of the year 2000. Given the increased demand for our fiber-based
telecommunications services over the past year, we increased our planned network
build out from approximately 4,300 route miles to approximately 5,500 route
miles. We also increased the number of conduits being deployed along each route
from three to four.

In addition to our extensive fiber network, our network facilities also
include seven local and long distance switches (six which we own and one which
we manage), with another four local switches scheduled to be installed in the
second and third quarters of 1999. We plan to colocate our equipment in 20
central offices with incumbent local telephone companies (13 of which are
currently in process) for the provision of local services using unbundled
network elements by the end of 1999. We also plan to purchase and deploy in the
second and third quarters of 1999 ten ATM data switches to support our Internet,
frame relay and ATM services.

OUR ADDRESS

The mailing address of our principal executive offices is 15601 Dallas
Parkway, Suite 700, Dallas, Texas 75248 and our telephone number at that address
is (972) 982-9500.

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THE OFFERING

Common Stock offered:
By CapRock............... 5,000,000 shares
By the selling
shareholders............... 1,500,000 shares
Total............ 6,500,000 shares

Common Stock to be
outstanding after the
offering(1).............. 33,939,627 shares

Use of proceeds............ The net proceeds received by CapRock from this
offering (after deducting the underwriting
discounts and commissions and estimated offering
expenses) will be approximately $78,000,000. We
intend to use these net proceeds to fund the
development and growth of our business and for
potential business acquisitions, working capital
and general corporate purposes.

Risk factors............... See "Risk Factors" and other information included
in this Prospectus for a discussion of factors you
should carefully consider before deciding to invest
in our Common Stock.

Nasdaq National Market
symbol..................... CPRK
- ---------------

(1) If the Underwriters exercise the option granted to them in this offering to
purchase additional shares of our Common Stock to cover over-allotments,
then the total number of shares to be offered would be increased by up to
975,000 shares, all of which would be sold by the selling shareholders. The
number of shares outstanding excludes 2,425,602 shares of Common Stock
reserved for issuance under our employee and director stock option plans and
other employee benefit plans.

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<PAGE> 9

SUMMARY CONSOLIDATED FINANCIAL DATA

The following table sets forth our summary consolidated financial data as
of and for the years ended December 31, 1994, 1995, 1996, 1997 and 1998. Our
business combination among our predecessor companies was completed on August 26,
1998 and was accounted for as a pooling of interests. Accordingly, the
Consolidated Balance Sheets as of December 31, 1998 and the Consolidated
Statements of Operations, Stockholders' Equity and Comprehensive Income and Cash
Flows for each of the years in the three year period ended December 31, 1998
include the three predecessor companies (i.e., CapRock Telecommunications,
CapRock Fiber and IWL Communications) as though these entities were always part
of CapRock.

In May 1998, IWL Communications changed its fiscal year end to coincide
with the fiscal years of CapRock, CapRock Telecommunications and CapRock Fiber.
The Consolidated Statement of Operations for the year ended December 31, 1996
combines the operating activity of IWL Communications for the year ended June
30, 1996 with CapRock Telecommunications and CapRock Fiber operating activity
for the year ended December 31, 1996. The net income of IWL Communications in
the amount of approximately $260,000 for the six month period ended December 31,
1996 was excluded from the Consolidated Statement of Operations for the year
ended December 31, 1996 as a result of the non-conforming year ends for such
period. This amount was included as an adjustment to retained earnings in the
Consolidated Statement of Stockholders' Equity and Comprehensive Income in 1997.
The cash flow for IWL Communications for this six month period was added to the
1997 beginning balance in the Consolidated Statement of Cash Flows.

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $21,159 $29,407 $50,970 $ 75,349 $ 121,774
Cost of services and product resales........................ 15,295 21,185 39,357 52,471 83,221
------- ------- ------- -------- ---------
Gross profit........................................ 5,864 8,222 11,613 22,878 38,553
Operating expenses:
Selling, general and administrative....................... 5,565 7,326 8,983 14,074 23,528
Merger related expenses................................... -- -- -- -- 2,313
Depreciation and amortization............................. 631 1,186 1,536 3,346 4,887
------- ------- ------- -------- ---------
Total operating expenses............................ 6,196 8,512 10,519 17,420 30,728
------- ------- ------- -------- ---------
Operating income (loss)..................................... (332) (290) 1,094 5,458 7,825
Interest expense, net....................................... (224) (484) (585) (1,603) (6,441)
Other income................................................ 256 151 42 220 106
------- ------- ------- -------- ---------
Income (loss) before income taxes and extraordinary item.... (300) (623) 551 4,075 1,490
Income taxes................................................ 77 48 227 1,513 1,267
------- ------- ------- -------- ---------
Income (loss) before extraordinary item..................... (377) (671) 324 2,562 223
Extraordinary item -- extinguishment of debt................ -- 645 -- -- --
------- ------- ------- -------- ---------
Net income (loss)................................... $ (377) $ (26) $ 324 $ 2,562 $ 223
======= ======= ======= ======== =========
Pro forma net income (loss):
Income (loss) before income taxes and extraordinary
item.................................................... $ (300) $ (623) $ 551 $ 4,075 $ 1,490
Pro forma income taxes, as if CapRock Fiber was a C
corporation............................................. (131) (211) 143 1,475 1,267
------- ------- ------- -------- ---------
Income (loss) before extraordinary item................... (169) (412) 408 2,600 223
Extraordinary item, net of taxes.......................... -- 397 -- -- --
------- ------- ------- -------- ---------
Pro forma net income (loss)......................... $ (169) $ (15) $ 408 $ 2,600 $ 223
======= ======= ======= ======== =========
Historical and pro forma income (loss) per common share:
Income (loss) before extraordinary item................... $ (0.01) $ (.002) $ 0.01 $ 0.09 $ 0.01
Extraordinary item, net of tax............................ -- .002 -- -- --
------- ------- ------- -------- ---------
Basic and diluted......................................... $ (0.01) $ -- $ 0.01 $ 0.09 $ 0.01
======= ======= ======= ======== =========
Weighted average shares outstanding:
Basic..................................................... 25,715 25,926 27,146 27,984 28,899
Diluted................................................... 25,715 25,936 27,156 28,481 30,028
OPERATING DATA:
EBITDA(1)................................................... $ 299 $ 897 $ 2,630 $ 8,804 $ 15,025
Cash flows provided by (used in) operations................. (593) 827 781 4,112 7,125
Cash flows used in investing activities..................... (1,366) (1,919) (9,350) (12,987) (134,350)
Cash flows provided by financing activities................. 2,324 903 8,605 12,113 123,989
Capital expenditures........................................ 1,822 2,282 10,212 13,630 36,855
BALANCE SHEET DATA:
Working capital (deficit)................................... $ (441) $ (797) $(2,153) $ (305) $ 102,489
Property, plant and equipment, net.......................... 2,935 6,705 15,901 27,341 59,607
Total assets................................................ 9,596 13,198 28,522 49,389 191,966
Long-term debt and capital lease obligations................ 1,221 2,443 13,254 21,062 145,187
Stockholders' equity........................................ 2,829 3,552 3,886 14,086 16,062
</TABLE>

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

(1) EBITDA consists of earnings before interest, income taxes, depreciation and
amortization and merger related expenses. EBITDA is a measure commonly used
in the communications industry to analyze companies on the basis of
operating performance. EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered
as an alternative to net income as a measure of performance nor as an
alternative to cash flow as a measure of liquidity.

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RISK FACTORS

You should carefully consider the following risk factors and warnings
before making an investment decision. The risks described below are not the only
ones facing our company. Additional risks that we do not yet know of or that we
currently think are immaterial may also impair our business operations. If any
of the following risks actually occur, our business, financial condition, or
results of operations could be materially adversely affected. In such case, the
trading price of our Common Stock could decline, and you may lose all or part of
your investment. You should also refer to the other information shown in this
Prospectus, including our consolidated financial statements and the related
notes.

SUCCESSFUL COMPLETION AND UTILIZATION OF OUR FIBER NETWORK DEPENDS ON MANY
FACTORS

Meeting our business objectives will largely depend on our ability to
complete and efficiently utilize our fiber network. We must also achieve
substantial traffic volume over the expanded network in order to fully realize
the expected cash flows, operating efficiencies and cost benefits. The
successful completion of our fiber network depends upon many factors, some of
which are beyond our control, including:

- gaining access to sufficient capital,

- obtaining access to rights-of-way,

- the timely granting of franchise agreements,

- the availability of construction contractors,

- timing conflicts with other fiber projects which could increase
contractor costs,

- the pricing and availability of advanced fiber optic cable,

- construction delays, and

- cost overruns.

Although we believe that our cost estimates and build out schedule are
reasonable, we cannot assure you that the actual construction costs or time
required to complete the construction of our fiber network will match our
estimates.

INCREASING SUPPLY COULD EXCEED DEMAND AND REDUCE PRICES

We expect that prices for fiber, bandwidth and data services will decline
over the next several years as the deployment of new fiber networks add
substantially more supply than in the past. Additionally, technological advances
such as dense wave division multiplexing, high speed optical transmission
electronics and packet switching will substantially increase the transmission
capacity of fiber at much lower costs. We cannot assure you that we will be able
to achieve increased traffic volumes at acceptable prices and volumes to support
the expanded network. Our financial condition could be adversely affected if we
are unable to successfully market the capacity of our network or adequately
utilize our network capacity for internal traffic.

THE COMMUNICATIONS SERVICES INDUSTRY IS HIGHLY COMPETITIVE

The communications services industry is highly competitive, rapidly
evolving and subject to constant technological change. In particular, numerous
companies offer long distance, local, Internet, data and bandwidth services, and
we expect competition to increase in the future. We believe that existing
competitors will likely continue to expand their service offerings to appeal to
our existing or potential customers. Many of our existing competitors have
greater financial, personnel, brand recognition and other resources. Moreover,
we expect that new competitors will enter the communications market, and that
some of these new competitors may offer similar services to those offered by us.
In addition, the regulatory environment in which we operate is undergoing
significant change. As this regulatory environment evolves, changes may occur
that could create greater or unique competitive advantages for our current or
potential
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<PAGE> 11

competitors, or could make it easier for other new entrants to provide services.
Other providers currently offer one or more of each of the services we offer,
and many communications companies operate generally in the same long distance,
local, Internet, data and bandwidth service submarkets as we do. As a service
provider in the long distance communications industry, we compete with several
well established providers, as well as many other long distance providers with
less significant market share. See "Business -- Competition."

WE MAY NEED ADDITIONAL CAPITAL AFTER 2000 TO FINANCE FURTHER EXPANSION OF OUR
FIBER NETWORK

We estimate that our total capital requirements for 1999 will be
approximately $250 million and $160 million for 2000. We believe that proceeds
from this offering and a credit facility that we are currently negotiating,
together with cash flow from operations, borrowings, sales of dark fiber and
other sources of financing, will be sufficient to fund our capital expenditures
and working capital requirements through the end of the year 2000. However, we
cannot assure you that the anticipated sources of working capital will continue
to be available, that we have anticipated all future costs, or that our expected
financial resources will be sufficient to cover future expenditures. Our
revenues and costs are dependent upon factors that are not within our control,
such as regulatory changes, changes in technology, and increased competition.
Due to the uncertainty of these factors, actual revenues and costs may vary from
expected amounts, and such variations are likely to affect our future capital
requirements.

Working capital is expected to be used, among other purposes, for:

- expansion of our fiber network,

- installation of additional voice and data switches,

- colocating in the central offices of local telephone companies,

- opening new sales offices,

- recruiting and training new personnel, and

- additional and increased marketing expenses.

We may need additional capital after 2000 to finance further expansion of
our fiber and switching networks. The actual amount and timing of future capital
requirements may differ from our estimates, depending on the demand for
services, regulatory, technological and competitive developments, new market
developments and new opportunities. We may also require additional capital in
the future, or sooner than currently anticipated, for new business activities
related to our current and planned businesses or in the event we decide to make
additional acquisitions or enter into joint ventures and strategic alliances.
Sources of additional capital may include cash flow from operations, public and
private equity, debt financings, vendor financings and sales of dark fiber. If
we fail to generate or raise enough capital, some or all of our future expansion
plans may be delayed or abandoned, which could have a material adverse effect on
our company.

WE HAVE SIGNIFICANT INDEBTEDNESS AND INTEREST PAYMENT OBLIGATIONS

We are highly leveraged and have a significant amount of debt outstanding.
At December 31, 1998, we had approximately $145.2 million of long-term debt, net
of $4.8 million of unamortized debt issuance costs, and our debt-to-equity ratio
was approximately 9 to 1. See "Capitalization." This degree of leverage may have
important consequences to our shareholders, such as limiting our ability to
finance our future operations, to compete effectively against better capitalized
companies, to be flexible in planning for and reacting to changes in our
business, to withstand downturns in our business or the economy generally, and
to pursue business opportunities.

Our ability to pay the principal and interest on our debt will depend upon
our future performance and the successful implementation of our business
strategy, which is subject to several uncertainties, many of which are beyond
our control. We cannot assure you that we will have enough cash flow in the
future to
9
<PAGE> 12

let us meet our anticipated debt service requirements, including with respect to
our senior notes in the aggregate principal amount of $150,000,000 that we
issued in 1998. Failure to generate sufficient cash flow may impair our ability
to obtain additional equity or debt financing or to meet our debt service
requirements, including the payment of principal and interest on our senior
notes. In such circumstances, we may be required to renegotiate the terms of our
long-term debt or to refinance all or a portion of our long-term debt. We cannot
assure you that we would be able to renegotiate successfully those terms or
refinance our debt when required or that the terms of the refinancing or of any
new financings would be acceptable to management. If we were unable to refinance
our debt or obtain new financing under these circumstances, we would have to
consider other options, such as the sale of certain assets to meet our debt
service obligations, the sale of equity, or negotiations with our lenders to
restructure our debt.

THE RESTRICTIONS IN OUR SENIOR NOTE INDENTURE LIMIT OUR ABILITY TO EFFECT
TRANSACTIONS AND RESTRICT OUR OPERATIONS

The indenture for our senior notes imposes significant operating and
financial restrictions on us and our subsidiaries. These restrictions may
significantly limit or prohibit us from engaging in certain transactions,
including the following:

- borrowing additional money,

- paying dividends or making other distributions to our shareholders,

- limiting the ability of subsidiaries to make payments to us,

- making certain investments,

- creating certain liens on our assets,

- selling certain assets and using the proceeds from those sales for
certain purposes,

- entering into transactions with affiliates, and

- engaging in certain mergers or consolidations.

We expect that the credit facility that we are currently negotiating will
contain similar restrictive covenants. These restrictions could limit our
ability to obtain future financing, make needed capital expenditures, withstand
a future downturn in our business or in the economy or otherwise conduct
necessary corporate activities.

Our failure to comply with the restrictions in the indenture and any senior
credit facilities that we have in place from time to time could lead to a
default under the terms of those documents. We expect that the credit facility
will also require us to maintain specified financial ratios and satisfy certain
financial tests. Our ability to meet these financial ratios and tests may be
affected by events beyond our control and, as a result, there can be no
assurance that we will be able to meet such tests. In the event of a default
under any of our senior credit facilities, the applicable lenders could
terminate their commitments to lend to us or accelerate the loans and declare
all amounts borrowed due and payable. Borrowings under other debt instruments
that contain cross-acceleration or cross-default provisions may also be
accelerated and become due and payable. If any of these events occurs, we cannot
assure you that we would be able to make the necessary payments to the lenders
or be able to find alternate financing. Even if we could obtain alternate
financing, we cannot assure you that it would be on terms that are favorable or
acceptable to us.

OUR RAPID GROWTH MAY BE DIFFICULT TO MANAGE

Our company has experienced significant growth in recent years, which has
increased the level of responsibility on our management personnel. We intend to
continue growing so that we can pursue existing and potential market
opportunities. This continued growth will place a significant strain on our
management, as well as our financial and other resources. In order to manage our
growth effectively, we must continue to implement and improve our operational
systems, procedures, and controls. If we fail to

10
<PAGE> 13

implement these systems, our business, financial condition, and results of
operations will be materially and adversely affected. As we continue to grow, it
is important that our management information systems provide adequate, accurate
and timely financial information so management can make effective and timely
business decisions. Although we believe that our current management information
systems are adequate, they may need to be upgraded eventually. If our current
management information systems fail, or we fail to hire and retain qualified
sales, marketing, administrative, operating and technical personnel, our
business operations may be adversely affected. Although we believe we have
properly projected and are anticipating our needs, we cannot assure you that we
will be able to properly manage our rapid growth.

OUR ABILITY TO PROVIDE LOCAL TELEPHONE SERVICE IS DEPENDENT ON INCUMBENT LOCAL
EXCHANGE CARRIERS

In addition to providing local service utilizing total service resale
provided by ILECs, we intend to significantly expand our use of unbundled
network elements. Unbundled network elements constitute the components of the
services customers purchase. We expect the resale of unbundled network elements
and services of incumbent local telephone companies, or ILECs, to play an
important part in our local exchange service business strategy. Although the
1996 Telecommunications Act requires the ILECs to allow such resale, we cannot
guarantee either:

(1) that the 1996 Telecommunications Act, certain provisions of which
ILECs have challenged in federal court, will be implemented on a timely
basis and on favorable terms, including specifically that the rules
governing which elements ILECs must provide and the cost methodology for
providing these elements, which are currently under FCC and judicial
review, will be upheld, or

(2) that we can successfully negotiate with ILECs the necessary
colocation, interconnection and resale agreements, particularly those
agreements that govern the purchase of the unbundled network elements.

Any substantial limitation on our ability to secure reasonable and timely
access to ILEC services and unbundled network elements, to obtain agreements on
as favorable terms as our competitors, or difficulties obtaining ILEC
cooperation in migrating our local service customers from ILEC facilities to our
facilities could have a material adverse effect on our financial condition,
results of operations and cash flow. See "Regulation and Licenses -- Government
Regulation."

OUR ABILITY TO PROVIDE LONG DISTANCE SERVICE IS DEPENDENT ON OTHER LONG DISTANCE
CARRIERS

Our ability to provide long distance services to certain domestic and
international locations, especially those not on our network, depends on
agreements with many other carriers. The transmission rates under some of these
agreements are lower than the rates we would charge by terminating traffic
directly with the ILEC at tariffed rates. If we lost access to the services we
receive under these contracts, if the carriers providing these services raise
their rates or if the services we receive suffer a reduction in quality, it
could have a negative effect on our financial condition, results of operations
and cash flow.

OUR INFORMATION SYSTEMS ARE VITAL TO ALL ASPECTS OF OUR BUSINESS

Sophisticated operations support systems, or OSS systems, are vital to all
aspects of our business. Internally developed and externally purchased
information and support systems help to manage our growth and operations
efficiently. As part of our business, we transfer large amounts of electronic
data to and from ILECs and other local telephone companies that compete with the
ILECs, or CLECs. We will be at a competitive disadvantage if we fail to
establish Electronic Data Interfaces, or EDIs, with Southwestern Bell, GTE, Bell
South, and other ILECs if our competitors successfully establish EDIs with those
carriers. Unanticipated problems in any of the above areas, or our inability to
implement solutions in a timely manner, or our failure to establish or upgrade
systems as necessary, could have a material adverse impact on our ability to
reach our objectives and on our financial condition, results of operations and
cash flow. See "Business -- Customer Care and Support."

11
<PAGE> 14

WE NEED TO RETAIN OUR KEY MANAGEMENT PERSONNEL AND HIRE ADDITIONAL QUALIFIED
PERSONNEL

We believe that our success largely depends on the continued involvement
and management of our executive management team and our ability to hire
additional qualified personnel. The competition for qualified managers and
employees in the telecommunications industry is intense. Accordingly, we cannot
assure you that we will be able to retain these key employees or that we will be
able to attract or retain skilled personnel in the future. The loss of the
services of any of these people could have a material adverse effect on our
business, results of operations and financial condition. See "Management --
Employment Agreements."

WE DEPEND ON OUR MAJOR CUSTOMERS

Our customers generally use more than one telecommunication service
provider. They can quickly switch from our services to other providers without
incurring significant expense. In addition, our customer agreements generally
provide that in the event of prolonged loss of service or for other good
reasons, customers may terminate our service without penalty. As a result, we
cannot assure you that we will be able to retain our customers. For the year
ended December 31, 1998, revenues from services provided to MCI WorldCom
accounted for more than 10% of our revenues. The loss or significant decrease of
business from any of our largest customers would have a material adverse effect
on our business. Customers in the oil and gas industry accounted for
substantially all of our offshore and project related sales in the fiscal year
ended December 31, 1998. Our oil and gas customers could develop their own
telecommunications facilities. A corresponding reduction in the demand for our
services could have a material adverse effect on our financial condition,
results of operations and cash flow.

THE REGULATORY ENVIRONMENT FOR TELECOMMUNICATIONS BUSINESSES CREATES RISKS

Significant regulations imposed at the international, federal, state and
local levels govern the provision of telecommunications services and affect our
business and our existing and potential competitors. Delays in receiving
required regulatory approvals or the enactment of new and adverse legislation,
regulations or regulatory requirements may have a material adverse effect on our
financial condition, results of operations and cash flow. In addition, future
legislative, judicial and regulatory agency actions could alter competitive
conditions in the markets in which we intend to operate, in ways not necessarily
to our advantage. See "Business -- Competition" and "Regulation and
Licenses -- Government Regulation."

WE NEED RIGHTS-OF-WAY FRANCHISES AND PERMITS TO BUILD OUR FIBER NETWORK

We need certain rights-of-way, franchises and permits to install
underground conduits from railroads, utilities, state highway authorities, local
governments and transit authorities. We cannot assure you that we will be able
to get and keep all the additional rights, franchises and permits we need to
successfully implement our business plan. If we lose or fail to maintain certain
critical rights, franchises or permits necessary for the fiber network, there
may be a material adverse effect on our financial condition, results of
operations and cash flow.

WE MAY EXPERIENCE PROBLEMS ASSOCIATED WITH THE YEAR 2000

Some computers, software, and other equipment include computer codes in
which calendar year data is abbreviated to only two digits. Some of these
computer systems could fail to operate properly if they interpret "00" to mean
1900, rather than 2000. This problem is widely known as the "year 2000 problem."
We are highly dependent on our computer systems and those of third party
suppliers, vendors and customers. The year 2000 problem affects some of our
computers, software, and other equipment, including the computers which run our
product development, and administrative functions. If we fail to properly
identify, correct and test our computer systems for the year 2000 problem, our
business operations could be adversely affected.

We are taking steps to remediate our year 2000 problem. We do not believe
that the cost to remediate our year 2000 problem will have a material adverse
effect on our operations. We believe that
12
<PAGE> 15

our computer systems will be year 2000 compliant and will function adequately
by, during and after the year 2000. At this time, however, we cannot assure you
that our computer systems will not be affected to some degree by the year 2000
problem, in spite of our continuing efforts. More importantly, we cannot assure
you that the computer systems used by our service providers such as electric
companies, other telecommunications companies, our customers and other third
parties, will function properly by the year 2000. A failure of our service
providers to cause their computers systems to be year 2000 compliant could have
an adverse effect on our operations. Their year 2000 problem could become our
year 2000 problem. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000."

THE CONTINUED INTEGRATION OF OUR THREE PREDECESSOR COMPANIES INVOLVES
UNCERTAINTY AND RISK

In August 1998, three predecessor companies combined to form our company.
The combination of these businesses involves assimilating the operations,
services, products and personnel of each business. We cannot assure you that the
benefits and revenue growth expected from the combination will be realized. We
are still managing the integration of portions of those businesses into our
company.

We expect to continue incurring costs from the ongoing integration of the
operations, financial reporting and accounting systems, and networks of our
three predecessor companies. Additional unexpected costs or delays could have a
material adverse effect on our financial condition, results of operations and
cash flow.

SERVICE INTERRUPTIONS COULD AFFECT OUR BUSINESS

Our equipment, facilities and service operations can be adversely affected
by any of the following factors: fiber cuts, fire, equipment failures, inclement
weather, hurricanes, power loss, service outages, failures or loss of
satellites, human error, unauthorized intrusion, natural disasters, acts of
sabotage, and other similar events.

We currently have switches in Houston and Dallas, Texas and manage a switch
in Jersey City, New Jersey. A switch in Phoenix, Arizona is planned to be
operational in April 1999. A substantial portion of our long distance voice
traffic currently passes through the Dallas switch, and thus we are heavily
reliant upon the operation of the Dallas switch. Any event that negatively
impacts the Dallas switch could have a material adverse effect on our financial
condition and our ability to continue our business.

We house a significant portion of the satellite communications equipment
and foreign circuits we use in international private-line services in a single
location in our Houston network operations center. We do not yet have complete
back-up equipment for these facilities. In addition, the equipment we own and
lease in the Gulf of Mexico is susceptible to hurricanes.

We cannot guarantee that fire, equipment failure or other events will not
disable our equipment. Loss or impairment of some or all of our key facilities
could have a material adverse effect on our financial condition, results of
operations and cash flow. Our networks and switching facilities experience
periodic service interruptions and equipment failures, and the operation of such
networks remain subject to international, national and regional
telecommunications outages or regulatory issues from time to time. As a result,
we may, from time to time, experience service interruptions or equipment
failures that could have a material adverse effect on our financial condition,
results of operations and cash flow.

WE MAY INCUR LIABILITY AS AN INTERNET SERVICE PROVIDER

We are an Internet service provider, or an ISP. The law governing the
liability of on-line service providers and Internet access providers for
participating in the hosting or transmission of objectionable materials or
information currently remains unsettled. Under the terms of the 1996
Telecommunications Act, courts can impose civil and criminal penalties for the
use of interactive computer services for the transmission of certain indecent or
obscene communications. The United States Supreme Court in 1997 held this
provision unconstitutional as it relates to indecent, but not obscene,
communications. In October
13
<PAGE> 16

1998, Congress enacted the Child Online Protection Act, which requires that
online material that is "harmful" to minors be restricted. This law is currently
being challenged and on February 1, 1999 a U.S. District Court judge issued a
preliminary injunction against enforcement of portions of that act. Also, some
states have adopted or may adopt in the future similar requirements. The
constitutionality of such state requirements remains unsettled at this time. In
addition, several private parties have filed lawsuits seeking to hold Internet
service providers accountable for information that they transmit, such as
libelous material and copyrighted material. We cannot predict the outcome of
this litigation or the potential for the imposition of liability on Internet
service providers for information that they host, distribute or transport. These
suits and other regulations could materially change the way ISPs must conduct
business and could impact our determination to expand or continue this business.
To the extent that we become parties to future litigation, such litigation could
have a material adverse effect on our financial condition, results of operations
and cash flow.

OTHER COMPANIES HAVE NAMES SIMILAR TO OURS

Even though we have registered the mark "CapRock Communications" in the
United States, other companies in many different industries, particularly in
West Texas, have preexisting rights to the name "Caprock" within defined
territories. One specific company may have the right to use the name for
telecommunications services within an established area. If any of these other
companies are successful with their claims to our name, we may be required to
either obtain a license from them for the use of the name "CapRock," or be
required to change our name within certain defined territories. Either result
would cause us to incur additional expenses. If we are required to change our
name, we may lose the goodwill associated with the CapRock name in these
markets.

OUR STOCK PRICE CONSTANTLY CHANGES

A public market for our Common Stock has existed since August 27, 1998 on
the Nasdaq National Market, under the ticker symbol "CPRK." The price for our
stock on that trading market constantly changes. We expect that the market price
of our Common Stock will continue to change. The fluctuation in our stock price
is caused by a number of factors, some of which are beyond our control,
including:

- quarterly variations in operating results,

- changes in financial estimates by securities analysts,

- changes in market valuations of information technology service and
telecommunications companies,

- announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures, or capital commitments,

- the loss or acquisition of major customers,

- additions or departures of key personnel, and

- sales of common stock.

In addition, the stock market, in general, experiences significant price
fluctuations, which may materially and adversely affect the market price of our
stock.

OUR OFFICERS AND DIRECTORS WILL OWN ENOUGH SHARES TO CONTROL CAPROCK AFTER THE
OFFERING

After this offering, our officers and directors together will beneficially
own approximately 67% of the outstanding shares of our Common Stock. As a
result, they will be able to exercise control over matters requiring shareholder
approval, including the election of directors, the approval of mergers,
consolidations and sales of all or substantially all of our assets. This may
prevent or discourage tender offers for our Common Stock.

14
<PAGE> 17

COMMUNICATIONS LAWS AND STATE CORPORATE LAWS MAY MAKE IT HARDER FOR SOMEONE TO
ACQUIRE CONTROL OF CAPROCK

Before we transfer control or assign any of our intrastate certification
authorities, international authority or FCC licenses and authorizations we need
regulatory approval by the FCC and various state regulatory agencies. The 1934
Communications Act generally limits direct foreign ownership of wireless
licenses to 20%, but provides for indirect foreign ownership holdings above 25%
upon FCC approval. In addition, because we hold FCC authority to provide
international service, the FCC will scrutinize an ownership interest in us of
greater than 25%, or a controlling interest at any level, by a dominant foreign
carrier. We must also notify the FCC 60 days in advance of an acquisition by a
foreign carrier or by an entity that controls a foreign carrier of a 25% or
greater or a controlling interest in such carriers. However, new rules allow for
up to 100% indirect ownership of most wireless licenses upon FCC review and
approval by foreign interests from countries that have participated in the 1997
World Trade Organization, or WTO, Agreement on Basic Telecommunications
Services. Any of these factors could have the effect of delaying, deferring or
preventing a change in our control of CapRock. In addition, our Articles of
Incorporation provide that Article 13.03 of the Texas Business Corporation Act,
which limits statutory takeovers, does not apply to us. See "Regulation and
Licenses -- Government Regulation" and "Description of Capital
Stock -- Preferred Stock" and "Certain Anti-Takeover Effects."

WE MAY NOT PAY DIVIDENDS

We do not expect to pay any cash dividends on our Common Stock in the
foreseeable future. We intend to retain any earnings for use in our business.

THE SALE OF SIGNIFICANT AMOUNTS OF OUR COMMON STOCK COULD ADVERSELY AFFECT ITS
MARKET PRICE

33,939,627 shares of Common Stock will be outstanding after consummation of
this offering. The shares of Common Stock which we are offering through this
Prospectus will be eligible for immediate resale in the public market without
restriction, unless any such shares are acquired by one or more of our
affiliates.

Following this offering, there will be approximately 5,000,000 additional
shares of Common Stock outstanding, excluding options outstanding to acquire
2,425,602 shares of Common Stock with a weighted average exercise price of
$5.61, 199,616 of which are currently exercisable with a weighted average
exercise price of $3.22. We believe that substantially all of these shares of
Common Stock and shares of Common Stock issuable upon the exercise of such
options will be freely tradeable under federal securities laws following this
offering, subject to some limitations. These limitations include vesting
provisions in option and restricted stock agreements, restrictions in lock-up
agreements, and volume and manner-of-sale restrictions under Rule 144. The
future sale of a substantial number of shares of Common Stock in the public
market following this offering, or the perception that such sales could occur,
could adversely affect the prevailing market price of our Common Stock.

Shareholders holding more than 89.9% of the outstanding Common Stock and
currently exercisable options to purchase Common Stock have executed lock-up
agreements that limit their ability to sell Common Stock. These shareholders
have agreed not to sell or otherwise dispose of any shares of Common Stock for a
period of at least 120 days after the date of this Prospectus without the prior
written approval of the managing underwriter and us. The managing underwriter
and we may, in our sole discretion and at any time without notice, release all
or any portion of the securities subject to lock-up agreements. See "Shares
Eligible for Future Sale."

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<PAGE> 18

THERE MAY BE SOME DILUTION FOR PURCHASERS OF OUR COMMON STOCK IN THIS OFFERING

To the extent options to purchase our Common Stock under our employee and
director stock option plans are exercised, investors participating in this
offering will incur dilution. If the net proceeds of this offering, together
with available funds and cash generated from operations, are insufficient to
satisfy our cash needs, we may be required to sell additional equity or
convertible debt securities. The sale of additional equity or convertible debt
securities could result in additional dilution to our shareholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

16
<PAGE> 19

USE OF PROCEEDS

We estimate that the net proceeds that we will receive from the sale of the
Common Stock offered by us will be approximately $78,000,000, after deducting
the underwriting discounts and commissions and estimated offering expenses and
other related fees that we will pay. We will not receive any of the proceeds
from the sale of Common Stock by the selling shareholders.

We currently intend to use the net proceeds from this offering:

- to fund additional capital expenditures for the construction and
operation of our fiber optic network,

- to fund the installation of voice and data switches, including the cost
of colocations in the central offices of local telephone companies,

- to open sales offices and add sales support and customer service
personnel in markets throughout the Southwest region, and

- for potential acquisitions, additional working capital and other general
corporate purposes.

Our use of proceeds may vary significantly and will depend on a number of
factors described under "Risk Factors." Accordingly, our management has broad
discretion in the allocation of the net proceeds. Pending such uses, the net
proceeds of this offering will be invested in short-term, high grade investment
securities.

17
<PAGE> 20

MARKET INFORMATION AND DIVIDEND POLICY

Our Common Stock has traded on the Nasdaq National Market under the symbol
"CPRK" since August 27, 1998, the day after the business combination of our
predecessor companies was completed. The following table sets forth, for the
periods indicated, the range of high and low sales prices for our common stock
as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
--------------
HIGH LOW
------ -----
<S> <C> <C>
1998:
Third Quarter (beginning on August 27, 1998).............. $10.00 $6.38
Fourth Quarter............................................ $ 8.75 $4.75
1999:
First Quarter (through March 18, 1999).................... $19.00 $7.25
</TABLE>

On March 18, 1999, the last reported closing sales price of the common
stock was $16.875 per share. As of March 18, 1999, there were approximately 60
shareholders of record of our common stock.

Of the approximately 28.9 million shares of Common Stock currently
outstanding, only approximately 2.9 million shares are held by non-affiliates
and thus freely tradeable without restrictions under the Securities Act of 1933.
Substantially all of these freely tradeable shares represent shares of Common
Stock issued to former shareholders of IWL Communications in connection with the
combination. We believe that the historical trading prices of our Common Stock
have been affected by the relatively limited number of shares, or "float,"
available in the open market to our existing and prospective investors. The
additional shares of Common Stock available to the public upon consummation of
this offering will represent more than two times the number of currently freely
tradeable shares. Accordingly, we believe that such increased float may result
in changes in our stock trading levels (both in terms of volume and price).

Since our company became a public company, we have not paid cash dividends
on our Common Stock. We currently anticipate that all of our earnings will be
retained for development of our business and do not anticipate paying any cash
dividends in the foreseeable future.

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<PAGE> 21

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1998
on an actual basis and on an as adjusted basis to give effect to our sale and
issuance of 5,000,000 shares of Common Stock at a public offering price of
$16.875, after deducting the underwriting discounts and commissions and
estimated offering expenses and fees totaling $6,375,000. The table shown below
should be read in conjunction with our Consolidated Financial Statements
including the accompanying notes included elsewhere in this prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and marketable securities............ $ 97,314 $175,314
======== ========
Long-term debt:
12% Senior Notes, due 2008................................ $145,187 $145,187
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 20,000,000 shares
authorized; none issued................................ -- --
Common stock, $.01 par value; 200,000,000 shares
authorized; 28,932,395 shares issued and outstanding,
actual and 33,932,395 shares issued and outstanding, as
adjusted(1)............................................ 289 339
Additional paid-in capital................................ 10,522 88,472
Retained earnings......................................... 5,608 5,608
Currency translation adjustments.......................... 9 9
Unearned compensation..................................... (329) (329)
Treasury stock, at cost................................... (37) (37)
-------- --------
Total stockholders' equity........................ 16,062 94,062
-------- --------
Total capitalization.............................. $161,249 $239,249
======== ========
</TABLE>

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

(1) Excludes (1) 2,259,867 shares of Common Stock issuable upon exercise of
options outstanding on December 31, 1998, with a weighted average exercise
price of $5.51 per share, (2) 3,733,586 shares available for future issuance
under our employee and director stock option plans as of December 31, 1998
and (3) 145,000 shares of Common Stock subject to outstanding warrants. See
"Management -- Benefit Plans," "Description of Capital Stock," and Note 12
of Notes to Consolidated Financial Statements.

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<PAGE> 22

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth our summary financial data as of and for the
years ended December 31, 1994, 1995, 1996, 1997 and 1998. Our business
combination among our predecessor companies was completed on August 26, 1998 and
was accounted for as a pooling of interests. Accordingly, the Consolidated
Financial Statements include the three predecessor companies (i.e., CapRock
Telecommunications, CapRock Fiber and IWL Communications) as though these
entities were always a part of CapRock.

In May 1998, IWL Communications changed its fiscal year end to coincide
with the fiscal years of CapRock, CapRock Telecommunications and CapRock Fiber.
The Consolidated Statement of Operations for the year ended December 31, 1996
combines the operating activity of IWL Communications for the year ended June
30, 1996 with CapRock Telecommunications and CapRock Fiber operating activity
for the year ended December 31, 1996. The net income of IWL Communications in
the amount of approximately $260,000 for the six month period ended December 31,
1996 was excluded from the Consolidated Statement of Operations for the year
ended December 31, 1996 as a result of the non-conforming year ends for such
period. This amount was included as an adjustment to retained earnings in the
Consolidated Statement of Stockholders' Equity and Comprehensive Income in 1997.
IWL Communications' cash flow for this period was added to the 1997 beginning
balance in the Consolidated Statement of Cash Flows.

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $21,159 $29,407 $50,970 $75,349 $121,774
Cost of services and product resales...... 15,295 21,185 39,357 52,471 83,221
------- ------- ------- ------- --------
Gross profit.................... 5,864 8,222 11,613 22,878 38,553
Operating expenses:
Selling, general and administrative..... 5,565 7,326 8,983 14,074 23,528
Merger related expenses................. -- -- -- -- 2,313
Depreciation and amortization........... 631 1,186 1,536 3,346 4,887
------- ------- ------- ------- --------
Total operating expenses........ 6,196 8,512 10,519 17,420 30,728
------- ------- ------- ------- --------
Operating income (loss)................... (332) (290) 1,094 5,458 7,825
Interest expense, net..................... (224) (484) (585) (1,603) (6,441)
Other income.............................. 256 151 42 220 106
------- ------- ------- ------- --------
Income (loss) before income taxes and
extraordinary item...................... (300) (623) 551 4,075 1,490
Income taxes.............................. 77 48 227 1,513 1,267
------- ------- ------- ------- --------
Income (loss) before extraordinary item... (377) (671) 324 2,562 223
Extraordinary item -- extinguishment of
debt.................................... -- 645 -- -- --
------- ------- ------- ------- --------
Net income (loss)............... $ (377) $ (26) $ 324 $ 2,562 $ 223
======= ======= ======= ======= ========
Pro forma net income (loss):
Income (loss) before income taxes and
extraordinary item................... $ (300) $ (623) $ 551 $ 4,075 $ 1,490
Pro forma income taxes, as if CapRock
Fiber were a C corporation........... (131) (211) 143 1,475 1,267
------- ------- ------- ------- --------
Income (loss) before extraordinary
item................................. (169) (412) 408 2,600 223
Extraordinary item, net of taxes........ -- 397 -- -- --
------- ------- ------- ------- --------
Pro forma net income (loss)..... $ (169) $ (15) $ 408 $ 2,600 $ 223
======= ======= ======= ======= ========
</TABLE>

20
<PAGE> 23

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Historical and pro forma income (loss) per
common share:
Income (loss) before extraordinary
item................................. $ (0.01) $ (.002) $ 0.01 $ 0.09 $ 0.01
Extraordinary item, net of tax.......... -- .002 -- -- --
------- ------- ------- ------- --------
Basic and diluted....................... $ (0.01) $ -- $ 0.01 $ 0.09 $ 0.01
======= ======= ======= ======= ========
Weighted average shares outstanding:
Basic................................... 25,715 25,926 27,146 27,984 28,899
Diluted................................. 25,715 25,936 27,156 28,481 30,028
OPERATING DATA:
EBITDA(1)................................. $ 299 $ 897 $ 2,630 $ 8,804 $ 15,025
Cash flows provided by (used in)
operations.............................. (593) 827 781 4,112 7,125
Cash flows used in investing activities... (1,366) (1,919) (9,350) (12,987) (134,350)
Cash flows provided by financing
activities.............................. 2,324 903 8,605 12,113 123,989
Capital expenditures...................... 1,822 2,282 10,212 13,630 36,855
BALANCE SHEET DATA:
Working capital (deficit)................. $ (441) $ (797) $(2,153) $ (305) $102,489
Property, plant and equipment, net........ 2,935 6,705 15,901 27,341 59,607
Total assets.............................. 9,596 13,198 28,522 49,389 191,966
Long-term debt and capital lease
obligations............................. 1,221 2,443 13,254 21,062 145,187
Stockholders' equity...................... 2,829 3,552 3,886 14,086 16,062
</TABLE>

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

21
<PAGE> 24

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

The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto of CapRock contained
elsewhere in this Prospectus. This information is not necessarily indicative of
future operating results. Except for the historical information contained below,
the matters discussed in this section are forward-looking statements that
involve a number of risks and uncertainties, including those described in "Risk
Factors." Our actual liquidity needs, capital resources and operating results
may differ materially from the discussion shown below in these forward-looking
statements.

OVERVIEW

In August 1998, we announced that we had completed a business combination
transaction in which our predecessor companies combined to form our company as
it exists today. The combination was accounted for as a pooling of interests.
Accordingly, our consolidated results include our three predecessor companies
(i.e., CapRock Telecommunications, CapRock Fiber and IWL Communications) as
though these entities had always been a part of CapRock.

Our proximity to Mexico allows us to directly connect to the fiber networks
of multiple Mexican telecommunications carriers. Subject to compliance with
certain regulatory requirements, we are capable of providing dark fiber to these
carriers at several border crossings enabling them to close open fiber rings in
Mexico by using CapRock fiber on the U.S. side of the border. Additionally, our
direct connect agreements with foreign carriers position us to capture increased
levels of growing international traffic.

In addition, we recently announced our joint build agreement with Enron
Communications, Inc. to jointly build approximately 1,050 miles of fiber network
in Texas. Through this joint build arrangement, we will connect Amarillo,
Lubbock, Dallas, Fort Worth, Waco, Bryan, Austin, San Marcos, San Antonio and
Houston, Texas. The build plan includes four conduits to be placed throughout
the 1,050 miles, with one and one-quarter conduits to be owned and funded
directly by us, one and one-quarter to be owned and funded by Enron
Communications and one and one-half to be owned and funded by a limited
partnership formed by us and Enron Communications. The partnership will be
installing 192 fibers in the first conduit and the agreements provide for
selling 96 of the 192 fibers to be installed. Of the remaining 96 fibers, we
will own 48 fibers and Enron Communications will own 48 fibers. The joint build
arrangement provides several benefits, including reduction of construction
costs, accelerated acquisition of right of way and franchise agreements, a
majority of which are essentially in place, and the freeing up of resources to
potentially accelerate the build of the remaining portion of the network.

22
<PAGE> 25

RESULTS OF OPERATIONS

CapRock recognizes revenue from the following sources: carriers' carrier,
integrated services, system services and product resales.

Carriers' Carrier. Carriers' carrier revenue includes all carrier revenues
generated from the sale of domestic and international switched services, from
the sale of T-1 and DS-3 broadband capacity and from the sale and lease of dark
fiber. The revenue generated from the international switched services represent
minutes of long distance traffic terminating in foreign countries, but generated
by domestic U.S.-based long distance carriers. Such revenues are recognized when
the services are provided. The cost of revenues associated with these services
is based primarily on the direct costs associated with owned and leased
transmission capacity and the cost of transmitting and terminating traffic on
other carriers' facilities. Commissions paid to sales representatives or agents
to acquire customer call traffic are expensed in the period when associated call
revenues are recognized.

We account for long-term construction contracts relating to the development
of telecommunications networks for customers using the percentage-of-completion
method, which would include the sale of fiber usage rights through IRUs and the
related construction services associated with building the fiber network
specified in the IRUs. Progress under the percentage-of-completion method is
measured based upon costs incurred to date compared with total estimated
construction costs. Customers are billed based upon contractual milestones.

Integrated Services. Integrated communications services revenue includes
all revenues generated from the sale of telecommunications products to business
and residential customers. These products include local, long distance,
Internet, data and private line services.

Systems Services. Systems services revenue includes revenues generated from
the design, installation, leasing and sale of voice and data systems and
products, primarily to companies in the oil and gas industry.

Product Resales. In 1997, CapRock provided services to a subsidiary of
Shell, which included the resale of a significant amount of Alcatel products.
The Shell project was substantially completed in May 1997 and, therefore, is not
expected to contribute in a material manner to CapRock's total sales in future
years.

The following table represents the various sources of revenue:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Carriers' carrier............................ $22,405 $41,805 $ 72,165
Integrated services.......................... 1,980 8,640 17,978
Systems services............................. 16,031 21,959 31,631
------- ------- --------
Total service revenue................ 40,416 72,404 121,774
Product resales.............................. 10,554 2,945 --
------- ------- --------
Total revenues....................... $50,970 $75,349 $121,774
======= ======= ========
Gross margin %:
Gross margin -- service revenue.............. 27% 31% 32%
Gross margin -- product resales.............. 8% 20% --
------- ------- --------
Gross margin -- total........................ 23% 30% 32%
======= ======= ========
</TABLE>

23
<PAGE> 26

The following table sets forth for the periods indicated CapRock's
statement of operations as a percentage of its operating revenues:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues.............................................. 100% 100% 100%
Cost of services...................................... 58% 67% 68%
Cost of product resales............................... 19% 3% --%
--- --- ---
Gross profit.......................................... 23% 30% 32%
Operating expenses:
Selling, general and administrative................. 18% 19% 19%
Merger related expenses............................. --% --% 2%
Depreciation and amortization....................... 3% 4% 4%
--- --- ---
Total operating expenses.............................. 21% 23% 25%
--- --- ---
Operating income...................................... 2% 7% 6%
Interest expense...................................... (1)% (2)% (8)%
Interest income....................................... --% --% 2%
Other income.......................................... --% --% --%
--- --- ---
Income before income taxes............................ 1% 5% 1%
Income tax expense.................................... --% 2% 1%
--- --- ---
Net income............................................ 1% 3% --%
=== === ===
</TABLE>

YEAR ENDED 1997 COMPARED TO 1998

Revenue. Total revenues increased $46.5 million, or 62%, from $75.3 million
in 1997 to $121.8 million in 1998. The 62% increase was attributed to increases
of 73% in carriers' carrier, 108% in services and 44% in systems services
revenue.

Carriers' carrier revenue increased $30.4 million from $41.8 million in
1997 to $72.2 million in 1998. The 73% increase resulted primarily from the
rapid growth in domestic and international switched services sold to other
carriers and as a result of $9.5 million in IRUs in 1998; no such revenue from
IRUs was recorded before 1998.

Integrated services revenue increased $9.3 million from $8.6 million in
1997 to $18.0 million in 1998. The 108% increase was attributable to growth in
the number of business customers both from increased penetration in our existing
markets and from the deployment of our network into new markets.

Systems services revenue increased $9.7 million from $22.0 million in 1997
to $31.6 million in 1998. The 44% increase was attributable to growth associated
with the leasing and sale of voice and data systems products and projects
involving the engineering and integration of telecommunications systems and
sales, service and maintenance of telecommunications equipment.

Product resale revenue was $2.9 million in 1997 as compared to no product
resales in 1998. The product resales to a single customer were substantially
complete in May 1997 and such revenues are not expected to contribute in a
material manner in future years.

Costs of Services and Product Resales. Cost of services increased $30.7
million, or 59%, from $52.5 million in 1997 to $83.2 million in 1998. The growth
in cost of services was primarily attributable to the continued growth in all
three revenue categories. The two-percentage point increase in gross margin from
30% to 32% resulted primarily from favorable pricing attributable to the higher
traffic and new vendors and the sale of dark fiber. The increase in the gross
margin in 1998 was partially offset by lower margins attributable to Mexico and
other international traffic, which carry a lower gross margin percentage. Gross
margins may vary in future periods as a result of these and other factors.

24
<PAGE> 27

Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") includes salaries, benefits, occupancy costs,
commissions, sales and marketing expenses and administrative expenses. SG&A
increased $9.4 million, or 67%, from $14.1 million in 1997 to $23.5 million in
1998. The increase resulted primarily from the additional personnel required to
support CapRock's growth, advertising to increase name recognition and brand
awareness, and additional sales commission payments.

CapRock recorded merger related expenses of $2.3 million in 1998, as
compared to no such costs in 1997. The merger related costs relate to the
business combination of CapRock Telecommunications, CapRock Fiber and IWL
Communications, our predecessor companies. This combination was consummated on
August 26, 1998. The merger related expenses consist of fees for investment
bankers, attorneys, accountants, financial printing and other related charges.

Depreciation and amortization expense increased $1.5 million, or 46%, from
$3.3 million in 1997 to $4.9 million in 1998. This increase resulted primarily
from purchases of additional equipment and other fixed assets to accommodate
CapRock's growth. CapRock expects that depreciation and amortization expense
will continue to increase in subsequent periods as CapRock continues to expand
its facilities.

Interest Expense. Interest expense increased $7.8 million from $1.7 million
in 1997 to $9.5 million in 1998. The increase resulted from interest expense
related to its senior notes. See "-- Liquidity and Capital Resources".

Interest Income. Interest income increased $2.9 million from $133,000 in
1997 to $3.0 million in 1998. The increase was attributed to the interest and
investment accretion associated with the marketable securities purchased with
the proceeds from the senior notes. See " -- Liquidity and Capital Resources".

Income Taxes. Income tax expense of $1.5 million in 1997 was comparable to
the income tax expense of $1.3 million in 1998. The effective tax rate was 37%
in 1997 as compared to 85% in 1998. The increase in the effective tax rate was
primarily attributable to certain non-deductible merger related costs in the
amount of approximately $1.8 million.

Net Income. Net income decreased $2.3 million, or 91%, from $2.6 million in
1997 to $223,000 in 1998 as a result of the factors discussed above.

YEAR ENDED 1996 COMPARED TO 1997

Revenue. Total revenues increased $24.3 million from $51.0 million in 1996
to $75.3 million in 1997. The 48% increase was due to increases in revenues from
both domestic and international switched services and to growth in switched
services provided to small and medium-sized businesses and to consumers as a
result of continued expansion of CapRock's direct and agent sales. The 48%
increase was attributed to increases of 87% in carriers' carrier, 336% in
integrated services and 37% in systems services revenue. Product resale revenue
was $10.6 million in 1996, as compared to $2.9 million in 1997. The product
resales were substantially complete in May 1997 and these revenues are not
expected to contribute in a material manner in future years after 1997.

Carriers' carrier revenue increased $19.4 million from $22.4 million in
1996 to $41.8 million in 1997. The 87% increase resulted primarily from the
rapid growth in domestic and international switched services sold to the other
carriers.

Integrated services revenue increased $6.7 million from $2.0 million in
1996 to $8.6 million in 1997. The 336% increase is attributed to growth in the
number of business customers.

System services revenue increased $6.0 million from $16.0 million in 1996
to $22.0 million in 1997. The 37% increase was attributed to growth associated
with the leasing and sale of voice and data systems products and projects
involving the engineering and integration of telecommunications systems and
sales, services and maintenance of telecommunication equipment.

25
<PAGE> 28

Costs of Services and Product Resales. Cost of services increased $13.1
million from $39.4 million in 1996 to $52.5 million in 1997. The growth in cost
of services was primarily attributable to the continued growth in all three
revenue categories. The 7% increase in gross margin from 23% to 30% resulted
primarily from favorable pricing attributable to the higher traffic and new
vendors, as well as a more favorable mix of international and domestic traffic
and the sale of dark fiber. Additionally, the total margin increase was
partially attributable to the completion of the product resales to a single
customer in 1997. Gross margins may vary in the future periods as a result of
these factors.

Selling, General and Administrative Expenses. SG&A includes the cost of
salaries, benefits, occupancy costs, commissions, sales and marketing expenses
and administrative expenses. SG&A increased $5.1 million from $9.0 million in
1996 to $14.1 million in 1997. The increase resulted from additional personnel
needed to support CapRock's growth, additional sales commission payments and
from increases in travel and advertising expenses.

Depreciation and amortization expense increased $1.8 million from $1.5
million in 1996 to $3.3 million in 1997. This increase resulted primarily from
purchases of additional equipment and other fixed assets to accommodate
CapRock's growth. CapRock expects that depreciation and amortization expense
will continue to increase in subsequent periods as CapRock continues to expand
its facilities.

Interest Expense. Interest expense was approximately $631,000 in 1996, as
compared to $1.7 million in 1997.

Income Taxes. Income tax expense increased $1.3 million from $227,000 in
1996 as compared to income tax expense of $1.5 million in 1997. This increase
was attributable to the improved profitability of CapRock.

Net Income. Net income increased $2.2 million from $324,000 in 1996, as
compared to net income of approximately $2.6 million in 1997 as a result of the
factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

CapRock's total assets increased $142.6 million, or 289%, from $49.4
million at December 31, 1997 to $192.0 million at December 31, 1998. The
increase is attributed to internal growth, build out of the fiber optic network
and the receipt of the proceeds from the senior notes. CapRock had cash and cash
equivalents of $3.5 million at December 31, 1997, as compared with $294,000 at
December 31, 1998 and marketable securities of $97.0 million at December 31,
1998 as compared to no marketable securities at December 31, 1997. CapRock had a
working capital deficit of $305,000 at December 31, 1997 as compared to working
capital of $102.5 million at December 31, 1998. The increase in the working
capital is attributable to the issuance of the senior notes and the repayment of
CapRock's existing notes, which were repaid using a portion of the proceeds from
the senior notes.

CapRock's cash flow from operations in 1997 and 1998 were $4.1 million and
$7.1 million, respectively. The increase of $3.0 million, or 73%, was primarily
attributable to overall growth. Additionally, accounts payable and accrued
expenses increased $15.0 million from $11.9 million at December 31, 1997 to
$26.9 million at December 31, 1998. The increase was primarily attributed to
increased expenditures and amounts due to vendors relating to the fiber optic
network build out.

Cash used in investing activities in 1997 and 1998 were $13.0 million and
$134.3 million, respectively. The increase of $121.4 million, or 935%, primarily
relates to the net investment in marketable securities of $97.0 million from the
proceeds of the senior notes, the purchase of telecommunications equipment and
costs incurred with the build out of the fiber optic network.

In January 1998, CapRock completed the acquisition of Integrated
Communications and Engineering, Ltd., a communications systems integrator and
maintenance provider in Aberdeen, Scotland. CapRock paid a total purchase price
of approximately $2.2 million comprised of approximately $610,000 in cash and
207,266 shares of CapRock's Common Stock.

26
<PAGE> 29

In July 1998, CapRock issued $150.0 million aggregate principal amount of
its senior notes. Interest on the senior notes is payable semi-annually in
arrears on January 15 and July 15 of each year, commencing January 15, 1999, at
the rate of 12% per year. A portion of the net proceeds from the offering of the
senior notes was used to repay all existing debt obligations of CapRock
Telecommunications, CapRock Fiber and IWL Communications, our predecessor
companies. The proceeds used for the debt payoffs totaled $26.8 million. The
remaining proceeds, net of transaction costs, have been or will be used to fund
additional capital expenditures for the construction of CapRock's fiber optic
network, switching equipment and other capital expenditures to expand its sales
offices, for potential acquisitions and for general working capital purposes.
The funds are invested in high-grade liquid securities classified as available
for sale. The indenture governing the issuance of the senior notes contains
certain restrictive operating and financial covenants. All of the covenants are
subject to a number of important qualifications and exceptions. These covenants
may adversely affect CapRock's ability to finance its future operations or
capital needs or to engage in other business activities that may be in the best
interests of CapRock. See "Risk Factors."

CapRock expects to require significant financing for capital expenditure
and working capital requirements. By the end of the year 2000, CapRock intends
to build out its fiber optic network to approximately 5,500 route miles
throughout the Southwest region. CapRock intends to use advanced fiber capable
of supporting dense wave division multiplexing with an OC-48 backbone scalable
to OC-192, and intends to install 96 fibers throughout most of its network and
intends to retain on average 24 fiber strands. CapRock is burying three to four
conduits throughout its network. CapRock currently estimates that its aggregate
capital requirements will total approximately $250 million in 1999 and
approximately $160 million in 2000, including expenditures to be made under the
joint build arrangement with Enron Communications. CapRock expects to make
substantial capital expenditures thereafter. Capital expenditures will be
required to (1) fund the construction and operation of the fiber optic network,
including the portion to be constructed through the joint build arrangement with
Enron Communications; (2) fund the installation of voice and data switches, and
(3) open sales offices and add sales support and customer service personnel in
markets throughout Texas, Louisiana, Oklahoma, Arkansas and New Mexico. CapRock
believes that its cash and marketable securities, the net proceeds from this
offering, cash flow from operations, and sales of dark fiber will be sufficient
to fund its capital expenditures and working capital requirements for at least
the next 12 months.

CapRock may require additional capital in the future for new business
activities related to its current and planned businesses, or in the event it
decides to make additional acquisitions or enter into joint venture and
strategic alliances. Sources of additional capital may include cash flow from
operations, public or private equity and debt financings, bank debt, vendor
financings and indefeasible right to use contracts. In addition, CapRock may
enter into joint construction agreements with carriers, thereby reducing its
capital expenditure requirements. However, we cannot assure you that CapRock
will be successful in producing sufficient cash flow or raising sufficient debt
or equity capital to meet its strategic business objectives or that such funds,
if available, will be available on a timely basis and on terms that are
acceptable to CapRock. If CapRock is unable to obtain such capital, the build
out of portions of its expanded network may be significantly delayed, curtailed
or abandoned. In addition, CapRock may accelerate the rate of deployment of its
network, which in turn may accelerate CapRock's need for additional capital.
CapRock's actual capital requirements will also be affected, possibly
materially, by various factors, including the timing and actual cost of the
deployment of CapRock's network, the timing and cost of expansion into new
markets, the extent of competition and the pricing of dark fiber and
telecommunications services in its markets.

CREDIT FACILITY

CapRock is currently negotiating with a bank to obtain a senior credit
facility in the amount of $100 million. The final terms and conditions of the
credit facility will depend on negotiation of definitive documentation for the
credit facility, however the credit facility is expected to have a five-year
term, with the entire principal due at maturity, and is expected to contain
standard and customary restrictive

27
<PAGE> 30

covenants, including financial covenants. There can be no assurance, however, as
to when or if CapRock will enter into the credit facility or as to the amount or
terms of the credit facility.

NEW ACCOUNTING PRONOUNCEMENTS

On January 1, 1998, CapRock adopted Statement of Accounting Standard No.
130 ("SFAS No. 130"), "Reporting Comprehensive Income". SFAS No. 130 establishes
standards for reporting and presentation of comprehensive income and its
components in a full set of financial statements. Comprehensive income consists
of net income and currency translation adjustments and is presented in the
consolidated statements of stockholders' equity and comprehensive income. This
Statement requires changes in disclosure only and it does not affect results of
operations or financial position. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which
CapRock adopted in 1998. CapRock identified operating segments based upon how
management allocated resources and assesses performance. SFAS No. 131 requires
changes in disclosure only and does not affect results of operations or
financial position. Prior year comparative information has been restated to
conform to the requirements of SFAS No. 131.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity" ("SFAS 133") which requires that all
derivatives be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be designated, reassessed and documented pursuant to the
provisions of SFAS No. 133. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. The adoption of SFAS 133 will not have an impact on
CapRock's results of operations, financial position or cash flow.

CONTINGENCIES

CapRock is party to ordinary litigation incidental to its business. No
currently pending litigation is expected to have a material adverse effect on
our results of operations, financial condition or cash flow.

YEAR 2000

The year 2000 problem, is the inability of a meaningful portion of the
world's computers, software applications and embedded semiconductor chips to
cope with the change of the year from 1999 to 2000. This issue can be traced to
the infancy of computing, when computer data and programs were designed to save
disk space by truncating the date field to just six digits (two for the day, two
for the month and two for the year). Therefore, information applications
automatically assumed that the two-digit year field represented a year within
the 1900's. As a result of this, systems could fail to operate or fail to
produce correct results when dates roll over to year 2000.

ASSESSMENT

The year 2000 problem affects computers, software, and other equipment
used, operated, or maintained by CapRock for itself and its customers. CapRock
has substantially completed the process of assessing the potential impact of,
and the costs of remediating, the year 2000 problem for its internal systems,
facilities systems and equipment.

CapRock's business depends upon the operation of computer systems. CapRock
has established a year 2000 committee made up of leaders from the operational
areas of CapRock to assess CapRock's year 2000 problem. The committee has the
involvement of senior management and the Board of Directors and its objectives
are a top priority. CapRock has undertaken various initiatives intended to
ensure that its computer equipment and software will function properly with
respect to dates in the year 2000 and thereafter. Computer equipment and
software includes systems that are commonly thought of as Information
Technology, or IT, systems, including accounting, data processing, telephone/PBX
systems,

28
<PAGE> 31

scanning equipment and other miscellaneous systems, as well as systems that are
not commonly thought of as IT systems, such as alarm systems, fax machines or
other miscellaneous systems. Based upon its identification and assessment
efforts to date, CapRock believes that certain computer equipment and software
it currently uses will require replacement or modification. In addition, in the
ordinary course of replacing computer equipment and software, CapRock will
obtain replacements that are year 2000 compliant. CapRock currently estimates
that the year 2000 identification, assessment, remediation and testing efforts
will be substantially complete by June 30, 1999 and that such efforts will be
completed before any currently anticipated impact on its computer equipment and
software. CapRock has substantially completed the identification and assessment
process. CapRock estimates that it currently has completed approximately 70% of
the initiatives that it believes will be necessary to address potential year
2000 issues relating to its computer equipment and software. The projects
comprising the remaining 30% of the initiative are in process and are expected
to be completed on or about June 30, 1999.

<TABLE>
<CAPTION>
YEAR 2000 INITIATIVE TIME FRAME
- -------------------- ----------
<S> <C>
Identification and assessment regarding IT system issues.... Completed
Remediation and testing regarding critical system issues.... 6/98-3/99
Identification, assessment, remediation and testing
regarding desktop and individual system issues............ 6/98-6/99
Identification and assessment regarding non-IT system
issues.................................................... 8/98-4/99
Remediation and testing regarding non-IT systems............ 11/98-6/99
</TABLE>

CapRock has mailed questionnaires to its significant vendors, service
providers and customers with whom CapRock's systems electronically interface to
determine the extent to which such interfaces and system processes are
vulnerable to year 2000 issues and whether the products and services with such
entities are year 2000 compliant. Substantially all of the parties have
responded to the request and no significant matters were noted from these
responses. However, the information contained in a number of the responses was
generic in nature and did not specifically address the stage of their year 2000
initiatives. CapRock will continue seeking alternate vendors in advance of
December 31, 1999 in the event satisfactory responses are not received.

CapRock anticipates that costs of replacing or remediating non-compliant
systems will not exceed $500,000 (remediation costs incurred to date have been
immaterial). Such expenditures represent less than 1% of 1999 projected capital
expenditures.

CapRock has evaluated its systems and has identified the following systems
and functions as mission critical:

- switching systems,

- network operations and fiber,

- satellite/microwave transmission equipment and satellite service
providers,

- billing and call record collection systems, and

- supply chain (vendor provider of switched services).

Switching Systems:

Switching equipment is used to connect calls to their destination, while
performing other advanced features and recording call record information for
future billing. The switch opens or closes circuits or selects the paths or
circuits to be used for the transmission of information. CapRock currently owns
six switches, three of which are physically located in Dallas, Texas (two are
calling card platforms), two in Houston, Texas and one in Phoenix, Arizona.
CapRock also manages a switch in Jersey City, New Jersey. CapRock has completed
the assessment and certain test procedures relating to the switching equipment
and has identified certain non-compliant features, which can be remediated
through software upgrades.

29
<PAGE> 32

The upgrades are currently available by the respective manufacturer of the
switches. All of the software upgrades are scheduled to be installed by March
31, 1999.

By March 31, 1999, CapRock anticipates that the remainder of the testing
procedures for the switching equipment will be substantially complete for all
switches which are currently operational. The switches which have not been
placed in service will be subject to integrated test procedures prior to being
placed in service. The test will incorporate the call collection processes and
the interfaces with the billing system. The test will involve simulating date
changes with the switch, such that the call records will be processed, rated and
properly captured in the billing system as a billable transaction.

The test procedures will consist of the following:

- process flow analysis,

- documentation of overall integrated test strategy,

- documentation and test case plans at an individual component level,

- committee agreement regarding the test plan,

- execution of the integrated test plan, and

- documentation regarding the results of test procedures.

Network Operations and Fiber:

CapRock currently owns and operates an 800-route mile fiber optic network,
which was substantially completed by December 31, 1998. Approximately 260 route
miles were completed and placed in service in January 1997. The network is
currently being expanded to 5,500 route miles (which CapRock expects to be
completed by the end of the year 2000). The fiber optic network is designed to
be scalable and will include network-advanced fiber, which is capable of
supporting dense wave division multiplexing with an OC-48 backbone scaleable to
OC-192. The fiber optic network will include electronic equipment, which
regenerates and transports the voice, data and other information. A detailed
assessment of the network operations and fiber equipment has been performed and
no significant non-compliant issues have been identified.

Satellite/Microwave Transmission Equipment and Satellite Service Providers:

CapRock utilizes satellite service providers to provide communications
services to certain customers in remote locations. CapRock has sent
correspondence to each of the three vendors supplying the satellite services.
Each of the satellite service providers has responded. CapRock is continuing to
pursue additional information and test data from these providers and will seek
new providers, if necessary.

Billing and Call Record Collection Systems:

CapRock handles its provisioning, customer care, billing and traffic
reporting functions on a proprietary software platform currently being developed
by RiverRock Systems, Ltd., a Texas limited partnership, in which CapRock is a
limited partner. These operations support systems, or OSS, and other back office
systems are used to enter, schedule and track a customer's order from the point
of sale to the installation and testing of service. The systems also include or
interface with trouble management, inventory, billing, collection and customer
service systems. The system is scalable and flexible to support CapRock's
expected future back office requirements. The test procedures relating to the
billing system and call record collection processes will be performed in
conjunction with the switching equipment test procedures and are anticipated to
be substantially complete by March 31, 1999.

CapRock believes that substantially all of the hardware, database platform
and operating systems impacting the billing system function are year 2000
compliant.

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Supply Chain (Vendor Provider of Switch Services):

CapRock is dependent upon a number of telecommunications carriers during
the process of initiating and terminating calls to end-users. CapRock has sent
correspondence to each of the significant suppliers regarding their year 2000
status and has received substantially all of the responses from such suppliers.
However, the information contained in a number of the responses was generic in
nature and did not specifically address the stage of their year 2000
initiatives.

Based upon CapRock's current assessment and responses from vendors, CapRock
believes that the risks associated with year 2000 relating to domestic traffic
and terminations are not significant. CapRock is in the process of evaluating
the impact of year 2000 as it relates to the termination of traffic in
international locations, and specifically third world and developing countries.

CONTINGENCY PLANS

CapRock has begun, but not yet completed, a comprehensive analysis of
problems and costs, including loss of revenues, that would be reasonably likely
to result from the failure by CapRock or certain third parties to complete
efforts necessary to achieve year 2000 compliance on a timely basis.

CapRock has not yet completed its identification of the most likely worst
case scenario. However, CapRock believes that the most reasonably likely worst
case scenario would involve loss of revenues relating to traffic terminating in
certain developing third world countries, which have not adequately prepared for
the year 2000. CapRock relies upon certain vendors to supply international
services and the possibility exists that some of the traffic in these developing
third world countries may not be able to be completed. The estimated loss of
revenue, if any, has not been determined, and we may not be able to identify the
amount of any loss by the year 2000. Depending on the systems affected, the
failure of any contingency plans developed by CapRock, if implemented, could
have a material adverse effect on CapRock's financial condition and results of
operations.

The contingency plans include a proactive analysis of countries that are
actively pursuing year 2000 remediation. CapRock is using outside consultants to
assist with an analysis of countries that are not actively pursuing year 2000
compliance and remediation. Contingency plans include identifying these
countries noted with substantial risk and potentially redirecting the sales and
marketing efforts to other countries less likely to be affected by year 2000
problems.

CapRock is still formulating contingency plans relating to the use of the
satellite service providers. CapRock continues to actively pursue receiving test
data and procedures from these service providers regarding year 2000 compliance.
CapRock will consider utilizing other service providers if the current service
providers cannot demonstrate compliance to CapRock's satisfaction by June 30,
1999.

CapRock is still formulating contingency plans regarding significant
suppliers of telecommunication services, which may suffer a year 2000-related
failure. CapRock utilizes a number of different service providers and the
contingency plan will include re-routing traffic from a vendor which has
experienced a year 2000 systems failure to another vendor(s).

DISCLAIMER

The discussion of CapRock's efforts, and management's expectations,
relating to year 2000 compliance are forward-looking statements and the dates on
which CapRock believes it will complete such efforts are based upon management's
best estimates. These estimates were derived using numerous assumptions
regarding future events, including the continued availability of certain
resources and other factors. We cannot assure you that these estimates will
prove to be accurate, and our actual results could differ materially from those
currently anticipated. Specific factors that could cause such material
differences include, but are not limited to the availability and cost of
personnel trained in year 2000 issues, the ability to identify, assess,
remediate and test all relevant computer codes and embedded technology and
similar uncertainties. In addition, variability of definitions of "compliance
with year 2000" relating to products and services sold by CapRock may lead to
claims whose impact on CapRock is currently not estimable. We
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cannot assure you that the aggregate cost of defending and resolving such
claims, if any, will not materially adversely affect our results of operations.

MARKET RISK

CapRock is exposed to market risk from changes in marketable securities
(which consist of money market and commercial paper). At December 31, 1998,
marketable securities of CapRock were recorded at a fair value of approximately
$97 million, with an overall average return of approximately 5% and an overall
weighted average of less than 1 year. The marketable securities held by CapRock
have exposure to price risk, which is estimated as the potential loss in fair
value due to a hypothetical change of 50 basis points (10% of CapRock's overall
average return on marketable securities) in quoted market prices. This
hypothetical change would have an immaterial effect on the recorded value of the
marketable securities.

CapRock is not exposed to material future earnings or cash flow
fluctuations from changes in interest rates on long-term debt since 100% of its
long-term debt is at a fixed rate of December 31, 1998. The fair value of
CapRock's long-term debt at December 31, 1998 was estimated to be $144 million
based on the overall rate of the long-term debt of 12% and an overall maturity
of 9.5 years compared to terms and rates currently available in long-term
financing markets. Market risk is estimated as the potential decrease in fair
value of CapRock's long-term debt resulting from a hypothetical increase of 100
basis points in interest rates (ten percent of CapRock's overall borrowing
rate). Such an increase in interest rates would result in approximately a $5.1
million decrease in fair value of CapRock's long-term debt. To date, CapRock has
not entered into any derivative financial instruments to manage interest rate
risk and is currently not evaluating the future use of any such financial
instruments.

CapRock conducts business in Aberdeen, Scotland, through a wholly owned
subsidiary. However, the business transacted by this subsidiary is in the local
functional currency. Therefore, CapRock does not currently have any exposure to
foreign currency transaction gains or losses. All other business transactions
are in U.S dollars. To date, CapRock has not entered into any derivative
financial instrument to manage foreign currency risk and is currently not
evaluating the future use of any such financial instruments.

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BUSINESS

CapRock owns and operates a scalable long-haul fiber network which upon
completion, is expected to cover approximately 5,500 route miles throughout the
Southwest region, which includes Texas, Louisiana, Arkansas, Oklahoma and New
Mexico. This fiber network supports the voice, data, bandwidth and dark fiber
services we provide to our carrier and retail customers. Our 1998 revenues were
$121.8 million and EBITDA (exclusive of merger related expenses of $2.3 million)
was $15.0 million. Over the past five years, our revenues have grown at a
compound annual growth rate of 55%.

We intend to build the most extensive alternative fiber network in the
Southwest region, which will allow us to serve nearly every primary, secondary
and tertiary city within the region. Our fiber network is scalable, and we are
deploying a minimum of 96 fibers and two to three spare conduits along each
route. Each fiber is capable of supporting dense wave division multiplexing, and
each conduit is capable of housing a cable with hundreds of additional fibers.
In order to reduce the cost of fiber retained for our own use, we intend to sell
excess fiber to other carriers. We are currently in discussions for the sale of
fiber over segments of our network with over 25 carriers. Consistent with our
planned network deployment schedule, approximately 800 route miles of the
long-haul fiber network were substantially completed at year-end 1998. We
currently have another 1,870 route miles under construction and expect to have
approximately 3,000 route miles completed by the end of 1999, with the remainder
of the 5,500 mile network expected to be completed by the end of 2000. We
recently entered into an agreement with Enron Communications to jointly build
approximately 1,050 miles of fiber network in Texas. We believe that this
agreement and any other similar agreements we may execute in the future may
enable us to significantly lower the overall cost of network construction as
well as accelerate its deployment.

In addition to our extensive fiber network, our voice network facilities
include seven local and long distance switches (six which we own and one which
we manage) with another four local switches scheduled to be installed in the
second and third quarters of 1999. We plan to colocate our equipment in 20
central offices with incumbent local telephone companies (13 of which are
currently in process) for the provision of local services using unbundled
network elements, or UNEs, by the end of 1999. We also plan to purchase and
deploy in the second and third quarters of 1999 ten ATM data switches to support
our Internet, frame relay and ATM services.

providing dark fiber to these carriers at several border crossings enabling them
to close open fiber rings in Mexico by using CapRock fiber on the U.S. side of
the border. Additionally, our direct connect agreements with foreign carriers
position us to capture increased levels of growing international traffic.

Our executive management team has extensive experience in developing
advanced telecommunications networks as well as significant executive managerial
experience. Jere W. Thompson, Jr., our Chief Executive Officer and Chairman of
the Board, founded CapRock Fiber in 1992, became President of CapRock
Telecommunications in 1994 and has overseen the development of our company since
that time. Ignatius W. Leonards, our President, founded IWL Communications and
has over 24 years of telecommunications industry experience. Kevin W. McAleer,
our Chief Financial Officer, has over 17 years of experience as the chief
financial officer of several publicly held companies. In addition, Scott L.
Roberts, our Executive Vice President of International Sales, Timothy W. Rogers,
our Executive Vice President of Retail Sales and Network Operations, and Timothy
M. Terrell, our Executive Vice President of Carrier Sales, were all co-founders
of CapRock Telecommunications and prior to that were employed as directors and
managers in the carrier sales divisions of Qwest and Sprint. Byron M. Allen,
Executive Vice President, International, has six years of experience in the
domestic and international telecommunications industry. After the offering, our
management team will continue to beneficially own approximately 67% of our
common stock.

MARKET OPPORTUNITY

We believe that a substantial market opportunity exists for us as a result
of the following factors:

- attractive growth dynamics of the Southwest region,

- rapidly developing telecommunications technologies,

- growing demand for data services and Internet access,

- need for integrated communications solutions for small and medium-sized
businesses,

- increasing traffic between the U.S. and Mexico, and

- the 1996 Telecommunications Act.

Attractive growth dynamics of the Southwest region. We believe that there
is a significant opportunity in the Southwest region. Incumbent local telephone
companies, or ILECs, still control almost 98% of the local service market, and
the population of the Southwest region is large and growing rapidly. Texas is
the second largest state in the U.S., and its population is expected to exceed
20 million in 1999. Over the past two years, Texas was the second fastest
growing state in terms of total population and new job creation. The combined
population of the Dallas/Ft. Worth, Houston and San Antonio metropolitan areas
exceeds the total populations of each of 43 other states. Based on statistics
published by the Federal Communications Commission (FCC), in 1998 there were
over 5.4 million business access lines, approximately 12.0 million residential
access lines and a total of approximately 17.4 million total access lines in the
Southwest region. We believe that access lines in this region will grow slightly
more than 5% annually.

Rapidly developing telecommunications technologies. Advances in various
telecommunications technologies, such as high speed optical transmission
electronics, dense wave division multiplexing, or DWDM, and packet-switches are
reducing the cost structure of newly-deployed telecommunications networks. High
speed OC-192 transmission electronics operate at approximately 10 billion pulses
of light per second, four times faster and far more cost effective than prior
generation electronics. Dense wave division multiplexing significantly increases
the transmission capacity of a single strand of fiber optic cable (it can
increase the carrying capacity of a single fiber 32 fold by allowing
simultaneous transmission of up to 32 optical channels per fiber). High
performance packet switches break up data into "packets." Compared to circuit
switches, packet switches are almost half the cost on a per port basis and
utilize bandwidth more than ten times as efficiently for the transmission of
voice and data. These technologies effectively combine to

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manufacture more bandwidth and to make it faster and available to more locations
and at lower costs than ever before.

Growing demand for data connections and Internet access. Demand for
bandwidth is being fueled by the demand from data and Internet services.
Although rapid access to information and the ability to distribute it quickly
through the use of data connections are critical to businesses, many of the
nation's businesses do not have access to data services, especially small and
medium-sized businesses located in secondary and tertiary cities. Market studies
estimate that, in response to this demand, spending on end-user subscriptions
for data services will grow at an annual rate of 77% over the next four years.
In addition, the proliferation of local area networks, wide area networks,
private networks, Internet services, e-mail and other enhanced services has
caused data transmissions to become a significant and increasing portion of
overall telecommunications traffic. These services are expected to drive much of
the growth in the data communications market. As a result, the data services
market has been the fastest growing segment of the communications industry,
expanding at a rate five times faster than the voice services market, with an
increase from approximately $3.7 billion in revenues in 1994 to approximately
$9.9 billion in revenues in 1997. Market studies estimate that the data
communications services market will grow to approximately $24.3 billion in
annual revenues by the end of 2001, representing a compound annual growth rate
of 25% from 1997.

Need for integrated communications solutions for small and medium-sized
businesses. Currently the vast majority of the nation's small and medium-sized
businesses need to deal with multiple communications providers to obtain their
communications needs. These businesses tend to use the incumbent local telephone
company for local services, long distance carriers for long distance services,
equipment integrators for on-premise voice and network systems, and Internet
service providers for Internet access. As a result, we believe that there exists
a significant and growing demand from businesses for the provision of advanced
telecommunications services from a single provider that can not only provide a
convenient bundled package of products and services, but also provide integrated
customer care and support.

Increasing traffic between the U.S. and Mexico. We believe that over half
of the traffic between Mexico and the U.S. passes through border crossings along
the Texas border. In 1997, Mexico was the second largest destination for U.S.
outbound telecommunications traffic, accounting for approximately 12.1% of the
total international traffic originating in the U.S. The U.S. is the largest
destination of outbound traffic from Mexico, accounting for approximately 89% of
its total international traffic. In 1997, the telecommunications traffic into
Mexico was approximately 2.9 billion minutes, while outgoing traffic amounted to
approximately 1.2 billion minutes. International calling tends to be price
elastic: as rates fall, volume increases. Rates into Mexico have steadily
dropped over the past four years, and traffic volume has increased
commensurately. CapRock has a direct connection into Mexico with a Mexican
carrier, which enables us to provide reliable, high quality terminations to our
customers. We are in discussions with several Mexican carriers regarding
potential sales or exchanges of dark fiber.

The 1996 Telecommunications Act. Competition in the telecommunications
industry has been impacted significantly by the 1996 Telecommunications Act.
This act allows competitive carriers to use the existing incumbent local carrier
infrastructure, as opposed to building a competing infrastructure at significant
cost. The 1996 Telecommunications Act requires all incumbent carriers to allow
competitive carriers to colocate their equipment along with incumbent carrier
equipment in incumbent carrier central offices. This enables competitive
carriers to access end users through existing telephone line connections. The
1996 Telecommunications Act creates an incentive for incumbent carriers that
were formerly part of the Bell system to cooperate with competitive carriers.
These incumbent carriers cannot provide long distance service until regulators
determine that there is competition in the incumbent carrier's local market.

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BUSINESS STRATEGY

- Build the region's most advanced, scalable and extensive fiber optic
network. We believe that existing fiber networks cannot meet the
bandwidth needs of businesses and carriers in the Southwest region. We
also believe that the secondary and tertiary markets located between the
major markets in this region are underserved, creating a significant
market opportunity. To address this need, we are currently expanding our
network to cover approximately 5,500 route miles throughout the Southwest
region. We intend to construct the most extensive and advanced fiber
network in the region. By installing multiple conduits, along with a
large number of advanced fiber strands in each conduit that are capable
of supporting dense wave division multiplexing, we are creating a robust
network that will have significant flexibility to add capacity to meet
future customer demand. The unused conduits allow us to add fiber and to
cost-effectively deploy future generations of optical networking
components, which will expand capacity and reduce per unit costs, without
new construction. Through our use of these technologies, we believe that
we can rapidly scale our network to support the demands for increased
bandwidth, that the bandwidth we utilize is lower in cost and that the
markets we can reach are greater in number. We intend to have our network
interconnect with the networks of selected Mexican carriers at multiple
border crossings, creating international synchronous optical network, or
SONET, ring connections between the United States and Mexico. Given the
strong demand for dark fiber over the past year, we increased our planned
network build out from approximately 4,300 route miles to approximately
5,500 route miles.

- Create a strategic, regionally focused asset. We are focused on the
Southwest region because of the region's size, attractive growth
prospects and its border with Mexico, and because we believe that as a
region it is currently underserved by other major telecommunications
providers. We believe that existing fiber networks cannot meet the fiber
and bandwidth needs of businesses and carriers in the Southwest region.
This creates a significant market opportunity for an alternative network
provider that offers communications services throughout this region. Our
network has been designed to complement existing major long haul fiber
networks. To the extent possible, our routes are geographically diverse
from the existing fiber networks of AT&T, MCI WorldCom, Sprint, Qwest and
IXC. We also believe that the majority of communications traffic is
regional in nature. By concentrating our network build within a region,
we feel we can maximize the amount of traffic that originates and
terminates end-to-end on our network, which captures significant regional
traffic and allows us to maximize our gross profit margins and returns on
invested capital.

- Pursue a cost-effective network build. While our fiber network
principally supports our voice, data and bandwidth products, we also
expect the network to provide us with significant financial benefits.
Demand for dark fiber is strong, so we intend to sell excess dark fiber
to third parties. Also, we may enter into arrangements with other
carriers, similar to our agreement with Enron Communications, to jointly
build certain segments of our fiber network. These dark fiber sales and
joint build arrangements may enable us to accelerate our construction
schedule and significantly lower the cost of fiber retained for our own
use. We believe that on a per fiber mile basis we will own one of the
lowest net cost networks in the Southwest region.

- Focus on high value-added local switching infrastructure. As we enter
markets, we initially provide local services by reselling the services of
the incumbent local telephone companies. As we obtain enough customers to
economically justify the deployment of local switches, we plan to migrate
our resale customers to our own switching facilities. We also intend to
reach our customers by utilizing either the unbundled network elements of
ILECs or the fiber facilities of other CLECs. We believe that this
"success-based capital deployment" strategy, whereby we deploy capital
incrementally and only in attractive markets with an existing customer
base, will enable us to construct a network and

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facilities that can serve customers in all of our markets, while
minimizing risk and the substantial up-front capital expenditures in
unproven markets. We are constantly exploring alternative technologies to
provide local loop, or last-mile connectivity, to customers in our target
markets, such as digital subscriber lines (DSL) and local multipoint
distribution systems (LMDS).

- Provide bundled communications solutions to small and medium-sized
businesses. We believe that there is a strong desire among small and
medium-sized business customers to simplify their operations by dealing
with a single telecommunications provider for an integrated package of
communications services. We currently offer local, long distance,
Internet, data and private line services. In addition, we also offer
asynchronous transfer mode (ATM), frame relay, Integrated Services
Digital Network (ISDN), Web server hosting, and other enhanced services
not generally available from the ILECs (or available only at prices
higher than those that we intend to charge). We believe that our ability
to provide a wide array of integrated services, to invoice these services
on a single bundled bill, and to serve as a single point of contact for
sales and service will enable us to (1) better compete in and to rapidly
penetrate our targeted markets, (2) capture virtually all of our existing
and newly acquired customers' expenditures for telecommunications
services and equipment, (3) enhance our profit margins, (4) increase
customer satisfaction, and (5) maintain lower customer churn. In
addition, we believe that our cost structure in offering bundled local
and long distance services will allow us to offer those services at a
bundled price that will be substantially lower than those services
purchased separately.

- Pursue acquisitions and strategic alliances. As part of our growth plan,
we routinely engage in discussions with other companies considering
potential business ventures and combinations. In our target markets, a
large number of small private companies provide local, long distance,
data, and Internet services, as well as telecommunications equipment.
This fragmentation creates opportunities to acquire industry participants
that can provide additional management talent, customers and product
extensions. In addition, as part of our strategy to rapidly deploy our
network, we intend to pursue strategic relationships with cable
television companies, utilities, state transportation departments and
other governmental authorities. By utilizing strategic alliances, we
believe we will be able to enter our target markets quickly and
efficiently and will be able to reduce the up-front capital investment
required to develop our network. Our agreement with Enron Communications
to jointly build approximately 1,050 miles of fiber network in Texas is
an example of this strategy. This agreement and any other similar
agreements we may execute in the future may enable us to accelerate the
construction schedule for our network and significantly lower the cost of
fiber retained for our use.

- Build market share through personalized sales and customer service. We
focus on superior customer service and offer our integrated services
primarily to small and medium-sized businesses. Unlike large corporate,
government, or other institutions, small and medium-sized businesses
often do not have the necessary in-house personnel required to manage and
implement complex telecommunications solutions. As a result, we believe
that a consultative direct sales effort combined with a superior and
personalized customer care program that provides customers with a
comprehensive turn-key telecommunications solution will give us a
competitive advantage in capturing our customers' total
telecommunications traffic. As of February 28, 1999, our direct sales
force consisted of 100 account executives and managers in Dallas, Ft.
Worth, Houston, San Antonio, Austin and Victoria, Texas, as well as
Lafayette, Louisiana. In addition, we had 115 sales agents located
throughout Texas. We intend to recruit, train and deploy approximately an
additional 100 account executives by the end of 1999. We believe that our
low customer attrition in 1998, which was less than 3% for the entire
year, was achieved because of our superior customer service.

- Leverage our advanced back office systems. We handle our provisioning,
customer care, billing and traffic reporting functions through a
proprietary software platform developed by RiverRock Systems, Ltd., a
Texas limited partnership in which we have a 49% ownership interest. The
system has been designed to be both scalable and flexible in order to
support our expected future back
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office requirements. We believe that this system provides us with a
significant competitive advantage by allowing us to creatively bundle and
price various telecommunication services, to process large order volumes,
and to provide superior customer service when compared to the incumbent
local telephone companies or other providers using legacy systems that
either outsource back-office services or that do not have an advanced
office support systems platform. The RiverRock system is part of a larger
back office organization which enables us to: (1) minimize the time
required to initiate services for new customers, (2) provide customer
bills, (3) respond quickly to customers' needs and information requests,
and (4) better monitor and analyze traffic, financial and operating
trends. We intend to continue to develop this system to meet increasing
demands for our services and to continue to provide our customers with
superior customer care.

NETWORK BUILD OUT AND FINANCING PLAN

By the end of the year 2000, we intend to build out our fiber optic network
to approximately 5,500 route miles throughout the Southwest region. We began
constructing and operating a regional fiber network in 1993. We completed
construction of the first 260 route miles of our fiber network in 1997, and at
the end of 1998, the first 800 route miles of our scalable, regional fiber
network were substantially completed, linking San Antonio, Laredo, McAllen,
Harlingen, Corpus Christi, Victoria and Houston, Texas. Over the past two years,
we have met substantially all of our milestones with respect to our construction
schedules and budgets. We currently have approximately 1,870 route miles under
construction and expect to have approximately 3,000 route miles completed by the
end of 1999, linking south Texas, San Antonio, Houston, Austin, Waco, Dallas,
Fort Worth, Amarillo, Oklahoma City, Tulsa, Little Rock, Monroe and New Orleans.
We expect that the remainder of the 5,500 route mile fiber network will be
completed by the end of the year 2000. Given the increased demand for our
fiber-based telecommunications services over the past year, we increased our
planned network build out from approximately 4,300 route miles to approximately
5,500 route miles.

We believe that our network, once completed, will be the most extensive
alternative fiber network in the Southwest region and will enable us to serve
nearly every primary, secondary and tertiary city in the region. Our network is
designed to be scalable and will have significant excess capacity to meet future
demand and flexibility to accommodate new fiber technology and electronics. We
are burying three to four conduits throughout our network. We are installing in
a conduit a minimum of 96 Lucent Truewave and single-mode fibers. Both Truewave
and single-mode fiber are capable of supporting dense wave division
multiplexing. We intend to retain on average 24 fiber strands throughout most of
our network. The routes of the network are primarily constructed on state
highway and county road rights-of-way, and are planned to be generally
geographically diverse from the existing fiber networks of AT&T, Sprint, MCI
WorldCom, and IXC. The fiber network will also interconnect with the fiber
networks of selected Mexican carriers at multiple border crossings.

Through the continuing and successful integration of IWL Communications and
its personnel and network facilities, we have been able to continue developing
our fiber network and our switching facilities. In addition to our extensive
fiber network, our network facilities also include seven local and long distance
switches (six which we own and one which we manage), with another four local
switches scheduled to be installed in the second and third quarters of 1999. We
plan to colocate our equipment in 20 central offices with incumbent local
telephone companies (13 of which are currently in process) for the provision of
local services using UNEs by the end of 1999. We also plan to purchase and
deploy in the second and third quarters of 1999 ten ATM data switches to support
our Internet, frame relay and ATM services.

We estimate total gross capital expenditures of approximately $410 million
to complete our planned regional network build out, including fiber,
transmission electronics, voice and data switches and corporate capital
expenditures. With our cash and marketable securities, cash flow from
operations, and the expected net proceeds from this offering, the planned
completion of the network through the end of 1999 will be fully funded, and we
believe that those sources of capital together with, vendor financings,
borrowings under the credit facility that we are currently negotiating, and
anticipated sales of dark fiber will be sufficient to fully fund completion of
the network as planned. We are currently cash flow positive, with
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EBITDA of $8.8 million in 1997 and EBITDA of $15.0 million in 1998 (exclusive of
merger related expenses).

To reduce the cost of fiber retained for our own use, we have sold in the
past and intend to sell in the future conduit and dark fiber to third parties.
In the past, we have jointly constructed segments with Teleport Communications
Inc., a competitive local phone company, and with TCI Communications Inc., a
cable television company, and we recently announced our agreement with Enron
Communications to jointly build approximately 1,050 miles of fiber network in
Texas. Through this joint build arrangement, we will connect Amarillo, Lubbock,
Dallas, Fort Worth, Waco, Bryan, Austin, San Marcos, San Antonio and Houston,
Texas. The partnership we formed with Enron Communications is installing four
conduits throughout the 1,050 miles. We intend to jointly market 96 of the 192
fibers installed. Of the remaining 96 fibers, we will own 48 fibers and Enron
Communications will own 48 fibers. The joint build arrangement provides several
benefits, including reduction of construction costs, accelerated acquisition of
right of way and franchise agreements, a majority of which are essentially in
place, and the freeing up of resources to potentially accelerate the build of
the remaining portion of the network. This agreement and any similar agreements
we may execute in the future may enable us to accelerate our construction
schedule and accelerate the rate of deployment of our network, which in turn may
accelerate our need for additional capital. Each city-pair segment of our fiber
network is operational upon completion of construction. Should network
construction be slowed or postponed, our existing network is still operational
and our integrated services strategy can continue essentially unchanged.

By installing a large fiber count, advanced fiber capable of supporting
dense wave division multiplexing and spare conduits, the network will be
scalable and will have significant flexibility to add capacity to meet future
demand. The integrity and survivability of the network will be enhanced through
the design of multiple SONET rings, and its diverse location from existing
longhaul networks. The expanded network is expected to deliver the following
significant strategic and financial benefits to us: (1) substantial savings by
allowing us to move onto our own network a significant portion of the traffic
that we currently carry on circuits which we lease from other carriers; (2) high
capacity new routes allowing us to increase revenues by leasing additional
circuits to our customers, including high capacity circuits such as OC-3s,
OC-12s, and OC-48s; (3) lower underlying transmission and network operating
costs; (4) sufficient capacity to support increasing demand from Internet,
multimedia applications, frame relay and ATM; and (5) reduced capital costs
through sales and exchanges of excess fiber which we are including in our
network expansion specifically for that purpose.

We also provide services to our oil and gas company customers through a
satellite network consisting of leases for access to multiple satellites, a
microwave network, two-way radio licenses and carrier agreements for long
distance service combined with a switch-based network. Our microwave network
includes a system that has been built by us onshore in the Southwest region and
extends offshore into the Gulf of Mexico. We believe that the fiber and
microwave network we have created to support our oil and gas industry customers
has excess capacity and can readily support integrated communications'
activities in secondary and tertiary markets along the Texas and Louisiana Gulf
Coast, where we expect less competition for customers than in the larger
markets. We intend to leverage our project management skill set and expertise by
supplying communications services to customers outside of the oil and gas
industry, particularly customers with operations located near our existing and
planned communications infrastructure.

We are currently negotiating with a bank to obtain a senior credit facility
in the amount of $100 million. The credit facility is expected to have a
five-year term, with the entire principal due at maturity, and will contain
standard and customary restrictive covenants, including financial covenants. As
our network build out proceeds and our customer base expands, we will consider
refinancing a portion of our borrowings under the credit facility with long-term
indebtedness. While we believe that the credit facility will be completed, we
cannot assure you that this will be the case and, as a result, we may need
additional capital from other sources to complete construction of our network,
or we may need to delay or curtail the build out of portions of our expanded
network.

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PRODUCTS AND SERVICES

Carriers' Carrier

We intend to establish ourself as the premier carriers' carrier within the
Southwest region, providing voice, data, broadband and dark fiber services over
the most extensive advanced fiber optic network in the Southwest region. Carrier
service principal products are: long distance terminating access, calling cards,
dark fiber, and bandwidth provision. Our carrier customer base includes more
than 100 carriers, including AT&T, IXC, MCI WorldCom, Qwest and Sprint, and
including regional independents such as Century Telephone Enterprises, Inc. and
Lufkin Conroe Telephone.

Long Distance Terminating Access. This service enables carrier customers to
terminate regional, domestic or international long distance calls through our
switches. We terminate calls over our own network and feature groups established
with incumbent local telephone companies or through other carriers providing
services to us. We sells these services on a per-call basis, charging by minutes
of use, or MOUs, with payment due monthly after services are rendered.

Bandwidth Provision. We offer T-1, DS-3, OC-3, OC-12 and OC-48 capacity and
individual wavelength channels to our carrier customers. Carriers utilize the
broadband capacity to support their voice and data traffic requirements and to
provide diverse routing as backup in the event of a fiber cut along their
primary routes. Services are provided generally through one year contracts,
requiring fixed monthly payments, generally in advance.

Dark Fiber. We lease and sell excess dark fiber to carrier customers over
our fiber network. We are burying three to four conduits and installing a cable
with a minimum of 96 fiber strands throughout our 5,500 mile fiber network. We
intend to retain an average of 24 fibers for our own use and to continue to
lease or sell excess capacity to lower our net cost for fiber retained for our
own use. Dark fiber lease contracts are generally for a minimum of ten years
with multiple five year renewals at discounted rates. Dark fiber sales are in
the form of indefeasible right of use contracts for terms for 20 years and
longer.

Integrated Services

We intend to become the dominant integrated communications provider in the
Southwest region, offering local, long distance, Internet, data and private line
services to end-user customers on an integrated basis invoiced on a single,
bundled bill. We believe that our ability to provide integrated services, and to
invoice these services on a single, bundled bill enables us to (1) better
compete in and rapidly penetrate our targeted markets, (2) capture virtually all
of our existing and newly acquired customers' expenditures for
telecommunications services and equipment, (3) increase customer satisfaction,
and (4) maintain low customer churn.

We offer (or, where indicated, intend to offer) the following products:

Local. These services offer customers local switched and enhanced services.
We intend to continue to obtain local telephone services from incumbent local
telephone companies on a total service resale, or TSR, basis and as demand
economically justifies, to install local switches and migrate customers to our
network utilizing unbundled network elements leased from incumbent local
telephone companies for last mile local lines. We believe this approach
significantly boosts our gross margins, maximizes our return on invested
capital, and reduces the time required to enter new markets.

One Plus Long Distance. This service offers customers the ability to make
outbound switched long distance calls by simply dialing a 1, plus the area code
and phone number. Customers can select us as their primary long distance
provider by placing an order with us. This service may be used for both domestic
and international calling.

Long Distance Dedicated Service. This service is designed for larger users
with sufficient long distance traffic volume to warrant the use of dedicated
lines directly to the customer to originate calls. Instead of long distance
calls switched through the ILEC, this service uses a dedicated line that
directly connects the

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end user and our switch. This eliminates ILEC originating access fees and
reduces per minute rates to the user.

Internet. We provide Internet services to approximately 800 customers. The
services include e-mail server, news server and hosting of customer web pages.

Data. Frame relay and ATM data services are currently provided on a resale
basis. Our fiber network has been designed to provide a platform to support high
capacity, bandwidth-intensive products. We intend to migrate our data services
onto our own data and fiber networks as these networks are built out.

Private Lines. This service provides customers dedicated broadband
capacity, typically T-1s and DS-3's. Private lines enable customers to connect
directly to their long distance carriers, bypassing the ILEC and thereby
reducing long distance rates. Private lines also enable customers to establish
virtual private wide area networks for data and voice transmissions between or
among multiple locations.

Toll Free 800/888. This inbound service, where the receiving party pays for
the call, is accessed by dialing an 800/888 area code. This is used in a wide
variety of applications, many of which generate revenue for the user (such as
reservation centers or customer service centers).

Calling Card. These traditional, basic telephone calling cards allow the
user to place calls from anywhere in the United States, Canada and later in 1999
we plan to expand our service to include Mexico. We also offer additional
features including conference calling and speed dialing.

Prepaid Card. Prepaid cards allow a customer to purchase and pay in advance
for a card with a fixed amount of calling time. The card is then used as a
standard calling card from which time is deducted when used. Prepaid cards may
be purchased with enhanced features similar to those of calling cards and also
may be renewed by purchasing additional time.

System Services

We intend to maintain our position as a major provider of
telecommunications services to remote installations, primarily in the Gulf of
Mexico. Our principal products are offshore voice and data services, as well as
the sale and installation of equipment to carry those services.

Offshore Services. We provide offshore voice and data systems and services
to the oil and gas industry in the Gulf of Mexico. Satellite and microwave
transmission media are used depending on the type and location of the drilling
rig involved. Our communications systems are flexible and can be quickly
re-aligned as rigs move to new locations.

Customer Premise Equipment. We currently sell and install telephone and
switchboard equipment to our offshore customers. We intend to add office
switchboard and private branch exchange equipment for our small and medium-sized
business customers. We intend to continue to build our relationships with local
customer premise equipment installation companies in all of our markets for the
purpose of selling and installing customer premise equipment not otherwise
provided by us.

SALES AND MARKETING

Carriers' Carrier. We established a carrier services sales force in 1992.
We believe it competes effectively in this market based on a combination of
price, reliability, quality of service, route diversity, ease of ordering,
ability to obtain traffic information and superior customer service. We market
our carrier services primarily through eight direct sales personnel and four
support specialists located in our headquarters in Dallas. In general, these
sales professionals locate potential customers for our carrier services through
customer referrals, trade forums, trade shows and industry alliances.

Integrated Services. We focus our sales efforts on small to medium-sized
businesses in the Southwest region primarily through two channels: our direct
sales force and our network of independent sales agents. Our direct sales force
and our authorized agents are trained to emphasize our customer-focused sales
efforts, superior customer service and product value. We reinforce building
customer relationships by tying

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a portion of each account executive's and agent's compensation directly to the
longevity of their customer accounts.

As of February 28, 1999, our direct sales force consisted of 100 account
executives in Dallas, Fort Worth, Houston, San Antonio, Austin, and Victoria,
Texas as well as Lafayette, Louisiana. We intend to hire and train approximately
100 additional account executives by the end of 1999 and an additional 100
account executives by the end of 2000.

Our sales personnel call on prospective and existing business customers,
conduct analyses of business customers' telecommunications usage histories and
service needs, and demonstrate how our various service packages will improve a
customer's communications capabilities in a cost-effective manner. Sales
personnel identify potential business customers by several methods, including
customer referral, marketing research, personal telemarketing and through other
networking alliances such as endorsement agreements with trade associations and
local chambers of commerce. We recruit new account executives by emphasizing our
extensive and advanced fiber communications network, broad array of services
bundled on a single bill, superior customer service, attractive compensation and
commission plans, stock option programs, and marketing support plans.

We also have 115 sales agents located throughout Texas. Our agent program
was established in 1996, and consists primarily of independent telephone
equipment vendors authorized by us to market our products and services.
Authorized agents receive recurring commissions based on product, pricing,
volume of usage and customer retention. We have four agent managers who actively
recruit new agents. We intend to add an additional 65 agents in 1999.

Our marketing strategy is built upon the belief that customers want to
reduce the number of providers, simplify the complexity and enhance the value of
their telecommunications needs. To address this strategy, we seek to be a single
source provider, offering the bulk of our customers' needs on single bills and
through single sales channels. We believe that our personalized attention to the
needs of our business customers, coupled with our ability to provide a fully
integrated bill, is appealing to both existing and prospective customers.

Project Management and Offshore Services. We target domestic customers that
require turnkey system solutions and other telecommunications services. Our
sales force sells frequency bandwidth and call completion and system solutions,
which allows us to further develop our own telecommunications infrastructure.

CUSTOMER CARE AND SUPPORT

We believe that our reputation has been built on outstanding customer care.
We strive to provide superior customer care and support for our customers and
believe that personal contact with our customers through knowledgeable, friendly
and efficient customer service representatives is a significant factor in
customer retention. We intend to significantly increase the number of our
customer service representatives as the number of direct and agent sales
representatives grows.

To support our carriers' carrier and integrated services customers, we
operate a call center in Dallas, Texas staffed by our customer service
representatives, who have completed a certification and training program
provided by us. To enhance their effectiveness, we provide ongoing training to
all customer service representatives. Our customer service department uses
on-line, real-time automated systems that provide notes from all prior contacts
with the customer, provide a complete account and payment history for customers
billed by us and enable the customer service representatives to provision new
services and modify existing services on all of our products.

We handle our provisioning, customer care, billing and traffic reporting
functions through a proprietary software platform developed by RiverRock
Systems, Ltd., a Texas limited partnership in which we have a 49% ownership
interest. The system has been designed to be both scalable and flexible in order
to support our expected future back office requirements. We believe that this
system provides us with a significant competitive advantage by allowing us to
creatively bundle and price various telecommunication services, to
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process large order volumes, and to provide superior customer service when
compared to the incumbent local telephone companies using legacy systems and
their competitors that outsource back-office services or that do not have an
advanced office support systems platform. The RiverRock system is part of a
larger back office organization which enables us to: (1) minimize the time
required to initiate services for new customers, (2) provide customer bills, (3)
respond quickly to customers' needs and information requests, and (4) better
monitor and analyze traffic, financial and operating trends. We intend to
continue to develop this system to meet increasing demands for our services and
to continue to provide our customers with superior customer care. See "Certain
Transactions."

We also provide customer support for our offshore products and services
through our full-service support teams in Friendswood, Texas, Lafayette and New
Orleans, Louisiana, Moscow, Russia and Aberdeen, Scotland. Support services
include: (1) on-site maintenance, with over 50 technical specialists on call for
immediate dispatch when customers' communications systems require maintenance;
(2) a network operations center in Friendswood, Texas where our professionals
remotely monitor customers' communications systems throughout the Gulf of Mexico
and around the world seven days a week, 24 hours a day; (3) customer support for
our wireless products; (4) training programs designed to maximize the customers'
communications investment through classroom training at customers' sites and
multimedia video training tools; and (5) research and development for unique
applications where our engineers can custom design or modify hardware to improve
our performance within a particular system.

COMPETITION

Overview. The communications services industry is highly competitive,
rapidly evolving and subject to constant technological change. In particular,
numerous companies offer long distance, local, Internet, data and bandwidth
services, and we expect competition to increase in the future.

Fiber Networks. We intend to expand our fiber optic network to
approximately 5,500 route miles throughout the Southwest region. We expect to
compete with numerous established and start-up national and regional fiber optic
networks owned by long distance carriers, ILECs and CLECs throughout the
Southwest region. These competitors include very large companies such as:

- AT&T,

- MCI WorldCom,

- Sprint,

- Level 3,

- Williams,

- SBC, and

- Qwest.

Each of these companies has greater name recognition, financial, personnel,
technical and marketing resources than we have. We also anticipate that other
providers of local and long distance telecommunications services will plan and
construct fiber networks that could compete with our network. In addition to
long distance carriers and local telephone companies, entities potentially
capable of offering broadband services in competition with our existing and
planned network include:

- other facilities-based communications service providers,

- cable television companies,

- electric utilities,

- microwave carriers,

- satellite carriers,

- wireless telephone system operators, and

- large companies who build private networks.

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Competing networks may also have advanced fiber and operating capabilities
similar to those of our network. Furthermore, we expect that some of our
competitors will compete in our geographic market and directly with us for many
of the same customers along a significant portion of the routes along which we
intend to operate.

Domestic and International Long Distance. We provide long distance services
using our own facilities and by reselling the facilities of other carriers, both
in the United States and between the United States and other countries. The long
distance communications industry is intensely competitive and the marketing and
pricing decisions of the larger industry participants such as AT&T, MCI
WorldCom, and Sprint have a significant impact on us. In addition, significant
consolidation in the industry has created and will continue to create numerous
other entities with substantial resources to compete for long distance business.
Such entities include Excel Communications, Inc., Frontier Communications
Service, Inc. and Qwest. In addition, as a result of the Telecommunications Act
of 1996 (the "1996 Telecommunications Act"), we anticipate that the Federal
Communications Commission ("FCC") may permit the RBOCs and GTE Operating
Companies ("GTOCs") to enter the long distance market in the future. These
larger competitors have significantly greater name recognition, financial,
technical, network and marketing resources. Many may also offer a broader
portfolio of services and have long standing relationships with customers
targeted by us. Moreover, we cannot guarantee that our competitors cannot
negotiate contracts with suppliers of telecommunications services to obtain
conditions of service more favorable than ours. Many of our competitors enjoy
economies of scale that can result in a lower cost structure for transmission
and related terminating costs. Those carriers could bring significant pricing
pressure to bear on us.

We compete in the long distance market primarily on the basis of price,
customer service and the ability to provide a variety of communications products
and services. Customers frequently change long distance providers in response to
lower rates or promotional incentives by competitors. Prices for domestic and
international long distance calls have declined in recent years and we expect
them to continue to decrease further and more rapidly. Indeed, we expect
competition in all of our relevant markets to increase. This increased
competition could adversely affect our net revenue per minute and gross margins.
We cannot guarantee that we can compete effectively in the domestic or
international long distance markets.

Local Exchange Service. Our business objective is to expand significantly
our operations to provide local services. Regulation permitting us to compete in
the local service market has only recently been enacted into law, following
enactment of the 1996 Telecommunications Act. The services we intend to offer
will compete with those offered by ILECs, such as BellSouth, Southwestern Bell
and the GTOCs, as well as very large long distance carriers, such as AT&T, MCI
WorldCom, and Sprint. The ILECs currently dominate the provision of local
services in their respective markets, and the ILECs and the very large long
distance carriers have greater name recognition, financial, technical, network,
marketing and personnel resources than we do. Those entities also hold longer
standing relationships with regulatory authorities at the federal and state
levels than we do. We may also face competition from other current and potential
market entrants, including:

- other CLECs,

- cable TV companies,

- electric utilities,

- ILECs operating outside their current local service areas,

- other long distance carriers,

- wireless telephone system owners,

- microwave owners, satellite carriers,

- private networks built by large companies, and

- start-up telecommunications ventures.

We cannot guarantee that we can compete effectively in the local service
markets.

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Internet Telephony. The FCC currently classifies Internet services as
enhanced services. As a result, federal and state common carrier regulations,
including long distance interstate and intra-state access fees, tariffing,
certification and rate regulation do not apply to the provision of Internet
services. Some Internet service providers, or ISPs, have recently announced
plans to use Internet protocol technologies ("IP Telephony") to introduce
domestic and international long distance services at rates 30% to 50% below
standard long distance rates. Although the FCC intends to review this issue, IP
Telephony could increase pressure on long-distance companies and other
communications companies to reduce prices and margins on domestic and
international long distance services. We cannot guarantee that either we or our
carrier customers will not experience substantial decreases in call volume,
pricing and/or margins due to IP Telephony. We also cannot guarantee that we can
offer telecommunications services to end users at prices that can compete with
the IP Telephony services offered by these new companies.

We also provide Internet services. We cannot guarantee that federal or
state regulators will not impose additional regulation on Internet services in
the future. We expect to compete by introducing IP Telephony shortly. The
Internet services market is highly competitive, in part because no substantial
barriers to entry exist. We expect that competition will continue to intensify.
Our competitors in this market include:

- Internet service providers,

- other telecommunications companies,

- online services providers, and

- Internet software providers.

Many of these competitors have greater financial, technical and marketing
resources than those available to us.

Technological Advances. Dense wave division multiplexing, high-speed OC-192
transmission electronics, advanced fiber technology and packet switching are
converging to increase significantly the supply of domestic and international
transmission capacity. Rapid and on-going technological advances have brought
new product and service offerings similar to the services we provide. The
introduction of new products or emergence of new technologies may cause capacity
to greatly exceed demand, reducing the pricing of certain services we provide.
We cannot guarantee that we can satisfy future customer needs, that our
technologies will not become obsolete because of future technological
developments, or that we will not have to make significant additional capital
investments to upgrade or replace our system and equipment. We cannot predict
the impact of these technological changes on our operations. If we fail to keep
pace with advances, it could have a material adverse effect on our financial
condition, results of operations and cash flow.

Offshore and Remote Telecommunications Services. Currently, we provide
telecommunications services to oil and gas customers in the Gulf of Mexico. In
the Gulf of Mexico, we compete directly with Autocomm Communications Engineering
Corp., Sola Communications, Inc., Datacom and Shell. Shell currently provides
competing services through its microwave network in the Gulf of Mexico and has
announced plans to become a full service telecommunications provider to the oil
and gas industry in the region. Although we believe that we compete successfully
in each of our markets today, we cannot guarantee that we can continue to
compete successfully in the future. We believe that most of our larger
competitors have generally not made it a priority to provide remote,
difficult-access telecommunications services. Should one or more of our
competitors decide to focus on such services, it could have a material adverse
effect on our financial condition, results of operations and cash flow.

EMPLOYEES

As of February 28, 1999, we employed approximately 390 people, including
approximately 116 in sales and marketing, approximately 110 in engineering and
technical services and approximately 164 in management, customer care,
provisioning, administration and finance. At that date, we also had an agent
sales force numbering approximately 115 independent agents throughout Texas. We
use the services of
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independent contractors for construction of our fiber network. None of our
employees is represented by a labor union or is subject to a collective
bargaining agreement. We believe that we have good relations with our employees.

PROPERTIES

We own or lease buildings that contain approximately 180,000 square feet of
floor space. Our primary headquarters are located in Dallas, Texas. We entered
into a lease agreement effective March 1999 for our new corporate headquarters
and expect to occupy an additional 30,000 square feet at the new headquarters by
the year 2000. We own an office building in Friendswood, Texas and an office
building in Lafayette, Louisiana, and we lease the remainder of our office
space.

All of the fiber optic cable, fiber optic telecommunications equipment and
other properties and equipment used in the networks, are owned or leased by us.
We have entered into various franchise, rights of way and lease agreements for
network regeneration sites. These properties and agreements do not lend
themselves to description by character and location of principal units and are
not considered meaningful for this disclosure. Our principal facilities include:

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET DESCRIPTION
- -------- ----------- -----------
<S> <C> <C>
Dallas, Texas........................ 80,000 Corporate headquarters for administration, finance
and carrier sales functions, sales, switching and
customer support personnel
Houston, Texas....................... 24,000 Division headquarters for administration, finance
and sales functions
Friendswood, Texas................... 24,000 Engineering, network operations center,
administration, production and warehouse
Phoenix, Arizona..................... 10,300 Switching facility and sales functions
</TABLE>

We consider our current facilities adequate for our current needs and
believe that suitable additional space will be available, as needed, to
accommodate further physical expansion of corporate operations and for
additional sales and service.

LEGAL PROCEEDINGS

We are a party to ordinary litigation incidental to our business from time
to time. Currently, we are not a party to any litigation that we expect would
have a material adverse effect on our results of operations, financial condition
or cash flow.

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REGULATION AND LICENSES

GOVERNMENT REGULATION

The following summary of regulatory developments and legislation does not
purport to describe all present and proposed federal, state and local
regulations and legislation affecting the telecommunications industry. Other
existing federal, state and local legislation and regulations are currently the
subject of judicial proceedings, legislative hearings, and administrative
proposals which could change, in varying degrees, the manner in which this
industry operates. Neither the outcome of these proceedings, nor their impact
upon us or the telecommunications industry, can be predicted at this time. This
section also sets forth a brief description of regulatory and tariff issues
pertaining to our operations.

We provide domestic and international services subject to varying degrees
of U.S. federal, state and local regulation, and regulation by foreign
authorities. In the United States, the 1934 Communications Act, as amended,
including as amended by the 1996 Telecommunications Act and the regulations
promulgated by the FCC thereunder, as well as the applicable laws and
regulations of the various states and state regulatory commissions all govern
the provision of telecommunications services. The FCC exercises jurisdiction
under Title II of the 1934 Communications Act over all facilities of, and
services offered by, telecommunications common carriers to the extent such
services involve jurisdictionally interstate common carrier communications,
including international communications originating from or terminating in the
United States. State regulatory authorities retain jurisdiction over
jurisdictionally intrastate communications. Under Title III of the 1934
Communications Act, the FCC also regulates the licensing and use of the radio
frequency spectrum. Local governments sometimes impose franchise or licensing
requirements on local service competitors and/or facilities companies. Services
we provide in other countries remain subject to the telecommunications laws and
regulations of those countries.

The FCC and the state regulatory agencies impose and enforce regulatory
requirements applicable to our operations. The FCC and the state regulatory
agencies may address regulatory non-compliance with a variety of enforcement
mechanisms, including:

- monetary forfeitures,

- refund orders,

- injunctive relief,

- license conditions, and/or

- license revocation.

As a telecommunications carrier, we must also comply with the Federal
digital wiretapping administered by the U.S. Department of Justice and the FCC.
The telecommunications industry varies substantially from state to state and
continues to change rapidly. Moreover, as deregulation at the federal level
occurs, some states are reassessing the level and scope of regulation applicable
to carriers. Domestic or international regulators or third parties could raise
material issues with regard to compliance or non-compliance with applicable
regulations. Future regulatory, judicial or legislative activities could have a
material adverse effect on our financial condition, results of operations or
cash flow.

U.S. Federal Regulation

Local Service Regulation Under The 1996 Telecommunications Act. The 1996
Telecommunications Act, which amended the 1934 Communications Act, provided for
comprehensive reform of the United States' telecommunications laws. In passing
the 1996 Telecommunications Act, Congress sought to increase local competition
from newer competitors such as long distance carriers, cable TV companies and

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public utility companies. The 1996 Telecommunications Act specifically requires
all LECs (including ILECs and CLECs):

- not to prohibit or unduly restrict resale of their services,

- to provide dialing parity, number portability and nondiscriminatory
access to telephone numbers, operator services, directory assistance and
directory listings,

- to afford access to poles, ducts, conduits and rights-of-way; and

- to establish reciprocal compensation arrangements for the transport and
termination of telecommunications.

In addition, ILECs must provide:

- interconnection on certain terms and conditions,

- unbundled network elements,

- resold local services at wholesale rates,

- reasonable public notice of any changes in the information needed for
transmission and routing services over their communications facilities,
and

- physical colocation of equipment necessary for interconnection and access
to unbundled network elements at the LECs' premises.

Under the 1996 Telecommunications Act, Regional Bell Operating Companies,
or RBOCs, have the opportunity to provide out-of-region long distance and
certain cable TV services immediately and in-region long distance services after
the RBOCs meet certain conditions. Specifically, an RBOC can enter the market
for in-region long distance services within areas where the RBOC provides local
exchange service upon FCC approval based on a showing that facilities-based
competition and interconnection agreements meeting a 14-point checklist both
exist. Entry of RBOCs into the domestic and international long distance business
and the emergence of other new local competitors could subject us to substantial
competition and could have a material adverse effect on our financial condition,
results of operations and cash flow.

On August 8, 1996, the FCC released the Interconnection Decision, which
established a framework of minimum, national rules enabling state commissions
and the FCC to begin implementing many of the local competition provisions of
the 1996 Telecommunications Act. Among other things, the Interconnection
Decision:

- prescribed certain minimum points of interconnection,

- adopted a minimum list of unbundled network elements that ILECs must make
available to competitors, and

- adopted a methodology for states to use when setting prices for unbundled
network elements and for wholesale resale services.

On January 25, 1999, the Supreme Court issued an opinion overturning prior
decisions issued by the U.S. Court of Appeals for the Eighth Circuit that had
vacated certain portions of the Interconnection Decision. The Supreme Court's
decision confirmed the FCC's authority to issue regulations implementing the
pricing and other provisions of the 1996 Telecommunications Act and reinstated
most of the challenged rules. However, the Supreme Court vacated a key FCC rule
that identified the network elements that incumbent LECs must unbundle. The
Eighth Circuit decisions and their recent reversal by the Supreme Court
perpetuate continuing uncertainty about the rules governing the pricing, terms
and conditions of interconnection agreements. During the pendency of the Eighth
Circuit proceedings, state public utilities commissions have continued to
conduct arbitrations, and to implement and enforce interconnection agreements.
However, the Supreme Court's recent ruling and further proceedings on

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remand may affect the scope of the state commissions' authority to conduct such
proceedings or to implement or enforce interconnection agreements. The U.S.
Supreme Court's decision will likely result in new or additional rules being
promulgated by the FCC. Given the general uncertainty surrounding the effect of
the Eighth Circuit decisions and the recent decision of the Supreme Court
reversing them, we cannot guarantee that we can continue to obtain or enforce
acceptable interconnection terms or interconnection terms consistent with our
business plans.

On August 7, 1998, the FCC released an Order denying requests by various
ILECs that the FCC use Section 706 of the 1996 Telecommunications Act to forbear
from regulating advanced telecommunications services. Instead, the FCC
determined that advanced services constitute telecommunications services and
that ILECs must comply with the unbundling and resale obligations and the
in-region inter-LATA restrictions of the 1996 Telecommunications Act in their
provision of advanced services. The FCC also proposed in a rulemaking to allow
ILECs to provide advanced services on an unregulated basis through separate
subsidiaries. We cannot predict the outcome of the FCC's proceeding. However, if
the FCC does forbear from regulating advanced telecommunications services, such
a decision would increase the ability of ILECs to compete against less
established carriers such as us.

Domestic Interstate Services. The FCC considers domestic interstate common
carriers (including us) that do not have market power, "nondominant." The FCC
subjects nondominant carriers to minimal regulation. However, interstate
carriers offering services to the public must comply with the federal statutory
and regulatory requirements of common carriage under the 1934 Communications
Act. Among other things, interstate common carriers must offer service on a
non-discriminatory basis at just and reasonable rates. Nondominant carriers need
not obtain specific prior FCC approval to initiate or expand domestic interstate
services, although they must file a tariff with the FCC. Nondominant carriers
remain subject to the FCC's complaint jurisdiction. The FCC has issued an order
eliminating the requirement that nondominant carriers maintain tariffs for their
domestic interstate services on file at the FCC. Several carriers have appealed
the FCC's order to the U.S. Court of Appeals for the District of Columbia and
that court has stayed the FCC's order pending resolution of the appeal. If the
FCC order becomes effective, nondominant interexchange carriers will need to
find new means of providing notice to customers of prices, terms and conditions
on which they offer their interstate services. Elimination of tariffs will
require that we secure with each of our customers contractual agreements
containing the terms of the services offered. To the extent that disputes arise
over such contacts, carriers, including us, may no longer resort to the legal
doctrine that the terms of a filed tariff supersede individual contract
language.

International Service Regulation. As a provider of international
telecommunications services, we must comply with the federal statutory and
regulatory requirements of common carriage under the 1934 Communications Act.
International common carriers must obtain authority from the FCC under Section
214 of the 1934 Communications Act and file a tariff containing the rates,
terms, and conditions applicable to their services before initiating their
international telecommunications services. We hold global authority from the FCC
to provide resale of switched services and private line services (where
permitted by the FCC) and to provide facilities-based services. We maintain an
international tariff on file with the FCC. International telecommunications
service providers must also file with the FCC:

- copies of their contracts with other carriers,

- foreign carrier agreements, and

- various reports regarding their international revenue, traffic flows and
use of international facilities.

Carriers holding Section 214 authority must also comply with FCC rules
requiring, among other things, prior approval for transfers of control and
assignments.

Authorized international carriers must also comply with the FCC's
international service regulations, including the International Settlements
Policy ("ISPY") which governs:

- the payment settlements between U.S. common carriers and their foreign
correspondents for terminating traffic over each other's networks,
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- the accounting rates for such settlements, and

- the permissible deviations from these policies.

The ISPY applies to both resale and facilities-based operations. To the
extent that we acquire or own facilities that permit us to carry international
traffic, the FCC may pay particular attention to our compliance with that
policy.

The FCC enacted certain changes in its rules designed to permit alternative
arrangements outside of its ISPY as a means of encouraging competition and
lower, cost-based accounting rates. As a part of implementing the ISPY, the FCC
maintains a private line resale policy that prohibits carriers from reselling
international private leased circuits to provide switched services to or from a
country unless the FCC has found that the country affords U.S. carriers
equivalent resale opportunities to engage in similar activities in that country.
The FCC recently revised this and other policies to accommodate the 1997 WTO
Agreement on basic services, a compact that addresses market access, foreign
investment, and procompetitive regulatory principles in areas currently
generating a vast majority of the world's telecommunications revenue. Currently,
the FCC's rules permit U.S. carriers to provide switched service over
international leased lines or facilities-based private lines between the U.S.
and WTO countries where the local telecommunications provider generally charges
U.S. carriers at or below an FCC-determined rate for terminating the U.S.
carriers' traffic or equivalent resale opportunities are available.

The FCC has adopted measures intended to overhaul the system of
international settlements by, among other things, establishing lower ceilings
("Benchmarks") for the rates that U.S. carriers will pay foreign carriers for
the termination of international services. The FCC's authority to establish such
Benchmarks was recently affirmed in federal court. Under the FCC's "Flexibility
Policy," the FCC will also permit alternative arrangements with foreign carriers
on a case by case basis. The FCC has recently proposed additional reforms to the
ISPY to eliminate or reduce unnecessary regulatory requirements governing
arrangements between U.S. and foreign carriers in competitive situations. The
FCC recently streamlined Section 214 license and related requirements. While
these rule changes may provide carriers with more flexibility to respond more
rapidly to changes in the global telecommunications market, they will also
likely increase the level of competition in the international telecommunications
marketplace.

Wireless Services. We own and maintain a variety of telecommunications
infrastructures and we hold various FCC and international licenses to transmit
voice and data. We currently hold numerous FCC licenses to provide land mobile,
microwave and satellite communications services. See "-- Licenses."

FCC licensees authorized to provide microwave, satellite earth station and
land mobile service must comply with under Title III of the 1934 Communications
Act and a variety of detailed licensing, operational and technical requirements
specific to each service. Among other requirements, licensees seeking to alter
the technical or operational configurations of their equipment or to continue
operating beyond the expiration date of the licenses must seek additional prior
authority from the FCC. We recently became aware that some of our earth station
operations do not strictly comply with the licenses we hold. We expect to file
applications to modify our FCC licenses to ensure that they fully reflect our
operations. FCC rules also contain various other requirements such as
restrictions on proposed transfers of control or assignments and required
compliance with relevant Federal Aviation Administration rules on wireless tower
construction and operation. The FCC generally retains the right to sanction a
carrier or revoke its authorizations if a carrier violates applicable laws or
regulations.

The FCC continues to refine its wireless rules for each service area to
accommodate advances in technology, developing markets and new service
arrangements, to implement certain provisions of the 1996 Telecommunications
Act, and to eliminate confusing, outdated, redundant or otherwise burdensome
regulation. Opportunities to obtain new common carrier wireless licenses are
often limited by the FCC's auction process under which the FCC assigns wireless
licenses to the highest bidder.

The 1934 Communications Act generally limits direct foreign ownership of
wireless licenses to 20%, but provides for indirect foreign ownership holdings
above 25% upon FCC approval. In its order

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implementing the U.S. commitment under the WTO Agreement, the FCC established
new rules that effectively relax the foreign ownership limits for common carrier
wireless licenses. Specifically, the new rules allow for up to 100% indirect
ownership of wireless licenses by foreign interests from countries that have
participated in the WTO Agreement upon FCC review and approval.

Access Charges. The cost of providing long distance and local exchange
services will be affected by changes in the "access charge" rates imposed by
ILECs on long-distance carriers for origination and termination of calls over
local facilities. The term "access service" describes the use of local exchange
facilities for the origination and termination of interexchange communications.
On May 8, 1997, the FCC released an order intended to reform the FCC's system of
interstate access charges to make that regime compatible with the
pro-competitive deregulatory framework of the 1996 Telecommunications Act. The
FCC's access reform order adopts various changes to federal policies governing
interstate access service pricing designed to move access charges, over time, to
more economically efficient levels and rate structures. Among other things, the
FCC:

- modified rate structures for certain non-traffic sensitive access rate
elements, moving some costs from a per-minute-of-use basis to flat-rate
recovery, including one new flat rate element;

- changed its structure for interstate transport services; and

- affirmed interstate access charges do not apply to ISPs.

In response to claims that existing access charge levels are excessive, the
FCC stated that it would rely on market forces first to drive prices for
interstate access to competitive but that a "prescriptive" approach might be
considered if necessary. In the absence of competition, the FCC stated that it
might specify the nature and timing of changes to existing access rate levels.
The FCC has indicated that it will promulgate additional rules sometime in 1999
that may grant increased pricing flexibility to price cap LECs upon
demonstrations of increased competition (or potential competition) in relevant
markets. Price cap LECs include the RBOCs, GTE and certain independents that
must to establish rates only at or below a designated price ceiling. The Eighth
Circuit has affirmed the FCC's access reform order.

Universal Service Charges. In 1997, the FCC released an order establishing
a significantly expanded federal universal service subsidy regime. Specifically,
the FCC established new universal service funds to support telecommunications
and information services provided to qualifying schools, libraries and rural
health care providers, and expanded the federal subsidies for local telephone
services provided to low-income consumers. The FCC collects money to fund this
expanded regime from interstate carriers and certain other entities. Our
payments for the schools and libraries and rural health care fund depend on
estimated quarterly intrastate, interstate and international gross end-user
telecommunications revenues. Contribution factors vary quarterly and the FCC
bills carriers on a monthly basis. Contribution factors for 1999 ranged from
3.08 to 3.19% for the high cost and low income funds (interstate and
international revenues); and 0.72 to 0.76% for the schools, libraries, and rural
health care funds (intrastate, interstate and international revenues). Because
the contribution factors do vary quarterly, we cannot currently accurately
determine the annualized impact on our annual performance. Several parties have
appealed the FCC's universal service order and those appeals remain pending
before the Fifth Circuit Court of Appeals.

The FCC may also issue new regulations governing the treatment of calls to
ISPs for the purposes of universal service obligations. In a recent report to
Congress, the FCC clarified that carriers must consider revenues earned from the
transmission services supplied to ISPs when calculating universal service
obligations. The FCC plans to address in the future the contribution
obligations, if any, of ISPs using their own facilities and ISPs providing
phone-to-phone IP telephony. We cannot predict the outcome of these proceedings
or their potential effect on our operations.

Internet Services. There are currently few U.S. laws or regulations which
specifically regulate communications or commerce over the Internet. One area in
which Congress did attempt to regulate information over the Internet involved
the dissemination of obscene or indecent materials. Certain provisions of the
1996 Telecommunications Act relating to indecent communication over the
Internet,

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generally referred to as the Communications Decency Act, were found to be
unconstitutional by the U.S. Supreme Court in 1997. In October 1998, Congress
enacted the Child Online Protection Act, which requires that on-line material
that is "harmful" to minors be restricted. This law is currently being
challenged in federal district court. On February 1, 1999, a U.S. District Court
judge issued a preliminary injunction against enforcement of that Act.

It is possible that in the future laws and regulations could be adopted
which address matters such as user privacy, copyrights, pricing and the
characteristics and quality of Internet services, among other areas.
Internet-related legislation and regulatory policies are continuing to develop
and we could be subject to increased regulation in the future. Laws or
regulations could be adopted in the future that may decrease the growth and
expansion of the Internet's use, increase our cost of doing business, or
otherwise adversely affect our business.

In addition, in 1998 Congress passed the Digital Millennium Copyright Act.
That act provides ISPs that comply with its requirements numerous protections
from certain types of copyright liability. To the extent that we have not met
those requirements, third parties could seek recovery from us for copyright
infringements caused by our Internet customers.

The law relating to the liability of ISPs for information carried on or
disseminated through their networks is currently unsettled. It is possible that
claims could be made against ISPs for defamation, negligence, copyright or
trademark infringement, or on other theories based on the nature and content of
the materials disseminated through their networks. We could be required to
implement measures to reduce our exposure to potential liability, which may
require, for instance, the expenditure of resources or the discontinuance or
modification of certain product or service offerings. Costs that may be incurred
as a result of contesting any claims relating to our services or the consequent
imposition of liability could have a material adverse effect on our financial
condition, results of operations and cash flow.

The Eighth Circuit recently found that the FCC has a reasonable basis for
not requiring ISPs to pay access charges. In June 1997, every RBOC advised CLECs
that they did not consider calls in the same local calling area from RBOC served
customers to CLEC served ISPs, to be local calls under the interconnection
agreements between the RBOCs and the CLECs. The RBOCs also claimed that the FCC
exempted these calls from access charges, and therefore that CLECs could not
recover compensation for transporting and terminating such calls. As a result,
the RBOCs threatened to withhold, and in many cases did withhold, reciprocal
compensation for the transport and termination of such calls. To date, numerous
state commissions have ruled on this issue in the context of state commission
arbitration proceedings or enforcement proceedings. In every state, to date, the
state commission has determined that RBOCs must pay reciprocal compensation for
such calls. Various RBOCs have appealed these cases. We cannot predict the
outcome of these appeals.

On February 26, 1999, the FCC determined that calls made to ISPs are
largely interstate in nature, and requested comments regarding how this traffic
should be regulated once existing interconnection agreements expire. However,
the FCC also determined that since federal law did not govern compensation for
this traffic when existing interconnection agreements were signed, the states
could determine whether carriers should pay reciprocal compensation for these
calls under existing agreements. There is a risk that state commissions which
previously considered this issue and ordered the payment of reciprocal
compensation could revisit this issue on their own volition or at the request of
an ILEC, and revise their prior decisions on this issue. To date, at least one
ILEC has filed suit seeking a refund from a carrier of reciprocal compensation
the ILEC has paid to that carrier.

State Regulation

Most states require carriers to obtain a certification or other
authorization before offering local exchange and long distance intrastate
services. These certifications generally require a showing that the carrier has
adequate financial, managerial and technical resources to offer the proposed
services in a manner consistent with the public interest. We hold long distance
authorization in most, but not all, of the states in which certificates are
required. In addition most states impose tariff requirements on carriers and
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require that common carriers charge just and reasonable rates and not
discriminate among similarly situated customers. Some states also require the
filing of periodic reports, the payment of various regulatory fees and
surcharges, and compliance with service standards and consumer protection rules.
States also often require prior approvals or notifications for certain transfers
of assets (such as fiber optic cable or other telecommunications facilities),
customers, or ownership. States generally retain the right to sanction a carrier
or to revoke certifications if a carrier violates relevant laws and/or
regulations. If any state regulatory agency concluded that we provide intrastate
service without the appropriate authority, that agency could initiate
enforcement actions, potentially including the imposition of fines, the
disgorging of revenues, or the refusal to grant the regulatory authority
necessary for the future provision of intrastate telecommunications services. We
hold authority to provide interexchange and competitive local exchange services
in certain service areas in Arkansas, Kansas, Louisiana, Oklahoma and Texas, and
have authority to provide interexchange service in at least 35 states.

In addition, carriers providing intrastate services must comply with state
utility commission rules and policies with respect to ILEC and CLEC competition,
geographic build out, mandatory de-tariffing and other matters. Certain states
have adopted specific universal service funding obligations. Numerous other
states have also instituted proceedings to adopt state universal service funding
obligations rules. State commissions generally have authority to impose
sanctions on carriers ranging from fines to license revocation to address
non-compliance with the states' particular regulatory policies and requirements.

State regulatory agencies also regulate access charges and other pricing
for telecommunications services within each state. The RBOCs and other LECs have
sought reductions in state regulatory requirements, including greater pricing
flexibility. If regulators allow variable pricing of access charges based on
volume, we could face a competitive disadvantage in competing against larger
long distance carriers. We also could face increased price competition from the
RBOCs and other LECs for local and long distance services. In addition, the
removal of former restrictions on long distance service offerings by the RBOCs
as a result of the 1996 Telecommunications Act could further increase
competition. We cannot predict what impact of such rule changes might have on
our operations.

Local Government Authorizations

We also own telecommunications facilities that may be subject to certain
local government requirements. In particular, facilities-based companies must
generally obtain street use and construction permits and licenses and/or
franchises to install and expand fiber optic networks using municipal rights of
way. While regulation of municipal rights of way generally remains a matter
under local jurisdiction, some states have enacted or are considering enacting
measures that affect the ability of local governments to impose certain types of
restrictions on franchisees or to require certain types of concessions from
carriers seeking franchise agreements.

Termination of our existing franchise or license agreements before their
expiration dates or failure to renew those agreements and any resulting
requirement to remove facilities could have a material adverse effect on our
financial condition, results of operations and cash flow. In some municipalities
carriers must pay license or franchise fees based on a percentage of gross
revenues or on a per linear foot basis, as well as post performance bonds or
letters of credit. We cannot guarantee that we can retain existing franchises or
that franchise fees will remain at their current levels.

The Texas Public Service Commission generally requires us to provide 911
service along with our CLEC offerings in Texas. As a condition to providing 911
service in the City of Dallas, the City of Dallas requires that service
providers obtain a municipal franchise, which, among other things:

- requires the franchise holder to pay a 4% gross revenue fee based on
operations in the City of Dallas,

- permits use of certain conduit by the City of Dallas without charge, and

- provides a single fiber pair in the franchisee's system for the City of
Dallas' exclusive use.

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To date, we have not obtained a franchise. On May 26, 1998, we, along with
two other entities authorized to provide CLEC service in Texas, Golden Harbor of
Texas, Inc., and Westel, Inc., filed suit in the U.S. District Court for the
Northern District of Texas against the City of Dallas alleging that the
franchise requirements imposed by the City of Dallas violates the 1996
Telecommunications Act, particularly with respect to resellers of LEC services.
The Texas court has consolidated our action with a similar action brought by
AT&T Communications of the Southwest, Inc. ("AT&TSW"). Although AT&TSW has
obtained a preliminary injunction against the City of Dallas' imposition of
certain conditions on its franchise, we cannot guarantee that we will prevail in
our pending lawsuit against the City of Dallas.

Foreign Regulation

International telecommunications providers are subject to varying degrees
of regulation in each of the jurisdictions in which they provide service. Local
laws and regulations, and the interpretation of such laws and regulations,
differ significantly from country to country. To the extent that we provide, now
or in the future, services in non-U.S. countries, we must comply with the laws
and regulations of foreign countries. The nature and extent of
telecommunications regulation varies significantly from country to country and
may include requirements that reflect closed or limited market access and/or
requirements we may also face to obtain initial licensing, operational and rate
requirements in the relevant countries. For example, many countries, including
Mexico, have international settlements policies similar to the one imposed by
the U.S. Such policies and their enforcement vary between different countries.
To the extent that we provide service between the U.S. and other countries,
various international settlement policies may apply.

Licenses

We have received authorization, by virtue of state certification, tariff,
registration, or on a deregulated basis, to provide resold long distance
services in at least 35 states. In order to provide wireless mobile services, we
own various radio systems that provide two-way voice communications and have
obtained approximately 35 FCC licenses with approximately 300 frequency pairs.
These licenses have varying terms that expire and will require renewal. As each
license comes due for renewal, we will evaluate the need for such license and
elect to either renew the license or let it expire where, for example, we expect
no further need to use a particular license. These licenses allow us to provide
two-way wireless radio services along the Texas and Louisiana Gulf Coast and
offshore to oil and gas-related companies. Each frequency pair allows two-way
transmission and reception. We hold approximately 20 microwave FCC licenses
providing voice and data services along the Texas and Louisiana Gulf Coast and
offshore to drilling, production and related companies. We also hold and operate
seven Ku band and three C band fixed earth stations and hold FCC licenses that
allow us to locate very small aperture terminal, or VSAT, earth stations in
Texas and other U.S. locations. As noted previously, we expect to file
applications to modify our FCC earth station licenses to ensure that they
reflect our current operations. See "Regulation and Licenses -- Government
Regulation."

We also operate as an FCC certificated Section 214 carrier to provide
resold switched telecommunications services. We have obtained broader common
carrier authority from the FCC to provide global resale of switched and private
line services as well as global facilities-based service.

We currently provide international facilities-based private line service on
a private carrier basis into Bolivia, Bosnia, Croatia, Ecuador, Hungary and
Russia. As part of our plans to increase service offerings, we have obtained
authority to provide dedicated services in Louisiana and CLEC and long distance
services in Arkansas, Kansas, Louisiana, Oklahoma and Texas. In addition, we
have received approval to have pole attachment rights to existing or future
facilities of Entergy, BellSouth and the State of Louisiana. Pole attachment
rights allow us to attach our own fiber optic cable to other parties' respective
utility poles. In addition, we own installed fiber optic cable placed under
various public and private rights-of-ways.

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Digital Wiretapping

The Communications Assistance to Law Enforcement Act ("CALEA"), enacted in
1994, requires telecommunications carriers to make available certain
telecommunications capabilities to U.S. law enforcement officials to permit
those authorities to continue to intercept communications involving advanced
technologies such as digital and wireless transmission communications. CALEA
imposes certain obligations on carriers to ensure that their equipment,
facilities and services will meet capability and capacity requirements in order
to provide law enforcement agencies the ability to intercept wireline and
wireless communications transmitted over those carrier's networks. Courts may
impose files of up to $10,000 per day on telecommunications carriers that fail
to meet the required capability functions, as determined by industry standards.
Under procedures specified in CALEA, the U.S. Department of Justice ("DOJ")
recently filed a petition at the FCC challenging the technical capability
standard developed by the telecommunications industry. Because of the disputed
standard, several carriers sought an FCC extension of the October 25, 1998
capability compliance deadline. The FCC recently extended the compliance date
for the CALEA capability requirements to June 30, 2000 to permit manufacturers
sufficient time to develop CALEA compliant equipment. In the meantime, we expect
the FCC to issue shortly an order identifying the capabilities carriers, such as
us, will have to provide to law enforcement officials in order to meet CALEA's
requirements. Telecommunications carriers must also meet CALEA capacity
requirement mandating that by March 12, 2001, carriers enable a specific number
of simultaneous interceptions determined on a geographic basis. We cannot
predict the nature and extent of the impact the CALEA requirements will have on
us or on telecommunications carriers in general.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Our directors, officers and key employees as of February 28, 1999 are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Jere W. Thompson, Jr. ... 42 Chairman of the Board, Chief Executive Officer and
Director
Ignatius W. Leonards..... 45 Vice Chairman of the Board, President and Director
Kevin W. McAleer......... 48 Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
Byron M. Allen........... 51 Executive Vice President and Director
Timothy W. Rogers........ 36 Executive Vice President of Retail Sales and
Network Operations and Director
Timothy M. Terrell....... 36 Executive Vice President, Carrier Sales
Scott L. Roberts......... 37 Executive Vice President, International Sales
Matthew M. Kingsley...... 34 Corporate Controller
Mark Langdale............ 44 Director
Christopher J. Amenson... 48 Director
John R. Harris........... 50 Director
</TABLE>

Mr. Jere W. Thompson, Jr. has served as Chairman of the Board and Chief
Executive Officer of CapRock since its formation in February 1998. Mr. Thompson
also has served as President of Telecommunications, one of our predecessor
companies, since April 1994, and since July 1992, upon founding CapRock Fiber,
as the President of its general partner. In 1987, Mr. Thompson joined The
Thompson Company, an investment company, where he became a Vice President and
assisted in the acquisition and management of several of The Thompson Company
portfolio companies. From 1982 to 1986, Mr. Thompson worked in commercial real
estate as a broker and then with Trammell Crow Community Development Company.
Since 1989, Mr. Thompson has been a member of the board of directors and since
1995 he has served as Chairman of the North Texas Tollway Authority and its
predecessor, the Texas Turnpike Authority. Mr. Thompson is also a board member
of Cistercian Preparatory School. Mr. Thompson has a B.A. in Economics from
Stanford University and a M.B.A. from The University of Texas Graduate School of
Business.

Mr. Ignatius W. Leonards has served as Vice Chairman of the Board and
President of CapRock since its formation in February 1998. Mr. Leonards served
as Chairman of the Board, Chief Executive Officer and a director of IWL
Communications since founding IWL Communications in 1981 and served as President
from 1981 until February 1997. Mr. Leonards has an industrial electronics degree
from the T.H. Harris Technical Institute in Opelousas, Louisiana.

Mr. Kevin W. McAleer has served as Senior Vice President and Chief
Financial Officer of CapRock since April 1998 and as Treasurer and Secretary
since August 1998. From 1996 to 1998, Mr. McAleer served as Chief Financial
Officer, Secretary and as a member of the Executive Management Committee of
American Pad and Paper Co., one of the largest manufacturers and marketers of
paper-based office products in North America. From 1990 to 1996, Mr. McAleer
served as Executive Vice President, Chief Financial Officer and as a member of
the Executive Management Committee of Rexene Corporation, which manufactures
plastic film and plastic resins. From 1985 to 1990, Mr. McAleer served as Senior
Vice President-Administration, Chief Financial Officer, Secretary and Treasurer,
and as a member of the Executive Management Committee and the Board of Directors
of Varo, Inc., which manufactures electronics supplied primarily to U.S.
military agencies, such as proprietary night vision systems, high-reliability
power systems and airborne missile launchers. From 1981 to 1985, Mr. McAleer
served as Vice President-Finance, Chief Financial Officer, Secretary and
Treasurer, and as a member of the Executive Management Committee of Tocom, Inc.,
which designs and manufactures high-technology communica-

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tions products and services for the cable industry. Mr. McAleer is a certified
public accountant and is a member of the American Institute of Certified Public
Accountants and the Texas Society of Certified Public Accountants. Mr. McAleer
has a B.S. in Accounting/Economics from LaSalle University in Philadelphia,
Pennsylvania.

Mr. Byron M. Allen has served as Executive Vice President and a Director of
CapRock since its formation in February 1998. Mr. Allen served as President and
a director of IWL Communications since February 1997 and served as a Vice
President of IWL Communications from December 1993 until February 1997. From
1986 to 1993, Mr. Allen served as Executive Vice President of SBS Technologies,
Inc., a manufacturer of computer components. Mr. Allen was a co-founder of SBS
Technologies, Inc. Mr. Allen graduated from the University of Alabama with a
degree in Mathematics.

Mr. Timothy W. Rogers has served as Executive Vice President of Retail
Sales and Network Operations and as a director of CapRock since its formation in
February 1998. Mr. Rogers served as Executive Vice President of Retail Sales and
Network Operations and as a Director of CapRock Telecommunications since April
1994. In 1992, Mr. Rogers co-founded Synergy Telecommunications, Inc.
("Synergy"), a telecommunications company responsible for marketing a fiber
optic network in West Texas, Oklahoma, Colorado and New Mexico, and from
February 1992 to April 1994 served as one of its three executive officers. From
August 1989 to December 1991, Mr. Rogers was a sales manager of Qwest. From July
1988 to August 1989, Mr. Rogers was a Senior Account Executive for Southwest
Network Services. From April 1987 to June 1988, Mr. Rogers was an account
executive with Sprint. Mr. Rogers has a B.B.A. in Marketing from Southwest Texas
State University.

Mr. Timothy M. Terrell has served as Executive Vice President, Carrier
Sales, of CapRock since its formation in February 1998. Mr. Terrell served as
Executive Vice President, Carrier Sales, and a Director of CapRock
Telecommunications since April 1994. In 1992, Mr. Terrell co-founded Synergy and
from February 1993 to April 1994 served as one of its three executive officers.
In April 1994, CapRock Investors purchased half of Synergy and subsequently
Synergy changed its name to Telecommunications. From February 1989 to January
1993, Mr. Terrell was Director of Sales of Qwest and acted as Vice President of
Sales during a transition period following Qwest's buyout by MCI. From July 1988
to January 1989, Mr. Terrell held the same position at Metromedia Long Distance.
Mr. Terrell has a B.B.A. in Marketing from Southwest Texas State University.

Mr. Scott L. Roberts has served as Executive Vice President, International
Sales, of CapRock since its formation in February 1998. Mr. Roberts served as
Executive Vice President, International Sales, and a Director of CapRock
Telecommunications since April 1994. In 1992, Mr. Roberts co-founded Synergy and
served as one of its three executive officers from February 1992 to April 1994.
From September 1989 to February 1992, Mr. Roberts was a carrier sales manager of
Qwest. From April 1987 to September 1989, Mr. Roberts was a major account
representative with Sprint. Mr. Roberts has a B.S. in Business Administration
from the University of Nebraska.

Mr. Matthew M. Kingsley has served as Corporate Controller of CapRock since
August 1998. From August 1996 to August 1998, Mr. Kingsley was an audit manager
for KPMG LLP and held various positions with such firm from January 1988 until
February 1992. From February 1992 until August 1996, Mr. Kingsley held various
positions, including Senior Manager of Financial Planning, with DSC
Communications Corporation, a telecommunications equipment manufacturer. Mr.
Kingsley is a certified public accountant and is a member of the American
Institute of Certified Public Accountants and the Texas Society of Certified
Public Accountants. Mr. Kingsley has a B.B.A. in Accounting from the University
of Wisconsin.

Mr. Mark Langdale has served as a director of CapRock since its formation
in February 1998. Mr. Langdale served as a Director of CapRock
Telecommunications since April 1994 and Secretary of the general partner of
CapRock Fiber since 1992. Mr. Langdale is President of Posadas USA, Inc., a
subsidiary of Grupo Posadas S.A. De C.V., a hotel management company domiciled
in Mexico, a position he has held since 1989. From 1987 to 1989, he served as
Vice President for Thompson Realty Company, a real estate investment company.
Mr. Langdale currently serves as a member of the Board of Directors of
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Grupo Posadas S.A. De C.V., a director of the Texas Department of Commerce
Policy Board and as Chairman of the Texas Department of Economic Development.

Mr. Christopher J. Amenson has served as a director of CapRock since
February 16, 1998. Mr. Amenson has served as a director of IWL Communications
since June 1997. Mr. Amenson has served as President and Chief Operating Officer
of SBS Technologies, Inc., a manufacturer of computer components, since April
1992 and as a director since August 1992. In October 1996 he became the Chief
Executive Officer and in May 1997 he became Chairman of the Board of Directors
of SBS Technologies, Inc. For five years before joining SBS Technologies, Inc.,
Mr. Amenson was President of Industrial Analytics, Inc., a Boston-based
investment banking firm. Mr. Amenson holds a B.A. Degree in Government from the
University of Notre Dame and a Master's Degree in Business Management from the
Sloan Fellows Program at the Massachusetts Institute of Technology.

Mr. John R. Harris has served as a director of CapRock since August 1998.
Mr. Harris has been a Corporate Vice President at Electronic Data Systems
Corporation, an information and technology outsourcing and data processing
company ("EDS"), since 1997 where he is responsible for marketing and corporate
strategy. From 1989 to 1997, he served as a Vice President of the Communications
Industry Group at EDS where he was responsible for four business units directed
toward wirelines, wireless, media and interactive services. Mr. Harris is on the
Board of Directors of Applied Graphics Technologies, Inc., an independent
provider of digital prepress services. Mr. Harris received his undergraduate and
graduate degrees in business administration from West Georgia University.

Our Board of Directors is currently composed of seven directors. Each
director serves until the next annual meeting of shareholders and until his
successor is duly elected and qualified. Our officers are elected by and serve
at the discretion of the Board of Directors. There are no family relationships
among any of our directors or executive officers.

BOARD COMMITTEES

We have established a Compensation Committee and an Audit Committee. The
Compensation Committee consists of Christopher J. Amenson and John R. Harris.
The Audit Committee consists of Christopher J. Amenson, John R. Harris and Mark
Langdale. All members of the Compensation Committee and Audit Committee are and
will be "Non-Employee Directors" within the meaning of Rule 16b-3 under the
Exchange Act and "outside directors" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). The Audit Committee
reviews our internal accounting procedures and consults with and reviews the
services provided by our independent auditors. The Compensation Committee
reviews and recommends to the Board of Directors the compensation and benefits
of all our officers and establishes and reviews general policies relating to
compensation and benefits of our employees, including the administering of our
Equity Incentive Plan.

DIRECTOR COMPENSATION

We reimburse each member of our Board of Directors for out-of-pocket
expenses incurred for attending board meetings. Each non-employee director
receives a $10,000 annual retainer and a $1,000 fee for each meeting of the
Board of Directors and each meeting of any committee of the Board attended by
the director. No employee director on our Board of Directors currently receives
any additional cash compensation. Our non-employee directors are eligible to
participate in and receive nonqualified stock options under our 1998 Director
Stock Option Plan.

LIMITATION OF LIABILITY

Our Articles of Incorporation provide that our directors shall not be
liable to us or our shareholders for monetary damages for an act or omission in
the director's capacity as a director, except that such provision does not
authorize the elimination or limitation of liability of a director to the extent
the director is found liable for (1) a breach of the director's duty of loyalty
to us or our shareholders, (2) any act or omission not in good faith that
constitutes a breach of duty of the director to us or an act or omission that
58
<PAGE> 61

involves intentional misconduct or a knowing violation of law, (3) any
transaction from which the director derived any improper personal benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office or (4) any act or omission for which the liability of the
director is expressly provided by statute.

Because this provision is provided in our Articles of Incorporation, we or
our shareholders may not be able to obtain monetary damages from a director for
breach of the duty of care. Although shareholders may continue to seek
injunctive or other equitable relief for an alleged breach of fiduciary duty by
a director, shareholders may not have any effective remedy against the
challenged conduct if equitable remedies are unavailable.

In addition, our Articles of Incorporation and Bylaws provide certain
rights of indemnification for all officers and directors.

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table shows the compensation that
we paid or awarded to our Chief Executive Officer and our other four most highly
compensated executive officers for the fiscal year ended December 31, 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
1998 ANNUAL COMPENSATION SHARES
------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY(1) BONUS(2) OPTIONS COMPENSATION
- ------------------------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Jere W. Thompson, Jr. .................... $158,333 $ -- 125,000 $ --
Chief Executive Officer and Chairman of
the Board
Ignatius W. Leonards...................... 168,000 -- 62,500 1,875(3)
President and Vice Chairman of the Board
Timothy M. Terrell........................ 135,555 -- 55,000 --
Executive Vice President
Timothy W. Rogers......................... 138,555 -- 62,500 --
Executive Vice President
Scott L. Roberts.......................... 133,055 -- 40,000 --
Executive Vice President
</TABLE>

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

(1) Under the terms of their employment agreements with CapRock (which were
entered into on February 16, 1998), the annual base salary for Messrs.
Thompson, Leonards, Terrell, Rogers and Roberts through December 31, 1998
was $180,000, $168,000, $133,333, $133,333, and $133,333, respectively, in
each case subject to increase upon review annually by the Board of
Directors.

(2) Does not include discretionary bonuses earned in 1998 and expected to be
determined and paid in 1999.

(3) Represents matching payments under IWL Communications' Retirement and
Savings Plan.

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<PAGE> 62

Option Grants in Last Fiscal Year. The following table contains information
concerning the stock option grants made to each of the named executive officers
during the fiscal year ended December 31, 1998.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR PRICE DATE 5% 10%
- ---- ----------- ------------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jere W. Thompson, Jr............ 125,000 7.26% $6.50 10/13/08 $510,977 $1,294,916
Ignatius W. Leonards............ 62,500 3.63% 6.50 10/13/08 255,488 647,458
Timothy M. Terrell.............. 55,000 3.20% 6.50 10/13/08 224,830 569,763
Timothy W. Rogers............... 62,500 3.63% 6.50 10/13/08 255,488 647,458
Scott L. Roberts................ 40,000 2.32% 6.50 10/13/08 163,513 414,373
</TABLE>

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

(1) The options vest over a five-year period and expire on the tenth anniversary
of the date of grant.

(2) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the fair
market value of the Common Stock on the date of grant appreciates at the
indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for
the appreciated stock price.

Fiscal Year-End Option Values. The following table contains information
concerning option holders through December 31, 1998 by each of the named
executive officers:

<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1998 AT DECEMBER 31, 1998(1)
--------------------------------- ----------------------------
NAME EXERCISABLE(2) UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE
- ---- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Jere W. Thompson, Jr...................... -- 125,000 -- $23,438
Ignatius W. Leonards...................... -- 62,500 -- 11,719
Timothy M. Terrell........................ -- 55,000 -- 10,313
Timothy W. Rogers......................... -- 62,500 -- 11,719
Scott L. Roberts.......................... -- 40,000 -- 7,500
</TABLE>

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

(1) Value is determined by subtracting the exercise price from the fair market
value of the Common Stock at December 31, 1998 ($6.6875 per share),
multiplied by the number of shares underlying the options.

(2) "Exercisable" refers to those options which will be vested and exercisable
immediately upon completion of the offering, while "Unexercisable" refers to
those options which will be unvested at such time.

BENEFIT PLANS

The Equity Incentive Plan

The Equity Incentive Plan was adopted and approved by our Board of
Directors and shareholders. The Equity Incentive Plan provides for the awards of
(1) Stock Options, (2) Stock Appreciation Rights, (3) Restricted Stock, (4)
Deferred Stock, (5) Stock Reload Options and/or (6) Other Stock-Based Awards
(collectively, "Awards"). Our employees and consultants and the employees of and
consultants to our subsidiaries are eligible to participate in the Equity
Incentive Plan.

Administration

The Equity Incentive Plan is administered by the Compensation Committee.
The Committee has full authority, subject to the provisions of the Equity
Incentive Plan, to determine the persons to whom from time to time Awards may be
granted ("Participants"), the specific type of Awards to be granted (e.g.,

60
<PAGE> 63

Stock Option, Restricted Stock, etc.), the number of shares subject to each
Award, share prices, any restrictions or limitations on such Awards and any
vesting, exchange, deferral, surrender, cancellation, acceleration, termination,
exercise or forfeiture provisions related to such Awards. The Committee has
complete discretion to make all decisions relating to the interpretation,
administration and operation of the Equity Incentive Plan.

Shares Subject to the Plan, General Terms

The Equity Incentive Plan authorizes the granting of Awards which allows up
to an aggregate of 5,000,000 shares of Common Stock to be acquired by the
Participants. The Equity Incentive Plan provides that a maximum of 2,500,000
shares of Common Stock may be issued to any one Participant. In order to prevent
dilution or enlargement of the rights of Participants under the Equity Incentive
Plan, the number of shares of Common Stock authorized by the Equity Incentive
Plan is subject to adjustment by the Board if any increase or decrease in the
number of shares of outstanding Common Stock results from a stock dividend,
stock split, reverse stock split, merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock. If any shares granted under the Equity Incentive Plan are forfeited or
terminated, these shares will again be available for distribution of Awards
subsequently granted. We have granted 1,681,600 options under the Plan and these
options vest over five years. As of December 31, 1998, 48,700 of the options
granted were forfeited and canceled and 1,632,900 options were outstanding. We
have also granted 3,514 shares of Restricted Stock to a former director of one
of our predecessor companies and one of our consultants. See "Certain
Transactions." The remaining Awards available for future grant as of December
31, 1998 was 3,363,586.

Eligibility

Subject to the provisions of the Equity Incentive Plan, Awards may be
granted to key employees, officers, directors, consultants and other persons who
have rendered or are expected to render significant services to us or our
subsidiaries. Incentive Stock Options may be awarded only to our employees or
employees of our subsidiaries at the time the award is granted.

Types of Awards

Stock Options. Options granted under the Equity Incentive Plan may be
either options that are intended to qualify for treatment as "incentive stock
options" under Section 422 of the Code or options that are not. The exercise
price of Incentive Stock Options must be at least the fair market value of a
share of the Common Stock on the date of grant, and not less than 110% of the
fair market value in the case of an Incentive Stock Option granted to an
optionee owning 10% or more of the Common Stock. The exercise price of
Non-qualified Stock Options may be less than 100% of the fair market value of a
share of the Common Stock on the date of grant.

The term of an option may not exceed ten years (or five years in the case
of an Incentive Stock Option granted to an optionee owning 10% or more of the
Common Stock). Options may be granted that may be exercised in whole or in part
upon certain defined events causing a "change of control." The accelerated
vesting of outstanding options upon the occurrence of such a "change in control"
transaction could have the effect of delaying, deferring, or preventing a change
in control of our company.

Stock Appreciation Rights. The Committee may grant Stock Appreciation
Rights ("SARs" or singularly "SAR") in conjunction with all or part of any Stock
Option granted under the Equity Incentive Plan or may grant SARs on a
freestanding basis. If granted in conjunction with Non-qualified Stock Options,
SARs may be granted either at or after the time of the grant of the
Non-qualified Stock Options. If granted in conjunction with Incentive Stock
Options, SARs may be granted only at the time of the grant of an Incentive Stock
Option. An SAR entitles the holder to receive an amount (payable in cash and/or
Common Stock, as determined by the Committee) equal to the fair market value of
one share of Common Stock over the SAR price or the exercise price of the
related Option, multiplied by the number of shares subject to the SAR.

61
<PAGE> 64

Restricted Stock Awards. The Committee may award shares of restricted stock
("Restricted Stock") either alone or in addition to other Awards granted under
the Equity Incentive Plan. The Committee shall determine the restricted period
during which the shares of stock may be forfeited if, for example, the
Participant's employment is terminated. In order to enforce the forfeiture
provisions, the Equity Incentive Plan requires that all shares of Restricted
Stock awarded to the Participant remain in our physical custody until the
restrictions on these shares have terminated.

Deferred Stock. The Committee may award shares of deferred stock ("Deferred
Stock") either alone or in addition to other Awards granted under the Equity
Incentive Plan. The Committee shall determine the deferral period during which
time the receipt of the stock is deferred. The Award may specify, for example,
that the Participant must remain employed during the entire deferral period in
order to be issued the stock.

Stock Reload Options. The Committee may grant Stock Reload Options with any
Option granted under the Equity Incentive Plan. Stock Reload Options may be
granted only at the time of the grant of an Incentive Option or, in the case of
a Non-qualified Option, either at or after the time of the grant of a
Non-qualified Option. A Stock Reload Option permits a Participant who exercises
an Option by delivering already owned stock (i.e., the stock-for-stock method)
to receive back from us a new Option, at the current market price, for the same
number of shares delivered to exercise the Option. The new Option may not be
exercised until one year after it was granted and expires on the date the
original option would have expired had it not been previously exercised.

Other Stock-Based Awards. The Committee may grant performance shares and
shares of stock valued by our performance. Performance grants may be made either
alone or in addition to or in tandem with Stock Options, Restricted Stock or
Deferred Stock. Subject to the terms of the Equity Incentive Plan, the Committee
has complete discretion to determine the terms and conditions applicable to any
such stock-based awards. Terms and conditions of Awards may require continued
employment or the attainment of specified performance objectives or both.

Term and Termination of the Equity Incentive Plan

The Equity Incentive Plan became effective upon shareholder approval on
August 24, 1998. Unless terminated by the Board of Directors, the Equity
Incentive Plan shall continue to remain effective until no further Awards may be
granted and all Awards granted under the Equity Incentive Plan are no longer
outstanding. Grants of Incentive Stock Options may only be made during the
ten-year period from August 24, 1998.

Amendments to the Plan

The Board of Directors may amend or terminate the Equity Incentive Plan as
long as no amendment or termination affects Awards previously granted. If the
Board of Directors amends the plan, shareholder approval will be sought only if
required by an applicable law.

The Director Stock Option Plan

Our Director Stock Option Plan was approved before the date of this
Prospectus by our Board of Directors and our shareholders. The purpose of the
Director Stock Option Plan is to encourage ownership of Common Stock by our
eligible non-employee directors. Options will be granted to directors whose
continued services are considered essential to our future progress and to
provide them with a further incentive to remain as directors. All options
granted under the Director Stock Option Plan are Non-qualified Options. A total
of 400,000 shares of Common Stock have been reserved for issuance under the
Director Stock Option Plan. As of December 31, 1998, we have granted 30,000
options under this Plan and all are outstanding. The remaining options available
for future grant as of December 31, 1998 was 370,000.

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<PAGE> 65

The Director Stock Option Plan is administered by the Board of Directors.
The Board of Directors has full authority, subject to the provisions of the
Director Stock Option Plan, to determine the individuals to whom, and the time
or times at which, options will be granted and the number of shares of Common
Stock covered by each option. The Board of Directors has full authority to
construe and interpret the terms of the Director Stock Option Plan and the
options granted under it. We expect that each new non-employee director will
receive option grants under the Director Stock Option Plan upon becoming a
director. The Board of Directors will also have the authority to make additional
option grants to existing non-employee directors.

Each option will expire ten years from the date of grant. Outstanding
options will expire earlier if an optionee terminates service as a director
before the end of the first ten-year term. If an optionee terminates service as
a director for any reason, the option will automatically expire three months
after the date of termination, but in no event later than the expiration of the
ten-year term. Options are not assignable and may not be transferred other than
by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order. Upon a dissolution or liquidation of our company, each
outstanding option will terminate unless otherwise provided by the Board of
Directors. In the event of a proposed sale of all or substantially all of the
assets of our company or upon certain mergers in which the shareholders of
CapRock receive cash or securities of another issuer, the options may be either
assumed by the successor entity or substituted with an equivalent option.

The Board of Directors may amend or terminate the Director Stock Option
Plan except that any such amendment or termination will not affect options
previously granted. If the Board of Directors amends the Director Stock Option
Plan, shareholder approval will be sought only if required by an applicable law.

EMPLOYMENT AGREEMENTS

In February 1998 we entered into an employment agreement with each of Jere
W. Thompson, Jr., Ignatius W. Leonards, Byron M. Allen, Scott L. Roberts,
Timothy W. Rogers, and Timothy M. Terrell. In addition, on May 11, 1998, we
entered into an employment agreement with Kevin W. McAleer (collectively, the
"Employment Agreements"). The following is a summary of the principal terms of
the Employment Agreements.

Each Employment Agreement is for an initial term of three years, subject to
the right of either party to terminate their agreement upon 30 days' advance
written notice.

The Employment Agreements provide for Mr. Thompson to serve as Chief
Executive Officer and Mr. Leonards to serve as President of our company. Mr.
Thompson receives an annual base salary of $180,000 and Mr. Leonards receives
$168,000, both subject to increase upon review annually by the Board of
Directors.

The Employment Agreements provide for Mr. McAleer to serve as our Senior
Vice President and Chief Financial Officer (Mr. McAleer also serves as our
Treasurer and Secretary), and for Messrs. Allen, Roberts, Rogers and Terrell
each to serve as an Executive Vice President. Messrs. McAleer, Allen, Roberts,
Rogers, and Terrell will receive annual salaries of $200,000, $125,000,
$133,333, $133,333, and $133,333, in each case subject to increase upon review
annually by the Board of Directors.

Each Employment Agreement provides that, at the discretion of the Board of
Directors, each employee may be paid bonus compensation or may be allowed to
participate in a management incentive bonus plan should we adopt one or both.
Each Employment Agreement also provides for certain insurance benefits and
provides that the employee be eligible to participate in all retirement and
other benefit plans generally available to employees of CapRock and any equity
or other employee benefit plan of CapRock that is generally available to senior
executive officers of such company. In addition, each Employment Agreement
provides for certain payments and benefits if the employee is terminated without
cause or due to death or permanent disability.

Each Employment Agreement generally provides that the employee will keep
confidential certain non-public information regarding our company, further
provides that, during the period after termination of
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<PAGE> 66

employment specified therein (generally two years) the employee will not,
subject to certain exceptions, own, manage, control, or participate in the
ownership, management or control of, or be employed by or otherwise associated
with, or receive compensation from or otherwise engage in any business in which
we are is engaged in during such restricted period, including the provision of
local and long distance telecommunications services. The restricted territory
under each Employment Agreement is generally the entire United States, but in
certain cases is limited to certain Southern states. Each employee further
agrees that during the restricted period he will not (1) solicit or engage the
business of any of our clients or our clients of our affiliates or (2) solicit
any of our employees or employees of our affiliates to terminate any
relationship that person may have with us or our affiliates or engage, employ or
compensate any of our employees or employees of our affiliates.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors established a Compensation Committee, consisting of
Messrs. Amenson and Harris, effective upon consummation of the combination
(which occurred in August 1998). Before that, during fiscal 1998, compensation
decisions for executive officers of CapRock Telecommunications were made by the
Board of Directors of CapRock Telecommunications, compensation decisions for the
officers of CapRock Fiber's general partner were made by its Board of Directors
and compensation decisions for executive officers of IWL Communications were
made by Christopher J. Amenson and Myron Goins, the sole members of IWL
Communications' compensation committee.

During the last fiscal year, no executive officer of IWL Communications
served as a member of the Board of Directors or compensation committee of
CapRock Telecommunications or CapRock Fiber's general partner or any entity that
has one or more executive officers serving as a member of IWL Communications'
Board of Directors or compensation committee. During the last fiscal year, no
executive officer of CapRock Telecommunications or CapRock Fiber's general
partner served as a member of the Board of Directors or compensation committee
of IWL Communications or any entity (other than CapRock Telecommunications or
the general partner of CapRock Fiber) that has one or more executive officers
serving as a member of their Board.

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<PAGE> 67

CERTAIN TRANSACTIONS

Caroline Fontenot, the sister of Mr. Leonards, our Vice Chairman of the
Board and President, lent IWL Communications, one of our predecessor companies,
$75,000 on June 1, 1992 at an interest rate of 12% per annum. We used a portion
of the net proceeds from the offering of our senior notes in July 1998 to repay
the loan in full.

IWL Communications paid Mr. Leonards management fees with respect to one of
Mr. Leonards' properties. Fees paid to Mr. Leonards were $1,500 a month and
terminated in January 1998.

Our operations support system was developed by RiverRock Systems, Ltd.
CapRock owns a 49% limited partnership interest in RiverRock and David E.
Thompson, the brother of Jere W. Thompson, Jr. owns a 50% limited partnership
interest in RiverRock. Thompson Technology, Inc., a Texas corporation that is
owned by David E. Thompson is the general partner and owns a 1% general
partnership interest in RiverRock. Although it is the intention of RiverRock to
market and sell licenses for the system to third parties, as of the date of this
Prospectus, no marketing or sales to third parties have been made. RiverRock was
formed when CapRock and TTI transferred all rights to the system developed by
CapRock and TTI into RiverRock. CapRock has been granted a royalty-free,
perpetual and non-exclusive license for the use of the system. CapRock also
receives upgrades, maintenance and other support from RiverRock for three years,
without the payment of any fees or royalties. Thereafter, CapRock will be
required to pay the same fees and royalties for system upgrades, maintenance and
support as other licensees of RiverRock. During the fiscal year ended December
31, 1998, CapRock contributed a total of $170,000 to RiverRock for the
development of the system and has committed to fund up to a total of $700,000 as
capital contributions to RiverRock, which will be used for the continued
development of the system.

Jere W. Thompson, Sr. is the president of The Williamsburg Corporation, a
Texas corporation. The Williamsburg Corporation lent CapRock Telecommunications,
one of our predecessor companies, $1,170,000 in 1995 at the rate of 13% per
annum and payable on demand, but no later than March 31, 1998. During the fiscal
year ended December 31, 1995, The Williamsburg Corporation converted $750,000 of
the outstanding principal and interest amount of such note into 727,925 shares
of CapRock Telecommunications common stock. The remaining principal balance of
the note, together with interest thereon, was repaid by CapRock
Telecommunications during the fiscal year ended December 31, 1997. Jere W.
Thompson, Sr. is the father of Jere W. Thompson, Jr.

CapRock currently leases private line services from TISP, Inc. ("TISP").
TISP is owned by Patrick J. Thompson, a brother of Jere W. Thompson, Jr. Total
payments to TISP in the fiscal year ended December 31, 1998 were $1,176,000. We
believe that the prices charged for such services do not exceed prices charged
by unrelated parties for such services. Pricing of private line services is a
function of the capacity, term and distance of the circuit involved. Circuits
are usually available from multiple vendors, and vendors are selected on the
basis of price, speed of provisioning and circuit diversity. Rates are fixed and
payable monthly, generally in advance. The actual rates paid to TISP are
determined in the same manner as rates for unrelated parties.

In 1994, CapRock Telecommunications executed three promissory notes, one
payable to the order of each of Scott L. Roberts, Timothy M. Terrell and Timothy
W. Rogers, each an Executive Vice President of CapRock, relating to 334 shares
of common stock of CapRock Telecommunications repurchased from each of them with
such shares of stock pledged by CapRock Telecommunications to repay the notes.
The aggregate purchase price for the 334 shares from each individual was
$50,000. Each of the original notes were in the amount of $50,000 with no stated
interest rate. The notes were discounted using an interest rate of 5.8% and were
payable in three annual installments beginning April 1998. We used a portion of
the net proceeds from the offering of our senior notes in July 1998 to repay the
notes in full.

CapRock Telecommunications had a revolving credit facility with Bank One,
Texas, N.A. in the amount of $2,500,000, which was guaranteed by Jere W.
Thompson, Jr. We used a portion of the net proceeds from the offering of our
senior notes in 1998 to repay in full all amounts outstanding under the line of
credit, and at that time Mr. Thompson was released from his guaranty.

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<PAGE> 68

Mark Langdale, one of our directors, Joe C. Thompson, Jr., an uncle of Jere
W. Thompson, Jr., The Florida Company (which is owned by Joe C. Thompson), The
Hayden Company (which is owned by John P. Thompson, an uncle of Jere W.
Thompson, Jr.), and Jere W. Thompson, Sr. guaranteed portions of the $10,000,000
loan from Bank One, Texas, N.A. to CapRock Fiber, one of our predecessor
companies, in 1996, which was repaid on August 27, 1998 totaling $439,602. Each
guarantor received in exchange for each $1 million of indebtedness guaranteed
(1) a 2.67% limited partnership interest in CapRock Fiber (which was converted
into shares of our Common Stock in our business combination in August 1998), (2)
a commitment fee equal to 1% of the amount guaranteed, which accrued interest at
the rate of 12% per annum commencing July 1, 1997 and increased 2% on each July
1 thereafter that the commitment fee remained unpaid and (3) an annual loan
guaranty fee equal to 7% of the amount of each partner's guarantee multiplied by
a fraction, the numerator being the lesser of $8 million or the average
outstanding daily principal of the loan guaranteed and the denominator being $8
million. The guarantees (other than the joint and several guarantees of Mark
Langdale and Jere W. Thompson, Jr.) were released in April 1997 and, therefore,
no guaranty fees have been accrued after April 1, 1997 other than the accrued
interest. The total commitment fees, loan guarantee fees, and accrued interest
thereon, as of December 31, 1996, 1997, and 1998 were approximately $208,000 and
$406,000 and $430,000. Additionally, in exchange for Mark Langdale remaining on
his joint and several guaranty, CapRock Fiber agreed to pay him $20,000 which
was paid in 1998. We used a portion of the net proceeds from the offering of our
senior notes in 1998 to pay in full all of such commitment and guaranty fees.

CapRock entered into an agreement with CapRock Systems, which was the
general partner of CapRock Fiber prior to our business combination, to manage
the construction of the fiber optic network build out for the initial 260 route
miles, which was completed in 1997. Under this agreement, CapRock paid 4% of the
costs of constructing this portion of the network, payable monthly at a minimum
of $15,000 per month. CapRock paid management fees of $296,576 in 1997 and
$461,576, cumulative under the arrangement since construction of this segment
commenced. This arrangement ceased to exist in 1997.

In 1998, we granted to Myron J. Goins, a former director of one of our
predecessor companies and one of our consultants, 3,514 shares of "Restricted
Stock" under the terms of a Restricted Stock Agreement under our Equity
Incentive Plan. The restriction period under the agreement with Mr. Goins
expired on February 28, 1999.

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<PAGE> 69

PRINCIPAL AND SELLING SHAREHOLDERS

The following table shows information concerning the beneficial ownership
of our Common Stock as of February 28, 1999 and after giving effect to the sale
of the 6,500,000 shares of common stock in this offering and assuming no
exercise of the Underwriters' over-allotment option, by: (1) each director and
named executive officer, (2) person we know to beneficially own more than 5% of
the outstanding shares of our common stock; and (3) all officers and directors
as a group. The address for Messrs. Leonards and Allen, is 12000 Aerospace Ave.,
Suite 200, Houston, Texas 77034. The address for Messrs. Jere W. Thompson, Jr.,
Rogers, Roberts, Terrell, CapRock Investors and Greenway Holdings, L.P. is 15601
Dallas Parkway, Suite 700, Dallas, Texas 75248.

<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF NUMBER OF SHARES OUTSTANDING
SHARES OF PERCENT OF OF COMMON STOCK SHARES OF
COMMON STOCK SHARES OF SHARES OF BENEFICIALLY COMMON STOCK
BENEFICIALLY COMMON STOCK COMMON STOCK OWNED AFTER OWNED AFTER
NAME AND ADDRESS OWNED(1) OUTSTANDING(1) BEING OFFERED OFFERING(2)(6)(7) OFFERING(2)
- ---------------- ------------ -------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Jere W. Thompson, Jr.(3)... 10,775,218 37.2% -- 10,775,218 31.7%
Ignatius W. Leonards(4).... 1,897,528 6.6% 125,000 1,772,528 5.2%
Timothy W. Rogers.......... 2,883,628 10.0% 125,000 2,758,628 8.1%
Scott L. Roberts........... 2,883,628 10.0% 125,000 2,758,628 8.1%
Timothy M. Terrell......... 2,883,628 10.0% 125,000 2,758,628 8.1%
Byron M. Allen(5).......... 214,200 * -- 214,200 *
Mark Langdale(6)........... 11,224,352 38.8% 800,000 10,424,352 30.7%
5950 Berkshire, Suite 990
Dallas, TX 75225
Christopher J.
Amenson(7)............... 5,333 * -- 5,333 *
c/o SBS Technologies,
Inc.
2400 Louisiana Blvd.,
N.E.
AFC Building 5, Suite 600
Albuquerque, NM 87110
John R. Harris............. 7,000 * -- 7,000 *
c/o Electronic Data
Systems Corporation
5400 Legacy Drive
Plano, Texas 75024
Jere W. Thompson, Sr.(8)... 10,647,930 36.8% 200,000 10,447,930 30.8%
Two Turtle Creek Village
3838 Oak Lawn Ave., Suite
1850
Dallas, TX 75219
Greenway Holdings,
L.P.(3).................. 2,014,082 7.0% -- 2,014,082 5.9%
CapRock Investors(3)....... 8,650,884 29.9% -- 8,650,884 25.5%
All executive officers and
directors as a group(7)
(eleven persons)......... 24,014,699 83.0% -- 22,714,699 66.9%
</TABLE>

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

* Less than 1% of the outstanding shares of the class.

(1) Based upon 28,939,627 shares of Common Stock issued and outstanding. The
information contained in this table with respect to beneficial ownership
reflects "beneficial ownership" as defined in Rule 13d-3 under the Exchange
Act, which means generally any person who, directly or indirectly, has or
shares voting power or investment power with respect to a security. Shares
of Common Stock not outstanding but deemed beneficially owned by virtue of
the right of an individual or group to acquire such shares within 60 days
after February 28, 1999 are treated as outstanding only when determining the
amount and percentage of Common Stock owned by such individual or group. All

67
<PAGE> 70

information with respect to the beneficial ownership of any principal
shareholder was furnished by such principal shareholder and we believe that,
except as otherwise noted or pursuant to community property laws, each
shareholder has sole voting and investment power with respect to shares
shown.

(2) The numbers in the above table assume no exercise of the underwriters'
over-allotment options granted by the selling shareholders listed below. If
the over-allotment options are exercised in full, Greenway Holdings, L.P.
will sell 100,000 shares and will beneficially own after the offering
1,914,082 shares or 5.6% of the total shares outstanding, Ignatius W.
Leonards will sell 75,000 shares and will beneficially own after the
offering 1,697,528 shares or 5.0% of the total shares outstanding, Timothy
W. Rogers will sell 75,000 shares and will beneficially own after the
offering 2,683,628 shares or 7.9% of the total shares outstanding, Scott L.
Roberts will sell 75,000 shares and will beneficially own after the offering
2,683,628 shares or 7.9% of the total shares outstanding, Timothy M. Terrell
will sell 75,000 shares and will beneficially own after the offering
2,683,628 shares or 7.9% of the total shares outstanding, Mark Langdale will
sell 525,000 shares that he owns in his individual capacity and will
beneficially own after the offering 9,899,352 shares or 29.2% of the total
shares outstanding, and Jere W. Thompson, Sr. will sell 50,000 shares that
he owns in his individual capacity and will beneficially own after the
offering 10,397,930 shares or 30.6% of the total shares outstanding. If the
over-allotment options are exercised in full and after giving effect to the
sale by Greenway Holdings, L.P., Jere W. Thompson, Jr. will beneficially own
after the offering 10,675,218 shares or 31.5% of the total shares
outstanding. If the over-allotment options are exercised in full, all
executive officers and directors as a group will beneficially own after the
offering 21,789,699 shares or 64.2% of the total shares outstanding.

(3) Includes 8,650,884 shares held of record by CapRock Investors, 108,932
shares held of record by CapRock Systems, Inc. and 2,014,082 shares held of
record by Greenway Holdings, L.P. CapRock Investors is a Texas joint
venture, of which Jere W. Thompson, Jr. is the managing venturer and in
which he owns a controlling interest. The Joint Venture Agreement of CapRock
Investors grants to Mr. Thompson, Jr. certain authority, including the
authority to decide and cast all votes on behalf of CapRock Investors as a
shareholder of Telecommunications. As a consequence, both CapRock Investors
and Mr. Thompson, Jr. may each be deemed to be the beneficial owner of all
of the shares. CapRock Systems, Inc. is a Texas corporation of which Mr.
Thompson, Jr. owns 50% of the outstanding common stock and is an officer and
a director; as a result he has shared voting, investment, and dispositive
power with respect to the 108,932 shares held by CapRock Systems, Inc.
Greenway Holdings, L.P. is a Texas limited partnership of which Mr.
Thompson, Jr. is the general partner and has sole voting, investment and
dispositive power; as a result, he may be deemed to be the beneficial owner
of all of the shares held of record by Greenway Holdings, L.P.

(4) Includes 20,166 shares held by Ignatius W. Leonards as custodian for minor
children.

(5) Includes 7,300 shares held by Byron M. Allen as custodian for minor children
and 7,300 shares held by Mr. Allen's daughters, the voting, investment and
dispositive power of which are shared by Mr. Allen with his daughter.

(6) Includes 8,650,884 shares held of record by CapRock Investors and 108,932
shares held of record of CapRock Systems, Inc. Under the Joint Venture
Agreement of CapRock Investors, the approval of a majority-in-interest of
the venturers is required to approve the disposition of the shares. Because
of the ownership interest of Jere W. Thompson, Jr., Mark Langdale, and Jere
W. Thompson, Sr. (23.5%, 42.5% and 30.9%, respectively), two of the three
acting together can authorize or prevent a disposition of the shares. As a
result, each may be deemed to be the beneficial owner of all of the shares.
CapRock Systems, Inc. is a Texas corporation of which Mr. Langdale owns 50%
of the outstanding common stock and is an officer and a director; as a
result he has shared voting, investment and dispositive power with respect
to the 108,932 shares held by CapRock Systems, Inc.

(7) Includes 3,333 shares subject to currently exercisable options.

(8) Includes 1,302,283 shares held of record by The Williamsburg Corporation,
8,650,884 shares held of record by CapRock Investors and 289,677 shares held
of record by Jere W. Thompson, Sr.'s spouse. Under the Joint Venture
Agreement of CapRock Investors, the approval of a majority-in-interest of
the venturers is required to approve the disposition of the shares. Because
of the ownership interest of Jere W. Thompson, Jr., Mark Langdale, and Jere
W. Thompson, Sr., two of the three acting together can authorize or prevent
a disposition of the shares. As a result, each may be deemed to be the
beneficial owner of all of the shares. The Williamsburg Corporation is a
Texas corporation, of which Mr. Thompson, Sr. is the president and a
director; as a result he has shared voting, investment, and dispositive
power with respect to the 1,302,283 shares held by The Williamsburg
Corporation.

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<PAGE> 71

DESCRIPTION OF CERTAIN INDEBTEDNESS

CapRock has outstanding $150,000,000 of senior notes due 2008 bearing
interest at the rate of 12% per annum. The senior notes are subject to the terms
and conditions of an indenture dated July 10, 1999 between CapRock and PNC Bank,
as Trustee. The senior notes are subject to all of the terms and conditions of
the indenture. The following summary highlights some provisions of the
indenture.

The senior notes will mature on July 15, 2008. Interest on the senior notes
is payable semiannually in cash on January 15 and July 15 of each year,
commencing January 15, 1999. The senior notes are general senior unsecured
obligations of CapRock, and as such, rank pari passu in right of payment with
all existing and future unsecured and unsubordinated indebtedness of CapRock.
The senior notes are effectively subordinated in right of payment to all secured
indebtedness of CapRock to the extent of the value of the assets securing such
indebtedness. In addition, CapRock is a holding company, and the senior notes
are effectively subordinated to all existing and future indebtedness and other
liabilities (including trade payables) of CapRock's subsidiaries.

The senior notes are redeemable at CapRock's option, in whole or in part,
at any time on or after July 15, 2003 at the redemption prices shown herein
together with accrued and unpaid interest, if any, to the date of redemption.

Upon a change of control, each holder of senior notes may require CapRock
to make an offer to purchase all outstanding senior notes at a purchase price
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of purchase. There can be no assurance that
CapRock will have available, or will be able to acquire from alternative sources
of financing, funds sufficient to repurchase the senior notes in the event of a
change of control.

The indenture contains covenants that, among other things, limit or
prohibit us from engaging in certain transactions including the following:

- borrowing additional money,

- paying dividends or making other distributions to our shareholders,

- limiting the ability of subsidiaries to make payments to us,

- making certain investments,

- creating certain liens on our assets,

- selling certain assets and using the proceeds from those sales for
certain purposes,

- entering into transactions with affiliates, and

- engaging in certain mergers or consolidations.

The covenants also require CapRock to make an offer to purchase specified
amounts of senior notes in the event of certain asset sales. There can be no
assurance that CapRock will have sufficient funds to complete any purchase of
senior notes upon such a sale of assets.

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<PAGE> 72

DESCRIPTION OF CAPITAL STOCK

The following summaries highlight certain provisions of our Articles of
Incorporation and By-Laws, as amended. Copies of our Articles and Bylaws are
available from us upon request. See "Where You Can Find More Information."

AUTHORIZED CAPITAL STOCK

Under the Articles, the total number of shares of all classes of stock that
we have authority to issue is 220,000,000 shares. Each share has a par value of
$.01 per share. 200,000,000 of the shares of Common Stock and 20,000,000 are
shares of Preferred Stock. As of February 28, 1999, there were 28,939,627 shares
of Common Stock issued and outstanding, and no shares of Preferred Stock were
issued or outstanding.

COMMON STOCK

Each share of Common Stock has identical rights and privileges in every
respect. The holders of CapRock Common Stock are entitled to vote upon all
matters submitted to a vote of our shareholders and are entitled to one vote for
each share of Common Stock held.

Subject to the prior rights and preferences, if any, applicable to shares
of Preferred Stock or any series of Preferred Stock, the holders of Common Stock
are entitled to receive such dividends, payable in cash, stock or otherwise, as
may be declared by the Board out of any funds legally available for the payment
of dividends.

If CapRock voluntarily or involuntarily liquidates, dissolves or winds-up,
the holders of Common Stock will be entitled to receive after distribution in
full of the preferential amounts, if any, to be distributed to the holders of
Preferred Stock or any series of Preferred Stock, all of the remaining assets
available for distribution ratably in proportion to the number of shares of
Common Stock held by them.

Holders of Common Stock will have no preferences or any preemptive,
conversion or exchange rights.

PREFERRED STOCK

The Board is authorized to provide for the issuance of shares of CapRock
Preferred Stock in one or more series, and to fix for each series, voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof as are shown in a resolution
providing for the issuance of such series adopted by the Board. The Board may
authorize the issuance of shares of Preferred Stock with terms and conditions
which could discourage a takeover or other transaction that holders of some or a
majority of shares of CapRock Common Stock might believe to be in their best
interests or in which such holders might receive a premium for their shares of
stock over the then market price of such shares. As of the date hereof, no
shares of Preferred Stock are outstanding and the Board has no present intention
to issue any shares of Preferred Stock.

PREEMPTIVE RIGHTS

No holder of any shares of our stock has any preemptive or preferential
right to acquire or subscribe for any unissued shares of any class of stock or
any authorized securities convertible into or carrying any right, option or
warrant to subscribe for or acquire shares of any class of stock.

TRANSFER AGENT AND REGISTRAR

The principal transfer agent and registrar for our Common Stock is American
Securities Transfer & Trust, Inc.

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<PAGE> 73

CERTAIN ANTI-TAKEOVER EFFECTS

As of February 28, 1999, there were 171,060,373 authorized and unissued
shares of Common Stock and 20,000,000 authorized and unissued shares of
Preferred Stock. The Board of Directors can authorize the issuance of authorized
but unissued shares of its stock to render more difficult or to discourage an
attempt to obtain control of our company by means of a merger, tender offer,
proxy solicitation or otherwise. We are also subject to prior regulatory
approval by the FCC and various state regulatory agencies for a transfer of
control or for the assignment of our (or our subsidiaries') intrastate
certification authority, its international authority and other FCC licenses and
authorizations. The 1934 Communications Act generally limits direct foreign
ownership of wireless licenses to 20%, but provides for indirect foreign
ownership holdings above 25% upon FCC approval. In addition, because we (and our
subsidiaries) hold FCC authority to provide international service, the FCC will
scrutinize an ownership interest in our company of greater than 25%, or a
controlling interest at any level, by a dominant foreign carrier. International
carriers, such as we are, must notify the FCC 60 days in advance of an
acquisition by a foreign carrier or by an entity that controls a foreign carrier
of a 25% or greater or a controlling interest in such carriers. However, new
rules allow for up to 100% indirect ownership of wireless licenses by foreign
interests from countries that have participated in the 1997 WTO Agreement on
Basic Telecommunications Services, in which the United States and 68 other
countries committed to open their telecommunications markets to competition
starting in 1998. Furthermore, the Indenture provides for a mandatory purchase
of the Notes upon a Change of Control and it is currently expected that the
credit facility will provide that an event of default or redemption event
thereunder will occur if all or a controlling interest in our capital stock is
sold, assigned or otherwise transferred. See "Description of the Notes." Any of
the foregoing factors could have the effect of delaying, deferring or preventing
a change of control of CapRock. The Articles provide that Article 13.03 of the
Texas Business Corporation Act, which includes statutory anti-takeover measures,
will not apply to us.

WARRANTS AND REGISTRATION RIGHTS

As part of its initial public offering, IWL Communications, one of our
predecessor companies, issued warrants to purchase up to 145,000 shares of IWL
Communications common stock at an exercise price of $7.20 per share to
Cruttenden Roth, Incorporated or its designees for nominal consideration.
Following our business combination in August 1998, the Cruttenden warrants were
converted on a one-to-one ratio to warrants to purchase shares of our Common
Stock and are exercisable until July 16, 2002. Cruttenden Roth has certain
demand and piggyback registration rights associated with our Common Stock to be
issued upon the exercise of the warrants. Cruttenden Roth has waived their
registration rights with respect to this offering.

SHARES ELIGIBLE FOR FUTURE SALE

After the offering, we will have 33,939,627 shares of Common Stock
outstanding, assuming no exercise of outstanding options or warrants to purchase
Common Stock after February 28, 1999. All of these shares and any shares issued
upon exercise of outstanding stock options (there were 2,425,602 stock options
outstanding as of February 28, 1999) will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), except that any shares held by an "affiliate" of ours,
as that term is defined in Rule 144 under the Securities Act ("Rule 144"), may
generally only be sold in compliance with the limitations of Rule 144 described
below. We do not currently have outstanding any shares of Common Stock that are
"restricted securities" within the meaning of Rule 144 in that they have not
been registered under the Securities Act but we may in the future. These
restricted securities will generally be available for sale in the open market
after the offering, subject to the Lock-up Agreements (defined below) and the
applicable requirements of Rule 144.

In general, Rule 144 provides that after one year has elapsed between the
later of the date the restricted securities were acquired from us and the date
they were acquired from an affiliate of ours, the holder of such restricted
securities (including an affiliate) is entitled to sell a number of shares
within any

71
<PAGE> 74

three-month period that does not exceed the greater of (1) one percent of the
then outstanding shares of the Common Stock or (2) the average weekly reported
volume of trading of the Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 also are subject to certain requirements
pertaining to the manner of such sales, notice of such sales and the
availability of current public information concerning us. Affiliates may sell
shares not constituting restricted securities in accordance with the foregoing
volume limitations and other requirements of Rule 144 but without regard to the
one year holding period. Under Rule 144(k), after a period of two years has
elapsed between the later of the date on which restricted securities were
acquired from us and the date on which they were acquired from an affiliate, a
holder of such restricted securities who is not an affiliate of ours at the time
of the sale and has not been an affiliate for at least three months before the
sale would be entitled to sell the shares immediately without regard to the
volume limitations and other conditions of Rule 144 described above.

The selling shareholders will be required to enter into agreements with the
underwriters (the "Lock-up Agreements"). These agreements provide that, until
the expiration of 120 days after the date of this Prospectus, they will not
offer, sell, contract to sell or otherwise dispose of, any shares of Common
Stock or any securities of CapRock that are substantially similar to the Common
Stock or which are convertible into or exchangeable for, or represent the right
to receive, Common Stock without the prior written consent of Merrill Lynch. In
addition, we have agreed not to sell or otherwise dispose of any shares of
Common Stock during the 120-day period following the date of the Prospectus,
except we may issue, and grant options to purchase, shares of Common Stock under
the Company's Equity Incentive Plan and Director Stock Option Plan. In addition,
we may issue shares of Common Stock as part of any acquisition of another
company if the terms of such issuance provide that such Common Stock shall not
be resold before the expiration of the 120-day period referenced in the
preceding sentence.

We assumed all of the outstanding options to acquire the common stock of
our predecessor companies pursuant to our business combination in August 1998,
and all of such options are covered by an effective Registration Statement on
Form S-8. In addition, we filed a Registration Statement on Form S-8 to register
the 5,400,000 shares of stock issuable under the Equity Incentive Plan and the
Director Stock Option Plan. The shares covered by the Registration Statement on
Form S-8 are currently or upon grant will be eligible for sale in the public
markets, subject to Rule 144 limitations applicable to our "affiliates" as well
as to the limitations on sale and vesting described above. In addition,
Cruttenden Roth received demand and "piggy-back" registration rights under its
warrants. Registration of such shares under the Securities Act would result in
such shares becoming freely tradeable without restriction under the Securities
Act (except for shares purchased by affiliates) immediately upon the effective
date of such registration. If the holder or holders of the Cruttenden warrants
exercise a demand registration right, such sales could have an adverse effect on
the market price for CapRock's Common Stock. If we were to include in a
CapRock-initiated registration such shares pursuant to the exercise of
piggy-back registration rights, such sales may have an adverse effect on our
ability to raise additional capital. The Cruttenden warrants are currently
exercisable.

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<PAGE> 75

UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co.
Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Goldman, Sachs &
Co. are acting as representatives of each of the Underwriters named below.
Subject to the terms and conditions shown in a purchase agreement among us, the
selling stockholders and the Underwriters, we and the selling stockholders have
agreed to sell to the Underwriters, and each of the Underwriters severally and
not jointly has agreed to purchase from us and the selling stockholders, the
number of shares of Common Stock shown opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Bear, Stearns & Co. Inc.....................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Goldman, Sachs & Co.........................................

---------
Total............................................. 6,500,000
=========
</TABLE>

In the purchase agreement, the several Underwriters have agreed, subject to
the terms and conditions shown therein, to purchase all of the shares being sold
pursuant to such agreement if any of the shares of Common Stock being sold
pursuant to such agreement are purchased. Under the purchase agreement, the
commitments of non-defaulting Underwriters may be increased under certain
circumstances.

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

The selling shareholders have granted an option to the Underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 975,000 additional shares at the public offering price shown on the
cover page of this prospectus, less the underwriting discount. The Underwriters
may exercise this option solely to cover over-allotments, if any, made on the
shares offered hereby. To the extent that the Underwriters exercise this option,
each Underwriter will be obligated, subject to certain conditions, to purchase a
number of additional shares proportionate to such Underwriter's initial amount
reflected in the foregoing table.

The following table shows the per share and total underwriting discount to
be paid by us and the selling stockholders to the Underwriters. This information
is presented assuming either no exercise or full exercise by the Underwriters of
the over-allotment option.

<TABLE>
<CAPTION>
TOTAL TOTAL
WITHOUT WITH
PER SHARE OPTION OPTION
--------- -------- --------
<S> <C> <C> <C>
Public offering price........................... $ $ $
Underwriting discount...........................
Proceeds, before expenses, to CapRock...........
Proceeds to selling shareholders................
</TABLE>

We will not receive any of the proceeds from the sale of shares by the
selling shareholders. The expenses of the offering are estimated at $
and are payable by us.

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<PAGE> 76

The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.

Each of our officers and directors and all the selling shareholders have
entered into lock-up agreements with the Underwriters which provide that, until
the expiration of 120 days after the date of this Prospectus, they will not
offer, sell, contract to sell or otherwise dispose of, any shares of Common
Stock or any of our other securities that are substantially similar to the
Common Stock or which are convertible into or exchangeable for, or represent the
right to receive, Common Stock without the prior written consent of Merrill
Lynch. In addition, we have agreed not to sell or otherwise dispose of any
shares of Common Stock during the 120-day period following the date of the
Prospectus, except we may issue, and grant options to purchase, shares of Common
Stock under our stock option plans.

We and the selling shareholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, and
liabilities arising from breaches of representations and warranties contained in
the purchase agreement.

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

If the Underwriters create a short position in the Common Stock in the
offerings, i.e., if they sell more shares than are shown on the cover page of
this Prospectus, the representatives may reduce that short position by
purchasing shares in the open market. The representatives may also elect to
reduce any short position by exercising all or part of the over-allotment option
described above.

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

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

Neither we nor any of the selling stockholders or Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Common Stock. In
addition, neither we nor any of the selling stockholders or Underwriters makes
any representation that the representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without notice.

Some of the Underwriters have provided investment banking services to us in
the past and are likely to do so in the future. They receive customary fees and
commissions for these services. Both Merrill Lynch and Donaldson, Lufkin &
Jenrette Securities Corporation acted as initial purchasers in the offering of
the senior notes in July 1998 and received customary discounts and commissions
in connection therewith.

In this offering, certain Underwriters and selling group members (if any)
who are qualified market makers on the Nasdaq National Market may engage in
passive market making transactions in the Common Stock on the Nasdaq National
Market in accordance with Rule 103 of Regulation M under the Securities Exchange
Act of 1934, as amended, during the business day before the pricing of the
offering before the commencement of offers or sales of the Common Stock. Passive
market makers must comply with applicable volume and price limitations and must
be identified as such. In general, a passive market
74
<PAGE> 77

maker must display its bid at a price not in excess of the highest independent
bid of such security; if all independent bids are lowered below the passive
market makers' bid, however, such bid must then be lowered when certain purchase
limits are exceeded.

LEGAL MATTERS

Certain legal matters with respect to the validity of the shares of common
stock offered hereby will be passed upon for us and the selling shareholders by
Munsch Hardt Kopf & Harr, P.C., Dallas, Texas. Certain legal matters relating to
the offering will be passed upon for the Underwriters by Paul, Hastings,
Janofsky & Walker LLP.

EXPERTS

The consolidated financial statements of CapRock Communications Corp. as of
December 31, 1997 and 1998 and for each of the years in the three year period
ended December 31, 1998 included in this Prospectus in reliance upon the reports
of KPMG LLP and Burds, Reed & Mercer, P.C., independent certified public
accountants, appearing elsewhere herein and upon the authority of said firms as
experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and, therefore, we file reports, proxy statements,
information statements and other information with the Securities and Exchange
Commission. You may inspect and copy this information (at prescribed rates) at
the Commission's public reference facilities at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at the regional offices of the Commission
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. Please call the Commission at 1-800-SEC-0330 for more information on its
public reference rooms. The Commission also maintains an Internet Website at
http://www.sec.gov that contains reports, proxy statements, registration
statements, information statements and other information regarding registrants,
including us, that file electronically with the Commission. Our Common Stock is
quoted on the Nasdaq National Market. Reports, proxy statements, information
statements and other information about us may also be inspected at the office of
the National Association of Securities Dealers, Inc., located at 1735 K Street,
N.W., Washington, D.C. 20006.

We have filed with the Securities and Exchange Commission, Washington,
D.C., 20549, a Registration Statement on Form S-1 under the Securities Act of
1933, as amended, with respect to the Common Stock offered with this prospectus.
This prospectus does not contain all of the information shown in the
Registration Statement and the exhibits and schedules to the Registration
Statement. Certain items are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to us and
the Common Stock offered with this prospectus, reference is made to the
Registration Statement and the exhibits and schedules files as a part of the
Registration Statement. Statements contained in this prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, if such contract or document is filed as an
exhibit, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference to such exhibit. The Registration Statement,
including exhibits and schedules thereto, is available as shown in the previous
paragraph.

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<PAGE> 78

CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report of KPMG LLP.................... F-2
Independent Auditors' Reports of Burds, Reed and Mercer,
P.C....................................................... F-3, F-4
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-5
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998.......................... F-6
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the years ended December 31,
1996, 1997 and 1998....................................... F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998.......................... F-8
Notes to Consolidated Financial Statements.................. F-9
</TABLE>

F-1
<PAGE> 79

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
CapRock Communications Corp.
(Formerly IWL Holdings, Inc.):

We have audited the accompanying consolidated balance sheets of CapRock
Communications Corp. and subsidiaries, as of December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the 1996 financial statements of certain consolidated subsidiaries,
which statements reflect total assets constituting 56 percent and total revenues
constituting 45 percent of the related 1996 consolidated totals. Those financial
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts of these consolidated
subsidiaries, is based solely on the report of the other auditors.

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, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of CapRock Communications Corp. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.

KPMG LLP

Dallas, Texas
February 19, 1999

F-2
<PAGE> 80

INDEPENDENT AUDITORS' REPORT

The Board of Directors
CapRock Telecommunications Corp.:
(formerly CapRock Communications Corp.)

We have audited the balance sheet of CapRock Telecommunications Corp.
(formerly CapRock Communications Corp.) as of December 31, 1996, and the related
statements of operations, stockholders' equity, and cash flows for the year then
ended (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit 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 audit provides 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 CapRock Telecommunications
Corp. (formerly CapRock Communications Corp.) as of December 31, 1996, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.

BURDS, REED AND MERCER, P.C.

Dallas, Texas
May 28, 1997

F-3
<PAGE> 81

INDEPENDENT AUDITORS' REPORT

The Partners of
CapRock Fiber Network, Ltd.:

We have audited the balance sheet of CapRock Fiber Network, Ltd., as of
December 31, 1996, and the related statements of operations, partners' capital,
and cash flows for the year then ended (not presented separately herein). These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CapRock Fiber Network, Ltd.,
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.

BURDS, REED AND MERCER, P.C.

Dallas, Texas
March 19, 1997

F-4
<PAGE> 82

CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998

ASSETS

<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 3,520,017 $ 293,860
Marketable securities..................................... -- 97,019,789
Accounts receivable and unbilled services, less allowance
for doubtful accounts of $1,781,355 and $709,941 at
December 31, 1997 and 1998, respectively............... 15,143,525 19,936,214
Income tax receivable..................................... -- 1,405,000
Costs and estimated earnings in excess of billings........ -- 7,238,402
Inventory................................................. 1,022,927 1,301,726
Prepaid expenses and other................................ 1,022,319 706,775
Deferred income taxes..................................... 731,845 1,989,250
----------- ------------
Total current assets.............................. 21,440,633 129,891,016
Property, plant and equipment, net.......................... 27,340,599 59,606,752
Other assets................................................ 608,219 2,468,000
----------- ------------
Total assets...................................... $49,389,451 $191,965,768
=========== ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt......................... $ 8,116,424 $ --
Accounts payable and accrued expenses..................... 11,851,945 26,850,525
Accrued commitment and guarantor fees..................... 406,010 --
Current installments of obligations under capital
leases................................................. 239,672 --
Income taxes payable...................................... 589,514 --
Unearned revenue.......................................... 542,441 551,341
----------- ------------
Total current liabilities......................... 21,746,006 27,401,866
Long-term debt, excluding current portion................... 12,338,341 --
Senior notes, net of unamortized debt issuance costs........ -- 145,187,039
Deferred income taxes....................................... 851,307 3,314,568
Obligations under capital lease, excluding current
installments.............................................. 367,493 --
----------- ------------
Total liabilities................................. 35,303,147 175,903,473
Stockholders' equity:
Preferred stock, $.01 par value; 20,000,000 shares
authorized; none issued................................ -- --
Common stock, $.01 par value; 200,000,000 shares
authorized; issued and outstanding, 28,677,743 and
28,932,395 shares at December 31, 1997 and 1998,
respectively........................................... 286,777 289,377
Additional paid-in capital................................ 8,810,627 10,521,713
Retained earnings......................................... 5,385,144 5,608,237
Accumulated other comprehensive income.................... -- 8,878
Unearned compensation..................................... (396,244) (329,070)
Treasury stock, at cost................................... -- (36,840)
----------- ------------
Total stockholders' equity........................ 14,086,304 16,062,295
----------- ------------
Total liabilities and stockholders' equity........ $49,389,451 $191,965,768
=========== ============
</TABLE>

See accompanying notes to consolidated financial statements

F-5
<PAGE> 83

CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Carriers' carrier.................................. $22,405,158 $41,804,704 $ 72,165,460
Integrated services................................ 1,980,393 8,640,427 17,978,115
Systems services................................... 16,030,586 21,958,772 31,630,566
Product resales.................................... 10,553,846 2,945,563 --
----------- ----------- ------------
Total revenues............................. 50,969,983 75,349,466 121,774,141
Costs of services and product resales:
Services........................................... 29,684,388 50,124,257 83,221,102
Product resales.................................... 9,672,078 2,347,060 --
----------- ----------- ------------
Gross profit............................... 11,613,517 22,878,149 38,553,039
Operating expenses:
Selling, general and administrative................ 8,983,394 14,073,691 23,528,038
Merger related expenses............................ -- -- 2,312,973
Depreciation and amortization...................... 1,535,880 3,345,819 4,887,157
----------- ----------- ------------
Total operating expenses................... 10,519,274 17,419,510 30,728,168
----------- ----------- ------------
Operating income..................................... 1,094,243 5,458,639 7,824,871
Interest expense..................................... (630,952) (1,735,156) (9,458,895)
Interest income...................................... 46,300 132,634 3,017,816
Other income......................................... 41,148 219,211 105,789
----------- ----------- ------------
Income before income taxes................. 550,739 4,075,328 1,489,581
Income tax expense................................... 227,148 1,513,561 1,266,488
----------- ----------- ------------
Net income................................. $ 323,591 $ 2,561,767 $ 223,093
=========== =========== ============
Earnings per common share:
Basic.............................................. $ 0.01 $ 0.09 $ 0.01
Diluted............................................ $ 0.01 $ 0.09 $ 0.01
Weighted average shares outstanding:
Basic.............................................. 27,145,920 27,983,504 28,899,449
Diluted............................................ 27,156,471 28,480,968 30,027,569
</TABLE>

See accompanying notes to consolidated financial statements

F-6
<PAGE> 84

CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK TREASURY STOCK ADDITIONAL OTHER
--------------------- ----------------- PAID IN RETAINED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS INCOME
---------- -------- ------ -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........ 27,145,713 $271,457 -- $ -- $ 1,041,596 $2,239,378 $ --
Issuance of common stock............ 2,808 28 -- -- 9,968 -- --
Net income.......................... -- -- -- -- -- 323,591 --
---------- -------- ------ -------- ----------- ---------- ------
Balance at December 31, 1996........ 27,148,521 271,485 -- -- 1,051,564 2,562,969 --
Issuance of common stock............ 79,222 792 -- -- 777,058 -- --
Proceeds from initial public common
stock offering, net of expenses
(note 12).......................... 1,450,000 14,500 -- -- 6,982,005 -- --
Deferred compensation from
compensatory stock option grants
(note 12).......................... -- -- -- -- -- -- --
Amortization of deferred
compensation....................... -- -- -- -- -- -- --
Net income.......................... -- -- -- -- -- 2,561,767 --
Net income excluded from IWL
Communications for the six months
ended December 31, 1996 as a result
of conforming fiscal year end (note
2)................................. -- -- -- -- -- 260,408 --
---------- -------- ------ -------- ----------- ---------- ------
Balance at December 31, 1997........ 28,677,743 286,777 -- -- 8,810,627 5,385,144 --
Issuance of common shares under
stock option plans and restricted
stock awards....................... 52,641 527 -- -- 135,345 -- --
Acquisition of treasury shares under
stock option plans................. -- -- (5,255) (36,840) -- -- --
Issuance of stock relating to
acquisition (note 16).............. 207,266 2,073 -- -- 1,575,741 -- --
Amortization of deferred
compensation....................... -- -- -- -- -- -- --
Comprehensive income:...............
Net income......................... -- -- -- -- -- 223,093 --
Currency translation adjustment.... -- -- -- -- -- -- 8,878
---------- -------- ------ -------- ----------- ---------- ------
Total comprehensive income -- -- -- -- -- 223,093 8,878
---------- -------- ------ -------- ----------- ---------- ------
Balance at December 31, 1998........ 28,937,650 $289,377 (5,255) $(36,840) $10,521,713 $5,608,237 $8,878
========== ======== ====== ======== =========== ========== ======

CONSOLIDATED
UNEARNED STOCKHOLDERS'
COMPENSATION EQUITY
------------ -------------
<S> <C> <C>
Balance at December 31, 1995........ $ -- $ 3,552,431
Issuance of common stock............ 9,996
Net income.......................... -- 323,591
--------- -----------
Balance at December 31, 1996........ -- 3,886,018
Issuance of common stock............ -- 777,850
Proceeds from initial public common
stock offering, net of expenses
(note 12).......................... -- 6,996,505
Deferred compensation from
compensatory stock option grants
(note 12).......................... (417,100) (417,100)
Amortization of deferred
compensation....................... 20,856 20,856
Net income.......................... -- 2,561,767
Net income excluded from IWL
Communications for the six months
ended December 31, 1996 as a result
of conforming fiscal year end (note
2)................................. -- 260,408
--------- -----------
Balance at December 31, 1997........ (396,244) 14,086,304
Issuance of common shares under
stock option plans and restricted
stock awards....................... (32,500) 103,372
Acquisition of treasury shares under
stock option plans................. -- (36,840)
Issuance of stock relating to
acquisition (note 16).............. -- 1,577,814
Amortization of deferred
compensation....................... 99,674 99,674
Comprehensive income:...............
Net income......................... -- 223,093
Currency translation adjustment.... -- 8,878
--------- -----------
Total comprehensive income -- 231,971
--------- -----------
Balance at December 31, 1998........ $(329,070) $16,062,295
========= ===========
</TABLE>

See accompanying notes to consolidated financial statements

F-7
<PAGE> 85

CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 323,591 $ 2,561,767 $ 223,093
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 1,535,880 3,345,819 4,887,157
Amortization of discount on notes payable............... 7,338 7,338 --
Gain on sale of assets.................................. (67,021) (105,048) (51,361)
Deferred income taxes................................... (98,088) 384,247 1,205,856
Equity earnings of unconsolidated joint venture......... 25,873 (115,107) (46,075)
Amortization of debt issuance costs, included in
interest expense...................................... -- -- 202,158
Allowance for doubtful accounts......................... 356,223 1,382,119 1,649,773
Changes in operating assets and liabilities:
Accounts receivable and unbilled services............. (5,384,642) (7,876,944) (6,442,462)
Inventory............................................. (253,022) 1,631,929 (278,799)
Costs and earnings in excess of billings.............. (132,794) 83,265 (7,238,402)
Prepaid expenses and other............................ (275,987) (911,597) 407,325
Accounts payable and accrued liabilities.............. 4,746,639 3,378,009 14,592,570
Income taxes payable.................................. 37,418 553,739 (1,994,514)
Other................................................. (40,507) (207,851) 8,900
------------ ------------ -------------
Net cash provided by operating activities.......... 780,901 4,111,685 7,125,219
Cash flows from investing activities:
Purchases of property, plant and equipment................ (10,211,878) (13,630,464) (36,854,766)
Purchase of marketable securities......................... -- -- (145,000,000)
Proceeds from sale of marketable securities............... -- -- 47,980,211
Proceeds from note receivable............................. 659,972 -- --
Proceeds from disposal of property, plant and equipment... 201,550 643,836 303,805
Investment in unconsolidated subsidiary................... -- -- (169,166)
Purchase of ICEL.......................................... -- -- (609,822)
------------ ------------ -------------
Net cash used in investing activities.............. (9,350,356) (12,986,628) (134,349,738)
Cash flows from financing activities:
Proceeds from issuance of senior notes, net of debt
issuance................................................ 15,395,225 20,553,869 144,984,881
Principal payments on notes payable....................... (8,307,785) (14,608,429) (19,302,437)
Proceeds from line of credit.............................. 18,564,432 40,742,755 44,717,209
Principal payments on line of credit...................... (17,750,010) (40,404,848) (45,869,537)
Loan fees paid under long-term note agreement............. (135,749) (346,935) --
Net change in bank overdraft.............................. 957,497 (957,497) --
Purchase of treasury stock................................ -- -- (36,840)
Proceeds from issuance of common stock.................... 9,996 7,347,258 103,373
Principal payments under capital lease obligations........ (128,324) (212,695) (607,165)
------------ ------------ -------------
Net cash provided by financing activities.......... 8,605,282 12,113,478 123,989,484
Effect of exchange rate on cash and cash equivalents........ -- -- 8,878
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents........ 35,827 3,238,535 (3,226,157)
Cash and cash equivalents at beginning of year.............. 325,103 281,482 3,520,017
------------ ------------ -------------
Cash and cash equivalents at end of year.................... $ 360,930 $ 3,520,017 $ 293,860
============ ============ =============
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 550,332 $ 1,760,777 $ 1,344,441
============ ============ =============
Cash paid for income taxes................................ $ 150,866 $ 801,124 $ 1,861,656
============ ============ =============
Non-cash investing activity:
Issuance of stock for ICEL acquisition.................... $ -- $ -- $ 1,577,814
============ ============ =============
</TABLE>

See accompanying notes to consolidated financial statements

F-8
<PAGE> 86

CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation and Nature of Business

The consolidated financial statements include CapRock Communications Corp.
("CapRock" or the "Company") and its majority owned subsidiaries. The Company
was formed on February 3, 1998, to serve as a holding company for the operations
of CapRock Telecommunications ("Telecommunications"), CapRock Fiber Network Ltd.
("Partnership") and IWL Communications, Inc. ("IWL") and its wholly owned
subsidiaries. All significant inter-company transactions are eliminated in
consolidation. The consolidated financial statements include the accounts of
Telecommunications, Partnership, IWL, Spacelink Systems, Inc., Spacelink
Systems, FSC, Inc., and IWL Communications Ltd. ("Russia") and Integrated
Communications and Engineering Ltd. ("ICEL") (note 16). The equity method is
used to account for unconsolidated investments in companies in which CapRock
exercises significant influences over operating and financial policies, but does
not have a controlling interest. On August 26, 1998, pursuant to the Plan of
Agreement of Merger and Plan of Exchange dated February 16, 1998, as amended,
the Company completed the mergers and interest exchange with Telecommunications,
Partnership and IWL (note 2).

The Company is a regional facilities-based integrated communications
provider offering local, long distance, Internet, data and private line services
to small and medium-sized businesses. The Company also provides switched and
dedicated access, regional and international long distance, private lines and
dark fiber to carrier customers. The Company is in the process of building an
advanced fiber network throughout Texas, Louisiana, Arkansas, New Mexico and
Oklahoma. Additionally, the Company, through its wholly owned subsidiary -- IWL,
provides communications solutions to customers with operations in remote,
difficult-access regions. The Company markets its services through its internal
sales representatives and a network of independent agents.

(b) Cash Equivalents and Short-Term Investments Available for Sale

The Company considers all cash in bank accounts as cash equivalents.
Marketable securities consist of U.S. government, money market and commercial
paper securities, with maturities of less than one year. Marketable securities
are stated at cost and are adjusted for discount accretion and premium
amortization, which approximate fair value. The Company's short-term investment
objectives are safety, liquidity and yield.

Inventory substantially consists of parts and equipment held for resale.
Inventory that can be specifically identified using a unique identification
number is stated at the lower of specified cost or market. Inventory that cannot
be specifically identified is stated at the lower of cost or market, where cost
is determined using the first in first out method. Market value, in all cases,
represents the lower of replacement cost or net realizable value.

(d) Property, Plant and Equipment

Property, plant and equipment are stated at cost and include certain costs,
which are capitalized during the installation and expansion of the
telecommunications network including interest costs, and payroll related to the
construction. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized using
the straight-line method over the shorter of the estimated useful lives of the
assets or the remaining terms of the leases. Assets under construction are not
depreciated until placed in service.

F-9
<PAGE> 87
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In the process of building out its fiber network, the Company may enter
into Indefeasible Right to Use contracts ("IRUs") for the sale of fiber usage
rights and to provide the construction services for such fiber. The Company may
install additional conduits for these segments included in the IRUs for its own
use while performing the construction services. This additional conduit is
capitalized proportionately with the number of conduits placed, and depreciation
begins for these costs as the specific fiber segment is placed in service.

(e) Revenues and Cost of Revenues

The Company recognizes revenue from the following sources: Carriers'
Carrier, Integrated Services, System Services and Product Resale.

CARRIERS' CARRIER:

Carriers' carrier revenue includes all carrier revenues generated from the
sale of domestic and international switched services, from the sale of T-1 and
DS-3 broadband capacity and from the sale and lease of dark fiber. The revenue
generated from international switched services represent minutes of long
distance traffic terminating in foreign countries, but generated by domestic
U.S. based long distance carriers. Such revenues are recognized when the
services are provided. The cost of revenues associated with these services is
based primarily on the direct costs associated with owned and leased
transmission capacity and the cost of transmitting and terminating traffic on
other carriers' facilities. Commissions paid to sales representatives or agents
to acquire customer call traffic are expensed in the period when associated call
revenues are recognized.

The Company accounts for long-term construction contracts relating to the
development of telecommunications networks for customers using the
percentage-of-completion method, which would include the sale of fiber usage
rights through IRUs and the related construction services associated with
building the fiber network specified in the IRUs. Progress under the
percentage-of-completion is measured based upon costs incurred to date compared
with total estimated construction costs. Customers are billed based upon
contractual milestones.

INTEGRATED SERVICES:

Integrated services revenue includes all revenues generated from the sale
of telecommunications products to business and residential customers. These
products include local, long distance, Internet, data and private line services.
The Company records revenues for these telecommunications services at the time
of customer usage. The cost of revenues associated with services is based
primarily on the direct costs associated with owned and leased transmission
capacity and the cost of transmitting and terminating traffic on other carriers'
facilities. The cost of revenues for local services also includes payments to
local exchange carriers and interexchange carriers for access and transport
charges. Commissions paid to sales representatives or agents to acquire customer
call traffic are expensed in the period when associated call revenues are
recognized.

SYSTEMS SERVICES:

Systems services revenue includes revenues generated from the design,
installation, leasing and sale of voice and data systems and products, primarily
to companies in the oil and gas industry. The revenues associated with the
leasing and sale of voice and data systems products are recorded as the services
are provided. The revenue associated with the design and installation of voice
and data systems products primarily relates to communication system contracts
involving the engineering and integration of telecommunications systems and
sales, service and maintenance of telecommunications equipment. These

F-10
<PAGE> 88
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contracts are typically fixed price and such revenue is recognized based upon
the percentage-of-completion method, primarily based upon contract costs
incurred to date compared with total estimated contract costs.

PRODUCT RESALES:

In 1997, the Company provided services to a subsidiary of Shell, which
included the resale of a significant amount of Alcatel products. The Company
sold $2.9 million to the Shell subsidiary in 1997, relating to Alcatel products
and other equipment and hardware. The Shell project was substantially completed
in May 1997 and, therefore, is not expected to contribute in a material manner
to the Company's total sales in future periods.

(f) Business and Credit Concentration

Financial instruments which potentially expose the Company to a
concentration of credit risk, as defined by SFAS No. 105, Disclosure of
Information about Financial Instruments with Off-Balance Sheet Risk and
Financial Instruments with Concentrations of Credit Risk, consist primarily of
accounts receivable from carriers, retail and commercial customers. The Company
extends credit to customers on an unsecured basis with the risk of loss limited
to outstanding amounts.

(g) Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

(h) Stock-Based Compensation

The Company accounts for its stock-based employee compensation plan using
the intrinsic value based method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"). As
such, compensation expense is recorded on the date of grant to the extent the
current market price of the underlying stock exceeds the exercise price. The
Company has provided pro forma disclosures as if the fair value-based method of
accounting for these plans, as prescribed by Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation ("SFAS No.
123"), had been applied.

(i) Foreign Currency Translation

Results of operations for foreign investments are translated from the
designated functional currency to the U.S. dollar using average exchange rates
during the period, while assets and liabilities are translated at the exchange
rate in effect at the reporting date. Resulting gains and losses from
translating foreign currency financial statements are included in accumulated
other comprehensive income, a component of stockholders' equity.

(j) Intangible Assets

The Company recorded approximately $1.6 million of goodwill and $300,000
relating to other intangibles in connection with the acquisition of Integrated
Communications and Engineering Ltd. ("ICEL") (note 16). Goodwill represents the
excess of the purchase price over fair value of identifiable

F-11
<PAGE> 89
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

net assets acquired and is amortized on a straight-line basis over the expected
periods to be benefited. Goodwill in connection with the acquisition of ICEL
will be amortized over 20 years. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill balance
over its remaining life can be recovered through undiscounted future operating
cash flows. The amount of goodwill impairment, if any, is measured based upon
projected discounted future operating cash flows using a discounted rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.

(k) Impairment of Long-Lived Assets

The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. The Statement requires that
long-lived assets and certain identifiable intangibles be assessed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.

(l) Fair Value of Financial Instruments

The Company believes that the carrying amounts of its financial instruments
included in current assets and current liabilities approximate the fair value of
such items due to their short-term nature. As of December 31, 1998, the
estimated fair value and the carrying amount of the Company's 12% Senior Notes
due 2008 was $144 million and $145.2 million, respectively.

(m) Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.

F-12
<PAGE> 90
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(n) Earnings per Share

In 1997, the Company adopted the Financial Accounting Standards Board
Statement No. 128 ("SFAS No. 128"), Earnings Per Share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to SFAS No. 128 requirements. All data in the table below is in
thousands, except for per share data.

<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Numerator:
Net income........................................... $ 324 $ 2,562 $ 223
Denominator:
Denominator for basic earnings per share-weighted
average shares outstanding........................ 27,146 27,984 28,899
Effect of dilutive securities:
Employee stock options............................... 10 497 1,129
------- ------- -------
Denominator for diluted earnings per share-weighted
average shares outstanding........................... 27,156 28,481 30,028
======= ======= =======
Basic and diluted earnings per share................... $ 0.01 $ 0.09 $ 0.01
======= ======= =======
</TABLE>

(o) Comprehensive Income

On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income ("SFAS No. 130"). SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income consists of net income and
currency translation adjustments and is presented in the consolidated statements
of stockholder's equity and comprehensive income. The Statement requires only
additional disclosures in the consolidated financial statements; it does not
affect the Company's financial position or results of operations. Prior to 1998,
the Company's comprehensive income only consisted of net income.

(2) BUSINESS COMBINATION

On August 26, 1998, pursuant to the Plan of Agreement of Merger and Plan of
Exchange dated February 16, 1998, as amended, the Company completed the mergers
with Telecommunications, Partnership and IWL. Accordingly, the Consolidated
Balance Sheets as of December 31, 1997 and 1998 and the Consolidated Statements
of Operations, Stockholders' Equity and Comprehensive Income and Cash Flows for
each of the years in the three year period ended December 31, 1998 include
Telecommunications, Partnership and IWL as though these entities had always been
a part of CapRock.

All previously outstanding shares of IWL common stock ceased to exist and
each such share was converted into and became exchangeable for one share of
CapRock common stock, and all previously outstanding shares of
Telecommunications common stock ceased to exist, and each such share was
converted into and became exchangeable for 1.789030878 shares of CapRock common
stock and each one percent (1%) of the Partnership interests issued and
outstanding was exchanged for 63,194.54 shares of CapRock common stock. The
Company issued 28,910,221 common shares in exchange for the outstanding common
share of Telecommunications, Partnership and IWL. Additionally, outstanding
employee stock options of IWL and Telecommunications were converted at the above
exchange factors into options to purchase shares of CapRock common stock. The
mergers and interest exchange constituted a tax-free reorganization and was
accounted for as a pooling of interests.

In May 1998, IWL changed its fiscal year end to coincide with the fiscal
years of CapRock, Telecommunications and the Partnership. The Consolidated
Statement of Operations for the year ended

F-13
<PAGE> 91
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1997 and 1998 combine the operating activity for all three entities
for these years. The Consolidated Statement of Operations for 1996 combine IWL's
operating activity for the year ended June 30, 1996 with Telecommunications and
the Partnership operating activity for the year ended December 31, 1996. The net
income of IWL for the six month period ended December 31, 1996 was excluded from
the Consolidated Statement of Operations for the year ended December 31, 1996 in
the amount of approximately $260,000 as a result of the non-conforming year ends
for such period. This amount was included as an adjustment to retained earnings
in the Consolidated Statement of Stockholders' Equity. IWL's cash flow for this
six month period was added to the 1997 beginning balance in the Consolidated
Statement of Cash Flows.

The transactions between CapRock, IWL and the Partnership have been
eliminated for all respective periods presented. Certain reclassifications were
made to IWL's financial statements to conform to CapRock's presentations.

(3) MARKETABLE SECURITIES

Investments in marketable securities at December 31, 1998 consist of money
market investments of $46,666,281 and commercial paper securities of
$50,353,508.

At December 31, 1998, the estimated fair value of the Company's money
market instruments and commercial paper securities approximated cost, and the
gross unrealized gains were not significant.

(4) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, including assets acquired under capital
leases of $1,732,000 as of December 31, 1997 (no capital leases as of December
31, 1998), is comprised of the following:

<TABLE>
<CAPTION>
USEFUL LIVES 1997 1998
------------ ----------- -----------
<S> <C> <C> <C>
Land.......................................... -- $ 51,289 $ 299,752
Buildings..................................... 20-31 982,484 1,188,812
Leasehold improvements........................ Lease Term 330,468 1,191,277
Office equipment, furniture and other......... 5-7 4,264,606 9,706,840
Telecommunications network.................... 5-20 13,501,993 21,148,362
Equipment for rent/lease...................... 7-10 12,003,374 16,658,582
Construction in progress...................... -- 4,373,499 21,774,422
----------- -----------
Total property, plant and
equipment......................... 35,507,713 71,968,047
Less accumulated depreciation, including
amounts applicable to assets acquired under
capital leases of $721,667 and $0 as of
December 31, 1997 and 1998, respectively.... 8,167,114 12,361,295
----------- -----------
Net property, plant and equipment............. $27,340,599 $59,606,752
=========== ===========
</TABLE>

(5) COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS

<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $381,074 $3,479,846
Estimated earnings.......................................... 281,869 6,119,136
-------- ----------
662,943 9,598,982
Less: billings to date...................................... 662,943 2,360,580
-------- ----------
$ -- $7,238,402
======== ==========
</TABLE>

F-14
<PAGE> 92
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) INVESTMENT IN KENWOOD SYSTEMS GROUP

In September 1997, the Company sold its 50% ownership in Kenwood Systems
Group, Inc. ("KSG"), a California corporation. The remaining 50% of the voting
common stock is owned by Kenwood Americas Corporation ("KAC"). The results of
operations from January 1, 1997 through the date of sale (September 30, 1997) of
KSG have been reflected in the Company's operating results. The Company recorded
a gain on the sale of KSG of $66,226 in 1997.

The investment was recorded using the equity method in which the original
investment, adjusted for the Company's proportionate share of KSG's income,
losses and dividend distributions, was recorded as a long-term investment. The
Company's original investment in KSG was $200,000. An additional investment of
$50,000 was made during the year ended December 31, 1997. The Company's
proportionate share of KSG's (losses)/earnings for the years ended December 31,
1996 and 1997 were $(25,873) and $115,107, respectively.

The Company received a management fee of $58,253 and $76,995 from KSG for
the years ended December 31, 1996 and 1997, respectively. Billings by the
Company to KSG for the years ended December 31, 1996 and 1997 for insurance,
supplies, equipment and management fees totaled approximately $128,178 and
$174,500, respectively.

(7) LEASES

The Company leases equipment, office space, communication services and land
and buildings (used for transmission sites) under operating leases. Future
minimum lease payments under these lease agreements for each of the next five
years are summarized as follows:

<TABLE>
<S> <C>
Year ending December 31,
1999...................................................... $ 3,810,959
2000...................................................... 4,181,258
2001...................................................... 4,063,546
2002...................................................... 3,147,298
2003...................................................... 2,514,350
Thereafter................................................ 1,813,588
-----------
Total minimum lease payments...................... $19,530,999
===========
</TABLE>

As operating leases expire, it is expected that they will be replaced with
similar leases. Rent expense under operating leases totaled $768,108, $1,419,812
and $1,027,651 for each of the years ended December 31, 1996, 1997 and 1998,
respectively.

F-15
<PAGE> 93
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) DEBT

A summary of the lines of credit and the notes payable is as follows:

<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Senior notes, 12%, due 2008....................... $ -- $145,187,039
Lines of credit, variable rates, 8.12% to 10.5%... 5,275,608 --
Notes to banks, variable rates, 8.12%............. 2,274,590 --
Notes to banks, fixed rates, 8.5% to 9.0%......... 1,968,674 --
Term construction loan, variable rate, 8.5%....... 9,550,892 --
Notes to financing companies, variable rates...... 180,328 --
Notes to financing companies, fixed rates......... 1,026,733 --
Shareholder notes, 5.8% imputed rate.............. 128,167 --
Other............................................. 49,773 --
----------- ------------
Total................................... 20,454,765 145,187,039
Less: current portion of long-term debt........... 8,116,424 --
----------- ------------
Long-term debt.......................... $12,338,341 $145,187,039
=========== ============
</TABLE>

In July 1998, the Company issued, through a private placement under Rule
144A under the Securities Act of 1998, as amended, $150 million aggregate
principal amount of its 12% Senior Notes due 2008 (the "Senior Notes"), which
closed on July 16, 1998. Interest on the Senior Notes is payable semi-annually
in arrears on January 15 and July 15 of each year, commencing on January 15,
1999, at the rate of 12% per annum. The Senior Notes are presented net of
unamortized debt issuance costs of $4,821,961. The amortization of debt issuance
cost is recorded to interest expense and such amount was $202,000 in 1998. The
net proceeds from the offering were used to repay existing debt obligations.
Such proceeds for debt payoffs totaled $26.8 million. The proceeds will be used
to fund capital expenditures for the construction of its fiber optic network, to
expand its sales offices, for potential acquisitions and for general working
capital purposes. The funds have been invested in high-grade liquid securities.

The Senior Notes contain certain covenants which provide for limitations on
indebtedness, dividends, asset sales and certain other transactions and
effectively prohibits the payment of cash dividends.

In March 1996, the Company entered into a revolving credit facility with a
bank for borrowings up to $15 million. In December 1997, the Company entered
into an amended agreement that provided for borrowings up to $25 million. The
line of credit was amended in June 1998 and was increased to $7.0 million. The
balance outstanding as of December 31, 1997 under the line of credit was
$1,152,329. The line of credit was paid off in August 1998 with the proceeds
from the Senior Notes.

The Company also entered into a secured revolving line of credit, which
allowed the Company to borrow up to a maximum of $5.0 million subject to
borrowing base limitations on accounts receivable and inventory. The Company
also secured a guidance line of credit, which allowed the Company to borrow up
to $5.0 million to finance certain purchases and subsequent leases of
communications equipment. These lines of credit were paid off in August 1998
with the proceeds from the Senior Notes.

The Company had a loan agreement with a bank ("Term Construction Loan")
whereby it borrowed $10.0 million used for the construction, start-up and
related expenses of the fiber optic network. The loan was initially secured by
the network, investment securities of a shareholder, accounts receivable and
guarantees of certain shareholders. The balance outstanding for this loan as of
December 31, 1997 was $9,550,892 and the loan was paid off in August 1998 with
the proceeds from the Senior Notes.

F-16
<PAGE> 94
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Certain shareholders guaranteed the Term Construction Loan. In
consideration, the Company agreed to pay a one-time commitment fee equal to 1%
of each shareholder's guarantee. The guarantors were also paid a loan guaranty
fee by the Company equal to 7% of the amount of the lesser of $8.0 million or
the average outstanding daily principal of the loan. The bank released the
guaranty requirement in April 1997 for certain limited partners. The total
accrued commitment fees and loan guarantor fees as of December 31, 1997 were
approximately $406,000. All commitment and guarantee fees were paid in full in
August 1998 with the proceeds from the Senior Notes. Such payments totaled
approximately $430,000.

In 1994, the Company entered into note payable agreements with three
officers of the Company ("Shareholder Notes") relating to stock repurchased by
the Company. The unamortized discount was $21,834 as of December 31, 1997. The
Shareholder Notes were repaid in August 1998 with the proceeds from the Senior
Notes.

(9) RELATED PARTIES

In 1996 the Company entered into an agreement with a related party to
manage the construction of the fiber optic network build out for the initial 260
route miles, which was completed in 1997. Under this agreement, the Company paid
4% of the costs of constructing this portion of the network, payable monthly at
a minimum of $15,000 per month. The Company paid management fees of $296,576 in
1997 and $461,576, cumulative under the arrangement since construction of this
segment commenced. This arrangement ceased to exist in 1997.

The Company currently leases private line services from affiliated
companies. Total payments to these affiliated companies for services totaled
$765,000 in 1997 and $1,176,000 in 1998. The Company believes that the prices
charged for such services do not exceed prices charged by unrelated parties.

The Company's billing and back office systems are being developed by
RiverRock Systems, Ltd. ("RiverRock"), a limited partnership formed in July
1998. The Company owns a 49% interest in the limited partnership and David E.
Thompson owns a 50% limited partnership interest. Thompson Technology, Inc.
(which is owned by David Thompson, a brother of Jere W. Thompson, Jr. -- CEO of
CapRock Communications Corp.) is the general partner and owns a 1% general
partnership interest. The Company contributed a total of $170,000 in 1998 for
the development of the systems and had committed to fund up to a total of
$700,000, as capital contributions to RiverRock. The investment balance of
$86,000 as of December 31, 1998 was included in other assets.

(10) ALLOWANCE FOR DOUBTFUL ACCOUNTS

The activity in the allowance for doubtful accounts for the years ended
December 31, 1997 and 1998 is as follows:

<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Allowance for doubtful accounts at beginning of year........ $ 399,216 $ 1,781,335
Additions charged to bad debt expense....................... 1,382,119 1,649,773
Write-downs charged against the allowance, net of
recoveries................................................ -- (2,721,167)
---------- -----------
Allowance for doubtful accounts at end of year.............. $1,781,335 $ 709,941
========== ===========
</TABLE>

(11) LEASE CONTRACTS

The Company provides telecommunications services to various customers under
operating leases. The services include agreements to lease capacity to customers
over the fiber optic line, communications equipment, line/satellite charges
and/or maintenance charges. These leases impose certain obligations on both the
lessor and lessee, which must be met during the term of the lease.

F-17
<PAGE> 95
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A significant portion of these services requires that the Company have
access to international communication satellites. The Company has contracted
with a Russian entity for rights to access its portion of an international
communications satellite. The Company has agreed to pay a recurring monthly fee
to the entity based on the amount of satellite space segment utilized by each
lessee. Additionally, the Company has sold communication equipment to the
entity. The Company utilizes those facilities to provide communication services
to various United States energy and oil and gas companies and other customers
doing business in Russia.

The following is a summary of expected revenue to be earned during the next
five years by the Company on lease agreements executed on or before December 31,
1998.

<TABLE>
<S> <C>
Year ending December 31:
1999.................................................. $ 8,051,952
2000.................................................. 7,243,418
2001.................................................. 4,569,128
2002.................................................. 3,622,862
2003.................................................. 3,182,282
Thereafter............................................ 5,244,940
-----------
Total......................................... $31,914,582
===========
</TABLE>

(12) STOCKHOLDERS' EQUITY

Initial Public Offering

The Company, through its wholly owned subsidiary -- IWL, completed an
initial public offering ("IPO") of common stock on June 12, 1997, issuing
1,450,000 shares at $6.00 per share. The proceeds, net of commissions and
expenses, from this IPO totaled $6,996,505. In July 1997, the underwriters
exercised an over allotment option and purchased an additional 62,496 shares
resulting in net proceeds of $337,473.

Common Stock

CapRock was incorporated as a Texas corporation on February 3, 1998, to
serve as a holding company for the operations of Telecommunications, Partnership
and IWL after completion of their business combination (note 2) in conformance
with the provisions of their Agreement and Plan of Merger dated February 16,
1998. The Company issued 28,910,221 common shares in exchange for the
outstanding common shares of Telecommunications, Partnership and IWL.

Telecommunications Employee Stock Option Plan

In September 1997, Telecommunications adopted a stock option plan (the
"Telecommunication Plan") pursuant to which the Company's Board of Directors may
grant nonqualified options to employees. The Telecommunications Plan authorized
grants of options to purchase up to 10% of the common shares outstanding. All
Telecommunications stock options have a ten-year term and cannot be exercised
prior to September 1, 1998. The options vest in 20% increments over a five-year
period. All options expire August 31, 2007. Upon consummation of the merger, the
outstanding stock options under this plan were converted at the exchange factor
(note 2) into options to purchase shares of CapRock common stock.

In 1997, Telecommunications granted 380,899 nonqualified stock options
under the Telecommunications Plan with an exercise price of $1.00 per share. The
Company recorded deferred compensation of $417,100 related to these stock option
grants, which will be recognized over the vesting period. As of

F-18
<PAGE> 96
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1998, 34,501 of the options previously granted were forfeited and
canceled, 17,504 options were exercised and 328,894 options were outstanding.

IWL Incentive Stock Option Plan

In 1996, IWL adopted an Employee Incentive Stock Option Plan ("IWL
Incentive Plan"). The option price per share could not be less than the fair
market value of a share on the date the option is granted. Options under such
plan generally vest at the rate of 20% per year over a five year period;
however; the Board at its discretion may accelerate the vesting schedule. All
options granted under the IWL Incentive Plan on or prior to the IPO date, June
12, 1997, vested in full on the offering date. IWL granted 342,214 options under
the plan. The stock options expire ten years from the date of grant. Upon
consummation of the merger, the outstanding stock options under this plan were
converted at a one to one ratio to purchase shares of CapRock common stock.

As of December 31, 1998, 24,000 of the options previously granted were
forfeited, 50,141 options were exercised and 268,073 options were outstanding.
No additional options are available for grant under the IWL Incentive Plan.

Warrants

The Company issued to its investment bankers warrants to purchase up to
145,000 shares of common stock, at an exercise price equal to 120% of the IPO
price. Upon consummation of the merger, the outstanding warrants were converted
at a one to one ratio to purchase shares of CapRock common stock. All of the
warrants were outstanding as of December 31, 1998.

The warrants have certain demand and "piggy-back" registration rights that
may require the Company to register for resale the shares of Common Stock
issuable under the warrants. The warrants are exercisable for a period of four
years, beginning June 12, 1998.

CapRock Equity Incentive Plan

On August 26, 1998, in connection with the approval of the merger, the
shareholders of the Company approved an equity incentive plan (the "CapRock
Plan"). The CapRock Plan authorized the granting of awards, which would allow up
to an aggregate of 5,000,000 share of common stock to be acquired by
participants and provides that a maximum of 2,500,000 shares of common stock may
be issued to any one participant. All prospective equity grants will be issued
from the CapRock Plan. The awards under the Plan may take the form of stock
options, stock appreciation rights, restricted stock awards, deferred stock,
stock reload options, stock appreciation rights, restricted stock awards,
deferred stock, stock related options and other stock based awards.

Stock options granted under the CapRock Plan may be either options that are
intended to qualify for treatment as incentive stock options under Section 422
of the IRS tax code or options that do not so qualify (non-qualified stock
options). Options under the Plan may be granted to any person who is an officer
or other employee or consultants of the Company or any of its subsidiaries. The
exercise price of incentive stock options must be at least the fair value of a
share of the common stock on the date of grant (and not less than 110% of the
fair market value of a share of the common stock on the date of grant). The
exercise price of non-qualified stock options may be less than 100% of the fair
market value of a share of the common stock on the date of grant. The term of
the option may not exceed 10 years (5 years in the case of incentive stock
options granted to an optionee owning 10% or more of the common stock).

During 1998, the Company granted 1,681,600 options under this plan and
these options vest over five years. As of December 31, 1998, 48,700 of the
options granted were forfeited and canceled, none of the options granted had
been exercised and 1,632,900 of the options were outstanding.
F-19
<PAGE> 97
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Director Stock Option Plan

On August 26, 1998, in connection with the approval of the merger, the
shareholders of the Company approved the Director Stock Option Plan (the
"CapRock Director Plan"). All options to be granted under the CapRock Director
Plan will be non-qualified stock options. A total of 400,000 shares of common
stock have been reserved for issuance under the CapRock Director Plan. Each
option will expire ten years from the date of grant and the options vest over
three years. Outstanding options will expire earlier if an optionee terminates
service as a director before the end of the first ten-year term. As of December
31, 1998, the Company granted 30,000 options under this plan and all were
outstanding as of December 31, 1998.

The remaining options available for future grant as of December 31, 1998
are 3,363,586 options under the CapRock Plan and 370,000 under the CapRock
Director Plan.

A summary of options activity under the plans described above is as
follows:

<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
OF OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Balance at December 31, 1996......................... 160,614 $3.62
Options granted.................................... 552,499 2.25
Options exercised.................................. (13,919) 3.56
Options forfeited.................................. (8,275) .56
--------- -----
Balance at December 31, 1997......................... 690,919 2.56
Options granted.................................... 1,721,600 6.58
Options exercised.................................. (53,726) 3.04
Options forfeited.................................. (98,926) 4.80
--------- -----
Balance at December 31, 1998......................... 2,259,867 $5.51
========= =====
</TABLE>

A summary of options outstanding as of December 31, 1998 is as follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE NUMBER OF
EXERCISE OPTIONS REMAINING CONTRACTUAL OPTIONS
PRICE OUTSTANDING LIFE EXERCISABLE
- -------- ----------- --------------------- -----------
<S> <C> <C> <C>
$ .56 328,894 8.77 52,241
3.56 109,918 6.92 109,918
4.49 10,555 7.36 10,555
6.00 132,600 8.40 28,167
6.25 5,000 8.63 1,000
6.50 1,662,900 9.79 --
20.25 10,000 9.22 --
--------- ---- -------
2,259,867 9.40 201,881
========= ==== =======
</TABLE>

F-20
<PAGE> 98
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company applied the intrinsic value method prescribed by APB Opinion
No. 25 in accounting for its plans. SFAS No. 123 requires disclosure of the
compensation cost for stock-based incentives granted based upon the fair value
at grant date for awards. Applying SFAS No. 123 would result in pro forma net
income and earnings per share ("EPS") amounts as follows:

<TABLE>
<CAPTION>
1996 1997 1998
-------- ---------- --------
<S> <C> <C> <C> <C>
Net income (loss)...................... As reported $323,591 $2,561,767 $223,093
Pro forma 319,000 2,385,000 (762,238)
Basic EPS.............................. As reported $ 0.01 $ 0.09 $ 0.01
Pro forma 0.01 0.09 (0.03)
Diluted EPS............................ As reported $ 0.01 $ 0.09 $ 0.01
Pro forma 0.01 0.08 (0.03)
</TABLE>

The fair value of each option grant was estimated using the Black-Scholes
option pricing model with the following assumptions: risk free interest rates of
5.8%, 5.8% and 5.75%; expected option lives of 2.5, 2.5 and 3 years; expected
volatility of 55%, 55% and 52%, and no expected dividend yield, in 1996, 1997
and 1998, respectively.

(13) INCOME TAXES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------
U.S. FEDERAL FOREIGN STATE TOTAL
------------ -------- -------- ----------
<S> <C> <C> <C> <C>
Current................................. $ 175,404 $149,832 $ -- $ 325,236
Deferred................................ (87,737) -- (10,351) (98,088)
---------- -------- -------- ----------
Total......................... $ 87,667 $149,832 $(10,351) $ 227,148
========== ======== ======== ==========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------
U.S. FEDERAL FOREIGN STATE TOTAL
------------ -------- -------- ----------
<S> <C> <C> <C> <C>
Current................................. $ 946,703 $112,659 $ 69,952 $1,129,314
Deferred................................ 364,993 -- 19,254 384,247
---------- -------- -------- ----------
Total......................... $1,311,696 $112,659 $ 89,206 $1,513,561
========== ======== ======== ==========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------
U.S. FEDERAL FOREIGN STATE TOTAL
------------ -------- -------- ----------
<S> <C> <C> <C> <C>
Current................................. $ -- $ -- $ 60,632 $ 60,632
Deferred................................ 896,739 134,442 174,675 1,205,856
---------- -------- -------- ----------
Total......................... $ 896,739 $134,442 $235,307 $1,266,488
========== ======== ======== ==========
</TABLE>

Foreign income taxes results from taxes withheld on sales related to
Russian operations. Operating income (loss) from such operations for the years
ended December 31, 1996, 1997 and 1998 were $436,000 and $555,000 and
$(441,000), respectively.

F-21
<PAGE> 99
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense differs from the amount computed by applying the federal
income tax rate of 34% to earnings before taxes, as follows:

<TABLE>
<CAPTION>
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Income tax provision at 34%....................... $187,251 $1,385,612 $ 506,458
Merger expenses not deductible for tax purposes... -- -- 612,000
Expenses not deductible for tax purposes.......... 11,990 33,094 28,488
State income tax expense, net of federal effect... (10,351) 89,206 155,303
Effect of foreign operations, including foreign
tax credits..................................... (53,071) (49,326) --
Exclusion of Partnership income tax benefit....... 84,000 39,000 --
Other............................................. 7,329 15,975 (35,761)
-------- ---------- ----------
Total................................... $227,148 $1,513,561 $1,266,488
======== ========== ==========
</TABLE>

Effective January 1, 1998, the Partnership elected to be taxed as a
corporation. As such, deferred taxes and tax provisions have been established in
1998. The pro forma tax benefit in 1996 and 1997 was approximately $84,000 and
$39,000, respectively, if the partnership would have been taxed as a C
corporation in those years.

The tax effects of temporary differences and carryforwards, which result in
a significant portion of the deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
1997 1998
---------------------- ------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Effect on deferred taxes of
carryforwards......................... $116,958 $ -- $2,035,899 $ --
Foreign tax credit...................... 25,600 -- 207,235 --
Allowance for doubtful accounts......... 654,875 -- 245,263 --
Unearned compensation................... 7,717 -- -- 16,864
Deferred revenue........................ 7,142 -- -- 1,906,520
Accrued vacation pay.................... 27,200 -- 39,560 --
Property, plant and equipment........... -- 968,265 -- 1,960,602
Other................................... 9,311 -- 30,711 --
-------- -------- ---------- ----------
Total deferred taxes.......... $848,803 $968,265 $2,558,668 $3,883,986
======== ======== ========== ==========
</TABLE>

A net operating loss of $5,278,132 was generated in 1998 and the operating
loss will be used to offset future taxable income. The net operating loss
carryforward will expire in year 2013; however, management believes that this
carryforward will be utilized prior to expiration. No valuation allowance for
deferred taxes at December 31, 1997 and 1998 is considered necessary as
management has determined that it is more likely than not that these assets will
be realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary differences become deductible. The Company considered the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment.

(14) COMMITMENTS

The Company has an agreement with various vendors, which require minimum
usage. In the event such monthly commitments are not met, the Company is
required to remit to the vendor the difference between the commitments and the
actual usage. Such amount, if necessary, would be recorded as cost of revenue in
the period incurred.

F-22
<PAGE> 100
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company entered into a volume purchase commitment of $13 million
relating to the purchase of telecommunications equipment. In the event the $13
million commitment is not fulfilled by CapRock, the Company shall pay the vendor
a penalty ranging from 3%-13% of the purchase commitment. The Company believes
that no penalties will be incurred under this contract.

(15) 401(k) PLANS

The Company and a subsidiary offer its qualified employees the opportunity
to participate in one of its defined contribution retirement plans qualifying
under the provisions of Section 401(k) of the Internal Revenue Code. Each
employee may contribute on a tax deferred basis a portion of annual earnings not
to exceed $9,500. The Company matches individual employee contributions in
certain plans, up to a maximum level, which in no case exceeds 6%. The Company's
matching contributions to the Plan (after forfeitures) for the years ended
December 31, 1996, 1997 and 1998 were $23,367, $30,287 and $81,086,
respectively.

(16) ACQUISITION

In January 1998, the Company completed the acquisition of Integrated
Communications and Engineering, Ltd. ("ICEL"), a communications systems
integrator and maintenance provider in Aberdeen, Scotland. The Company paid a
total purchase price of approximately $2.2 million comprised of approximately
$610,000 in cash and 207,266 shares of the Company's common stock. The
acquisition was accounted for as a purchase business combination, and
accordingly the purchase price was allocated to assets acquired and liabilities
assumed. Approximately $ 1.6 million was recorded as goodwill and $300,000 was
allocated to contracts as a result of the transaction.

The following summarizes the unaudited consolidated data as though the
acquisition of ICEL occurred as of the January 1, 1997:

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------- -----------
<S> <C> <C>
Revenue.................................... $75,349,466 $78,676,598
Net income................................. 2,561,767 2,681,147
Earnings per share......................... 0.09 0.10
</TABLE>

(17) SUBSEQUENT EVENTS

In February 1999, the Company entered into a joint build arrangement with
Enron Communications, Inc., a wholly owned subsidiary of Enron Corp., to jointly
build approximately 1,050 miles of fiber optic network within the state of
Texas. The build plan includes four conduit ducts to be placed throughout the
1,050 miles, with one and one-quarter conduits to be owned and funded by CapRock
and one and one-quarter conduits to be owned and funded by Enron Communications,
Inc., and one and one-half conduits to be owned and funded by a limited
partnership formed by CapRock and Enron Communications, Inc. The limited
partnership will sell a specified amount of fiber usage rights and CapRock will
own 48 fibers.

The total required capital contributions will depend on the costs to
construct the segment. CapRock and Enron are committed to each contribute
equally to fund the construction. The total construction costs for the 1,050
miles are estimated at approximately $125 million.

(18) SEGMENT REPORTING AND CONCENTRATION OF CUSTOMERS

In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures about Segments of an Enterprise and Related Information, which
the Company has adopted in 1998. The

F-23
<PAGE> 101
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company identifies such segments based on management responsibility. The Company
measures segment profit as operating income, which is defined as income before
interest expense and income taxes. The service revenue from the
Telecommunications Division include all revenues generated from the sale of
telecommunications products to business and residential customers. These
products include local, long distance, Internet, data and private line services.
The Fiber Division includes the operating activity and the assets relating to
the fiber build out. The revenues for the Fiber Division primarily relate to the
sale of dark fiber through IRUs. The product and service revenue from the
Services Division include revenues generated from the design, installation,
leasing and sale of voice and data systems and products, primarily to companies
in the oil and gas industry. The Corporate Division includes certain general and
administrative functions and operating expenses and the merger related expenses
of $2.3 million, which comprise the segment operating loss of $3.5 million in
1998. The general and administrative expenses were allocated to each of the
respective divisions prior to 1998. Information regarding operating segments is
as follows (amounts are in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
TELECOMMUNICATIONS FIBER SERVICES CORPORATE CONSOLIDATED
------------------ ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers..... $23,174 $-- $27,796 $-- $50,970
Depreciation and amortization..... 479 54 1,003 -- 1,536
Operating income.................. 44 (228) 1,278 -- 1,094
Total assets.............. 7,356 8,757 12,409 -- 28,522
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------
TELECOMMUNICATIONS FIBER SERVICES CORPORATE CONSOLIDATED
------------------ ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers..... $46,745 $1,945 $26,659 $-- $75,349
Depreciation and amortization....... 694 902 1,750 -- 3,346
Operating income.................... 3,226 671 1,562 -- 5,459
Total assets.............. 13,327 9,779 26,283 -- 49,389
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------
TELECOMMUNICATIONS FIBER SERVICES CORPORATE CONSOLIDATED
------------------ ------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers.... $75,768 $11,930 $34,798 $(722) $121,774
Depreciation and amortization...... 1,113 744 2,993 37 4,887
Operating income................... 3,280 8,128 (55) (3,528) 7,825
Total assets............. 26,929 39,175 34,064 91,798 191,966
</TABLE>

All significant transactions and agreements of the Company, with the
exception of the operations of ICEL (Scotland) are generated in U.S. dollars.
The pertinent data relating to foreign operations is as follows (amounts are in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
U.S. MEXICO RUSSIA INTERNATIONAL CONSOLIDATED
------- ------ ------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue to external customers............. $44,285 $1,761 $2,281 $2,643 $50,970
Long-lived assets......................... 15,901 -- -- -- 15,901
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------
U.S. MEXICO RUSSIA INTERNATIONAL CONSOLIDATED
------- ------ ------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue to external customers............. $57,706 $6,495 $1,905 $9,243 $75,349
Long-lived assets......................... 27,341 -- -- -- 27,341
</TABLE>

F-24
<PAGE> 102
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------
U.S. MEXICO INDIA RUSSIA SCOTLAND INTERNATIONAL CONSOLIDATED
------- ------- ------ ------ -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue to external
customers................... $79,185 $16,611 $4,766 $2,312 $5,207 $13,693 $121,774
Long-lived assets............. 58,893 -- -- -- 2,508 -- 61,401
</TABLE>

All revenue was derived from unaffiliated customers. For the years ended
December 31, 1996 and 1997 one customer provided $11,681,000 (or 23%) and
$9,349,000 (or 12%) of the Company's revenue, respectively. For the year ended
December 31, 1998, one customer provided $13,985,000 (or 11%) and another
customer provided $12,344,000 (or 10%) of the Company's revenue.

(19) QUARTERLY RESULTS

The Company's unaudited quarterly results are as follows (amounts are in
thousands, except share data):

<TABLE>
<CAPTION>
FOR THE 1997 QUARTER ENDED
---------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue............................................... $17,022 $18,649 $19,039 $20,640
Gross profit.......................................... 4,197 5,631 6,109 6,941
Net income............................................ 115 721 970 756
Basic and diluted earnings per share.................. -- 0.03 0.03 0.03
</TABLE>

<TABLE>
<CAPTION>
FOR THE 1998 QUARTER ENDED
---------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue............................................... $24,412 $27,008 $35,284 $35,070
Gross profit.......................................... 8,183 9,202 9,309 11,860
Net income (loss)..................................... 1,358 1,515 (1,650) (1,000)
Basic and diluted earnings (loss) per share........... 0.05 0.10 (0.06) (0.03)
</TABLE>

F-25
<PAGE> 103

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

6,500,000 SHARES

[LOGO]

CAPROCK COMMUNICATIONS CORP.

COMMON STOCK

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

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

MERRILL LYNCH & CO.

BEAR, STEARNS & CO. INC.

DONALDSON, LUFKIN & JENRETTE

GOLDMAN, SACHS & CO.

, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 104

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered hereby:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 35,722
NASD filing fee............................................. $ 13,350
NASDAQ -- NMS listing fee................................... $ 17,500
Printing and engraving costs................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. *
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</TABLE>

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

* To be provided by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article XII of the Registrant's Articles of Incorporation provides the
following:

"A director of the Corporation shall not be liable to the corporation
or its shareholders for monetary damages for an act or omission in the
director's capacity as a director, except that this Article shall not
authorize the elimination or limitation of the liability of a director to
the extent the director is found liable for:

(1) a breach of the director's duty of loyalty to the Corporation
or its shareholders;

(2) an act or omission not in good faith that constitutes a breach
of duty of the director to the Corporation or an act or omission that
involves intentional misconduct or a knowing violation of the law;

(3) a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action taken within
the scope of the director's office;

(4) an act or omission for which the liability of a director is
expressly provided by an applicable statute."

Article XI of the Registrant's Articles of Incorporation provides the
following:

"The directors and officers of the Corporation shall be indemnified by
the Corporation in a manner and to the maximum extent permitted by
applicable state or federal law as in effect from time to time."

Section 7.06 of the Registrant's Bylaws provides the following:

"The Corporation shall have the authority to an shall indemnify and
advance expenses to the Directors, officers, employees, and agents of the
Corporation or any other persons serving at the request of the Corporation
in such capacities in a manner and to the maximum extent permitted by
applicable state or federal law. The Corporation may purchase and maintain
liability insurance or make other arrangements for such obligations to the
extent permitted by the Texas Business Corporation Act."

II-1
<PAGE> 105

The Texas Business Corporation Act permits, and in some cases requires,
corporations to indemnify officers, directors, agents and employees who are or
have been a party to or are threatened to be made a party to litigation against
judgments, penalties (including excise and similar taxes), fines, settlements
and reasonable expenses under certain circumstances.

The Registration Rights Agreement (Exhibit 4.3 hereto) provides for
indemnification by each of the Initial Purchasers of the Private Notes (as
defined therein), their successors, assigns and direct and indirect transferees,
and participating broker-dealers holding Exchange Notes (as defined therein), in
specified circumstances, of the Registrant, the other Initial Purchasers,
underwriters and the other selling holders of the Private Notes, and each of
their respective directors and officers and controlling parties, and by the
Registrant of Initial Purchasers of the Private Notes, their successors, assigns
and direct and indirect transferees, and participating broker-dealers holding
Exchange Notes, underwriters, and each person, if any controlling any such
underwriter or holder, in specified circumstances, for certain liabilities
arising under the Securities Act or otherwise.

The Note Purchase Agreement (Exhibit 10.43 hereto) provides for
indemnification by the initial purchasers specified therein of the Registrant
and its officers and directors, and by the Registrant of the initial purchasers
specified therein, for certain liabilities arising under the Securities Act or
otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following sets forth information as of February 28, 1999, regarding all
sales of unregistered securities of the Registrant or its predecessors during
the past three years. All such shares were issued in reliance upon an exemption
from registration under the Securities Act by reason of Section 4(2) or 3(b) of
the Securities Act and/or the rules and regulations promulgated thereunder. In
connection with each of these transactions, the shares were sold to a very
limited number of persons, such persons were provided access to all relevant
information regarding the Registrant or represented to the Registrant that they
were "sophisticated" investors, and such persons represented to the Registrant
that the shares were purchased for investment purposes only and with no view
toward distribution.

On July 15, 1998, the Registrant issued an aggregate principal amount of
$150,000,000 of 12% Senior Notes due 2008 to certain investors. Such notes were
offered and issued pursuant to Rule 144A under the Securities Act.

On June 12, 1997, IWL Communications, Incorporated ("IWL") issued to
Cruttenden Roth Incorporated, warrants to purchase 145,000 shares of its Common
Stock at an exercise price of $7.20 per share.

In June 1996, Kelly Dean, an employee of IWL, purchased 2,808 shares of
Common Stock of IWL for $3.56 shares for an aggregate purchase price of
approximately $10,000.

In November 1996, Keith Johnson, Vice President -- Marketing of IWL,
purchased 2,808 shares of Common Stock of IWL for $3.56 per share for an
aggregate purchase price of approximately $10,000.

II-2
<PAGE> 106

ITEM 16. EXHIBITS

The following exhibits are filed herewith.

<TABLE>
<C> <S>
1.1 -- Form of Purchase Agreement.*
2.1 -- Agreement and Plan of Merger and Plan of Exchange, dated
as of February 16, 1998, by and among the Registrant, IWL
Communications, Incorporated ("IWL"), IWL Acquisition
Corp., CapRock Communications Corp. (n/k/a CapRock
Telecommunications Corp. ("Telecommunications")), CapRock
Acquisition Corp., and CapRock Fiber Network, Ltd. (the
"Partnership and collectively, the "Parties"). The
schedules to the Agreement and Plan of Merger and Plan of
Exchange and the appendices thereto have been omitted.
The Company will furnish supplementally to the Securities
and Exchange Commission any of the schedules or
appendices upon request. (Incorporated by reference to
Exhibit 2.1 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
2.2 -- First Amendment to Agreement and Plan of Merger and Plan
of Exchange, dated as of April 30, 1998, by and among the
Parties. (Incorporated by reference to Exhibit 2.2 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
2.3 -- Second Amendment to Agreement and Plan of Merger and Plan
of Exchange, dated as of June 19, 1998, by and among the
Parties. (Incorporated by reference to Exhibit 2.3 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
2.4 -- Third Amendment to Agreement and Plan of Merger and Plan
of Exchange, dated as of July 8, 1998, by and among the
Parties. (Incorporated by reference to Exhibit 2.4 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
3.1 -- Articles of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
3.2 -- Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-64699.)
4.1 -- Specimen Certificate for the Common Stock of the
Registrant (Incorporated by reference to Exhibit 4.3 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.
4.2 -- Indenture dated as of July 16, 1998, among the
Registrant, Telecommunications, the Partnership, IWL and
PNC Bank, National Association, Trustee. (Incorporated by
reference to Exhibit 4.1 to the Registration Statement on
Form S-4, as amended, of the Registrant, File No.
333-64699.)
4.3 -- Registration Rights Agreement dated July 16, 1998, among
the Registrant, Telecommunications, the Partnership, and
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and
BancOne Capital Markets, Inc. (Incorporated by reference
to Exhibit 4.2 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-64699.)
4.4 -- Form of Warrant Agreement between IWL and Cruttenden Roth
Incorporated. (Incorporated by reference to Exhibit 1.2
to the Registration Statement on Form S-1 of IWL, as
amended, File No. 333-22801.)
</TABLE>

II-3
<PAGE> 107
<TABLE>
<C> <S>
4.5 -- Registration Rights Agreement dated January 22, 1998
between IWL and Nera Limited. (Incorporated by reference
to Exhibit 4.5 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
4.6 -- Registration Rights Agreement dated January 22, 1998 by
and among IWL, Thomas Norman Blair and Margaret Helen
Blair. (Incorporated by reference to Exhibit 4.6 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
5.1 -- Opinion of Munsch Hardt Kopf & Harr, P.C. regarding
validity of securities being registered.*
10.1 -- CapRock Communications Corp. 1998 Equity Incentive Plan.
(Incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.2 -- CapRock Communications Corp. 1998 Director Stock Option
Plan. (Incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.3 -- Employment Agreement between the Registrant and Ignatius
W. Leonards. (Incorporated by reference to Exhibit 10.5
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.4 -- Employment Agreement between the Registrant and Byron M.
Allen. (Incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.5 -- Employment Agreement between the Registrant and Errol
Olivier. (Incorporated by reference to Exhibit 10.7 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.6 -- Employment Agreement between the Registrant and Richard
H. Roberson. (Incorporated by reference to Exhibit 10.8
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.7 -- Employment Agreement between the Registrant and Bryan
Olivier. (Incorporated by reference to Exhibit 10.9 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.8 -- Employment Agreement between the Registrant and Jere W.
Thompson, Jr. (Incorporated by reference to Exhibit 10.10
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.9 -- Employment Agreement between the Registrant and Scott L.
Roberts. (Incorporated by reference to Exhibit 10.11 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.10 -- Employment Agreement between the Registrant and Timothy
W. Rogers. (Incorporated by reference to Exhibit 10.12 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.11 -- Employment Agreement between the Registrant and Timothy
M. Terrell. (Incorporated by reference to Exhibit 10.13
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.12 -- Employment Agreement between the Registrant and Kevin W.
McAleer. (Incorporated by reference to Exhibit 10.14 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.13 -- Office Lease Agreement dated May 22, 1996, by and between
Ellington Field, Ltd., a Texas limited partnership, and
IWL. (Incorporated by reference to Exhibit 10.5 to the
IWL Registration Statement on Form S-1, as amended, File
No. 333-22801.)
</TABLE>

II-4
<PAGE> 108
<TABLE>
<C> <S>
10.14 -- Satellite Information Network Service Agreement dated May
1, 1994, by and between IWL and the Information
Telegraphy Agency of Russia ITAR-TASS.# (Incorporated by
reference to Exhibit 10.9 to the Registration Statement
on Form S-1, as amended, of IWL, File No. 333-22801.)
10.15 -- Reseller Agreement dated December 31, 1996, by and
between Alcatel Network Systems, Inc. and IWL.
(Incorporated by reference to Exhibit 10.10 to the
Registration Statement on Form S-1, as amended, of IWL,
File No. 333-22801.)#
10.16 -- Form of Service Agreement.*
10.17 -- Lease Agreement dated November 18, 1996, by and between
IWL and CLG, Inc. (Incorporated by reference to Exhibit
10.13 to the Registration Statement on Form S-1, as
amended, of IWL, File No. 333-22801.)
10.18 -- Promissory Note dated September 20, 1996 payable by IWL
to First Bank and Trust, Cleveland, Texas. (Incorporated
by reference to Exhibit 10.15 to the Registration
Statement on Form S-1, as amended, of IWL, File No.
333-22801.)
10.19 -- Loan Agreement and Security Agreement dated December 20,
1995 between IWL and Marine Midland Business Loans, Inc.
(Incorporated by reference to Exhibit 10.16 to the
Registration Statement on Form S-1, as amended, of IWL,
File No. 333-22801.)
10.20 -- Second Amendment to Loan and Security Agreement dated as
of May 7, 1997, between IWL and Marine Midland Business
Loans, Inc. (Incorporated by reference to Exhibit 10.9 to
the Registration Statement on Form S-1, as amended, of
IWL, File No. 333-22801.)
10.21 -- Letter Agreement dated February 28, 1997, by and between
IWL and Marine Midland Bank as successor-in-interest to
Marine Midland Business Loans, Inc. (Incorporated by
reference to the Registration Statement on Form S-1, as
amended, of IWL, File No. 333-22801.)
10.22 -- Credit Agreement, dated August 1, 1997, executed by and
between IWL and Bank One, Texas, N.A. ("Bank One").
(Incorporated by reference to Exhibit 10.22 to the Form
10K for the year ending June 30, 1997 of IWL, File No.
0-22293.)
10.23 -- Promissory Note, dated August 1, 1997, in the principal
amount of $822,000.00, executed by IWL, and made payable
to Bank One. (Incorporated by reference to Exhibit 10.23
to the Form 10K of IWL for the year ending June 30, 1997,
File No. 0-22293.)
10.24 -- Promissory Note, dated August 1, 1997, in the principal
amount of $605,000.00, executed by IWL, and made payable
to Bank One. (Incorporated by reference to Exhibit 10.24
to the Form 10-K of IWL for the year ending June 30,
1997, File No. 0-22293.)
10.25 -- Collateral Assignment and Security Agreement, dated
August 1, 1997, executed by IWL, as assignor, and Bank
One, as assignee. (Incorporated by reference to Exhibit
10.25 to the Form 10K of IWL for the year ending June 30,
1997, File No. 0-22293.)
10.26 -- Revolving Credit Agreement, dated August 1, 1997,
executed by and between IWL and Bank One. (Incorporated
by reference to Exhibit 10.26 to the Form 10K of IWL for
the year ending June 30, 1997, File No. 0-22293.)
10.27 -- Promissory Note, dated August 1, 1997, in the principal
amount of $5,000,000.00, executed by IWL, and made
payable to Bank One. (Incorporated by reference to
Exhibit 10.27 to the Form 10K of IWL for the year ending
June 30, 1997, File No. 0-22293.)
</TABLE>

II-5
<PAGE> 109
<TABLE>
<C> <S>
10.28 -- Security Agreement, dated August 1, 1997, executed by
IWL, as debtor, and Bank One, as secured party.
(Incorporated by reference to Exhibit 10.28 to the Form
10K of IWL for the year ending June 30, 1997, File No.
0-22293.)
10.29 -- Amended and Restated Credit Agreement, dated August 28,
1997, executed by and between IWL and Bank One.
(Incorporated by reference to Exhibit 10.29 to the Form
10K of IWL for the year ending June 30, 1997, File No.
0-22293.)
10.30 -- Promissory Note, dated August 28, 1997, in the principal
amount of $1,055,000.00, executed by IWL, and made
payable to Bank One. (Incorporated by reference to
Exhibit 10.30 to the Form 10K of IWL for the year ending
June 30, 1997, File No. 0-22293.)
10.31 -- Telecommunications Equipment Lease Agreement dated as of
June 1, 1997 between IWL and Diamond Offshore Company.
(Incorporated by reference to Exhibit 10.4 to the Form
10K of IWL for the year ending June 30, 1997, File No.
0-22293.)#
10.32 -- Sublease dated November 22, 1994 by and between
Telecommunications and Arkwright Mutual Insurance
Company. (Incorporated by reference to Exhibit 10.35 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.33 -- Loan and Security Agreement dated March 14, 1996 by and
between Telecommunications and Bank One, as amended.
(Incorporated by reference to Exhibit 10.36 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.34 -- Sixth Renewal Extension $2,500,000 Promissory Note dated
December 31, 1997 payable by Telecommunications to Bank
One. (Incorporated by reference to Exhibit 10.37 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.35 -- Form of CapRock Communications Corp. Commercial
Application. (Incorporated by reference to Exhibit 10.41
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.36 -- Form of CapRock Communications Corp. Commercial Agent
Application. (Incorporated by reference to Exhibit 10.42
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.37 -- Unlimited Guaranty dated March 9, 1996 by Jere W.
Thompson, Jr. for the benefit of Bank One. (Incorporated
by reference to Exhibit 10.43 to the Registration
Statement on Form S-4, as amended, of the Registrant,
File No. 333-57365.)
10.38 -- Loan Agreement dated July 1, 1996 by and between the
Partnership and Bank One. (Incorporated by reference to
Exhibit 10.44 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
10.39 -- $10,000,000 Promissory Note dated July 1, 1996 by and
between the Partnership and Bank One. (Incorporated by
reference to Exhibit 10.45 to the Registration Statement
on Form S-4, as amended, of the Registrant, File No.
333-57365.)
10.40 -- Guaranty dated July 1, 1996 by CapRock Systems, Inc. in
favor of Bank One. (Incorporated by reference to Exhibit
10.46 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.41 -- Guaranty dated July 1, 1996 by Mark Langdale in favor of
Bank One. (Incorporated by reference to Exhibit 10.47 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
</TABLE>

II-6
<PAGE> 110
<TABLE>
<C> <S>
10.42 -- Guaranty dated July 1, 1996 by Jere W. Thompson, Jr. in
favor of Bank One. (Incorporated by reference to Exhibit
10.48 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.43 -- Form of Note Purchase Agreement by and among the
Registrant and various initial purchasers. (Incorporated
by reference to Exhibit 10.49 to the Registration
Statement on Form S-4, as amended, of the Registrant,
File No. 333-57365.)
10.44 -- Form of Contribution Agreement by the General Partner of
the Partnership. (Incorporated by reference to Exhibit
10.50 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.45 -- First Amendment to Loan Agreement dated July 1, 1996 by
and between the Partnership and Bank One. (Incorporated
by reference to Exhibit 10.51 to the Registration
Statement on Form S-4, as amended, of the Registrant,
File No. 333-57365.)
10.46 -- Second Amendment to Loan Agreement dated April 29, 1998
by and between the Partnership and Bank One.
(Incorporated by reference to Exhibit 10.52 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.47 -- License Agreement dated June 16, 1998 by and between
Telecommunications and RiverRock Systems, Ltd.
(Incorporated by reference to Exhibit 10.53 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.48 -- Modification Agreement dated as of June 17, 1998 by and
between IWL and Bank One. (Incorporated by reference to
Exhibit 10.54 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
10.49 -- Promissory Note dated June 17, 1998 executed by IWL
payable to the order of Bank One, in the principal amount
of $4,000,000.00. (Incorporated by reference to Exhibit
10.55 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.50 -- Eighth Amendment to Loan and Security Agreement dated as
of June 18, 1998 by and between Telecommunications and
Bank One. (Incorporated by reference to Exhibit 10.56 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.51 -- Renewal and Extension Promissory Note dated as June 18,
1998 executed by Telecommunications payable to the order
of Bank One, in the principal amount of $7,000,000.00.
(Incorporated by reference to Exhibit 10.57 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.52 -- Intercompany Promissory Note dated as of June 18, 1998
originally executed by the Partnership payable to the
order of Telecommunications in the principal amount of
$2,500,000.00 and endorsed by Telecommunications in favor
of Bank One. (Incorporated by reference to Exhibit 10.58
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.53 -- Ninth Amendment to Loan and Security Agreement dated as
July 9, 1998 by and between Telecommunications and Bank
One. (Incorporated by reference to Exhibit 10.59 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.54 -- Third Amendment to Loan Agreement dated as of June 18,
1998 by and between the Partnership and Bank One.
(Incorporated by reference to Exhibit 10.60 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
</TABLE>

II-7
<PAGE> 111
<TABLE>
<C> <S>
10.55 -- Fourth Amendment to Loan Agreement dated as of July 9,
1998 by and between the Partnership and Bank One.
(Incorporated by reference to Exhibit 10.61 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.56 -- Form of Escrow Agreement. (Incorporated by reference to
Exhibit 10.62 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
10.57 -- Form of Exchange Agent Agreement by and between the
Registrant and PNC Bank, National Association.
(Incorporated by reference to Exhibit 10.57 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-64699.)
10.58 -- Addison Circle One Office Lease Agreement between
Champion Addison One Limited Partnership, a limited
partnership, as Landlord and the Registrant, as Tenant.
10.59 -- Form of Carrier Agreement.*
16.1 -- Letter re: Change in Accountants. (Incorporated by
reference to Exhibit 16.1 to the Registration Statement
on Form S-4, as amended, of the Registrant, File No.
333-57365.)
21.1 -- Subsidiaries of the Registrant. (Incorporated by
reference to Exhibit 21.1 to the Registration Statement
on Form S-4, as amended, of the Registrant, File No.
333-57365.)
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Burds Reed & Mercer, P.C.
23.3 -- Consent of Munsch Hardt Kopf & Harr, P.C. (Included in
the opinion filed as Exhibit 5.1 to this Registration
Statement).
24.1 -- Power of Attorney (included in the signature page
hereto).
27.1 -- Financial Data Schedule for 1996 and 1998.
27.2 -- Amended Financial Data Schedule for 1997.
</TABLE>

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

# Confidential treatment was granted.

* To be filed by amendment.

ITEM 17. UNDERTAKINGS

(a) The undersigned registrant (the "Registrant") hereby undertakes to
provide to the Underwriter, at the closing specified in the Underwriting
Agreement, certificates in such denominations and registered in such names as
required by the Underwriters to permit prompt delivery to each purchaser.

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

II-8
<PAGE> 112

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

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

II-9
<PAGE> 113

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas on
the 19th day of March, 1999.

CAPROCK COMMUNICATIONS CORP.

By: /s/ JERE W. THOMPSON, JR.
----------------------------------
Jere W. Thompson, Jr.
Chief Executive Officer

POWER OF ATTORNEY

The undersigned directors and executive officers of CapRock Communications
Corp. hereby constitute and appoint Jere W. Thompson, Jr. and Kevin W. McAleer,
and each of them, with full power to act without the other and with full power
of substitution and resubstitution, our true and lawful attorneys-in-fact with
full power to execute in our name and behalf in the capacities indicated below
any and all amendments (including post-effective amendments and amendments
thereto) to this Registration Statement, requests to accelerate the
effectiveness of this Registration Statement, and any registration statement for
the same offering that is to be effective under Rule 462(b) of the Securities
Act, and to file the same, with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission and hereby
ratify and confirm all that such attorneys-in-fact, or either of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ JERE W. THOMPSON, JR. Chief Executive Officer, Chairman of March 19, 1999
- ----------------------------------------------------- the Board, and Director (Principal
Jere W. Thompson, Jr. Executive Officer)

/s/ KEVIN W. MCALEER Senior Vice President and Chief March 19, 1999
- ----------------------------------------------------- Financial Officer (Principal
Kevin W. McAleer Accounting Officer)

/s/ IGNATIUS W. LEONARDS President, Vice Chairman of the March 19, 1999
- ----------------------------------------------------- Board, and Director
Ignatius W. Leonards

/s/ TIMOTHY W. ROGERS Executive Vice President and Director March 19, 1999
- -----------------------------------------------------
Timothy W. Rogers

/s/ BYRON M. ALLEN Executive Vice President and Director March 19, 1999
- -----------------------------------------------------
Byron M. Allen

/s/ MARK LANGDALE Director March 19, 1999
- -----------------------------------------------------
Mark Langdale

/s/ CHRISTOPHER J. AMENSON Director March 19, 1999
- -----------------------------------------------------
Christopher J. Amenson

/s/ JOHN R. HARRIS Director March 19, 1999
- -----------------------------------------------------
John R. Harris
</TABLE>

II-10
<PAGE> 114

EXHIBITS INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Purchase Agreement.*
2.1 -- Agreement and Plan of Merger and Plan of Exchange, dated
as of February 16, 1998, by and among the Registrant, IWL
Communications, Incorporated ("IWL"), IWL Acquisition
Corp., CapRock Communications Corp. (n/k/a CapRock
Telecommunications Corp. ("Telecommunications")), CapRock
Acquisition Corp., and CapRock Fiber Network, Ltd. (the
"Partnership and collectively, the "Parties"). The
schedules to the Agreement and Plan of Merger and Plan of
Exchange and the appendices thereto have been omitted.
The Company will furnish supplementally to the Securities
and Exchange Commission any of the schedules or
appendices upon request. (Incorporated by reference to
Exhibit 2.1 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
2.2 -- First Amendment to Agreement and Plan of Merger and Plan
of Exchange, dated as of April 30, 1998, by and among the
Parties. (Incorporated by reference to Exhibit 2.2 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
2.3 -- Second Amendment to Agreement and Plan of Merger and Plan
of Exchange, dated as of June 19, 1998, by and among the
Parties. (Incorporated by reference to Exhibit 2.3 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
2.4 -- Third Amendment to Agreement and Plan of Merger and Plan
of Exchange, dated as of July 8, 1998, by and among the
Parties. (Incorporated by reference to Exhibit 2.4 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
3.1 -- Articles of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
3.2 -- Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-64699.)
4.1 -- Specimen Certificate for the Common Stock of the
Registrant (Incorporated by reference to Exhibit 4.3 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.
4.2 -- Indenture dated as of July 16, 1998, among the
Registrant, Telecommunications, the Partnership, IWL and
PNC Bank, National Association, Trustee. (Incorporated by
reference to Exhibit 4.1 to the Registration Statement on
Form S-4, as amended, of the Registrant, File No.
333-64699.)
4.3 -- Registration Rights Agreement dated July 16, 1998, among
the Registrant, Telecommunications, the Partnership, and
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and
BancOne Capital Markets, Inc. (Incorporated by reference
to Exhibit 4.2 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-64699.)
4.4 -- Form of Warrant Agreement between IWL and Cruttenden Roth
Incorporated. (Incorporated by reference to Exhibit 1.2
to the Registration Statement on Form S-1 of IWL, as
amended, File No. 333-22801.)
4.5 -- Registration Rights Agreement dated January 22, 1998
between IWL and Nera Limited. (Incorporated by reference
to Exhibit 4.5 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
</TABLE>
<PAGE> 115

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.6 -- Registration Rights Agreement dated January 22, 1998 by
and among IWL, Thomas Norman Blair and Margaret Helen
Blair. (Incorporated by reference to Exhibit 4.6 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
5.1 -- Opinion of Munsch Hardt Kopf & Harr, P.C. regarding
validity of securities being registered.*
10.1 -- CapRock Communications Corp. 1998 Equity Incentive Plan.
(Incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.2 -- CapRock Communications Corp. 1998 Director Stock Option
Plan. (Incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.3 -- Employment Agreement between the Registrant and Ignatius
W. Leonards. (Incorporated by reference to Exhibit 10.5
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.4 -- Employment Agreement between the Registrant and Byron M.
Allen. (Incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.5 -- Employment Agreement between the Registrant and Errol
Olivier. (Incorporated by reference to Exhibit 10.7 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.6 -- Employment Agreement between the Registrant and Richard
H. Roberson. (Incorporated by reference to Exhibit 10.8
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.7 -- Employment Agreement between the Registrant and Bryan
Olivier. (Incorporated by reference to Exhibit 10.9 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.8 -- Employment Agreement between the Registrant and Jere W.
Thompson, Jr. (Incorporated by reference to Exhibit 10.10
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.9 -- Employment Agreement between the Registrant and Scott L.
Roberts. (Incorporated by reference to Exhibit 10.11 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.10 -- Employment Agreement between the Registrant and Timothy
W. Rogers. (Incorporated by reference to Exhibit 10.12 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.11 -- Employment Agreement between the Registrant and Timothy
M. Terrell. (Incorporated by reference to Exhibit 10.13
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.12 -- Employment Agreement between the Registrant and Kevin W.
McAleer. (Incorporated by reference to Exhibit 10.14 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.13 -- Office Lease Agreement dated May 22, 1996, by and between
Ellington Field, Ltd., a Texas limited partnership, and
IWL. (Incorporated by reference to Exhibit 10.5 to the
IWL Registration Statement on Form S-1, as amended, File
No. 333-22801.)
10.14 -- Satellite Information Network Service Agreement dated May
1, 1994, by and between IWL and the Information
Telegraphy Agency of Russia ITAR-TASS.# (Incorporated by
reference to Exhibit 10.9 to the Registration Statement
on Form S-1, as amended, of IWL, File No. 333-22801.)
</TABLE>
<PAGE> 116

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.15 -- Reseller Agreement dated December 31, 1996, by and
between Alcatel Network Systems, Inc. and IWL.
(Incorporated by reference to Exhibit 10.10 to the
Registration Statement on Form S-1, as amended, of IWL,
File No. 333-22801.)#
10.16 -- Form of Service Agreement.*
10.17 -- Lease Agreement dated November 18, 1996, by and between
IWL and CLG, Inc. (Incorporated by reference to Exhibit
10.13 to the Registration Statement on Form S-1, as
amended, of IWL, File No. 333-22801.)
10.18 -- Promissory Note dated September 20, 1996 payable by IWL
to First Bank and Trust, Cleveland, Texas. (Incorporated
by reference to Exhibit 10.15 to the Registration
Statement on Form S-1, as amended, of IWL, File No.
333-22801.)
10.19 -- Loan Agreement and Security Agreement dated December 20,
1995 between IWL and Marine Midland Business Loans, Inc.
(Incorporated by reference to Exhibit 10.16 to the
Registration Statement on Form S-1, as amended, of IWL,
File No. 333-22801.)
10.20 -- Second Amendment to Loan and Security Agreement dated as
of May 7, 1997, between IWL and Marine Midland Business
Loans, Inc. (Incorporated by reference to Exhibit 10.9 to
the Registration Statement on Form S-1, as amended, of
IWL, File No. 333-22801.)
10.21 -- Letter Agreement dated February 28, 1997, by and between
IWL and Marine Midland Bank as successor-in-interest to
Marine Midland Business Loans, Inc. (Incorporated by
reference to the Registration Statement on Form S-1, as
amended, of IWL, File No. 333-22801.)
10.22 -- Credit Agreement, dated August 1, 1997, executed by and
between IWL and Bank One, Texas, N.A. ("Bank One").
(Incorporated by reference to Exhibit 10.22 to the Form
10K for the year ending June 30, 1997 of IWL, File No.
0-22293.)
10.23 -- Promissory Note, dated August 1, 1997, in the principal
amount of $822,000.00, executed by IWL, and made payable
to Bank One. (Incorporated by reference to Exhibit 10.23
to the Form 10K of IWL for the year ending June 30, 1997,
File No. 0-22293.)
10.24 -- Promissory Note, dated August 1, 1997, in the principal
amount of $605,000.00, executed by IWL, and made payable
to Bank One. (Incorporated by reference to Exhibit 10.24
to the Form 10-K of IWL for the year ending June 30,
1997, File No. 0-22293.)
10.25 -- Collateral Assignment and Security Agreement, dated
August 1, 1997, executed by IWL, as assignor, and Bank
One, as assignee. (Incorporated by reference to Exhibit
10.25 to the Form 10K of IWL for the year ending June 30,
1997, File No. 0-22293.)
10.26 -- Revolving Credit Agreement, dated August 1, 1997,
executed by and between IWL and Bank One. (Incorporated
by reference to Exhibit 10.26 to the Form 10K of IWL for
the year ending June 30, 1997, File No. 0-22293.)
10.27 -- Promissory Note, dated August 1, 1997, in the principal
amount of $5,000,000.00, executed by IWL, and made
payable to Bank One. (Incorporated by reference to
Exhibit 10.27 to the Form 10K of IWL for the year ending
June 30, 1997, File No. 0-22293.)
10.28 -- Security Agreement, dated August 1, 1997, executed by
IWL, as debtor, and Bank One, as secured party.
(Incorporated by reference to Exhibit 10.28 to the Form
10K of IWL for the year ending June 30, 1997, File No.
0-22293.)
10.29 -- Amended and Restated Credit Agreement, dated August 28,
1997, executed by and between IWL and Bank One.
(Incorporated by reference to Exhibit 10.29 to the Form
10K of IWL for the year ending June 30, 1997, File No.
0-22293.)
</TABLE>
<PAGE> 117

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.30 -- Promissory Note, dated August 28, 1997, in the principal
amount of $1,055,000.00, executed by IWL, and made
payable to Bank One. (Incorporated by reference to
Exhibit 10.30 to the Form 10K of IWL for the year ending
June 30, 1997, File No. 0-22293.)
10.31 -- Telecommunications Equipment Lease Agreement dated as of
June 1, 1997 between IWL and Diamond Offshore Company.
(Incorporated by reference to Exhibit 10.4 to the Form
10K of IWL for the year ending June 30, 1997, File No.
0-22293.)#
10.32 -- Sublease dated November 22, 1994 by and between
Telecommunications and Arkwright Mutual Insurance
Company. (Incorporated by reference to Exhibit 10.35 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.33 -- Loan and Security Agreement dated March 14, 1996 by and
between Telecommunications and Bank One, as amended.
(Incorporated by reference to Exhibit 10.36 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.34 -- Sixth Renewal Extension $2,500,000 Promissory Note dated
December 31, 1997 payable by Telecommunications to Bank
One. (Incorporated by reference to Exhibit 10.37 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.35 -- Form of CapRock Communications Corp. Commercial
Application. (Incorporated by reference to Exhibit 10.41
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.36 -- Form of CapRock Communications Corp. Commercial Agent
Application. (Incorporated by reference to Exhibit 10.42
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.37 -- Unlimited Guaranty dated March 9, 1996 by Jere W.
Thompson, Jr. for the benefit of Bank One. (Incorporated
by reference to Exhibit 10.43 to the Registration
Statement on Form S-4, as amended, of the Registrant,
File No. 333-57365.)
10.38 -- Loan Agreement dated July 1, 1996 by and between the
Partnership and Bank One. (Incorporated by reference to
Exhibit 10.44 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
10.39 -- $10,000,000 Promissory Note dated July 1, 1996 by and
between the Partnership and Bank One. (Incorporated by
reference to Exhibit 10.45 to the Registration Statement
on Form S-4, as amended, of the Registrant, File No.
333-57365.)
10.40 -- Guaranty dated July 1, 1996 by CapRock Systems, Inc. in
favor of Bank One. (Incorporated by reference to Exhibit
10.46 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.41 -- Guaranty dated July 1, 1996 by Mark Langdale in favor of
Bank One. (Incorporated by reference to Exhibit 10.47 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.42 -- Guaranty dated July 1, 1996 by Jere W. Thompson, Jr. in
favor of Bank One. (Incorporated by reference to Exhibit
10.48 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.43 -- Form of Note Purchase Agreement by and among the
Registrant and various initial purchasers. (Incorporated
by reference to Exhibit 10.49 to the Registration
Statement on Form S-4, as amended, of the Registrant,
File No. 333-57365.)
10.44 -- Form of Contribution Agreement by the General Partner of
the Partnership. (Incorporated by reference to Exhibit
10.50 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
</TABLE>
<PAGE> 118

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.45 -- First Amendment to Loan Agreement dated July 1, 1996 by
and between the Partnership and Bank One. (Incorporated
by reference to Exhibit 10.51 to the Registration
Statement on Form S-4, as amended, of the Registrant,
File No. 333-57365.)
10.46 -- Second Amendment to Loan Agreement dated April 29, 1998
by and between the Partnership and Bank One.
(Incorporated by reference to Exhibit 10.52 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.47 -- License Agreement dated June 16, 1998 by and between
Telecommunications and RiverRock Systems, Ltd.
(Incorporated by reference to Exhibit 10.53 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.48 -- Modification Agreement dated as of June 17, 1998 by and
between IWL and Bank One. (Incorporated by reference to
Exhibit 10.54 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
10.49 -- Promissory Note dated June 17, 1998 executed by IWL
payable to the order of Bank One, in the principal amount
of $4,000,000.00. (Incorporated by reference to Exhibit
10.55 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.50 -- Eighth Amendment to Loan and Security Agreement dated as
of June 18, 1998 by and between Telecommunications and
Bank One. (Incorporated by reference to Exhibit 10.56 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.51 -- Renewal and Extension Promissory Note dated as June 18,
1998 executed by Telecommunications payable to the order
of Bank One, in the principal amount of $7,000,000.00.
(Incorporated by reference to Exhibit 10.57 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.52 -- Intercompany Promissory Note dated as of June 18, 1998
originally executed by the Partnership payable to the
order of Telecommunications in the principal amount of
$2,500,000.00 and endorsed by Telecommunications in favor
of Bank One. (Incorporated by reference to Exhibit 10.58
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.53 -- Ninth Amendment to Loan and Security Agreement dated as
July 9, 1998 by and between Telecommunications and Bank
One. (Incorporated by reference to Exhibit 10.59 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.54 -- Third Amendment to Loan Agreement dated as of June 18,
1998 by and between the Partnership and Bank One.
(Incorporated by reference to Exhibit 10.60 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.55 -- Fourth Amendment to Loan Agreement dated as of July 9,
1998 by and between the Partnership and Bank One.
(Incorporated by reference to Exhibit 10.61 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.56 -- Form of Escrow Agreement. (Incorporated by reference to
Exhibit 10.62 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
10.57 -- Form of Exchange Agent Agreement by and between the
Registrant and PNC Bank, National Association.
(Incorporated by reference to Exhibit 10.57 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-64699.)
</TABLE>
<PAGE> 119

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.58 -- Addison Circle One Office Lease Agreement between
Champion Addison One Limited Partnership, a limited
partnership, as Landlord and the Registrant, as Tenant.
10.59 -- Form of Carrier Agreement.*
16.1 -- Letter re: Change in Accountants. (Incorporated by
reference to Exhibit 16.1 to the Registration Statement
on Form S-4, as amended, of the Registrant, File No.
333-57365.)
21.1 -- Subsidiaries of the Registrant. (Incorporated by
reference to Exhibit 21.1 to the Registration Statement
on Form S-4, as amended, of the Registrant, File No.
333-57365.)
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Burds Reed & Mercer, P.C.
23.3 -- Consent of Munsch Hardt Kopf & Harr, P.C. (Included in
the opinion filed as Exhibit 5.1 to this Registration
Statement).
24.1 -- Power of Attorney (included in the signature page
hereto).
27.1 -- Financial Data Schedule for 1996 and 1998.
27.2 -- Amended Financial Data Schedule for 1997.
</TABLE>

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

# Confidential treatment was granted.

* To be filed by amendment.

<PAGE> 1

EXHIBIT 10.58

ADDISON CIRCLE ONE

OFFICE LEASE AGREEMENT

BETWEEN

CHAMPION ADDISON ONE LIMITED PARTNERSHIP,
A DELAWARE LIMITED PARTNERSHIP,
AS LANDLORD

AND

CAPROCK COMMUNICATIONS CORP., A TEXAS CORPORATION,
AS TENANT

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C> <C>
1. Definitions ............................................................. 1
(a) "Applicable Laws" ............................................. 1
(b) "Base Amount" ................................................. 1
(c) "Base Building Plans" ......................................... 1
(d) "Base Rental".................................................. 1
(e) "Basic Operating Costs"........................................ 1
(f) "Broker"....................................................... 1
(g) "Building" .................................................... 1
(h) "Building Standard"............................................ 1
(i) "Commencement Date"............................................ 1
(j) "Common Areas" ................................................ 2
(k) "Complex" ..................................................... 2
(l) "Default Rate" ................................................ 2
(m) "Delivery Date" ............................................... 2
(n) "Design Criteria" ............................................ 2
(o) "Effective Date" .............................................. 2
(p) "Final Phase" ................................................. 2
(q) "Final Stage" ................................................. 2
(r) "Initial Improvements" ........................................ 2
(s) "Initial Premises" ............................................ 2
(t) "Initial Stage" ............................................... 2
(u) "Landlord Related Party" ...................................... 2
(v) "Lease Term" .................................................. 2
(w) "Lease Year" .................................................. 2
(x) "Market Area" ................................................. 2
(y) "Normal Business Holidays" .................................... 2
(z) "Normal Business Hours" ....................................... 3
(aa) "Office Portion of the Parking Garage" ........................ 3
(ab) "Parking Agreement" ........................................... 3
(ac) "Parking Areas" ............................................... 3
(ad) "Parking Garage" .............................................. 3
(ae) "Premises" ................................................... 3
(af) "Property" ................................................... 3
(ag) "Punchlist Items" ............................................ 3
(ah) "Ready for Tenant's Work" .................................... 3
(ai) "Rent" ........................................................ 3
(aj) "Rentable Area" ............................................... 3
(ak) "Rentable Area of the Building" ............................... 3
(al) "Rentable Area of the Premises" ............................... 3
(am) "Rules and Regulations" ....................................... 3
(an) "Second Phase" ................................................ 4
(ao) "Second Stage" ................................................ 4
(ap) "Security Deposit" ............................................ 4
(aq) "Service Areas" ............................................... 4
(ar) "Stage" ....................................................... 4
(as) "Substantially Complete" ...................................... 4
(at) "Taxes" ....................................................... 4
(au) "Tenant Delay" ................................................ 4
(av) "Tenant Improvements" ......................................... 4
(aw) "Tenant Improvements Agreement" ............................... 4
(ax) "Tenant Related Party" ........................................ 4
(ay) "Tenant's Share" .............................................. 4
(az) "Tenant's Share of Basic Operating Costs" ..................... 5

2. Lease Grant ............................................................. 5

3. Lease Term; Acceptance of Premises ...................................... 5

4. Use ..................................................................... 6
</TABLE>

<PAGE> 3

TABLE OF CONTENTS
(continued)

5. Payment of Rent ......................................................... 6

6. Electricity and Basic Operating Costs .................................. 6

7. Late Payments; Dishonored Checks ........................................ 11

8. Security Deposit ........................................................ 11

9. Services to be Furnished by Landlord ................................... 12

10. Graphics; Signage ....................................................... 13

11. Telecommunications ...................................................... 14

12. Repair and Maintenance by Landlord ...................................... 15

13. Maintenance by Tenant ................................................... 15

14. Repairs by Tenant ....................................................... 15

15. Alterations, Additions, Improvements .................................... 15

16. Laws and Regulations; Disability Laws; Building Rules and Regulations ... 16

17. Entry by Landlord ....................................................... 17

18. Assignment and Subletting ............................................... 17

19. Mechanic's Liens ........................................................ 19

20. Property Insurance ...................................................... 19

21. Liability Insurance ..................................................... 20

22. INDEMNITY .............................................................. 20

23. WAIVER OF SUBROGATION RIGHTS ............................................ 21

24. Casualty Damage ......................................................... 21

25. Condemnation ........................................................... 22

26. DAMAGES FROM CERTAIN CAUSES ............................................. 22

27. Default by Tenant ....................................................... 23

28. Default by Landlord ..................................................... 24

29. Quiet Enjoyment ........................................................ 25

30. Holding Over ........................................................... 25

31. Change of Building Name or Common Areas ................................ 25

32. Subordination to Mortgage; Estoppel Agreement .......................... 25

33. Waiver of Landlord's Lien .............................................. 26

34. Attorney's Fees ......................................................... 26

35. No Implied Waiver ....................................................... 26

36. Independent Obligations ................................................. 27

37. Recourse Limitation ..................................................... 27
</TABLE>

<PAGE> 4

TABLE OF CONTENTS
(continued)

38. Notices ................................................................. 27

39. Severability ........................................................... 27

40. Recordation ............................................................ 27

41. Governing Law ........................................................... 27

42. Force Majeure ........................................................... 27

43. Time of Performance ..................................................... 27

44. Transfers by Landlord .................................................. 27

45. Commissions ............................................................. 27

46. Effect of Delivery of This Lease ....................................... 28

47. WAIVER OF WARRANTIES AND ACCEPTANCE OF CONDITION ....................... 28

48. Merger of Estates ...................................................... 28

49. Survival of Indemnities and Covenants .................................. 28

50. Headings ................................................................ 28

51. Entire Agreement; Amendments .......................................... 28

52. Exhibits ................................................................ 29

53. Joint and Several Liability ............................................ 29

54. Multiple Counterparts .................................................. 29

55. Building Signage ........................................................ 29

56. Satellite Dish ......................................................... 30

57. Warranty of Title ....................................................... 30

</TABLE>

<PAGE> 5

ADDISON CIRCLE ONE
OFFICE LEASE AGREEMENT

THIS OFFICE LEASE AGREEMENT ("Lease") is executed effective as of
___________, 1998 (the "Effective Date"), between CHAMPION ADDISON ONE LIMITED
PARTNERSHIP, a Delaware limited partnership ("Landlord"), and CAPROCK
COMMUNICATIONS CORP., a Texas corporation ("Tenant").

W I T N E S S E T H:

0.1. Definitions. As used in this Lease, the following terms shall have
the meanings set forth below:

0.1.0.0.1. "APPLICABLE LAWS" MEANS ALL CURRENT AND FUTURE
LAWS, ORDINANCES, ORDERS, RULES AND REQUIREMENTS OF ALL FEDERAL, STATE
AND MUNICIPAL AUTHORITIES (INCLUDING, WITHOUT LIMITATION, THE AMERICANS
WITH DISABILITIES ACT OF 1990, THE TEXAS ARCHITECTURAL BARRIERS ACT
[TEX. REV. CIV. STAT. ANN. ART. 9102] AND THE REGULATIONS PROMULGATED
THEREUNDER, AND LOCAL ZONING ORDINANCES AND BUILDING CODES) AND OF ANY
AND ALL OF THEIR DEPARTMENTS AND BUREAUS, AND OF THE LOCAL BOARD OF
FIRE UNDERWRITERS OR ANY OTHER BODY EXERCISING SIMILAR FUNCTIONS, AND
ALL PRIVATE SUBDIVISION REQUIREMENTS AND GUIDELINES APPLICABLE TO THE
PREMISES AND TENANT'S USE THEREOF.

0.1.0.0.2. "BASE AMOUNT" MEANS $6.25 PER SQUARE FOOT OF
RENTABLE AREA CONTAINED IN THE PREMISES.

0.1.0.0.3. "BASE BUILDING PLANS" MEANS LANDLORD'S FINAL PLANS
AND SPECIFICATIONS FOR THE CONSTRUCTION OF THE INITIAL IMPROVEMENTS,
WHICH BASE BUILDING PLANS ARE MORE PARTICULARLY DESCRIBED ON EXHIBIT
"I" ATTACHED HERETO AND MADE A PART HEREOF FOR ALL PURPOSES.

0.1.0.0.4. "BASE RENTAL" MEANS (I) DURING THE INITIAL STAGE OF
OCCUPANCY, AN ANNUAL SUM OF $689,606.40, PAYABLE IN MONTHLY
INSTALLMENTS OF $57,467.20 (BUT SUBJECT TO THE ABATEMENT DESCRIBED IN
SECTION 5 HEREOF), (ii) DURING THE SECOND STAGE OF OCCUPANCY, AN ANNUAL
SUM OF $1,034,409.60, PAYABLE IN MONTHLY INSTALLMENTS OF $86,200.80,
AND (iii) DURING THE FINAL STAGE OF OCCUPANCY, AN ANNUAL SUM OF
$1,379,212.80, PAYABLE IN MONTHLY INSTALLMENTS OF $114,934.40. THE BASE
RENTAL FOR ANY PARTIAL MONTHS DURING THE LEASE TERM OR ANY APPLICABLE
STAGE SHALL BE PRO-RATED AND PAID AT THE RENTAL RATE APPLICABLE DURING
SUCH MONTH OF THE LEASE TERM OR THE APPLICABLE STAGE. ANY SUCH
PRO-RATED BASE RENTAL SHALL BE DUE UPON RECEIPT OF AN INVOICE FROM
LANDLORD. UPON COMPLETION OF THE IMPROVEMENTS, THE ARCHITECT (THE
"BUILDING ARCHITECT") WHO PREPARED THE BASE BUILDING PLANS SHALL
RE-MEASURE THE PREMISES TO DETERMINE THE RENTABLE AREA OF THE PREMISES
AND IF SUCH RE-MEASUREMENT YIELDS A DIFFERENT RENTABLE AREA THAN 61,572
SQUARE FEET, THEN BASE RENTAL SHALL BE ADJUSTED, UPWARD OR DOWNWARD AS
THE CASE MAY, TO REFLECT AN ANNUAL RENTAL RATE OF $22.40 PER SQUARE
FOOT OF RENTABLE AREA AND A CORRESPONDING ADJUSTMENT SHALL BE MADE TO
THE CONSTRUCTION ALLOWANCE (AS DEFINED IN EXHIBIT D) AND THE TENANT'S
SHARE. WITHIN THIRTY (30) DAYS AFTER THE DELIVERY DATE, TENANT'S
ARCHITECT (AS DEFINED IN THE TENANT IMPROVEMENTS AGREEMENT) SHALL HAVE
THE RIGHT TO VERIFY THE MEASUREMENTS OF THE PREMISES AND IN THE EVENT
TENANT'S ARCHITECT FAILS TO VERIFY SUCH MEASUREMENTS ON OR BEFORE SUCH
DATE, THE MEASUREMENTS OF THE BUILDING ARCHITECT SHALL BE CONCLUSIVE.

0.1.0.0.5. "BASIC OPERATING COSTS" SHALL HAVE THE MEANING
GIVEN TO SUCH TERM IN SECTION 6.

0.1.0.0.6. "BROKER" MEANS CUSHMAN & WAKEFIELD OF TEXAS, INC.

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 1
<PAGE> 6

0.1.0.0.7. "BUILDING" MEANS THE OFFICE BUILDING LOCATED UPON
THE PROPERTY. THE ADDRESS OF THE BUILDING IS 15601 DALLAS PARKWAY,
DALLAS, TEXAS 75248.

0.1.0.0.8. "BUILDING STANDARD" MEANS THE LEVEL OF SERVICE OR
TYPE OF EQUIPMENT STANDARD IN THE BUILDING OR THE TYPE, BRAND AND/OR
QUALITY OF MATERIALS DESIGNATED IN THE DESIGN CRITERIA.

0.1.0.0.9. "COMMENCEMENT DATE" MEANS THE EARLIER OF (1) THE
DATE THAT TENANT ACTUALLY OCCUPIES THE INITIAL PREMISES FOR THE CONDUCT
OF ITS BUSINESS, OR (2) MARCH 15, 1999 UNLESS DELAYED PURSUANT TO THE
PROVISIONS OF SECTION 3(b).

0.1.0.0.10. "COMMON AREAS" MEANS ALL AREAS, SPACES, FACILITIES
AND EQUIPMENT (WHETHER OR NOT LOCATED WITHIN THE BUILDING) MADE
AVAILABLE BY LANDLORD FOR THE COMMON AND JOINT USE OF LANDLORD, TENANT
AND OTHERS DESIGNATED BY LANDLORD USING OR OCCUPYING SPACE IN THE
BUILDING, INCLUDING, BUT NOT LIMITED TO, TUNNELS, LOADING DOCKS,
WALKWAYS, SIDEWALKS AND DRIVEWAYS NECESSARY FOR ACCESS TO THE BUILDING,
PARKING AREAS, BUILDING LOBBIES, ATRIUMS, LANDSCAPED AREAS, PUBLIC
CORRIDORS, PUBLIC REST ROOMS, BUILDING STAIRS, ELEVATORS OPEN TO THE
PUBLIC, SERVICE ELEVATORS (PROVIDED THAT SUCH SERVICE ELEVATORS SHALL
BE AVAILABLE ONLY FOR TENANTS OF THE BUILDING AND OTHERS DESIGNATED BY
LANDLORD), AND DRINKING FOUNTAINS, INCLUDING, BUT NOT LIMITED TO, ANY
SUCH AREAS SO DESIGNATED BY LANDLORD ON A SINGLE-TENANT FLOOR OF THE
BUILDING, WITH RESTROOMS AND WATER FOUNTAINS ON SINGLE TENANT FLOORS
BEING SO DESIGNATED.

0.1.0.0.11. "COMPLEX" MEANS THE PROPERTY, THE BUILDING AND THE
PARKING AREAS.

0.1.0.0.12. "DEFAULT RATE" MEANS THE LESSER OF (1) THE RATE OF
EIGHTEEN PERCENT (18%) PER ANNUM, AND (2) THE MAXIMUM RATE OF INTEREST
THEN PERMISSIBLE FOR A COMMERCIAL LOAN TO TENANT IN THE STATE OF TEXAS.

0.1.0.0.13. "DELIVERY DATE" MEANS THE DATE ON WHICH LANDLORD
DELIVERS THE INITIAL PREMISES TO TENANT WITH THE INITIAL IMPROVEMENTS
READY FOR TENANT'S WORK, WHICH DATE SHALL BE NOT LATER THAN DECEMBER 8,
1998, SUBJECT TO TENANT DELAYS AND FORCE MAJEURE DELAYS.

0.1.0.0.14. "DESIGN CRITERIA" MEANS THE DESIGN CRITERIA FOR
THE CONSTRUCTION OF THE INITIAL IMPROVEMENTS, WHICH DESIGN CRITERIA IS
MORE PARTICULARLY DESCRIBED IN EXHIBIT "J" ATTACHED HERETO AND MADE A
PART HEREOF FOR ALL PURPOSES.

0.1.0.0.15. "EFFECTIVE DATE" MEANS THE DATE SET FORTH IN THE
INITIAL PARAGRAPH OF THIS LEASE.

0.1.0.0.16. "FINAL PHASE" MEANS THE FINAL PHASE OF THE
PREMISES, KNOWN AS SUITE NO.650, LOCATED ON THE SIXTH (6TH) FLOOR OF
THE BUILDING AND OUTLINED ON THE FLOOR PLAN(S) ATTACHED TO THIS LEASE
AS EXHIBIT "B" AND INCORPORATED HEREIN BY REFERENCE, WHICH FINAL PHASE
CONSISTS OF 15,393 SQUARE FEET OF RENTABLE AREA.

0.1.0.0.17. "FINAL STAGE" MEANS THE PERIOD COMMENCING ON THE
EARLIER TO OCCUR OF (i) THE FIRST (1ST) DAY OF THE SECOND (2ND) LEASE
YEAR AND (ii) THE DATE TENANT ACTUALLY OCCUPIES THE FINAL PHASE AND
CONTINUING UNTIL THE END OF THE INITIAL LEASE TERM.

0.1.0.0.18. "INITIAL IMPROVEMENTS" MEANS THE BASE BUILDING
IMPROVEMENTS TO BE CONSTRUCTED IN ACCORDANCE WITH THE DESIGN CRITERIA,
THE BASE BUILDING PLANS AND ALL APPLICABLE LAWS.

0.1.0.0.19. "INITIAL PREMISES" MEANS THE SUITE OF OFFICES
KNOWN AS SUITE NO. 700 LOCATED UPON THE SEVENTH (7TH) FLOOR OF THE
BUILDING AND OUTLINED ON THE FLOOR PLAN ATTACHED TO THIS LEASE AS
EXHIBIT "B", WHICH INITIAL PREMISES CONSISTS OF 30,786 SQUARE FEET OF
RENTABLE AREA.

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 2
<PAGE> 7

0.1.0.0.20. "INITIAL STAGE" MEANS THE PERIOD COMMENCING ON THE
COMMENCEMENT DATE AND CONTINUING UNTIL THE EARLIER TO OCCUR OF (i) THE
END OF THE SIXTH (6TH) FULL CALENDAR MONTH AFTER THE COMMENCEMENT DATE
AND (ii) THE DATE TENANT ACTUALLY OCCUPIES THE SECOND PHASE.

0.1.0.0.21. "LANDLORD RELATED PARTY" MEANS ANY OFFICER,
DIRECTOR, PARTNER, EMPLOYEE, CONTRACTOR OR AGENT OF LANDLORD.

0.1.0.0.22. "LEASE TERM" MEANS SIXTY-ONE (61) MONTHS, PLUS ANY
PARTIAL MONTH AT THE BEGINNING OF THE LEASE TERM.

0.1.0.0.23. "LEASE YEAR" MEANS A PERIOD OF TWELVE (12)
CONSECUTIVE CALENDAR MONTHS. THE FIRST LEASE YEAR SHALL BEGIN ON THE
1ST DAY OF THE MONTH FOLLOWING THE COMMENCEMENT DATE UNLESS THE
COMMENCEMENT DATE OCCURS ON THE 1ST DAY OF A MONTH, IN WHICH EVENT THE
FIRST LEASE YEAR SHALL BEGIN ON THE COMMENCEMENT DATE.

0.1.0.0.24. "MARKET AREA" MEANS THE NORTH DALLAS TOLLWAY
OFFICE SUB-MARKET OF THE DALLAS, TEXAS, METROPOLITAN AREA.

0.1.0.0.25. "NORMAL BUSINESS HOLIDAYS" MEANS NEW YEARS DAY,
MEMORIAL DAY, JULY 4TH (INDEPENDENCE DAY), LABOR DAY, THANKSGIVING,
CHRISTMAS DAY AND ANY OTHER DAY WHICH SHALL BE RECOGNIZED BY OFFICE
TENANTS GENERALLY (EXCLUDING FEDERAL OR STATE BANKING INSTITUTIONS) AS
A NATIONAL HOLIDAY ON WHICH EMPLOYEES ARE NOT REQUIRED TO WORK.

0.1.0.0.26. "NORMAL BUSINESS HOURS" FOR THE BUILDING MEANS
7:00 A.M. TO 6:00 P.M. ON MONDAY THROUGH FRIDAY, AND 8:00 A.M. TO 1:00
P.M. ON SATURDAY, EXCLUSIVE OF NORMAL BUSINESS HOLIDAYS.

0.1.0.0.27. "OFFICE PORTION OF THE PARKING GARAGE" MEANS THAT
PORTION OF THE PARKING GARAGE DESIGNATED BY LANDLORD, FROM TIME TO
TIME, TO BE THE PORTION OF THE PARKING GARAGE DEDICATED FOR USE BY
TENANTS OF THE BUILDING.

0.1.0.0.28. "PARKING AGREEMENT" MEANS THE PARKING AGREEMENT
ATTACHED TO THIS LEASE AS EXHIBIT "E" AND INCORPORATED HEREIN BY
REFERENCE.

0.1.0.0.29. "PARKING AREAS" MEANS THOSE AREAS LOCATED UPON THE
PROPERTY DESIGNATED BY LANDLORD, FROM TIME TO TIME, TO BE PARKING AREAS
(INCLUDING, WITHOUT LIMITATION, THE OFFICE PORTION OF THE PARKING
GARAGE).

0.1.0.0.30. "PARKING GARAGE" MEANS THAT CERTAIN 6-LEVEL
PARKING GARAGE LOCATED ON THE PROPERTY AND SERVICING BOTH THE BUILDING
AND THE ADJACENT RETAIL AND RESIDENTIAL BUILDINGS IN THE ADDISON CIRCLE
DEVELOPMENT.

0.1.0.0.31. "PREMISES" MEANS THE INITIAL PREMISES, THE SECOND
PHASE AND THE FINAL PHASE, WHICH COLLECTIVELY SHALL CONSTITUTE THE
ENTIRE SIXTH (6TH) AND SEVENTH (7TH) FLOORS OF THE BUILDING.

0.1.0.0.32. "PROPERTY" MEANS THE LAND DESCRIBED IN EXHIBIT "A"
ATTACHED HERETO AND INCORPORATED HEREIN BY REFERENCE.

0.1.0.0.33. "PUNCHLIST ITEMS" MEANS TOUCH-UP, MINOR FINISH,
MECHANICAL ADJUSTMENT, OR DECORATION WORK REQUIRED TO BE PERFORMED IN
CONNECTION WITH THE INITIAL IMPROVEMENTS THAT DOES NOT UNREASONABLY
INTERFERE WITH OCCUPANCY OF THE PREMISES BY TENANT.

0.1.0.0.34. "READY FOR TENANT'S WORK" MEANS THE INITIAL
IMPROVEMENTS ARE SUBSTANTIALLY COMPLETE (AS DEFINED BELOW).

0.1.0.0.35. "RENT" MEANS, COLLECTIVELY, THE BASE RENTAL, THE
TENANT'S SHARE OF BASIC OPERATING COSTS (AS PROVIDED IN SECTION 6), THE
AMOUNTS TO BE PAID BY TENANT PURSUANT TO THE TENANT IMPROVEMENTS
AGREEMENT (IF ANY), AND ALL OTHER SUMS OF MONEY BECOMING DUE AND
PAYABLE TO LANDLORD UNDER THIS LEASE.

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 3
<PAGE> 8

0.1.0.0.36. "RENTABLE AREA" MEANS (1) THE "USABLE AREA" WITHIN
ANY LEASED PREMISES (I.E., THE GROSS AREA ENCLOSED BY THE SURFACE OF
THE EXTERIOR GLASS WALLS, THE MID-POINT OF ANY WALLS SEPARATING
PORTIONS OF THE PREMISES FROM THOSE OF ADJACENT TENANTS, THE SLAB
PENETRATION LINE OF ALL WALLS SEPARATING SUCH LEASED PREMISES FROM
SERVICE AREAS AND THE CORRIDOR SIDE OF WALLS SEPARATING SUCH LEASED
PREMISES FROM COMMON AREAS), PLUS (2) A PRO-RATA PART OF THE COMMON
AREAS AND SERVICE AREAS WITHIN THE BUILDING, INCLUDING THE AREA
ENCOMPASSED BY ANY COLUMNS OR OTHER STRUCTURAL ELEMENTS WHICH PROVIDE
SUPPORT TO SUCH LEASED PREMISES AND/OR THE BUILDING, BUT EXCLUDING
PERMANENT VERTICAL PENETRATIONS, SUCH AS FIRE STAIRS, ELEVATOR SHAFTS,
FLUES, PIPE SHAFTS AND VERTICAL DUCTS. THE "RENTABLE AREA" SHALL BE
CALCULATED IN ACCORDANCE WITH ANSI Z65.1-1996, AS PROMULGATED BY THE
BUILDING OWNERS AND MANAGERS ASSOCIATION (BOMA).

0.1.0.0.37. "RENTABLE AREA OF THE BUILDING" MEANS 293,414
SQUARE FEET OF RENTABLE AREA. UPON COMPLETION OF THE INITIAL
IMPROVEMENTS, THE BUILDING ARCHITECT SHALL RE-MEASURE THE BUILDING TO
DETERMINE THE RENTABLE AREA OF THE BUILDING AND IF SUCH RE-MEASUREMENT
YIELDS A DIFFERENT RENTABLE AREA THAN 293,414 SQUARE FEET, THEN THE
"RENTABLE AREA OF THE BUILDING" SHALL BE ADJUSTED, UPWARD OR DOWNWARD
AS THE CASE MAY BE, TO REFLECT THE ACTUAL RENTABLE AREA OF THE
BUILDING, AND A CORRESPONDING ADJUSTMENT SHALL BE MADE TO THE "TENANT'S
SHARE."

0.1.0.0.38. "RENTABLE AREA OF THE PREMISES" MEANS (AND IS
HEREBY DEEMED TO BE) (i) 30,786 SQUARE FEET OF RENTABLE AREA
(REPRESENTING THE INITIAL PREMISES) DURING THE INITIAL STAGE OF
OCCUPANCY, (ii) 46,179 SQUARE FEET OF RENTABLE AREA (REPRESENTING THE
INITIAL PREMISES AND THE SECOND PHASE) DURING THE SECOND STAGE OF
OCCUPANCY, AND (iii) 61,572 SQUARE FEET OF RENTABLE AREA (REPRESENTING
THE INITIAL PREMISES, THE SECOND PHASE AND THE FINAL PHASE) DURING THE
FINAL STAGE OF OCCUPANCY. THE FOREGOING MEASUREMENTS MAY BE ADJUSTED AS
PROVIDED IN SECTION 1(d).

0.1.0.0.39. "RULES AND REGULATIONS" MEANS THE RULES AND
REGULATIONS FOR THE COMPLEX SET FORTH ON EXHIBIT "C" ATTACHED HERETO
AND INCORPORATED HEREIN BY REFERENCE, AND THE RULES AND REGULATIONS FOR
THE PARKING AREAS SET FORTH IN SECTION 5 OF EXHIBIT "E", AND ANY RULES
AND REGULATIONS THAT MAY BE ADOPTED OR ALTERED BY LANDLORD IN
ACCORDANCE WITH SECTION 26 OF EXHIBIT "C".

0.1.0.0.40. "SECOND PHASE" MEANS THE SECOND PHASE OF THE
PREMISES, KNOWN AS SUITE NO. 600, LOCATED ON THE SIXTH (6TH) FLOOR OF
THE BUILDING AND OUTLINED ON THE FLOOR PLAN(S) ATTACHED TO THIS LEASE,
AS EXHIBIT "B", WHICH SECOND PHASE SHALL CONSIST OF 15,393 SQUARE FEET
OF RENTABLE AREA.

0.1.0.0.41. "SECOND STAGE" MEANS THE PERIOD COMMENCING ON THE
EARLIER TO OCCUR OF (i) THE FIRST (1ST) DAY OF THE SEVENTH (7TH) FULL
CALENDAR MONTH AFTER THE COMMENCEMENT DATE AND (ii) THE DATE TENANT
ACTUALLY OCCUPIES THE SECOND PHASE, AND CONTINUING UNTIL THE EARLIER TO
OCCUR OF (x) THE END OF THE FIRST (1ST) LEASE YEAR AND (y) THE DATE
TENANT ACTUALLY OCCUPIES THE FINAL PHASE.

0.1.0.0.42. "SECURITY DEPOSIT" MEANS THE SUM OF $229,868.80,
WHICH MAY BE IN THE FORM OF A SIGHT DRAFT IRREVOCABLE LETTER OF CREDIT
FOR THE BENEFIT OF LANDLORD, ISSUED BY AN INSTITUTION REASONABLY
SATISFACTORY TO LANDLORD IN FORM AND SUBSTANCE REASONABLY SATISFACTORY
TO LANDLORD.

0.1.0.0.43. "SERVICE AREAS" MEANS THOSE AREAS, SPACES,
FACILITIES AND EQUIPMENT SERVING THE BUILDING (WHETHER OR NOT LOCATED
WITHIN THE BUILDING), BUT TO WHICH TENANT AND OTHER OCCUPANTS OF THE
BUILDING WILL NOT HAVE ACCESS, INCLUDING, BUT NOT LIMITED TO, SERVICE
ELEVATORS, MECHANICAL, TELEPHONE, ELECTRICAL, JANITORIAL AND SIMILAR
ROOMS AND AIR AND WATER REFRIGERATION EQUIPMENT.

0.1.0.0.44. "STAGE" SHALL MEAN THE INITIAL STAGE, THE SECOND
STAGE OR THE FINAL STAGE, AS THE CASE MAY BE.

0.1.0.0.45. "SUBSTANTIALLY COMPLETE" MEANS THAT (i) WITH
RESPECT TO THE INITIAL IMPROVEMENTS, THE INITIAL IMPROVEMENTS HAVE BEEN
COMPLETED SUBSTANTIALLY IN ACCORDANCE WITH THE BASE BUILDINGS PLANS,
THE DESIGN CRITERIA AND ALL APPLICABLE LAWS (EXCLUDING PUNCHLIST ITEMS)
AND (ii) WITH RESPECT TO THE TENANT IMPROVEMENTS, THE TENANT
IMPROVEMENTS HAVE BEEN COMPLETED SUBSTANTIALLY IN ACCORDANCE WITH THE
TENANT'S FINAL PLANS (AS DEFINED IN THE TENANT IMPROVEMENTS AGREEMENT)
AND ALL APPLICABLE LAWS, AND TENANT'S ARCHITECT (AS DEFINED IN THE
TENANT IMPROVEMENTS AGREEMENT) HAS DELIVERED TO LANDLORD A CERTIFICATE
OF SUBSTANTIAL COMPLETION FOR TENANT'S WORK (AS DEFINED IN THE

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 4
<PAGE> 9

TENANT IMPROVEMENTS AGREEMENT) CERTIFYING THAT THE CONSTRUCTION OF
TENANT'S WORK HAS BEEN SUBSTANTIALLY COMPLETED IN ACCORDANCE WITH
TENANT'S FINAL PLANS AND ALL APPLICABLE LAWS, SUBJECT TO MINOR
PUNCHLIST ITEMS.

0.1.0.0.46. "TAXES" MEANS ALL TAXES, ASSESSMENTS AND
GOVERNMENTAL CHARGES, WHETHER FEDERAL, STATE, COUNTY OR MUNICIPAL, AND
WHETHER THEY BE BY TAXING DISTRICTS OR AUTHORITIES PRESENTLY TAXING THE
COMPLEX OR BY OTHERS, SUBSEQUENTLY CREATED OR OTHERWISE AND ANY OTHER
TAXES, ASSOCIATION DUES AND ASSESSMENTS ATTRIBUTABLE TO THE COMPLEX OR
ITS OPERATION, EXCLUDING, HOWEVER, (i) FEDERAL AND STATE INCOME TAXES,
(ii) FRANCHISE TAXES, (iii) INHERITANCE, ESTATE, GIFT, CORPORATION, NET
PROFITS OR ANY SIMILAR TAX FOR WHICH LANDLORD BECOMES LIABLE AND/OR
WHICH MAY BE IMPOSED UPON OR ASSESSED AGAINST LANDLORD AND (iv) TAXES
OR ASSESSMENTS ATTRIBUTABLE TO THE COMPLEX FOR WHICH LANDLORD IS
REIMBURSED BY POST PROPERTIES, INC. ("POST").

0.1.0.0.47. "TENANT DELAY" MEANS ANY DELAY IN THE PERFORMANCE
OF ANY OF LANDLORD'S OBLIGATIONS HEREUNDER (INCLUDING, WITHOUT
LIMITATION, ANY DELAY IN THE CONSTRUCTION OF THE INITIAL IMPROVEMENTS
OR ANY DELAY IN THE COMMENCEMENT DATE) WHICH IS CAUSED BY ANY ACT,
OMISSION, DELAY OR DEFAULT BY TENANT, ANY TENANT RELATED PARTY OR ANY
OTHER PARTY ACTING BY, THROUGH OR UNDER TENANT OR DUE TO ANY OTHER
CAUSE DESCRIBED AS A TENANT DELAY IN THE TENANT IMPROVEMENTS AGREEMENT.

0.1.0.0.48. "TENANT IMPROVEMENTS" MEANS THOSE IMPROVEMENTS TO
BE MADE BY TENANT TO THE INITIAL IMPROVEMENTS IN ACCORDANCE WITH THE
TENANT IMPROVEMENTS AGREEMENT.

0.1.0.0.49. "TENANT IMPROVEMENTS AGREEMENT" MEANS THE TENANT
IMPROVEMENTS AGREEMENT (IF ANY) ATTACHED TO THIS LEASE AS EXHIBIT "D"
AND INCORPORATED HEREIN BY REFERENCE.

0.1.0.0.50. "TENANT RELATED PARTY" MEANS ANY OFFICER,
DIRECTOR, PARTNER, EMPLOYEE, CONTRACTOR OR AGENT OF TENANT.

0.1.0.0.51. "TENANT'S SHARE" MEANS (i) DURING THE INITIAL
STAGE OF OCCUPANCY, 10.49%, (ii) DURING THE SECOND STAGE OF OCCUPANCY,
15.74%, AND (iii) DURING THE FINAL STAGE OF OCCUPANCY, 20.98%, WHICH IN
EACH CASE IS THE PROPORTION WHICH THE RENTABLE AREA OF THE PREMISES
BEARS TO THE RENTABLE AREA OF THE BUILDING, AND IN EACH CASE SHALL BE
SUBJECT TO RECALCULATION PURSUANT TO SECTION 1(d) HEREOF.

0.1.0.0.52. "TENANT'S SHARE OF BASIC OPERATING COSTS" MEANS
THE TENANT'S SHARE OF THE AMOUNT, IF ANY, BY WHICH THE BASIC OPERATING
COSTS DURING ANY CALENDAR YEAR OF THE LEASE TERM EXCEED THE BASE
AMOUNT.

0.2. Lease Grant. Upon the terms of this Lease, Landlord leases to
Tenant, and Tenant leases from Landlord, the Premises and the non-exclusive
right to use the Common Areas, subject to all of the terms and conditions of
this Lease (including the Rules and Regulations). Notwithstanding the foregoing,
Landlord and Tenant agree that Tenant will occupy the Premises in three (3)
stages and, therefore, (i) during the Initial Stage, the Premises shall be
deemed to consist only of (and Tenant shall only be entitled to occupy) the
Initial Premises, (ii) during the Second Stage, the Premises shall be deemed to
consist only of (and Tenant shall only be entitled to occupy) the Initial
Premises and the Second Phase, and (iii) during the Final Stage, the Premises
shall be deemed to consist of (and Tenant shall be entitled to occupy) the
entire Premises upon terms and conditions set forth in this Lease. Landlord
shall deliver the Second Phase of the Premises to Tenant upon the earlier to
occur of: (i) the commencement of the Second Stage of occupancy; and (ii) the
date Tenant actually occupies the Second Phase (with Landlord agreeing to make
the Second Phase available for early occupancy). Landlord shall deliver the
Final Phase of the Premises to Tenant upon the earlier to occur of: (i) the
commencement of the Final Stage of occupancy; and (ii) the date Tenant actually
occupies the Final Phase (with Landlord agreeing to make the Final Phase
available for early occupancy). Landlord's delivery obligations with respect to
the Second Phase and the Final Phase shall be satisfied at such time as the
Initial Improvements are Ready for Tenant's Work. Tenant shall be deemed to have
"actually occupied" a particular Stage of the Premises at such time as Tenant
takes possession of such Stage of the Premises and commences business operations
therefrom.

0.3. Lease Term; Acceptance of Premises.

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 5
<PAGE> 10

0.3.0.0.1. THIS LEASE SHALL CONTINUE IN FORCE DURING A PERIOD
BEGINNING ON THE EFFECTIVE DATE OF THIS LEASE (THOUGH THE LEASE TERM
SHALL NOT COMMENCE AND NO RENT SHALL ACCRUE UNTIL THE COMMENCEMENT
DATE) AND ENDING ON THE EXPIRATION OF THE LEASE TERM, UNLESS THIS LEASE
IS TERMINATED EARLY (PURSUANT TO A RIGHT TO SO TERMINATE SPECIFICALLY
SET FORTH IN THIS LEASE) OR EXTENDED TO A LATER DATE PURSUANT TO ANY
OTHER TERM OR PROVISION HEREOF.

0.3.0.0.2. IF THE COMMENCEMENT DATE IS DELAYED DUE TO ANY
TENANT DELAY, LANDLORD SHALL HAVE NO LIABILITY FOR SUCH DELAY, AND THE
OBLIGATIONS OF TENANT UNDER THIS LEASE (INCLUDING, WITHOUT LIMITATION,
THE OBLIGATION TO PAY RENT) SHALL NONETHELESS COMMENCE AS OF THE DATE
THAT THE COMMENCEMENT DATE WOULD HAVE OCCURRED BUT FOR SUCH TENANT
DELAY. IF, HOWEVER, THE COMMENCEMENT DATE IS DELAYED DUE TO ANY REASON
OTHER THAN A TENANT DELAY (INCLUDING, WITHOUT LIMITATION, LANDLORD'S
FAILURE TO TIMELY DELIVER THE INITIAL PREMISES AS PROVIDED IN SECTION
3(d) BELOW), THEN, AS TENANT'S SOLE REMEDY FOR THE DELAY IN TENANT'S
OCCUPANCY OF THE PREMISES, THE COMMENCEMENT DATE SHALL BE DELAYED AND
THE OBLIGATION TO PAY RENT SHALL NOT COMMENCE UNTIL THE EARLIER TO
OCCUR OF (1) THE DATE OF ACTUAL OCCUPANCY BY TENANT OF THE PREMISES FOR
THE CONDUCT OF ITS BUSINESS OR (2) THE DATE SIXTY-EIGHT (68) BUSINESS
DAYS FOLLOWING THE DATE ON WHICH THE PREMISES ARE READY FOR TENANT'S
WORK. NOTWITHSTANDING THE FOREGOING, LANDLORD AGREES THAT IF THE
COMMENCEMENT DATE IS DELAYED DUE TO ANY REASON OTHER THAN A TENANT
DELAY OR FORCE MAJEURE (AS DEFINED IN SECTION 42 OF THIS LEASE) PAST
AUGUST 1, 1999, TENANT MAY AT ITS OPTION TERMINATE THIS LEASE BY
DELIVERING A WRITTEN NOTICE OF TERMINATION TO LANDLORD, IN WHICH EVENT
NEITHER PARTY SHALL HAVE ANY FURTHER RIGHTS OR OBLIGATIONS UNDER THIS
LEASE.

0.3.0.0.3. LANDLORD SHALL DILIGENTLY PURSUE AND COMPLETE
CONSTRUCTION OF THE INITIAL IMPROVEMENTS IN A GOOD AND WORKMANLIKE
MANNER AND IN ACCORDANCE WITH THE DESIGN CRITERIA, THE BASE BUILDING
PLANS AND ALL APPLICABLE LAWS. LANDLORD SHALL USE REASONABLE EFFORTS TO
SUBSTANTIALLY COMPLETE THE CONSTRUCTION OF THE INITIAL IMPROVEMENTS IN
ORDER THAT THE INITIAL PREMISES SHALL BE READY FOR TENANT'S WORK ON OR
BEFORE THE DELIVERY DATE. LANDLORD SHALL DELIVER THE SECOND PHASE OF
THE PREMISES TO TENANT NOT LATER THAN SIXTY (60) DAYS PRIOR TO THE
COMMENCEMENT OF THE SECOND STAGE OF OCCUPANCY, AND SHALL DELIVER THE
FINAL PHASE OF THE PREMISES NOT LATER THAN SIXTY (60) DAYS PRIOR TO THE
COMMENCEMENT OF THE FINAL STAGE OF OCCUPANCY.

0.3.0.0.4. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
LEASE, IN THE EVENT THE DELIVERY DATE HAS NOT OCCURRED ON OR BEFORE
DECEMBER 8, 1998 (SUBJECT TO TENANT DELAYS AND FORCE MAJEURE DELAYS),
LANDLORD'S OBLIGATION TO DELIVER THE INITIAL PREMISES SHALL BE EXTENDED
ON A DAY-TO-DAY BASIS UNTIL SUCH DATE AS LANDLORD SATISFIES ITS
DELIVERY DATE OBLIGATIONS. IN SUCH EVENT, ALL FUTURE TAKE-DOWN DATES
FOR THE SECOND PHASE OF THE PREMISES AND THE FINAL PHASE OF THE
PREMISES SHALL ALSO BE EXTENDED ON THE SAME DAY-TO-DAY BASIS.

0.3.0.0.5. ON OR ABOUT THE COMMENCEMENT DATE, LANDLORD AND
TENANT SHALL EXECUTE AN ACCEPTANCE OF PREMISES MEMORANDUM CONFIRMING
THE COMMENCEMENT DATE AND THE ACCEPTANCE BY TENANT OF THE PREMISES,
SUBJECT TO THE COMPLETION OF THE PUNCHLIST ITEMS, IF ANY.

0.4. Use. The Premises shall be used solely for the following purposes,
to wit: (a) general office purposes; (b) use of kitchens, pantries and dining
rooms for the feeding of employees and guests of Tenant (and not to the extent
so as to require grease traps, venting or other heavy kitchen facilities); (c)
lounge area (including rights for T.V. area for employees of Tenant); (d)
vending machine and snack bars for the sale of food, beverage and other
convenience items to employees and guests of Tenant; (e) ordinary business
machines, equipment for printing, producing, and reproducing forms, and
equipment for the production of such photostats and other material as Tenant may
require for the transaction of business (provided such machines and equipment
shall require Landlord's prior consent, if the same require extraordinary
ventilation); (f) computer and other electronic data processing equipment; (g)
meeting rooms and conference rooms; and (h) facilities for storage of equipment
and supplies in connection with the foregoing.

Except for the general office use, Landlord makes no representation or
warranty that any of the foregoing uses will be permitted by Applicable Laws and
the failure of Tenant to be able to use the Premises for any such purposes other
than general office use shall not constitute a default by Landlord hereunder,
nor allow Tenant any diminution of Rent.

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 6
<PAGE> 11

0.5. Payment of Rent. Except as otherwise expressly provided in this
Lease, the Rent shall be due and payable to Landlord in advance in monthly
installments on the first (1st) day of each calendar month during the Lease
Term, at Landlord's address as provided on the signature page of this Lease or
to such other person or at such other address as Landlord may from time to time
designate in writing. Landlord may, at its option, bill Tenant for Rent, but no
delay or failure by Landlord in providing such a bill shall relieve Tenant from
the obligation to pay the Base Rental on the first (1st) day of each month as
provided herein. All payments shall be in the form of a check unless otherwise
agreed by Landlord, provided that payment by check shall not be deemed made if
the check is not duly honored with good funds. The Rent shall be paid without
notice, demand, abatement, deduction or offset, except as otherwise expressly
provided in this Lease. Notwithstanding to the contrary set forth herein, Base
Rental for the first (1st) full calendar month during the Lease Term shall be
abated. If the Lease Term commences on other than the first (1st) day of a
calendar month, then the Base Rental for such partial month shall be prorated
and paid at the rental rate applicable during the second (2nd) full month of the
Lease Term. Any such prorated Base Rental, plus the Base Rental due for the
second (2nd) full month of the Lease Term, shall be due and payable on the first
(1st) day of the second (2nd) calendar month during the Lease Term. If the Lease
Term commences or ends at any time other than the first day of a calendar year,
the Tenant's Share of Basic Operating Costs shall be prorated for such year
according to the number of days of the Lease Term in such year.

0.6. Electricity and Basic Operating Costs.

0.6.0.0.1. IN ADDITION TO THE BASE RENTAL, TENANT SHALL PAY TO
LANDLORD THE COST OF ALL ELECTRICITY CONSUMED ON THE PREMISES DURING
THE LEASE TERM (AS DETERMINED BY A SEPARATE METER TO BE PLACED IN THE
PREMISES AS PART OF THE TENANT IMPROVEMENTS). EACH MONTH, LANDLORD
SHALL DELIVER TO TENANT A STATEMENT SHOWING THE COST OF THE ELECTRICITY
CONSUMED ON THE PREMISES BY TENANT FOR THE PRECEDING CALENDAR MONTH AND
TENANT SHALL PAY SUCH STATEMENT PROMPTLY (BUT IN NO EVENT LESS THAN TEN
[10] DAYS) AFTER TENANT'S RECEIPT OF SUCH STATEMENT.

0.6.0.0.2. IN ADDITION TO THE BASE RENTAL, TENANT SHALL ALSO
PAY TENANT'S SHARE OF BASIC OPERATING COSTS. PRIOR TO THE COMMENCEMENT
OF EACH CALENDAR YEAR DURING THE LEASE TERM AFTER THE CALENDAR YEAR IN
WHICH THE LEASE TERM COMMENCES, LANDLORD MAY, AT ITS OPTION, PROVIDE
TENANT WITH A THEN CURRENT ESTIMATE OF BASIC OPERATING COSTS FOR THE
UPCOMING CALENDAR YEAR, AND THEREAFTER TENANT SHALL PAY, AS ADDITIONAL
RENTAL, IN MONTHLY INSTALLMENTS IN ACCORDANCE WITH SECTION 5, THE
ESTIMATED TENANT'S SHARE OF BASIC OPERATING COSTS FOR THE CALENDAR YEAR
IN QUESTION. THE FAILURE OF LANDLORD TO ESTIMATE BASIC OPERATING COSTS
AND BILL TENANT ON A MONTHLY BASIS SHALL IN NO EVENT RELIEVE TENANT OF
ITS OBLIGATION TO PAY TENANT'S SHARE OF BASIC OPERATING COSTS. IN THE
EVENT THE BUILDING IS NOT AT LEAST NINETY-FIVE PERCENT (95%) OCCUPIED
DURING ANY YEAR OF THE LEASE TERM (INCLUDING THE CALENDAR YEAR IN WHICH
THE LEASE TERM COMMENCES), THE BASIC OPERATING COSTS SHALL BE "GROSSED
UP" BY INCREASING THE VARIABLE COMPONENTS OF BASIC OPERATING COSTS TO
THE AMOUNT WHICH LANDLORD PROJECTS WOULD HAVE BEEN INCURRED HAD THE
BUILDING BEEN NINETY-FIVE PERCENT (95%) OCCUPIED DURING SUCH YEAR, SUCH
AMOUNT TO BE ANNUALIZED FOR ANY PARTIAL YEAR.

0.6.0.0.3. BY APRIL 1 OF EACH CALENDAR YEAR DURING TENANT'S
OCCUPANCY (INCLUDING THE CALENDAR YEAR FOLLOWING THE YEAR IN WHICH THE
LEASE TERM IS TERMINATED), OR AS SOON THEREAFTER AS POSSIBLE, LANDLORD
SHALL FURNISH TO TENANT A STATEMENT OF TENANT'S SHARE OF BASIC
OPERATING COSTS (THE "STATEMENT") FOR THE PRIOR CALENDAR YEAR. IN THE
EVENT OF AN UNDERPAYMENT BY TENANT BECAUSE OF ANY DIFFERENCE BETWEEN
THE AMOUNT, IF ANY, COLLECTED BY LANDLORD FROM TENANT FOR THE ESTIMATED
TENANT'S SHARE OF BASIC OPERATING COSTS AND THE ACTUAL AMOUNT OF
TENANT'S SHARE OF BASIC OPERATING COSTS, TENANT SHALL PAY THE AMOUNT OF
SUCH UNDERPAYMENT TO LANDLORD WITHIN THIRTY (30) DAYS FOLLOWING
DELIVERY OF THE STATEMENT. IN THE EVENT OF AN OVERPAYMENT BY TENANT
BECAUSE OF ANY DIFFERENCE BETWEEN THE AMOUNT, IF ANY, COLLECTED BY
LANDLORD FROM TENANT FOR THE ESTIMATED TENANT'S SHARE OF BASIC
OPERATING COSTS AND THE ACTUAL AMOUNT OF TENANT'S SHARE OF BASIC
OPERATING COSTS, LANDLORD SHALL, WITHIN THIRTY (30) DAYS FOLLOWING THE
DELIVERY OF THE STATEMENT, IF NO EVENT OF DEFAULT EXISTS HEREUNDER,
MAKE A CASH PAYMENT TO TENANT IN THE AMOUNT OF SUCH OVERPAYMENT, OR, IF
AN EVENT OF DEFAULT EXISTS HEREUNDER, CREDIT SUCH OVERPAYMENT AGAINST
DELINQUENT RENT AND MAKE A CASH PAYMENT TO TENANT FOR THE BALANCE.

0.6.0.0.4. "BASIC OPERATING COSTS" MEANS ALL DIRECT AND, TO
THE EXTENT PROVIDED IN SECTION 6(d)(1), INDIRECT COSTS AND EXPENSES
INCURRED IN EACH CALENDAR YEAR OF OPERATING, MAINTAINING, REPAIRING,
MANAGING AND, TO THE EXTENT SPECIFICALLY PROVIDED BELOW, OWNING THE
COMPLEX, INCLUDING, WITHOUT LIMITATION, THE FOLLOWING:

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 7
<PAGE> 12

0.6.0.0.4.1. Wages, salaries and other compensation
of all employees engaged in the direct operation and
maintenance of the Complex, employer's social security taxes,
unemployment taxes or insurance and any other taxes which may
be levied on such wages, salaries and other compensation, and
the cost of medical, disability and life insurance and pension
or retirement benefits for such employees; provided, however,
with respect to employees engaged in the operation and
maintenance of other buildings owned by Landlord (or an
affiliate of Landlord), other than the Complex, such items
shall be fairly apportioned among all such buildings;

0.6.0.0.4.2. Cost of leasing or purchasing all
supplies, tools, equipment and materials used in the
operation, maintenance, repair and management of the Complex;

0.6.0.0.4.3. Except to the extent the same are paid
directly or separately by Tenant or any other tenant to the
applicable provider or to Landlord, the cost of all utilities
for the Complex (both interior and exterior), including,
without limitation, the cost of water and power, electrical
utilities, sewage, heating, lighting, air conditioning and
ventilation for the Complex;

0.6.0.0.4.4. Cost of all maintenance and service
agreements for the Complex, including, but not limited to,
janitorial service, pest control, security service, equipment
leasing, energy management system leasing, landscape
maintenance, alarm service, window cleaning, metal finishing
and elevator maintenance;

0.6.0.0.4.5. Cost of all insurance relating to the
Complex, including, but not limited to, fire and extended
coverage insurance, rental interruption insurance and
liability insurance applicable to the Complex and Landlord's
personal property used in connection therewith, plus the cost
of all deductible payments made by Landlord in connection
therewith (but only to the extent not already deducted as a
Basic Operating Cost);

0.6.0.0.4.6. All Taxes (if the amount of Taxes
payable for any calendar year, including the amount of Taxes
included in the Base Amount, is changed by final determination
of legal proceedings, settlement, or otherwise, such changed
amount shall be the Taxes for such year);

0.6.0.0.4.7. Cost of repairs and general maintenance
for the Complex (excluding such repairs and general
maintenance paid by insurance proceeds or by Tenant or other
third parties);

0.6.0.0.4.8. Legal expenses incurred with respect to
the Complex which relate directly to the operation of the
Complex and which benefit all of the tenants of the Complex
generally, such as legal proceedings to abate offensive
activities or uses or reduce property taxes, but excluding
legal expenses by Landlord due to Landlord's violations of the
ADA relating to the Initial Improvements related to the
collection of Rent or to the sale, leasing or financing of the
Complex;

0.6.0.0.4.9. Fees for management services, whether
provided by an independent management company, by Landlord or
by any affiliate of Landlord, but only to the extent that the
costs of such services do not exceed competitive costs for
comparable services in comparable buildings of the class,
type, size, age and location of the Building in the Market
Area;

0.6.0.0.4.10. Expenses incurred in order to comply
with any federal, state or municipal law, code or ordinance,
or regulation which was not promulgated, or which was
promulgated but not in effect or applicable to the Complex, as
of the Effective Date of this Lease;

0.6.0.0.4.11. Amortization of the cost of
installation of capital investment items which (A) Landlord
reasonably believes will either (i) reduce (or avoid increases
in) Basic Operating Costs, or (ii) promote safety, or (B) may
be required in order to comply with any federal, state or
municipal law, code or ordinance, or regulation which was not
promulgated, or which was promulgated but was not in effect or
applicable to the Complex, as of the Effective Date of this
Lease. All costs of such capital investment items shall be
amortized, together with an amount equal to interest at twelve
percent (12%) per annum, with the amortization schedule being
determined in accordance with generally accepted accounting
principles and in no event to extend beyond the remaining
useful life of the Building; and

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 8
<PAGE> 13

0.6.0.0.4.12. Costs of ad valorem tax consultants.

0.6.0.0.5. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
LEASE, BASIC OPERATING COSTS SHALL NOT INCLUDE ANY EXPENSES OR COSTS
FOR THE FOLLOWING ITEMS:

0.6.0.0.5.1. Except as provided in Section 6(d)(11),
costs that under generally accepted accounting principles are
classified as capital expenditures, and related amortization
thereof;

0.6.0.0.5.2. Except as provided in Section 6(d)(11),
depreciation or amortization of the Building or its contents
or components;

0.6.0.0.5.3. Expenses for the preparation of space
(including tenant finish out costs) or other similar type work
which Landlord performs for any tenant or prospective tenant
of the Building;

0.6.0.0.5.4. Expenses incurred in leasing or
obtaining new tenants or retaining existing tenants,
including, but not limited to, marketing costs and leasing
commissions;

0.6.0.0.5.5. Except as provided in Section 6(d)(8),
legal expenses;

0.6.0.0.5.6. Interest, amortization or other costs
associated with any mortgage, loan or refinancing of the
Complex;

0.6.0.0.5.7. Any ground rent incurred for the
Complex;

0.6.0.0.5.8. Expenses incurred by Landlord to make
the Building Year 2000 Compliant (hereinafter defined). All
equipment, products, systems and processes provided by
Landlord in the Building shall be Year 2000 Compliant so that
the failure to be Year 2000 Compliant shall not materially
adversely impair Tenant's use and occupancy of the Premises.
"Year 2000 Compliant" shall mean that neither performance nor
functionality is materially affected by dates prior to, during
or after the year 2000, and, in particular, but without
prejudice to the generality of the foregoing, no value for
current date will cause any material adverse interruption in
operation. Landlord's liability for a breach of this Section
6(e)(8) shall be limited to Tenant's actual out-of-pocket
costs, and Landlord shall not be liable for any other damages,
including consequential or punitive damages;

0.6.0.0.5.9. Cost of repairs occasioned by fire,
windstorm or other casualty (but only to the extent reimbursed
by insurance proceeds);

0.6.0.0.5.10. Wages, salaries, or other compensation
paid to any executive above the grade of building manager
(i.e., with the director of engineering and/or operations not
being deemed to be included in this proscription);

0.6.0.0.5.11. Expenses for repair, replacement and
general maintenance paid by proceeds of insurance or by Tenant
or other third parties;

0.6.0.0.5.12. Alterations, concessions, services,
improvements and decorations for other tenants of the
Building;

0.6.0.0.5.13. Income, excess profits or franchise
taxes, or other such taxes imposed on or measured by the
income of the Landlord for the operation of the Building;

0.6.0.0.5.14. Advertising and promotional expenses
(but excluding tenant relations parties and the like);

0.6.0.0.5.15. The cost of art work such as sculptures
or paintings used to decorate the Building; 0.6.0.0.5.16.
Interest and penalties due to payment of taxes, utility bills
or other such costs after the later of the delinquent date
therefor or thirty (30) days following the receipt of the bill
therefor;

0.6.0.0.5.17. Contributions to operating expense
reserves;

0.6.0.0.5.18. Contributions to charitable
organizations;

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 9
<PAGE> 14

0.6.0.0.5.19. Costs incurred in removing the property
of former tenants or other occupants of the Building;

0.6.0.0.5.20. Auditing, consulting and professional
fees (other than those fees incurred in connection with the
maintenance and operation of the Building and/or the Property)
paid or incurred in connection with the negotiation of leases,
financings, refinancings, sales, or acquisitions of the
Property;

0.6.0.0.5.21. The cost of correcting latent defects
in the Initial Improvements during the Warranty Period (as
defined in Section 47 hereof), but not otherwise; and

0.6.0.0.5.22. Any expenses incurred by Landlord with
respect to the Parking Garage which would otherwise constitute
Basic Operating Costs but for which Landlord is reimbursed by
Post.

0.6.0.0.6. IF THERE EXISTS ANY DISPUTE AS TO THE CALCULATION
OF TENANT'S SHARE OF BASIC OPERATING COSTS (A "DISPUTE"), THE EVENTS,
ERRORS, ACTS OR OMISSIONS GIVING RISE TO THE DISPUTE SHALL NOT
CONSTITUTE A BREACH OR DEFAULT BY LANDLORD NOR SHALL LANDLORD BE LIABLE
TO TENANT, EXCEPT AS SPECIFICALLY PROVIDED BELOW. IF THERE IS A
DISPUTE, TENANT SHALL SO NOTIFY LANDLORD IN WRITING WITHIN NINETY (90)
DAYS AFTER RECEIPT OF THE STATEMENT. SUCH NOTICE SHALL SPECIFY THE
ITEMS IN DISPUTE. NOTWITHSTANDING THE EXISTENCE OF A DISPUTE, TENANT
SHALL TIMELY PAY THE AMOUNT IN DISPUTE AS AND WHEN REQUIRED UNDER THIS
LEASE, PROVIDED SUCH PAYMENT SHALL BE WITHOUT PREJUDICE TO TENANT'S
POSITION. UPON RECEIPT OF SUCH PAYMENT, LANDLORD SHALL THEREAFTER
PROVIDE TENANT WITH SUCH SUPPLEMENTARY INFORMATION REGARDING THE ITEMS
IN DISPUTE AS MAY BE REASONABLY REQUESTED BY TENANT IN AN EFFORT TO
RESOLVE SUCH DISPUTE; PROVIDED, HOWEVER, THAT LANDLORD SHALL NOT BE
REQUIRED TO PROVIDE ANY SUPPLEMENTARY INFORMATION TO TENANT UNLESS ALL
SUMS SHOWN TO BE DUE BY TENANT ON THE STATEMENT ARE PAID IN FULL. IF
LANDLORD AND TENANT ARE UNABLE TO RESOLVE SUCH DISPUTE, SUCH DISPUTE
SHALL BE REFERRED TO A MUTUALLY SATISFACTORY THIRD PARTY CERTIFIED
PUBLIC ACCOUNTANT FOR FINAL RESOLUTION, SUBJECT TO THE AUDIT RIGHTS OF
TENANT CONTAINED IN SECTION 6(g). IF THE CERTIFIED PUBLIC ACCOUNTANT
DETERMINES THAT TENANT'S SHARE OF BASIC OPERATING COSTS IS OVERSTATED
BY FIVE PERCENT (5%) OR MORE, THEN LANDLORD SHALL PAY THE COST OF THE
CERTIFIED PUBLIC ACCOUNTANT. OTHERWISE, TENANT SHALL PAY THE COST OF
THE CERTIFIED PUBLIC ACCOUNTANT. IF A DISPUTE IS RESOLVED IN FAVOR OF
TENANT, LANDLORD SHALL, WITHIN THIRTY (30) DAYS THEREAFTER, REFUND ANY
OVERPAYMENT TO TENANT. THE DETERMINATION OF SUCH CERTIFIED PUBLIC
ACCOUNTANT SHALL BE FINAL AND BINDING, SUBJECT TO THE AUDIT RIGHTS OF
TENANT CONTAINED IN SECTION 6(g), AND FINAL SETTLEMENT SHALL BE MADE
WITHIN THIRTY (30) DAYS AFTER RECEIPT OF SUCH ACCOUNTANT'S DECISION. IF
TENANT FAILS TO DISPUTE THE CALCULATION OF TENANT'S SHARE OF BASIC
OPERATING COSTS IN ACCORDANCE WITH THE PROCEDURES AND WITHIN THE TIME
PERIODS SPECIFIED IN THIS SECTION 6(f), OR REQUEST AN AUDIT OF THE
BASIC OPERATING COSTS IN ACCORDANCE WITH THE PROCEDURES AND WITHIN THE
TIME PERIODS SPECIFIED IN SECTION 6(g), THE STATEMENT SHALL BE
CONSIDERED FINAL AND BINDING FOR THE CALENDAR YEAR IN QUESTION.

0.6.0.0.7. TENANT, AT TENANT'S EXPENSE, SHALL HAVE THE RIGHT,
NO MORE FREQUENTLY THAN ONCE PER CALENDAR YEAR, FOLLOWING THIRTY (30)
DAYS' PRIOR WRITTEN NOTICE (SUCH WRITTEN NOTICE TO BE GIVEN WITHIN
NINETY [90] DAYS FOLLOWING TENANT'S RECEIPT OF LANDLORD'S STATEMENT
DELIVERED IN ACCORDANCE WITH SECTION 6(c)) TO LANDLORD, TO AUDIT
LANDLORD'S BOOKS AND RECORDS RELATING TO BASIC OPERATING COSTS FOR THE
IMMEDIATELY PRECEDING CALENDAR YEAR ONLY; PROVIDED THAT SUCH AUDIT MUST
BE CONCLUDED WITHIN NINETY (90) DAYS AFTER TENANT'S RECEIPT OF
LANDLORD'S STATEMENT FOR THE YEAR TO WHICH SUCH AUDIT RELATES; AND
PROVIDED FURTHER THAT THE CONDUCT OF SUCH AUDIT MUST NOT UNREASONABLY
INTERFERE WITH THE CONDUCT OF LANDLORD'S BUSINESS. WITHOUT LIMITATION
UPON THE FOREGOING, TENANT'S RIGHT TO AUDIT LANDLORD'S BOOKS AND
RECORDS SHALL BE SUBJECT TO THE FOLLOWING CONDITIONS:

0.6.0.0.7.1. No audit shall be allowed unless Basic
Operating Costs for the calendar year in question have
increased by more than five percent (5%) over Basic Operating
Costs for the immediately preceding calendar year;

0.6.0.0.7.2. Such audit shall be conducted during
Normal Business Hours and at the location where Landlord
maintains its books and records;

0.6.0.0.7.3. Tenant shall deliver to Landlord a copy
of the results of such audit within five (5) days after its
receipt by Tenant;

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 10
<PAGE> 15

0.6.0.0.7.4. No audit shall be permitted if an Event
of Default by Tenant under Section 27(a)(1) hereof has
occurred and is continuing under this Lease, including any
failure by Tenant to pay an amount in Dispute;

0.6.0.0.7.5. Tenant shall reimburse Landlord within
ten (10) days following written demand for the cost of all
copies requested by Tenant's auditor;

0.6.0.0.7.6. Such audit must be conducted by an
independent, nationally-recognized accounting firm or a local
accounting firm reasonably acceptable to Landlord that is not
being compensated by Tenant primarily on a contingency fee
basis (i.e. not more than fifty percent [50%] of such
auditor's compensation is contingent upon the results of the
audit) and which has agreed with Landlord in writing to keep
the results of such audit confidential by executing and
delivering to Landlord a confidentiality agreement in the form
of Exhibit "F" attached to this Lease, such confidentiality
agreement to also be signed and delivered to Landlord by
Tenant;

0.6.0.0.7.7. No subtenant shall have the right to
audit;

0.6.0.0.7.8. If, for any calendar year, an assignee
of Tenant (as permitted by this Lease) has audited or given
notice of an audit, Tenant will be prohibited from auditing
such calendar year, unless in the case of an audit having been
noticed but not yet performed by such assignee, the assignee
withdraws its audit notice, and, similarly, if Tenant has
audited such calendar year or given such notice, the foregoing
restrictions of this Section 6(g)(8) will apply to the
assignee's right to audit; and

0.6.0.0.7.9. Any assignee's audit right will be
limited to the period after the effective date of the
assignment.

Unless Landlord in good faith disputes the results of such audit, an appropriate
adjustment shall be made between Landlord and Tenant to reflect any overpayment
or underpayment of Tenant's Share of Basic Operating Costs within thirty (30)
days after delivery of such audit to Landlord. In the event of an overpayment by
Tenant, within thirty (30) days following the delivery of such audit, Landlord
shall, if no Event of Default exists hereunder, make a cash payment to Tenant in
the amount of such overpayment, or, if an Event of Default exists hereunder,
credit such overpayment against delinquent Rent and make a cash payment to
Tenant for the balance. If the amount evidenced by the audit evidences that
Tenant was overcharged by more than five percent (5%) of the total amount for
Tenant's Share of Base Operating Expenses, then, unless Landlord disputes such
finding pursuant to the procedures set forth below, Landlord will pay all of
Tenant's reasonable costs of Tenant's audit. In the event Landlord in good faith
disputes the results of any such audit, the parties shall in good faith attempt
to resolve any disputed items. If Landlord and Tenant are able to resolve such
dispute, final settlement shall be made within thirty (30) days after resolution
of the dispute. If the parties are unable to resolve any such dispute, any sum
on which there is no longer dispute shall be paid and any remaining disputed
items shall be referred to a mutually satisfactory third party certified public
accountant for final resolution. If such certified public accountant determines
that Tenant's Share of Basic Operating Costs is overstated by more than five
percent (5%), then Landlord shall pay the cost of the certified public
accountant. Otherwise Tenant shall pay the cost of the certified public
accountant. The determination of such certified public accountant shall be final
and binding and final settlement shall be made within thirty (30) days after
receipt of such accountant's decision.

0.6.0.0.8. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH
HEREIN, TENANT'S OBLIGATION TO PAY THE CONTROLLABLE COSTS (HEREINAFTER
DEFINED) COMPONENT OF TENANT'S SHARE OF BASIC OPERATING COSTS SHALL BE
LIMITED TO A 7% ANNUAL INCREASE ON A CUMULATIVE BASIS. FOR PURPOSES
HEREOF, THE TERM "CONTROLLABLE COSTS" SHALL MEAN ALL BASIC OPERATING
COSTS, EXCEPT UTILITY COSTS, TAXES AND INSURANCE PREMIUMS.

0.7. Late Payments; Dishonored Checks.

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 11
<PAGE> 16

0.7.0.0.1. IN THE EVENT ANY INSTALLMENT OF RENT IS NOT
RECEIVED WITHIN FIVE (5) BUSINESS DAYS AFTER LANDLORD DELIVERS WRITTEN
NOTICE IN ACCORDANCE WITH SECTION 38 HEREOF TO THE ATTENTION OF
TENANT'S CHIEF FINANCIAL OFFICER AND TO HIERSCHE, MARTENS, HAYWARD,
DRAKELEY & URBACH, P.C., 15305 DALLAS PARKWAY, SUITE 700, LB 17,
DALLAS, TEXAS 75248, ATTN: JAMES T. DRAKELEY, ESQ. THAT SUCH
INSTALLMENT IS PAST DUE (WITHOUT IN ANY WAY IMPLYING LANDLORD'S CONSENT
TO SUCH LATE PAYMENT), TENANT, TO THE EXTENT PERMITTED BY LAW, AGREES
TO PAY, IN ADDITION TO SAID INSTALLMENT OF RENT, A LATE PAYMENT CHARGE
EQUAL TO FIVE PERCENT (5%) OF THE INSTALLMENT OF RENT DUE, IT BEING
UNDERSTOOD THAT SAID LATE PAYMENT CHARGE SHALL BE FOR THE PURPOSE OF
REIMBURSING LANDLORD FOR THE ADDITIONAL COSTS AND EXPENSES WHICH
LANDLORD PRESENTLY EXPECTS TO INCUR IN CONNECTION WITH THE HANDLING AND
PROCESSING OF LATE PAYMENTS. NOTWITHSTANDING THE FOREGOING, THE LATE
PAYMENT CHARGE SHALL INCREASE TO TEN PERCENT (10%) OF THE INSTALLMENT
OF RENT DUE IF TENANT BECOMES RESPONSIBLE FOR A LATE PAYMENT CHARGE
MORE THAN TWICE DURING ANY CONSECUTIVE TWELVE (12) MONTH PERIOD. SUCH
CHARGE SHALL REVERT TO FIVE PERCENT (5%) AFTER TENANT HAS PAID RENT FOR
TWELVE (12) CONSECUTIVE MONTHS WITHOUT INCURRING A LATE CHARGE. IN THE
EVENT OF ANY SUCH LATE PAYMENT(S) BY TENANT, THE ADDITIONAL COSTS AND
EXPENSES SO RESULTING TO LANDLORD WILL BE DIFFICULT TO ASCERTAIN
PRECISELY AND THE FOREGOING CHARGE CONSTITUTES A REASONABLE AND GOOD
FAITH ESTIMATE BY THE PARTIES OF THE EXTENT OF SUCH ADDITIONAL COSTS
AND EXPENSES. ACCEPTANCE OF SUCH LATE CHARGE BY LANDLORD SHALL IN NO
EVENT CONSTITUTE A WAIVER OF TENANT'S DEFAULT WITH RESPECT TO SUCH
OVERDUE AMOUNT, NOR PREVENT LANDLORD FROM EXERCISING ANY OTHER RIGHTS
OR REMEDIES GRANTED HEREUNDER UNLESS SUCH DEFAULT IS OTHERWISE CURED
WITHIN THE TIME PERIOD PROVIDED IN THIS LEASE.

0.7.0.0.2. IN ADDITION TO THE LATE PAYMENT CHARGE CONTAINED IN
SECTION 7(a), ALL RENT, IF NOT PAID WITHIN THIRTY (30) DAYS OF THE DATE
DUE, SHALL, AT THE OPTION OF LANDLORD, AND TO THE EXTENT PERMITTED BY
LAW, BEAR INTEREST FROM THE DATE DUE UNTIL PAID AT THE DEFAULT RATE.

0.7.0.0.3. IF ANY CHECK IS TENDERED BY TENANT AND NOT DULY
HONORED WITH GOOD FUNDS, TENANT SHALL, IN ADDITION TO ANY OTHER
REMEDIES AVAILABLE TO LANDLORD UNDER THIS LEASE, PAY LANDLORD A "NSF"
FEE OF $25.00.

0.8. Security Deposit.

0.8.0.0.1. THE SECURITY DEPOSIT SHALL BE DEPOSITED WITH
LANDLORD BY TENANT CONTEMPORANEOUSLY WITH THE DELIVERY BY TENANT TO
LANDLORD OF THIS LEASE. THE SECURITY DEPOSIT SHALL BE HELD BY LANDLORD,
WITHOUT LIABILITY FOR INTEREST, AS SECURITY FOR THE PERFORMANCE BY
TENANT OF TENANT'S COVENANTS AND OBLIGATIONS UNDER THIS LEASE, IT BEING
EXPRESSLY UNDERSTOOD THAT THE SECURITY DEPOSIT SHALL NOT BE CONSIDERED
AN ADVANCE PAYMENT OF RENT OR A MEASURE OF TENANT'S LIABILITY FOR
DAMAGES IN CASE OF DEFAULT BY TENANT. LANDLORD MAY, FROM TIME TO TIME,
WITHOUT PREJUDICE TO ANY OTHER REMEDY, USE THE SECURITY DEPOSIT TO THE
EXTENT NECESSARY TO MAKE GOOD ANY ARREARAGE OF RENT OR TO SATISFY ANY
OTHER COVENANT OR OBLIGATION OF TENANT HEREUNDER. FOLLOWING ANY SUCH
APPLICATION OF THE SECURITY DEPOSIT, TENANT SHALL PAY TO LANDLORD ON
DEMAND THE AMOUNT SO APPLIED IN ORDER TO RESTORE THE SECURITY DEPOSIT
TO ITS ORIGINAL AMOUNT. IF TENANT IS NOT IN DEFAULT AT THE TERMINATION
OF THIS LEASE, THE BALANCE OF THE SECURITY DEPOSIT REMAINING AFTER ANY
SUCH APPLICATION SHALL BE RETURNED BY LANDLORD TO TENANT WITHIN THIRTY
(30) DAYS FOLLOWING THE TERMINATION OF THIS LEASE. IF LANDLORD
TRANSFERS ITS INTEREST IN THE COMPLEX DURING THE TERM OF THIS LEASE,
LANDLORD MAY ASSIGN THE SECURITY DEPOSIT TO THE TRANSFEREE AND UPON
ASSUMPTION BY SUCH TRANSFEREE OF LIABILITY FOR THE SECURITY DEPOSIT,
LANDLORD SHALL HAVE NO FURTHER LIABILITY FOR THE RETURN OF SUCH
SECURITY DEPOSIT.

0.8.0.0.2. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH
HEREIN, THE SECURITY DEPOSIT SHALL BE RETURNED TO TENANT AT SUCH TIME
AS TENANT DELIVERS EVIDENCE TO LANDLORD REASONABLY SATISFACTORY TO
LANDLORD THAT TENANT'S SHAREHOLDERS' EQUITY (DETERMINED IN ACCORDANCE
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, CONSISTENTLY APPLIED)
HAS EQUALED OR EXCEEDED $50,000,000.00 FOR THE PREVIOUS TWO CALENDAR
QUARTERS. NOTWITHSTANDING THE FOREGOING, IF LANDLORD RETURNS THE
SECURITY DEPOSIT TO TENANT PURSUANT TO THE IMMEDIATELY PRECEDING
SENTENCE, AND TENANT'S SHAREHOLDERS' EQUITY (DETERMINED IN ACCORDANCE
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, CONSISTENTLY APPLIED)
SUBSEQUENTLY DROPS BELOW $50,000,000.00, TENANT SHALL ONCE AGAIN
DEPOSIT WITH LANDLORD THE SECURITY DEPOSIT WITHIN FIVE (5) DAYS AFTER
DEMAND BY LANDLORD.

0.8.0.0.3. TENANT SHALL PROVIDE SUCH INFORMATION TO LANDLORD
AND MAKE SUCH RECORDS AVAILABLE TO LANDLORD AS ARE REASONABLY NECESSARY
TO ENABLE LANDLORD TO

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 12
<PAGE> 17

DETERMINE TENANT'S SHAREHOLDERS' EQUITY ON A QUARTERLY BASIS SO LONG AS
TENANT IS A PUBLICLY TRADED COMPANY, OR FROM TIME TO TIME UPON THE
WRITTEN REQUEST OF LANDLORD (BUT IN NO EVENT MORE OFTEN THAN MONTHLY),
IF TENANT IS NO LONGER A PUBLICLY TRADED COMPANY.

0.9. Services to be Furnished by Landlord.

0.9.0.0.1. DURING THE TERM OF THIS LEASE, LANDLORD AGREES TO
FURNISH TENANT THE FOLLOWING SERVICES:

0.9.0.0.1.1. Facilities for hot and cold water at
those points of supply provided for general use of other
tenants in the Building and as necessary to service any
kitchen facilities within the Premises approved by Landlord
and provided solely for the use of Tenant and its employees,
and central heat and air conditioning in season (the cost of
such service to be paid by Tenant and other tenants of the
Complex in accordance with Section 6(d)(3), and the cost of
such service during other than Normal Business Hours to be
paid as set forth in Section 9(a)(8)), during Normal Business
Hours, at such temperatures and in such amounts as are
considered to be standard for similar class office buildings
within a three (3) mile radius of the Building or as required
by governmental authorities (including energy conservation
requirements). If Tenant will require water supply other than
as provided in the preceding sentence, or if Tenant requires
chilled water in connection with any supplemental air
conditioning equipment servicing the Premises, Landlord may
install separate meters at the cost of Tenant. In the event
separate utility meters are provided to the Premises, Landlord
may elect to have all charges for the water services
(including chilled water) that are separately metered to the
Premises billed directly to Tenant and Landlord shall make a
corresponding adjustment to Tenant's Share of Basic Operating
Costs.

0.9.0.0.1.2. Routine maintenance for all Common Areas
and Service Areas of the Building in the manner and to the
extent deemed by Landlord to be standard.

0.9.0.0.1.3. Janitorial service, five (5) days per
week, exclusive of Normal Business Holidays, at a level
comparable to that provided in similar class office buildings
within a three (3) mile radius of the Building.

0.9.0.0.1.4. All Building Standard fluorescent and
incandescent bulb and ballast replacement in the Premises, the
Common Areas and the Service Areas.

0.9.0.0.1.5. Limited access to the Building (or to
the floor on which the Premises are located) during other than
Normal Business Hours through the use of master entry cards
and/or keys. Tenant shall receive one (1) master entry card
and/or key for each two hundred fifty (250) square feet of
Rentable Area in the Premises. Tenant shall reimburse Landlord
for the cost of each additional card and/or key and for each
replacement card and/or key for any card and/or key lost by or
stolen from Tenant. The cost of additional keys shall be $3.50
per key and the cost of additional cards shall be $20.00 per
card. Tenant agrees to surrender all master entry cards and/or
keys in its possession upon the expiration or earlier
termination of this Lease. Any lost cards and/or keys shall be
canceled. LANDLORD SHALL HAVE NO LIABILITY TO TENANT, ITS
EMPLOYEES, AGENTS, CONTRACTORS, INVITEES, OR LICENSEES FOR
LOSSES DUE TO THEFT OR BURGLARY (OTHER THAN THEFT OR BURGLARY
COMMITTED BY EMPLOYEES OF LANDLORD), OR FOR DAMAGES DONE BY
UNAUTHORIZED PERSONS IN THE PREMISES OR ON THE COMPLEX. Tenant
shall cooperate fully in Landlord's efforts to control access
in the Building and shall follow all regulations promulgated
by Landlord with respect thereto which are adopted in
accordance with Exhibit "C".

0.9.0.0.1.6. Electricity and proper facilities to
furnish (A) Building Standard lighting (which shall be defined
as an average connected load of two [2] watts per square foot
of Rentable Area of the Premises multiplied by the number of
Normal Business Hours in each month), and (B) sufficient
electrical power for normal office machines (including
electric typewriters, desk-top computer facilities and
desk-top word processing facilities) and other machines of
similar electrical consumption ("Miscellaneous Power"),
provided that Tenant's Miscellaneous Power requirements shall
not exceed six (6) watts per square foot of Rentable Area of
the Premises, of connected load or four (4) watts per square
foot of Rentable Area of the Premises of demand load
multiplied by the number of Normal Business Hours in each
month (as measured by one or more separate watt hour meters),
or require a voltage greater than 120/208 volts 3-phase or
require more than 500 watts for any piece of equipment (the
"Building Standard Electrical Design Load"). In the event
Landlord determines that Tenant will require, or is consuming,
special lighting in excess of Building Standard or
Miscellaneous Power in excess of the Building Standard
Electrical Design Load, Tenant shall reimburse Landlord for

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 13
<PAGE> 18

the cost of any additional equipment, such as transformers,
risers and supplemental air conditioning equipment, which
Landlord's engineer reasonably deems necessary to accommodate
such above-standard consumption (without implying any
obligation on the part of Landlord to accommodate such use),
and Landlord may install separate meters to all or a portion
of the Premises at the cost of Tenant.

0.9.0.0.1.7. Passenger elevator service in common
with other tenants of the Building for ingress to and egress
from the floor(s) upon which the Premises are situated,
twenty-four (24) hours a day, seven (7) days a week, and
non-exclusive freight elevator service to the Premises during
Normal Business Hours and at other times upon reasonable prior
notice to Landlord and approval of the Building manager. Any
passenger or freight elevator use shall be subject to the
Rules and Regulations for the Building and shall be subject to
temporary cessation for ordinary repair and maintenance and
during times when life safety systems override normal Building
operating systems.

0.9.0.0.1.8. Heating and air conditioning during
other than Normal Business Hours shall be furnished only upon
the prior request of Tenant made in accordance with such
procedures as are, from time to time, prescribed by the
Building manager, and Tenant shall bear the cost of such
heating and air conditioning service at a rate equal to the
cost incurred by Landlord to provide such service (such cost
incurred not to include any additional administrative fee or
charge for turning on or arranging for the turn-on of the
HVAC; provided, however, there shall be a two (2) hour minimum
charge when such service is requested and the after-hours HVAC
rate may be adjusted, from time to time, to reflect increases
in the costs incurred by Landlord in providing such service.
In the event any other tenant within the same HVAC zone as the
Premises also requests after-hours heating or air conditioning
during the same period as Tenant, Landlord shall equitably
allocate the cost thereof among all tenants within the same
HVAC zone requesting such service.

0.9.0.0.1.9. All necessary risers and conduits for
Tenant's own telephone services shall be provided by Landlord
at no cost to Tenant, which shall include, but not be limited
to, two (2) four (4) inch conduits.

0.9.0.0.2. IN THE EVENT LANDLORD AGREES TO PROVIDE ANY
ADDITIONAL SERVICES AT THE SPECIFIC REQUEST OF TENANT, WITHOUT IMPLYING
ANY OBLIGATION ON THE PART OF LANDLORD TO DO SO, THE PROVISION OF SUCH
SERVICES SHALL, UNLESS OTHERWISE SPECIFICALLY AGREED IN WRITING, BE
SUBJECT TO THE AVAILABILITY OF BUILDING PERSONNEL, AND, IF THE
PROVISION OF ANY SUCH SERVICE REQUIRES LANDLORD TO INCUR ANY
OUT-OF-POCKET COST, TENANT SHALL REIMBURSE LANDLORD FOR THE COST OF
PROVIDING SUCH SERVICE (PLUS AN ADMINISTRATIVE CHARGE EQUAL TO FIVE
PERCENT [5%] OF SUCH COST, PLUS APPLICABLE SALES TAX) WITHIN TEN (10)
DAYS FOLLOWING RECEIPT OF AN INVOICE FROM LANDLORD. UNLESS LANDLORD HAS
AGREED WITH TENANT TO THE CONTRARY IN WRITING, LANDLORD MAY DISCONTINUE
THE PROVISION OF SUCH ADDITIONAL SERVICE AT ANY TIME UPON THIRTY (30)
DAYS ADVANCE WRITTEN NOTICE (OR IMMEDIATELY UPON THE OCCURRENCE OF AN
EVENT OF DEFAULT).

0.9.0.0.3. THE UNINTENTIONAL FAILURE BY LANDLORD, TO ANY
EXTENT, TO FURNISH SERVICES REQUIRED TO BE FURNISHED BY LANDLORD
HEREUNDER, OR ANY CESSATION THEREOF, SHALL NOT RENDER LANDLORD LIABLE
IN ANY RESPECT FOR DAMAGES (INCLUDING, WITHOUT LIMITATION, BUSINESS
INTERRUPTION DAMAGES) TO PERSONS OR PROPERTY, NOR BE CONSTRUED AS AN
EVICTION OF TENANT, NOR WORK AN ABATEMENT OF RENT, NOR RELIEVE TENANT
FROM FULFILLMENT OF ANY COVENANT OR AGREEMENT SET FORTH IN THIS LEASE.
SHOULD ANY OF SUCH SERVICES BE INTERRUPTED, LANDLORD SHALL USE
REASONABLE DILIGENCE TO RESTORE THE SAME PROMPTLY, BUT TENANT SHALL
HAVE NO CLAIM FOR REBATE OF RENT, DAMAGES OR EVICTION ON ACCOUNT
THEREOF. NOTWITHSTANDING THE FOREGOING, SUBJECT TO SECTION 24 (CASUALTY
DAMAGE) AND SECTION 25 (CONDEMNATION), IF ANY PORTION OF THE PREMISES
BECOMES UNFIT FOR OCCUPANCY BECAUSE LANDLORD FAILS TO DELIVER ANY
SERVICE REQUIRED UNDER THIS SECTION 9 FOR ANY PERIOD EXCEEDING FIVE (5)
CONSECUTIVE BUSINESS DAYS (EXCLUDING NORMAL BUSINESS HOLIDAYS) AFTER
RECEIPT OF NOTICE OF SUCH FAILURE FROM TENANT, AND PROVIDED SUCH
FAILURE IS NOT CAUSED BY TENANT OR ANY TENANT RELATED PARTY, LANDLORD
SHALL ALLOW TENANT AN EQUITABLE ABATEMENT OF RENT (BASED ON THE
SEVERITY OF THE INTERRUPTION AND THE AMOUNT OF SPACE UNFIT FOR
OCCUPANCY) EFFECTIVE FROM THE SIXTH (6TH) BUSINESS DAY (EXCLUDING
NORMAL BUSINESS HOLIDAYS) FOLLOWING THE EARLIER TO OCCUR OF (i) THE
DATE ON WHICH TENANT FIRST PROVIDED LANDLORD WITH WRITTEN NOTICE OF THE
INTERRUPTION OF SUCH SERVICE, AND (ii) THE DATE ON WHICH LANDLORD FIRST
ACQUIRED ACTUAL KNOWLEDGE OF THE INTERRUPTION OF SUCH SERVICE, UNTIL
SUCH PORTION OF THE PREMISES IS AGAIN FIT FOR OCCUPANCY AND SUCH
SERVICE IS RESTORED; PROVIDED FURTHER, THAT IF (a) ANY MATERIAL PORTION
OF THE PREMISES REMAINS UNFIT FOR THE CONDUCT OF TENANT'S BUSINESS
BECAUSE LANDLORD FAILS TO DELIVER ANY ESSENTIAL SERVICE (HEREINAFTER
DEFINED) FOR ANY PERIOD EXCEEDING ONE HUNDRED

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<PAGE> 19

TWENTY (120) CONSECUTIVE DAYS AND (b) SUCH FAILURE IS NOT CAUSED BY
TENANT OR ANY OF TENANT'S AGENTS, EMPLOYEES, CONTRACTORS OR INVITEES,
TENANT SHALL DIRECT TO TERMINATE THIS LEASE UPON THIRTY (30) DAYS
WRITTEN NOTICE TO LANDLORD (PROVIDED, HOWEVER, THAT IF LANDLORD IS ABLE
TO CAUSE SUCH SERVICE TO BE RESTORED PRIOR TO THE EFFECTIVE DATE OF
SUCH TERMINATION, SUCH TERMINATION SHALL BECOME VOID AND WITHOUT
FURTHER FORCE OR EFFECT AND THIS LEASE SHALL CONTINUE IN EFFECT UPON
THE TERMS AND CONDITIONS SET FORTH HEREIN). FOR PURPOSES HEREOF, THE
TERM "ESSENTIAL SERVICE" SHALL MEAN THE PROVISION OF SANITARY SEWER,
WATER, ELECTRICITY OR CENTRAL HEAT AND AIR CONDITIONING IN SEASON TO
THE PREMISES.

0.10. Graphics; Signage. Landlord shall, at Landlord's sole cost,
provide and install one (1) Building Standard identification sign per floor
within the Premises and add Tenant's name (including the names of not more than
three (3) of Tenant's affiliated or subsidiary companies) and suite number to
the Building directory in the lobby (the "Base Building Signage"). Any other
signage requested by Tenant in addition to the Base Building Signage shall be
subject to the prior approval of Landlord and shall be provided, constructed and
installed by Landlord; provided, however, Tenant shall reimburse Landlord for
Landlord's cost of providing such service, plus an administrative charge equal
to five percent (5%) of Landlord's cost. All such additional signage shall be in
the standard graphics for the Building and no others shall be used or permitted
without Landlord's prior written consent. Tenant, at its sole cost and expense,
shall remove all non-Building Standard signage (if such non-Building Standard
signage was permitted by Landlord) upon the termination of this Lease and repair
any damage caused by such removal.

0.11. Telecommunications.

0.11.0.0.1. IN THE EVENT THAT TENANT WISHES TO UTILIZE THE
SERVICES OF A TELEPHONE OR TELECOMMUNICATIONS PROVIDER WHOSE EQUIPMENT
IS NOT SERVICING THE BUILDING AS OF THE DATE OF TENANT'S EXECUTION OF
THIS LEASE ("PROVIDER"), SUCH PROVIDER SHALL BE REQUIRED TO OBTAIN THE
PRIOR WRITTEN CONSENT OF LANDLORD, WHICH CONSENT SHALL NOT BE
UNREASONABLY WITHHELD OR DELAYED, BEFORE INSTALLING ITS LINES OR
EQUIPMENT WITHIN THE COMPLEX. IN NO EVENT SHALL THE PROVIDER BE
PERMITTED TO PROVIDE SERVICE TO ANY OCCUPANT OF THE COMPLEX OTHER THAN
TENANT, WITHOUT THE PRIOR WRITTEN CONSENT OF LANDLORD, WHICH CONSENT
SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED.

0.11.0.0.2. LANDLORD'S REFUSAL TO GIVE ITS CONSENT TO THE
INSTALLATION OF LINES OR EQUIPMENT BY THE PROVIDER SHALL BE DEEMED
REASONABLE UNLESS ALL OF THE FOLLOWING CONDITIONS ARE SATISFIED TO
LANDLORD'S SATISFACTION, THE SATISFACTION OF SUCH CONDITIONS TO BE
EVIDENCED BY A WRITTEN AGREEMENT BETWEEN PROVIDER AND LANDLORD OR BY
ANY OTHER MEANS ACCEPTABLE TO LANDLORD IN ITS REASONABLE JUDGMENT:

0.11.0.0.2.1. Landlord shall incur no expense
whatsoever with respect to any aspect of Provider's provision
of its services, including, without limitation, the costs of
installation, materials, utilities (including the cost of any
separate meters) and service;

0.11.0.0.2.2. Prior to commencement of any work in or
about the Building by Provider, Provider shall supply Landlord
with such written indemnities, insurance verifications,
financial statements, and such other items as Landlord
reasonably deems to be necessary to protect its financial
interests and the interests of the Building relating to the
proposed activities of the Provider;

0.11.0.0.2.3. Prior to the commencement of any work
in or about the Building by the Provider, the Provider shall
agree to abide by the Rules and Regulations and such other
requirements as are reasonably determined by Landlord to be
necessary to protect the interests of the Building, the
tenants in the Building, and the Landlord, including, without
limitation, providing security in such form and amount as
determined by Landlord;

0.11.0.0.2.4. Landlord reasonably determines that
there is sufficient space in the Building for the placement of
all of the Provider's equipment and materials;

0.11.0.0.2.5. The Provider is licensed and reputable;
and

0.11.0.0.2.6. The Provider agrees to compensate
Landlord for space used in the Building for the storage and
maintenance of the Provider's equipment and for all costs that
may be incurred by Landlord in arranging for access by the
Provider's personnel, security for Provider's equipment, and
any other such costs as Landlord may reasonably expect to
incur.

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 15
<PAGE> 20

0.11.0.0.3. LANDLORD'S CONSENT UNDER THIS SECTION SHALL NOT BE
DEEMED ANY KIND OF WARRANTY OR REPRESENTATION BY LANDLORD, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OR REPRESENTATION AS TO THE
SUITABILITY, COMPETENCE, OR FINANCIAL STRENGTH OF PROVIDER.

0.11.0.0.4. TENANT ACKNOWLEDGES AND AGREES THAT ALL TELEPHONE
AND TELECOMMUNICATIONS SERVICES DESIRED BY TENANT SHALL BE ORDERED AND
UTILIZED AT THE SOLE RISK AND EXPENSE OF TENANT.

0.11.0.0.5. TENANT AGREES THAT, TO THE EXTENT SERVICE BY
PROVIDER IS INTERRUPTED, CURTAILED, OR DISCONTINUED, LANDLORD SHALL
HAVE NO OBLIGATION OR LIABILITY WITH RESPECT THERETO AND IT SHALL BE
THE SOLE OBLIGATION OF TENANT AT ITS EXPENSE TO OBTAIN SUBSTITUTE
SERVICE.

0.11.0.0.6. THE PROVISIONS OF THIS SECTION 11 MAY BE ENFORCED
SOLELY BY THE TENANT AND LANDLORD, AND ARE NOT FOR THE BENEFIT OF ANY
OTHER PARTY. NO PROVIDER SHALL BE DEEMED A THIRD PARTY BENEFICIARY OF
THIS LEASE.

0.12. Repair and Maintenance by Landlord. Except as provided in Section
14, Landlord shall be responsible for the maintenance and repair, and
replacement when necessary, of exterior and load-bearing walls, floors (but not
floor coverings), mechanical, electrical, plumbing and HVAC systems and
equipment which are Building Standard, the roof of the Building, the Common
Areas (including restrooms located on any full floors leased by Tenant), the
Service Areas and the Parking Areas. In no event shall Landlord be responsible
for the maintenance or repair of improvements made by or at the request of
Tenant which are not Building Standard. All requests for repairs must be
submitted to Landlord in writing, except in the case of an emergency. Repairs
and maintenance by Landlord pursuant to this Section 12 are included in Basic
Operating Costs, except to the extent excluded by Section 6(e).

0.13. Maintenance by Tenant. Tenant shall maintain the Premises in a
clean and orderly condition and shall not commit or allow any waste to be
committed on any portion of the Premises. At the expiration or early termination
of this Lease, Tenant shall deliver up the Premises to Landlord in as good
condition as at the Commencement Date, ordinary wear and tear and damage by fire
or casualty loss (unless caused by Tenant) excepted.

0.14. Repairs by Tenant. Tenant shall, at Tenant's cost, repair or
replace any damage to the Premises (including doors and door frames, interior
windows and any kitchen equipment, such as dishwashers, sinks, refrigerators,
trash compactors and plumbing and other mechanical systems related thereto) that
is not caused by Landlord or that is within the responsibility of Landlord under
the Tenant Improvements Agreement, if any, and any damage to the Complex, or any
part thereof, caused by Tenant or any employee, officer, contractor, agent,
subtenant, guest, licensee or invitee of Tenant (except that with respect to any
such damage outside of the Premises or below floor coverings, above ceilings or
behind walls or columns, such damage shall be repaired by Landlord), and Tenant
shall reimburse Landlord for the cost of such repairs or replacements, plus an
administrative charge equal to five percent (5%) of the cost of such repairs or
replacements. If Tenant fails to make such repairs or replacements within thirty
(30) days after receipt of written notice from Landlord, Landlord may, at
Landlord's option, make such repairs or replacements, and Tenant shall reimburse
Landlord for the cost of such repairs or replacements, plus an administrative
charge equal to five percent (5%) of the cost of such repairs or replacements.
Reimbursement for all repairs performed by Landlord pursuant to this Section 14
shall be payable as additional Rent by Tenant to Landlord within ten (10) days
following Tenant's receipt of an invoice from Landlord. Notwithstanding anything
contained herein to the contrary, if any such damage is covered by Landlord's
insurance, in whole or in part, Tenant's liability under this Section 14 shall
be limited to the deductible payable by Landlord and any portion of the cost of
repairing such damage not covered by Landlord's insurance. In connection with
repairs or replacements made by Tenant, Tenant shall provide Landlord with a
copy of the contractor agreement regarding such repairs, copies of certificates
of insurance evidencing contractor coverage satisfactory to Landlord, copies of
"as-built" Tenant's Final Plans and other information or documentation
reasonably required by Landlord, including evidence of the lien-free completion
of such repairs or replacements.

0.15. Alterations, Additions, Improvements.

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 16
<PAGE> 21

0.15.0.0.1. TENANT WILL MAKE NO ALTERATION, CHANGE,
IMPROVEMENT, REPLACEMENT OR ADDITION TO THE PREMISES (COLLECTIVELY,
"ALTERATIONS"), WITHOUT THE PRIOR WRITTEN CONSENT OF LANDLORD.
NOTWITHSTANDING THE FOREGOING, (i) TENANT MAY MAKE, WITHOUT THE PRIOR
WRITTEN CONSENT OF LANDLORD, INTERIOR ALTERATIONS WHICH WILL NOT
AFFECT, IN ANY WAY, THE MECHANICAL, ELECTRICAL, PLUMBING, HVAC, FIRE
AND LIFE SAFETY AND/OR STRUCTURAL COMPONENTS OF THE BUILDING
("NON-STRUCTURAL ALTERATIONS"), SO LONG AS (A) TENANT PROVIDES LANDLORD
PRIOR WRITTEN NOTICE THAT TENANT INTENDS TO MAKE SUCH NON-STRUCTURAL
ALTERATIONS AND (B) SUCH NON-STRUCTURAL ALTERATIONS DO NOT, WITH
RESPECT TO ANY GIVEN SET OF ALTERATIONS PERFORMED AT THE SAME TIME OR
PURSUANT TO THE SAME CONTRACT, EXCEED THE SUM OF TWENTY-FIVE THOUSAND
DOLLARS ($25,000) AND (ii) LANDLORD SHALL NOT UNREASONABLY WITHHOLD OR
DELAY ITS CONSENT TO NON-STRUCTURAL ALTERATIONS WHICH ARE GENERALLY
CONSISTENT WITH THE OTHER TENANT IMPROVEMENTS WITHIN THE PREMISES.
LANDLORD MAY, AT ITS OPTION, REQUIRE TENANT TO SUBMIT PLANS AND
SPECIFICATIONS TO LANDLORD FOR APPROVAL PRIOR TO COMMENCING ANY
ALTERATIONS. ALL ALTERATIONS (OTHER THAN NON-STRUCTURAL ALTERATIONS)
SHALL BE PERFORMED BY A CONTRACTOR ON LANDLORD'S APPROVED LIST (A COPY
OF WHICH MAY BE OBTAINED FROM THE BUILDING MANAGER). ALL ALTERATIONS
SHALL BE DONE IN A GOOD AND WORKMANLIKE MANNER AND IN COMPLIANCE WITH
ALL APPLICABLE LAWS AND ORDINANCES, INCLUDING, BUT NOT LIMITED TO,
TITLE III OF THE AMERICANS WITH DISABILITIES ACT OF 1990 OR TEX. CIV.
STAT. ANN. ART. 9102 (COLLECTIVELY, THE "DISABILITY LAWS") AND THE
TEXAS ARCHITECTURAL BARRIERS STATUTE. TENANT SHALL REQUIRE THAT ANY
CONTRACTORS USED BY TENANT CARRY A COMPREHENSIVE LIABILITY (INCLUDING
BUILDER'S RISK) INSURANCE POLICY IN SUCH AMOUNTS AS LANDLORD MAY
REASONABLY REQUIRE AND PROVIDE PROOF OF SUCH INSURANCE TO LANDLORD
PRIOR TO THE COMMENCEMENT OF ANY ALTERATIONS. TENANT SHALL INDEMNIFY
AND HOLD LANDLORD HARMLESS FROM, AND REIMBURSE LANDLORD FOR AND WITH
RESPECT TO, ANY AND ALL COSTS AND EXPENSES (INCLUDING REASONABLE
ATTORNEYS' FEES), DEMANDS, CLAIMS, CAUSES OF ACTION AND LIENS ARISING
FROM AND IN CONNECTION WITH ANY ALTERATIONS PERFORMED BY TENANT. ALL
PERSONS PERFORMING WORK IN THE BUILDING AT THE REQUEST OF TENANT SHALL
REGISTER WITH THE BUILDING MANAGER PRIOR TO INITIATING ANY WORK. UPON
COMPLETION OF ANY ALTERATIONS, TENANT SHALL PROVIDE LANDLORD WITH A
COPY OF ITS BUILDING PERMIT, FINAL INSPECTION TAG AND, IF PLANS AND
SPECIFICATIONS WERE REQUIRED BY LANDLORD, FINAL "AS BUILT" PLANS AND
SPECIFICATIONS, TOGETHER WITH EVIDENCE OF THE LIEN-FREE COMPLETION OF
SUCH ALTERATIONS. EXCEPT FOR THE INITIAL IMPROVEMENTS (WHICH SHALL BE
GOVERNED BY THE TENANT IMPROVEMENTS AGREEMENT), ALL ALTERATIONS NOW OR
HEREAFTER PLACED OR CONSTRUCTED ON THE PREMISES AT THE REQUEST OF
TENANT SHALL BE AT TENANT'S COST. IF LANDLORD PERFORMS SUCH ALTERATIONS
ON TENANT'S BEHALF, THE COST OF SUCH ALTERATIONS (PLUS A CONSTRUCTION
MANAGEMENT FEE EQUAL TO FIVE PERCENT [5%] OF HARD COSTS) SHALL BE
PAYABLE AS ADDITIONAL RENT BY TENANT TO LANDLORD WITHIN TEN (10) DAYS
FOLLOWING TENANT'S RECEIPT OF AN INVOICE FROM LANDLORD.

0.15.0.0.2. UPON THE EXPIRATION OR EARLY TERMINATION OF THIS
LEASE, TENANT MAY REMOVE ITS TRADE FIXTURES, OFFICE SUPPLIES AND
MOVABLE OFFICE FURNITURE AND EQUIPMENT NOT ATTACHED TO THE BUILDING
PROVIDED (1) SUCH REMOVAL IS MADE PRIOR TO THE TERMINATION OR
EXPIRATION OF THE LEASE TERM; (2) TENANT IS NOT THEN IN DEFAULT IN THE
TIMELY PERFORMANCE OF ANY OBLIGATION OR COVENANT UNDER THIS LEASE; AND
(3) TENANT PROMPTLY REPAIRS ALL DAMAGE CAUSED BY SUCH REMOVAL. ALL
OTHER PROPERTY AT THE PREMISES, ANY ALTERATIONS TO THE PREMISES, AND
ANY OTHER ARTICLES ATTACHED OR AFFIXED TO THE FLOOR, WALL, OR CEILING
OF THE PREMISES SHALL, IMMEDIATELY UPON INSTALLATION, BE DEEMED THE
PROPERTY OF LANDLORD AND SHALL BE SURRENDERED WITH THE PREMISES AT THE
TERMINATION OR EXPIRATION OF THIS LEASE, WITHOUT PAYMENT OR
COMPENSATION THEREFOR. IF, HOWEVER, LANDLORD SO REQUESTS IN WRITING,
TENANT WILL, AT TENANT'S SOLE COST AND EXPENSE, PRIOR TO THE
TERMINATION OR EXPIRATION OF THE LEASE TERM, REMOVE ANY AND ALL TRADE
FIXTURES, OFFICE SUPPLIES AND OFFICE FURNITURE AND EQUIPMENT PLACED OR
INSTALLED BY TENANT IN THE PREMISES, AND ANY NON-BUILDING STANDARD
ALTERATIONS (OTHER THAN THE INITIAL IMPROVEMENTS) INSTALLED BY TENANT
OR INSTALLED BY LANDLORD AT TENANT'S REQUEST IN THE PREMISES AND WHICH
LANDLORD DESIGNATED AS BEING SUBJECT TO REMOVAL AT THE TIME OF
APPROVAL, AND WILL REPAIR ANY DAMAGE CAUSED BY SUCH REMOVAL.

0.15.0.0.3. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH
HEREIN, TENANT MAY, SUBJECT TO ALL APPLICABLE LAWS, INSTALL KEY
PAD-TYPE SECURITY DEVICES (THE "SECURITY DEVICE") WITHIN THE PREMISES
(AND IN THE STAIRWAYS CONNECTING THE 5TH, 6TH, 7TH, AND 8TH FLOORS OF
THE BUILDING, BUT ONLY TO THE EXTENT TENANT OCCUPIES SUCH ENTIRE
FLOORS), WHICH SECURITY DEVICE SHALL BE SUBJECT TO LANDLORD'S PRIOR
WRITTEN APPROVAL (WHICH APPROVAL SHALL NOT UNREASONABLY WITHHELD OR
DELAYED). PRIOR TO INSTALLING SUCH SECURITY DEVICE, TENANT SHALL OBTAIN
LANDLORD'S APPROVAL OF THE PLANS AND SPECIFICATIONS FOR THE
INSTALLATION OF SUCH SECURITY DEVICE, AND LANDLORD AND TENANT SHALL
COOPERATE TO ENSURE

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 17
<PAGE> 22

THAT SUCH SECURITY DEVICE DOES NOT INTERFERE WITH THE USE AND OCCUPANCY
OF THE BUILDING BY OTHER TENANTS OR OTHERWISE DISRUPT THE OPERATION OF
THE BUILDING. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH
HEREIN, THE SECURITY DEVICE SHALL BE INSTALLED WITH ELECTRIC LOCKS
CONNECTED TO THE BUILDING CENTRAL FIRE CONTROL PANEL. ELECTRIC STRIKES
AND MAGNETIC LOCKS SHALL NOT BE PERMITTED.

0.16. Laws and Regulations; Disability Laws; Building Rules and
Regulations.

0.16.0.0.1. TENANT, AT TENANT'S SOLE COST AND EXPENSE, SHALL
COMPLY WITH ALL CURRENT AND FUTURE FEDERAL, STATE, MUNICIPAL AND OTHER
LAWS AND ORDINANCES APPLICABLE TO THE USE OF THE PREMISES, THE
EMPLOYEES, AGENTS, VISITORS AND INVITEES OF TENANT, AND THE BUSINESS
CONDUCTED IN THE PREMISES BY TENANT, INCLUDING, WITHOUT LIMITATION, ALL
ENVIRONMENTAL LAWS AND REGULATIONS; WILL NOT ENGAGE IN ANY ACTIVITY
WHICH WOULD CAUSE LANDLORD'S FIRE AND EXTENDED COVERAGE INSURANCE TO BE
CANCELED OR THE RATE INCREASED (OR, AT LANDLORD'S OPTION, LANDLORD MAY
ALLOW TENANT TO ENGAGE IN SUCH ACTIVITY PROVIDED TENANT PAYS FOR ANY
SUCH INCREASE IN THE INSURANCE RATE); AND WILL NOT COMMIT ANY ACT WHICH
IS A NUISANCE OR ANNOYANCE TO LANDLORD OR TO OTHER TENANTS IN THE
BUILDING OR WHICH MIGHT, IN THE REASONABLE JUDGMENT OF LANDLORD,
APPRECIABLY DAMAGE LANDLORD'S GOODWILL OR REPUTATION, OR TEND TO INJURE
OR DEPRECIATE THE VALUE OF THE BUILDING. WITHOUT LIMITING THE
FOREGOING, TENANT SHALL NOT PLACE OR PERMIT TO REMAIN WITHIN THE
PREMISES ANY "HAZARDOUS MATERIALS" AS SUCH TERM IS NOW OR HEREAFTER
DEFINED UNDER APPLICABLE ENVIRONMENTAL LAWS, EXCEPT CLEANING SUPPLIES,
COPIER TONER OR OTHER SIMILAR TYPE PRODUCTS COMMONLY FOUND IN
COMMERCIAL OFFICE SPACE, PROVIDED SUCH ITEMS ARE PROPERLY LABELED,
STORED AND DISPOSED OF IN ACCORDANCE WITH ALL APPLICABLE GOVERNMENTAL
REQUIREMENTS. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS SECTION
16(a) SHALL BE CONSTRUED AS REQUIRING TENANT TO BE RESPONSIBLE FOR ANY
LEGAL REQUIREMENTS APPLICABLE TO THE STRUCTURAL PORTIONS OF THE
PREMISES, ANY RESTROOMS WITHIN THE BUILDING (OTHER THAN RESTROOMS
CONSTRUCTED BY OR AT THE SPECIAL REQUEST OF TENANT) OR THE BUILDING
STANDARD MECHANICAL, ELECTRICAL, PLUMBING OR HVAC SYSTEMS, UNLESS THE
FAILURE TO COMPLY WITH ANY SUCH LEGAL REQUIREMENTS IS CAUSED BY TENANT
OR ANYONE ACTING FOR TENANT.

0.16.0.0.2. TENANT, AT ITS SOLE COST, SHALL BE RESPONSIBLE FOR
COMPLIANCE WITH DISABILITY LAWS WITH RESPECT TO (1) THE PREMISES, (2)
THE TENANT IMPROVEMENTS, (3) ALL ALTERATIONS MADE TO THE PREMISES OR
ANY OTHER ACTS OF TENANT AFTER THE COMMENCEMENT DATE, (4) ALL
REQUIREMENTS OF DISABILITY LAWS THAT RELATE TO THE EMPLOYER-EMPLOYEE
RELATIONSHIP OR THAT ARE NECESSITATED BY THE SPECIAL NEEDS OF ANY
EMPLOYEE, AGENT, VISITOR OR INVITEE OF TENANT AND THAT ARE NOT REQUIRED
TO BE PROVIDED GENERALLY, INCLUDING, WITHOUT LIMITATION, REQUIREMENTS
RELATED TO AUXILIARY AIDS AND GRAPHICS INSTALLED BY OR ON BEHALF OF
TENANT (OTHER THAN BASE BUILDING SIGNAGE), AND (5) ALL REQUIREMENTS OF
DISABILITY LAWS THAT RELATE TO PRIVATE RESTROOMS CONSTRUCTED BY OR AT
THE SPECIAL REQUEST OF TENANT. LANDLORD, AT ITS SOLE COST, SHALL BE
RESPONSIBLE FOR COMPLIANCE WITH DISABILITY LAWS WITH RESPECT TO THE
COMMON AREAS (INCLUDING RESTROOMS LOCATED UPON FULL FLOORS LEASED BY
TENANT) AND THE SERVICE AREAS AND THE INITIAL IMPROVEMENTS. NEITHER
PARTY SHALL BE IN DEFAULT UNDER THIS SECTION 16(B) FOR ITS FAILURE TO
COMPLY WITH DISABILITY LAWS SO LONG AS THE RESPONSIBLE PARTY IS EITHER
CONTESTING IN GOOD FAITH, AND BY LEGAL MEANS, THE ENFORCEMENT OF
DISABILITY LAWS, OR IS UNDERTAKING DILIGENT EFFORTS TO COMPLY WITH
DISABILITY LAWS.

0.16.0.0.3. TENANT SHALL COMPLY WITH THE RULES AND REGULATIONS
AND SHALL CAUSE ALL OF ITS AGENTS, EMPLOYEES, CONTRACTORS, INVITEES AND
VISITORS TO DO SO. ALL CHANGES TO SUCH RULES AND REGULATIONS SHALL BE
SENT BY LANDLORD TO TENANT IN WRITING. LANDLORD SHALL HAVE NO LIABILITY
TO TENANT OR ANY OTHER PERSON FOR ITS FAILURE TO ENFORCE THE RULES AND
REGULATIONS.

0.17. Entry by Landlord. Tenant agrees to permit Landlord and its
employees, agents, contractors or representatives to enter into and upon any
part of the Premises at all reasonable hours upon reasonable prior notice (and
in the case of emergencies at all times and without notice) to inspect the same,
or to show the Premises to prospective purchasers, mortgagees, insurers or (in
the last nine (9) months of the Lease Term or any renewal term) tenants, or to
clean or make repairs, alterations or additions thereto, and Tenant shall not be
entitled to any abatement or reduction of Rent by reason thereof. Landlord shall
use reasonable efforts to minimize any disruption to the conduct of Tenant's
business by reason of any such entry. No notice shall be required with respect
to entry by Landlord, or its employees, agents or contractors to perform
janitorial services.

0.18. Assignment and Subletting.

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 18
<PAGE> 23

0.18.0.0.1. TENANT SHALL NOT ASSIGN THIS LEASE OR SUBLEASE THE
PREMISES OR ANY PART THEREOF OR MORTGAGE, PLEDGE OR HYPOTHECATE ITS
LEASEHOLD INTEREST OR GRANT ANY CONCESSION OR LICENSE WITHIN THE
PREMISES (ANY SUCH ASSIGNMENT, SUBLEASE, MORTGAGE, PLEDGE,
HYPOTHECATION, OR GRANT OF A CONCESSION OR LICENSE BEING HEREINAFTER
REFERRED TO IN THIS SECTION 18 AS A "TRANSFER") WITHOUT THE PRIOR
WRITTEN CONSENT OF LANDLORD, AND ANY ATTEMPT TO EFFECT A TRANSFER
WITHOUT SUCH CONSENT OF LANDLORD SHALL BE VOID AND OF NO EFFECT.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH HEREIN, LANDLORD
WILL NOT UNREASONABLY WITHHOLD OR DELAY ITS CONSENT TO ANY TRANSFER BY
TENANT TO ANY SERVICE PROVIDER OF TENANT OR OTHER ENTITY WHICH IS
INTEGRAL TO THE OPERATION OF TENANT'S BUSINESS FROM THE PREMISES SO
LONG AS SUCH TRANSFER AFFECTS NO MORE THAN 5,000 SQUARE FEET OF
RENTABLE AREA. IN ORDER FOR TENANT TO MAKE A TRANSFER, TENANT MUST
REQUEST IN WRITING LANDLORD'S CONSENT AT LEAST THIRTY (30) DAYS IN
ADVANCE OF THE DATE ON WHICH TENANT DESIRES TO MAKE A TRANSFER. SUCH
REQUEST SHALL INCLUDE THE NAME OF THE PROPOSED ASSIGNEE OR SUBLESSEE,
CURRENT FINANCIAL INFORMATION ON THE PROPOSED ASSIGNEE OR SUBLESSEE AND
THE TERMS OF THE PROPOSED TRANSFER. LANDLORD SHALL, WITHIN FIFTEEN (15)
DAYS FOLLOWING RECEIPT OF SUCH REQUEST, NOTIFY TENANT IN WRITING THAT
LANDLORD ELECTS (1) TO TERMINATE THIS LEASE AS TO THE SPACE SO AFFECTED
AS OF THE DATE SO SPECIFIED BY TENANT, IN WHICH EVENT TENANT WILL BE
RELIEVED OF ALL FURTHER OBLIGATIONS HEREUNDER AS TO SUCH SPACE, (2) TO
PERMIT TENANT TO ASSIGN OR SUBLET SUCH SPACE IN ACCORDANCE WITH THE
TERMS PROVIDED TO LANDLORD, OR (3) TO REFUSE CONSENT TO TENANT'S
REQUESTED TRANSFER AND TO CONTINUE THIS LEASE IN FULL FORCE AND EFFECT
AS TO THE ENTIRE PREMISES. IF LANDLORD SHALL FAIL TO NOTIFY TENANT IN
WRITING OF SUCH ELECTION WITHIN SAID FIFTEEN (15) DAY PERIOD, LANDLORD
SHALL BE DEEMED TO HAVE ELECTED OPTION (3) ABOVE. IF LANDLORD ELECTS TO
EXERCISE OPTION (1) ABOVE, TENANT MAY, WITHIN FIVE (5) DAYS AFTER
TENANT'S RECEIPT OF NOTICE OF SUCH ELECTION, WITHDRAW ITS REQUEST FOR
SUCH TRANSFER, IN WHICH EVENT THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL CONTINUE IN FULL FORCE AND EFFECT. IF LANDLORD ELECTS
TO EXERCISE OPTION (2) ABOVE, TENANT AGREES TO PROVIDE, AT ITS EXPENSE,
DIRECT ACCESS FROM ANY SUBLET SPACE OR CONCESSION AREA TO A PUBLIC
CORRIDOR OF THE BUILDING, AND SUCH OTHER IMPROVEMENTS, ALTERATIONS OR
ADDITIONS AS MAY BE REQUIRED BY APPLICABLE LAWS. THE PROHIBITION
AGAINST A TRANSFER CONTAINED HEREIN SHALL BE CONSTRUED TO INCLUDE A
PROHIBITION AGAINST ANY TRANSFER BY MERGER, SALE OF ASSETS, SALE OF A
CONTROLLING INTEREST IN STOCK OR OPERATION OF LAW. NOTWITHSTANDING THE
FOREGOING OR ANYTHING ELSE TO THE CONTRARY IN THIS LEASE, TENANT SHALL
HAVE THE RIGHT, SUBJECT TO SECTION 18(B), WITHOUT LANDLORD'S CONSENT,
TO ASSIGN THIS LEASE OR SUBLET ALL OR ANY PORTION OF THE PREMISES TO
ANY PERSON OR ENTITY WHO CONTROLS, IS CONTROLLED BY, OR IS UNDER COMMON
CONTROL WITH THE ORIGINAL TENANT NAMED IN THIS LEASE (AN "AFFILIATE
TRANSFER"). THE TERM "CONTROL" SHALL MEAN WITH RESPECT TO A
CORPORATION, THE RIGHT TO EXERCISE, DIRECTLY OR INDIRECTLY, MORE THAN
FIFTY PERCENT (50%) OF THE VOTING RIGHTS ATTRIBUTABLE TO THE SHARES OF
THE CONTROLLED CORPORATION, AND WITH RESPECT TO A PERSON OR ENTITY THAT
IS NOT A CORPORATION, THE POSSESSION, DIRECTLY OR INDIRECTLY, OF THE
POWER TO DIRECT OR CAUSE THE DIRECTION OF THE MANAGEMENT OR POLICIES OF
THE CONTROLLED PERSON OR ENTITY. TENANT SHALL PROVIDE LANDLORD WITH
WRITTEN NOTICE OF ANY AFFILIATE TRANSFER WITHIN TEN (10) DAYS AFTER THE
EFFECTIVE DATE THEREOF.

0.18.0.0.2. NOTWITHSTANDING THAT THE PRIOR EXPRESS WRITTEN
CONSENT OF LANDLORD TO A TRANSFER MAY HAVE BEEN OBTAINED UNDER THE
PROVISIONS OF SECTION 18(a) OR THAT SUCH PERMISSION IS NOT REQUIRED,
THE FOLLOWING SHALL APPLY TO ALL TRANSFERS (INCLUDING AFFILIATE
TRANSFERS):

0.18.0.0.2.1. Tenant shall, in the case of an
assignment, cause the assignee to expressly assume in writing
and to agree to perform all of the covenants, duties and
obligations of Tenant hereunder, and such assignee shall be
jointly and severally liable therefor along with Tenant;

0.18.0.0.2.2. Tenant shall agree with Landlord that,
except in the case of an Affiliate Transfer, in the event that
the rent or other consideration due and payable by a sublessee
or assignee under any such permitted sublease or assignment
exceeds the Rent for the portion of the Premises so
transferred, then Tenant shall pay to Landlord, as additional
Rent, fifty percent (50%) of all Profit (hereinafter defined)
received in connection with such sublease or assignment. For
purposes of this paragraph, "Profit" shall mean the amount by
which all rent and consideration due and payable by any
sublessee or assignee under any such sublease or assignment
exceeds the Rent payable hereunder with respect to the portion
of the Premises so transferred, after deducting reasonable
out-of-pocket third party costs and expenses actually incurred
by Tenant under or in connection with such sublease or
assignment for (i) commercially reasonable brokers'
commissions paid by Tenant with regard to the transfer, (ii)
reasonable legal fees paid by Tenant with regard to the
transfer, and (iii) commercially reasonable expenses of
finishing out or renovation of the space involved [but
specifically excluding any charges payable

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 19
<PAGE> 24

to partners, shareholders or employees of Tenant in connection
with such sublease or assignment];

0.18.0.0.2.3. No usage of the Premises different from
the usage herein provided to be made by Tenant shall be
permitted, and all of the terms and provisions of this Lease
shall continue to apply after a Transfer; and

0.18.0.0.2.4. Tenant will nevertheless remain
directly and primarily liable for the performance of all the
covenants, duties and obligations of Tenant hereunder
(including, without limitation, the obligation to pay Rent),
and Landlord shall be permitted to enforce the provisions of
this Lease against the undersigned Tenant or any transferee,
or both, without demand upon or proceeding in any way against
any other persons.

0.18.0.0.3. THE CONSENT BY LANDLORD TO A PARTICULAR TRANSFER
SHALL NOT BE DEEMED A CONSENT TO ANY OTHER SUBSEQUENT TRANSFER. IF THIS
LEASE, THE PREMISES OR THE TENANT'S LEASEHOLD INTEREST THEREIN, OR IF
ANY PORTION OF THE FOREGOING IS TRANSFERRED, OR IF THE PREMISES ARE
OCCUPIED IN WHOLE OR IN PART BY ANYONE OTHER THAN TENANT WITHOUT THE
PRIOR CONSENT OF LANDLORD AS PROVIDED HEREIN, LANDLORD MAY NEVERTHELESS
COLLECT RENT FROM THE TRANSFEREE OR OTHER OCCUPANT AND APPLY THE NET
AMOUNT COLLECTED TO THE RENT PAYABLE HEREUNDER, BUT NO SUCH TRANSACTION
OR COLLECTION OF RENT OR APPLICATION THEREOF BY LANDLORD SHALL BE
DEEMED A WAIVER OF THE PROVISIONS HEREOF OR A RELEASE OF TENANT FROM
THE FURTHER PERFORMANCE BY TENANT OF ITS COVENANTS, DUTIES AND
OBLIGATIONS HEREUNDER.

0.18.0.0.4. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED
HEREIN, IF TENANT, AS A DEBTOR-IN-POSSESSION (THE "DIP"), OR A TRUSTEE
FOR THE ESTATE IN BANKRUPTCY OF TENANT (THE "TRUSTEE"), ASSUMES THIS
LEASE AND PROPOSES TO ASSIGN THIS LEASE, OR SUBLET THE PREMISES (OR ANY
PORTION THEREOF), PURSUANT TO THE PROVISIONS OF THE FEDERAL BANKRUPTCY
CODE, 11 U.S.C. SECTIONS 101 ET SEQ. (THE "BANKRUPTCY CODE") TO ANY
PERSON, PARTNERSHIP, CORPORATION OR OTHER ENTITY (THE "PROPOSED
ASSIGNEE"), THEN SUCH ASSUMPTION OF THIS LEASE AND ANY SUCH ASSIGNMENT
OR SUBLEASE SHALL BE SUBJECT TO ALL OF THE FOLLOWING:

0.18.0.0.4.1. If the rental agreed upon between the
DIP or the Trustee, as the case may be, and the Proposed
Assignee under any proposed assignment or sublease of the
Premises (or any part thereof) is greater than the rental rate
that Tenant must pay Landlord hereunder for that portion of
the Premises that is subject to such proposed assignment or
sublease, or if any consideration shall be received by the DIP
or the Trustee, as the case may be, in connection with any
such proposed assignment or sublease, then all such excess
rental or such consideration shall be paid or delivered to
Landlord, and shall not constitute property of the DIP, the
Trustee, or of the estate of Tenant, as the case may be,
within the meaning of the Bankruptcy Code; and

0.18.0.0.4.2. Any proposed assignment or sublease of
this Lease by the DIP or the Trustee, as the case may be,
pursuant to provisions of the Bankruptcy Code, shall provide
adequate assurance of future performance under this Lease by
the Proposed Assignee, which adequate assurance shall include,
as a minimum, the following: (A) any Proposed Assignee of the
Lease shall deliver to Landlord a security deposit in an
amount equal to at least three (3) months Base Rental accruing
under this Lease; (B) any Proposed Assignee of the Lease shall
provide to Landlord an unaudited financial statement,
certified to be accurate by such Proposed Assignee or by an
officer, director or partner thereof and dated no later than
six (6) months prior to the Effective Date of such proposed
assignment or sublease, which financial statement shall show
the Proposed Assignee to have a net worth equal to at least
the Rent that shall accrue under this Lease for the next year
of the Term; (C) any Proposed Assignee shall pay all Rent not
previously paid under this Lease including all payments which
have been suspended, mitigated, nullified or reduced to a
claim of any kind against Tenant or the Tenant's property, by
operation of law or otherwise; and (D) any Proposed Assignee
shall assume Tenant's obligation to pay Landlord's attorneys'
fees pursuant to Section 34.

This Section 18(d) shall not apply to any assignment or sublease other
than pursuant to the provisions of the Bankruptcy Code, nor shall it in any way
limit Landlord's rights to damages or other relief in a proceeding under the
Bankruptcy Code.

0.18.0.0.5. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH
HEREIN, LANDLORD ACKNOWLEDGES THAT TENANT INTENDS TO SUBLEASE A PORTION
OF THE PREMISES TO RIVER ROCK ("RIVER ROCK"), WHICH IS AN ENTITY
PARTIALLY OWNED BY TENANT WHICH DEVELOPS PROPRIETARY SOFTWARE FOR
TENANT. LANDLORD HEREBY CONSENTS TO THE SUBLEASE TO RIVER ROCK UPON THE
TERMS AND CONDITIONS SET FORTH IN THIS SECTION 18, SO LONG AS
THROUGHOUT THE TERM OF

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 20
<PAGE> 25

THE SUBLEASE (i) THE PORTION OF THE PREMISES SUBLEASED BY RIVER ROCK
DOES NOT EXCEED 5,000 SQUARE FEET OF RENTABLE AREA, (ii) TENANT
CONTINUES TO OWN NOT LESS THAN 49% OF THE OWNERSHIP INTEREST IN RIVER
ROCK AND (iii) RIVER ROCK MAINTAINS THE AFOREMENTIONED BUSINESS
RELATIONSHIP WITH TENANT. IN THE EVENT AT ANY TIME DURING THE TERM OF
THE SUBLEASE ANY OF THE FOREGOING CONDITIONS TO THE SUBLEASE FAILS TO
REMAIN SATISFIED, TENANT SHALL IMMEDIATELY TERMINATE THE SUBLEASE WITH
RIVER ROCK.

0.19. Mechanic's Liens. Tenant will not permit any mechanic's liens,
materialmen's liens or other liens to be placed upon the Premises or the Complex
for any work performed by or at the request of Tenant, or any assignee,
sublessee or licensee of Tenant, and nothing in this Lease shall be deemed or
construed in any way as constituting the consent or request of Landlord, express
or implied, by inference or otherwise, to any person for the performance of any
labor or the furnishing of any materials to the Premises, or any part thereof,
nor as giving Tenant any right, power, or authority to contract for or permit
the rendering of any services or the furnishing of any materials that would give
rise to any mechanic's or other liens against the Premises or the Complex. In
the event any such lien is attached to the Premises or the Complex and not
discharged by payment, bonding or otherwise within fifteen (15) days after
receipt of written notice from Landlord, then, in addition to any other right or
remedy of Landlord, Landlord may, but shall not be obligated to, discharge the
same. Any amount paid by Landlord for the aforesaid purpose shall be paid by
Tenant to Landlord on demand as additional Rent and shall bear interest at the
Default Rate from the date paid by Landlord until reimbursed by Tenant.

0.20. Property Insurance.

0.20.0.0.1. LANDLORD SHALL MAINTAIN A POLICY OR POLICIES OF
"ALL RISK" EXTENDED COVERAGE INSURANCE ON THE PORTION OF THE COMPLEX
THAT IS THE PROPERTY OF LANDLORD, INCLUDING ALTERATIONS BY TENANT THAT
HAVE BECOME THE PROPERTY OF LANDLORD, IN AN AMOUNT EQUAL TO NOT LESS
THAN NINETY PERCENT (90%) OF THE REPLACEMENT COST. SUCH INSURANCE SHALL
BE MAINTAINED AT THE EXPENSE OF LANDLORD (AS A PART OF THE BASIC
OPERATING COSTS), AND PAYMENTS FOR LOSSES THEREUNDER SHALL BE MADE
SOLELY TO LANDLORD OR THE MORTGAGEES OF LANDLORD AS THEIR INTERESTS
SHALL APPEAR. IF INSURANCE PREMIUMS FOR THE COMPLEX INCREASE DUE TO:
(1) THE TENANT IMPROVEMENTS TO THE PREMISES IN EXCESS OF BUILDING
STANDARD OR ANY SUBSEQUENT IMPROVEMENTS MADE BY TENANT TO THE PREMISES
(SUCH IMPROVEMENTS TO BE MADE ONLY IN ACCORDANCE WITH THIS LEASE) OR
MADE BY LANDLORD AT TENANT'S REQUEST, OR (2) AS A RESULT OF TENANT'S
USE OF THE PREMISES, LANDLORD MAY ELECT TO BILL TENANT DIRECTLY FOR
SUCH INCREASED PREMIUMS RATHER THAN INCLUDING SUCH INCREASED PREMIUMS
IN BASIC OPERATING COSTS, IN WHICH EVENT, TENANT WILL PAY AS ADDITIONAL
RENT, WITHIN TEN (10) DAYS OF RECEIPT, THE AMOUNT SHOWN ON AN INVOICE
PREPARED BY LANDLORD.

0.20.0.0.2. TENANT SHALL MAINTAIN A POLICY OR POLICIES OF "ALL
RISK" EXTENDED COVERAGE INSURANCE ON ALL OF ITS PERSONAL PROPERTY,
INCLUDING REMOVABLE TRADE FIXTURES, OFFICE SUPPLIES AND MOVABLE OFFICE
FURNITURE AND EQUIPMENT, LOCATED ON THE PREMISES, IN AN AMOUNT EQUAL TO
FULL REPLACEMENT COST AND ENDORSED TO PROVIDE THAT TENANT'S INSURANCE
IS PRIMARY IN THE EVENT OF ANY OVERLAPPING COVERAGE WITH THE INSURANCE
CARRIED BY LANDLORD. SUCH INSURANCE SHALL BE MAINTAINED AT THE EXPENSE
OF TENANT AND PAYMENT FOR LOSSES THEREUNDER SHALL BE MADE SOLELY TO
TENANT OR THE MORTGAGEES OF TENANT (IF PERMITTED HEREUNDER) AS THEIR
INTERESTS SHALL APPEAR. TENANT SHALL, PRIOR TO OCCUPANCY OF THE
PREMISES AND AT LANDLORD'S REQUEST FROM TIME TO TIME, PROVIDE LANDLORD
WITH A CURRENT CERTIFICATE OF INSURANCE EVIDENCING TENANT'S COMPLIANCE
WITH THIS SECTION 20. ON OR BEFORE THE EARLIER TO OCCUR OF (i) TENANT'S
OCCUPANCY OF THE INITIAL PREMISES OR (ii) NOVEMBER 15, 1998 AND
CONTINUING THROUGHOUT THE TERM OF THE LEASE, TENANT SHALL OBTAIN THE
AGREEMENT OF TENANT'S INSURERS TO NOTIFY LANDLORD THAT A PROPERTY
INSURANCE POLICY IS DUE TO BE CANCELED OR EXPIRE AT LEAST THIRTY (30)
DAYS PRIOR TO SUCH CANCELLATION OR EXPIRATION.

0.21. Liability Insurance.

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 21
<PAGE> 26

0.21.0.0.1. LANDLORD SHALL MAINTAIN A POLICY OR POLICIES OF
COMMERCIAL GENERAL LIABILITY INSURANCE COVERING THE COMPLEX, BUT
EXCLUDING THE PREMISES, INSURING AGAINST CLAIMS FOR PERSONAL OR BODILY
INJURY OR DEATH OR PROPERTY DAMAGE (INCLUDING CONTRACTUAL INDEMNITY AND
LIABILITY COVERAGE) OCCURRING UPON, IN OR ABOUT THE COMPLEX, BUT
EXCLUDING THE PREMISES, AFFORDING PROTECTION TO THE LIMIT OF NOT LESS
THAN $2,000,000.00 COMBINED SINGLE LIMIT PER OCCURRENCE OF BODILY
INJURY, PROPERTY DAMAGE, OR COMBINATION THEREOF. SUCH INSURANCE SHALL
BE MAINTAINED AT THE EXPENSE OF LANDLORD (AS A PART OF THE BASIC
OPERATING COSTS), AND PAYMENTS FOR LOSSES THEREUNDER SHALL BE MADE
SOLELY TO LANDLORD OR THE MORTGAGEES OF LANDLORD AS THEIR INTERESTS
SHALL APPEAR. LANDLORD'S INSURANCE SHALL CONTAIN AN ENDORSEMENT THAT
LANDLORD'S INSURANCE IS PRIMARY FOR CLAIMS ARISING OUT OF AN INCIDENT
OR EVENT OCCURRING WITHIN THE COMMON AREAS. LANDLORD'S INSURANCE SHALL
INCLUDE COVERAGE FOR THE CONTRACTUAL LIABILITY OF LANDLORD TO INDEMNIFY
TENANT PURSUANT TO SECTION 22(b).

0.21.0.0.2. TENANT SHALL MAINTAIN A POLICY OR POLICIES OF
COMMERCIAL GENERAL LIABILITY INSURANCE COVERING THE PREMISES AND
TENANT'S USE THEREOF AGAINST CLAIMS FOR PERSONAL OR BODILY INJURY OR
DEATH OR PROPERTY DAMAGE (INCLUDING CONTRACTUAL INDEMNITY AND LIABILITY
COVERAGE) OCCURRING UPON, IN OR ABOUT THE PREMISES, WITH THE PREMIUMS
THEREON FULLY PAID ON OR BEFORE THE DUE DATE, ISSUED BY AND BINDING
UPON AN INSURANCE COMPANY LICENSED TO DO BUSINESS IN THE STATE OF TEXAS
AND HAVING AN A.M. BEST RATING OF "A-VI" OR BETTER. SUCH INSURANCE
SHALL PROVIDE MINIMUM PROTECTION OF NOT LESS THAN $2,000,000.00
COMBINED SINGLE LIMIT PRIMARY COVERAGE PER OCCURRENCE OF BODILY INJURY,
PROPERTY DAMAGE, OR COMBINATION THEREOF. TENANT'S INSURANCE SHALL
CONTAIN AN ENDORSEMENT THAT TENANT'S INSURANCE IS PRIMARY FOR CLAIMS
ARISING OUT OF AN INCIDENT OR EVENT OCCURRING WITHIN THE PREMISES.
TENANT'S INSURANCE SHALL CONTAIN A PROVISION NAMING LANDLORD (AND ANY
MORTGAGEE DESIGNATED BY LANDLORD) AS AN ADDITIONAL INSURED AND INCLUDE
COVERAGE FOR THE CONTRACTUAL LIABILITY OF TENANT TO INDEMNIFY LANDLORD
PURSUANT TO SECTION 22(a). TENANT SHALL, PRIOR TO OCCUPANCY OF THE
PREMISES AND AT LANDLORD'S REQUEST FROM TIME TO TIME, PROVIDE LANDLORD
WITH A CURRENT CERTIFICATE OF INSURANCE EVIDENCING TENANT'S COMPLIANCE
WITH THIS SECTION 21. ON OR BEFORE THE EARLIER TO OCCUR OF (i) TENANT'S
OCCUPANCY OF THE INITIAL PREMISES OR (ii) NOVEMBER 15, 1998 AND
CONTINUING THROUGHOUT THE TERM OF THE LEASE, TENANT SHALL OBTAIN THE
AGREEMENT OF TENANT'S INSURERS TO NOTIFY LANDLORD THAT A LIABILITY
INSURANCE POLICY IS DUE TO BE CANCELED OR EXPIRE AT LEAST THIRTY (30)
DAYS PRIOR TO SUCH CANCELLATION OR EXPIRATION.

0.22. INDEMNITY.

0.22.0.0.1. TENANT SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS
LANDLORD AND LANDLORD RELATED PARTY FROM AND AGAINST ANY AND ALL
LIABILITIES, OBLIGATIONS, DAMAGES, CLAIMS, SUITS, LOSSES, CAUSES OF
ACTION, LIENS, JUDGMENTS AND EXPENSES (INCLUDING COURT COSTS,
ATTORNEY'S FEES AND COSTS OF INVESTIGATION) OF ANY KIND, NATURE OR
DESCRIPTION RESULTING FROM ANY INJURIES TO OR DEATH OF ANY PERSON OR
ANY DAMAGE TO PROPERTY WHICH ARISES, OR IS CLAIMED TO ARISE FROM: (1)
AN INCIDENT OR EVENT WHICH OCCURRED WITHIN OR ON THE PREMISES; OR (2)
THE OPERATION OR CONDUCT OF TENANT'S BUSINESS WITHIN THE PREMISES
(COLLECTIVELY, THE "CLAIMS"), EVEN IF THE CLAIM IS THE RESULT OF OR
CAUSED BY THE NEGLIGENT ACTS OR OMISSIONS OF LANDLORD OR ANY LANDLORD
RELATED PARTY. IF ANY SUCH CLAIM IS MADE AGAINST LANDLORD OR ANY
LANDLORD RELATED PARTY, TENANT SHALL, AT TENANT'S SOLE COST AND
EXPENSE, DEFEND SUCH CLAIM BY OR THROUGH ATTORNEYS REASONABLY
ACCEPTABLE TO LANDLORD. THE INDEMNITY OBLIGATIONS OF TENANT UNDER THIS
SECTION 22(a) SHALL NOT APPLY TO A CLAIM ARISING OUT OF THE GROSS
NEGLIGENCE OR INTENTIONAL MISCONDUCT OF LANDLORD OR ANY LANDLORD
RELATED PARTY.

0.22.0.0.2. LANDLORD SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS
TENANT AND TENANT RELATED PARTY FROM AND AGAINST ANY AND ALL
LIABILITIES, OBLIGATIONS, DAMAGES, CLAIMS, SUITS, LOSSES, CAUSES OF
ACTION, LIENS, JUDGEMENTS AND EXPENSES (INCLUDING COURT COSTS,
ATTORNEYS' FEES AND COSTS OF INVESTIGATION) OF ANY KIND, NATURE OR
DESCRIPTION RESULTING FROM ANY INJURIES TO OR DEATH OF ANY PERSON OR
ANY DAMAGE TO PROPERTY WHICH ARISES, OR IS CLAIMED TO ARISE FROM, (1)
AN INCIDENT OR EVENT WHICH OCCURRED WITHIN OR ON THE COMMON AREAS; OR
(2) THE OPERATION OR CONDUCT OF LANDLORD'S BUSINESS WITHIN THE COMMON
AREAS (COLLECTIVELY, THE "CLAIMS"), EVEN IF THE CLAIM IS THE

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 22
<PAGE> 27

RESULT OF OR CAUSED BY THE NEGLIGENT ACTS OR OMISSIONS OF TENANT OR ANY
TENANT RELATED PARTY. IF ANY SUCH CLAIM IS MADE AGAINST TENANT OR ANY
TENANT RELATED PARTY, LANDLORD SHALL, AT LANDLORD'S SOLE COST AND
EXPENSE, DEFEND SUCH CLAIM BY OR THROUGH ATTORNEYS REASONABLY
ACCEPTABLE TO TENANT. THE INDEMNITY OBLIGATIONS OF LANDLORD UNDER THIS
SECTION 22(b) SHALL NOT APPLY TO A CLAIM ARISING OUT OF THE GROSS
NEGLIGENCE OR INTENTIONAL MISCONDUCT OF TENANT OR ANY TENANT RELATED
PARTY.

0.23. WAIVER OF SUBROGATION RIGHTS. NOTWITHSTANDING ANYTHING IN THIS
LEASE TO THE CONTRARY, TO THE EXTENT THAT AND SO LONG AS THE SAME IS PERMITTED
UNDER THE LAWS AND REGULATIONS GOVERNING THE WRITING OF INSURANCE WITHIN THE
STATE OF TEXAS, ALL INSURANCE CARRIED BY EITHER LANDLORD OR TENANT SHALL PROVIDE
FOR A WAIVER OF RIGHTS OF SUBROGATION AGAINST LANDLORD AND TENANT ON THE PART OF
THE INSURANCE CARRIER. UNLESS THE WAIVERS CONTEMPLATED BY THIS SENTENCE ARE NOT
OBTAINABLE FOR THE REASONS DESCRIBED IN THIS SECTION 23, LANDLORD AND TENANT
EACH HEREBY WAIVE ANY AND ALL RIGHTS OF RECOVERY, CLAIMS, ACTIONS OR CAUSES OF
ACTION AGAINST THE OTHER, ITS AGENTS, OFFICERS, OR EMPLOYEES, FOR ANY LOSS OR
DAMAGE TO PROPERTY OR ANY INJURIES TO OR DEATH OF ANY PERSON WHICH IS COVERED OR
WOULD HAVE BEEN COVERED UNDER THE INSURANCE POLICIES REQUIRED UNDER THIS LEASE.
THE FOREGOING RELEASE SHALL NOT APPLY TO LOSSES OR DAMAGES IN EXCESS OF ACTUAL
OR REQUIRED POLICY LIMITS (WHICHEVER IS GREATER) NOR TO ANY DEDUCTIBLE (UP TO A
MAXIMUM OF $10,000) APPLICABLE UNDER ANY POLICY OBTAINED BY THE WAIVING PARTY.
THE FAILURE OF EITHER PARTY (THE "DEFAULTING PARTY") TO TAKE OUT OR MAINTAIN ANY
INSURANCE POLICY REQUIRED UNDER THIS LEASE SHALL BE A DEFENSE TO ANY CLAIM
ASSERTED BY THE DEFAULTING PARTY AGAINST THE OTHER PARTY HERETO BY REASON OF ANY
LOSS SUSTAINED BY THE DEFAULTING PARTY THAT WOULD HAVE BEEN COVERED BY ANY SUCH
REQUIRED POLICY. THE WAIVERS SET FORTH IN THE IMMEDIATELY PRECEDING SENTENCE
SHALL BE IN ADDITION TO, AND NOT IN SUBSTITUTION FOR, ANY OTHER WAIVERS,
INDEMNITIES, OR EXCLUSIONS OF LIABILITIES SET FORTH IN THIS LEASE.

0.24. Casualty Damage. If the Premises or any part thereof shall be
damaged by fire or other casualty, Tenant shall give prompt written notice
thereof to Landlord. In case the Building shall be so damaged by fire or other
casualty that substantial alteration or reconstruction of the Building shall, in
the judgment of an independent architect selected by Landlord, be required
(whether or not the Premises shall have been damaged by such fire or other
casualty), or in the event any mortgagee under a first mortgage or first deed of
trust covering the Building should require that the insurance proceeds payable
as a result of said fire or other casualty be used to retire the mortgage debt,
or in the event of the occurrence of a casualty which is not insured under the
"all risk" extended coverage insurance required to be carried by Landlord
pursuant to the terms of Section 20, Landlord may, at its option, terminate this
Lease by notifying Tenant in writing of such termination within fifteen (15)
days after the date of Landlord's receipt of the estimated cost of
reconstruction or determination by a mortgagee to take the proceeds, in which
event the Rent hereunder shall be abated as of the date of such damage. If
Landlord does not elect to terminate this Lease, Landlord shall, as soon as
practicable, but no more than ninety (90) days after the date of such damage,
commence to repair and restore the Building and shall proceed with reasonable
diligence to restore the Building to substantially the same condition which it
was in immediately prior to the occurrence of the fire or other casualty, except
that Landlord shall not be required to rebuild, repair, or replace any part of
Tenant's furniture, fixtures and equipment removable by Tenant under the
provisions of this Lease or any Alterations to the Premises made by Tenant
following the Commencement Date which were not approved by Landlord in writing,
and Landlord shall not in any event be required to spend for such work an amount
in excess of the insurance proceeds actually received by Landlord as a result of
the fire or other casualty, plus any deductible amounts thereunder. If Landlord
determines that insurance proceeds will be insufficient to restore the Building
as required by this Section 24, Landlord may, at its option, elect to either (1)
terminate this Lease by written notice to Tenant, or (2) provide the extra funds
necessary to complete the restoration. In the event Landlord did not originally
construct any Alterations to be repaired, the time for Landlord to commence and
complete such repairs shall be extended by the amount of time necessary for
Landlord to obtain detailed working drawings of the Alterations to be repaired.
In the event Landlord does not either commence the repairs to the Building
within the time required herein, or complete the repairs to the Building within
two hundred seventy (270) days after the date of such damage, Tenant may
terminate the Lease by written notice thereof to Landlord given no later than
thirty (30) days following the date on which Landlord was to commence or
complete such repairs, as the case may be. Notwithstanding anything to the
contrary set forth herein, if Landlord grants to any other tenant of the
Building which occupies the same or less square feet of Rentable Area as Tenant
the right to terminate its Lease if repairs to the Building are not

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complete within a shorter period of time than 270 days after the date of the
casualty, Landlord shall promptly notify Tenant thereof and Landlord and Tenant
shall thereafter modify this Lease to provide Tenant the same right. Landlord
shall not be liable for any inconvenience or annoyance to Tenant or injury to
the business of Tenant resulting in any way from such damage or the repair
thereof, except that, subject to the provisions of the next sentence, Landlord
shall allow Tenant an equitable abatement of Rent during the time and to the
extent the Premises are unfit for occupancy and vacated by Tenant. If the
Premises or any other portion of the Complex is damaged by fire or other
casualty resulting from the intentional acts of Tenant or any employee, officer,
contractor, agent, subtenant, or licensee of Tenant, the Rent hereunder shall
not be abated during the repair of such damage, and Tenant shall remain liable
for the payment thereof.

0.25. Condemnation. If (i) the whole or substantially the whole of the
Complex, or (ii) the whole or such portion of the Premises as shall render the
remainder reasonably unfit for Tenant's use, shall be taken for any public or
quasi-public use, by right of eminent domain or otherwise, or sold in lieu of
condemnation, then this Lease shall terminate as of the date when physical
possession of the Building or the Premises are taken by the condemning
authority. If this Lease is not so terminated upon any such taking or sale, the
Base Rental payable hereunder shall be diminished by an amount representing that
portion of Base Rental applicable to the portion of the Premises subject to such
taking or sale, and Landlord shall to the extent Landlord deems feasible,
restore the Building and the Premises to substantially their former condition,
except that Landlord shall not be required to rebuild, repair, or replace any
Alterations to the Premises made by Tenant following the Commencement Date which
were not approved by Landlord in writing, nor shall Landlord in any event be
required to spend for such work an amount in excess of the amount received by
Landlord as compensation for such taking. All amounts awarded upon a taking of
any part or all of the Property, Building or the Premises shall belong to
Landlord, and Tenant shall not be entitled to and expressly waives all claims to
any such compensation, except that Tenant may make a separate claim upon the
condemning authority for expenses related to relocation, the unamortized cost of
leasehold improvements paid for by Tenant, and any other damages Tenant may
prove so long as the same do not have the effect of reducing the award which
would otherwise be payable to Landlord.

0.26. DAMAGES FROM CERTAIN CAUSES. NOTWITHSTANDING ANYTHING CONTAINED
IN THIS LEASE TO THE CONTRARY, AND SUBJECT TO THE TERMS OF SECTION 23, NEITHER
LANDLORD NOR ANY LANDLORD RELATED PARTY SHALL BE LIABLE FOR DAMAGES TO TENANT OR
ANY PARTY CLAIMING THROUGH TENANT FOR ANY INJURY TO OR DEATH OF ANY PERSON OR
DAMAGE TO PROPERTY OR FOR INTERRUPTION OR DAMAGE TO BUSINESS RESULTING FROM ANY
OF THE FOLLOWING REASONS: (a) ANY ACT, OMISSION OR NEGLIGENCE OF TENANT OR
TENANT'S EMPLOYEES, AGENTS, CONTRACTORS, OFFICERS, SUBTENANTS, ASSIGNEES,
LICENSEES, INVITEES OR CUSTOMERS; (b) ANY ACT, OMISSION OR NEGLIGENCE OF ANY
OTHER TENANT WITHIN THE BUILDING, OR ANY OF THEIR RESPECTIVE EMPLOYEES, AGENTS,
CONTRACTORS, TENANTS, ASSIGNEES, LICENSEES, INVITEES OR CUSTOMERS; (c)THE
REPAIR, ALTERATION, MAINTENANCE, DAMAGE OR DESTRUCTION OF THE PREMISES OR ANY
OTHER PORTION OF THE BUILDING (INCLUDING THE CONSTRUCTION OF LEASEHOLD
IMPROVEMENTS FOR OTHER TENANTS OF THE BUILDING), EXCEPT TO THE EXTENT CAUSED BY
THE NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD OR ANY LANDLORD RELATED PARTY;
(d) VANDALISM, THEFT, BURGLARY AND OTHER CRIMINAL ACTS (OTHER THAN THOSE
COMMITTED BY LANDLORD'S EMPLOYEES); (e) ANY DEFECT IN OR FAILURE OF EQUIPMENT,
PIPES, WIRING, HEATING OR AIR CONDITIONING EQUIPMENT, STAIRS, ELEVATORS, OR
SIDEWALKS, THE BURSTING OF ANY PIPES OR THE LEAKING, ESCAPING OR FLOWING OF GAS,
WATER, STEAM, ELECTRICITY, OR OIL, BROKEN GLASS, OR THE BACKING UP OF ANY
DRAINS, EXCEPT TO THE EXTENT CAUSED BY THE NEGLIGENCE OR WILLFUL MISCONDUCT OF
LANDLORD OR ANY LANDLORD RELATED PARTY; (f) INJURY DONE OR OCCASIONED BY WIND,
SNOW, RAIN OR ICE, FIRE, ACT OF GOD, PUBLIC ENEMY, INJUNCTION, RIOT, STRIKE,
INSURRECTION, WAR, COURT ORDER, REQUISITION, ORDER OF ANY GOVERNMENTAL BODY OR
AUTHORITY, OR (g) ANY OTHER CAUSE BEYOND THE REASONABLE CONTROL OF LANDLORD.
UNDER NO CIRCUMSTANCES SHALL LANDLORD BE LIABLE FOR DAMAGES RELATED TO BUSINESS
INTERRUPTION OR LOSS OF PROFITS. THE PROVISIONS OF THIS SECTION 26 SHALL NOT
LIMIT THE OBLIGATIONS OF LANDLORD OR THE RIGHTS OF TENANT UNDER THIS LEASE NOT
INVOLVING A CLAIM FOR DAMAGES.

0.27. Default by Tenant.

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0.27.0.0.1. THE FOLLOWING EVENTS SHALL BE DEEMED TO BE EVENTS
OF DEFAULT BY TENANT UNDER THIS LEASE (HEREINAFTER CALLED AN "EVENT OF
DEFAULT"):

0.27.0.0.1.1. Tenant shall fail to timely pay any
Rent and such failure shall continue for a period of five (5)
business days after written notice of such default shall have
been delivered to Tenant; provided, however, Landlord shall
only be required to give Tenant three (3) such notices during
any twelve (12) month period (whether as to one or more than
one failure to pay), Landlord shall not be required to give
further notice and thereafter the failure or refusal by Tenant
to timely make any payment of Rent when due hereunder within
the following twelve (12) months shall be an Event of Default
without notice or grace period;

0.27.0.0.1.2. Tenant shall fail to comply with any
terms, provisions or covenants of this Lease or any other
agreement between Landlord and Tenant not requiring the
payment of Rent, all of which terms, provisions and covenants
shall be deemed material, and such failure shall continue for
a period of thirty (30) days after written notice of such
failure is delivered to Tenant or, if such failure cannot
reasonably be cured within such thirty (30) day period, Tenant
shall fail to commence to cure such failure within such thirty
(30) day period and/or shall thereafter fail to prosecute such
cure diligently and continuously to completion within sixty
(60) days of the date of Landlord's notice of default;

0.27.0.0.1.3. Tenant takes any action to, or notifies
Landlord that Tenant intends to, file a petition under any
section or chapter of the United States Bankruptcy Code, as
amended from time to time, or under any similar law or statute
of the United States or any state thereof; or a petition shall
be filed against Tenant under any such statute and shall not
be dismissed within sixty (60) days thereafter; or

0.27.0.0.1.4. a receiver or trustee shall be
appointed for Tenant's leasehold interest in the Premises or
for all or a substantial part of the assets of Tenant;

0.27.0.0.2. UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT,
LANDLORD MAY, AT ITS OPTION AND WITHOUT FURTHER NOTICE TO TENANT AND
WITHOUT JUDICIAL PROCESS, IN ADDITION TO ALL OTHER REMEDIES GIVEN
HEREUNDER OR BY LAW OR EQUITY, DO ANY ONE OR MORE OF THE FOLLOWING: (1)
TERMINATE THIS LEASE, IN WHICH EVENT TENANT SHALL IMMEDIATELY SURRENDER
POSSESSION OF THE PREMISES TO LANDLORD; (2) ENTER UPON AND TAKE
POSSESSION OF THE PREMISES AND EXPEL OR REMOVE TENANT THEREFROM, WITH
OR WITHOUT HAVING TERMINATED THIS LEASE; (3) APPLY ALL OR ANY PORTION
OF THE SECURITY DEPOSIT TO CURE SUCH EVENT OF DEFAULT; (4) CHANGE OR
RE-KEY ALL LOCKS TO ENTRANCES TO THE PREMISES, AND LANDLORD SHALL HAVE
NO OBLIGATION TO GIVE TENANT A NEW KEY TO THE PREMISES UNTIL SUCH EVENT
OF DEFAULT IS CURED; AND (5) REMOVE FROM THE PREMISES ANY FURNITURE,
FIXTURES, EQUIPMENT OR OTHER PERSONAL PROPERTY OF TENANT, WITHOUT
LIABILITY FOR TRESPASS OR CONVERSION, AND STORE SUCH ITEMS EITHER IN
THE COMPLEX OR ELSEWHERE AT THE SOLE COST OF TENANT AND WITHOUT
LIABILITY TO TENANT. ANY OF SUCH FURNITURE, FIXTURES, EQUIPMENT OR
PERSONAL PROPERTY NOT CLAIMED WITHIN THIRTY (30) DAYS FROM THE DATE OF
REMOVAL SHALL BE DEEMED ABANDONED.

0.27.0.0.3. EXERCISE BY LANDLORD OF ANY ONE OR MORE REMEDIES
HEREUNDER SHALL NOT CONSTITUTE FORFEITURE OR AN ACCEPTANCE OF SURRENDER
OF THE PREMISES BY TENANT, IT BEING UNDERSTOOD THAT SUCH SURRENDER CAN
BE EFFECTED ONLY BY THE WRITTEN AGREEMENT OF LANDLORD AND TENANT.

0.27.0.0.4. IF LANDLORD TERMINATES THIS LEASE BY REASON OF AN
EVENT OF DEFAULT, TENANT SHALL PAY TO LANDLORD THE SUM OF (1) THE COST
OF RECOVERING THE PREMISES, (2) THE UNPAID RENT AND ALL OTHER
INDEBTEDNESS ACCRUED HEREUNDER TO THE DATE OF SUCH TERMINATION, (3) THE
AMOUNTS STATED IN SECTION 27(f), AND (4) THE TOTAL RENT WHICH LANDLORD
WOULD HAVE RECEIVED UNDER THIS LEASE FOR THE REMAINDER OF THE LEASE
TERM MINUS THE FAIR MARKET RENTAL VALUE (HEREINAFTER DEFINED) OF THE
PREMISES FOR THE SAME PERIOD, BOTH DISCOUNTED TO PRESENT VALUE AT THE
PRIME RATE (HEREINAFTER DEFINED) IN EFFECT UPON THE DATE OF
DETERMINATION, AND (5) ANY OTHER DAMAGES OR RELIEF WHICH LANDLORD MAY
BE ENTITLED TO AT LAW OR IN EQUITY. FOR THE PURPOSES OF THIS SECTION,
"FAIR MARKET RENTAL VALUE" SHALL BE THE RENTAL RATE THAT WOULD BE
RECEIVED FROM A COMPARABLE TENANT FOR A COMPARABLE LEASE FOR PREMISES
AND OTHER PROPERTIES OF EQUIVALENT QUALITY, SIZE, CONDITION AND
LOCATION AS THE PREMISES, TAKING INTO ACCOUNT ANY FREE RENT OR OTHER
CONCESSIONS, THAT ARE GENERALLY PREVAILING IN THE MARKET PLACE AT THE
TIME OF TENANT'S DEFAULT, MARKET CONDITIONS AND THE PERIOD OF TIME THE
PREMISES MAY REASONABLY BE EXPECTED TO REMAIN VACANT BEFORE LANDLORD IS
ABLE TO RE-LET THE PREMISES TO A SUITABLE NEW TENANT. FOR PURPOSES OF
THIS SECTION, "PRIME RATE" SHALL MEAN THE PER ANNUM RATE OF INTEREST
ANNOUNCED OR PUBLISHED FROM TIME TO TIME

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 25
<PAGE> 30

BY BANK ONE, TEXAS, N.A., DALLAS, TEXAS (OR ITS SUCCESSORS OR ASSIGNS)
AS ITS PRIME COMMERCIAL LENDING RATE.

0.27.0.0.5. IF LANDLORD REPOSSESSES THE PREMISES WITHOUT
TERMINATING THIS LEASE, THEN TENANT SHALL PAY TO LANDLORD ON DEMAND (1)
THE COST OF RECOVERING THE PREMISES, (2) THE UNPAID RENT AND OTHER
INDEBTEDNESS ACCRUED TO THE DATE OF SUCH REPOSSESSION, AND (3) THE
AMOUNTS STATED IN SECTION 27(f), AND TENANT SHALL FURTHER PAY TO
LANDLORD, AS SUCH SUMS COME DUE, THE TOTAL RENT WHICH LANDLORD WOULD
HAVE RECEIVED UNDER THIS LEASE FOR THE REMAINDER OF THE LEASE TERM
MINUS ANY NET SUMS RECEIVED BY LANDLORD THROUGH RELETTING THE PREMISES
DURING SAID PERIOD, AFTER DEDUCTING EXPENSES INCURRED BY LANDLORD IN
CONNECTION WITH SUCH RELETTING FOR ADVERTISING COSTS, BROKERAGE
COMMISSIONS, ARCHITECTURAL FEES, TENANT IMPROVEMENT COSTS AND
ALLOWANCES AND ANY OTHER ALLOWANCES OR CONCESSIONS PROVIDED BY LANDLORD
(AMORTIZED PRO RATA OVER THE TERM OF SUCH NEW LEASE). RE-ENTRY BY
LANDLORD WILL NOT AFFECT THE OBLIGATIONS OF TENANT FOR THE UNEXPIRED
TERM OF THIS LEASE. TENANT SHALL NOT BE ENTITLED TO ANY EXCESS OF RENT
OBTAINED BY RELETTING OVER THE RENT REQUIRED TO BE PAID BY TENANT
HEREUNDER. ACTIONS TO COLLECT AMOUNTS DUE BY TENANT MAY BE BROUGHT ONE
OR MORE TIMES, WITHOUT THE NECESSITY OF LANDLORD'S WAITING UNTIL THE
EXPIRATION OF THE LEASE TERM. IN ADDITION, LANDLORD MAY, AT ANY TIME
FOLLOWING REPOSSESSION OF THE PREMISES WITHOUT TERMINATION OF THE
LEASE, ELECT TO TERMINATE THE LEASE AND PURSUE THE REMEDIES AVAILABLE
TO LANDLORD PURSUANT TO SECTION 27(d) ABOVE IN LIEU OF THE REMEDIES
AVAILABLE TO LANDLORD PURSUANT TO THIS SECTION 27(e).

0.27.0.0.6. IN THE CASE OF AN EVENT OF DEFAULT, TENANT SHALL
ALSO PAY TO LANDLORD: (1) IF LANDLORD HAS TERMINATED THIS LEASE
PURSUANT TO SECTION 27(d), THE UNAMORTIZED PORTION (ASSUMING LEVEL
AMORTIZATION AT TWELVE PERCENT [12%] INTEREST OVER THE LEASE TERM) UPON
THE DATE OF TERMINATION OF ALL LEASING COMMISSIONS, TENANT IMPROVEMENT
COSTS AND ALLOWANCES, ARCHITECTURAL COSTS AND ALLOWANCES, ANY OTHER
ALLOWANCES PROVIDED BY LANDLORD AND ALL OTHER OUT-OF-POCKET COSTS OF
LANDLORD RELATED TO THIS LEASE; AND (2) ALL OTHER EXPENSES REASONABLY
INCURRED BY LANDLORD IN ENFORCING LANDLORD'S REMEDIES, INCLUDING
ATTORNEYS' FEES AND COURT COSTS.

0.27.0.0.7. UPON TERMINATION OF THIS LEASE OR REPOSSESSION OF
THE PREMISES DUE TO THE OCCURRENCE OF AN EVENT OF DEFAULT, LANDLORD
SHALL BE OBLIGATED TO USE REASONABLE EFFORTS TO RELET OR ATTEMPT TO
RELET THE PREMISES.

0.27.0.0.8. IF TENANT SHOULD FAIL TO MAKE ANY PAYMENT, PERFORM
ANY OBLIGATION, OR CURE ANY DEFAULT HEREUNDER WITHIN TEN (10) DAYS
AFTER RECEIPT OF WRITTEN NOTICE THEREOF, LANDLORD, WITHOUT OBLIGATION
TO DO SO AND WITHOUT THEREBY WAIVING SUCH FAILURE OR DEFAULT, MAY MAKE
SUCH PAYMENT, PERFORM SUCH OBLIGATION, AND/OR REMEDY SUCH OTHER DEFAULT
FOR THE ACCOUNT OF TENANT (AND ENTER THE PREMISES FOR SUCH PURPOSE),
AND TENANT SHALL, WITHIN TEN (10) DAYS FOLLOWING WRITTEN DEMAND, PAY
ALL COSTS, EXPENSES AND DISBURSEMENTS (INCLUDING ATTORNEYS' FEES)
INCURRED BY LANDLORD IN TAKING SUCH REMEDIAL ACTION, PLUS, AT THE
OPTION OF LANDLORD, INTEREST THEREON AT THE DEFAULT RATE.

0.27.0.0.9. EXCEPT AS PROVIDED IN SECTION 30, IN NO EVENT
SHALL TENANT BE LIABLE TO LANDLORD FOR CONSEQUENTIAL, SPECIAL OR
PUNITIVE DAMAGES BY REASON OF A FAILURE TO PERFORM (OR A DEFAULT) BY
TENANT UNDER THIS LEASE.

0.28. Default by Landlord. Landlord shall be in default under this
Lease if Landlord fails to perform any of its obligations hereunder and such
failure continues for a period of thirty (30) days after Tenant delivers written
notice of such failure to Landlord and to the holder(s) of any indebtedness or
other obligations secured by any mortgage or deed of trust affecting the
Premises, the name and address of which have been provided to Tenant in writing,
provided that if such failure cannot reasonably be cured within such thirty (30)
day period, Landlord shall not be in default hereunder as long as Landlord or
such holder(s) commences the remedying of such failure within such thirty-day
period and diligently prosecutes the same to completion, during which time
Landlord and such holder(s), or either of them, or their agents or employees,
shall be entitled to enter upon the Premises and do whatever may be necessary to
remedy such failure. In no event shall Landlord be liable to Tenant for
consequential, special or punitive damages by reason of a failure to perform (or
a default) by Landlord under this Lease. If Landlord shall default beyond
applicable grace and notice periods in the performance of any term, covenant,
condition or agreement on Landlord's part to be performed hereunder and such
default materially adversely affects the condition of the Premises or the
ability of Tenant to perform its business therein, then, provided such
performance does not affect the Building structure, the Building systems or any
other tenant of the Building, Tenant may perform the same for the account and at
the sole cost and expense of Landlord, on twenty-four (24) hours' prior notice
to Landlord if an emergency exists, or, if no

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emergency exists, on thirty (30) days' prior written notice to Landlord, and all
reasonable costs and expenses paid or incurred by Tenant in curing such default
shall be paid by Landlord to Tenant within thirty (30) days after receipt
therefor, together with interest at the Default Rate; provided, however, that,
prior to performing any such obligation for the account of Landlord (other than
in the event of an emergency), Tenant shall notify any mortgagee of the Premises
of whom Landlord has provided Tenant with written notice ("Lender"), which
notice may be given simultaneously with Tenant's notice to Landlord as provided
above, and such Lender shall have sixty (60) days to cure such default. If (a)
Landlord fails to pay to Tenant any amounts expended by Tenant to cure
Landlord's default (as provided in the previous sentence), (b) Tenant obtains a
final non-appealable judgment against Landlord in a court of law relating to
such default and (c) such final judgment is not satisfied within thirty (30)
days after the rendering of such judgment or otherwise in accordance with the
terms, then Tenant may offset the amount of such final judgment against the Base
Rental due hereunder. In the event of an emergency, Tenant shall give Landlord
prompt notice of any action taken by Tenant pursuant to this Section and shall
incur only such costs and expenses as are necessary to meet the emergency; no
additional costs or expenses shall be incurred which are not necessary to meet
the emergency until Tenant shall have given Landlord thirty (30) days' prior
written notice of default and Lender sixty (60) days' prior written notice of
default, and as herein above provided in this Section.

0.29. Quiet Enjoyment. Tenant, on paying all sums herein called for and
performing and observing all of its covenants and agreements hereunder, shall
and may peaceably and quietly occupy and use the Premises during the Lease Term
or any renewal term, subject to the provisions of this Lease, all matters of
record affecting the Complex and applicable governmental laws, rules, and
regulations; and Landlord agrees to warrant and forever defend Tenant's right to
such occupancy against the claims of any and all persons whomsoever lawfully
claiming the same or any part thereof, subject only to the provisions of this
Lease, all matters of record affecting the Complex and all applicable
governmental laws, rules, and regulations.

0.30. Holding Over. Should Tenant continue to occupy the Premises after
the expiration of the Lease Term or any renewal term without the prior written
consent of Landlord, such occupancy shall be a tenancy at sufferance under all
of the terms, covenants and conditions of this Lease, but at a daily Base Rental
equal to the sum determined by dividing one hundred and fifty percent (150%) of
the Base Rental, plus any sums due pursuant to Section 6, for the final month of
the Lease Term by thirty (30). Tenant shall also pay any and all costs, expenses
or damages (including consequential damages) sustained by Landlord as a result
of such holdover. If Tenant consists of more than one person or entity, and if
any of the persons or entities comprising Tenant continue to occupy the Premises
after the expiration of the Lease Term, all other persons or entities comprising
Tenant shall be deemed to have consented to such occupancy and shall continue to
be jointly and severally liable for all of the terms, covenants and conditions
contained in this Lease during the holdover term.

0.31. Change of Building Name or Common Areas.

0.31.0.0.1. SUBJECT TO TENANT'S SIGNAGE RIGHTS HEREIN GRANTED,
LANDLORD RESERVES THE RIGHT AT ANY TIME TO CHANGE THE NAME OF THE
BUILDING UPON THIRTY (30) DAYS ADVANCE WRITTEN NOTICE.

0.31.0.0.2. LANDLORD HEREBY RESERVES THE RIGHT TO REPAIR,
CHANGE, REDECORATE, ALTER, IMPROVE, OR RENOVATE ANY PART OF THE COMMON
AREAS (INCLUDING, BUT NOT LIMITED TO, THOSE LOCATED ON ANY FULL FLOOR
LEASED BY TENANT), WITHOUT BEING HELD GUILTY OF AN ACTUAL OR
CONSTRUCTIVE EVICTION OF TENANT OR BREACH OF ANY EXPRESS OR IMPLIED
WARRANTY AND WITHOUT ANY ABATEMENT OR REDUCTION OF RENT. IN EXERCISING
SUCH RIGHT, LANDLORD WILL USE REASONABLE EFFORTS TO MINIMIZE ANY
INTERRUPTION OF TENANT'S BUSINESS CONDUCTED IN THE PREMISES.

0.32. Subordination to Mortgage; Estoppel Agreement.

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 27
<PAGE> 32

0.32.0.0.1. SUBJECT TO SECTION 32(c), THIS LEASE SHALL BE
SUBORDINATE TO ANY MORTGAGE, DEED OF TRUST OR OTHER LIEN NOW EXISTING
OR HEREAFTER PLACED UPON THE PREMISES OR UPON THE COMPLEX, AND TO ANY
RENEWALS, MODIFICATIONS, CONSOLIDATIONS, REFINANCINGS, AND EXTENSIONS
THEREOF, BUT TENANT AGREES THAT ANY SUCH MORTGAGEE OR DEED OF TRUST
BENEFICIARY SHALL HAVE THE RIGHT AT ANY TIME TO SUBORDINATE SUCH
MORTGAGE, DEED OF TRUST OR OTHER LIEN TO THIS LEASE ON SUCH TERMS AND
SUBJECT TO SUCH CONDITIONS AS SUCH MORTGAGEE OR DEED OF TRUST
BENEFICIARY MAY DEEM APPROPRIATE, IN ITS DISCRETION. IN THE EVENT ANY
PROCEEDINGS ARE BROUGHT FOR THE FORECLOSURE OF, OR IN THE EVENT OF THE
EXERCISE OF THE POWER OF SALE UNDER, ANY SUCH MORTGAGE, DEED OF TRUST
OR OTHER LIEN, TENANT AGREES, WITHOUT FURTHER ACTION HEREUNDER, TO
ATTORN TO THE PURCHASER UPON SUCH FORECLOSURE (OR ANY DEED IN LIEU OF
FORECLOSURE) AND RECOGNIZE SUCH PURCHASER AS THE LANDLORD UNDER THIS
LEASE. LANDLORD IS HEREBY IRREVOCABLY VESTED WITH FULL POWER AND
AUTHORITY TO SUBORDINATE THIS LEASE TO ANY MORTGAGE, DEED OF TRUST OR
OTHER LIEN NOW EXISTING OR HEREAFTER PLACED UPON THE PREMISES OR THE
COMPLEX AND TENANT AGREES UPON DEMAND TO EXECUTE SUCH FURTHER
INSTRUMENTS SUBORDINATING THIS LEASE OR ATTORNING TO THE HOLDER OF ANY
SUCH LIENS AS LANDLORD MAY REASONABLY REQUEST.

0.32.0.0.2. LANDLORD AGREES TO USE REASONABLE EFFORTS TO
OBTAIN FROM LANDLORD'S LENDER, A SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT ("SNDA") ON SUCH LENDER'S FORM AND OTHERWISE
REASONABLY SATISFACTORY TO LANDLORD, TENANT AND SUCH LENDER.

0.32.0.0.3. NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS
SECTION 32, TENANT'S SUBORDINATION TO ANY MORTGAGE, DEED OF TRUST OR
OTHER LIEN SHALL BE CONTINGENT UPON TENANT'S RECEIPT OF AN SNDA AS
DEFINED IN SECTION 32(b) ABOVE FROM THE HOLDER OF SUCH MORTGAGE, DEED
OF TRUST OR OTHER LIEN. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET
FORTH HEREIN, IN THE EVENT TENANT FAILS TO RECEIVE AN SNDA EXECUTED BY
LANDLORD'S EXISTING MORTGAGEE ON OR BEFORE THE FIFTEENTH (15) DAY (THE
"TERMINATION DATE") AFTER THE EFFECTIVE DATE OF THIS LEASE, TENANT MAY
TERMINATE THIS LEASE BY DELIVERING WRITTEN NOTICE OF SUCH TERMINATION
TO LANDLORD ON THE TERMINATION DATE, FAILING WHICH SUCH TERMINATION
RIGHT SHALL BE DEEMED TO BE WAIVED AND OF NO FURTHER FORCE OR EFFECT.

0.32.0.0.4. TENANT AGREES THAT IT WILL, FROM TIME TO TIME,
WITHIN TEN (10) DAYS AFTER WRITTEN REQUEST BY LANDLORD, EXECUTE AND
DELIVER TO SUCH PERSONS AS LANDLORD SHALL DESIGNATE, AN ESTOPPEL
AGREEMENT IN RECORDABLE FORM CERTIFYING THAT THIS LEASE IS UNMODIFIED
AND IN FULL FORCE AND EFFECT (OR IF THERE HAVE BEEN MODIFICATIONS, THAT
THIS LEASE IS IN FULL FORCE AND EFFECT AS SO MODIFIED), STATING THE
DATES TO WHICH RENT AND OTHER CHARGES PAYABLE UNDER THIS LEASE HAVE
BEEN PAID, STATING THAT THE LANDLORD IS NOT IN DEFAULT HEREUNDER (OR IF
TENANT ALLEGES A DEFAULT, STATING THE NATURE OF SUCH ALLEGED DEFAULT)
AND FURTHER STATING SUCH OTHER MATTERS AS LANDLORD SHALL REASONABLY
REQUIRE.

0.33. Waiver of Landlord's Lien. Landlord hereby waives, releases and
negates any and all contractual liens and security interests, constitutional
liens and security interests, statutory liens and security interests, and/or any
and all other liens and security interests arising by operation of law or
otherwise, to which Landlord might now or hereafter be entitled upon all
equipment, furnishings, furniture, supplies, inventory, or other personal
property which Tenant may place (or permit to be placed) in or about the
Premises

0.34. Attorney's Fees. Tenant must pay to Landlord on demand within
thirty (30) days of said demand all reasonable attorney's fees, costs and
expenses incurred by Landlord in recovery of any Rent or enforcement of
Landlord's rights under this Lease. Furthermore, if Landlord or Tenant employs
an attorney to assert or defend any action arising out of the breach of any
term, covenant or provision of this Lease, or to bring legal action for the
unlawful detainer of the Premises, the prevailing party shall be entitled to
recover from the non-prevailing party attorney's fees and costs of suit incurred
in connection therewith. For purposes of this Section 34, a party shall be
considered to be the "prevailing party" to the extent that (a) such party
initiated the litigation and substantially obtained the relief which it sought
(whether by judgment, voluntary agreement or action of the other party, trial,
or alternative dispute resolution process), (b) such party did not initiate the
litigation and either (1) received a judgment in its favor, or (2) did not
receive judgment in its favor, but the party receiving the judgment did not
substantially obtain the relief which it sought, or (c) the other party to the
litigation withdrew its claim or action without having substantially received
the relief which it was seeking.

0.35. No Implied Waiver. The failure of either party to insist at any
time upon the strict performance of any covenant or agreement in this Lease or
to exercise any right, power or remedy contained in this Lease shall not be
construed as a waiver or a relinquishment thereof for the future. The

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acceptance by Landlord of late payments shall not be construed as a waiver by
Landlord of the requirement for timely payment nor create a course of dealing
permitting such late payments. Any payment by Tenant or receipt by Landlord of a
lesser amount than the monthly installment of Rent due under this Lease shall be
deemed to be on account of the earliest Rent due hereunder. No endorsement or
statement on any check or any letter accompanying any check or payment as Rent
shall be deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of such
Rent or pursue any other remedy provided in this Lease.

0.36. Independent Obligations. The obligation of Tenant to pay Rent
hereunder and the obligation of Tenant to perform Tenant's other covenants and
duties hereunder constitute independent, unconditional obligations to be
performed at all times provided for hereunder and are independent of the
Landlord's performance of Landlord's duties and obligations hereunder. Except as
expressly provided in this Lease, Tenant waives and relinquishes all rights
which Tenant might have to claim any nature of lien against or withhold, abate
or deduct from, or offset against Rent.

0.37. Recourse Limitation. Tenant shall be entitled to look solely to
Landlord's equity in the Complex for the recovery of any judgment against
Landlord, and Landlord shall not be personally liable for any deficiency with
respect to the recovery of such judgment. The provision contained in the
foregoing sentence shall not limit any right that Tenant might otherwise have to
obtain specific performance of Landlord's obligations under this Lease.

0.38. Notices. Any notice under this Lease must be in writing, and
shall be given or be served by (a) personal delivery, (b) delivery via a
recognized overnight courier, (c) depositing the same in the United States mail,
postage prepaid, certified mail, return receipt requested, addressed to the
party to be notified at the address stated in this Lease or such other address
in the continental United States of which notice has been given to the other
party in the manner provided herein, or (d) via facsimile with either electronic
or telephonic verification of receipt, so long as the original of the facsimile
notice is deposited in the United States mail within three (3) days thereafter.
Notice by personal delivery or overnight courier shall be effective upon
receipt, notice by mail shall be effective upon deposit in the United States
mail in the manner above described and notice by facsimile shall be effective
upon electronic or telephonic verification of receipt.

0.39. Severability. If any term or provision of this Lease, or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and enforced to the fullest
extent permitted by law.

0.40. Recordation. Tenant agrees not to record this Lease or any
memorandum hereof.

0.41. Governing Law. This Lease and the rights and obligations of the
parties hereto shall be interpreted, construed, and enforced in accordance with
the laws of the State of Texas. This Lease is performable in, and the exclusive
venue for any action brought with respect hereto, shall be in Dallas County,
Texas.

0.42. Force Majeure. Whenever a period of time is herein prescribed for
the taking of any action by Landlord or Tenant, the party responsible for taking
such action shall not be liable or responsible for, and there shall be excluded
from the computation of such period of time, any delays due to strikes, riots,
acts of God, shortages of labor or materials, war, governmental laws,
regulations or restrictions, inclement weather, or any other cause whatsoever
beyond the control of the party responsible for taking such action; provided,
however, the provisions of this Section 42 shall never be construed as allowing
an extension of time with respect to either party's monetary obligations when
and as due under this Lease.

0.43. Time of Performance. Except as otherwise expressly provided
herein, time is of the essence under this Lease, including all Exhibits.

0.44. Transfers by Landlord. Landlord shall have the right to transfer
and assign, in whole or in part, all of its rights and obligations hereunder and
in the Complex, and in such event and upon the assumption by the transferee of
the obligations of Landlord hereunder, Landlord shall be released from any
further obligations accruing after the date of transfer, and Tenant agrees to
look solely to such successor-in-interest of Landlord for the performance of
such obligations. Landlord shall use reasonable efforts to deliver a copy of the
assumption document to Tenant prior to the effective date of such assumption;
provided, however, Landlord's failure to deliver such document within such time
period shall not constitute a default under this Lease nor shall it affect
Landlord's release under this Section 44.

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0.45. Commissions. Landlord and Tenant agree that the Broker is the
only broker involved in the procurement, negotiation or execution of this Lease
on behalf of Tenant, and that the Broker's commission shall be paid by Landlord
pursuant to a separate commission agreement. Landlord and Tenant hereby agree to
defend, indemnify and hold each other harmless against any loss, claim, expense
or liability with respect to any commissions or brokerage fees claimed on
account of the execution and/or renewal of this Lease or the expansion of the
Premises due to any action of the indemnifying party.

0.46. Effect of Delivery of This Lease. Landlord has delivered a copy
of this Lease to Tenant for Tenant's review only, and the delivery hereof does
not constitute an offer to Tenant or an option to be exercised by Tenant. This
Lease shall not be effective until a copy of this Lease executed by both
Landlord and Tenant is delivered by Landlord to Tenant.

0.47. WAIVER OF WARRANTIES AND ACCEPTANCE OF CONDITION. TENANT
ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
LEASE (INCLUDING THE TENANT IMPROVEMENTS AGREEMENT), NEITHER LANDLORD NOR ANY
LANDLORD RELATED PARTY HAS MADE ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS
OR IMPLIED, AS TO THE HABITABILITY, MERCHANTABILITY, SUITABILITY, QUALITY,
CONDITION OR FITNESS FOR ANY PARTICULAR PURPOSE WITH REGARD TO THE PREMISES OR
THE COMPLEX AND THAT THIS LEASE CONSTITUTES THE FULL AND FINAL AGREEMENT OF
LANDLORD AND TENANT WITH RESPECT TO THIS LEASE OF SPACE IN THE BUILDING BY
TENANT. EXCEPT FOR ANY WARRANTY SET OUT IN THE TENANT IMPROVEMENTS AGREEMENT,
TENANT HEREBY WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY CLAIM OR CAUSE OF
ACTION BASED UPON ANY WARRANTIES, EITHER EXPRESS OR IMPLIED, AS TO HABITABILITY,
MERCHANTABILITY, SUITABILITY, QUALITY, CONDITION OR FITNESS FOR ANY PARTICULAR
PURPOSE WITH REGARD TO THE PREMISES OR THE COMPLEX. TENANT'S TAKING POSSESSION
OF THE PREMISES SHALL BE CONCLUSIVE EVIDENCE THAT (a) TENANT HAS INSPECTED (OR
HAS CAUSED TO BE INSPECTED) THE PREMISES AND THE COMPLEX, (b) TENANT ACCEPTS THE
PREMISES AND THE COMPLEX AS BEING IN GOOD AND SATISFACTORY CONDITION AND
SUITABLE FOR TENANT'S PURPOSES, AND (c) THE PREMISES AND THE COMPLEX FULLY
COMPLY WITH LANDLORD'S COVENANTS AND OBLIGATIONS HEREUNDER. NOTWITHSTANDING THE
FOREGOING, TENANT DOES NOT WAIVE THE RIGHT TO CAUSE LANDLORD TO (1) COMPLETE ANY
PUNCHLIST ITEMS IN ACCORDANCE WITH THE TERMS OF THIS LEASE OR (2) CORRECT ANY
"LATENT DEFECTS" IN OR AFFECTING THE PREMISES (I.E., DEFECTS NOT REASONABLY
DISCOVERABLE PURSUANT TO A THOROUGH INVESTIGATION OF THE PREMISES), SUBJECT TO
THE LIMITATION SET FORTH IN THE NEXT TWO SENTENCES. TENANT SHALL HAVE THE RIGHT
FOR NINE (9) MONTHS (THE "WARRANTY PERIOD") FOLLOWING THE DELIVERY DATE TO
PROVIDE LANDLORD WITH WRITTEN NOTICE OF ALLEGED LATENT DEFECTS IN OR AFFECTING
THE PREMISES. THE FAILURE OF TENANT TO DELIVER WRITTEN NOTICE OF ALLEGED
DEFECTIVE WORK UNDER THE TENANT IMPROVEMENTS AGREEMENT OR LATENT DEFECTS WITHIN
SUCH NINE (9) MONTH PERIOD SHALL CONSTITUTE A WAIVER OF ANY FURTHER CLAIMS OF
TENANT RELATING TO THE INITIAL IMPROVEMENTS AND THE CONDITION OF THE PREMISES OR
THE COMPLEX AS OF THE COMMENCEMENT DATE. NOTWITHSTANDING THE FOREGOING, NOTHING
CONTAINED IN THIS SECTION 47 SHALL LIMIT THE RIGHT OF TENANT TO ENFORCE THE
REPAIR AND MAINTENANCE OBLIGATIONS OF LANDLORD UNDER THIS LEASE OR THE
OBLIGATIONS OF LANDLORD UNDER SECTIONS 24 AND 25.

0.48. Merger of Estates. The voluntary or other surrender of this Lease
by Tenant, or a mutual cancellation thereof, shall not constitute a merger of
the Landlord's fee estate in the Property and the leasehold interest created
hereby; and upon such surrender or cancellation of this Lease, Landlord shall
have the option, in Landlord's sole discretion, to (a) either terminate all or
any existing subleases or subtenancies, or (b) assume Tenant's interest in any
or all subleases or subtenancies.

0.49. Survival of Indemnities and Covenants. Any and all indemnities of
Landlord or Tenant and any and all covenants of Landlord or Tenant not fully
performed on the date of the expiration or termination of this Lease shall
survive such expiration or termination.

0.50. Headings. Descriptive headings are for convenience only and shall
not control or affect the meaning or construction of any provision of this
Lease.

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0.51. Entire Agreement; Amendments. This Lease, including the exhibits
and addenda, if any, listed in Section 52, embodies the entire agreement between
the parties hereto with relation to the transaction contemplated hereby, and
there have been and are no covenants, agreements, representations, warranties or
restrictions between the parties hereto, other than those specifically set forth
herein. To be effective, any amendment or modification of this Lease must be in
writing and signed by Landlord and Tenant.

0.52. Exhibits. The following exhibits are attached hereto and
incorporated herein and made a part of this Lease for all purposes:

Exhibit "A" - Property Description
Exhibit "B" - Floor Plan
Exhibit "C" - Rules and Regulations
Exhibit "D" - Tenant Improvements Agreement
Exhibit "E" - Parking Agreement
Exhibit "F" - Form of Confidentiality Agreement
Exhibit "G" - Rights of Refusal
Exhibit "H" - Renewal Option
Exhibit "I" - Description of Base Building Plans
Exhibit "J" - Design Criteria
Exhibit "K" - Permitted Encumbrances

0.53. Joint and Several Liability. If Tenant consists of more than one
person or entity, the obligations of such parties under this Lease shall be
joint and several.

0.54. Multiple Counterparts. This Lease may be executed in multiple
counterparts, each of which shall constitute an original instrument, but all of
which shall constitute one and the same agreement.

0.55. Building Signage. Tenant shall, at Tenant's sole cost and
expense, have the right to place exterior signage (the "Lower Fascia Signage")
on the lower fascia (i.e., between the 2nd and 3rd floors) of the Building,
which Lower Fascia Signage shall be subject to Landlord's prior written approval
(which approval shall not be unreasonably withheld or delayed). In addition, in
the event that and at such time as (i) ninety-five percent (95%) of the Rentable
Area of the Building is leased, (ii) Tenant's annual Base Rental obligation
under this Lease exceeds the annual base rental payable by each of the other
tenants in the Building, and (iii) no other Superior Tenant (hereinafter
defined) in the Building has exercised a right to place exterior signage on the
upper fascia located at the top of the Building (the "Upper Fascia"), then
Tenant shall have the right, at Tenant's sole cost and expense, to place signage
(the "Upper Fascia Signage") on the Upper Fascia of Building, which Upper Fascia
Signage shall be subject to Landlord's prior written approval (which approval
shall not be unreasonably withheld or delayed). Notwithstanding the foregoing,
Tenant's right to erect the Upper Fascia Signage shall at all times remain
subordinate to any rights Landlord may grant to any tenant of the Building which
(a) occupies the entire 10th floor of the Building or (b) now or in the future
has an annual base rental obligation with respect to the Building which exceeds
the annual Base Rental payable by Tenant hereunder (individually a "Superior
Tenant" and collectively, the "Superior Tenants"). If the foregoing conditions
have been satisfied and Tenant elects to erect the Upper Fascia Signage, Tenant
shall, at Tenant's sole cost and expense, remove the Lower Fascia Signage and
shall promptly repair any damage to the Building caused by such removal.
Notwithstanding anything to the contrary set forth herein, in the event Tenant
erects the Upper Fascia Signage and any Superior Tenant desires to exercise its
right to erect signage on the Upper Fascia, Tenant shall remove such Upper
Fascia Signage from the Building at Tenant's sole cost and expense within
fifteen (15) days after receipt of notice thereof (and shall promptly repair any
damage to the Building caused by such removal). In such event, Tenant may once
again erect the Lower Fascia Signage at Tenant's sole cost and expense which
Lower Fascia Signage shall once again be subject to Landlord's prior written
approval (which approval shall not be unreasonably withheld). Upon the
expiration or earlier termination of this Lease, Tenant shall, at Tenant's sole
cost and expense, remove the Lower Fascia Signage or the Upper Fascia Signage,
as the case may be, and shall promptly repair any damage to the Building caused
by such removal. In addition, prior to installing or removing any signage on the
exterior of the Building, Tenant shall cooperate with Landlord and Landlord's
engineer and/or contractor to ensure that the installation or removal of such
signage will not damage the exterior of the Building. Tenant further hereby
agrees to indemnify, defend and hold harmless Landlord from damage caused to the
Building as a result of Tenant's installation, removal, maintenance, repair or
replacement of any exterior signage as provided in this Section 55.
Notwithstanding anything to the contrary set forth herein, the Lower Fascia
Signage or the Upper Fascia Signage, as the case may be, shall be limited to the
word "CapRock" and otherwise shall be of a size, design, location and color
reasonably acceptable to Landlord.

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 31
<PAGE> 36

Notwithstanding anything to the contrary set forth herein, in the event
Landlord elects to erect a monument sign (a "Monument Sign") on the Property
which identifies any tenants of the Building, Tenant, at Tenant's sole cost and
expense, shall have the right to place Tenant's name and/or logo on such
Monument Sign; provided, however, the size and design of Tenant's portion of the
Monument Sign shall be subject to Landlord's prior written approval, which
approval shall not be unreasonably withheld, conditioned or delayed; provided
further that the size of Tenant's portion of the Monument Sign shall be
generally consistent with the relationship which the square footage of Rentable
Area then being occupied by Tenant bears to the square footage of the entire
Building.

0.56. Satellite Dish. Notwithstanding anything to the contrary set
forth herein, Tenant shall have the right, subject to Landlord's prior written
approval (which approval shall not be unreasonably withheld or delayed) at all
times during the terms hereof, including any renewal term, to install, maintain,
replace and remove, all at Tenant's sole cost and expense, a satellite dish and
related equipment not to exceed six (6) feet in diameter ("Communications
Equipment") on the rooftop of the Building provided that Tenant (i) coordinates
the location of such Communications Equipment with Landlord, (ii) coordinates
such installation with Landlord's roofing contractor so as not to affect any
roof warranty, (iii) notifies Landlord prior to such installation to permit
Landlord to have a representative present in connection with such installation,
(iv) remains responsible for and repair any damage to the roof caused by
Tenant's entry on the roof and installation, maintenance, replacement or removal
of the Communications Equipment, (v) complies with all Applicable Laws, rules
and regulations (including deed restrictions and regulations of Addison Circle)
applicable to the installation and maintenance of the Communications Equipment,
and further complies with the reasonable requirements of Landlord with respect
to the installation and maintenance of the Communications Equipment, including
without limitation, screening such equipment from public view from adjacent
public streets and the Parking Areas of the Premises, and (vi) indemnifies,
defends and holds harmless Landlord from any damage to property caused by the
installation, maintenance and removal of such Communications Equipment. Such
Communications Equipment shall remain the exclusive property of Tenant, and
Tenant shall have the right to remove such Communications Equipment at any time
during the term of the Lease, provided Tenant returns the rooftop of the
Building to the condition that existed prior to the installation of such
Communications Equipment. Upon the expiration or earlier termination of this
Lease, Tenant shall, at Tenant's sole cost and expense, remove the
Communications Equipment if requested by Landlord and Tenant shall promptly
repair any damage to the Building caused by such removal.

0.57. Warranty of Title. Landlord hereby covenants and warrants to
Tenant that Landlord has full right and lawful authority to enter into this
Lease for the full term herein granted and for all extensions herein provided,
and that Landlord has good and indefeasible title to the Premises, free and
clear of all occupancies, tenancies, mortgages, liens, and other encumbrances
which are or may be superior to the rights of Tenant hereunder and which would
materially affect the operation of Tenant's business from the Premises, except
for those set forth in Exhibit "K" attached hereto and made a part hereof for
all purposes.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the date first above written.

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 32
<PAGE> 37

<TABLE>
<CAPTION>
Address: LANDLORD:
- -------- ---------
<S> <C>
c/o Champion Partners, Ltd. CHAMPION ADDISON ONE LIMITED PARTNERSHIP,
5430 LBJ Freeway, Suite 1245 a Delaware limited partnership
Dallas, Texas 75240
By: CP/AOC VENTURE ONE, LTD.,
Attn: Property Manager a Texas limited partnership,
its sole general partner

By: CHAMPION-ACO, LTD.,
a Texas limited partnership,
its general partner

By: ADDISON-CHAMPION, INC.
a Texas corporation,
its general partner

By:
Jeffrey L. Swope
President
Address Prior to TENANT:
Commencement Date:
CAPROCK COMMUNICATIONS CORP.,
a Texas corporation

Attn: By:
Kevin McAleer
Address Subsequent to Chief Financial Officer
Commencement Date:

</TABLE>

OFFICE LEASE AGREEMENT/CAPROCK COMMUNICATIONS CORP. - Page 33
<PAGE> 38

EXHIBIT "A"

PROPERTY DESCRIPTION

BEING a tract of land situated in the G. W. Fisher Survey, Abstract No. 482,
Town of Addison, Dallas County, Texas, and being a portion of three tracts of
land deeded to Opubco Properties, Inc. as evidenced by three instruments
recorded in Volume 82020, Page 0684, Volume 84151, Page 3619, and Volume 85147,
Page 4305 all of the Deed Records of Dallas County, Texas, said tract being all
of Lot 2, Block C of ADDISON CIRCLE PHASE II, an addition to the Town of
Addison, Texas, as recorded in Volume 97217, Page 3056, Deed Records, Dallas
County, Texas, and being more particularly described as follows:

COMMENCING at a one-half inch iron rod found with "Huitt-Zollars" cap at the
intersection of the north right-of-way line of the Dallas Area Rapid Transit
Property Acquisition Corporation, (formerly St. Louis Southwestern Railroad) a
100 foot wide right-of-way, as evidenced by instrument recorded in Volume 91008,
Page 1390 of the Deed Records of Dallas County, Texas, with east right-of-way
line of Quorum Drive as established by instrument to the Town of Addison, Texas
as recorded in Volume 82093, Page 1077 of the Deed Records of Dallas County,
Texas;

THENCE, North 66 degrees 45 minutes 01 second East along the northwesterly
right-of-way line of said Dallas Area Rapid Transit tract a distance of 769.32
feet to a one-half inch iron rod set with "Huitt-Zollars" cap for the POINT OF
BEGINNING;

THENCE, North 23 degrees 14 minutes 59 seconds West a distance of 59.99 feet to
a one-half inch iron rod set with "Huitt-Zollars" cap for a corner;

THENCE, North 00 degrees 55 minutes 13 seconds East a distance of 157.85 feet to
a one-half inch iron rod set with "Huitt-Zollars" cap for a corner;

THENCE, North 66 degrees 45 minutes 01 second East a distance of 343.62 feet to
a one-half inch iron rod set with "Huitt-Zollars" cap for a corner;

THENCE, North 17 degrees 01 minute 01 second West a distance of 60.70 feet to a
one-half inch iron rod set with "Huitt-Zollars" cap for a corner;

THENCE, North 72 degrees 58 minutes 59 seconds East a distance of 69.00 feet to
a one-half inch iron rod set with "Huitt-Zollars" cap for a corner;

THENCE, North 17 degrees 01 minute 01 second West a distance of 32.00 feet to a
one-half inch iron rod set with "Huitt-Zollars" cap for a corner;

THENCE, North 72 degrees 58 minutes 59 seconds East a distance of 0.67 feet to a
one-half inch iron rod set with "Huitt-Zollars" cap for a corner;

THENCE, North 17 degrees 01 minute 01 second West a distance of 30.83 feet to a
one-half inch iron rod set with "Huitt-Zollars" cap for a corner;

THENCE, North 72 degrees 58 minutes 59 seconds East a distance of 214.02 feet to
a one-half inch iron rod set with "Huitt-Zollars" cap on the east line of a
tract of land described in instrument to Opubco Properties, Inc. as recorded in
Volume 85147, Page 4305, Deed Records, Dallas County, Texas and the west
right-of-way line of the Dallas North Tollway, said point being the beginning of
a non- tangent curve to the left having a radius of 1,997.84 feet;

THENCE, continuing along the east line of said Opubco tract and west
right-of-way of the Dallas North Tollway and along said curve to the left
through a central angle of 2 degrees 27 minutes 02 seconds, an arc distance of
85.45 feet and being subtended by a chord bearing South 8 degrees 44 minutes 32
seconds East a distance of 85.44 feet to a one-half inch iron rod set with
"Huitt-Zollars" cap at the northeast corner of said Opubco tract recorded in
Volume 84151, Page 3619, Deed Records, Dallas County, Texas, said corner being
the beginning of a non-tangent curve to the left having a radius of 2,964.79
feet;

THENCE, continuing along the East line of said Opubco tract and the west
right-of-way line of the Dallas North Tollway and along said curve to the left
through a central angle of 01 degree 54 minutes 29 seconds, an arc distance of
98.74 feet and being subtended by a chord bearing South 12 degrees 05 minutes 47
seconds East a distance of 98.73 feet to a one-half inch iron rod found with
"Huitt- Zollars" cap at the end of said curve;

Exhibit "A", Property Description - Page 1
<PAGE> 39

THENCE, South 13 degrees 03 minutes 02 seconds East continuing along the east
line of the Opubco tract and along the west right-of-way line of the Dallas
North Tollway a distance of 118.29 feet to a one- half inch iron rod set with
"Huitt-Zollars" cap on the northwesterly right-of-way line of said Dallas Area
Rapid Transit tract;

THENCE, South 66 degrees 45 minutes 01 second West along the northwesterly
right-of-way line of Dallas Area Rapid Transit tract a distance of 642.23 feet
to the POINT OF BEGINNING and CONTAINING 3.576 acres of land, more or less.

Exhibit "A", Property Description - Page 2
<PAGE> 40

EXHIBIT "B"

FLOOR PLAN

[Floor Plan follows this cover page.]

Exhibit "B", Floor Plan - Solo Page

<PAGE> 41

EXHIBIT "C"

RULES AND REGULATIONS

Any capitalized terms not defined in this Exhibit "C" shall have the
meaning set forth in the Lease to which this Exhibit "C" is attached.

FFF. Sidewalks, doorways, vestibules, halls, stairways, and similar areas
shall not be obstructed, nor shall refuse, furniture, boxes or other items be
placed therein by Tenant or Tenant's officers, agents, servants, contractors and
employees, or used for any purpose other than ingress and egress to and from the
Premises, or for going from one part of the Building or Complex to another part
of the Building or Complex. Tenant shall be responsible, at its sole cost, for
the removal of any large boxes or crates not used in the ordinary course of
business. Nothing shall be swept or thrown into the corridors, halls, elevator
shafts or stairways.

GGG. Canvassing, soliciting, distributing handbills, advertising and
peddling in the Building and Complex are prohibited.

HHH. Plumbing fixtures and appliances shall be used only for the purpose
for which such were constructed or installed, and no unsuitable material shall
be placed therein. The cost of repair of any stoppage or damage to any such
fixtures or appliances from misuse on the part of Tenant or Tenant's officers,
agents, servants, contractors, employees, guests and customers shall be paid by
Tenant, and Landlord shall not in any case be responsible therefor.

III. No signs, directories, posters, advertisements, or notices visible to
the public shall be painted or affixed on or to any of the windows or doors, or
in corridors or other parts of the Building, except in such color, size, and
style, and in such places, as shall be first approved in writing by Landlord.
Landlord shall have the right to remove, at the expense of Tenant, all
unapproved signs, directories, posters, advertisements or notices following
reasonable prior notice to Tenant.

JJJ. Tenant shall not do, or permit anything to be done, in or about the
Building or Complex, or bring or keep anything therein, that will in any way
increase the rate of fire or other insurance on the Building, or on property
kept therein, or otherwise increase the possibility of fire or other casualty.
No cooking (other than cooking through the use of a microwave oven), including
grills or barbecues, shall be permitted within the Premises or on any patio
adjoining the Premises.

KKK. Landlord shall have the power to prescribe the weight and position of
heavy equipment or objects which may overstress any portion of the floor of the
Premises. All damage done to the Building by the improper placing of such heavy
items shall be repaired at the sole expense of Tenant. Tenant shall notify the
Building manager when safes or other heavy equipment are to be taken in or out
of the Building and the moving of such equipment shall be done only after
written permission is obtained from Landlord and shall be performed under such
conditions as Landlord may reasonably require.

LLL. Corridor doors, when not in use, shall be kept closed.

MMM. All movement of furniture and equipment into and out of the Building
shall be scheduled through the Building manager and conducted outside of Normal
Business Hours. All deliveries must be made via the service entrance and service
elevator, when provided, during Normal Business Hours. Any delivery after Normal
Business Hours must be coordinated with the Building manager. When conditions
are such that Tenant must dispose of crates, boxes, and other such items, Tenant
shall dispose of such items prior to or after Normal Business Hours.

NNN. Tenant shall cooperate with Landlord's employees in keeping the
Premises neat and clean.

OOO. Tenant shall not cause or permit any improper noises in the Building,
or allow any unpleasant odors to emanate from the Premises, or otherwise
interfere, injure or annoy in any way other tenants, or persons having business
with such tenants.

PPP. No animals or birds shall be brought into or kept in or about the
Building, except those assisting the disabled.

QQQ. No machinery of any kind, other than ordinary office machines such as
copiers, fax machines, personal computers and related mainframe equipment,
electric typewriters and word processing equipment, shall be operated on the
Premises without the prior written consent of Landlord, which consent shall not
be unreasonably withheld or delayed.

Exhibit "C", Rules and Regulations - Page 1
<PAGE> 42

RRR. Tenant shall not use or keep in the Building any flammable or
explosive fluid or substance (including Christmas trees and ornaments), or any
illuminating materials, without the prior written approval of the Building
manager.

SSS. No bicycles, motorcycles or similar vehicles will be allowed in the
Building.

TTT. No nails, hooks, or screws (other than those necessary for hanging
artwork, diplomas, posterboards and other such items on interior walls) shall be
driven into or inserted in any part of the Building (including doors), except as
approved by Landlord.

UUU. Landlord has the right to evacuate the Building in the event of an
emergency or catastrophe. Tenant shall cause its officers, agents and employees
to participate in any fire safety or emergency evacuation drills scheduled by
Landlord.

VVV. No food or beverages shall be prepared, cooked or distributed from
the Premises without the prior written approval of Landlord, which approval
shall not be unreasonably withheld or delayed; provided, however, Tenant shall
be permitted to install refrigerators, microwave ovens, coffee machines and
vending machines for the use of its own employees and guests.

WWW. No additional or replacement locks shall be placed upon any doors
without the prior written approval of Landlord, which approval shall not be
unreasonably withheld or delayed. All necessary keys shall be furnished by
Landlord. Upon termination of the Lease, Tenant shall return all such keys to
Landlord and shall provide the Landlord the combination of all locks on doors or
vaults. No duplicates of keys shall be made by Tenant.

XXX. Tenant will not locate furnishings or cabinets adjacent to mechanical
or electrical access panels or over air conditioning outlets so as to prevent
Landlord's personnel or contractors from servicing such units as routine or
emergency service may require. Tenant shall pay the cost of moving such
furnishings for Landlord's access. Tenant shall instruct all of its employees to
refrain from any attempts to adjust thermostats. The lighting and air
conditioning equipment of the Building shall be exclusively controlled by
Landlord's personnel.

YYY. No portion of the Building shall be used for the purpose of lodging
rooms.

ZZZ. Tenant shall obtain Landlord's prior written approval, which approval
shall not be unreasonably withheld or delayed, for the installation of window
shades, blinds, drapes or any other window treatment or object that may be
visible from the exterior of the Building or affect the heating and cooling of
the Building. Landlord will control all internal lighting that may be visible
from the exterior of the Building and shall have the right to change, at
Tenant's expense, any unapproved lighting following reasonable prior notice to
Tenant.

AAAA. No supplemental heating, air ventilation or air conditioning
equipment, including space heaters and fans, shall be installed or used by
Tenant without the prior written consent of Landlord.

BBBB. No smoking shall be permitted within the Premises or anywhere else
within the Complex, other than those smoking areas designated by the Building
manager.

CCCC. No unattended children shall be allowed within the Complex.

DDDD. Other than during Normal Business Hours, Building access shall be
limited, with the result that access will require entry cards or keys and
compliance with Landlord's registration procedures.

EEEE. Landlord reserves the right to rescind any of these Rules and
Regulations and make such other and further Rules and Regulations as in its
reasonable judgment shall from time to time be necessary or advisable for the
operation of the Building or the Complex, providing that such Rules and
Regulations are in writing and uniformly enforced against all other tenants of
the Building provided Landlord may not enact any Rule or Regulation that is
intended to or has the primary effect of discriminating against or adversely
affecting the operations of Tenant's business or its use and enjoyment of the
Premises. Such Rules and Regulations shall be binding upon Tenant upon delivery
to Tenant of notice thereof in writing.

FFFF. In the event of any inconsistency between these Rules and
Regulations and the terms of the Lease, the terms of the Lease shall control.

Exhibit "C", Rules and Regulations - Page 2
<PAGE> 43

EXHIBIT "D"

TENANT IMPROVEMENTS AGREEMENT

This Tenant Improvements Agreement ("Agreement") describes and specifies
the rights and obligations of Landlord and Tenant under the Lease to which this
Exhibit "D"is attached, with respect to the design, construction and payment for
completion of the Tenant Improvements within the Premises.

0.84.0.1. Definitions. Each capitalized term in this Agreement shall
have the meaning set forth below. Any capitalized term not defined in
this Agreement shall have the meaning ascribed to such term in the
Lease.

0.84.0.1.1. "TENANT IMPROVEMENTS" SHALL MEAN THE LEASEHOLD
IMPROVEMENTS TO BE MADE TO THE PREMISES BY TENANT IN ACCORDANCE WITH
TENANT'S FINAL PLANS.

0.84.0.1.2. "TENANT'S ARCHITECT" SHALL MEAN HELLMUTH, OBATA &
KASSABAUM, WHICH HAS BEEN APPROVED BY LANDLORD FOR PURPOSES OF SECTION
2 HEREOF.

0.84.0.1.3. "TENANT'S CONTRACTOR" SHALL MEAN THE CONTRACTOR
RESPONSIBLE FOR THE CONSTRUCTION OF TENANT'S WORK IN ACCORDANCE WITH
TENANT'S FINAL PLANS. TENANT'S CONTRACTOR SHALL BE SELECTED BY TENANT
AND APPROVED BY LANDLORD (WHICH APPROVAL SHALL NOT BE UNREASONABLY
WITHHELD, CONDITIONED OR DELAYED).

0.84.0.1.4. "TENANT'S FINAL PLANS" SHALL MEAN THE FINAL PLANS
AND SPECIFICATIONS FOR THE CONSTRUCTION OF TENANT'S WORK, WHICH
TENANT'S FINAL PLANS SHALL BE APPROVED BY LANDLORD PURSUANT TO SECTION
2 OF THIS TENANT IMPROVEMENTS AGREEMENT.

0.84.0.1.5. "TENANT'S WORK" SHALL MEAN THE DESIGN AND
CONSTRUCTION OF THE TENANT IMPROVEMENTS FOR TENANT'S USE IN ACCORDANCE
WITH TENANT'S FINAL PLANS.

0.84.0.2. Approval of Design Professionals: Plan and Tenant's Final
Plans. All design professionals engaged by Tenant, including, without
limitation, architects, engineers and interior designers shall be
subject to the prior written approval of Landlord, which approval shall
not be unreasonably withheld. On or before December 1, 1998, Landlord
and Tenant shall agree upon the Space Plan for the Initial Premises and
the preliminary plans and specifications for the Tenant Improvements
applicable to the Initial Premises, including, without limitation, the
types of materials and finishes that Tenant desires to use within the
Premises. In addition, with respect to each additional Phase of the
Premises, Tenant shall submit the Space Plan and the preliminary plans
and specifications for the Tenant Improvements applicable to such Phase
prior to commencement of construction thereof. Landlord shall have ten
(10) days after receipt of Tenant's Space Plan and preliminary plans
and specifications for the Tenant Improvements applicable to each Phase
to approve same. Unless the Landlord timely disapproves in writing,
approval will be deemed granted. If Landlord disapproves, the Landlord
shall specify with particularity the reasons for its disapproval, and
Tenant shall be afforded ten (10) days to revise the applicable portion
of the Space Plan and/or preliminary plans and specifications that has
been disapproved by Landlord. Thirty (30) days following the agreement
by Landlord and Tenant with respect to such items, Tenant shall prepare
and deliver detailed construction documents to Landlord for approval.
Landlord shall approve or disapprove such construction documents within
ten (10) days after receipt thereof. If Landlord does not approve such
construction documents, Landlord shall specifically identify its
objections and Tenant shall revise such construction documents to
address Landlord's objections and re-submit the same to Landlord for
approval within five (5) days thereafter. Landlord may require changes
only to the extent that such construction documents contain detail in
addition to, or contain changes from, the approved preliminary plans
and specifications. The foregoing process shall be implemented
repeatedly (but Tenant covenants to submit construction documents for
the Initial Premises acceptable to Landlord not later than January 15,
1999) until Landlord shall have approved Tenant's construction
documents. Upon approval by Landlord, such construction documents shall
constitute the "Tenant's Final Plans" hereunder.

0.84.0.3. Compliance With Applicable Laws. Tenant acknowledges that
Landlord's approval of the Tenant's Final Plans does not imply that the
Tenant's Final Plans comply with, and Landlord has no responsibility
for compliance of the Tenant's Final Plans with, Applicable Laws.

0.84.0.4. Construction of the Tenant Improvements. Provided Landlord
and Tenant have agreed upon Tenant's Final Plans in accordance with
Section 2 of this Tenant Improvements Agreement, commencing on the
Delivery Date, Tenant shall have the right to enter the Premises and
commence construction of Tenant's Work in accordance with the terms of
this Tenant Improvements

Exhibit "D", Tenant Improvements Agreement - Page 1
<PAGE> 44

Agreement. In connection with Tenant's construction of the Tenant's
Work, Tenant shall have the right to set up a temporary office in the
Premises for the sole purpose of facilitating construction of the
Tenant's Work, and the existence of such office shall not constitute
"occupancy" of the Premises for purposes of Section 2 of the Lease.
Tenant shall diligently pursue and complete construction of the
Tenant's Work in a good and workmanlike manner in accordance with
Tenant's Final Plans and all Applicable Laws. Tenant shall
Substantially Complete the performance of Tenant's Work with respect to
the Initial Premises on or before June 1, 1999. Notwithstanding
anything in the Lease to the contrary, Tenant may take possession of
the Second Phase and the Final Phase at any time after the Delivery
Date for the purpose of commencing Tenant's Work; provided, however,
that upon taking such possession, each of the terms and conditions of
the Lease (save and except payment of Base Rental and Tenant's Share of
Basic Operating Costs) shall be in full force and effect with respect
to such Phase(s). In addition, upon Tenant's commencement of
construction of Tenant's Work with respect to the Second Phase and the
Final Phase, Tenant shall diligently pursue such phases to Substantial
Completion. Tenant shall protect the Common Areas and all Building
services and systems during construction of Tenant's Work, and shall
clean the Common Areas promptly upon completion of Tenant's Work.

0.84.0.5. Cost of Tenant Improvements.

0.84.0.5.1. PAYMENT OF COSTS. TENANT SHALL PROMPTLY PAY ANY
AND ALL COSTS AND EXPENSES INCURRED IN CONNECTION WITH OR ARISING OUT
OF THE PERFORMANCE OF THE TENANT'S WORK IN CONSTRUCTING THE TENANT
IMPROVEMENTS.

0.84.0.5.2. TENANT IMPROVEMENT ALLOWANCE. NOTWITHSTANDING THE
PROVISIONS OF SUBPARAGRAPH (A) ABOVE, IN THE EVENT AND ONLY IN THE
EVENT THAT THE LEASE IS SUBSEQUENTLY EXECUTED AS CONTEMPLATED HEREBY,
LANDLORD SHALL PROVIDE TENANT WITH AN ALLOWANCE (THE "ALLOWANCE") EQUAL
TO $21.00 PER SQUARE FOOT OF RENTABLE AREA IN THE PREMISES TO BE USED
FOR THE PERFORMANCE OF TENANT'S WORK. HOWEVER, UP TO $25.00 PER SQUARE
FOOT OF RENTABLE AREA MAY BE ALLOCATED TO THE SEVENTH (7TH) FLOOR OF
THE BUILDING, WITH THE BALANCE TO BE SPENT ON THE SIXTH (6TH) FLOOR OF
THE BUILDING (FOR EXAMPLE, IF TENANT SPENDS $25.00 PER SQUARE FOOT ON
THE SEVENTH (7TH) FLOOR, $17.00 PER SQUARE FOOT WOULD REMAIN AVAILABLE
TO BE SPENT ON THE SIXTH (6TH) FLOOR). AS TENANT'S WORK PROGRESSES
(SUBSEQUENT TO FULL EXECUTION OF THE LEASE BY LANDLORD AND TENANT),
TENANT MAY SUBMIT TO LANDLORD A REQUEST (A "DRAW REQUEST") IN WRITING
FOR A PORTION OF THE ALLOWANCE, WHICH REQUEST SHALL INCLUDE: (i) A
DETAILED BREAKDOWN OF TENANT'S CONSTRUCTION COSTS, TOGETHER WITH
INVOICES THEREFOR, INCURRED THROUGH THE DATE OF SUCH DRAW REQUEST, (ii)
A CERTIFIED, WRITTEN STATEMENT FROM TENANT'S ARCHITECT THAT THE TENANT
IMPROVEMENTS FOR WHICH THE PAYMENT IS BEING REQUESTED HAVE BEEN
COMPLETED IN ACCORDANCE WITH THE TENANT'S FINAL PLANS, TO THE EXTENT OF
THE COSTS THAT ARE THE SUBJECT OF SUCH DRAW REQUEST AND (iii) LIEN
WAIVERS IN FORM AND SUBSTANCE SATISFACTORY TO LANDLORD FROM THE
TENANT'S CONTRACTOR (AND ANY SUBCONTRACTORS PERFORMING WORK WHICH IS
THE SUBJECT OF SUCH DRAW REQUEST), WAIVING ANY APPLICABLE MECHANIC'S
LIENS RELATING TO SUCH WORK. UPON LANDLORD'S RECEIPT AND APPROVAL OF A
DRAW REQUEST, LANDLORD SHALL PAY TO TENANT THE PORTION OF THE ALLOWANCE
REQUESTED WITHIN THIRTY (30) BUSINESS DAYS OF LANDLORD'S APPROVAL OF
THE DRAW REQUEST, UNLESS LANDLORD NOTIFIES TENANT IN WRITING OF
LANDLORD'S REJECTION (AND THE REASONS THEREFOR) OF SUCH DRAW REQUEST.
NOTWITHSTANDING THE FOREGOING, LANDLORD MAY NOT REJECT ANY DRAW REQUEST
UNLESS TENANT HAS FAILED TO PROVIDE THE ITEMS REQUIRED TO ACCOMPANY THE
DRAW REQUEST AS PROVIDED IN THIS SECTION 5(b), OR UNLESS LANDLORD
REASONABLY DETERMINES THAT THE PORTION OF THE TENANT'S WORK WHICH IS
THE SUBJECT OF THE DRAW REQUEST HAS NOT BEEN COMPLETED IN A GOOD AND
WORKMANLIKE MANNER IN ACCORDANCE WITH TENANT'S FINAL PLANS AND ALL
APPLICABLE LAWS. TO THE EXTENT LANDLORD DOES NOT SO REJECT ANY PORTION
OF SAID DRAW REQUEST, LANDLORD SHALL TIMELY PAY SUCH ACCEPTABLE PORTION
OF THE DRAW REQUEST.

0.84.0.5.3. EXCESS COSTS. IF THE ACTUAL COST OF PERFORMANCE OF
THE TENANT'S WORK EXCEEDS THE ALLOWANCE, THEN TENANT SHALL PAY ALL SUCH
EXCESS COSTS ("EXCESS COSTS") IN A TIMELY MANNER AND LANDLORD SHALL
HAVE NO RESPONSIBILITY THEREFOR.

0.84.0.5.4. EXCESS ALLOWANCE. IF THE AMOUNT OF THE ALLOWANCE
EXCEEDS THE ACTUAL COST OF PERFORMANCE OF THE TENANT'S WORK, TENANT MAY
USE ANY EXCESS PORTION OF THE ALLOWANCE FOR SUCH OTHER EXPENSES
RELATING TO THIS LEASE AS TENANT DEEMS APPROPRIATE, INCLUDING, WITHOUT
LIMITATION, MOVING EXPENSES, ARCHITECTURAL EXPENSES AND OTHER TENANT
EXPENSES RELATING TO TENANT'S MOVE INTO THE PREMISES OR TENANT'S
OCCUPANCY OF THE PREMISES.

0.84.0.5.5. ADDITIONAL DRAW REQUESTS. NOTWITHSTANDING ANYTHING
TO THE CONTRARY SET FORTH HEREIN, ONCE TENANT HAS EXHAUSTED THE
ALLOWANCE, TENANT SHALL STILL NEVERTHELESS CONTINUE TO DELIVER TO
LANDLORD NOT LATER THAN THE FIFTH (5TH) DAY OF EACH MONTH ALL OF THE
INFORMATION REQUIRED TO BE DELIVERED WITH THE DRAW REQUEST SET FORTH IN
SECTION 5(b) ABOVE.

Exhibit "D", Tenant Improvements Agreement - Page 2
<PAGE> 45

0.84.0.6. Mechanic's Liens. Tenant will not permit any mechanic's
liens, materialmen's liens or other liens to be placed upon the
Premises for any work performed by or at the request of Tenant, or any
assignee, sublessee or licensee of Tenant, and nothing in this
Agreement shall be deemed or construed in any way as constituting the
consent or request of Landlord, express or implied, by inference or
otherwise, to any person for the performance of any labor or the
furnishing of any materials to the Premises, or any part thereof, nor
as giving Tenant any right, power, or authority to contract for or
permit the rendering of any services or the furnishing of any materials
that would give rise to any mechanic's or other liens against the
Premises. In the event any such lien is attached to the Premises and
not discharged by payment, bonding or otherwise within ten (10)
business days after receipt of written notice from Landlord, then, in
addition to any other right or remedy of Landlord at law or in equity,
Landlord may, but shall not be obligated to, discharge the same. Any
amount paid by Landlord for the aforesaid purpose shall be paid by
Tenant to Landlord on demand and shall bear interest at the Default
Rate provided for in the Lease from the date paid by Landlord until
reimbursed by Tenant.

0.84.0.7. Exculpation and Indemnity. Landlord shall not be liable for
any injury, loss or damage to any of Tenant's installations or
decorations made prior to the Commencement Date and not installed by
Landlord, except to the extent caused by Landlord. Tenant shall
indemnify, defend (with counsel reasonably satisfactory to Landlord and
Tenant) and hold harmless Landlord from and against any and all suits,
claims, actions, loss, cost, damage or expense (including claims for
worker's compensation, attorneys' fees and costs) based on personal
injury or property damage caused in, or contract claims (including,
without limitation, claims for breach of warranty) arising from the
performance of Tenant's Work, except to the extent caused by Landlord.
Tenant shall repair or replace (or, at Landlord's election, reimburse
Landlord for the actual cost of repairing or replacing) any portion of
the Building or item of Landlord's equipment or any of Landlord's real
or personal property damage, lost or destroyed during the construction
of the Tenant Improvements, except to the extent caused by Landlord.
Landlord is not responsible for the function and maintenance of the
Tenant Improvements, except to the extent caused by Landlord. All work,
materials, installations, equipment and decorations of any nature
whatsoever brought on or installed in the Premises pursuant to the
provisions of this Agreement before the commencement of the Term or
throughout the Term shall be at Tenant's risk, and neither Landlord nor
any Landlord Related Party shall be responsible for any damage thereto
or loss or destruction thereof due to any reason or cause whatsoever,
excluding by reason of Landlord or such Landlord Related Party's
negligence or willful misconduct.

0.84.0.8. Tenant's Contractor. Tenant's Contractor and any
subcontractors thereof shall be duly licensed (to the extent required
by applicable law) in the state in which the Premises are located.
Tenant's agreement with Tenant's Contractor shall (i) require such
Tenant's Contractor to provide daily cleanup of the construction area
to the extent such cleanup is necessitated by the construction of the
Tenant's Work and (ii) provide that both Landlord and Tenant shall have
the right to approve the identity of any sub-contractors. Tenant shall
require that Tenant's Contractor carry a comprehensive liability
(including builder's risk) insurance policy in such amounts as Landlord
may reasonably require and provide proof of such insurance to Landlord
prior to commencement of Tenant's Work. Nothing contained herein shall
make or constitute Tenant as the agent of Landlord. Landlord's
representative shall have the right to require periodic meetings with
Tenant's representative and Tenant's Contractor to discuss the status
of the Tenant's Work.

0.84.0.9. Construction Representatives. Landlord's and Tenant's
representatives for coordination of construction and approval of
matters set forth herein will be as follows, provided that either party
may change his representative upon written notice to the other:

Landlord's Representative:

Name: Mr. W. Daniel Jansen
Address: 5430 LBJ Freeway
Suite 1245
Dallas, Texas 75240
Phone: (972) 490-5600
Fax: (972) 490-5599

Tenant's Representative:

Name: Tommy M. Parrett and/or Dennis Sewell

Address: The Staubach Company
6750 LBJ Freeway, Suite 1100
Dallas, Texas 75240
Phone: (972) 385-0500
Fax: (972) 385-8132

Exhibit "D", Tenant Improvements Agreement - Page 3
<PAGE> 46

0.84.0.10. Change Orders. All changes and modifications in the
Tenant's Work from that contemplated in the Tenant's Final Plans,
whether or not such change or modification gives rise to an increase or
decrease in cost, must be evidenced by written change order (the
"Change Order") approved by Landlord (which approval shall not be
unreasonably withheld or delayed).

0.84.0.11. Management. Tenant shall not have any obligation to
pay Landlord for Landlord's costs resulting from Landlord's review of
Tenant's Final Plans. In the event Tenant elects to hire a third-party
construction manager, such third-party construction manager shall be
subject to Landlord's prior written approval, which approval shall not
be unreasonably withheld.

0.84.0.12. Indemnity. Tenant shall indemnify and hold harmless
Landlord from and against any and all suits, claims, actions, loss,
costs, damages or expense (including damage to persons or property),
arising from any act or negligence of Tenant or of any of Tenant's
contractors or their subcontractors, or the officers, agents or the
employees of Tenant while engaged in the performance of any work or
other activities on the Premises, or arising from liens or claims for
services rendered or labor or materials furnished in or for the
performance of any work by Tenant, its agents, employees, contractors
or subcontractors on the Premises, or arising from accident or injury
related thereto and not caused by negligent acts of Landlord, its
agents or anyone employed by Landlord.

0.84.0.13. Costs and Expenses. If in the enforcement of any
part of this Agreement Landlord shall incur expenses or be obligated to
pay attorney's fees or court costs, Tenant agrees to reimburse Landlord
for such expenses, reasonable attorney's fees or court costs. If in the
enforcement of any part of this Agreement Tenant shall incur expenses
or be obligated to pay attorney's fees or court costs, Landlord agrees
to reimburse Tenant for such expenses, reasonable attorney's fees or
court costs.

0.84.0.14. Base Building Plans. Landlord shall furnish to
Tenant, at Landlord's sole cost and expense, a copy of the Base
Building Plans, including electronic media (if available).

0.84.0.15. Temporary Power. Landlord shall furnish to Tenant,
at Landlord's sole cost and expense, temporary electrical power and
free access to service elevators at all times during Tenant's
construction of the Tenant Improvements (including during business
hours, after-hours and on weekends).

0.84.0.16. NOTICE OF INDEMNITIES. THIS AGREEMENT CONTAINS
VARIOUS INDEMNIFICATION PROVISIONS, INCLUDING, WITHOUT LIMITATION,
PARAGRAPHS 7 AND 12 HEREOF.

Exhibit "D", Tenant Improvements Agreement - Page 4
<PAGE> 47

EXHIBIT "E"

PARKING AGREEMENT

This Parking Agreement (herein so called) describes and specifies the
rights and obligations of Landlord and Tenant under the Lease to which this
Exhibit "E" is attached, with the respect to parking by Tenant in the Parking
Garage.

GGGG. Definitions. Any capitalized terms not defined in this Parking
Agreement shall have the meaning set forth in the Lease.

HHHH. Grant and Rental Fee. Provided no Event of Default has occurred
and is continuing under the Lease and subject to Landlord's recapture right set
forth below, Tenant shall have (i) a non-exclusive right to use 221 unreserved
parking spaces located within the Office Portion of the Parking Garage, during
the Lease Term at a monthly rate of $30.00 per Space and (ii) an exclusive right
to use 25 reserved parking spaces located within the Office Portion of the
Parking Garage (of which at least seven [7] shall be on the first ramp up from
the first level of the Parking Garage in the locations identified on Annex 1 to
this Exhibit "E") during the Lease Term at a monthly rate of $80.00 per Space
(all of such unreserved and reserved parking spaces being collectively referred
to herein as the "Spaces"), plus any applicable tax thereon, subject to such
terms, conditions, and regulations as are, from time to time, promulgated by
Landlord, including the rules and regulations set forth in Section 5 to this
Parking Agreement. Tenant shall pay all sums due under the preceding sentence
("Parking Charges") to Landlord in advance in monthly installments on the first
day of each calendar month during the Lease Term, and such Parking Charges shall
be deemed to be Rent for all purposes under the Lease.

Of the total 246 Spaces for the Premises, 123 Spaces are allocable to
the Initial Premises (the "Initial Premises Spaces"), 62 Spaces are allocable to
the Second Phase (the "Second Phase Spaces") and 61 Spaces are allocable to the
Final Phase (the "Final Phase Spaces"). Tenant may freely utilize as many of the
Spaces as are needed at any time prior to Tenant's occupancy of the entire
Premises, provided Tenant pays the Parking Charges for all Spaces so used.
Notwithstanding the foregoing, upon the commencement of the Initial Stage,
Tenant shall pay Parking Charges on the greater of (A) the number of Spaces
actually being used by Tenant pursuant to this Section 2 and (B) all of the
Initial Premises Spaces (which shall include all 25 reserved Spaces).

Upon the commencement of the Second Stage, Tenant additionally shall be
required to pay Parking Charges to Landlord on 50 of the Second Phase Spaces
(the "Required Second Phase Spaces"). Not less than four months after the
commencement of the Second Stage, Tenant shall deliver written notice to
Landlord informing Landlord of the total number of Second Phase Spaces which
Tenant desires to utilize with respect to the remainder of the Lease Term;
provided, however, Tenant may not elect to utilize less than the Required Second
Phase Spaces. In the event Tenant timely notifies Landlord that Tenant elects to
utilize less than all of the allocated Second Phase Spaces for the remainder of
the Lease Term, Landlord shall have the right to recapture the remaining Second
Phase Spaces and Tenant's rights and obligations with respect to such recaptured
Second Phase Spaces shall terminate for the remainder of the Lease Term.

Upon the commencement of the Final Stage, Tenant additionally shall be
required to pay Parking Charges to Landlord on 50 of the Final Phase Spaces (the
"Required Final Phase Spaces"). Not less than four months after the commencement
of the Final Stage, Tenant shall deliver written notice to Landlord informing
Landlord of the total number of Final Phase Spaces which Tenant desires to
utilize with respect to the remainder of the Lease Term; provided, however,
Tenant may not elect to utilize less than the Required Final Phase Spaces. In
the event Tenant timely notifies Landlord that Tenant elects to utilize less
than all of the allocated Final Phase Spaces for the remainder of the Lease
Term, Landlord shall have the right to recapture the remaining Final Phase
Spaces and Tenant's rights and obligations with respect to such recaptured Final
Phase Spaces shall terminate for the remainder of the Lease Term.

Upon Landlord's recapture of any of the Second Phase Spaces or the
Final Phase Spaces pursuant to this Section 2, Landlord shall have the right to
allocate such recaptured Spaces to other tenants of the Building.

IIII. Unavailability of Spaces. In the event that all or a portion of
the Spaces become unavailable to Tenant due to casualty damage, flooding,
condemnation or repairs, Landlord shall use best efforts to provide Tenant with
reasonably satisfactory alternative parking arrangements until the use of such
Spaces is restored. Notwithstanding anything contained herein to the contrary,
Tenant shall have no right to terminate this Lease by reason of such loss of
available parking, but Tenant shall be entitled to abate payment of the Parking
Charges relating to any such Spaces until such time as the use of such Spaces
(or reasonable satisfactory alternative spaces) is restored.

Exhibit "E", Parking Agreement - Page 1
<PAGE> 48

JJJJ. Limitations of Liability. All motor vehicles shall be parked in
the Spaces at the sole risk of Tenant, its employees, agents, invitees and
licensees, it being expressly agreed and understood that Landlord has no duty to
insure any of said motor vehicles (including the contents thereof), and that
Landlord is not responsible for the protection and security of such vehicles (or
the contents thereof). LANDLORD SHALL HAVE NO LIABILITY WHATSOEVER FOR ANY
PROPERTY DAMAGE AND/OR PERSONAL INJURY WHICH MIGHT OCCUR IN THE PARKING AREAS OR
AS A RESULT OF OR IN CONNECTION WITH THE PARKING OF MOTOR VEHICLES IN ANY OF THE
SPACES. TENANT HEREBY AGREES TO DEFEND, INDEMNIFY AND HOLD LANDLORD HARMLESS
FROM AND AGAINST ANY AND ALL COSTS, CLAIMS, EXPENSES, DAMAGES AND/OR CAUSES OF
ACTION WHICH LANDLORD MAY INCUR IN CONNECTION WITH OR ARISING OUT OF THE USE OF
THE SPACES BY TENANT OR ITS EMPLOYEES, AGENTS, SUBTENANTS, LICENSEES AND
VISITORS.

KKKK. Rules and Regulations. Tenant and its employees, agents,
subtenants, licensees and visitors shall follow the following rules and
regulations for the Parking Areas, as the same may be amended or supplemented
from time to time in accordance with the terms of Exhibit "C":

(1) CARS MUST BE PARKED ENTIRELY WITHIN THE STALL LINES
PAINTED ON THE GROUND OR ON THE FLOOR;

(2) ALL DIRECTIONAL SIGNS AND ARROWS MUST BE OBSERVED;

(3) THE SPEED LIMIT SHALL BE FIVE (5) MILES PER HOUR;

(4) PARKING IS PROHIBITED IN AREAS NOT STRIPED FOR PARKING,
AISLES, AREAS WHERE "NO PARKING" SIGNS ARE POSTED, IN CROSS-HATCHED
AREAS AND IN SUCH OTHER AREAS AS MAY BE DESIGNATED BY LANDLORD OR
LANDLORD'S AGENT(S), INCLUDING, BUT NOT LIMITED TO, AREAS DESIGNATED AS
"VISITOR PARKING" OR RESERVED SPACES NOT RENTED UNDER THIS PARKING
AGREEMENT;

(5) EVERY VEHICLE OWNER IS REQUIRED TO PARK AND LOCK HIS OWN
CAR;

(6) SPACES WHICH ARE DESIGNATED FOR SMALL, INTERMEDIATE OR
FULL-SIZED CARS SHALL BE SO USED; NO INTERMEDIATE OR FULL-SIZE CARS
SHALL BE PARKED IN PARKING SPACES LIMITED TO COMPACT CARS; AND

(7) NO VEHICLE MAY BE STORED IN THE PARKING AREAS (ANY VEHICLE
REMAINING IN THE PARKING AREAS WITHOUT INTERRUPTION FOR FIVE [5]
BUSINESS DAYS IS DEEMED TO HAVE BEEN STORED IN THE PARKING AREAS).

(8) NO PARKING BY TENANT AND ITS EMPLOYEES, AGENTS,
SUBTENANTS, LICENSEES, AND VISITORS SHALL BE PERMITTED IN ANY PORTION
OF THE PARKING GARAGE WHICH IS NOT A PART OF THE OFFICE PORTION OF THE
PARKING GARAGE.

LLLL. Default. Upon the occurrence of an Event of Default by Tenant
under the Lease, Landlord shall be entitled to terminate Tenant's right to
utilize the Spaces in accordance with the exercise of Landlord's right to
terminate the Lease or Tenant's right to possession of the Premises under
Section 27 of this Lease.

MMMM. Limitation of Access. Landlord shall be entitled to utilize
whatever access device Landlord deems necessary (including, but not limited to,
the issuance of parking stickers or access cards), to assure that only
authorized persons will use the Parking Areas.

NNNN. Parking. The Parking Areas are provided for the non-exclusive and
common use of Landlord, all tenants of the Building, and their respective
employees, agents, subtenants, licensees, visitors, guests and invitees. In
addition, certain portions of the Parking Garage are dedicated to the use of the
retail and residential portions of the Addison Circle development. Utilization
of the unreserved portions of the Parking Areas is therefore subject to
availability (and Landlord shall have no obligation to provide a specific number
of surface parking spaces to Tenant). Tenant and Tenant's employees, customers
and invitees shall have no right to park in those portions of the Parking Garage
which are not a part of the Office Portion of the Parking Garage. In the event
any person shall wrongfully park in any of the Parking Areas or any portion of
the Parking Garage which is not a part of the Office Portion of the Parking
Garage, or in the event any personnel shall violate the rules and regulations
set forth in Section 5 of this Parking Agreement, Landlord shall be entitled and
is hereby authorized to place a wheel lock or

Exhibit "E", Parking Agreement - Page 2
<PAGE> 49

other device restricting mobility upon such vehicle or have any such vehicle
towed away, at the sole risk and expense of the vehicle owner.

Exhibit "E", Parking Agreement - Page 3

<PAGE> 50

ANNEX 1 (TO EXHIBIT "E")

LOCATION OF RESERVED PARKING SPACES

[A parking plan showing the location of the seven (7) reserved parking spaces on
the first ramp up from the first level of the Parking Garage is attached to this
cover page.]

Annex 1 (to Exhibit "E"), Location of Reserved Parking Spaces - Cover Page
<PAGE> 51

EXHIBIT "F"

FORM OF CONFIDENTIALITY AGREEMENT

THIS CONFIDENTIALITY AGREEMENT (this "Agreement"), dated as of
____________, is entered into by________________________________________________
______________________________________________________________________, a
____________________ ("Tenant"), and ___________________________________
("Auditor"), for the benefit of SIERRA OFFICE VENTURE ONE, LTD., a Texas limited
partnership ("Landlord").

W I T N E S S E T H T H A T:

WHEREAS, in connection with that certain Lease (the "Lease") dated
_________________, between Landlord and Tenant, Tenant has the right to hire an
independent accounting firm to audit Landlord's books and records pertaining to
Basic Operating Costs (as defined in the Lease); and

WHEREAS, it is expected that in connection with such audit, Tenant and
Auditor will receive or have access to Confidential Information (defined below);
and

WHEREAS, as a condition of Tenant's audit right, Landlord requires that
Tenant and Auditor keep confidential the Confidential Information.

NOW, THEREFORE, in consideration of and as a condition of Tenant's
audit right and in consideration of payment by Tenant for Auditor's services for
performing the audit, and for other good and valuable consideration, the
receipt, sufficiency and adequacy of which are hereby acknowledged, Auditor and
Tenant agree as follows, for the benefit of Landlord:

OOOO. Auditor and Tenant acknowledge that the information which Auditor
and Tenant may receive in connection with such audit is non-public, confidential
and/or proprietary information relating to Landlord, its business operations and
the Complex, and that Landlord would be irreparably damaged if such information
were disclosed to or utilized on behalf of any other person (including Auditor
and Tenant), firm, corporation or any other tenant of the Complex for any reason
other than Tenant's audit of Landlord. Auditor and Tenant agree that any
information given to Auditor or Tenant by Landlord during the course of such
audit is, and shall remain, property owned by Landlord, and neither Auditor nor
Tenant shall have any right in or to such information, other than to use the
information for the purposes set forth in the Lease.

PPPP. Auditor and Tenant agree to keep confidential, and agree to cause
their employees, associates, agents and advisors to keep confidential, any
information belonging to Landlord and any information not generally known to the
public about the business and affairs of Landlord, including, without
limitation, (a) all books, manuals, records, memoranda, projections, business
plans, tenant lists, cost information, contractual relationships, and (b) other
information, whether computerized, written or oral, relating specifically or
generally to Basic Operating Costs, the Complex and the business operations of
Landlord (the "Confidential Information").

QQQQ. Auditor and Tenant each hereby represent and warrant that its
internal policies, procedures and practices are adequate to safeguard against
any breach of this Agreement by it or its employees, associates, agents and
advisors, and Auditor and Tenant each agree to maintain such internal policies,
procedures and practices as are necessary to adequately safeguard against a
breach of this Agreement.

RRRR. The phrase "to keep confidential," as used herein, means that the
information or document, including the content, substance or effect of such
information or document, (a) shall not be disclosed or distributed by Auditor or
Tenant to any other person, firm, organization or entity, including to any
associate, agent, advisor or affiliate of Auditor or Tenant not directly
involved in the audit, or to any other tenant of the Complex, (b) shall not be
utilized by either Auditor or Tenant for any purpose other than as described in
the Lease.

SSSS. Notwithstanding anything to the contrary set forth herein, in the
event that Auditor or Tenant is required to do so in legal, arbitration,
governmental or regulatory proceedings, Auditor or Tenant may disclose only that
portion of the Confidential Information which its counsel advises in writing
that it is legally compelled to disclose and will exercise its best efforts to
obtain assurances that confidential treatment will be accorded such Confidential
Information even after such disclosure.

TTTT. Auditor and Tenant acknowledge that the subject matter of this
Agreement is unique and that no adequate remedy at law would be available for
breach of the obligations specified herein.

Exhibit "F", Form of Confidentiality Agreement - Page 1
<PAGE> 52

Accordingly, in the event of a breach or threatened breach by Auditor or Tenant
of the provisions of this Agreement, Landlord shall, in addition to any other
rights and remedies available to it, at law or in equity, be entitled to
injunctive relief by a court or agency of competent jurisdiction enjoining and
restraining the violating party from committing or continuing any violation of
this Agreement.

UUUU. Any waiver by Landlord of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or of any other provision hereof.

VVVV. In case any one or more of the provisions or parts of a provision
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement; and this Agreement shall, to the fullest extent possible, be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of a provision, had never been contained herein, and such provision or
part shall be reformed so that it would be valid, legal and enforceable to the
maximum extent possible.

WWWW. This Agreement shall be binding upon Tenant, Auditor and their
successors and assigns for the benefit of Landlord, and shall be fully
enforceable by Landlord against Tenant, Auditor and their successors and
assigns.

XXXX. This Agreement may be amended or modified in whole or in part,
only by an instrument in writing signed by Landlord, Tenant and Auditor.

YYYY. This Agreement shall be construed in accordance with and governed
for all purposes by the laws of the State of Texas, without regard to conflicts
of law principles. Venue for any action arising herefrom shall be in Dallas
County, Texas, and the parties hereto submit themselves to the jurisdiction of
the state and federal courts of Dallas County, Texas.

IN WITNESS WHEREOF, Tenant and Auditor have duly executed this
Agreement as of the date first above written.

TENANT:

,
a

By:
Name:
Title:
Date:

AUDITOR:

,
a

By:
Name:
Title:
Date:

Exhibit "F", Form of Confidentiality Agreement - Page 2
<PAGE> 53

EXHIBIT "G"

RIGHTS OF REFUSAL

If, during the initial Lease Term, Landlord shall receive an offer or
offers which Landlord is willing to accept (individually or collectively, an
"Offer") to lease vacant space within the following areas, to-wit: (i)
approximately 15,393 square feet of Rentable Area on the 8th floor of the
Building (the "First Right Space"), (ii) an additional approximately 15,393
square feet of Rentable Area on the 8th floor of the Building (the "Second Right
Space"), and (iii) approximately 10,000 square feet of Rentable Area on the 5th
floor of the Building (the "5th Floor Space") (the First Right Space, the Second
Right Space and the 5th Floor Space being hereinafter referred to collectively
as the "Refusal Space") and provided that the Lease is in full force and effect
and there is no uncured Event of Default under the Lease, Tenant shall have a
continual right (the "Refusal Right") to lease all (but not part) of the portion
of the Refusal Space that is the subject of the Offer (the "Subject Space") upon
substantially the same terms and conditions contained in the Offer. If, within
five (5) business days after Tenant receives written notice of the Offer
(including a statement of the material terms and conditions thereof), Tenant
does not notify Landlord in writing that Tenant elects to lease the Subject
Space, then Landlord may enter into a lease with the prospective tenant or
tenants who made the Offer on substantially the same terms and conditions
contained therein and, in the event Landlord enters into such a lease with such
prospective Tenant, Tenant's rights under this Exhibit "G" shall terminate and
be of no further force or effect. In addition, if the Subject Space is less than
all of the Refusal Space, Tenant's failure to exercise the Refusal Right with
respect to the Subject Space shall not prejudice its Refusal Right with respect
to the remainder of the Refusal Space. Except as provided in the preceding two
sentences, the failure of Tenant to exercise the Refusal Right within the time
period set forth herein shall constitute a waiver and termination of the Refusal
Right with respect to that portion of the Refusal Space which was the subject of
the Offer. If Tenant timely notifies Landlord of its intention to lease the
Subject Space, Landlord and Tenant shall promptly enter into an amendment to
this Lease adding the Subject Space to the Premises and otherwise incorporating
the terms and conditions of the Offer. This Refusal Right is personal to Tenant
and is not assignable to any third parties, including, but not limited to, any
assignee or sublessee of Tenant. Notwithstanding anything to the contrary set
forth herein, Tenant hereby acknowledges that the Refusal Right with respect to
the First Right Space shall be a right of first refusal and shall not be
subordinate to the rights of any other tenants of the Building, but the Refusal
Right with respect to the Second Right Space and with respect to the 5th Floor
Space shall be subordinate to any other existing or future rights granted by
Landlord to other tenants of the Building with respect to the Second Right Space
and the Fifth Floor Space, respectively (it being acknowledged that Landlord has
previously granted a right of first refusal with respect to the Fifth Floor
Space to The Staubach Company).

Any capitalized terms not defined in this Exhibit "G" shall have the
meaning set forth in the Lease to which this Exhibit "G" is attached.

Exhibit "G", Rights of Refusal - Solo Page
<PAGE> 54

EXHIBIT "H"

RENEWAL OPTION

Provided that, at the time of Tenant's exercise of an Option
(hereinafter defined) and upon the commencement of each Renewal Term
(hereinafter defined), this Lease is in full force and effect, and there is no
uncured Event of Default under this Lease, Tenant shall have the option (an
"Option") to renew this Lease as follows:

Tenant may, by notifying Landlord of its election in writing ("Tenant's
First Renewal Notice") not less than two hundred seventy (270) days prior to the
end of the Lease Term, renew the Lease for five (5) additional years (the "First
Renewal Term"). Further, Tenant may, by notifying Landlord of its election in
writing ("Tenant's Second Renewal Notice") not less than two hundred seventy
(270) days prior to the end of the First Renewal Term, renew this Lease for five
(5) more additional years (the "Second Renewal Term"). Hereinafter, Tenant's
First Renewal Notice and Tenant's Second Renewal Notice may be cumulatively
referred to as "Tenant's Renewal Notice." Hereinafter, the First Renewal Term
and the Second Renewal Term may be cumulatively referred to individually as the
"Renewal Term" and collectively, the "Renewal Terms." Each Renewal Term shall
commence on the date next following the expiration date of the Lease Term or the
current Renewal Term and shall continue for sixty (60) months thereafter. Such
renewal shall include the Premises, as well as any other space within the
Building then being leased by Tenant as of the date of exercise of the Option.
The renewal of this Lease will be upon the same terms, covenants and conditions
applicable during the Lease Term, as provided in the Lease, except that:

0.103.0.0.1. THE BASE RENTAL PAYABLE DURING THE APPLICABLE
RENEWAL TERM SHALL BE AN AMOUNT EQUAL TO THE MARKET RENTAL RATE (AS
DEFINED BELOW) AS OF THE DATE ON WHICH SUCH RENEWAL TERM COMMENCES;

0.103.0.0.2. THE TERM "LEASE TERM" SHALL BE DEEMED TO INCLUDE
THE APPLICABLE RENEWAL TERM;

0.103.0.0.3. NO CONCESSIONS APPLICABLE DURING THE INITIAL
LEASE TERM (SUCH AS CONSTRUCTION ALLOWANCES, MOVING ALLOWANCES OR FREE
RENT) SHALL BE APPLICABLE DURING ANY RENEWAL TERM; AND

0.103.0.0.4. TENANT SHALL POSSESS NO FURTHER RENEWAL OPTIONS
AFTER THE EXPIRATION OF THE SECOND RENEWAL TERM. IN ADDITION, IF TENANT
FAILS TO EXERCISE THE OPTION FOR THE FIRST RENEWAL TERM, THE OPTION FOR
THE FIRST RENEWAL TERM AND THE SECOND RENEWAL TERM SHALL IMMEDIATELY
TERMINATE.

As used herein, the phrase "Market Rental Rate" shall mean the rate of
base rental being charged for similar transactions for comparable space
(including factors such as size, age, location and condition of the premises and
the improvements in place therein) within buildings (including, but not limited
to, the Building) within the Market Area during the previous six (6) months with
tenants of a size and having a financial condition comparable to that of Tenant.

Within thirty (30) days after receipt of Tenant's Renewal Notice (and
any required supporting information), Landlord shall notify Tenant in writing of
the Market Rental Rate. Landlord and Tenant will in good faith attempt to
determine the Market Rental Rate to be used to calculate the Base Rental. In the
event that the parties cannot agree on the Market Rental Rate, Landlord and
Tenant shall agree, such agreement not to be unreasonably withheld or delayed,
on an M.A.I. appraiser, who will determine the Market Rental Rate to be used to
calculate the Base Rental, which determination will be binding upon the parties.
Each party will pay one-half (1/2) of the cost of the appraisal. Within fifteen
(15) days thereafter, Tenant shall notify Landlord that Tenant either (a)
accepts Landlord's renewal terms, in which event the parties shall promptly
enter into an amendment to the Lease incorporating such terms, or (b) reject
Landlord's renewal terms, in which event the Lease shall end at the expiration
of the initial Lease Term and Landlord shall have no further obligations or
liability hereunder. The failure of Tenant to respond within such fifteen (15)
day period shall be deemed rejection of Landlord's terms.

The failure of Tenant to exercise the Renewal Option within the time
period set forth herein shall constitute a waiver and termination of such
Renewal Option. This Renewal Option is personal to Tenant and is not assignable
to any third parties, including, but not limited to, any assignee or sublessee
of Tenant.

Exhibit "H", Renewal Option - Page 1
<PAGE> 55

Any capitalized terms not defined in this Exhibit "H" shall have the
meaning set forth in the Lease to which this Exhibit "H" is attached.

Exhibit "H", Renewal Option - Page 2
<PAGE> 56

EXHIBIT "I"

DESCRIPTION OF BASE BUILDING PLANS

[Description of Base Building Plans follows this cover page.]

Exhibit "I", Description of Base Building Plans - Cover Page
<PAGE> 57

EXHIBIT "J"

DESIGN CRITERIA

[Design Criteria follows this cover page.]

Exhibit "J", Design Criteria - Cover Page
<PAGE> 58

EXHIBIT "K"

Exhibit "K", Permitted Encumbrances - Solo Page
<PAGE> 59

PERMITTED ENCUMBRANCES

Exhibit "K", Permitted Encumbrances - Solo Page

<PAGE> 1
EXHIBIT 23.1

The Board of Directors
CapRock Communications Corp.
(Formerly IWL Holdings, Inc.):

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.

KPMG LLP

Dallas, Texas
March 19, 1999

<PAGE> 1
EXHIBIT 23.2

The Board of Directors
CapRock Communications Corp.

We consent to the use of our reports related to CapRock Telecommunications
Corp. and CapRock Fiber Network, Ltd. included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.

Burds, Reed and Mercer, P.C.

Dallas, Texas
March 19, 1999

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND FOR THE YEAR ENDED
DECEMBER 31, 1996 AND 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1998
<PERIOD-START> JAN-01-1996 JAN-01-1998
<PERIOD-END> DEC-31-1996 DEC-31-1998
<CASH> 0 294
<SECURITIES> 0 97,020
<RECEIVABLES> 0 20,646
<ALLOWANCES> 0 710
<INVENTORY> 0 1,302
<CURRENT-ASSETS> 0 129,891
<PP&E> 0 71,968
<DEPRECIATION> 0 12,361
<TOTAL-ASSETS> 0 191,966
<CURRENT-LIABILITIES> 0 27,402
<BONDS> 0 145,187
0 0
0 0
<COMMON> 0 289
<OTHER-SE> 0 15,773
<TOTAL-LIABILITY-AND-EQUITY> 0 191,966
<SALES> 10,554 0
<TOTAL-REVENUES> 50,970 121,774
<CGS> 9,672 0
<TOTAL-COSTS> 39,356 83,221
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 403 1,650
<INTEREST-EXPENSE> 631 9,459
<INCOME-PRETAX> 551 1,490
<INCOME-TAX> 227 1,266
<INCOME-CONTINUING> 324 223
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 324 223
<EPS-PRIMARY> .01 .01
<EPS-DILUTED> .01 .01

</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND FOR THE YEAR THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,520
<SECURITIES> 0
<RECEIVABLES> 16,925
<ALLOWANCES> 1,781
<INVENTORY> 1,023
<CURRENT-ASSETS> 21,441
<PP&E> 35,508
<DEPRECIATION> 8,167
<TOTAL-ASSETS> 49,389
<CURRENT-LIABILITIES> 21,746
<BONDS> 0
0
0
<COMMON> 287
<OTHER-SE> 13,799
<TOTAL-LIABILITY-AND-EQUITY> 49,389
<SALES> 2,946
<TOTAL-REVENUES> 75,349
<CGS> 2,347
<TOTAL-COSTS> 52,471
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,382
<INTEREST-EXPENSE> 1,735
<INCOME-PRETAX> 4,075
<INCOME-TAX> 1,513
<INCOME-CONTINUING> 2,562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,562
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09

</TABLE>